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Examining Determinants of Absenteeism among Blue Collar Employees in Petroleum Sector of Pakistan
Draft
Examining Determinants of Absenteeism among Blue Collar Employees in Petroleum Sector of Pakistan
Zeeshan Noor Siddiqui
Iqra University, Karachi
zns.phd.imsciences@gmail.com
Kamran Noor Siddiqui
Applied Economics Research Centre, Karachi
kn_siddiqui@yahoo.com
Aisha Noor Siddiqui
Meezan Bank Ltd
aishanoor_siddiqui@hotmail.com
Citation:
Siddiqui, Z. N., Siddiqui, K. N., and Siddiqui, A. N., (2015). Examining Determinants of Absenteeism among Blue Collar Employees in Petroleum Sector of Pakistan. Journal of Business and Tourism, Vol. 1 (2), pp. 61-74.
Examining Determinants of Absenteeism among Blue Collar Employees in Petroleum Sector of Pakistan
Zeeshan Noor Siddiqui
Iqra University, Karachi
zns.phd.imsciences@gmail.com
Kamran Noor Siddiqui
Applied Economics Research Centre, Karachi
kn_siddiqui@yahoo.com
Aisha Noor Siddiqui
Meezan Bank Ltd
aishanoor_siddiqui@hotmail.com
Abstract
The study focuses on the relationship between job satisfaction, job performance, and social / family compulsion and absenteeism in blue collar employees working in petroleum sector of Pakistan. 150 blue collar employees from refineries and oil marketing companies were included in the survey and responded the questionnaire, encompassing all variables. Results prove hypothesis 1 whereas, hypothesis 2 could not be proven. Results will help Pakistani organization to reduce absence rate in their blue collar employees by understanding the social and family compulsions.
Keywords: Job satisfaction, job performance, social / family compulsion, and absenteeism.
1. Introduction
Absenteeism is a routine issue confronted by managers on daily basis. Causes of absenteeism are usually an area of interest to the supervisors and managers. There are many causes of absenteeism, each distinctive in nature and effect. Most of the research on absenteeism has been carried in the West and United States, effects envisaged by these researchers are to be reviewed in geographical, demographic and social context of Pakistan. An endeavor is made to explore reasons and causes of this counter-productive attitude in corporate sector in particular. HR scholars have focused the issue of absenteeism with varied perspectives keeping the management concerns in view, to suggest the workable solutions to improve productivity and cost cutting initiatives through controlling and managing this tendency to the level where its effects are negligible. There are different perspectives explored and researched by past and present scholars and practitioners on the core issue of absenteeism.
Frick & Malo (2008) found no effect of job protection on absence rate. Wolpin, Burke, Krausz & Freinbach (1979) defined that correlation of absenteeism and lateness prove that both may not be considered under same behaviors. Fins, Travaglione & Neill (2006) have explained absenteeism in rapid organizational changes and suggested that entitlement mentality employees resort to increase in certified leave just before their final departure whereas those who intend to leave an organization, had a high absenteeism record in the past.
A significant negative relation between individual attitude towards job and intend of absence is explained by Remsey, Punnett & Greenidge (2008). Sanders & Nauta (2004) found negative relation in short term absenteeism and work ethics of employees and informal relationship with in a team. Sander & Hoekstra (1991) defined that closer the relation with in a group / department, the lesser the absence rate will be. Social variables are found to be strongly related to attitudinal measures and job performance by Steel, Shane & Kennedy (1990).
Absenteeism and punctuality are highly correlated with overall job performance (Roszkowski, Garrow, Spreat, Delavey & Davis, 2005). Engstrom & Holmlund (2007) analyzed the effects of higher sick pay on sick absence and found it to be positively related to each other. Ones, Viswesvaran & Schmid (2003) emphasized identifying absenteeism traits in a personality as part of selection strategy to cut down post-employment absenteeism. As relates to the self-reporting in absenteeism and lateness, Koslowsky & Berkovits (2001) suggested that absence is a relatively stable behavior whereas, lateness is a function of personal indicators. In this paper, relation of job performance, job satisfaction and family / social compulsions are studied as causes of absenteeism in blue collar employees in corporate sector of Pakistan with a focus on refining industry and oil marketing companies.
2. Literature Review
2.1 Absenteeism
Absenteeism is traced back into school days with future prediction on future employee (Lounsburg, Steel, Loveland & Gibson, 2004). Sickness is a cause of absence (Gafafer, 1948) and Pocock (1975) defines ‘Blue Monday’ where inception of absence period is observed higher on ‘Monday’. Popp & Belohlow (1982) discussed that ‘frequency of absence’ can better be predicted than ‘total days lost’. Lambert (2001) highlights absenteeism in correctional organizations which, he found, has more effect than commercial organizations whereas, Allen (1983) explained effects of absenteeism relatively small on both industrial production and employee wages. Application of Monte Carlo analysis shows longer absence in large organizations (Winkelmann, 1996). Perceived unfairness has contribution to explain an employee’s absence in future (Deboer, Ballker, Syrott & Schanfeli, 2002). Absenteeism, prediction of absence, long and short term absence speculation of temporal limits constraining employee absence prediction is somehow possible (Steel & Rentseh, 1995). As regard to long term absence rate, it is not found under the influence of informal network as the short term absence rate. Moreover, rate of mid-term and long term employee absence is considered to be less dependent on social environment of their respective department when analyzed with short term absence (Sanders & Hoekstra, 1998). Sick absence of day and shift employees of refinery differs considerably. Shift employees are recorded to have lower sickness rate than their counterparts in day (where annual average leaves 11 days for shift and 18 days for day worker). Three main groups are defined as frequency absence, long absence and no absence, major difference in groups is about attitude towards them and works (Taylor, 1968). Frequency of absence is more reliable than total day absence as measures absenteeism because past absenteeism helps predict future absenteeism of an employee (Ivaneevich, 1985). Brooke (1986) proposed causal model of absenteeism as modified form of Steers and Rhodes process model of employee attendance and found to have problem in operationalizing.
Absenteeism can be reduced if higher wage is offered. Work of Roza (1975) concluded that wage elasticity of demand is equal to or lesser than the wage elasticity of supply. A later endeavor found that efficiency wage is a useful, voluntary measure to control absence and check shirkers (employees who tend to absent by unacceptable sickness). Firms, operating assembly lines, have higher cost of absenteeism thus tend to pay their employees more than sick pay to arrest absence tendency (Bariuby, Sessions & Treble, 1994). Dougtas (1919) identified various causes of absenteeism and then recommended a few controlling measures like imposing fine for tardiness and not showing on work, may be equivalent to the time lost or even more than that to arrest this tendency. He advocates distraction between justifiable and unjustifiable lost. Gardiner (1992) in order to have control over abuse of sick leave, has suggested like a few initiatives are suggested. Inappropriate utilization balance sick leave by the employees can be identified by evaluation of the supervisors. Gauine & Sack (2001) proposed that feedback will not affect where absence is institutionalized as a remedial measure to manage physical and mental stress. Intervention by supervisions can help decrease tendency of absenteeism with above average and considered low at cost and the saving. A corporate initiative to control absenteeism suggest that profit sharing reduces absence by 7%, share ownership by 14% but profits and ownership sharing plan reduces it to 11% only. Further it testifies that negative relation exists between absences and wages (Brown, Frakhfakh & Sessious, 1999). Stowell (1931) suggest that medical examination before engagement and on re-joining after illness help identifying minor defects for which remedial measures can be suggests to avoid serious illness to employees and wasteful working hours to employer. A study of local government recorded loss of 8.7 days for each employee at an average, roots of which are found in managerial and organizational practices, hierarchy and autonomy (Bennett, 2002). Manager must be a role model for subordinate and co-workers, much can be done to reduce occurrence of employee deviant behavior (Everton, Jolton, & Mastranfolo, 2005). Another measure in absenteeism feedback interventions (AFI) which is found successful and useful in reducing both ‘absent frequency’ and ‘total absence period” as high as above average but not in case where extreme absenteeism is found. AFI enhances the motivation to attend but fails to account for ability to attend the work.
It is suggested that in order to save, an organization has to spend for devising methods to control and check absenteeism just like any break down in plant equipment is corrected by paying a cost (Navarro & Bass, 2006). Poor organizational commitment and absenteeism have no significant relation (Gaurts, Schaufoli & Rutte, 1999). Higher the position in management, the lesser the rate of absenteeism (Rosenblatt & Shirom, 2006). Ehrenberg (1970) concluded that above zero absenteeism, stochastic nature of absenteeism is not always and every time found responsible for increasing the over time for each individual employee. Noisy work environment increases absenteeism and wages have no clear effect on absence showing more factors therein. An inverse relation exists between distance from work place and regularity of an employee to show on work (Knox, 1961).
2.2 Job satisfaction
Goldberg and Waldman (2000) found no relation between job satisfaction and absenteeism whereas, Lau, Tang and Ho (2003) suggest that lesser the level of employee satisfaction (where his / her job), more the chances to get into counter-productive behavior (CPB) like absence, breakdown in work place and low productivity. When job boredom was analyzed by Vass, Vodanovich and Callender (2001), a significant relation was observed with job satisfaction, tenure and high absenteeism. Tharenon (1993) established a reciprocal relation in job satisfaction and absenteeism in line with Sagie (1998) who highlighted the possibility of more attendance by employees with high level of job satisfaction. Dagfinn (1962) extracted that high absence is expected as a result of low satisfaction with immediate working conditions even though highly satisfied with organization. Meta-analysis by Scott & Taylor (1985) bring out negative relationship in absenteeism (absence frequency) and job satisfaction. Watson.J, Driver & Watson.D (1985) raise questions on research methodology in statistical conclusion and validity
H1: There is a negative relation between job satisfaction and absenteeism.
2.3 Job Performance
Job performance and attitude / behavior have been explored in multifarious dimensions. Sagie (1998) defines indirect indices of absences behavior (frequency and time lost) are weakly correlated to job attitude. Perceived job scope as significant relation to absenteeism (Mowday & Spencer, 1981) and job content perception and absenteeism have direct relation (Hirsehfeld, Schmilt & Bedein, 2002). Benson and Pond (1987) suggest mangers and researchers to translate absence as withdrawal behavior but Fourt, Rlicker, & Levy (2005) expressed that job attitude are different from lateness / absenteeism attitude. Contrary to Keller (1987) who concludes low performance and high absence rate are most appropriate predictors of turnover behavior and Sheriean (1985) found absence as a measure of current withdrawal behavior. Crep & Micheleva (1984) examined a consistent relationship in streaming absenteeism and dropping out. Driver & Watson (1989) observed involuntary absence construct in related to organizational personal and attitudinal (OPA) variables whereas, Blue & Boal (1987) defines corporate citizen, Lone Wolves and institutionalized stars with reference ‘USE IT OR LOOSE IT’ policy. Melbin (1961) explained more the score of change (reassignment). Absence, more the chance of employee turnover is expected. Halpern, Shikiar, Rentz & Khan (2001) analyzed the positive effects on efficiency, quality and amount of work in case of ex-smokers.
H2: There is a negative correlation between job performance and absenteeism.
2.4 Social and Family Compulsions
Interesting results are found in the study of absenteeism and lateness in the context of social and family compulsions and related factors. Jansen & Meintosh (2002) verified day absence for both male and female is correlated with age, educational attainment and sectors i.e. industry but contrary to this Dunn & Youngblood (1986) found significant influence of gender on absenteeism. Work done by Barmby, Orme & Treble (1991) conclude that gender and marital status usually determine the duration of absence. As related to children, Erikson, Nichols & Ritter (2000) examined that highest reported absenteeism and lateness is experienced in case of employees having children less than six years and Bardsley & Rhodes (1996) define that absence of employee with presence of elementary school going children was found related to involuntary lateness whereas, presence of pre-school children was not. Similarly study of family-to-work conflicts by Hammer, Badler & Grandey (2003) reveals that wife has negative relation with husband’s absence in case of dual-earner families. Society seems to have a vital role in absence / lateness of employees. A potent influence of social system organization was found by Steel, Shane & Kennedy (1990) on absenteeism but John (2003) determines social influences as non-responsible for notable differences in absence rate. Hendrix, Spencer & Gibsin (1994) stress upon the fact that absenteeism has to direct effect on job and life stress but an indirect effect exist, moreover employee believe that his / her absence / lateness to work place rates behaviors perceived strength of social expectations from them (Harrison & Price 2003).
Literature has elaborated in detail about group and absenteeism phenomenon in an organizational perspective and working conditions. There is no relation between group size and their absenteeism rate however, size and absenteeism can be related when within group perspective is applied (Mark ham & Alutto, 1982). Mason & Griffin (2003) elaborate that increased positive affective tone (more energetic and enthusiastic) shows a decrease in absence and a decrease in affective tone results into increase in absenteeism. An employee behavior in an organization has deep roots into his relations with referent peers. Thus forcing us to analyze social comparison beyond the formal organizational structure (Bamberfer & Bison, 2007). Blau (1995) emphasizes that there are three key referents (reference groups) affecting lateness: (1) the group, (2) the internal, and (3) the external (family and friends).
3. Theoretical Framework
Geographical relation of selected variables is explained in theoretical framework which is extracted from literature review. It is expression of relationship of selected variables. Absenteeism is considered to be a dependent variable whereas, three independent variables: (1) job satisfaction, (2) job performance, and (3) social and family compulsion. It will help us to understand the dynamics of these variables and testing of hypothesis to enhance and improve our understanding of the subject.
4. Research Methodology
Research objectives and research questions shape up the research methodology. Ary, Jacobs and Razavieh (2002), explained research approach into two broader categories: (1) the qualitative (to understand the social phenomenon from human perspective), and (2) the quantitative (makes use of objective measurements as well as statistical analysis of selected primary or secondary data) to understand a phenomenon. A mix of both the approaches is called hybrid or mixed approach. The research questions posed in this study are such that merit following quantitative methodology.
4.1 Instrument Used
The data was collected using ‘questionnaire’ that contains 36 items. Five point Likert scale is used with 1 representing ‘strongly disagreed’ and 5 representing ‘strongly agreed’. Survey questionnaires are distributed to the respondents and explained with the purpose of study.
4.2 Sample
Population for this study includes blue collar employees (subordinates and supervisors) from petroleum industry of Pakistan including refineries and OMCs (oil marketing companies). The data was collected from 150 respondents for the study, by using random sampling. A total of 200 questionnaires were distributed and 150 were received back, making response rate 75%. The sample characteristic described in the table below.
Gender
Male Frequency % age
150 100
Female Nil Nil
Age 18-20 10 7
21-30 29 18
31-40 67 45
41-50 30 20
51-Above 14 10
Marital Status Married 127 85
Single 18 12
Widow Nil 0
Divorced Nil 0
Engaged 3 3
Experience (years) 1-5 22 15
6-10 48 32
11-15 38 25
16-20 25 17
20-Above 17 11
Monthly Income
(Rs) 1 – 5,000 16 11
6,000 – 10,000 36 24
11,000 – 15,000 41 27
16,000 – 20,000 34 23
21,000 – Above 23 15
Education Under Matric 21 14
Matriculation 58 39
Intermediate 54 36
Graduation 15 10
Above Nil Nil
5. Results
Results obtained from the survey are noted below in sub section 5.1 and 5.2 whereas, detailed discussion on the result in para 6 below.
5.1 Correlation Matrix
ABSENTEEISM
JOB SATISFACTION
JOB PERFORMANCE
ABSENTEEISM
1
-.153
-.237**
JOB SATISFACTION
-.153
1
-.046
JOB PERFORMANCE
-.237**
-.046
1
** Correlation is significant at the 0.01 level (2- tailed)
5.2 Regression Matrix
BETA
t
Sig.
JOB SATISFACTION
-.164
-2.077
.040
JOB PERFORMANCE
-.245
-3.099
.0021
Dependent Variable: Absenteeism
R square = .083 F = 6.678 Sig. = .002 N = 150
6. Discussion
Above correlation and regression matrix indicates a negative relation between job satisfaction and absenteeism whereas, a strong negative relationship exists between job performance and absenteeism. Job satisfaction and job performance both are related to absenteeism however, job satisfaction is less related to absenteeism when compared with job performance.
Results conform the hypothesis 1 that negative relation exists between job satisfaction and absenteeism. Our results are in line with the research outcomes of Lau, et al., (2003) who suggest negative relation, Scott & Taylor (1985) who explained a negative relationship in absence frequency and job satisfaction. However, our result is not in accordance with the results of Kass, et al., (2001) who found a significant relationship in job satisfaction and absenteeism, Goldberg & Waldman (2000) who explained no relation in job satisfaction and absenteeism, Dagfinn (1962) who found high absence as a result of low satisfaction with immediate working conditions though highly satisfied with organization.
Our results indicate negative relationship in geographical context and existing social environment of Pakistan. A highly satisfied employee is expected to be very low in absence but social factors like strong family relationship not only to immediate relatives but also to the farther relatives may force him / her to absent. On the other hand such compulsion are both expected and accepted by the management in this geographical context being common to all. As regards to ‘no relation’ between job satisfaction and absenteeism, socio-economic factors are in place where switching jobs is not convenient due to lack of jobs and specially in sectors where specialization is more dominating, like in our case petroleum sector, that limits the options of employees thereby, a satisfied employee has no reason not to show up at work without sufficient cause being under heavy burden of not only immediate family i.e. wife and children or parents but also father family likes uncles, aunts and grandparents, etc. Though immediate working conditions are more related to absence than job satisfaction itself in other parts of the world but in underdeveloped world, seems to have more related to absence than immediate working conditions, may be due to economic conditions, socially related society and lack of health safety environment (HSE) practices.
Result proves strong negative correlation of job performance and absenteeism which replicate the results of Nowday & Spencer (1981) who conclude direct relation in job performance, perception and absenteeism, Keller (1984) who explained low performance and high absence as most appropriate predictors of turnover behavior. However, results are not as per the findings of other researchers like; Sagie (1998) who defines weak correlation in job performance and absence, Melbin (1961) who pronounced re-assignment as cause of absence being lesser in performance.
Probable causes of variation can be traced in geographical context as well as industrial base in Pakistan and specific skills to a certain industry. As regards to weak relation between job performance and absence, it can be explained that in our geographical context it is different from West and United States, may be due to lack of jobs in the job market an employee with good performance tends to show up more regularly at workplace to avoid being fired on more absence or absence due to insufficient reason. Moreover, those who get into a job and are performing well are more enthusiastic to be regular at work.
As regard to the relation of re-assignment and absence, it may not be the case here in this part of the world due more importance of being on job than being re-assigned for a number of reasons like: (1) economic situation, (2) social responsibilities, and (3) shrinking job market, however, if these reasons are not accounted, the result would have been same here in this part of the world.
Another element here is the size of industry and specialization. Mainly our study is related to petroleum sector (refineries and OMCs) that demands highly skilled and technical workforce. Highly skilled workers have limited choice due to two reasons: (1) high salary level, and (2) limited size of the industry.
Regression Matrix highlights the individual and combined impact of independent variables i.e. job satisfaction and job performance on dependent variable i.e. absenteeism. Job satisfaction has significant impact on absenteeism whereas, job performance also has significant impact on absenteeism but impact of job performance has more significance in our case as compare to job satisfaction. Value of R-square notifies the combine impact of independent variable which is job satisfaction and job performance, on the dependent variable that is absenteeism. Our regression analysis show the value of R-Square is 0.083 which is very low then the desired value (0.50). Probable cause of lesser value can be the number of variables affecting absenteeism are more whereas, variable considered in this study are very less. Other variables are work environment, attitude of management, relationship with supervisor and co-workers, pay and allowances, immediate job conditions, work complexity, distance form workplace, and social compulsion, etc.
7. Conclusion
Absenteeism and lateness are among the problems confronted by the managers and supervisors on day to day basis and need to be viewed in more details to help managerial issues. The study is conducted in Pakistani context that focuses on petroleum sector of Pakistan and highlights slight variations from the other studies. Thereby meaning that the studies carried out in the West and the United States can not be applicable in Pakistani context without testing their validation in the local context due to our culture, family system, well knitted society, and acceptance of certain deviations as relaxation. Future research may concentrate on the effects of different variables on absenteeism in geographical, demographical and social context of Pakistan to validate the applicability of the research.
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Wolpin, J. Burke, R.J. Krausz, M. & Freibach, N. (2003). “Lateness and absenteeism: An examination of the
progression hypothesis”.
SURVEY ON CAUSES OF ABSENTEEISM WITH REFERENCE TO JOB SATISFACTION, JOB PERFORMANCE, AND SOCIAL COMPULSIONS
Dear Participants! We are highly thankful to you for giving time to fill in this questionnaire on “Absenteeism in Blue collar employees in Pakistan” (with special emphasis on Refinery sector of Pakistan). You are not required to write your name and department for your personal interest. Let us assure you that the information gathered for compilation of data will only be used in a research paper. Your nice gesture and kind cooperation is thanked in anticipation.
NO. DEMOGRAPHIC 1 2 3 4 5
1. Gender Male Female
2. Age 18-20 21-30 31-40 41-50 51-Above
3. Marital Status Married Single Widowed Divorced Engaged
4. Qualification Under Matric Matric Diploma Graduation Master
5. Domicile Punjab Sind NWFP Balochistan AK/FATA
6. Work Experience 1-5 6- 10 11-15 16-20 21-25
NO. JOB SATISFACTION -1-
Very High -2-High -3-Average -4-
Low
Average -5-
Below
Average
7. Sense of pride in my job.
8. Use of my skill in my work.
9. My input is important to organization.
10. Working condition on plant.
11. My job is enjoyable.
12. My supervisor is good.
13. Relation among co-workers.
14. Concern of organization for me and my family.
15. My pay.
16. Equal opportunity for promotion.
17. My living standard due to pay.
NO.
JOB PERFORMANCE & ATTITUDE -1- Strongly Agreed -2-Agreed -3-Undecided -4-Disagreed -5-
Strongly Disagreed
18. Selection procedure is fair.
19. My job is,
a. Satisfying
b. Challenging
c. Boring
d. Taxing (Hard)
e. Simple
f. Complex
20. Work load is equally distributed.
21. I try to perform assigned tasks conscientiously.
22. My loyalties are with organization.
23. I have stressful work.
24. Wrong sort of job (I am in).
No ABSENCE / LEAVE
25. I live a. In Refinery Colony b. Very Near to Refinery c. Near to Refinery d. Away e. Far Away
26. I come to work by a. Motor Car b. Motor cycle c. Cycle d. Bus e. Foot
27. I am a a. Shift worker b. Day worker c. Mixed d. Mostly Day e. Mostly Shift
28. Leave granted a. Equally b. Reference c. Relation to Supervisor d. My Performance e. Un equally
29. I got leave when needed a. Very Easily b. Easily c. Moderately d. Not Easily e. Not Very Easily
30. Salary deducted on Absence a. Double b. Full Day c. 1/2 Day d. 1/4 Day e. None
REASONS OF ABSENCE / LEAVE
-1-
Strongly
Agreed -2-
Agreed -3-
Undecided -4-Disagreed -5-Strongly Disagreed
31. Social Compulsion
a. Mostly to attend marriages.
b. Mostly due to death of Relatives.
c. Mostly due to sickness of children/family.
d. Mostly due to own sickness.
e. Mostly due to without reason.
32. I consumed Total _______________ days Leave in 2009, including ____________ days Leave with Approval and _________ days Leave without Approval of Competent Authority.
3PLSPs in Pakistan: An Exploratory Study on MRO, Term of Service, Fueling, and Fee Charging Strategies, Adopted by MNCs and Domestic Firms
Draft
3PLSPs in Pakistan: An Exploratory Study on MRO, Term of Service, Fueling, and Fee Charging Strategies, Adopted by MNCs and Domestic Firms
Zeeshan Noor Siddiqui
Iqra University, Karachi
zns.phd.imsciences@gmail.com
Kamran Noor Siddiqui
Applied Economics Research Centre, Karachi
kn_siddiqui@yahoo.com
Citation:
Siddiqui, Z. N., and Siddiqui, K. N., (2015). Examining Determinants of Absenteeism among Blue Collar Employees in Petroleum Sector of Pakistan. Journal of Business and Tourism, Vol. 1 (2), pp. 116-132.
3PLSPs in Pakistan: An Exploratory Study on MRO, Term of Service, Fueling, and Fee Charging Strategies, Adopted by MNCs and Domestic Firms
Zeeshan Noor Siddiqui
Iqra University, Karachi
zns.phd.imsciences@gmail.com
Kamran Noor Siddiqui
Applied Economics Research Centre, Karachi
kn_siddiqui@yahoo.com
Abstract
An exploratory study that endeavors to bring out new dimensions related to 3PLPS through phenomenological approach. The study qualitatively highlights ‘MRO’ (maintenance repair operation), and ‘term of service’ as contributing propositions towards ‘fee charging strategies’. During course of data collection and thematic analysis another proposition ‘fueling strategy’ is also highlighted. Data is collected through semi-structured interviews, conducted from four (4) 3PLSPs, Selected through ‘purposive sampling’ with an expert of the domain. Set of recommendations include ‘policy recommendation’ for the policy makers, and individual recommendations for all 3PLSPs working in Pakistan. Future research endeavors in the field of MRO, term of service, fueling, and fee charging strategies are also suggested. This study is a pioneering effort to explore and develop our understanding about these dimensions that directly or in-directly affect 3PLSPs.
Keywords: 3PLSPs, MRO, term of service, fueling, and fee charging strategies.
1.1 Introduction
Logistics has two major components: (1) warehousing, and (2) transportation management. Transportation is often managed through two ways; own fleet and third party logistics (hereafter; 3PL) providers. Management of own fleet has been advocated till late but due to complexity in its nature; like high recurring capital investment, maintenance technicalities, selection, training, development and retention of good drivers, higher turnover rate, fool proof and economic utilization of fuel, backhaul, lane imbalances, attaining economies of scale and absence of hard core skills, outsourcing is widely accepted and advocated by a considerable number of practitioners today.
Local potential is always threatened till arrival of regional or international players and then on, a process of lean operations / logistics begins which benefits the local companies on one pretext or the other. MNCs and local major corporations are usually served by international or regional service providers (hereafter; SPs) but medium and small sized local corporations are willing to outsource but their business volumes are either not attractive or least attractive to international SPs, resultantly market gap generates which is rightly filled by local SPs who have already improved their operational efficiencies by competing with their international counterparts. Pakistan is a true example of local potential growth through the entry of internationally recognized SPs; like Agility and DHL, who paved the way ahead for PTN, TCS and BSL etc.
A considerable work has been done in many related areas of 3PL and 3PLSPs, from hard core subjects like; appraisement and selection of 3PLSPs (Datta, Samantra, Mahapatra, Mondal and Majumdar, 2010), analytical modeling of third party service provider selection in lead logistics provider environments (Bhatti, Kumar and Kumar. D, 2010), value-added services (Soinio, Tanskanen and Finne, 2012), The effect of quality management on the service quality and business success of logistics service providers (Kersten and Koch, 2010), Role of Transport Flexibility in Logistics Provision (Naim, Potter, Mason and Bateman, 2006), collaborative logistics management and the role of 3PLSPs (Stefansson, 2006), Combining vertical and horizontal collaboration for transport optimization (Mason, Lalwani and Boughton, 2007), Successful management of a small logistics company (Gunasekaran and Ngai, 2003), to very related subjects like; the effects of transnational threats on the security of Persian Gulf maritime petroleum transportation (Modarress, Ansari and Thies, 2012), oil prices and transport sector returns (Nandha and Brooks, 2009), and loosely related subjects like; Taxing commercial motor fuel in the European Union – apportionment-based, destination-principle system (McLure, 2008).
Researchers have explored 3PL and the role of 3PLSPs as well as their country specific perspective for understanding of the subject; like, 3PL practices – an Indian perspective (Sahay and Mohan, 2006), 3PLSP scale for co-operative dairies in Indian context (Shah and Sharma, 2012), 3PLSPs in Spain (Carballosa and Tarres, 2011), and outsourcing logistics activities in Turkey (Aktas and Ulengin, 2005). There are other areas of research too, few of which are fee charging strategies and terms of service, are either unexplored or least researched, thus needs to be viewed for a better and comprehensive understanding of 3PL practices with a view to analyze multi-national 3PLSPs visa-viz local and regional players in general and Pakistan, in particular.
The objective of this study is to further refine our current understanding of 3PL and 3PLSPs, in general and in the context of Pakistan, in particular, by understanding and comparing the business practices, adopted by multi-national, regional and domestic SPs, with a view to probe into, MRO (maintenance, repair operation), terms of services and fee charging strategies, whereas, secondary concern is to develop an understanding on their fueling strategies, term of and uniqueness of business model. MRO, terms of services, and fee charging strategies are less explored areas of 3PL and 3PLSPs, if understanding on these related issues is improved, it can benefit practitioners; for better negotiations of contract, as well as researchers; for studying deeper and clearer perspective of both SPs as well as customers.
2. Literature Review
In the words of Scary (1999), “Logistics is the corporate traffic cop, directing the flow of material from the source through production and distribution to the final customer”. There are four (4) means of transportation, (1) road, (2) rail, (3) air, and (4) sea. However, another addition mean is of transportation is pipeline, through which (1) water, (2) gas, (3) crude oil, (4) refined oil, and other fluid can flow. Pakistan, at present, is using all of them. Another mean is sweet waters transportation; very common in a number of countries in the world but is not used in Pakistan. Transport management has a few distinct elements like: (1) fleet procurement and weeding out of old vintage vehicles, (2) maintenance repair operations (MRO), (3) driver recruitment, management and retention, (4) fleet management, (5) asset visibility, (6) marketing and customer services, (7) outsourcing of certain transportation activities, (8) fuel, (9) oil, and (10) spare parts management.
Figure 1
Conceptual Frame Work
Initially intended two independent variables (MRO and Term of Service) increased to three, with fuelling strategies, during data collection (interviews and discussions with practitioners and expert) and analysis.
2.1 Perspectives of and Collaboration among 3PLSPs and User Enterprises
Naim, Potter, Mason and Bateman (2006) developed a framework that rationalizes transport flexibility into different types. In this way the role of the flexibility types in delivering specific strategic logistics outcomes can be determined. There is little research that addresses the issue of transport flexibility from a logistics perspective. Whether some of the new collaborative models for transport management are delivering better optimized solutions, is investigated by Mason, Lalwani and Boughton (2007) by using multi-dimensional methodological approach (including empirical, model building, opinion and archival evidence) and a series of quasi-delphi discussion sessions with logistics industry experts from three sectors, steel, grocery and construction and experienced academics in the fields of logistics and supply chain management. Rollins, Pekkarinen and Mehta¨la¨ (2011) investigated inter-firm customer knowledge sharing between a buyer of a logistics service and the LSP. A survey study methodology was conducted on the data, collected from buyers of logistic services. Soinio, Tanskanen and Finne (2012) worked to combine the perspectives of LSPs and small and medium-sized enterprises (SME) in the development of value-added logistics services by using following design-science methodology and was carried out via semi-structured interviews within the case company (a large Finnish LSP), its customers, and experts from the area of logistics services.
2.2 Evaluation and Selection of 3PLSP
Datta, Samantra, Mahapatra, Mondal, and Majumdar (2010) worked to develop a decision-making procedural hierarchy for evaluation as well as selection of third-party reverse logistics provider (3PL) under fuzzy environment. Due to uncertainty, vagueness arising from decision-makers (DM) subjective judgment towards intangible (qualitative) selection criteria, fuzzy logic has been utilized to facilitate such a decision-making process for 3PL evaluation and selection. Bhatti, Kumar and Kumar. D (2010) made an endeavor to model the choice parameters for selection of 3PLSPs in global lead logistics provider (LLP) environments. Analytical hierarchy process (AHP) modeling has been carried out after questionnaire-based survey, results of which were moderated with inputs from experts from industry and academia. Determinants that affect the transportation outsourcing strategy of express delivery company in Taiwan were explored by Lee, Lin & Cheng (2013), by using case study methodology. Results proved that the situations; like, customer companies belonging to the high-tech industry, customers bringing higher freight revenue, customers having a better relationship with the company, and customers’ company having a bigger scale, result in higher outsourcing probability.
2.3 Transportation Cost and Oil Prices
McLure (2008) worked on taxing commercial motor fuel in the European Union – the case for an apportionment-based, destination-principle system. The empirical study analysis the issues like; destination-based taxation on motor fuels, economic distortion due to incentives and questionable tax base inherent in purchase-based taxation, loss of fiscal sovereignty, technology to determine distance travelled in member states and legal and political obstacles in adoption of apportionment-base system. Nandha and Brooks (2009) worked on oil prices and transport sector returns – an international analysis. A sample of 38 countries across the world has been taken for analysis, period ranges from Apr 1983 to Jun 2006 for various countries as per availability of related data sensitivity analysis has been used. Results show noticeable differences in the results of different regions and countries, suggested reasoning of which has been; regulatory and structural differences among various countries, yet confirms significant impact of oil prices over transport sector returns.
Modarress, Ansari and Thies (2012) analyzed the effects of transnational threats on the security of Persian Gulf maritime petroleum transportation. Results highlighted seven factors for epidemic increase (200%) in attacks by pirates in Somalian Coast, which include lack of military presence, massive increase in volume of maritime trade, constrained passages, flags of convenience, global poverty, human trafficking, and weapon smuggling. Impact of transportation costs in both, supplier selection and inventory management decisions in the enterprises was addressed simultaneously by developing a mixed integer nonlinear programming model to properly allocate order quantities to the selected set of suppliers while taking into account the purchasing, inventory, and transportation costs under suppliers’ capacity and quality constraints were analyzed by Mendoza & Ventura (2013). In particular, focused on the usage of trucks as a means of transporting goods and the option of the full-truck-load versus less-than-truckload (LTL) was studied. Actual LTL transportation costs are neither differentiable nor convex, so are modeled with a piecewise linear function using binary variables.
2.4 3PLSPs in Different Countries of the World
UK Public transport industry is considered to be one of the most competitive sectors with airlines, rail and bus, facing throat-cutting competition not only from direct rivals but from other modes of transportation and private transporters. The Response of customers to improvements in quality of service by bus operators is discussed and evaluated by Disney (1998). Work of Waters (1999) focuses on changes to road transport in Poland during a period of economic transition, from centrally planned to free market economy. Achieving continuing economic growth without appropriate infrastructure is out of question thus the existing infrastructure is struggling to meet new demands. Gunasekaran & Ngai (2003) develop a case study conducted on a small 3PL company in Hong Kong. This company is interesting in that it has been designated as the “king” of Hong Kong’s 3PL (in-bound) logistics companies. The company has been successful in its overall business performance and in satisfying customers. Aktas and Ulengin (2005) determine the current situation of outsourcing logistics activities in Turkey, a country which has a great potential for logistics activities among the surrounding continents because of its geographical location. Stefansson (2006) derives a verified collaborative framework that specifies the role of different parties in contemporary logistics setups. To prepare this paper, a study of the logistics literature has been conducted together with several case studies. A comprehensive survey on 3PL practices in India was carried out by Sahay and Mohan (2006) to establish the impact of usage of third party logistics services on business results. Study reveals that positive and significant impact on business performance though 3PL practices, in India, was found to be at a nascent stage and indicated a significant increase in outsourcing being planned across all activities of logistics in coming 2-5 years.
Sohail, Bhatnagar & Sohal (2006) undertake a comparative analysis on the use of 3PL services by manufacturing firms in Singapore and Malaysia by using questionnaire survey, conducted in Singapore and Malaysia in 1998 and 2000, respectively, addresses key issues relating to the extent of usage of 3PL services, specific contract logistics services used, benefits for the user firms, obstacles encountered in implementing contract logistics relationships, impact of the use of contract logistics services on logistics costs, customer satisfaction, and employees of the user firms and the future plans of current users of contract logistics services. Relationship between the choice of integrated or functional LPs by Brazilian shippers and the type of their manufacturing process structure, and sophistication level of their logistics function, as well as the impact on choice of possible interactions between these two characteristics of the shippers, were studied by Wanke, Arkader & Hijjar (2007), by collecting in a comprehensive survey on the use of 3PLSPs in Brazil, using a sample size of 93 large Brazilian shippers. Using China’s burgeoning logistics industry as a backdrop, Tian, Yat, Lai and Daniel (2008) focused on how to build trust between logistics users and 3PL providers, and the antecedents and consequences of trust. A questionnaire-based mail survey was conducted in mainland China. The conceptual model was tested using structural equation modeling.
Kersten and Koch (2010) analyzed empirically the causal relationships between quality management, service quality and business success in German logistics companies. The paper develops a measurement instrument of logistics service quality by combining conceptual approaches from service marketing with quality indicators from operations management. Juga, Juntunen and Grant (2010) investigated how perceived service quality influences both a shipper’s satisfaction and subsequent loyalty in 3PL outsourcing relationships. Critical service dimensions are identified and their impact on satisfaction and loyalty are developed into a theoretical model, which in turn is examined empirically using structural equation modelling from a survey of 235 industrial companies in Finland. The results support the satisfaction-loyalty model in a logistics outsourcing context confirming that service perceptions influence loyalty through a shipper’s overall satisfaction with the SP. Logistics outsourcing in Spain from the viewpoint of 3PL was analyzed by Carballosa and Tarres (2011). Case study methodology was used to study four 3PLSPs in Spain, chosen basing on market coverage and range of services offered. Main reasons to outsource logistics, were found to be: (1) kind of relationship built with SPs, and (2) involvement sought from providers in the management of supply chain.
3. Methodology
An appropriate ‘research approach’ and adoption of a ‘research method’ is of panicle importance for attainment of research objectives, set by any researcher. Ary, Jacobs and Razavieh (2002) explained research approach into two broader categories: (1) the qualitative, and (2) the quantitative. A mix of both the approaches is called hybrid or mixed approach. Haque et al. (2010), defined qualitative approach of research, “An inquiry process of understanding a social or human problem, based on building a complex, holistic picture, formed with words, reporting detailed views of informants, and conducted in a natural setting”. Qualitative studies are characterized by Yin (1994) as largely based on a researcher’s description of a phenomenon, emotions as well as his reactions thereof. Approach of research, being adopted is qualitative in nature to explore further into the subject and qualitatively highlight the activities taking place at the back end of 3PL and 3PLSPs, which actually affect their services and related fee structure. The purpose of this research is exploratory where certain areas on the subject are explored for further refining our knowledge base about the subject, “3PLSP in Pakistan – a study on fee charging strategies, and MRO”.
Phenomenology is the study of experiences from the perspective of an individual. In this study, initially intended two phenomenon (fee charging strategies, and MRO), and an incremental phenomenon (fuelling strategies), emerged during data collection (interviews, and discussions with practitioners and expert), are analyzed, being adopted by 3PLSPs of Pakistani origin as well as MNCs, to analyze existing practices to find out the best practices in the industry.
Saunders et al. (2006) concluded that purposive and judgmental sampling technique helps researcher to exploit his judgment to select cases that best enable a researcher to answer his research questions and help in attaining the objectives, being set. Purposive sampling has been followed to absorb the best practices, followed / resorted to by MNCs, regional and domestic, commercial and public sector 3PLSPs, thus at least one organization from each group has been selected to represent all segments in the results of the study. Interviews have long been in use by the researchers as a mean to obtain detailed information on a specific topic of interest or a subject to a researcher (Wilkinson, 2003). The data used for the analysis is primary in nature and obtained through interviews from senior management of 3PLSPs including MNCs, regional and domestic SPs. A combination of public and private sector SPs has been made to absorb both sectors’ perspective. Sample size is four SPs: (1) a MNC 3PLSP, (2) a local 3PLSP, (3) an ATT SP, (4) a public sector SP, and (5) an expert in 3PLSP. Data has been collected, for analysis, through open-ended-interviews from professional managers from selected 3PLSPs. Interviews are recorded in their own environments to get a more true and candid opinion on the subject. Recorded interviews were than reduced to writing and shown to the ‘respondents’ to avoid any typos and misinterpretations.
4. Data (Interview) Analysis
This chapter; data analysis, deals with the realistic findings of interviews, combined comparison of findings and thematic analysis of audio recorded open-ended interviews. Following codes have been used, for absorbing repeated used in succeeding paras, being more representative of their respective firms: (1) Resp-1 (domestic 3PLSP), (2) Resp-2 (domestic ATT 3PLSP), (3) Resp-3 (public sector 3PLSP – three executives), (4) Resp-4 (MNC 3PLSP), and (5) the expert.
4.1 Fee Charging Strategies
‘Fee charging strategies’, besides other factors, are also dependent on: (1) fleet induction decisions’ (purpose and type of organization, financing model and pay-back period), (2) fueling strategies, (3) MRO, and (4) term of contract. There are two major components of cost: (1) fixed cost (includes pay of driver, depreciation expense, and pay of administrative staff), and (2) variable cost (includes hi speed diesel price, MRO, and toll paid en-route).
Resp-3 has developed its costing formula, over the years and fee charging is totally contract deed (CD) based; usually per ton per KM is fee charging contracted formula.
[R-3] …our contracts are per ton per KM.
When a vehicle has rendered the services, thereby meaning delivers the loaded commodity to the desired destination, a document, ‘convoy note’ is being cleared by ‘the consignee’ and the same becomes the authority for charging the contracted fee from the ‘consigner’.
Resp-3 has organized contracting procedures, where rate are quoted and won. These rates are usually inclusive of all fuel increments, as rates are quoted after absorbing probable allowance for fuel fluctuation. However, in case of abnormal increase, when fluctuation can’t be absorbed beyond a certain limit a comprehensive case for revision of rates is taken up, to avoid the chances of default.
[R-3] …quotes rates after absorbing probable allowance for fuel fluctuation but it can absorb this fluctuation to a certain limit beyond which we takes up a case for revision of rates…
Fluctuation in ‘fuel prices’ is too incremental and can become commercially infeasible in case where more increase in the fuel prices is experienced. Absorption of such abnormal increase through rate revision initiatives is commercially a ‘bad practice’ and thus demands introducing new and out of the box fee charging strategies to cater for abnormalities in such an uncertain environments, that of Pakistan. Therefore it is needed to conclude the contracts with fixed Cost costing base with floating fuel component to absorb such fluctuations.
[R-3] …this method of fee charging (fixed cost (per ton per Kilometer) and variable cost (fuel charges of the day, vehicle actually used) is commercially balanced…
Resp-4 has different ‘fee charging strategies’ for different customers which includes: (1) trip based cost model, (2) turn round trip costing model, and (3) fixed and variable cost model.
[R-3] It’s different in nature for different customers: (1) trip based cost model usually one way journey for walk-in customers in liquid and dry cargo both, (2) turn round trip costing model (in crude transportation, turn round trip (filled; up country + Empty; down country), fixed (vehicle is allocated to a designated customers for the period of contract at a flat fee per month, as negotiated, even on ‘no running’ and variable (chargeable on per vehicle per Kilometers basis, in addition to the fixed cost) cost model.
Costing formula (variable cost) encompasses: (1) oil, (2) fuel, (3) driver, (4) general maintenance, (5) tyres, and (6) trip’s expenditure, etc. (less over heads that are part of fixed cost).
Total Cost = Fixed Cost + Variable Cost
Average variable cost per KM ranges between Rs. 33/- to 35/- approximately for typically 40 tons load carrier.
Resp-1’s project is a unique business model where medium and small sized trucks are provided alongwith drivers and fueling is the responsibility of the user and not the SP.
[R-1] Project regional offices (1, 2, 3, 4 and new connection) are responsible for fuelling of allocated fleet of firm. Fuel accounting is managed and controlled by project and firm has no concern with this accounting.
A Model of rent-a-car business at retail level has similar service offering but corporate clients are offered services on trip or millage basis because a turnkey solution is expected. Resp-1 has a unique offering and project is a unique customer, and since objective of any business is to satisfy customer needs, a unique customer is well served with a unique offering. Resp-1 has a clean business with fleet provision, maintenance, repair and recovery only.
[R-1] Firm is responsible for the fleet provided to project for: (1) availability of vehicle for required duration, on as, when and where basis, (2) provision of drivers to all allocated vehicles, (3) all fixed cost elements, (4) all variable costs including replacement of vehicles on expiry of useful life, and (5) accidents, etc.
[R-1] …we provide transportation turnkey solution to project in its complete area of responsibility which serves 18 million people in the economic and trade hub of Pakistan (Karachi).
Resp-2 has unprecedented ‘fee charging strategies’ that are somehow similar to their competitors in the industry but their explicit elaboration on this formula to the clients is unprecedented. Formula is:-
[R-2] We tell our clients clearly, what is to be paid to the transporters and what we charge for other services, thereby meaning our charging formula is known to client(s) i.e. Transportation Charges (as per market rate) + Turnkey Solution Charges
Opening of rates, in the market, on daily basis is another reason for this costing formula.
[R-2] No doubt, rate certainty is an important component of any service offering but not in this sector because daily rate opening is an industrial practice.
4.2 Fueling Strategy
Fuel is a major component of variable costing model, thus all 3PLSPs do all out efforts to be efficient and effective both, by doing the following: (1) fuelling is controlled by managers and not by the drivers, (2) KMPL of vehicles is always updated and reassessed, (3) filling stations are selected all over the routes and vehicles are fuelled there, payments are made directly by SP, and (4) spot checks on ‘contracted filling stations’ and the drivers are checked regularly for quality and quantity and to guard against pilferage and theft respectively, etc.
Resp-4 pays for fuel to the selected suppliers (filling stations of OMCs) all along the routes, all over the country.
[R-4] Firm pays no money for fuel to the drivers but fueling is done through selected suppliers (filling stations) all over the routes, in the whole country. Firm has selected suppliers (filling stations) from OMCs, (in the order of priority): (1) Shell, (2) Shevron-Caltex, and (3) PSO Ltd.
As far as payment for fuel is concerned, resp-4 pays to the filling stations on fortnightly basis whereas, drivers are checked for quality and quantity through sport checks on regular basis.
[R-4] Resp-4 pays them on fortnightly basis. Drivers are responsible for quality and quantity in the first place, whereas sport checks are regular feature as per policy.
Resp-3 has its trans-freight service / station (TFS) all along the routes throughout the country for managing fueling, accounting, and auditing.
[R-3] Resp-3 has its own TFS all over the route and fuel is provide from there, accounted and audited as a whole through drivers.
Resp-1’s project is a unique business model where medium and small sized trucks are provided alongwith drivers and fueling is the responsibility of the user and not the SP.
[R-1] Project regional offices (1, 2, 3, 4 and new connection) are responsible for fuelling of allocated fleet of firm. Fuel accounting is managed and controlled by project and firm has no concern with this accounting.
A model of rent-a-car business at retail level has similar service offering but corporate clients are offered services on trip or millage basis because a turnkey solution is expected. Resp-1 has a unique offering and project is a unique customer, and since objective of any business is to satisfy customer needs, a unique customer is well served with a unique offering. Resp-1 has a clean business with fleet provision, maintenance, repair and recovery only.
[R-1] …we provide transportation turnkey solution to project in its complete area of responsibility which serves 18 million people in the economic and trade hub of Pakistan (Karachi).
A considerable hassle of petroleum procurement, storage, availability on site, accounting, documentation and rigger of constant monitoring and evaluation for avoidance of leakages / theft / under or over invoicing, etc. has been set aside.
[R-1] Project regional offices (1, 2, 3, 4 and new connection) are responsible for fuelling of allocated fleet of firm. Fuel accounting is managed and controlled by project and firm has no concern with this accounting.
[R-1] Charging is based on hours, vehicle is requisitioned to project and not basing on millage covered per day. We offer two packages: (1) 12 hours, and (2) 24 hours.
[R-1] Industrial standard is Rs. 7000/- (seven thousand) per vehicle per month, as fixed cost, and same is added in costing formula. All other variable costs are borne by firm (SP).
4.3 MRO – In-House or Outsourced
MRO is an important component of ‘fee charging strategies’ because of the fact that the cost of MRO is added to overall costing model of any 3PLSP and thus the cost of MRO is transferred to the customer. Though MRO is an activity that was outsourced even before outsourcing of logistics function to 3PLSPs, and MRO with 3PLSPs is expected to be an outsourced activity. But in case of Pakistan, 3PLSPs are adopting to in-house MRO.
[R-5] In-House is the Best but if and only if a 3PLSP can ensure: (1) zero leakages in workshop processes, (2) efficient and effective maintenance team, and (3) use of best available spares. But if these points can’t be ensured, then outsourced model is much better.
Different 3PLSPs in Pakistan are resorting to different models, like;
Resp-3 is still following the concept of in-house MRO, which was probably necessary at the time of its inception, being the sole operator of such a sophisticated fleet of imported vehicles but not now, when resp-3 has an old vintage fleet and state of the art MRO facilities are available outside, nearly in all big cities of the country. A limited outsourcing is compulsion, when vehicles are en-route.
[R-3] Firm’s fleet, for its maintenance, is dependent on own workshop, setup at Sultanabad, Karachi. However, TFS are located at eighteen (18) locations, all over the country, have limited capability and use the resources available outside. Thus a combination of both; in-house and outsourced maintenance is in use.
Thirty eight (38) years old fleet is being maintained well but at a higher cost, thus resulting in drainage on profitability and revenue.
[R-3] …firm is facing this (maintaining such a diverse and old vintage fleet is not cost heavy and drainage on profitability) drainage of profitability and hard earned revenue, badly.
Resp-3 has 743 vehicles at present with headquarters FS including both fleets; North and South. Resp-3 had, at one time, 1700 vehicles which have been reduced to present number. Further reduction is likely to bring it down to 500 vehicles. Resp-3 has most organized in-house MRO in Pakistan.
[R-5] Resp-3 has the most elaborated system of in-house MRO with: (1) five base workshops, (2) maintenance facility every 100 KMs, (3) huge skilled manpower, (4) availability of good spares, and (5) state of the art facilities.
But why this most elaborated system fails to deliver assigned objectives in the case of resp-3, is highlighted by resp-5.
[R-5] With a lot of leakages in the system, this most elaborated system is highly inefficient and ineffective.
Resp-4 being a MNC, was following a hybrid of both, till late but now it follows OEM maintenance model for outsourcing at outside in-house repair reach and most of the repair and fabrication is done in-house, after establishment of in-house repair facility.
[Resp-4] We have developed tremendous capabilities in: (1) fabrication (outsourced previously, now in-house), (2) maintenance (hybrid of in-house and OEM repair but now mostly in-house). Our locations are all over Pakistan: (1) Super High Way (Karachi) is the biggest repair facility and the only fabrication facility), (2) Mehmood Kot (Multan), (3) Sahiwal, and (4) Sheikhupura (Lahore).
As regards to the manpower at each repair facility RESP-4 has an efficient preposition to keep the repair cost low and ensure better maintenance. Moreover, mobile repair vans are also supporting the MRO.
[Resp-4] Strength varies but generally it is around 23-34 personnel each, providing 24/7 services. Mobile service vans are held at each station to cater for farther reach for repair of vehicles en-route.
Millage for engine overhaul is pre-determined and cost of this overhaul is paid out of fixed cost.
[R-4] After 400,000 KMs running, firm gets an engine overhauled. This cost of overhaul is paid out of fixed cost (e.g. retention fee of vehicle), paid without physical usage of vehicles.
Resp-1 also, in this era of specialization, where focusing on core competence and outsourcing of less important functional activities, is a common practice, has set up two workshops with two mobile repair teams (MRTs).
[R-1] AOR is divided into two regions, segregated by the penetrant (Shahrah-e-Faisal) with one workshop each at: (1) Korangi, and (2) Super Highway. At these facilities available MRO include: (1) field repairs, (2) component replacement and assembly replacements, (3) close liaison with professional workshops in their area of operation, (4) welding, denting and painting, and (5) ladder mounting modifications, etc.
Probable reason for setting up of such a facility could be the availability of highly skilled management in running such set ups or over-spending observed in minor and field repair activities. Glaring advantages of in-house repair through workshops are highlighted by resp-1.
[R-1] …are: (1) annual spending on repairs has reduced by 40% approx., (2) the first hand information by drivers has the backing of an expert technician’s opinion which helps management to take repair decision without time loss, (3) accident recovery and damage payments have reduced considerably due to early response and professional handling of the case by the technicians, and (4) down time of a vehicle has reduced 50% approx.
Whatever the reason were but in-house MRO in case of resp-1 seems to have a total solution depending upon cost benefit analysis (CBA) that is an ongoing process for ensuring check and balance.
[R-1] A CBA was carried out and resultantly these workshops were raised to enhance operational efficiency. A constant analysis of pre and post creation is a routine practice.
However, resp-1 has not gone for a total in-house solution for MRO as few activities considered more complex are still outsourced.
[R-1] …repair of fuel injection pump is completely outsourced activity.
Resp-2, invariably, puts the responsibility of maintaining the load carriers on the owners and if a vehicle is out of order for 1-3 days (owing to legal complications), it will be allowed to be repaired by the owner while being loaded. However, in case of a longer breakdown, it is a compulsion to shift the load to another load carrier.
[R-2] ‘…in case of a longer breakdown, it is a compulsion to shift the load to another load carrier but legally this is not possible. Thus a make shift arrangement is made to absorb such occurrences and Customs official do help in extreme cases. Primarily, this is the responsibility of the agent or adda operator to get the load carrier repaired and / or replace it if duration is prolonged. A breakdown of 2-3 days is carried out without shifting of loads.
4.4 Policy Recommendations for the Government
There are two policy recommendations made for the Government:-
4.4.1 Transport Regulatory Authority
Government has left this so important and vital service without any regulatory. All over the EU and US have strong regulators to manage and arrange a directional development in this field. Development, so far, is totally directionless and wild in nature, yet in the absence of any regulatory, development has been commendable and follows an ongoing trend of the market.
[R-5] A strong Regulatory immediately be established to work as Pakistan transportation regulatory authority (PTRA) to fill this existing vacuum.
4.4.2 Revival of Railways
Past 10-15 years have experienced positive growth and development in the road transportation and road networks but there has been devastation of Railways, especially in last few years.
[R-5] Rail is the cheapest mean after sea but it is deteriorating rapidly, which is a national loss to Pakistan. Government must focus on this precious asset to not only sustain, maintain and retain but to develop and enhance too the higher levels.
5. Conclusions and Recommendations
5.1 Conclusions
Major conclusions of the study are:-
5.1.1 MRO
MRO has always been a serious cost factor and revenue reducing element for any 3PLSP. A unique finding has been, invariably, the endeavor of 3PLSPs in Pakistan, both; Domestic and MNCs, to resort to in-house MRO approach. Though it seems to be not in line with international practices yet in-house MRO is gaining strength in 3PLSPs working in Pakistan due to three possible reasons: (1) the non-availability or total absence of MNCs in MRO industry in Pakistan, (2) the non-availability or absence of domestic nationwide MRO firm, and (3) economies of scale and scope both are not found in any MRO firm in the business, thus cost is naturally increased for MRO, if resorted to, for outsourced model. Future business avenue in Pakistan is, 3rd party MRO facility provider for huge fleets of 3PLSPs, DHA (defense housing authority) Karachi, Lahore and Islamabad, Bahria town Islamabad, Lahore and Karachi, PSOs, government departments, autonomous bodies like; PCSIR (Pakistan Council of Scientific and Industrial Research), education and higher education institutions, corporations like; PIAC (Pakistan international airline corporation), CAA (civil aviation authority), Pakistan railways, Pakistan steel mills, Fauji group, etc.
5.1.2 Fee Charging Strategies
Fee charging strategies are the revenue collection strategies and thus are pivotal to 3PLSPs. Usually fee charging is KMs running based but there are other bases, like; per trip (usually dry cargo) or one-way journey, per turn round trip (crude transportation and ATT), per hours (Resp-1’s project) usually an eight hourly charging plus additional hours. At Resp-4, average variable cost per KM ranges between rupees thirty three (33) to thirty five (35) for typically 40 tons’ load carrier, with the costing formula; Fixed Cost + Variable Cost = Total Cost. At Resp-3, costing is based on per ton-per KM inclusive of fuel. At Resp-2, the formula is entirely different; Transportation Charges (as per market rate) + Turnkey Solution Charges, with floating rates, directly dependent on the market rates (opening of rates, in the market, on daily basis is the reason for this costing formula). At Resp-1’s project, costing formula is ‘fixed costing’ due to reason that costing is less fuel but in case of other projects of dry and liquid cargo, fee charging is similar to other industrial standards. There is a ‘fixed fee charging’ strategy in the industry, known as ‘vehicle allocation fee / charges; where a vehicle is allocated to a customer, for the duration of contract, irrespective of running or usage wherein ‘variable cost’ covers all running, charged on per KM basis, both; Resp-4 and Resp-1 are following it.
5.1.3 Fueling Strategy
Fueling strategy is yet another important consideration for 3PLSPs and has been managed differently by different SPs. It varies from own fueling (through freight-trans stations, spread all over the country, as in case of Resp-3) to contracted fueling (as in case of Resp-4, having contracted with Shell, Chevron and PSO Ltd filling stations with monthly payment terms), drivers’ own (as followed by Resp-2; driver of the load carrier himself gets the fuel en-route on the way to Afghanistan and back) and ‘user fueling’ (just like rent-a-car model, where project, being a user of Resp-1’s services, fuels Resp-1’s fleet, as per own requirements).
5.2 Recommendations
There are a few recommendations for the government / policy makers, specific to SPs and specific to 3PLSP Industry both long and short term:-
5.2.1 Policy Recommendations for the Government are;
a. Firstly establishment of Pakistan Transport Regulatory Authority (PTRA), as so important and vital service has so far been left out without any regulatory. All over the EU and US have strong regulators to manage and arrange a directional development in the field of transportation. Development, so far, is totally directionless and wild in nature, yet in the absence of any regulatory, development has been commendable and follows an ongoing trend of the market.
b. Secondly, the revival of Railways, as past 10-15 years have experienced positive growth and development in the road transportation and road networks but there has been devastation of railways, especially in last five (5) years. Rail is the cheapest mean after sea but it is deteriorating rapidly, which is a national loss to Pakistan. Government must focus on this precious asset to not only sustain, maintain and retain but to develop and enhance too the higher levels. Beside, new projects of bullet train and alternative fuel consuming trains systems may be developed.
5.2.2 Organization Related Recommendations
a. Resp-1. Resp-1 has to look into the avenues to absorb its fleet, employed at Project and declared redundant after use of five (5) years life to reduce losses occurred due to non-recovery of cost of induction.
b. Resp-2. Resp-2 has made best use of regulatory requirements to its benefit but in 3rd world economies regulatory requirements are an ever changing phenomenon and merits due attention by Resp-2 to guard against any policy shift in ATT regulations, by devising varied contingencies for all probable and likely changes, occurred in the event of policy shift to avoid being surprised.
c. Resp-3
(1) Outdated business model needs radical changes, thus pushing Resp-3’s FS to resort to BPR to remove all un-necessary fats from its operations and develop muscles to compete with domestic as well as MNCs working in Pakistan in 3PLSPs industry.
(2) MRO at Resp-3’s FS is very costly and has to be reduced to minimum for increased profitability. Options for Outsourced MRO, is required to be studied in detail to suggest better and workable solutions.
(3) Over staffing, a serious problem at FS and a huge burden on revenue generation and net profitability, even after right sizing from 3000-2200 employees, needs more right sizing to fit into the needs but it should be done through BPR.
(4) Over Centralization creates the feeling of lack of ownership at execution level and be avoided through de-centralization at Fleet Headquarters’ level and let both of them function as an SBU.
(5) Non utilization of NHA Regime to its optimum allowable limits is another cause of increased losses due to reduced revenue and increased expenditures, thus a board be constituted to get into the details and recommend remedial measures to accrue maximum benefit out of regulatory.
(6) Fee charging strategies are not in line with commercial practices and needs to be re-visited and deliberated upon for more commercial orientation and economic viability.
(7) ERP Solution; OTM (Oracle Transport Management) module is in use in FS since 2005, but other related modules should also be implemented for better resource allocation and desired yield.
(8) Upcoming efforts includes re-entry in ATT through a small fleet of owned carriers in on the way but it should be reviewed for getting it done through outsourced fleet as followed by Resp-2 and Resp-4. This will avoid many ills, hidden beneath if owned fleet is inducted in Afghanistan.
d. Resp-4
(1) De-induction of 1st fleet in Pakistan by Resp-4 is likely to be due in very near future. This will answer many queries ahead. Re-furbishing of old vehicles, as done by domestic SPs is more pragmatic and cost reducing. At present fleet condition is well due to more spending on preventive maintenance, which paves the way for reduced ‘operating cost’.
(2) In-house MRO is resorted to by Resp-4 for 24/7 services but it should constantly and regularly be reviewed for outsourcing to another MNC or domestic 3P MRO-SP to avoid replicating the model of Resp-3’s FS.
5.3 Future Research
Being a relatively least researched area, there are a few recommended research avenues: (1) ‘MRO’ is a new domain that merits exploratory studies in specific areas like SMA (supply market analysis) for 3rd Party MRO service provider (3P MRO SPs) in Pakistan with a focus on organizations, (2) ‘fee charging strategies’ can be viewed differently, like; vehicle allocation Costing strategies as component of fixed cost, and (3) ‘ATT’ itself is least researched and merits detailed work from economic, business and regulatory perspectives, etc.
5.4 Conclusion
3PLSPs in Pakistan have established themselves in-line with MNCs, working in Pakistan. A considerable maturity is visible in the domestic 3PLSPs’approach towards the business due to arrival of MNCs in it, like; Resp-4. MNCs have also benefited from the experiences and expertise of domestic SPs, like outsourced fleet utilization for ATT and in-house MRO, etc. In-house MRO has invariably found to be a unique feature of 3PLSPs in Pakistan (may it be an MNC or a domestic SP from public or private sector), in contrast with the developed world, where MRO is outsourced to specialist MRO firms. Future studies, in the identified areas, will help researchers and practitioners to further crystallize existing knowledge and develop the understanding about less researched and explored areas of knowledge on 3PLSPs in the world, in general and 3PLSPs in Pakistan, in particular.
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Understanding Corruption in Public Procurement (CiPP) and its Effects on Tax Morale (TM) in the Developing Countries
Understanding Corruption in Public Procurement and its Effects on Tax Morale in the Developing Countries
Colloquium 2016
Extended Abstract
ZEESHAN NOOR SIDDIQUI
zns.phd.imsciences@gmail.com
Department of Business Administration, Institute of Management Sciences, Peshawar, Pakistan
UNDERSTANDING CORRUPTION IN PUBLIC PROCUREMENT AND ITS EFFECTS ON TAX MORALE IN THE DEVELOPING COUNTRIES
Extended Abstract
ZEESHAN NOOR SIDDIQUI
zns.phd.imsciences@gmail.com
Department of Business Administration, Institute of Management Sciences, Peshawar, Pakistan
1. Introduction
Supply Chain Management (SCM) is a multi-dimensional and multi-facet term, which encompasses an array of activities of fundamental importance to corporations and public sector organizations (hereafter, PSOs) alike including buying (interchangeably purchasing, sourcing, or procuring). Council of SCM Professionals (CSCMP ; established 1963), defines SCM as, “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. ‘Purchasing’ (interchangeably buying) of goods and services is divided into two main types: (1) ‘Purchasing and Supply Management’ (hereafter, PSM), and (2) ‘Public Procurement’. Former deals with buying of goods and services predominantly for the manufacturing concerns and later focuses on buying of goods and services for PSOs.
‘Procurement’ is viewed as an instrument of implementing ‘public policy’, owing to considerable government spending on procurement of public goods and services. Easton (1953) is among the first advocates who view procurement as a mean to accomplish specific policy objectives. Importance of procurement and viewing it as an instrument of implementing public policy is evident from the findings of Knight et al., (2007) that public sector represents around 40-45% of the world’s economies, in some undeveloped countries of Africa it may represent 80% of the economy with few exceptions (i.e. Singapore spends 18% of its Gross Domestic Product (GDP). Amount of capital involved in procurement, attracts the interest of politicians to use procurement as an influential instrument of policy. The scope of products and services being procured by PSOs may expands from municipal services (Fernandez, 2007) to major weapon systems (Rendon and Snider, 2010).
This paper aims to develop a conceptual framework on the relationship among: (1) public procurement, (2) corruption in public procurement, and (3) perception about effects of corruption on the tax morale of the taxpayers, to identify gap for future research endeavor. New avenues for converging future research in inter-disciplinary domains are identified, such as: (1) corruption (obtaining perception of public procurement practitioners who form part of corrupt mechanism, and developing or absorbing perception of corrupt practitioners in the existing indexes of corruption in public sector), (2) public procurement (using agency theory to explain multiple agency problems in public procurement due to divergent stakeholders, using public procurement as a potent tool of public-policy-implementation through transparency in public procurement), (3) tax morale (relationship of public procurement corruption on tax morale, negative effects of public procurement corruption on moral authority of government to expect high tax morale). Since the study incorporates three distinct dimensions (public procurement, corruption, and tax morale) thus lacks in-depth analysis of different phenomenon due to time constraint. Non-existence of corruption perception index for the procurement professionals is also a limitation of the study. Collection of primary data from a few selected sectors of a single country (Pakistan) is also a limitation of this study. Small sample size is also itself a constraint of this study.
2. Agency Theory and Public Interest, Public Policy and Public Procurement
The use of common agency theory in public procurement was first proposed by Bernheim and Whinston (1986). The model of Bernheim and Whinston (1986) is applicable to a variety of problems such as an individual (entrusted with the power to make decisions) and several affected parties (with conflicting set of interests) offering personal rewards as bribe (in form of money or in kind) in an attempt to attain desired results. Such situations are referred to, as ‘economic influence,’ and these are frequently found in formulation, approval, and execution of public policy. Public office bearers are dealing with award of government contracts of considerable volumes and financial and economic value. Agency theory can explain the relationship between electorate-elected representative, elected representative-chief executive (head of government), chief executive-cabinet, and cabinet minister-public procurement office bearers, etc. Relationship becomes complex for the reason that a principal wears two hats at the same time (i.e. the ‘principal’ and the ‘agent’), thereby meaning that an ‘agent’ to a ‘principal’ becomes a ‘principal’ to another (figure 2.3 further explains the principal-agent relationship and public procurement).
Figure 1: Principal-Agent Relationship and Public Procurement
3. Linkage of Corruption to Public Policy and Public Procurement
Since due to agency issues at multiple levels, a perfect agency is not likely. Thus, preference to self-interest by the political elite (the principal), and procurement practitioners (the agents), leads to corrupt practices. As regards to procurement, corruption affects formulation, approval, implementation, and readjustment of procurement policies in line with other government policies. Fair competition and equal treatment to bidders (level playing field) are the fundamental concerns of procurement rules promulgated by the governments and so is the case with EU-rules on procurement. Bribery-induced violations of procurement procedures and regulatory can be in practice either (1) hidden violations of procurement rules as if the rules are respected, or (2) legitimate deviations from procurement procedures and rules such as rules of exception. Examples for legitimate deviation are article 30 and 31 of EU-2004, and in Public Procurement Regulatory Authority Rules-2008 (Pakistan) at a time either best value for money is realized or level playing field (equal treatment to all) and non-extension of a running contract beyond 15 % of the total value. Especially in an environment where procurement practitioners, and politicians (ministers, cabinet, chief executive, etc.) have so much to award to the business that self-interest at every level is pleaded rigorously. Politicians have to go back to public for re-elections and there comes the requirement of considerable money which is usually not hard-earned but arranged through donations from business in the developed world as a reward of favorable policies in past or as a promise to formulate, approve, implement, and readjust favorable policies after getting into power. In case of developing economies donations from business are not common thus necessitating politicians to involve in direct earning for future investment in the re-election. The problem is further compounded where political instability exists and a government is changed in less than prescribed tenure of 4-5 years (examples of political instability are India, Nepal, Bangladesh, Pakistan, and most of the African countries). Since “there is no free meal” thus public policies are governed by the principal of favoring the business as a priority and not prioritizing the public interest which should otherwise be prime. In the developing economies procurement is constrained for the purpose and corruption makes a headway in such situations owing to the fact that neither regulatory is strong enough to control misuse nor the policy makers are motivated to reform public policies and procurement.
3.1 Forms and Types of Corruption
Corruption is no more an issue of domestic, national or regional level but with globalization, upsurge of international trade, implementation of GPA by WTO, EC directives on public procurement, and a desire to go global by procurement practitioners has forced international community to view corruption as a global challenge. There are numerous types of corruption defined by scholars and supranational organizations. However, Jain (2001) defines three main types of corruption: (1) grand corruption, (2) petty corruption, (3) legislative corruption.
3.2 Economic Models to Study Corruption
Corruption is studied from different angles, however economists view corruption as a hurdle to economic growth and development of a country. Economists have modelled all three main types of corruptions (i.e. grand corruption, legislative corruption, and petty corruption) for developing understanding of the phenomenon and its effects on growth, economy, development, society, and wellbeing of common citizens. Jain (2001) discusses two different economic models to study corruption: (1) agency model, and (2) resource allocation model.
Corruption in the public procurement brings about inefficiencies in public spending but this relationship is yet to be explored and thus merits future endeavors of scholars. Linkage between corruption in public procurement and tax morale is also unexplored and deserves scholastic focus from the scholars of public policy, public procurement, economics, corruption, and tax morale alike.
Figure 2: Proposed Relationship among Public Procurement-Corruption-Tax Morale
4. Conclusion
‘Grand corruption’ and ‘legislative corruption’ have been in focus of scholars but ‘petty corruption’ needs more attention due to its pivotal role in more studied forms of corruption (i.e. grand and legislative). Existing measures of corruption do not reflect the perception of corrupt officials (public procurement professionals) on corruption which can be of value to explore and enhance our understanding further. Identified research gaps will help developing the understanding of the linkage among public procurement-corruption-tax morale. Proposed new relationship can be helpful in developing more pragmatic strategies to arrest corrupt practices effectively in grand and legislative corruptions in general whereas, in public procurement in particular.
References
Bernheim. B. D., and Whinston. M. D. (1986). “Menu Auctions, Resource Allocation, and
Economic Influence”. Quarterly Journal of Economics, 101 (1986), 1-31.
Easton, D. (1953). The Political Systems: An Inquiry into the State of Political Science (p. 129).
New York: Knopf.
Knight, L., Harland, C., Telgren, J., Thai, K., Callender, G. and McKen, K. (2007). Public
Procurement: International Cases and Commentary. London: Routledge.
Rendon, R., G., and Snider, K. (2010). Supply management in American public administration:
Towards an academic discipline? Journal of Purchasing & Supply Management, 16(2), 99-108.
My Conference Papers
You can access my conference papers here.
1. Understanding Corruption in Public Procurement (CiPP) and its Effects on Tax Morale (TM) in the Developing Countries
My Published Papers
You can access my published papers here.
1. 3PLSPs in Pakistan – An Exploratory Study on MRO, Term of Service, Fueling and Fee Charging Strategies, Adopted by MNCs and Domestic Firms
2. Examining Determinants of Absenteeism among Blue Collar Employees in Petroleum Sector of Pakistan
Zeeshan Noor Siddiqui, Ph.D (SCM) Scholar, IMSciences (orcid-0000-0002-4359-2603) 