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How To Managed Logistics Platforms Overseas For A Low Cost Business
How To Managed Logistics Platforms Overseas For A Low Cost Business
How To Managed Logistics Platforms Overseas For A Low Cost Business
business
Abril, 2018
TABLE OF CONTENTS
Summary 3
The challenge 3
State of Art 3
Business Models 6
SWOT 6
CANVAS Model 6
Key Partners 6
Key Activities 7
Key Resources 8
Value Proposition 8
Customer Segments 9
Customer Relationship 9
Channels 10
Cost Structure 11
Revenue Streams 11
Sustainability Nowadays 12
Sustainability in our low cost business 12
Conclusions 12
References 12
1. Summary
The present project is done to understand and analyse how is the
management and the development of logistics platforms overseas for low cost
businesses in Colombia. It was made based on the business model of Tostao’
Cafe y Pan. In first place we understand what is and how does it work a low
cost model. Then, through a Canvas Model, we develop easy steps to follow.
Firstly, it is identify the key partners, key activities and key resources. Second,
the value proposition is analyze along with the consumer segment, the
customer relationship and the distribution channels. At last, it is define the cost
structure and the revenue streams. According to the economy in Colombia in
2018 and its consumer behavior, it is highly recommended to follow Tostao’
Café y Pan low cost model since is a very robust, sustainable and functional
way to work in the current market.
2. The challenge
Understand and analyse how is the management and the development
of logistics platforms overseas for low cost businesses. In general terms, in
this paper the project proposed is how to implement a business model in
Colombia for low cost business taking into account that there are companies
which successfully applied this locally. This is centered in bakery business
such as Tostao’ Café y Pan.
3. State of Art
To begin with, the knowledge already established about low-cost
businesses will be analyzed. Firstly, David Blanchard, in his article "The cost
of doing low-cost business"( 2007), establish that the chains that create value
and in the end the final product or service is very cheap, they will not last
forever, that maybe they will last a few years but they will not be sustainable in
the long term. This, given that, for the price to be so cheap, some part of the
chain had to pay the price, with very low wages, with scams, with prices that
are not fair, or one country taking advantage of another.
On the other hand, the article "Innovating low-cost business models"
(Kachaner, Lindgardt & Michael, 2011) has a position that supports more low
cost businesses, saying they agree very much with new models of low-cost
businesses that serve a large segment of customers with limited financial
means (Kachaner, Lindgardt & Michael, 2011). They also defend it as a new
value proposition created for existing and new customers, supported by an
innovative operating model, offering a limited range of products without
compromising on quality is a key element for many of this type of business
models.
We consider that it is very important to have clear that low cost is not
low earnings, low quality, cheap imitation, or unbranded products, it can be
highly profitable, usually involve a defined variety of products, it is a legitimate
innovation and it is generally promoted by influential brands. Finally, the target
segment of a low cost business, must be concentrate on a define number of
price sensitive people, it should have clear borders, and understand their
priorities.
Particularly, in the case of the airline industry, it has been possible to
understand better low cost businesses. The results of the article “The evolving
low-cost business model: Network implications of fare bundling and
connecting flights in Europe” (Fageda, Suau-Sanchez & Mason, 2015), show
that there are suggestions of a delay in the natural growth of low-cost services
due to lower frequencies and rise in route distances, which is forcing
companies to adopt other business strategies for growth.
This shows, why it is important to be very careful with the cuts or
reduction in costs that are made, and to take into account the primary
expectations of the clients, because if it is not met, they will surely prefer to
pay more, for a service that meets their needs. To complement the example of
this industry, and understand how customers can be retained in low cost
businesses, there will be exposed an article that talks about the key concepts
to obtain loyalty in this business model.
In the article “Key determinants of passenger loyalty in the low-cost
airline business”(Akamavi, Mohamed, Pellmann & Xu, 2015), it is defended
the importance that the customer relationship management (CRM) has, it has
become a crucial concern for low-cost airlines, due to the the extreme rivalry
in the airline sector. Key concepts that are important for obtain passenger
loyalty, is service employee self-efficacy, price, service recovery, passenger
trust and satisfaction, and this, because they defend that people are not going
to be loyal customers for the price, but for the relationship with the brand.
When it comes to define the meaning of a logistic platform, it is is
important to take into account what the EUROPLATFORMS (European
Association of Freight Villages) have to say about that. They define this term
as an special area where there must be all of the services and infrastructure
necessaries for co-modal transportation and added value services, where the
different agents coordinate their activities to benefit the competitiveness of the
products making use of the infrastructure and the environment protection in
the transport sector. Some of their key elements usually are: access control,
service area, business center, transport and logistics warehouse, intermodal
warehouse and intermodal terminal.
According to what Erick Leal and Gabriel Pérez Salas said their article
“Logistic platforms: conceptual elements and the role of the public sector”
(2009), three different types of logistic platforms can be distinguished. The
Unimodal distribution centres are infraestructures related with storage facilities
and is primarily concerned with road transport. Logistic areas are related more
with integrated operations like stock consolidation, local and redirectioning
activities. This one is concerned with air or maritime freight centres. The last
one are the multimodal logistic platforms, which are logistic nodes connecting
different modes of transport. This infrastructure are run by several operators
and are mostly focused on the added value services contrary to the two
previous types of platforms.
There are many low cost business in colombia which are doing great in
terms of profitability and grow like Tostao, Delis, Ara and Tiendas D1.
However, they could perform better, as the article “Operadores y plataformas
logísticas” (Javier Arturo Orjuela Castro, Óscar Fernando Castro Ocampo,
Edwin Andres Suspes Bulla, 2005) points out an specific case in Spain, where
this country was far away in terms of logistics from many other countries in
Europe. They decided to create many logistic platforms, in strategic places in
the country, and that has been a huge help for them in terms of operations.
The article also says that there has been an increasing amount of specialised
companies offering logistic services in Colombia, which is positive for their
perform in their operations. However, there are not properly logistic platforms
owned by any company, which would be very helpful for the low business
companies that are huge and still growing rapidly, and their competitive
advantage in the market are their low prices of their products.
For instance, Ara supermarkets achieved that their suppliers put the
procurement orders in palettes, not in boxes or units. So, the company arrived
to Colombia and maintains a competitive advantage over the pioneer of "hard
discount" D1. However, the suppliers had to adapt fast to the new packaging
and give away the traditional layettes, which have resulted in mistakes along
some logistic areas. (América Retail, 2013). Additionally, Tostao imports their
bread products ultra frozen from Germany and Spain, and then they bake
them in the oven. That is why it is always fresh and hot.The examples above,
are inspired in Biedronka, the convenience stores of Jeronimo Martins in
Poland.
Furthermore, Biedronka stores followed the customer trends in Poland,
which indicated that customers had a busy lifestyle and the new family model,
so this led to the company’s expansion to new markets.What is more,
proximity supermarkets and discounters, due to their suitable size and
logistics have big potential in regional development, especially penetrating
smaller cities, inhabitants of which are increasingly expecting same shopping
experience as in bigger cities. (Berger, 2016) Also, they are able to penetrate
small cities, are region potential and can have very low prices, which the
competition could not equal , due to efficient logistics, large scale per SKU and
Private Labels. Therefore, this application of the supply chain in this type of
business model worked as an example for the development of similar
businesses in latin america.
In consequence, we consider that the logistic platforms are a very
useful tool for companies because it gives them the opportunity to have a
better control and perform of their supply chain, as every member of the
company in charge of anything related with the operations of the company
should be in the same place of work, which is equipped with all the
requirements for a well coordination of activities. In the case of low cost
business, the logistic platforms could be very helpful as these companies tend
to be big and growing very fast, so even if the company was not that huge, the
Unimodal distribution center would work perfectly. Added to the fact that the
companies could focus their supply chain towards cost efficiency, which
enables to them have larger margins and their customer could have easily
have access to their products.
4. Business Models
4.1. SWOT
Strengths Weaknesses
- Huge demand - Hard to manage it properly
- Low marketing investing - Low profit per unit
Opportunities Threats
- Companies can grow very - They mainly depend on
fastly the prices, so the
- Trends in buying products competence can emulate
in this type of business the prices
5. CANVAS Model
To explain how it is going to be implemented, it is going to be use the
Canvas Business Model. The reason is that it allow a very simple way to
understand the key steps to take into account, it gives a very systemic and
integral approach. It also is oriented to easy solutions encouraging group
work. In here we are going to see an strategic analysis of the market, the
competitors, clients, suppliers, structures and processes that Tostao’ Café y
Pan develops. This can be used as a starting point for other Colombian
business that want to follow.
1
The document can be found in the following link:
http://www.banrep.gov.co/economia/sal_deu_x/pcebracs_1.pdf
Regarding to the human resources of the company, all the employees that
work for Tostao are hired directly with a "social salary", and only 5% of the
employees of the company are administrative, that means most of the
employees are the ones in charge of managing the stores. These employees
are of all ages, and before started working they need to attend to a training in
a school of culture and service. This seeks the store to be self-managed
through the employees in charge. Therefore, they must collaborate and
support each other to achieve the success of the store, as there is no boss or
supervisor in there.
The financial aspect is vital since they are always looking to reduce their costs
in all possible aspects, so that the product offered to consumers is as cheap
as possible. Every financial decisions are made as quickly as possible, and
they manage to do it through a network (which is almost never done in person
to speed up the decision), which in this case generally involves the
accountant, treasurer, and of course the General Manager. (portafolio, 2017)
5.7. Channels
Tostao have three types of channels, and they choose it depending of
the product they want. For most of the products the the channel begins in the
different suppliers the have, then the products go their main distribution center
located in Bogota, and finally the product is transported to every Tostao Store
according to the demand established. The bread has a similar distributions
channel, but the difference is that the channel begins with a supplier in
Europe, so then it goes to a broker in charge of the transportation to
Colombia, in order to get the products to the distribution center, and then the
Tostao store.
Regarding to the coffee, it is slightly different, as this product needs another
process to be consumed. That is why it begins with the supplier, and then it
goes to the toaster the company has in Manizales. When the product is ready,
it goes like the normal products to the distributions center, and then the
product can go to three different ways, which are to the usual Tostao stores, to
the retailer Justo Y Bueno, and to a broker, which is going to transport the
coffee out of the country (Portugal, Ireland, Taiwan and EE.UU.)
The company is always aiming to have all the processes integrated, so they
try to never outsource any activity they need to do. Even when it comes to
activities related with transportation, they want to do it themselves in order to
have a better control of all their supply chain.
On the other hand, they focus on small local shops that are strategically
located around the city, where there is a huge flow of people. So, for example
the consumer that bought a coffee in the morning can buy a coffee at night at
the other side of the city.
5.8. Cost Structure
When it comes to creating partnerships, they are always open to make
alliances with other companies as long as it is convenient for them. They see
difficult to work with companies like Alpina as they have a huge amount of
quality products, but the cost of them can be elevated in comparison with the
average products in the store, and they are always looking for offering quality
and very cheap products.
The human and the physical resources are the most expensive ones as they
usually put their stores (which are more than 200) in key points in the city, so
the rent is going to be expensive. Also, they have to adapt every store in order
to have the requirements they are looking for. In some cases the
arrangements are not that hard, but in other ones they are, so the costs are
going to increase. Regarding to the human resources, they are willing to pay a
higher salary than the minimum in Colombia and the quantity of employees in
the company is huge as all of them are hired directly. One of the advantage in
this aspect is that they are able to minimize the quantity of their administrative
employees in order to decrease this cost. But still they still have a huge
amount of salary they have to pay, as in 2016 it was approximately COP
3’800.000.000.
The importation of bred from countries in Europe like Spain and Germany
could be their most expensive activity because of the long distance and the
high volume they import, which is a 12% of their total of products. However,
this importations and the implementation of the deep-freezing technology is
the one that allow Tostao to sell its bread with a high quality and at a very low
price, so it is very convenient.
This types of businesses are cost driven, mainly because the aim of this
company is to transfer all of the activities into a good product with the lowest
cost possible.
And as it is show in Table 2. the main importers in the world are Pakistan,
Russian Federation, USA, United Kingdom, Egypt and Iran.
We will focus mainly on exporters, since these ones could become our
potential suppliers.
Finally, after analyzing both informations, the largest tea exporters, as well as
the countries to which Colombia imports the most, there was found China and
India in common, so it was decided that it could be exported from both
countries.
8. Conclusions
● It is possible and profitable to have a sustainable low cost business in
Colombia, as long as there is a clinical control of the cost in the whole
supply chain.
● There is an important quantity of people in Colombia who drink tea, so
there is real opportunity to make an impact with this kind of business
9. References
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➢ Berger, R. (2016). The Polish Grocery Retail Market in 2010 - 2020
Proximity Supermarkets and Convenience Segments will benefit from
slower growth of discounter.
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