Central Europe and Hungary: Logistics System

Case Study Question 1 Central Europe and Hungary: Changes in logistics Systems ABSTRACT in an increasingly globalizing setting, many of the newly nationalised buffer states of the soviet Union, have been faced with the pressure to integrate themselves with exogenous market forces, from western Europe as well as other parts of the world. The ability for them to adapt lies in their ability to manage their fiscal policies, their societal views and market theories that form many of the xenophobic belifs that hindered initially their ability to accept foreign investment and the sale of their enterprise to foreigners.

Their logistics systems will only develop provided that globalization takes place within these Central European countries as according to Matsson 2003, the globalization involves changes in the distribution process of goods and services in local markets. Hungary, being relatively responsive to open markets and FDI has seen relatively faster reconstruction and development of its logistics system when compared to other eastern countries and its prospects of being a global logistics hub rests contingent on its continued international integration.

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TABLE OF CONTENTS cover page| I| Abstract – question 1| II| Content page| iii| Introduction| 1| The CULTURAL BARRIERS OF Globalization| 1| transport and infrastructure in the region| 2| Logistics Challenges: At company level| 3| conclusion| 4| cover page| 5| Abstract – question 2| 6| Introduction| 7| Warehouse investments| 7| warehouse operations| 8| conclusion| 10| refrencing| 11| INTRODUCTION Over the last few decades, the logistics systems in Central Europe and in Hungary have developed and evolved.

From being buffer states to the Soviet Union to being sovereign nations, these countries have undergone several political , social and economic reforms that have on the whole, encouraged more privatization within the domestic market, increased foreign direct investment and begun to form strategic alliances with the more industrially mature and developed Western European countries. These changes have had many implications for logistics in Eastern Europe.

This paper will discuss the political, social and economic changes that the central European countries and Hungary have made after the 1990s and the impact they have on their logistics systems, the challenges of the reorganization of distribution channels driven by globalization and also the future prospects of Eastern Europe as a global logistics hub. CHANGING PATTERNS OF TRADE Since the fall of the Berlin wall in 1989, former communist nations sought to revolutionize their social political systems but interms of logistics, they remained far behind Western European countries.

Countries like Poland, Czech republic and Hungary however, showed relatively faster reconstruction and reorganization in their logistics systems than countries further east. The transition from a centrally planned economy to a market economy involves mainly the privatisation of many state-controlled enterprises. In Central Europe and Hungary, most privatization opportunities came in the form of Foreign Direct Investment. As Western Countries developed and their wages increased, they saw the need to find low cost production solutions.

Before, for political and other reasons, Western trade with the east accounted for only 3. 5% of Western countries’ imports. Since then, the trend has been a growing shift from east-east trade to east –west trade. Hungary in particular, increased its’ exports to unified Germany by 76%, making it one of Hungary’s most important trading partners. As Eastern European Countries move their trade eastward, more demand for improvements in intermodal capabilities and channels of distribution become more urgent. (Joseph O’Reilly 2007) THE CULTURAL BARRIERS TO GLOBALIZATION

According to matsson,2003, it is cultural differences and culture that pose barriers to globalization of firms. In the case of Eastern Europe, the fear of foreign dominance in terms of foreign ownership, came through Foreign Direct Investment(FDI). Nationalism shaped transition policies across the eastern European region and the lack of trust were related to past experiences in history and was evident in their hostility towards German capital especially in Czech republic and in Poland. An opinion poll conducted in Poland in September 1992, revealed that approximately half of the Poles rejected the sale of enterprises to foreigners. Polityka, 1992) Government strategic actions tilted towards national accumulation rather than international integration through FDI. (Drahokoupil,2009) Such cultural barriers of xenophobia restricted FDI which in turn prevented international integration and Globalization . Since Supply Chain issues are intimately related to the General development trends, according to (Matsson 2003), the supply chain’s effectiveness during this time frame would be linked to the strategic actions of the main actors,( mainly governments ), which imply that Eastern European countries would face slow to flat growth in their logistics infrastructure.

Hungary’s desire to pursue externally oriented strategies stemmed from a need to find funds to manage their large external debt, thereby opening their doors to foreign investments . This privatization strategy allowed for an increased speed of reform as their internal distribution systems were forced to reform relatively quickly to meet the needs of intermodal requirements and standards of the west. TRANSPORT AND INFRASTRUCTURE IN THE REGION It was found that the new members from the eastern bloc had large road nfrastructures but were either poorly maintained or of poor quality to handle the volume of traffic that could sustain an increase in economic activity. The EU, since then, developed and achieved roads through initiatives like “Europe Aid”, that reach Russia which could handle high volumes of traffic. (European commission2012) Unlike roads, the Rail Transportation sector ,is highly monopolized by the local governments due to high costs in the construction and maintenance of Rail roads.

However, only 50% of the railway tracks are operative due to poor investment and maintenance (Datamonitor 2008). This has caused transporters of goods to choose roads over rails in. Maritime transport between EU member states involves many documentary checks and physical inspections by the customs, health, veterinary, plant health and immigration control reports. (European Commission, 2012) Maritime transport plays a major role in the transportation of bulk and dry cargo, but is not a preferred transport mode across the region.

Unlike land transport goods shipped by sea from Antwerp to Amsterdam are considered having left EU’s territory and thus not as well received as road transports. Further investment is needed to improve the transportations systems, but also new approaches to decision making processes and transportation organization and management is needed. LOGISTICS CHALLENGES:AT COMPANY LEVEL IN HUNGARY AND IN THE REGION When it comes to focusing on customer requirements, customer value, quality, service, barriers still exist for the company seeking to expand and coordinate purchases across markets.

This is because there still exists problems concerning, quality, responsiveness and productivity. (Persson, 1993). In the past, countries like Hungary ran industries that produced products at state-controlled prices and with outdated technology. These prices were seldom related to the actual cost or quality of the product. This imbalance between supply and demand created excess capacity which has led to now eastern and central European firms with the challenge of competiveness as they try to lower costs and improve their logistics systems.

Increased competition from FDI will force traditional industries to either exit or perform the necessary repairs and updates to their technology in production equipment and methods. Again, in Hungary especially, will require the need for more investment in infrastructure. There is potential for rapid development as there are a small number of Logistics Service providers (LSPs) in the Central European region especially in Hungary and Poland. Such service providers aim to globalize in order to fulfil the needs of their customers (Hertz,1993).

A third Party LSP,Penske, engaged in the automotive, pharmaceutical and chemical industries has had a foothold in Europe since 1991. Moving eastward to set up operations in countries like Hungary, it believed there were cost-saving opportunities to take advantage of in terms of cheap production costs. CONCLUSION Till recently, the major weaknesses of the Central European countries were their economic instability due to their former communist regimes and low quality of overall transport infrastructure. Europe indeed has major infrastructure hurdles to overcome.

But due to its central strategic geographic location, openness to FDI and improved fiscal policies, Hungary and the Central European region have potential to rapid improvements in their economies and logistics systems. Assignment 2: Case Study Question 2 Advising Janos ABSTRACT Janos Cendor’s new warehouse will need to consider its location and it advantages of being in Hungary to optimise cost efficiency. Since he would be handling two different types of inventories, it will be advisable to keep infrastructure flexible to accommodate changes.

This will also prevent stretching finances too far that would leave him venerable to economic downturn. INTRODUCTION The Austrian-Hungarian border region is playing a bridging role between Western and Eastern areas of Europe and is also located along the connection route between the Baltic and the Adriatic space. Four vital European transport corridors pass through Hungary, providing unparalleled access to all parts of Europe, including major European ports (ITD, Hungary 2011). The border region is at the cross-road between these two corridors: the traditional West-East Trans-European route and the reviving historic “North-South Amber” route.

This excellent geographic position has resulted in a faster economic growth of this region than the European average over the past 10 years. Major customers are also investing and building regional logistic centres in Hungary such as DAF-PACCAR Parts Renault – Nissan, General Motors, National Instruments, Porsche Parts, GE, Sanofi-Aventis, Pfizer, Philips and Panasonic (ITD, Hungary 2011). This proves that Janos has chosen is an ideal country for a successful warehouse. WAREHOUSE INVESTMENTS Closs. D. J, (2010) Assets

Currently EU and USA are not performing well economically. In the east manufacturing powerhouses like china and japan are showing signs of slowing down. Globally there is an expectation of slump in economy for the next few years. Thus I would advice keeping fixed asset purchases minimal. It is cheaper to lease on the short term than owning the equipment. Since this is a new warehouse and there are uncertainties about the business it will bring in together with the questionable global economy in the coming years, it is really important not to over expose yourself financially.

If a recession was to hit or business did not pick up as fast as expected, leased equipment can be let go without financial loss. Whereas equipment that is bought in full will continue to need servicing, repayment of loans, interests repayments and if the need be sold off. Staff Unlike lease of equipment, it’s always good to maintain at least a small amount of permanent staff for critical functions such as leadership roles and executive roles in the warehouse. Staffers that do not need special training or perform seasonal jobs should be on contract basis.

A lack of permanent staff will cause loss of effency due to lack of supervision and quality control. Contract staff will not be familiar with the warehouse or operations and thus may cause down times needing training and mistake rectification. Warehouse Operations Closs. D. J, (2010) Handling Closs. D. J, (2010) states that larger movements compared to a few series of small movements is preferred since, when there are stops in motion for transferring on to other equipment or for directional changes, there is loss of time and increased chance of accidents.

In terms of scale of economy, it’s better to transport goods in large quantities either in packed pallet form or containers. There has been a significant increase in volumes of container traffic between Asia and Europe as consumers in Europe continue to procure increasing quantities and types of goods manufactured in Asia at relatively low costs Containerization International, (2009). Receiving The warehouse will need fork lifts that are capable of handling pallets of standard sizes but also be adopted for specific warehouse needs such as be able to stack pallets 3-4m high to maximize space usage.

Since even inside containers, goods are packed in pallets for fast loading and unloading, there need not be extra staffs for manual unloading of goods. Even if in special circumstances the need does arise to unload good manually, the staff can be easily hired on contract. In-Store handling It will be good to look it to quick product identification techniques such as Radio Frequency Identification (RFID) to reduce delays. Incorporation of IT will also give customers access of stocks in the warehouse thus synergizing the warehouse throughout the network.

Synergy gives visibility of network and helps enable systems like JIT (just in time) which in turn reduce uncertainty about product availability. Forecasting of future demands is critical in planning storage of inventory. Excessive inventory increases working capital requirements and space requirements. Shipping Operations such as mixing and order assembly would mean that economy of scale cannot be achieved. Unit load method of shipping is economical as it saves time when loading and unloading of the pallets.

Since Hungary labor’s is cheaper than in Austria, mixed combination of products on a pallet or trailer could be done thus saving on overall cost for the customer. Shipped out pallets and containers should be properly documented and RFID’s checked. Customer satisfaction is critical to build up reputation and maintain competitiveness thus efforts should be taken to ensure accurate and error free shipping even when it might cause slight delay. Its paramount to ship accurately than to have product recall and overall disruption to the whole supply chain.

If possible trailers and containers to be sealed with serial numbered tags to preserve the integrity of items being shipped and to be broken by customer when ownership is transferred. Cargo surveyors could be engaged to check the content’s integrity so as to prevent miscommunications or attempts to switch products on receiving end and claim a fraudulent refund. Storage Storage planning is critical in logistic success. Inventories have to be segregated according to characteristics.

Inventories that need large space or volume should be position near exits and should have the fastest route to discharge points. This would reduce having to utilize lifting tools like overhead cranes when may need time to reposition at different locations. Also when moving objects of large volume that could disrupt othet warehousing operation. Thus as much as possible large volume inventories should be stored so that it can be moved quickly and with less asset utilization. Special storage requirements such as for perishable inventories are critical in planning storage.

Older products should quickly be discharged from the warehouses than newer products thus placed in more assessable positions. For example if inventories are stacked on top of each other then older products should be at the top most where they will be first to be sent out. Since the warehouse will be handling agricultural products, special climate control environment may be needed. Products like potatoes and onions cannot be packed into sealed containers and need proper ventilation. Active Storage Also most vegetables and fruits need to reach local distributors as soon as possible.

Very likely the warehouse will be used as a place for consolidating and packing taking into consideration the low costs associated with Hungary. Since packing and processing will take time, this also gives time for accumulation of sufficient inventory for shipment to be consolidated. Accuracy of information on inventories to be expected such as if there was a drought what kind of inventories to be expected, and thus raw materials such as packing materials and box cartons can be planned and accumulated in expectation of the demand. Specific customers will need labeling of branding the boxes.

This will all need very accurate and precise information handling to be carried out successfully. Conclusion Consumer goods coming from Austria may need extended storage in anticipation of demand caused by festivals or seasons. Advance knowledge and close communication with customers on both end of the supply chain is critical. It will be a good practice to have versatile storage options within the warehouse so as to accommodate demand. To remain competitive looking into focusing and achieving competence in specific market segments will gain customer confidence and satisfaction.

Customers will always what to have accurate knowledge on inventories in transit, in storage or being processed. This would in term help the supply chain speed up or slow down. In accuracies causes bottle necks and loss of customer confidence. Referencing ‘Transport, warehousing, distribution: Hungary, Central Europe and beyond’, THE HUNGARIAN INVESTMENT ANDTRADE DEVELOPMENT AGENCY, 2011 http://www. huembwas. org/SziA/Logistics. pdf, accessed 21 Sept 2012 Continerization International (2009), Yearbook 2010, Informa, London.

Bowersox D. J. Closs. D. J, Cooper M. Bixby, 2010, Supply Chain Logistics Management, 3rd edition, Chapter 10, page253-257, Facility Network Design, Drakoupil J. 2009, ‘Globalization and the state in Central and Eastern Europe’ , Routledge , 2009, ‘ the internally oriented pathways of the early nineties’ p. 85-113 Hertz 1993, Matsson,2003 Persson G. 1993 The Development of Time Based Competitors, Logistics Technology International, 1992 University of British Columbia. Logistics and Transportation Review, vol. 29 O’Reilly, J 2007,

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