Chapter 16
Global Logistics and
Materials Management
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A Definition of
International Logistics
• “…designing and managing of a system that controls
the flow of materials into, through, and out of the
international corporation”
• In taking a systems approach to linkages among
logistics components, firms can incorporate
efficiencies through system design and management
techniques
– JIT - just-in-time
– EDI - electronic data interchange
– ESI - early supplier involvement
– ECR - efficient customer response systems
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The Phases of
International Logistics
• Materials management
– Timely movement of raw
materials, parts, and
supplies through the firm
• Physical distribution
– Movement of the firm’s
product to its customers
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The Systems Concept
• The extensive and complex materials-flow activities
within and outside of the firm must be considered in
the context of their interaction.
• Total-cost concept
– Minimizing overall logistics costs by identifying
activity-based costs that impact after-tax profits.
• Trade-off concept
– Recognize that logistics activities involve trade-off
in areas such as time-saved in delivery versus the
increased costs of expedited delivery systems.
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Supply-Chain Management
• An integration of the three system concepts.
• Value-added activities connect the company’s supply
side with the demand side.
• Efficient supply chain design increases customer
satisfaction and saves money
– reduces inventory holding costs
– increases inventory turnover cycles
– reduces operating costs
– reduces order handling and mailing costs
– makes firm more price competitive
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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.
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New Dimensions of
International Logistics
• Basic differences
– Distance
– Currency variation and exchange rate differences
– Varying entry regulations
– Different transportation modes
• Country-specific differences
– Transportation systems and intermediaries vary.
– Reliability of carriers may be different.
– Computation of freight rates may be different.
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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
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Global Shipment Documentation
• Bill of Lading
– acknowledges receipt of goods
• Shipper’s export declaration
– states proper authorization for export under general or
special validated export license
• Packing list of contents
• Dock and warehouse receipts
• Collection documents
– commercial (consular) invoice
– certificate of origin
– import and foreign exchange licenses
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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
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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
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International Storage Issues
• The storage facilities location decision
– Availability
– Adequacy
– Physical
Conditions
• Optimizing the
logistics system
– Rank products by warehousing needs “A” products
stocked in all distribution center
• “B” products stored only in selected locations
• “C” products with low demand stocked only at
headquarters
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International Packaging Issues
• Packaging for domestic shipping may NOT be
adequate for international shipping.
• Goods should arrive in a safe, undamaged,
maintainable, and presentable condition.
• Packaging should minimize the stress of intermodal
movement and storage.
• Protected from climatic conditions.
• Weight based on delivery mode.
• Follow customer instructions for labeling, packaging,
and routing.
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Management of
International Logistics
• Centralized logistics management
– Headquarters retains decision-making power and
control, coordinates all logistics.
• Decentralized logistics management
– The “decentralized full profit center model” allows
the organization to respond to local market
conditions. Possibility for loss of coordination.
• Contract logistics
– Growing preference to outsource logistics function
to “third party” specialists such as FedEx or UPS.
• The supply chain and the Internet
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Logistics and the Environment
• Reverse Distribution
– “a system responding to environmental concerns
that ensures a firm can retrieve a product from the
market for subsequent use, recycling, or disposal”
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