Logistics and supply chain management in SEE

Automation & RoboticsTechnical ArticlesSouth-East European INDUSTRIAL Мarket - issue 3/2021 • 08.10.2021

Modern logistics and supply chain management (LSCM) practices have undergone an important evolution at the beginning of the third decade of this high-tech century. Among the engines of this technical maturation are both innovative industrial concepts such as Industry 4.0 and socio-economic factors related to the COVID pandemic. Last but not least, the ubiquitous transformation of logistics and distribution is greatly influenced by the increasingly persistent initiatives at national, regional and global level to introduce green policies and initiatives for sustainable development and reducing the harmful impact on the environment.

All these trends are crucial for the transformation of the logistics industry in South-East (SE) Europe, a region traditionally considered to be underdeveloped in terms of infrastructure and technology compared to Western Europe. According to recent studies in the field, countries such as Romania, Bulgaria and Serbia are proving to be strong centers of attraction for investments in logistics, warehousing, distribution and supply chain management by large international corporations in various branches. Among the reasons for this shift from Asia to the Old Continent is the complicated economic situation due to the coronavirus pandemic, which pushes many global companies to develop strategies to optimize costs and move closer to critical Western European markets.

The process of modernizing logistics and supply chain management practices in South-East Europe is long and gradual, and of course there are many challenges ahead. A series of studies in this area have been conducted in recent years by a number of distinguished experts and organizations, highlighting the main opportunities and difficulties during this modernization. On a positive note, today, in 2021, many of the identified problems are being overcome, and more companies in the industry are already aware of the need to implement high-tech solutions for business process management, including advanced automation tools, ICT systems, resource planning platforms, RFID and GPS tools, mobile and wireless technologies.

Development trends in modern logistics

Modern logistics and supply chain management are experiencing a period of fundamental qualitative and technological transformation. From reversible logistics, which was a leading trend, set in the not-so-distant past, focusing on reducing waste and reusing products and materials, the sector is now going towards a wider, deeper approach – green logistics. It represents a more comprehensive concept of environmentally friendly thinking. This process is further supported by the implementation of modern technology, which except for greener future provides the companies in the sector with broader opportunities for management, control and optimization of all business activities. With these two strategy pillars in mind the logistics and supply management industry is aiming to achieve more cost, time and energy savings, utilizing more and more modern means of transport, manipulation equipment, warehouse management solutions and concepts.

According to a recent study, published by the international news agency Reuters, logistics and warehouse companies are accelerating expansion plans in South-East Europe where business is expected to boom as the pandemic spurs manufacturers to relocate operations close to main markets. Market analysts are convinced that many large global companies will return to Europe from Asia and SE countries like Bulgaria, Romania and Serbia will impact the whole future of the sector in this region.

Among the main trends, outlined by the research, is the fact that more and more manufacturers are moving to South-East Europe, seeking proximity to key EU markets. The main beneficiaries of this process include Bulgaria, Romania and Serbia, which provide large companies with lower production costs in comparison for example to the Czech Republic, analysts also note.

“Setting up in European Union nations Romania and Bulgaria represents a big selling point for these and neighbouring countries like Serbia where it is often cheaper and easier to get projects running. Foreign investors have also been drawn by yields on industrial and logistics properties that hovered in 2020 between 8-10% for Romania and Bulgaria and 5-7% in Poland, the Czech Republic, Slovakia and Hungary, Colliers said, compared with 4,5% in Germany or France”, the report points out.

The industrial and logistics sector in Romania, which is South-East Europe’s biggest economy, grew by 43% in the first quarter from a year earlier with 264 000 m2 of new space leased to total 5,16 million m2, shows statistic information, published by the real estate consultancy CBRE. Another important reason for many manufacturers to relocate their operations in SE Europe are wages, which are around three times less in Serbia and about half as much in Romania and Bulgaria compared with the Czech Republic.

A quick look back at the shaping of current trends

A comprehensive research paper – “The use of information systems for logistics and supply chain management in South-East Europe: Current status and future direction”, published in the international journal of management science “Omega”, indicates the main opportunities and challenges facing this industry, identified in the beginning of the previous decade. Together with the current studies, cited in this article, it outlines a period of rapid development of the industry and investigates the status and future direction of the use of information systems for logistics and supply chain management (LSCM) in South-East Europe. The study was conducted based on detailed questionnaires sent to 300 manufacturing and trading enterprises in six South-East European countries (Albania, Bulgaria, North Macedonia – then FYROM, Greece, Romania, and Serbia and Montenegro). The authors clarify that manufacturing and trading enterprises were the target groups because they tended to adopt such information systems and it was envisaged that interesting results could be obtained.

A total of 79 enterprises submitted back their answers. The analysis showed that companies faced similar challenges but all were in different stages of developments of LSCM. The results also demonstrated that current deficiencies, including limited abilities in building valuable forward relations, weak strategic planning and organisation, and infrastructural problems, were major obstacles for faster development in LSCM in the region.

Meanwhile though, the globalisation market has stimulated the demand on the use of different concepts, techniques, tools, systems, technologies, models and frameworks in enterprises for logistics and supply chain management. Key activities in the field include material sourcing, production scheduling, and physical distribution systems, supported by the necessary information flows. The cited report points out several groups of potential solutions for optimizing business processes in this area, based on information technologies, namely: material requirements planning (MRP), manufacturing resource planning (MRPII), enterprise resource planning (ERP), supplier relationships management (SRM), customer relationships management (CRM), etc. Those platforms are complemented by advanced technologies such as radio frequency identification (RFID), global positioning satellite (GPS), and wireless and mobile technology, which have gradually been applied in more and more manufacturing, service, logistics, distribution and retail companies in South-East Europe to this day.

In addition, during the last decade many enterprises in the sector have also achieved better tracking of products, improved efficiency in information processing, improved security, reduced counterfeit, fast-tracked quotation and ordering, improved customer relationships, better control of supplies, statistics show.

In recent years the European Commission has funded many research and development projects collectively aiming to improve the competitiveness of the European business in the field. Today South-East European countries still have many opportunities to increase their competitive capability in LSCM through technological innovation and more sustainable operations.

Available technology solutions

Many problems in relation to supply chain management generally are due to uncertainty. The research team, which conducted the aforementioned study, suggests that intelligent agent-based knowledge management systems used in conjunction with advanced technology are among the most appropriate solutions to this challenge. Analysts note that not every enterprise could afford an ERP system – both a decade ago and now, although the prices of these platforms have been gradually falling in recent years. A mid-range ERP system implementation still is a way more affordable solution for many smaller-scale companies. “Price ranges show that medium and large enterprises are the likely users of large scale ERP systems, whilst smaller enterprises could only afford the midrange ERP systems. However, its predecessors, MRP and manufacturing resource planning (MRPII), are still very popular, particularly amongst the manufacturing small and medium-sized enterprises”, the report concludes.

Electronic data interchange (EDI) is another popular technology for transferring information between suppliers and customers in supply chains. Barcoding is still among the leading resources for part and product tracing. These proven technologies are not as expensive as RFID, considering their robust implementations at levels of the supply chain. However, the cost of RFID tags is decreasing rapidly, which constantly broadens their applications.
The comprehensive analysis of the survey results reveals important issues related to LSCM through information systems, namely: the need for improving strategic planning, forward versus backward supply chain relations, the overall satisfaction of information systems currently in use, and specific policy recommendations.

“Almost half of the companies in the sample (48%) believe that they need to improve their strategic planning concerning LSCM. Only one fourth of these companies seem to be satisfied with their strategic planning (27%) while 15% claim that they have just started to implement some sort of strategic planning for LSCM. An interesting finding is the fact that 10% stated that they find strategic planning not appropriate. This study also found that the majority of companies (52%) do not have a clear logistics plan, and 55 of them (70%), do not have a separate logistics department”, the research says.

This leads to another significant conclusion, although there isn’t enough reason for generalization. The majority of the interviewed enterprises are trading and manufacturing companies, where LSCM activities are of key importance. In this regard, the study shows that a decade ago many of the South-East European enterprises engaged in the field of logistics and supply chain managed were experiencing difficulties to strategically plan and organize their operations. In the spirit of the fierce global competition that they were about to face, this shortcoming could prove fatal, analysts point out.

The study in question proves to be of utter relevance to the current status of LSCM in South-East Europe as it constitutes a conditional time and technical starting point of a relatively dynamic process of modernization in the sector, which leads to a much more mature stage of technological provision through means of information and automation platforms. The research summarizes the most popular solutions currently used and intended to be implemented in the future. Among them WMS, MRP and barcoding are leading while RFID is considered to be still in its infancy in the region, which insensibly is about to change in the following years. Concerning future implementation, CRM proves to be the most desired IT solution, followed by e-Commerce and e-Business applications, the paper also infers.

“Almost half of the companies stated that they seek to improve their relations with customers. It is no surprise that one of the most appropriate IT solutions which enables forward relations, namely CRM, is at the top of the list. In the same direction, the popularity of e-Commerce and e-Business applications for future implementation suggests that the strategic direction in the region is shifting from production to market oriented”, another im portant conclusion states.

Companies were asked to evaluate current policies in their South-East European countries with regard to LSCM as well. “As a whole, companies in the sample are only somewhat satisfied with their governments’ policies on LSCM. Within the sample, Romanian companies are the most satisfied ones while companies from FYROM (now North Macedonia) are the least satisfied from all others”, says the report.

In summary, according to market experts, South-East Europe has the potential of becoming a major node in global supply chain networks, since its geographical position allows it to be the natural bridge between the advanced Western Europe and the emerging markets of the East. Today we are already witnessing the early results of this significant trend.

A green logistics strategy for South-East Europe

Another fundamental trend in the development of the South-East European LSCM sector in the past years is the so called green logistics strategy. Green logistics management practices have been gradually implemented in the field, demonstrating the favorable influence of sustainable policies on the environment, society, and economy. Intermodality has emerged as the main platform for green logistics development in Europe, particularly in South-East Europe, as a result of recent EU initiatives in the field. A macro green logistics strategy for the region includes the development of intermodal infrastructure, the use of intermodality as a whole, and the reassessment of the transportation sector’s environmental impact.

According to another relevant research – “Green logistics strategy for South-East Europe: to improve intermodality and establish green transport corridors”, conducted by Intereuropa – Global Logistics Service and the University of Ljubljana, regions like South-East Europe sooner or later will be forced to develop green consciousness and regularly use green technology. In addition, the initiative for green transport corridors has been strongly pushed by the EU. Of course, it’s important to be noted that the transport and logistics sector in Northern and Southern European regions are completely different, using different infrastructure and degree of automation, and with completely different management philosophies, the report also points out.

It outlines some of the major problems in this recourse in relation to infrastructural underdevelopment, stating for example that the only operating railway stations in the region that can accommodate containers and other intermodal units are situated in capital cities such as Ljubljana, Zagreb, Sarajevo, Belgrade, Sofia, Bucharest, etc. The researchers suggest that these terminals and other key infrastructural units need modern handling technologies, higher degree of automation and static and dynamic capacities which can secure optimal handling processes.

In the report “Challenges of green logistics in South-East Europe” another group of sector experts propones five main fields of development, on which the logistics sector of South-East Europe should be focused in the future. Those are: efficient transportation and modal shift, network optimization, transport units and packaging materials, greener facilities and operations, and recycling operations.

“All companies in South-East Europe will be forced to incorporate green logistics concept eventually. It is important that enterprises overtake national or international regulations; they must introduce ecological considerations in every step of their business processes. Of course, they must remain lean, and lean thinking must be used in the development of green logistics as well”, the report concludes.