Introduction to International Logistics

International Logistics:
Course Introduction & Objectives
Yemisi Bolumol, Ph.D.
Assistant Professor of Logistics
University of North Florida, Jacksonville (International Logistics)

An Introduction to Logistics Domestic vs. International Logistics International vs. global Logistics Globalization and the World Economy International Business Management Features of International Logistics Course Objectives

What is Logistics?
Logistics Management Defined

Production

Materials Management

Physical Distribution

Logistics is inventory in motion or at rest.

That part of the supply chain involved with the planning, implementing and controlling of the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
Source: Council of Logistics Management

CLM definition: Importance of Information

Value-Added Role of Logistics Value-

Production Form Utility

Marketing Possession Utility

Production

Materials Management

Physical Distribution

Logistics Place Utility Time Utility

Low cost information is being leveraged against more expensive logistics assets such as inventory, warehousing, labor and transportation.

Logistics adds time and place utility.

Relationship of Logistics to Marketing

MARKETING

Product Price Place LOGISTICS Promotion

What is the relationship between logistics and marketing?

Inventory

Transportation Lot Quantity Order Processing Information

Warehousing

Source: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.

Logistics Interfaces with Marketing

Price
Carrier pricing Matching schedules Volume relationships

Logistics Interface with Operations

Length of production runs Seasonal demand Supply-side interfaces Protective packaging Foreign and third party alternatives

Place
Wholesale vs retail Customer service Forecasting

Promotion
Push versus pull Channel competition

Product
Product characteristics Consumer packaging Product changes

Other Areas Which Interface with Logistics

Components of Logistics Management

Management actions Inputs into logistics Natural resources (land, facilities, and equipment) Human resources Financial resources Information resources Planning Implementation Control Outputs of logistics Marketing orientation (competitive advantage) Time and place utility Efficient movement to customer Proprietary asset

Services Human Resource Management Firm Infrastructure

Accounting Quality Management Planning Finance

Logistics management Suppliers Raw In-process Finished materials inventory goods Customers

Logistics activities Plant and warehouse site Customer service selection Demand forecasting Procurement Distribution Packaging communications Return goods handling Inventory control Salvage and scrap Material handling disposal Order processing Parts and service support Traffic and transportation Warehousing and storage

Key Logistics Activities

Place/customer service levels Customer service Parts & service support Returns goods handling

Customer service Demand forecasting & planning Inventory management Logistics communications Material handling Order processing Packaging

Parts & service support Facility location: Plant & warehouse site selection Purchasing/Procurement Return goods handling Reverse logistics Traffic & transportation Warehousing & storage Production planning

Inventory carrying cost Inventory management Packaging Reverse logistics

Transportation costs Traffic and transportation

Lot quantity costs Material handling Procurement

Warehousing costs Warehousing and storage Plant and warehouse site selection

Order processing and information costs Order processing Logistics communications Demand forecasting/planning

Logistics Management Concepts

The System Approach

The System Approach The Total Cost Concept Trade-off Analysis A New Source of Competitive Advantage

Thinking of the logistical system that flows from raw material to the end user Whether inside or outside the organization That system has a common goal(s): quality, speed, timing, etc. More relevant due to technical advances in transport and corporate information systems The results of those goals can be a valuable competitive advantage

Principles of the Systems Approach

Stresses a Total, Integrated Effort Toward the Accomplishment of Predetermined Objectives

Discussion Questions
Describe 3 levels of integration essential to the successful operation of global logistics networks.
(functional, supply chain, geographical)

INTERACTION of Components is Emphasized Performance of the TOTAL SYSTEM is SINGULARLY Important Therefore, COMPONENTS NEED NOT OPTIMIZE Individually INTER-RELATIONSHIPS (Trade-offs) May Enhance or Hinder Combined Performance Components, Properly Linked in a Balanced System, Will Produce SYNERGISM (SYNERGY)

Discuss trade-off analysis and its use as a tool for managing the logistics activity

Total Cost Concept & Trade-off Analysis TradeThe Total Cost concept: Better coordinating or streamlining the logistical steps can significantly reduce costs. The Trade-off concept: Making changes in one part of the system to gain benefits typically involves trade-offs. Speed-Cost, timing-cost, quality-speed. But there can be win-wins: cutting out middle-men: lower cost and greater speed.

Key Trade-Offs Trade-

Cost to Cost

Cost to Service

Managing Trade-Offs
Customer Satisfaction

Total Costs of a Logistics Network

Total System Costs

Product Price Place LOGISTICS Promotion

MARKETING

Inventory Costs

Yrly. Cost

Customer Service

Inventory

Transportation Lot Quantity Order Processing Information

Facilities Costs Stock Transfers Order Admin. Local Delivery

Warehousing

Source: Adapted from Douglas M. Lambert, The Development of an Inventory Costing Methodology: A Study of the Costs Associated with Holding Inventory (Chicago, IL: National Council of Physical Distribution Management, 1976), p. 7.

Number of Warehouse Facilities

Trade-Off Analysis Examples TradeFaster (premium) transportation versus reductions in pipeline (transit) inventories Make vs. buy decisions re: finished products and/or component parts Centralized vs. decentralized warehousing Adding or reducing private fleet equipment vs. outside transportation services Whether to increase frequency of shipments vs. carrying larger inventories Switching to alternative modes Public vs. private warehousing

More Trade-Off Analysis Examples TradeHigher service (fill rates) vs. higher inventory levels Types - locations - No. of manufacturing plants and/or warehouses Inward telephone and on-line order entry costs versus reductions in order cycle time Holding orders for consolidation (transportation) vs. shipping ASAP to minimize inventories EOQ - inventory carrying costs vs. order/set-up costs Forward buys - avoid price increase by carrying extra inventory Trucking/quantity discount - savings (discount) of larger than normal vs. cost to carry extra inventory

Logistics in the Firm: The Micro Environment

Why is it impossible to successfully adopt the logistics processes of the competition?

Michael Porter suggests three ways of obtaining a competitive advantage: Cost leadership Differentiation Focus

How does logistics contribute to the competitiveness of a firm?

Logistics - A New Source of Competitive Advantage

THEN, Competitive Advantage = Productivity Advantage (Cost Leader) OR Value Advantage (Product/Service Differentiation)

NOW, Competitive Advantage = Effective SCM i.e., Efficient Logistics (Productivity Advantage) AND Improved Service Delivery (Value Advantage)
In the current business environment, with competitors matching each others quality, features and price, logistics can be a key source of competitive advantage.

How is International Logistics Different from/Same as Domestic Logistics?

Domestic Vs. International Logistics

US Bank US Seller

Domestic Vs. International Logistics

Seller
US Government Agencies
Domestic Inland Carrier

Lower Quality Information

Transportation Carrier

US Port of Exit

Distance

Ocean/Air Carrier

Buyer
Foreign Government Agencies

Foreign Port of Entry

Red tape

Foreign Inland Carrier

Availability of Transportation Modes

Movement of Goods Information Flows

Buyer Foreign Bank

From International to Global I

Trans-national
Need to Coordinate Responsive National Unit in a Globally Efficient System by Simultaneously Responding to (1) Host Country Pressures & (2) Global Competitive Demand Management Challenge

From International to Global II

Multi-national
Increased Realization of Importance of International Markets Manage Overseas Operations as Federation of Independent Companies

Global International
Domestic Companies with Foreign Appendages Opportunistic / Portfolio Approach to Managing Foreign Logistics Operations Manage Worldwide Operations As Single Entity Growing Concern about International Competition & Inefficiencies of Multi-national Response Drive For Cost Competitiveness Through Product Standardization & Centralization

Global vs. International Logistics

Global Logistics
Worldwide basis Logistics strategies shaped by corporate design, not government requirements Integrated strategic sourcing, financial production and transportation strategies Aim to serve global markets

Why Firms enter International Markets

Market Potential Geographic Diversification Excess Production Capacity and Low Cost Position Near end of Life-Cycle in Domestic Market Source of New Products and Ideas

International Logistics
Country to Country (In different areas of the world) Logistics strategies shaped by currency, political and economic fluctuations Focus on different modes of international transportation Importing/exporting issues

Features of International Logistics

Multiple Operating Environments (Diverse
Pattern Of:) Consumer Preferences Distribution Channels Legal Frameworks Financial Infrastructures

What are the issues a global firm must address in designing international logistics channels?

Political Demands & Risks

Mesh Corporate Strategy With other Countries Industrial Development Policies Potential For Conflict

Features of International Logistics

Global Competition
Multiple Market Access & Global Scale Economies Allows New Strategic & Competitive Options

Features of International Logistics

Cross-border Requirements for Packaging, Recycling, Infrastructure, etc.
Many developing countries have good international seaports (to get primary goods out) or airports (for national pride), but have poor internal systems (to get products to consumers) Some variations are on purpose: keep out foreign goods or invaders

Currency Fluctuation: Fx Risk

Economic Performance, measured In multiple currencies Accounting & Economic Exposure

Lower Costs + Increased Reliability and Integration

Organizational Complexity & Diversity
Need to Manage Complex and Diverse Demands across Distance, Time, Language & Cultural Barriers

Outsourcing Need for Different Intermediaries

Features of International Logistics

Complex Distances & Transportation Modes
Ocean & Air Transport more common than for domestic flows Shipping: 1998: 30% of U.S. exports by value, down from 40% in 1988 Airfreight Governments often regulate which carriers can be used, especially for sales to the government Must factor in total carrying costs including delays, port storage time, warehouse inventory and exchange rate changes Global Operations and Product Customization (at order /shipping point or in local environment) Complicated Logistical Systems

Features of International Logistics

Examples
Airfreight:
Fast, reliable and available but costly and that feasible or cost efficient for bulky cargo Total volume is relatively low, but value shipped is high, especially among industrialized nations Good if speed, timing, reliability, damage or perishability is an issue

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Features of International Logistics

Examples:
Shipping
Liners: Regularly scheduled on established routes Bulk/tramp/charter contractual services for individual voyages on possibly irregular routes Conventional ship good for bulk or irregularly sized cargo. Time consuming to load and unload Container ship: The most common of major routes. Facilitates easy loading/unloading and intermodal transport. Cannot go to every port Roll-On-Roll-Off (RORO) Ocean-going ferries. Typical for short routes to under-developed ports

Discussion Questions
Distinguish between logistics defined as materials management and logistics defined as physical distribution. What are the similarities/differences in each situation? How has the nature of competitive advantage changed over the past 30 years? Why is it important for managers of global firms to understand logistics?

Discussion Questions
Time-based competition and the global supply chain: What are some of the deficiencies in applying the international PLC theory in todays global markets? Discuss some of the issues a global firm must address as they design their logistics firm What are the implications of increased emphasis on quick customer response and customization for the structuring of global operations and logistics networks?

Motivation & Perspectives for International Expansion: Evolving Theory of FDI

International Capital Theories
- FDI driven by return equalization, portfolio diversification

Location Theories
- FDI driven by countries comparative advantage

Product Cycle Theory

- FDI driven by firms management of the product life cycle * Exploit innovations protect markets develop sourcing

Oligopolistic Behaviour Theories

- FDI driven by firms search for/defence of competitive advantage

Internalization Theory
- FDI driven by organizations internal transaction efficiency (hierarchy vs. markets)

Eclectic Theories
- FDI driven by many shifting forces

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From Theory to Strategy: Investment Triggers at the Managerial Level

TWO CLASSIC TRIGGERS OF FOREIGN INVESTMENT REACTIVE
- MARKET SEEKING
TO FILL CAPACITY TO PROTECT EXPORTS

The Underlying Motivations

To exploit competitive capability (Product Cycle and Internalization Theories) To defend competitive capability (Oligopolistic Behaviour Theory) To build competitive capability (Location and Oligopolistic Theories

- RESOURCES SEEKING
* TO SECURE SUPPLIES * TO EXPLOIT FACTOR COST DIFFERENCES * TO DEVELOP SCALE

TWO EMERGING MOTIVATIONS

- GLOBAL SCANNING
RESOURCE ALTERNATIVES MARKET TRENDS TECHNOLOGY COMPETITIVE BEHAVIOUR

PROACTIVE
PREEMPT MARKETS OR RESOURCES MATCH COMPETITIVE ADVANTAGES (FOLLOW THE LEADER) DEVELOP POSITIONAL STRENGTH (EXCHANGE OF THREATS)

- COMPETITIVE POSITIONING

Note that the competitive capability a company builds, defends and exploits will depend in part on the international environment in which it expands.

Benefits of global trade

Economic benefits: lower labor cost, lower priced manufacturing components. E.g., labor- vs. capitalintensive industries Economies of scale Foreign market sales potential; first entrant/mover advantages Industry specialization: Japan consumer electronics; Germany machine tools

The World is Changing

Globalization/International Competition Hyper-competition/How to Compete Convergence/Focus Breadth/Depth of Capability Networking/Partnerships Speed of Change/Technology Young People/Busy People Jobs for Life/A Life of Jobs Education for Life/A Life of Education Scale Economics/Individual Satisfaction

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Logistics Issues for The 21st Century

An intense refocusing on the customer A quest for quality and productivity Reduced differentiation on product and price A trend toward fewer suppliers Information exchange for inventory investment More powerful computers and software Integration of the TOTAL supply chain

Future Challenges in Logistics

Strategic planning and participation Just-in-time (JIT); Quick response (QR); & Efficient consumer response (ECR) Logistics as a competitive weapon Emphasis on reducing logistics costs Logistics as a boundary-spanning activity Supply chain management Globalization Information technology Third-party logistics

Growth in Importance of International Logistics

Imports and export markets experiencing rapid growth (imports increased from 6.1% to 12.9% and exports increased from5.6% to 8.2%, 1970-1987) 70% of US-made products are subject to direct international competition
The increasing importance of international logistics operations to corporations presents both prospects and problems for distribution professionals. On one hand, they will gain stature in their company on the other hand, they will face a larger number of more sophisticated logistics problems stemming from the complex nature of overseas distribution operations. David L. Anderson, CLM 1984

Global Logistics & Transportation

Development of international economic relationships - NAFTA and EU Many logistics managers becoming more directly involved

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