Chapter 1 an overview of logistics Logistics International Trade

IBS3002 Logistics International Trade IBS3002 Logistics International Trade Contemporary logistics, Murphy (2015) International logistics, David (2011) Introduction to the course Course overvi. Chapter 1 an overview of logistics Logistics International Trade

IBS3002 Logistics & International Trade

Contemporary logistics, Murphy (2015) & International

Analyze activities of logistics in international trade

Understand the impacts of environment on international logistics and international logistics security

Understand issues occurring in logistics enterprises in international trade

Introduction to the course

2

Learning materials:

Contemporary Logistics; 11th Edition; Paul R Murphy, Jr., A Michael Knemeyer; Prentice Hall (2015)

International Logistics: The Management of International Trade

Operations; 3rd Edition ; Pierre David and Richard Stewart, Cengage Learning (2011)

Introduction to the course

Introduction to the course

Introduction to the course

Wee

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Content

1 Introduction to the course

Chapter 1 – An overview of logistics

2 Chapter 1 – (cont)

3 Chapter 2 – Logistics & information technology

4 Chapter 3 – Demand management, order management &

Introduction to the course

6

IBS3002 Logistics & International Trade

Contemporary logistics, Murphy (2015) & International

logistics, David (2011)

Chapter 1

An overview of logistics

Topic areas

8

 Logistics & international logistics

 Logistics & supply chain

 Logistics adds value

 Logistical relationships with the firm

 Logistics activities

 Infrastructure of international logistics

The historical development of logistics

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1950 1960 1970 1980 1990 2000

Workplace logistics Workplace logistics

Facility logistics Facility logistics

Corporate logistics Corporate logistics

Supply chain logistics Supply chain logistics

Global logistics

Global logistics

The historical development of logistics

1 Workplace logistics

- The flow of materials within a single workstation

- Objective: to streamline the movements of an individual working at a machine or along an assembly line

- The principles and theory of workplace logistics were developed by the founders of industrial engineering workers in WWII ad post WWII factory operations

2 Facility logistics

- The flow of materials between workstations within a facility (factory,

terminal, warehouse, distribution center) -> inter workstation, facility

- The roots of facility logistics was in the mass production and assembly

The historical development of logistics

12

3 Corporate logistics

- The flow of materials and information between the facilities and

processes of a corporation (inter workstation, inter-facility, intra-corporate)

- Corporate logistics is sometimes associated with the phrase physical distribution that was popular in the 1970s

4 Supply chain logistics

- The flow of materials, information and money between corporations

(inter workstation, inter-facility, inter-corporate and intra chain)

5 Global logistics

- The flow of materials, information and money between countries

- Global logistics connects our suppliers’ suppliers with our customers’ customers internationally

The historical development of logistics

5 Global logistics

The increased importance of logistics

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 A reduction in economic regulation

- Deregulation relaxed government control of carriers’ rates and fares, entry and exit, mergers and acquisitions… in 1970s, 1980s -> competitive price and flexibility in service in logistics

 Changes in consumer behavior

- Customized customer, changing family roles, rising customer expectations… -> logistical implications

 Technological advances

- Technological advances improve the productivity of channel design, order picking process, shipment tracking -> impact logistics management

The increased importance of logistics

 The growing power of retailers

- Appearing Big-box retailers - stores both floor space and products for

sale (Walmart, Costco…) -> growing power of retailers

- Powerful retailers such as Wal-Mart, Home Depot, Best Buy have large market share and low costs and they have superior logistics Applying CPFR (Collaborative Planning, forecasting, replenishment) initiatives – trading partners share planning, forecasting data to better match up supply & demand For this reason they are considered as “trend-setters” of logistics

 Globalization of trade

- Growth in world trade

- Globalization of logistics services

The system & total cost approaches to logistics

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The system & total cost approaches to logistics

The system & total cost approaches to logistics

- System approach: indicates that a company’s objectives can be realized by recognizing the mutual interdependence of the major functional areas (marketing, production, finance and logistics) of the firms

- Implications of the system approach:

+ One logistics system does not fit all companies

+ Stock-keeping units (SKUs): each different type or package size of a good is a different SKU -> the proliferation of SKUs means more items to identify, store, and track

- Intrafunctional logistics – coordinating inbound logistics, materials management, and physical distribution in a cost-efficient manner that supports an organization’s customer service objectives

- Inbound Logistics: Movement and storage of materials into the firm.

The system & total cost approaches to logistics

- Materials management: movement and storage of materials within a

- Cost trade-offs: changes to one logistics activity cause some costs to increase and others to decrease

- All relevant logistics cost items are considered simultaneously when making decision

Supply chain

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 Supply chain: an entire system of producing and delivering a product

or service, from the very beginning stage of sourcing the raw materials

to the final delivery of the product or service to end-users An extended enterprise that crosses the boundaries of individual firms to span the related activities of all the companies involved in the total supply chain in satisfying the ultimate consumer

 Supply chain management: coordination / integration of 3 key flows

(products / materials or services, information and financials) within and between firms in the supply chain to fulfil the final customer’s demands through the most efficient use of resources

 Objective: fulfil customer demands through most efficient use of

resources

Logistics & supply chain

Supply Supply base rationalization, supplier alliances, SRM, global sourcing, ethics and sustainability

Operations Demand management, CPFR, MRP, ERP, inventory visibility, lean systems, Six Sigma quality systems

Logistics Logistics management, customer relationship management, network design, RFID, global supply

chains, sustainability, service response logistics

Integration Risk and security management, performance measurement, green supply chains

ALL ELEMENTS DRIVEN BY DEMAND

Foundation of

SCM

Logistics adds value

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Logistics adds value

Economic utility – the value or usefulness of a product in fulfilling

customer needs or wants

•Possession utility – the value or usefulness that comes from a

customer being able to take possession of a product

•Form utility – product’s being in a form that (1) can be used by the

customer and (2) is of value to the customer

•Place utility – having products available where they are needed by the

customers; products are moved from points of lesser value to points of greater value

•Time utility – having products available when they are needed by

customers

Logistics adds value

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The five principal types of economic utility which add value to

a product or service are:

Logistical relationships within the firm

Logistics

Finance Productio

Logistical relationships within the firm

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 Logistical relationships with finance

 Predicting future cash flows that depend on logistics

 Approving capital budgeting decisions affecting logistics

 Inventory (asset valuation, inventory cost vs inventory units)

 Logistical relationships with production

 The length of production runs

 Postponement: the delay of value-added activities such as assembly, production, and packaging until the latest possible time

Logistical relationships within the firm

 Logistical relationships with marketing

 Place decisions: logistics & marketing channel, new strategies for reaching new customers

 Price decisions: how a product’s transportation costs should be reflected in its selling price -> higher logistics costs to customers lead

to an increase in product price

 Product decisions: the amount of SKUs to hold, stockouts, identification, storage, tracking, packaging -> higher quantities of inventory necessitate additional storage space & increase inventory carrying costs

 Promotion decisions: must be coordination between marketing and logistics

Logistics activities

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 Customer service: “Keeping existing customer happy”, “The right

person receives the right product at the right place at the right time in the right condition and at the right cost”

 Demand forecasting: effort to estimate product demand in a future

time period

 Facility location decisions: the success of a retail store depends on

location of the relevant warehousing and production facilities

 Inventory management: stocks of goods that are maintained for a

variety of purpose

 Materials handling: the short distance movement of products within

the confines of a facility (plant, warehouse)

Logistics activities

 Order management: management of the activities that take place

between the time a customer places an order and the time it is received

by the customer

 Packaging: preparation of product for transit and storage

 Procurement: raw materials, component parts and suppliers bought

from outside organizations to support a company’s operations

 Transportation management: the actual physical movement of goods

or people from one place to another

 Warehousing management: places where inventory can be stored for

a particular period of time

 Reverse logistics: returned product – product recalls, product damage,

lack of demand, customer dissatisfaction

International logistics Infrastructure

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Infrastructure: a collective term that refers to all of the elements in place

(publicly or privately owned goods) to facilitate transportation, communication, and business exchanges

Infrastructure of International logistics

 The Transportation Infrastructure allows goods to move efficiently

within a country and between countries This requires well-maintained seaports, airports, railways, and roads

 The Communication Infrastructure allows businesses to communicate

clearly and quickly This requires reliable phone lines, cell phone networks, internet service, and mail delivery

 The Utilities Infrastructure allows businesses to sustain their daily

operations This requires reliable electricity, energy (natural gas), water, and sewer services

Infrastructure of International logistics

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 The Business Services Infrastructure allows businesses to find

additional competent logistics help quickly This includes freight forwarders, couriers, carriers, delivery services, packing services, and so on

 The Distribution Infrastructure allows businesses to find agents and

distributors, to develop wholesale and retail channels, and promote their products

 The Banking Infrastructure allows businesses to move funds and

documents quickly and reliably, both within a country and between countries This requires a network of bank branches and well-trained bank employees

Infrastructure of International logistics

 The Court Infrastructure allows businesses to settle disputes quickly

and fairly This includes not only an efficient court system, but also a network of mediators and arbitrators, and the existence of clear jurisprudence

 The Intellectual Property Infrastructure allows businesses to protect

their intellectual property (copyrights, patents, and trademarks) with law enforcement services intent on enforcing intellectual property laws

 The Standard Infrastructure allows businesses to determine the

requirements that their products and operations must meet This includes safety, design, and performance standards

Port Infrastructure (I)

Port Infrastructure (II)

• Space Limitations

The location of most ports limit their ability to expand.

• Warehouse Space

Availability of reliable storage space for goods in transit.

• Connection to land-based Transportation

Ports need to have reliable access to roads and/or rail lines to keep cargo moving.

The port of YangShan, China

A Panamax ship

A Post-Panamax Ship

The Alameda Corridor between the Port of Los Angeles and the U.S.

Canals and Waterways

Maritime transportation is dependent on the existence of reliable canals

The Suez Canal in North Africa and the Panama Canal in Central America are

particularly important The current trend of building ships too large to fit through these canals is creating new challenges for the industry

Other key waterways include the Bosporus Strait in Turkey which connects the Black Sea with the Mediterranean and the Saint Lawrence Seaway in North

America which connect the Great Lakes with the Atlantic Ocean.

Other canals are less frequently used, such as the Corinth Canal in Greece.

The New Locks on the Panama Canal. The New Locks on the Panama Canal.

The Bosporus Strait.

The Kai Tak Airport in Hong Kong (now closed).

The Kobe Airport in Japan.

Railroad Infrastructure

• Gauge

When railroads were first built, countries installed unique railroad track gauges to prevent rival armies from using them Today, these gauge differences prevent trains from traveling quickly between multiple countries

A dual-gauge track in Thailand.

A double-stack train in the United States.

• Civil engineering structures

Structures such as bridges and tunnels need to be built in many places in order to conveniently navigate the landscape.

The Lena “highway” in Russia.

Traffic Congestion on the Road to the Port, in Karachi, Pakistan.

A high-speed postal train in France.

Cellphone Penetration

Utilities Infrastructure

• Electricity

Unreliable electricity grids and insufficient production capacity can cause blackouts or brownouts, limiting productivity

• Water and sewer

Access to clean water (and sewer) is fundamentally important for many manufacturing processes.

Tangled Wires in New Delhi, India.

Banking Infrastructure

• Foreign currency payments

The ability to quickly purchase and sell foreign currencies, either through wire transfers or currency purchases, is important to firms engaged in international trade.