Enhancing the efficiency of internal coordination at interlog company

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Tran Bao Ngoc ENHANCING THE EFFICIENCY OF INTERNAL COORDINATION AT INTERLOG COMPANY ID: 22130047 MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: NGUYEN THI MAI TRANG Ho Chi Minh City – April 20th , 2016 ACKNOWLEDGEMENT Foremost, I would like to express my sincere to my supervisor Mrs Nguyen Thi Mai Trang for the support of my thesis, for her insightful comments and immense knowledge Her guidance deeply helped me during the time of collecting information and writing of this thesis My thought process was enriched from conversations and illustrations of Mrs Mai Trang especially problems identification The attention of Mrs Mai Trang to the details and specific theories as well as evidences in my thesis is valuable I am deeply grateful for the time and energy that she invested in my thesis Likewise, I would like to thank International Logistics Company’s management team and colleagues who generously provided me much related documentations and precise information concerned the background and current problems Especially, I am thankful to Human Resource department, Accounting department for the annual data reports Besides, my deep gratitude is extended to each of people in several departments of International Logistics Company as Mr Nguyen Duy Minh, Mrs Dang Nguyen Thao Linh, Ms Nguyen Thi Hoang Linh, Mr Ho Phuoc Loc and Mrs Vo Van Cat Duyen for supporting in-depth interview as well as rich friendship Finally, I would like to thank all members of my family and my close friends who continuously supported me during difficult period of time when doing this research TABLE OF CONTENTS Page ACKNOWLEDGEMENT LIST OF TABLES LIST OF FIGURES EXECUTIVE SUMMARY I INTRODUCTION 1.1 Logistics industry overview 1.2 Company background 10 1.3 Company structure 12 II PROBLEM IDENTIFICATION 15 2.1 The problem symptom 15 2.2 The inefficiency of internal coordination at Interlog Company 24 2.3 The low satisfaction of salary and wages at Interlog Company 30 2.4 The limited evaluation and promotion system at Interlog Company 33 2.5 Causes and effect diagram 35 2.6 The real core problem 37 III TENTATIVE SOLUTIONS 39 3.1 The first alternative of enhancing communication and 40 internal sharing knowledge 3.2 The second alternative of standard working process 44 IV IMPLEMENTATION 47 V CONCLUSION 48 VI SUPPORTING INFORMATION 49 6.1 Research methodology 49 6.2 Report transcript 51 6.3 Interview transcript 53 REFERENCES 64 LIST OF TABLES Tables Page Types of transportation Historical development of growth stage of logistics The turnover rate of each department 16 List of literature reviews 20 Vietnam Logistics Average Salary 32 Salary scale according functional position 34 LIST OF FIGURES Figures Page Types of logistics Percentage changes of LPI score from 2007 – 2014 Organizational Chart in 2015 13 Ranking of Positive responses to each dimension 17 [Relation with other Department] dimension 18 [Wages] dimension 18 [Evaluation, Promotion] dimension 19 Fishbone diagram of the inefficiency internal 36 coordination in Interlog EXECUTIVE SUMMARY Currently, Logistics industry is one of the key development plans of Vietnam economy, especially in the world economic integration According to Vietnam Logistics Association (VLA), there are more than 1200 enterprises in the logistics sector which mostly small and medium company Meanwhile, there are only 25 multinational logistics companies but they occupy 70% to 80% Vietnam logistics market share Along with efforts to participate in the important economic agreements such as ASEAN Economic Community (AEC), EU – Vietnam Free Trade Agreement (EVFTA), Trans-Pacific Partnership (TPP), the Vietnam’s logistics industry in general and Vietnam Logistics enterprises in particular are growing constantly Following, import-export activities will be increasing in company with the growth of GDP Therefore, the landscape of Logistics sector in Vietnam is fronting with opportunities and challenges not only business but also human resource management International Logistics Joint Stock Company (Interlog) is a small and medium-sized enterprise (SME) of Vietnam Logistics industry Interlog was established in August 2005 with its head office located in Hochiminh City They have developed the branch offices in South and North of Vietnam as well as the cooperated partners in Hai Phong and Da Nang From the beginning of Interlog, they have built a powerful workforce of 30 to 100 full time employees and the number will be increasing in future However, Interlog has currently faced with the high turnover rate of employees from 19.5% out of total in 2013 to 26.88% out of total in 2014, especially a higher rate more than 50% of Sales Division This rate is particularly high compared with the average rate of the same industry Through collecting secondary data from the company as well as the Employee Satisfaction Survey (ESS) results, the author conducted in-depth interview technique to find out viewpoints of some people in different position at Interlog Company Following, there are some tentative problems include inefficiency of internal coordination, low salary and limited evaluation system that affect to employee satisfaction Overall, the core problem of Interlog Company was identified inefficient coordination The causes of this coordination were illustrated by communication, working relationship, knowledge sharing and working process In details, these causes influenced the ability of employees’ satisfaction to which performed the high turnover rate of employees through every year Moreover, the determination of existing problems will be based to offer the appropriate solutions in order to reduce the negative impacts on the internal coordination at Interlog Company I INTRODUCTION 1.1 Logistics industry overview In most industries, logistics is the part of the supply chain management that includes transportation, warehousing, forwarding and other value added services The term “logistics” refers to the process or activities of planning and managing the flow and storage of goods, services or information from the point of origin to the point of consumption in order to conform to customer requirements Further, logistics nowadays is a significant component of global trade Accordingly, logistics in business has the main function of control the movement of resources and supplies The business in logistics industry need to be sure that required items are in the right place at a right time In brief, the lower the logistics cost and the greater the quality of logistics services available, the higher the amount of word trade being conducted Regarding to World Bank (2004), logistics activities typically involve the following elements: - Infrastructure: ports, terminals, railway, roads; - Operations: warehousing, storage, local distribution, trucking, cabotage; - Services: freight forwarders and customs brokers Figure 1: Types of logistics Source: Decree No 140/2007/ND/CP issued by September 5, 2007 Among the types of logistics includes Forwarding, Transportation, Warehouse and Other value added services, Transportation is the most common one which occupies 40% to 60% of logistics cost Besides, Transportation can create many combinations of transport modes appropriately There are five common modes of transportation as follows: Table 1: Types of transportation Transport modes Description Limitation Airways / airplanes Airplanes are the fastest mode but very expensive Availability of appropriate airport facilities Roadways / trucks Trucks are relatively quick and a very flexible mode Subject to the fluctuation of fuel cost and road conditions Railway / rail Rail is a cost efficient mode but can be slow Availability of rail lines Shipping / vessels Ship is very cost efficient but the slowest mode of transport Availability of port and canals Pipelines Pipelines can be very efficient Restricted to liquid commodities and gases Source: VPBS collected Moreover, according to the historical economic development, logistics has grown from the simplest stage as first party logistics (1PL) to more complex and upper stages such as third party logistics (3PL) and fourth-party logistics (4PL) Currently, following the advancement of technology, infrastructure and human resource, the upper stages of logistics services especially 3PL are more applicable in developed countries as Vietnam In fact, the 3PL in Vietnam is developing quickly in terms of revenues and number of active firms The Vietnam Logistics Association stated that their 3PL members increased from members in the period of 1994 to 1997 to 275 members in 2014 Table 2: Historical development of growth stage of logistics First party logistics (1PL) Second party logistics (2PL) Third party logistics (3PL) Fourth party logistics (4PL) 1960s 1970 – 1980 1980 – 2000 >2000 Companies create complete logistics chains and systems connected with customer and supplier The integration of corporate activities and the development of supplying, production and distribution systems is actually being materialized Integrated logistics system is a very complex, system-related problem One of the requirements is the establishment of strategic alliances between companies, their customers, products suppliers and logistics providers Logistics were limited to distribution Problems relating to transaction with finished products and related physical distribution were dominant The problem of inventories was not important Corporate logistics were gradually extended to supplying (purchases, procurement) and to production management Source: Technical University Liberec In Vietnam, logistics are now becoming a major driving force in the development of national economic development In fact, Vietnam’s logistics cost nowadays occupies about 25% of GDP that it still much higher than peer countries Reality, logistics development in Vietnam still meets difficulties with limitations of logistics sectors include bulky and inconsistent government regulations easily enable payment to officials, separation of planning and implementing in transportation infrastructure without considering of supply and demand Further, the limitation also represent with fragmented trucking industry as well as imbalances in infrastructure provision In the other hand, Vietnam showed the consistent improvement over each year through economic growth According to the World Bank report of connecting to compete 2014, Vietnam ranked number 48 among 166 countries and number in the Association of Southeast Asian Nation with a Logistics Performance Index (LPI) score of 3.15 which following after Singapore (4.3), Malaysia (3.59) and Thailand (3.43) Figure 2: Percentage changes of LPI score from 2007 – 2014 Source: World Bank Moreover, the free trade agreements such as the Trans-Pacific Partnership (TPP) and Free trade agreement (FTA) of Vietnam – European Union (EU) was established at the end of 2015 that will boost Vietnam economy as well as international trading Especially, logistics will be one of the strongest growing sectors through these agreements Interviewee 2: My full name is Nguyen Thi Hoang Linh I have been with Interlog Company since 2010 and now I am a Sales Executive of Interconsol Department Interviewee 3: My full name is Ho Phuoc Loc I have worked at Interlog since 2005 and now I am a manager at Customs Department since 2011 Interviewee 4: My full name is Nguyen Duy Minh I have been the Managing Director of Interlog Company since 2005 Interviewee 5: My full name is Vo Van Cat Duyen I have been as Sales Executive of Sales Department from 2007 From 2012 until now, I have been a team leader of customer services group Interviewer: Could you please briefly describe the working process in your department particularly the connection with other departments? Interviewee 1: I have to take responsibility on several issues such as HR, Social Insurance, Internal Marketing, recruitment and training That’s quite a very heavy workload for the HR Department Additionally, the request for human of each department is mostly different and unstable meanwhile we not have enough labor force and resources to everything properly Interviewee 2: My department was established at the end of 2012 and the main responsibility is dealing business with other forwarding and logistics companies and foregin agents in China, Singapore etc This is the newest department in the company so that we have to learn and set up a lot of things based on the instructions and guidelines of forgein agents such as: pricing calculation, sea routes etc The main jobs strongly require good import and export knowledge; 55 and skills such as proficieny in English, negotiating and dealing with VIP customers etc Therefore, a new employee mostly takes around years in order to work proficiently in my department Interviewee 3: My department takes a responsibility in import and export procedures and custom declaration This is a very important task because if we make any mistake in paperwork, the goods of customers would get into trouble; and the company would receive a big loss in both reputation and finance Therefore, all of my subordinates have to regularly and carefully update the lastest decrees of government in order to in a right way Additionally, we have to provide the sufficient information to the Sales Department before making contract with customers whethere their goods can be done or not Interviewee 4: As the Managing Director, I am responsible for the entire operations of the company Interlog is a company operating in an extremely competitive and fierce Logistics sector In current, the Vietnam Logistics Company only accounts for a small market share in proportion of Logistics services in Vietnam Meanwhile, the major market share has been manipulated by the foreign multinational Logistics group Therefore, the difficulties of Logistics Company as Interlog are immediately great in the domestic, not to mention the international level In addition, our company has still faced with daily risks of technological backwardness, slowly changing knowledge and unstable human resources My mission is to concentrate on protecting the stability and profitability of the company through each fiscal year 56 Interviewee 5: I am responsible for serving customers, especially VIP customers Moreover, my department has worked with both domestics and foreign export customers Nowadays, the customers are fastidious with detailed and cautious requirements Correspondingly, each of sales staff has important tasks to find many of quality customers that make profit for the company We have faced a lot of pressure from the market and price competition of the opponent companies Interviewer: Currently, many small and medium-sized enterprises in several industries have to cope with the high turnover rate of employees Have Interlog Company faced this outcome and which department has the highest turnover rate? Interviewee 1: Working in the HR department, I know clearly about the employee retention situation at the company Within company, the sales division has existed the highest turnover rate with approximately 50% each year Interviewee 2: In my department, there were sales staff quit jobs every year In year 2014, three of my sales staffs left the job after receiving training Most of them had low commitments to the company Furthermore, they are lack of knowledge with this consolidation function that I have been hard to train and secure their acquirement Interviewee 4: Of course, it does occur in our company almost years from 2013 till now And the department that has the highest turnover rate is Sales Department which comprises four small divisions: Interconsol, Agents Development, Sales and Supply Chain Management Interviewer: In your opinion, what are the main reasons that cause this symptom and why? 57 Interview 1: Personally, I thought everything in life has come from both sides and this issue also can be seen through both objective and subjective aspects Objectively, logistics industry in Vietnam contains many challenges and difficulties but this is a very lucrative field therefore many logistics companies recruit many new employees almost every year in order to match the rapid development of the market At Interlog, there are many fresh graduated students annually with different education backgrounds applying into the company After spending two or three months of probation period in different positions of different departments at different locations, some people can wisely adapt the working enviroment and be able to work meanwhile some people may not be suitable and they leave due to many reasons Conversely, the experienced employees are easy to adapt the jobs but they mostly request quite high salaries and benefits so it is not easy to retain them in the long period of time Subjectively, the organizational struture is currently too bulky and the employees not have the power to make major decisions for their work because they need to get the approval from many relevant people In reality, the CEO is lacking of an effective assistant so that he most likely gets involved in too many small details in each department Furthermore, he has a strong belief in Feng Shui and Chinese zodiac signs, thus he does not completely trust any subordinates especially in recruitment process He wants to directly conduct the final job interview and then make a final decision rather than base on the recommendation of department managers and HR manager Sometimes, it causes the misleading of internal communication between the CEO and mid-level managers 58 Interviewee 2: Personally, some of salesmen have to leave the company due to lacking of skills and knowledge in this industry Additionally, the connection between each department is quite loose because the role allocation is not clear and the transfer of employees make them feel uncomfortable and inconsistent in work For instance, the shipment handling process is too limited due to lack of decision making power of staffs while most of decisions belongs to management board and a lower-level empowerment from the manager to their staffs I am really confused about the process of waiting for shipments handled through every department, especially when trouble needs to be solved The result is that employees will waste time to connect together and their productivity will be also decreasing Last but not least, the sales team does not feel comfortable because they have to share the sales commision due to the new policy of the company They think they are strongly depended on other divisions in dealing with customers Interviewee 3: I can list down some typical reasons such as: the first one is “over work and under pay”; thus someone would like to find other companies that offer better salary and benefits for them even though the working environment in that company is extremely harsh and not friendly at all This one most likely happened for those who not own a house in HCMC because they have to spend more money and therefore strongly pay attention to the base salary rather than those who own a house or live with their family in HCMC Furthermore, some employees might not be able to adapt with their direct managers or even CEO’s management styles so that it gradually creates the internal conflicts between each 59 other In reality, when the conflicts could not be solved properly, they left the company without any hesitation I noticed that this incident happened mostly for those who are talented and high working experience Interviewee 4: The most important reason is from human resource and the usage of human resource Most of employees are new graduated or lack of professional experiences In addition, the majority of Managers were developed from the senior staffs with long time working Therefore, they are lack of leadership skills in many functions I’m completely unsure about the reasonable usage of employees from the Managers As you know in theoretical leaderships, human being has individual strength and weakness In addition of training, we need to use employees effectively through properly work arrangement to be able to maximize their ability However, I not see it at Interlog as my expectation It is easily to understand that employees will tend to find a new interesting environment Interviewer: As an expericenced employee and also a mid-level manager at Interlog Company, what you think is the most crucial problem that causes employees to leave their jobs at a relatively high rate and why? Interviewee 1: Personally, I think the working process between different departments in an organzation is not transparent and consistent; and the management style of mid-level managers has not completely created the trust for the subordinates Hence, these factors have created the internal conflicts between each other and most of them choose to leave the company 60 Interviewee 2: The most crucial problem is shortcoming skills in management of managers In reality, there are only two people in this company who have Master of Business Administration (MBA) degree meanwhile the majority of staffs got the bachelor and diploma degrees Additionally, most of the mid-level managers did not have management background and before getting promotion, they were sent to learn a very short course about management Thus they may not be able to closely monitor and support their subordinates in the appropriate way One more thing, the connection between different departments particularly sales and custom deparments is quite loose due to ineffecitve internal communication among each other during the working process Last but not least, the CEO is also the chairman in this company so that the Board of Director cannot provide proper oversight on all of CEO activities, and that can easily lead to some inappropriate decisions from top managers due to the organizational structure like this Interviewee 3: To me, I think the base salary of the company is not attractive enough to retain the talented people particularly those who come from other provinces to work in HCMC In reality, it is quite difficult for them to deny an attractive offer from another firm because it is not easy at all for non-saigonese people to surive in a harsh environment as HCMC with a low income Moreover, Sales departments have the highest turnover rate due to their shortcoming knowledge I am really disappointed when most of sales staffs not care about their knowledge in this business How can they develop in this industry while they not update and improve their own learning? They entirely rely on our advisory answers with one issue and require 61 repeatedly the same cases This inhibition makes unpleasantness and inefficiency when taking time to explain many times with one thing Interview 4: Actually, the compensation demands of sales staffs are unlimited The highest turnover rate of sales staffs in my company comes from real scarcity of salesmen in the market Additionally, their greatest weakness is customer relationship, the low ability of closing sales and easily to be led to implement unfavorable requirements by customers Moreover, our communication is generally too weak It happened through communication skill and other work skills such as writing email, meeting skills and information sharing skills There were a lot of problems occurred due to unclear information and objectives Each department just aims to its detailed objectives instead of a general vision As a result, the relationship between departments is too low Not to mention, I am really unpleasant when having poor coordination between departments in my company In current, Interlog has spent a lot of time at the general monthly meeting with participation of all Managers I identify inefficiencies of meeting as each department by focusing on their problems and ignore my general direction Especially, Sales Department and Customs Department usually argue each other at the meetings when having troubles of shipments They seem to fight for their own objectives instead of focus on solving troubles and company goals It made me being furious a lot at the meeting Interviewer: If you can something to improve this incident, what would you want to right away? 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Relationship Empowerment Internal Coordination Figure Fishbone diagram of the inefficiency of internal coordination in Interlog 36 2.6 The real core problem Through the secondary data of Interlog