Background of the Study

Logistics management refers to the plans and actions that determine and oversee a company's
product line (Chalotra, 2013; Ogah, Asiegbu, & Lagos, 2022). In order to meet customer
expectations, it is also connected to inventory identification, procurement, planning, storage,
packaging, and transportation. Inventory management activities vary by company, industry, and
sector, according to Karim, Nawawi, and Salin (2018). Logistics management organizations are
tasked with the responsibility of formulating and implementing strategies that if adopted will
lead to achievement of a sustained competitive advantage. The volatility of the business
environment, intense competition and improvements in technology has introduced dramatic
changes to the logistics management. Thus, firms need to make solid inventory network
connections that empower them to control their market directions by reacting to fast changes in
clients' worth and rival moves for them to obtain prevalent business execution. Best practices of
strategic logistics companies can boost operating performance, guarantee customer loyalty and
increase productivity (Hye, Miraz, Sharif & Hassan, 2020).

Globally various empirical studies, showed that logistics practices have great effect on
operational performance, For instance; the advent of information technology (IT) revolutionizes
logistics operation and Poor logistics performance reflects the firm’s information capability
which impacts operational performance (Shang, K.-C., & Marlow, P. B., 2007). And also
Ellinger, A.E., Daugherty, P.E. and Keller, S.B. (2000), show that logistics is a strategic vector in
companies’ organization and influences their performance, namely in terms of service quality
and overall profitability. Schramm and Morschett, (2006), Opines that marketing performance
(sales and market share growth) and financial performance (return on investment and profit
growth) are consequences of performance of logistics activities. It can therefore be argued that
logistics activities must be ingrained in organization strategies so that it can secure high
performance. Competitive position of a business mainly results from the evaluation of what the
firm delivers with regards to value creation as compared to what other competitors offer
(Gorynia, 2004) cited in (Olaf & Grrzegorz, 2015 ). Thus, the management of logistics activities
has become a valuable way of securing competitive advantage and improving organizational
performance (Li, S., Ragu-Nathan, B., Ragu-Nathan, T. S., and Rao, S. S. (2006)).
However, Sub-Saharan African countries were poor in logistics performance compared to other
world countries. Particularly poor performances were resulted from lack of investment on
infrastructure and lack of road maintenance. As a result, transportation constrained well flow of
goods in market (Ittman& King, 2017). Ethiopia's lack of exceptionality in Africa explains why
it performs poorly in logistics. Out of 167 participating nations, Ethiopia is rated 131 (World
Bank, 2018). This demonstrates that the nation's logistics system is truly weak and delivering
subpar national performance. Production is coordinated with new customer orders, purchases are
made in response to user department demand, and scheduling and shipping are done in response
to orders (Kiare, 2019). As it provides its ways from the beginning of a supply chain to
customers, transportation plays the job of transferring goods from one location to another.
Because items are rarely produced and used in the same region, transportation is important for
supply chain participant integration (Chopra & Meindel, 2007). Given that logistics activities
have the highest cost of all; it is obvious that emphasis should be paid to transportation (Ghiani
et al., 2021). The production department is vulnerable to the predominance of overproduction,
underproduction, and a lack of spare parts due to poor inventory management (Munyao, Omulo,
Mwithigas & Chepkulei, 2019)).

And also a study done by (Debela, 2020), showed that the Ethiopian logistics system is
characterized by inadequate logistics management systems and a lack of coordination of the
transport of goods, low levels of infrastructure development and inadequate fleets of freight
vehicles in terms of size and age, as well as damage and quality deterioration of goods during
handling, transportation, and storage. According to Odhiambo et al, (2017) in effective logistics
causes competitive loss in the journey to market and now a days intense competition and market
saturation forced manufacturing industries to give due attention on logistics activities to access
new revenue generation markets and maintain already existed markets everywhere in the world.
Having the above facts in mind which showed the necessity of logistics excellence to exist in the
market, it is inevitable to measure performance of logistics in terms of its activities parallel with
its impact on operational performance to give organized insight to logistics management for a
better decision making. This in turn allows seeing where the company is in terms of its logistics
practices; i.e., customer response, inventory planning and management, supply, transportation,
and warehousing and further effects on operational performance which deals with competitive
edge of the firm.
Therefore, based on the above discussion the researcher is motivated to study effect of logistics
management practices on operational performance with reference to Heineken brewing company
operating in Ethiopia by assessing how the company logistics management is effective in
improving operations performance to satisfy the need or demand in the market for this industry.
The researcher took Heineken Breweries S.C as where the details in practice will be analyzed;
i.e. a company which exists after the acquisition of state owned Harar and Bedele breweries in
2011 and followed by the opening of Kilinto brewery in 2015 with a technical capacity of 4mhl,
which is 550khl of Bedele, 500khl of Harar and 3mhl of Kilinto. Bedele brewery S.C which is
483km from Addis Ababa with more than 32 million people produces product Walia, Bedele
Regular, Bedele Special, and Sofi brands from 100% natural ingredients and refreshing natural
water on 250,000 m2 surface coverage in major market in north west, west, south, central and
south west of Ethiopia and from abroad USA, Canada, Australia, Israel and Sudan on the other
hand Harar Breweries which is 530km east of Addis Ababa is known for producing brands like
Harar Beer, Harar Draught, Sofi, and Buckler. Kilinto, in the outskirts of Addis Ababa, is home
to the Walia brands and also produces other brands like Heineken, Walia, Walia Radler, Harar,
Bedele, Bedele Special and Sofi are one of the portfolios of the company and company has
35000 workers out of this 344 permanent and others are adhoc workers. To increase its
operational efficiency, the company creates strategic partnership with its foreign and local
suppliers. The company is marketing its products through geographical segmented distributing
Agents. It also outsourced its transportation service to third party logistics service providers to
focus on its core business and currently five transporters are providing contractual transportation
service (source: http://heinekenethiopia.com, accessed in 2023).
Statement of the Problem

Even though logistics is a decisive factor to channel what the company owns to the rest,
companies gave little attention to in and out material movements which ensures the company
output to market (Cui and Hertz, 2011). Very recently logistics performance is considered as a
critical factor to determine business performance and manufacturing industries are forced to give
due attention for logistics activities to access new revenue generation markets and maintain
already existed markets because business becomes more of customer oriented due to the
availability of many service providers and as more and more firms compete to survive with
introduction of products with short life cycle. According to Mundia et al. (2015), organizations
are adopting various strategies to ensure that they remain competitive in the market. Enhancing
logistical service capabilities will help reduce internal costs and improve competitiveness in the
market and around the world (Boonpattarakan, 2012). Firms adopt different strategies to enhance
their performance. According to Bagashaw (2017), logistics management can be one of those
strategies decisive for companies to acquire superior performance.

As a matter of fact, in-effective logistics causes competitive loss in the journey to market
(Odhiambo et al, 2017). Major activities in the firm are dependent on logistics performance
which is mainly expressed under logistics activities. Logistics ensure positioning of the right
product with the right quality at the right time in the right place at the right price to the ultimate
customer (Farahani, Rezapour & Kardar, 2019). Competitive pressure, cost management,
information technology, globalization, and profit maximization were some of the factors that
helped shape logistics science into what it is today (Lambert, Stock & Ellram, 2019). Without
logistics, no material moves, no operation can be done, no production can be done, no products
are delivered, and no customers are served. Thus, logistics is heart for business success and
customer services (Waters, 2020). Logistics is the process of strategically managing the
procurement, movement and storage of materials, parts and finished inventory through the
organization in such a way that current and future profitability are maximized through the cost-
effective fulfillment of order (Chirstopher, 2019).

Hardly existed research on the study area also found out the same. Empirical studies which were
held outside of Ethiopia showed that logistics management practices has a significant impact on
operational performance with empirical validation framework that identifies four constructs of
logistics practices i.e. warehousing, transport, information flow and physical distribution
management taking in to consideration (Georgina A. and Daniel M (2015)). The result showed
that the logistics management practices and organizational performance indicate that
warehousing, transport, information flow and physical distribution management positively
correlate with operational efficiency of an organization. From the research conducted by Tabeni
(2006) about the impact of inbound logistics activities on the operational performance of the
postal services organization in South Africa, It has been revealed that, there exists significant
relationship between logistics activities and the operational performance of the business. This,
therefore, shows that the importance of logistics management in any of the organization cannot
be underrated.

Ayenew (2016) under his research title “Logistics practices in Ethiopian medium and large
leather footwear manufacturing firms” with his objective of describing current logistics practices
under the five interdependent activities of logistics i.e. customer service, inventory management,
supply, transportation and warehousing in leather footwear companies. Accordingly he witnessed
that even though firms practiced the logistics activities in their day to day operations, most of the
firms have no logistics department in their organizational structure. Foreign currency shortages,
higher taxes, lack of integrated system and long lead time in ports are found to be the critical
challenges of logistics for footwear manufacturing firms in Ethiopia.

As per the research made by Fekadu Debela (2020), beer industries in Ethiopia are performing in
a country where logistics system is characterized by poor logistics management system, lack of
coordination of goods transport, low level of development of logistics infrastructure, inadequate
fleets of freight vehicles in number and age, damage and quality deterioration of goods while
handling, transporting and in storage. Besides African countries where Ethiopia is not an
exception are suffering largely due to the non-application of the principles of supply chain
management practices such as logistics to business activities (Mensah et al, 2014). Heineken
Ethiopia is not an exception for all the facts said because the company points out lost sales,
customer dissatisfaction, interrupted production, low perfect customer order, high working
capital, low asset utilization, low operational performance indicator, high overtime costs, excess
costs due to rush orders and stock transfer, scrapped goods and aged products as associated
liabilities due mainly by logistics practices (Heineken Ethiopia Logistics Process Standard, 2012;
Business Comparison System, 2016).
Given the hardly existed researches on the study area along with those all facts led on conclusion
that optimization and performance measurements on logistics management practices:
information flow management, customer service management, transportation management,
inventory management, warehouse management practices are necessary to sustain growth in the
area. Accordingly the researcher become enthusiast to assess effects of logistics management
practices on the operational performance. How much significant are they to operational
performance of the company Heineken Breweries S.C? Does the same conclusion will reach like
scholars found out, that logistics management practices have a contribution for the success of a
company, in terms of operational performance (which makes more competitive in the industry?
The researcher believe that the proposed study will provides improved and organized
information on the logistics management practices in assisting the managers to make better
decisions on where to focus and improve.