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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
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
•
•
•
•
•
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
• May actually increase inventory in total
pipeline
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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•
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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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•
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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
Tools to improve organization
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
Reverse Logistics
What Drives Reverse Logistics and Returns?
Wal-Mart Costs = up to 7-8% of costs of goods!
SCOR and Returns
Plan
Plan
Deliver
Return
Plan
Source
Make
Return
Plan
Deliver
Return
Source
Source
Make
Deliver
Return
Suppliers’
suppliers
Return
Deliver
Return
Source
Return
Customer
Supplier
Internal or External
Make
Plan
Return
Your Company
Internal or External
Customers’
customers
Processes associated with receiving returned products for any reason.
These processes extend into post-delivery customer support.
The process includes communication between the customer and last
known holder or known return center and the generation of associated documentation.
Impacts of Reverse Logistics
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Forecasting
Carrying costs
Processing costs
Warehousing
Distribution
Transportation
Personnel
Marketing
Reverse Logistics - What is it?
The Commercial Perspective
Reverse Logistics is the process of moving
products from their typical final
destination to another point, for the
purpose of capturing value otherwise
unavailable, or for the proper disposal of
the products.
Typical Reverse Logistics Activities
• Processing returned merchandise damaged, seasonal, restock, salvage,
recall, or excess inventory
• Recycling packaging materials/containers
• Reconditioning, refurbishing,
remanufacturing
• Disposition of obsolete stuff
• Hazmat recovery
Reverse Logistics - New Problem?
•
•
•
•
Sherman
Montgomery Ward’s - 1894
Recycling/remanufacturing in 1940s
World War II - 77,000,000 square feet of
storage across Europe with over $6.3
billion in excess stuff
• Salvage and reuse of clothing and shoes
in the Pacific Theater World War II
Costs - above the cost of the item
– Merchandise credits to the customers.
– The transportation costs of moving the items
from the retail stores to the central returns
distribution center.
– The repackaging of the serviceable items for
resale.
– The cost of warehousing the items awaiting
disposition.
– The cost of disposing of items that are
unserviceable, damaged, or obsolete.
Costs
• Process inbound shipment at a
major distribution center = 1.1 days
• Process inbound return shipment =
8.5 days
• Cost of lost sales
• Wal-Mart: Christmas 2003 - returns
= 4 Days of Supply for all of WalMart = 2000 Containers
• PalmOne - 25% return rate on PDAs
Is it a problem?
• Estimate of 2004 holiday returns: $13.2 billion
• % of estimated 2004/2005 holiday returns: 25%
• Wal-Mart: $6 Billion in annual returns = 17,000 truck
loads (>46 trucks a day)
• Electronics: $10 Billion annually in returns
• Personal Computers: $1.5 Billion annually =
approximately $95 per PC sold
• 79% of returned PCs have no defects
Returns: an Operations Perspective
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Emerging industry in infancy stage
Many skill sets involved, deep knowledge of some skills
Person on Warehouse floor –needs tools
No Schooling for Reverse Logistics
No rules or standards
No methods
Few Best Practices
Few comparisons
• How do we know WHAT we should be doing?
• How do we know HOW WELL we are doing?
• Where are the opportunities to improve PROFITS?
Some Key Operational Challenges Operations people face:
1.
2.
3.
So many people, from so many departments, at so many
locations, from different companies, needed to process
one return
For the group managers, returns is a small, annoying part
of their group – Most of a Return is someone else’s
problem /fault
Turn Around Time is often very slow and difficulties
often arise that add days to the processing of a Return
Key Operational Challenges - 2
4.
5.
6.
7.
8.
Difficulties arise with process Hand-offs between groups,
Outsourced providers and multiple data systems – staff
is continually reconciling
Collect little data about a Returned unit; it often has
errors, so it may get handled incorrectly or we have to
believe what the customer tells us
Often time consuming or difficult to track down the
status of a unit
Stressful work environment due to frequent issues that
need to be resolved ASAP
Senior staff spend considerable time solving processing
problems or escalated issues
Best Practices
• All Returns under control of ONE GROUP
• Very Defined Business Processes
• Process Mapping – author of text found that
companies that develop process maps saved up
to 40%
• Map all processes and add timelines
• Automate processes where possible
Why are the number of returns increasing?
Cell Phone Returns
• Nearly 75% of returned phones are determined to have
“No Trouble Found”
•63% of returned phones are resold “as is”
•More than 16 hours of use and phone is no longer “new”
•High returns rate impacts Original Equipment
Manufacturers for products under warranty
•Resold phones are used as scrap or warranty replacements
•California legislation – requires retailers to establish system
for collection, for reuse, recycling or disposal at no cost to
the consumer
Source: DHL Presentation to Reverse Logistics Association, Feb 2007
Source: DHL Presentation to Reverse Logistics Association, Feb 2007
NASA Reverse Logistics
Returns Impact All Operational Facets
Marketing
Product
Logistics
Development
Production
Purchasing
Finance
Product Returns
Processes – all different Groups
Authorize, Receive, Ship, Credit,
Inventory, Inspect, Test, Repair, Disposition
Multiple Locations
Outsourced Parties
Each with - their own processes
- their own priority
Supply Chain Integrity
• What is it?
• Why is it important? Because there is no
way to do the wrong thing in the right way!
Supply Chain Integrity
•
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Perfect Order Fulfillment
Information Security
Parts integrity – Boeing 787
Product integrity – Mattel
Shipping Integrity
Inventory Integrity
Peanut Corporation of America
Cornerstone of supply chain leadership
Questions??
Summary
• Global Logistics – controllable and
uncontrollable factors
• Impacts on global inventories
• Traditional vs. Non-traditional
organizations
• Functional vs. Program design
• Reverse Logistics – impacts, causes, best
practices
• Supply Chain Integrity