Supply  

Chain Management issues and challenges in

Kazakhstan

Toktassyn Kamshat , Anel Mamutova , Amanova Aisapar

Table of contents
•Introduction

•SCM issues in Kazakhstan

•SCM challenges in Kazakhstan

•Improvements in SCM in Kazakhstan

•Conclusion

•References

Introduction

Supply Chain Management - SCM (Supply Chain Management) is a new approach to

purposeful business process management. He came to Kazakhstan, including a lot of Western
technologies and today causing our companies more and more practical interests. Kazakhstan,
as you know, is the ninth largest state in the world. Being in the heart of the Eurasian continent
at the junction of the borders of Europe and Asia, our country has high transit potential.

The favourable economic situation, the growth of consumer markets, the rapid pace of
development of companies brought to the surface problems with logistics.

SCM issues in Kazakhstan

The biggest cause of the supply problem is covid-19. Supply chain issues figured prominently
during the COVID-19 lockdown amid a “perfect storm” of causes including changes in demand,
labor shortages and structural factors.
Geopolitical Uncertainty

the issues currently going on in Russia and Ukraine are also affecting logistics in Kazakhstan.
This is the root cause of much of the inflation in energy and food prices. This year it has led to
supply chain turmoil, fueling the global food crisis.

Long distances sometimes do not allow entrepreneurs to develop their business in different
regions of the country due to high logistics costs.

SCM challenges in Kazakhstan

The main problem of companies providing logistics services is the underdevelopment of internal
communications (60%) and the lack of specialists in the field of logistics (40%). The logistics
services market has problems with poor quality of services (42.5%), underdeveloped transport
infrastructure (29%) and underdeveloped warehousing (14%).

The first problem is underdevelopment of infrastructure, which is almost complete lack of

modern business-oriented warehouses both in large cities and regions, and even more
importantly - the lack of adequate transport fleet, both rail and road, as well as the poor quality
of roads.

The second problem is the low professionalism of logistics operators (40%) and the narrow
range of services provided (14.5%). Hence the weak interaction with client companies, as the
services of these operators are fragmented and do not represent a coherent system.

This is explained by the beginning of development of transport and logistics services (TLU)
market. Getting the greatest effect is possible when it works as a single mechanism that makes
up a single managed supply chain (SCM), when operators create all the conditions for the
performance of logistics tasks.

Lack of Expertise in Containerization. Kazakh companies are averse to sending cargo through
containers, mainly because they are unfamiliar with the technical and documentation
requirements. This limits their potential to integrate with world transport networks.

High Import Tariff for Containers. Kazakh customs have increased the tariff per container from
$200 to $400.

High Cost of Containerized Transport. There are only a few containers in Kazakhstan. This
increases the cost of finding one and of engaging a logistics service provider competent to
handle containers.

High Fees and Complex Procedures for Visas. Kazakh drivers can drive to other countries
without visas, except to Turkmenistan and the PRC, where they are charged $75 and $60 per

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entry, respectively. It takes long to apply for visas because of inefficient or complex processing
and numerous documentary requirements.

Training and Human Resource Development Needs. The four established institutions in Almaty
produce graduates trained in transportation. However, there is no available training in logistics,
especially in integrated logistics, supply chain management, innovative technological
applications, and International Federation of Freight Forwarders Associations (FIATA) and
International Air Transport Association (IATA)-related subjects.

Improvements in SCM in Kazakhstan

Over the past five years, the number of logistics and transport-forwarding companies has
increased by 76%. Almost 60% of them are located in Almaty. Due to lack of warehousing
infrastructure, 80% of transit cargoes are processed in Almaty, then sent back to the regions.

In 2007, the country ranked 133rd in the world ranking in terms of LPI. After analyzing the
situation in the field of logistics, the Ministry of Transport and Communications of the Republic
of Kazakhstan together with the Union of Transport Workers of Kazakhstan "Kazlogistics"
developed an action plan to improve the logistics system of the Republic of Kazakhstan. The
implementation of these activities has improved LPI due to such factors as the completion of
major infrastructure projects in the road and transport sectors, improving the efficiency of
customs and border services, resulting in reduced border crossing time, eliminating physical
and non-physical barriers, reducing documents in carrying out foreign economic activity,
tracking goods throughout the supply chain, expanding the list of services provided by private
business entities. In 2018, Kazakhstan ranked 71st among 160 countries on the logistics
efficiency index, rising 17 positions from 2014, ahead of all EAEU countries: Russia (75),
Armenia (92), Belarus (103) and Kyrgyzstan (108).

Thanks to the implementation of the Action Plan, Kazakhstan moved from 133rd place in 2007
to 77th place in 2016 and 71st place in 2018, advancing 62 points. The republic achieved the
greatest results in the efficiency of customs and border clearance, rising 74 points, and the
timeliness of cargo deliveries, 70 points. No other CIS or Central Asian country has made such
progress. In 2018, Kazakhstan ranked 71st among 160 countries on the logistics efficiency
index, rising 17 positions from 2014, ahead of all EAEU countries: Russia (75), Armenia (92),
Belarus (103) and Kyrgyzstan (108).

Сonclusions

Modern Kazakhstan logistics system is in the process of formation. The level of development of
transport and logistics complex in the region as a whole is assessed as insufficient. For the
effective functioning of the TLS, it is necessary to create the infrastructural basis of modern
transport and logistics system in Kazakhstan, TLC network construction. The results of the
study showed that only geographical location is not enough for the country's integration into the
global LS. In order for transit cargo flows to shift to the transportation system of Kazakhstan,
firstly, it is necessary to significantly raise the overall level of development of the domestic TLS

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and its infrastructure, modernize and significantly expand bandwidth capabilities of highways in
Kazakhstan through the development of the TLC, and ensure the transparency of transport
tariffs and the mechanism of their control and regulation. At the same time, attention should be
paid, not to the indicators of the increase of physical elements of transport infrastructure, as it is
often asserted in substantiating of the decision to invest in transport infrastructure, but primarily
to the improvement and efficiency of existing networks, improving the management of transport
infrastructure, as well as motivating regional authorities to increase the intensity of its use.
Depending on the characteristics and volumes of freight traffic, the degree of influence on the
economy of the country and the region, as well as other factors in the regions of Kazakhstan, it
is necessary to create terminal and logistics complexes for various purposes in the territory and
regions with a large export and transit potential. Based on the analysis of the problems of
logistics infrastructure development, the necessity of creating a multi-level network of transport
and logistics infrastructure in Kazakhstan was substantiated. Construction of the LC should
focus on the processing of transit cargo, as well as export-import freight traffic. Formation of
transport infrastructure network is intended to provide favourable conditions for high regional
development and stimulate economic growth. Thus, it offers the conceptual approach to the
logistics infrastructure development as a multi-level regional logistics system in Kazakhstan,
taking into account the specifics of the regions’ economic development.