Institution Building and Human Resource Development for Managing Trade and Industry Logistics. Hungary's Success Story. Hans J.

Transcription

1 March 1995 Transport No. PS-11 TRANSPORTATION, WATER AND URBAN DEVELOPMENT DEPARTMENT THE WORLD BANK Institution Building and Human Resource Development for Managing Trade and Industry Logistics Hungary's Success Story Hans J. Peters Success in today's markets is increasingly dependent on effective arrangements for manufacturing, marketing, and distributing products responding to constantly changing customer requirements. In many countries the ability of the industry and trade communities to adjust to the new competitive environment is curtailed by inadequate institutions and lack of know-how. The same applies to the service sectortransport in particular-where fundamental reorientation of structures and practices is required to become more responsive to changing shipper needs. Concerted efforts are needed by all involved parties-public and private-to overcome logistical constraints. With the help of the World Bank Hungary has been able to launch successful efforts. BACKGROUND Joint investigations by Bank staff and Hungarian partners revealed that enhancing the competitiveness of domestic producers and traders in local and export markets would require the establishment of mechanisms which are essential for creating a market environment in which producers, traders, and consumers can interact effectively. An important consideration was to ensure that evolving demand in the local and international markets for different goods and services could be addressed efficiently through appropriate adjustments in the organization of production programs, marketing arrangements, and pricing provisions. Another important objective was to build capacity of the national service file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ps11.htm (1 of 6)07/17/ :00:23 AM

2 industries to meet the changing demand for required logistical support of the revised production and marketing strategies. The Bank's sector work had identified the need to create an enabling environment in which these processes and adjustments could materialize. Necessary regulatory reforms, adequately developed and managed infrastructure, and the availability of modern equipment would be key elements in such a framework. Another essential prerequisite was the need of appropriately trained and experienced personnel to manage all functions associated with production, marketing, and the provision of supporting services. The concept of integrated logistics management, which includes materials acquisition, product manufacturing, merchandise marketing, and physical distribution was largely unknown in Hungarian industrial and trading circles. Application of modern logistics management principles in manufacturing and marketing processes was therefore limited. Most serious was the unawareness of Hungarian manufacturers and traders of the growing importance of effective logistics organizations elsewhere in Europe, especially because foreign manufacturers and traders were beginning to make headway in Hungary's domestic market. The lifting of import quotas and service restrictions had induced aggressive penetration of local wholesale and retail markets by foreign manufacturers and traders employing stateof-the-art logistics organizations. Consequently it had become a matter of vital importance for Hungarian businesses to adopt the same logistics practices which have enabled them their foreign competitors to gain and expand their market shares. There was thus an urgent need for managers to acquire knowledge of modern logistics technologies, management concepts, and organizational arrangements. It had also become important to train employees so that modern technologies and management concepts could be effectively introduced in manufacturing and marketing activities, as well as in the provision of supporting services, for instance, in the organization of freight transport. The Bank engaged in preparing a lending operation-the Product Market Development Project-that would address required institution building and human resource development to enhance the logistics management capabilities in the national economy. The project preparation process included extensive networking by Bank staff with public officials, trade and industry organizations, the management of selected key enterprises, service agencies (e.g. banking, insurance, warehousing, and transport), and institutes of higher learning. Bank staff conducted workshops and seminars for these parties with the aim of creating awareness and demonstrating international best practice in logistics management. THE APPROACH As an integral part of the Product Market Development Project, the national Logistics Promotion Center (LPC) was established as the principal agency, for institution building and human resource development. LPC's mandate is: file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ps11.htm (2 of 6)07/17/ :00:23 AM

3 to further awareness by the national industry and trading communities, and the service sector of the importance of effective logistics organizations for commercial success, and to organize corresponding public relations campaigns; to become a depository for international best practice in trade and industry logistics management; to be the focal point and facilitator of discussions regarding the organization and management of logistics related training and formal education in Hungary; to inventorize and evaluate all existing or planned logistics training and education programs, as well as advisory services-public and private-in Hungary; to act as advisor to those needing assistance to introduce or streamline trade and industry logistics organizations, or to arrange for logistics related personnel training; to establish and maintain a reference library which includes key international journals and publications on trade and industry logistics management, Hungarian versions of principal reference material, and a data bank of international and domestic industrial, trade, and service sector performance indicators; to act as a facilitator of logistics related information exchange and professional dialogue among national businesses; to organize special workshops and seminars on selected topics of logistics organization and management; to provide technical assistance in cases where no local expertise is available; to establish and maintain professional contacts and expert exchange programs with similar organizations in other countries; and to organize training for Hungarian logistics personnel at reputable foreign institutions. ORGANIZATION The organizational and procedural arrangements for LPC have been the subject of intensive debate between Bank staff and the leading professional associations, and with the key Government bodies involved in the Product Market Development Project. Several private sector organizations gave their full support, including the Hungarian Logistics Association; the Hungarian Association of Logistics, Purchasing and Inventory Management; the Hungarian Marketing Association; and the National Trade Association. The Institute for Transport Sciences, a semi-autonomous entity under the Ministry of Transport, Telecommunications, and Water Management (MTTWM), also pledged its participation. Elected representatives of these five organization form LPC's Advisory Board. The Ministry of Industry and Trade (MIT) became the principal Government agency to be involved. LPC was established as an independent "foundation of public utility" under the umbrella of the Hungarian Foundation for Industry (IMFA). IMFA was set up in 1990 as a joint initiative by MIT and a local finance institute, Corvinbank. IMFA's main mandate is to 'support the technical development of the Hungarian industry to increase its international competitivenes'. The Foundation's Board of Trustees oversees LPC's activities and appoints its principal staff in consultation with the Advisory Board. MIT, as principal agency for project execution, agreed to provide the full operational budget for LPC during the first two years. One of the key objectives of the Product Market Development Project is to guide the Center to financial self-sufficiency, with the final aim of privatization. Starting with the third file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ps11.htm (3 of 6)07/17/ :00:23 AM

4 year of its existence, and after having established the reputation as a reliable advisor and service provider, LPC will commence charging for its services. It is expected that the Center will initially cover 50 percent of its budgetary requirements through service charges and will reach full financial selfsufficiency by the end of the fourth year. At that time the ownership and management of LPC is scheduled to be fully in private hands. Bilateral assistance has been obtained to cover the initial costs of operating LPC. LPC's offices in Budapest include combined reference library/visitor/conference facilities. The Center has a permanent staff of qualified Hungarian professionals. Specialist consultants can be brought in, as and when required. The Product Market Development Project provides financing for modern office technology and communication facilities, which are now operational. Arrangements will be made so that the Center's data bank and other information resources can be accessed by outside users through direct computer and telephone links. The estimated budgetary support to the Center during the project implementation phase of four years, and under the assumption of gradual financial self-sufficiency, amounts to US$1.75 million equivalent, of which US$800,000 are expected to be expenditures in foreign exchange. Up to the point of its privatization the LPC's financial performance will be subjected to annual formal public auditing. EXPERIENCE TO DATE During its first two years LPC has been successful in many respects. Over 80 Hungarian businesses and public institutes benefitted from the Center's training programs. Application of modern logistics management concepts in local manufacturing, trading, and service provision increased, albeit from a low base, by more than 200 percent. Vocational schools and universities have developed special curricula and degree programs in trade and industry logistics. Major adjustments have taken place in service offerings. For instance, the growing number of manufactures with high value added content, requiring time-sensitive marketing arrangements, has induced freight transport operators to revamp their service organization and to modernize their equipment parks. LPC established a monitoring system to measure progress in the development of know-how, the application of logistics management principles, and improvements in performance resulting from these changes. LPC has become a respected national institution. The Center's success has induced several line ministries to emulate the consultative process adopted by LPC early on. For instance, in preparing a new transport policy framework MTTWM involved almost 100 individuals representing national industry, commerce, the service sector, and academia in policy formulation. The result reflects much appreciation of the importance of effective logistics management organizations for competitive success. Corresponding provisions have been made for necessary adjustments in transport sector regulation and investment plans. While more remains to be accomplished in order to elevate Hungary's industries and trade to performance levels of their West European competitors an important step has been taken through the establishment of LPC-a concept that could serve as a guide for similar initiatives in other transitional file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ps11.htm (4 of 6)07/17/ :00:23 AM

5 economies. TO LEAN MORE The Project "HUNGARY - Product Market Development Project." Staff Appraisal Report No HU. The World Bank, Washington, D.C. The Concept of Logistics Management and its effects on competitiveness Peters, Hans J "Service-The New Focus in International Manufacturing and Trade." Policy Research Working Paper 950. The World Bank, Washington, D.C. Industry and trade performance assessments in Hungary "Hungary: Industrial Sector Review- Performance, Structural Changes and Policies for the required Supply Response." Report No HU. The World Bank, Washington, D.C. Török, Adam "Hungarian Industry and the Economic Transition." Research Paper Series, Enterprise Behavior and Economic Reforms, Report EE-RPS 15. The World Bank, Washington, D.C. Handfield, Robert and Withers, Barbara "A Comparison of Logistics Management in Hungary, China, Korea, and Japan." Journal of Business Logistics 14(l). Hooley, Graham et al "Marketing Strategy Typologies in Hungary." European Journal of Marketing 27(l1). Chikan, Atilla "Inventory Structure in the Manufacturing Industry: A Cross-Country Comparison." International Journal of Production Economics 24(1). Training for logistics management need assessments in Hungary Bruner, Richard "Eye on Europe - Demand exposes Lack of Supply Skills." International Management 48(3). Vecsenyi, Janos "Management Education for the Hungarian Transition." Journal of Management Development 11(3). Transport sector assessments The Concept of Hungarian Transport Policy Ministry of Transport, Telecommunications, and file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ps11.htm (5 of 6)07/17/ :00:23 AM

6 Water Management. Budapest Mueller, Rene et al "The Evolution of Distribution Systems in Hungary." International Marketing Review 10(5) Rupert, Laszlo "Expected Growth of Freight Traffic in Hungary, Changes in Structure and Volume of Goods." Report No. HA Institute for Transport Sciences file:///o /PUBLIC/twu_xweb/transpor/publicat/td-ps11.htm (6 of 6)07/17/ :00:23 AM