Chapter 16 Global Logistics and Materials Management Developed

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

International Transportation 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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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. Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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 Fed. Ex or UPS. • The supply chain and the Internet Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.

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” Developed by Cool Pictures & Multi. Media Presentations Copyright © 2007 by South-Western, a division of Thomson Learning. All rights reserved.