Term Paper

Topic: Well-functioning and integrated logistics system

And Uzbekistan`s logistics system

Inha University in Tashkent

School of Logistics,
May, 2019

Course Name: Logistics Management

Professor’s name: Jose Tongzon
Prepared by: Team “DT”
Members:
Begimkulov Dilshod U1811044
Dosanov Farkhod U1811036
Sattorova Shakhzoda U1811047
Turakhujaev Khumoyun U1811059
Abstract
Over the past few decades, Uzbekistan as a developing country has been selective in applying
appropriate methods to establish well-integrated logistic system due to its importance in economic
development of the country. The objective of this paper is to define what is meant by well-integrated
logistic system by elucidating both internal and external factors that play a crucial role in the logistics
system and evaluate how Uzbekistan meets these key criteria. The methodology used relies on the
assimilation of the relevant research on the subject and interviews with the experts on the field.

Introduction
Since the importance of well-integrated logistic system has been recognized by the whole world, it is a
necessity for Uzbekistan as well to identify key criteria and meet these requirements. As being a
relatively young country Uzbekistan has not gained much experience in building integration in its
logistic system, however many changes are taking place over the last 5 years.
Logistics has traditionally been defined as the process of planning, implementing and controlling the
efficient flow and storage of goods, services and related information as they travel from point of origin
to the point of consumption. Traditionally, the focus of logistics control has been the individual firm
and logistics activities have been divided along functional boundaries.
However, there has been a recognition that logistics activities should be integrated more within the
entire network of the businesses, not simply related to a narrow functional role in one firm. A trend in
manufacturing is the increasing use of strategic partnerships and cooperative agreements among
separate firms that work together to produce and distribute products. The implication is that it is now
groups of firms working together as supply chains that are often the competitive unit. (Gregory N.
Stock, 1999)
Integration is defined as an extent to which separate parties of a company work together in a
cooperative manner to arrive at mutually acceptable outcomes (Jose Tongzon,2013). While describing
internal factors that affect integration in an organization, it is important to note that one of the major
factors is collaboration. The definition of collaboration is as follows: collaboration is a purposeful
relationship in which all parties strategically choose to cooperate in order to accomplish a shared
outcome (Wikipedia, 2019). Its meaning is close to the definition of the word cooperation which is the
act of making all people involved in plan or activity to work together in an organized way. Another
crucial criterion is human resources in a company, the existence of highly qualified workers in a given
sphere. External factors entail regulations in the country, its infrastructure, networks, mentality and so
force. The following term paper describes all of these criteria in details.

Internal factors
Collaboration
If there is a lack of collaboration in an organization, well integrated logistic system could not be
established. The reasons why collaboration might not be highly developed is that there is no
information sharing within a company. In Uzbekistan information flow is not spread to all other
members of the company because of no database installation or no use of existed information system. If
we consider Artel (a huge manufacturing company in Uzbekistan) as an example, we might state that
this is a company which has the database system, however, workers of Artel do not use it due to the
lack of knowledge required to manage it. Another reason is hiding the information which is explained
by the human nature of keeping information as a secret, until people begin to trust each other. It is a
serious issue not only in Uzbekistan, but also in the rest of the countries of the world. Many members
of the logistics chain - particularly in Uzbekistan, do not understand how beneficial it can be for all of
the members if they all integrate into one whole organism and how it is the best way of achieving a
competitive advantage and reduced costs.
Also, our logistics system is not working smoothly due to the lack of incentives without which sharing
information for employees and companies may not be important. HR Management does not pay
attention to its responsibilities such as rewarding employees in monetary or non-monetary form results
in abovementioned consequences. For instance, as a clear example according to our country, drivers
working in one company receive the same salary even-though they work efficiently and effectively by
delivering products before the deadline. Therefore, in most cases, they even tend to be busy with their
own personal business. Moreover, workers being existent in the workforce is considered as they are
working, providing output for the company. But in reality, they just may be spending time by not
working.
The conflict of interest is another reason why companies struggle working together. The main goal of
different companies may not be aligned with the overall corporate objectives. In Uzbekistan companies
tend to focus only on themselves and usually ignore collaboration.
Automation
Automation plays a vital role in the optimization of business processes, the existence of valuable
software which can be adopted in organizations is an important tool for achieving higher productivity
and eliminating manual mistakes in logistics system. For integration it is important to adopt automation
to have a faster flow of accumulated information, to have a united standardized system which allocates
the needed information among the partners of the logistics chain in a required manner. Uzbekistan
does not meet this criterion, however for our government automation is not a strict requirement for
success due to the relatively cheap labor cost, it is expensive for most companies to adopt automation,
for the short term the current state of affairs is satisfactory, but for the long term it is not beneficial for
Uzbekistan to avoid having automation taking into consideration all the advantages of automated
system.
Human Resources
Currently the number of skilled workers in the sphere of logistics in Uzbekistan is not high. According
to the survey which was conducted in 2015 among Uzbek companies on the topic of logistics services,
62 percent of respondents expressed a desire to have their own employees have a higher level of skills
in the field of industrial, transport, trade, information and warehouse logistics. Specialists do not even
differentiate the meaning of the word “logistics” and “transportation”. Lack of required knowledge,
absence of training programs in companies lead to inefficient work and impedes integration of logistic
system. Again taking Artel as an example, it can be stated that when foreign specialist was invited to
recommend the possible solutions to the problems in warehouse management, it was necessary first to
explain the basic knowledge about logistics and warehousing to the workers of Artel, and then move on
to the recommendations. However, lack of skills is not the most important factor which slows down the
process of having integration, there are several other external barriers affecting it.
Planning
A well-functioning logistics system requires a proper planning of every single operation within an
organization, beginning with a basic to large-scale one. Even if the flow of information within an
organization is well-established, poor quality of data or plans exchanged make this collaboration
meaningless. Logistics strategy development, forecasting of requirements, capacity planning are one of
the key capabilities that are required from an initial point of an organization’s foundation to
development and optimization. (RoadRailPort, 2018) In Uzbekistan, majority of companies lack a
robust planning even on the operational level of the organization. With regards to capacity planning,
Artel can be cited as a clear example. They plan to produce 1000 washing machines, while there are
just 950 enough places in the warehouse. Due to poor capacity planning, they fail to place 50 left
washing machines, simply addressing this problem by putting them anywhere available, namely, on the
floor, but not on the shelf.

External factors
Infrastructure
Another external factor for achieving a well-functioning logistics system which is beyond the control of
management is transport infrastructure. Properly developed and well-maintained regional transport
infrastructure is assumed to contribute a great deal not only for an economic development of the
country, mobility of people in the society and for creating new jobs but as well as the on-time and safe
delivery of goods and services across the country. “Inadequate infrastructure has been identified as one
of the major factors behind low level of logistics efficiency and competitiveness.” (Jose Tongzon,
2013)
The condition of most of the roads in the regions of Uzbekistan is very poor and not well-maintained.
This problem stems from the negligence in the governmental bodies to provide proper funding for
taking care of the regional roads. Also, actions taken by the government to improve the conditions of
the roads in the country have not brought about considerable changes due to the lack of supervision and
deficient technical standards.
Lack of Incentives
If pay attention to the most well-known company even in terms of logistics- amazon.com, it will be
evident that amazon.com always strives to be increasingly efficient to ship customers’ orders as quickly
as possible from its fulfillment centers around the world. They have already begun operating
warehouses with hands of robots because in their situation even one second matters to deliver orders on
time. But in the case of Uzbekistan, such competitive, demanding atmosphere is absent to urge our
organizations to be efficient. For example, fulfilling requests of customers lately is acceptable. Also
this may be because of less orders in one day. For that reason, companies let themselves to spend much
time on negligible works and do not want to install high-priced, cutting-edge technologies despite the
fact that they provide efficiency and effectiveness.
Culture and mentality
According to our expert, beside all the physical reasons, there exist non-visible factors that must be
considered such as mentality, mortality and mindset of the nation. In this part, mentality of Japanese
and Uzbek people can be compared. The fact that JIT (just in time) strategy was invented by Toyota
company in Japan and this solution worked very well providing several benefits (reduced inventory
costs, efficiency, effectiveness). To achieve this kind of zenith of efficiency and production, everything
must go under well-scheduled plan. Japanese people are widely known for being task-oriented, doing
their work on time. Whereas Uzbek people tend to act leisurely and take their job as not serious as
Japanese people do. Getting distracted or turning into other personal business can be viewed as usual
situations among Uzbeks. Hence, aforementioned Japanese brilliant strategy would not work smoothly
if it were implemented in Uzbekistan. Besides, being under a harsh autocratic control of Soviet Union
for many years, citizens of many CIS countries had adopted unhealthy lifestyles exploiting habits such
as alcohol abuse. This obviously has affected the quality of work produced in Uzbekistan. Such
carelessness of drivers has been a stumbling block for many businesses.
Regulatory policies
For logistics system to work optimally the support from the government is indispensable. Regulations
and supervisory procedures should be clear, easy to follow and facilitate the flow of products and
services from the producer to the customer. However, the presence of unnecessary tax policies and not
clear supervisory activities impede the efficiency of logistics activities in Uzbekistan. For example, the
policy of providing license to move goods and passengers within and outside the country for only legal
entities create obstacles such as a heavy load bureaucracy and even can lead to illegal activities like
corruption. (fmc.uz, 2006, reference to the law) Additionally, the same inefficient regulatory policies
apply to border agencies making them vulnerable to corruption. For example, due to the presence of not
strict borderline policies, it is often practices by many firms to avoid required responsibilities by
offering bribes.
The words of an expert can be cited here. To haul products from Turkey to Uzbekistan, for example, it
is necessary to cross the borders of Iran and Turkmenistan. However, from this year in Iran there has
been sanctions against Iran by United States which have cause many problems for US Logistics
companies operating in Uzbekistan. Therefore, these companies have rejected to travel through the
territory of Iran which is considered to be the closest network between Uzbekistan and Turkey. Due to
the fact that many customers and companies resist to mention Iron in their documentations, the
delivered order might be cancelled. However, in Uzbekistan, our border agencies are able to “fail” to
mention about which track the cargo has travelled through.
Customer Expectation
It is known that the main objective of the whole logistics chain is satisfying the customer and the all
members of the logistics system work towards achieving this objective. High collaboration leads to
higher efficiency, high efficiency results in better customer satisfaction that is why there is a correlation
between the customer and integration of logistics systems. When the customer is not easily satisfied
with a provided service, this urges many logistics companies to be competitive in improving their
services. At the same time, lack of interest from the side of a customer towards the delivered service
may lead to a deterioration of overall customer service. This is especially true in the case of Uzbekistan
where customer service in majority of cases is not ideal compared to the logistics service provided in
the EU countries as in the EU countries customers demand delivery of cargo at exact time and in exact
place. However, the shortage of alternative logistics service providers in Uzbekistan leaves customers
with fewer choices in selecting the service offered and making them view any type of service as
acceptable.
Conclusion
By way of conclusion, for Uzbekistan the sphere of logistics is one of the most important aspects, for
the future development of the country reaching integration will be beneficial. analyzing current state of
Uzbekistan’s logistics performance both internally and externally gives broad comprehension that
Uzbekistan’s logistics performance does not meet the world’s standards fully due to government
policies, private organizations, producers, consumers, human nature, life style of individuals. For a
well-integrated logistics system to work efficiently and effectively all the internal and external factors
mentioned above should be taken into a decent consideration. However, some of these criteria cannot
be implemented in Uzbekistan owing to economic state of both government and companies. At the
time, the changes which are about to take place in Uzbekistan, namely deregulation, elimination of
bureaucratic procedures, creation of new infrastructure should have a positive impact on the
establishment of well-integrated logistics system.
Acknowledgements
All members of “DT” team are extremely grateful to an expert from Green Line company, namely
Shokhrukh Madiev, for a valuable assistance in the conduct of this study.

Reference
Road Rail Port (2018), “Logistics Planning and Analysis” available at
https://roadrailport.com/services/logistics-planning-and-analysis, (Accessed May 2019)
Jose Tongzon & Inkyo Cheong. (2013). The challenges of developing a competitive logistics industry in
ASEAN countries. International Journal of Logistics Research and Applications: A Leading Journal of
Supply Chain Management, DOI: 10.1080/13675567.2013.862228
Wikipedia (2019), “Collaboration” available at https://en.wikipedia.org/wiki/Collaboration (Accessed
May 2019)
Gregory N. Stock (1999), “Logistics, Strategy and Structure: A Conceptual Framework”. International
Journal of Physical Distribution and Logistics Management - January 1999.
Reference to the law (2006) “General Standings on licensing activities of moving domestic and
international passengers and cargo” available at http://fmc.uz/legisl.php?id=license_avtotransport
(Accessed May 2019)