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CHAPTER 13 Global Logistics
Becton Dickinson’s Worldwide Sources
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
Comparison of Domestic and International Logistics Domestic About 10% of U. S. GDP today Cost Transport mode Mainly truck and rail Inventories Lower levels, reflecting short-order, leadtime requirements and improved transport capabilities Agents Modest usage, mostly in rail Financial risk Low Cargo risk Low Government agencies Primarily for hazardous materials, weight, safety laws, and some tariff requirements Administration Minimal documentation involved (e. g. , purchase order, bill of lading, invoice) Communication Voice, paper-based systems adequate, Cultural differences with growing usage of electronic data interchange and Internet Relative homogeneity requires little product modification 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 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
International Market Entry Strategies • Exporting • Licensing • Joint ventures • Ownership • Importing • Countertrade
Major Participants in an International Logistics Transaction Domestic bank Domestic seller 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 Information flow Foreign government agencies Foreign inland transportation carrier Foreign bank Foreign buyer
The Global Logistics Environment al cal Ec on om ic Customer service Other activities Inventory Logistics executive Warehousing and storage Packaging Transportation Ge og gy rap hy ch Te lo no Competition Social and cultural ti oli P an eg dl
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.
Exporting Companies • • • Export distributor Customs house broker International freight forwarder Trading company Non-vessel-operating common carrier (NVOCC)
Documentation • • • Country of Origin Bills of Lading Packing Lists Customs Certified Shippers - C-T PAT
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
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
Ocean Shipping • Types of Vessels – Containerships – Lighter aboard ship (LASH) vessels – Roll On-Roll Off (RO-RO) vessels – Tankers – Specialized vessels
A RO-RO Vessel in Jacksonville Florida
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
CHAPTER 15 Organizing for Effective Logistics
Traditional Logistics Management Responsibilities • Sales service • Channels of distribution • Product returns and warranties • Manufacturing • Purchasing/ procurement • Traffic • Warehousing • Information systems • Budgeting • Inventory • Data processing Objectives Large inventories Small and frequent production runs Decentralized warehousing Large product assortment Low inventories Larger and infrequent production runs Plant warehousing Fewer products Centralized warehousing
Traditional Logistics Management cont. Responsibilities Objectives • Sales service • Channels of distribution • Product returns and warranties Rapid order processing Generous returned goods policies Fast transportation Expedited shipments • Manufacturing • Purchasing/ procurement • Traffic • Warehousing • Information systems • Budgeting • Inventory • Data processing Inexpensive order processing More rigid returned goods policies Low cost transportation
Control Exercised By Logistics Executives Over Selected Logistics Functions Percent of Reporting Companies Activities 1966 1976 1985 1990 1999 Transportation 89% 94% 97% 98% 90% Warehousing 70 93 95 97 88 Inventory control 55 83 81 79 74 Order processing 43 76 67 61 55 8 70 37 48 39 15 58 44 51 41 Packaging Purchasing and procurement
Organization Design for Logistics as a Function Human Resources Logistics
Organization Design for Logistics as a Program President Logistics Engineering Manufacturing Human Resources Marketing/ Sales Finance/ Accounting
Components of Corporate and Logistics Mission Statements • • Targeted customers and markets Principal products/services Geographic domain Core technologies
Components of Corporate and Logistics Mission Statements (cont. ) • • Survival, growth, and profitability Company philosophy Company self-concept Firm’s desired public image
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
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
Activity Fragmentation in the Supply Chain Responsibilities President Marketing • Distribution channels • Customer service • Field inventories • Revenue CR (2004) Prentice Hall, Inc. Finance • Cost of capital • ROI • Inventory carrying costs Operations • Supply alternatives and supply costs • Warehousing • Purchasing • Transportation 15 -4
Activity Fragmentation in the Supply Chain (Cont’d) Objectives President Marketing • More inventory • Frequent & short production runs • Fast order processing • Fast delivery • Field warehousing CR (2004) Prentice Hall, Inc. Finance • Less inventory Operations • Long production runs • Cheap order processing • Less warehousing • Lowest cost routing • Plant warehousing 15 -5
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
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
Logistics Matrix Organization CR (2004) Prentice Hall, Inc. 15 -8
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.
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?
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.
Systems Integration: Logistics Activities Outside the Firm • Third-party, or contract, logistics • Integrated service providers • Monitoring third-party performance
Supply Chain Security
Supply Chain Security A Global Perspective
Top 5 European Ports • • • Rotterdam – 9. 287 million TEUs in 2005 Hamburg – 9. 088 million TEUs Antwerp – 6. 488 million TEUs Bremen – 3. 735 million TEUs Giora Tauro – 3. 161 million TEUs • LA/Long Beach – 7. 485 mil TEUs Source: Logistics Today, Feb 07, p. 1, 20
Other Key Ports • • • Singapore – 23. 2 million TEUs Hong Kong – 22. 602 million Shanghai – 18. 080 million Shenzhen – 16. 2 million Pusan – 11. 94 million
Rotterdam • > 900 intermodal barge moves daily to 72 locations • > 200 rail moves • 220 million people within 600 miles of Rotterdam
Rail • > 15% of cargo to Germany via rail • ~ 13% of Belgium cargo • ~ 14 of French cargo
Other issues • 9000 distribution centers in the Netherlands • 2000 - $64. 4 billion USD in logistics and distribution in The Netherlands
Containers • • Cost to X-Ray containers Manpower Delays Radiation
Why should you care about SC Security? • Is it a US problem? • Global Problem • Heathrow Airport delays Superbowl weekend 2005 • RFID – is the solution? • ISO Guidelines for SC Security • Terrorism Insurance
Transportation Worker Identification Credentials • Port Employees • Long Shoremen • Unescorted access personnel
HR 1 • Air Cargo Bill – phase in inspection of all air cargo • Sea Cargo – safe seal – shippers of >75 K TEUs to US have 3 years to comply
C-TPAT • Security Freight Initiative • Inspection of high risk containers @ >50 ports
Other issues • the. Truecosts. com – costs of piracy and fakes • Rotterdam – 19% of all European Volume • Amsterdam – 440 million metric tonnes • www. HIDC. com – Holland International Distribution Council
Orlando International Airport • No staffing of doors for employee entrance to baggage claim areas • Guns smuggled into planes by employees • “no requirement for us to staff those doors” OIA Spokesperson; TSA – “not my job!” • Identified as security issues in 2004 • 2006 – ½ of TSA Screeners failed test that measured how well employees could identify explosives, guns and other weapons on the scanner – but can identify bottles of mouthwash and toothpaste Source: Mike Thomas, Orlando Sentinel, Mar 15, 2007, p. B-1
Air Cargo World 2/07 • Bans on Russian Flights to Georgia • Unfit Antonovs – on list published by the International Civil Aviation Organization – 462 aircraft considered not air worthy • Not a terror threat but still a SC Threat • Mostly used throughout Africa
International Bio. Terrorism • • • Peter Pan Peanut Butter – e coli – 2007 E-coli from fresh Spinach – 2006 Chi’s e-coli – from green onions – 2003 Taco Bell – e coli 2005 None were terrorist attacks but impacted supply chains
supply chain security and homeland defense
Supply Chain Security “We have proved to our management that good security is good business. ” — Ann Lister of Texas Instruments
Agenda • • What is Supply Chain Security How does it tie to Homeland Security? Is it Important? Is it a Problem? Risk Assessment Risk Management Conclusions/Questions
Important? • September 11, 2001 - $2 billion per day lost • Longshoremen Strike – 300 -500 ships backed up • Potential loss of attack to major port $20 billion estimate • 2008 estimate ~ 12 million containers into US; up to 200 million containers world wide
Problem? Terrorism Obsolescence Pilferage Information Breach Proprietary Data – Camera Phones; Thumb Drives Cyberspace Security RFID Data Security 66% of Sealift Containers arrive at 20 Major Ports >58 % of all inbound containers come through New York/New Jersey, Los Angeles, Long Beach • ~44% through Los Angeles/Long Beach in 2003 • Lengthening of Supply Chains – coupled with Globalization • • • 3/19/2018
Recent Headlines • “New Budget includes $10. 2 Billion for Border Security. ” • “Battling the Bad Guys: 2005 Was a Tough Year” Dec 2005 Baseline Magazine • “Major Data Theft Leads to Major Legal Problems” Baseline Magazine • “Polo Ralph Lauren – Lost Point of Sale Data” • “No One Stop Shopping to Stop Database Pilferages” E-Week, Dec 21, 2005
Recent Headlines • GAO Report: “Container Security – Expansion of Key Customs Programs Will Require Greater Attention to Critical Success Factors” • “Security and Risk Strategy Become Integrated” – Top Trends for 2006, CIO Magazine, January 2006 • “Computer Security Becomes More Critical” CIO Magazine, January 2006 • “Supply Chain and Security Remain in the Forefront” • “ISO Publishes Supply Chain Security Guidelines” Plant Engineering Magazine, Sep 06 • New Budget Includes $10. 2 Billion Increase for Border Protection
Recent Headlines • “Supply Chain Security Poses Opportunities, Obstacles” E-Week, Sep 23, 2005 • “Supply Chain Risks Threaten the World’s Biggest Companies” Logistics Today – “Financial executives at some of the world’s biggest companies believe supply chain risks post the top threat to companies revenues. ”
Risk Assessment “If you do things the way you’ve always done them, you’ll get the same things you’ve always got. ” -Darrell Waltrip This is not your Dad’s Supply Chain! Security is an integral part of the Supply Chain and Homeland Defense
Purpose of Risk Assessmen Identify those areas of the supply chain that are vulnerable to interruptions of support flow. • People • Processes • Technologies • External events The identification and of hazards assessment of hazards to determine risk to include the probability and the resulting severity.
Risk Assessment Supply Chains are inherently complex, dynamic, and fluid, characterized by uncertainty, ambiguity, and friction. These characteristics cloud the operating environment: they create risks
Risk Assessment • Terrorism • Port Security – ~ 12 million containers annually • Port Security – 300 US Ports • Longshoremen Strike – 2002 • Potential Airport Attack – LAX; MPS; LGA
Risk Assessment/Management Steps • • • Identify the hazards. Assess hazards to determine risks. Develop controls and make risk decisions. Implement controls. Supervise and evaluate.
How do you identify your Supply Chain Risks? • • • You have to know your processes Process maps Understanding processes Understanding where risks are Internal Risks External Risks
What are your Hazards? • • • Theft Pilferage Competition Information Systems Cell Phones Thumb Drives Camera Phones Disgruntled Employees Lack of Training
Risk Management “Risk management takes a new shape in extended supply chain Risk management. and the security of supply chains took on a new emphasis after the attacks of September 11, 2001 and the reactions of the world to security. Included in this heightened security awareness are initiatives such as C-TPAT and Homeland Security initiatives. ” - Logistics Today
Risk Management • Identify the hazards. • Assess hazards to determine risks. • Develop controls and make risk decisions. • Implement controls. • Supervise and evaluate.
Risk Management • Conserving resources while avoiding unnecessary risk • Deciding on the approval of an alternative • Identifying feasible and effective control measures where specific standards do not exist
What is a Catastrophic Risk • • • Inaccurate receipts? Customer Satisfaction? Sloppy Warehousing? National Emergency? Hurricane? Or, Only when it makes it to CNN?
Risk Management Program • Mitigate Risk • Eliminate Risk • Consequences of Risk or Mitigation – probability and severity • Courses of Action Analysis – Feasible, Suitable, Acceptable? • Manage Risk not react to Risk!
New Problem? • “There were no ‘secure’ rear areas. ” General Joseph Heiser on Vietnam Logistics • Sun Tzu – Chapter 1, The Art of War
Supply Chain Security • Supply Chain Security must protect the path from the supplier to the customer. • End to End Security • End to End Visibility – RFID • Information Security • Personal Daily Obligation • Operational Security • Security and Velocity
Final Thought With an estimated 12 million cargo containers coming into the United States, coupled with an increase in the amount of jobs taken off shore; The resultant increase in imports and an ever changing terrorist enemy: Supply chain security is extremely important to Homeland Defense!
Supply Chain Security “If master small things, Anything becomes possible” - Mr. Miyagi “The Next Karate Kid”