LOG 102 Principles of Logistics II
Global Logistics
Definitions
International Logistics
International Logistics is the process of planning, implementing, and
controlling the flow and storage of goods, services, and related
information from a point of origin to a point of consumption located in
a different country.
-ORInternational 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.
International Logistics
• 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.
Historical
Development
The Early
“Slow” Days
The Move
Towards
Speed
Emphasis on
Customer
Satisfaction
Strategic
Advantage
Historical Development
The Early “Slow” Days
The first international logisticians were traders on the Silk Road, a welltraveled trade route, in use for over 3,000 years, stretching from Europe
to Asia and passing through the Middle East.
Early modern logisticians were concerned primarily with ensuring goods
arrived at their destination in good condition and at the lowest possible
cost.
Following World War II, logistics began to incorporate the techniques
used by the military.
Logistics began to refer to not just the movement of goods but also to
sales, the procurement of supplies, and the management of supplier
and customer relationships.
Historical Development
The Move Toward Speed
The introduction of containers (or “boxes”) in the
late 1950s, and their eventual widespread
adoption, made shipping much more efficient as
well as cheaper and faster.
In the 1970s, new companies, like FedEx and
DHL, introduced time-defined air shipping
services, and gained a large market share in
domestic shipments.
In the 1980s, international air shipments grew as
costs came down and the number of destinations
increased. Air transport became cost-competitive
with ocean transport for many products.
Historical Development
The Emphasis on Customer Satisfaction
The very high interest rates of the 1980s led companies to reduce
inventory levels.
New inventory management techniques were created to reduce
inventory costs. Those techniques included:
•
•
•
•
Just-in-time (JIT)
Materials Requirement Planning (MRP)
Manufacturing Resources Planning (MRP II)
Distribution Resources Planning (DRP)
Since these techniques relied on rapid and reliable deliveries, logistics
firms provided reduced shipping times and time-defined deliveries.
Historical Development
Just-In-Time
Just-in-time manufacturing is a process that plans for parts to arrive on
the assembly line just before they are needed. The goal of this technique
is to reduce or eliminate the need for inventory.
It now includes the delivery of parts to the assembly plant just before
they are needed, and the delivery of finished goods just as the retail
store is running out.
JIT has become part of standard operations management practices in
most manufacturing facilities.
JIT involves a risk if the supply chain is disrupted as production may
have to shut down due to lack of materials.
Historical Development
Computer-Based Tools
Materials Requirement Planning (MRP) and Manufacturing
Resources Planning (MRP II) are tools that allow manufacturing firms
to determine what to produce (or order from suppliers), and in which
quantity, in function of their sales forecasts and pending customer
orders.
Distribution Resources Planning (DRP) is a tool that allows a retail
firm to determine what to order from its suppliers, in which quantity, and
when, in function of what it sells to retail customers.
These tools are dependent on the reliable, efficient delivery of relatively
small shipments.
Historical Development
Strategic Advantage
International Logistics management has become a strategic advantage
for the firms that are capable of:
• Containing the costs of shipping, in view of increased fuel costs
• Providing “visibility” in the supply chain, or the ability to determine
where a particular shipment is located, at any time
• Providing reliable, dependable deliveries
• Ensuring the security of the goods while they are in transit
• Engaging in sustainable practices
The International Supply Chain
Suppliers
Domestic/Import
Sourcing
Order
Processing
Corporation
Inbound
Materials
Throughflow
Order
Processing
Supplier-Firm
Interface
Transportation
Storage
Transportation
Storage
Physical
Materials
Distribution
Management Management
Inventory
Management
Storage
Customers
Outbound
Materials
Domestic/Expor
Distribution
Order
Processing
Order
Placement
Transportation
Transportation
Costumer-Firm
Interface
Customer
Service
Physical
Distribution
Management
Inventory
Management
Inventory
Management
Forward and Reverse Flow of Information, Products, and Funds
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Elements of International Logistics
• The environment in which international logisticians operate is quite different from
the domestic environment.
• The decisions regarding international transportation are much more complicated
than domestic transportation.
• The number of intermediaries involved is greater.
• The inherent risks and hazards of international transportation are much more
significant.
• International insurance is much more complex.
• International means of payment are more complicated.
• Terms of trade are more complicated.
• The crossing of borders represents specific challenges.
Globalization and
international transport
• Example: You want to buy
a car “made in Japan”.
• Today: is its transport from Japan to Izmir
more or less expensive than 20 years ago?
Globalization and
international transport
• Less expensive
• BUT: You pay MORE for “transport” then 20
years ago. Why?
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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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