Developing Halal Logistics Framework: An Innovation ...

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Vision 2020: Sustainable Growth, Economic Development, and Global Competitiveness

Developing Halal Logistics Framework: An Innovation Approach Noorliza Karia, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia [email protected] Muhammad Hasmi Abu Hassan Asaari, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia [email protected] Abstract It is acknowledged that the framework for halal logistics service is an innovation mechanism in engaging halal practices but the desire for Allah’s blessing is the ultimate mechanism. The rapid growing halal industry and market have increased the demand for halal logistics industry. Yet, there are only few halal logistics service providers (LSP) that practice halal business as a function of profit. Hence as Muslim country, Malaysia should emphasize on halal logistics competency that assures halal integration. However, the holistic view on anatomy of halal service is yet to be seen. The literature has a lack of theoretical understanding and empirical evidence on the mechanism of halal logistics competency. To fill these crucial gaps, this paper reviews the concept of service in halal system, interviews five Islamic scholars and further identifies essential mechanisms for halal logistics framework. Keywords: halal logistics, halal service, competency, sustainability, innovation

Introduction Today the halal concept has be seen as an innovation impact on economic. Recently global Muslim and non-Muslim consumers were shifting to halal products and services. They demand for Halal branding or Halal logo which is the new metaphor that firms use to communicate about quality, hygiene and safety for consumer or ecosystem. This shifting towards more halal-orientation economies shows how halal logistics is increased prominent. Thus the halal logistics is indeed crucial as halal is a multi-trillion dollar industry (HDC, 2012) which serves to more than two billion Muslim worldwide (Smith, 2007; Manzouri et al., 2013). Although logistics has been performed since the beginning civilization, implementing the new and more advance practices for the halal logistics is one of the most essential and challenging business operations. Around the earth, 24 hours, halal logistics competency will assure – the product is delivered as promised, timely, error-free, little or no tolerance for failure (Manzouri et al., 2013). Recent growth in global halal market is indeed enormous due to the global demand by the rapid growing Muslim population (3 Billion, HDC, 2012) and non-Muslims. Thus the growth of halal industry (e.g. food, pharmaceuticals, healthcare, personal cares and cosmetics) and halal market (world Muslim and non-Muslim population) is associated with halal logistics which may enhance the growth of economy development. E.g. Pharmaceutical and cosmetic industry recognize the value of Halal for its customers, which has resulted the production of Halal certified by local and multinational manufacturers, which in turn increase the demand for halal logistics to deliver the halal products/services.

The Concept of Halal Logistics The halal logistics regarded as halal service, is a service innovation and emerging business that is created by the innovative provider to offer a new service portfolio or wider services. In today’s halal business architecture, delivering customer orders alone is insufficient to compete. The new global consumers are expecting beyond logistics service providers’ (LSP) capabilities. Clients are asking to manage from the front-end to the customer’s location. For example, they need wider service portfolio, wider geographical coverage and advanced information technology. With regards to halal logistics, LSPs find themselves


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facing situation that each client has a unique set of requirements for halal products/services. Therefore halal logistics is shifting toward achieving customer success which firms provide value-added services unique or specific activities for selected customers. For example transportation carriers, warehouse firms and other specialists may become intimately involved to make halal value-adding activities a reality or a retail customer may desire a unique halal palletization alternative to support its cross-dock activities for its halal stores – each store requires different quantities of specific halal product to maintain in-stock performance with minimum inventory. Given the growing demands for future halal LSPs, LSPs are expected to be excellent in providing halal logistics service in the marketplace within halal competitive landscape characterized by the increasing global Muslim demand and non-Muslim consumers’ awareness for Halal products and services, the rapid expanding technology and the Halal knowledge. Yet, some LSPs are still disqualified for Halal accreditation due to insufficient knowledge, Halal education and training and low-end technology. The existence LSPs are facing many problems with delay, inability to provide inter-linkage services, high operating costs, high rate of inaccuracy and lack of flexibility in responding to customer’s changing and demanding requirement (Gunasekaran and Ngai, 2003). To overcome these setbacks, it is essential for LPSs to understand the strategic framework for halal logistics service and transform them into the highperformance of halal logistics players.

Halal Logistics System Halal is permissible or lawful under Shariah Law for consumption and often used term as Halal and Toyib (good/fine) (Tieman, 2013). In fact, the Halal branding often reflects to “Healthy, Wholesome and Hygiene” and has been prominent in non-Muslims countries (e.g. USA, United Kingdom, Europe, China and Thailand). Halal goods/services mean they are complied with the Islamic law parameters or the good/services have been made lawful. It is imperative to highlight that consuming halal products/services is a religious obligatory action for every Muslims. The non-halal called Haram (unlawful) is prohibited to Muslim consumption. For instance dead animals, blood, the flesh of swine, liquor, carrions Halal animals which are not slaughtered according to Shariah (Surat Al-Maidah 5:3) or any that is unclear category called “Syubahah”. Reported by Kamali (2010) the grounds of haram are (1) manifest of harm; (2) intoxication (alcohol and narcotics); (3) filth, impurity and natural revulsion (such as carrion, spilt blood, pig meat); and (4) unlawful acquisition. Logistics is a movement from one point to another point. It is defined by American Association (AMA) as “the movement and handling of goods from the point of production to the point of consumption or use” (Hesket et al., 1973). Thus the halal logistics system is defined as operations for the entire movement and handling of halal products or services starting from the point of source to the point of end user (Figure 1). It is through the halal logistics system where all the halal aspects are practiced and performed beginning with the source of raw materials flow into manufacturing till finished products are distributed to end user.

Figure 1: Halal logistics system

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Halal Logistics Integrity Halal logistics system is more complex than the conventional logistics operations due to the isolation/segregation halal goods from non-halal goods/derivatives. Halal logistics is not just added value and support to supply chain activities, but it is about the halal aspects of behavior, activities and operations. Hence halal LSPs play significant role in ensuring the efficient and effective distribution for halal products within halal logistics system. They are responsible providers for such industrial logistics services often called logistics players or third-party logistics (LSPs) who can perform a wide range of logistics services. Some LSPs specialize in providing various types of transportation, warehousing and freight forwarding but some perform all or part of client’s logistics function. The halal logistics operations includes order processing, inventory, transportation and the integrated of warehousing, materials handling and packaging throughout a network (Tieman, 2011; 2013). The key for achieving halal logistics leadership is by mastering the architecture of halal integrity competency. The halal integrity competency is the halal value proposition and commitment of every player to every customer. All accountable for ensuring the halal integrity of product/service is being protected. Figure 2 provides a visual representation of interrelated nature within halal integrity competency. The goal of halal logistics is to preserve the halal integrity competency in the context: supplier, procurement, manufacturing and customer. The fundamental of halal logistics is to ensure physical isolation of halal cargo from non halal cargo, to stay away from cross contamination, to ensure zero mistakes and to ensure the logistics system is aligned with halal standards and expectations and performed with halal process and practice.

Figure 2: Halal integrity competency To guarantee and sustain halal integrity competency it should be the halal compliant entirely in halal logistics system. The halal integrity involves halal logistics, halal supply chain, halal industrial park, halal marketing, and halal ports and shipping. The value of halal for customers is determined by halal certified manufacturer, retailer and supplier; and logistics service providers. These Halal sectors must comply with


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rules, regulations and standard set by the governing body to ensure the halal integrity of the product is intact. The halal logistics ascertain the four logistical functions is warranty of halal logistics (1) Halal Logistics Hub secures halal storage or warehouse for distribution from manufacturer to customer; (2) Halal Logistics Transportation secure vehicles and equipment for halal products to avoid cross contamination during transportation; (3) Halal Logistics Route secures path from supplier to the customer and (4) Halal Logistics Management secures all managerial aspects of halal logistics: manufacturer or distributor and executes halal solution and information service providers.

Halal Logistics Framework Theoretical Framework The theoretical development for halal logistics has little empirical work (Tieman, 2011; 2013). To search for theory which explains the halal logistics competency or competitive advantage of halal logistics, this study based on the resource-based view theory (RBV) of the firm from the strategy literature (Penrose, 1959, Wenerfelt, 1984, Barney, 1991). According to RBV, a firm is a collection of heterogeneous resources, factors of production or bundles of resources or inputs that allow a firm to perform a movement or distribution, handling goods and execute strategies. For example, in logistics business, resources and capabilities are considered the basic element or prerequisite for the operations and development of logistics; and the requirement for building up a firm. Therefore, halal logistics providers should acquire new bundles of resources which allow them to perform halal logistics process and practice. Based on the study of Karia and Wong (2013), the main element for LSPs to perform operations and distribution is the resource-based logistics (RBL). RBL includes two types of tangible resources (basic and advanced for technology and equipment resources) and three types of intangible resources (knowledge, organizational and relational resources). Both tangible and intangible resources are vital for halal LSPs performance and sustainability. The bundling of such resources and capabilities may enhance LSPs’ performance. The RBV suggests that superior performance is dependent on the manner in which (1) LSPs leverage their resources and capabilities; (2) LSPs bundles resources and capabilities or (3) LSPs innovate and develop resources and capabilities. Therefore it is essential for LSPs to innovate and transform such innovation resources and capabilities for their halal logistics services. Exactly how LSPs can effectively manage the halal logistics and its sustainability is vary depending on the integration of internal variables (resources, capabilities, strategies) and external variables acquired by LSPs (Figure 3). Such bundling of resources, skills, knowledge and systems required to achieve halal logistics competency is challenging, but once attained, such integrated competency is not easy for competitors to imitate. Besides, strategies and external variables are essential for strengthening the performance impact of halal logistics competency. Due to emerging demand for the advanced halal logistics services, LSPs need to offer the strategic halal services for improvement or more flexible halal services. They may have to compete with different halal strategies development for different level halal outsourcing or implement different halal strategy orientation.

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Figure 3: Halal logistics competency In logistics literature, there was a lack of theoretical development and application in halal logistics studies. The halal logistics is a new service offered on the market and requires new structure on human or organizational capabilities, and new technology. It is the halal service or service innovation defined as a new value or solution to a need of halal consumers offered by the service provider. To search for a theory which explains halal logistics service, this study conducted interviews on five Islamic scholars. Results show that Islamic scholars define halal service as a service offered which is not violated or conflicted with Islamic-based, operated and performed with trust, dedication and honesty, and follows term of agreement or Shariah-compliant, minimizes hardship and generates welfare or benefits to people, planet and god. Based on interview finding this paper has developed magnitudes for the strategic halal services for the determinants of a firm sustainability in terms of product service (e.g. zero defect, shariah compliant, cheating, corruption, monopolies, hoarding), people (e.g. good action, moral practices, avoiding all kinds of sins), planet (e.g. maximize benefits of environment and others) and profit (e.g. maximize interest of firm and public). Thus halal logistics competency is created by halal logistics aspects of behaviors, activities and operations that are not violated or conflicted with the Islamic-based, operated and performed with trust, dedication and honesty, and follow term of agreement or Shariah-compliant, minimizes hardship and generates welfare or benefits to profit, people, planet, and god. While LSPs offer halal services, they always ensure that their businesses are attached on the Islamic-based view approach, safe consumption, profit maximization, cost minimization and friendly environment (Figure 4).

Figure 4: Framework Halal logistics


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Halal Logistics Service LSPs play prominent role in facilitating the halal integrity of export and import trades for halal organizations and halal manufacturers of the nation. To determine certification halal, LSPs are required to have the Halal accreditation by complying with rules, regulations and standard set by the government body (e.g. JAKIM). Every document, process, handling, tool, cleanliness, storage, packaging or labeling is according to the International Halal Standard, developed under the IHI Alliance Ltd (wwe.ihi alliance.org) or the Department of Islamic Development Malaysia (JAKIM) in Malaysia. The halal service must ensure that all are totally free or zero defect from contamination and mixing a halal and non halal products. Furthermore, halal logistics competency requires synergizing efforts from incorporated expertise across university (business/management, pharmaceuticals, chemistry, biotechnology, food industry and engineering), government agencies (development of policy and administration of regulations in international trade, supply chains and logistics) and halal industries and services.

Conclusion The strategic framework for halal logistics is vital for advance halal logistics service which is most definitely significant in a nation’s economic development. Increasing recognition has been given to the important of halal logistics services since global consumers have shifted to halal product/service. Having said this, one should recognize that international halal logistics is much more challenge and costly than halal domestics logistics. Hence halal logistics is essential to continued halal integrity improvement. Such halal logistical leadership must focus on total halal integrity competency. The fundamental of halal integrity competency rely on Halal logistics, Halal supply chain, Halal industrial park, Halal marketing, and Halal ports and shipping. The idea is that all interrelated nature of Halal integrity framework must be performed to the highest degree of halal efficiency. Halal logistics is the process that links logistics system into integrated operations for the movement and handling halal good/service. The growing demand for future halal LSPs shifts the logistics toward achieving customer success where LSPs provide halal value-added services - unique or specific activities for selected customers. Hence halal third party logistics service providers (LSPs) play significant role in ensuring the efficient and effective distribution of Halal products from the origin point to destination point or from the source of raw materials to end user. Halal LSPs, government agencies and halal industries can synergize their efforts to enhance halal logistics competency. LSPs can effectively manage the halal logistics sustainability by bundling of resources, skills, knowledge and systems required to achieve halal logistics competency. They must be able to compete with different halal strategy orientation to ensure halal logistics competency. The resource-based halal logistics (RBHL) includes dedicated resources such as basic and advanced technology and equipment resources, knowledge, organizational and relational resources. Such bundling of resources and capabilities may enhance halal logistics performance. Therefore it is essential for LSPs to innovate and transform such resources and capabilities for Halal logistics services. The basic proposition for halal logistics is to ensure that the halal integrity of product/service is being protected from the source to the point of end user. The primary goal of halal LSPs is to achieve optimal halal sustainability by utilizing constraints resources and capabilities based on Islamic-based view approach, safe consumption, profit maximization, cost minimization and friendly environment.

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