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A model of a Business Logistics Plan

Technical Report · May 2018

DOI: 10.13140/RG.2.2.34792.32006

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 5/25/2018 BUSINESS
LOGISTIC PLAN
INTERNATIONAL LOGISTICS –
ASSIGNMENT 2

Group 2.1 Page 2

Table of Contents

Executive summary .................................................................................................... 5

1. Company identity and commercial operation ...........................................................6

1.1. Company ................................................................................................................ 6

1.2. Market .................................................................................................................... 6

1.3. Buyer ...................................................................................................................... 7

2. Products ............................................................................................................8

2.1. Contract .................................................................................................................. 8

2.2. Machine .................................................................................................................. 9

3. International logistics activities........................................................................... 11

3.1. Inbound logistics..................................................................................................... 11

3.1.1. Procurement ................................................................................................................................. 11

3.2. Outbound logistics .................................................................................................. 12

3.2.1. Delivery ......................................................................................................................................... 12
3.2.2. Distribution ................................................................................................................................... 12

4. Challenges ....................................................................................................... 13

4.1. Cargo slipping ......................................................................................................... 13

4.2. South African Import rules and regulations ............................................................... 13

4.3. Supply chain disruption ........................................................................................... 14

4.4. Product Warranty ................................................................................................... 14

5. Opportunities.................................................................................................... 14

5.1. Opportunity to sell more products in South Africa...................................................... 14

5.2. Opportunity to perform a sustainable supply chain .................................................... 15

6. Planning, implementation, control and improvement ............................................. 15

6.1. Planning ................................................................................................................ 15

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 6.1.1. Booking the truck .......................................................................................................................... 15
6.1.2. Booking the ship ........................................................................................................................... 16
6.1.3. Buying insurance ........................................................................................................................... 16

6.2. Implementation ...................................................................................................... 17

6.3. Control.................................................................................................................. 18
6.3.1. Protective product packaging ....................................................................................................... 18
6.3.2. Documents handling with care ...................................................................................................... 19
6.3.3. Procurement strategy to control the supply chain disruption ........................................................ 19
6.3.4. Avoid product warranty issues ...................................................................................................... 19

6.4. Improvement.......................................................................................................... 20
6.4.1. Develop relationship with SAAM to sell more products ................................................................. 20
6.4.2. Develop Reverse Logistics to perform a sustainable supply chain .................................................. 20

References .............................................................................................................. 22

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Executive summary

This report is a business logistics plan that describes the procedure of trading a second-hand
grain dryer from Australia and sell it to South Africa. Through several resources from peer
review to third-party logistics (3PL) service providers’ webpages, the report shows a deep
analysis of a company’s logistics activities. Based on the CIF contract term, the trade starts from
buying second-hand grain dryer EXW factory in Lilydale, the company then carries it to
Melbourne port. A container vessel will carry the machine to Durban port in 39 days. There are
several challenges of the trade are discussed such as cargo slipping, regulations and rules at
import country; as well as opportunities to sell more products and perform a sustainable supply
chain. The control and improvement of relevant challenges and opportunities are also
recommended in the later part of the report.

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1. Company identity and commercial operation

1.1.Company

CASS PTY LTD., established in 2000, is a small trader mainly focusing on exporting second-hand
agricultural machinery such as grain dryers, grain aerations, tractors from Australia to
developing countries in Southeast Asia, South America and South Africa. The head office is in
Geraldton and in charge of trading activities in West Australia, while other two representative
offices in Melbourne and Sydney handle South and East Australia respectively. Total number of
employees is 35 staff including sales, mechanics, administrators, accountants. CASS does not
own any logistics asset such as warehouses or vehicles because it wants to focus on its trade.
The company does keep good communication with its suppliers, who are three big factories of
repair and maintenance in Geraldton, Adelaide and Brisbane, plus more than ten service and
repair shops scattered across every agricultural region in Australia.

Starting from the point that many Australian farmers expressed the wish of selling their old
grain processing machines to buy new ones; adding to the fact that those machines are still in
good working conditions, or maybe slightly damaged, CASS manager realised that there were
opportunities to coordinate with the repair and maintenance factories/shops to buy those
machines at cheap prices, simply renew them, and sell those second-hand agricultural
machines at affordable prices to the farmers in developing countries where the cost of a new
machine is excess farmers’ budget (Chua & Chau 2003).

1.2.Market

South Africa is one of the world’s largest grain and cereals producers (FAOSTAT). However,
agricultural work related to technology development is still poorly resourced and needs
strengthening (Phillips 2014). Aiming to maintain the self-sufficient agricultural product in
improving in quality and sustainably while continue to go further in the international market
(SA Department of Agriculture, Forestry and Fisheries 2015), South Africa needs more high-tech
mechanism with affordable price. In this country, the prices of farming requisites have scaled
up on average by 5.1% by June 2017, compared to 4.8% in the previous year (Department of

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Agriculture, Forestry and Fisheries 2017). The rise in prices was because of the increasing price
of tractors, trucks and grain dryers. The maintenance and repairs of machinery and implements
have also gone up by 3.6% in South Africa (Department of Agriculture, Forestry and Fisheries
2017). Below is a graph that shows the price indices of machinery and implements from 2012 to
2017 in South Africa (Department of Agriculture, Forestry and Fisheries 2017).

Figure 1: Price indices of machinery and implements in SOuth Africa

1.3.Buyer

CASS’s manager feels that it is vital for the company to advertise the product on a farm
machinery trading website. Furthermore, the management wants to advertise on social media
like Twitter and Facebook which is cost-efficient for the company. CASS recently found a
customer in Klerksdorp city, North West province, South Africa. The company named South
Africa Agricultural Machinery (SAAM PTY LTD.), which is an organization importing agricultural
machines and sell them domestically. SAAM is also interested in buying those second-hand
food processing machines and distribute them to local farmers for the same reasons that CASS
manager points out above. Thus, SAAM have processed to get an import permit to import
secondary machinery to South Africa.

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2. Products

2.1.Contract

Through several market analyses, CASS manager noticed that South Africa can be the potential
market for company’s products and decided to sell the company’s most prominent product that
most of its customers use. SAAM, on its side, has implemented a good research about which
machines are used in South Africa. Recently, a one-year contract was signed by both companies
that CASS will sell to SAAM total fifteen second-hand Australian grain dryers within three
models of grain dryers determined by SAAM.

The geographical location of the two countries limits the choice to sea and air modes. However,
the size, value and delivery time of this shipment is most suitable to be transported in seaway
since airway merely fits with very high-value, low-volume and time-sensitive products (Vinh
2018). Delivery term is CIF Durban (INCOTERM 2010) because each shipment has different load
port, and SAAM is not familiar with the exporting procedure in Australia. Furthermore, as those
machines are costly, both parties agreed that each shipment should be covered with insurance
in case of any problem occurs during the in-transit time.

Some important terms of the contract are:

● Each shipment contains one machine, one or two shipments every month.

● The model and specification of product must be in accordance with the list of grain
dryer models agreed in the contract: Tundra, Sahara and Predator (Agridry 2018) (See
Figure 2).

● The product must be at good working condition and have 6 months warranty.

● The price of each product is set as per price matrix stated in the contract for each
model.

● Delivery time is 60 days maximum upon CASS informs SAAM about the shipment.

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 ● 40% value of each shipment is paid to CASS within 3 business days after CASS informs
SAAM about the shipment. The remaining amount is settled within 3 business days after
product delivery CIF Durban.

Figure 2: Model of grain dryers in the contract

2.2.Machine

This is the first shipment of the contract. The machine’s model is Tundra, a multi grain dryer
that can run not just on diesel or gas but is also biofuel or steam powered (Prvulovic et al.
2013). Many of SAAM’s customers are now shifting towards usage of machinery that is
environmental friendly. The drying capacity of this machinery is assumed to be 10 tons per hour
(Agridry 2018) depending on the grain that is being dried. At the time the farmer sold Tundra to
the maintenance and repair factory, it has been used for 7 years and estimated to be 90
percent in good working condition thanks to owner’s good care. The dimension of Tundra is
shown in Table 1 (Agridry 2018).

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 Table 1: Tundra’s specifications

Figure 3: Tundra multi-grain dryer (Agridry 2018)

According to Australian Trade and Shipping (2018), three internal dimensions of a twenty-foot
container are less than Tundra’s, CASS decided to dismantle the machine into small parts so
that a twenty-foot container can accommodate the machine (Agridry 2018).

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3. International logistics activities

Figure 4: CASS logistics activities

The logistics activities of CASS are demonstrated in Figure 4.

3.1.Inbound logistics

3.1.1. Procurement

CASS manager has advised the wish to buy three specific models of grain dryers listed in the
contract with the maintenance and repair factories/shops at the time the contract was signed
with SAAM, the manager also pointed out that if the product is 60% in good working condition,
this product is good to renew and export. Thanks to the relationship with local farmers, the
factories have chances to look for the old grain dryers and are able to check the condition of
the old product before buying from the local farmers. If the working condition of the product

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meets CASS requirement, the factory will buy it and bring that machine to factory’s warehouse
to repair and repaint. CASS then send a mechanic to the factory to test the machine, CASS will
buy it if its quality meets the requirement. CASS will inform SAAM about the model and
specification of the second-hand grain dryer so that SAAM has more than one and a half month
to find a customer for this machine.

For this Tundra machine, the factory in Melbourne has bought it from a local farmer in Mallee
and carried the machine to the factory’s warehouse in Lilydale by truck by itself. The machine
was dismantled into small parts, pack and put them into several crates, then all the crates will
be loaded into one FCL container. At this time, CASS has already tested the machine and bought
it basis EXW Lilydale (INCOTERM 2010). Both parties have also defined date and time to pick it
up.

3.2.Outbound logistics

3.2.1. Delivery

CASS will then deliver the machine to SAAM basis CIF Durban term, which CASS has to pay
freight and insurance (Incoterms 2010). CASS will book one container space for this shipment.
The empty container will be provided by shipping line upon booking completion (Total
Containers n.d). After that, CASS will book a truck to pick up the empty container from the
container depot appointed by the shipping line and bring it to Lilydale, load the machine and
carry it to Melbourne port. This Tundra can be fit into a container, but for another machine
likes Sahara, it is too large and cannot fit a container even after separating into small parts,
CASS can put those parts into two fitted containers to tranship. In the meantime, CASS will by
insurance for this shipment and submit all related export documents. Afterward, the cargo will
be loaded on board and sent to Durban. CASS’s risk will finish when the machine is delivered on
board the vessel (Incoterms 2010).

3.2.2. Distribution

SAAM will take the machine basis CIF Durban, South Africa. At that time, if SAAM would have
already found a buyer of this Tundra, SAAM will arrange truck to carry the container to the

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address that the buyer indicates; the testing and assembly procedure will be done at the
destination to save delivery time and storage cost. Otherwise, SAAM will carry the machine to
its warehouse in Klerksdorp until it finds a customer; the testing will be done at SAAM’s
warehouse.

4. Challenges

CASS has performed a risk management process to have identify challenges and come up with
proper solutions. Some risks with high frequency and high consequence related to logistics
activities are caught as following:

4.1.Cargo slipping

Certain problems such as breakage, moisture, pilferage and excess weight need to be kept in
mind to ensure safe international transportation of goods (Coyle 2015). First of all, the whole
Tundra machine does not fit a twenty-foot or either forty-foot container, thus it is dismantled
into small pieces and put into several crates. There is empty space in between the crates which
can cause the movement of the crates when container is moving which can cause the breakage
of machine’s components.

4.2.South African Import rules and regulations

Minor errors can lead to drastic consequences. According to the Australian Trade and
Investment Commission (2018), South African import rules and regulations require additional
import permits to be granted by the homeland authorities for agricultural machinery and
secondary products. This machine cannot be imported to South Africa without presentation of
an import permit issued by local government. In addition, Schmitz (2011) indicates if an error in
the documents has just been found out on product arrival at discharge port, which may lead to
a severe delay in the product delivery to SAAM’s customers.

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 4.3.Supply chain disruption

Bode et al. (2011) says a supply chain disruption might affect a firm’s performance directly or
indirectly. In CASS’s trade, the supply chain disruption could be caused by the shortage of
machines. As per the contract, CASS has to do at least one shipment per month; thus, if CASS
would not be able to acquire the second-hand machinery from the factory and would not have
product to sell to SAAM. It could cause a significant delay in product delivery and could lead to
the firm’s apparent lack of control (Primo et al. 2007). In this case, CASS is in breach of contract
and it could adversely affect the relationship it has with SAAM.

4.4.Product Warranty

CASS and the factories have agreed to outsource the maintenance service to a third-party
repair service provider in South Africa, however, the Australian factories – who sell products to
CASS – are fully responsible for any damages occurs within six months warranty period. Product
failure at the customer location will cause difficulties (Farm Weekly 2011) for CASS due to the
long distance. It comes to the agreement in the contract that CASS and the factories will join
the maintenance service in South Africa in case serious problem occurs. Nevertheless, this
situation could affect the relationship between CASS and SAAM, and SAAM could lose its
reputation in local market.

5. Opportunities

5.1.Opportunity to sell more products in South Africa

Agriculture contributes 4% of South Africa gross domestic product in which 13% of lands used
for developing crops (Brand South Africa 2017). South Africa is mostly known for growing maize
followed by oats, wheat, sunflowers and sugarcane. The South African government is trying to
develop small scale farming in order to increase agricultural machinery and job opportunities
(Brand South Africa 2017). Above factors lead to the increment of importing agricultural
equipment, consumer-oriented products and intermediate products in South Africa (Brand
South Africa 2012). This economy provides many opportunities for agricultural sector with both

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commercial and emerging farmers for capital investment. Not to mention that a secondary
machinery to South Africa requires an import permit to be able to come to South Africa
(Australian Trade and Investment Commission 2018), South Africa is a blue market to CASS and
SAAM when SAAM is one of a few companies possess this permit.

5.2.Opportunity to perform a sustainable supply chain

Since there has been an increasing demand for the agricultural production in South Africa, CASS
will need to start delivering more machinery to its potential seller in the coming future.
However, if the machinery starts wearing out after a certain period of time, it will be disposed
away. CASS can gain a competitive advantage by ensuring the reverse flow of used machinery is
reused and recycled in an environmentally friendly and economically rational manner (Helena &
Miroslava 2016).

According to the World Bank (2018), the ease of starting up a business in South Africa has
developed significantly over the past few years. Many start-ups and foreign direct investments
have been encouraged by the South African government to create more employment for the
Africans (Li & Ng 2013). Since the cost of labour is comparatively cheaper in many South African
cities, in the long run, CASS may set up a maintenance shop in South Africa to offer a quick
post-sale service and cutting cost of outsourcing the maintenance. Moreover, this maintenance
shop could act like a station to recycle the old products. This can help CASS become the pioneer
of adopting a reverse logistics in its second-hand machinery supply chain, thereby saving costs
and spread its trading wings across South African cities.

6. Planning, implementation, control and improvement

6.1.Planning

6.1.1. Booking the truck

CASS uses transportation-based 3PL service throughout the inland transportation activities as
company do not invest on the logistics asses. Due to the enormous number of supplier located

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far and wide, the employment of 3PL is more reasonable and helps company enhance their
flexibility in term of location change. In this case, based on price, service quality, reliability,
speed, location, Allied Express company may be chosen to provide truck service (Allied Express
Specialized Logistics 2018).

6.1.2. Booking the ship

CASS may either book the freight directly with the shipping line or through a freight forwarder if
it offers more reasonable price and soonest date of shipment. The forwarder-based IFC
company may also be selected as the competitive freight offered to CASS at this time (IFC
Global Logistics 2018). Related to type of 3PL involvement, CASS decided to only keep the
vendor relationships with both 3PLs due to the short-term goals of these outsourcing activities.

6.1.3. Buying insurance

For the insurance cost, CASS chooses the appropriate insurance package for the product and
shipment bases on the value of the machine and the duration of shipment. DHL insurance (DHL
Logistics 2018) is the best candidate since it offers the most suitable insurance package with
affordable price among CASS current insurance suppliers.

Figure 5 shows the list of 3PL service providers used in this shipment.

Figure 5: List of 3PL service providers used by CASS

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 6.2.Implementation

The implementation process is described in Figure 6.

Figure 6: Implementation process

Allied Express’s truck will pick up empty container at the container depot near Melbourne port
appointed by shipping line at the agreed time then drive to the factory at Lilydale. At the
factory, the machine would have been separated into small parts. These parts will be packed
with plastic and put into several appropriate-size wooden crates and filled with dunnage. These
crates will be loaded by forklift and stabilized in the container at the factory to save stevedore
cost. Inside the container, wire ropes with tighteners will be used to prevent slippage and
tipping. It will take around an hour to transport within the distance 50 km from factory in
Lilydale to Melbourne port. The truck will land the container at the container yard inside DP
World terminal.

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As per the CIF terms, CASS will pay the loading charges including terminal handling charge at
Melbourne port, custom clearance fee, export taxes, and prepare commercial invoice, original
bill of lading, certificate of origin, bills of exchange and insurance certificates, packing list
(AASFS n.d.). After custom clearance is finalized, container will be loaded on board a vessel of
CMA CGM.

The port-to-port schedule obtained from CMA CGM (2018) starts with a container vessel will
depart from Melbourne port in Australia, DP World Terminal West Swanson dock to Colombo
port in Sri Lanka, South Asia Gateway Terminal for 26 days. The cargo is transhipped to another
CMA CGM vessel at Colombo after 2 days. From Colombo, that vessel will carry CASS cargo to
Durban port in South Africa, Container Terminal Pier 1 for 11 days. The total duration of this trip
is 39 days.

The product will be delivered to SAAM on vessel arrival Durban port as per CIF Durban term.

6.3.Control

Logistics companies need to assess the risk while placing their freight in a container, railcar or
trailer; else it could cost the companies a lot (Coyle et al. 2016, pp. 309). In the context of CASS
trading with a South African company, several challenges have been mentioned in the report
above. CASS could take some potential control steps to mitigate these risks or challenges.

6.3.1. Protective product packaging

CASS could use protective product packaging to ensure the machinery is in a good condition at
the time of unloading. Often, container is managed with the help of conveyors, forklifts and
several transportation vehicles. To safeguard and balance the machinery from getting
damaged, cardboards, shrink wrap, banding, edge protectors should be used (Coyle et al. 2016,
pp. 311). Also, ‘a foam-in-bag product’ automated system could be used. Unlike cardboard or
paper dunnage, this solid foam cushion will prevent the machinery from shifting at the time of
shipment, significantly controlling the risk (Specter 2004).

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 6.3.2. Documents handling with care

The South African import permit of imported second-hand machinery obtained by SAAM were
carefully checked by both parties before signing the one-year contract to ensure that no delay
would happen upon vessel arrival destination port.

Likewise, an appropriate document can diminish the risk of incorrect paperwork by sticking to a
set of terms and conditions (Schmitz 2011). According to Sletmo & Holste (2006), import duties
have to be primarily taken care of when a logistics company is exporting goods to the desired
destination. Hence, CASS would not have to deal with additional costs and delays for incorrect
paperwork.

6.3.3. Procurement strategy to control the supply chain disruption

To control the supply disruption, CASS should consider either a ‘mitigation strategy’ like
diversification or a remedy strategy such as ‘emergency sourcing’. The diversification strategy
can help CASS to allocate the procurement of the machinery to several suppliers holding
factories across Australia (Sheffi 2005). An ‘emergency sourcing’ might also be of use for CASS if
it needs an emergency sourcing of machinery in the event of a shortage (Tomlin 2006). CASS
could come up with an idea of buying additional grain dryer even though the product of next
shipment is already available. An extra storage cost may occur in this case as CASS has to hire a
3PL warehouse, however, the risk of supply shortage is relatively reduced.

6.3.4. Avoid product warranty issues

Product warranty is considered to be one of the elements of marketing new products into a
new market. Since CASS has newly entered the South African market with Tundra, there is a
high possibility that this industrial machine will be facing technical issues. CASS manager may
want to hire a few mechanics to work part-time at SAAM’s warehouses if the contract is
prolonged. This could help improve customer service and satisfaction, thereby increasing
SAAM’s demand and revenue. Additionally, this will give CASS a chance to slowly enter into
other cities where SAAM’s warehouses are operating which could increase the profits in the
long run.

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Further to above control methods, leveraging technology to maintain shipment control can be
advantageous for CASS international logistics activities such as Radio Frequency Identification
(RFID) and Global Positioning System (GPS); which can help CASS to keep track on real time
routing directions, traffic reports during the international logistic activities (Coyle et al. 2016,
pp. 457).

6.4.Improvement

6.4.1. Develop relationship with SAAM to sell more products

Due to the increment of demand for agricultural machinery, it is essential for CASS to develop a
long-term partnership with SAAM to supply more products. Besides performing well in the
current contract, CASS can offer cheaper price, payment postponement, longer warranty
services to SAAM in the future to extend the contract.

Furthermore, with the help of a computerized order transmission system, i.e., Electronic Data
Interchanges (EDI), CASS can speed up its delivery speed and accuracy which could further lead
to a long-lasting relationship with SAAM. The paperless trade strategy will help CASS become a
strategic resource since EDI helps store information on a need-to-know basis rather than just as
a nice-to-know basis (Plomaritou 2008).

6.4.2. Develop Reverse Logistics to perform a sustainable supply chain

According to Badenhorst and Nel (2012), CASS could take ‘disposal’ of the old machines as a
potential opportunity by setting up a reverse logistics process. This will help the company form
a closed-loop supply chain (CSC). With the help of a CSC, CASS could trade these ‘disposable’
products back; reuse them for a different activity or with the help of a 3PL for transport and a
tie-up with a manufacturing company, it can redesign an entirely new machine. This reverse
logistics could be used as a competitive advantage for CASS. The company can benefit from
supplementary cost-saving opportunities by regaining the costs of the machinery and reusing
them at a later stage (Chan et al. 2012). Setting up a maintenance shop in Durban and other
cities will help CASS reduce its costs on reverse logistics. The machinery can be directly sent to
these maintenance shops where they can be assessed. If the machinery is completely damaged,

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it will be sent to the salvage yard where it be disposed away responsibly. However, if few parts
of the machine are still working, they will be resold or reused.

Figure 7: Reverse Logistic Flow Chart for CASS business

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