Logistics Consultation Forum

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1 Logistics Consultation Forum L O G I S T I C S S E C T O R P O L I C Y S T R AT E G Y ( ) Abstract, Budapest, 9 December 2013 Edited by IFKA Iparfejlesztési Közhasznú Nonprofit Kft Budapest, Munkácsy M. u. 16.; ; 1

2 Introduction Logistics play an important role in the business lives of all countries: they ensure proper planning, the flow of goods, services and information, stocking, warehousing, packaging, waste management and utilisation in the supply process in order to satisfy consumer demands as efficiently as possible. Logistics represent a key factor in improving Hungary s competitiveness, and one of the most promising breakout points. The quality standard and availability of the services offered by the sector have decisive importance for the purposes of the goods, services and investments flowing into - or, just the opposite, avoiding - Hungary, dynamising the economy and increasing employment opportunities. In respect of economic growth, logistic activities have both direct and indirect impacts: direct impacts: improving the performance of logistic businesses serves the goal of dynamising the economy primarily by increasing investments, net exports and equalising the regional imbalances in consumption. indirect impacts: optimisation of logistic activities contributes to improving the cost efficiency of the entire corporate sector, thereby increasing the funds available for investment. The primary goal of preparing the Logistics Sector Policy Strategy ( ) (hereinafter: Strategy) is to come up with a strategic plan accepted by both the Government and the trade and harmonised with the related strategies (National Transport Strategy, National Development 2020, New Széchenyi Plan) as well as international expectations, treating logistics properly for its economic weight, which, if implemented, may make a substantial contribution to increasing employment and capital expenditure as well as improving Hungary s competitiveness. The decision to draft the Strategy was made in Government Resolution no. 1157/2013 and the Government adopted the Strategy. The direct preface to drafting the strategy was the need of the Ministry for National Economy for the compilation of sectoral strategies. In addition to their own active professional participation, IFKA Iparfejlesztési Közhasznú Nonprofit Kft (IFKA Industrial Public Benefit Not-for-profit Ltd.) (IFKA) and Logisztikai Egyeztető Fórum (Logistics Consultation Forum) (LEF) made it possible to mobilise and involve professional organisations. 2

3 Analysis of the situation and SWOT The logical framework of the strategy relies on the following pillar structure: A.) Logistic expertise B.) Logistic infrastructure C.) Logistic relations: D.) Logistic R&D&I Logistic resources Human resources Hub infrastructure International relations Government Key logistic operators IT infrastructure Network and co-operation Business E.) Transport network infrastructure Road Railway Air Water F.) Communications network infrastructure The strategic pillars demonstrate the most important production factors in the logistics sector: expertise, infrastructure, network of connections and R&D&I. This is supplemented by two areas as horizontal factors (pillars): transport and telecommunication network infrastructure. The reason for this is that although the availability of both transport and broadband communications networks at an appropriate quality and scope is crucial for the success of the logistic strategy, for the purposes of the logistics sector, both of them are considered external factors determined by other policies taking into account aspects other than the interests of the logistics sector as well. The pillar structure plays a particularly important role in ensuring the strategy s internal coherence and harmonising major components. The pillar structure determines the internal logics and structure of the analysis of the situation, the SWOT analysis and the system of objectives, and allows for clearly displaying the connecting points between the set of objectives and instruments (objectives and instruments matrix): 3

4 The SWOT analysis of the logistics sector was prepared by involving professional and market operators, the main findings of which are as follows, in line with the pillar structure: Logistics exp er tise Human resources Human resources have outstanding importance among logistics resources, considering the crucial nature of having qualified and experienced professionals open to logistical innovations for the proper operation of logistics. The underlying prerequisites for this are that, on the one hand, the education system should put ample emphasis on providing alogistical approach and knowledge, while, on the other hand, businesses performing logistic activities should pay particular attention to hands-on training activities harmonised with corporate needs, at an appropriate quality. Key players in logistics On the scale of outsourcing logistical functions, businesses where all logistics tasks are performed in-house using the company s own assets represent one end (1PL). In contrast, companies at the other extreme of the scale involve an external service provider that manages and controls processes in the chain of supply comprehensively, as the integrator of the chain of supply (4PL). Accordingly, operators who - giving their own example and given their client position - play a dominant catalyst role in rendering internal corporate processes more efficient, and who are indispensable in providing the supply of high added-value logistical services are considered key logistics companies. Logistical in frastr u ctu re Hub infrastructure The most important infrastructure items for logistic services are transport networks and components of the hub infrastructure. Given that the available documents of the National Transport Strategy (NTS) represent the governing documents provided by the government, this strategy 4

5 treats the network infrastructure as a horizontal factor, and the expectations that are relevant for the purposes of the logistics vision and objectives proposed in this strategy are set out. IT infrastructure The IT background for logistic services and internal corporate processes may be investigated from a number of perspectives. One possible approach is considering the extent to which IT systems support the value-added services that contribute to developing and/or strengthening Hungary s role as a logistics centre while increasing the competitiveness of Hungarian businesses. In another approach, the functionalities of IT systems that provide the most efficient support to market operators in performing their logistic tasks should be investigated. Net work of logistics conn ect ion s International relations The dominant part of logistics traffic crosses the borders, and market operators decide where to use them primarily based on market considerations. Which is why business diplomacy may exert a significant (positive or negative) influence on the logistic performance of any given country in addition to the business environment. Improving and coordinating Hungary s logistical business diplomacy is particularly important because the strategic developments required for Hungary to emerge as a logistics service centre may be implemented only embedded in the international environment. Networking and co-operation In Western European countries, smaller countries have realised co-operation in various forms subject to sector. In some sectors, they formed loose clusters; in others, they concluded strategic agreements or gathered in purchasing or sales cooperatives. There are also some examples for corporate mergers or cross-ownership in order to make production cheaper, sales more efficient or involve external funds (bank loans, venture capital) more easily. 5

6 The development of network co-operation has fundamental importance primarily for SMEs, as most of them are unable to step out into the international market, secure sufficient funds for innovation and development and establish a favourable negotiating position vis-a-vis dominant suppliers and distribution operators on their own. Logistics R&D&I It is true from both an economic policy and an operations perspective that each HUF spent on research and development and innovation is also invested into the future of the businesses concerned, and, therefore, indirectly into Hungary s future. Ultimately, every instance of competitive advantage is backed by surplus knowledge not available to competitors. In the longer run, only businesses that spend on extra knowledge and increase their own knowledge base will remain competitive. This is clearly true for all components of logistics activities, from transport and forwarding through logistic services to in-house logistics processes. In an EU comparison, Hungary s innovation perofrmance is in the medium range. Industries involved in global value chains - such as the pharmaceutical, the info-communications sectors and vehicle manufacturing - and researchers and developers having international connections significantly contribute to the performance of Hungary s innovation system. On the other hand, most of Hungarian companies remain well below companies of more developed EU Member States in the field of R&D and innovation performance. Vision Elaboration of a strategic vision means determining a target state that can be described by quality as well as quantity characteristics, and specifies the situation and directions for development in the sector in line with the structure of modern market economy. The strategic vision has to be valid for each of the following dimensions: logistics processes within companies, logistics processes outside of companies, logistics processes at national economy level, 6

7 cross-border logistics processes (regional impact) - share of international logistics processes, increasing contribution as a proportion of GDP As regards the meso-level processes connecting micro and macro levels in national economy, special attention should be given to the considerable sustenance functions incurred by the government both on the production and the execution sides (e.g. pursuant to the restructuring of health care and education). Logistic developments play a key role in strengthening corporate competitiveness in a world of globalising supply networks and sales channels. Based on this, the main components of the proposed value-based target situation (vision) are as follows: At corporate (micro) level, the logistics vision focuses on the fundamental development process in which companies organise their internal logistic processes with increasing efficiency. An important aspect of this is that business organisations - focusing on their core capabilities and activities - outsource certain activities. In addition, a state-of-the-art logistics background is particularly important for the purpose of implementing sectoral and industrial policy goals. Overall, the general cost level in economy may decrease and the standard of production and service activities that may be developed by logistics may improve in Hungary, resulting in increased competitiveness both for Hungarian businesses and the entire economy, with the dissemination of a business and service culture reflecting the practice of developed market economies. At national economy (macro) level, the idea - fostered for years by public figures of the trade - according to which Hungary still has an opportunity to emerge as the region s logistics service provider centre with the European Union s enlargement continues to dominate the strategic vision. This opportunity is granted by Hungary s geographic location and the directions of the Trans-European Transport Network identified as development priorities, as the corridors IV, V, VII and X traverse Hungary and intersect in Budapest, providing an obvious centre for the flow of goods in the region. Hungary s emergence as a Central and Eastern European service centre will positively affect a number of other areas: o increasing the country s ability to attract and preserve capital; o supply of goods and services to inhabitants; 7

8 o reducing regional imbalances; o improving LPI and other World Bank indices. The strategy s system of objectives The strategy s sytem of objectives consists of the overall strategic goal and the specific objectives formulated for each pillar. The overall strategic goal shows the most important favourable expectations set out in the strategic vision in the context of strategic pillars. Based on the analysis of the situation and the vision, the comprehensive goal of the logistics strategy is to increase the contribution to be made by the logistics sector to competitiveness at corporate and national economy level in line with its expected weight in national economy by promoting the development of logistics resources, networks and innovation in Hungary in the period. Similarly to the strategy prepared by the Ministry of National Development and Economy for the period , three indicators have particular importance for this logistics strategy: Hungary s rank based on LPI index (data source: World Bank-FIATA). Share of logistics service providers (under double-entry bookkeeping) out of gross added value (data source: Hungarian Tax and Customs Authority - HTCA) The country ranking of logistics centres published every two years (data source: Cushman&Wakefield) The elaboration of the set of indicators for each specific objective and the registration of base values are tasks for the strategic monitoring system. 8

9 System of instruments Logistic expertise Logistic infrastructure Logistic relations Logistic R&D&I Analysis of the situation SWOT Vision and set of objectives X X X X X X X X X X X The strategy s system of instruments The professionals in the Logistics Consultation Forum (LEF) proposed instruments for implementing the strategic objectives formulated based on the analysis of the situation, a review of the relevant international and Hungarian strategic document and the vision in writing, using consolidated sources. The basis for elaborating the instruments was a list of measures compiled earlier by IFKA based on earlier logistics strategies and development policy papers, which grouped potential instruments by nature of intervention (public policy, regulatory, fiscal/subsidy instruments). Having summarised and discussed the proposals received, the following main groups of instruments and directions for intervention were outlined to achieve the objectives: Development of the administrative services relevant for logistics purposes modernisation of logistics education Establishment of accountancy and monitoring systems Promotion of networking and co-operation in the logistics sector Support for logistics R&D&I 9

10 Support for logistics infrastructure development Ensuring sustainability of logistics activities The individual measures (instruments) will be presented in a breakdown by the above groups of instruments, followed by an objective/instrument matrix to demonstrate how they connect to the set of objectives and, therefore, to the pillar structure of the strategy. Developmen t of t h e admin ist rat ive se r vices relevant for logist ics pu r p oses The following main instruments were identified in the field of developing public administration for logistics: simplification of customs regulations o re-launching the Customs Council, o creation of the IT conditions for a cloud-based sharing of commercial data and documents, o comprehensive digitisation of customs clearance procedure (implementation of a fully paperless environment), development of e-government services to meed logistics needs of businesses, elaboration of the logistics sub-programme of the trade development programme in co-operation with the National Office for Foreign Trade, elaboration of a logistical country marketing programme, establishment of a Logistics Coordination Board. Developmen t of logist ics edu cat ion The following main instruments were identified in the field of developing logistics education: improving the conditions for educating logistics professionals in line with international practices, expansion of the supply of hands-on training opportunities in companies to harmonise theory with practice (dual training for each level of training), elaboration of a training programme for the Hungarian SME sector 10

11 regular skill gap analyses comparing logistics training supplied with corporate demand. Logistic accoun tancy and monit oring The following main instruments were identified in the field of accountancy and monitoring: development of a comprehensive logistical statistical accountancy system based on Hungarian and EU expectations, support for the elaboration of a monitoring system for the movement of goods (capacities available in each logistic sector such as cold stores, warehouses, combined terminals), setting up a single logistic data base, S t ren gt h ening n et work ing and co - operation b et ween logistics op erators The following main instruments were identified in the field of strengthening networking and co-operation between logistics operators: support for complementary collaboration between logistics businesses, promotion of the internationalisation and development of regional networks of logistics SMEs, development of the IT conditions for collaboration between logistics SMEs. Logistics research an d knowled ge b ase Logistics research may take the following main directions: core logistics research, support for adapting best innovative international practice, promotion of collaboration between research, education and business in the field of logistics, preparation of annual reports and policy recommendations on the Hungarian logistics sector based on regular empirical research. 11

12 S up p or t for logist ics infrastr u ctu re d evelopment The following main instruments were identified in the field of logistics infrastructure development: encouraging out-of-fence logistics developments encouraging within-fence logistics developments S ustain ab le logist ics act ivit ies The following main instruments were identified in the field of ensuring sustainability of logistics activities: green logistics development, inverse logistics development, development of city logistics area. Expect ation s concer ning d evelop ment of n et work t ran spor t in frast r u ctu re The availability, maintenance, development and interconnection of transport networks are important prerequisites to implementing any logistics strategy. The Assessment of the situation section of the National Transport Strategy (NTS) already completed also identifies co-operation between sub-sectors, coordination of the entire travel and transport chain, improving its continuity and reliability as specific objectives, which are unimaginable in the absence of the required infrastructure. The needs concerning Hungary s transport infrastructure are primarily of a qualitative nature for nearly all sectors. In addition to modernising the transport infrastructure and establishing the necessary transport, safety and traffic management systems, significant development of the hub infrastructure is also required to exploit the benefits arising out of Hungary s central geographic location as fully as possible. As regards Hungary s public road network infrastructure, the following main fields may be identified for intervention: extension of the missing highway sections to the borders, improving the quality of bridges in all segments, particularly in the non-highway network, preparation of accurate and up-to-date technical assessments of the status of the road network and bridges in order to identify renovation needs, 12

13 strengthening the circular transport network in addition to the radial structure, enhancing the quality of the main and side roads connecting traffic to the highway network, ensuring professional road maintenance and development for local roads (in municipality ownership), reducing the rate of unpaved roads in residential areas, introduction of regular traffic counts and status assessments for local roads in order to prevent bottlenecks, in the field of regulations o road toll better aligned to actual needs and circumstances, o traffric restrictions on weekends and other days (e.g. holidays, nights) (truck prohibition), o local decrees regulating logistics activities and the transport of goods to create the conditions for city logistics. For the railroad network infrastructure,key actions for logistics services include: acceleration of complex reconstruction, at least on lines connecting to Trans-European networks, systematic improvement of the network s quality indicators, e.g. reducing the number and density of level crossings with public roads, managing bottlenecks (e.g. small number of river bridges), implementation of new technologies and organisation procedures, development of telecommunication systems, acceleration of GSM-R implementation, transparent and simple regulatory system, aligning internal railway regulations to market needs, In the field of air transport infrastructure,the key expectations are the existence of international airports to collect and distribute traffic, proper accessibility of such airports by road and railway and quick access to cities in their vicinities. It is also important to develop new forms of collaboration between regional airports with overlapping service areas and to ensure quick and simple road and railway access to cities close to airports, as well as to implement special storage facilities at an appropriate standard (increasing the capacities of cooled warehouses, controlled storage conditions). In addition, the possibility of dual-purpose use of military airfields should also be considered. 13

14 As regards the water transport network, the logistics sector expects constant navigability of the Danube. Using the Danube for transport and shipping purposes is important also for the purposes of the Danube-Main-Rhine waterway system, meaning that water management and river regulation should be integrated and coordinated at international level - which is also key for environmental and flood protection purposes as well as for tourism. Promotion of the interlinking of intermodal and regional logistics centres, ports of national public use and regional airfields into a nationwide network by building and interconnecting the relevant network components is a priority affecting all network infrastructures. Expect ation s concer ning th e d evelopmen t of th e commun icat ions n et work infrast r u ctu re and th e infor mation societ y For the purposes of the competitiveness of logistics service providers, the availability of the info-communications infrastructure and the level of evolution of the given country s information society are just as significant as the transport network infrastructure. Therefore, the establishment of optical networks offering an appropriate bandwidth, dissemination of electronic (administrative and business) services as well as the openness and preparedness of households and businesses to use these facilities are key for the sector and have particular importance for the purpose of recovering the IT expenditure supporting the operation of logistics businesses as well. Relationships between the system of objectives and of instruments When demonstrating strategic objectives and instruments, focus is on primary effects. Matching objectives primarily with the instruments used will be important for the purposes of monitoring the programmes and play a role in selecting the indicators at various levels while allowing the contribution of each activity to achieving the strategic objectives to be estimated. The following assumptions may be made concerning the relationship between objectives and instruments. Development of administrative services 14

15 o Simplification of customs rules and reduction of bureaucratic burdens may make it easier for Hungarian SMEs to undertake a role in logistics (within the key logistics players specific factor) and for Hungairan companies to play a role in international logistics (international relations specific factor). o Development of e-government services aligned to the needs of businesses will also work towards strengthening the role played by Hungarian SMEs in logistics. o Elaboration of a logistics sub-programme under the trade development programme and of a logistic country marketing programme will boost international logistics relations as well as the networking and co-operation between logistics operators. Development of logistics education o The education of professionals in line with international practice and the expansion of supply of hands-on corporate training in order to harmonise theory with practice (dual training), the elaboration of a training programme targeted at Hungarian SMEs and a regular skill gap analysis between the supply of logistics training against corporate needs will contribute primarily to improving the quality of logistics resources (human resources, key logistics operators). Logistic accountancy and monitoring o In respect of developing a comprehensive logistics statistical accountancy system in line with EU practice, it seems reasonable to assume that this tool will contribute to essentially all strategic objectives by ensuring measurability of the initial status and achievements. o Setting up the monitoring system for the movement of goods and a single logistics data base will promote the implementation of primarily the strategic objectives related to logistics resources (primarily for the key logistics operators specific factor) and logistics relations (internationalisation, networks, co-operation). Networking and co-operation o Support for complementary co-operation between logistics businesses, promotion of the internationalisation and the development of regional networks of logistics SMEs and development of the IT conditions for collaboration between logistics SMEs will support implementation of the strategic objectives related to the logistics relations pillar. 15

16 o Having identical names for the set of instruments and the specific factor of networking and co-operation is disturbing and should therefore be resolved. Logistics research and knowledge base o Preparation of annual reports and policy recommendations on the Hungarian logistics sector based on regular empirical research, support for adaptation of best international innovative practices and encouraging co-operation between research, education and business sectors in the field of logistics will all help to intensify logistics R&D&I. Support for the development of logistic infrastructure o Support for out-of-fence and within-fence logistics infrastructure will increase the competitiveness of logistics SMEs while allowing for the development of hub and ICT infrastructures. Ensuring sustainable logistics activities o Support for green logistic, invers logistic and city logistic development may contribute to modernising logistic infrastructure and may promote relevant R&D&I activities. 16

17 Relationships between the system of objectives and of instruments The strategy s system of objectives Logistic resources Logistical infrastructure Logistic relations Logistics R&D&I human resources key players in logistics hub infrastructure IT infrastructure international relations networking and cooperation corporate R&D&I government R&D&I Development of administrative services X X X Logistics education X X X Logistic accountancy and monitoring Networking and cooperation Research and knowledge base X X X X X X X X X X X X Logistical infrastructure X X X Sustainability of logistics activities X X X X Implementation and monitoring 17

18 The most important player in implementing the logistics strategy is the Ministry for National Economy. In addition, the implementation of certain measures involves the following ministries: transport and broadband network infrastructure development, which appears as a horizontal factor for the strategy but has key importance for its success is within the Ministry for National Development s responsibility, the development of public administration relevant for logistics (regulatory measures and e-administration) are the tasks of the Ministry for Public Administration and Justice, the development of public and higher education on logistics belongs primarily to the Ministry of Human Resources, international logistics diplomacy is a role primarily for the Ministry of Foreign Affairs. o within that, of the National Office for Foreign Trade (elaboration of the logistics sub-programme of the trade development programme) The following background institutions of the Ministry for National Economy play important roles in implementing the strategy: National Tax and Customs Authority (simplification of customs regulations) IFKA Iparfejlesztési Közhasznú Nonprofit Kft. (background trade papers and monitoring, research, vocational training) National Innovation Office (R&D&I) As regards trade organisations, the Logistics Consultation Forum (LEF) comprising the trade associations and trade advocacy bodies plays a special role in implementing the strategy. Primary tasks of the monitoring system: elaboration of the set of indicators for each specific objective and the registration of base values, regular measurement of special indicators, presentation of the processes underlying the development of special indicators in an annual report, ex ante, interim and ex post impact analysis of support programmes implemented in the framework of the strategy, formulation of proposals to update the strategy and action plans of the support programmes on an annual basis, 18

19 rollover planning of the strategy. Annexes Annex 1 The strategy s system of objectives Pillars Specific factors Specific objectives A) Logistics expertise B.) Logistical infrastructure human resources key players in logistics hub infrastructure High-standard, practical and transparent education activities in secondary and higher education and vocational training aligned to corporate and sector-specific operator needs building on one another development of the role and culture of Hungarian SMEs in logistics the private and civil sectors and the government sector should contribute to the sector s success with coordinated efforts loosening the centralised character of hub infrastructure around Budapest development of a co-operating system of logistics centres development of cross-border logistics co-operation in harmony with the EU s transport corridors 19

20 increased exploitation of the potential represented by the hub infrastructure in existence and to be developed enhancing environmental sustainability of logistics activities promotion of IT developments within companied aimed at reducing logistic transaction costs in the SME sector IT infrastructure improving the efficiency of internal processes in the SME sector modern e-government and e-municipality services to reduce administrative burdens of logistic transactions C) Logistic relations D) Logistics R&D&I international relations networking and co-operation government R&D&I provision of more favourable conditions for cross-border logistic roles, make Hungary more attractive as the target for logistics investments support for the special processes of operators logistic networks supporting the performance of public tasks substantial promotion of the development of networks and co-operation in the logistics services sector support for the special processes of operators logistic networks supporting the performance of public tasks development of logistics knowledge bases, knowledge flow and use support for forms of innovation that are less 20

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