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CHAPTER 3

The Role of Logistics in Global Supply

Chain Management

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CTD…
 Global logistics is the part of global supply chain

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management that plans, implements, and controls the
efficient and effective forward and reverse flow and
storage of goods, services, and related information
between the worldwide point of origin and the
worldwide point of consumption in order to meet
global customers’ requirements.

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 CTD…

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 It involves the worldwide management of order
processing, inventory, transportation, and the
combination of warehousing, materials handling,
and packaging, all integrated throughout a network
of facilities.

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CTD…

 This means that issues such as global distribution

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center network orchestration, integrated inventory
management, packaging and materials handling,
reverse logistics (including backhaul logistics), and
various forms of transportation (ocean, air, land, and
intermodal) are key strategic and operational
elements of global logistics.

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 CRITICAL FACTORS AND KEY TRENDS:
CHANGES IN LOGISTICS AND TRANSPORTATION
 Intermodalism

Joint use of two or more transportation

modes.
Micro bridge moves logistics capabilities from
port-to-port through port-to-point directly to
point-to-point.
 Shipment Control

High tech permits tracking & diversion of

shipments.

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TYPES OF INTERNATIONAL INTERMODALISM

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CRITICAL FACTORS AND KEY TRENDS

 Free Trade Agreements

 NAFTA is the most current.
 ECM is the 15 country European equivalent.
 APEC is the Pacific equivalent.
 Remaining customs barriers can impair logistics
activities where they remain.
 Cultural differences can result in shipment
delays where they are not understood.

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CTD…
 Currency Fluctuations
The exchange rate of dollars to other international
currencies affects both the volume and direction
of global trade.
The effects of weak or strong dollar positions
carry through to marketing and logistics.

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 CHANGING POLITICAL AND LEGAL
ENVIRONMENTS
 A Single European Market
 Eastern Europe

 North American Free Trade Agreement

 Maquiladora Operations (Low cost factory in Mexico)

 Asian Emergence

 New Directions

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 CHANGING POLITICAL AND LEGAL
ENVIRONMENTS EASTERN EUROPE
 Currently restructuring but generally working to improve
from former communist-style governmental restrictions.
 Older infrastructure is holding these nations back from full
participation in global markets.
 Governments have been selling assets to use for capital
investment.
 Future is uncertain, but markets are large enough to attract
foreign capital if political environment is seen as stable.

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 CHANGING POLITICAL AND LEGAL
ENVIRONMENTS: ASIAN EMERGENCE

 The Pacific Rim nations have emerged as key players in the

global business environment.
 In the first three months of 2000, imports from Pacific Rim
countries accounted for 32.9 percent of total U.S. imports.
 Japan, Korea, Taiwan, and Singapore purchased 24.7 percent
of U.S. exports in this same period.
 Japan is the leading regional supplier, followed by China,
Taiwan, and Korea.
 Low labor and high quality characterizes these Asian
nation’s raw materials and finished goods.

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 CHANGING POLITICAL AND LEGAL
ENVIRONMENTS: NEW DIRECTIONS
 Offshore plants and logistics facilities
 Focus production plants often require complex logistics
facilities.
 General expansion of worldwide markets

 Worldwide growth of affluence

 Growth of Caribbean, Australian, African, Russian, and

Eastern European markets

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ON THE LINE: HOLIDAY MAY BE HAZARDOUS
TO INTERNATIONAL LOGISTICS SYSTEMS
 Workers not on the job…logistics activities come to a
halt.
 Holidays vary by country and must be known to
international logistics managers.
 By scheduling pickup and delivery around a
country’s holidays, the logistics manager can:
Prevent disruptions in the international supply chain;
Maintain desired logistics service levels.

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 GLOBAL TRANSPORTATION OPTIONS
 More complex than domestic due to distance and
number of parties involved
 Major international transportation modes

Ocean
Air
Motor
Rail

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GLOBAL TRANSPORTATION OPTIONS:
OCEAN
 Ocean structure
Liner – scheduled service; regular routes
Charter – contract service; no set routes
Private – service firm’s own logistics needs
 Include bulk, container, RO-RO (roll-on/roll-off)

 Most pervasive and important global mode

 Revenues are substantial

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TOP TEN OCEAN CARRIERS

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 GLOBAL TRANSPORTATION OPTIONS:
AIR
 Speed allows large compression of transit times.
 Linkages with package delivery and courier services
provide true point-to-point service.
 Rates have traditionally restricted cargo to low
density, high value goods.
 Volume is approximately 1% of movements, but
nearly 20% of the value.
 New airfreighters can carry up to 13 TEUs (20 foot
containers).

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MAJOR INTERNATIONAL CARGO AIR
CARRIERS

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 GLOBAL TRANSPORTATION OPTIONS: MOTOR
 Global motor characteristics of speed, safety,
reliability, and accessibility basically the same as for
domestic transportation.
 Container sizes are largely standardized into 20, 40, 45,
48, and 53 foot boxes.
 Paperwork can be streamlined by having a bonded
warehouse seal the container at point of shipment and
not opened until it reaches its destination country.

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 GLOBAL TRANSPORTATION OPTIONS: RAIL

 Internationalrail movements are problematic.

 Rail gauges often vary.

 Containers maybe transloaded from rail to ocean to

rail and/or motor if standard international sizes are
used.
 Maritime bridge movements gain speed by using an
intermodal strategy.

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 REGIONAL DIFFERENCES IN LOGISTICS
First World Emerging Third World

Infrastructure Highly developed Under development Insufficient to

support advanced
logistics

Supplier operating High Variable Typically not

standards considered

Information Generally available Support system not Not available

system availability available

Human resources Available Available with some Often difficult to find

searching

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 PERFORMANCE EXPECTATION AND EVALUATION
 Operating standards in First World nations uniformly
high

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 Operating standards vary greatly in emerging nations
 Research
and negotiations required
 Governments usually play a large role
 Inthe Third World traditional performance measures
have no meaning
 Shortages are common
 Customer service measures used in the West are irrelevant
 A firm has little control of the timing and availability of
inventory
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 FREIGHT AGENTS
 Companies who have been selling products within a domestic
market do not have the skills or knowledge to sell items in a
foreign country.
 Fortunately there are facilitators and intermediaries who, for
a fee, will aid the launch and marketing of products in a new
market.
 Because of the complexities of the global supply chain companies
can quickly become successful in new markets when they use the
experience of facilitators and intermediaries.
 NB: However these services do add an additional cost to the price
of the items being exported.
 These facilitators and intermediaries are listed below.
STRATEGIC CHANNEL INTERMEDIARIES

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 Foreign Freight Forwarders
 Non-Vessel-Operating
 Customs House Brokers
Common Carriers  Ship Brokers

 Export Management  Ship Agents

Companies  Export Packers
 Export Trading Companies  Ports

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 FOREIGN FREIGHT FORWARDERS
 Consolidate small shipments into economical container
or larger-sized lots.
 Used by small or inexperienced shippers.

 Consolidators and agents regulated by the Federal

Maritime Commission.
 Fee for service and/or commission from shipping
companies.
 Use ocean and air modes.

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 CTD….
 The freight forwarder is concerned with organizing
transportation for companies. Their primary task is to

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combine smaller shipments to create a single large
shipment to minimize the shipping costs.
 Companies using a freight forwarder will benefit as
they are charged a much smaller shipping cost than if
they had shipped their product independently. The
freight forwarder provides other services which are
beneficial to the exporting company. The services
include documentation, payment and carrier
selection.

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 NON-VESSEL OPERATING COMMON CARRIERS
 These carriers are used to disperse traffic moving to and
from an inland port.
 These NVOCCs then collect traffic from inland ports back
to the ocean port cities.
 This service saves the shippers from having to pay to return
empty containers to the ocean carriers.
 NVOCC service widens markets of the ocean carriers and
provides expertise to the smaller inland shippers.

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 EXPORT MANAGEMENT COMPANIES
 Export Management Companies (EMCs) act as a
knowledgeable shippers agent in a foreign country.
 Act as the sellers agent in getting orders, and
arranging for distribution, promotion, and dealing
with the foreign government.
 Exclusive arrangements are possible and the EMC may
sell with or without taking title to the goods.

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 CTD…
 Theexport management company offers services to
companies that have not exported items before. The

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EMC offers all the services that a company would
have if they had an internal export department.
 The EMC deals with export documents and operate
as the company’s agent in the overseas market. This
may include selling the items directly or operating a
sales department to process sales orders.

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 EXPORT TRADING COMPANIES
 Similar to the EMCs, the Export Trading Companies
(ETCs) export goods and services.
 The ETC locates buyers, arranges for inland and
international transportation, and meeting foreign
government requirements.
 Allows small and medium-sized firms the ability to
compete globally.

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CTD….
 Itis a company that exports goods for companies
who hire them.

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 Itidentifies and works with companies in the foreign
country who will market and sell the products.

 The export trading company will provide services

including export documentation, logistics and
transportation.

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 CUSTOMS HOUSE BROKERS
 Oversee the movement of goods through customs and
ensures that paperwork accompanying a shipment is in
order.
 Operate under power of attorney from the shipper and
can pay any duty on freight.
 Much of the paperwork is done ahead of the shipment
using integrated computer systems, greatly reducing the
time it takes to clear customs, thereby reducing transit
times.

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SHIP BROKERS/SHIP AGENTS/EXPORT PACKERS

 Ship brokers act as agents in securing the charter of a

ship.
 Ship agents are the local (port) agent of the ship
operator when the ship is in port.
 Export packers supply a shipper specialized export
packing services to help with customs and to protect
the goods.

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 EXPORT PACKERS
 The export packing company provides a service to companies

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unfamiliar with exporting.
 Some countries require specific packaging specifications and the export
packer’s knowledge in these matters are invaluable to the novice
exporter.
 In addition the export packer can advise companies on appropriate design
and materials for the packaging of their items.
 Packing companies can also assist companies in minimizing packaging
so that they can maximize the number of items to be shipped and reduce
shipping costs. 34
 PORTS
 Port selection is a very important part of the
international logistics strategy.
 Different ports often specialize in different types of
shipments.
 Selecting the wrong port can add miles, time, and
therefore cost to a shipment not appropriately routed.
 Overall door-to-door transit time and variability
most important factors.

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 PORT EVALUATION FACTORS

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 STORAGE FACILITIES
 Storage may be necessary for containers, bulk, or
finished goods.
 This may require different types of in transit
facilities depending upon the method of shipment
and cargo type.
 Longer term storage may require a public or
bonded warehouse.

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 PACKAGING
 Export shipments generally require a higher level of
protection than domestic shipments because of extra
handling and the motion of the ocean and its effect
on cargo.
 Shippers expect to pay more for more protection, as
settling liability claims can be very difficult due to the
large number of firms that may be handling the goods.

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SOME SYMBOLS USED FOR PACKING EXPORT
SHIPMENTS

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 GOVERNMENTAL INFLUENCES

 Customs Regulation
 Other Customs Functions

 Foreign Trade Zones

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 EXPORT-IMPORT FLOWCHART

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 CUSTOMS REGULATION
 Customs regulations of the importing country have
the greatest effect on the international movement of
goods.
 In place to protect domestic industries from unfair or
predatory competition, these barriers to trade are
handled differently in various countries.
 Duties are expressed either as a percent of value, a
fixed amount, or in combination.

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 OTHER CUSTOMS FUNCTIONS

 Determine that the goods value is as stated.

 Ensure that the goods are properly marked.

 Ensure that the items are permitted for entry.

 Ensure correct price and quantity.

 Control quota amounts.

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 CUSTOMS BROKERS
 The customs broker helps companies to avoid the pitfalls
involved with customs regulations and dealing with the

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complete customs process.
 The customs requirements of many countries can be difficult
to understand for the novice exporter and the knowledge and
experience of the customs broker is vital.
 Many countries have specific laws and documentation
requirements for importing items that are not always obvious
to the exporter.
 The customs broker can offer a company a complete package
of services that are essential when a company is exporting to a
large number of countries.

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 FOREIGN TRADE ZONES (FTZS)
 Goods enter without customs formalities, duty or bond.

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 Shippers can break bulk before entry.
 Goods can be processed, repacked, or remarked to avoid
fines before entry.
 FTZs can hold excess goods until the next quota window.
 Buyer can test or sample before entry.
 Goods can be stored indefinitely and/or re-exported
without paying duty.

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 LOGISTICS CHANNEL FUNCTIONS
 Concentration

Combine multiple small shipments into larger

shipments
Accumulating from different sources (consolidating)
 Customization

A shipment of different pieces is assembled

Sorting heterogeneous products into homogeneous
stocks
 Dispersion

Large shipments are broken down into smaller

shipments
Allocating into smaller lots (bulk-breaking)
 DIFFERENT CHANNEL FLOWS
 There are channels for the flow of information
 There are channels for the flow of product/service

 There are forward channels

 There are reverse channels
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END!!!