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Logistics and supply chain management

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1 Logistics and supply chain management
CHAPTER 16 Logistics and supply chain management Visit for the latest in business news stories. Copyright © John Wiley & Sons

2 Chapter 16 Learning Objectives
Understand the escalating importance of logistics and supply-chain management Learn about materials management and physical distribution Learn why international logistics is more complex than domestic logistics See how the transportation infrastructure in host countries often dictates a manager’s options Learn why international inventory management is crucial for success Learn about interactions between different logistics components Decide who should be in charge of logistics Appreciate how information and data exchange are pivotal for supply-chain management Understand the vulnerability and support of logistics See and consider the linkages between logistics and sustainability Chapter 16 Learning Objectives 2 Chapter 16 Czinkota: International Business, 8e

3 International Logistics
International Logistics – The design and management of a system that controls the forward and reverse flow of materials, services, and information into, through, and out of the international corporation 3 Chapter 16 Czinkota: International Business, 8e

4 International Logistics
Materials Management – The timely movement of raw materials, parts, and supplies into and through the firm Physical Distribution – The movement of the firm’s finished product to its customers Supply Chain Concepts: Systems Concept Total Cost Concept Trade-off Concept 4 Chapter 16 Czinkota: International Business, 8e

5 Supply Chain Management
A series of value-adding activities connects a company’s supply side with its demand side Extended enterprise occurs when companies consider the entire supply chain to be a single organization The Impact of International Logistics Make up 10 to 30 percent of the total landed cost of an international order Advances in technology and communication can improve logistics systems The fundamentals of a country’s logistics system remain the best predictor of cost and efficiency 5 Chapter 16 Czinkota: International Business, 8e

6 Transportation Infrastructure
Around the globe, major infrastructure variations are often encountered Some countries have excellent inbound and outbound transportation systems but weak internal transportation links New routes of commerce have opened up Logistics platform is determined by a location’s ease and convenience of market reach under favorable circumstances The logistics managers must learn about existing and planned infrastructure Extreme variations exist in the frequency of transportation services 6 Chapter 16 Czinkota: International Business, 8e

7 Global Transport Knowledge Partnership
Global Transport Knowledge Partnership (GTKP) is an innovative partnership of global organizations, local policy makers, experts, and interested users working to make effective use of international transport knowledge. gTKP's mission is to support sustainable and efficient transport in developing and transition countries by providing free access to information, expertise, and free technical advice. gTKP currently offers access to sector experts and best practice knowledge in 8 themes in road transport. Themes include environment and climate change, finance and economics, governance, road safety, rural transport, social development, trade and transport, and urban mobility. Source: 7 Chapter 16 Czinkota: International Business, 8e

8 Focus on Entrepreneurship: Late, Lost, and Damaged Goods
“Winners” of the Roberts Express “Shipments from Hell” contest describe shipments that were lost, broken, or even burned. The contest is judged by representatives from Industry Week and Transportation and Distribution. The stories behind the “Shipments from Hell” illustrate that a host of bizarre circumstances can turn an ordinary shipment into a comedy of errors. 8 Chapter 16 Czinkota: International Business, 8e

9 Ocean Shipping Types of service vessels
Liner service offers regularly scheduled passage on established routes Bulk service provides contractual services for individual voyages or for prolonged periods of time Tramp service is available for irregular routes and is scheduled only on demand Type of cargo a vessel can carry Conventional (break bulk) vessels – For oversized/unusual cargo Container ships – Standardized containers Roll-on-roll-off (RORO) ships – Oceangoing ferries Lighter Aboard Ship (LASH) – Barges stored on the ship and lowered at the point of destination to operate on inland waterways Limited by what the port can accommodate 9 Chapter 16 Czinkota: International Business, 8e

10 Air Shipping Airfreight is available to and from most countries
It is often a matter of national prestige to operate a national airline About 20 percent of the worlds manufactured exports by weight travel by air Items tend to be high value or high weight to volume ratio (density) Airlines continue to make major efforts to increase the volume of air freight 10 Chapter 16 Czinkota: International Business, 8e

11 Selecting a Mode of Transport
Period between departure and arrival of carrier is longer for ocean than for air Perishable products require shorter transit times Significant reliability issues Vagarities of nature may impose delays Tracking becomes important Priced on the basis of both cost and value The manager must decide when the higher cost of airfreight can be justified Preferential policies by government International quota systems of transportation Transit Time Predictability Cost of Transportation Noneconomic Factors 11 Chapter 16 Czinkota: International Business, 8e

12 Focus on E-Business: Product Tracking
Transportation service providers have realized that for their corporate clients, a greater sense of control translates into calculations of predictability, reliability, and competitiveness. In a case of business innovation spilling over into the policy world, governments and regulatory agencies have started to take notice of developments in product tracking technology. 12 Chapter 16 Czinkota: International Business, 8e

13 Export Documentation Export declaration – A shipping document detailing the type, destination, shipping, timing, and value of an export shipment Bill of Lading – A contract between the exporter and the carrier indicating that the carrier has accepted responsibility for the goods in return for payment Straight bill of lading – Nonnegotiable, used in prepaid transactions Shipper’s order bill of lading – Negotiable, can be bought, sold, or traded while goods are in transit, and is used for letter of credit transactions Commercial Invoice – A bill for the goods staging basic information Freight forwarders specialize in handling documentation 13 Chapter 16 Czinkota: International Business, 8e

14 Other Export Documents
Consular Invoices Export Licenses Certificates of Origin Inspection Certificates Dock/ Warehouse Receipts Certificates of Origin Insurance Certificates Destination Control Statements Export Declarations Export Packaging Lists 14 Chapter 16 Czinkota: International Business, 8e

15 Terms of Shipment and Sale
Incoterms – Internationally accepted standard definitions for the terms of sale set by the International Chamber of Commerce in 1936 EXW (ex-works) – Prices apply only at the point of origin FCA (free carrier) – Seller is responsible for loading goods into the means of transportation and buyer is responsible for all subsequent expenses FAS (free alongside ship) – The exporter quotes a price including delivery of goods alongside a vessel at the port FOB (free on board) – Applies only to vessel shipments, where price covers all expenses up to delivery of goods CFR (cost and freight) – Price includes cost of transportation to named port CIF (cost, insurance, and freight) – Price includes all charges to point of debarkation CPT (carriage paid to) – The price quoted for shipments not involving waterway transport DDP (delivered duty paid) – Prices includes import duties and inland transportation to buyer’s premises DDU (delivered duty unpaid) – Only customs duty and taxes paid by buyer 15 Chapter 16 Czinkota: International Business, 8e

16 International Inventory Issues
General Inventory Issues Inventory – Materials on hand for use in the production or finished goods Inventory carrying costs – The expense of maintaining inventories Just-in-time Inventory – Materials scheduled to arrive when needed Order Cycle Time – The amount of time between the placement of an order and receipt of merchandise Length of the total order cycle EDI – Electronic data interchange can streamline processing and administration as well as reduce costs Order filling time can increase due to lack of familiarity Transportation time is longer due to distances involved Consistency – Delivery times may vary more internationally 16 Chapter 16 Czinkota: International Business, 8e

17 International Inventory Issues
Customer Service Levels The responsiveness that inventory policies permit for any given situation The international service level should be based on expectations encountered in each market Strategically placed depots can boost responsiveness Inventory as a Strategic Tool Can help deal with currency valuation changes Can be a hedge against inflation 17 Chapter 16 Czinkota: International Business, 8e

18 International Packaging Issues
Packaging that is adequate for domestic shipping may be inadequate for international transportation Responsibility of the shipper Environmental conditions such as climate must also be considered Weight of packaging affects cost of shipping Customer instructions must also be followed May have to use double packaging if promotional value of packaging is to be maintained Intermodal containers help resolve many packaging issues 18 Chapter 16 Czinkota: International Business, 8e

19 International Storage Issues
Storage Facilities Location decision – How many distribution centers to have and where to locate them Warehouse decisions must be carefully analyzed The logistician should analyze international product sales and then rank order products according to warehousing needs Special Trade Zones: Foreign Trade Zones Export Processing Zones Special Economic Zones 19 Chapter 16 Czinkota: International Business, 8e

20 Management of International Logistics
Centralized Logistics Management – Headquarters staff retains decision-making power over logistics Decentralized Logistics Management – Makes local managers responsive but decreases global coordination Outsourcing Logistics Services Collaborating with transportation firms, private warehouse, and other specialists One-stop logistics allows shippers to buy all the transportation modes and functional services from a single carrier 20 Chapter 16 Czinkota: International Business, 8e

21 The Supply Chain and the Internet
Can now conduct more global comparisons among suppliers Can learn more about the structure of the supplier network Establishing e-commerce means the company should be prepared for 24-hour service Some companies build their own international distribution network using the company web site 21 Chapter 16 Czinkota: International Business, 8e

22 Logistics and Security
Due to terrorism and security concerns everything takes longer Modern transportation systems have proved to be critical to terrorist activities Logistics systems can be the targets of attacks New safeguards for international shipments affect the ability of firms to efficiently plan their international shipments 22 Chapter 16 Czinkota: International Business, 8e

23 Wallenius Wilhelmsen Logistics Security
In response to the increased threat of terrorism throughout the world, Wallenius Wilhelmsen Logistics has implemented protective security measures to create a secure work environment, to safeguard customers' cargo, and to protect owners' investments. Wallenius Wilhelmsen Logistics' security policy is based on the following overriding principles: Awareness Prevention Response Consequence Management Source: 23 Chapter 16 Czinkota: International Business, 8e

24 Focus on Politics: Logistics and National Security
The Department of Homeland Security (DHS) is designed to coordinate U.S. efforts in the war against terror. Some of the DHS agencies affect international shippers, including the Customs Service, Coast Guard, and Transportation Security Administration. For international importers and exporters it means that more documentation and notification time are added to the process. 24 Chapter 16 Czinkota: International Business, 8e

25 Logistics and the Environment
Must consider environmental laws, expectations, and self-imposed goals while planning logistics Reverse distribution systems – Ensures that the firm can retrieve a product from the market for subsequent use, recycling, or disposal Managers are often faced with the trade-offs between environmental concerns and logistical efficiency Environmental practices are those that bring about fewer shipments, less handling, and more direct movement 25 Chapter 16 Czinkota: International Business, 8e

26 Focus on Business: Reverse Logistics, or Turning “Trash into Cash”
Reverse logistics concerns the handling and disposition of returned products and use of related materials and information. This costs U.S. companies more than $35 billion annually. With the rising costs of oil and other commodities, companies are beginning to see used products less as trash and more as the sum of their raw materials, energy, and labor. 26 Chapter 16 Czinkota: International Business, 8e

27 Reverse Logistics during the Holidays
According to a survey commissioned by eBay, nearly 60 percent of Americans receive unwanted gifts during the holidays. More and more companies acknowledge that reverse logistics is a critical part of the supply chain. Without a comprehensive return system, retailers can lose millions in revenue. Two recent studies show returned merchandise costs the consumer electronics industry $10 billion annually, while personal computer returns amount to $1.5 billion per year. Many companies are seeking new ways to develop or enhance their return systems. For example, companies such as Eastman Kodak and Hewlett-Packard have implemented successful reuse and recycling programs of returned items. Source: 27 Chapter 16 Czinkota: International Business, 8e

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