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Chapter 16 Global Logistics and Materials Management
A Definition of International Logistics • “…designing and managing of a system that controls the flow of materials into, through, and out of the international corporation” • In taking a systems approach to linkages among logistics components, firms can incorporate efficiencies through system design and management techniques • JIT - just-in-time • EDI - electronic data interchange • ESI - early supplier involvement • ECR - efficient customer response systems
The Phases of International Logistics • Materials management • Timely movement of raw materials, parts, and supplies through the firm • Physical distribution • Movement of the firm’s product to its customers
The Systems Concept • The extensive and complex materials-flow activities within and outside of the firm must be considered in the context of their interaction. • Total-cost concept • Minimizing overall logistics costs by identifying activity-based costs that impact after-tax profits. • Trade-off concept • Recognize that logistics activities involve trade-off in areas such as time-saved in delivery versus the increased costs of expedited delivery systems.
Supply-Chain Management • An integration of the three system concepts. • Value-added activities connect the company’s supply side with the demand side. • Efficient supply chain design increases customer satisfaction and saves money • reduces inventory holding costs • increases inventory turnover cycles • reduces operating costs • reduces order handling and mailing costs • makes firm more price competitive
The Impact of International Logistics • Logistical costs are 10% to 30% of the total landed cost of an international order. • Factors necessary for the use of logistics as a competitive tool: • Close collaboration with suppliers and customers. • Technologically advanced information processing and communication exchange capabilities. • An integrated business infrastructure.
New Dimensions of International Logistics • Basic differences • Distance • Currency variation and exchange rate differences • Varying entry regulations • Different transportation modes • Country-specific differences • Transportation systems and intermediaries vary. • Reliability of carriers may be different. • Computation of freight rates may be different.
InternationalTransportation Issues • Transportation infrastructure • Roads,rail lines, airports, seaports, pipelines • Availability of transportation modes • Overland shipping, ocean shipping, air shipping • Choice of modes • Transit time, predictability, cost, noneconomic factors • Noneconomic Factors • Government involvement, the UNCTAD and the 40/40/20 concept
Global Shipment Documentation • Bill of Lading • acknowledges receipt of goods • Shipper’s export declaration • states proper authorization for export under general or special validated export license • Packing list of contents • Dock and warehouse receipts • Collection documents • commercial (consular) invoice • certificate of origin • import and foreign exchange licenses
International Inventory Issues • Inventory carrying costs can be up to 25% of the value of an inventory. • Just-in-Time policies minimize inventory volume by making it available when needed. • Inventories assist in the movement of products. • Factors in deciding on the level of inventory to maintain: • Order cycle time • Desired level of customer service • Use of Inventory as a strategic tool
Order Cycle Time • The total time that passes between the placement of an order and the receipt of the merchandise. • Length of the total order cycle • Longer cycle in international marketing than domestic • Consistency of the order cycle • More complicated delivery mode reduces consistency • Altering cycle times • Change transportation methods • Change inventory locations • Change ordering process
International Storage Issues • The storage facilities location decision • Availability • Adequacy • Physical Conditions • Optimizing the logistics system • Rank products by warehousing needs “A” products stocked in all distribution center • “B” products stored only in selected locations • “C” products with low demand stocked only at headquarters
International Packaging Issues • Packaging for domestic shipping may NOT be adequate for international shipping. • Goods should arrive in a safe, undamaged, maintainable, and presentable condition. • Packaging should minimize the stress of intermodal movement and storage. • Protected from climatic conditions. • Weight based on delivery mode. • Follow customer instructions for labeling, packaging, and routing.
Management of International Logistics • Centralized logistics management • Headquarters retains decision-making power and control, coordinates all logistics. • Decentralized logistics management • The “decentralized full profit center model” allows the organization to respond to local market conditions. Possibility for loss of coordination. • Contract logistics • Growing preference to outsource logistics function to “third party” specialists such as FedEx or UPS. • The supply chain and the Internet
Logistics and the Environment • Reverse Distribution • “a system responding to environmental concerns that ensures a firm can retrieve a product from the market for subsequent use, recycling, or disposal”