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Companies have to deliver products to customers both efficiently and effectively. First of all, global or
international logistics (also referred to as global supply chain management) has played a critical role in
the growth and development of world trade, and in the integration of business operations on a worldwide scale. Its primary objective is to develop a cost-efficient delivery mechanism. In fact, the level of
world trade in goods and, to some extent, services, depends to a significant degree on the availability of
economical and reliable international transportation services. Decreases in transportation costs and
increases in performance reliability expand the scope of business operations and increase the associated
level of international trade and competition. Second, the use of appropriate distribution channels in
international markets increases the chances of success dramatically. Its primary objective is to develop
a task-effective delivery mechanism for customer satisfaction.
As firms start operating on a global basis, logistics managers need to manage the shipping of raw
materials, components, and supplies among various manufacturing sites at the most economical and
reliable rates. Simultaneously, these firms need to ship finished goods to customers in markets around
the world at the desired place and time. The development of intermodal transportation and electronic
tracking technology has caused a big jump in the efficiency of the logistic methods employed by firms.
Intermodal transportation refers to the seamless transfer of goods from one mode of transport (e.g., aircraft or ship) to another (e.g., truck) and vice versa without the hassle of unpacking and repackaging the
goods to suit the dimensions of the mode of transport being used. Tracking technology refers to the
means for keeping continuous checks on the exact location of the goods being shipped in the logistics
chain this enables quick reaction to any disruption in the shipments because (a) the shipper knows
exactly where the goods are in real time and (b) the alternative means can be quickly mobilised.
As the progressive lowering of trade barriers eases the flow of goods worldwide, business survival
increasingly hinges on a companys ability to compete internationally/globally in external and/or
internal markets. This has led an increasing number of companies to become aware that the marketplace encompasses the world, not just their respective home countries. For example, many firms have
found that evaluating offshore sourcing alternatives is essential in a well-run logistics and materials
management organisation. Alternatively, by developing export markets, firms in a given country have
highlighted the need for effective logistics systems and networks throughout the world. In other words,
domestic competitors are increasingly looking overseas not only for new markets, but also for new
sources of supply. Conversely, companies in other countries have also broadened their sourcing and
marketing considerations geographically. They look toward global logistics strategies and operations to
provide competitive advantage through efficiency, effectiveness, and differentiation. Therefore,
competitors from overseas are targeting previously secure domestic markets.
This trend has led to global/international logistics management, which includes the procurement of
goods and services of foreign origin, manufacturing from any country and distribution of finished
products into foreign markets. International logistics conjures up a vision of products flowing seamlessly from suppliers to customers located anywhere in the world, and a supply network that truly spans
the entire globe. International/global logistics management is typically more complex than domestic
logistics management. Organisations must contend with lengthened logistical pipelines, increased rules
and regulations, currency fluctuations, customs requirements and a host of other variables such as
language and time differences.
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As a practical matter, logistics managers are finding that they need to do much work in terms of
conceptualising, designing, and implementing logistics initiatives that may be effective globally.
Logically, the development of global logistics approaches a high degree of coordination between
logistics groups, marketing, and purchasing groups in individual companies.
2.0
2.1
Logistics concerns the management of the flow of goods and services between the point of origin and
the point of consumption in order to meet the requirements of customers. Logistics involves the
integration of information, transportation, inventory, warehousing, material handling, and packaging.
Logistics is a channel of the supply chain (to be discussed later in Section 3) which adds the values of
time utility and place utility.
2.1.1
In general, there are two types of logistics: military logistics and business (or non-military) logistics.
2.1.1.1 Military Logistics
Logistics has a long standing application in military circles (dating from the Napoleonic Wars) where it
was initially applied primarily to the tasks of:
transport, supply and quartering of troops; and
organising the supply of weapons, equipment, and food to distant military forces.
These tasks comprise the quartermasters work. During the world wars this work came to have a
broader meaning to cover the art of managing the flow of materials.
In military science, maintaining one's supply lines while disrupting those of the enemy is a crucial
some would say the most crucial element of military strategy, since an armed force without
resources and transportation is defenseless. The importance of military logistics is apparent from a
consideration of the enormous problems relating to the supply of forces involved in the American War
of Independence, the World War II, the Falklands War of 1982 and the invasions of Iraq in 1991 and
2003. In fact, the defeat of the British in the American War of Independence and the defeat of the
Axis in the African theatre of World War II are attributed to logistical failure.
In military logistics, logistics officers manage how and when to move resources to the places they are
needed. The scope of logistics in a military sense is reflected in the definition adopted by NATO:
Logistics is the science of planning and carrying out the movement of and maintenance of forces. In
its most comprehensive sense, logistics concerns the aspects of military operations which deal with:
design and development, acquisition, storage, transport, distribution, maintenance, evacuation
and disposition of material;
transport of personnel;
acquisition and construction, maintenance, operation and disposition of facilities;
acquisition or furnishing of services; and
medical and health support.
2.1.2
Purpose of Logistics
Logistics is the science and practical management of the supply of materials. These customer expectations define the purpose of logistics. Logistics ensures the provision of materials which are the right
types of products, of the right condition/quality, in the right quantity, to the right customer/user, at the
right place, at the right time, from the right source/supplier, for the right cost/price and delivered with
the right tailored service level required by the customer.
The above list gives what are referred to as 9Rs of logistics. Whether the logistics involves the supply
of soft drinks, vehicles, or pens; or manages contraceptives, essential drugs, or other commodities, these
nine rights always apply.
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In general, the goal of a logistics system is to provide a targeted level of customer service at the
least cost.
These 9Rs are described as follows
1. Materials must be the right products.
This means that materials must be the exact products required. For example, if Product P is required,
exactly Product P and not Product Q must be delivered. Similarly, if Product X is required, exactly
Product X and not Product Y must be delivered. Therefore, delivering materials that are the right
products leads to effective and smooth running of the business because the exact required msterisals are
availed.
2. Materials must be of the right condition/quality.
Here quality is taken to mean fitness for use. If they are to be fit for use, materials must be of the
standards specified by the buying firm. If the materials are of good quality, the output and/or outcome
will also be of good quality. On the other hand, if the materials are of poor quality, the output and/or
outcome will also be of poor quality. Therefore, availing materials of the right condition/quality leads
to good quality business outputs because good quality materials/inputs are used.
3. Materials must be available in the right quantity.
This means that materials must be available in the exact quantity they are required for the business
work to be done. If too few materials are availed, some business work will not be done. This leads to
lost opportunities in the market place. On the other hand, if too many materials are availed (i.e. if there
are excess materials), some will remain unused. This leads to wastage of resources. Therefore, availing materials in the right quantity leads to efficient and smooth running of the business because
materials are availed optimally.
4. Materials must be delivered to the right customer/user.
This means that materials must be delivered to the exact customer that requires them. For example, if
materials are required by Customer A, they must be delivered to exactly Customer A and not Customer
B Similarly, if materials are required by Customer E, they must be delivered to exactly Customer E
and not Customer F. Therefore, delivering materials to the right customer leads to smooth running of
the customers business because his/her materials are available.
5. Materials must be available at the right place.
This means that materials must be available at the exact place they are required for the work to be done.
For example, if materials are required at Place A, they must be availed at exactly Place A and not Place
B. Similarly, if materials are required at Place C, they must be availed at exactly Place C and not
Place D. Therefore, availing materials at the right place leads to smooth running of the business
because materials are available where they are exactly required.
6. Materials must be available at the right time.
This means that materials must be available at the exact time they are required for the business work to
be done. For example, if materials are required at 8:00 am, they must be availed at exactly 8:00 am and
not 10:00 am Similarly, if materials are required at 2:00 pm, they must be availed at exactly 2:00 pm
and not 4:00 pm. Therefore, availing materials at the right time leads to smooth running of the business
because its materials are available at the exact time they are required.
7. Materials must be available from the right source/supplier.
This means that materials must be available from suppliers who are trusted when it comes to doing
what they say they will do. These are suppliers who care about the well-being of the buying firm.
These suppliers work collaboratively with their customers. That is, they have good working relationships with their customers. These suppliers have many, if not all, of the attributes of a good supplier.
8. Materials must be available for the right price.
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Here right price refers to right cost. The right price is not necessarily the lowest price. Sometimes, it
can be the highest price depending on the quality and features required in the materials. In most cases,
the right price is determined by considering the total cost of ownership (TCO) concept. The TCO of a
product includes its purchase price and other costs of owning/using the product and disposing the
product at the end of its useful life. A material with the lowest TCO is the one at the right price/cost.
9. Materials must be delivered with the right tailored service level required by the customer.
Here the right tailored service level required by the customer is the one which makes the customer
satisfied/delighted and then be willing to do more business with the supplier. This makes the supplier
gain more revenue. In most cases, the service level which dissatisfies the customer will make the
customer unwilling to buy more and the suppliers revenue will not increase. Therefore, delivering
materials at the right tailored service level increases the suppliers revenue.
2.1.3
Logistics Activities
According to Ballou (1985), the business activities that make up logistics vary from firm to firm,
depending on a firm's particular organisational structure, management's honest differences in opinion
about what constitutes logistics, and the importance of individual activities to its operations. Different
authors give different lists of logistics activities. Typical logistics activities include many or all of the
following:
Traffic and transportation
Customs clearing and
Receiving and inspection
forwarding
Warehousing and storage
Buying and managing
Returned goods handling
payables
Industrial packaging
(i.e. reverse logistics)
Selling and managing
Materials handling
Parts
and
service
support
collectibles
Inventory control
Field
service
and
Purchase order
Order fulfillment
maintenance
preparation and placing
Demand forecasting
Salvage and scrap disposal
Customer service
Information management
Physical distribution
Supplier service
Green logistics
The list above is not exhaustive. In fact, the list can be made as long, or as short, as possible.
2.1.4
In general, the logistics activities of the firm and how they are managed make up its logistics system.
The how consists of the equipment, people, technology, facilities, methods and procedures used. The
logistics system of a particular organisation will vary with the type of industry in which it operates, the
types of activities it is engaged in (i.e. what it does), and its size. Thus, an organisations logistics
system will be unique to it. No two organisations, even if they operate in the same industry, will have
the same logistics systems. The logistics systems can only be similar.
One will encounter hundreds of logistics systems during his/her lifetime in restaurants, stores,
warehouses, and many other places. This topic describes the general logistics systems; however, if one
understands a simple example of a logistics system, he/she will be able to understand almost any
logistics system.
A restaurant is one example of a simple logistics system. In this system:
The kitchen is a storage facility; the food is held there until it is delivered to the customer.
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Waiters and waitresses provide the transportation; they carry the food from the kitchen to the
customer.
The tables are the service delivery points, where customers sit to order and eat the food.
For customers, a restaurant is not a logistics system; it is a place to eat. As an individual, you probably
never thought of a restaurant as a logistics system. Your expectations for a restaurant, however, are
directly related to logistics.
What expectations do you have when you go out to a restaurant for a meal?
You may expect that the:
restaurant will be attractive and pleasing
correct order will be delivered to your table
server will provide excellent customer
food will be of acceptable quality
service
food will be of acceptable quantity
food you order will be available
cost of the meal will correspond to the value.
food will be served promptly
2.1.4.1
Ballou (1985) emphasises that logistics is a collection of management activities that are repeated
many times throughout the channel through which raw materials are converted into finished
products. Logistics activities recur many times before a product arrives in the marketplace.
A single firm is not generally able to control its entire product flow channel. For practical purposes, the
maximum logistics control that can be expected is over the immediate physical supply channel (i.e. the
inbound logistics system) and physical distribution channel (i.e. the outbound logistics system), as
shown in Figure 1.
Business Logistics
= Physical Supply (or Materials Management) + Physical Distribution (Marketing Logistics)
Physical Supply (or Materials Management)
Physical Supply (or Materials Management) considers all the activities related in the manufacturing of
commodities in all their stages of production along a supply chain. It includes production and marketing activities such as production planning, demand forecasting, purchasing and inventory management.
Materials management must insure that the requirements of supply chains are met by dealing with a
wide array of parts for assembly and raw materials, including packaging (for transport and retailing)
and, ultimately, recycling discarded commodities. All these activities are assumed to be inducing
physical distribution demands.
Physical Distribution (or Marketing Logistics)
Physical Distribution (or Marketing Logistics) is the collective term for the range of activities involved
in the movement of goods from points of production to final points of sale and consumption. It must
insure that the mobility requirements of supply chains are entirely met. Physical distribution includes
all the functions of movement and handling of goods, particularly transportation services (trucking,
freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle,
retail. Conventionally, all these activities are assumed to be derived from materials management
demands.
From Figure 1, it can be concluded that the logistics system of a particular organisation will have two
sides: the physical supply side (or simply the supply side) and the physical distribution side (also called
the demand side). These are described below.
Supply side The supply side involves activities performed to acquire all the items required by
the organisation to carry out its operations. These items will include raw materials, packing
materials, spare parts, services, consumables, office supplies, etc. This side places orders to
suppliers for the different items required by the organisation. This side is thus supplier-focused.
The activities performed comprise what is called the inbound-to-operations logistics system (or
simply inbound logistics system). It is bout procurement and supply management.
Demand or distribution side The demand/distribution side involves activities performed to
distribute and deliver the finished goods and/or services offered by the organisation. The side
handles orders from customers for the different items required by the customers. This side is thus
customer-focused. The activities performed comprise what is called the outbound-to-customers
logistics system (or simply outbound logistics system). It is about demand management and
customer service.
From the above, it can be said that a firms logistics system is comprised of its inbound logistics system
and its outbound logistics system. That is,
Logistics system = Inbound Logistics System + Outbound Logistics System
The general logistics system can be represented schematically as shown in Figure 2.
2.2
Logistics Management
2.2.1
The phrase logistics management has been defined differently by many authors and professional
bodies. Some of these definitions are as follows:
The US Council of Logistics Management states that: Logistics management is that part of the
supply chain management process that plans, implements, and controls the efficient, effective
forward and reverse flow and storage of goods, services, and related information between the
point of origin and the point of consumption in order to meet customers' (or users) requirements. Logistics management is an integrating function, which coordinates and optimises all
logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance, and information technology.
Martin Christopher (1998) states that: Logistics management is the process of strategically
managing the procurement, movement and storage of materials, parts and finished inventory
(and the related information flows) through the organisation and its marketing channels in such
a way that current and future profitability are maximised through the cost-effective fulfillment of
customer orders.
From the above definitions, it can be concluded that logistics management is the means whereby the
needs of customers are satisfied through the coordination of materials and information flows that extend
from the marketplace, through the firm and its operations, and beyond that to suppliers. Logistics
management deals with the handling, movement, and storage activities within the supply chain,
beginning with suppliers and ending with customers. The mission of logistics management is to plan
and coordinate all those activities necessary to achieve a desired level of delivered service and quality
at lowest possible cost. The scope of logistics spans the organisation, from the management of raw
materials through to delivery of the final product.
Logistics management mainly concerns two key flows:
Material flow of the physical goods from suppliers through the distribution channels to endcustomers
Information flow of demand data from the end-customers back to purchasing and to suppliers, and
supply data from suppliers to retailers, so that material flow can be accurately planned and
controlled.
Thus, logistics management is the means whereby the needs of customers are satisfied through the
coordination of the materials flow and information flow that extend from the marketplace, through the
firm and its operations and beyond that to suppliers (see Figure 3).
2.2.2
The primary purpose of logistics is to provide availability of materials and services. That is, ensure the
provision of the right product in the right place at the right time. Logistics management aims at the
same but in addition, logistics management aims at achieving this at least cost. Generally speaking,
logistics management aims at mainly two objectives: maximising customer service level (i.e. Max
CSL) and minimising total logistics cost (i.e. Min TLC). These two objectives are frequently referred
to as the twin objectives of logistics management. To achieve these twin objectives, logistics must be
managed effectively (to achieve the maximum customer service level) and efficiently (to incur the
minimum total logistics cost). Thus, logistics management aims at providing Max CSL at Min TLC.
Additionally logistics management seeks to:
Reduce conflict and promote cooperation and coordination between subsystems concerned with
material flow and information flow, based on the recognition that their activities are interrelated and
interdependent;
Reduce the time spent at every stage of the chain from procurement to delivery to the customer, i.e.
lead time, production time, transportation time;
Ensure the highest possible level of customer service and satisfaction by achieving the right
combination of product availability and dependability;
Control and, where possible, reduce inventory of materials, work in progress, and finished goods to
provide stock levels at which the costs of stock holding are balanced by production requirements
and customer service;
Encourage a commitment to quality improvement so that both bought-out supplies and the products
in which they are incorporated are right first time, every time.
3.0
3.1
International Logistics
Definition of International Logistics
Intyernational logistics is defined here as the design and management of a system that directs and
controls the flows of materials into, through and out of the firm across national boundaries to achieve
its corporate objectives at a minimum total cost. As shown in Figure 4, international logistics
encompasses the entire range of operations concerned with products or components movement,
including both exports and imports simultaneously.
International logistics, like domestic logistics, encompasses materials management, sourcing, and
physical distribution.
The Firm
Suppliers around
the World supply:
Raw Materials
Components
Supplies
Material
Management
Processing
and
Assembly
Finished
Products
Sourcing Strategy
Physical
Distribution
Transport
ation
Warehousing
Inventory
Customer/Or
der Entry
Administration
Customers
around the
World buy:
Finished
Products
Materials management refers to the inflow of raw materials, parts, and supplies in and through the
firm. Physical distribution refers to the movement of the firms finished products to its customers,
consisting of transportation, warehousing, inventory, customer service/order entry, and administration.
Sourcing strategy refers to an operational link between materials management and physical distribution, and deals with how companies manage R&D (e.g., product development and engineering),
operations (e.g., manufacturing), and marketing activities. Although the functions of physical distribution are universal, they are affected differently by the tradition, culture, economic infrastructure,
laws, topo-graphy, and other conditions in each country and each region. In general, in geographically
large countries, such as the United States, where products are transported over a long distance, firms
tend to incur relatively more transportation and inventory costs than firms in smaller countries. On the
other hand, in geographically concentrated countries, such as Japan and Britain, firms tend to incur
relatively more warehousing, customer service/order entry, and general administrative costs than in
geographic-ally larger countries. This is so primarily because a wide variety of products with different
features have to be stored to meet the varied needs of customers in concentrated areas.
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3.2
3.2.1
3.2.2
Customs regulations are very numerous and different around the world. Each country has
regulations controlling the exporting and importing of goods and services. These regulations can
change overnight and cause major upheavals in the supply chain.
Transport regulations around the world differ from one country to another. For example ocean
carriers registered in countries such Panama, Liberia, the Cayman Islands, and Bermuda have
different safety regulations than those imposed on US-registered vessels.
Paperwork is one of the most time-consuming differences. A typical global shipment can require
twenty to thirty or more documents, and each one is essential to the movement of the product into or
out of a country. It is often said that paperwork moves global shipments because, without the
proper paperwork, the shipment stops!
In conclusion, the global supply chain is much more complex. The same managerial attention to details
given to domestic supply chain is required for a global system with serious attention being given to the
effects of different cultures, languages, currencies, infrastructures, and regulations of the countries
included in the global supply chain.
3.3
At the outset it is important to define the global business company and recognise its distinctiveness
from a multinational business company or an international business company.
3.3.1
Global Company
By definition, a global company is one which treats the whole world as a single, integrated market.
By treating the world market as an integrated whole, a global company has products and strategies
developed to exploit an integrated unitary market. The key strategic capability of a global company is
the ability to build cost advantages through centralised global-scale operations. A global company
operates with resolute certainty at low relative costs as if the entire world (or major regions of it)
were a single entity; it sells the same things in the same way everywhere.
Thus, a global business is one which does more than simply export. The global business will typically
source its materials and components in more than one country. Similarly it will often have multiple
assembly or manufacturing locations geographically dispersed. It will subsequently market its products
worldwide. A classic example is the Singer Sewing Machine Company (SSMC). It buys its sewing
machine shells from a subcontractor in the USA, the motors from Brazil, the drive shafts from Italy and
assembles the finished machine in Taiwan. It then markets the finished machines in most countries of
the world.
Therefore, a global company is truly global, with a structure and policy that represents a global
business. It has the following attributes:
Global branding
Centralisation of inventories
Global sourcing
Centralisation of information
Global production
Provision for local requirements
The logic of the global company is clear. The logic is that the global company seeks to grow its
business by extending its markets whilst at the same time seeking cost reduction through scale
economies in purchasing and production and through focused manufacturing and/or assembly
operations.
3.3.2
Multinational Company
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By definition, a multinational company is one which opens subsidiary headquarters around the
world so that each area is largely independent. It operates in a number of countries and adjusts its
products and prices in each at high relative costs.
A multinational company manages a portfolio of national entities. Its key strategic capability is
building a strong local presence through sensitivity and responsiveness to national differences.
2.3.3
International Company
By definition, an international company is one which maintains its headquarters in its home
country and runs worldwide activities from there. The parent retains considerable influence and
control, but less than in a classic global company; national units can adapt products and ideas coming
from the centre, but have less independence and autonomy than multinational subsidiaries.
An international company has a presence across a wide geographic area, supported on a local or
regional basis through local or regional sourcing, manufacturing, storage and distribution.
3.4
3.4.1
In the world of the logistics manager about thirty years ago (which was another era altogether in terms
of business economics) the mission, while perhaps not always readily achieved, was at least clear. The
mission was balancing inventories between both production capacity and the demands of
customer service. Therefore, logistics has always been a balancing act between supply and demand.
This has never been an easy job, and the logistics managers role has rarely been positioned
appropriately to meet it. While the manager might have understood intellectually that assets should be
employed to make the most of both factors, it was also accepted that hidden costs were bound to creep
into the best-managed system and these could be borne.
Now all that has changed. Two things have happened:
Companies are stretching their supply chains to global proportions.
The role of global logistics has assumed a strategic value far beyond the simple cost of distribution.
In this context, effective management of their international supply chains has assumed a high strategic
value to many companies competing in todays world markets.
Because of the increasing complexity of the logistics task, the job of the logistics manager has
grown/changed. It has begun not only to overwhelm him/her, but also to have an increasing
significance for overall corporate health. What were once simple trade-offs seem to result, with
increasing frequency, in what is merely a suboptimal utilisation of assets. Also, in the worst cases, the
trade-offs seem to result in a no-win logistics management policy. Companies are faced with the
prospect of incurring double or even triple costs in order to build up inventories to support marginal
increases in customer service. At the same time, more intensive competition in slow-growth markets,
combined with the rising costs of other production and supply factors, means that many firms must
supply a certain level of service that results in a competitive advantage.
Over the last decades, analyses of the particular problems of national and multinational companies in
the context of todays more challenging economic environment resulted in a fundamental shift in
perceptions about logistics management. What were hitherto considered mere logistics problems have
now emerged as much more significant issues of strategic management. Through studies of firms in a
variety of industries in the USA, Japan and Western Europe, it was found that the traditional approach
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of seeking trade-offs among the various conflicting objectives of key functions (i.e. purchasing, production, distribution and sales) along the supply chain no longer worked very well. There was a need
for a new perspective and a new approach to managing the logistics task. That approach is effective
logistics management for enhanced customer service and reduced costs leading to competitive
advantage.
In international logistics/supply chain management, the changed or new role of the logistics manager
involves the following:
Effectively managing the product mix to meet customer needs for competitive advantage.
Managing geographically dispersed facilities and markets for improved performance.
Effectively organising the logistics function to maximise customer service and minimise overall
operational costs.
Leading the design, creation, configuration and parameter setting of the entire supply chain.
Creating the framework and the dialogue that determine the performance targets along the whole
chain.
Driving the supply chain system and monitoring and reporting the entire logistics operational
performance against agreed targets.
Reviewing how problems can be solved and performance improved.
Making relevant and effective decisions to achieve corporate objectives.
Using appropriate decision support systems to avail relevant information for making effective
decisions.
3.4.2
The Competences