A Study On Analytical Framework of Value Added Logistics Throughout Closed-Loop Logistics en

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Journal of Korea Port Economic Association, Vol.24(1), 2008, pp.61~83
Journal of the Korean Society of Port Economics Vol. 24 No. 1 (March 2008)
www.kportea.or.kr
Research on the analytical framework of

value-added logistics
Byungseok Son*․Yoonjung
Kim**․Taebok Kim***
A Study on Analytical Framework of Value Added Logistics throughout

closed-loop logistics
Byung-Suk Son, Younjung Kim, Tae-Bok Kim
木 TU
I. Introduction
II. Prior research and how it IV. Analytical framework and activities of value-
differs from our study added logistics
III. Current status of value-added V. Conclusion
logistics services
Key Words: Value Added Logistics, Analytical Framework, Closed-loop Logistics
Abstract
The meaning of "added value" refers to the contribution of the factors of production, i.e., land, labor, and
capital goods, to raising the value of a product and corresponds to the incomes received by the owners of
these factors. The importance of added value in service industry has been recognized as one of the
critical factors to economic growth, even in logistics industry. But
, it is hard to find out the previous studies providing a clear definition and framework for designing and
analyzing the performance of Value Added Logistics(VAL).
The purpose of this study is to define the meaning of extended VAL that extensively includes activities
initiating and operating the reverse logistics under the closed-loop logistic scheme, and to suggest the
framework that describes the partnerships among participants involving in operating the value added
logistics. Also, in this paper, we emphasize on the need for investigation of added value logistics
definition and framework based on previous academic studies, and examine various value added
logistics service activities of current leading 3PL companies across the world.
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▷ Call for papers: January 27, 2008. ▷ Review completed: 2008.3.16 ▷ Publication
confirmed: 2008.3.18
* Corresponding author, PhD candidate, Northeast Asia Graduate School of Logistics, Incheon
National University, logison@paran.com, 032)850-5710
** Co-research, Researcher, Strategic Planning Team, Korea Logistics Warehouse Association,
timiotera@gmail.com
*** Corresponding author, Professor, Graduate School of Northeast Asian Logistics, Incheon
National University, tbkim@incheon.ac.kr, 032)850-5707
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A Study on the Analytical System of Value Added Logistics / Byung-Seok
Son, Yoon-Jung Kim, Tae-Bok Kim
Finally, we suggest the analytic framework for value added logistics throughout closed-loop logistics.
I. Introduction
"Added value" is a topic that is attracting attention in recent domestic and

international logistics activities. Port logistics complexes are being developed to
create added value for ports, and various business models are being introduced to
create added value for airport logistics complexes. In addition, logistics
companies are also providing differentiated services in addition to existing
services as value-added services.
However, in the literature on value-added, it is found that there is no
theorizing on the definition and scope of value-added logistics services, which
are considered to be a competitive factor for companies and countries. In
addition, existing research has not studied value-added activities that consider
the entire logistics network, i.e., the entire logistics activities from the production
of products to reaching customers, and has been limited to some cases such as
ports and distribution centers.
This is not an approach to the fundamentals of value-added logistics, but
rather to the results of value-added activities. In addition, recent logistics issues
that have emerged require not only an environmentally friendly logistics system
to efficiently deliver products to customers, but also to recover and recycle waste
products generated by customers. This expanded PLC (Product Life Cycle), which
includes recovery logistics, requires a newly expanded supply chain
management process from the existing open-loop logistics system to a closed-loop
logistics system. In addition, take-back logistics is a key part of sustainable
management, which is the management focus of global companies, and requires
management that considers the environment (product recovery) as well as
product production. These changes may provide companies with opportunities
to not only adapt to the environment and system, but also to create new value.
However, previous studies on value-added logistics have not included the
concept of recovery logistics.
The purpose of this study is to investigate the role of value-added logistics, which is
becoming important in domestic and international logistics activities.
The intention is to provide a theoretical foundation. It aims to define the value-
added activities that take place in a logistics network and to logically explain how
value-added logistics is created through the flows.
To this end, first, we investigate and analyze domestic and foreign value-added
research to define the concept of value-added logistics and suggest the
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Journal of the Korean Society of Port
Economics Vol. 24 No. 1 (March 2008)
significance of establishing an analytical system. Second, the concept of value-
added from the corporate side and various value-added logistics services
provided by global logistics companies are identified. Finally, we will
comprehensively define the concept of value-added logistics activities, including
recovery logistics, and propose an analytical framework. In order to explain
value-added activities within the analytical framework, the transition of logistics
activities by actors in the logistics network and the logistics network
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We will present examples of added value through rebuilding, etc.
In order to create added value in the domestic logistics network or
international logistics network that is currently built and operated, we must first
understand the concept and scope of value-added logistics activities. For this, a
broad reference system for value-added logistics is required, and for this, a
definition and analytical system for value-added logistics will be required.
This study is considered to be a pioneering study in the field of value-added
logistics in Korea and can provide a great direction for future value-added
logistics research.
II. The difference between research and

preliminary studies
1. Domestic Research
In Korea, value-added logistics is a field that has n o t b e e n covered much in

theses and journals, and it seems t h a t not many a c a d e m i c studies have been
conducted. In a previous study o n value-added logistics in Korea, Kyung-Seok
Kim (2000)1) presented a development m o d e l f o r a d i s t r i b u t i o n complex
that efficiently combines distribution and value-added logistics to introduce
value-added logistics in a distribution complex. Kwon (2000)2) explained value-
added logistics system as an activity in which logistics service providers implement
various value-added logistics services online based on information technology
(IT) to support the logistics process of shipper companies under the concept of
supply chain management (SCM). Kim Jong-chil (2006)3) defined value-added
logistics as the convergence of manufacturing and logistics functions, and
suggested institutional improvement measures to strengthen the logistics base
function of free trade zones to create such value-added logistics. Oh, Chang-hyun
(2004)4) studied the major value-added logistics systems in free trade zones in
order to revitalize free trade zones. As such, there have not been many studies
related to value-added logistics in Korea, and the existing studies are mostly
limited to partial value-added logistics activities targeting distribution complexes
or shippers.
2. International research
In the international literature on value-added logistics, the United Nations (1993)5) in

The System of National Accounts defines value added as the difference at each stage of
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production in terms of all costs of production, capital and labor inputs, or other
inputs used to make a product, "created by production.
1) Kyung-Seok Kim, "A Study on the Introduction of Value-added Logistics Functions in

Distribution Complexes," Land Research, Vol. 29, 2000.4
2) Kwon, Oh-Kyung, "Innovative Strategies for Logistics Management to Revitalize Business-to-
Business E-Commerce", Korea Economic Daily, Nov. 2000.
3) Jongchil Kim, "Efficient Operation of Free Trade Zones for Creating Value-Added Logistics,"
International Journal of Commerce, Vol. 21, No. 1,
2006.3.
4) A Study on Value Added Logistics System in Free Trade Zones, Master's Thesis, Pusan National
University, 2004
5) United Nations, The System of National Accounts, 1993, paragraphs 6.222 and 6.223
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value output". They further defined value added as the value of a firm's total
output minus the value of its inputs (such as raw materials, fuel, and intermediate
consumer goods consumed in the production of the product), and that gross
value added is the unduplicated value of output where the value of goods and
services used as intermediate inputs is removed from the value of output.
UNCTAD secretariat (1998)6) defines value added generated by an enterprise as the
difference between sales revenue minus the cost of materials and services. It
explained that firms can increase the value of goods by assembling them in a
finished form rather than transporting raw materials or intermediates, and that
firms engage in value-added activities that add value to goods when transporting
or storing the final product.
The Netherlands Foreign Investment Agency (1997)7) defined the area of value-added
logistics as the scope that enables the provision of logistics and value-added
logistics services, and explained that the area of value-added logistics
corresponds to a new area between production and sales in the process of
"procurement-production-sales", which are the three processes that general
logistics goes through. C. Donald J. Waters (2003)8) explained that value-added
logistics services in freight transportation are high customer service as a means
for transportation companies to secure competitiveness to extend freight
transportation contracts due to changes in the freight transportation market. The
types of value-added logistics services include transportation management,
palletization of stored goods, packaging and repackaging of live cargo, facilities
and repackaging for cargo intermixing, labeling in order picking, inspection and
inspection in order processing, customized inventory management, pick and pack
for sales services, and consultant advice. The (Paris) European Conference of Ministers9)
explained that the value added by the transportation function is affected by logistics
trends in different ways. Basically, the value added by transportation is the
integration of other logistics functions into transportation services, and all forms
of transportation have an impact on value added. Transportation is the
connection between different logistics actors handling the same goods. If a
region can reliably connect different logistics actors with fast transportation, the
value added by transportation will be very high. Martin Christopher and Helen Pec k10)
explain that the reason why logistics pipelines a r e longer than the actual
defined manufacturing and transportation times is that much of the time is
wasted by non-value-added activities. They suggested that if these non-value-
added activities were eliminated, more value could be delivered to customers.
In foreign countries, since the late 1990s, warehousing centers have been the center
of attention for companies' value-added services.
Various definitions have been published, as shown in Table 1.
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6) UNCTAD secretariat(1998), Added Value Logistics Services To be Offered In Developing Country, P.6
7) Netherlands Foreign Investment Agency, Value added logistics in The Netherlands, 1997
8) C. Donald J . Waters (2003), Global Logistics and Distribution Planning: Strategies for Management,
Kogan Page.
9) (Paris)European Conference of Ministers, ECMT Staff, New Trends in Logistics in Europe
10) Martin Christopher and Helen Peck (2003), Marketing Logistics, Butterworth-Heinemann
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<Table 1> Definitions for foreign value-added services

Presenters 内容
Value-added services are services that are added to the process of
Jim Penn11) getting a product from the manufacturer to the distributor. Also,
value-added services are short for
The service must be delivered within the cycle at no additional
cost to the customer.
I explained that a value-added service is like a reconfiguration
Hugh Kinney of a product. We're willing to change the composition of a
(Logistics Resources product in any way if it gives the customer better value. An
International) example of this is when you receive a product from a
manufacturer and it comes in blue, white, and red, and when
you send it to another distributor, you want it to be color-coded.
is to divide.
John A. White Ⅲ Value-added is the performance of an action that benefits operations
(Andersen Consulting) further down the supply chain.
in the process. Simply shortening the process does not mean value-
added.
Source: Value-added service centers: Altering inventory to customer specifications, Gale Group,
1998 Reprinted from Value-added service centers.
3. What makes this study different
Previous studies at home and abroad have partially introduced and defined value-
added logistics activities, but most of them are limited to individual facilities or
entities rather than the entire logistics flow, such as manufacturing and production,
logistics centers, free trade zones, and ports, and do not include recovery logistics,
which has recently been recognized as the most important logistics activity. There
are no previous studies or data that define and study the value-added logistics
activities that occur in the entire logistics network like this study, and it will be a
unique study to present a framework that can logically explain the value added in the
logistics network.
By defining and explaining value-added logistics according to the changing
logistics environment, this paper can provide a more systematic approach for
companies that want to create value-added in the future.
III. Current status of value-added logistics

services
1. The value-added concept in business management
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In business management, Economic Value Added (EVA) was developed by the
American management consulting firm Stern Stewart in the late 1980s and is now
used by many companies around the world.
11) Partner in charge of distribution operations at Coopers & Lybrand
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<Table 2> Effects and Utilization of Economic Value Added
Value-added ratios, such as the labor income share, can be

Comparison
useful in determining a firm's wage policy because they can be
metrics with
used to make comparisons with other firms in the industry.
other businesses
in your industry
Company size Value added can be used as a variable to measure company size
and importance and importance. The commonly used measure of company
Measurement hierarchy based on revenue can provide a misleading picture of
a company and can encourage appearance-oriented thinking.
variables
When measuring the value of a company by economic value
Measuring a
added, the value is measured by discounting the free cash flow
company's
of the company to the opportunity cost of an investor who
Measur
injects capital into the company.
ing intrinsic value
Since an increase in economic value added can be judged to
Criteria for increase a company's fundamental earning power, economic
making optimal value added can be used to make important investment
investment decisions, such as entering a new business, selling an existing
decisions business, or restructuring a company.
Because it takes into account the cost of capital of all capital
invested in business activities, it forces companies to set a goal
Performance
of realizing profits in excess of their total cost of capital,
Evaluations allowing them to measure financial returns that take into account
the cost of equity as the opportunity cost of equity capital
invested by shareholders.
Value-added makes pay-for-performance easier to see. This is
Easier to
because introducing performance pay based on the value-
determine
added/labor cost ratio, which is the inverse of the labor income
the right wage
share ratio, makes it easier for employees to see the value they
level and
create as a multiple of their labor costs, which can lead to
implement
productivity improvements.
performance
pay
Linking economic value added to the performance appraisal and
compensation system of not only the top management but also
Behavioral
the middle management within the company will ensure that the
drivers for
behavioral drivers of management are directly linked to the
executives and
actual value added of the company and can be a useful source of
employees
information for improving employee attitudes towards the
(improving
company. Under the value-added concept, all resource
productivity)
providers are recognized as a team that contributes to the
creation of value-added, and they will recognize themselves as
contributors to the creation of value-added, and they will
become more cooperative with the company while raising their
work ethic.
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Prevent If a company has a large number of affiliates, it is possible to
sprawl and improve the overall profitability of the company by developing
encourage only the affiliates that generate a lot of EVA into mainstream
industry companies and eliminating marginal companies with negative
specialization EVA and no possibility of recovery.
In recent years, many companies around the world have
Measuring up to
adopted economic value added as a new financial metric, so in
global
this sense, economic value added is an international standard
management
after all.
Source: Adapted from Cho Sung-hoon, Lee Sang-bo, and Jung Min-yong (Research on the Use of
Economic Value Added for Management Performance Evaluation, 1995) and Samil Accounting
Firm.
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Economic value added is a profit calculated by subtracting the Earnings Before
Interest and Taxes (EBIT) generated as a result of an enterprise's operating activities
from the corresponding income tax liability to arrive at Net Operating Profit Less
Adjusted Taxes (NOPLAT), and then subtracting the cost of capital for Invested Capital
(IC) provided for operating activities.
EVA = Net Operating Income After Taxes - Cost of Capital

=( Operating income - Income taxes) - ( Cost of other capital + <Formula 1
Cost of equity capital)
=( Operating income - Income taxes) - ( Invested capital × average
cost of capital)
EVA, which also takes into account interest expense on equity, is a management
performance measured from the perspective of shareholders, just like
accounting profit. However, it differs in that it is a performance indicator that
evaluates the added value contributed to society. It is assumed that there are
various resource providers in a company, and that the performance of a
company is the result of various resource providers providing valuable resources
to the company. The effects of economic value added can be summarized as
shown in Table 2.
2. Current status of value-added logistics services of global logistics

companies
With the expansion of logistics outsourcing and M&A among logistics

companies, logistics companies are trying to provide more diverse and
differentiated services to attract shippers. This is to create added value by
providing additional services based on existing services.
Value-added services are also very important to logistics companies. In 1999,
the top 75 electronics logistics companies in the U.S. earned about 42.6% ($12
billion) of their revenue from value-added services12). This shows that value-added
services are a very important driver of logistics company growth, and value-
added logistics services will be important for the growth of domestic logistics
companies.
This study summarizes the types and characteristics of value-added logistics
services based on data from Who's Who In International Logistics (2006), a survey of 84
global logistics companies conducted by Armstrong Associates. The types and
characteristics of value-added services of global logistics companies can be
summarized as shown in Table 3. <In Table 3, the types of value-added services
are organized according to the flow of the logistics network, and the return
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logistics is classified as a c o m p r e h e n s i v e c a t e g o r y t h a t includes return,
after-sales service, and collection of empty containers along with recycling of waste
products.
12) Value-added services play bigger role in distribution, Gale Group, 2000
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<Table 3> Types and features of value-added services

分类 Features
Manufacturing Production work, such as work that requires a large
Support space or a lot of manpower.
Assist Up
Sub Assembly Performs sub-assembly for manufacturing operations
Produ
Enabling replenishment of manufacturing and
ction/ KanBan
assembly lines in JIT environments.
Manu
Tasks
factur
Productizing or weighing liquid materials (wine,
ing Sequencing/Metering
chocolate, etc.)
Tasks
Customerized manufacturing services or delayed
Customization
services until the right time for manufacturing.
Tasks that provide
Cross Docking Includes cross-docking operations, mixing and matching
for shipping, etc.
Combine shipments from different customers into one
Merge in Transit
large shipment with the same final destination.
Logisti Tasks to integrate
Pool Distribution Consolidate smaller shipments into one vehicle's worth
cs of cargo
Inventory Control/
Manage inventory and suppliers as goods come in and
Vendor Management
out of the system.
Pick/Pack Picking and packing products in storage to order
Kitting Packing multiple items into one new bundle
Labeling Labeling products or packaging
Store Support/ Support store operations and bypass shelf inventory and
Stores Direct Store Delivery centers.
/ Parcel delivery
Custo
Specialty Packaging Provide specialized packaging capabilities that customers
mer
Service want (such as medical packaging)
Call Centers Features to help customers process orders and claims,
and more
If necessary, you can track your goods and reorder them
Lot Tracing
into lots.
Recove What the call can do
ry Repair/Refurbish Repair and refurbishment services for merchandise
logistic Returnable Container Manage the inventory of reclaimable containers in the
s Management system and keep track of each
Services that can track containers
Reverse Logistics Reverse logistics services, such as recycling,
disassembly and reuse of used assets.
Source: Armstrong&Associates (who's who in International Logistics - Armstrong's Guide to Global Supply Chain Management 14th
Edition, 2006) and reorganized homepage material from domestic and international logistics
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companies.
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Among the 84 global logistics companies, we analyzed the value-added services

provided by companies with more than $10 billion in sales in 2005. In addition,
we analyzed the value-added services provided by the top 10 companies in sales
among the 84 companies, as shown in Table 4 below. According to the analysis, the
lowest percentage of services provided by all logistics companies is Call Centers,
which is provided by only 26 companies out of 84 companies, 41% of companies
with more than $10 billion and 50% of the top 10 companies. The highest
percentage of all value-added services is Pick/Pack, which is analyzed as 90% of all
companies, 97% of companies with more than $10 billion and 90% of the top 10
companies.
<Table 4> Analysis of value-added services provided by global logistics companies

sph All Rati 10 billion Rati Parent Ratio
Value-added services
ere (dog) o or more o Ten (10) (%)
Mi (%) (%)
nut
es
1 Call Centers 26 31 12 41 5 50
2 KanBan 32 38 18 62 6 60
3 Sequencing /Metering 34 40 14 48 3 30
4 Repair/Refurbish 39 46 18 62 5 50
5 Pool Distribution 46 55 21 72 8 80
6 Returnable Control Management 46 55 20 69 6 60
7 Merge in Transit 47 56 24 83 9 90
8 Manufacturing Support 47 56 23 79 8 80
Store Support/Direct Store
9 49 58 25 86 8 80
Delivery
10 Reverse Logistics 51 61 25 86 8 80
11 Sub Assembly 52 62 23 79 6 60
12 Lot Control 53 63 22 76 9 90
13 Customization 57 68 25 86 8 80
Inventory Control/ Vendor
14 65 77 26 90 9 90
Management
15 Specialty Packaging 65 77 27 93 9 90
16 Kitting 67 80 27 93 8 80
17 Cross Docking 72 86 26 90 9 90
18 Labeling 75 89 28 97 10 100
19 Pick/Pack 76 90 28 97 9 90
Average 53 63 23 78 8 75
Source: Quantitative analysis of data from Armstrong&Associates, who's who in International Logistics - Armstrong's
Guide to Global Supply Chain Management 14th Edition, 2006.
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The average revenue of the 29 logistics companies with more than $10 billion in
revenue in 2005 analyzed earlier was
423.5 billion, with an average of 15 value-added services offered per company.
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<In Table 4, Hellmann Worldwide Logistics, NYK Logistics, Uti Worldwide, and TNT
Logistics were found to offer all 19 types of value-added services, but their
revenues were below average. This means that the number of value-added
services offered by a logistics company does not have an absolute positive
correlation with revenue. On the other hand, Companhia Vale do Rio Doce, a Brazilian
multinational mining company that specializes in the transportation of certain
minerals using land transportation (rail and truck), ports, and port terminals, is a
special case with a high turnover but a very limited number of value-added
services. As such, the relationship between sales and value-added services is
a n a l y z e d and presented a s s h o w n i n <Figure 1>.
<Figure 1> Relationship between sales and value-added services
Note: The dotted line represents the average of revenue and value-added services for all companies.
IV. Analytical frameworks and activities in value-

added logistics
1. Concepts and premises of analytic schemes
1) Definition of value-added logistics
Looking at the existing literature's definition of value-added logistics, Kyung-Seok
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Kim (2000)13) defines value-added logistics as value-added goods.
13) Kyungseok Kim, " A Study on the Introduction of Value-added Logistics Functions in
Distribution Complexes" , K o r e a L a n d R e s e a r c h I n s t i t u t e , 29.
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Ryu is defined as "a new type of logistics, industrial services, and product
manufacturing process that combines logistics and industrial services to add
value to products by modifying products to suit the preferences of end
consumers through packaging, labeling, a n d assembly during the process of
delivering products from production plants to consumers, and enables logistics
cost reduction and improved service provision to consumers."
The definition of value-added logistics in Korea was recently announced at a
public hearing on the Basic Logistics Policy Act (2007). The Act redefines the
concept of "logistics" to broaden the scope of logistics activities to explicitly
include value-added logistics activities, which have been gaining importance in
recent years, in addition to the main activities of transportation, storage, and
unloading. Value Added Logistics (VAL) defined in the Act is described as activities
such as processing, assembly, sorting, repair, packaging, trademark attachment,
customs clearance, sales, and information and communication that can create
value in addition to the main logistics activities such as transportation, storage,
and loading.
However, this domestic definition of value-added logistics can partially
explain the logistics activities from production to sales, but it does not take into
account the recovery logistics activities such as consumer returns/disposal. In
addition, the definition of value-added logistics is insufficient to explain the
overall activities in the logistics network.
This study aims to define value-added logistics by considering the changes in
the domestic and international logistics environment and the logistics activities
of companies. In other words, value-added logistics is defined as "an activity that
improves the profit and customer service of the entire logistics network through
the repositioning and reengineering of logistics activities (storage, packaging,
u n l o a d i n g , t r a n s p o r t a t i o n , information) and additional activities (simple
p r o c e s s i n g , a s s e m b l y , labeling, etc.) between each actor14) in forward logistics,
which delivers products produced in factories to consumers, and backward logistics,
which services or recycles products returned and discharged by consumers".
Value-added activities in a logistics network can reduce overall costs by
reducing logistics costs, but they can also increase value through other
additional activities.
Value-added refers to the additional value retained by all actors in the entire
logistics network for their current activities. It would not be a value-added
activity for a manufacturer to undercut a supplier's delivery price in order to
make more profit, or for a warehouse to store speculative products and sell them
to customers at a higher margin.
Value-added activities not only provide customers with the desired
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satisfaction, but also increase the value of the entire logistics network, and the
actors building the network can share in the value.
Kwon, 2000.4. p.24

14) The actors in a logistics network can vary depending on the function and role of the
logistics network. In this study, we distinguish between suppliers, factories (manufacturers),
distribution centers, ports/airports, agents, and recyclers.
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2) Analytical framework and premises of value-added logistics
In order to analyze value-added activities in the logistics network, an overall

analytical system for the logistics network should be established. The analytical
system of value-added logistics presented in this study can be defined a s a
circular logistics system that considers corporate logistics and recovery logistics
as shown in Figure 2.
In order for value-added activities to be created in the logistics network, they
may be created by the activities of individual actors that comprise the logistics
network, but they will be created in the planning stage that distinguishes and
assigns functions and roles to individual actors in the entire logistics network.
This is closely related to the company's logistics strategy to respond to changes
in the logistics environment, and if the purpose of outsourcing, such as logistics
outsourcing, is to reduce costs, the evaluation of logistics outsourcing should
consider not only the reduction of logistics costs through logistics outsourcing
but also the cost reduction of related departments. This means that if the
logistics cost is the same through outsourcing, but the purchase cost is reduced,
the purpose of cost reduction has been achieved from the company's
perspective15).
In other words, we can say that value-added activities are achieved through the
transfer of activities between actors and the reconstruction of logistics networks
in the entire analytical framework.
The analytical framework of value-added logistics considering forward logistics
and backward logistics in this study is shown in Figure 2. <The analytical framework
of value-added logistics presented in Figure 2 is a d i a g r a m o f a circular
logistics system that considers the physical movement of products and the
characteristics of actors. The characteristics of these actors are categorized into
① ～ ③ in consideration of their connection to the upper supply chain plan,
forward and reverse logistics, and items handled (goods, recycling, and recyclables),
and the characteristics of each activity area are summarized as shown in Table 5.
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15) Jeon Il-Soo, Byung-Seok Son, and 4 others, 3PL Strategy, Beomhan, 2007
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<Figure 2> Analytical framework of v a l u e - a d d e d logistics considering f o r w a r d and

r e v e r s e logistics
<Table 5> Activity area classification and features of analytical system
分类 Phase Scope Features

For general logistics
Forward Logistics 1. Activities that deliver
activities and logistics
products to customers planning
This varies depending on
Forward Activities that turn Typical take-back logistics,
2.
Logistics customer waste into varies by policy
Backward recyclable resources
Logistics
Activities that utilize and
Backward Recovery logistics
γ sell recycled resources
Logistics activities vary depending
(used, raw materials), and
on the impact of ① and ②.
supply and collect
containers.
<The division of value-added logistics into forward and reverse logistics, as

shown in Figure 2, is due to the d i f f e r e n t i a t i o n of their
characteristics.
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Forward logistics is aimed at logistics activities for the pursuit of corporate
profits, but the purpose of reverse logistics is to maximize recycling and minimize
waste in consideration of the environment at the national level. Also, forward
logistics activities are based on competition between companies, but reverse
logistics is based on public interests.
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(see <Table 6>).
These differences make it difficult to analyze and evaluate forward and reverse
logistics as a single logistics system.
<Table 6> Characteristics of forward logistics and reverse logistics

分类 Forward Logistics Reverse logistics
Purpose The corporate bottom line Maximize recycling, minimize waste
Competition between individual Public benefit (social and
Features
companies environmental factors)
Difficulty sharing information You have control over your
information (legal basis)
Municipalities (direct or
Manufacturers (direct or
outsourced), Recyclers
Active outsourced) Logistics
Businesses (direct or
companies (direct or
Principal outsourced, outsourced)
outsourced) Importers
Importers (direct or
(direct or outsourced)
outsourced)
Consumer
This study aims to analyze value-added logistics activities centered on forward

logistics within the analytical framework of value-added logistics that considers
both forward and reverse logistics. The analysis of value-added activities
considering reverse logistics is excluded from the s c o p e of this study due to the
limitations of related prior studies and data collection.
2. Value-added activities in the logistics network
1) Analyze activities on the logistics network
In order to understand the value-added logistics created in the logistics

network, it is necessary to know in what form value-added logistics activities
create added value in the entire logistics network. Previous studies at home and
abroad have defined value-added logistics as the additional logistics activities of a
single logistics facility (port hinterland complex, free economic zone, logistics
center, etc.) rather than the entire logistics network. However, this study aims to
explain value-added logistics through the logistics activities of each actor in the
entire logistics network. This will clearly explain the concept and scope of value-
added logistics.
Value-added logistics is generated by the logistics activities of each actor in the
logistics network. In other words, the logistics activities of each actor must be
organically linked in order to create value-added logistics.
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-
<Figure 3> summarizes the logistics network of a typical manufacturing
company, and the actors in the logistics network can be classified as vendors,
manufacturers, logistics centers, ports and airports, agents, and customers. If we divide
these activities according to the flow of time, the manufacturing time when the
manufacturer manufactures the product and receives it to the logistics center,
and the time when the product is released from the logistics center and arrives at the
agent.
- . 77
-
It can be divided into customer response time, which must be provided by the
same time, and customer service time, which must be provided by the
customer's desired time. In such a logistics network, the areas where value-
added logistics activities can occur are product manufacturing and product
transportation time, excluding customer response time. This means that the
added value in the logistics network will not only reduce the logistics cost,
purchase cost, and sales cost of the company, but also lead to an increase in sales
volume due to improved customer service.
Customer response time16) is a part directly related to customer service, and
the logistics activities that occur during this time are additional services
provided in advance, such as cargo transportation information provided to
customers through customer delivery. As such, delivery information and location
information provided through the Internet or mobile phones should be
considered as customer service for the entire logistics network (WMS, TMS, etc.)
rather than customer service for the agency.
The logistics activities of actors in the logistics network are closely related to
the logistics activities of other actors. This leads to a flow that creates value for
the entire logistics network, and in this study, the flow of logistics activities
between each actor to create value added is called a value route. Value routes will
appear in various forms depending on the activities of each actor and product
features defined in the planning stage, and it is necessary to be able to analyze and
manage the activities of each actor to create added value.
<Figure 3> Logistics activities and value paths by actors in the logistics
network
- . 78
-
16) Response time is the service time that a dealer or product company promises to
deliver a product to a customer.
- . 79
-
2) Logistics activities by actor
In order to analyze the value-added activities and value paths in the logistics
network, it is necessary to define the logistics activities of each actor.
1) Vendors
In the logistics network, a supplier is an entity that supplies raw materials,
components, or semi-finished products to a manufacturer to produce a product.
It is assumed that all of the activities that suppliers perform to produce raw
materials, parts, or semi-finished products are performed between suppliers.
These activities of the supplier would be considered purchasing logistics from
the enterprise side.
<Table 7> Logistics activities of suppliers

分类内容 Notes
Packaging Industrial packaging to protect raw Labeling for semi-finished
materials and components products
Transportation Shipping raw materials and parts to Specialized packaging and
manufacturers tracking of dangerous
goods
Archive Storage of raw materials and parts Cold Storage
Unloading Loading and unloading raw materials and
components
About Production information for supply
planning
(2) Manufacturer
The logistics activities of a manufacturer are carried out in all stages from
receiving raw materials or parts from suppliers to producing and shipping
products. Internal logistics activities such as internal transportation and
warehousing to produce products are excluded from the main logistics activities
in the logistics network. Manufacturers can perform their own logistics
activities, but they can also outsource them to competitive specialized logistics
companies.
<Table 8> Logistics activities of manufacturers

分类内容 Notes
Packaging Labeling products (price tags, etc.), -.
packaging products, etc.
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-
Transportation Shipping products to a warehouse -.
Archive Storage of semi-finished products -.
Unloading Loading and unloading raw materials and -.
products
About Production information, shipping Reflect customer
information demand
3) Warehouse
In a logistics network, a distribution center can serve as a logistics hub and an
outpost for exports.
- . 81
-
There will be. These distinctions will vary depending on the size and strategy of
the company, and a single distribution center may serve two functions: domestic
distribution and export support.
In addition, the logistics activities performed at the distribution center are divided into
center functions (TC17), DC18), RDC19)) depending on the product.

and so on, and here we summarize them as shown in Table 9 and Table 10.
A logistics center with a logistics base function focuses on providing services
that meet the various needs of customers, while a logistics center with an
import/export support function will be primarily responsible for supporting
international logistics activities. A logistics center with an import/export support
function may also provide additional customs clearance services (import/export
documents, inspections, etc.).
<Table 9> Distribution center logistics activities of domestic base functions

分类 Detail Activity Contents
Packagi Labels, shipping slips, small
Customize your packaging, bundling,
ng packs, and bundles and more
Transpo Product Transportation Shipping products to distributors or
rtation customers
Archive Archiving products Store a variety of products that reflect
customer characteristics
Unloadi Loading and unloading products Incoming products, loading and
ng unloading in the warehouse
About Receiving, shipping, and Inventory information, such as
inventory information warehouses and agents
<Table 10> Logistics center logistics activities for import and export support
Packagi Labels, shipping slips, and small Packing for container stacking
ng packages
Transpo Product Transportation Transportation of products to the port (CY,
rtation CFS)
Archive Archiving products Storing products for export
Unloadi Loading and unloading products Incoming goods, loading and unloading
ng in the warehouse
About Inbound, outbound, and Information about inventory, shipment
inventory information dates, customs clearance, and more.
(4) Ports and airports

In recent years, ports and airports have become not only a connection point for
international transportation, but also an international logistics base in the
logistics network. In Europe, many countries operate logistics centers within
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-
ports and airports, and in Korea, international logistics bases are being promoted
in the hinterlands of Busan New Port and Incheon International Airport.
The following table summarizes the basic logistics activities of ports and airports
that are changing, centered on ports.
17) TC (Transfer Center): A logistics base centered on transferring and stacking goods without
storage inventory management and sorting functions
18) DC (Distribution Center): A logistics base with storage inventory management, stacking,
and sorting functions for goods.
19) RDC (Regional Distribution Center): A regional logistics center that holds the right amount
of inventory to respond to demand in a region and then responds to customer needs
immediately.
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-
11>. Logistics activities at ports (CY20, CFS21), ICD22), etc.) are larger in scale and volume
than inland logistics, and are also where declarations and transportation for imports
and exports are carried out.
<Table 11> Logistics activities at ports and airports

分类 Detail Activity 内容
Packagi Export repackaging, Using containers after export packaging for
ng containers exporting goods
Transpo Product Shipping, Transportation of goods to foreign ports/airports,
rtation International inland bonded transportation
Shipping
Archive Product Movement Higher volume and longer transit times than
domestic transportation
Unloadi In, Out Loading and unloading goods into and out of
ng containers or export vessels
About Shipping information, Transportation information (shipment information) and
customs information, customs clearance information for your products.
etc.
(5) Distributors
Distributors are the closest point of contact with customers and are more likely
to engage in marketing activities than logistics activities. In the logistics network
stage, the main logistics activity of the dealership can be seen as customer
delivery. However, due to the size of the dealership (increasing costs) and the
diversification of products (increasing inventory), all products are delivered from
the regional distribution center (RDC) rather than directly from the dealership.
This means that the functions and roles of actors in the logistics network change
depending on the internal and external environment of the company.
<Table 12> Logistics activities at distributors

Packagi Display, sales Packaging your products to meet your customers'
ng packaging needs
Transpo Individual Shipping products to customers in different regions
rtation transportation
Archive Product display, Displaying and storing products in your dealership
product storage
Unloadi Receiving items, Receiving goods and shipping them to customers
ng shipping items
About Receiving, sales, and Manage warehousing and inventory information
inventory based on sales information
information
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-
3) Analyze value-added logistics activities on the logistics network
In order for value-added logistics to be created in the logistics network, the

logistics activities of each actor will be moved or changed to increase the value
(cost, time) of the entire logistics network. This means that some of the logistics
activities of actors are moved to other actors or integrated to create synergies.
20) Container Yard (CY): Refers to a place where import and export containers are temporarily
stored
21) Container Freight Station (CFS): Refers to a unit where containers are inspected or mixed and
matched for loading
22) Inland Container Depot (ICD): Refers to an inland container base
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-
<Figure 4> shows the v a l u e - a d d e d l o g i s t i c s t h a t occurs when the
packaging function is transferred to the logistics center during the logistics
activities of a manufacturer. This is an example of a foreign company that
manufactures and exports chocolate to Korea. Previously, the company
manufactured chocolate and provided it to customers by product through a
logistics network. However, the company shipped the chocolate raw materials in
bulk to a domestic logistics center, and the logistics center packaged the
chocolate by product and provided it to customers. The expected value-added
effect of this transfer of logistics activities can be summarized as shown in Table
13.
< F i g u r e 4> Case a n a l y s i s o f v a l u e - a d d e d logistics activities i n t h e logistics

network: Transition of packaging activities
<Table 13> Value-added expectations: Product packaging.

Expense items Effectiveness of value-added logistics activities
Customs fees Save on export duties by exporting semi-finished goods
Transportation Reduce costs by increasing transportation density23)
costs
Reconsideration Reduce costs by increasing storage efficiency (less inventory
shrinkage, better management)
Unloading Ratio Increase unloading productivity
<Figure 5> is an example of creating added value by changing the location of

actors in the logistics network according to the company's strategy. This is a
value-added activity in the automobile and precision machinery industries,
- . 86
-
where assembly plants are established in overseas locations and parts are
exported to be assembled and sold locally. This method is a reorganization of the
logistics network to respond to environmental changes such as tariffs on
automobiles and rising international transportation costs. It creates added value
by exporting domestically produced parts in containers and assembling them in
foreign factories and providing them to customers.
23) Shipping in bulk allows for lower ship freight rates (volume tons, weight tons) than shipping
per product
- . 87
-
We can also distinguish between CKD (complete knockdown), where all the parts needed to
assemble the finished product are exported, and SKD (semi knockdown), where some parts
are sourced locally.
< F i g u r e 5> Case a n a l y s i s o f v a l u e - a d d e d logistics activities on the logistics

network: Reconstruction of the logistics n e tw o rk
<Table 14> Value-added expectations: Rebuilding the logistics network.
Expense items Effectiveness of value-added logistics activities

Customs fees Reduce export duties by exporting semi-finished goods and parts
Reduce costs by increasing loading capacity with containerized
Transportation
shipping (Roll on-Roll off (Ro-Ro))
costs Using container ships in addition to ships)
Unloading Ratio Increased unloading productivity (can unload containers in addition
to car bays)
Labor costs Access to cheap labor
客户服务 Provide quick after-sales service for products
In the future, if the global activities of companies expand and international

logistics networks such as sea and air are further expanded, various value-added
activities will be carried out than at present. In addition, Korea will increase the
- . 88
-
number of imported and exported goods due to the Korea-US FTA, which will
provide opportunities for domestic logistics companies to create more added
value.
- . 89
-
V. Conclusion
Value added refers to the newly added value in the production process, and in this
study, considering the changes in the logistics environment of companies, value
added logistics is defined as "logistics activities (storage, packaging, unloading,
transportation, and information) and ancillary activities (simple processing, assembly,
labeling, etc.) t o improve the profit and c u s t o m e r service of the entire
logistics n e t w o r k through r e p o s i t i o n i n g and reengineering." We considered
that this definition can comprehensively describe the various types of value-
added logistics services provided by global logistics companies.
When analyzing the value-added services of these global companies, it was found
that there is no direct relationship between sales and the number of value-added
services provided, which indirectly explains the need for a qualitative value-
added service system that is suitable for the logistics company rather than a
quantitative number of services.
Based on this, this study presents a conceptual definition of value-added
logistics and an analytical framework for value-added logistics that reflects the
strategic elements of a company. It categorizes the areas of activity in which
value-added logistics can be generated, taking into account their connection to
higher-level supply chain planning, forward and reverse logistics, and the
products handled (goods, recycling, recyclables). This analytical framework is
expected to help companies systematically understand the value-added activities
they are performing.
In addition, this study defines the flow of logistics activities between each actor
as a value route to derive the added value created in the logistics network. Value
routes will appear in various forms depending on the characteristics of each
actor's activities and products defined in the planning stage. The added value
created in the logistics network is achieved through the transfer of logistics
activities between each actor, and the transfer of logistics activities moves along
the value route. The value-added activities and expected effects of the logistics
network through these value paths have been shown in some cases, but it is not
easy to collect domestic and foreign data related to value-added logistics
activities, so it is not possible to present quantitative figures or standards for
value-added activities. In addition, there is a limitation of the study that value-
added flows and cases of reverse logistics including recovery logistics were
excluded from the scope of the study.
In the future, if objective data or evidence on the value-added activities created
in the logistics network is confirmed, it is expected that a logical model for value-
added activities can be presented.
- . 90
-
References
1. Kim, Kyung-Seok, " A study on the introduction of value-added logistics functions in distribution
complexes" , 『Local Studies』, Vol. 29, 2000,
p. 24.
2. Jongchil Kim, "Efficient Operation of Free Trade Zones to Create Value-Added Logistics,"
International Journal of Commerce, Vol. 21, No. 1, 2006.
3. Kwon, Oh-Kyung, "Logistics Management Innovation Strategy to Revitalize Business-to-
Business E-Commerce", KEPCO, 2000.
4. Byungseok Son, Woochul Ahn, Hee Sun Kim, Hee Mok Jung, "A Study on Establishing an
Integrated Recovery Logistics System to Reduce Logistics Costs of Waste
Electronic Products," Winner of the 1st Logistics Innovation Paper, Case, and
Idea Contest,
2007.
5. Soon-Seok Yoon, " A study on the usefulness and utilization of value-added information,"
Accounting Journal, Vol. 8, No. 2, 1999.
6. Changhyun Oh, "A Study on Value Added Logistics System in the Free Trade Zone," Master's
thesis, Pusan National University, 2004.
7. Chung-Hyo Lee, Kuk-Nam Kim, a n d Il-Soo Jeon, "Analyzing the effectiveness of improving
return logistics management through partnership system in an analytical model" ,
Journal of t h e Hangman Economic Society, Vol. 22, No. 3, 2006.
8. Il-Soo Jeon, Byung-Seok Son, and 4 others, 『3PL Strategy』, Beomhan, 2007.
9. J u n g , Kyung-Eon, Jeong, Soo-Bong, Kim, Young-Gyu, a n d Jung, Hwiyoung, " Economic
value added and the usefulness of value added information" , J o u r n a l o f Taxation
and Accounting, v o l . 5, no. 2, 2004.
10. Sung-Hoon Cho, Sang-Bo Lee, a n d Min-Young Jung, " A Study on the Utilization of
Economic Value Added for Management Performance Evaluation, " Journal of
Industrial Management, Vol. 22, No. 50, 1999.
11. Armstrong&Associates, "who's who in International Logistics and Supply Chain Management", 14th
Edition, 2006.
12. Arnold Maltz, "The Changing Role of Warehousing", Warehousing Education and Research Council,
1998.
13. C. Donald J. Waters, "Global Logistics and Distribution Planning: Strategies for Management",
Kogan Page, 2003.
14. C. John Langely Jr. Ph.D. and Capegemini, (Paris)European Conference of Ministers, ECMT
Staff, "New Trends in Logistics in Europe" 2006 Third-Party Logistics, U.S.LLC., 2006.
15. Martin Christopher and Helen Peck, "Marketing Logistics", Butterworth-Heinemann, 2003.
16. Moritz Fleischmann, "Reverse Logistics New York Structures and Design", Erasmus Research
Institute of management, 2001.
17. Netherlands Foreign Investment Agency, "Value added logistics in The Netherlands", 1997.
18. United Nations, "System of National Accounts", 1993.
19. UNCTAD secretariat, "Added Value Logistics Services To be Offered In Developing
Country", 1998, P.6.
20. "Value-added services play bigger role in distribution", Gale Group, 2000.
21. "Value-added service centers: Altering inventory to customer specs", Gale Group, 1998.
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-
< Summary
Research on the analytical framework of

value-added logistics
Byung-Seok Son, Yoon-

Jung Kim, Tae-Bok Kim
Value-added refers to the value created in addition to basic activities, and it is

probably the core goal of corporate management. To create value-added,
domestic and foreign companies are promoting various activities such as
outsourcing, M&A, and strengthening core competencies. Value-added is also
recognized as important in logistics activities, and many domestic and foreign
logistics companies are striving to provide differentiated value-added logistics
services.
In this study, we defined value-added logistics a s "an activity that improves the
profit and c u s t o m e r service of the entire logistics n e t w o r k through the
r e p o s i t i o n i n g and reengineering of logistics activities (storage, packaging,
loading, unloading, transportation, information) and additional activities (simple
processing, assembly, labeling, etc.) between each actor in forward logistics, which
delivers products produced in factories to consumers, and backward logistics, which
services or recycles products returned and discharged by consumers." We also
presented a conceptual definition of value-added logistics and an analytical
framework for value-added logistics that takes into account the strategic aspects
of a company. It categorized the areas of activity where value-added logistics can
be generated, taking into account the connection to the higher-level supply chain
plan, forward and reverse logistics, and the items handled (goods, recycling,
recyclables).
And in order to derive the added value created on the logistics network, each activity
entity
's logistics activity flow was described as a value route. The value-added activities
and expected effects on the logistics network through these value routes were
presented through several examples.
This study defined value-added logistics as a competitive issue for domestic
and foreign logistics companies, and logically explained the creation of value-
added logistics through an analytical system and value path. However, due to the
- . 92
-
difficulty in collecting data related to value-added logistics activities, the study is
limited in that it does not present quantitative figures or evaluation criteria for
value-added activities including reverse logistics.
In the future, if various studies and data related to value-added activities are
secured, it is expected that a value-added model that can logically explain the
value-added activities created on the logistics network can be presented.
□ Key words: value-added logistics activities, analytical system, forward logistics, reverse logistics
- . 93
-

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Journal of Korea Port Economic Association, Vol.24(1), 2008, pp.61~83

Research on the analytical framework of

A Study on Analytical Framework of Value Added Logistics throughout

Key Words: Value Added Logistics, Analytical Framework, Closed-loop Logistics

"Added value" is a topic that is attracting attention in recent domestic and

II. The difference between research and

In Korea, value-added logistics is a field that has n o t b e e n covered much in

In the international literature on value-added logistics, the United Nations (1993)5) in

1) Kyung-Seok Kim, "A Study on the Introduction of Value-added Logistics Functions in

<Table 1> Definitions for foreign value-added services

3. What makes this study different

III. Current status of value-added logistics

1. The value-added concept in business management

11) Partner in charge of distribution operations at Coopers & Lybrand

<Table 2> Effects and Utilization of Economic Value Added

Value-added ratios, such as the labor income share, can be

EVA = Net Operating Income After Taxes - Cost of Capital

2. Current status of value-added logistics services of global logistics

With the expansion of logistics outsourcing and M&A among logistics

<Table 3> Types and features of value-added services

Among the 84 global logistics companies, we analyzed the value-added services

<Table 4> Analysis of value-added services provided by global logistics companies

<Figure 1> Relationship between sales and value-added services

IV. Analytical frameworks and activities in value-

1. Concepts and premises of analytic schemes

1) Definition of value-added logistics

Looking at the existing literature's definition of value-added logistics, Kyung-Seok

Kwon, 2000.4. p.24

In order to analyze value-added activities in the logistics network, an overall

<Figure 2> Analytical framework of v a l u e - a d d e d logistics considering f o r w a r d and

<Table 5> Activity area classification and features of analytical system

分类 Phase Scope Features

<The division of value-added logistics into forward and reverse logistics, as

<Table 6> Characteristics of forward logistics and reverse logistics

This study aims to analyze value-added logistics activities centered on forward

2. Value-added activities in the logistics network

1) Analyze activities on the logistics network

In order to understand the value-added logistics created in the logistics

2) Logistics activities by actor

<Table 7> Logistics activities of suppliers

<Table 8> Logistics activities of manufacturers

center functions (TC17), DC18), RDC19)) depending on the product.

<Table 9> Distribution center logistics activities of domestic base functions

(4) Ports and airports

<Table 11> Logistics activities at ports and airports

<Table 12> Logistics activities at distributors

3) Analyze value-added logistics activities on the logistics network

In order for value-added logistics to be created in the logistics network, the

< F i g u r e 4> Case a n a l y s i s o f v a l u e - a d d e d logistics activities i n t h e logistics

<Table 13> Value-added expectations: Product packaging.

<Figure 5> is an example of creating added value by changing the location of

< F i g u r e 5> Case a n a l y s i s o f v a l u e - a d d e d logistics activities on the logistics

<Table 14> Value-added expectations: Rebuilding the logistics network.

Expense items Effectiveness of value-added logistics activities

In the future, if the global activities of companies expand and international

Research on the analytical framework of

Byung-Seok Son, Yoon-

Value-added refers to the value created in addition to basic activities, and it is

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