Transcript No Slide Title

CHAPTER 13
Global Logistics
Becton Dickinson’s Worldwide Sources
International Logistics
• Changes to political landscape affect
logistics
– The end of Soviet rule in Eastern Europe
– EU economic integration
• Nontariff barriers-a rule that has the effect of
reducing imports
• Restrictions on truck traffic, forcing freight onto
rail and water
– NAFTA
• Multinational firms
Comparison of Domestic and
International Logistics
Domestic
About 10% of U.S. GDP today
Cost
Transport mode Mainly truck and rail
Inventories
Lower levels, reflecting short-order, leadtime requirements and improved
transport capabilities
Agents
Modest usage, mostly in rail
Financial risk
Low
Cargo risk
Low
Government
agencies
Primarily for hazardous materials,
weight, safety laws, and some tariff
requirements
Administration
Minimal documentation involved (e.g.,
purchase order, bill of lading, invoice)
Communication
Voice, paper-based systems adequate,
with growing usage of electronic data
interchange and Internet
Relative homogeneity requires little
product modification
Cultural
differences
International
Estimated at 16% 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
International Market Entry Strategies
• Exporting
• Licensing
• Joint ventures
• Ownership
• Importing
• Countertrade
Major Participants in an International
Logistics Transaction
Domestic
bank
Domestic
seller
Domestic
government
agencies
Export
facilitators
Inland
transportation
carrier
Domestic
port or terminal
of exit
International
carrier
(air, water)
Foreign port
or terminal
of entry
Product
movement
Information
flow
Foreign
government
agencies
Foreign inland
transportation
carrier
Foreign
bank
Foreign
buyer
The Global Logistics Environment
Customer
service
Inventory
Logistics
executive
Warehousing
and storage
Packaging
Transportation
Competition
Other
activities
Responding to
Competition with Logistics
• Increasing the number of cross-national partnerships,
alliances, mergers, and/or acquisitions.
• Expansion of many previously domestic-based
organizations into international markets.
• Development of global communications networks
operating 24 hours a day.
• Establishment of country and regional warehouses in
major world markets.
• Identifying and developing relationships with logistics
service providers that offer transportation, storage,
materials handling, and other services on a global basis.
Exporting Companies
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Export distributor
Customs house broker
International freight forwarder
Trading company
Non-vessel-operating common
carrier (NVOCC)
Documentation
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Country of Origin
Bills of Lading
Packing Lists
Customs
Certified Shippers - C-T PAT
Free Trade Zones
• > 225 in the US
• postpone payment of customs or taxes until
item is sold
• avoid customs completely if consolidated
and re-exported
Ocean Shipping
• Types of Ocean Cargo
– Petroleum
– Dry-bulk cargoes-grain, ores, sulfur, sugar,
scrap iron, coal, lumber, logs in vessel loads
– Containers
• Shipping conferences and alliances pool
resources and extend market coverage
Ocean Shipping
• Types of Vessels
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–
–
–
–
Containerships
Lighter aboard ship (LASH) vessels
Roll On-Roll Off (RO-RO) vessels
Tankers
Specialized vessels
A RO-RO Vessel in Jacksonville Florida
International Trade Inventories
• May vary in small ways from country to
country—products may be tailored to fit
• Less is needed (than in U.S.) to serve any
one country
• Return items are impossible to
accommodate
• Import and export quotas affect value of
inventories
• Currency and language differences
CHAPTER 15
Organizing for
Effective Logistics
Traditional Logistics Management
CEO
VP Marketing
Responsibilities
•Sales service
•Channels of
distribution
•Product returns
and warranties
VP Production
•Manufacturing
•Purchasing/
procurement
•Traffic
•Warehousing
VP Financial
•Information systems
•Budgeting
•Inventory
•Data processing
Objectives
Large inventories
Small and frequent
production runs
Decentralized
warehousing
Large product
assortment
Low inventories
Larger and infrequent
production runs
Plant warehousing
Fewer products
Centralized
warehousing
Traditional Logistics Management cont.
CEO
VP Marketing
Responsibilities
Objectives
•Sales service
•Channels of
distribution
•Product returns
and warranties
Rapid order
processing
Generous returned
goods policies
Fast transportation
Expedited shipments
VP Production
•Manufacturing
•Purchasing/
procurement
•Traffic
•Warehousing
VP Financial
•Information systems
•Budgeting
•Inventory
•Data processing
Inexpensive order
processing
More rigid returned
goods policies
Low cost transportation
Control Exercised By Logistics
Executives Over Selected Logistics
Functions
Percent of Reporting Companies
Activities
1966
1976
1985
1990
1999
Transportation
89%
94%
97%
98%
90%
Warehousing
70
93
95
97
88
Inventory control
55
83
81
79
74
Order processing
43
76
67
61
55
8
70
37
48
39
15
58
44
51
41
Packaging
Purchasing and procurement
Organization Design for Logistics
as a Function
President
Engineering
Manufacturing
Human Resources
Marketing/Sales
Finance/Accounting
Logistics
Organization Design for Logistics
as a Program
President
Logistics
Engineering
Manufacturing
Human
Resources
Marketing/
Sales
Finance/
Accounting
Components of Corporate and
Logistics Mission Statements
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Targeted customers and markets
Principal products/services
Geographic domain
Core technologies
Components of Corporate and
Logistics Mission Statements (cont.)
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Survival, growth, and profitability
Company philosophy
Company self-concept
Firm’s desired public image
Ways of Improving Logistics
Organizational Effectiveness
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Strategic goal setting
Resource acquisition and utilization
Performance environment
Communication process
Leadership and decision making
Organizational adaptation and
innovation
Logistics/Supply Chain
Organization
A good organization structure does not by itself
produce good performance--just as a good
constitution does not guarantee great presidents,
or good laws, or a moral society. But a poor
organization structure makes good performance
impossible, no matter how good the individual
managers may be. To improve organization
structure…will therefore always improve
performance.
Peter F. Drucker
Activity Fragmentation
in the Supply Chain
Responsibilities
President
Marketing
•Distribution
channels
•Customer
service
•Field
inventories
•Revenue
CR (2004) Prentice Hall, Inc.
Finance
•Cost of capital
•ROI
•Inventory
carrying costs
Operations
•Supply
alternatives
and supply
costs
•Warehousing
•Purchasing
•Transportation
15-4
Activity Fragmentation
in the Supply Chain (Cont’d)
Objectives
President
Marketing
•More inventory
•Frequent &
short production
runs
•Fast order
processing
•Fast delivery
•Field
warehousing
CR (2004) Prentice Hall, Inc.
Finance
•Less inventory
Operations
•Long production runs
•Cheap order
processing
•Less
warehousing
•Lowest cost routing
•Plant warehousing
15-5
Activity Fragmentation
in the Supply Chain (Cont’d)
Reasons for fragmentation
•Lack of understanding of key cost tradeoffs
•Traditions and conventions
•Other areas considered to be more important to the firm than
logistics
•Organization structure can be in an evolutionary state
Benefits of fragmentation elimination
•Encourages important cost tradeoffs to be effected
•Focuses on an important, defined area by top management
•Sets the structure within which control can take place
Organizational Choices
•Informal structure
-Persuasion of top management
-Coordinating committees
-Incentive arrangements
-Profit sharing
-Cross charges
•Semi-formal structure
-Matrix organization
•Formal structure
-Line--creates value in products, therefore it has
operating status
-Staff--provides assistance to the line organization
Logistics Matrix Organization
President
Finance
Traffic
& warehousing
Inventory
management
Production
scheduling
Customer
service
Accounting
& information
processing
Quality
assurance
Sales
forecasitng
Logistics\SC
coordinator
CR (2004) Prentice Hall, Inc.
Production
Functional authority
Marketing
Purchasing
& materials
management
Project authority
15-8
What is Systems Analysis?
• Systems analysis refers to the orderly and
planned observation of one or more
segments in the logistics network or
supply chain to determine how well each
segment functions.
General Questions
• Why do we perform each task?
• What value is added by it?
• Why are the tasks performed in the order they
are?
• Can we alter the sequence of the processing
steps to increase efficiency?
• Why are the tasks performed by a particular
group or individual?
• Could others perform this task?
• Is there a better way for the system to operate?
Problems in Systems Analysis
• Multiple business functions are impacted.
• There are trade-offs among conflicting
objectives.
• Logistics system impacts are difficult to
precisely evaluate.
• There are business issues unique to each
logistics system.
Systems Integration: Logistics Activities
Outside the Firm
• Third-party, or contract, logistics
• Integrated service providers
• Monitoring third-party performance
Supply Chain Security
Supply Chain Security
A Global Perspective
Top 5 European Ports
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Rotterdam – 9.287 million TEUs in 2005
Hamburg – 9.088 million TEUs
Antwerp – 6.488 million TEUs
Bremen – 3.735 million TEUs
Giora Tauro – 3.161 million TEUs
• LA/Long Beach – 7.485 mil TEUs
Source: Logistics Today, Feb 07, p.1, 20
Other Key Ports
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Singapore – 23.2 million TEUs
Hong Kong – 22.602 million
Shanghai – 18.080 million
Shenzhen – 16.2 million
Pusan – 11.94 million
Rotterdam
• > 900 intermodal barge moves daily to 72
locations
• > 200 rail moves
• 220 million people within 600 miles of
Rotterdam
Rail
• > 15% of cargo to Germany via rail
• ~ 13% of Belgium cargo
• ~ 14 of French cargo
Other issues
• 9000 distribution centers in the Netherlands
• 2000 - $64.4 billion USD in logistics and
distribution in The Netherlands
Containers
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Cost to X-Ray containers
Manpower
Delays
Radiation
Why should you care about SC Security?
• Is it a US problem?
• Global Problem
• Heathrow Airport delays Superbowl
weekend 2005
• RFID – is this the solution?
• ISO Guidelines for SC Security
• Terrorism Insurance
Transportation Worker Identification Credentials
• Port Employees
• Long Shoremen
• Unescorted access personnel
HR 1
• Air Cargo Bill – phase in inspection of all
air cargo
• Sea Cargo – safe seal – shippers of >75K
TEUs to US have 3 years to comply
C-TPAT
• Security Freight Initiative
• Inspection of high risk containers @ >50
ports
Other issues
• theTruecosts.com – costs of piracy and
fakes
• Rotterdam – 19% of all European Volume
• Amsterdam – 440 million metric tonnes
• www.HIDC.com – Holland International
Distribution Council
Orlando International Airport
• No staffing of doors for employee entrance to
baggage claim areas
• Guns smuggled into planes by employees
• “no requirement for us to staff those doors” OIA
Spokesperson; TSA – “not my job!”
• Identified as security issues in 2004
• 2006 – ½ of TSA Screeners failed test that
measured how well employees could identify
explosives, guns and other weapons on the scanner
– but can identify bottles of mouthwash and
toothpaste
Source: Mike Thomas, Orlando Sentinel, Mar 15, 2007, p. B-1
Air Cargo World 2/07
• Bans on Russian Flights to Georgia
• Unfit Antonovs – on list published by the
International Civil Aviation Organization –
462 aircraft considered not air worthy
• Not a terror threat but still a SC Threat
• Mostly used throughout Africa
International BioTerrorism
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Peter Pan Peanut Butter – e coli – 2007
E-coli from fresh Spinach – 2006
Chi Chi’s e-coli – from green onions – 2003
Taco Bell – e coli 2005
None were terrorist attacks but impacted
supply chains
Supply Chain Security
And Homeland Defense
Supply Chain Security
“We have proved to our management
that good security is good
business.”
— Ann Lister of Texas Instruments
Agenda
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What is Supply Chain Security
How does it tie to Homeland Security?
Is it Important?
Is it a Problem?
Risk Assessment
Risk Management
Conclusions/Questions
Important?
• September 11, 2001 - $2 billion per
day lost
• Longshoremen Strike – 300-500 ships
backed up
• Potential loss of attack to major port $20 billion estimate
• 2008 estimate ~ 12 million containers
into US; up to 200 million containers
world wide
Problem?
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Terrorism
Obsolescence
Pilferage
Information Breach
Proprietary Data – Camera Phones; Thumb
Drives
Cyberspace Security
RFID Data Security
66% of Sealift Containers arrive at 20 Major
Ports
>58 % of all inbound containers come through
New York/New Jersey, Los Angeles, Long Beach
~44% through Los Angeles/Long Beach in 2003
Lengthening of Supply Chains – coupled with
Globalization
Recent Headlines
• “New Budget includes $10.2 Billion for
Border Security.”
• “Battling the Bad Guys: 2005 Was a
Tough Year” Dec 2005 Baseline
Magazine
• “Major Data Theft Leads to Major
Legal Problems” Baseline Magazine
• “Polo Ralph Lauren – Lost Point of
Sale Data”
• “No One Stop Shopping to Stop
Database Pilferages” E-Week, Dec 21,
2005
Recent Headlines
• GAO Report: “Container Security – Expansion of
Key Customs Programs Will Require Greater
Attention to Critical Success Factors”
• “Security and Risk Strategy Become Integrated”
– Top Trends for 2006, CIO Magazine, January
2006
• “Computer Security Becomes More Critical” CIO
Magazine, January 2006
• “Supply Chain and Security Remain in the
Forefront”
• “ISO Publishes Supply Chain Security
Guidelines” Plant Engineering Magazine, Sep 06
• New Budget Includes $10.2 Billion Increase for
Border Protection
Recent Headlines
• “Supply Chain Security Poses
Opportunities, Obstacles” EWeek, Sep 23, 2005
• “Supply Chain Risks Threaten the
World’s Biggest Companies”
Logistics Today – “Financial
executives at some of the world’s
biggest companies believe supply
chain risks post the top threat to
companies revenues.”
Risk Assessment
“If you do things the way you’ve
always done them, you’ll get the
same things you’ve always got.”
-Darrell Waltrip
This is not your Dad’s Supply Chain!
Security is an integral part of the
Supply Chain and Homeland Defense
Purpose of Risk Assessment
Identify those areas of the supply chain
that are vulnerable to interruptions of
support flow.
• People
• Processes
• Technologies
• External events
The identification and of hazards assessment of
hazards to determine risk to include the probability
and the resulting severity.
Risk Assessment
Supply Chains are inherently
complex, dynamic, and fluid,
characterized by uncertainty,
ambiguity, and friction. These
characteristics cloud the
operating environment: they
create risks
Risk Assessment
• Terrorism
• Port Security – ~ 12 million
containers annually
• Port Security – 300 US Ports
• Longshoremen Strike – 2002
• Potential Airport Attack – LAX;
MPS; LGA
Risk Assessment/Management
Steps
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Identify the hazards.
Assess hazards to determine risks.
Develop controls and make risk
decisions.
Implement controls.
Supervise and evaluate.
How do you identify your Supply
Chain Risks?
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You have to know your processes
Process maps
Understanding processes
Understanding where risks are
Internal Risks
External Risks
What are your Hazards?
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Theft
Pilferage
Competition
Information Systems
Cell Phones
Thumb Drives
Camera Phones
Disgruntled Employees
Lack of Training
Risk Management
“Risk management takes a new shape in
extended supply chain. Risk management
and the security of supply chains took on
a new emphasis after the attacks of
September 11, 2001 and the reactions
of the world to security. Included in this
heightened security awareness are
initiatives such as C-TPAT and
Homeland Security initiatives.”
- Logistics Today
Risk Management
• Identify the hazards.
• Assess hazards to determine
risks.
• Develop controls and make risk
decisions.
• Implement controls.
• Supervise and evaluate.
Risk Management
• Conserving resources while
avoiding unnecessary risk
• Deciding on the approval of an
alternative
• Identifying feasible and effective
control measures where specific
standards do not exist
What is a Catastrophic Risk?
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Inaccurate receipts?
Customer Satisfaction?
Sloppy Warehousing?
National Emergency?
Hurricane?
Or, Only when it makes it to
CNN?
Risk Management Programs
• Mitigate Risk
• Eliminate Risk
• Consequences of Risk or
Mitigation – probability and
severity
• Courses of Action Analysis –
Feasible, Suitable, Acceptable?
• Manage Risk not react to Risk!
New Problem?
• “There were no ‘secure’ rear
areas.”
General Joseph Heiser on
Vietnam Logistics
• Sun Tzu – Chapter 1, The Art of
War
Supply Chain Security
• Supply Chain Security must protect
the path from the supplier to the
customer.
• End to End Security
• End to End Visibility – RFID
• Information Security
• Personal Daily Obligation
• Operational Security
• Security and Velocity
Final Thought
With an estimated 12 million cargo containers
coming into the United States, coupled with
an increase in the amount of jobs taken off shore;
The resultant increase in imports and
an ever changing terrorist enemy:
Supply chain security is extremely important
to Homeland Defense!
Supply Chain Security
“If master small things,
Anything becomes possible”
- Mr. Miyagi
“The Next Karate Kid”
Questions??