CHAPTER 13 Global Logistics

1. CHAPTER 13 Global Logistics

6. Becton Dickinson’s Worldwide Sources

7. International Logistics • Changes to political landscape affect logistics • The end of Soviet rule in Eastern Europe • EU economic integration • Nontariff barriers-a rule that has the effect of reducing imports • Restrictions on truck traffic, forcing freight onto rail and water • NAFTA • Multinational firms

8. Comparison of Domestic and International Logistics Domestic International Estimated at 16% of world GDP today Mainly ocean and air, with significant intermodal activity Higher levels, reflecting longer lead times and greater demand and transit uncertainty Heavy reliance on forwarders, consolidators, and customs brokers High, owing to differences in currencies, inflation, levels and little recourse for default High, owing to longer and more difficult transit, frequent cargo handling, and varying levels of infrastructure development Many agencies involved (e.g., customs, commerce, agriculture, transportation Significant paperwork; the U.S. Department of Commerce estimates that paperwork cost for an average shipment is $250 Voice and paper costly and often ineffective; movement toward electronic interchange but variations in standards hinder widespread usage Cultural differences require significant market and product adaptation Cost Transport mode Inventories Agents Financial risk Cargo risk Government agencies Administration Communication Cultural differences About 10% of U.S. GDP today Mainly truck and rail Lower levels, reflecting short-order, lead-time requirements and improved transport capabilities Modest usage, mostly in rail Low Low Primarily for hazardous materials, weight, safety laws, and some tariff requirements Minimal documentation involved (e.g., purchase order, bill of lading, invoice) Voice, paper-based systems adequate, with growing usage of electronic data interchange and Internet Relative homogeneity requires little product modification

9. International Market Entry Strategies • Ownership • Importing • Countertrade • Exporting • Licensing • Joint ventures

10. Major Participants in an International Logistics Transaction Domestic seller Domestic bank Domestic government agencies Export facilitators Inland transportation carrier Domestic port or terminal of exit International carrier (air, water) Foreign port or terminal of entry Product movement Foreign government agencies Foreign inland transportation carrier Information flow Foreign bank Foreign buyer

11. The Global Logistics Environment Uncontrollable Elements Economic Political and legal Controllable Elements Customer service Other Inventory activities Logistics Competition Social and cultural executive Warehousing Packaging and storage Transportation Geography Technology

12. Responding to Competition with Logistics • Increasing the number of cross-national partnerships, alliances, mergers, and/or acquisitions. • Expansion of many previously domestic-based organizations into international markets. • Development of global communications networks operating 24 hours a day. • Establishment of country and regional warehouses in major world markets. • Identifying and developing relationships with logistics service providers that offer transportation, storage, materials handling, and other services on a global basis.

13. Exporting Companies • Export distributor • Customs house broker • International freight forwarder • Trading company • Non-vessel-operating common carrier (NVOCC)

14. Documentation • Country of Origin • Bills of Lading • Packing Lists • Customs • Certified Shippers - C-T PAT

15. Free Trade Zones • > 225 in the US • postpone payment of customs or taxes until item is sold • avoid customs completely if consolidated and re-exported

16. Ocean Shipping • Types of Ocean Cargo • Petroleum • Dry-bulk cargoes-grain, ores, sulfur, sugar, scrap iron, coal, lumber, logs in vessel loads • Containers • Shipping conferences and alliances pool resources and extend market coverage

17. Ocean Shipping • Types of Vessels • Containerships • Lighter aboard ship (LASH) vessels • Roll On-Roll Off (RO-RO) vessels • Tankers • Specialized vessels

18. A RO-RO Vessel in Jacksonville Florida

19. International Trade Inventories • May vary in small ways from country to country—products may be tailored to fit • Less is needed (than in U.S.) to serve any one country • Return items are impossible to accommodate • Import and export quotas affect value of inventories • Currency and language differences • May actually increase inventory in total pipeline

20. CHAPTER 15 Organizing for Effective Logistics

21. Traditional Logistics Management • Sales service • Channels of distribution • Product returns and warranties Responsibilities • Manufacturing • Purchasing/ procurement • Traffic • Warehousing • Information systems • Budgeting • Inventory • Data processing Objectives Large inventories Low inventories Small and frequent production runs Larger and infrequent production runs Decentralized warehousing Centralized warehousing Plant warehousing Large product assortment Fewer products

22. Traditional Logistics Management cont. • Sales service • Channels of distribution • Product returns and warranties • Manufacturing • Purchasing/ procurement • Traffic • Warehousing • Information systems • Budgeting • Inventory • Data processing Responsibilities Rapid order processing Inexpensive order processing Objectives Generous returned goods policies More rigid returned goods policies Fast transportation Low cost transportation Expedited shipments

23. Control Exercised By Logistics Executives Over Selected Logistics Functions Percent of Reporting Companies Activities 1966 1976 1985 1990 1999 Transportation Warehousing Inventory control Order processing Packaging Purchasing and procurement 89% 94% 97% 98% 90% 70 93 95 97 88 55 83 81 79 74 43 76 67 61 55 8 70 37 48 39 15 58 44 51 41

24. Organization Design for Logistics as a Function Human Resources Logistics

25. Organization Design for Logistics as a Program President Logistics Engineering Manufacturing Human Resources Marketing/ Sales Finance/ Accounting

26. Components of Corporate and Logistics Mission Statements • Targeted customers and markets • Principal products/services • Geographic domain • Core technologies

27. Components of Corporate and Logistics Mission Statements (cont.) • Survival, growth, and profitability • Company philosophy • Company self-concept • Firm’s desired public image

28. Ways of Improving Logistics Organizational Effectiveness • Strategic goal setting • Resource acquisition and utilization • Performance environment • Communication process • Leadership and decision making • Organizational adaptation and innovation

29. Logistics/Supply Chain Organization A good organization structure does not by itself produce good performance--just as a good constitution does not guarantee great presidents, or good laws, or a moral society. But a poor organization structure makes good performance impossible, no matter how good the individual managers may be. To improve organization structure…will therefore always improve performance. Peter F. Drucker

30. Activity Fragmentation in the Supply Chain Responsibilities President Marketing Finance Operations • Distribution channels • Customer service • Field inventories • Revenue • Cost of capital • ROI • Inventory carrying costs • Supply alternatives and supply costs • Warehousing • Purchasing • Transportation 15-4 CR (2004) Prentice Hall, Inc.

31. Activity Fragmentation in the Supply Chain (Cont’d) Objectives President Marketing Finance Operations • More inventory • Frequent & short production runs • Fast order processing • Fast delivery • Field warehousing • Less inventory • Cheap order processing • Less warehousing • Long production runs • Lowest cost routing • Plant warehousing 15-5 CR (2004) Prentice Hall, Inc.

32. Activity Fragmentation in the Supply Chain (Cont’d) • Reasons for fragmentation • Lack of understanding of key cost tradeoffs • Traditions and conventions • Other areas considered to be more important to the firm than logistics • Organization structure can be in an evolutionary state • Benefits of fragmentation elimination • Encourages important cost tradeoffs to be effected • Focuses on an important, defined area by top management • Sets the structure within which control can take place

33. Organizational Choices • Informal structure • Persuasion of top management • Coordinating committees • Incentive arrangements • Profit sharing • Cross charges • Semi-formal structure • Matrix organization • Formal structure • Line--creates value in products, therefore it has operating status • Staff--provides assistance to the line organization

34. Logistics Matrix Organization 15-8 CR (2004) Prentice Hall, Inc.

35. Tools to improve organization

36. What is Systems Analysis? • Systems analysis refers to the orderly and planned observation of one or more segments in the logistics network or supply chain to determine how well each segment functions.

37. General Questions • Why do we perform each task? • What value is added by it? • Why are the tasks performed in the order they are? • Can we alter the sequence of the processing steps to increase efficiency? • Why are the tasks performed by a particular group or individual? • Could others perform this task? • Is there a better way for the system to operate?

38. Problems in Systems Analysis • Multiple business functions are impacted. • There are trade-offs among conflicting objectives. • Logistics system impacts are difficult to precisely evaluate. • There are business issues unique to each logistics system.

39. Systems Integration: Logistics Activities Outside the Firm • Third-party, or contract, logistics • Integrated service providers • Monitoring third-party performance

40. Reverse Logistics

41. What Drives Reverse Logistics and Returns? Wal-Mart Costs = up to 7-8% of costs of goods!

44. SCOR and Returns Plan Plan Plan Plan Plan Make Deliver Source Deliver Source Make Deliver Source Make Deliver Source Return Return Return Return Return Return Supplier Internal or External Customer Internal or External Return Return Your Company Suppliers’ suppliers Customers’ customers Processes associated with receiving returned products for any reason. These processes extend into post-delivery customer support. The process includes communication between the customer and last known holder or known return center and the generation of associated documentation.

46. Impacts of Reverse Logistics • Forecasting • Carrying costs • Processing costs • Warehousing • Distribution • Transportation • Personnel • Marketing

47. Reverse Logistics - What is it?The Commercial Perspective Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

48. Typical Reverse Logistics Activities • Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory • Recycling packaging materials/containers • Reconditioning, refurbishing, remanufacturing • Disposition of obsolete stuff • Hazmat recovery

49. Reverse Logistics - New Problem? • Sherman • Montgomery Ward’s - 1894 • Recycling/remanufacturing in 1940s • World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff • Salvage and reuse of clothing and shoes in the Pacific Theater World War II

50. Costs - above the cost of the item • Merchandise credits to the customers. • The transportation costs of moving the items from the retail stores to the central returns distribution center. • The repackaging of the serviceable items for resale. • The cost of warehousing the items awaiting disposition. • The cost of disposing of items that are unserviceable, damaged, or obsolete.