International Business Chapter 16

1
Chapter 16
Logistics and Supply-Chain
Management

2
Learning Objectives
To understand the escalating importance
of logistics and supply-chain management
as crucial tools for competitiveness.
To learn about materials management and
physical distribution.
To learn why international logistics is more
complex than domestic logistics.
To see how the transportation infrastructure in
host countries often dictates the options open to
the manager.
To learn why international inventory
management is crucial for success.

3
International Logistics
International logistics is 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.

4
International Logistics (cont.)
Through the implementation of international
logistics, the firm can implement cost-saving
programs such as just-in-time (JIT),
electronic data interchange (EDI), and early
supplier involvement (ESI).
The two phases of the movement of materials
include:
materials management, or the timely movement of
materials, parts, and supplies.
physical distribution, or the movement of the firm’s
physical product to its customers.

5
Three Concepts of Business
Logistics
Total Cost Concept Trade-off Concept
Systems Concept

6
Supply-Chain Management
Supply-chain management is the
integration of business processes from
end user through original suppliers,
that provide products, services, and
information that add value for
customers.
Supply-chain management connects a company’s
supply side with its demand side.
It opens up supplier relationships for companies
outside of the buyer’s domestic market.

7
The International Supply Chain
Physical
Distribution
Management
Transportation
CorporationSuppliers Customers
Domestic/Import
Sourcing
Domestic/Export
Distribution
ThroughflowInbound
Materials
Outbound
Materials
Forward and Reverse Flow of Information, Products, and Funds
Physical
Distribution
Management
Transportation
Transportation Transportation
Order
Processing
Order
Processing
Order
Processing
Order
Placement
Inventory
Management
Materials
Management
Customer
Service
Storage StorageStorage Inventory
Management
Inventory
Management
Costumer-Firm
Interface
Supplier-Firm
Interface

8
Transportation Infrastructure
A firm’s logistics platform is determined by a
location’s ease and convenience of market
reach under favorable cost circumstances.
The public sector’s investment priorities,
safety regulations, tax incentives, and
transport policies can have major effects on
the logistics decisions of firms.
The logistics manager must learn about
existing and planned infrastructures abroad
and at home and factor them into the firm’s
strategy.

9
Vessels Used in Ocean Shipping
Liner Service
Bulk Service Tramp Service

10
Airfreight
Airfreight is available to and from most
countries, including the developing world.
International airfreight is expected to grow to 190
billion tons in 2005, compared to only 70 billion
tons in 1995.
Forty percent of the world’s manufactured travel
by air.
Items that are high-value or high in density tend
to travel by air.

11
Considerations for Selecting a
Mode of Transport
PredictabilityTransit Time
Cost Non-economic
Factors

12
Export Documentation
A bill of lading is a contract between the exporter
and the carrier indicating that the carrier has accepted
responsibility for the goods and will provide
transportation in return for payment.
A commercial invoice is a bill for the goods stating
basic information about the transaction, including a
description of the merchandise, total cost of the goods
sold, addresses of the shipper and seller, and delivery
and payment terms.
A freight forwarder specializes in handling export
documentation.

13
International Inventory Issues
Inventories tie up a major portion of
corporate funds, therefore proper inventory
policies should be a major concern to the
international logistician.
Just-in-time inventory policies minimize the
volume of inventory by making it available
only when needed.
The purpose of establishing inventory
systems are:
to maintain product movement in the delivery
pipeline
to have a cushion to absorb demand fluctuations

14
Three Factors that Decide the
Level of Inventory
Order Cycle Time
Desired Customer
Service Levels
Use of Inventories as
a Strategic Tool

15
International Packaging Issues
Packaging is instrumental in getting the merchandise
to the destination in a safe, presentable condition.
Because of the added stress of international shipping,
packaging that is adequate for domestic shipping
may be inadequate for international shipping.
Packaging considerations that should be taken into
account are environmental conditions and weight.
One solution to the packaging problem has been the
development of inter-modal containers.
Cost attention must be paid to international
packaging.

16
Storage Facilities
A stationary period is involved when merchandise
becomes inventory stored in warehouses.
The location decision addresses how many
distribution centers to have and where to locate
them.
Storage facilities abroad can differ in availability and
quality.
The logistician should analyze international product
sales and then rank order products according to
warehousing needs.

17
Special Trade Zones
Foreign trade zones are areas
where foreign goods may be held or
processed and then re-exported
without incurring duties.
Trade zones can be useful as
transshipment points to reduce
logistics cost and redesign marketing
approaches.
Governments and firms benefit from
foreign trade zones.

18
Export Processing Zones and
Economic Zones
In export processing zones, special rules apply
that are different in other regions of the country.
These zones usually provide tax-free and duty-free
treatment for production facilities whose output is
destined abroad.
The maquiladoras of Mexico are one example of a
program that permits firms to take advantage of
sharp differentials in labor costs.
Through the creation of special economic zones,
the Chinese government has attracted many foreign
investors bringing in millions of dollars.

19
Centralized Logistics
Management
In international logistics, the existence of a
headquarters staff that retains decision-
making power over logistics is important.
To avoid internal problems, both
headquarters staff and local management
should report to one person.
This individual can contribute an objective
view when inevitable conflicts arise in
international logistics coordination.

20
Decentralized Logistics
Management
When a firm serves many diverse
international markets, total centralization
might leave the firm unresponsive to local
adaptation needs.
If each subsidiary is made a profit center in
itself, each one carries the full responsibility
for its performance.
Once products are within a specific market,
increased input from local logistics
operations should be expected and
encouraged.

21
Outsourcing Logistics Services
The systematic outsourcing of
logistics capabilities is a third option.
By collaborating with transportation
firms, private warehouses, or other
specialists, corporate resources can
be concentrated on the firm’s core
product.
One-stop logistics allows shippers to
buy all the transportation modes and
functional services from a single
carrier.

22
The Supply Chain and the
Internet
Because of the internet, firms are able to
conduct many more global comparisons
among suppliers and select from a wider
variety of choices.
When customers have the ability to access a
company through the internet, the company
must be prepared for 24-hour order-taking
and customer service.
For all countries, but particularly in
developing nations, the issue of universal
access to the internet is crucial.

23
Logistics and Security
After the terrorist attacks of 2001,
companies have to deal with the fact that the
pace of international transactions has slowed
down and that formerly routine steps will now
take longer.
Logistics systems and modern transportation
systems are often the targets of attacks.
The need to institute new safeguards for
international shipments will affect the ability
of firms to efficiently plan their international
shipments.

24
Logistics and the Environment
Since environmental laws and regulations
differ across the globe, the firm’s efforts
need to be responsive to a wide variety of
requirements.
Reverse distribution systems are
instrumental in ensuring that the firm not
only delivers the product to the market, but
also can retrieve it from the market for
subsequent use, recycling, or disposal.
Companies need to learn how to
simultaneously achieve environmental and
economic goals.

International Business Chapter 16

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