Chapter 15 International Logistics

I.International Logistics - the designing and managing of a system that controls the flow of materials into, through, and out of the international corporation. –Major decision areas : locating plants and warehouses; choice of transportation mode; managing inventory; packaging.

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

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

International Logistics II.Inventory Management Considerations -Carrying costs -Order cycle time -Order cycle consistency -Difficulty in applying service rules

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

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

International Logistics III.Packaging Issues 1)Responsibility of the shipper 2)Climate 3)Shape and weight 4)Environment IV.Methods of Payment

Letters of Credit - Revocable - Irrevocable Cash in advance Open Accounts Forfaiting Getting Paid Foreign Commercial Payments

Who’s Responsible for Costs Under Various Terms? *Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial. **The seller has responsibility to arrange for consular invoices (and other documents requested by buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter of practice, seller included in quotations. Export packing*Buyer Seller SellerSeller Inland freight Buyer SellerSeller Seller Port charges Buyer Buyer Seller Seller Forwarder's fee BuyerBuyerBuyer Seller Consular fee Buyer Buyer Buyer Buyer ** Loading on vessel or plane Buyer Buyer Buyer Seller Ocean freight Buyer BuyerBuyer Seller Cargo insuranceBuyerBuyer Buyer Seller Customs duties Buyer Buyer Buyer Buyer Ownership of When goods on When goods When goodsWhen goods goods passesboard an inlandunloaded byalongside on board air carrier (truck, rail,inland carriercarrier, in or ocean etc.) or in hands hands of aircarrier at port of inland carrieror ocean carrierof shipment FOB (Free on FOB (Free on FAS (Free CIF (Cost Board) InlandBoard) InlandAlong Side)Insurance, Carrier atCarrier atVessel orFreight) at FactoryPoints ofPlane at PortPort of Shipmentof Shipment Destination Irwin/McGraw-Hill 15-15

The Exporting Process Licenses General Validated Documentation Export declaration Commercial invoice Bill of lading Consular invoice Special certificates Other documents Leaving the Exporting Country Physical Distribution International shipping and logistics Packing Insurance Entering the Importing Country Tariffs, Taxes Non-tariff Barriers Standards Inspection Documentation Quotas Fees Licenses Special certificates Exchange permits Other barriers Irwin/McGraw-Hill 15-3

Export Administration Regulations (EAR) 1.A new country and commodity classification system has been devised, making it the exporter’s responsibility to select the proper classification number for an item to be exported. 2.The exporter must decide if there are end-use restrictions on the items, such as their possible use in the development of nuclear, chemical, and biological weapons. 3.The exporter now has the responsibility to determine the ultimate end customer and ultimate end uses, regardless of who may be the initial buyer, or face the legal consequences of doing business with unauthorized trading partners. 4.A special category for the control of encryption-related products has been established Irwin/McGraw-Hill

Home Country Channel Members Manufacturer Export Management Company Export Management Company Export Agent Direct Import Intermediary Local Wholesaler or Agent Local Wholesaler or Agent Retailer Consumer Industrial User Industrial User Foreign Country Channel Members Structure of International Distribution Systems International Marketing Channel Alternatives