MKTG Discussion Questions

2-4

Chapter 2 International Supply Chain Management

2-3

Chapter 2 International Supply Chain Management

Chapter 2

International Supply Chain Management

lEARNING oBJECTIVES

At the end of this chapter, YOU SHOULD:

Have a basic idea of the recent historical developments in the practice of logistics.

Know the basic definitions of logistics and international logistics.

Know the basic components of international logistics.

Recognize the economic impact of international logistics activities.

Understand the processes of reverse logistics.

Preview

This chapter lays the foundation of the importance of international logistics in the context of supply chain management. It demonstrates its history, basic definitions and components, and its economic impact. The chapter lists later chapters of the text where expansions on these various topics occur. Also important to understand is the wide scope of logistics functions, since many of them will be addressed throughout the course.

chapter outline

2-1 Historical Development of International Logistics

I. The term “logistics” is based on the physical movement of goods

II. The modern interpretation of the term “logistics” has its origins in the military

III. Business logistics include all the activities related to the physical movement of goods (upstream and downstream) and related paperwork

2-1-1 The Early, “slow” days

I. Very early international logisticians were traders who bought and sold goods internationally (Silk Road, for example)

II. As trade expanded, international logistics grew

III. In the early days, international logisticians were concerned about making sure that the goods arrived in good condition and at the lowest possible cost

2-1-2 The Move toward speed

I. The advent of containers in ocean trades (mostly 1960s and 1970s) lowered transit times substantially

II. International air shipments became an increasing percentage of all shipments in the 1980s:

a. the number of destinations served by airlines grew

b. air shipments became increasingly cost competitive with surface alternatives

2-1-3 The Emphasis on Customer Satisfaction

I. In the 1980s, with very high interest rates, companies shifted their emphasis to inventory reductions

II. International logisticians became ever more focused on transit times in order to minimize inventory costs, raising the expectations of customers

III. Fast delivery times facilitated the adoption of different inventory management techniques: Just-In-Time, MRP and MRP II

2-1-4 The transformation into a strategic Advantage

I. In the 1990s, integration of logistics into supply chain management

II. A differential advantage is sought by providing better service, better delivery terms, providing greater flexibility

III. Sustainability efforts become more common, especially in Western Europe and Asia, later in North America

2-2 Logistics and Supply Chain Management

2-2-1 LOGISTICS

Logistics is the same as the (previous) CLM definition:

“Logistics is that part of the supply chain 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' requirements.”

2-2-2 Supply chain management

Supply Chain Management is defined in the same way as the CSCMP definition:

“Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. ”

Comparison of the “Inclusionist,” “Evolutionist,” and “Intersectionist” viewpoints yields a preference for “inclusionist” (see Figure 2-5)

Battaglia’s Evolution of Logistics and SCM over time (see Figure 2-4)

2-2-3 International logistics

“The process of planning, implementing and controlling the flow and storage of goods, services and related information from a point of origin to a point of consumption located in a different country.”

2-2-4 international Supply chain management

Supply Chain Management is inherently global, with firms buying from foreign suppliers or selling to foreign customers, but domestic logistics activities and international logistics activities are distinct and managed differently.

2-3 Elements of International Logistics

I. The environment in which international logisticians operate is quite different from the domestic environment

II. The decisions regarding international transportation are eminently more complicated:

a. International insurance is much more complex

b. International means of payment are more involved

c. Terms of trade are much more complicated

d. The crossing of borders represents specific challenges

e. Inventory is managed differently

III. The number of intermediaries involved is greater

IV. The inherent risks and hazards of international transportation are much more significant.

2-4 The Economic Importance of Logistics

2-4-1 lOGISTICS IN THE United StATES

I. Logistics consumes a substantial portion of the United States Gross Domestic Product.

II. American businesses have spent about US$ 1.4 trillion on domestic logistical activities.

III. The percentage of the U. S. GDP has been decreasing.

a. 16.2% in 1982.

b. 8.5% in 2004.

c. 10.1% in 2007, due to rising energy costs.

d. but 8.5% again in 2011.

IV. There has been a development of increasing logistics efficiencies.

a. Just-in-Time inventory management

b. Manufacturing Resources Planning and other methods have reduced inventories.

V. More efficient transportation.

a. Containerization

b. Deregulation of U.S. transportation industry

2-4-2 lOGISTICS IN THE WORLD

I. Costs of logistics activities vary by region.

II. Logistics costs amounted to 20 percent of the Chinese GDP in 2000, and they had only decreased to 18.3 percent in 2006.

III. Overall, logistics costs are approximately 10.4 percent of worldwide GDP.

2-4-3 INTERNATIONAL lOGISTICS

I. Difficult to estimate total value of international logistics.

II. Probably 15% of total international trade volume or about US$ 2.7 trillion.

III. Value of monies collected through tariffs probably results in US$ 1 trillion in revenues to the world’s governments.

2-5 International Reverse Logistics

I. Goods returned to the manufacturer for warranty work, because they are “used up,” because they are defective, ...etc.

II. Some companies see reverse logistics as a cost saver, and/or a strategic advantage.

III. Several countries mandate reverse logistics activities.

Key terms

Container

A large metallic box used in international trade that can be loaded directly onto a truck, a railroad car or an ocean-going vessel. The most common dimensions of a container are 8x8.5x20 feet and 8x8x40 feet, with some 45-footers, some high-cube (9.5 feet high) and some 10-footers (shorts).

longshoreman

A person who performs manual labor in a port.

stevedore

A person who loads and unloads goods from a vessel in a port.

Distribution Resources Planning (DRP)

A computer-based management tool that allows a retail firm to determine what to order from its suppliers in function of what it sells to retail customers. Such information is shared with the suppliers, so that they know, in turn, what to manufacture, and in which quantity.

Just-In-Time

A management philosophy that consists of planning the manufacturing of goods in such a way that they are produced just before they are needed in the next step of the assembly process, in order to minimize the amount of inventory that a firm carries. The philosophy extends to supply parts, that need to be delivered just before they are used in the assembly process as well.

International Logistics

International logistics is the process of planning, implementing, and controlling the flow and storage of goods, services, and related information from a point of origin to a point of consumption located in a different country.

International Supply Chain Management

Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers, whether they are located in the United States or abroad. In essence, Supply Chain Management integrates supply and demand management within and across companies.

Logistics

Logistics is that part of the supply chain 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' requirements

Manufacturing Resource Planning (MRP II)

A computer-based management tool that uses MRP at its core, and that allows a manufacturing firm to determine what to manufacture, and in which quantity, in function of what it sells to its customers. MRP II also includes financial and cost information and includes other functions in the firm, such as procurement and purchasing.

Materials Requirement Planning

A computer-based management tool that allows a manufacturing firm to determine what to produce, and in which quantity, in function of what it sells to its customers. Such information is shared with the suppliers, so that they know, in turn, what to manufacture, and in which quantity.

Reverse Logistics

The management of the logistical activities involved in the return of a product (or parts of it, including the packaging) to a manufacturer.

Supply Chain Management

Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.

PowerPoint SLIDES – STUDY THEM – PRINT THEM OUT !

· Historical Development of International Logistics (8 slides)

· Logistics, Supply Chain Management, International Logistics, and International Supply Chain Management (5 slides)

· Elements of International Logistics (2 slides)

· The Economic Importance of Logistics (2 slides)

· Reverse Logistics (2 slides)

Additional Resources

Three remarkable sources on the evolution of the container were published on the occasion of its fiftieth anniversary:

Levinson, Marc, The box; how the shipping container made the world smaller and the world economy bigger, Princeton University Press, Princeton, New Jersey, 2006

Cudahy, Brian J., Box boats: how containerships changed the world, Fordham University Press, New York, New York, 2006

Donovan, Arthur, and Joseph Bonney, “The box that changed the world,” The Journal of Commerce - Commonwealth Business Media, New York, New York, 2006

Rosalyn Wilson’s report on the state of the industry:

Wilson, Rosalyn, 24th Annual State of Logistics Report: Is This The New Normal, Council of Supply Chain Management Professionals, June 19, 2013, http://cscmp.org/member-benefits/state-of-logistics.

and the website of the Council of Supply Chain Management Professionals:

http://www.cscmp.org