Finding optimal logistical hubs for Swedish export - A study of selecting global locations Cecilia Eskilsson Fredrik Hansson Finding optimal logistical hubs for Swedish export Finding optimal logistical hubs for Swedish export -A study of selecting global locations © Cecilia Eskilsson; Fredrik Hansson Department of Industrial Management and Logistics, Faculty of Engineering, Lund University, Box 118 SE-221 00 Lund Sweden Department of Business Law, School of Economics and Management, Lund University, Box 7080 SE-220 07 Lund SWEDEN Master Thesis, Technology Management - No 194/2010 ISSN 1651-0100 ISRN LUTVDG/TVTM--10/5194--/SE Printed in Sweden KFS i Lund AB Lund 2010 I Finding optimal logistical hubs for Swedish export Abstract Title: Finding optimal logistical hubs for Swedish export - A study of selecting global locations Authors: Cecilia Eskilsson and Fredrik Hansson Tutors: Andreas Norrman, Professor, Department of Industrial Management and Logistics, Faculty of Engineering, Lund University, Oskar Henkow, Lecturer, Department of Business Law, School of Economics and Management, Lund University Henrik Danielsson, Head of Business Area Logistics, Swedish Trade Council, Stockholm Problem discussion: The Swedish Trade Council is looking for improvements of current methods for helping their customers selecting locations of logistical hubs. Within the logistics literature there are plenty of theories about facility localisation. These theories are however usually based on company specific factors and flows of goods. A study from a non-company specific point of view would hence not only contribute to the Swedish Trade Council but also within the theoretical literature in logistics. The questions that arise are what theories of facility localisation that can be used for deciding where to locate logistical hubs and what criteria will the selection of logistics hubs be based on? Furthermore, which countries are to prefer when logistical hubs shall be established by Swedish companies? Purpose: The purpose of this study is to identify the most important non-company specific criteria when selecting location of a logistical hub. II Finding optimal logistical hubs for Swedish export Furthermore the purpose is to determine the most suitable countries for logistical hubs in Africa, Americas, Middle East, and South East Asia and East Asia for Swedish export. Method: This study is conducted through a system approach and abductive methodology. The method Analytical Hierarchy Process (AHP) is used to handle and structure the problem that involves multiple criteria. Conclusion: The top eight non-company specific criteria when selecting a location of a logistical hub are; Availability and quality of Infrastructure Border administration Closeness to other major markets Corruption Frequency of on time shipments Human rights Logistical competence Logistical cost The most suitable countries in Africa to locate a logistical hub in are Namibia, South Africa, and Tunisia and in Americas Canada, Chile, and USA. In Middle East Bahrain, Qatar, and UAE are the best options. In the final region, South East and East Asia, Hong Kong, Japan, Singapore, and Taiwan are the most suitable locations. If to select one location to function as a logistical hub for the entire region the following countries are recommended; South Africa in Africa, Canada in North America, United Arab Emirates in Middle East, and finally Singapore in South East and East Asia. Key words: Logistical hub, criteria, export, trade, facility location, Supply Chain, Analytical Hierarchy Process (AHP) III Finding optimal logistical hubs for Swedish export Sammanfattning Titel: Finding optimal logistical hubs for Swedish export - A study of selecting global locations Författare: Cecilia Eskilsson and Fredrik Hansson Handledare: Andreas Norrman, Professor, Institutionen för teknisk ekonomi och logistik, Lunds Tekniska Högskola Oskar Henkow, Biträdande Universitetslektor, Institutionen för handelsrätt, Ekonomihögskolan Henrik Danielsson, Chef affärsområde Logistik, Exportrådet, Stockholm Problemställning: Exportrådet vill förbättra deras metoder för att hjälpa sina kunder att välja placering av logistiska hubbar. Inom litteratur kring logistik finns många teorier om anläggningslokalisering. Dessa teorier är dock oftast baserade på företagsspecifika faktorer och produktflöden. En studie från icke-företagsspecifikt perspektiv skulle således inte enbart bidra till Exportrådet utan även i litteratur inom logistik. De frågor som uppkommer är vilka teorier om anläggningslokalisering som kan användas för att lokalisera logistiska hubbar och vilka kriterier som valet av logistiska hubbar baseras på? Vidare, vilka länder är att föredra som logistiska hubbar för Svenska företag? Syfte: Syftet med studien är att identifiera de viktigaste icke- företagsspecifika kriterierna vid val av lokalisering av logistiska hubbar. Vidare är syftet att fastställa de mest passande länderna för logistiska hubbar i Afrika, Amerikas, Mellanöstern och Sydost och Östasien för svensk export. IV Finding optimal logistical hubs for Swedish export Metod: Studien är genomförd med ett systemteoretiskt synsätt och en abduktiv metod. Metoden Analytical Hierarchy Process (AHP) används för att hantera och strukturera problemet som involverar flera kriterier. Slutsatser: De åtta viktigaste icke-företagsspecifika kriterierna vid val av lokalisering av en logistisk hubb är enligt följande: Frekvens av skeppningar i tid Korruption Logistisk kompetens Logistisk kostnad Mänskliga rättigheter Närhet till andra stora marknader Tillgänglighet och kvalitet av infrastruktur Tulladministration De mest lämpliga länderna i Afrika att placera en logistisk hubb i är Namibia, Sydafrika och Tunisien och i Amerika är det Chile, Kanada och USA. I Mellanöstern är det Bahrain, Förenade Arabemiraten och Qatar. I den slutliga regionen, Sydost och Östasien, är Hong Kong, Japan, Singapore och Taiwan de bäst lämpade placeringarna. Om ett land skall väljas som logistisk hubb för hela regionen är rekommendationerna: Sydafrika för Afrika, Canada för Nordamerika, Förenade Arabemiraten för Mellanöstern och slutligen Singapore för Sydost och Östasien. Nyckelord: Logistiska hubbar, kriterier, export, handel, anläggningslokalisering, försörjningskedja, Analytical Hierarchy Process (AHP) V Finding optimal logistical hubs for Swedish export Preface The three months spent at the Swedish Trade Council office in Stockholm has been amazing. We were impeccably welcomed and introduced to the organization. The staff at the Swedish Trade Council has been very interested in our work and always keen to help us. We want to thank you all for your encouragement and for inspiring us with your interesting stories from abroad. At the Swedish Trade Council we especially want to thank our tutor Henrik Danielsson who has supported us and trusted us to independently shape the project. We would also like to thank the Commissioners and Project Leaders at the Swedish Trade Council´s local offices for assisting us with their time and expertise. We are grateful for the experts within each region at the Ministry of Foreign Affairs helping us with additional information and to validate our findings about the countries. Our tutors at Lund University, Andreas Norrman and Oskar Henkow, have been a great support with their knowledge and experience. We also would like to thank our opponents, Johanna and Andreas, for constructive feedback. Thank you all for your support and for a great experience! Lund, May 12 2010 Cecilia Eskilsson & Fredrik Hansson VI Finding optimal logistical hubs for Swedish export Table of Contents 1 Introduction ...................................................................................................... 1 1.1 The Swedish Trade Council ........................................................................ 1 1.2 Logistical hub ............................................................................................. 1 1.3 Problem discussion .................................................................................... 2 1.4 Purpose ..................................................................................................... 3 1.5 Definitions and delimitations ..................................................................... 3 1.6 Outline of the report .................................................................................. 6 1.7 Key learning from Introduction .................................................................. 6 2 Framework ........................................................................................................ 7 2.1 Supply chain versus logistics ...................................................................... 7 2.2 Evaluate Logistics Network ........................................................................ 7 2.3 Characteristics of a logistical hub ............................................................... 8 2.4 Facility network analysis ............................................................................ 9 2.4.1 Strategic facility location .................................................................... 9 2.4.2 Models for facility location and capacity allocation .......................... 10 2.5 Commercial aspects of facility location .................................................... 11 2.5.1 7 Keys to Facility Location ................................................................ 11 2.5.2 Location of distribution centre from a country´s perspective ............ 11