Chapter 16

Global Logistics and Distribution

Definition of Global Logistics (P. 514)

Global logistics is defined as the design and management of a system that directs and controls the flows of materials into, through and out of the firm across national boundaries to achieve its corporate objectives at a minimum total cost (see Exhibit 16-1).

What is the supply chain?

Supply Chain

=

Information Flows

+

Physical Flows

EXHIBIT 16-1 Global Logistics

Materials Management and Physical Distribution

Materials management refers to to the inflow of raw material, parts, and supplies through the firm.

Physical distribution refers to the movement of the firm’s finished products to its customers, consisting of transportation, warehousing,

inventory, customer service/order entry, and administration.

Regional Variations in Distribution Costs

EU US

Transportation 2.79% 3.23%

Warehousing 3.03 1.98

Inventory 1.73 1.93

Customer Svc./Order Entry 0.83 0.49

Administration 0.79 0.44

Total 9.17% 8.07%

Global Perspective 16-1 (p. 515)

Managing Global Logistics (p. 516)

The following factors contribute to the increased complexity and cost of global logistics: Distance Exchange rate fluctuations Foreign intermediaries

Modes Of Transportation Value-to-Volume Ratio Perishability Cost of Transportation

Managing Global Logistics (contd.)

Ocean Shipping Liner Service Bulk Shipping

Air Freight Trucking Intermodal Stack Train Transportation

Managing Global Logistics (contd.)

Third-Party Logistic (3PL) Management The largest 3PL sector is the value-added

warehousing and distribution industry. Logistical Revolution with the Internet

The trend toward third-party logistics is a result of the Internet and the intranet as well as concentrating on core

competencies.

Maquiladora Operations (p. 530)

The maquiladora industry, also known as the in-bond or twin-plant program, is essentially a special Mexican version of a free trade zone.

Mexico allows duty-free imports of machinery and equipment for manufacturing as well as components for further processing and assembly, as long as 80 percent of the plant’s output is exported.

Mexico permits 100 percent foreign ownership of the maquiladora plants in the designated maquiladora zone.

Maquiladora Operation (contd.)

Most of the maquiladora plants are located along the U.S.-Mexico border, such as Tijuana across from San Diego, Ciudad Juarez across from El Paso, and Nuevo Laredo across from Laredo. Other cities include Monterrey, Mexico City, and Guadalajara.

Mexico has been an attractive location for labor-intensive assembly because of cheaper labor.

Under NAFTA regulations, local content requirements have encouraged companies to move their operations to Mexico.

Global Retailing

“Push” versus “Pull”

On-Time Retail Information Management Reduced Inventory Market Information at the Retail Level

Strong logistics capabilities can be used as an offensive weapon to help a firm gain competitive advantage in the marketplace.

Global Retailing (contd.)

Retailing Differences Across the World: Industrialized countries tend to have a lower

distribution outlet density than the emerging markets. The advanced facilities available in the developed

world allow a much higher square footage of retail space per resident,due to the large size of the retail outlets.

Large-Scale Retail Store Law (LSRSL) in Japan

Global Retailing (contd.)

E-Commerce and Retailing Countries such as Japan and Germany are warming

up to the same e-commerce revolution as the United States has experienced.

E-commerce is not limited to the developed countries. China, the world’s most populous nation, is expected

to become one of the world’s largest Internet markets as early as 2003.

Despite the rapid growth of the Internet, the need for local or regional distribution of products is likely to remain as important as it was before the Internet revolution.