1. Chapter 4 Managing logistics internationally

2. Management of international logistics
Framework
Management of international logistics
Commoditized transportation
Information and communication technology
Enablers
Network design
Risk management
Governance
Activities
Factor costs
Economies of scale
Local responsiveness/Time to market
Inventory and handling costs
Transportation breakdowns
Geopolitical threats (war, terror)
Drivers
Risks

3. Content Drivers and logistics implications of internationalization
The tendency towards internationalization
The challenge of international logistics and location
Organizing for international logistics
Managing for risk readiness

4. Drivers and logistics implications of internationalization
Key issue 1
What are the trade-offs between responsiveness to local markets and economies of scale?

5. Drivers and logistics implications of internationalization
Motivations for International Expansion
Increase Market Share
domestic market may lack the size to support efficient scale manufacturing facilities
Return on Investment
large investment projects may require global markets to justify the capital outlays
weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators

6. Drivers and logistics implications of internationalization
Motivations for International Expansion
Economies of Scale or Learning
expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution
can spread costs over a larger sales’ base
increase profit per unit
Location Advantages
low cost markets may aid in developing competitive advantage
may achieve better access to:
Raw materials
Lower cost labor
Key customers
Energy

7. Drivers and logistics implications of internationalization
International Corporate-Level Strategy
Need for Local Responsiveness
Need for Global Integration
Low
High
Global
strategy
Transnational
Multidomestic

8. Drivers and logistics implications of internationalization
Multidomestic
strategy
Strategy and operating decisions are decentralized to strategic business units (SBU) in each country
Products and services are tailored to local markets
Business units in one country are independent of each other
Assumes markets differ by country or regions
Focus on competition in each market
Prominent strategy among European firms due to broad variety of cultures and markets in Europe
Logistical network: Mainly national; Sourcing, storage and shipping on a national level and duplicated by country

9. Drivers and logistics implications of internationalization
Global
strategy
Products are standardized across national markets
Decisions regarding business-level strategies are centralized in the home office
Strategic business units (SBU) are assumed to be interdependent
Emphasizes economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across borders (which also makes it difficult to manage)
Logistical network: Limited number of production locations that ship to markets around the globe through a highly internationalized network with limited localized warehouse and resources.

10. Drivers and logistics implications of internationalization
Transnational
strategy
Seeks to achieve both global efficiency and local responsiveness
Difficult to achieve because of simultaneous requirements
strong central control and coordination to achieve efficiency
decentralization to achieve local market responsiveness
Must pursue organizational learning to achieve competitive advantage
Balanced local sourcing and shipping (e.g. for customized products and local specialties) and global sourcing and shipping (for example for commodities).

11. Drivers and logistics implications of internationalization
The International Supply Chain
Physical
Distribution
Management
Transportation
Corporation
Suppliers
Customers
Domestic/Import
Sourcing
Domestic/Export
Throughflow
Inbound
Materials
Outbound
Forward and Reverse Flow of Information, Products, and Funds
Order
Processing
Placement
Inventory
Customer
Service
Storage
Costumer-Firm
Interface
Supplier-Firm

12. Drivers and logistics implications of internationalization
Inventory
Transport
Internationalization
Handling

13. Drivers and logistics implications of internationalization
Scale economics
Global consolidation
Sourcing of commodity items from low-wage economies
Concentration at specific sites
Bulk transportation

14. Drivers and logistics implications of internationalization
External risks
Language and culture uncertainty
Political risks
Macroeconomic risks
Risks in international logistics
Internal risks
Supply options
Inventory policy
Transportation and distribution arrangements

15. Case study
The Deskjet-plus is one of several printers manufactured by the Vancouver Division of HP.

16. Factory-localization
Case study
Factory-localization
Stage 2: final assembly and test (FAT), performed at factory
Application-specific integrated circuits
Read-only memory
Raw logic board
Motors
Flex cables
Key pad board
Plastic mechanics
Plastic-skin
Carriage motor
Plastic-gears
North America DC
Logic board
Head driver board
Raw head driver board
Stage 1: printed circuit board assembly and test (PCAT), performed at factory
Europe DC
Asia Pacific DC
Vancouver plant
shipment to different DCs

17. Case study
Three major sources of uncertainty can affect HP’s supply chain:
Delivery of incoming materials (late shipments, wrong parts, and so forth)
Internal process (process yields and machine downtimes)
Demand
Delays in replenishing stocks at the DCs
Inventory buildup or backorders at the DCs

18. Case study
Under ‘factory-localization’, HP ships different versions of the Deskjet-Plus to two non-US DCs by sea, with a transit time of about a month.
This long lead time limits DC’s ability to respond to fluctuations in the demand for different versions of the product.
To ensure prompt service for the customers, European and Far East DCs have to maintain high levels of safety stocks.

19. Content Drivers and logistics implications of internationalization
The tendency towards internationalization
The challenge of international logistics and location
Organizing for international logistics
Managing for risk readiness

20. The tendency towards internationalization
Key issue 1
How can we picture the trade-offs between costs, inventories and lead times in international logistics?

21. The tendency towards internationalization
Focused market Vs. focused factory

22. The tendency towards internationalization
The advantages and disadvantages of focused factory
Cost
Lead time
Advantages
Lower production costs through economies of scale
Specialized equipment may be able to manufacture quicker
Disadvantages
Higher transport cost
Longer distance from market will increase lead time

23. The tendency towards internationalization
Centralized inventory
Distribution costs
most important
Inventory costs
Local inventories
Centralized inventories
Shorter delivery time
Longer delivery time
Lower demand volatility
Greater demand volatility

24. The tendency towards internationalization
Centralized inventory C B A
Factory/Vendor
Regional distribution centers
Local trans-shipment point
Lead time
Inventory level
Slowest-moving lines, least predictable.
Inventory of medium velocity, less predictable demand line.
Direct shipment of fast-moving, predictable lines.

25. Case study DC-localization Localization at DCs
Improving the forecast accuracy of product-mix demands is very difficult. 1
Improve process yields, and to reduce machine downtimes at the plant.
DC-localization 2 3
Reduce shipment lead time between manufacturing and distribution, for example, shipping by air.
Localization at DCs
Factory
DCs
manufacture and ship a generic Deskjet-plus printer without the power supply module and manual
localize the generic product to different specific options as needed
Quick shipment is costly.

26. Localization materials
Case study
Localization materials
Stage 1: printed circuit board assembly and test (PCAT), performed at factory
Motors
Flex cables
Key pad board
Plastic mechanics
Plastic-skin
Carriage motor
Plastic-gears
US version
Application-specific integrated circuits
Read-only memory
Raw logic board
US version
European versions
Far East versions
Logic board
Unlocalized printer
Raw head driver board
Head driver board
Localization materials
Stage 2: final assembly and test (FAT), performed at factory
performed either at factory or at DC

27. Factory-localization
Case study
Inventory levels at all sites of Deskjet-plus printer’s supply chain
Factory-localization
DC-localization
Far East DC
Printers
13.4
9.8
Localization materials
11.0
European DC
5.2
3.5
US DC
3.2
Factory
2.8
3.9

28. Content Drivers and logistics implications of internationalization
The tendency towards internationalization
The challenge of international logistics and location
Organizing for international logistics
Managing for risk readiness

29. The challenge of international logistics and location
Key issues 1
What are the risks in international logistics in terms of time and inventory? 2
How can the risks be addressed?

30. The challenge of international logistics and location
The complexity of international logistics
Multiple consolidation and break points
Extended lead time
Extended and unreliable transit times
Multiple freight modes and cost options

31. The challenge of international logistics and location
Domestic logistics 10 30 20
customer
supplier
Plant
transit DC
Inventory in supply chain=90 units
International logistics 20 30
customer
supplier
Plant
Transit
Origin forwarder
Ocean transit
Inventory in supply chain=170 units 10
Destination forwarder
transit DC

32. The challenge of international logistics and location
Activity: Multiple freight modes and cost options
Freight mode
Industry
Cost
Speed
Availability
Air O
Sea
Rail
Road

33. The challenge of international logistics and location
Location analysis
Phase
Strategic decision to restructure and invest in plant network
Project plan
Specification of project plan
Implementation of plan
Geographical scope
Selected location
Continent
(e.g. Asia, Europe)
3 to 4 countries
Regions within selected countries
Location within regions

34. The challenge of international logistics and location
Four-phase decision making process
Deciding upon the appropriate level of centralization-decentralization
Selecting relevant location criteria
The availability of physical infrastructure
The availability of warehouse sites
Central position in the regional market
Selecting criteria weightings
An economic trade-off analysis of structures and relevant locations

35. Content Drivers and logistics implications of internationalization
The tendency towards internationalization
The challenge of international logistics and location
Organizing for international logistics
Managing for risk readiness

36. Organizing for international logistics
Key issue 1
How can supply chains be better organized to meet the challenges of international logistics?

37. Organizing for international logistics
Layering and tiering
Evolving role of individual plants
Reconfiguration
processes
Organizing for international logistics

38. Organizing for international logistics
Postponed manufacturing
A specific combination of the three generic types of postponement (Bowersox and Closs,1996)
Form postponement: postponement of final manufacturing or processing activities
Time postponement: delaying of the forward movement of goods until customer or orders have been received
Place postponement: positioning of inventories upstream in centralized manufacturing or distribution operations to postpone the forward or downstream movement of goods
Logistics postponement

39. Organizing for international logistics
Primary strategic contribution of the plant
Product assembly and product improvement and recommendation
Product customization
Product packaging
Warehousing and shipment
Access to production supplies
Access to qualified suppliers
Proximity to markets
Postponed manufacturing
Factory warehouse
National warehouse
National warehouse and deferred packaging
Continental DC
Changing role of DC
Activity at site
Achieving worldwide learning capabilities
Achieving global efficiency
Achieving local responsive capabilities

40. Organizing for international logistics
Reconfiguration processes for companies
Starting point
Global structure
Localized structure
Heritage in market
Little, greenfield approach
Extensive, brownfield approach
Supply chain scope
Narrow, involving inventory and final manufacturing
Broad, involving inventory, manufacturing and sourcing
Focus
Decentralizing final manufacturing and inventory into market
Centralizing inventory and final manufacturing at continental level and globalizing manufacturing and sourcing
Tendency
Single, placing activities into market
Multiple, relocating within market and moving outside market
Timetable
Short (1-10 months)
Long (number of years)
Authority
Global, top-down directions
Local, bottom-up iterative process

41. Stages in the implementation of postponed manufacturing: local starting point

42. Stages in the implementation of postponed manufacturing: global starting point

43. Organizing for international logistics
Supply chain reconfigurations involved in postponed manufacturing
Industry
Sourcing and primary manufacturing
Inventory keeping
Final manufacturing
distribution
Service and sales
software
Wine
Transport
Telecom
Pharma
Fashion

44. Content Drivers and logistics implications of internationalization
The tendency towards internationalization
The challenge of international logistics and location
Organizing for international logistics
Managing for risk readiness

45. Managing for risk readiness
Short term risk readiness
Inventory policies to reflect volatility
Transportation network redesign
Reconsider sole and global sourcing arrangements
Long term risk readiness
Develop contingency plans and risk protocols
Audit preparedness
Train plant management and staff
Report to senior management on risk profiles and preparedness

46. Managing for risk readiness
DELL case: global sourcing and transportation post 9-11
The events of 9-11 changed the dynamics of importing and exporting products into the USA
Air traffic control
post 9/11 customs and security requirements for global trade
Order increasing

47. Managing for risk readiness
Flexible Strategy
Flexibility to take advantages of different scenarios
Requires a flexible supply chain
multiple suppliers
flexible facilities
various distribution channels
Can be expensive to implement
coordination mechanisms
capital investments
loss of economies of scale

48. Managing for risk readiness
Implement Flexible Strategy
Production shifting: flexible factories and excess capacity and suppliers
Information sharing: anticipate market changes
Global coordination
Political leverage