Global Operations & Logistics Framework

Geographical Integration

Sectorial Integration

Functional Integration

Geographical Integration
Impact of Distribution and Transportation greater due to Globalilty Borders becoming more porous in terms of trade Production on global scale --- no longer country-specific International Sourcing Selling in Multiple Markets Data Processing and Communication technology help with the geographical integration.

Functional Integration
Logistics - cross-functional in nature. Cuts across activities and creates interfaces to optimize overall performance. Flow management in Global Logistics difficult Internationalized Markets Competitive products in the Market Adaptation of new technology Government Regulations

Sectorial Integration

Companies are handling logistics issues together beyond corporate boundaries. Efficient Consumer Response (ECR)

Collaborate

Manufacturer

Distributor Final aim to reach customer

Consumer

Freight Forwarders
Freight providers have the earliest instance of hub and spoke systems Tenders for freight services made worldwide Development of Intermodal freight provision Mergers between freight providers -- e.g. Airplane companies Globalization brings up several issues in order to satisfy proximity service
Use of manufacturers sales network

Setting up Proximity Distribution Centers (PDC) Developing central hub for express services and dispatch orders Setting up inventory of class A products with storage operator, distributor or agent

International Trading Operators

International Freight Forwarders Nonvessel-operating Common Carriers (NVOCC) Customs House Brokers Export Management companies Export Trading Companies Shippers Associations Export Packers

Dynamic Forces of Global Logistics

The firms adopt different orientations with varying intensities due to the dynamic behavior of the global business environment.

RESOURCES

Global Logistics Orientation

Resource Oriented Logistics Emphasis towards optimal use of resources -- capital, materials and people Focuses on the relationship between the functional and the geographical
Optimize

Functional

Geographical Resources

Global Logistics Orientation

Information Oriented Logistics Emphasis towards optimal use of information. Focuses on the relationship between the sectorial and the geographical dimensions
Geographical Sectorial

Optimal Performance

Global Logistics Orientation

User Oriented Logistics Emphasis on the final customer. Using all the supply chain partners to bring their expertise in order to best service the customer User oriented focus brings about flexibility in the logistics channel

Customer

Factors Pushing Global Logistics

Technological Advances

Emergence of Global Markets

Political & Macroeconomic factors

Global Cost Forces

Factors Pushing Global Logistics

Global Markets
Competition from foreign firms in local markets. Incredible growth of demand in foreign markets. Global presence used as competitive threat. Change of priorities Global markets growing faster due to technological advances Products need to be introduced in all markets together. State of the Art markets driven by customer preferences Firms have to set up production in these areas to maintain their competitive profiles. E.g. Japan - M/c tools

Factors Pushing Global Logistics

Improvements in Technology
Communication faster, easier and cheaper. Markets characterized by fewer producers and greater diversity in products Shorter product life cycles Technology advancement become global phenomenon Firms have to start looking at international sources to tap technological services Global competition forcing companies to locate more R&D and production units closer to the suppliers. Joint ventures between firms to share technological info.

Factors Pushing Global Logistics

Global Costs Forces -- Shift in Logistics costs

Shift in focus from direct labor costs Global environment forcing companies to consider a trade off between labor costs, cost of start-up, fluctuation of currency, inventory costs, cost of quality management and training the local workers leading to island hopping strategy. New Competitive priorities like speed, quality,customization, delivery reliability. Production facilities are becoming more capital intensive high technology industries R & D costs

Factors Pushing Global Logistics

Political and Macroeconomic factors

Exchange rate fluctuations Regional trade agreements --- NAFTA Trade protection mechanisms Tariff and non-tariff barriers Technical Standards Health regulations Procurement policies

How is Global Logistics creating Change?

The management has to consider the Global economy Service in the Industry becoming more important than Cost Saving Logistics operations perceived more as Service Provider for cost minimization

Logistics activities no longer limited to moving products through the Supply Chain but as an Information Provider for the SC. Companies moving away from Vertical Integration and towards Supply Chain Integration, with Logistics activities provided externally.

New concepts in Global Logistics

Delocalization - practice of adding value to the product at different locations closer to the consumer. Modularization - practice of assembling a product using modules purchased from different sources Delayed Differentiation & postponement - Customization of the order after demand has been identified

e.g: Labeling the products in the language of the countries that they have to be shipped to

Benefits due to Globalization of Logistics

Globalization is necessary for long-term survival

Diversity of markets increasing giving rise to Standardization across international markets Product diversity Ability to access multiple sources of technology

Ability to set up strategic alliances and R & D

Global Supply Chain HP Example

HP DESKJET PRINTER SUPPLY CHAIN:

Printers made in Vancouver in two stages Printed Circuit Assembly & Test (PCAT) Final Assembly & Testing (FAT) Components needed for PCAT & FAT taken from suppliers worldwide & from HP divisions Printer power supplies custom made for each country with manuals written in that language packed From Vancouver sent to Distribution Centers worldwide

Global Supply Chain HP Example

IC MANUF.

PRINTED CIRCUIT ASSM. & TEST

VANCOUVER

FINAL TEST & ASSM.

VANCOUVER

CUSTOMER PRINT MECH. MANUF.

SUPPLIERS SUPPLIER ACCESSORIES

DISTRIBUTION CENTRES

WORLDWIDE

WORLDWIDE

Logistics Flows
Direct Flow From companies to markets

Reverse Flow From markets to companies

Strategy for Global Logistics

Consolidation points
VIETNAM

IMPORT

MALAYSIA JAPAN CHINA

USA/EUROPE
TAIWAN

MAKE-BULK OPERATION

Break bulk Capacity issues - whether to add processing capability or not

VIETNAM

USA/ EUROPE

MALAYSIA

EXPORT

TAIWAN

JAPAN CHINA

BREAK-BULK OPERATION

Postponement

Productized logistics execution solution

Fast implementation Extremely high price / value Win high market share

Synchronize logistics in our core vertical markets

Expand deep industry knowledge Integrate industry content databases Architect for continuous upgradeability

Expand compliance guarantee to all supply chain requirements Guaranteed compliance with top 100 retailers Develop additional high value, informationintensive supply chain solutions

Integrated Logistics is the fusion of information, logistics and transportation technologies to provide rapid response to track and shift assets even while in reroute, and to deliver tailored logistics packages and sustainment directly at the strategic, operational and tactical level of operation Logistics functions will incorporate information technologies and will work jointly and integrate with other sectors to take advantage of advanced business practices, knowledge economy, and global networks Information technologies will enhance aircraft, sea liners, and pre-positioning capabilities to lighten deployment loads

Integrated Logistics Services

Third Party Logistics Provider

Services provided are both physical and management. Service levels improve due to improvement in flexibility and inventory management

Cost reduced as compared to in-house logistics provider

In global logistics, versatile markets and products need expert services which can be provided by several 3PL

Third Party Logistics Provider

Use of 3PL allows the firm to penetrate new markets . Access new technologies Reduce inherent financial investment risks Risks of using 3PL The same 3PL might be providing services for competing firms Manufacturer with a good image in the market might get tied down and their image linked with the 3PL

Emergence of Fourth Party Logistics Providers

Globality and Supply Chain Integration are increasing the functions of Logistics providers. This has lead to the emergence of consulting firms as fourth party logistics providers
3PL have a larger, more efficient network of transportation & networking, but the 4PL have optimal combination of warehouse capabilities, transportation services and technology Consultants as 4PLs are used to review bids made by 3PLs, and to align the business processes with the supply chain -- especially critical in case of Global Logistics. 4PLs have the advantage of being in sync with the rapid, enormous changes in Information Technology.

Development & Role of 4PL

Client Client Client 3PL

Greater Functional Integration Broader Operational Autonomy

Business Process Management

4PL 1990s-2000

4PL

IT Service Providers
3PL

Outsourcing 1980s-1990s

Client

Insourcing 1970s-1980s

Client

Internal Logistics Operations

Source: Andersen Consulting http://www.ac.com/services/scm/scm_who_4pl_paper2_b.html

Performance Criteria in Global Logistics Looking beyond Financial indicators

Cost

Initial Cost Lifecycle Cost

Quality

Design Quality Conformance to set production standards

Performance Criteria in Global Logistics

Service Delivery Speed Delivery Reliability Flexibility New-Product Flexibility-- Ability to introduce a new product fast Customization --- highly segmented markets Product Mix Flexibility --- adjust production mix for demand fluctuations Product Ramp-up Flexibility -- expansion to mass production for uncertain markets

International Freight Forwarders

Buy space wholesale and sell it retail International Freight Forwarders handle more functions than the domestic freight forwarders: Serve as consultant in export matters Advise on acceptance of letters of credit. Booking space on carriers -- Most of the movement is done via vessel or air. Arrange for insurance Prepare documents like export declarations and consular documents Prepare Bill of Lading -- Forwarders experience needed

Other International Trading Operators

NOVCCs Perform most but not all of the functions of an international freight forwarder. Specific functionality is trade agreements with carriers NOVCCs affiliate with forwarders to offer the entire range of services
Customs House Brokers Take care of paperwork and movement of goods through customs

Export Management Companies Provides the US firm with information about the overseas buyer Advises the US supplier on requirements of the foreign market in issues like foreign labeling and other specialized functions

Other International Trading Operators

Export Trading Companies Attempt to combine all facets of international business Used extensively by the Japanese Shippers Associations Trade groups representing shippers of similar cargo that bargain with ocean steamship conferences as a single entity Export Packers Expertise is specifically in packaging for the exporter. To allow goods to move through customs easily. E.g taking into consideration weight restrictions etc To prevent the decay/damage of products.

Nature of the Product

Value-add

Product processing Services Technical Support Inventory Management Financial Commodities vs. specialty items Delivery Speed Dependability Flexibility

Pricing
FOB

pricing

FOB factory - customer picks up freight

HIGH PRICE LARGE VOLUME ITEMS

FOB destination - seller picks up freight

LOWER PRICE HIGH VOLUME ITEMS

Title exchange implications insurance obsolescence

Pricing
Zoning
ZONE 1 ZONE 2

DISTANCE AND NUMBER OF CUSTOMERS IMPACTS COST OF DELIVERY

Quantity discounts

Legal implications - must prove price difference is justified by lowered logistical costs to deflect discrimination charges from small buyers