Global Logistics & Supply Chains

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Table 11.2 Estimated 2008 national logistics cost

Region North America Country Name Canada Mexico United States Region Austria Belgium Czech Rep Denmark France Germany GrBritain Greece Hungary Ireland Italy Netherland Norway Poland Portugal Spain Sweden Region Brazil China Egypt India Hong Kong Japan Korea S. New Zealand Russia Saudi Arabia Singapore Turkey Region Logistics (Millions) 128,490 89,676 1,173,720 1,391,885 25,907 46,749 16,418 22,423 188,005 341,371 169,947 51,770 8,721 22,122 152,238 83,106 44,475 54,920 11,898 151,513 44,864 1,436,445 141,610 1,160,349 15,219 114,846 16,642 440,482 98,365 9,799 163,575 30,067 16,771 65,494 2,273,218 4,648,152 9,749,700 GDP (Millions) 1,510,957 1,088,128 14,264,600 16,863,685 415,321 506,392 217,077 342,925 2,865,737 3,667,513 2,674,085 357,549 156,284 273,328 2,313,893 868,940 456,226 525,735 244,492 1,611,767 484,550 17,981,814 1,572,839 8,083,000 162,164 1,209,686 215,559 4,923,761 947,010 128,492 1,676,586 481,631 181,939 729,443 20,312,110 15,492,391 70,650,000 Logistics as % of GDP 8.50% 8.24% 8.23% 8.32% 6.24% 9.23% 7.56% 6.54% 6.56% 9.31% 6.36% 14.48% 5.58% 8.09% 6.58% 9.56% 9.75% 10.45% 4.87% 9.40% 9.26% 8.22% 9.00% 14.36% 9.38% 9.49% 7.72% 8.95% 10.39% 7.63% 9.76% 6.24% 9.22% 8.98% 9.26% 30.00% 13.80% Europe

Pacific Rim

Other Global

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Global supply chain integration requires

Understanding the complexity of logistics in the a global economy Setting the firm on a path through the stages of international development
Export/Import Local presence Globally integrated enterprise

Managing the global supply chain differently from domestic operations

NASA photo View of the Earth seen by Apollo 17 crew traveling toward the moon

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Complexity of logistics systems vary significantly in each major global region

North American operating challenges
Open geography Extensive transportation options Limited cross-border documentation

European operating challenges

Relatively compact geography Numerous political, cultural, regulatory and language situations Congested transportation infrastructure

Pacific Rim operating challenges

Island-based geography Relatively poor infrastructure Extensive water and air shipments to travel vast distances

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Logistics in a global economy face more complex operating characteristics

Increased uncertainty results from
Greater distances Longer leadtimes Decreased market knowledge

Decreased control results from

Extensive use of international service firms Potential customs requirements and trade restrictions by governments

Increased variability arises from

Unique customer requirements Unique documentation requirements Shifting political environments

Decreased visibility results from

Longer transit times Longer holding times Less ability to track shipment locations

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INCOTERMS: What do they say about responsibilities for costs/activities?

Source: ODM Group

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Figure 11.1 Generic International Strategies

High

Global Strategy

Transnational Strategy

Force Towards Global Integration

Low

No International Strategy
Low

Multi-domestic Strategy

High

Force Towards Local Responsiveness

Source: Fitzsimmons, James and Mona Fitzsimmons (2011). Service Management: Operations, Strategy and Information Technology, Seventh Edition (New York: McGraw-Hill). Pg. 352.
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Table 11.3 Differential Characteristics of Global Services

Development Stages Service Focus Marketing Strategy Delivery Strategy Management Human Resource Strategy Development

No international strategy Multi-domestic strategy Global strategy

Standard product for local market Domestic marketing and delivery Local market customization

Single strategy focused on local market Domestic customers

Direct to customer

Single simple financials

Operated by entrepreneur with limited specialization Management with home country focus

Collaboration

Transaction driven with integrated financials Decentralized operations with local profit responsibility

Focused specific market areas which may cross international boundaries Global customers

Subsidiaries with local presence

Limited top management with international experience

Transnational strategy

Global branding and integrated operations

Worldwide flow of key resources

Centralized planning in global sites

International training and experience

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Managing the global supply chain

Five major differences between domestic and international operations

Performance cycle structure Transportation Operational considerations Information systems integration Alliances

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Length of the performance cycle is a major difference

Longer performance cycles for international operations
Domestic is measured in days International is measured in weeks or months
E.g. fashion merchandise takes 30 to 60 days

Reasons for longer order cycle to delivery cycle times

Communication delays Financing requirements Special packaging requirements Ocean freight scheduling Slow transit times Customs clearance

Overall this change requires higher asset commitment

Inventory is in transit for longer periods

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Transportation is impacted by four significant global changes

Removal of intermodal ownership and operation
Reduced complexity of operation and tracking of international shipping

Increased carrier privatization

Government-owned carriers often costly and unreliable Privatization has led to increased availability of efficient carriers

Relaxing of cabotage restrictions in European Union

Increases trade efficiency
E.g. US corporations save 10% to 15% in intra-European shipping costs

Major constraints on physical infrastructure capacity

Significantly increasing demand on port and airport capacities Infrastructure in much of the world was built over 50 years ago
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Information systems integration is a major challenge

Systems integration typically lags the acquisition or merger used to make the enterprise global Requires a substantial capital investment Requires two system types to be integrated
ERP system Global planning system

Few firms have fully integrated global information systems or capability

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Domestic and International Characteristic Differentials

Domestic
Cost Transport mode Inventories Agents Financial risk
About 10% of U.S. GDP today Mainly truck and rail Lower levels, reflecting short-order, lead-time requirements and improved transport capabilities

International
Estimated at 14% of world GDP today Mainly ocean and air, with significant intermodal activity

Higher levels, reflecting longer lead times and greater demand and transit uncertainty
Heavy reliance on forwarders, consolidators, and customs brokers High, owing to differences in currencies, inflation, levels and little recourse for default High, owing to longer and more difficult transit, frequent cargo handling, and varying levels of infrastructure development Many agencies involved (e.g., customs, commerce, agriculture, transportation Significant paperwork; the U.S. Department of Commerce estimates that paperwork cost for an average shipment is $250 Voice and paper costly and often ineffective; movement toward electronic interchange but variations in standards hinder widespread usage Cultural differences require significant market and product adaptation
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Modest usage, mostly in rail

Low Low

Cargo risk
Government agencies Administration

Primarily for hazardous materials, weight, safety laws, and some tariff requirements
Minimal documentation involved (e.g., purchase order, bill of lading, invoice) Voice, paper-based systems adequate, with growing usage of electronic data interchange and Internet

Communication

Cultural differences Relative homogeneity requires little product

modification

Logistics Performance Index (LPI)

Measures a countrys performance across six logistical dimensions
1. Efficiency of the clearance process by border control agencies, including customs 2. Quality of trade- and transport-related infrastructure 3. Ease of arranging competitively priced shipments 4. Competence and quality of logistics services 5. Ability to track and trace consignments 6. Timeliness of shipments in reaching the destination within the scheduled or expected delivery time
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Highest- and Lowest-Rated Countries Based on Overall LPI Score

2012 Rankings
United States: Rank of 14th (3.84)

Country Singapore Hong Kong, China Finland Germany

LPI Rank 1 2 3 4

LPI Score 4.13 4.12 4.05 4.03

Netherlands

4.02
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United States: Rank of 9th (3.93)

The Global Supply Chain: Total Cost Example - Shipping Process

Option 1: Domestic Purchase (USA)
Supplier Warehouse in Southern USA Manufacturing & Packaging Process Option 2: Purchase in China - Ocean Shipment 40 Ocean Truckload Cntr. Supplier China Warehouse in Supplier Southern USA Truckload Customer Warehouse Order Fulfillment

Customer Warehouse

Manufacturing & Packaging Process

Inspection Process

Order Fulfillment

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The Global Supply Chain: Total Cost Example - Shipping Process

Option 3: Purchase in China - Air Shipment Air Transport China Supplier Supplier Warehouse in Southern USA Truckload Customer Warehouse

Manufacturing & Packaging Process

Inspection Process
???

Order Fulfillment

Smaller Shipments

What other services or distribution options can be added?

Inspection? Smaller shipments from supplier to customer warehouse? Direct ship to end customer, bypassing customer warehouse?
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The Global Supply Chain: Total Cost Example - Plastic Cups in China
USA Cost Raw Material Cost Resin Colorant Package QA Inspection Tooling Amortization Molding Labor Assembly/Packaging Labor Freight Port Terminal Handling STANDARD PURCHASE PRICE China Markup (10%) Duty/Broker fee TOTAL COST TO BUYER PRICE WITH 30% PROFIT Inventory Carrying Cost (15%) Comparison Cost 2.40 0.70 1.32 N/A 2.00 0.35 3.75 0.87 N/A 11.39 N/A 11.39 14.81 N/A 14.81 China Cost by Ocean 2.40 0.70 1.32 0.15 1.00 0.18 0.15 1.43 0.08 7.41 0.74 0.19 8.34 10.84 0.82 11.66

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The Global Supply Chain: Total Cost Example - Plastic Cups in China
USA Cost Raw Material Cost Resin Colorant Package QA Inspection Tooling Amortization Molding Labor Assembly/Packaging Labor Freight Port Terminal Handling STANDARD PURCHASE PRICE China Markup (10%) Duty/Broker fee TOTAL COST TO BUYER PRICE WITH 30% PROFIT Inventory Carrying Cost (15%) Comparison Cost 2.40 0.70 1.32 N/A 2.00 0.35 3.75 0.87 N/A 11.39 N/A 11.39 14.81 N/A 14.81 China Cost by Ocean 2.40 0.70 1.32 0.15 1.00 0.18 0.15 1.43 0.08 7.41 0.74 0.19 8.34 10.84 0.82 11.66 China Cost by Air 2.40 0.70 1.32 0.15 1.00 0.18 0.15 4.63 10.53 0.74 0.19 11.46 14.90

14.90
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A list of general sourcing guidelines for use in decision making

Table 12.5 Sourcing Guidelines

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