12 chapter GLOBAL SUPPLY CHAIN

Supply Chain A complex global network created by a firm to connect its vendors, suppliers, other third parties, and its customers in order to achieve greater cost efficiencies and to enhance competitiveness. Higher earnings and greater corporate efficiencies can be achieved through effective international logistics and supply-chain management.

Global Logistics Global logistics: the design and management of a system that controls the flow of materials into, through, and out of the international corporation.

Material Movement and Business Logistics Material management - the timely movement of raw materials, parts and supplies into and through the firm International Firm Physical distribution - the movement of finished goods from suppliers to customers Business logistic key concepts: Systems concept - the notion that materials-flow activities are so complex that they can be considered only in the context of their interaction. Total-cost concept - identifies and links expenditures in order to evaluate and optimize logistical activities (decrease costs). Trade-off concept - recognizes interactions within the logistics system.

Supply-Chain Management The integration of the three business logistic concepts have resulted in supply-chain management. Supply-chain management connects the value-adding activities of a company’s supply side with its demand side. Efficient supply-chain design can: increase customer satisfaction save money reduce delivery lead times eliminate waste

Global Transportation Infrastructure Mode availability Mode choice Global transportation issue Vital to a firm’s competitive position is its logistics platform - determined by a location’s ease and convenience of market reach under favorable cost circumstances.

Modes of Transportation Water transportation is a key mode for international freight movement - utilizing liner service, bulk service, and tramp or charter service. Land bridges and sea bridges may need to be used to accomplish intermodal movements of freight. Airfreight is a common mode of transportation due to its speed, reach, the availability of air transportation into and out of most countries.

Transportation Mode Selection Three types of vessels can be distinguished by their service:   Liner service offers regularly scheduled passage on established routes. Bulk service mainly provides contractual service for individual voyages for prolonged periods of time. Tramp service is available for irregular routes and is scheduled only on demand.

Transportation Mode Selection Needs of the firm and its customer will influence the international logistics manager on the mode of transportation selected. Each mode of transportation will be evaluated based on four dimensions: transit time predictability cost noneconomic factors

Transportation Mode Selection Transit Time The time between departure and arrival varies between ocean freight and airfreight (e.g., 45 days by ocean vs. 24 hours by air). Predictability is the degree of likelihood that a shipment will arrive on time and in good condition.   An important aspect of predictability is tracking, the capability determine the location of goods at any point during the shipment. Cost International transportation services are priced on the basis of cost of the service provided and the value of the services to the shipper. Noneconomic Factors The transportation sector benefits and suffers from government involvement.  

Export Documentation A firm must deal with numerous forms and documents when exporting to ensure that all goods meet local and foreign laws and regulations. (Export licenses, Insurance certificate, Inspection certificate, Packaging list, Certificate of Origen, Shipper’s export declaration, etc.)   A bill of lading is a contract between the exporter and the carrier showing that the carrier accepts responsibility for the goods and transports them for payment. Straight bills of lading are nonnegotiable and used in prepaid transactions; shipper’s order are negotiable and can be bought, sold, or traded in transit. A commercial invoice states the basis information about the transaction; some governments use this invoice to assess customs duties.

Selected Trade Terms / INCOTERMS Ex-works (EXW)- point of origin, seller’s cost responsibility ends when material is made available to buyer at agreed upon shipping point. Free carrier (FCA)- new Incoterm replacing a variety of FOB terms, designated inland shipping point only. Free alongside ship (FAS)- exporter quotes delivered price for goods, seller handles the cost of unloading and wharfage only. Free on board (FOB)- seller quotes price for delivery of goods on the vessel. Cost and freight (CFR)- seller’s quote includes cost of transportation to named port. Cost, insurance, and freight (CIF)- non-waterway transport only, seller’s quote includes transportation, insurance and miscellaneous charges to point of debarkation from the vessel. Delivery duty unpaid (DDU)- buyer pays for destination customs duty and taxes. Delivery duty paid (DDP)- seller arranges and pays for delivery of goods to buyer’s premises.

Global Inventory Issues High levels of inventory and the cost to carry it, sometimes up to 25 percent or more of the value, can tie up major portions of corporate funds. Inventory levels are influenced by: order cycle time - total time the passes between the placement of the order and receipt of the merchandise. desired customer service levels - set by market expectations of the firm (past performance, product desirability, customer sophistication, competitive status of firm). use of inventories as a strategic tool - balance the cost of maintaining high levels of inventories against the benefits accrued hedging against inflation and deflation.

Global Packaging Issues Shipper packaging decisions include: safety, maintainability, and presentation of goods stresses encountered during shipment environmental concerns climate weight of packaging customer instructions dual packaging (shipment/display) Stresses in Intermodal Movement

Global Storage Issues Service Product to store internationally? Use foreign trade zone, export processing zones or special economic zones? Length of lead time? Packaging and product viability? Cost to Supply Chain Service Tradeoffs in determining international warehousing requirements - keeping a delicate balance

Special Trade Zones Areas where foreign goods may be held or processed and then re-exported without incurring duties are called foreign trade zones. Governments have established export processing zones, special tax- and duty-free treatment for production facilities whose output is destined abroad. China’s special economic zones, with no tariffs, big tax incentives, and low prices for land and labor, have attracted billions in foreign investment