MANAGEMENT

AND LOGISTICS
Selected topics

Veselin DRASKOVIC (ed.), Borut JEREB, Mimo DRASKOVIC,

Irena GORENAK, Sanja BAUK, Maja FOŠNER, Bojan ROSI,
Drago PUPAVAC, Darja TOPOLŠEK, Oleksandr DOROKHOV,
Uroš KRAMAR, Zeljko IVANOVIC, Marjan STERNAD,
Matjaž KNEZ, Sonja MLAKER KAČ, Ludmila MALYARETZ,
Matevž OBRECHT, and Tina CVAHTE

Czestochowa – Celje – Osijek – Kotor

2016
MANAGEMENT AND LOGISTICS – SELECTED TOPICS
Prof. Dr. Veselin Drasković, ed.

http://sphub.org/books/management-and-logistics (pdf)
1st electronic edition

Reviewers:
Assoc. Prof. Dr. Tomaž Kramberger, University of Maribor, Faculty of Logistics, Slovenia
Prof. Dr. Vojko Potočan, University of Maribor, Faculty of Economics and Business, Slovenia
Prof. Dr. Ratko Zelenika, University of Rijeka, Faculty of Economics, Croatia

Lectors: Magdalena Reljić, prof., and Asist. Darja Kukovič

Illustration and Design: Prof. Dr. Veselin Drasković

Printed by: “3M Makarije”, Podgorica

Copies: 80
1st edition: 2016

Published by SPH – Scientific Publishing Hub – founded by Czestochowa University of Technology,

Faculty of Management, Poland, University of Maribor, Faculty of Logistics, Celje, Slovenia, J.J.
Strossmayer University of Osijek, Faculty of Economics in Osijek, Croatia, and University of
Montenegro, Maritime Faculty of Kotor, Montenegro

Editor in Chief: Assoc. Prof. Dr. Borut Jereb

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Narodna in univerzitetna knjižnica, Ljubljana

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MANAGEMENT and logistics : selected topics / Veselin Drasković (ed.) ... [et al.] ; [illustration
Veselin Drasković]. - 1st ed. - Celje [etc.] : SPH - Scientific Publishing Hub, 2016

ISBN 978-961-6948-05-0
1. Drašković, Veselin
284205824
_________________________________________

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Narodna in univerzitetna knjižnica, Ljubljana

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MANAGEMENT and logistics [Elektronski vir] : selected topics / Veselin Drasković (ed.) ... [et
al.] ; [illustration Veselin Drasković]. - 1st electronic ed. - El. knjiga. - Celje [etc.] : SPH - Scientific
Publishing Hub, 2016

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1. Drašković, Veselin
284206080
 CONTENTS
FOREWORD ................................................................................... 3

Shapter 1

PAPERS OF THE PROJEKT TEAM MEMBERS

FACULTY OF LOGISTICS CELJE
SLOVENIA

1. Borut Jereb: RISK MANAGEMENT IN SUPPY CHAINS ........... 7

2. Marjan Sternad: TRANSPORT COST FUNCTION: CASE OF

SLOVENIAN REGIONAL RAIL LINES ...................................... 35

3. Uroš Kramar: THE ROLE OF LOGISTICS IN ENHANCING

THE EFFECTIVENESS AND EFFICIENCY OF A COMPANY 55

4. Irena Gorenak, and Bojan Rosi: THE IMPORTANCE OF

INTERCULTURAL COMPETENCIES IN LOGISTICS .............. 69

5. Sonja Mlaker-Kač, and Maja Fošner: QUALITATIVE

RESEARCH OF EXPECTED COMPETENCIES IN LOGISTICS 77

6. Darja Topolšek, and Tina Cvahte: THE URBAN DIMENSION

OF LOGISTICS ............................................................................... 85

7. Matjaž Knez, and Matevž Obrecht: GREEN LOGISTICS –

DEVELOPMENT AND IMPLEMENTATION ............................. 99

Shapter 2

PAPERS OF THE PROJEKT TEAM MEMBERS

MARITIME FACULTY OF KOTOR
MONTENEGRO

8. Mimo Draskovic, and Veselin Draskovic: POSSIBILITIES OF

LOGISTICS PARTNER COOPERATION BETWEEN THE
SEAPORTS OF BAR AND KOPER .............................................. 113

9. Mimo Draskovic, and Drago Pupavac: SPREADSHEETS IN

FUNCTION OF OPTIMISATION OF LOGISTICS NETWORK 143

1
 
 10 Sanja Bauk, and Zeljko Ivanovic: MULTIPHASE APPROACH
TO DEVELOPING MODEL OF LOGISTICS FOR COASTAL
TOURIST DESTINATIONS ........................................................... 157

11 Mimo Draskovic: THE ROLE OF LOGISTICS IN

PERFORMANCE MANAGEMENT .............................................. 181

12 Mimo Draskovic: SYSTEMIC LOGISTICS PROVIDERS ............ 193

13 Mimo Draskovic, Ludmila Malyaretz, and Oleksandr Dorokhov:

SOLUTION OF THE PROBLEM OF CRITICAL PATH’S
FINDING IN EXCEL ON THE BASIS OF REDUCING IT TO
ORDINARY TRANSPORTATION TASK .................................... 213

14 Mimo Draskovic: SPECIFIC CHARACTERISTICS OF THE

SHIP AND PORT SERVICES AS ASPECTS OF MARITIME
MANAGEMENT ............................................................................. 223

EXCERPTS FROM REVIEWS ...................................................... 233

2
 
 FOREWORD

The scientific monograph titled Logistics and Management – selected topics is

the result of a bilateral project, lasting from 2013 to 2015 and titled “Preparation of
a joint scientific monograph in the field of logistics and management issued at the
Faculty of Logistics in Celje and the Maritime Faculty of Kotor”. The project was
managed by Professor Maja Fošner, PhD, from the Faculty of Logistics at the Uni-
versity of Maribor, and Professor Veselin Draskovic, PdD, from the Maritime Fac-
ulty of Kotor, Montenegro.
The main goal of the monograph is to give ha comprehensive account of selec-
ted areas from the field of logistics and challenges in the development of logistics,
such as risk management and supply chains, transport cost, competences in logis-
tics, urban logistics, green logistics, seaport cooperation, logistics network optimi-
sation, logistics in tourism, logistics in performance management, systemic logis-
tics providers and solutions to problems of transportation task.
Wishing to offer a comprehensive presentation of various areas in the field of
logistics, the authors of the monograph contributions, who participated on the pro-
ject (Maja Fošner, Bojan Rosi, Borut Jereb, Marjan Sternad, Veselin Draskovic
(ed.), Mimo Draskovic, Sanja Bauk, Senka Sekulac-Ivosevic), invited to coopera-
tion also other researchers from the Faculty of Logistics and the Maritime Faculty
of Kotor (Irena Gorenak, Matjaž Knez, Matevž Obrecht, Sonja Mlaker Kač, Tina
Cvahte, Drago Pupavac, Zeljko Ivanovic, Oleksandr Dorokhov, and Ludmila Mal-
yaretz) who enriched the present monograph with their contributions.
The monograph is aimed at professional public and anyone interested in the
field of logistics. It should also serve as a useful aid in the study of logistics.

Editor
Professor Veselin Draskovic, PhD

3
 
 4
 
 Shapter 1

PAPERS OF THE PROJEKT TEAM MEMBERS

FACULTY OF LOGISTICS CELJE

SLOVENIA

5
 
 6
 
 1. RISK MANAGEMENT IN SUPPY CHAINS

1.1 Risk Management as Part of A Management System and Quality

Assurance

Due to the trends of globalization and global sourcing, no company today can
operate in a risk-free environment with regard to supply chains. The risks inherent
to supply chains have become a primary concern in the current logistics and other
business processes of different companies. The process of risk management is,
therefore, crucial for the uninterrupted operations of companies in all sectors.
(Jereb, Cvahte & Rosi, 2012, p. 271–272)
Many organizations only have recently begun to realize the importance of ef-
fective risk management, as large numbers of employees, especially top mana-
gement, begins to manage the risks. However, risk management has to be trans-
ferred from the top management to the operational level and back, as risks can be
transmitted horizontally (between sections), as well as vertically (from level to lev-
el); therefore, risks cannot be managed separately. The organization usually be-
comes aware of the importance of risk management only when undertaking the
preparation of a plan for business continuity. (Jereb, 2014, p. 13-14)
Despite the growing awareness of the importance of risk management, the
management of specific risks, such as risks in logistics or natural risks, for the most
part is not an integral part of the strategic planning of organizations, as top man-
agement still does not perceive this area as being of significant importance so as to
establish a representative to manage risks. Moreover, this area still suffers a lack of
staff and know-how, which in practice is reflected in the ineffective and non-
pragmatic realization of risk management. Often after an accurate risk assessment
has already been done, no intelligent decision is made regarding how to manage
concrete risks. In such circumstances, the universal ISO 31000 standard was creat-
ed, which can be used in any type of organization. (Jereb, 2014, p. 13-14)

Risk
Risks are part of our daily lives, and we have never had to deal with the chal-
lenges of risk as much as we do in modern times. They can be seen in a variety of
everyday public discussions, especially those of a professional and scientific man-
ner; it should be noted that there are many different perceptions and definitions of
this term, which may often reflect the complexity of the problems we encounter
when we try to comprehensively address risks and manage them. (Jereb, 2014, p.
15-16)
                                                            

Borut JEREB

7
 
 Risk is often defined in terms of the possible and/or probable events and their
consequences, or a combination of both. The uncertainty of the situation is the lack
of information and knowledge (Lakshmi & Mathew, 2013, p. 1) related to the un-
derstanding and knowledge of the event, its consequences and/or the likelihood of
their occurrence. The level of risk can be defined as the extent of the risk or com-
bination of risks, expressed as a combination of consequences and their probability.
In risk management terminology, the word ‘probability’ refers to the possibility of
an event, which can be identified, measured or determined objectively and subjec-
tively, qualitatively and quantitatively or mathematically (such as the probability or
frequency in a given time period) (ISO 31000, 2009).
According to Holton (Holton, 2004), risk includes only two essential compo-
nents:
a) uncertainty, and
b) exposure.

Uncertainty is a condition that occurs when a proposition or an assertion is true

or false, and probability is the metric that is most commonly used to express the
uncertainty; at best, it can assess the uncertainty we are able to perceive. Objective
uncertainty includes logic, probability and statistical methods, while quantifying
probability is scarcely helpful in considering subjective uncertainty, as probabilities
in this case are defined by individuals and their systems of values. Exposure occurs
when an event has some material or non-material consequences for a person. Peo-
ple are thus exposed when they care about whether a certain proposition is true or
false. (Jereb, 2009, p.11)
We can be exposed to risk and be fully aware of it or not; we can also take risk
very seriously or remain quite indifferent to it; exposure thus introduces an addi-
tional indistinctness, which depends primarily on the individual or a certain seg-
ment of the public and its perception of exposure and, consequently, of risk. There-
fore, we are not dealing with the problem of the metrics of uncertainty, but rather
with the problem of the metrics of exposure. (Jereb, 2009, p.11)
Despite the wide variety of perceptions, interpretations, and definitions of risk,
we can define risk as the exposure to uncertainty (Jereb, 2014, p. 66). The ISO
31000 standard (2009) further defines risk when it explains that organizations of
various types and sizes face internal and external factors that cause uncertainty
about the time within which the goals of an organization should be achieved, and
about the achievement itself; the impact of this uncertainty is the risk. Indeed, the
concept of risk is difficult to identify, because of the problems in defining uncer-
tainty and exposure. Due to this complexity, risk is difficult to model and simulate;
mostly simplified models can be used, which are therefore applicable to a very lim-
ited extent. Due to the dimensions of insecurity and exposure, the concept of risk

8
 
involves individuals or the public as strictly defined parameters. (Jereb, 2014, p.
66)
Risks can best be understood if they are examined in the case of investments.
These are the basis of every business activity: they allow the maintenance of the
business, increase its volume, or allow changes in business activities (Jereb, 2014,
p. 81); at the same time, investments involve risks and their management as a key
factor in operating activities.
Different experts usually employ a simplified approach, in which risk-
simulation models predominantly use objective uncertainty, while failing to ac-
count for their interdependence or dependence on the environment, with human
beings being the most important and complex part of it; for example, a well-
known, simplified approach is multiplying probability by potential loss. The confi-
dence in such models in practice is relatively low; managers’ decisions regarding
risk management are thus mostly based on ‘common sense’, which in practice pre-
sents a better choice than making decisions based on the output of simplified mod-
els of risk. Segments of the public are seen as a mandatorily defined parameter of
each risk, because risk depends on uncertainty and exposure, which is ultimately an
attribute of human beings. (Jereb et al., 2012, p. 276-277)
As a part of a particular supply chain, each organization is closely linked and
dependent on other organizations in this supply chain; therefore, every organization
should be aware of this interdependence in the sense that other organizations in the
chain have significant influence on it. In such a way, the dependence on other or-
ganizations in the supply chain also represents a risk, as an organization on which
we depend might behave in a manner whose consequences have a negative effect
on our organization. Often, these relationships are not recognized as risks; there-
fore, they are not considered in the process of risk assessment, so they can be found
only in the analysis of business processes, rather than in the analysis of technologi-
cal components or infrastructure. (Jereb, 2014, p. 85-86)
A supply chain is a complex system of several organizations that work togeth-
er in a specific environment. Based on the extent of risk consequences regarding
the supply chain, risks can be defined according to three different origins (Jereb et
al., 2012, p. 278):
1. from a company that is included in the supply chain,
2. from the whole supply chain (but not from the observed company),
3. from outside of the supply chain, in its environment.

All organizations’ activities can be characterized as technological or commer-

cial; thus risks can be defined as mainly technological, commercial or even univer-
sal (Jereb et al. 2012, p. 279). Together, a list of identified risks, their definitions
by dimensions and additional descriptions are needed to form a risk catalogue,
which is presented below.

9
 
 1.2 The introduction of ISO 31000:2009 and ISO 28000:2007 for the
process of risk management

Uncertain market conditions, the requirements of globalization, and increas-

ingly frequent and destructive external threats require effective risk management in
supply chains to ensure the continuity of operations of the organization. Risk man-
agement should be the priority in any organization, and should also be included in
all aspects of business, in order to ensure its effectiveness and efficiency. Top
management should be aware of the risks that threaten the organization, but they
should also be familiar with the variety of tools available so that risks can be man-
aged and controlled. (Jereb, 2014, p. 89-90) The basic mission of the organization
is the effective and efficient achievement of set objectives, but in their realization
the organization is always faced with some uncertainty, the impact of which is re-
flected in the risks. For this reason, all activities within the organization include
risks that need to be managed so that they are it first assessed through identifica-
tion, analysis, and evaluation; they should then be handled appropriately. (Jereb,
2011, p. 200-201)
The ISO 31000 Standard for Risk Management (2009) explains the key con-
cepts and terminology of risk management, as well as offering a variety of tech-
niques and methods for efficient risk management. When defining terminology, the
standard resolves the issues of the use of different terms to describe the risks,
measuring impacts, likelihoods, uncertaintis, and other dimensions of risk man-
agement between technology- and business-oriented personnel within the organiza-
tion and between organizations (Jereb, 2014, p. 14).
ISO 31000 (2009) sts out the principles and general guidelines for risk man-
agement. It can be used for all kinds of risks, irrespective of their nature, and pro-
vides both positive and negative consequences. It provides general guidelines, but
in setting and implementing plans and frameworks for risk management it also
takes into account different needs of organizations that may be reflected in their
objectives, context, structure, mode of action, processes, functions, projects, prod-
ucts or services, and resources. (Jereb, 2014, p. 14)
Due to the overall context, it provides comprehensive guidance for managing
risks in different areas and is thus open to all types of organizations throughout the
life of the organization, with the widest range of activities, including the creation of
strategies, decision-making, management, the implementation of projects, the im-
plementation of the other functions of the organization, production and manage-
ment products, services and resources, etc. (Jereb, 2014, p. 14). It must be noted
that the standard is not intended for certification, but rather for consistent applica-
tion.
In accordance with ISO 3100, the risk management process within the organi-
zation or across the supply chain is set within the cycle of Plan-Do-Check-Act

10
 
(PDCA), adapted for the purposes of risk management (see Figure 1.1). The basic
idea of the cycle is that a process should first be planned (Plan), then carried out
(Do), then checked and monitored (Check), and finally complemented and im-
proved (Act). (Jereb, 2014, p. 19-20)

Figure 1.1: PDCAcycle

Source: Tokyo Gas CSR Report 2014 [Tokyo Gas], 2014.

According to ISO 31000 (2009), risk assessment is a process in which risks are
identified, analysed, and evaluated. On the basis of this assessment, a risk treatment
is selected. The process of risk management and the process of risk assessment are
shown on Figure 1.2.
One of the most important standards in the field of security in logistics that is
directly related to risk management is certainly the ISO 28000 standard, which
aims to improve the security of the supply chain. It targets the top management of
organizations, who are responsible for establishing a comprehensive system of se-
curity management of the supply chain. Using this standard, an organization as-
sesses the environment in which it operates, and determines whether there are ade-
quate safety measures, and whether the organization meets all legal requirements.
(Jereb, 2014, p. 15)

11
 
 Figure 1.2: The process of risk management

Source: ISO 31000, 2009.

The primary purpose of the standard is to accede to the safety management of

organizations in such a way that the business success and credibility of organiza-
tions are ensured. (ISO 28000, 2007). ISO 31000 is a generic standard for risk
management, while ISO 28000 is the standard specific for safety management in
supply chains. ISO 28000 (2007) defines security management as the application of
systematic and coordinated activities and practices through which an organization
optimally manages risk at the level of the supply chain and the associated potential
hazards and their impacts (ISO 28000, 2007).

This standard can be used by organizations of different sizes, in particular,

those in supply chain management, that are attempting to (ISO 28000, 2007; Jereb,
2014, p. 61-62):
 establish, implement, maintain or improve their security management sys-
tem;
 ensure compliance with established security management policy;
 demonstrate such compliance to others;

12
 
  certify its security management system so that it is accredited by the certifi-
cation body; and/or
 achieve compliance with the standard ISO 28000.

According to ISO 28000 (2007), areas that may be affected by risk are the fol-
lowing (Jereb, 2014, p. 62):
 risks of physical failure, such as functional equipment failure, accidental
failure, malicious damage, terrorism or criminal acts;
 operational risk, including control of security, the human factor, and other
activities that affect the performance, status and safety of organizations;
 natural environmental events (storms, floods, etc.), due to which safety
measures and equipment can become less effective;
 factors that are not under the control of an organization, such as the failure
of equipment or services, carried out by external providers;
 the risks of all stakeholders of the organization, such as the failure to
achieve regulatory requirements, or decreased brand reputation;
 the design and installation of security equipment, including substitution,
maintenance, etc.
 information management and communication; an/or
 threats to the continuity of operations.

Each consequence of the risks that arise in the supply chain may affect one or
more logistics resources. If we want to effectively manage risks, we have to be
aware of the impact of an individual risk on different resources. As an individual
risk might affect more than one logistics resource; in this category, the secondary
effect on the logistics resources is incorporated. (Jereb, 2014, p. 83-84)

1.2.1 Establishing the context

By establishing the contex, the organization articulates its goals, defines the in-
ternal and external parameters that need to be considered during risk management,
and defines the scope and criteria for the remaining part of the risk management
process. In this process, the difference between internal and external contexts can
be distinguished, as well as the context for the risk management process itself.
(Jereb, 2014, 40)
The external context is the external environment, for which it is necessary to
take into account the objectives of external stakeholders in the development of cri-
teria for risk. In particular, the perceptions of stakeholders are taken into account as
well as legal and regulatory requirements. The internal context, in contrast, is the
internal environment, for which risk management must be appropriate for the or-

13
 
ganizational culture, other processes, the structure of the organization, as well as
for its strategy. (Jereb, 2014, 40-41)
Risk management must be done in such a way that any means are justified;
therefore, means should be defined, as well as responsibilities and authorizations,
and records that should be kept. Organizations must also define the criteria that are
used in evaluating the significance of individual risks and, therefore, should be in
accordance with the risk management policy. These criteria reflect the values, sys-
tems, goals, and resources of the organization. (Jereb, 2014, 42)

1.2.2 Risk assessment

Risk identification
The identification of risks involves finding, identifying and describing risks; it
also includes sourcing the risks, their causes and potential consequences; historical
data, theoretical analysis, and the opinions of specialists can be used for this (IEC /
FDIS 31010, 2009, p. 12 ). Every organization should find the most suitable meth-
ods to approach risk identification (Jereb et al., 2012, p. 274).
Risks and their impacts frequently also depend on the time in which they hap-
pen; therefore, this dimension should be taken into consideration in risk assess-
ment. In certain time frames, a risk is barely worth considering, while the same risk
in a different time frame is crucial to the success of a business organization. If dif-
ferent time frames are present, they must also be included in the risk assessment
phase in order to obtain an overview of the risk changing over time. For each risk,
it is necessary to determine the limit of acceptability, for which possible time
frames should be considered. Since an isolated risk that does not affect the process-
es within the organization or the supply chain does not exist, interdependencies
between risks must be defined (Jereb, 2014, p. 86-87)
Every identified risk has its attributes, which can be general, if it can be ascer-
tained that the same attributes are true in every organization, or they can be organi-
zation specific, for which some attributes of a particular risk have to be defined in
the specific organization that is undertaking risk assessment. (Jereb, Cvahte &
Rosi, 2012, p. 274)
As every human being is unique, the relation to a certain risk in a particular
situation can also differ greatly: people have different views of the same risk,
which may be a result of different levels of exposure as well as of different levels
of uncertainty. This issue is most commonly addressed to segments of the public
that share a common stance with regard to a particular risk. The approach in which
segments of the public play the central role in risk management has only recently
been covered in the relevant academic literature.

14
 
 Segments of the public are groups of people that have been identified by their
current interest in, attitude to, or current behavior around, a particular issue, repre-
senting the most important part of the environment that is considered in risk man-
agement (Jereb et al., 2012, p. 276).
Such an approach is also in accordance with ISO 31000, in which one of the
main principles for effective risk management is that ‘risk management takes hu-
man and cultural factors into account. It recognizes the capabilities, perceptions
and intentions of external and internal people that can facilitate or hinder achieve-
ment of the organization's objectives’ (Jereb et al., 2012, p. 278).
If we assume that only people can perceive themselves and inanimate things
cannot, we can also assert that certains risk can only influence people, who are sus-
ceptible to perceptions. According to this theory, we should segment all peopl, in-
volved in a supply chain and its surroundings, to different publics, i.e. different
groups of people with same interests or functions according to the individual risk.
(Jereb et al., 2012, p. 277)
The general idea of risk management is that each identified risk must be as-
signed to a person or group of people who are responsible for its management –
risk owners. They should have the responsibility, authority and appropriate skills to
manage risks for the introduction and maintenance of adequate and effective con-
trols for risk management (ISO 31000, 2009). By establishing the ‘owner’ of risks,
a higher level of awareness is also achieved in those who need to be included in the
risk management process within the organization or supply chain. (Jereb, 2014, p.
86-87)

Risk analysis
Risk analysis is the development of the understanding of risk, which includes
decisions regarding whether it is necessary to deal with individual risk, and what
appropriate strategies and methods for its treatment are. Risk analysis includes de-
termining the implications of the risk and its probability, which is reflected in the
level of risk. It is also necessary to define or determine the presence and efficacy of
any control over risks. Risk analysis must include an examination of the effects of
special effects, including cascades and cumulative effects, as a single event can
have multiple impacts. (ISO 31000, 2009)
As we analyse risks, we also need to be aware of different logistics resources for
the operations in the supply chain. These resources represent fundamental re-
sources that are used in logistic processes and, consequently, in supply chain man-
agement processes. Risks can have a significant effect on these resources and,
therefore, we should define which logistics resource or its use a certain risk can
have an effect. The concept of resource definition and its use in risk management
comes from the field of IT, where risk management is based on interactions be-
tween resources and IT risks, as are defined in COBIT 4.1 (ISACA, 2007).

15
 
 Within the processes in a supply chain, there are four key logistics resources,
without which logistics processes cannot take place (Jereb, Cvahte & Rosi, 2012, p.
275-276):
─ The flow of goods and/or services must be managed from the source point
to a durable point in order to fulfil the expectations of users.
─ Information flow flows in two directions: the input data comes into the in-
formation system for their processing and the generation of output infor-
mation, which should be useful for the organization.
─ The logistics infrastructure and superstructure are the basic physical and
organizational structures needed for logistics operations.
─ People as personnel are required for the planning, organizing, acquisition,
implementation, delivery, support, monitoring and evaluation of logistics
systems and services. They may be internal, external or contract, depend-
ing on the needs of the organization.
─ The list of identified risks and the description of every particular risk based
on the predefined definitions by dimensions form a basis on which a risk
catalogue of the supply chains is created. (Jereb, 2014, p. 86) The risk cata-
logue and its use is presented in a subchapter below.

Risk evaluation
The purpose of risk evaluation is to determine the importance of the level and
nature of risks and the determination of the necessary measures. The evaluation of
the risk is primarily the decision regarding which risks need to be treated and what
the priorities are for implementation of this treatment (IEC / FDIS 31010, 2009, p.
16). When evaluating risk, we must also define the impact of risk to the specific
publics, as different risks have different impacts on different publics, and various
publics perceive them differently. By analysing the effects on the publics, we gain
a greater insight into the consequences of risk. This is not the segmentation of the
public, which searches for the impacts and effects of risks to different publics
(Jereb, 2014, p. 84-85).

The process of risk assessment specifically supports the ISO 31010 standard
(IEC / FDIS 31010, 2009), which provides a number of methods and techniques for
the assessment of risks, of which some are useful in all three phases of the risk as-
sessment, while others are useful only in an individual phase. Thus, for the identifi-
cation various interviews, review of historical data, brainstorming, Delphi-method,
checklists, and other methods are suitable. Risk analysis is primarily a reflection on
the causes and sources of risks, their consequences and the likelihood that they will
occur, so it is necessary to define the factors that affect the likelihood and conse-
quences. At this stage, the qualitative, quantitative, or mixed methods can be used,
and control mechanisms must be set. Among the techniques that are appropriate at
this stage, the method of different scenarios, the ‘SWIFT’ method, the analysis of
the causes, ‘bow-tie’ diagrams, and others are very useful. In the evaluation phase

16
 
of the risks, in which priorities and measures are decided upon, it is very sensible
to use cost-benefit analysis, which can also be used with a variety of methods and
techniques. (IEC/FDIS 31010, 2009, p. 12)

1.2.3 Risk treatment

Risk treatment includes the selecting of one or more appropriate options to

change the likelihood of risks, the effects of risk, or both, and the exercise of those
options. This is followed by a cyclic process of re-evaluating risks to re-determine
the type of treatment. (Jereb 2011, p. 208). Risk treatment, which deals with the
negative consequences, is sometimes termed ‘risk mitigation’, ‘risk elimination’, or
‘risk prevention’. The treatment or modification of risk can thus mean the removal
of a source of threat, reducing the likelihood of an adverse event, changing its con-
sequences, or risk sharing with other contractors in order to avoid the risk that ac-
tivities do not start or do not continue. With smart decisions, risks can also be
maintained. Residual risk is that which remains even after the risk treatment. (ISO
31000, 2009)

1.3 Risk catalogue in supply chains

The final product of conventional risk identification and assessment is a risk

catalogue for supply chains that contains all the identified and described risks of a
specific organization(Jereb & Cvahte, 2012). A more advanced version is the risk
catalogue that contains the risks on the level of the entire supply chain. The risk
catalogue is an important and useful tool in risk management, since its use signifi-
cantly shortens the process of risk identification. It is designed so broadly that it is
useful in various organizations, notably in terms of the guidelines for the identifica-
tion of risk and as a checklist.
Every leader in supply chains should be aware of the importance of coopera-
tion between organizations, since a single organization can never identify as many
risks as a group of organizations, especially with regards to risks in supply chains.
Organizations often start the process of risk management alone, although very of-
ten they do not start even such a project. In such circumstances, the Faculty of Lo-
gistics of the University of Maribor, in the context of the activities of the Laborato-
ry of Informatics, created an online risk catalogue for supply chains, through which
organizations can carry out important steps in the process of risk assessment.
(Jereb, 2014, p. 87-89)
This model of risk catalogue includes the principles of ISO 31000, ISO 31010
and ISO 28000. This is online risk catalogue for supply chains is available on the
website http://labinf.fl.uni-mb.si/risk-catalog/. It can be used as a checklist of pos-

17
 
sible risks, and reflects a widely used model for risk management in supply chains
(Jereb, Ivanuša & Rosi, 2013, p. 68).
When considering the risk management model, which is provided by ISO
31000, we can see that the processes that are involved in risk assessment, particu-
larly the identification and analysis of risks, are the key processes in the whole risk
management process. We should be aware that the risks that are not detected in the
process of risk identification, are later not discussed and incorporated into the risk
management; therefore, they are overlooked so we cannot be prepared for them.
The identification of risks should be concluded with the creation of a risk cata-
logue, in which each risk is classified in categories according to its fundamental
dimensions. Later in the process, it is necessary to introduce additional dimensions
that are specific to each organization (Jereb, 2014, p. 81-82).
When classifying risks into basic dimension, the online risk catalogue can be
used. In it, the fundamental dimensions of the risks coincide with the areas of risks,
as defined by ISO 28000 (See Figure 3). Because some risks are more complex, it
is illogical to classify them into only one group or dimension; thus, some risks are
classified into two categories: primary and secondary (Jereb, 2014, p. 82-83).
Every organization that deals with risk assessment by using this risk catalogue
must implement all those dimensions required by the specific requirements of the
organization. This is mostly dependent on the type of goods or services offered by
the supply chain, but there are also universal risks that occur in all supply chains
(Jereb, 2014, p. 86-87).
In addition to the list of dimensions, the model of Risk Catalogue also contains
the list of affected publics, the list of affected logistics resources, the list of supply
chain risk origins, as well as the list of the levels of logistics planning (‘Risk Cata-
logue’, [labinf.fl.uni-mb.si]).

18
 
 Figure 1.3: A section of the risk catalogue: dimensions of risk definition

Source: Risk Catalogue [labinf.fl.uni-mb.si].

19
 
 Figure 1.4: The section of Risk catalog: Data
 

Source: ‘Risk Catalogue’ [labinf.fl.uni-mb.si].

20
 
 The Risk Catalogue is published under a Creative Commons license that al-
lows interested users to use it, download and share it with others, as long as proper
credit is given to the authors, but they cannot change it or use it commercially; this
is the ‘Attribution – NonCommercial – NoDerivs’ licence (Creative Commons
2011). However, since the catalogue is an ever growing publication, all users
should be able to contribute, comment or add to its content. This is achieved by
submitting ideas to the editorial board, which assesses the contributions and incor-
porates them in the catalogue when appropriate. Submissions are expected via
email [email protected].

1.4 The principle of modelling risks with respect to segmentation

of the public

The described model is sufficiently general in order to be useful in various sit-

uations and fields where risk is encountered. Although the model described in this
chapter can be used in a wide array of fields, the example of a business process
model is presented below. Depending on the particular field in which the risk are to
be modelled, the importance of a particular part of the model (various public, inter-
nal vs. external, dynamic behaviour in time, etc.) may differ; however, it can sel-
dom happen that an individual part of the model is completely negligible in a par-
ticular case (Jereb, 2014, 70-71).

1.4.1 The presentation of the processes

Business processes are represented by process graphs, i.e. mathematical struc-

tures in which the nodes represent a particular process, while the link between two
nodes represents their relation.

The process graph PG is defined as a directed graph (Jereb, 2009):

PG =  P, E  =  P,  Pk , Pl  ,  Pm , Pn ...  Pq , Pr  ;
(1)
k,l,m,n,q,r = 1,2,3,...,  PG 

where P represents a set of resources of any kind (goods, services, information,

etc.) and their mixture; E represents a set of edges representing the flow of any
kind of resources, in which particular processes from P are the sources and destina-
tions, respectively, of such flows. E is a set of ordered pairs, in which the pair (Px,
Py) is considered to be directed from the process Px to the process Py. It represents
the output resources flow for the process Px and the input resources flow for the

21
 
process Py. Each pair (Px, Py) represents the information on the mutual relationship
between the process Px and Py. Px is a direct predecessor of Py and vice versa, Py is
a direct successor of Px. In our model, both P and E are finite sets.
The behaviour of the process Pk is influenced by its input, denoted by In-
put(Pk).
The output of the process Pk is denoted by Output(Pk) and it is generated ac-
cording to the following items:
a) its current status (or state in which the process is),
b) its current input, and
c) the rules for generating the output according to the status and input.

The calculation of the process states described by parameters is further ex-

plained in the paper.
The definitions of the process Pk input and output are, as follows:

Input  Pk  =  Px , Pk  =  Inpk,1 , Inpk,2 ,..., Inpk,n  (2)

Output  Pk  =  Pk , Py  = Outk,1 ,Outk,2 ,...,Outk,n  (3)

Example Clerk A regularly receives documents of two types: Document X and

Document Y. Upon receipt, Clerk A, performing the Business Process A, estab-
lishes whether the documents are adequate for further processing. If any document
is not adequate, Clerk A rejects it, producing Explanation Z, including a request for
the amendment of the document. If the document is adequate for further pro-
cessing, it is recorded in Incoming Mail and forwarded to other clerks: Type X
documents are forwarded to Clerk B, performing Business Process B; and Type Y
documents are forwarded to Clerk C, performing Business Process C.

Figure 1.5 illustrates this simplified example of business processes.

22
 
 Figure 1.5: A simplified business process in which Clerk A reviews and sorts /
classifies the received documents and forwards them to the Business Processes B
(Clerk B) and C (Clerk C)

Source: Jereb, 2014, p. 72.

1.4.2 Description of the status of the process parameters and time

dimension of the model

The state of each process and its specific properties are described according to
parameter: the process time parameters, the maturity level, sensibility to some
types of risks, the period of the year in which its importance may be low or high,
the risk acceptance, the impact acceptance, and other parameters. The model does
not define what each parameter actually represents, nor does it define the number
of parameters. The most important aspect of the parameters is that they allow the
accumulation of the previous life cycles of each business process within them; this
accumulated information is then used to accumulate the impacts and new business
process parameter values. In this way, modelling also comprises the ‘history’ of the
modelled system. These parameters include the accumulated history of past mo-

23
 
ments and accordingly, the past combinations of risks and other impacts relevant to
the business process (Jereb, 2014, p. 71-72).
Example In our business processes example, the Process A parameter could be
the number of delays involved in forwarding or rejecting any document by Clerk A
(the clerk acts later than required by the respective regulations). If Clerk A never
makes a mistake, Type X documents are sent to Clerk B. However, the clerk could
make a mistake and send an incorrect document to Clerk B. A document may also
be ambiguous, and it may only later become evident that it is of a different type
than initially believed by Clerk A. In the first or second case, the document sent to
Clerk B is of the wrong type. Within Process B, the number of incorrect documents
received can be measured and recorded in a particular parameter of Process B.
Example In the above example, each individual delay could be insignificant,
but a number of delays could have adverse consequences. It is, therefore, not only
necessary to record individual delays, but also the total sum of all delays. This is an
example of an additional process parameter.
The model should include the dimension of time, which introduces non-
determinism. In many real situations, some or all processes include the time dimen-
sion in their input, output, or in the manner in which the following state of a pro-
cess is calculated.
The state of the process Pk is described by the following equation:

State  Pk ,t  =  Park,1  t  , Park,2  t  ,..., Park,m  t  (4)

In which Park,x(t) denotes the value of the parameter x of the process Pk in time
t.
In addition, there is the function ΦSC that calculates new values of the process
parameters (i.e. the new state) in each discrete (temporal) moment, based on:
a) Business process input Input(Pk,t);
b) Current values of business process parameters State(Pk,t).

Input  Pk ,t  ,
State  Pk ,t +  =  SC   (5)
State P ,t 
 k 

Equation (4) represents the state of the process Pk, which is changing through
time. In the case of discrete simulation, the new state of the Pk is evaluated for eve-
ry single time segment Δ by the function ΦSC, which calculates new states as repre-
sented by Equation (5). The State(Pk, t) comprises all accumulated influences
spread from Pk in the future. These influences are based on the past combinations

24
 
of inputs and states of the Pk . In other words, it represents a kind of accumulated
history of the Pk , which could be reflected in the future by generated impacts.
In the above-explained equations. we still do not consider the following de-
scribed segmentations, including the risks and segments of the public.

1.4.3 Segmentation with respect to different publics

Simulations should be conducted for each segment of the public separately.

The view given throughout this article, however, justifies the calculation of risk,
process states and consequences for each particular segment of the public.

GeneralInput  Pk , Publicl ,t  =
(6)
Input  Pk , Publicl ,t   Risk  Pk , Publicl ,t 
Equation (6) for calculating risks conducting the segment of the public is ex-
pressed as:

Risk  Pk , Publicl ,t  =
Uncertainty  Pk , Publicl ,t  ,
 RC  =
Exposure  Pk , Publicl ,t  
(7)
ObjUncertainty  Pk , Publicl ,t  , 
 
 RC  SubUncertainty  Pk , Publicl ,t  , 
 
Exposure  Pk , Publicl ,t 

Whereby in (7):
a) Pk is process k.
b) Uncertainty (Pk,Public, t) is the uncertainty in the process Pk at time t.
c) SubUncertainty (Pk, t) is the subjective uncertainty in the process Pk at
time t.
d) Exposure (Pk , Public, t) is the exposure in the process Pk with respect to
the segment of Public at time t.
e) Particular risks for the process Pk are represented by a set of m risks
{Rk,1 (t), Rk,2 (t), …, Rk,m (t)} at time t.
f) Function ΦRC calculates risks.

Equation (8) for calculating processes considering (6) the state conducting the
segment of the public and segmenting input to risks, uncertainty and exposure is:

25
 
 State  Pk , Publicl ,t +  =
Input  Pk , Publicl ,t  ,
 SC  =
State P , Public ,t 
 k l 

Risk  Pk , Publicl ,t  , 
 
 SC  GeneralInput  Pk , Publicl ,t  ,  =
 
State  Pk , Publicl ,t 
ObjUncertainty  Pk , Publicl ,t  ,   (8)
  
  RC  SubUncertainty  Pk , Publicl ,t  ,, 
  
 Exposure  Pk , Publicl ,t  
 
 SC  GeneralInput  Pk , Publicl ,t  , 
 State  Pk , Publicl ,t  
 
 
 
 

Equation (9) for calculating consequences, considering (7), (8) and conducting
the segment of the public, is:

Consequence  Pk , Publicl ,t + =

Input  Pk , Publicl ,t  , 
 IC  =
State P , Public ,t 
 k l 

Risk  Pk , Publicl ,t  , 
 
CC  GeneralInput  Pk , Publicl ,t  , =
 
State  Pk , Publicl ,t 
ObjUncertainty  Pk , Publicl ,t  ,   (9)
  
  RC  SubUncertainty  Pk , Publicl ,t  ,  ,
  
 Exposure  Pk , Publicl ,t  
 
CC  GeneralInput  Pk , Publicl ,t  , 
 State  Pk , Publicl ,t  
 
 
 
 

26
 
 Considering Equations (7), (8), (9) and conducting segments of the public risks
should be expressed with Equation (10):

Consequence  Pk , Publicl ,t +  =
ObjUncertainty  Pk , Publicl ,t  ,  
  
  RC  SubUncertainty  Pk , Publicl ,t  ,, 
  
 Exposure  Pk , Publicl ,t  
 
CC  GeneralInput  Pk , Publicl ,t  , 
 State  Pk , Publicl ,t  
 
 
 
 


 
 
 
 
 
  (10)
 
 ObjUncertainty  Pk , Publicl ,t  ,  
 
  RC  SubUncertainty  Pk , Publicl ,t  ,, 
   
 Exposure  Pk , Publicl ,t  
 
CC  GeneralInput  Pk , Publicl ,t  , 
 
 ObjUncertainty  Pk , Publicl ,t    ,  
    
   RC  SubUncertainty  Pk , Public l ,t    ,  , 
    
 Exposure  Pk , Publicl ,t    

 
  SC
 GeneralInput  Pk , Publicl ,t    , 

  State  Pk , Publicl ,t    
  
  
  
 

Equation (7) shows how to calculate risk, which is the input to a business pro-
cess based on objective and subjective uncertainty and exposure at a point in time.

27
 
Equation (8) shows how to calculate process states based on known risks, general
inputs, and process states recorded for a prior time segment at a certain point in
time. Equation (9) explains the calculation of the impact based on the same inputs
as for internal process states. Equation (10) gives the calculation of consequences
using a transitive relation for the calculation of internal process states in a prior
time segment by taking into consideration risks, general input and internal process
states in the time segment prior to the previous time segment. All equations include
business processes and segments of the public.

These equations constitute the foundation of the algorithm for the calculation
of the consequences in a model. The impact calculation is central to risk manage-
ment modeling, and is illustrated by Figure 1.6.

Figure 1.6: The main elements of the risk management model

Source: Jereb, 2009, p.30.

28
 
 1.4.4 Acceptance border

For risks, the acceptance border is calculated in Equation (11), using the func-
tion ΦRAB; the acceptance border for the consequences is defined with Equation
(12) by the function ΦCAB; the acceptance border for the process states is defined
with Equation (13) by the function ΦSAB.

RiskAcceptanceBorderPk , Publicl ,t  =
RABk,l,1 t , RABk,l,2 t ,..., RABk,l,m t = (11)
ΦRAB Risk Pk , Publicl ,t 
ConsequenceAcceptanceBorder  Pk , Publicl ,t  =
CABk,l,1  t  ,CABk,l,2  t  ,...,CABk,l,m t  = (12)
CAB Consequence  Pk , Publicl ,t 

StateAcceptanceBorder  Pk , Publicl ,t  =
SABk,l,1 t  ,SABk,l,2  t  ,..., SABk,l,m t  = (13)
 SAB  State  Pk , Publicl ,t 

In Equations (14), (15) and (16), tolerable or acceptable values for risk, conse-
quences, and values of the process states are defined according to the given ac-
ceptance borders.
AcceptedRisks  Pk , Publicl ,t  =
(14)
 Rk,l,x t  ; x =1,2,...,m Rk,l,x  t  < RABk,l,x  t 

AcceptedConsequences  Pk , Publicl ,t  =
(15)
Ck,l,x  t  ; x =1,2,..., m Ck,l,x  t  < CABk,l,x  t 

AcceptedStates  Pk , Publicl ,t  =
(16)
 Paramk,l,x  t  ; x =1,2,...,m Paramk,l,x  t  < SABk,l,x  t 

Equations (17), (18), and (19) define the unacceptable (intolerable) values, which
represent a set of values that is equal to the set of all possible values minus the set
of acceptable values.
NotAcceptedRisks  Pk , Publicl ,t  =
(17)
Risk  Pk , Publicl ,t   AcceptedRisks  Pk , Publicl ,t 

29
 
 NotAcceptedConsequences  Pk , Publicl ,t  =
(18)
Consequence  Pk , Publicl ,t   AcceptedConsequences  Pk , Publicl ,t 

NotAcceptedStates  Pk , Publicl ,t  =
(19)
State  Pk , Publicl ,t   AcceptedStates  Pk , Publicl ,t 

Example For Business Process A (see Figure 5) and for all segments of the
public, it is true that risks and acceptance borders do not change over time. The
risks that accompany business processes should be:
a) R1 – poorly legible received document.
b) R2 – delays resulting from untimely forwarding or rejection of a document
by Clerk A.
c) R3 – wrong type of the document sent from Clerk A to Clerk B.

The following individual segments of the public have been observed:

a) SJ1 – employees who carry out Business Process A.
b) SJ2 – owners of Business Process A.
c) SJ3 – users of Business Process A.

Objective and subjective uncertainty, exposure and risks have the following set
of four values: {Ø – zero value, S – relatively small values, M – middle values, H –
relatively high values}. Although the same designations of values are used, they
have different implications for uncertainty, exposure and risks. Tables 1.1 to 1.3
show values that change in simulations.  

Table 1.1: Objective uncertainty as to the individual risk and segment

of the public.

30
 
 Table 1.2: Subjective uncertainty as to the individual risk and segment of
the public

Table 1.3: Exposure to the individual risk and segment of the public

Table 1.4 shows the calculated risks by using a function (see Equation (6)). In
this case, the function is simplified in order to calculate risk as the worst option in
the Cartesian product between objective and subjective uncertainty, and the expo-
sure.

Table 1.4: Calculated risks for an individual segment of the public

If the acceptance borders were such that acceptable risks are as described in
Table 1.5, the risk R3 would be unacceptable to all segments of the public and the
risk R2 would be unacceptable to SJ2, while the remaining risks are acceptable.

31
 
 Table 1.5: Accepted risks for an individual segment of the public

In practice, we need to decide what to do with these risks. If we want to reduce

them, it is necessary to take steps towards reducing uncertainty and/or exposure. In
a similar way, we should calculate and assess the business processes’ states and the
corresponding impacts.

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33
 
 34
 
 2. TRANSPORT COST FUNCTION:
CASE OF SLOVENIAN REGIONAL RAIL LINES

2.1 Introduction

Over the previous decade, the competitiveness of railway transport has been
declining. The EC Council adopted a directive on EC Railway development in
1991 (Official Gazette EC, No 237/25, 1991), which aims to adapt the railway
systems to the needs and requirements of the common market for the purpose of
efficiency and competitiveness with other transport systems.
Despite the adopted directive, the competitiveness of the railway system has
not yet improved. In order to increase the competitiveness of the railways the
European Parliament and the Council adopted the first Railway Package that
consists of three directives: Directive 2001/12/EC of the European Parliament and
of the Council amending Council Directive 91/440/EEC on the development of the
Community's railways (Official Gazette EC, No. 75/1, 2001), regarding the
introduction of a license for railway undertakings (Official Gazette EC, No. 75/26,
2001), Directive 2001/13/EC, amending Council Directive 95/18/EC on the
licensing of the railway undertakings (Official Gazette EC, No. 75/26, 2001) and
Directive 2001/14/EC on the allocation of railway infrastructure capacity and the
levying of charges for the use of railway infrastructure and safety certification
(Official Gazette EC, No. 75/29, 2001).
The opening of the single market calls for the provision of fair competition and
non-discriminatory access to infrastructure capacity, as proposed in Directive
2001/12/EC (Official Gazette EC, No. 75/1, 2001), which also proposed establis-
hing bodies responsible for guaranteeing the competitiveness of the railway sys-
tem. The opening of the rail market to foreign operators also yields the better
utilization of existing infrastructure and higher levels of service quality, but the
disadvantages are primarily encountered on regional lines that are unattractive to
foreign operators due to the low commodity potential.
A European rail network for competitive freight should be established in
accordance with the Trans-European Transport Network (TEN) and with the corri-
dors of the European Rail Traffic Management System (ERTMS). The creation of
the freight corridor should take into account the particular significance of the
planned extension of the TEN to the countries participating in the ENP in order to
ensure better integration of infrastructure.

                                                            
 Marjan STERNAD

35
 
 2.2 Theoretical background

2.2.1 Legal and political implementation of liberalized railway market

The market of transport companies developed in line with Directive 95/18/EC

regarding the issuing of transport licences in railway transportation (Official
Gazette EC, No. 143/70, 1995), which regulates the conditions that the Member
States use to issue, renew, or alter the licences for railway transport companies that
operate or will operate within the European Union.
Bonnafous (1998) argues that vertical separation is linked to the role of the
state. However, Quinet (2001) stipulates that political decisions do not include effi-
cient use of railway infrastructure. Moreover, Quinet (2001) asserts that efficiency
should be tackled more holistically in terms of minimizing the costs of infrastruc-
ture while providing static and dynamic efficiency. Aberle (1998) has found that
the main reasons for introducing usability lie in the liberalization of the railway
market. According to Alexandersson and Hulten (2000) the implementation of a
competitive railway system calls for a competitive international environment in the
form of international strategic alliances. As a result of more competitive transport
systems, especially road systems, the vertical separation of the railway system has
created a new market niche that is not yet being taken advantage of by the railway.
Regarding the vertical separation of the railway system, Quinet (2001) further
refers to the problem of the asymmetric provision of information between service
providers, supervisory bodies, and transport departments, as well as the conflict of
interest between individual institutions and insecure circumstances.
In the European transport policy (2001), the Commission of the EC laid down
the so-called ‘revitalization’ package for railways as one of its fundamental objec-
tives, based on internal market development, the modernization of services, and the
optimal use of infrastructure.
The opening of the single market calls for the provision of fair competition and
non-discriminatory access to infrastructure capacity, as proposed in Directive
2001/12/EC (Official Gazette EC, No. 75/1, 2001), which also proposed setting up
bodies responsible for guaranteeing the competitiveness of the railway system.
For the optimal use of railway infrastructure, Directive 2001/14/EC sets out
the rules for setting infrastructure charges and for capacity allocation to increase
the efficiency of railway companies. Infrastructure managers must be competitive
so as to achieve sustainable mobility by introducing various measures.
Track access charges cover the use, management, and maintenance of railway
infrastructure and external costs that result from transport services. Based on Di-
rective 2001/14/EC (Official Gazette EC, No. 75/29, 2001), infrastructure manag-
ers are granted some degree of flexibility to enable a more efficient use of the in-
frastructure network.

36
 
 2.2.2 Cost functions

The transcendental logarithmic function was used in estimating the marginal

cost of maintaining the infrastructure. Johansson and Nilsson (1999, 2004) estimat-
ed the marginal infrastructure cost in Sweden and Finland. They used the adopted
transcendental cost function:

[1]

where
C – maintenance costs;
y – natural logarithm of track length (km);
u – natural logarithm of gross tonne;
p – natural logarithm of the marginal price for factor k;
z – vector of track-technical variables (the number of switches, number of tun-
nels, track quality index, etc.);
i – section;
j – index for district;
t – time.

The estimated elasticities from Equation 1 are used to calculate the marginal
cost of each rail section. Marginal costs are calculated based on Equation 2.

[2]
where
MC – marginal costs;
Gtkm – gross tonne-kilometres.

Because the distance of a given section does not change with transported gross
tonnage, the marginal cost is calculated:

[3]

Johansson and Nilsson (1999, 2004) determined that the transcendental speci-
fication and coherence between the costs of maintenance and explanatory variables
represents a good basis for understanding the cost of maintaining the infrastructure.
A similar methodology was used by Munduch et al. (2002) when assessing the
marginal costs of Austrian railways, with which they found that the estimated

37
 
marginal costs cover between 20 and 30% of average costs of railway
infrastructure maintenance. They used a cost function to calculate marginal costs.

[4]

where
K – maintenance costs;
x, z – explanatory variables;
i – rail section.

From the cost function, they obtain the expression for the elasticity:

[5]

The elasticity leads to an estimate of the marginal costs.

[6]

Munduch et al. (ibid.) found that the length of a segment and the amount of
transported gross tonnes are the major cost producers. Additionally, the fact that
marginal costs are higher on secondary or local railway lines is important.
Tervonen and Pekkarinen (2007) took into account the short-term variable costs
when assessing the marginal costs of railway infrastructure. The costs of traffic
management and the operational costs for the infrastructure are fixed in the short
term. In their calculations, the authors took the total transported gross tonnes for
passenger and freight transport combined into account. They defined the statistical
interdependence, using the equation below:

[7]

where
C – variable infrastructure costs on track section;
Y – length of tracks by track section;
U – traffic volume by track section (gross tonne);
Z – features of track sections;
d – dummy variable for depicting differences between track section;
ε – error terms;

38
 
 i – track section;
t – time;
g – mathematical function.

Regression model in a logarithmic form based on the Cobb-Douglas produc-

tion function (Tervonen & Pekkarinen, 2007).

[8]

where
y – natural logarithms of the length of tracks;
u – natural logarithms of traffic volume;
d – dummy variable is assigned the value one (1), when renewals on a track
section exceed €16.819, and otherwise its value is zero (0).

Like Munduch et al. (2002), Tervonen and Pekkarinen (2007) also calculated
the weighted marginal cost with equation:

[9]

where

[10]

and

[11]

where
Q – quantity in gross tonne-kilometre;
L – length of section;
w – weight for each section.
Andersson (2007) used a model with fixed effects using a polynomial function
of the third degree in assessing the marginal costs of railway infrastructure mainte-
nance. The used cost function is formed as follows:

[12]

where
C – maintenance costs;

39
 
 lnTGT – natural logarithms of total gross tonnes;
lnRLAGE – natural logarithms of rail age.

Andersson (ibid.) finds that marginal costs are much lower than average costs,
which is a consequence of the high share of fixed costs in the total costs.
A similar methodology was used by Andersson (2008) when assessing marginal
costs in a dynamic context. He found that the ratio between marginal and average
costs is very low, which also means higher co-financing of the railway infrastruc-
ture from the state. Marginal costs were expressed as a product of average costs
and elasticity.

[13]

[14]

where are
MC – marginal cost;
γ – elasticity;
AC – average cost;
i – section;
t – time.

2.3 Case of Slovenia

2.3.1 Railway transport in Slovenia

Rail transport includes the transport of passengers and freight by rail means of
transport by rail transport routes, as well as covering all operations and communi-
cations in railway transport.
The main characteristics of rail transport are as follows (Rosi & Sternad,
2008):
 ability to perform the transportation of passengers and goods with a high
degree of accuracy and regularity throughout the year, day and night,
regardless of weather conditions;
 the ability to perform mass transports of passengers and goods at all dis-
tances, while relatively easily controlling heterogeneity in demand for
transport services;
 the capability of high speed and high travel comfort;

40
 
  the low resistance of rolling wheels on rails and long trains provide for the
high productivity of rail holdings and low transport costs per a unit of
transport services,
 the capability of railways to achieve a high degree of automation of
working processes enables further improvement of traffic safety and in-
creased productivity, low energy consumption per unit of labour and less
adverse effects on the environment in rail transport compared to road and
air transport.

The share of rail transport has decreased over the years, but increases in the
share of road and air transport.

Table 2.1. Transport statistic

2008 2009 2010 2011 1012

tkm % tkm % tkm % tkm % tkm %
Road
16261 82 14762 84 15931 82 16439 81 15888 82
transport
Railway
3520 18 2817 16 3421 18 3752 19 3470 18
transport
Land 10
19781 17579 100 19352 100 20191 100 19358 100
transport 0

Source: SURS

Improving the rail infrastructure will initially mainly produce improved quality
of rail transport services in terms of speed, traffic flow capacity, timeliness, fre-
quency and volume. The impact of infrastructure will affect the development of:
 The basic logistics services, such as rail transport, intermodal, warehous-
ing, distribution, and handling services
 Accompanying logistics services, such as freight forwarding, insurance,
and inspection services
 Additional logistics services such as parking, refuelling, and the repair of
vehicles in the logistics centres.

Regional railway connections are being cancelled or the number of passenger

trains is being reduced due to low use, which has a negative impact on the regional
development. Priority areas use the already scarce financial resources for the im-
provement of railway transport infrastructure and hence improved the competiti-
veness of the railway transport system. Due to low commodity potentials on certain
regional routes, the rail freight services available are also very poor; conversely,

41
 
the quality of regional rail lines and a low demand for rail services do not
encourage railways to offer these lines for rail freight services. As a result, compa-
nies want to use road transport, which is more flexible.
Individual railway infrastructure routes, especially regional routes, are unused
due to decreased demand for railway services. For less occupied regional routes in
passenger transport, Alexandersson and Hulten (2008) suggest railways be sub-
stituted with buses, which is also an objective of the European transport policy that
facilitates an increased use of public passenger transport, but cannot revitalize the
railways, as such.
Dablanc (2009), in contrast, suggests short-haul railway freight transport but
points out that a more comprehensive and sustainable solutions should be found
with an emphasis on economic and environmental advantages. Reorganization of
the railway system and the competitiveness of transport service providers is mainly
directed toward cost efficiencies, which further degrades the situation of unprofita-
ble, unattractive railway routes. More sustainable and holistic solutions that will
contribute to achieving economic and environmental integration thus need to be
found.

Table 2.2. Line capacity in regional lines

Regional line Distance between Utilized capacity of Utilized capacity of

sections (in km) train (in 24 hours) line
Ljubljana – Kamnik 23 42 73%
Celje –Velenje 38 55 39%
Rogatec – Grobelno 36 40 48%
Imeno – Stranje 13 55 22%
Maribor – Prevalje 75 46 40%
Ljutomer – Gornja 23 11 10%
Radgona
Cepišče Prešnica – 15 66 6%
d.m.
Jesenice – Nova Go- 89 44 38%
rica
Nova Gorica - 11 36 63%
Prvačina
Prvačina – Sežana 30 36 34%
Prvačina – Aj- 15 no data no data
dovščina
Metlika – Ljubljana 122 48 69%
Sevnica – Trebnje 31 32 44%
Grosuplje – Kočevje 50 28 ni pod.

Source: Network Statement 2014

42
 
 2.3.2 Model of cost function

2.3.2.1 Descriptions of data

This study is focused on the regional railway lines in Slovenia that are unused
due to decreased demand for railway services. Regional railway lines are divided
into 30 sections, in accordance with the Network Statement of the Republic of Slo-
venia 2012 – Technical data of rail lines (SŽ, 2012). For each section, technical
and statistical data for 2012 have been observed. Due to a lack of data and changes
in the categorization of lines (Ur.l. RS, št. 62/2011), we excluded three smaller
sections, which represent 2.5% of the regional railway lines and are not relevant for
further research.
Based on the relevant research findings (Munduch et al., 2002; Johansson &
Nilsson, 2004; Tervonen & Pekkarinen, 2007; Anderson, 2008) and Slovenian
legislation in the field of railway transport (Ur.l. RS. št. 92/2010; Ur.l. RS. št.
11/2011), we identified a group of factors that affect the cost function. Information
relating to the technical characteristics of the infrastructure and statistical data were
obtained from the company Slovenian Railways. For each section of the regional
railway lines, we obtained the data given in the following table 2.3.

Table 2.3. Section data

Variable Description
str Variable costs of ordinary and major maintenance
dol Length of track section
brt Gross ton
sig Number of signals
kret Number of switches
preh Number of level crossing
post Number of railway station
kt Track geometry

In this determination, the fixed and variable costs were reduced to the
minimum access package, which is provided by Directive 2012/34/EU (Official
Journal of the EU, no. 343/32, 2012) and the Decree on allocating train paths and
levying user fees on the public railway infrastructure (Ur.l. RS, št. 113/2009,
2009). According to the definition in the legislation, the minimum access package
of services imposes costs on the maintenance of infrastructure and traffic manage-
ment costs as a result of train control signalling, regulation, dispatching and com-
munication.

43
 
 Figure 2.1. Main and regional rail lines

Source: Ur.l. RS, št. 62/2011 (* red: mail line; blue: regional line)

44
 
 For each of the cost categories, whether and to what extent they are fixed and
short-run variable (Link & Maibach, 1999) has been clarified on the basis of pro-
fessional judgement. The analysis included only variable costs in the short term
(Munduch et al., 2002; Tervonen & Pekkarinen, 2007). Variable costs are the pro-
duction costs of ordinary and major maintenance of railway infrastructure. The op-
eration of network and traffic control is considered fixed (Tervonen & Pekkarinen,
2007).
Ordinary and major maintenance is carrying out maintenance work on the rail
line and in all parts of railway infrastructure (signalling devices, switches, cross-
ings and railway stations). Variables such as the length of each section, the number
of signals, the number of switches, and the number of level crossings are taken into
account for the structuring of the cost function.
The number of railway stations in the section was excluded as an explanatory
variable, as the cost of maintenance of railway stations in the short term is fixed.
The quality of the track is determined on the basis of measurements of track
geometry parameters (UIC CODE 518, 2005) at least once a year. Lower parame-
ters of track geometry mean higher quality railway lines, and there is no need for
additional maintenance that affects the cost increase.

2.3.2.2 Model of cost functions

The cost function approach is based on neoclassic economic theory using a

Cobb-Douglas production function, on the basis of which Keeler (1974) formulated
the cost function in the short term. Christensen, Jorgenson and Lau (1973) were
one of the first to use the transcendental logarithmic function (translog) to calculate
the cost of rail transport. A similar methodology was also used by Munduch et al.
(2002) for estimating the marginal costs for the Austrian railway system, by
Johansson and Nilsson (2004) in their economic analysis of track maintenance
costs, by Tervonen and Pekkarinen (2007) in estimating marginal rail infrastructure
costs in Finland, and by Andersson (2008) in estimating railway infrastructure
costs in a dynamic context.
For the purposes of our study, we used the adapted logarithmic cost function.

logCi 0  1 logdoli   2 log(brti )  3 (sigi )  4 (kreti )  5 ( prehi )  6 (kti )  7 log(brti )  sigi 
8 log(brti )  kreti  9 log(brti )  prehi  10 log(brti )  kti  i
[15]

where Ci is cost function, αi are parameters for estimation, and other variables are
presented in Table 2.4.

45
 
 The regression model was estimated using the least squares method. This
method was used because of the small sample size, as a software tool cannot esti-
mate the parameters with the Generalized Methods of Moments and the Maximum
Likelihood method, which requires a large sample size.
Statistical data analysis and evaluation of the econometric model were per-
formed with the programme EViews 7.0
In theory, multiple regression is subject to the following assumptions (Menard,
2010):
 The relationship between independent variables and the dependent variable
is a linear.
 The absence of perfect multicollinearity: For multiple regressions, none of
the independent variables is a perfect linear combination of the other inde-
pendent variables.
 Homoscedasticity: The variance of the error term is the same.
 No autocorrelation: there is no correlation among the error terms produced
by different values of the independent variables.
 Normality of errors: The errors are normally distributed for each set of
values of the independent variables.

The stability of the selected model was evaluated using the variance inflation
factor (VIF), which shows how the variance of an estimator is inflated by the pre-
sence of multicollinearity.
In addition, the Glejser test, the Harvey test, and the Breusch-Pegan-
Godfreyev (BPG) test were used for detection of heteroscedasticity.
For detecting serial correlation in least-squares regression, Durbin-Watson d
statistics was used.
Due to the small sample, the normality of the residuals was also tested in
accordance with the recommendations in the scientific literature; a histogram of
residuals and a Jarque-Bera test were used. The Jarque-Bera test of normality is a
test of the joint hypothesis that the S-skewness coefficient and K-kurtosis coeffi-
cient are 0 and 3. In that case, the value of the Jarque-Bera statistic is expected to
be 0 (Gujarati & Porter, 2009).
The suitable unit for the derivation of marginal cost is the gross tonne-
kilometre. The marginal costs are the additional maintenance costs if the increase
in gross tonne-kilometres travelled on the railway infrastructure. The distance be-
tween sections is the same; therefore, the following equation can be used (Mun-
duch et al., 2002):
(brtkmi )  brti  kmi , [16]

46
 
where kmi is the length of i-section.

On the basis of Equation 2, we can calculate the marginal cost for each section
of the regional railway lines.

     
 Ci Ci 1   C i brti  Ci
MCi        , [17]
brtkmi brti kmi  brti  brtkmi
 C i 

  
  C i brti 
where     presents cost elasticity with respect to the gross-tons, and is
 brt i C 
 i 
calculated with the following equation (Munduch et al., 2002):
  
  C i brti      
 brt   
  2   3  sig i   4  kreti   5  prehi   6  kti , [18]
 i
C i 


where

Ci  exp(log(Ci )  0,5  (se) 2 ) [19]

The weighted marginal cost for all track sections is expressed (Munduch et al.,
2002):

brtkmi
MC   MC  , [20]
 brtkm
i
i

which is based on a similar methodology used by Johansson and Nilsson (2004)

and Tervonen and Pekkarinen (2007).

2.3.2.3 Estimation results

The final form of the model based on the elimination of individual variables
using the Schwarz and Akaike criterion, value of determination coefficient, F sta-
tistic in t-test of individual variables is

      
log C i   0   1 logdol i    2 log(brt i )   3 log(brt i )  sig i   4 log(brt i )  kret i   5 log(brt i )  prehi 

 6 log(brt i )  kt i   i
[21]

47
 
 The results of the estimated parameters and test statistics are shown in Table
2.2.

Table 2.4. Estimated parameters

Coefficient Std. Error t-Statistic Prob.

αo 4.656919 1.549681 3.005083 0.0070
α1 0.939195 0.166929 5.626305 0.0000
α2 0.238966 0.109124 2.189862 0.0406
α3 0.001761 0.000905 1.945803 0.0659
α4 -0.000922 0.000491 -1.876512 0.0753
α5 -0.000774 0.000434 -1.783029 0.0898
α6 0.000321 0.000263 1.218787 0.2371
R2 0.831081
Adjusted R2 0.780405
F-statistic 16.39999
Prob. (F- 0.000001
statistic)
Akaike crite- 1.564870
rion
Schwarz crite- 1.900828
rion
Durbin- 1.889569
Watson statis-
tic

All parameters are significant at a 10% level of significance except log(brt)*kt.

The adjusted determination coefficient is 0.78, which is a strong correlation be-
tween variables.
The elasticity with respect to the section is 0.94, while it is only 0.24 with re-
spect to the gross-tons. In this study, we find that a 1% increase in gross weight
transported the variable cost of maintaining the infrastructure increased by 0.24%.
Similar results can be found in Tervonen & Pekkarinen (2007) in estimating the
cost function of cross-section data.
There is no multicollinearity problem between regressors, because the calcu-
lated value of the VIF indicator is much lower than the 10.

48
 
 Table 2.5. Variance inflation factor

Variable VIF
log(doli) 2.889
log(brti) 1.863
log(brti)*sigi 2.704
log(brti)*kreti 1.647
log(brti)*prehi 1.836
log(brti)*kti 1.254

The assumption of homoscedasticity was tested with three tests. In the case in
which there is no statistical significance between the variables, we can conclude
that there is no heteroscedasticity. The results of the formal methods for detecting
heteroscedasticity are shown in Table 2.6.
Statistical tests confirm the basic assumption of multiple regressions that the
conditional distributions of the variance, which are obtained on the basis of differ-
ent combinations of values of the independent variables, are the same.
The Durbin-Watson test shows that there is no positive and negative autocorre-
lation, as the value of the coefficient 1.8896 ranges from 1.743 to 2.257 a 1% sta-
tistical significance.

Table 2.6. Results of testing heteroscedasticity

Glejser Harvey Breusch-Pegan-

Godfrey
t- Prob. t- Prob. t- Prob.
statistic statistic statistic
C 1.2156 0.2383 0.8766 0.3911 1.2700 0.2186
log(doli) -1.8958 0.0725 -1.2197 0.2368 -2.7795 0.0116
log(brti) -0.1757 0.8623 -0.6839 0.5019 -0.3113 0.7588
log(brti)*sigi -0.1435 0.8873 -0.2722 0.7883 0.6478 0.5245
log(brti)*kreti -0.9545 0.3512 0.3355 0.7408 -1.4411 0.1650
log(brti)*prehi 1.0912 0.2881 0.4217 0.6778 1.1865 0.2493
log(brti)*kti -0.2963 0.7700 -0.7829 0.4429 0.0425 0.9665
F - statistic 1.8342 0.8223 2.8250

The histogram on Figure 2.2 shows that the residuals are normally distributed.
The Jarque-Bera test shows value 0.2362 and probability 88%; the Skewness coef-
ficient is 0.13, and Kurtosis coefficient is 3.37. The calculated coefficients show
that the residuals are normally distributed.

49
 
 Figure 2.2. Histogram of residuals

Marginal costs for line sections vary from €0.0004 and €0.0204. The weighted
marginal cost for all lines is €0.001888. The function of the marginal cost is de-
creasing, which shows the advisability of increasing freight carried by rail.

2.3. Marginal costs

50
 
 Figure 2.4: Average costs

Covering the costs is defined as the ratio between the marginal and average
cost. By applying a marginal approach, a large part of the cost remains uncovered
(Anderson, 2008), which is confirmed by our research.
The average variable costs from the estimated cost function are decreasing,
which means that the increase in the load on the regional rail lines reduces the vari-
able and fixed costs of maintaining the infrastructure unit.
Based on the calculations, it had been determined that the marginal costs ac-
count for approx. 30% of the average cost, which affects the efficiency of railway
infrastructure management. Regional railway lines in Slovenia are unused and have
great potential, especially in freight transport. Due to low commodity potential on
certain regional routes the rail freight services offered are very poor, but the quality
of regional rail lines and a low demand for rail services are not attracted by the
railway in order to offer these lines of rail freight services. For this reason, compa-
nies want to use road transport, which is more flexible.

2.4 Conclusions

This paper analyses the costs of maintaining the infrastructure on regional

routes in Slovenia in 2012. The econometric approach to estimating the logarithmic
cost function was used. It was determined that representing the length of each rail
section and transported gross ton were the most important explanatory variables of
the selected model.

51
 
 The research also shows that it makes sense to increase the transported cargo
on regional railway lines, given that variable costs are inelastic with respect to
gross tons transported. At higher quantities, transported fixed costs per unit also
decrease.
At the appropriate system to promote rail transport by the state, it is possible to
increase the efficient use of regional lines. In order to improve the problems of re-
gional railway lines, organizational criteria must be taken into account in addition
to economic criteria. Achieving the efficient use of infrastructure depends not only
on rail operators and an increased supply of rail transport services, but also on the
demand for rail freight services by companies.

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uporabo železniške infrastrukture in podeljevanju varnostnega spričevala, UL
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Keeler, T. E. (1974), “Railroad costs, returns to scale, and excess capacity”, The re-
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 54
 
 3. THE ROLE OF LOGISTICS IN ENHANCING THE
EFFECTIVENESS AND EFFICIENCY OF A COMPANY

Logistics is all around us and has a significant impact on the activity of each
of us although we are not always aware of this. Its role and definitions have
changed over time and have increased in step with technological development and
globalization. Nevertheless, only after the Second World War did it become a sub-
ject of academic research. Logistics has become a fundamental part of almost eve-
ry economic activity. Through conceptual research and a detailed literature re-
view, we will search for links between logistics and the effectiveness and efficiency
of a company through utility and competitive advantage.

3.1 Introduction

Products have never been produced or been in stock precisely where and when
they were needed. Large geographical divisions of production and consumption
have become a modern reality.
Due to globalization, economic conditions only exacerbate this situation. Thus,
globalization has changed people’s habits making the transport (of people or
goods) a dominant factor. The free movement of people, information, goods and
capital enables the provision of basic human rights.
Economic power continues to shift eastward. New markets and new trade link-
ages are emerging. The boundaries between industrial sectors are blurring. New,
digitally native entrants are overturning existing business models. Existing players
in one sector (technology) are entering other sectors (health) with exciting new
propositions (EY, 2015).
The organization EY (2015), has defined six megatrends that will continue to
profoundly affect the whole world: Digital future, Entrepreneurship Rising, Global
Marketplace, Urban World, Resourceful Planet, and Health Reimagined.
In this context, some questions arise: What is the role of logistics in a changing
world? In what way can logistics contribute to more efficient and effective opera-
tions? How can a good logistics system contribute to the competitive advantage of
firms? Have the key tasks of logistics changed over time?
In this article, we will examine what the role of logistics is in a changing world
and how good logistics can contribute to the competitive advantage of the organi-

                                                            

Uroš KRAMAR

55
 
zation or firm thereby increasing the added value as well as the effectiveness and
efficiency of the company.
The methodology used in this paper encompasses conceptual research and a
detailed literature review of key issues. The literature review is intended to identify
the basic role of the logistics business and to identify how logistics contributes to
the competitive advantage of the firm.

3.2 The role of logistics through time

The role of logistics in the economy has changed over time. In its broadest
sense, it affects the everyday lives of people. It has a significant impact on the ac-
tivity of each individual although we are not always aware of this.
Historically, logistics has been part of our lives since the dawn of humanity.
Because of the desire and necessity for survival and for ensuring basic needs (for
water, food, security, heat and other essentials) people were forced to deal with
certain logistics activities, such as moving or storage (Thorpe, 1986). In an effort to
survive, people were forced to travel from place to place while transporting goods
that enabled them to survive.
With the development of human civilization and technological inventions, sur-
pluses of food occurred; new processing methods of materials were invented,
which accelerated the use of logistics activities. With the further development and
the creation of great civilizations, certain logistics activities became well expressed
in the military, construction (e.g. the construction of the pyramids) and municipal
works (e.g. irrigation systems).
The further development of logistics is strongly associated with the develop-
ment of technologies and inventions that enabled social, cultural, economic, mili-
tary and transport development (Cuturela & Manole, 2013).
The modern concept of logistics began at the start the second half of the twen-
tieth century, when it became an academic discipline, with an important role in
theory and practice. As Tseng et al. (2005) explain, business logistics was not an
academic subject until the 1960s; since then, it has been recognized as an important
component of business strategy (Oblak, 2007). According to Klaus (2010), no dis-
agreement exists regarding the enormous practical relevance of logistics and its
steadily growing impact on day-to-day economic activities.
Through further research on the importance of logistics in the economy, there
has been the tendency to define logistics as a scientific discipline. Thus, the Ger-
man association BVL (Bundesvereinigung Logistik) developed a statement about
the current ‘basic understanding of logistics as a science’ (Klaus, 2010): Logistics
is an application-oriented scientific discipline. It models and analyses economic

56
 
systems as networks and flows of objects through time and space (specifically
goods, information, moneys, and people) which create value for people. It aims to
supply recommendations for action on the design and implementation of such net-
works through accepted scientific methods. Scientific questions of the discipline
are related primarily to the configuration, and organisation of these networks and to
the mobilization and control of flows. Its ultimate goal is progress in the balanced
achievement of economic, ecological and social objectives.

3.3 Logistics and economic utility

As Waters (2003) suggests (based on Alderson, 1954), the goal of logistics is

to overcome efficiently any gap between customers and suppliers:
 Space gaps, with suppliers physically separate from customers (for exam-
ple, bauxite is mined in Australia but is used by distant manufacturers),
 Time gaps, when there is a difference between the time a product become
available and the time when customers want to buy it (for example, whisky
is distilled in Scotland and then stored for at least three years while it
matures,
 Quantity gaps, between the amounts available from suppliers and the de-
mand from customers (for example, publishers print books in large batches
to reduce their operating costs, but each customer usually buys a single
copy),
 Variety gaps, when customers want a wider variety of products than is
available from a single supplier
 Information gaps, when customers do not know about the availability or
source of products, and suppliers do not know about potential customers
(for example, some countries have no McDonald’s restaurants because the
supply chains have not yet penetrated the markets).

Through different logistics activities, logistics seeks to overcome these gaps in

the most efficient and effective manner. This can be done through fast delivery,
lower costs, better processes, less waste, quick reactions, increased productivity,
lower inventories, no errors, a high level of awareness of the importance of quality,
and much more.
Although these are important partial goals and also measurable performance
indicators, in order to establish what the key objectives of logistics (defined bro-
adly) are, we must connect with the wider objectives of the company (or orga-
nization).
The key objectives of the firm are often associated with profit, profitability,
stocks value, sales, the number of regular customers, and other factors. It is crucial

57
 
that each company achieve these objectives by supplying products to customers.
Therefore, their success depends on customer satisfaction. If the company fails to
satisfy customers or to fulfil their expectations, it will not fulfil any of its strategic
objectives or survive in the competitive world.
This gives logistics its purpose and allows the determination of the key objec-
tives of logistics in relation to the provision of services to the customers. Logistics
must be organized in such a way that companies achieve or even exceed the expec-
tations of their customers. With such a definition of logistics and its objectives, we
must bear in mind that a company is only able to achieve or exceed the expecta-
tions of its customers if it has enough resources.
Resources are expensive, and a higher level of customer service almost cer-
tainly means higher costs. A more realistic objective of logistics is attempting to
find a balance between customer service and costs (Christopher, 2005; Rushton,
Croucher & Baker, 2010; Lambert, Stock & Ellram, 1998). For example, it pro-
vides a certain level of quality for customers for the lowest price or maximizing the
level of quality for customers, who can be reached at a certain cost.

Figure 3.7: The key role of logistics in supply and demand cycle
 

Source: Waters, 2003

58
 
 According to Christopher (1986) ‘Logistics has always been a central and es-
sential feature of all economic activity’. As Waters (2003) explain, nothing is pro-
duced, no material moved, no operation is carried out, no product can be delivered
to the buyer, and no buyer can be treated without logistics. He continues ‘without
logistics there can be no operations – and no organisation’. He explained the role of
logistics through a diagram (Figure 3.1), in which logistics is shown as function
responsible for the flow of materials from suppliers into an organization, through
operations within the organization, and then out to customers.

3.4 Logistics and utility

 
Cambridge University Press (2015) defines utility as the usefulness of some-
thing, especially in a practical way. Economists use the concept of utility to de-
scribe preferences. According to Chand (2015), utility refers to the power of a
commodity to satisfy wants. It is the satisfaction, actual or expected, derived from
the consumption of a commodity. In short, when a commodity is capable of satisfy-
ing human wants, it can be concluded that the commodity has utility. According to
Bentham and his followers, utility was the tendency of an object or action to in-
crease or decrease overall happiness (Read, 2004). From an economic standpoint,
the utility of goods and services is found in their ability to satisfy human needs and
desires. Logistics adds value to goods and services in a way that allows their use-
fulness. As Fawcett and Fawcett (1995) explain, the benefit of linking customer
value to a discussion of utility creation is that this association clearly connects each
economic utility to the activities that are responsible for its generation.
There are four types of economic utility affected by logistics (Coyle, Bardi &
Langley 2003; Bowersox et al. 2002; Swenson & Fawcett, 1998; Bloomberg et al.,
2002): form utility, possession utility, time utility, and place utility. Form utility
refers to the specific product or service that a company offers to its potential cus-
tomers (Investopedia, 2015). It is reflected in the process of creating the appropri-
ate goods or services that meet customers’ needs. For example, in the production
process, a car manufacturer builds a car from materials and components and thus
contributes to the utility of a car. The time utility is the value added by having an
item when it is needed. The place utility means having the item or service available
where it is needed. Many companies have come to understand the value of the utili-
ties of place and time only after unfortunate and costly events, for example after
materials are unavailable, and the production line has been shut down, or after a
product is sold out, and customers have opted for a competitor’s offering instead
(Fawcett & Fawcett, 1995).
According to Bowersox et al. (2002), logistics must ensure that the product is
available when and where desired by customers. The achievement of time and
place requires significant effort and is expensive. The possession utility is the value

59
 
added to a product or service because the customer can take actual possession; it is
the process of creating value by changing who owns a product or who receives a
service. The creation of the possession utility occurs in two steps. First, infor-
mation is provided to potential customers to develop a perceived need and an im-
age regarding the product’s ability to meet this need. Second, a transaction takes
place allowing the customer to take possession of the product and have experiences
that will lead to pride of ownership. The existence of these two steps leads to an
interesting managerial dilemma: the possession utility must be created for value to
be added, but the possession utility cannot exist until a desirable product has been
produced (form utility) and made available (place and time utilities) (Fawcett &
Fawcett, 1995) The value-added activities of logistics play key roles in the provi-
sion of the four basic utilities. Indeed, efforts in these areas are largely responsible
for the creation of the form, place and time utilities, and make possession utility
possible (Fawcett & Fawcett, 1995). Swenson and Fawcett (1998) explained the
connection between logistics and economic utilities through some basic activities
and processes.

Figure 3.8: Logistics and economic utility

 
Possession Utili- Recognize the firm’s distinctive capabilities
ty Identify and evaluate customer
Understand supply chain imperatives
Define customers’ success factors
Communicate success factors throughout the firm
Select customer of choice
Build relationships based on profitable customer takeaway

Form Utility Balance market pull and technology push pressures in develop-
ing distinctive capabilities
Focus on selected capabilities and respective processes
Convert raw materials and component inputs into finished
product/service package

Time Utility Make products and services available to customers when they
want them

Place Utility Make products and services available where customers want
them

Source: Swenson, and Fawcett, 1998

60
 
 3.5 Logistics as a source of economic benefits
 
Competitive advantage grows out of value a firm is able to create for its buyers
that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay,
and superior value stems from offering lower prices than competitors for equiva-
lent benefits or providing unique benefits that more than offset a higher price.
There are two basic types of competitive advantage: cost leadership and differen-
tiation (Porter, 1985).
Competitive advantage is the advantage gained over competitors by offering
customers greater value, either through lower prices or by providing additional
benefits and service that justify similar, or possibly higher, prices (Attiany, 2014).
The source of competitive advantage is first found in the ability of the organization
to differentiate itself in the eyes of the customer from its competition and second
by operating at a lower cost and hence at greater profit (Christopher, 2005).
The essential importance in achieving competitive advantages is well-
organized flows of materials, information, energy and people. Above all, it is im-
portant to know that:
 Even the best-organized systems can lose their benefits over time, meaning
that yesterday’s competitive advantage over the other becomes the mini-
mum required to meet existing standards.
 The window for new strategic opportunities (innovation) is relatively lim-
ited.

Organizations are forced to constantly look for new opportunities to meet cus-
tomers’ needs and at higher levels than those offered by the competition. Tradi-
tional sources of competitive advantage are frequently concentrated on lower la-
bour costs, scarce natural resources, big markets or unique technological
knowledge.
Throughout the 1970s and early 1980s, some companies attempted to achieve
competitive advantage by improving productivity and reducing costs. In the 1980s,
competitive advantage mainly meant working on the quality of the product. In the
1990s, the competitive advantage was found in providing better service to custom-
ers. The focus has gradually moved from costs over quality and speed of delivery
to the company’s ability to quickly adapt their business to market demands (Figure
3.3). In order to adapt to instant changes in business conditions, a company must be
able to effectively manage their supply chain and logistics within it.
It is only recently that business organizations have come to recognize the vital
impact that logistics management can have in the achievement of competitive ad-
vantage (Christopher 2005).

61
 
 Figure 3.9: Changes in economic environment

Figure 3.10: Four stages of logistics and its influence on competitive advantage

Source: Stevens, 1989

62
 
 Stevens (1989) describes the modern development of logistics and its influ-
ence on competitive advantage through four stages:
 First stage: focusing on the efficient material flow of finished goods,
through warehousing and transport.
 Second stage: companies rrecognizing the need for at least a limited degree
of integration between adjacent functions, e.g. distribution and inventory
management or purchasing and materials control.
 Third stage: establishing and implementing of an ‘end-to-end’ planning
framework.
 Stage four: true supply chain integration in that the concept of linkage and
coordination that is achieved in Stage 3 is now extended upstream to sup-
pliers and downstream to customers.

Similar to Stevens, Waters (2003) described how logistics has moved from be-
ing a low priority, fragmented function to a strategic, integrated one. He talks about
seven stages through which logistics influences competitive advantage:
 Stage 1: Separate logistics activities are not given much attention or con-
sidered important.
 Stage 2: Recognizing that the separate activities of logistics are important
for the success of the organization.
 Stage 3: Making improvements in the separate functions, making sure that
each is as efficient as possible.
 Stage 4: Internal integration: recognizing the benefits of internal co-
operation and combining the separate functions into one.
 Stage 5: Developing a logistics strategy, to set the long-term direction of
logistics.
 Stage 6: Benchmarking: comparing logistics’ performance with other or-
ganizations, learning from their experiences, identifying areas that need
improvement and finding ways of achieving this.
 Stage 7: Continuous improvement: accepting that further changes are inev-
itable and always searching for better ways of organizing logistics.

How logistics helps in achieving company’s competitive advantage has also

been explained by Lambert et al. (1998), who stated that logistics plays a key role
in the economy in two significant ways. First, logistics is one of the major expendi-
tures for businesses, thereby affecting and being affected by other economic activi-
ties; second, logistics supports the movement and flow of many economic transac-
tions. It is a vital activity in facilitating the sale of virtually all goods and services.
In order to achieve competitive advantage, firms have to do both: lower costs
and increase added value of the product. Waters (2010) explains that customers are
increasingly demanding products with added value, but at lower cost, and hence the

63
 
new competitive imperative is to seek out ways to achieve precisely that. He con-
tinues that organizations create value for their customers either by increasing the
level of ‘benefit’ they deliver or by reducing the customers’ costs. As Rushton,
Croucher and Baker, (2014) said:
One idea that has been put forward in recent years is that these different ele-
ments of logistics are providing an ‘added value’ to a product as it is made availa-
ble to the final user – rather than just imposing an additional cost. This is a more
positive view of logistics and is a useful way of assessing the real contribution and
importance of logistics and distribution services.
Here the question arises: which customers do we have in mind? There are the
users within the company (people in production as customers that require good lo-
gistics in order to have materials just in time), external users that require good lo-
gistics service and rendered exactly as it was agreed and, according to Požar
(2000), internal owners that seek to increase their profits due to well-executed lo-
gistics.
According to Rutner and Langley (2000, there are two definitions of value that
appear to be appropriate for the business definition of value: first, value is that
quality of a thing according to which it is thought of as being more or less desira-
ble, useful, estimable, important, or another quality; second, value is the fair or
proper equivalent in money or other commodities for something sold or exchanged
a fair price.

Figure 3.11: Adding value through logistics

Source: Požar, 2000

64
 
 Požar (2000) interpreted logistics as a source of competitive advantage and
added value through three factors: ccost effectiveness (what price the consumer is
willing to pay for logistical services), the efficiency of logistics (with a diverse,
rich, accurate and timely performed logistics, service users will gain greater value),
and differentiation (bringing the company benefit when it is better in satisfying
customer needs and requirements that its competitors). Christopher (2005) claimed
that the source of competitive advantage is first found in the ability of the organiza-
tion to differentiate itself, in the eyes of the customer, from its competition, and
second by operating at a lower cost and hence at a greater profit. He created a sim-
ple matrix based on Porter’s matrix and explained that the successful companies
will often seek to achieve a position based upon both a cost advantage and a value
advantage.

Figure 3.12: Logistics and competitive advantage

 

Source: Christopher, 2005.

Rushton, Croucher and Baker (2014) developed and extended Porter’s compet-
itive strategy matrix from a logistics perspective; according to their explanation,
both cost leaders and differentiation can be improved by means of different kinds
of logistics. A performance excellence matrix shows that a company may compete
as a service leader, when it is attempting to gain a value advantage over its compet-
itors by providing a number of key service elements to differentiate its product.
Alternatively, it may compete as a cost leader in attempting to utilize its resources
so that it offers the product at the lowest possible cost, thus gaining a productivity
advantage.

65
 
 Figure 3.13: The logistics implication of different competitive positions
 

Source: Rushton, Croucher and Baker

3.6 Future trends

Given the strong connection between good logistics and the success of the firm
and, according to strong trends in the business environment, it is crucial to be
aware of the direction in which logistics will develop.
According to a 2012 survey conducted by the BVL Association (Bundesver-
einigung Logistik) of 1,757 major organizations around the world, the following
trends are dominant: Customer Expectations, Networked Economy, Cost Pressure,
Globalization, and Complexity (Handfield, Straube, Pfohl & Wieland, 2013).
According to future trends, dominant strategies also arise, which will help
firms to obtain competitive advantages through effective and efficient logistics.
Among them, the most important strategic initiative is talent management, which
includes the need to fill critical gaps that exist in the logistics workforce in the next
decade. After talent, organizations are seeking to build capabilities in supply chain

66
 
end-to-end integration, network visibility, integrated planning, technology invest-
ments, and cost-to-serve analytics (Handfield et al., 2013).

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 4. THE IMPORTANCE OF INTERCULTURAL
COMPETENCIES IN LOGISTICS

4.1 Introduction

When people from different cultures interact with each other, different worlds
collide. Communication within a certain culture is much easier because of similar
values and norms, which are based on tradition and agreements. Through time,
they become a part of us and we are not aware of them unless someone breaks
them. Today, meeting people from other cultures with different value systems and
different habits has become a part of our daily lives. This is even more so in logis-
tics, which has become an increasingly international activity, not only in its study,
but in the operation of logistics systems and the development of global supply
chains (Taylor, 1997). That is why business success requires a certain level of
knowledge of cultural differences. Today, qualified people are needed, who have
the competencies to work in international teams. This is just as important for a
small country like Slovenia, where business is to a large extent done international-
ly. For this reason, I will focus on the importance of intercultural competencies in
logistics and how they can be acquired at the Faculty of Logistics.
First, I will focus on explaining the terms logistics and intercultural compe-
tence. Then, I will present different possibilities, how such competencies can be
acquired during the course of study at the Faculty of Logistics.
I would like to point out that, at the Faculty of Logistics, different studies have
been carried out to emphasize the importance of intercultural competencies in lo-
gistics. A study conducted by the Faculty of Logistics of the University of Maribor,
which examined competencies of logisticians desired by Slovenian organizations,
has found that companies expect from logistics experts to have high attention to
detail and be committed to work, to have good communication skills and be able to
communicate effectively with colleagues and business partners, nationally and in-
ternationally. (Knežević, Gorenak, Fošner, 2011) More recently, a study of logis-
tics experts’ and graduates’ competencies (Mlaker Kač et al., 2011) has found that
companies cannot imagine logistics experts without good social and intercultural
skills. To understand why they are so important in the field of logistics, let me first
explain what logistics is.
Another study (Mlaker Kač et al., 2009) examined the importance of social
networks that students develop during the Erasmus exchange programme on their
future employment and skills development. The findings have shown that social
                                                            

Irena GORENAK, and Bojan ROSI

69
 
networking plays an important role in the process of recognizing different opportu-
nities either when searching for a job or developing various ideas.

4.2 What is logistics?

Logistics is defined as part of the supply chain process that plans, implements,
and controls the optimal flow and storage of goods, services, and information from
point A to point B (Ballou, 2004). Logistics processes in supply chains frequently
operate across borders, meaning that many logisticians have to work with profes-
sionals from different cultures. They have to speak different languages, know cus-
tom and value systems, law systems etc. Considering that cultural features were
often found to play an important role in the success of many international organiza-
tions, it is not surprising that academic institutions are placing more and more im-
portance on providing students with different possibilities for acquiring them.
The increasingly growing awareness of the importance of intercultural educa-
tion has already been investigated by a number of scholars (cf. Ferdig et al., 2007;
Rathje, 2007; Coperias Aguilar, 2009; Yao et al., 2009; Yuankun et al., 2009; Wil-
der et al, 2010 etc.), some of which have even focused on the importance of acquir-
ing intercultural skills in international logistics management (cf. Canen & Canen,
2001, 2004). However, the main criticism of the majority of studies remains the
fact that much of the literature and the majority of these studies have focused on
Western cultures, very few have examined intercultural education in non-Western
cultures, even Eastern-European cultures.
Taking into account that logistics is extremely important in a global context,
students can expect excellent international career opportunities, but they have to
have the knowledge and the skills to operate in an international environment. I re-
fer to them as intercultural competencies.

4.3 On intercultural competencies

Higher Education Academy (2012) defines intercultural competencies as those

knowledge, skills and attitudes that comprise a person's ability to get along with,
work and learn with people from diverse cultures. How can we prepare students to
operate confidently in an intercultural environment and what elements does inter-
cultural competence include? The most important elements of intercultural compe-
tence are said to be empathy, flexibility, cross-cultural awareness, managing con-
flicts, on the one hand, and foreign language proficiency, and situational factors, on
the other hand (see Figure 4.1), which have to be included in the learning process.

70
 
 Figure 4.1:The Intercultural Competence Learning Spiral
 

Source: adapted from Deardorff, 2006.

One of the most efficient ways to acquire intercultural competencies is through

the Erasmus exchange programme, which has become a social and cultural phe-
nomenon. One of its aims is to facilitate openness, tolerance, intercultural dialogue,
to connect people with each other and help them develop their networking skills.
The programme encourages young people to be flexible and mobile during their
studies. Various studies have confirmed that employers value the experience the
students have gained during their exchange programme abroad.
According to a study (Teichler, 2001) that analysed the influence of the ex-
change on future employment, students who participated in the exchange pro-
gramme did not only find work sooner but were also found more frequently to
communicate on an international level, found jobs abroad or were sent abroad.
Here, knowledge and understanding of intercultural and social differences and the
way of life, people skills and communication in a foreign language were said play a
key role. (Ibid.)

71
 
 Intercultural competence may also be understood as:
 an ability to form another cultural identity, which assumes knowledge of
language, values, norms, behavioural patterns of another communicative
community;
 an ability to achieve success while communicating with other cultural
communities even with insufficient knowledge of the basic elements of
your partner`s culture. It is this variant of multicultural competence which
one often faces in the process of intercultural communication.
 an ability of the representatives of one cultural community to get under-
standing in the process of interaction with the representatives of other cul-
tures, using strategies to prevent conflicts and creating a new intercultural
communicative community. (Lukiynh et al., 2011)

4.4 Acquisition of intercultural competencies at the faculty of logistics

The demands on graduates today differ greatly from the ones previous genera-
tions had to face. Rapid and often complex changes resulting from the ongoing
process of globalization and technology advancement are challenging almost every
aspect of our lives, the way we think, learn and do business. Since its foundation in
2004, the Faculty of Logistics has been offering students the possibility to attend or
participate in a number of events and activities, modules and programmes, through
which they can acquire multicultural competencies

4.5 Erasmus Plus exchange programme

The Faculty of Logistics is well aware of the importance and benefits of inter-
national exchange programmes for the students. Due to the global nature of the
logistics discipline, international exchange can be extremely beneficial to future
graduates. During the exchange, students improve their foreign language skills and
foster the understanding of different cultures. The exchange can last one or two
semesters and students can study at partner institutions abroad (Germany, Den-
mark, France, Hungary, Spain, Portugal, Poland, Lithuania, Island, Norway, etc.)
Equally, students may benefit from the incoming students from other partner insti-
tutions. By getting to know them, they can also learn a significant amount about
themselves and their own culture first hand from an entirely new perspective.

4.6 Foreign language courses

While the majority of activities are optional, some are obligatory such as a for-
eign language module at the undergraduate level and an optional module intercul-

72
 
tural communication at the graduate level. Foreign language, English or German, is
a core subject for the first and second year undergraduate students.

4.7 Module – multicultural communication

Graduate programme offers students to choose the subject, specially dedicated

to multicultural communication. Here, the main stress is on communication and
communication processes in different social contexts. The main aim is for the stu-
dents to learn to focus on and practice various aspects of business communication,
to account for major cultural features. This way, learners will not only be able to
use various methods to influence the basic interpersonal systems but also to devel-
op the skills, necessary to master verbal and non-verbal communication techniques
to maintain interpersonal relations in intercultural situations.

4.8 International events

The Faculty of Logistics organizes various international events, especially

conferences and symposiums and excursions, which students can attend free of
charge and at which they can participate and built their international social net-
work. For example, each year an international Conference on Logistics and Sus-
tainable Transport takes place, which a number of logistic experts attend. One of
the sections at this conference often includes intercultural communication in the
field of logistics, where scholars can present latest research and findings in this
area. Every year, the Faculty also organizes a symposium for postgraduate stu-
dents. This event is organized with partner institutions from Germany, Poland and
Singapore.

4.9 Conclusions

From this we can see that at the Faculty of Logistics, intercultural education
plays an important role. Students learn to accept and respect differences, which
reduce ethnocentrism, stereotyping and cultural misunderstandings or even clashes.
To this end, intercultural education has been integrated into the curriculum. As
such it provides students with the skills and attitudes, necessary to function in a
globalized world and in a global environment.
Faculty of logistics is very aware of the importance of intercultural knowledge
for logistics experts. Therefore four main activities are organised and offered to
their students: foreign language courses (English and German), Erasmus Plus ex-
change programmes (where every year more and more possibilities and countries
are included in exchange network of Faculty of logistics), several international

73
 
events (like conferences and student symposiums) and international module on
master study programme (which includes among others also intercultural commu-
nication topics).

References

Ballou, R. H. (2004), Business Logistics/Supply Chain Management, Planning,

Organizing, and Controlling the Supply Chain, (5th ed.), Pearson Prentice Hall,
New Jersey.
Canen, A. G., Canen, A. (2001), “Looking at Multiculturalism in International Lo-
gistics: an experiment in higher education institution”, International Journal of
Educational Management, vol. 15, no. 3, 145-152.
Canen, A. G. & Canen, A. (2004), “Multicultural Competence and Trust: A New
Road for Logistics Management?”, Cross Cultural Management, vol. 11, no. 3,
38-53.
Coperias, A,, José, M. (2009), “Intercultural communicative competence in the
context of the European higher education area”, Language and Intercultural
Communication, vol. 9, no. 4, 242-255.
Deardorff, D, K. (2006), Intercultural competence – The key competence in the
21st century? Bertelsmann Stiftung. Available from: http://www.bertelsmann-
stiftung.de/bst/de/media/xcms_bst_dms_18255_18256_2.pdf, accessed on: 12
February 2011.
Ferdig, R. E., Coutts, J, DiPietro, J. Lok, B., Davis, N. (2007), “Innovative tech-
nologies for multicultural education needs”, Multicultural Education & Tech-
nology Journal, vol. 1, no. 1, 47-63.
Higher Education Academy (2012), Intercultural Competencies. Avaliable from:
http://www.heacademy.ac.uk/resources/detail/internationalisation/ISL_Intercult
ural_Competencies, accessed on 10 February 2012.
Knežević, N. & Gorenak, I, Fošner, Maja (2011), “Expected competencies of a
logistician in Slovenian companies” In: Kramberger, T. & Čurin, A. & Ipavec,
V. M. (eds.) Proceedings of the 8th International Conference on Logistics &
Sustainable Transport 2011, Faculty of Logistics, Celje, 145-153.
Lukinyh, J.. Gorenak, I. & Orthaber, S. Mlaker, K, S, (2011), “Acquisition of mul-
ticultural competences in higher education” In: Logistika - evrazijski most, ma-
terialy VI Meždunarodnoj naučno-praktičeskoj konferencii, (2-3 marma 2011,
g. Krasnojarsk) : v 2-h častjah : materials of V[I] International scientifically-
practical conference, (March, 2-3th 2011, Krasnoyarsk) : in 2 parts. Kras-
nojarsk: Sibirskij gosudarstvennyj aerokozmičeskij universiet, 109-117.
Mlaker, K, S., Gorenak, I., Orthaber, S. (2009), “Erasmus as a tool for social net-
working - case study at the Faculty of Logistics” In: Bollin, Andreas & Bouc-
hachia, Abdelhamid (eds.), First Computer Science and Mobility Workshop

74
 
 2009 (CSMW'09), AAU Klagenfurt, Austria, 9th-10th April, 2009. Proceedings
CSMW'09. Klagenfurt: Alpen-Adria Universität, 47-53.
Mlaker, K. S., Gorenak, I. & Orthaber, S. (2011), “Competencies in logistics” In:
Šušteršič, J., Sedmak, S., Nastav, B. & Ježovnik, A. (eds.), MIC 2011 - Man-
agement International Conference, 23-26 November, Portorož, Slovenia, Man-
aging sustainability? : proceedings of the 12th international conference, Facul-
ty of Management, Koper, 673-682.
Rathje, S. (2007), “Intercultural Competence: The Status and Future of a Contro-
versial Concept”, Language and Intercultural Communication, vol. 7, no. 4,
254-266.
Taylor, D. (1997) Global Cases in Logistics and Supply Chain Management,
Thompson Learning.
Teichler, U. (2001), “Changes of ERASMUS under the Umbrella of SOCRATES”,
Journal of Studies in International Education, No. 5, SAGE – ASIE.
Wilder, H. & Ferris, S. P., An, H. (2010), “Exploring international multicultural
field experiences in educational technology”, Multicultural Education & Tech-
nology Journal, vol. 4, no. 1, 30-42.
Yuankun, Y., Buchanan, D.L., & Chang, I. J., Powell-Brown, A. (2009), “Different
Drummers: International Perspectives on Multicultural Education”, Internation-
al Journal of Multicultural Education, vol. 11, no. 2, 1-17.

75
 
 76
 
 5. QUALITATIVE RESEARCH OF EXPECTED
COMPETENCIES IN LOGISTICS

5.1 Introduction

This article will theoretically discuss the notion of competencies, present dif-
ferent types of competencies, competencies that are important in logistics and sup-
ply chain management and results of qualitative research in field of expected com-
petencies in logistics in Slovene companies.
Competencies can be in general defined as abilities, skills and knowledge to do
something successfully. It is ability that individuals perform their work properly.
Since the study of logistics in Slovenia is quite new (since 2005), the compe-
tencies are studied and research only in last couple of years. There are several
quantitative studies in this field, and their results will be presented in this paper.
Furthermore, the qualitative research of expected competencies that was made be-
tween March and May 2015 will be presented.

5.2 Competencies

Competencies can be defined from two different perspectives: from organisa-

tional and personal point of view. For us, competencies of individuals will be im-
portant in this research.
The most general definition define competencies as “abilities, skills and
knowledge to perform work successfully”. (Eraut, 1994)
Lucia and Lepsinger (1999, 5) define competencies as a tool “that identifies
the skills, knowledge, personal characteristics, and behaviours needed to perform a
role effectively in the organization and help the business meet its strategic objec-
tives”.
Slovene researchers of competencies define them in the several following
ways. Kohont (2005, 33) argues that competencies are a whole of interrelat-
ed skills, knowledge, motivation, self-image and values that an individu-
al knows, wants and is able to successfully use in a given work situation. Kohont
(2005) writes about general competencies, about managerial competencies and
work specific competencies of individuals performing different job. General com-
petencies are the most general one’s, mostly they describe general characteristics of
individuals. Managerial competencies are competencies related to general manage-

                                                            

Sonja MLAKER-KAČ, and Maja FOŠNER

77
 
rial tasks (like leadership, human resources management etc.). Work specific com-
petencies are defined for each job and are very different from one work field to
another (Kohonot, 2005).
Majcen (2009, 21) define competencies as “individual properties, characteris-
tics, knowledge, skills ... required for successful work or whether that employees
have them or not”. Therefore Majcen (2009, 23) distinguish between competencies
needed for work and competencies of employees. Majcen (2009, 24) therefore sug-
gests the following definition of competencies: “competencies are
those qualities or characteristics of the worker, enabling him to successfully carry
out tasks and solves problems in a particular workplace or work area, are:
knowledge and experience; different abilities and skills; other personal character-
istics (motivation, values, ...).”

5.3 Competencies in logistics

There have been several different international studies in field of competencies

in logistics. One of international studies is about the competencies of logistics ana-
lyst, logistics engineer and logistics controller (Novalog, 2004).
Professional competencies in these filed are according to Novalog research
(2004):
 “ability to overview the total logistics process;
 ability to understand the logistics potential for the company;
 ability to analyse and optimize existing logistics systems (especially in
warehouse) and to propose improvements;
 ability to interact with complex supply chain concepts;
 ability to define and implement an efficient logistics flow;
 ability to understand the role and possibilities of ICT for supply chain op-
timisation in order to give this an important role in the design process;
 ability to conceptualise problems/issues/solutions;
 ability to work process and customer oriented;
 ability to make use of IT-Tools;
 ability to produce forecasts;
 ability to work with big datasets (especially business analyst);
 ability to translate proposals and change processes in costing consequenc-
es;
 ability to perform cost/benefit analyses;
 ability to deliver achievable time-phased targets;
 ability to draw up and judge legal contracts.”

Furthermore, personal competencies were set (Novalog, 2004):

78
 
  “ability to negotiate with external service providers;
 ability to lead, innovate, challenge and motivate individuals and teams;
 ability to work in project form;
 ability to report about a proposal and present it to the logistics management
or to a (potential) customer;
 ability to implement inventory control”

Technical skill that are according to Novalog (2014) required for logistics ana-
lyst, logistics engineer and logistics controller are:
 “Supply Chain Management and Logistics know-how;
 good overview on the total logistics process (understand manufactur-
ing processes and relationship with logistics);
 broad knowledge about the structure of the warehouse;
 robust understanding of ERP and SCM systems);
 highly analytical skills and organised, data processing/statistical
skills);
 reporting and presentation skills (also presentations towards (potential)
customers);
 management skills (including project management);
 advisory skills;
 negotiation skills;
 commercial skills (involvement in tenders, in close cooperation with
sales people);
 costing (budgeting, accounting, controlling, activity-based-costing)
(deepest for logistics controller);
 good level of numeracy;
 solid technical competency in basic PC applications (PC applications
such as Microsoft Office), especially to work in a quite sophisticated
way with EXCEL and ACCESS)
 language skills;
 legal knowledge;
 knowledge about carrier conditions;
 construction knowledge (linked to decision about new or extended
premises, especially logistics engineer).”

Interpersonal skills required for logistics filed are following (Novalog, 2004):
─ “ability to work in a project form;
─ excellent oral and written communications (effective communicator);
─ persuasiveness to the managing directors;
─ personal authority to convince other employees, customers or suppliers;

79
 
 ─ ability to create consensus about the way to go (reconcile different inter-
ests);
─ ability to operate effectively as a constructive team player;
─ to be assertive while maintaining good interpersonal relationships with col-
leagues;
─ self-starter, ability to work on own initiative with minimum supervision,
high level of self-motivation and enthusiasm;
─ flexible approach to work.”

There is of course also specific knowledge needed for successful work in lo-
gistics (Novalog, 2004):
─ “Logistics software: Enterprise Ressource Planning-System (ERP), Advan-
ced Planning System (APS), Warehouse Management System (WMS);
─ other software tools: diagnostic and simulation tools, forecasting and plan-
ning tools, design tools, design tools;
─ technologies in logistics: RFID, Barcode (warehousing), e-Commerce
(commercial).”

Another important source of competencies in logistics is ELA (European Lo-

gistics Association). The research has shown, companies cannot imagine logistical
experts without good social and intercultural skills on one hand, and specialist
skills on the other hand. (Alfonz, 2011)

5.4 Qualitative research

Based on the theoretical background we prepared the qualitative research on

expected competencies in logistics field. 58 companies in Slovenia were included
in our research in period between March and May 2015. We have analysed their
documents in field of competencies and performed several interviews (they were
open interviews, it was more or less about conversations what are abilities, skills,
knowledge, personal characteristics etc. needed for successful work in logistics)
with employees working in supply chain or logistics in its widest definition.

5.5 Research results

58 companies and their opinion on expected competencies of their potential

employees and employees in field of logistics were included in the research.
In first chapter we defined competencies from Kohonts’ point of view. He de-
fined three different types of competencies of individuals: general competencies,
managerial competencies and work specific competencies. In field of logistics and

80
 
according to our research we can say that general competencies that are expected in
Slovene companies are following:
─ good analytical thinking;
─ good communication skills;
─ good knowledge of foreign languages (in most cases English, in many cas-
es also German or Croatian);
─ good negotiation skills;
─ accuracy;
─ good in quick learning and willingness to learn;
─ innovativeness;
─ good in working with many information and databases;
─ good in reporting the results,
─ flexibility;
─ quick in decision making.

Logistics function is in companies usually connected to management role. This

means that there are several managerial competencies that are expected good lead-
ing skills; good in supervision and control; good in organizing work and co-
workers; and good general planning skills.

Work specific competencies were quite different, especially because the com-
panies were more or less connected to the logistics as core business. In companies,
where the core business was logistics (for example transport companies) more
work specific competencies were mentioned and described as in companies where
logistics is only small part of their business. In general we can conclude, that work
specific companies in field of logistics are following:
─ knowledge of legal filed connected to logistics;
─ knowledge of competition in their field;
─ good knowledge of outsourcing activities and their providers;
─ good knowledge of warehousing;
─ good selling and consulting skills in logistics and supply chain manage-
ment;
─ knowledge of managing logistics costs;
─ good knowledge of specific documents related to logistics (for example
documents related to purchase orders, delivery notes and invoices);
─ knowledge and understanding of different logistics techniques and tech-
nologies.

There were of course several other competencies, but I this article we listed
only the most important ones, and those that were mentioned in most cases. Some
other work specific competencies were mostly very specific and related to the spe-

81
 
cific of the some companies’ branches (for example: good knowledge of medicine
warehousing in case of pharmaceutics company).

5.6 Conclusions

The field of competencies in logistics in very interesting for study. Several

quantitative studies (Knežević, 2010, Kukovič, 2011 and Virtič, 2011) have shown
that in many cases competencies in logistics in Slovenia are mostly learned in
working period, which is logical, since the study of logistics is quite new in Slove-
nia.
So, we wanted to analyse expected competencies in logistics and supply chain
in detail on qualitative way. Therefore, we defined competencies as skills,
knowledge and abilities needed for successful work. For our purpose, we used Ko-
hont’s (2005) classification of competencies, so we were researching general com-
petencies, managerial and work specific competencies in logistics.
We can sum up, that companies expect from logistics experts several general
competencies, like: good analytical thinking, good communication skills, good
knowledge of foreign languages (in most cases English, in many cases also Ger-
man or Croatian), good negotiation skills, accuracy, good in quick learning and
willingness to learn, innovativeness, good in working with many information and
databases and good in reporting the results; some managerial competencies (good
leading skills, good in supervision and control, good in organizing work and co-
workers, good general planning skills) and also work specific competencies in most
cases related to specific logistics programmes, logistic legal framework, warehous-
ing systems and technologies and techniques in logistics and supply chains.
Our study is qualitative and therefore not representative for Slovene economy,
but still we can say that our study results supports the results of several different
studies in competencies of logistics experts (Novalog, 2004, Knežević, 2010, Ku-
kovič, 2011 and Virtič, 2011).

References

Alfonz, A. 2011. Trends and Strategies in Global Logistics Networks: Logistics

Seminar and Eurolog 2011. Helsinki: ELA.
Eraut, M. (1994). Developing Professional Knowledge and Competence. London:
Routledge.
Kohont, A. (2005). Razvrščanje kompetenc. In M. S. Pezdirc (Ed.), Kompetence v
kadrovski praksi (pp. 29-49). Ljubljana, Slovenia: GV Izobraževanje.

82
 
Knežević, N. (2010). Analiza pričakovanih kompetenc strokovnjaka logistike v
slovenskih podjetjih. Celje, Slovenia: Faculty of Logistics, University of Ma-
ribor.
Kukovič, B. (2011). Kompetence logističnega strokovnjaka v večjem trgovskem
podjetju (diploma thesis). Celje, Slovenia: Faculty of Logistics, University
of Maribor.
Lucia, A. D. & Lepsinger, R. (1999). The art and science of competency models:
Pinpointing critical success factors in organisations. San Francisco, CA:
Jossey-Bass/Pfeiffer
Majcen, M. (2009). Management kompetenc. Ljubljana: GV Založba.
Novalog (2004): Job definition- logistics. Available on: http://www.novalog-
project.org/english/job_def/assistance.html
Virtič, T. (2011). Kompetence strokovnjaka logistike v transportnih podjetjih (di-
ploma thesis). Celje, Slovenia: Faculty of Logistics, University of Maribor.

83
 
 84
 
 6. THE URBAN DIMENSION OF LOGISTICS

6.1 Introduction

The large increase in population and economic growth in urban centres is re-
flected in the increasing demand for various products and services. For example,
approximately 80% of Europe’s population lives in cities, and the population con-
tinues to increase. A source of many problems is the delivery of goods in urban
centres, as these are often inaccessible to larger vans. In addition, the delivery of
goods in urban centres, which is usually done by trucks or vans, has a negative im-
pact on the environment, as well as the residents of urban centres (Cherrett et al.,
2012).
City logistics involves optimizing transport activities, in which performance,
security, availability and the consumption of energy are applied to all users in a
condition of maintaining a healthy economic environment. These different views
can lead to conflict. While it would be easier to create economic growth, it is also
necessary that the adverse external effects of the transport sector be reduced (Ols-
son & Woxenius, 2014).
City logistics, as the last link of the supply chain, strives to improve the final
delivery to customers located in urban areas. Planning the supply distribution is
often faced with problems related to the degree of uncertainty of the conditions
under which it operates. Uncertainty arises particularly in the dynamic characteris-
tics of urban traffic congestion, difficulties with finding parking spaces, limited
access to certain areas, and other factors. These problems encourage the develop-
ment of innovative processes and technologies, as well as simulation techniques
and optimization models created specifically for the presentation of the characteris-
tics of urban freight transport (Muñuzuri & Cortés, 2012; Quak, 2012).
The major French cities found that trucks consume an average of 30% of the
capacity of urban streets, of which two thirds are parking places for delivery and
surfaces for “pick-up” operations. The transportation of goods in urban areas repre-
sents approximately 10% of the total kilometres travelled in urban areas; the same
applies to the three largest French cities where the value is between 13% to 20%
(Crainic, 2008). Naturally, freight vehicles in cities not only cause congestion but
also reduce air quality due to emissions. These disadvantages affect the lives of all
the people who live or work in towns and cities, as well as the productivity of en-
terprises located in urban areas and, consequently, the supply chains that these en-
terprises encompass.
                                                            

Darja TOPOLŠEK, and Tina CVAHTE

85
 
 City logistics has a major impact on the local economy and on the lives and the
attractiveness of urban centres, but it creates environmental problems and problems
related to accessibility as well as causing congestion. For example, in city centres,
city logistics causes (Breuil, 2012):
─ 80% of vehicle stops due to deliveries are made at “illegal parking areas”;
─ 60% of deliveries take less than 5 minutes and only 9% of deliveries take
longer than 20 minutes, but these represent 36% of the total time of deliv-
eries in a day;
─ only 8 small vans are required to replace one large truck.

City logistics can achieve great benefits mostly through the rationalization of
distribution, leading to a reduction in the number of commercial vehicles traveling
in the city. Consolidation of the shipments of various consignors and carriers in the
same vehicle, related to some form of coordination of operations in the city, is
among the most important ways of achieving the rationalization of distribution ac-
tivities. The concept of city logistics also includes the potential to solve problems
associated with traffic in urban centres. Among the first, Taniguchi et al. (1999, p.
2) defined city logistics as a process that aims to fully optimize logistics and
transport activities within urban centres, including the traffic environment, traffic
congestion and energy consumption.
Ehmke (2012) presented several logistical concepts that come into play in
tackling the problem of city logistics, such as the integration of aspects of various
stakeholders, urban consolidation centres (UCC) and the initiatives of city logistics.
All of the above indicates that the urban dimension of logistics should have an
important role in managing today’s logistics and supply chain flows and processes.
Therefore, this chapter will focus on the specifics of freight logistics in an urban
environment with a goal of presenting the main points for consideration on this
field and to compose a schematic that presents all aspects of city logistics that play
an important role in its management. The research question of this contribution,
therefore, is: “What elements need to be taken into account when managing the
urban dimension of logistics and what are their interrelations?”

6.2 Methodology

The main goal of this chapter is to present crucial principles of managing the
logistics of freight in an urban setting. As such, the main methodological frame
will consist of an in-depth literature review in order to identify, present and evalu-
ate crucial factors of managing city logistics, mainly through existing models and
efforts for overcoming the problems of urban freight flows. This will be done by
presenting the highlights of the most relevant research and grouping them in order

86
 
to compile a schematic that encompasses all levels of logistics management in an
urban setting from the city’s viewpoint.

Figure 6.1. Interrelations among stakeholders, measures and problems

of city logistics

The literature was obtained using the Scopus portal, since this is considered to
be the most inclusive database of scientific research and has the option to sort pa-
pers by various relevant criteria, including citations (Meho & Yang, 2007; Iselid,
2008). The search focused on three previously identified main elements of urban
logistics management: the problems behind it, the potential measures to be imple-
mented, and the stakeholders connected to it. These were also the main keywords
for the performed searches, combined with the keywords “urban”, “city”, “logis-
tics” and “management”. From all the search results, the papers were filtered to

87
 
those published after 2004, since the research focused on more recent city logistics
initiatives. Additionally, the found results were sorted by the number of citations to
ensure that the most relevant research was included. The top 25 papers from each
combination of keywords were then taken into account, and the most relevant of
those are presented in the results section.
From the sorted results, two schematics were compiled. The first offers a sim-
ple overview of the relations between set elements of the urban dimension of man-
agement of logistics (also called “city logistics”), while the second shows the po-
tential for implementation with regards to whom to take into account and consult
(stakeholders) and which measures solve which problems. The methodological
framework is shown in Figure 6.1.

6.3 Results

Based on the review of the relevant literature, three main areas emerged as
those most important in the consideration of city logistics management. These are
the problems behind it, the stakeholders, and the potential measures that can be
implemented. In the following parts of this chapter, the most relevant findings from
the literature review will be presented, categorized into these three categories. Fi-
nally, they will be summarized in a schematic of city logistics that shows a graphic
presentation of all important elements to consider in the urban dimension of freight
logistics.

6.3.1 Problems

The freight policies of local authorities are often based on the reaction of the
population to problems and negative impacts, as opposed to taking a proactive
stance (Quak, 2008).
One of the consequences of globalization is growing freight transport in urban
areas. Freight transport in particular increases noise pollution and congestion on the
roads, while the significant weight of trucks accelerates the destruction of road in-
frastructure, which means that a large share of city money is being paid for the
maintenance of roads and solving other aforementioned problems. Boosting logis-
tics activity within urban environments thus jeopardizes the preservation of the cit-
ies and regions (Macário et al., 2008).
Among the many problems that occur in urban areas, freight delivery repre-
sents one of the most significant ones. The increase in demand leads to recipients’
pressures and intensification of freight transportation through urban areas. This
creates many undesirable outcomes, such as congestion, increased waste and envi-

88
 
ronmental devastation, as well as increased noise levels and risk of accidents
(Chwesiuk, Kijewska & Iwan, 2010).
Modern manufacturing practices are based on low stock levels and “just in
time” deliveries, increasing customer demands and expectations in regard to the
quality of services rendered. The vigorous growth of e-commerce generates signif-
icant quantities of at-home deliveries. This has a significant impact on the high fre-
quency of deliveries, and the higher volumes of shipments from, to or through ur-
ban areas. Increased urban freight transport is strongly competing with passenger
vehicles for space on the roads and parking spaces and, therefore, contributes sig-
nificantly to pollution and environmental problems, such as emissions and noise
(Lin, Chen & Kawamura, 2014; De Oliveira et al., 2012).
The urban distribution of goods is currently causing many problems for stake-
holders of the urban system. Carriers spend most of their time and consume a sig-
nificant part of the shipping cost on the “last mile” distribution due to increased
traffic, lack of unloading/loading zones and other inefficiencies. Although urban
distances represent a small part of the total distance travelled, they represent on
average 28% of total transport costs (Roca-Riu & Estrada, 2012).
Breuil (2012) identifies the following problems connected to insufficient man-
agement of freight transport in urban areas:
 Urban freight transport uses between 25% and 30% of the road space (in-
frastructure) in Europe (used space × hours);
 Urban freight transport represents between 10% and 20% of all road
transport in urban areas (vehicles × km);
 The share of the costs of “last mile” transport against the entire transport
costs is between 10 and 20%;
 city logistics in urban areas causes about 30% of CO2 emissions and NOx
pollutants and 40% of the noise pollution;
 it is expected that the energy consumption associated with the transport of
freight will encompass 45% of all energy consumption in 2030;
 the tonne-kilometres of freight transport are expected to increase by 63%
in 2030 compared to 2010.

Cherrett et al. (2012) also indicate the problems that urban freight transport is
met by:
 heavy trucks in urban centres, which are too heavy for the roads and con-
sequently destroy them, as well as the facades of houses,
 increased noise emissions,
 decreased accessibility in urban centres,
 time windows for delivery cause congestion and high occupancy of availa-
ble areas for freight vehicles

89
 
  inaccessibility of streets and lack of access to certain sites, as the streets of
urban centres are usually very narrow,
 shops usually do not have permanent specific delivery areas so as not to
hinder traffic during deliveries,
 a chronic lack of parking spaces,
 under-utilization of reverse logistics,
 unused facilities.

6.3.2 Measures
 
Resolving the problem of urban freight deliveries requires streamlining the
distribution of processes, in economic as well as spatial and temporal terms. Re-
ducing movement of while simultaneously meeting the needs of consumers is re-
quired. To address the environmental (and other) problems, different cities are im-
plementing different approaches (Macário et al., 2008).
Macario, Galelo and Martins (2008) have ranked measures to deal with logis-
tical problems in towns and cities from softer to harder. Among the softer measures
are legislation and organizational measures, for example, cooperation between lo-
gistics systems, the promotion of night-time deliveries, public-private partnerships,
and use of intermediate warehouses. A set of actions relating to restrictions on ac-
cess includes restrictions for vehicles based on the weight and volume, conditional
access in the pedestrian zone, the imposition of fees and alike. In the next set,
which is somewhat more difficult to implement, because it requires changes or re-
construction, is the establishment of areas for loading and unloading. This is fol-
lowed by technological measures, such as GPS tracking software for planning
routes and similar. Among the last, most difficult measures, are infrastructural
measures, which require significant changes to existing arrangements and cover
construction or the setting up of an urban distribution centre and peripheral storage
facilities, the use of city rail freight transport, and the use of underground transport.
Patier and Browne (2010) have classified innovations into three categories.
The first includes the consolidation of trade flows within the urban area (through
the introduction of an organization or centre for consolidation); the second con-
cerns the application of non-or low-polluting vehicles (e.g. electric vehicles); the
third category covers the regulation restriction through legislation, which usually
means time windows and restrictions according to the size and type of vehicle.
Munuzuri, Larraneta, Onieva and Cortes (2004) identified four different
groups of measures for policies to mitigate the adverse effects of urban freight
transport in the urban environment:
 measures related to public infrastructure; the creation of transfer points, for
example city terminals;

90
 
  promoting the transition to more environmentally friendly modes of
transport, for example the subway system, trains, etc.;
 measures related to land use management, for example the creation of
parking spaces, thus ensuring designated loading areas;
 measures related to conditions for access; this category includes restriction
policies with respect to space, for example pricing in road transport and re-
strictions on vehicles depending on the time (e.g. a time window and a ban
on night-time deliveries);
 measures related to traffic management, for example re-examining the
scope of the rules (harmonization of regulations with other local authori-
ties).

Urban freight transport policies are frequently implemented, such as the regu-
lation of freight vehicles, access restrictions on the type of vehicle, policies for
loading/unloading, fiscal policies and centres for the promotion of transhipment
and consolidation of goods going into the city (Danielis, Rotaris & Marcucci,
2010). Goldman and Gorham (2006) cite “drop off” points in the neighbourhood as
an important innovation in the field of city logistics that promotes sustainable
transport and can significantly contribute towards reducing the number of journeys
towards the centre of the city. Similarly, the problem of limiting urban traffic is
also addressed by Crainic, Errico, Ricciardi, and Rei (2011), dealing with the issue
of integration of C2C (customer-to-customer) and E2C (external zone-to-customer)
in the implementation and planning of double-tiered city logistics. They set up
many possible scenarios of integration, either with different, dedicated fleets of
vehicles, or with combined fleets of vehicles, and with satellites (urban hubs for the
collection of cargo going in and out of a city).
One of the most common regulations in medium and large cities is a time win-
dow of access, which grants access to freight vehicles into central and compact
urban areas only at certain hours of the day. Muñuzuri, Cortés, Grosso, and Guadix
(2012) propose a system of mini-hubs in order to avoid additional costs for carriers
due to regulations and to maintain the social and environmental benefits of sustain-
able transport. These are specific streets or areas where freight vehicles could be
parked, and then the final part of delivery is performed on foot with hand carts.
Transhipment centres are often proposed as a solution to the environmental prob-
lems caused by freight transport in urban areas. Goods destined for the city are un-
loaded in a depot in the suburbs and transhipped to small vehicles for the final con-
solidated delivery. The same vehicles would also collect consignments from urban
centres. Some proposals predict the mandatory use of these facilities by eliminating
all other trucks from certain areas, or this may be of a more voluntary nature. In the
latter case, a variety of incentives can be used to encourage their use. In addition,
local authorities can restrict operators who opt not to use such facilities with short

91
 
time windows or restrictions on the size of vehicles in urban areas (Browne et al.,
2007).
In Japan, a study was performed in Sapporo, in which the city logistics pro-
cesses would use the subway. The solution is also proposed for cities with similar
existing infrastructure like subways. This would mean that deliveries from the sub-
urbs to the city would avoid traffic jams on road and reduce the delays, which
would consequently also decrease the levels of CO2 emissions due to a smaller
number of freight vehicles in urban areas. Vendors in an underground shopping
centre in the heart of the city could reduce supplies due to frequent deliveries
linked to the subway and the public transport company could increase income from
off-peak times due to the implementation of freight traffic (Kikutaa et al., 2012).
We can conclude that the literature is relatively uniform regarding possible
measures to address the problem of urban freight deliveries and indicates similar
opportunities. When reviewing the literature, the most commonly used measures or
a combination of them are:
 determining the time windows for delivery
 restrictions of the entry of freight vehicles into the city centre
 night-time delivery
 charging of entry fees
 designated parking spaces for freight vehicles or loading/unloading zones
 urban consolidation centres,
 new modalities for freight transport,
 organizational measures such as shared fleets.

 
6.3.3 Stakeholders
 
Several stakeholders have been identified in the field of urban freight
transport, each with its own priorities and goals, and ways towards achieving them.
When city logistics principles are in place, and the general environment changes,
the behaviour and relations of these stakeholders is affected. Therefore, they are a
crucial part of the overall city logistics system and vital for the successful imple-
mentation of any measure from the field of regulation urban freight transport. One
of the first, Taniguchi and Tamagawa (2005), defined five groups of stakeholders
of city logistics: freight carriers, shippers, residents, administrators, and urban ex-
pressway operators.
Taniguchi et al. (2008) say that the most important stakeholders of city logis-
tics are shippers, providers of urban logistics, residents, and city administrators.
Each of the key stakeholders in the urban freight transport has specific goals and
behaviours. Based on this, each city logistics model should include these factors.

92
 
 City logistics is a system inside the city itself, and as such, it is comprised of
many subsystems. These include various groups of stakeholders: shippers, receiv-
ers, end consumers, transport operators, and public administrators. Awasthi and
Chauhan (2012) define these groups in this manner: “The end consumers are resi-
dents or the people that live and work in the metropolitan areas. Shippers (whole-
salers) supply good to the receivers (retailers, shopkeepers) through transport oper-
ators (or carriers). Administrators represent the government or transport authorities
whose objective is to resolve conflict between city logistics actors, while facilitat-
ing sustainable development of urban areas.”
In addition to the more traditional stakeholders of logistics, mostly shippers,
carriers and receivers, whose interests lie more in the economic aspects such as
price and quality, city logistics is also aimed towards groups with more social and
environmental concerns, mostly public administrators and citizens (Anand, Yang,
van Duin & Tavasszy, 2012).

6.3.4 City logistics schematic

The basic schematic of city logistics elements and relations is presented in Fig.
6.2.

Figure 6.2. Schematic of city logistics elements

The interrelations between three main elements, namely stakeholders, prob-

lems and measures, are additionally explored in Figure 6.3, which also shows
which measures target which problems.

93
 
 Fig. 6.3. Interrelations among stakeholders, measures and problems of city logistics

94
 
 6.4 Discussion

Contemporary logistics is increasingly faced with new challenges, for which

logistics managers have to  implement innovative measures in order to ensure
smooth freight deliveries without comprising the natural, social, or economic envi-
ronments. This is apparent in the urban setting, where the challenges of logistics
are concentrated in a small area with great needs for deliveries, combined with
great limitations and regulations.
In order to identify ways of overcoming limitatio, but still ensure seamless lo-
gistics, different initiatives on the field of city logistics have been researched and
implemented. To build on this, the research presented here has consolidated the
most relevant existing literature findings in order to present a model of the urban
dimension of logistics. With taking into account the three main elements, namely
the problems, stakeholders and measures of city logistics, one can begin to evaluate
the status quo in an urban setting and outline the potential behind the implementa-
tion of city logistics initiatives in order to improve freight logistics in a city in a
sustainable way.
The most valuable output of this research lies in the model (schematic) of the
interrelations between the identified elements. The model clearly points to the fact
that not all measures solve or improve all problematic fields. Therefore, city logis-
tics managers should carefully examine the relationship and opinions between
stakeholders and the problematic fields in order to evaluate which measures should
(and could) be implemented in a specific urban environment. Moreover, the effects
of some measures are greater than that of others, which should also be used as an
input into the decision process. With all of this, the management of the urban di-
mension of logistics should bring the desired positive effects to an urban setting
with the consent of all included stakeholders.

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 98
 
 7. GREEN LOGISTICS - DEVELOPMENT
AND IMPLEMENTATION

Environmental problems, material depletion, and high dependency on fossil

fuels are core problems of logistics in the EU as well as globally. Therefore,
numerous countries, in particular Member States of the EU, have ambitious goals
for the increased use of renewables, increased energy efficiency, the reduction of
greenhouse gas emissions, transition to sustainable transportation and similar
changes. EU companies are, therefore, strongly committed to reducing their envi-
ronmental impact, reducing the use of fossil fuels and becoming more sustainable.
Logistics companies are no exception due to the impact of logistics processes, such
as transportation and distribution that impact human health, ecosystem and air
quality, climate changes (with noise, vibrations, fossil fuel related harmful
emissions etc.), warehousing (especially with energy used for heating and cooling)
and packaging (especially with the use of material). Therefore, the implementation
of green logistics is necessary for the sustainable future of our planet. This chapter
identifies how the idea of green logistics was developed and has evolved, analyses
key problems for its implementation, and presents the current status of green
logistics, including the best practices of green logistics implementation in selected
organizations.

7.1 Introduction in green logistics

7.1.1 Why pursue green logistics?

The main objective of logistics is to coordinate logistical activities and to meet

customer requirements at minimum cost. In the past, the cost of achieving the
logistic objectives were expressed only in financial or economic terms, but today,
due to the external effects of logistics, such as pollution, noise, accidents, and other
factors, companies are seeking a balance between economic, environmental and
social objectives (Knez, 2011).
Over the previous decade, companies have been under strong pressure because
of governmental environmental legislation and increasing public environmental
awareness. In particular, attention is being paid to the distribution of goods (which
is strongly related to logistics), which causes lower local air quality, noise and
vibrations, traffic accidents, and contributes to global warming. It is estimated that
freight accounts for approximately 8% of energy-related CO2 emissions in the
                                                            

Matjaž KNEZ, and Matevž OBRECHT

99
 
world. If the storage and handling of materials are included, an additional 2% to
3% can be added. The World Economic Forum estimates that logistics activities
represent approximately 5.5% of total global emissions, two thirds of which is
caused by freight transport, and approximately 9–10% is related to logistics-related
facilities. The energy used for transporting goods has been increasing rapidly in
comparison with the energy consumed by cars and buses. Shipping represents 15–
30% of the total CO2 that is released into the atmosphere annually, so it is not
surprising that governments and intergovernmental organizations have been
developing policies to reduce greenhouse gas (GHG) emissions in the atmosphere
(McKinnon, 2012).

7.1.2 The idea of green logistics

The idea of green logistics is based on protecting the environment and

reducing the environmental and other costs of logistic processes; it covers all the
stages of the product lifecycle, including its recycling and embodied energy that
should (ideally) mainly be produced from renewables. It requires an upgrade of
traditional (classic) logistics (i.e. the right goods in the right place at the right time
in the right quantity and right condition in the right packaging at the lowest cost)
through the concept of meeting all the requirements of users and customers
including the lowest rate of environmental pollution.

Figure 7.1. Green supply chain (Knez, 2011)

100
 
 Green logistics or the concept of the green supply chain, presented in Figure
7.1, therefore, aims to achieve a sustainable balance between economic, environ-
mental, and social objectives (Knez, 2011). Green logistics and related topics have
recently become highly current and relevant and are frequently one of the most
important factors that set new trends and impact national or organizational policy
and development strategy. That ‘green’ topics are extremely current and relevant
can also be seen in the Horizon 2020 calls, because the highest amount of the EU-
related grants and financing is provided for sustainable and green research projects.

7.1.3 History of the development of green logistics and its beginnings

The pioneering research in the field of green logistics is almost impossible to

determine. The starting point could be the first article written on this subject that
was published in a logistics journal, but this would discard all previous research
related to the environmental impacts of logistics. Although the concern about the
harmful effects of transport had been expressed as early as in the 1950s, the begin-
ning of most of the research related to green logistics can be found only after 1960.
However, it is noted that the research articles and books that deal with
environmental problems are very rare throughout the period from 1960 to 2000 and
are becoming more common only in the previous decade (McKinnon, 2012).
In the previous 40 years, logistics developed as an academic discipline; conse-
quently, green logistics also did so. New environmentally related trends can be
identified in green logistics research, such as the growth of environmental aware-
ness, the dissemination of environmental regulations, the development of national
and international standards on the environment, and others. As a result of these
trends, the volume of ‘green-related’ information available to the logistics provider
has also dramatically increased and enables better implementation of green logis-
tics in its processes. Various and extensive specialized studies on green logistics
have become a daily reality.
The motives for the majority of earlier studies that examined the impact of
logistics on the environment has been an increase in freight traffic and especially
the increased number of road cargo trucks that were very loud and very polluting.
A large number of studies were carried out, particularly in Great Britain, with the
goal of measuring the impact of transport on the environment. This led to the
formation of the representatives of the truckers and the Committee on the
Environment in the organization, which published a series of reports on how to
streamline the movement of cargo by road between 1974 and 1979. Advances in
vehicle technology and tighter regulations regarding emissions led to a significant
contribution to the simultaneous reductions of harmful emissions and cost of trans-
portation (McKinnon, 2012).

101
 
 The first identified major study of the distribution of goods in urban regions
was carried out from 1970 to 1980. Larger cities, such as London and Chicago,
started to study city transportation, and academic institutions started to explore
specific aspects of the urban freight system. In the 1980s and 1990s, research in
this area was severely limited as they (supposedly) exhausted all sources of financ-
ing in the previous period. Many environmental problems associated with urban
freight transportation remained unresolved. That is why this topic became highly
relevant again between 1990 and 2000 when a large amount of new research sup-
ported by international research initiatives in Europe was initiated (McKinnon,
2012).
Individual branches of the economy are now also dealing with the question of
how to bring a product from production to the distributor and beyond, most effi-
ciently and at a minimum cost (including for the environment). Greater emphasis is
placed on urban freight transport, and new branches of urban freight research in-
clude the diversity and scale of facilities that are associated with last mile logistics.

7.2 Methodology

In this chapter, we have reviewed scientific and professional literature to

review data on the historical development of green logistics, to discuss its starting
point and development along with a review of different studies evaluating
importance of green logistics in practice. Since greening is becoming an important
global trend, we identified how well green logistics is implemented in practice. Our
focus was on the Slovenian economy. A review of special databases was also car-
ried out to gather relevant data about important factors, presenting the development
and the level of implementation of green logistics. We have made a comparative
analysis of green logistics and the importance of environmental issues and their
inclusion in companies’ objectives in Slovenian and American companies.
Additionally, we have identified crucial problems in the implementation pro-
cess of integrating ‘green’ into business processes. These problems were carefully
reviewed and cross-compared. Different studies have identified different imple-
mentation problems, and we have studied whether these problems are also relevant
for the transition to green processes in Slovenian companies. Key findings were
synthesized and discussed.

102
 
 7.3 Green logistics in practice

7.3.1 The importance of green issues and integration of ‘green’ in business

strategy – a cross-comparison of the USA and Slovenia

Many recent studies have shown that green logistics strategies have gained
importance in supply chain management and that the transport and distribution ac-
tivities have a significant weight in the formulation of these strategies.
Recent research (Insight Research) conducted among 600 supply chain experts
across the EU, the USA and Japan in 2008 revealed that, on average, 35% of their
companies had a written ‘green’ strategy for supply chains, while this proportion
increased to 54% among enterprises whose annual turnover exceeds 1 billion USD.
The various activities carried out by this strategy include logistics, which was
identified as environmentally problematic and was, therefore, changed in 81% of
these enterprises. This study has shown that logistics and supply chain management
(economic) goals are closely related to environmental objectives.
Another study performed by McKinsey consulting (Supply Chain Digest,
2008) in 2008 revealed that talking about green solutions and having a green
strategy or sustainable policy is far ahead of real actions and implementations of
these strategies in practice. Including over 2000 American companies, the study
showed that 73% of them were convinced that climate change is an important or
even very important issue (Figure 7.2) but that only 23% of them had included
environmental issues, i.e. climate change, in the companies’ objectives (Figure
7.3).

Figure 7.2. Importance of climate changes in USA and Slovenia

103
 
 A similar study was carried out at the Faculty of Logistics at the University of
Maribor in 2010, which included 120 Slovenian companies. Figure 7.2 and Figure
7.3 also present a comparison between American and Slovenian companies,
revealing that in Slovenia the percentage of companies that considered climate
change to be an important or very important topic is 80% (Figure 2) but again only
27% had already included climate change issues in the companies’ objectives
(Figure 7.3). Research in the USA has also shown that there are relatively few
companies that actually set their emissions targets while, conversely, more than
60% of enterprises believed that they manage and implement environmental
improvements without defining environmental goals and having objectives such as
reducing their greenhouse gas emissions; 15% of them were not even aware
whether they had set them or not. The results are similar in Slovenia, although en-
vironmental issues are slightly more important in Slovenia, and more companies
have already included them in their objectives. Furthermore, slightly more compa-
nies believed that they manage and implement environmental improvements with-
out defining environmental goals.

Figure 7.3. Including awareness about climate changes in company objectives

Therefore, the implementation of logistics activities in accordance with the

principles of green logistics can be raised to a higher level through a variety of
strategies. One such solution is the ‘top-down’ approach that is less popular with
companies: the government sets goals and dictate actions and changes. In the other,
more user-friendly ‘bottom-up’ approach, companies themselves based on their
own interests and beliefs (or because they identify new business opportunity) and
create and implement green policies. The environmentally friendly business activi-
ties of companies can be disclosed with the acquisition of voluntary environmental

104
 
standards, such as the ISO 14000 series. The number of ISO 14001 certificates has
been increasing since 1998; however, since 2008 the number of acquired certifi-
cates has fallen slightly, presumably due to the global ecomonic crisis. The situa-
tion has been improving in recent years. The number of obtained ISO 14001 stand-
ards in Slovenia is presented in Figure 7.4.

Figure 7.4. Number of ISO 14001 environmental management standards

in Slovenia
 

Number  of obtained ISO 14001standards in Slovenia
500
450
400
350
300
250
200
150
100
50
0
1998 2000 2002 2004 2006 2008 2010 2012 2014

Source: ISO, 2015.

7.3.2 Key problems and factors of implementing green logistics

Different extensive surveys conducted among companies in recent decades

have revealed that many organizations around the world promote their environmen-
tal awareness and environmentally friendly actions. It would be a great thing if
these were their primary objectives as well. However, in most cases it appears that
the companies are mainly focused on marketing campaigns that influence the pub-
lic opinion regarding their environmental suitability and acquiring customers rather
than genuine environmentally friendly actions. Key factors for becoming greener
were therefore studied and discussed. In Table 1, the key findings of three different
studies are presented revealing factors that are important for logistic companies to
become environmentally friendlier.

105
 
 Table 7.1. Key factors for greening of business processes in enterprises

Eye for Transport (2007) Aberdeen group (2008) Insight (2008)

Improving public relations Company existence Optimize supply chain
Improving customer rela- Increasing energy and fuel
Improve company image
tions costs
Part of the plan for being
Competitive advantage,
socially responsible compa- Lower the costs of logistic
differentiation
ny
Finances and profitability of Compliance with current Compliance with legal
investments and future legal regulation regulation
Compliance with legal regu-
Increasing transport costs Customer demands
lation
Differentiation from com-
Decreasing fuel costs
petitors
Increasing supply chain effi- Developing alternative
ciency logistic networks
Decreasing risks
Improving investors rela-
tions

It is encouraging that enterprises react to these studies and that they have also
identified the greening of their processes as a new business opportunity as well.
In this perspective, Slovenia is no different from other countries. However,
there are also some additional proposals for the greater promotion of green logistics
that should be applied, such as the preparation of comprehensive sustainability
guidelines for Slovenia, which could bring together all stakeholders’ interests,
including the field of green logistics. Europe has set ambitious environmental
targets but crucial problems are many times identified in developing countries who
all want to achieve the standards of the developed and rich countries but without
the implementation of green processes in accordance with the principles of green
logistics, which are still extremely rare or almost non-existent.

7.3.3 Best practices of green logistics

Each company must first understand the impact of the emissions associated
with purchasing materials or semi-finished products and their production processes.
Then, a company has to systematically analyse the possibilities of reducing their
environmental impact with existing measures and new opportunities as well as ana-
lysing potential costs, both for themselves for other partners in the supply chain.

106
 
Today, many companies still believe that CO2 emissions in supply chains are main-
ly originating from partners whose operations and actions cannot be controlled.
For example, the American retail chain Wal-Mart also transfers their green
policy to their partners and in some cases this is a condition for their cooperation.
In recent years, they have announced numerous initiatives and actions that seek to
motivate their suppliers regarding environmentally friendly actions. If Wal-Mart
can truly find a way to double its fleet (trucks) energy efficiency in the next ten
years, it will not only reduce their carbon emissions but will also save millions of
dollars due to lower transport and fuel costs.
Another case of best practice is Iceland, which is probably the only country in
the world with a coherent strategy for sustainable development that does not in-
clude the use of fossil fuels, including oil. Iceland heats over 85% of all buildings
with geothermal energy and produces over 80% of total electrical energy in
hydropower plants. A part of the electricity produced in the period of low electrici-
ty demand is used for the electrolysis of water and hydrogen production. Hydrogen
is then used to power Reykjavik’s fuel cell bus fleet.
Even in Slovenia, there are increasing numbers of cases of best green practic-
es. The best of them are nominated for the Green Logistics company award.

7.3.4 Reverse logistics is crucial for being green

Jonathan Weeks, a former chairman of the British Institute of Logistics, de-

fined logistics as the flow of materials from the earth through the production, dis-
tribution and consumption back to earth. Returning product and packaging waste
for reuse, recycling, and disposal are activities that are now considered to be a key
part of green logistics (McKinnon, 2012).
Interest in research of green logistics and reverse logistics evolved in the
1990s when governments and companies began to reform their waste management,
started to reduce the proportion of waste material in municipal landfills or
incinerators, and started to increase the proportion of recycling and reuse. This has
radically transformed the logistics of waste management and has encouraged
research in reverse logistics, especially in the return flow of goods throughout the
whole supply chain.
Increasing interest in logistical activities associated with the return of broken,
unsold or returned consumer products back into the supply chain by the
consolidation, handling and disposal of waste products represent a huge
opportunity to reduce costs, to make new revenues (e.g. by selling waste), to create
new green jobs, and to increase efficiency in the logistics sector as well as to
reduce global material use.

107
 
 7.4 Conclusion

Green logistics is not only manifested through the use of commercial vehicles
that meet the latest EURO 5 and EURO 6 standards, the use of vehicles running on
biodiesel, natural gas, electric propulsion and vehicles using hybrid technology but
also in the optimization of loading trucks, optimizing travel routes, the integration
of renewable energy into logistics processes, the reuse and recycling of waste
packaging, teaching drivers about fuel-efficient driving, in multi-modality, in the
redirection of traffic from road to rail and maritime transport, and many other
activities. The realization of a green logistics policy in a company is certainly not a
condition that determines the long-term existence in the market but it can be argued
that its implementation adds value to the company over the long term, which may
be reflected in a better social reputation and gaining new customers (Knez and Plut,
2010). This is not (yet) a condition for the success of the company. However, those
companies that are proactive and are already investing in the implementation of
greener processes can more easily and more flexibly achieve their competitive
advantage, successfully apply for European green funding, follow environmental
legislation and so on. Over the next decade, the development of logistics will con-
tinue, which will also be focused on the still interesting rationalization of business
processes.
Current trends of global transport will further continue, and the volatility of
fuel prices will continue to shape trends on the global market. Therefore, it will be
crucial to finding the right, green, and renewable energy resources that will allow
logistics providers to be competitive in the global market. Today, the question of
whether logistics will have to show a ‘green face’ is no longer relevant. The
pressure in this direction increases in all sectors of the economy, policy, and
society; therefore, the real question is when we will transit to ‘green’ in order to
maximize our contribution to preserving the environment.

References

Aberdeen group (2008), Building a Green Supply Chain, Aberdeen Group, Boston.
MA.
EyeforTransport (2007), Green transportation and logistics, Available on:
http://www.eyefortransport.com
Insight (2008), Mature is the Green Supply Chain. Supply Chain Monitor, Bearing
point Inc., McLean, VA.
ISO. 2015, Evolution of ISO 14001 certificates in Slovenia. [online]. Available on:
http://www.iso.org/iso/home/standards/certification/home/standards/certificati
on/iso-survey.htm?certificate=ISO14001&countrycode=SI#countrypick
[3.6.2015].

108
 
Knez M., Plut J. (2010), “Varovanje okolja v celotni oskrbovalni verigi”, Finance,
petek 10. Decembra 2010, št. 240, p. 23 (in slovenian).
Knez, M. (2011), „Zelena logistika - zelena preobleka klasične logistike“, Gospo-
darjenje z okoljem, Vol. 20, No. 77, 6-8 (in slovenian).
McKinnon A. (2012), “Environmental sustainability: a new priority for logistics
managers” 3 – 29, in McKinnon A., Browne M., Whiteing A. (2012), Green
logistics. Improving the environmental sustainability of logistics, Kogan Page.
Supply Chain Digest (2008), Talk is Ahead of Action on Green Supply Chain, Ac-
cording to McKinsey Study, Available on: http://www.scdigest.com/assets/
On_Target/08-08-05-5.php (dostopano 26.8.2015)

109
 
 110
 
 Shapter 2

PAPERS OF THE PROJEKT TEAM MEMBERS

MARITIME FACULTY OF KOTOR

MONTENEGRO

111
 
 112
 
 8. POSSIBILITIES OF LOGISTICS PARTNER
COOPERATION BETWEEN THE SEAPORTS
OF BAR AND KOPER
 
 
The scientific problem and the subject of research consists of the explanation
and analysis of possibilities of regional logistics partner cooperation between Slo-
venian seaport of Koper and Montenegrin seaport of Bar. This paper elaborates an
original idea to attract Chinese investors, shippers, logistics providers, bankers
and other business entities in order to expand the port of Bar, modernize its infra-
structure, increase the depth of its draft for receiving the largest ships and the cre-
ation of intermodal logistics and distribution centers in the closer and wider hin-
terland . This would allow huge amounts of Chinese goods to be partly shipped to
the closer and wider region whereas the rest would be shipped through the port of
Koper to Europe. Its hypothesis is that the creation of integrated logistics supply
chain would attract a significant portion of China's import of goods to Europe and
increase the competitiveness and advantages of the ports of Bar and Koper,
through economy of scale, increase of quality of logistics service, reduction of total
logistics costs and achievement of higher added value of all port and logistics ser-
vices in these seaports.

“The last frontier of management to conquer is

logistics and supply chain management”
(P. Drucker).

8.1 Introduction

The last decade of the new millennium has brought major paradigm changes in
the field of integrated logistics and sea ports. They were followed by numerous
theoretical and practical innovations. The importance of sea ports and the applica-
tion of integrated logistics in them are increasing. Seaports must adjust to the
changes at global maritime market through the increase of the size of the infra-
structural and supra structural capacity followed by continuous technological and
information advancement, cooperation with logistics providers and the integration
of its logistics functions. In addition, geographical location, size and level of infra-
structure and supra structure of seaports determine the final model of integrated
logistics.
                                                            

Mimo DRASKOVIC, and Veselin DRASKOVIC

113
 
 The changes that have occurred in recent decades in the global shipping mar-
ket caused a significant increase in the number of sea ports and their capacities (in-
frastructure, supra structure, transportation, logistics, terminal and other). The in-
vestments had the biggest role in this, whose flows were continuous and dynamic.
It dominantly influenced the overall modernization of port infrastructure and the
increase of the level of logistics services, particularly in terms of container
transport. The fact that over 90% of cargo transported by sea speaks says enough
about the importance and need for continuous development of seaports, expansion
of range and improvement of the quality of port and logistics services, which are
being provided to increasingly demanding customers. This is particularly important
for transition states in which an economic and social crisis are being reproduced for
a long time, in which the maritime industry is a priority, but very underdeveloped.
In modern business conditions, according to M. Draskovic (2011, p 37), the
advanced sea ports tend to integrate all functional areas of logistics to the greatest
possible extent, in order to significantly shorten the time of executing orders of port
services, accelerate and streamline logistics flows, reduce total logistics costs, re-
duce the time of logistics operations and achieve the appropriate complete and
quality customer satisfaction in the part of the port logistics services. The global
complexity of market relations, increasing competition, information and business
risk as well as financial, information and other relations between the partners are
the key factors why the sea port are accepting the integration of logistics functions.
Every day the speed, intensity and complexity of material, financial and logistics
information flows are increasing while the reduction of intermediate links, and in-
surance (reserve) stock is getting stronger. In such circumstances, the only way to
ensure stability of functioning of the system of sea ports and their logistics systems
is their further integration. Therefore, the modern logistics systems in seaports are
increasingly viewed as a whole in terms of integrated marketing and management
functions, through which the process of cargo handling is being implemented. It is
being insisted on full integration of primary and supporting logistics flows. It is a
continuous logistic chain that gradually adds value to port and logistics services,
which must be performed in timely manner, with high quality, reliably, functional-
ly and synchronized, which are the basic attributes of logistics integration.
Integrated logistics of sea ports assumes the systematic and process approach,
as opposed to the fragmented one, applied by smaller ports such as the Adriatic
ports of Bar, Ploce, Split, and in larger part Rijeka and Koper. Looking for big in-
vestors and global logistics providers, they fail to significantly reduce the amount
of total logistics costs, or to engage in significant integration of logistics processes.
Their development in the future will directly depend on the acceptance of changes
in the global environment and application of logistics concepts whose core compe-
tence is- integration. Therefore, this paper starts from the idea of partnership per-
formance of ports of Koper and Bar in seeking and finding the big Chinese inves-
tors and providers, in terms of modern logistics trends and flows of world mer-

114
 
chandise trade. Why Chinese? Share of logistics in GDP - U.S. 10% China 20%,
and India 13%. A large part of global trade shifted from Asia to the EU and sur-
passed the China-US trade. Annual Chinese import into the EU is estimated to 160
billion U.S.$ (http://hercegbosna.org/forum/post306384.html). Current trade route
goes from Suez channel across the Mediterranean to the Gibraltar and then north-
wards to England and Denmark. Main ports that receive Chinese goods are English
and the port of Antwerp. The duration of this route is 14 days longer than the road
to the Adriatic Sea, which is a natural extension of the Suez Channel.
The Chinese are very interested in the port of Rijeka because of the depth of its
draft. Germany, Sweden and Eastern European economic zone lobby for Rijeka to
become China's main stock of cargo (mainly containers). So far the British had for
many years opposed to this. However, for more than two decades, the Chinese have
been showing great interest in the port of Bar as well. Political and other causes
have contributed to failure of the realization of this important business and logisti-
cal arrangement. With high probability we can assume that the establishment of
partnerships between the port of Koper and the port of Bar would decisively con-
tribute to easier, faster and more constructive entering of Chinese Investors (ship-
pers, logistics providers, banks and other businesses) into the port of Bar.
Part of the above mentioned 160 billion of US dollars profit pie may be signif-
icantly be allocated to the ports of Bar and Koper through their partnership rela-
tionship and joint logistics approach. The idea might be easily transformed into
practical implementation in relatively short time frame through quality project ela-
boration. The motivation to find the way out of the deep economic crisis that thre-
atens to further reproduce and spread, with all the accompanying positive devel-
opments: the growth in employment, living standard, the state budget, productivity,
easy servicing of external debt and so on, contributes to the feasibility of the idea.
China has huge foreign trade surplus and investment potential. It publicly
shows it interest in the modernization of certain sea ports at the Adriatic and in the
opening of the logistics and distribution centers in its hinterland. This interest is
followed by offering concessions expressed in billions of U.S. $ and looking for a
decades-long period. This is a big chance that the Montenegrin port of Bar obvi-
ously can not utilize without the participation of another partner Adriatic port, with
a higher level of infrastructure development, logistics knowledge and experience.
The Chinese are also much more interested in terms of logistics in cost effective
investment in which two Adriatic ports would participate in partnership. We as-
sume that out of number of reasons the Port of Bar would achieve an ideal business
and logistical cooperation exactly with the Slovenian port of Koper. The primary
reason could be the geographic location of the port of Bar, the depth of its draft,
opportunities to significantly increase its depth and very large and unused opportu-
nities for opening intermodal logistics centers that the broader background of the
port of Bar offers.

115
 
 The profit of sea ports that unload Chinese containers is huge. It is believed
that the accompanying business activities around the harbor are very profitable: For
each 1 U.S.$ that the port earns, other services around the harbor of Port earn $
11USA (trade, carriers on land and others.). The size of the profit pie in the game
may be illustrated by the fact that Italy is offering to the Chinese the port of Bari
and free transport to the north of Italy, if the port of Bari is selected as the main
entrance gate of Europe.

8.2 Theoretical approach to the significance of integrated logistics supply

chain

Integrated logistics supply chain is the term used to characterize the system of
advanced sea ports. This refers to the set of all types of providing logistics port ser-
vices (reception and processing of orders, designing and manufacturing of port ser-
vices, sales, service, distribu-tion, resource management and supporting logistics
functions of the port), which are necessary to meet user demand of port services -
from initial momentum of ordering port services, through providing information on
logistics flows to the final delivery to the user.
Logistics management as defined by the Council of Supply Chain Manage-
ment Professionals ((www.logisticsservicelocator. com/resources/ glossary03.pdf,
p. 89): “Logistics management is that part of supply chain management that plans,
implements, and controls the efficient, effective forward and reverse flow and sto-
rage of goods, services, and related information between the point of origin and
the point of consumption in order to meet customers’ requirements. Logistics ma-
nagement activities typically include inbound and outbound transportation mana-
gement, fleet management, warehousing, materials handling, order fulfillment, lo-
gistics network design, inventory management, supply/demand planning, and ma-
nagement of third party logistics services providers. To varying degrees, the lo-
gistics function also includes sourcing and procurement, production planning and
scheduling, packaging and assembly, and customer service. It is involved in all le-
vels of planning and execution-strategic, operational, and tactical. Logistics mana-
gement is an integrating function which coordinates and optimizes all logistics ac-
tivities, as well as integrates logistics activities with other functions, including
marketing, sales, manufacturing, finance, and information technology”.
SCM as defined by the Council of Supply Chain Management Professionals
(Ibid., p. 138): “Supply Chain Management encompasses the planning and mana-
gement of all activities involved in sourcing and procurement, conversion, and all
logistics management activities. Importantly, it also includes coordination and col-
laboration with channel partners, which can be suppliers, intermediaries, third-
party service providers, and customers. In essence, supply chain management inte-
grates supply and demand management within and across companies. Supply Cha-

116
 
in Management is an integrating function with primary responsibility for linking
major business functions and business processes within and across companies into
a cohesive and high-performing business model. It includes all of the logistics ma-
nagement activities noted above, as well as manufacturing operations, and it drives
coordination of processes and activities with and across marketing, sales, product
design, finance and information technology”.
SCM has risen to prominence in recent years in both academic and commercial
circles. However, there is still no universally accepted definition of what SCM is (and,
indeed, is not). As pointed out in a widely cited article by Mentzer et al. (2001, p. 2):
“Despite the popularity of the term Supply Chain Management, both in academia and
practice, there remains conside-rable confusion as to its meaning. Some auhors
describe SCM in operations terms involving flow of products and materials, some
view it as a management philosophy, and some view it as a management process”.
Mentzer et al. (Ibid.ese definitions and, based on their analysis, provide a defini-
tion of their own. From this representative sample of SCM definitions, Mentzer et al.
suggested that three definition categories can be identified. Firstly, many authors
define SCM as a management philosophy. In this context, SCM adopts a systems ap-
proach to viewing the supply chain as a whole, from the supplier to the ultimate cus-
tomer. A chain-wide collaborative approach, driven by a strong customer focus,
aims to synchronise intra-firm and inter-firm capabilities. Secondly, many authors
consider SCM as a set of activities to implement a management philosophy. Seven
activities are proposed, based on the earlier research, which appear necessary in the
successful implementation of the philosophy:
─ integrated behaviour in customer and supplier firms,
─ mutually sharing information,
─ mutually sharing risks and rewards,
─ cooperation among supply chain members,
─ the same goal and the same focus on serving customers,
─ integration of processes, and
─ partnerships to build and maintain long-term relationships.

These activities are aimed at creating added value of port and logistics servi-
ces, durable competitive advantages and core compe-tences for performing of cer-
tain activities. According to this definition, SCM involves multiple firms and mul-
tiple business activities, as well as process orientation to coordinate activities ac-
ross functions and across firms within the supply chain. This definition led to the
development of a conceptual supply chain management model as pictured in Figure
8.1 below.

117
 
 Fig. 8.1. The Mentzer Model

Source: Adapted from Mentzer, J. T. et al. 2001.

118
 
 Mentzer et al. suggested, SCM can be regarded as a manage-ment philosophy
then this philosophy is concerned first and foremost with integration. The widely
cited work of Bowersox, Closs, and Stank (2000) and his collaborators at Michican
State University, which describes a framework of six competencies (the Supply
Chain 2000 Framework) that lead to world class performance in logistics and
SCM, supports this view.
These competencies, grouped into three areas (operational, planning and rela-
tional), are all concerned with integration. The work of Fawcett and Magnan
(2002) identified four levels of integration in practice:
─ internal cross-functional integration,
─ backward integration with valued first-tier suppliers,
─ forward integration with valued first-tier customers, and
─ complete backward and forward integration ('from the supplier's supplier
to the customer's customer').

Most businesses - certainly manufacturing- based business - can be described

in terms of the five functions: buy, make, store, move and sell. This is what is re-
ferred to as the internal (or micro- or intra-firm) supply chain as shown in Fig. 8.2.

Fig. 8.2. The internal (micro) supply chain integration

buy  make  store  move  sell

Source: Sweeney 2011, p. 40.

Fig. 8.3: The external supply chain integration

Source: Sweeney 2011, p. 40.

119
 
 The simplistic representation in Fig. 8.3 of the external (or macro - or inter-
firm) supply chain shows materials flowing from the raw material source through
the various stages in the chain to the final consumer. Money (i.e. funds) then flows
back down the chain. The point is that every link matters and that value is added,
and profit generated, at each link along the way.
Battaglia (1994) developed a model which indicates the way in which SCM
has evolved from its main constituent functions from the 1960s to date (see Fig.
8.4).

Fig. 8.4. SCM Evolution

Source: Adapted from Battaglia 1994, p. 49.

It indicates that the evolution has involved a shift from highly fragmented to
much more integrated approaches with the 1990s characterised as the decade of
“Total Integration”. During the ‘Evolving Integration’ decade (the 1980s) various
functional areas became integrated into materials management and physical distri-
bution – these then became further integrated under the logistics umbrella. SCM
extends this integration further by linking logistics with manufacturing, infor-
mation technology (IT), marketing, sales and strategic planning. The model pro-
vides a useful visual representation of the way in which companies have attempted
to move away from the functional stovepipe or silo approach to more integrated
approaches, facilitated by IT. It is interesting to note that this model is analogous to
two other ‘three phase’ approaches to logistics evolution.

120
 
 8.2.1 The importance of logistics integration in seaports

According to Sergeyev (2005, p. 49), an integrated logistics chain of the sea-

port in practice must be line edited for easier accounting and cost analysis, resource
optimization, rational decision-making, more appropriate allocation of risks and
benefits, faster and more complete information of all companies and better organi-
zation of monitoring of meeting the logistics plan.
Management of the logistics services chain in the seaport, as shown in the Ta-
ble 1, represents the integration of the key logistics trends and operations. It in-
cludes:
─ all key seaport logistics activities, which focus on physical movement of
cargo in the port, the corresponding providing of port logistics services
and their delivery to users,
─ all providers of port services and
─ all logistics port operators, which integrate their logistics performance in
increasing the added value for final beneficiaries
─ all final beneficiaries of logistics and port services and
─ all logistics flows.

Table 8.1. Matrix of logistics supply chain management based

on the integration of logistics activities in seaports

Suppliers of port logistics Users of logistics and

services of different levels Port logistics providers port services at differ-
ent levels
        
 Material flows 
        
 Information flows 
        
 Financial flows 
        
Core logistic activities of the seaport

Source: Adapted from Stok and Lambert 2001, p. 52.

According to the theoretical concept of Mentzer et al. (2001, p. 18) and the
practice of advanced seaports, the above integration is made, of systematic and
strategic coordination of all logistics flows, activities and subjects aiming to im-
prove their logistics and overall port service activities. It includes many port pro-

121
 
cesses of transport, handling, storage, receipt and delivery of cargo, and performing
a variety of logistics services to customers in the sea port by the port management,
port agents and port operators. This includes the overall management of logistics
with the logistics administration and information.
M. Draskovic (2011, p. 35) points out that the essence of integrated logistics in
the maritime ports consist of synchronous execution of all logistics activities and
the timely implementation of agreed logistic port services in a particular place,
with a minimum total logistics costs, allowing the creation of added value. Mini-
mizing total logistics costs can be achieved by adding certain logistical value to
incoming cargo, which may be achieved in any of the following methods
(Schroeder and Flynn 2001, p. 12):
─ through a change that alters the structure of cargo in the port,
─ transport,
─ storage and
─ additional terms of delivery.

According to M. Draskovic, the importance of integrated logistics is multifac-

eted. It acts as a third subsystem of the logistics system1, which is focused on the
movement and storage of cargo in the port from unloading time to time of loading
to the final consumer. Further, it seeks to overcome a variety of spatial and tem-
poral inconsistencies and limitations, while reducing the number of intermediaries.
In addition to transportation (to and from the Port) and storage, which are the two
basic functions of integrated logistics, the seaports are trying to integrate as many
other logistics activities such as handling, cargo handling, packaging, inspection,
measurement, documentation creation, information and financial flows and others.
The formation of an integrated logistics system is a raising issue of develop-
ment of sea ports. In this sense, according to (Roca, 2004, p. 27), the dynamics of
development continually sets new demands on the integrated logistics system,
which therefore must be very flexible and adaptable to growing changes in the en-
vironment in many segments, especially in the market, technological and transport
segment. For evaluation of the effectiveness of the above mentioned system, a very
important criterion is the reduction of
─ the total logistics costs, which are directly related to service delivery in the
seaports,
─ logistical risks,
─ the time of delivery of orders and
─ increase of quality of logistics services.

                                                            
1The first subsystem is a physical supply of production (transport of raw materials and other material)
and the other is the internal movement of raw materials and finished products in the company.

122
 
 The essence of logistics integration in maritime ports has its own logic, to
which each functional area should contribute to the overall maximum score that
enhances the competence of the port logistics. This entails overcoming local think-
ing and isolated ambitions of functional parts of seaports, which must necessarily
be subordinated to the integrated inter-functional logistics coordination, in which
all the links (from input to output) are equally significant for the total score. The
advantages of an integrated approach to logistics in maritime ports shall be provid-
ed through the following (adapted from: Sergeyev, 2005, p. 77):
─ unification and centralization of basic functional areas of logistics,
─ overcoming the contradictions between the production, management and
marketing,
─ forming a unified, modern efficient information system,
─ higher level of typization and compliance of logistics operations,
─ increase of a general sense of responsibility within a single target logistic
function - to create additional value, and
─ increasing ’ degree of inter-functional and inter-organizational coordina-
tion.

Lambert, Stock and Ellram (1998) find that all firms within the supply chain
must overcome their own frameworks and adopt the principles of procedural or-
ganization of various logistics functions of supply. Relationships in the supply
chain are long and involve significant strategic coordination. They start from the
assumption of specific development of business cooperation, communication and
partner-ships, resulting in specific beneficial effects of the SCM concept. The basic
prerequisites are a willingness of all participants in the supply chain for joint ac-
tion, trust, commitment to complete tasks, inter-dependence, organizational com-
patibility, shared vision, participation in key processes, accepting joint leadership
and management support. They are necessary for integration and successful im-
plementation of systematic, strategic and procedural approach. Their fulfilled pro-
vides numerous benefits that can be divided into two levels. The first level contains
the exchange of information, sharing risks and rewards, cooperation, integration of
key processes, longevity and stability of business relationships and quality cross
functional coordination. The other level contains lower prices, greater customer
value and satisfaction for customers, as well as the creation of lasting and sustaina-
ble competitive advantage.
Chen and Paulraj (2004) developed their prominent research framework of
SCM as a response to various calls for theory building in operations management.
They consolidate and integrate relevant findings of various previous works into a
research framework (see Fig. 8.5), emphasizing the interdependence of relation-
ships within a supply chain and hence the need of aiming for collaborative ad-
vantage.

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 Fig. 8.5. A research framework of supply chain management

Source: Adapted from Chen and Paulraj 2004, p. 121.

Fig. 8.6. Sustainable supply chain management

Source:, Carter, and Rogers 2008, p. 369

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 Carter and Rogers (2008, p. 368) identify four facets supporting the perfor-
mance on the triple bottom line by means of a review of sustainability literature:
risk management, transparency, strategy, and organizational culture (see Fig. 8.6).
On this basis, the authors define SSCM: “as the strategic, transparent integration
and achievement of an organization's social, environmental, and economic goals
in the systemic coordination of key interorganizational business processes for im-
proving the long-term economic performance of the individual company and its
supply chains”.
From the point of introduction of integrated logistics and global logistics oper-
ators in seaports, descriptive definition of SCM management across its five core
components is relevant (Cohen and Roussel, 2005, pp. 10-19): operational strategy,
outsourcing strategy, the choice of marketing channels, strategy of consumer ser-
vice and asset management (equipment selection, location, etc.).
Our final definition is provided by Stock and Boyer (2009, p. 706). Their def-
inition is based on a synthesis of a wide range of suggestions provided by a variety
of practitioner, academic and hybrid sources. They deconstructed the commonali-
ties in all the reviewed suggestions in order to develop their definition of SCM as:
“The management of a network of relationships within a firm and between inter-
dependent organizations and business units consisting of material suppliers, pur-
chasing, production facilities, logistics, marketing, and related systems that facili-
tate the forward and reverse flow of materials, services, finances and information
from the original producer to final customer with the benefits of adding value,
maximizing profitability through efficiencies, and achieving customer satisfac-
tion”.

8.2.2 Supply Chain Integration and Evolution of Port Function

Researches carried out by UNCTAD in 1992. have shown that there are three
generations in the development of sea ports and that their evolution went through a
fundamental transformation: from providing traditional services to value -added
logistics services . According to the modern concepts, there are three stages of port
development, which are determined by port development policy and strategy, dif-
ferences in the method of approach, scope of the port's activity and expansion lev-
el, and the port's activity integration level.
First generation port. Until 1960, ports played a simple role as the junction
between sea and inland transportation systems. At that time, the main activities in
the port region were cargo handling and cargo storage, leaving other activities ex-
tremely unrepresented. Such a way of thinking severely influenced related persons
in the government and local administration. Also, it even influenced persons relat-
ed with the port industry, so it was considered that it was enough to develop and
invest in only port facilities, as the main functions of the port were cargo handling,

125
 
storage and navigation assistance. It was for these reasons that important changes
in transportation technology were neglected.

Table 8.2. Evolution of port function

Third genera-
First generation Second generation
tion
Start period: Before 1960s After 1960s After 1980s
Conventional cargo and Bulk and unit cargo con-
Principal cargo Conventional cargo
bulk cargo tainerization
The port deve- Industrial principle inter-
Conservative junction
lopment position Expansionism transportati- national trade base chain
point of the sea and in-
and development on and production centre connecting transportation
land transportation
strategy system
(1)+(2)+(1) Cargo infor-
(1) + (2) Cargo type change mation, cargo distribu-
(1) Cargo handling,
(distribution processing), tion, logistics activity -
Activity scope storage, navigation as-
ship related industry – enlar- Formation of the termi-
sistance-pier and
gement of port regions nal and distribution cen-
tres
Formation of the port co-
operation system
Relations between port and
Trade and transportation
its users become more close
Everybody acts indivi- chain concentration in the
Emergence of the slight cor-
Structure for- dually in the port port
relation among port activi-
mation and specif- Relations between port
ties
ics Port and its users main- and self-governing com-
Negative cooperation rela-
tain informal relations. munity become more clo-
tions between port and self-
ser
governing community
Extension of the port
structure
The flow of the cargo and
information
Invention of the cargo Invention of the cargo dist-
Distribution of the cargo
distribution ribution
Character of and information
Individual supply of the Cargo processing
the productivity Combination of the diver-
simple services Complex services
sified services and distri-
Low value added Increase of the value added
bution
Value added
Core factors Labour/capital Capital Technology and know-
how

Source: Modified from UNCTAD 1992.

The second-generation ports. The second-generation ports are those built be-
tween 1960 and 1980, and had a system comprising of government and port author-
ity, so the port service providers could understand each other and cooperate for

126
 
mutual interests. The activities in these ports were expanded ranging from packag-
ing, labeling to physical distribution. A variety of enterprises have also been
founded in ports and hinterlands. Compared to first-generation ports, the second-
generation ports have a characteristic that freight forwarders and cargo owners had
a tighter relationship. We can say that the second-generation ports had begun to
notice the needs of customers, but when it came to keeping a long-term relationship
with customers, they took a passive attitude.
The third-generation ports. From 1980, container transportation has been de-
veloped quickly, and the new intermodal transport system emerged. The activities
of production and transportation have linkage to form an international network.
The former services function has been enlarged to include logistics and distribution
services. The environment protection facilities are becoming more important, so
the ports are developing closer relationships with those in their surrounding neigh-
borhoods. Compared to the past, today's port authorities are focusing on efficiency
rather than effectiveness. In the third-generation ports, the needs of customers were
analyzed in detail and port marketing has been actively engaged (UNCTAD 1992,
p. 20).
Nowadays the contest in the efficiency of providing basic port services is no
longer possible. Hence the necessity of seaports to look for new ways of achieving
competitiveness. Users of port services are increasingly demanding. Providing val-
ue-added logistic services has become a powerful way for seaports to build a sus-
tainable competitive advantage. Customers now demand that logistics value added
services become an integral part of the overall port services. This creates a big
challenge for logistics management of the port. Modern development of sea ports is
based on the Core SCM model, which includes coordination, collaboration and in-
tegration as a major strategic component having in its environment the competitive
priorities, supply chain structure, physical and technical infrastructure, e-business,
location, and facilities.
These days, the commercial success of a port could stem from a productivity
advantage in traditional cargo-handling service, from value-added service, or from
a combination of the two. Productivity advantages come mainly from economies of
scale and economies of scope, suggesting that the most productive ports will be
those that are equipped to handle large cargo volumes and/or significantly reduce
unit costs through efficient management. Shippers and carriers select individual
ports not only based on their cargo handling service capabilities, but also on the
benefits they are capable of "delivering". Unless a port can deliver benefits that are
superior to those provided by its competitors in a functional aspect, port customers
are likely to select ports based merely on price. This fact raises the question of how
a port can achieve value differentiation.
In the 1970s, almost every port provided the same basic package of services
to almost every customer. Nowadays, however, it is more difficult for ports to

127
 
 compete on the basis of cargo-handling service. There has been a convergence of
technology within cargo-handling service categories. This means that though new
technology may sometimes provide a window of opportunity for productivity im-
provement, in many cases that same technology is also available to competitors. It
is no longer possible to compete effectively on the basis of basic, traditional func-
tions. Thus, there is a need for ports to seek out new means of gaining a competi-
tive edge.
The late 1980s saw the emergence of major changes. Customers began to ask
ports to provide a greater variety of services. Providing value-added services is a
powerful way for ports to build a sustainable competitive advantage. Shippers and
port customers are becoming increasingly demanding. Customers now tend to look
at value-added logistics services as an integral part of their supply chain. As a re-
sult, ports must attempt to satisfy these needs by offering differentiated services.
This poses a particular challenge for port management.
Studies show that the most successful ports are those that not only have a
productivity advantage in cargo-handling services, but that also offer value-added
services. Thus, there are several available options for ports to choose from, as
shown in the simple matrix in Fig. 8.7.

Fig. 8.7. Matrix of competitive advantage

Source: UNCTAD 1992, p. 21.

Sea ports providing traditional services from the lower left corner of the ma-
trix do not differ from their competitors. The only option for them is to be shifted
toward the right side of the above matrix, creating the key strengths (competen-
cies) at the level of productivity, or upwards, i.e. by superior logistics services that
create added value. In Singapore, which is a leading regional and international lo-

128
 
gistics facility in Southeast Asia, the logistics industry is developing value-added
services as a strategic business sector. Logistics industry participated with 7% of
GDP in Singapore in 2000. Year, and employed 5.1% of the workforce. European
largest sea port - the port of Rotterdam has been particularly successful in creating
a logistics center. Advanced ports around the world constantly emphasize the
function of logistics centers, mainly due to high levels of global production and
the need for value added logistic services.
Both logistics companies and shippers agree that value added services in lo-
gistics centres are important in supply chain management, and this tendency is ex-
pected to continue in the future. Fig. 8.8 shows that value-added logistics (VAL)
services encompass far more roles and functions than the existing services. In
many cases, these services overlap or include third-party services, such as invento-
ry management, inspection, labeling, packing, bar coding, order picking and re-
verse logistics etc. The pressures of VAL services in the logistics chain have in-
creased the demands of logistics centre behind port areas.

Fig. 8.8. VAL service of logistics centres in port area

VAL
- Investory
- Inspection
Simple Storage

- Labelling

Sistribition
Production

Transport

Delivery
Supply

- Packing
    
- Order
- Picking
- Bar coding
- Return
Customizing
Existing
services

Value Added Services

Source: UNCTAD 1992, p. 27.

The main VAL activities are (Ibid.):

─ Receiving goods, breaking shipments, preparing for shipment, returning
empty packaging,
─ Simple storage, distribution, order picking,
─ Countrylizing and customizing, adding parts and manuals,
─ Assembly, repair, reverse logistics,
─ Quality control, testing of products,

129
 
 ─ Installing and instruction,
─ Product training on customer's premises,

The advanced ports around the world have continuously emphasized the func-
tion of logistics centres mainly due to the high degree of global production and the
need for VAL services. These trends in international logistics strongly suggest that
the trend toward VAL in the ESCAP region is likely to continue into the future.
Some ports are already modifying the warehousing function to include the VAL
functions when they develop new ports or reshaping existing ports.

Table 8.3. Logistics centres evolution

1960s-1970s 1980s-early 1990s Mid 1990s -present
Materials management
Distribution Services (national/global)
Import clearance Bonding
Bonding
Inbound transportation
Receiving Receiving Receiving
Cross-docking Cross Docking
Storage Inventory
Storage Storage
management and control Shipment scheduling
Order processing Order processing Orders processing
Reporting EDI Reporting EDI Reporting
Picking Picking Picking
(Product)subassembly
Order assembly Order assembly
Order assembly
(Re)packaging (Re)packaging (Re)packaging
Stretch-shrink-
Stretch-shrink-wrapping
wrapping
Palletizing/unitizing Palletizing/unitizing Palletizing/unitizing
Label/mark/stencil Label/mark/stencil Label/mark/stencil
Shipping Shipping Shipping
Documentation Documentation Documentation
Outbound Outbound transportation
Export documentation FTZ operation
JIT/ECR/QR services Freight rate negotiation
Carriers/route selection Freight claims handling
transportation Freight audit/payment Safety audits/reviews
Regulatory compliance review Performance
measurement Returns from customers Custom-
er invoicing

Source: Bolten 1997, p. 19.

130
 
 Logistics centres can be classified into three different categories or genera-
tions. It is based on the scope and extension of logistics activities as in table 8.3.
Logistics firm in logistics centre behind a port area are able to perform basic value-
added service and carry out other value-added logistics services at the same time.
That is, logistics centres provide not only traditional activities such as storage, but
also value-added logistics services such as labeling, assembly, semi-manufacturing
and customizing. Logistics centres combine logistics and industrial activities effec-
tively in major port areas to create country specific and/or customer specific varia-
tions or generic products.
When logistics centres are grouped together in a common dedicated area, it is
sometimes called a Distripark (distribution park). Therefore, a Distripark is a
large-scale, advanced, value-added logistics complex with comprehensive facili-
ties for distribution operations at a single location, which is connected directly to
container terminals and multimodal transport facilities for transit shipment, em-
ploying the latest information and telecommunication technology. Rotterdam in
the Netherlands, Bremen in Germany, and Singapore are examples of this kind of
arrangement. Container ports are generally a preferred choice to set up Distriparks,
since they are already closely located to various inland transport facilities and a
highly skilled workforce.
Logistics centers are in the advanced ports grouped into “distripark”, which is
a large, developed logistics complex, with full equipment for a variety of advanced
logistics and distribution activities to individual sites. It is directly linked to the
container terminals and multimodal transport equipment for transit. It uses the most
advanced information and telecommunications technology.
Multimodal logistics operators are closely connected with the port logistics
centers, because they both according to W. Delfmann (www.spl.uni-koeln.de, p.
14), are integrators of resources, skills, competencies, knowledge and technology
of various organizations aiming to design, build and implement comprehensive
logistics solutions in the supply chain. The development of multimodal logistics
outsourcing is going towards strengthening provider types 3PL, 4PL and 5PL,
whose services include practically the total supply chain.
Fig. 8.9 illustrates this along the dimensions of theoretical scope and practical
applicability.

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 Fig. 8.9. Logistics integrated solutions

Source: www.concorindia.com/upload/news/pic164.pdf, p. 3.

8.3 Analysis of the current level of service in the port of Bar

In terms of assessing the quality of port services Mirotin (2003, p. 49) suggests
the use of the following parameters:
─ internal port environment (equipment, devices, dock transport systems for
moving freight, storage, weighing, control systems, enclosures, training,
hospitality, correctness and the complaisance of port personnel, the level
of information support, etc.),
─ reliability (execution on time, the absence of risk and user mistrust),
─ the liability (the guarantee of fulfillment of port services, port staff wishes
to assist the service user),
─ completion of services (competence of port personnel, the existence of the
necessary skills and habits),
─ availability (ease of contacts) and
─ timing, speed and price.

Marlow and Paixao (2003, p. 195) proposed as additional indicators: frequency

(the time required for the provision of port services), flexibility (adaptability to cus-
tomer requests for port services), control (appropriate information on the status and
position of cargo in the port) and security (implementation services without any
damage or loss of cargo). In addition, the Port practice testifies to the importance of
mutual understanding between the port staff and users, the level of operating costs
(cost of transport per unit of measure), the level of permeable options, mobility in
providing of port transport under different conditions, continuity of port transport
(their regularity), guarantee of keeping the cargo subject to port services safe, effi-

132
 
cient use of transport vehicles, mechanization and automation of loading and re-
loading operations, etc..
Looking through the prism of these indicators, as well as the above theoretical
approach (in 8.2), it seems safe to conclude that the current level of quality of port
and logistics services in the port of Bar is unsatisfactory. The same can be said for
its competitiveness in comparison with Adriatic ports of approximate capacity, par-
ticularly in relation to the world average. Comparison with the advanced world sea
ports would be devastating according to all parameters. The reasons are numerous,
but among economic causes, the lack of investment and high-quality logistics part-
ners are predominant. The total realized turnover of cargo in 2010 amounted to 787
833 tones, of which 36.3% relates to the containers 20 'and 40'.
Montenegro is territorially and economically a significant economic area,
which has unused resource and location capabilities. Their proper identification
and valorization are the prerequisite for reflection on the above idea of partner lo-
gistic cooperation with the port of Koper. It may include expansion of the Free
zone of the Port of Bar on the entire territory of Montenegro, which would be the
best way to valorize Montenegrin resources, its comparative advantage and priority
industries such as tourism, maritime and agriculture.
According to the statements of the management team of the port of Bar, it may
receive only a small number of large ocean vessels, i.e. only 40 ships from the
planetary fleet of containers of 4722 ships, due to technical limitations on the verti-
cal mechanization of general cargo container terminal. However, there is contrary
information in Serbian sources, according to which the port of Bar was made for
ships from the Suez Canal, but because of the shallow draft, 70% of these ships can
not sail into the port of Bar. In addition, the new investor would have to purchase a
new crane for unloading containers from large ships. For all these reasons, it is em-
phasized that the port of Bar operates with only one half of the projected capacity
of five million tons per year. The process of negotiating with the largest global op-
erators lasts for a long time. Due to the disturbed political relations, through the
Port of Bar is transported only 7-8% of goods from Serbia. Until recently it was
20%, and so much more. Balancing of draft depth in the port of Bar to 14 meters
would allow acceptance of ships such as “Panamax”. It is not possible to obtain
detailed information on the depth measurement of all berths and waters. The fact is
that so far not a single “Panamax” has ever entered the Port of Bar.
A brief PEST analysis is as follows:
 P - Political / legal factors: adopted Law on Ports of Montenegro, the
Transport Development Strategy of Montenegro and the EU standards, laws on
environmental protection and other;
 E - Economic factors: the excellent geographic and transport position of the
port, global economic crisis, low level of economic development, bad GDP trends ,

133
 
slowed flows of goods in the gravitation field, the port privatization process aimed
at giving long-term concessions, a large number of employees, low capacity utili-
zation;
 S - Socio-cultural factors: still present paternalism among employees, over-
sized number of employees, a relatively new high level of professional skills of
employees, there is a strong motivation of employees to learn and develop profes-
sionally;
 T - Technological factors: there are significant investments in research and
development, focus on new technologies, poor technical-technological equipment,
a solid representation of modern information technology, insufficiently developed
transport infrastructure of the region, there is no integration in more complex sys-
tems, flexible organizational structure. The PEST analysis above shows that the
Port of Bar has a need and real opportunities for partnership linking with the Port
of Koper and integration with a big Chinese investment and global logistics service
provider based on the benefits of long-term concessions.
A brief SWOT analysis is as follows:
 Threats: strained political relationships in the region, global economic crisis,
the decline of direct foreign investments, lack of interest by investors;
 Opportunities: a clear development strategy, qualified and skilled workforce,
a modern information system, great experience and tradition, the possibilities for
market expansion and the range of port and logistics services, desire for integra-
tion, absence of the possibility of new competition appearance;
 Weaknesses: lack of competence, unexploited competitive advantages, lack
of investments, poor reputation among the users, the lack of brand and market
leadership, average management, lack of protection from competition, outdated
equipment and technology, low productivity;
 Strengths: favourable maritime-geographic location, proximity to the exist-
ing transport corridors in Central Europe, great capacity of loading operations, a
large storage area for goods and distribution centres, favourable transit fees, years-
long solid business, openness for partnership cooperation and provision of long-
term concessions. The above SWOT analysis shows that the port of Bar needs to
focus on the improvement of overall business performance and creation of new
concepts for new and successful strategy. Depending on the combination of inter-
nal and external factors, in the future, it is possible to identify several types of
strategy, but it is certain that the Port of Bar (in the case of partnership cooperation
with the Port of Koper and finding a strategic investors and global provider)will
choose a maxi-maxi strategy.

134
 
 The partners and banks of Italy are seriously interested in a strategic partner-
ship with the Port of Bar, because this is the best link with Romania and Russia, as
an important foreign trade partner. The lack of highway, modernized railroad and
the lack of connection to the Pan-European network puts the Port of Bar in a sec-
ond-rate position. The aged machinery and its low capacity, partial dilapidation and
undeveloped infrastructure (banks, draught, internal roads) directly affect the poor
business. All this speaks for the urgent need for a partnership linking and integra-
tion of the Port of Bar with some of the major Chinese investors.
The question is: are there realistic possibilities for this? Instead of a positive
response, we will offer the following facts. Container mother ships from Asia more
and more frequently stop in the Mediterranean hubs. Shippers have found that the
freight, as well as the duration of the round trip from Asia to the Mediterranean
ports, instead of the ports in the North Sea, may be reduced for 1/3. This is im-
portant in terms of cost per day trip of a modern container ship. The product of
such decision is the opening of more container hubs in the Mediterranean, the most
important of which are Piraeus, Malta and Gioia Tauro. The relocation of produc-
tion requiring a great workforce from Western Europe and the Middle East to
South East Europe is also a realistic opportunity. Great liner shipping companies
are trying to ensure their market share by stronger control of the transport chain.
They are not only ship owners anymore, but also providers at terminals that own
the docks or control them, and are also involved in the inland handling of contain-
ers. Expensive loading/unloading equipment ensures quick loading operations and
brief detention of a ship in the harbour. Until recently, the Mediterranean ports
could not meet this requirement because their gravitational hinterlands were under-
developed. Today's Mediterranean hub ports have developed due to the favourable
position in relation to the main trans-Mediterranean route for container liners. This
can be a great opportunity for investment in the Port of Bar.

8.4 Requirements for the implementation of the preliminary concept

Strategic requirements of the discussed preliminary concept are based on the

orientation of Montenegro toward the accession to EU and Euro-Atlantic integra-
tion. This anticipates a continuous effort to make the economic system compatible
with EU standards, while maintaining the openness of the Montenegrin economy
and strengthening its competitiveness on the basis of use of natural, economic and
human resources. The above corresponds to the strategic development priorities
(see more in the Government of Montenegro (2010).
The economic requirements for the implementation of the design concept can
be found in the government's macroeconomic policy programme for 2009. Many
elements directly indicate that there are realistic economic preconditions for the
partner cooperation of the Port of Bar and the Port of Koper (the need for improv-

135
 
ing competitiveness, safeguarding the interests of foreign investors and logistics
providers, implementation of prepared infrastructural projects, etc.). This is also the
basis of the recommendations by the World Bank for boosting infrastructural in-
vestments.
Logistics requirements for the implementation of the discussed preliminary
concept are based on the fact that the distribution centres in the world are the bear-
ers of the logistics supply chains. They are the simplest way for achieving direct
links to customers and total control of the market. Therefore the considered prelim-
inary concept should be oriented toward their formation, in addition to the devel-
opment of the Port of Bar. This requires big investments. Distribution centres con-
tribute to the strengthening of the company's brands, market share, control of bill-
ing, improved customer service, winning the leading position in the market, provid-
ing sales services to customers, faster and safer delivery. Companies tend to reduce
costs through more efficient supply chain management, which is now one of the
basic principles of logistics, and therewith the existence of distribution centres.
Infrastructural requirements for the implementation of the preliminary con-
cept is based on the fact that the infrastructural development of the Port of Bar
would positively influence the implementation of the planned road and rail routes,
thus connecting Montenegro to important European transport corridors, with better
quality connections of the Montenegrin transport system to trans-European
transport network (TEN-T). There is an ongoing resolving process regarding the
bottlenecks and the construction of roundabouts for almost all the towns, the con-
struction and reconstruction of the third lanes on many main roads and initializa-
tion of the highway construction. For the implementation of the necessary recon-
struction programme and improvement in the efficiency of the railway system,
EBRD has provided EUR 15 million. The construction of the railway Capljina-
Niksic has been announced, having a regional importance since it connects Monte-
negro, Bosnia and Herzegovina, Albania and Macedonia, including an important
connection to the Port of Bar. The overhaul and electrification of the railway
Niksic - Podgorica is in the process of finalization.
Location requirements for the implementation of the preliminary concept are
probably the most important ones. Montenegro is situated in Southeast Europe, on
the Adriatic coast. It borders Serbia, Croatia, Bosnia and Herzegovina and Albania.
Montenegro is by its position a Mediterranean and Balkan country, thus main
traffic routes connect the Port of Bar with the Montenegrin hinterland and the Bal-
kan states. The total length of the railway network in Montenegro is 250 km (part
of the Belgrade-Bar railroad, which is electrified, and the railway line Niksic-
Podgorica-Bozaj (Albania). The total length of the roads in Montenegro is about
7,000 km, where the length of main and regional roads is 1847 km. It is expected
to start with the construction of the highway Belgrade-Bar. Montenegro is a coun-
try with a long maritime tradition. It has also two airports (Podgorica and Tivat).

136
 
 Fig. 8.10. Location of the seaports Bar and Koper

In maritime industry, there are requirements for the purchase of new ships that
will perform container service between the Port of Bar and a transhipment centre.
For entering into long term agreements with the parties interested in the tranship-
ment of goods from a wider gravitation area of the Port of Bar, it is necessary to
introduce the most updated logistics forms and create a single transport chain,
which would include various forms of transport. Through organizational, manage-
ment and functional transformation, and subsequent privatization of the Port of
Bar, it is necessary to create infrastructural prerequisites for raising the attractive-
ness and optimal positioning of the Port of Bar on the market of transport. This will
facilitate the attraction of foreign capital to be invested in operational activities and
other development projects of the Port of Bar.
These are all strategic movements toward the creation of conditions for provid-
ing the Port of Bar with regional significance. This primarily refers to the finding
of strategic partners, such as the Port of Koper, the strong Chinese shipowner and
global logistics provider. It is necessary to improve the port infrastructure, provide
a deeper draft and updated technology for the transhipment of containers and gen-
eral cargo. As unused opportunities, there are modalities for the activation of 7.8 ha
of the port aquatorium, which is aimed at developing production and trading activi-
ties. This also anticipates the procurement of modern mechanization (mobile port
cranes, loading bridges with deadweight of 12 tons, etc…). The Port of Bar will be
given for years-long concession use (Vlada Crne Gore, 2010, p. 18).

137
 
 The application of benchmarking in partner cooperation of the seaports Bar
and Koper can ensure an improvement in the quality of port and logistics services,
improvement in business processes, reduction in operating costs and total logistics
costs, enhancement of the quality of the organization as a whole and increase in
customer satisfaction, new business opportunities, achieving competitive ad-
vantage, increase in creativity, enhancement of the quality of the organization as a
whole and increase in profit. In this case, it must be based on the best practices of
advanced sea ports and logistics providers. Therefore, the expansion of possibilities
regarding the discussed ports anticipates better stimuli for Chinese investors and
providers and promotion of favourable investment environment.
The hinterland of the Port of Bar can be adjusted to the development of as-
sembly industries and distribution centres for export to European countries, bank-
ing services and insurance, ecotourism and organic food production for the needs
of tourism and export. The development of operational port and logistic functions,
associated with the formation of large distribution centres, modern warehouses and
port terminals (in the very Port of Bar and its hinterland) can be put in the function
of the future free zone, which would be oriented toward the entire territory of Mon-
tenegro. In this part, the transport logistics is of special importance. It also antici-
pates the development of inspections, quarantines, industrial and economic admin-
istration, tax authorities and banks, insurance and telecommunications companies,
liberalized legislation in the field of investment, low taxation and profit repatria-
tion.
The Adriatic seaports of Rijeka, Koper and Trieste are competitive due to their
geographical position. The Port of Koper is the youngest of the three. In terms of
their areas, it is 10 times bigger than the Port of Rijeka. This provides it with a
higher annual cargo turnover. However, its further development is limited by the
12-meter sea depth, lack of transhipment capacity, poor infrastructural connections
to the hinterland, which is insufficient for the total daily turnover, small gravita-
tional area.
According to European and international standards, the Port of Koper belongs
to the group of small ports, and Port of Bar to the group of very small ones, be-
cause its bandwidth is below 500,000 TEU units. The global maritime market
shows the great need for the centralization and concentration of seaports. This im-
plies the need for their joint partner appearance and cooperation. In the future, the
associated partner Ports of Koper and Bar could compete with medium-sized Medi-
terranean ports with the volume of container transhipment of approximately 0.7-1.7
mil. TEU units.
The world container shipping is dominated by the liner navigation between
specialized container port terminals of various sizes. There are large sea ports with
huge port terminals enabling high traffic. They are called hub-ports or hubs. Never-
theless, there are many medium and small container terminals in the world, in the

138
 
so called spoke-ports. Big world routes operate between the limited number of
hubs, and smaller feeder routes connect the hub ports with spoke ports. This kind
of organization increases the intensity of traffic between hub ports, and therewith
enables the growth of the spoke ports. This is where we should look for the condi-
tions for future partner cooperation between the sea ports of Koper and Bar, which
need to use their advantage of the most economical and shortest connections to Eu-
rope.
L. Qianwen (2010) analysed the technical efficiency of 32 Mediterranean con-
tainer sea ports. He calculated the indexes of technical efficiency by the mathemat-
ical modelling of four internal variables as the inputs: the longitude of connections
(m), total area of terminals, rate of capacity utilization with containers being kept
(TEU units) and quality of capacity management (in tons). Many of the stated indi-
cators contain the quality of logistics ports. The index of technical efficiency main-
ly depends on the investment in port infrastructure. In line with the increase in the
discussed index, increases also the quality of port logistic services. The author
came to the conclusion that the efficiency of sea ports primarily depend on shaping
the strategy for investment in infrastructure that can be aggressive and/or non-
aggressive. The port of Koper is at the end of the list of medium efficient ports
with the index of 0.26, while the port of Bar belongs to the group of inefficient
ports with the index of 0.09 (Ibid., p. 32). We can conclude that the investment in
port infrastructure and logistics, with better utilization of the capacities and appli-
cation of integrated marketing logistics, is the prerequisite for increasing the tech-
nical efficiency. Investment in the port of Bar on the basis of awarded concessions
would enable relatively fast familiarization of the discussed ports in terms of tech-
nical efficiency and facilitate their partner cooperation, which can be multifunc-
tional.

8.5 Conclusion

Medium container capacities with stabile business environment and logistics

providers in the inland area of hinterland are the development imperative for the
port of Bar. The implementation of the discussed project idea for partner coopera-
tion with the port of Koper can be fulfilled only based on some external capital,
knowledge, management and acceptance of mutual risk. It would provide condi-
tions for a fast, long-term and good quality solution for the following issues:
preservation of old and creation of new jobs, increase in the scope of transport and
production of port and logistics services, increase in export, increase in GDP,
budget stabilization, neat servicing and reduction of foreign dept, increase in life
standard, improvement of management etc.
The positioning of Montenegro in the processes of accession to EU is based on
the principles of Interconnectivity – interconnections at all levels, Intermodality –

139
 
inter-branching in entirety and Interoperability – internal-branching and inter-
branching connection of services. Fast adjustment to the above stated principles is
an additional reason for believing in the possibility of partner cooperation between
the ports of Koper and Bar and attraction of a strong strategic investment partner
and global logistics provider. This would enable an accelerated infrastructural and
logistics development, as well as greater application of multimodal concept of
transport. The seaports of Bar and Koper, acting together, would be an equal com-
petition to the most of Mediterranean and Baltic ports in terms of good quality in
port and logistics service providing, as well as the scope of transhipment.

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 142
 
 9. SPREADSHEETS IN FUNCTION OF OPTIMISATION
OF LOGISTICS NETWORK

This scientific paper discusses how estimated spreadsheets functions in logis-

tics networks optimisation. The suggested working hypothesis for efficacy of esti-
mated spreadsheets in designing logistics networks is proved and a practical exam-
ple. In this way the given model can be applied to all logistics networks of similar
problem capacity. Logistics network model confronting estimated spreadsheets
present a real world at a level needed for understanding the problem of optimi-
sation of logistic networks. Applied scientific research for recognition of the set hy-
pothesis is based on analysis and synthesis method, mathematical method and in-
formation modelling method.

The development of network of national, regional and global economies pro-

vides possibilities for taking advantages of volume economies, i.e. development of
greater number of logistic operators which will, besides the services provided with-
in national networks, offer them on regional level and ultimately, on global level.
Spreading of logistics network leads to rationalisation in transport network, distri-
bution network and decrease of stock within unique global logistics network.
Technological break-throughs, that form part new technology paradigm, offer the
possibility of creating different structure of global logistics networks, which can be
entirely optimised by use of information technologies.
Therefore, the following hypothesis has been set: Calculation tables form rep-
resentative model in logistics networks' optimisation, i.e. model once created for a
certain problem can be used for solving problems in all logistics networks of simi-
lar problem area. Scientific research applied for proving the hypothesis is based on
methods of mathematical and information modelling.

9. Theoretical characteristics of logistics network

Multiple networks between companies are becoming more of a rule than an
exception no-wadays. The world where single companies are competing among
themselves for profit, in a kind of interpersonal market, does not actually exist. The
world of modern business is characterised by networks of social and exchange rela-
tions between companies and surrounding factors. Companies choose cooperation
as one of the ways of achieving competitiveness; enter different kinds of supply
                                                            

Mimo DRASKOVIC, and Drago PUPAVAC

143
 
chains or logistics networks. In this way, multiple networking is being created
which has marked modern global economy, and has made difficult drawing a line
between cooperation and competition.
Complex inter-connected processes (networks) can be found in almost every
kind of human activity, especially transport, logistics and economy. A network is
made up of nodes and directed arcs connecting pairs of nodes. Networks can take
all sorts of forms (cf. table 9.1).

Table 9.1. Type of network

Type of Nodes Arcs Flow
network
Communicaton O-D pairs for Message
Transmission lines
networks massages routing
Computer Storage device or Data,
Transmission lines
networks computers messages
Railway Yard and junction
Tracks Trains
networks pts.
Logistics Plants, Highways, railway Trucks, trains,
networks warehouses, ... tracks etc. etc

Companies develop logistics networks in or-der to obtain information,

resources, markets and technologies, or in order to achieve economy effects
of size and range. Logistics networks represent ultimate achievement of in-
ter-logistic management or logistic chains management. In logistics terms
network is the collection of locations and routes along which a product can
be shipped. For example, a company needs to decide whether to ship prod-
ucts directly to customers or to use a series of distribution layers.
Quick response to changes in demand re-quires effective solutions by all
participants along the logistics network (cf scheme 9.1). Logistics network in
scheme 1 is made of four objective layers. Process of production is taking place
down-stream from the production supplier, from production plant to distribution
centres and from distribution centres to market. Logistics network can have any
given number of objective layers.

144
 
 Scheme 9.1. Logistics network

145
 
 Furthermore, production layers sometimes take place down-stream even when
semi-products or parts of products are being returned to production plants for fin-
ishing or when the products not intended for further sale are being returned from
retail locations to distribution centres for recycling. In this way the there is no
competition between single companies but between entire networks, and the prize
goes to the company that has created a better network. Principle of operation is
very simple: create a solid network of relations with key elements, aided by logis-
tics operator as optimisation factor for logistic activity along the network, and the
profit will follow.

Scheme 9.2. Logistics network in industrial firm

Retail
Production
Trade
  
Basic
Final
Transport Storage Transport Storage 
Suppliers Customers
 Space  Space
  
Accessory
Wholesale
Storage
Trade
Space

The network being created by global logistics operator between global produc-
er and buyer can be viewed as follows (cf. scheme 9.3).

By connecting supply and demand, i.e. production and consumption, logistics

operators are creating national, regional and global logistics network which can
provide following advantages to participants in global logistics chains:
─ decrease of costs (labour, taxes, customs and other duties),
─ improvement of effects for all the participants in supply chain that has
been formed,
─ higher quality production inputs, and especially higher quality logistics
services,
─ opening of new and more distant markets, and
─ improvement of own performance through development of partner re-
lations with other participants of the chain.

146
 
 Scheme 9.3. Global logistics network
C usto m e r Ne e d

Glo b a l Pro d uc e r

Ou tso u rc in g

Glo b a l Lo g istic s Se rvic e Pro vid e r

De e p -se a c o nta ine r tra nsp o rt C o nta in e r tra nship m e n t

Glo b a l Sh ip p ing Line Glo b a l Term in a l o p e ra to r

Lo g istic s Se rvic e p ro vid e r

Ro a d tra n sp o rt Ra il tra nsp o rt Ba rg e tra nsp o rt

Truc king c o m p a ny Ra il c o m p a ny Ba rg ing c o m p a ny

Tra nsh ip m e nt Tra nsh ip m e nt

Te rm ina l o p e ra to r Te rm ina l o p e ra to r

End Ha ula g e End Ha ula g e

C usto m e r Sa tisfa c tio n

Source: Prepared author according: Wiegmans, W., et. al., 1999.

9.2 Spreadsheet and problem of optimisation on logistics network

In the realm of accounitng jargon a “spread sheet” or spreadsheet was and is a

large sheet of paper with columns and rows that organizes data about transactions
for a business person to examine. An electronic spreadsheet organizes information
into software defined columns and rows. The data can then be “added up” by a
formula to give a total or sum. The market for electronic spreadsheet software was

147
 
growing rapidly in the early 1980s and VisiCalc stakeholders were slow to respond
to the introduc-tion of the IBM PC that used an Intel computer chip. During this
period, Mitch Kapor developed Lotus and his spreadheets program quickly became
the new industry spreadsheet standard. In 1983, Lotus' first year of operations, the
company reported revenues of $53 Million and had a successful public offering. In
1984, Lotus tripled in revenue to $156 Million (Power, 2004).
The next milestone was the Microsoft Excel spreadsheet. Excel was originally
written for the 512K Apple Macintosh in 1984-1985. Excel was one of the first
spreadsheets to use a graphical interface with pull down menus and a point and
click capability using a mouse pointing device. When Microsoft launched the Win-
dows operating system in 1987, Excel was one of the first application products re-
leased for it. When Windows finally gained wide acceptance with Version 3.0 in
late 1989 Excel was Microsoft's flagship product. For nearly 3 years, Excel re-
mained the only Windows spreadsheet program and it has only received competi-
tion from other spreadsheet products since the summer of 1992.
Definition of a calculation table within new condition of technological para-
digm is being transferred to functional nature of calculation tables from the system
transition application state viewpoint (Vukmirović, Zelenika, and Pupavac, 2004).
In such paradigm a calculation table is being observed as an entirety made of four
main components saved in address lines of lines, columns and matrixes. Such ob-
servation is pointed to calculation table as function of computer supported complex
mathema-tical operation combined with matrix-network modelling. Such approach
leads to new definition of calculation table: calculation table is collection of func-
tions and formulas which, when inter-connected, can support the logic of data
flows and establish development of complex computer supported mathematical
algorithms to support quantity modelling of entire and complex problems.
Following expenses can be the object of optimisation on a logistics network
(Pupavac, and Zelenika 2004):
─ material cost,
─ acquisition costs,
─ investment costs,
─ production costs,
─ costs of distribution centres,
─ costs of keeping stock,
─ costs of internal and outbound transport.

Execution of optimisation methods by use of calculation tables has the ad-

vantage in possibility of physical integration of programmed routines into self-
generated applications. Computer supported optimisation methods are created in a
manner that allows them to be parallel used in other relevant applications, to the
point that they can be physically incorporated into them. Such methods fall under

148
 
category of computer-integrated tools of applied mat-hematics. After programme
execution the data remains permanently saved in template form, which is the basis
for development of model base in logistics net-works optimisation.

9.3 Computer-supported model of logistics network optimisation

In order to illustrate the part of calculation tables in logistics network optimi-

sation we will further on deliberate on logistics network which has "i" production
plants, "j" distribution centres and "k" consumer points (cf. scheme 9.4). Produc-
tion plants P1, P2 and P3 produce same goods during the period in question in quan-
tities p1, p2 and p3. B1 and B2 are consumer points of the same goods with quantities
b1 and b2. Every unit of goods is being transported from producer to consumer via
one of distribution centres D1 and D2 which have capacities of c1 and c2. We will
mark cij the cost of transport per unit from producer P1 to distribution centre DCj,
and cjk as cost of transport from distribution centre DCj to buyer Bk. This is a clas-
sic two-layer transport problem (Pašagić 2003, 161-162) because the transport is
done from the place of production to the place of consumption through distribution
centres.

Scheme 9.4. Crossdocking

Plants Customers

P1 p1 Distribution centers B1
b1
DC1
c1

P2
p2

DC2
c2
P3 B2
p3 b2

One can ask which are the reasons that speak in favour of distribution centres
in a logistics network. The reasons are many (Barković, Meler, and Novak 1986),
and we will state only three:

149
 
 ─ decrease distribution costs (degression effect of cost from producer to dis-
tribution centres due to quantities being transported),
─ decrease of delivery time (from distribution centre to buyer due to stock),
─ possibility of combining shipments for one buyer with the possibility of
reduction of transport costs.

As the costs of shipments' processing in distribution centres are not an issue of

this scientific debate, the total function of transport costs to be minimised on the
suggested logistics network is (Pašagić, H., Pašagić, J., and Markić 2004, p. 431):
m r r n

C=   c x   c x
i 1 j 1
ij ij
j 1 k 1
jk jk  min (1)

Production centres produce one type of goods in quantities p1 = 200000 t, p2 =

300000 t and p3 = 100000 t. Demand for such goods is b1 = 400000 t and b2 =
180000 t. Only 200000 t can be distributed from each production centre to each
distribution centre, and the same can be done from each distribution centre to each
consumer.
Transport costs differ and are shown in table 9.2 and table 9.3.

Table 9.2. Transportation costs (€ 000 t)

Plant to DC DC 1 DC 2
Plant 1 5 5
Plant 2 1 1
Plant 3 1 0,5

Table 9.3. Transportation costs (€ 000 t)

DC to Cus-
tomer DC 1 DC 2
Customer 1 2 2
Customer 2 12 12

In table 9.4 we have set solution for minimum cost network flow problem by us
of Excel calculation table, or its add-in Solver.

150
 
 Table 9.4. Minimum Cost Network Flow Problem

151
 
 Table 9.5. Optimal Minimum Cost Network Flow Problem solution
by use of calculation table

152
 
 Firstly, single transport costs from production centres to distribution centres and
from distribution centres to consumer centres (upper left part of the table) are en-
tered into table 9.4, followed by information on transport capacities and distribu-
tion centres capacities (upper right part of the table). The decision variables repre-
sent quantities being transported from production centres to distribution centres and
from distribution centres to consumer centres (lower left part of the table).
Transport costs from production centres to distribution centres, from distribution
centres to consumer centres, as well as total transport costs are shown in lower
right part of the table.
Variables: $C$17:$D$19;$C$23:$D$24
Constraints:
Do not exceed supply at the plants
$E$17:$E$19  $F$17:$F$19
Meet customer demand
$E$23:$E$24  $F$23:$F$24
Do not exceed shipping capacity
$C$17:$D$19  $K$6:$L$8
$C$23:$D$24  $K$11:$L$12
Flow conservation at the DCs
$C$28:$D$28 = 0

After formulating the model in this manner in Solver Parameters, click on

Solve which activates the Solver programme calculating the value of variables in
address sequence $C$17:$D$19 and $C$23:$D$24. Decision variables calculated
in address sequence $C$17:$D$19 and $C$23:$D$24 define the optimum solution.
Table 9.5 show the optimal solution to the problem by use of calculation table MS
Excel. Based on the information from the table 5 it is clear that 180 t of goods
should be shipped from the first production centre to first distribution centre, 200
tons of goods from second production to first distribution centre and 100 tons of
goods to second distribution centre. 100 tons of goods should be shipped from third
production centre to second distribution centre. Therefore, 380 tons of goods will
be shipped through first distribution centre as follows: to first consumer centre 200
tons of goods and 180 tons to second consumer centre. Second distribution centre
will have shipped 200 tons of goods to first consumer centre. Minimum cost of
such shipment amount to 4 210 000€ and are 390 000€ or 9,26% more favourable
from the least acceptable solution obtained when the function is resolved by maxi-
mum. 

153
 
 9.4 Conclusion

Modern supply chains represent dynamic, flexible and responsive networks

operating on “predict and process” principle, which is opposed to traditional ap-
proach “produce then sell”. Quick response to changes in demand requires effec-
tive solution in all stages of supply chain: production, acquisition, stocking,
transport and distribution. Lower number of participants, but also the domination
of logistics operator characterize modern logistics network. Logistics operator is a
factor, which successfully designs and optimises the logistics network, which is
more and more integrated into national, regional and/or global economic system.
This is the main reason for transformation of traditional forwarders into logistic
operators offering not only transport, but also warehousing, information technolo-
gy, and even production and global approach.
The use of computer and computer applications has become basic tool in logis-
tics network optimisation process. This is especially important because logistics
network management represents new management concept that is trying to manage
resources on the entire logistics network. In order for participant to complete their
tasks it is necessary to have the logistics network competitively profiled. This is
done through improvement of at least one of following three dimensions: service,
speed and property. When solving the problems on the network, user orientation of
calculation tables has been proved, as it is not necessary to use programming meth-
ods, or writing of programming instructions. In the example shown for use of cal-
culation table in net-work problem solving it is clear that all the activities are au-
tomated by use of functions and formulas in preparing the table through user appli-
cation Solver.
A Solver Model is build in this way: Objective: Minimize $K$28

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155
 
 156
 
 10. MULTIPHASE APPROACH TO DEVELOPING
MODEL OF LOGISTICS FOR COASTAL
TOURIST DESTINATIONS

The process of urbanization of coastal tourist destinations (CTDs) is taking

place at high speed and at the same time creating a lot of complex problems. The
positive trend of urbanization has resulted in increased volume of freight transport
which leads to burdening the traffic network, time losses and causes traffic conges-
tion problems on the streets with increased environmental pollution due to emissions,
noise and vibration. These findings brought to some research being started on the
EU level, aiming to develop new logistic solutions, so these areas could be developed
on a sustainable basis. With this in mind, the paper proposes a method of developing
a novel model of logistics (MoL) for CTDs through several stages. The point of pro-
posed MoL lies in achieving optimal connectivity of transportation, warehousing and
physical distribution of goods, and making it a single functional model, so as to al-
low simultaneous optimization of logistic processes in a CTD, and to incorporate
logistics in tourist offer.

10.1 Introduction

In their evolutionary development path coastal tourist destinations (CTDs)

have dominantly incorporated physical and historical components, with all the fea-
tures in terms of close association with water surface, dense urban cores with a
concentration of generators of logistic activities within them, narrow one-way
streets burdened with the implementation of freight transport, congestion on access
roads at certain intervals, predominance of road transport mode in shipping goods,
etc. Therefore, the desire to find an adequate model of supplying the CTDs without
undermining the quality of tourist offer and the environment is permanently pre-
sent. A holistic approach in developing MoL which is the base of research work
presented in this article employs several phases and methods in order to comprehen-
sively and simultaneously optimizes logistic processes in a CTD.
Contemporary models of sustainable development of CTDs promote horizontal
and vertical integration logistics and tourist activities. They are focused on technical
vision, combined distribution, and the concept of environmental sustainability. This
approach is fundamentally opposed to pro-road freight transport strategy that has
been present for a long time and brought to the increase in number of vehicles on
roads, which in turn brought to a series of negative impacts on CTDs.
                                                            

Sanja BAUK, and Zeljko IVANOVIC

157
 
 The model of sustainability is closely connected to total logistic integration
(TLI) of processes in a CTD (Figure 10.1). In accordance with Tinen’s theory [1],
it can be stated that within a CTD, the location factor, in respect to water surface,
represents the key element of the development of the model. On this basis, the geo-
graphic area in a CTD which is the closest to water surface is the one with the
highest density, rents, and traffic intensity. As a rule, these areas are reserved for
the most expensive tourist facilities, while the most distant areas, in geographical
terms, with the lowest rents, are used for industrial or agricultural production. In
the last mentioned areas the transportation costs are lower, and the intensity of
transport is considerably weaker. Being that TLI creates sustainable, competitive
and strategic advantage, the physical aspect of a CTD must be reaffirmed, in ac-
cordance with Tinen’s model.
The descriptive approach to the research of relations between tourist destina-
tion and associated generators of logistic requirements, logistic centers (LCs), loca-
tion problem, and optimization of tourist facilities supply, represents the basis of
the research and development of a novel model of logistics (MoL). Quality man-
agement of TLI system, as a key moment in developing MoL [2], should essential-
ly search for an optimum among the following four processes: (1) research and
forecasting of customer needs and expectations, (2) cooperation, coordination and
consolidation of material, energy, transport and information flows, (3) network and
physical planning, and (4) environmental planning. Model of logistics (MoL) as a
term, along with its significance in the development process and redefinition of lo-
gistic-transport system of a certain geographic area, represents a construction based on
a set of principles. It optimally connects primary logistic elements (system structure,
organization, logistic chains, logistic flows and telematic technologies) and secondary
logistic elements (public, private, and public-private logistic measures) into a systematic
and sustainable solution of logistics for CTD.
Active development of CTD affects the existing logistic solutions and causes
higher costs and greater number of complex requirements related to the processes
of distribution of goods. Therefore, the development of new methodological ap-
proaches for creating sustainable solutions in logistics is imposed as an inspiration.
In other words, the approach aimed to simultaneously and comprehensively opti-
mize logistic processes, and above all minimize transportation costs, along with
providing development of cooperative model of physical distribution. Development
of CTDs contains four phases (Figure 10.1): initialization (initial development of
fishing ports), urbanization (urban development and trade around the fishing port),
industrialization (development of related industrial facilities), and expansion (de-
velopment of tourism and tourism-related facilities). According to the level of eco-
nomic development of a society, each phase has some logistic solution. The last
phase of development is characterized by certain concentration of different regional
functions present on a rather small area that mutually coincide and create a set of
negative effects which are harming sustainable development of the region.

158
 
 Figure 10.1. Scheme of CTDs’ evolution

1. In i ti al iz ati on 4. Ex pan si on D e stin ati on

2. Ur ban i z ati on 3. In du stri ali z ati on de ve l opm en t

Fis hing To wn C o mme rcial T o uris t

po rt ce nte r ce nte r C o mplex
Further
develo pment
of destinat ion
w ith comp lex
log ist ics
requirements

trade trade trade trade

habitat ion habitat ion habitat ion
in dustry ind ustry
tourism
C URR EN T D EV EL O P M EN T O F D ES T INA T IO N FUN CT IO NS

Physical and infrastructural restrictions on one side, and increased frequency

of vehicles on the other, create gaps in the implementation of cargo flows. Former
areas of concentration of cargo flows such as ports, docks and town squares, have
now become significant tourist and catering facilities in which there has been a
change in the characteristics of cargo flows in terms of size, intensity and structure.
The key problem is that there has been an increase of road transport and it is the
result of: (1) elimination of holding stock in facilities, (2) desire to deliver goods in
accordance to JIT (Just in Time) strategy, (3) rapid increase in e-shopping, and (4)
tendency to independently solve transport problems of separate entities by not tak-
ing into account the overall efficiency.

10.2 Problem formulation and proposed methodology

Coastal tourist destinations (CTDs) are special and unique geographical areas
with emphasized logistic needs during specific period of time throughout the year
(150-165 days). It is necessary to come up with a new MoL that will allow better
cooperation, coordination and consolidation of logistic flows, which are imple-
mented in these areas. Therefore, the basis for developing MoL being proposed in
this paper relies on the relations between: geographic area and the existing genera-
tors of logistic requirements, LC and terminals, location problems and optimization
of tourist destination supply. The newly proposed MoL is developed by using a
holistic approach, the one that allows simultaneous optimization of all parts of lo-
gistic chain within CTD. This model allows the development of a higher level of

159
 
logistic service, as well as development of a combined distribution system between
land and water mode of transport. The key features in developing an optimal MoL
are realized through four phases referring to: (1) clustering problem in logistics, (2)
location problem, (3) vehicle starts optimization, and (4) vehicle routing problem.
These four phases are described in the following sub-sections of the paper (2.1-
2.4).

10.2.1 First phase - clustering in logistics

Within the first phase of the development of MoL, it is necessary to cluster

generators that are located in a CTD. Clustering can be done by using k-means
(greedy) method of clustering. At this stage, on the basis of number, structure and
physical distribution of generators of logistic requirements, it is necessary to de-
termine the physical concentration of generators based on the principle of similari-
ties of characteristics of logistic requirements and by using the method of cluster-
ing that will enable defining optimal locations for hub and LC, and in later stages,
cross docking terminals. The clustering process consists of the following phases:
initialization, aimed to define the number and physical distribution of generators,
variable selection for clustering (characteristic for logistic applications), selection
of distance measure, selection of clustering algorithm, determination of the number
of clusters, and validation of the analysis [3-6]. Distances within clusters are being
determined as Euclidean ones from the center (centroid).
K-means clustering is based on two components: (a) input a set X on n points
x i , i  1, n , and (b) output calculated as a set C consisting of k points (cluster cen-
tres) x j , j  1, k that minimizes the square error distortion dX, C  over all possi-
ble choices of C:
k n 2
  dX, C   min  x i  x j  
j1 i 1

It is possible to achieve this goal (1) by applying the following heuristics:

place k points into the space representing generators, assign each generator to the
group that has the closest centroid, when all objects have been assigned relocate the
positions of k centroids, repeat the second and the third steps until the centroids no
longer move. Greedy method should be applied in initial clustering and/or in de-
termining the optimal connections later on between the established centroids.

160
 
 10.2.2 Second phase - solving hub location problem

The second phase means determining the network of LC based on the results
of the clustering phase. The basis of this sub-model is to determine the optimal
structure of two echeloned systems of distribution: hubs-satellites as the first eche-
lon, and satellites-users as the second one. The scheme of this phase is given in Fig-
ure 10.2, and it is described in more detail further on.

Figure 10.2. Set of nodes arrangement for two-echelon routing problem

No

Ns

Nc

Nc1, Nc2,...,Ncn Nc1, Nc2,...,Ncn

Procedure of identifying hubs should be summarized as follows: let us observe

graph G  N, A  where N is the set of all terminal nodes, and the set of potential hub
notes is H  N . The set of arcs is defined as A, where each arc is weighted by
travel time (distance, or costs). Paths in the graph are identified as a sequence of
the nodes traversed, where this number is limited to at most two hub nodes per path
by the definition of the path variables. The standard incapacitated location model
[7] is given as a model (2-6):

min Fx , z       c ijkl x ijkl   f j z j

x ,z iN j HkH lN jN
subject to:
  x ijkl  d il , i, l  W
jHkH

 x ijkl  Q il z k , k  H, i, l  W
jN

 x ijkl  Q il z j , j  H, i, l W  

kN
  z j  0  z j  1, j  N

161
 
where d  RW is the vector of demands over the set W  N 2 of origin-destination
2 2
, and z  0,1 is the vector
N xH H
pairs. The flow variables are given by x  R 
of discrete decision variables indicating whether a hub is to be opened or not. The
constant Q il is defined as Q il  d il , i, l   W , in which case equations (4) and (5)
ensure that hub terminal is open for the flow. Costs of the path i, j, k , l  are given
by c ijkl , while f j is the cost associated with converting the terminal j into the hub
node.

10.2.3 Third phase – setting fuzzy logic conditions for vehicle starts

In this model, vehicles and LCs have predefined capacity [8-9]. Demands arriv-
ing from more customers should be met by engaging only one vehicle. The moment
when vehicle departs from its starting point is very important and it is determined by
fuzzy logic. Its route starts and ends within the same LC, and the total load must be
less than or equal to the capacity of LC. The objective is to minimize the total costs
of the system, including storage costs and routing costs. Since customer demand is
described by fuzzy logic, after the first customer has been served, the capacity of
each vehicle is also described by fuzzy logic, due to the rules of fuzzy arithmetic.
The capacity of LC is also described by triangular fuzzy number, and it has all the
conditions not to exceed the remaining capacity of LC with the next customer de-
mand. Greater difference between available capacity of vehicles and customer de-
mand puts dispatcher in the position to send the next vehicle. The preference index
herewith means magnitude of preferences to send the vehicle to the next customer.
Details of mathematical notation of this model can be found in [8]. However, limita-
tions of this model are robust fuzzy calculus and unpredictable customer demands.

10.2.4 Fourth phase - two-echelon vehicle optimal routing

In order to describe two-echelon vehicle model [10-23], let us consider a trans-

portation carrier that has to deliver goods to a set of N C destinations, called custom-
ers. A quantity of freight q i to be delivered, called demand, is associated to each cus-
tomer i. The carrier has one depot N O (hub) and N S (terminal) intermediate facili-
ties, or satellites where cross-docking operators can take place. Let us assume that the
transportation company has two fleets of homogenous vehicles, m1 and m 2 , as-
signed respectively to the first and the second echelon. These vehicles have maxi-
mum capacities C1 and C 2 , respectively. Two types of routes are then defined, one
per each echelon. The first echelon route starts and finishes in a depot and visits the

162
 
satellites. At the satellites, the freight is transhipped into the second echelon vehicles.
Each of them makes a round trip to deliver goods to one or more customers.
The objective function seeks to minimize the overall transportation costs. Con-
straints include: maximum number of routes, balancing the number of vehicles en-
tering and exiting each node; achieving that each route returns to its starting point
and each node receives its corresponding demand; limitations to the vehicle capaci-
ties; existence of connection between the two echelons, and assigning each cus-
tomer to one and only one satellite. Detailed mathematical model of herewith pre-
sented verbal formulation of the problem is given in Gonzales-Feliu (2012). The
limitation of this model is its computational complexity [24-27]. In this paper, for
the purposes of vehicle routing, instead of several well-known methods, such as genet-
ic algorithms, bee colonies and similar, an object-oriented computer simulation is used.

10.2.5 General algorithm scheme

Concerning all above described phases, an algorithm for a novel CTD MoL is
created and given in Figure 10.3. It consists of the following key processes: (1)
determination of destination size, (2) clustering of generators of logistic require-
ments, (3) determination of system structure, (4) determination of cooperation
models, and (5) simulation modelling of a real system.
The size of destination (small, medium or large) depends on the number and
physical distribution of generators of logistic requirements. This problem corre-
sponds in a manner to the clustering problem being described in (2.1) sub-section.
The number and nature of generators and their initial values are usually set on the
basis of extensive empiric observations on the spot.
When it comes to defining LC’s network, it corresponds to the second phase of
MoL (see 2.2). Here are identified possible LCs and their interconnectivity within
two-echelon structure of distribution, including seasonal characteristics of logistic
flows as very important elements.
The model of cooperation is presented in the following segment where key
conditions are described with fuzzy logics. The process management of goods
distribution is closely connected to conditioned vehicle departures caused by key
attributes, i.e. vehicle capacity and freight space being used. This segment of
proposed algorithm directly corresponds to the third described methodological
approach in (2.3) sub-section. The vehicle routing problems are solved by the
process of simulation modelling (2.4). For the last phase, input data are the re-
sults of the resolved problems encountered in the previous three phases (2.1-2.3).

163
 
 Figure 10.3. Proposed algorithm for development of MoL for CTDs

MODEL OF LOGISTICS OF COAS TAL TOURIS T DES TINATION

Defining the number and structure of the generators in the destination

no if > 5000
if < 2000
if 2001 - 5000 yes
yes no
yes
Small destination Intermediate destination Large destination

-Experiences A possible structure for a system Size of destinat. basis for

-Needs size of the destination the development of MOL
-Expectations
-Sense of regional authority K-means clustering generators of The amount of goods of
logistical requirements the clusters
m n

Seasonal characteristics Defining network LC min  c

i 1 j 1
ij x ij

of the logistics flows - The number of logistics centers n

x ij  a , i  1, 2 ,..., m 

- Spatial distribution j 1

Possible alternative - Structure of the subsystem  x ij  b , j  1, 2 ,..., n 

solutions - Logistics flows x ij  0 for each pair

Fuzzy logic

Delivery by vehicles Model of Delivery by boats

cooperation modes

GIS - O-D matrics- VRP

Characteristics of Characteristics of
The simulation model adopted ML
application generators transport requirements
The simulation results
Monitoring:
- Spatial effects
- Available data
- The transport effects - Traffic indicators
- Indications of emissions Database
- Economic effects
- Ecological effects - Indicators of quality of service

READINESS FOR IMPLEMENTATION

Direct and strict application of integrated MoL which includes particular com-
bination of analytic, probabilistic and fuzzy methods is too complex and it is hard
to have it entirely realized. The appropriate simulation modelling represents the
key phase in models like this one. The role of the simulation is double. On the one
hand it should describe and simulate very complex processes with several dimen-
sions: analytic, probabilistic and fuzzy. On the other, it should provide a database

164
 
which offers important indicators like: capacities used of available vehicles, LCs’
locations, mileage, number of stops, time consumed during unloading, etc., for
further analysis.
By taking into account the previously described phases (2.1-2.4), along with
the proposed holistic approach to the development of MoL in CTDs, it needs to be
emphasized that there are many difficulties when it comes to the realization of the
process of connecting separate sub-models into one integrated model. Consequent-
ly, some phases can be separately realized, and their results can be used as inde-
pendent input data for future development of similar models.
The developed multiphase MoL is tested on a concrete example, i.e. Montene-
grin CTD (MCTD) as a medium developed tourist destination. The goal is to obtain
relevant data for a complete optimization of logistic processes within this CTD in
the time period to come. The simulation results over newly developed MoL for
MCTD, which has three different scenarios, are presented in the next section of the
paper, along with all relevant indicators.

10.3 The MoL application at MCTD

The proposed model of logistics (MoL) has been tested at MCTD, which is a
unique destination composed of six towns: Herceg Novi, Kotor, Tivat, Budva, Bar
and Ulcinj, and fourteen input and output gates. These towns need annually
572,271 tons of goods for the purpose of satisfying their functions (trade, tourism,
etc). The key steps in developing MoL at MCTD are briefly described below.
Step 1: Features of the existing logistic solutions at MCTD are summarised. It
is a disorganized system in logistic terms. In other words, the concentration of lo-
gistic processes is not present at MCTD, and each sub-system independently organ-
izes distribution of goods, not taking into account the general efficiency. Further-
more, insufficient coordination and cooperation among different modes of transport
is present. Consequently, regarding the presence of a number of separate and par-
tial solutions, numerous examples of unsynchronized logistic activities are preset,
like: dispersion of storage and transhipment capacities, intensive road traffic in nar-
row city centre areas, running vehicles with a small degree of cargo space utilization,
frequent deliveries during the peak load, etc.
Step 2: Number of generators of logistic demand has been initialized. At
MCTD, in total 3,485 generators are identified during the season, while 2,503 gen-
erators are identified in off-season period. Each generator presents a sub-system of
marketing logistics of the region with different features of demand. In order to have
better understanding of the facts, the generators are grouped (Table 101) according to
the flows of goods similarity.

165
 
 Table 10.1. Presence of certain types of generators at MCTD

Groups of generators  Off‐season  In‐season 

No. % No. % 
Food shops 539 21.53 643 18.45 
Textile, shoes & boutiques 360 14.38 435 12.48 
Hotels and catering 591 23.61 1,024 29.38 
Technical goods 237 9.47 275 7.89 
Craft shops 284 11.35 300 8.61 
Furniture  21 0.84 21 0.60 
Bookstores 39 1.56 46 1.32 
Other  432 17.26 741 21.26 
Total: 2,503 100.00 3,485 100.00 
 

Step 3: Different types of generators are identified. In order to simplify things

for the purpose of the following simulations, the generators are divided into five
groups: G1 – generators for local industry, G2 - generators for civil engineering,
G3 - generators for retail, G4 - generators for hotels and catering, G5 - other gene-
rators. The number of generators is analyzed for both in-season (approximately 92
days per year) and off-season (approximately 273 days per year) periods.
Step 4: Six towns at MCTD: Herceg Novi, Kotor, Tivat, Budva, Bar, and Ul-
cinj are defined as six clusters in the model.

Figure 10.4. Graphic presentation of implementation of logistic chains

Truck Airplane Truck Airplane Truck Truck Train

Q=26484t Q = 1650 t Q = 65 t Q = 22315 t Q = 53444 t Q = 96511 t

Q = 13261 t
C1 3PL
Tivat
3PL Logistics
Customers

C2 Center
H. Novi
Bar
C3
Local
Cn
Industry

Ship Q = 99802 t Ship Q = 35954 t Ship Q = 40001 t Q = 46521 t Ship Ship Q = 126331 t

166
 
 Step 5: The hub-location problem is resolved within this step, i.e. the structure
of three LCs is defined. One hub in Bar within the Port of Bar which should pro-
vide technical and technological support, while two satellites are in Tivat and Her-
ceg Novi (Figure 10.4). Figure 10.4 also gives the amounts of goods (Q) needed by
the analysed cities and modes of transport for MCTD per year. This structure will
allow effective coordination and utilization of transportation infrastructure at
MCTD, including optimal distribution of macro and micro commodity flows.
Step 6: Two-echelon vehicle optimal routing is realized within this step. The
first echelon is composed of the hub in Bar and the two satellites in Tivat and Her-
ceg Novi. The second echelon consists of several satellites and end-users. At the
level of the first echelon, supply is realised by using bigger transportation devices
(ship, wagon, truck, etc.), while at the level of the second echelon the distribution
of goods is realized by smaller transportation units (vehicles).

10.3.1 The structure of the simulation model

All contemporary tendencies towards optimization of logistic processes in a

tourist destination basically coincide with the process of development of LCs. The
main development goals of LCs are concentration and consolidation of logistic ac-
tivities in one place by achieving positive economic, physical, and environmental
effects. Contemporary designed and organized LCs represent central elements, or
hardware of the MoL which, as such, are in strong connection with the develop-
ment and implementation of modern logistic strategies such as: make or buy
(MOB), JIT, 3PL, and 4PL. After solving the location problem for MCTD, the
structure of three LCs is defined, i.e. one hub in Bar within the Port of Bar, which
should provide technical and technological support, and two satellites, one in Tivat
and the second one in Herceg Novi. This structure allows effective coordination
and utilization of transportation infrastructure in the destination.
An important feature of the proposed model is to define quantitative character-
istics of logistic demand which are related to: (1) establishing average number of
demands per time unit and determining medium value (amount of goods) per de-
mand, (2) defining probability distribution of time between two demands, (3) de-
fining probability distribution of amount of goods per demand, and (4) defining ran-
dom functions of events for two periods of observation. The general scheme of simula-
tion modelling for MCTD is given in Figure 10.5.

167
 
 Figure 10.5. General structure of the simulation model for MCTD
MONTENEGRIN COASTAL TOURIST DESTINATION
H. Novi Kotor Tivat Budva Bar Ulcinj

Availability of infrastructure

Logistics flows in the destination Profile of logistics Structure of generators

Caracteristics of marketing logistics

Group of generators Possible solutions Period of observation

G1 – local industry; - PS1 – one LC, two 3PL;
G2 – construction; - PS2 – one LC, one 4PL (two 3PL); Period A (of season)
G3 – retail; - PS3 – one LC in destination,
G4 - hotels and catering; one LC out destination, Period B (season)
G5 - other generators. one 4PL (two 3PL).

The input data for the simulation

Requirements of generators Structure of the logistics system in the destination The transport input

Probability distribution of Size of the vehicle in the

weight one package LC distribution of goods

No
Bar
%

LC outside the destination

= 1.5 3 5 7 tons
Number of vehicles
= 10 20 - 50 70 - 90 110 - 130 kg sim ultaneously engaged
Local in the delivery
Probability distribution for a

No
single delivery of the generator Industry
%

3PL 3PL 1.5 3 5 7 12 < 24 tons

Tivat H .Novi Tim e waiting of vehicles
0.1 0.2 0.5 0.7 1 >1 m3 unloading goods
Participating generators
%

No in generating dem ands

gen.

1000

800

600

400
C1 C2 C3 C4 Cn
200
0.1 0.5 1 2 3 4 5 >5 Del/day Customers < 10 15 25 35 >35 t (m in)

Probability Probability Sim ulation of total Probability

Probability distribution distributions of distribution of num ber of vehicles per distributions of time
of sam e transport modes transport demand of implem entation
presents in delivery goods delivery of goods in per group of day on the enters in required by the
the direct channels some cities
generators group generators

GIS - The traffic network in

the destination PC
(Arena 7.01)
Data base
(Planning of transport route)

RESULTS O F SIM ULATIO N EXPERIM ENT

- Starts of vehicles per day per city in the destination ;

- The number of delivery vehicles at the entrance of towns;
- Distance traveled by the vehicle in goods distribution (km /days);
- Different modes of transport;
- Engagement of distribution channels for existing situation and for each newly developed PSs ;
- Delivered vehicles/day traveled distances during the season/off season;
- Economics effects for different M oL possible solutions per town (€/day).

168
 
 On the basis of a completed profile of logistics for MCTD, the following ele-
ments are defined: geo-physical features of the destination (border destination, gate
layout, LC’s location and road network), characteristics of macro and micro com-
modity flows, where the largest percentage of macro flows is directed firstly to-
wards the Port of Bar and later on from the port to LCs. The characteristics of
physical distribution are in accordance with the logistic requirements of the genera-
tors and the vehicle characteristics. Based on the initial conditions, the system struc-
ture has been defined for three alternative solutions. Any alternative solution has a
different system structure, which are modelled by the simulations.
Variant 1: It consists of one hub (cargo centre Bar) and two LCs (3PL logistic
providers in Tivat and Herceg Novi). At the same time, this form presents possible
solution No. 1 (PS 1) in the general structure of the herewith presented simulation
model for MoL; Variant 2: It consists of one hub (cargo centre Bar) within the des-
tination and one 4PL logistic provider. In this form 4PL provider is a complete
structure made of two LCs (3PL providers Tivat and Herceg Novi) and one IT pro-
vider. This form presents possible solution No. 2 (PS 2) in the general simulation
model; Variant 3: It consists of two hubs (one within the destination – Bar, and an-
other outside the destination) and one 4PL provider. In this form we have the possi-
bility of having one hub situated outside the destination with auxiliary function.
This form is solution No. 3 (PS 3) in the general simulation model. The main idea is
that the hub in Bar should present central element of logistic structure enabling
concentration, cooperation and transformation of all forms of commodity flows.
The numerical and graphical results of the simulation processes are given in the
next part of the paper.

10.3.2 Generators of logistic demand features

All input data were obtained on the basis of multi-criteria empirical analysis
made by the authors during the past two years. The proposed MoL for MCTD is an
open, dynamic and stochastic model determined by a set of sizes with discontinuous
characteristics, which affect the system, so that it changes discretely over time. The
features of generators of logistic demand for MCTD are given in the form of num-
ber of vehicles’ starts per day (Figure 10.6).
The size structure and the number of freight vehicles are given in Table 10.2,
along with the starting points from which the vehicles depart on their routes within the
explored MCTD. It is obvious that there are extensive data which create solid basis for
the development of a simulation model.
In addition to data presented in Figure 10.6 and Table 10.2, it should be point-
ed out that the authors have collected extensive data sets regarding the number of
passenger cars, pick-ups and trucks exploited during and off season, in all MCTD
clusters, i.e. in Herceg Novi, Kotor, Tivat, Budva, Bar and Ulcinj. Also, data on

169
 
transport facilities structure and frequency of employing different modes of
transport in delivering the goods have been collected. This kind of comprehensive
research has never been done in this area so far (to the best knowledge of authors).

Figure 10.6. Number of vehicles’ starts per day

700

600

500

400

300

200

100

0
0,1 0,2 0,3 0,5 0,8 1 1,5 3 5 >5
Delivering daily
No. of generat ors in-season No. of generators off-season

Table 10.2. Percentage and structure of delivered vehicles of different

freight capacities
From the distrib-
From own Directly from the From the distribu-
Description Structure utors inside
storages producers tors outside MCTD
MCTD
< 3.5- >7.5 < 3.5- > < 3.5- > < 3.5- > < 3.5- >
Generators
3.5t 7.5t t 3.5t 7.5t 7.5t 3.5t 7.5t 7.5t 3.5t 7.5t 7.5t 3.5t 7.5t 7.5t
Food stores 46 29 25 82 15 3 2 17 81 77 21 2 24 64 12
Textiles,
shoes
and boutique 68 29 4 92 7 1 5 84 11 86 13 1 87 12 1
Hotels and
catering 32 38 30 71 24 5 6 23 71 29 52 19 21 53 26
Technical
goods 42 29 30 74 23 3 2 9 89 67 28 5 23 54 23
Craft stores 65 32 3 82 18 0 28 61 11 72 27 1 78 21 1
Furniture 0 50 50 0 97 3 0 3 97 0 3 97 0 98 2
Bookstores 96 4 0 100 0 0 83 17 0 100 0 0 100 0 0
Other 50 36 14 76 21 3 21 61 18 57 28 15 47 34 19

170
 
 10.4 Simulation results

The simulation experiment includes MCTD space as a single system with six
sub-systems for each considered cluster. The process of modelling and simulation
experiment based on the developed MoL for two characteristic periods off-season
and in-season, is realized as a whole in programming language Rockwell Arena
(ver. 7.1) on Intel processor (2.4 GHz/4 GB RAM) for the present situation at
MCTD, and for three newly proposed solutions within the concept of rationaliza-
tion of commodity flows. The numerical results obtained by the simulation model
are given in Tables 10.3-10.5, and in Figures 10.7-10.10.

Table 10.3. Comparative analysis of existing and three newly proposed MoL solutions for
MCTD based on number of vehicle starts per analyzed clusters and generators
 
MoL solutions for MCTD
Existing PS 1 PS 2 PS 3
Characteristic
No.

Off-sea-son

Off-sea-son

Off-sea-son
Off-season

Effect (%)

Effect (%)

Effect (%)

Effect (%)

Effect (%)

Effect (%)
Sea-son

Sea-son

Sea-son
Season

1 Goods/year (t) 572 271 572 271 572 271 572 271
2 Period (days) 273 92 273 - 92 - 273 - 92 - 273 - 92 -
G1 30.0 30.0 23.4 22.0 23.4 22.0 23.7 21.0 23.8 20.6 22.8 24.0 23.1 23.0
Starts of G2 36.0 44.0 28.8 20.0 36.5 17.0 29.3 18.6 35.2 20.0 28.1 22.0 35.6 19.0
vehicles
3 G3 231.1 462.7 104.0 55.0 208.2 55.0 99.4 57.0 194.3 58.0 108.6 53.0 199.0 57.0
per day
Ulcinj G4 139.8 362.9 60.1 57.0 156.0 57.0 58.7 58.0 153.5 57.7 60.8 56.5 151.7 58.2
G5 12.8 8.4 9.5 25.3 6.3 25.0 9.6 24.5 6.3 25.0 9.4 26.0 6.3 25.0
G1 54.0 54.0 44.8 17.0 44.8 17.0 42.7 21.0 44.3 18.0 41.0 24.0 43.9 18.7
Starts of G2 135.0 165.0 113.4 16.0 140.3 15.0 109.9 18.6 138.6 16.0 105.3 22.0 137.0 17.0
vehicles
4 G3 517.3 1039.6 186.2 64.0 363.9 65.0 197.6 61.8 374.3 64.0 243.1 53.0 367.0 64.7
per day
Bar G4 236.4 757.3 96.9 59.0 325.6 57.0 93.6 60.4 310.5 59.0 102.8 56.5 318.1 58.0
G5 46.4 33.9 36.2 22.0 27.5 19.0 35.0 24.5 26.4 22.0 34.3 26.0 26.1 23.0
G1 18.0 18.0 15.7 13.0 14.8 18.0 14.2 21.0 15.7 13.0 15.5 13.7 15.5 14.0
Starts of G2 36.0 44.0 31.0 14.0 38.3 13.0 29.3 18.6 37.8 14.0 30.5 15.3 38.1 13.3
vehicles
5 G3 333.0 722.0 113.2 66.0 231.0 68.0 117.5 64.7 245.5 66.0 111.2 66.6 238.3 67.0
per day
Budva G4 172.4 1015.8 72.4 58.0 416.5 59.0 71.0 58.8 426.6 58.0 73.8 57.2 420.5 58.6
G5 26.4 20.7 20.3 23.0 16.8 19.0 19.9 24.5 15.9 23.0 20.1 23.7 16.1 22.4
G1 12.0 12.0 10.8 10.0 10.8 10.0 9.5 21.0 10.9 9.2 10.6 11.3 10.6 12.0
Starts of G2 72.0 88.0 61.2 15.0 74.8 15.0 59.3 17.6 73.9 16.0 59.8 17.0 74.2 15.7
vehicles
6 G3 148.4 265.2 69.0 53.5 118.0 55.5 67.2 54.7 123.3 53.5 66.8 55.0 119.3 55.0
per day
Tivat G4 143.8 303.8 61.8 57.0 127.6 58.0 59.2 58.8 130.6 57.0 60.4 58.0 128.5 57.7
G5 3.6 3.0 2.8 21.5 2.3 24.0 2.7 24.5 2.4 21.5 2.7 25.0 2.4 21.5
G1 24.0 24.0 21.8 9.0 22.1 8.0 21.4 11.0 21.8 9.0 21.3 11.3 22.0 8.2
Starts of G2 36.0 44.0 30.6 15.0 38.3 13.0 30.3 15.7 37.4 15.0 30.9 14.2 37.7 14.3
vehicles
7 G3 232.3 405.8 127.7 45.0 175.7 56.7 123.6 46.8 170.4 58.0 125.4 46.0 166.4 59.0
per day
Kotor G4 119.0 278.5 63.1 47.0 117.0 58.0 62.8 47.2 114.2 59.0 62.4 47.6 115.9 58.4
G5 14.0 8.4 10.5 25.0 6.5 22.8 10.3 26.0 6.3 25.0 10.2 27.0 6.2 26.0
G1 12.0 12.0 11.0 8.5 9.8 18.0 9.5 21.0 11.0 8.5 9.7 19.0 11.0 8.5
Starts of G2 63.0 77.0 54.4 13.7 67.0 13.0 51.3 18.6 66.5 13.7 52.5 16.7 66.5 13.7
vehicles
8 G3 332.6 615.8 110.4 66.8 198.3 67.8 117.4 64.7 204.5 66.8 108.4 67.4 204.5 66.8
per day
H.Novi G4 145.9 431.9 62.7 57.0 178.4 58.7 60.1 58.8 185.7 57.0 61.9 57.6 185.7 57.0
G5 9.9 6.6 8.2 17.0 5.3 19.0 7.5 24.5 5.5 17.0 8.0 19.0 5.5 17.0

171
 
 The number of vehicle starts per day is considerably reduced, depending on the
variational solution and generators type (from 8% to 67%). Therefore, this results in a
relief of the transportation network and achieving of greater economic and environ-
mental effects (lower levels of CO2, noise, etc).
The structure of distribution channels over LC Bar, 3PL points (Tivat and Her-
ceg Novi), and local industry for each generator (G1-G5) is given in Figure 10.7.

Figure 10.7. The structure of distribution channels at MCTD

%
0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 80,00
LC Bar 42,11
1 3PL 1 9,93
G 3PL 2 16,99
Direct 30,98
LC Bar 30,29
2 3PL 1
G 3PL 2
Direct 69,71
LC Bar 63,70
3 3PL 1 21,33
G 3PL 2 12,52
Direct 2,45
LC Bar 70,15
4 3PL 1 10,87
G 3PL 2 16,16
Direct 2,82
LC Bar 13,27
3PL 1
5
G 3PL 2
Reg.ind. 72,97
Direct 13,76

In Table 10.3, the data on savings, i.e. effects (%) during and off-season are
given for three examined logistic solutions for MCTD, concentrated in and around
Herceg Novi, Kotor, Tivat, Budva, Bar and Ulcinj. These effects are calculated for
the savings in the number of vehicles set in motion for different generators (G1-
G5). Besides the detailed analysis per each type of generators for clusters consid-
ered within MCTD, the simulation results for the number of vehicle starts at the
entrance of each analyzed cluster and effects in terms of savings in the distances
travelled by the employed vehicles are given in Table 10.4.

172
 
 Table 10.4. Comparative analysis of existing and three newly proposed MoL solu-
tions for MCTD based on total number of delivered vehicles per clusters and the
travelled distances
MoL solutions for MCTD
Existing PS 1 PS 2 PS 3
Characteristic
No.

Off-season

Off-season

Off-season

Off-season
Effect (%)

Effect (%)

Effect (%)

Effect (%)

Effect (%)

Effect (%)
Season

Season

Season

Season
1 Goods/year (t) 572 271 572 271 572 271 572 271
2 Period (days) 273 92 273 - 92 - 273 - 92 - 273 - 92 -
UL 449.6 908.0 225.8 49.8 430.5 52.6 220.7 50.9 413.2 54.5 229.7 48.9 415.7 54.2
BR 989.0 2,049.8 477.5 51.7 902.0 56.0 478.7 51.6 894.1 56.4 526.6 46.8 892.0 56.5
The number of delivery BD 585.8 1,820.5 252.6 56.9 717.3 60.6 252.0 57.0 741.6 59.3 251.2 57.1 728.5 60.0
3 vehicles at the entrance
of towns TV 379.8 672.0 205.6 45.9 333.5 50.4 198.0 47.9 341.1 49.2 200.3 47.3 334.9 50.2
KO 425.2 760.7 253.7 40.3 359.5 52.7 248.4 41.6 350.2 54.0 250.1 41.2 348.2 54.2
HN 563.4 1,143.3 246.7 56.2 458.8 59.9 245.7 56.4 473.1 58.6 240.5 57.3 473.1 58.6
UL 47,212 104,42 13,550 71.30 26,691 74.44 13,243 71.95 25,617 75,47 13,784 70,80 25,774 75,32
BR 90,988 274,677 5,730 93.70 12,629 95.40 5,745 93.69 12,517 95.44 6,319 93,06 12,488 95,45
Distance traveled by
the vehicle in goods BD 55,064 163,845 21,974 60.09 64,559 60.60 21,927 60.18 66,740 59.27 2,1852 60,32 65,564 59,98
4
distribution TV
(km/days) 14,812 37,629 1,851 87.50 4,002 89.37 1,782 87.97 4,093 89.12 1,802 87,83 4,019 89,32
KO 22,110 46,404 3,552 83.94 5,393 88.38 3,478 84.27 5,253 88.68 3,502 84,16 5,223 88,74
HN 45,070 137,198 14,803 67.16 28,907 78.93 2,212 95.09 5,677 95.86 2,164 95,20 5,677 95,86

Figure 10.8. Simulation results obtained for different modes of transport

70
60
50
40
% 30
20
10
0
Existing PS 1 PS 2
Ship 47,93 61,53 60,92
Rail 5,31 17,98 18,6
Truck 46,6 20,17 20,17  

Figure 10.8 presents changes in the structure of the presence of different

modes of transportation (ship, rail, road, and air) in MCTD during and off-season.
It is evident that in the newly proposed logistic solutions (PS 1, PS 2 and PS 3)
there is a significant decrease in the share of road and rail transport in comparison
to sea shipping. This is of great importance in terms of relieving urban cores of
analyzed cities, especially during the season. The new MoL solutions contribute to
relieving the transport network in the destination from heavy trucks by increased

173
 
use of sea and to slightly lower extent rail transportation modes, which is of partic-
ular importance during the summer tourist season. The presence of much smaller
scattering among engagement of direct distribution channels in delivery of goods to
customers for all five groups of generators speaks in favour of the here proposed
solutions PS 1, PS2, and PS 3 (Figure 10.9).

Figure 10.9. Engagement of distribution channels for existing situation and for
each newly developed MCTD solutions (PS 1, PS 2, and PS 3)
120
100
80
60
%
40
20
0
-20
G1 G2 G3 G4
Existing 91,44 91,67 38,18 32,5
PS no 1 33,65 70,1 5,9 8,84
PS 2 30 98 69 71 2 45 2 82

Figure 10.10: Delivered vehicle travelled distances [km] during the tourist season
per day

300.000
250.000
200.000
y 150.000
a
d
/ 100.000
m 50.000
k
0
-50.000
UL BR BD TV KO
Existing 104.423274.677163.84537.629 46.404
PS no 1 26.691 12.629 64.559 4.002 5.393
PS no 2 25 617 12 517 66 740 4 093 5 253

Figure 10.10 shows the change in the total commercial vehicle travelled
distances in [km] per day during the summer tourist season in the analyzed
coastal tourist destination, i.e. MCTD.

174
 
 The new structure affects the change of image of the total cost, the amount of
harmful substances and the quality of logistic services. There is a much smaller
share of unconsolidated delivery to users. The result of this is the relief of road
transport network in the destination, which is up to 95.20% in the period outside
the summer season and up to 95.86% in the peak tourist season. The economic ef-
fects of the new solutions per day for each PS are shown in Table 10.5.
In terms of direct positive economic effects per considered clusters (€/day)
in the cases of a novel proposed MoL solutions, on the basis of figures present-
ed in Table 10.5, it is obvious that certain differences are present. Namely, the
greatest economic effects are noticeable for variant PS 3 in-season, while the
greatest positive financial effects, even with small variation in comparison to PS
3, are present off-season in the case of PS 2 variant.

Table 10.5. Economic effects for different MoL possible solutions

per cluster (€/day) at MCTD

PS 1 PS 2 PS 3
City
Off-season Season Off-season Season Off-season Season
Ulcinj 33,662 77,733 33,969 78,807 33,428 78,650
Bar 85,258 262,049 85,243 262,160 84,669 262,189
Budva 33,090 99,286 33,138 97,105 33,212 98,281
Tivat 12,961 33,628 13,030 33,536 13,009 33,610
Kotor 18,558 41,011 18,633 41,151 18,609 41,181
H. Novi 30,267 108,291 42,858 131,521 42,905 131,521
Total: 216,796 621,998 226,871 644,280 225,832 645,432

Through further analyses additional observations can be made, depending on

the particular interests of the researchers, professionals and stakeholders in this
domain. However, it is evident that the proposed MoL significantly improves the
logistic processes in the considered MCTDs by providing time saving, congestion
reductions, and money saving.

10.5 Conclusion

The growth in volume of logistic processes and services in all business seg-
ments of CTD affects the development of an approach that will enable its compre-
hensive and integral observation. Parallel with the process of expansion of logis-
tics, certain logistic trends that significantly affect the processes of designing new
systematic solutions can be seen. All these solutions are focused on the develop-
ment of a win-win situation among all participants in the logistics of CTD. Their

175
 
key determinant is the focus on making complete optimization and coordination of
logistics - transport processes and sub-systems - in order to create situations which
will result in synergy effects. Therefore, the tasks of logistics in CTD, aside from
energy and regulatory aspects, also include material side of the process whose main
goal is the delivery of materials and products to certain locations at a certain time
with minimal resources and minimal economic expenses, where certain quality of
logistic services is expected. The starting point in the development of sustainable
MoL is to identify important factors that initiate its development. A number of dif-
ferent factors that influence the development of logistic solutions can be differenti-
ated into seven main groups: (1) rapid globalization processes, (2) integration of
supply chains and their growing presence in CTD, (3) growth in the scope of lo-
gistic activities in CTD, (4) technical and technological innovations in all logistic
sub-systems, (5) rapid development of IT technologies, techniques and equipment,
(6) improvement of methodological procedures and techniques, and (7) environ-
mental requirements for sustainable environmental solutions.
The characteristics of physical dispersion, mass, inhomogeneity, stochastic
commodity and material flows have made it necessary to develop modern methods
of technological design so as to have an as successful rationalization as possible.
The concept of design of material flow in a meta and macro logistics system is fo-
cused on: (1) harmonized correspondence of transportation requirements and tech-
nological elements, (2) examination of reciprocal impact factors: addition, consoli-
dation, interphase warehousing, inventory management, and physical distribution,
(3) implementation of material flow in CTD within stochastic and non-stationary
conditions of the logistics processes. Logistics management and decision-making
in CTD falls into the category of strategic issues. For the location problems in lo-
gistics of CTD, a set of objects appears that are associated with other interactive set
of objects (LC and their satellites interact with generators of logistic requirements).
The interconnectivity of these objects constitutes a logistics network of destina-
tions. The problem of determining the optimal location of LC and its satellites in
respect to the number and physical distribution of generators of the logistic re-
quirements is one of three key problems in the development of customizable lo-
gistic system solutions of CTD. The objective function of the considered problem
is usually defined by the selection of a location that will meet the transportation
and physical conditions, while the transportation costs will be brought to a mini-
mum trying to meet all logistics needs of generators.
Due to the complexity and scope of the process, the development of MoL can-
not be done in a single step. It takes a holistic and multiphase approach. In this pa-
per, in the development of MCTD MoL, we took into consideration the following
constraints: number, structure and physical distribution of generators of logistic
requirements at MCTD. Then, we proposed clustering, i.e. location/allocation prob-
lem along with optimization of supply processes throughout optimal available ve-
hicles routing. Corresponding data sets were collected on the spot during and off-

176
 
season and the appropriate simulations have been realized throughout a unique
simulation model using programming language Rockwell Arena (ver. 7.1). On the
basis of computer simulation over the developed MoL and the previously collected
data on the spot, multiple positive effects have been observed:
 Reduction in the number of vehicles for newly proposed PS 1, PS 2, and
PS 3 logistic solutions in MCTD is noticeable in comparison to the actual
situation, that is of particular importance in the season period;
 Also, noticeable are the reductions in the number of vehicles during and
off-season at the entrances of examined MCTD clusters in comparison to
the present situation;
 The novel proposed logistics solutions PS 1, PS 2, and PS 3 caused the re-
duction of road and rail transport density in favour of sea transportation.
This relieves the road (and partly the rail) transportation network. This is
again of particular importance in season periods;
 Channels of distribution congestion are considerably reduced in the cases
of PS 1, PS 2, and PS 3 for each generator type (G1-G5) in comparison to
the present state of logistic facilities at considered MCTD;
 Delivered vehicles travelled distances per day expressed in [km], especial-
ly during summer period, are reduced for PS 1, PS 2, and PS 3 variant so-
lutions;
 Positive economic effects of the proposed logistic solutions PS 1, PS 2, and PS 3
are obvious for each considered MCTD cluster - Herceg Novi, Kotor, Tivat,
Budva, Bar, and Ulcinj, etc.

The above listed conclusions obtained as a result of conducted simulations up-

on the proposed MoL for MCTDs might be treated as promising facts for further
experimental and more rigorous and extensive research work related to key issues
for providing integral and adaptive MoL at CTDs in general. Additionally, one of
the possible future directions of research is analyzing combined commodity distri-
bution between sea and road transportation modes. This might include the devel-
opment of a network of cross-docking terminals as satellite logistic centres and
intensively involved speedboats in the distribution of commodities towards provid-
ing an optimal CTD logistics scenario.

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 180
 
 11. THE ROLE OF LOGISTICS
IN PERFORMANCE MANAGEMENT

Apart from the proven and significant role of logistics in integrating marketing
and management systems of a company, the position on the connection between the
logistics and institutional (top) level of a business strategy in contemporary litera-
ture and business practice is being acknowledged. The mentioned position implies
the implementation of performance management. In this way, the earlier opinion
and praxis of connecting logistics with operations and provisional functioning in
the area concerning a degree of integrations of business functions are being sur-
passed. The relationship between performance management and logistics can be
considered from two aspects: a) role of logistics in enhancement of performance
management and b) roles of measuring and analysis in enhancing the logistics per-
formances themselves. This paper explains the mentioned dual relationship
through the prism of acquirement of key competences and competitive advantages
of an organization through enhancement of certain performances.

11.1 Introduction

The business philosophy pursuing success, in the last few decades, as never
before, uses scientific, technological and organizational development more and
more. In this way, the importance of knowledge, skills and creativity, as well as
possibilities of influencing them, came to the forefront. In parallel, the significance
of performance management as a modern approach to managing an organization
and its adaptation to turbulent changes in overall environment had increased
(Drašković, 2008, p. 63) and it also implies realization of a vision and mission of a
company and achieving success. Most of authors are of the opinion that the key
place in the process of strategic management belongs to directing of organization
towards achieving success, which supposes the right choice, concretization and
enhancement of a mission and strategic goals of the organization. In order to be
successful, the organization has to constantly explore, identify and assess its limita-
tions, chances and possibilities in its environment, to search for the best ways to
adapt and make the best business results (performance). In that sense, the organiza-
tion has to improve its strong and to revitalize its weak business characteristics and
to insist on the use of its competitive advantages
All mentioned tasks of the strategic management and performance manage-
ment can basically be reduced to one essential task: creation of permanent competi-
                                                            

Mimo DRASKOVIC

181
 
tive advantage. Marketing logistics has a similar task as well. Roca (2004, p. 145)
states that the strategic management of integrated logistics basically contains plan-
ning and strategy, and usually regards design of a network, human resources, man-
agerial relations, organizational strategy, measuring of performances, goals and
standards. Logistics strategy comprehends that business option which in the most
optimal way finds a balance between costs and results of trading (Ibid., p. 148). In
principle, it has to be original (unique) as suggested by S. Harvey (as according to
Sergejev, 2005, p. 810). The most widespread logistics strategies are:
─ strategy of minimizing general logistics costs,
─ strategy for improving quality of logistics services,
─ strategy for optimization of configuration of logistics infrastructure and
─ insisting on key logistics competencies.

They are all functionally connected with enhancement of performance man-

agement. When dealing with strategy of logistics, managers tend to achieve a com-
promise between decrease of costs and improvement of level of services, i.e. per-
formances of an organization. This paper analyses the concept of performance
management and possibilities of increased role of logistics in formulation of its
strategy on the top management level, related to acquiring of key competencies and
competitive advantage.

11.2 Essence of performance management

In literature, and especially on Internet, one can find different interpretations

of performance management, which is usually confused with problematic of human
resources, even though it is much broader. The performance management combines
methodology, metrics, processes, software systems and other systems which gov-
ern performances of an organization. Speaking generally, it seems that many au-
thors prefer the definition according to which the performance management repre-
sents a process of managing and implementing strategies within an organization, by
which plans turn into results. Performance management is also considered as a pro-
cess for constituting common understanding about what is desired to be achieved
and how it will be accomplished. Therefore, it is an approach about managing peo-
ple which increases the probability for achieving success.
One example of a performance measurement system is the TOPP system,
which was developed by SINTEF (Moseng, 1996) in Norway in partnership with
the Norwegian Institute of Technology (NTH), the Norwegian Federation of Engi-
neering Industries (TBL), and 56 participating enterprises. The TOPP system views
performance along three dimensions (Moseng and Bredrup, 1993). These are in
illustrated Fig. 11.1.

182
 
 Fig. 11.1. Performance measurement

Effectiveness - satisfaction of cus-

tomer needs.

Efficiency - economic and op-

timal use of enterprise resources.

Changeability - strategic aware-

ness to handle changes.

Source: Moseng and Bredrup, 1993

Fig. 11.2. The extended ENAPS business model

Source: Moseng and Bredrup, 1993.

183
 
 In TOPP a number of performance measures were developed based on these
dimensions. One example of a recent performance measurement system is the
ENAPS (European Network for Advanced Performance Studies) performance
measurement system, developed in the EU financed project ENAPS. This was based
on a number of performance measurement systems and recent research.
The ENAPS business model is shown in Fig. 11.2 and reflects a future view of
a manufacturing enterprise as it incorporates the end of life use of products (Ander-
sen, Rolstadås, and Fagerhaug 1998). Based on this business model, ENAPS has
suggested three levels of hierarchy for defining performance indicators. Each per-
formance indicator is a function of two or more performance measures. The three
levels of hierarchy for defining performance indicators are: “Enterprise Level”,
“Process Level” and “Function Level”. The performance measures used in calculat-
ing these performance indicators are measured from all over the enterprise (Ander-
sen et al. 1998).
Experienced researchers identified few characteristics that represent precondi-
tions for creation of an efficient system of performance management. However, it
is also pointed out that there are many decisions which should be brought in order
to design an original system which fully satisfies needs of a concrete organization.
It is also stressed that the system of performance management does not have to
strive for implementation of numerous number of goals, because in that case there
is a danger of fiasco. The same author schematically explains the process of per-
formance management (Fig. 11.3).

Fig. 11.3. Typical Performance Management Process

Source: Pulacos, E.. et al. 2004, p. 4

184
 
 The process of performance management can be presented from the aspect of
the mentioned definition as a circular interdependence between goals of an organi-
zation, performance measures (parameters), performance goals, actions, results,
analysis and assessment of results (Fig. 11.4). The performance management is a
system process with which an organization activates all its employees in bringing
and implementation of decisions and concrete measures for improvement of effi-
ciency in achieving goals. Many authors believe that performance management
represents a process used for introducing and maintaining corporate responsibility
(and relevant behaviour) for results within an organization, as well as for planning,
trainings, and assessment.

Fig. 11.4. Performance Management Cycle

Source: according to: www.datainitwales.gov.uk, p. 8

11.2.1 A New Improvement Oriented Model

There are a number of ways of classifying business. In the current paper it has
been chosen to use the classification suggested by Fagerhaug (1999), which is
based on a self-assessment approach. He suggested that the following five types of
processes/structures could be used when classifying the processes of a business:
─ Primary processes - The value-adding processes commonly found in any
organization, often labeled main processes.
─ Secondary processes - Processes supporting the execution of the primary
processes. These are often labeled support processes.
─ Development processes - Processes aimed at improving the organization’s
performance, for instance new product development.
─ Structural factors - Innate characteristics of the organization, for instance

185
 
 resources.
─ Stakeholders - The stakeholders are the parties that can affect or are affect-
ed by the degree of achievement of an organization’s purpose.

Fig. 11.5 shows a business mode based on the five types of process-
es/structures (Fagerhaug 1999).

Fig. 11.5. A business model

Source: Fagerhaug 1999.

When describing and measuring the performance level in a business process, a

number of parameters might be used. It is pivotal to employ a balanced set of
measures in order to understand the performance of the process and be able to iden-

186
 
tify improvement areas. Typical dimensions for describing and measuring perfor-
mance are (Ibid.):
─ qualitative and quantitative measures,
─ “hard” versus “soft” measures,
─ financial versus non-financial measures,
─ result versus process measures,
─ measures defined by their purpose (result, diagnostic, and competence),
─ efficiency, effectiveness, and changeablity, and
─ the six classic measures (cost, time, quality, flexibility, environment, and
ethics).

All areas should be considered when developing performance measures. It

should be emphasized that these dimensions overlap. In order to diagnose the
“health status” of an organization one should ideally employ a balanced combina-
tion of measures.

11.3 Concept of a business model as a connection between logistics and

performance management

Exploring a business model is a respective route for searching methods for es-
tablishment and maintenance of a certain strategy. Business models as theoretical
concept have their own history and are known as archetypes, structures, schools,
gestalts, and in certain situations even as strategies and business ideas. The most
common use of terminologies and concepts of business model in contemporary
examinations can be found in combining management and Information Technology
(IT). The concept of business model relates to the logic and functioning of a com-
pany (Tikkanen, H. et al., 2005, p. 791) and in the long term it is an instrument
which can be used in describing relations between activities and strategies. In this
way, activities and logistics processes are being connected with a strategy.
Afuah (2004, p. 9) emphasises that the business model represents “a set of ac-
tivities which a company is carrying out, a way in which the activities are imple-
mented as well as time in which they are carried out using resources for imple-
menting activities, taking into account the industry it deals with, and all towards
creation of a superior selling price (low price of different products) and creation of
a position for determining such price”. The mentioned possibility of a business
model for helping the connection between activities and strategy of a company
means that the business model can be used as a means in analysing roles of these
activities and those processes in which these activities are carried out, within the
company’s strategy.

187
 
 Fig. 11.6. Optimal Logistics-Support Model

Source: Beggs, Kime and Jones 2007: p. 2.

This business model is a successor of two completely incompatible teachings

in a theory of strategy: schools of thought based on resources (resource based view
– RBV) and industrial organization (IO). They are different theoretical explana-
tions on why some companies’ performances are successful and others are not. In
the context of the current discussion on models of doing business it is important to
take into account the real activities of a company, meaning that descriptions and
analysis of the role of logistics in the strategy of a company are implied. Kihlén
(2007, p. 7) believes that when exploring business models based on logistics of
these two schools, they still have to be harmonised and adapted, in order to ensure
their combining. He points out that in business models based on logistics, man-
agement of a company sees logistics as a very important factor which stands be-
hind the strategy of performance management. It means that the logistics is very
significant for development of business and performance management. Concept of
a business model is often considered together with a strategy.
As a result of the mentioned interpretations, a need for new researches arose.
These researches were aimed at explaining the role of logistics in the strategy of
performance management. Earlier approaches on the role of logistics in the strategy
from logistics point of view were abandoned, so its role from the point of view of
strategic management is discussed more and more, that is from the point of view of
a model of performance management. Certainly, motivation for the latest examina-
tions derives from the fast growth of importance of logistics in company’s competi-
tiveness (Abrahamsson et al. 2003). The model of performance management is
used as a practical means for developing business of companies that are following

188
 
their competition, orientated towards logistics. Much of attention is being dedicated
to that what connects logistics activities and strategy of performance management,
which implies knowing the answer to the questions: what is the role of logistics in
performance management? Logistics includes all functions of a company and it
integrates all logistics activities, coordination and cooperation with all partners in
logistics canal (suppliers, agents, external services and customers) with the aim to
satisfy customers’ requirements. Starting from this definition and earlier definition
of performance management, a very significant role of logistics in strategy of per-
formance management is very clear and it is illustrated in the Fig. 11.7.

Fig. 11.7. Relationship between the Logistics and Performance Management

Source: adapted to Ferreira, J. et al., Ibid., 7

11.4 Performance measures of logistics activities

Measuring, analysis and enhancement of logistics performances are the basis

of continual improvement of quality of logistics services. There are four key areas
for measuring performances in logistics and they are the following: measuring the
level of customer satisfaction, measuring the level of satisfaction of all actors and
other interested subjects, measuring characteristics of logistics services and meas-
uring performances of logistics processes.
Measuring and monitoring the level of customer satisfaction is the basic factor
for conquering and keeping the market and it is realized through methodologies
and models that match concrete specificities of a market and practices of a compa-
ny. The choice and use of relevant sources of information is of extreme importance
here.
Measuring and monitoring of logistics processes based on a defined methodol-
ogy are aimed at assessing performance of the mentioned process such as: reliabil-

189
 
ity, precision, time and cost structure, security, effectiveness, efficiency, use of ca-
pacities and so on. Measuring and control of executed logistics services enables us
to determine harmonisation of planned and realized services. .
Measuring satisfaction of actors and other interested subjects means determin-
ing their needs in certain phases of logistics course (from making an agreement to
delivering goods to the final customer). Analysis of gathered and established facts
and parameters enables the assessment of realized performance in relation to pro-
jected values and established plans and goals. Analysis and assessment of perfor-
mance enables us to determine inconsistencies and to define potential areas of pos-
sible improvement of quality of logistics services. Different quantitative and quali-
tative methods and techniques are used for gathering and processing of data. One
complex integrated supply chain of metrics model is shown in the Fig. 11.8.

Fig. 11.8. Integrated Supply Chain Metrics Model

Source: adapted to Lawrence, p. 5.

190
 
 11.5 Conclusions

Besides evident role of logistics in integrating marketing and management

functions of a company, contemporary literature and business praxis put more em-
phasis on the connection between the logistics strategy and institutional (top) level
of a business strategy. This leads to overcoming former interpretation and praxis
related to the connection of logistics and operative level as well as conditional
functioning in the level of integration of business activities.
The use of logistics enables companies to significantly decrease their stock-
piles, to speed up floating capital flows, to decrease the price of product and logis-
tics costs, to better satisfy needs of customers etc. The end result is creation of add-
ed value of a product through enhancement of performances, which increases satis-
faction of customers and competitive advantage of a company. It implicates a sig-
nificant role of logistics in performance management. Functional complex of logis-
tics also confirms this conclusion. The existence of close reciprocal interrelation-
ship and conditionality of logistics and performance management is confirmed by
their numerous common business areas, trends, functions, effects and activities.

References

Abrahamsson, M. et al. (2003), “Logistics Platforms for Improved Strategic Flexi-

bility”, International Journal of Logistics: Research & Applications, Vol. 6,
No. 3, 85-106.
Afuah, A. (2004), Bussiness Models – A Strategic Management Approach, Mc
Graw-Hill Irvin.
Andersen, B., Rolstadås, A., Fagerhaug, T. (1998), „Practical Productivity Meas-
urement“, Proceedings from 10th Working Seminar on Production Econo-
mics, Innsbruck/Igls, Austria.
Beggs, J., Kime, T.. Jones, M. (2007), Performance-Based Logistics, (http://www.
boozallen.com/media/file/performance-based-logistics-commercial-
participants.pdf, 22.01.2009)
Drašković, M. (2008), Integrisana marketing logistika u sistemu menadžmenta
Luke Bar, Kotor: Fakultet za pomorstvo.
Fagerhaug, T. (1999), A New Improvement Oriented Method and Model forSelf-
Assessment for Business Excellence (doctoral dissertation, Norwegian Univer-
sity of Science and Technology (NTNU), Trondheim.
Ferreira, J. et al. (2007), “Configurations of Logistics Activities across Life-Cycle
of the Firms and Performance: Proposal of a Concep-tuall Model”, MPRA Pa-
per, No. 1362, 1-16.
Kihlén, T. (2007), Logistics-based Competitionn – A Business Model Approach,
Linköping: Linköping University.

191
 
Lawrence, F. B. (2009), Logistics Performance Metrics & Measurements In Supply
Chain Management (http://supplychain.tamu.edu/academics/242/Performance
Metrics.ppt, 22.01.2009).
Mentzer, J. et al. (2004), “Toward a Unified Theory of Logistics”, International
Journal of Phisycal Distribution & Logistics Management, Vol. 34, No. 8,
606-627.
Moseng, B., Bredrup, H. (1993), „A Methodology for Industrial Studies of Produc-
tivity Performance“, Journal of Production Planning and Control, Vol. 4, No.
3.
Pulakos, E. D. (2004), Performance Management: A Roadmap for De-veloping,
Implementing and Evaluating Performance Manage-ment Systems, SHRM
Foundation (http://www.shrm.org/ foundation/1104Pulakos.pdf, 10.01.2009).
Roca, B. (2004), Marketing logistika, Kultura, Bački Petrovac.
Sergejev, V. (2005), Korporativnaja logistika – 300 otvetov na voprosi profesio-
nalov, Infra-M, Moskva.
Tikkanen, H. et al. (2005), “Managerial cognition, action and the business model of
the firm”, Management Decision, Vol. 43, No. 6, 789-809.
http://www.datainitwales.gov.uk

192
 
 12. SYSTEMIC LOGISTICS PROVIDERS

The functioning of a port and shipping system must be perfect in order to pro-
vide a competitive advantage and stable position in maritime market. The im-
portance of logistics in business success of port and shipping organizations in con-
temporary conditions has become crucial. Due to that fact, more and more efforts
are put in the designing of integral logistics systems. Thanks to a complex, systemic
and networking approach, logistics today is improving the speed and efficiency of
operations and significantly influences cost reduction and therewith fulfills one of
the basic strategic functions, anticipating necessary key competences of the firm. It
is a resource framework for the overcoming of strategic limitations and a method
for the enhancement of the competitive position and all marketing and management
functions. In addition to that, the integration of partners requires, by rule, a con-
sistent restructuring of the total chain dedicated to the creation of added value, i.e.
reengineering of logistics and production business processes. Flexible and small
structural units are created, cooperating among each other in a decentralized
manner, retaining their key competences and strategic significance for the integral
network dominated by a single leading firm as a center of the system, i.e. focus of
the supply chain. The paper analyzes the formation of new logistics and marketing
paradigm of the beginning of the new century and millennium, anticipating the
overcoming of the traditional 3PL three-party logistics concept and formation of
contemporary 4PL concept.

In the period of globalization, gaining competitive advantage is manifested in

a specific and original way, through increased cooperation between firms, in order
to share business, risk and corporate responsibility, as well as higher specialization
of business activities. In the last two and a half decades there have been paradig-
matic changes in the logistics supply chain, primarily thanks to the technological
advances in the field of information technology, communications and transport.
These changes are generated in the creation of a growing trend of leaving the logis-
tics activities to specialized intermediaries (operators, service providers). It all be-
gan with the formation of large storage facilities and specialized transport equip-
ment (primarily maritime shipping), and later the creation of powerful information
systems.
They enabled numerous advantages in the logistics business, mainly based on
the rationalization of various logistics costs, higher qualification of personnel and
faster, better and cheaper logistics services. On the other hand, the companies re-
                                                            

Mimo DRASKOVIC

193
 
leased a certain amount of invested capital and returned it by performing its core
business. At the end of the 90s, logistics began to realize complex coordination in
international relations in the fields of planning, regulation and control of material
and information flows.

Figure 12.1. Evolution of outsourcing in logistics

Source: http://www.innvall.com, p. 6.

Application of the SCM (Supply Chain Management) concept was combined

with business planning resources of ERP (Enterprise Resource Planning), extended
calendar planning of APS (Advanced Planning and Scheduling) and electronic data
interchange of EDI (Electronic Data Interchange). This resulted in the optimiza-
tion of process logistics chains, elimination of the inefficiencies within and be-
tween participants chain for creating added value, and thus an increase in the
productivity of the entire logistic system.
Development of logistics outsourcing has led to a growing demand for manu-
facturing enterprises of logistics services, but also for their increasing demands.
This has had a crucial influence on the system of logistics 3PL operators to start
organizing and suggesting the additional logistical operations (in a package), which
increases the value of total logistics services: development, introduction, and the

194
 
use of information and communication systems, cargo tracking, help with logistics
planning and other. Accordingly, the logistics provider takes greater responsibility
for the realization of a complete logistics order, which means monitoring the issu-
ance and processing of the offer, payment, transport, after-sales service and other.

Figure 11.2. Multiple Actors in Global Supply Chains

Source: Kleindorfer & Visvikis, 2007, p. 11.

195
 
 Evolution of the system logistics integrations has continued parallelly with the
development of information and communication systems, and the term 4PL
(Fourth-Party Logistics Providers) was firstly suggested in 1996 by the company
Andersen Consulting (which now operates under the name Accenture). This com-
pany has defined the 4PL provider as a “supply chain manager who integrates and
coordinates its own and partner’s logistical resources, capacities and technologies
in order to deliver complex solutions of delivery chain to the client” (Solomatin
2006, p. 46). Only the rare companies were able to afford large investments in var-
ious forms of infrastructure, without which the realization of complex logistics ser-
vices was not possible.

12.1 3PL provider

The principle of third-party logistics in historical and functional sense repre-

sents a highly important logistic concept, because the operators of 3PL services
have improved the efficiency of logistics management supply chains, expanded the
range of logistics services and increased the capacity cargo carriers and shippers.
Large transport companies (as 1PL) have been providing their limited services
throughout the whole transport chain. Those were isolated physical transport ser-
vices. In time, through the expansion of forwarding logistics (2PL), the field and
variety of logistics services (providing additional services) have expanded. This
trend has continued, so today the advanced services are increasingly affirmed.
They are better, faster, more complex, more reliable and more flexible. One of the
most important links in the service chain is probably the accountability of the con-
temporary providers in the growing part of transport chain, from production to the
customer delivery. At the same time, the nature of transport services is extremely
identified with the nature of logistics, which enables offering complete and effi-
cient logistics solutions. This has allowed clients (primarily suppliers) to focus on
their core business instead of on organizing and managing the material and infor-
mation flows. On the other hand, efficient management of the supply chain man-
agement (SCM) has become the main source of competitive power from national to
global levels. Several innovations has enabled the development of provider logis-
tics systems. Among them, in addition to the SCM, allocate:
─ modern hardware in the form of intermodal terminals with efficient
transport capabilities,
─ planning software for truck and rail routes with an intelligent transport sys-
tem (ITC) and global positioning system (GPS), and
─ third-party logistics (3PL) and the latest fourth-party logistics (4PL).

The concept of 3PL is the starting point for transport and logistics activities of
independent operators (providers) as well as foreign companies that are neither up-
loader nor the recipients of the goods. It usually involves several connected, mutu-

196
 
ally conditioned, coordinated and complementary activities, such as storage,
wholesale, and transport. This concept began developing during the period of de-
regulation of transport industry in the '80s and' 90s, parallelly with the boom of
information and communication technologies. At the same time, many authors
(such as Vasiliauskas and Jakubauskas) viewed this concept as a transitional stage
to the PL pyramid from 1PL to 5PL, enabling the key changes of the function of
transportation logistics (Fig. 11.3).

Figure 11.3. PL pyramid / Different kinds of logistics service providers

          

Source: Vasiliauskas & Jajubauskas 2007, p. 69; Cerasis, 2013.

Many small companies that buy and sell in the same markets, are also the
transporters (or hire transporters), performing all the logistics operations alone
(1PL operators). Cargo transporters organize transportation of goods, choose the
way of transport, and independently cooperate with warehouses, customs, dis-
patchers, packaging services, etc. As the business steadily expanded geographical-
ly, boundaries of logistics have broadened, and some individual logistics operations
were taken by distributors or shippers of goods as 2P providers. Generally speak-
ing, the transport-shipping enterprises and wholesale operators performed the logis-
tics services for an individual or for a small number of functions in a complex and
long supply chain.
They were faced with a small recovery of goods, had significant business hold-
ings and low limit enry. With increasing customer demands, during 90s, many 2PL
began to develop into 3PL operators, adding new logistical features and functions
into its existing array of services. So there has been a merger of several logistics
operations and additional logistics services, the formation of significant equity cap-

197
 
ital, with the expansion of contract logistics in SCM supply chain and acceptance
of major duties and responsibilities. Integrated service provider (ISP) or so-called
"Integrators" perform entire business of logistics services, which includes and im-
plies the satisfaction of most (and preferably all) logistical requirements of the cus-
tomers. Integrators offer the performance of all services in the entire transport
chain, from reception to delivery, and this in a simpler, faster and more reliable
way than before. Transportation chain has become absolutely transparent for cus-
tomer, who no longer needs to engage in choosing the transport modes, routes and
numerous related administrative tasks related to the implementation of logistic op-
erations.
Advantages of the 3PL concept are resulting from economy of scale, possibil-
ity to combine the expanded scope of work, better technological equipment, larger
databases, material flexibility, expert and specialized personnel, greater possibili-
ties for coordination, reduced financial risk, possession of large distribution centers
and information networks, etc. . However, the 3PL concept has several disad-
vantages, primarily as a consequence of the impossibility to control the numerous
contracts and lack of organizational centralization, which reflects negatively on the
operator’s reliability. Therefore, the problem is shared risk. In the literature (eg.
Skjott-Larsen, 2000 p. 114) describes four categories of the 3PL provider:
 standard (basic form), that performs basic logistics functions,
 service provider, offering advanced and cost-effective transport services,
monitoring, storage, docking, packaging or unique security system,
 client adaptor, who at the client’s request takes complete control of the lo-
gistic activities in the company, in order to improve logistics, but without
the development of new services, and
 improver of the customer services as the highest level of 3PL provider,
which integrates with its customers and takes over all logistical functions.

There is a wide range of activities and logistic operations that companies trans-
ferr to its 3PL operators. According to the results of an extensive research, a trans-
fer of activities is performed as shown in Figure 3 below. Transfer of logistics
functions to the 3PL operators saves time, releases the financial resources (focused
on company’s key activities), logistic operations are performed faster and with
higher quality, responsibility is shared on management and business risks, and all
this ensures the creation of competitive advantages in the market. Even with pos-
session of their own warehouses and vehicles, 3PL operators perform marking, res-
ervation, orientation, calculation, transport organization, researching the financial
and operational terms of delivery, market analysis, distribution and transport routes
analysis, negotiation, etc. . In addition, they meet many other client requirements.
Figure 11.5 shows the relative importance of the 15 key criteria for 3PL selec-
tion.

198
 
 Figure 11.4. Transmission level of certain logistics functions to the operators
in the European market

 
 
Figure 11.5. Criteria for 3PL selection

Source: Aguezzoul 2012, p. 20.

199
 
 The 3PL can perform the logistics functions of their customer either complete-
ly or only in part and currently, they have their own warehouses, transport fleets
and their credits are often deployed throughout the world. Most 3PL have special-
ized their services through differentiation, with the scope of services encompassing
a variety of options ranging from limited services to broad activities covering the
supply chain. An overview of supplied logistics activities is shown in table 11.1.

Table 11.1. Activities associated with 3PL

 
Logistics processes Activities
Road rail air sea, intermodality management, shipping, forward-
ing, package express carrier, customs brokering, (de) consolida-
Transportation
tion, perishable/hazardous goods management, freight bill pay-
ment/audit
Order fulfilment and processing, picking, sorting, dispatching,
Distribution post-production configuration, installation of products at cus-
tomer’s site
Storage, receiving, cross-docking, (de)consolidation, perisha-
Warehousing
ble/hazardous goods
Inventory manage- Forecasting, slotting/lay out design, location analysis, stor-
ment age/retrieval management.
Packaging Design, labelling, assembly and packaging, palletizing.
Pallets flows management, recycling, reuse, remanufacturing
Reverse logistics disposal management, repair, testing and products serving, re-
turn shipment management
 
Source: Aguezzoul 2012, p. 19; Bottani& Rizzi, 2006, p. 297.

12.2 4PL provider

Up to date, there are two kinds of logistics intermediaries: 3PL (Third Party
Logistics) - third-party intermediaries as partial (incomplete) operators and 4PL
(Fourth Party Logistics) – fourth-party intermediaries as complete logistics opera-
tors, which cover the entire supply chain. The 4PL logistics provider, as a base lo-
gistic integrator, is a senior organizational management form of logistics media-
tion, because it meets all or most of the logistics requirements of its customers and
is responsible for all contracts of various 2PL and 3PL providers, for their final
assembly and management solutions (see Figure 5). It is believed that the 4PL are
providers of the specialist company with best managing of the resources, capacities
and technologies of those service-logistic organizational forms that function within
a supply chain (Bade&Mueller, according to Acimovic, p. 115).

200
 
 Today, 4PL provider is increasingly emerging as a new paradigm of integrated
logistics management, or as a network integrator, compiling and combining availa-
ble resources (financial, information, transport), human capabilities and technolo-
gies, in order to designed, built and implemented an efficient logistics solutions for
its customers in a complex supply chain. The 4PL providers offer the greatest add-
ed value for producers, because they have more service options, such as planning,
ordered transportation, tracking, logistics consulting, applied solutions, financial
services and a very close relations with all the clients. Improving provider’s activi-
ties has resulted in creating a new logistics concept of 5PL, focused on providing
complete logistics solutions around the SCM chain. It represents an advanced SCM
management as the integration of all activities associated with the flow and trans-
formation of goods in modern logistics networks. Pupavac (2006, p. 292) argues
that the transformation of large shippers and marine transporters into the logistics
operators 3PL, and later 4PL, has significantly contributed to the observed trend.
Their development had a crucial contribution to designing the new structure of the
logistics chain, where traditional distributors and dealers (wholesale and retail) are
replaced by logistics operators and online suppliers (who create virtual logistics
network - Figure 11.6).

Figure 11.6. Structure changes of the logistic chain

 
 
Source: Adapted from Pupavac, 2006.

Logistic providers of the new generation are increasingly taking on the various
logistics and other complementary services, which contributes to the perfection of
supply chain management (5PL), impeccable information support, speed, quality
and reliability of delivery.
Four significant factors have significantly contributed to the affirmation of the
4PL concept, namely:
─ Internet B2B economy,

201
 
 ─ reverse logistics, ie. managing the returned products to distributor, manu-
facturer or retailer (approximately one fifth of all purchased products are
returning annually),
─ the development of timely operational support and management infor-
mation, in order to maintain the precise timetable of delivery,
─ developing the technological solutions that contribute to the timely flows
of goods, reduce costs and increase customer satisfaction.

Naturally, forming a new paradigm of innovative management operating logis-

tics support was influenced by a number of other added factors, some of which are
listed in a comparative review in Table 11.2 below.

Table 11.2. Factors of logistical paradigm change

fakctors old logistic school logistics today

orders predictable small, variable
time of order weekly dayly, during hour
consumer strategic wider base
customer requirements strict flexible
availability on schedule timely
distribution model transportation to stocks transportation to customer
specification
request stable, consistent circular
purchase quantity bigger smaller
destinations concentrated geographically dispersed
storage weekly, monthly continuosly
international trade
with queing automatski
approval

Figure 11.7 is a graph which symbolizes the upward line of integrating the lo-
gistics service activities (compared to pyramid PL - Figure 11.3). It depends on two
general but probably dominant characteristics (factors) of integration: ability to
solve logistic problems and ability to adapt to customer requirements. Level 4PL
logistics providers are specialized in supply chain management, logistics planning,
organization and control of material, financial and information flows, consulting
for the network structure of the company and monitoring of cargo in continuous
mode with the help of information security and integration of all participants in the
logistics chain, as well as external clients who work closely with each other. Intro-
ducing logistics innovations is aimed at lowering logistics costs. So, by integrating
logistics and intermediary functions, and operations, 4PL operator creates logistical
competency and reinforces the trust of its many partners. Figure 11.7 symbolizes
the essence of 4PL concept and its functional coverage.

202
 
 Figure 11.7. Development of provider’s logistics activity

Source: adapted from Delfman et al., 2002, p. 207.

Figure 11.8. The essence of 4PL concept

  

Source: adapted from Van Hoek cited in Saglietto et al., 2007.

An integrated perspective with a joint analysis of technology innovation and

sustainability improvements should help especially in the logistics sector: improve
technologies and therefore efficiency and also, to provide an economic cost reduc-
tion in order to enhance ecological efficiency at the same time. The following anal-
ysis scorecard may contribute as a first suggestion to this concept improvement in
managing logistics innovation and sustainability in logistics (figure 11.9).

203
 
 Figure 11.9. Technology Innovation and Sustainability Assessment in Logistics

Source: Klumpp & Ostertag 2008; Jasper & Klumpp 2008.

Yongbin and Qifeng (2011) or Büyüközkan et al. (2009) summarize that there
are three different 4PL working concepts (Figure 11.10) which are all tailored to
the client’s requirements.
 
 
Figure 11.10. 4PL working models

204
 
 Table 11.11. Difference between 3PL and 4PL

Source: Vivaldini et al., 2008.

 

Figure 11.12. Difference between 3PL and 4PL

 

 
Win, 2008.

205
 
 Table 11.3. 4PL's service portfolio

Source: Nissen, Bothe, 2002.

12.3 Example of METRO Group Logistics

It is believed that the 4PL providers are the most widely used in automotive
industry and trade. That's why we decided to represent a German trading company
METRO Group Logistics, one of the largest in the world. It was organized in 1996
as a result of merging several leading trading companies. It has its commercial sub-
systems in 30 countries, a clear professional-expounded portfolio managed by the
holding company METRO AG. Only in Germany, it has approximately 1,700
commercial branches (department stores) with annual turnover of 27.5 billion €,
more than 8,000 suppliers and more than 1 million of commodity items. Over
1,000 logistics operators (http://www.metro-mga.de) are ensuring the supply. Func-
tional system requires an established logistics center of the internal 4PL providers.
It includes all authority and necessary information, through which it projects the
logistic processes, operations and manages the supply chain. Operational exploita-
tion of logistic network has been entrusted to qualified providers, which operate
independently and responsibly. The link between sales channels and their subsidi-
aries is established through the central mediator (Figure 11.13). In this way, the
trade affiliates and suppliers are relieved of the necessity to solve bilateral prob-
lems of operational logistics.

206
 
 Table 11.4. Tasks of the 4PL provider

planning, management and optimization of supply chains

strategic network planning
transport planning
tracking routes and information about the cargo origin (Tracking & Tracking)
efficient managing the product selling (Revenue Management)
submitting information-accounting resources and services (Application Service Providing)
financial services
integration of information-transportation systems
managing the warehouse business and inventory
planning and optimization of transportation routes
tracking order status and geographical location of cargo (Order Tracking)
managing documentation and its circulation (electronic, paper)
finding and delivering personnel on hire (Personal Leasing)
consulting

Source: www.metro-mga.de

Figure 11.13. Role of internal providers in the METRO Group Logistics

Outlet

 
Supplier Service provider

Source: Ibid., p. 25.

207
 
 Figure 11.14. Origin-oriented and oriented cross-docking concept

 
 

 
Source: Ibid., p. 17.

The largest share of cargo flows between suppliers and trade branches is estab-
lished without forming stocks, through network Cross-Docking terminals, which
accomplish a dual task of supply concentration and distribution. By applying the
Cross-Docking concept, the volume of storage reserves is reduced to the minimum
level. Thanks to this logistics concept, the goods and materials are directly loaded
and unloaded from the transport means on the freight terminals without forming the
stocks. This is possible only in case of the staple cargo for various geographic re-
gions, the completed deliveries from various sources and optimum shifts of various
transportation means. Type solution of Cross-Docking trade is shown in Figure
11.14, where in practice are possible different solutions related to the role of Cross-
Docking terminal. But their goal is always the same and includes deliveries of a

208
 
large number of terminals from various geographical regions, and focuses on the
different branches of trade.
Logistics network of METRO Group Logistics contains around 4,000 suppli-
ers and over 1,700 retail outlets, which means that there are countless variants of
the transport network organization. Therefore, investments are not directed to the
construction of its own terminal, using the existing network of logistic operators
with many nodal points in all German regions. This involves the openness of the
listed logistics networks for the inclusion of new companies. Introduction of a cen-
tral operator has led to replacing the distribution of logistic suppliers with integrat-
ed supply logistics, whereby all suppliers were guaranteed that logistics costs will
not be increased. According to new rules the supplier was bound to notify about the
cargo in a reasonable time, and the packaging must comply with regulations that
help avoid cargo damage during transport and handling. This has allowed a signifi-
cant reduction in logistical administrative costs, particularly in terms of complaints,
reduction in transportation costs per tonne of production, the optimal workload of
transportation was ensured, the waiting time of transport equipment was reduced,
etc.

12.4 Conclusion

Very few companies today can create a competitive advantage based on lower
costs and prices. Speed, accuracy, completeness of order processing, timely deliv-
ery and reliability are essential factors that can provide much needed diversity in
today's global economy. Key business success and competitiveness are achieved
only through timely management of operational logistical support and supply
chain. According to the Council of Logistic Management, logistics is the part of the
service chain process that plans, implements and controls the efficient flow and
storage of products (goods, services and resources, including information) from the
point of source (production) to the point of consumption (use), with an aim to in-
crease the satisfaction of customer demands.
To achieve this, transportation, distribution, warehousing, supply and order
management organizations must work closely together. It is not a simple nor easy
task, especially in a turbulent global environment with increasing demands, with
clients who expect their products to be supplied better, faster, and in accordance to
their specific instructions. Engaging external providers is an option that is becom-
ing more refined and improved, because it helps the companies to survive in the
market. The reasons are numerous, from reducing costs and inventories, through
increasing service quality and business in general (by overcoming internal defi-
ciencies), to reducing capital investment and achieving better business results.
Forming 3PL providers as third-party provider meant providing additional logistics

209
 
services to the customers. However, that concept had certain weaknesses and limi-
tations, especially in regard to a variety of customization to the needs of its clients.
This led to creating the 4PL – fourth-party providers, who take on the greatest
number of logistic activities, tasks, responsibilities and functions, and give a lot
more attention to technology, knowledge, experience and management. It is not
only a question of reducing costs, but rather a direct contribution to the overall
business results. Using the most advanced organizational, information and trans-
portation technology improves the overall system of complex interactions with the
customers. Successful 4PL providers have tactical and strategic capabilities, with
global knowledge and extensive experience in logistics. Thanks to a new concept
of 4PL, modern logistic networks are characterized by a small number of partici-
pants and the dominance of logistic operators, offering not only transport services
but also the storage, information support, and often global performance. Unlike
3PL, with a focus on function, realization of tasks and direct interest in concrete
agreements on transport, 4PL focuses on integrated logistics process, engaging
management and neutrality with respect to individual customers, because meeting
the needs of all clients is a priority. The 4PL, as a modern logistic intermediary
alternative, emphasize on averages, personnel and technologies.

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Aguezzoul, A. (2012), “Overview on Supplier Selection of Goods versus 3PL Se-
lection”, Journal of Logistics Management, Vol. 1, No. 3, 18-23
Bottani, E. & Rizzi, A. (2006), “A fuzzy TOPSIS methodology to support out-
sourcing of logistics services”, Supply Chain Management: An International
Journal, Vol. 11, No. 4, 294-308.
Büyüközkan, G., Feyzioglu, O., Ersoy, M.S. (2009), “Evaluation of 4PL operation
models: A decision making approach based on 2-additive Choquet integral”,
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Cerasis (2014) ‘3PL vs 4PL: What are these PLs, Anyway? Layers of Logistics
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03 September 2014).
Darkow, I. (2004), „Leistungen fuer das Management der Supply Chain“, in Sup-
ply Chain Steuerung und Services: Logistik–Dienstleister manager globale
Netzwerke – Best Practices, Springer–Verlag.
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cessed: 03 November 2015)
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Drašković, M. (2007), „Mogućnosti primjene integrisane marketing logistike kod
lučko-transportnih usluga“, Montenegrin Journal of Economics, Vol. 3, No. 5,
121–134.
Drašković, M. (2008), Integrisana marketing logistika u sistemu menadžmenta
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 13. SOLUTION OF THE PROBLEM OF CRITICAL
PATH’S FINDING IN EXCEL ON THE BASIS
OF REDUCING IT TO ORDINARY
TRANSPORTATION TASK2

The problem of determining the critical path for the scheduling tasks has been
considered. An original technique for practical calculations using the available
Solver add-on in Excel has been described. The proposed approach is based on
reducing the task to solving the ordinary transportation problem, in particular to
the problem of finding the longest path. Examples of solutions with the test input
data and corresponding screenshots are given. The practical steps of the user’s
action in the process of direct solution in Excel are consistently described. The
analysis of the results of the proposed method has been performed and presented.
It is established that presented method for calculating the critical path requires
minimal efforts from the users, regardless of the dimension of the tasks.

13.1 Introduction

As it is well known, there are many practical problems, including transport

character and project management which are formulated and solved with use of
network models. Almost in each manual on economic-mathematical methods and
models mathematical bases of network planning and management [1-6] are stated.
Necessity of development of effective ways of planning of complex processes has
led to creation the essentially new methods of network planning and management.
More often for construction of network models five basic algorithms are used:
findings of minimal tree; findings of the shortest way; definitions of the maximal
stream; minimization of cost of a stream in a network with the limited throughput;
findings of a critical path (way) [6]. Thus the algorithm of a critical path is the
most known method in planning, drawing up of time schedules and managements
of projects.

13.2 Description of the researches

The main, basic problem in calendar network planning of manufacture is defi-

nition of "a critical path". It represents sequence of the operations which are not
                                                            
2 Mimo DRASKOVIC, Ludmila MALYARETZ, and Oleksandr DOROKHOV

213
 
having a reserve, a stock of time. Operation is considered as critical if the delay of
its beginning leads to increase in a termination date of all process (part of which is
considered operation) as a whole.

13.3 Graphic representation of the network schedule

In case of graphic representation of the network schedule, its arrows (focused

arches) represent the certain operations. The Fig. near each arrow means duration
of corresponding operation. Initial and final points of any operation correspond to
meeting events (initial and final). The operations which are starting with some
event cannot begin while the operations entering into this event will not be com-
pleted yet all.
“The critical path (way)” on the network schedule represents the continuous
chain of operations connecting initial event of a network with finishing. The pur-
pose of our work is reduction of a problem of search of a critical path to usual
transport task, namely a task of search of the longest way. By analogy to a
transport task we shall consider units of the network schedule (except for initial
and final), as transit points. Certainly, thus for a critical way the requirement that it
is possible to arrive to each transit point only from one previous point and to go
only to one subsequent point is carried out.
Earlier in work of authors [5] the task of finding of the shortest way by "Solv-
er" tool in spreadsheet Excel has been examined. The offered approach can be ap-
plied to calculation of a critical path. For an illustration of the offered approach we
shall consider an example of the network schedule (Fig. 13.1) from work of Hemdi
A. Taha [4].

Fig. 13.1. The network schedule for a test example

214
 
 It is necessary to emphasize, that as a whole the idea of use of methods of line-
ar programming for definition of a critical path expressed and earlier, but its com-
puter realization in this case is important. In fact practical network models can be
much more difficult than simple graph, represented on Fig. 13.1.
Therefore it is necessary to organize calculations so that it was feasible for
the usual user. Usually in real network model there are some tens events (points).
Accordingly, it is necessary to fill tables of initial data of the big size with dimen-
sion in some tens elements. There is a problem to reduce this work up to a possible
minimum and to receive thus the optimum decision.

13.4 Technique and the order of practical calculations

Let's consider an offered technique and practical actions for an example of

graph, shown on Fig. 13.1. Firstly, we shall enter in Excel corresponding with the
network schedule (Fig. 13.1) data for durations of works tij between each pair of
points Tt - Tj (Fig. 13.2).

Fig. 13.2. Input data for the test example

. I J K L M N O
4 Duration of works between each pair of points
5 Т2 Т3 Т4 Т5 Тб Т7
6 Т1 10 -100 1 5 -100 —100
7 Т2 0 9 -100 8 10 —100
8 Т3 -100 0 3 -100 4 -100
9 Т4 -100 -100 0 -100 5 4
10 Т5 -100 -100 -100 0 7 3
11 Т6 -100 -100 -100 -100 0 8

All points, except for last point T7 , we will consider as points of departure.
They are listed in the left column of the table tj. All points, except for start point
Tj, we will count as points of destinations. They are listed in the top line of the ta-
ble tij. Transit points T2 - T6 are considered both as points of departure and as
points of destinations. The durations of works between identical transit points Tk-
Tk are equal to zero. Between some points there are no communications, therefore
we set the corresponding duration of works equal to very big negative number (tij=

215
 
-100), that by search critical (the longest way) these forbidden transitions automat-
ically were rejected.
Let's describe practical steps for filling the given table. To exclude from con-
sideration fictitious durations on the forbidden transitions, it is expedient to repre-
sent (by means of conditional formatting) it’s by their grey colour on a grey back-
ground. For this purpose we bring in any free cell number -100 (duration for the
forbidden transitions) and copy it in the buffer of an exchange. Then, keeping
pressed key Ctrl, we allocate by the mouse the table tj (without headings) and in-
sert contents from the buffer of an exchange (at once into all cells of the table).
Further (not removing allocation) in menu Format we use item Conditional for-
matting. On the panel of conditional formatting we fill a field Condition 1: Cell
Value Is and less than by -99. We press the button Format and on panel Format
Cells (item Font) we set colour of numbers, and on item Patterns - colour of a
background. After that we enter real duration of works for all possible transitions
between points.
Similarly zero duration of works between pairs of identical transit points also
can be entered by one operation. For this purpose it is necessary to copy a cell with
value 0 on the buffer of an exchange. Further it is necessary to allocate by mouse
(with pressed key Ctrl) the cells on diagonal Tk - Tk and to insert 0 from the buffer
of an exchange at once into all allocated cells. By the described actions work on
data input is shown up to a necessary minimum.
In the following table (the same size) for xij we shall define transitions be-
tween points (Fig. 13.3). If between points Ti - Tj there is no transition then we
accepted xij = 0 and if transition is exist then xij = 1. First we fill all cells of the
table xij with 1 (all xij = 1). Naturally, they are written into all cells of the table by
one operation (by copying from buffer of an exchange at once in all the allocated
cells).
However, as follows from a condition of a problem, the critical path passes
through transit points only once. Therefore in each line and in each column of the
table xij for a critical path there should be only one 1 (similarly a task about desti-
nations). Therefore in the table xij are added final right column and below line in
which formulas of summation (by function SUM) are entered.

Fig. 13.3. Transitions between points start (initial) position

I J K L M N O P
13 Transitions between points
x
14 U Т2 Тз Т4 Т5 Te T7 Sum 1
15 Т1 1 1 1 1 1 1 6
16 Т2 1 1 1 1 1 1 6

216
 
 17 Тз 1 1 1 1 1 1 6
18 Т4 1 1 1 1 1 1 6
19 Т5 1 1 1 1 1 1 6
20 Тб 1 1 1 1 1 1 6
21 Sum 2 6 6 6 6 6 6 36

For this purpose it is necessary to allocate the table xij without headings, but
with additional right column and below line, and to press on tools panel the auto
summa button X Then in all cells of an additional column and an additional line
will be automatically written down formulas of summation. Certainly, for a critical
path all these sums should be equalled to 1. On an empty place of spreadsheet Ex-
cel for calculation of critical path duration we write formula SUMPRODUCT
(Range tij; Range tij). At first, before calculation's start, this duration is equal -
1723 (Fig. 13.4).

Fig. 13.4. Length of a critical path

KLM
22 Duration of a critical path
23 Max
24 Function of the -1723
purpose

13.5 The finding of the critical path

Now we shall go directly to search of a critical path. We put the table cursor
on a target cell and through the menu Tools call “Solver “ Add-In (Fig. 13.5).

217
 
 Fig. 13.5. Window with the parameters of decision search in Solver Add-In

On the Solver panel window we set Target Cell equal Maximal value. In a
field Changing cells - we specify a range xij. We set two restrictions: Sum1 on ta-
ble lines and Sum2 on table columns should be equal 1.
Then we press the button Parameters and put flags Linear model and Non-
negative values.Finally we press the button To execute and have received the opti-
mum decision. In the transformed table of transitions (Fig. 6) now in each line and
in each column is only one 1 unit, all other numbers are zero.

Fig. 13.6. The received decision

I J K L M N O P
13 Transitions between points
x
14 n Т2 Тз Т4 Т5 Т6 Т7 Sum 1
15 Т 1 0 0 0 0 0 1
16 Т2 0 1 0 0 0 0 1
17 Тз 0 0 1 0 0 0 1
18 Т4 0 0 0 0 1 0 1
19 Т5 0 0 0 1 0 0 1
20 Тб 0 0 0 0 0 1 1
21 Sum 2 1 1 1 1 1 1 6

218
 
 For simplification of results visualization it is expediently to allocate all zero
in the table so that they did not prevent to see a critical path. For example, by
means of conditional formatting it is possible to show zero (numbers, smaller then
01) as a grey colour on grey background. Numbers on diagonal Tk - Tk also do not
have any helpful information. Therefore it is possible to set a grey background for
these cells too for what it is necessary to click mouse (at pressed key Ctrl) on di-
agonal cells and to set a demanded background at once for all of them.
Now on Fig. 13.6 only the critical path is allocated. From initial point T1 there
is a transition to point Т2. From point T2 there is a transition to Т3. Further from
point T3 there is a transition to T4 , and from point T4 there is a transition to T6. At
last, from point T6 there exists transition at once to finish point T7 . The critical
path does not take place through point T5 , therefore in the optimum decision ficti-
tious transition from T5 to T5 is specified.
On Fig. 13.7 found critical path Т1—Т2—Т3—Т4—Т6 -Т7 is represented.
Duration of a critical path is equal 10+9+3+5+8=35. As clear from Fig. 3,
there is a reserve of time in 21 unit for performance of work 1-4; 4 units for work
3-6; 7 units for 2-6; in the sum of 2 units for works 2-5 and 5-6; in the sum of
27units for works 1-5 and 5-7.

Fig. 13.7: Found critical path

219
 
 13.6 The example for more difficult network schedule

Let's shortly examine one more example of calculation of a critical path for the
network schedule represented on Fig. 13.8. The filled corresponding table for
work's durations is shown on Fig. 13.8.

Fig. 8: Duration of works for a test example of greater dimension

tij А2 Аз А4 А5 Аб А7 А8 А9 А10 А11

А1 2 4 6 14 -100 -100 -100 -100 -100 -100
А2 0 5 -100 -100 18 -100 -100 -100 -100 -100
А3 -100 0 3 -100 -100 9 -100 -100 -100 -100
А4 -100 -100 0 5 -100 8 7 -100 -100 -100
А5 -100 -100 -100 0 -100 -100 4 -100 -100 -100
Аб -100 -100 -100 -100 0 -100 -100 5 -100 -100
А7 -100 -100 -100 -100 2 0 -100 -100 9 -100
А8 -100 -100 -100 -100 -100 5 0 -100 13 -100
А9 -100 -100 -100 -100 -100 -100 -100 0 8 9
А10 -100 -100 -100 -100 -100 -100 -100 -100 0 7

The size of the second task is larger than the previous one. Data, which are
necessary for typing manually, make a small part of the table (for this example
nearly 20%). The optimum decision was received in the form (see Fig. 13.9) where
owing to conditional formatting the critical path is allocated. We write out it from
the lines (Fig. 10): А1—А2—А3—А4—А5—А8—А7—А6—А9—А10—А11. The summary
(total) duration of works on a critical path is equal 2+5+3+5+4+5+2+5+8+7=46
time units.

220
 
 xij А2 А3 А4 А5 Аб А7 А8 А9 А10 А11 Sum 1
А1 1 0 0 0 0 0 0 0 0 0 1
А2 0 1 0 0 0 0 0 0 0 0 1
А3 0 0 1 0 0 0 0 0 0 0 1
А4 0 0 0 1 0 0 0 0 0 0 1
А5 0 0 0 0 0 0 1 0 0 0 1
Аб 0 0 0 0 0 -100 -100 1 0 0 1
А7 0 0 0 0 1 0 0 0 0 0 1
А8 0 0 0 0 0 1 0 0 0 0 1
А9 0 0 0 0 0 0 0 0 1 0 1
А10 0 0 0 0 0 0 0 -100 0 1 1
Sum 2 1 1 1 1 1 1 1 1 1 1 10

Fig. 13.9. The final decision for a test example of greater dimension

On Fig. 13.9 the found critical way on the network schedule is represented.
Numbers in brackets near arrows show reserves of time for performance of noncrit-
ical operations.
Finally, it is necessary to deals with two important moments confirming an
opportunity of practical use of the offered technique.
The first concerns the maximal dimension of a task. As it is well known, the
standard tool Solver (built in standard Excel) has the general limitation on quantity
of cells with initial data (the greatest possible to use about 200 cells). For overcom-
ing of this restriction in practical tasks with big dimensions we recommend to use
more powerful tool Premium Solver (accessible free of charge on a site of the de-
veloper), which practically supposes usage of matrixes of any dimensions.
The second moment concerns the uses of newer versions of spreadsheet Excel.
Though the material stated in the paper has been received in Excel 2003, check of a

221
 
technique in Excel 2010 shown its working capacity. Certainly, the sequence of
commands, their arrangement on panels and names can be others.

13.7 Conclusions

The described design procedure to find the critical path demands the minimal
labour expenditures from the user irrespective of the task’s sizes. In spite of the
fact that the special methods considering their structure are developed for network
models, many network tasks can be solved as a tasks of linear programming (in
particular, in transportation).
In this paper the expediency of the solving of the examined tasks by their re-
duction to problem of the longest path search has been shown. The demanded deci-
sion is easy for receiving by tool Solver from spreadsheet Excel by the offered
technique.

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3. Shimko, P. (2004), Optimum control of economic systems, Business-press,
Sankt Peterburg (In Russian)
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Ukrainian)
5. Kremer, N. (2007), Research of operations in economic. Banks and Stock Ex-
changes, UNITY, Moskva (In Russian)
6. Taha, A. (2010), Operations Research: An Introduction, Prentice Hall, New
York.

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 14. SPECIFIC CHARACTERISTICS OF THE SHIP
AND PORT SERVICES AS ASPECTS
OF MARITIME MANAGEMENT

Several ship and port services have been considered, along with their specific
characteristics and in the context of their place and role in the entire maritime
transport management. A general analysis has been conducted and classification
of services of the maritime transport has been done. The specific components and
features of the functioning of enterprises of maritime transport services and mana-
gement of their respective departments and transport stages of sea shipping have
been described.
A detailed description and substantiation of several levels of management that
perform certain specific tasks in the logistics customer service in marine trans-
portation has been given. Some features of the production and service management
in seaports have been identified and discussed. A detailed analysis has been pro-
vided in terms of modern logistical approaches to customer service of freight trans-
port service in general and marine cargo transport services, in particular.
The major starting point hypothesis has been confirmed that the quality of
services plays a dominant role in the competitive transport environment. The re-
sults for a particular seaport and maritime transportation organisations have been
determined by the quality of services. In the context of rapid and continuous deve-
lopment of the service sector and its growing contribution to the gross domestic
product, the consideration of the ship and maritime transport services is very im-
portant, especially for the maritime coastal countries, because they generate extra-
ordinary possibilities for increasing employment, raising competitiveness and the
economy of countries and development of their territories. In addition, quality ma-
ritime and port services make part of the modern transnational logistic network.

Service in the maritime transport (maritime industry and seaports) is a relation-

ship between its providers and users in the process of preserving or changing the
state, as well as movement of the cargo (packaging, piling, relocating, storage,
transport). In that relationship, information and documentation regarding services
play a vital role. The above mentioned relationship has been performed in several
process activities (accomplishing several tasks) in a given time. A market offer in-
volves, not only a physical product, but a whole service package composed of the
service product, service environment and service delivery (Pettit and Beresford,
2009).

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 Numerous participants in the maritime market encounter with many constra-
ints. A primary goal of the maritime transport management is to solve those prob-
lems by implementing new knowledge, skills, technologies and information. That
is the best way for ensuring quality maritime services, which are critical for success
of the maritime companies. A competitive ability and its advantage are directly
dependant on the quality (Bichou and Gray, 2013). The service in the maritime
transport in many cases depends on a physical product (cargo) and it represents
information and transport interaction between the supplier (producer) of the mari-
time services (shipowner, port, maritime agent, customs, carrier, etc.) and the user
(ordering party) of the maritime services (Illeris, 1996). Success and profitability of
maritime transport companies directly depend on the competency of their managers
and service operators. Success is not a matter of chance or a magic wand, but a
product of the rational and quality management which includes the following:
 permanent and quality fulfilment of all requirements of the ship and port
customers;
 increasing productivity (relationship: output-input in the given time, along
with a high quality achievement);
 innovations in the organisations, implementation of the maritime transport,
communication and information technologies, etc.;
 improving the quality of transport services (maritime, ports, etc.);
 a competent management team and an organisation structure of the mari-
time transport company (ship-owners, ports, etc.);
 stable finance and well-planned long-term investment;
 responsibility to the environment (inside, outside), as well as society;
 rationality in management etc.

A shipowner (maritime company) is a subject of the maritime industry, which

is a subsystem of the maritime transport as a polyvalent service industry – i.e. a
sum of all activities, knowledge, skills in the relationship on the sea and in connec-
tion with the sea. A ship company is an economic organization which deals with
delivering services in the maritime industry. Those services involve performing
commercial-transport activities, using transport ships and special transport cont-
racts. Like any complex, open and hierarchical system, a maritime company has to
be based on the systematic principles in solving business and management prob-
lems. A systematic principle emphasizes a rapid development of the transport, in-
formation and communication technologies. They directly determine the progress
of the sea-shipping, which together with the seaports make the main part of the ma-
ritime industry. The maritime industry, like any other, is characterized by several
management levels, such as:
 the highest level, a so-called "top", strategic or institutional management;

224
 
  the middle level, a so-called "tactical", business or administrative manage-
ment;
 the lowest level, a so-called "operational", executive, functional or techni-
cal management.

The "top" management of the maritime company is concentrated on one, or a

very small number of managers in the company. It is responsible for defining the
following: a strategic mission, visions and goals, creating developments, changes
of the business strategy and a long-term planning, as well as creating a business en-
vironment and the organization culture, selection of the management staff and the
captain of the ship crew, their training etc. These are the most complex and respon-
sible business activities and decisions. The middle-level management of the mariti-
me company has several organizational and management levels. It's about several
managers who deal with some parts of the business units, for example: maritime
transport services, negotiating cargo and passengers transport, ship space and tolls,
purchase and lease of the ships, servicing and repairing the ships, researching the
maritime market, finance and accounting, the department for development and
innovations, electronic data processing (electronic computer center), quality control
etc.
The operational (functional) management level of the maritime company is a
representative of the whole management team towards the operational executive
team. For the maritime company, of vital importance is the relationship between
the management (especially the strategic one) and actions (activities oriented
towards the maritime service). That relationship is directly dependent and comple-
mentary, usually simplified as a relationship between "what needs to be done" and
"how it has to be done" to accomplish success of the maritime company and to
form a positive business image, i.e. to realize the planning goals. Success always
comes later and it assumes initiative planning of certain goals, analyzing the in-
ternal and external company environment, a correct choice of the strategy and re-
sources between the alternative solutions, as well as undertaking adequate actions,
which lead and control business, based on the feedback (Milisavljevic, 2000).
Action is based on the shipowner decisions (strategic, operative etc.), which
represent an executive choice between alternative actions. It means that decision of
the shipowner determines action which needs to improve a strategic position. Ac-
cording to Pirson's treatment of the six different actions, a maritime company (ship
company, seaport etc.) has to take the following actions:
 identify the most important aspect for the business, especially from the
competition point of view;
 define and conduct the highest concurrence behaviour standard, with a ten-
dency of constant improvements;
 stimulate innovations;

225
 
  involve the top managers;
 make constant updating and development of the staff structure;
 create and develop a motivation system (rewarding process) which is ori-
ented towards the results.

Maritime managers at all the levels (strategists, operators, ship commanders,

etc.), have to realize all the managers' functions related to the maritime, ports and
other operations which belong to the working environment of the maritime organi-
zation. The realization of the manager's functions is performed by making adequate
decisions, their implementations into practice, as well as controlling the level of
their execution. It is believed, that the most significant shipowners' decisions are
related to security, employment and releasing ship capacities (Tauzovic, 2002).
A similar statement can be made for the port systems. The decisions related to
securing ship capacities are: ships returning from the dismantling, purchasing ships
(new and second-hand), leasing ships, recurrence of the lease of ships etc. The de-
cisions related to ship exploitation are: cargo, goods and people transportation, the
form of the ship exploitation (a voyage or a period of time) etc. The decisions re-
lated to the clearance of the ship capacities are: dismantling the ships, selling or
write-off of the ships, leasing the ships, recurrence of the leased ships, etc.
There are many specific characteristics of the maritime industry in its relation-
ship with other service industries. Because of those specific characteristics, mariti-
me services are subject to a very strict legislative regime, different conventions,
clauses and different kinds of contracts. Those specific characteristics are technical,
legislative (contracts), economic and other. From the author's point of view, the
most important specific characteristics are the economic ones, which are derived
from the character of the maritime services. In that sense, it can be stated that
maritime services can be divided according to (Draskovic, 2003):
 the non-material product;
 productivity and consumption at the same time;
 impossibility to store;
 impossibility for the users to try and test it;
 huge differences in the maritime services in relation to different types of
ships, ship storage, market, cargo etc.;
 forming freight payment systems for the maritime services;
 high degree of competitiveness on the maritime service market;
 great conjuncture influences on the maritime service market;
 high degree of capital investments in maritime service production;
 high degree of the organizational complexity in providing maritime
services;
 high degree of business complementarities of all parties (subjects);

226
 
  active participation of the science and technology progress in the maritime
services environment etc.

In addition to the above mentioned, it is very important to emphasize that the

modern transport of goods and people, is characterized by high speed, quality, ra-
tionality, security, as well as with the existence of different technical facilities: fre-
ezers, cranes for fast reloading, tanks for liquid materials etc. An economic good-
ness is everything that has capability to satisfy some kind of the human needs. To
get it, people are willing to sacrifice a certain amount of money or another good-
ness. Economic goodness consists of different products, services, resources (pro-
duction factors) and so on. Port services, as an economic goodness are all activities
related to relocations of the cargo in the area of the seaport at a certain time, as well
as accompanying ports service activities. Port activities can be divided into (Kola-
novic, 2007):
 basic or primary, to which the following belong: loading, unloading, reloa-
ding, storage, grouping of the cargo, distribution, container loading and
unloading, preparation of the cargo, binding, ship supplying, information
about the cargo, ship arrival and departure etc.;
 auxiliary or additional, to which the following belong: packaging and/or
storage and preserving in accordance to physical cargo characteristics, re-
packaging, quality and quantity control, repairing, finishing, processing,
piling, etc., marking, coding and special labelling, using a unified transport
code, forming the cargo units, use of the palettes and containers, selection
of an optimal form of port transport and transport facilities, optimal usage
of port transport facilities with correct loading, using modern port techno-
logies, as well as a modern organizational approach to the relocation and
processing of the cargo and stock in the port warehouses and terminals and
applying modern informational technologies and computer support.

For quality evaluation of the performed port services the following standard
set of parameters is suggested:
 the internal port environment (equipment, appliances, systems of the port
transport for cargo allocation, scale, control systems, restricted spaces, trai-
ning, politeness, correctness and good communication skills of the port
personnel, the level of the information support and so on);
 reliability (timely performance, absence of the risks for users);
 responsibility (warranty of port services accomplishment, staff willingness
to help users of the port services);
 fulfilment of services (competiveness, existence of routine and sufficient
knowledge of the port personnel;
 availability (easy contact);

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  timely service;
 promptness and price.

Some authors (Marlow and Paixao, 2003) suggest the following additional in-
dicators:
 frequency (time needed to extend delivery of ports services);
 flexibility (adaptation to demands of port service users);
 control (having information about the status and position of cargo in the
port);
 certainty (realisation of services without damage or loss of cargo).

In addition, port practice testifies great importance of mutual understanding of

port personnel and users of the services, the level of exploitation cost (price of
transport per measuring unit), the level of permit possibilities, mobility in safeguar-
ding transport in different circumstances, continuity of the port transport (and regu-
larity), warranty of the cargo protection which is subject of port services, effective
use of transport resources, mechanization and automation of loading and unloading
services, etc. Port service, as an economic goodness, demonstrates a relationship
between its producers (subject of a seaport) and users, which is generated in the
process of preserving or changing the state, as well as the movement of the cargo in
the seaport (packaging, piling, relocating, storage, transport). In that relationship,
information and certain documentation regarding the services play a vital role.

Table 1. Identifier of quality realization of ports services

Price Different factors

Good timing, security of cargo, cargo insurance,
Capability of execution of the con-
compatibility of involved parties, image of the
tract obligation
transport company
Terms of delivery (due dates, warranty), level of
Flexibility
transport services, payments conditions
Complexity of the proposed port ser-
Different factors
vices
About prices, delivery conditions, movement of
Access to the information
cargo, etc.
Speed in accepting port orders and
forming documentation
Timing (decreasing unnecessary
hold-ups)

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 The above mentioned relationship has been performed in several process ac-
tivities (accomplishing several tasks) in a given time. In the case of integrity of
ports services, marketing logistics has quite a few specific demands (Table 1):
standartization of the parameters of the port technical assets, the ability to deliver
permits and services in the port system, homogeneity of the port transport tech-
nologies, a complementary set of information about the subject, aspect of delivery,
fast and timely transport from one type of transport to another (in order to make a
right and timely decision), homogeneity of legal, institutional and economic regi-
mes of the port system, etc.
A specific feature of the port services is the fact, that ports are an intersection
of the rail, road and sea transport. That makes its basic logistic functions very
complex, because of the necessity for a continuous adjustment of their characte-
ristics. Terminals play a special role in port services, as locations where sorting and
consolidation of cargo (the central terminal) and pick-up and delivery of cargo (in
accom-panying terminals) take place. Port terminals have numerous specifics
which are characteristic of the sea transport and port services. In the last decade
container terminals become wide-spread. The next characteristic of port services is
huge, complex, specific and legally well-defined documentation, which follows
cargo (because of change in the owner-ship). In the case of integrity of port servi-
ces in logistics, marketing logistics has numerous specific requirements, like:
 standards of parameters in the technical assets of the port;
 permits and transport systems which depend on each another;
 homogeneity of the port-transport technologies;
 a complementary set of information about the subject, aspect of delivery,
fast and timely transport from one subject to another (in order to make de-
cisions);
 homogeneity of legislative and economic regimes of port system, etc.

The logistic cycle and logistic flow in seaports are very complex, because they
involve numerous undercycles: the cycle of delivery of port service orders, proces-
sing the order, the cycle of organization and allocation of the order, delivery of
cargo, preparation of port services and the appropriate documentation, the cycle of
analysis and invoice preparation, the operational cycle in finalizing port services,
the cycle of packing and consolidation of the cargo, the cycle of delivery of cargo,
port transport, manipulation of the cargo, storage, etc. Seaports develop a logistic
net to get a better information quality, port infrastructure, port organization, mar-
ket of port services and technology, as well as increase in the economic value.
They represent the top of the inter-logistic management and organization, because
control of logistics gives a quick answer to changes in demands for port services.
To meet those requirements, quality and timely decisions must be made by all the
parties in the logistic net of the seaports and their flawless cooperation.

229
 
 The main tasks of ports services in logistic nets are: increasing the speed of the
flow of cargo in the port, quality and quicker loading of the ships in the port, decre-
asing the holdon of ships in the port, rationality of all port operations (in space, in
time, in communication), rationality in the cooperation with the road transport,
quality cooperation with the port surroundings, optimization of the information
support, quality communication between all the parties in the port system, minimi-
zing the idle run of the ships, delays, etc., as well as increasing the quality of the
port logistic system (transport assets, information and control systems, personnel,
the process of coordination, etc.).
The modern use of the integral marketing logistics, as a complex system of
planning, organization and control of the flow of cargo in ports services, means
bigger and bigger use of the port logistics net. In addition, there is a necessity for
modern electronic, communication, transport and information technologies, which
follow all the transport logistics activities, from the entry of cargo into the port to
the exit from the port, as well as all the technical assets in the transport logistic sys-
tem and manipulation of cargo in the port, all the technological phases, all the
subjects of the logistic system in seaports, all the logistics information and all the
communication channels and connections.
For port services it is important that they are unique and acceptable for users,
and that, as a final result of the executed services, nothing is left behind, except in-
formation, documentation and payment, and that port service cannot be recycled,
stored, repaired or done again. The market-formed integral system of port transport
services is made up of offer, demand, legislation as an institutional base for nego-
tiation of freight services and the accompanying subjects, like banks, insurance
companies, customs and so on. Offer is made by freight forwarding companies, ter-
minals and subjects that provide additional transport services, and demand makes
numerous users of transport services.

Table 2: The order of performing port services

Step Service description

9 Client consulting and service establishing
8 Supervising the process of service delivery
7 Informing client of the service delivery according to the time schedule
6 Making a service time schedule for the clients
5 Predicting clients' answers
4 Accepting an obligation for rendering a service
3 Considering possibilities for performing the service
2 Considering clients' needs
1 Making contact with the client

Source: Roca, 2004.

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 In terms of the port transport integrity, there are several requirements (Table 2):
 standardisation of the port technical assets parameters;
 permits and service capabilities of the intertwined activities of the transport
services in the port systems;
 homogeneity of the port-transport technologies;
 a complementary set of information, form of delivery, communication
speed and timely delivery from one kind of transport to another (for the
purpose of making decisions);
 homogeneity of the legislative and economic regimes of the port systems,
etc.

The process of providing port services and logistics activities has several stag-
es, which are shown in Table 3.

Table 3. The stages of the seaport service process

Additional value in the port service 

Ships, ralls, trucks Timely
Port transport
transport orders Flow  Flow  and quality shipment
technologies
(needs)
Control, motivation  
and Port operative management
 Feedback
management 

Source: V. Draskovic, and M. Draskovic, 2007.

A feedback connection takes place between the several stages of the port servi-
ce activities, while the control processes, motivation and management are in the
role of the synchronizers at all the stages of performing logistic activities. It can be
seen that several kinds of transport facilities take part in the basic stage of the port
service process (ships, rails and road vehicles), applying adequate port transport
technologies which have a primary goal to realize timely and quality cargo ship-
ment to the planned destinations in the seaport, as well as an adequate manipulation
of those cargoes. In a port operative management, a number of subjects take part as
the executors of several port and logistics services. So, a modern port business
demands an economical cargo movement, transport and other resources (M. Dras-
kovic, 2003; 2004).
That comes up with minimizing transport and manipulative expenses, along
with reducing space distances, time limits and a number of middleman agents. In
order to have economical port-transport services, it is necessary to develop a mo-
dern logistic strategy of the seaport systems. It is based on the improvement of the

231
 
port system characteristics in terms of cargo movement, ships and road transport
systems, as well as of infrastructure and other characteristics. Maritime transport
(ships and ports) represents one of the most important logistic sub-systems and a
physical distribution, because it performs a materialisation of the goods flows
between separated production and consumer destinations, and it represents almost
60 % of the total logistic costs.
In the context of rapid and continuous development of the service sector and
its growing contribution to the gross domestic product, a consideration of those
ships and maritime transport services is very important, especially for the mariti-
me countries, because they generate extraordinary possibilities for increasing emp-
loyment, competitiveness and economic development. In addition, quality maritime
and port services represent bases for the modern logistic network. Chinese experi-
ence is the best example for the above mentioned statement

References
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hubs”, Maritime Policy & Management, Vol. 36, No. 3, 253–267.
Bichou, Kh., Gray, R. (2013), “A logistics and supply chain management ap-
proach to port performance measurement”, Maritime Policy & Management, Vol.
31, No. 1, 47–67.
Illeris, S. (1996), Service Economy – A Geographical Approach, J. Wiley &
Sons, New York.
Milisavljevic M. (2000), Strategijski menadzment (in serbian), Cigoja-Print,
Beograd.
Tauzovic, J. (2002), Brodarsko upravljanje (in serbian), Unireks Print, Podgo-
rica.
Draskovic V. (2003), “Carterovanje i pomorske agencije” (in serbian), Pro-
ceedings of Maritime Faculty of Kotor, No. 20, 85–103.
Kolanovic, I. (2007), “Temeljne dimenzije kvalitete lučke usluge” (in croa-
tian), Maritime Proceedings, Vol. 21, No. 2, 207–224.
Marlow, P., Paixao, C. (2003), “Measuring Lean Ports Performance”, Interna-
tional Journal of Transport Management, No. 1, 190–195.
Roca, B. (2004), Marketing logistika, (in serbian), Kultura-Print, Backi Pe-
trovac.
Draskovic, V., Draskovic, M. (2007), Osnovi menadzmenta u pomorstvu (in
serbian), Maritime Faculty, Kotor.
Draskovic, M. (2003), “Brodarstvo kao uslužna privredna djelatnost” (in ser-
bian), Proceedings of Maritime Faculty of Kotor, No. 20, 187–195.
Draskovic, M. (2004), “Usluzni sektor i pomorske usluge u novoj ekonomiji”
(in serbian), Proceedings of Maritime Faculty of Kotor, No. 21, 229–241.

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 EXCERPTS FROM REVIEWS

Assoc. prof. dr. Tomaž Kramberger,

Faculty of Logistics, University of Maribor, Slovenia

Scientific monograph entitled “Logistics and Management – selected topics“

transparently represents some of the areas of logistics and challenges in the devel-
opment of logistics. Authors of contributions from Faculty of Logistics Celje, Uni-
versity of Maribor and the Faculty of Maritime Studies of the University of Kotor
in Montenegro in two chapters presented the scientific findings and challenges in
the areas of Risk management and supply chains, transport cost, competences in
logistics, urban logistic, green logistics, seaports cooperation, optimization of lo-
gistics network, logistics in tourism, logistics in performance management, system-
ic logistics providers and solution of the problems of transportation task.
The monograph constitutes a comprehensive overview of the field of logistics
and management at the theoretical level and in specific areas. Also in the mono-
graph highlighted the results of research in this field, as well as trends and chal-
lenges in the development of logistics. The monograph is useful for all those who
engaged in the field of logistics, scientific and professional public. Useful value
will also have for study purposes.
The contents of monographs entitled “Logistics and Management - selected
topics” completely satisfy the conditions for a scientific monograph, therefore I
recommend it to be published.

  

Full. Prof. Dr. Vojko Potočan

University of Maribor, Faculty of Economics and Business, Slovenia

Monograph “Logistics and Management - selected topics”, which was present-

ed for review, includes 12 chapters in two parts. Contentually, contribution in the
book transparently presents the selected areas of logistics and challenges inthe de-
velopment of logistics. In the first part of the book authors present areas of risk
management and supply chains, transportation cost, competences and logistics,
urban logistics and green logistics, and present research findings in these areas. In
the second parts authors present scientific knowledge in the field of seaport coope-
ration, optimization of logistics network, logistics and tourism, logistics and per-
formance management, logistics providers and systemic solution of the problems
of transportation task.

233
 
 The reader of the monograph gets a comprehensive overview and presentation
of logistics and management at the theoretical level and in the considered specific
areas; book informs its readers on the findings of research in this field; authors
emphasize trends and challenges in the development of logistics. The monograph is
useful for those who engage in the field of logistics in science and in prac-
tice. Useful value will also be provided for study purposes. The structure of this
scientific monograph matches well the problem definition, purpose and logic of the
research process.
Authors used in their investigation directly or indirectly several qualitative re-
search methods, such as the scientific description, compilation, comparison, deduc-
tion, induction and modelling methods. The monograph presents a round-off scien-
tific work in provides important contributions to the development of the tackled
theories, sciences and professions.
In terms of the content, structure and research approach to this monograph, I
conclude that the monograph titled “Logistics and management” completely fulfills
the preconditions for a scientific monograph.

  

Full. Prof. dr Ratko Zelenika,

Faculty of Economics, University of Rijeka, Croatia

This scientific monograph is the result of two year work on a bilateral project
entitled „The Joint Scientific Monographs in the Field of Logistics and Manage-
ment, published by the Faculty of Logistics Celje, Slovenia, and Maritime faculty of
Kotor, Montenegro.“ It contains 232 high-quality and contemporary texts written
by 15 authors, edited by Prof. V. Draskovic. Fourteen different topics in the title
field represent the complexity, heterogeneity and multidisciplinarity of this project.
This is a significant, lasting and useful reading, which contains a wealth of ideas
from one of the most economic and most propulsive service areas.
In this sense, the scientific monograph „Management and Logistics - selected
topics“ is a prestigious publishing venture in the wider region. It represents a scien-
tific comparative advantage, and exemplary model of successful scientific and in-
ter-faculty cooperation. The cited monograph will have a special value and scien-
tific popularization due to the publisher's decision to make it available for a wide
global audience through electronic forms on the Internet.
Reviewed article entitled „Management and Logistics - selected topics“ has
been written on a high world methodological and research standards. By all its
characteristics it deserves to be printed and published as a scientific monograph by
the International publisher SPG.

234