chapter 4 managing logistics internationally. framework management of international logistics...

Chapter 4

Managing logistics

internationally

Framework

Management of international logistics

Commoditized transportationInformation and communication technology

Enablers

Network designRisk managementGovernance

Activities

Factor costsEconomies of scale

Local responsiveness/Time to marketInventory and handling costsTransportation breakdownsGeopolitical threats (war, terror)Drivers

Risks

Content

Drivers and logistics implications of internationalization

The tendency towards internationalization

The challenge of international logistics and location

Organizing for international logistics

Managing for risk readiness


• Key issue

1111What are the trade-offs between responsiveness to local markets and economies of scale?

• Increase Market ShareIncrease Market Share– domestic market may lack the size to support domestic market may lack the size to support

efficient scale manufacturing facilitiesefficient scale manufacturing facilities

• Return on InvestmentReturn on Investment• large investment projects may require global large investment projects may require global

markets to justify the capital outlaysmarkets to justify the capital outlays• weak patent protection in some countries weak patent protection in some countries

implies that firms should expand overseas implies that firms should expand overseas rapidly in order to preempt imitatorsrapidly in order to preempt imitators


Motivations for International ExpansionMotivations for International Expansion


Motivations for International ExpansionMotivations for International Expansion• Economies of Scale or LearningEconomies of Scale or Learning

– expanding size or scope of markets helps to expanding size or scope of markets helps to achieve economies of scale in manufacturing as achieve economies of scale in manufacturing as well as marketing, R & D or distributionwell as marketing, R & D or distribution

– can spread costs over a larger sales’ basecan spread costs over a larger sales’ base– increase profit per unitincrease profit per unit

• Location AdvantagesLocation Advantages– low cost markets may aid in developing low cost markets may aid in developing

competitive advantagecompetitive advantage– may achieve better access to:may achieve better access to:

• Raw materialsRaw materials• Lower cost laborLower cost labor

• Key customersKey customers• EnergyEnergy


Need for Local ResponsivenessNeed for Local Responsiveness

Nee

d f

or G

lob

al I

nte

grat

ion

Nee

d f

or G

lob

al I

nte

grat

ion

LowLow

HighHigh

LowLow HighHigh

GlobalGlobalstrategystrategy

TransnationalTransnationalstrategystrategy

MultidomesticMultidomesticstrategystrategy

International Corporate-Level Strategy


MultidomesticMultidomesticstrategystrategy

• Strategy and operating decisions are Strategy and operating decisions are decentralized to strategic business units (SBU) decentralized to strategic business units (SBU) in each countryin each country

• Products and services are tailored to local Products and services are tailored to local marketsmarkets

• Business units in one country are independent Business units in one country are independent of each other of each other

• Assumes markets differ by country or regionsAssumes markets differ by country or regions• Focus on competition in each marketFocus on competition in each market• Prominent strategy among European firms Prominent strategy among European firms

due to broad variety of cultures and markets due to broad variety of cultures and markets in Europein Europe

Logistical network: Mainly national; Sourcing, storage and shipping on a national level and duplicated by country


GlobalGlobalstrategystrategy

• Products are standardized across national Products are standardized across national marketsmarkets

• Decisions regarding business-level strategies Decisions regarding business-level strategies are centralized in the home officeare centralized in the home office

• Strategic business units (SBU) are assumed to Strategic business units (SBU) are assumed to be interdependentbe interdependent

• Emphasizes economies of scaleEmphasizes economies of scale• Often lacks responsiveness to local marketsOften lacks responsiveness to local markets• Requires resource sharing and coordination Requires resource sharing and coordination

across borders (which also makes it difficult across borders (which also makes it difficult to manage)to manage)

Logistical network: Limited number of production locations that ship to markets around the globe through a highly internationalized network with limited localized warehouse and resources.


TransnationalTransnationalstrategystrategy

• Seeks to achieve both global efficiency and Seeks to achieve both global efficiency and local responsivenesslocal responsiveness

• Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirementsrequirements strong central control and coordination to strong central control and coordination to

achieve efficiency achieve efficiency decentralization to achieve local market decentralization to achieve local market

responsivenessresponsiveness• Must pursue organizational learning to Must pursue organizational learning to

achieve competitive advantageachieve competitive advantage

Balanced local sourcing and shipping (e.g. for customized products and local specialties) and global sourcing and shipping (for example for commodities).


The International Supply Chain

PhysicalDistributionManagement

Transportation

CorporationSuppliers Customers

Domestic/ImportSourcing

Domestic/ExportDistribution

ThroughflowInboundMaterials

OutboundMaterials

Forward and Reverse Flow of Information, Products, and Funds

PhysicalDistributionManagement

Transportation

Transportation

OrderProcessing

OrderProcessing

OrderProcessing

OrderPlacement

InventoryManagement

MaterialsManagement

CustomerService

Storage StorageStorage InventoryManagement

InventoryManagement

Costumer-FirmInterface

Supplier-FirmInterface

Transportation


TransportTransport

InventoryInventory

HandlingHandling

Internationalization


Scale economicsScale economics

Global consolidationGlobal consolidation

Sourcing of Sourcing of commodity items commodity items from low-wage from low-wage

economieseconomies

Concentration at Concentration at specific sitesspecific sites Bulk transportationBulk transportation


External risksLanguage and culture uncertaintyPolitical risksMacroeconomic risks

Risks in international

logistics

Internal risksSupply optionsInventory policyTransportation and distribution arrangements

Case study

• The Deskjet-plus is one of several The Deskjet-plus is one of several printers manufactured by the printers manufactured by the Vancouver Division of HP.Vancouver Division of HP.

Case study

Stage 2: final assembly and test (FAT), performed at factory

•Application-specific integrated circuits•Read-only memory•Raw logic board

•Motors•Flex cables•Key pad board•Plastic mechanics•Plastic-skin•Carriage motor•Plastic-gears

North America DC

Logic board

Head driver board

Raw head driver board

Stage 1: printed circuit board assembly and test (PCAT), performed at factory

Europe DC

Asia Pacific DC

Va

ncouve

r plan

t

shipment to different DCs

Factory-localizationFactory-localization

Case study

Delivery of incoming Delivery of incoming materials (late shipments, materials (late shipments, wrong parts, and so forth)wrong parts, and so forth)

Internal process (process Internal process (process yields and machine yields and machine downtimes)downtimes)

DemandDemand

Delays in replenishing Delays in replenishing stocks at the DCsstocks at the DCs

Inventory buildup or Inventory buildup or backorders at the DCsbackorders at the DCs

• Three major sources of uncertainty can Three major sources of uncertainty can affect HP’s supply chain:affect HP’s supply chain:

Case study

• Under ‘factory-localization’, HP ships Under ‘factory-localization’, HP ships different versions of the Deskjet-Plus to different versions of the Deskjet-Plus to two non-US DCs by sea, with a transit two non-US DCs by sea, with a transit time of about a month.time of about a month.

• This long lead time limits DC’s ability to This long lead time limits DC’s ability to respond to fluctuations in the demand respond to fluctuations in the demand for different versions of the product.for different versions of the product.

• To ensure prompt service for the To ensure prompt service for the customers, European and Far East DCs customers, European and Far East DCs have to maintain high levels of safety have to maintain high levels of safety stocks. stocks.

Content







• Key issue

1111How can we picture the trade-offs between costs, inventories and lead times in international logistics?


• Focused market Vs. focused factoryFocused market Vs. focused factory


CostCost Lead timeLead time

AdvantagesLower production Lower production costs through costs through economies of scaleeconomies of scale

Specialized Specialized equipment may be equipment may be able to manufacture able to manufacture quickerquicker

Disadvantages Higher transport Higher transport costcost

Longer distance Longer distance from market will from market will increase lead timeincrease lead time

The advantages and disadvantages of focused factoryThe advantages and disadvantages of focused factory


• Centralized inventoryCentralized inventory

Distribution costsmost important

Inventory costsmost important

Local inventories

Centralized inventories

Shorter delivery

time

Longer delivery

time

Lower demand volatility

Greater demand volatility


• Centralized inventoryCentralized inventory

C

B

A

Factory/Vendor

Regional distribution

centers

Local trans-shipment

point

Lea

d tim

e

Invento

ry leve

l

Slowest-moving lines, least predictable.

Inventory of medium velocity, less predictable demand line.

Direct shipment of fast-moving, predictable lines.

Case study

1

2

3

Improve process yields, and to reduce machine downtimes at the plant.

Reduce shipment lead time between manufacturing and distribution, for example, shipping by air.

Localization at DCs

Improving the forecast accuracy of product-mix demands is very difficult.

Quick shipment is costly.

Factory

DCs

manufacture and ship a generic Deskjet-plus printer without the power supply module and manual

localize the generic product to different specific options as needed

DC-localizationDC-localization

Case study

Stage 2: final assembly and test (FAT), performed at factory

•Application-specific integrated circuits•Read-only memory•Raw logic board

•Motors•Flex cables•Key pad board•Plastic mechanics•Plastic-skin•Carriage motor•Plastic-gears

US version

•US version•European versions•Far East versions

Localization materials

Logic board

Head driver board

Unlocalized printer

Localization materials

Raw head driver board

Stage 1: printed circuit board assembly and test (PCAT), performed at factory

performed either at factory or at DC

Case study

Factory-Factory-localizationlocalization

DC-DC-localizationlocalization

Far East DCFar East DCPrinters 13.4 9.8

Localization materials 0 11.0

European DCEuropean DCPrinters 5.2 3.5

Localization materials 0 5.2

US DCUS DCPrinters 3.2 3.2

Localization materials 0 0

FactoryFactoryPrinters 2.8 2.8

Localization materials 3.9 0

Inventory levels at all sites of Deskjet-plus printer’s supply chain

Content







• Key issues

1111What are the risks in international logistics in terms of time and inventory?

2222How can the risks be addressed?


The complexity of international

logistics

Multiple consolidation and

break points

Extended lead time

Extended and unreliable transit

times

Multiple freight modes and cost

options


Domestic logistics

International logistics

10

30

20

30 customersupplier

Plant transit DC transit

Inventory in supply chain=90 units

20

20

20

30 customersupplier

Plant Transit Origin forwarder

Ocean transit

Inventory in supply chain=170 units

10

30

20

20

Destination forwarder

transit DC transit


Activity: Multiple freight modes and cost options

Freight modeFreight mode Industry Cost Speed Availability

Air O O O O

Sea O O O O

Rail O O O O

Road O O O O


Location analysis

Phase

Strategic decision to restructure

and invest in plant network

Project planSpecification

of project plan

Implementation of plan

Geographical scope

Continent(e.g. Asia, Europe)

3 to 4 countries

Regions within

selected countries

Location within regions

Selected location


• Four-phase decision making processFour-phase decision making process1.1. Deciding upon the appropriate level of Deciding upon the appropriate level of

centralization-decentralizationcentralization-decentralization

2.2. Selecting relevant location criteriaSelecting relevant location criteria• The availability of physical infrastructureThe availability of physical infrastructure• The availability of warehouse sitesThe availability of warehouse sites• Central position in the regional marketCentral position in the regional market

3.3. Selecting criteria weightingsSelecting criteria weightings

4.4. An economic trade-off analysis of An economic trade-off analysis of structures and relevant locationsstructures and relevant locations

Content







• Key issue

1111How can supply chains be better organized to meet the challenges of international logistics?


Layering and tiering

Evolving role of

individual plants

Reconfiguration processes



• Postponed manufacturingPostponed manufacturing– A specific combination of the three generic

types of postponement (Bowersox and Closs,1996)

• Form postponementForm postponement: postponement of final manufacturing or processing activities

• Time postponementTime postponement: delaying of the forward movement of goods until customer or orders have been received

• Place postponementPlace postponement: positioning of inventories upstream in centralized manufacturing or distribution operations to postpone the forward or downstream movement of goods

Log

istics postp

one

men

t


Primary strategic contribution of

the plant

Product assembly and product

improvement and recommendation

Product customization

Product packaging

Warehousing and shipment

Access to production supplies

Access to qualified suppliers

Proximity to markets

Postponed manufacturing

Factory warehouse

National warehouse

National warehouse and

deferred packaging

Continental DC

Changing role of DCChanging role of DC

Act

ivit

y at

sit

e

Achieving worldwide learning capabilities

Achieving global efficiency

Achieving local responsive capabilities


Reconfiguration processes for companiesReconfiguration processes for companies

Starting point Global structure Localized structure

Heritage in market

Little, greenfield approach Extensive, brownfield approach

Supply chain scope

Narrow, involving inventory and final manufacturing

Broad, involving inventory, manufacturing and sourcing

FocusDecentralizing final manufacturing and inventory into market

Centralizing inventory and final manufacturing at continental level and globalizing manufacturing and sourcing

TendencySingle, placing activities into market

Multiple, relocating within market and moving outside market

Timetable Short (1-10 months) Long (number of years)

Authority Global, top-down directionsLocal, bottom-up iterative process

Stages in the Stages in the implementation of implementation of

postponed postponed manufacturing: local manufacturing: local

starting pointstarting point

sourci ng manufacturi ng i nventory di stri buti on sal es

Country 1

Country n

Country 2


Country 1

Country n

Country 2

Acti vi ti esoutsi de regi on

Acti vi ti esi n regi on

Stage 3:postponed manufacturi ng

Stage 2:cross-border mi grati on and l ogi sti cs central i zati on

Stage 1:nati onal organi zati ons

sourci ngPri mary

manufacturi ng

Inventoryfi nal manufacturi ng

di stri buti onsal es

Country 1

Country n

Country 2

Stages in the Stages in the implementation of implementation of

postponed postponed manufacturing: manufacturing:

global starting pointglobal starting point


Country 1

Country n

Country 2

Stage 2:Nati onal warehouse

Stage 1:Di rect exportsourci ng manufacturi ng i nventory di stri buti on sal es

Country 1

Country n

Country 2

Acti vi ti esoutside regi on

Acti vi ti esi n regi on

Stage 3:Logi sti cs central i zati on

Sourci ng andpri mary

manufacturi ng

Inventoryfi nal manufacturi ng


Country 1

Country n

Country 2

sourci ng manufacturi ngInventory,


Country 1

Country n

Country 2

Stage 4:Postponed manufacturing


Industry Sourcing and primary

manufacturing

Inventory keeping

Final manufacturing

distribution Service and

sales

software

Wine

Transport

Telecom

Pharma

Fashion

Supply chain reconfigurations involved in postponed manufacturingSupply chain reconfigurations involved in postponed manufacturing

Content







• Short term risk readinessShort term risk readiness– Inventory policies to reflect volatilityInventory policies to reflect volatility– Transportation network redesignTransportation network redesign– Reconsider sole and global sourcing arrangementsReconsider sole and global sourcing arrangements

• Long term risk readinessLong term risk readiness– Develop contingency plans and risk protocolsDevelop contingency plans and risk protocols– Audit preparednessAudit preparedness– Train plant management and staffTrain plant management and staff– Report to senior management on risk profiles and Report to senior management on risk profiles and

preparednesspreparedness


• DELL case: global sourcing DELL case: global sourcing and transportation post 9-11and transportation post 9-11– The events of 9-11 changed the The events of 9-11 changed the

dynamics of importing and dynamics of importing and exporting products into the USAexporting products into the USA• Air traffic control• post 9/11 customs and security

requirements for global trade • Order increasing


• Flexible StrategyFlexible Strategy– Flexibility to take advantages of Flexibility to take advantages of

different scenariosdifferent scenarios– Requires a flexible supply chainRequires a flexible supply chain

• multiple suppliers• flexible facilities• various distribution channels

– Can be expensive to implementCan be expensive to implement • coordination mechanisms• capital investments• loss of economies of scale


• Implement Flexible StrategyImplement Flexible Strategy– Production shifting: flexible factories and Production shifting: flexible factories and

excess capacity and suppliersexcess capacity and suppliers– Information sharing: anticipate market Information sharing: anticipate market

changeschanges– Global coordinationGlobal coordination– Political leveragePolitical leverage

chapter 4 managing logistics internationally. framework management of international logistics...

Documents

global markets

local markets business

scope of markets

regionsassumes markets

international expansion

managing logistics

content drivers

imitators drivers