CHAPTER 16
LOGISTICS AND
SUPPLY CHAIN
MANAGEMENT
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Copyright © 2011 John Wiley & Sons
Chapter 16
Learning
Objectives
1.
Understand the escalating importance of logistics and
supply-chain management
2.
Learn about materials management and physical
distribution
3.
Learn why international logistics is more complex than
domestic logistics
4.
See how the transportation infrastructure in host countries
often dictates a manager’s options
5.
Learn why international inventory management is crucial
for success
6.
Learn about interactions between different logistics
components
7.
Decide who should be in charge of logistics
8.
Appreciate how information and data exchange are pivotal
for supply-chain management
9.
Understand the vulnerability and support of logistics
10. See and consider the linkages between logistics and
sustainability
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International Logistics
 International Logistics – 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
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International Logistics
 Materials Management – The timely movement
of raw materials, parts, and supplies into and
through the firm
 Physical Distribution – The movement of the
firm’s finished product to its customers
 Supply Chain Concepts:
Systems
Concept
Chapter 16
Total Cost
Concept
Trade-off
Concept
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Supply Chain Management
 A series of value-adding activities connects a
company’s supply side with its demand side

Extended enterprise occurs when companies consider the
entire supply chain to be a single organization
 The Impact of International Logistics
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Make up 10 to 30 percent of the total landed cost of an
international order
Advances in technology and communication can improve
logistics systems
The fundamentals of a country’s logistics system remain the
best predictor of cost and efficiency
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Transportation Infrastructure
 Around the globe, major infrastructure variations are
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often encountered
Some countries have excellent inbound and outbound
transportation systems but weak internal transportation
links
New routes of commerce have opened up
Logistics platform is determined by a location’s ease
and convenience of market reach under favorable
circumstances
The logistics managers must learn about existing and
planned infrastructure
Extreme variations exist in the frequency of
transportation services
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Global Transport Knowledge Partnership
Global Transport Knowledge Partnership (GTKP) is an innovative
partnership of global organizations, local policy makers, experts, and
interested users working to make effective use of international
transport knowledge.
gTKP's mission is to support sustainable and efficient transport in
developing and transition countries by providing free access to
information, expertise, and free technical advice. gTKP currently
offers access to sector experts and best practice knowledge in 8 themes
in road transport. Themes include environment and climate change,
finance and economics, governance, road safety, rural transport, social
development, trade and transport, and urban mobility.
Source: http://www.gtkp.com/
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Focus on Entrepreneurship: Late,
Lost, and Damaged Goods
“Winners” of the Roberts Express “Shipments from
Hell” contest describe shipments that were lost,
broken, or even burned. The contest is judged by
representatives from Industry Week and
Transportation and Distribution . The stories
behind the “Shipments from Hell” illustrate that a
host of bizarre circumstances can turn an ordinary
shipment into a comedy of errors.
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Ocean Shipping
 Types of service vessels
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Liner service offers regularly scheduled passage on established
routes
Bulk service provides contractual services for individual voyages or
for prolonged periods of time
Tramp service is available for irregular routes and is scheduled
only on demand
 Type of cargo a vessel can carry
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Conventional (break bulk) vessels – For oversized/unusual cargo
Container ships – Standardized containers
Roll-on-roll-off (RORO) ships – Oceangoing ferries
Lighter Aboard Ship (LASH) – Barges stored on the ship and lowered
at the point of destination to operate on inland waterways
 Limited by what the port can accommodate
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Air Shipping
 Airfreight is available to and from most countries
 It is often a matter of national prestige to operate a national
airline
 About 20 percent of the worlds manufactured exports by
weight travel by air
 Items tend to be high value or high weight to volume
ratio (density)
 Airlines continue to make major efforts to increase
the volume of air freight
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Selecting a Mode of Transport
 Period between departure and arrival of carrier
Transit Time
Predictability
Cost of
Transportation
Noneconomic
Factors
Chapter 16
is longer for ocean than for air
 Perishable products require shorter transit
times
 Significant reliability issues
 Vagarities of nature may impose delays
 Tracking becomes important
 Priced on the basis of both cost and value
 The manager must decide when the higher cost
of airfreight can be justified
 Preferential policies by government
 International quota systems of transportation
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Focus on E-Business:
Product Tracking
Transportation service providers have realized that
for their corporate clients, a greater sense of
control translates into calculations of
predictability, reliability, and competitiveness. In a
case of business innovation spilling over into the
policy world, governments and regulatory agencies
have started to take notice of developments in
product tracking technology.
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Export Documentation
 Export declaration – A shipping document detailing
the type, destination, shipping, timing, and value of an
export shipment
 Bill of Lading – A contract between the exporter and
the carrier indicating that the carrier has accepted
responsibility for the goods in return for payment
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Straight bill of lading – Nonnegotiable, used in prepaid
transactions
Shipper’s order bill of lading – Negotiable, can be bought, sold,
or traded while goods are in transit, and is used for letter of credit
transactions
 Commercial Invoice – A bill for the goods staging
basic information
 Freight forwarders specialize in handling
documentation
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Other Export Documents
Export
Licenses
Certificates
of Origin
Destination
Control
Statements
Chapter 16
Consular
Invoices
Inspection
Certificates
Insurance
Certificates
Export
Packaging
Lists
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Certificates
of Origin
Dock/
Warehouse
Receipts
Export
Declarations
Czinkota: International Business, 8e
Terms of Shipment and Sale
 Incoterms – Internationally accepted standard definitions for the
terms of sale set by the International Chamber of Commerce in 1936
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EXW (ex-works) – Prices apply only at the point of origin
FCA (free carrier) – Seller is responsible for loading goods into the means of
transportation and buyer is responsible for all subsequent expenses
FAS (free alongside ship) – The exporter quotes a price including delivery of
goods alongside a vessel at the port
FOB (free on board) – Applies only to vessel shipments, where price covers
all expenses up to delivery of goods
CFR (cost and freight) – Price includes cost of transportation to named port
CIF (cost, insurance, and freight) – Price includes all charges to point of
debarkation
CPT (carriage paid to) – The price quoted for shipments not involving
waterway transport
DDP (delivered duty paid) – Prices includes import duties and inland
transportation to buyer’s premises
DDU (delivered duty unpaid) – Only customs duty and taxes paid by buyer
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International Inventory Issues
 General Inventory Issues
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Inventory – Materials on hand for use in the production or finished
goods
Inventory carrying costs – The expense of maintaining inventories
Just-in-time Inventory – Materials scheduled to arrive when needed
 Order Cycle Time – The amount of time between the
placement of an order and receipt of merchandise

Length of the total order cycle
EDI – Electronic data interchange can streamline processing and
administration as well as reduce costs
 Order filling time can increase due to lack of familiarity
 Transportation time is longer due to distances involved
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Consistency – Delivery times may vary more internationally
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International Inventory Issues
 Customer Service Levels
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The responsiveness that inventory policies permit for any
given situation
The international service level should be based on expectations
encountered in each market
Strategically placed depots can boost responsiveness
 Inventory as a Strategic Tool
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Can help deal with currency valuation changes
Can be a hedge against inflation
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International Packaging Issues
 Packaging that is adequate for domestic shipping
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may be inadequate for international transportation
Responsibility of the shipper
Environmental conditions such as climate must also
be considered
Weight of packaging affects cost of shipping
Customer instructions must also be followed
May have to use double packaging if promotional
value of packaging is to be maintained
Intermodal containers help resolve many packaging
issues
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International Storage Issues
 Storage Facilities
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Location decision – How many distribution centers to have
and where to locate them
Warehouse decisions must be carefully analyzed
The logistician should analyze international product sales and
then rank order products according to warehousing needs
 Special Trade Zones:
Foreign Trade
Zones
Chapter 16
Export
Processing
Zones
Special
Economic
Zones
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Management of International Logistics
 Centralized Logistics Management – Headquarters staff
retains decision-making power over logistics
 Decentralized Logistics Management – Makes local
managers responsive but decreases global coordination
 Outsourcing Logistics Services
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Collaborating with transportation firms, private warehouse,
and other specialists
One-stop logistics allows shippers to buy all the transportation
modes and functional services from a single carrier
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The Supply Chain and the Internet
 Can now conduct more global comparisons
among suppliers
 Can learn more about the structure of the supplier
network
 Establishing e-commerce means the company
should be prepared for 24-hour service
 Some companies build their own international
distribution network using the company web site
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Logistics and Security
 Due to terrorism and security concerns everything
takes longer
 Modern transportation systems have proved to be
critical to terrorist activities
 Logistics systems can be the targets of attacks
 New safeguards for international shipments affect
the ability of firms to efficiently plan their
international shipments
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Wallenius Wilhelmsen Logistics Security
In response to the increased threat of terrorism throughout the world,
Wallenius Wilhelmsen Logistics has implemented protective security
measures to create a secure work environment, to safeguard
customers' cargo, and to protect owners' investments.
Wallenius Wilhelmsen Logistics' security policy is based on the
following overriding principles:
• Awareness
• Prevention
• Response
• Consequence Management
Source: http://www.2wglobal.com/www/aboutUs/Security/index.jsp
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Focus on Politics: Logistics and
National Security
The Department of Homeland Security (DHS) is
designed to coordinate U.S. efforts in the war
against terror. Some of the DHS agencies affect
international shippers, including the Customs
Service, Coast Guard, and Transportation Security
Administration. For international importers and
exporters it means that more documentation and
notification time are added to the process.
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Logistics and the Environment
 Must consider environmental laws, expectations,
and self-imposed goals while planning logistics
 Reverse distribution systems – Ensures that
the firm can retrieve a product from the market
for subsequent use, recycling, or disposal
 Managers are often faced with the trade-offs
between environmental concerns and logistical
efficiency
 Environmental practices are those that bring
about fewer shipments, less handling, and more
direct movement
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Focus on Business: Reverse
Logistics, or Turning “Trash into
Cash”
Reverse logistics concerns the handling and
disposition of returned products and use of related
materials and information. This costs U.S.
companies more than $35 billion annually. With
the rising costs of oil and other commodities,
companies are beginning to see used products less
as trash and more as the sum of their raw
materials, energy, and labor.
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Reverse Logistics during the Holidays
According to a survey commissioned by eBay, nearly 60 percent of
Americans receive unwanted gifts during the holidays. More and more
companies acknowledge that reverse logistics is a critical part of the
supply chain. Without a comprehensive return system, retailers can
lose millions in revenue.
Two recent studies show returned merchandise costs the consumer
electronics industry $10 billion annually, while personal computer
returns amount to $1.5 billion per year.
Many companies are seeking new ways to develop or enhance their
return systems. For example, companies such as Eastman Kodak and
Hewlett-Packard have implemented successful reuse and recycling
programs of returned items.
Source: http://www.rlmagazine.com/edition01p14.php
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