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TK00000269 A MALAYSZAN EXPERIENCE A TOOL OF TRADE AT PORT KLANG COMMUNITY SYSTEM - PKCS

By

DEVIKA DAMODARAN

Diploma in Accountancy Australian Society of Accountants West Australian Institute of Technology 1968

Submitted To The Faculty of Economics and Administration University of Malaya in partial fulfillment of the requirements for the Degree of
MASTERS IN BUSINESS ADMINISTRATION

March,1995.

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Dedicated to, my beloved family,

David, Chandini,
Suriakanth and

Gaya thri.

ACKNOWLEDGEMENT

This study would not have been possible, without the help rendered by so many wonderful people.I wish to extend my sincere appreciation to each and every one, of these people. I am most grateful to my Supervisor, Dr.Tan Lee Peng,
who was always anxious and worried for my progress.Her

guidance is what made it possible for me to fulfill the

requirements of this paper, satisfactorily. The Persons at Kedai EDI, at Port Klang, were the fist people who were most gracious and helpful.With special mention to Mr.Yong Voon Chong and Miss Chong Yoke Cheng, who never hesitated in giving me their full support, at any

time, despite their tight schedules. Another Person who was most obliging and gracious was
Cik Mustazah Khalid,(Manager) at the EDI Resource Center,in

K.L.If it was not for her, I would not have been able to use the facilites of the Resource Center, to collect the relevant information, to materialise my paper.

And lastly, I would be most ungrateful, if I failed to mention the consistent love and consideration that was always given to me by the loving members of my family,my husband and my children.Without their tolerance and understanding, it would never have been possible for me to accomplish this commitment.

ABSTRACT

The emergence of Electronic Data Interchange ( EDI), as a standard method of international trade information inter

change, has serious implications within the Malaysian con text. EDI has not only become an instrument to create new opportunities or to gain a competitive edge,EDI has also become such a "mandatory" standard technology that those
countries whose organisations do not soon adopt EDI, will

gradually fall out from the mainstream of international

trade competition.The adoptation of EDI is recognised by the Government of Malaysia as one of the necessary prerequisites to achieve the nation's trade promotion goals and strategies

identified in the Outline Perspective Plan Two(OPP2), and

the Sixth Malaysia Plan (SMP). This study will attempt to establish a profile of EDI usage at the Port Klang Authority,as a facilitator of trade,

with special mention of the" Port Klang Community System",

(PKCS).The paper will attempt to determine the cost-benefits of the implementation of the PKCS,by evaluating the costing

involved, in relation to certain variables of the operations of this network.The variables that this study has elected
are, the time-saving element, cost-effectiveness of reduced

paper documentation in trade , and labour-cost effective

-ness,with EDI and without EDI.
The overall results have indicated that there is a favourable perception and appreciation of the benefits of EDI application, especially in the areas of information

accuracy,substantially less paperwork, timeliness and com

-pleteness, and most of all a definite cost effectiveness in the regions of labour usage, overheads and materials.

LIST OF CONTENTS

PAGE ACKNOWLEDGEMENT ABSTRACT

LIST OF CONTENTS LIST OF FIGURES LIST OF TABLES LIST OF ABBREVIATIONS

1 2
4 7 8 9

CHAPTER ONE

INTRODUCTION

11

1.1

EDI - The Electronic Commercial Frontier

11 16
17

1.2
1.3
1.4

Creating awareness of EDIFACT

EDI Development in Malaysia

Need for trade facilitation in Malaysia 20

1.5
1.6

One-Stop Non-Stop - EDI Gateway

Port Klang Community System

24
24

1.6.1

PKCS users

27

1.7
1.8

Sistem Maklumat Kastam (SMK)

Objectives of the Study

30
31

1.9

Methodology

32
32 33 33 34

1.10 Data collection 1.11 Scope of study 1.12 Literature Review 1.13 Organisation of Study
4

CHAPTER TWO

CONCEPTS RELATING TO EDI

35

2.1
2.2

Concept applications a global perspective

Literature Review - case studies

37
46

2.3
2.4

Benefits and opportunities with EDI

Challenges and Barriers to implementing EDI 2.4.1 A Business Issue, not a technological issue

52 55
57

2.4.2 2.4.3
2.4.4 2.4.5

Coping with Change Challenges in EDI implementation at PKCS

Legal Issues Security and Confidentiality in EDI

58
58 62

65

CHAPTER THREE

3.

EDI at Klang Port Authority - an evaluation 3.1 Decreased waiting time with EDI

67 68

3.2 3.3
3.4

Reduced costs Improved Accuracy

PKCS cost benefit analysis- a user perspective

69 73 75

3.5

Benefits of implementing EDI, at Klang Port Authority

80

CHAPTER FOUR CONCLUSION AND RECOMMENDATIONS 82

4.1

Issues to consider

84

APPENDIXES

APPENDIX APPENDIX

1 11

Overview of PKCS................... 92 Overview of PKCS - Declaration..... 93 Overview of PKCS - Import.......... 94 Overview of PKCS - Export.......... 95

APPENDIX 111 APPENDIX APPENDIX APPENDIX IV V VI

Port Klang Community SystemIdentification of Users............ 96

High level overview of document -ation and information flow Export.........................

97

APPENDIX VII

High level overview of document -ation and information flow Import................... . . . . . 98 ....
99

BIBLIOGRAPHY

LIST OF FIGURES

DESCRIPTION FIGURE FIGURE FIGURE CHART FIGURE FIGURE FIGURE FIGURE FIGURE FIGURE 1 2 3 1. 4. 5 6. 7 8 9

PAGE

Components of EDI
Telecommunications night-mare Telecommunications Solution

12 13 14 19
22

MEC Organisation Chart

A world between Shipper and Consignee

Projected Paperwork Cost

The Port Klang Community System and Dagang Network The Port Klang Community System

23
25
26

Parties Connecting to PKCS Growth in EDI Trading Partners,since June 1988

Benefits obtained from using EDI

29 41
44

FIGURE 10 FIGURE 11 FIGURE 12 FIGURE 13 FIGURE 14

Growth of U.S.Government EDI

applications Projected number of shipments

51 72

Percentage of data repetition in trade 74

Factors recommended to consider in

EDI implementation

87

TABLES

TABLE 1
TABLE 2

Active members connected to PKCS

A comparative analysis of manual

67

and electronic processing

TABLE 3 Time usage and labour involved in the manual processing of one Declaration Time usage and labour involved in the electronic processing of one Declaration A comparative analysis of the Pre and Post operational costs, of implementing EDI at Port Klang Authority

70

75

TABLE 4

76

TABLE 5

77

LIST OF ABREVIATIONS

ABM
ADS\EDI AFAPK

Association of Banks Malaysia

Aligned Documant System/ Electronic Data Interchange
Association of Forwarding Agents Port Klang

AI API
BCIEC

Atificial Intelligent
Application of Program Interface Banking Credit Insurance & Exchange Control ,one of the sub-committees under the NTFC

BIG BNM CEC

CHAM

Banking Industry Group of Malaysia

Bank Negara Malaysia, also the Central Bank of Malaysia Commission for the European Community

Container Hauliers

Association of Malaysia

CMO
CTWG

Container Movement Order

Customs & Transport Working Group

EDI
EDIICC

Electronic Data Interchange

EDI Implementation Coordination Committee

EPC ETA ETD FCZ FZA

ISOA JKED

Export Promotion Council

Expected Time of Arrival of Vessel Expected Time of Departure

Free commercial Zone Free Zone Authority

International Ship Owners Association

Jabatan Kastam & Eksais DiRaja Malaysia , (Royal Malaysian Customs & Excise Department)

KCT KPA

Kelang Container Terminal BHD, one of the port operator

Kelang Port Authority

KPM KTM
MAMPU

Kelang Port Management Sdn. Bhd., one of the port operators

Keretapi Malaysia Berhad Unit Permodenan Tadbiran MalaysiaCMalaysian Modernisation,

Administration Manpower Planning Unit)

MASA MITI NCCIM NTFC OPP2

Malaysian Shipowners Association

Ministry of International Trade and Industry

National Chamber of Commerce & Industry of Malaysia

- National Trade Facilitation Committee

Outline Perspective Plan 2

Principal Customs Area

PCA
PKCS PKDP PKSAA

Port Klang Community System Port Klang Distribution Park Sdn. Bhd., one of the port operator;
Port Klang Shipping Agents Association Sistem Maklumat Kastam{Customs Information System)

SMK
TEDIS

. Trade For EDI Data- Interchange System

UN
UN/EDIFACT UNLK

United Nations
United Nations / EDI For Administration,Commerce & Transport
United Nations Layout Key

10

CHAPTER ONE 1 1.1 INTRODUCTION ELECTRONIC DATA INTERCHANGE - THE ELECTRONIC COMMERCIAL FRONTIER

The concept of EDI, is a product of the two most rapidly advancing technologies in modern times, namely computing and telecommunications. EDI is a technique which contains a set of standards for formatting, sending and receiving documents, electronically.( Refer to Figure 1)
"IT IS THE ELECTRONIC TRANSFER FROM COMPUTER - TO COMPUTER OF COMMERCIAL OR ADMINISTRATIVE TRANSACTIONS, USING AN AGREED STANDARD TO STRUCTURE THE TRANSACTIONS OR MESSAGES DATA".

Electronic transfer implies no human intervention during exchange of data.EDI, is essentially trading through an electronic medium. It allows the information systems from one company to "speak" to and communicate with the information systems of another company.lt is the electronic linking of business partners.A manufacturer can have on-line connec -tivity with his suppliers and retailers, facilitiating business transactions between them.Such a link is commonly called "EDI COMMUNITY SYSTEM". Basically, businesses are allowed to communicate electronically.(Figure 2 and Figure
3)

This includes, internal links - companies linking with

11

COMPONENTS OF EDI
THE KEY ELEMENTS OF AN EDI SYSYTEM ARE:-

APPLICATION EDI TRANSLATOR MODEM COMMUNICATIONS

COMPUTER SYSTEMS

(FIGURE 1)

1. HARDWARE
- HARDWARE IS THE TECHNICAL TERM FOR ALL TYPES OF COMPUTERS

(EG : PC MINI - OR MAIN FRAME) AND THE RELATED PHYSICAL

EQUIPMENTS (EG : MODEMS)

2.APPL1CATION SOFTWARE.
- AN APPLICATION TO GENERATE AND INTERPRET THE BUSINESS TRANSACTION!

3. COMMUNICATION AND TRANSLATION SOFTWARE.

- COMMUNICATION SOFTWARE ENABLES MESSAGES TO BE TRANSMITTED AND RECIEVED BETWEEN COMPUTERS. - TRANSLATION SOFTWARE ENABLES MESSAGES TO BE MAPPED BETWEEN THE INTERNAL APPLICATION AND THE EDI STANDARD DATA FORMAT.
12

Nature of 1

TELECOMMUNICATION NIGHTMARE

FIGURE

N a t u r e of 1'Dl -

Mailbox

TELECOMMUNICATIONS SOLUTION

. 3

their subsidiaries - or departments/nations communicating

with each other, creating the EDI community. In essence, EDI simply refers to the much-used term of
"PAPERLESS TRADING", and it is growing fast in many coun-

tries. In fact, one of the principal reasons for using EDI

is the mountain of paper documents used in the normal busi-

ness transactions.EDI is not new.In the early days of EDI,

the data was put onto a magnetic tape and either posted or
sent by courier to the recipient, who then loaded the tape on a deck, and the computer system read in into its system.

However as more organisations got involved, problems

arose with tape interchanges:-

1.

Time

-it took some time for the tape to be

sent physically to the other party.

2.

Scheduling and handling

-problem in scheduling and handling as

number of tapes increased. 3. Vulnerability -the tapes are vulnerable, easily damaged.
In the early 1980's , the preferred method was to send data

by telecommunications, where one organisation's computer is

directly linked to the computer system of another organisa

-tion.This method created its own problems as well:1. Timing and Scheduling

-This method required both organisations to schedule the link at the same

time.If an organisation had many trad15

ing partners, the problem of timing and scheduling became a problem. 2. Incompatible computer systems -The biggest technical problem was the
incompatibility of computer
systems.Your trading partners would have a different system from yours.Until every computer system was able to talk the same telecommunica tions language ( known as "protocol"),

this was a nightmare(as in Figure 2 and Figure 3). Companies using EDI, have found that electronic communica
-tions, have certainly contributed towards an accelerated growth in the relevant services.Order leadtimes have been found to be drastically reduced and so have the costs associated with generating, posting and processing orders.

That would place an organisation in an advantageous position and if the organisation is able to provide a rapid
response, it would do a great deal to strengthen and secure the business relationship.Successful EDI creates a WIN-WIN situation.lt begins an evolutionary process towards a more

productive partnership.
1.2 CREATING AWARENESS OF EDIFACT -

EDI involves exchanging messages in an open

environment.Therefore there is a need for an agreed standard

structure within an EDI business community.It would be

16

impractical for each company within the EDI community to design a message to suit it's own computer system or business practice, which will result in frequent alteration to the computer software for each new message. Hence the need for EDIFACT -( EDI for Administration, Commerce and Transport).It is the standard message or langusage which is needed for computers to talk to each other, locally and internationally.lt is the brain-child of the United Nations, after it felt that international trade which is to blossom, will come to a grinding halt, if the language is not universal.A common barrier in electronic linkages would be incompatible computer systems between trading partners, however, UN/EDIFACT , provides a framework for the cooperative development and sharing of expertise/experience among member countries at regional and international levels.

1.3.

EDI DEVELOPMENT IN MALAYSIA

Trade facilitation initiatives in Malaysia can be traced back to the 1980s with the formation of the Export Malaysia incorporated as a joint-effort, between the public and private sectors to expand the country*s external

trade.EPC had identifed three (3) major strategies :1. Institutional development in trade promotion

2.
3.

Export promotion and market

Trade facilitation and export support.

The National Trade Facilitation Committee (NTFC) , under the secretariat of Ministry of International Trade and Industry

17

(MITI), was formed as the result of, the third strategy, to study the specific paper-work and procedural problems en -countered by Malaysian traders in international trade. In October 1987, the Banking Credit Insurance and Exchange Control (BCIEC), one of the sub-committees of NTFC which is chaired by Bank Negara Malaysia (BNM) , resolved that there was a need to simplify and standardise trade

documents originated from the business community.BCIEC further resolved that National Chamber of Commerce and Industry of Malaysia{NCCIM}, being the apex organisation representing the private sector, to undertake the responsi-

bilities of soliciting and organising the private sector to undertake this task. NCCIM willingly accepted this responsibility and having considered the heavy investments and long-term risks associated with this project - known as the ADS/EDI (Aligned Documents System/Electronic Data Interchange )project, formed the company called EDI (Malaysia) Sdn. End. as the vehicle for a consortium, to provide the necessary funding requirements to implement the project.The aim of ADS/EDI project is to catalyse the development of EDI community systems in Malaysia for trade facilitation. In December 1992, the EDI Implementation Coordination Committee (EDIICC) was established ,to oversee the implementation of the ADS/EDI project.(see MEC Organisation Structure chart).

18

MEC ORGANISATION STRUCTURE

MALAYSIA EDIFACT COMMITTEE MAMPU

AWARENESS AND
EDUCATION WG
CHAIRMAN NCCIM CHAIRMAN : NCCIM

PROCEDURES AND
DOCUMENTATION WG

TECHNICAL ASSESSMENT WG

CHAIRMAN : NCCIM

MESSAGE DEVELOPEMENTWG

.CUSTOMS/TRANSPORT
CHAIRMAN CUSTOMS

.FINANCE AND INSURANCE

CHAIRMAN :BANK
NEGARA .PURCHASING CHAIRMAN VADS
19

WG:WORKING GROUP MEC'.MALAYSIAN EDIFACT COMMITTEE

1.4.

NEED FOR TRADE FACILITATION IN MALAYSIA

Under the Second Outline Perspective Plan(OPP2),

Malaysia is targeted to become a world class nation by the year 2020.Along with this mission, several national goals

have been set focusing on the development of strategic infrastructural facilities to support the projected economic
growth to transform Malaysia into an export-oriented economy. Malaysia is currently ranked 23rd in terms of imports

and 24th in terms of exports in the world economy.During the

OPP2 period, Malaysia's total exports is projected to increase from RM94.7 billion in 1991 to RM255.6 billion by the year 2000.In the process, export of manufactured goods

is projected to increase from RM64.5 billion in 1991 to

RM209.2 billion (or 81.8%) of the total exports by the year 2000.The economy is targeted to grow at 12.4% and 11.8% per annum respectively in the Outline Perspective Plan 2 (OPP2)

period. It is important to note that in conjunction with the

trans-border flow of goods, there is also the corresponding exchange of information and documents.Studies sponsored by United Nations, identified approximately 2,000 copies of

trade documents are generated in the course of international trade and about 50% of these documents are rejected by the
banks at the first presentation due to discrepancies.According to the studies,the cost of paperwork is between 7% and

15% of the value of shipment, and for the developing

countries,it is estimated to be no less than 10%.

20

In 1986, an informal study conducted locally, identi

fied as many as 16 parties being involved in a typical

international trade transaction.Approximately 30% - 70% of the information on trade documents, were duplicated and transmitted from one party to another.( Figure 4)
During the OPP2 period, the annual costs of paperwork

will escalate from the present estimated RM15.2 billion in

1990 to RM26.9 billion by 1995 and RM47.6 by the year

2000(See Figure 5).Imagine the potential savings,if the

costs of paperwork was estimated to be about 10% of the

import/export value.

In short, the projected rapid expansion of our national

economy during the OPP2 period will create widespread paper work bottlenecks throughout the country's trade and industry

information infrastructure.
The only way to meet these challenges is to be leaner, less bureaucratic, more customer-focussed, continuously improving quality, enhancing efficiency and speeding up

decision making.It means exploring new ways of doing things.

The solution comes in EDI, the productivity agent in combat
ting inefficiencies in the preparation and transmission of paperwork between trading parties.Based on other countries'

experiences, EDI is expected to cut that staggering waste by 60-70 % and Malaysia is expected to save between
RM6.2 billion and RM10.3 billion by 1995.

21

AND CONSIGNEE
AGENT BANK CARRIER CUSTOMS FORWADERS INSURER

OTHERS

CONSIGNEE

SHIPPER

.PORT AUTHORITY STEVEDORE WAREHOUSE

FIGURE 4

22