Chapter 16

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Global Logistics and Materials Management

Chapter 16


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


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


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.


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


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.


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.


InternationalTransportation 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


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


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


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


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


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.


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


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”

Chapter 16

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