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Chapter 5 1
Chapter 5
Global Logistics
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Chapter 5 Management of Business Logistics, 7th Ed. 2
Learning Objectives Describe the major similarities and
differences between domestic and global
logistics. Discuss the reasons for the increase in global
business activity.
Define a global company. Explain Porters dynamic diamond theory of
global competitive advantage.
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Chapter 5 Management of Business Logistics, 7th Ed. 3
Learning Objectives Describe the critical changes affecting global
logistics.
Explain the effect of the changing legal andpolitical environment in Europe, Asia, North
America, and South America.
Discuss North American Free Trade
Agreement and its effect on logistics. Define the nature and benefit of a
Maquiladora.
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Chapter 5 Management of Business Logistics, 7th Ed. 4
Learning Objectives Explain the major transportation systems
available for global logistics.
Distinguish among the global logisticsintermediaries, freight forwarders, customshouse brokers, non-vessel operating commoncarriers, and export management companies.
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Chapter 5 Management of Business Logistics, 7th Ed. 5
Learning Objectives Explain the criteria used to select a port for
global shipments.
Discuss warehousing and packagingrequirements for global shipments.
Define the role of customs duties and free
trade zones.
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Chapter 5 Management of Business Logistics, 7th Ed. 6
Global Business Logistics Important issues to consider:
To gain a competitive advantage, global
sourcing is a given for companies engagingin global marketing strategies.
The longer the supply chain, the more
cooperation and coordination is requiredbetween production, marketing, purchasingand the logistics management group.
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Chapter 5 Management of Business Logistics, 7th Ed. 7
The Magnitude of
Global Logistics Activity
World trade is growing as fast logistics systemshave had the effect of shrinking the world,empowering competitive trade.
Foreign trade has grown in tonnage and in valuefor the United States and other nations.
Lower labor costs from international outsourcing isa critical component of the supply chain.
Focused manufacturing fits well into aninternational logistics strategy.
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Chapter 5 Management of Business Logistics, 7th Ed. 8
Table 5-1
Top U.S. Trading Partners
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Chapter 5 Management of Business Logistics, 7th Ed. 9
Global Markets
and Global Corporations Trade barriers continue to fall, accelerating
global business activity.
Global markets result from the generalhomogenization of global needs and wants.
Local needs suborned to lower-priced,higher-quality products.
Preferences for international products canalso be related to attempts to copy othermore prosperous cultures.
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Chapter 5 Management of Business Logistics, 7th Ed. 10
Global Competitive Strategy To effectively serve global markets, firms
should consider adopting integrated
worldwide strategies. These firms are more likely to search for
global sourcing for materials andcomponents, depots, assembly, distribution
centers, and logistics. Global firms typically design synchronous
strategies around technology, marketing,manufacturing, and logistics.
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Chapter 5 Management of Business Logistics, 7th Ed. 11
Customer Service Strategies for
Global Markets: Four Characteristics
1. Marketing becomes standardized yetcustomized.
2. Product life cycles shorten, sometimes toless than one year.
3. Outsourcing and offshore manufacturing arebecoming more prevalent.
4. Marketing and manufacturing activities andstrategies tend to converge and be bettercoordinated in firms operating globally.4
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Chapter 5 Management of Business Logistics, 7th Ed. 12
Customer Service
Strategies for Global Markets Logistics networks tend to become more
expansive and complex.
Thus, lead times and inventory may rise. Logistics activities must be operated as a
system to provide a countervailing force.
Most importantly, the service needs of
internationally-dispersed customers mustdrive the design and implementation of thelogistics system.
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Chapter 5 Management of Business Logistics, 7th Ed. 13
Critical Factors and Key Trends:
Importance of Competitive Environment
Michael Porters study concludes that anations ability to upgrade its existing
advantages to the next level of technologyand productivity is the key to international(global) success.5
Porter feels that the US loss of global marketshare in advanced fields of transportation andtechnology shows the US slipping recently ininternational trade.
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Chapter 5 Management of Business Logistics, 7th Ed. 14
Critical Factors and Key Trends:
Porters Model
Factor conditions
Ability to transform basic factors into
competitive advantage Demand conditions
Market size, buyer sophistication, exposure
Related and supporting industries
Partners in supply chain, manufacturers
Company strategy, structure, and rivalry
Market structure and nature of competition
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Chapter 5 Management of Business Logistics, 7th Ed. 15
Critical Factors and KeyTrends: Changes in
Logistics and Transportation
Deregulation of the U.S. Ocean LinerIndustry
Shipping Act of 1984 and Ocean ShippingReform Act of 1998 gave freedom to setrates, establish service and capacity onshipping lanes.
Ocean rates now more flexible to move inresponse to the laws of supply anddemand.
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Chapter 5 Management of Business Logistics, 7th Ed. 16
Critical Factors and Key Trends:
Changes in Logistics and Transportation
Intermodalism
Joint use of two or more
transportation modes.
Microbridge moves logistics capabilitiesfrom port-to-port through port-to-pointdirectly to point-to-point.
Shipment Control
High tech permits tracking & diversion ofshipments.
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Chapter 5 Management of Business Logistics, 7th Ed. 17
Figure 5-1Types of International Intermodalism
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Chapter 5 Management of Business Logistics, 7th Ed. 18
Critical Factors and Key Trends:
Changes in Logistics and Transportation
Free Trade Agreements
NAFTA is the most current.
EU is the 15 country European equivalent.
APEC is the Pacific equivalent.
Remaining customs barriers can impair
logistics activities where they remain. Cultural differences can result in shipment
delays where they are not understood.
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Chapter 5 Management of Business Logistics, 7th Ed. 19
Critical Factors and Key Trends:
Changes in Logistics and Transportation
Currency Fluctuations
The exchange rate of dollars to other
international currencies affects both thevolume and direction of global trade.
The effects of weak or strong dollarpositions carry through to marketing andlogistics.
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Chapter 5 Management of Business Logistics, 7th Ed. 20
Table 5-2 Effect of Currency
Fluctuations on Exports and Imports
Scenario
U.S. $ Value
In Japanese
Yen
U.S. $ Cost of5000-Yen
Item
Yen Cost ofU.S. $1,000
Item
A 100 $ 50.00 100,000 yen
B 120 $ 41.67 120,000 yen
C 130 $ 38.46 130,000 yen
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Chapter 5 Management of Business Logistics, 7th Ed. 21
Changing Political and Legal
Environments A Single European Market
Eastern Europe
North American Free Trade Agreement
Maquiladora Operations
Asian Emergence
New Directions
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Chapter 5 Management of Business Logistics, 7th Ed. 22
Changing Political and Legal
Environments: European Market 230 million consumers
were established as onemarket thru the 1987
Single European Act EU has eliminated:
Physical barriers likecustoms.
Technical barriers likehealth & safety issues.
Fiscal barriers likevalue-added tax andexcise taxes.
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Chapter 5 Management of Business Logistics, 7th Ed. 23
Changing Political and Legal
Environments Eastern Europe Currently restructuring but generally working to improve
from former communist-style governmental restrictions.
Older infrastructure is holding these nations back fromfull participation in global markets.
Governments have been selling assets to use for capitalinvestment.
Future is uncertain, but markets are large enough toattract foreign capital if political environment is seen asstable.
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Chapter 5 Management of Business Logistics, 7th Ed. 24
Changing Political and LegalEnvironments: The North American
Free Trade Agreement (NAFTA) of 1994
360 million people market
$6.6 trillion market
Phasing out tariffs on more than 10,000commodities over the next 10 to 15 years
Poor transportation infrastructure remains in
Mexico. Labeling inconsistencies are problematic.
NAFTA will mature eventually.
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Chapter 5 Management of Business Logistics, 7th Ed. 25
Figure 5-3A A Typical Truck
Shipment Crossing into Mexico
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Chapter 5 Management of Business Logistics, 7th Ed. 26
Changing Political and Legal
Environments: Maquiladora Operations
Maquiladora Operations takes its name fromthe region of Mexico in which the business
facilities are located. Companies such as General Motors have built
campus-style collections of assembly plants,supplier facilities and housing in Maquiladora.
Currently more than 2,000 U.S./Mexicofacilities use the low wages, taxes, and lowduties of the Maquiladora.
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Chapter 5 Management of Business Logistics, 7th Ed. 27
Changing Political and Legal
Environments: Asian Emergence The Pacific Rim nations have emerged as key players
in the global business environment.
In the first three months of 2000, imports fromPacific Rim countries accounted for 32.9 percent oftotal U.S. imports.
Japan, Korea, Taiwan, and Singapore purchased 24.7percent of U.S. exports in this same period.
Japan is the leading regional supplier, followed byChina, Taiwan, and Korea.
Low labor and high quality characterizes these Asiannations raw materials and finished goods.
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Chapter 5 Management of Business Logistics, 7th Ed. 28
Changing Political and Legal
Environments: New Directions Offshore plants and logistics facilities
Focus production plants often require
complex logistics facilities.
General expansion of worldwide markets
Worldwide growth of affluence
Growth of Caribbean, Australian, African,Russian, and Eastern European markets
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Chapter 5 Management of Business Logistics, 7th Ed. 29
On the Line: Holiday May BeHazardous to International
Logistics Systems Workers not on the joblogistics activities
come to a halt.
Holidays vary by country and must beknown to international logistics managers.
By scheduling pickup and delivery around acountrys holidays, the logistics managercan:
Prevent disruptions in the internationalsupply chain;
Maintain desired logistics service levels.
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Chapter 5 Management of Business Logistics, 7th Ed. 30
On the Line: 2001 Holidays for theUnited States and Its Top Six Trading
Partners
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Chapter 5 Management of Business Logistics, 7th Ed. 31
Global Transportation Options More complex than domestic due to distance
and number of parties involved
Major international transportation modes
Ocean
Air
Motor Rail
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Chapter 5 Management of Business Logistics, 7th Ed. 32
Global Transportation
Options: Ocean Ocean structure
Liner scheduled service; regular routes
Charter contract service; no set routes
Private service firms own logistics needs
Include bulk, container, RO-RO
Most pervasive and important global mode Revenues are substantial see Table 5-3.
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Chapter 5 Management of Business Logistics, 7th Ed. 33
Table 5-3
Top Ten Ocean Carriers
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Chapter 5 Management of Business Logistics, 7th Ed. 34
Global Transportation
Options: Air Speed allows large compression of transit times.
Linkages with package delivery and courier
services provide true point-to-point service. Rates have traditionally restricted cargo to low
density, high value goods.
Volume is approximately 1% of movements, but
nearly 20% of the value. New airfreighters can carry up to 13 TEUs (20
foot containers).
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Chapter 5 Management of Business Logistics, 7th Ed. 35
Table 5-4
Major International Cargo Air Carriers
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Chapter 5 Management of Business Logistics, 7th Ed. 36
Global Transportation
Options: Motor Global motor characteristics of speed, safety,
reliability, and accessibility basically the same
as for domestic transportation. Container sizes are largely standardized into
20, 40, 45, 48, and 53 foot boxes.
Paperwork can be streamlined by having abonded warehouse seal the container at pointof shipment and not opened until it reachesits destination country.
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Chapter 5 Management of Business Logistics, 7th Ed. 37
Global Transportation
Options: Rail International rail movements are problematic.
Rail gauges often vary.
Containers maybe transloaded from rail toocean to rail and/or motor if standardinternational sizes are used.
Maritime bridge movements gain speed byusing an intermodal strategy.
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Chapter 5 Management of Business Logistics, 7th Ed. 38
Strategic Channel Intermediaries Foreign Freight
Forwarders
Non-Vessel-Operating CommonCarriers
Export Management
Companies Export Trading
Companies
Customs House
Brokers Ship Brokers
Ship Agents
Export Packers
Ports
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Chapter 5 Management of Business Logistics, 7th Ed. 39
Strategic Channel Intermediaries:
Foreign Freight Forwarders Consolidate small shipments into
economical container or larger-sized lots.
Used by small or inexperienced shippers. Consolidators and agents regulated by the
Federal Maritime Commission.
Fee for service and/or commissionfrom shipping companies.
Use ocean and air modes.
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Chapter 5 Management of Business Logistics, 7th Ed. 40
Strategic Channel Intermediaries:Non-Vessel Operating Common Carriers
These carriers are used to disperse traffic movingto and from an inland port.
These NVOCCs then collect traffic from inlandports back to the ocean port cities.
This service saves the shippers from having to payto return empty containers to the ocean carriers.
NVOCC service widens markets of the oceancarriers and provides expertise to the smallerinland shippers.
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Chapter 5 Management of Business Logistics, 7th Ed. 41
Strategic Channel Intermediaries:
Export Management Companies Export Management Companies (EMCs) act
as a knowledgeable shippers agent in a
foreign country. Act as the sellers agent in getting orders, and
arranging for distribution, promotion, anddealing with the foreign government.
Exclusive arrangements are possible and theEMC may sell with or without taking title tothe goods.
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Chapter 5 Management of Business Logistics, 7th Ed. 42
Strategic Channel Intermediaries:
Export Trading Companies Similar to the EMCs, the Export Trading
Companies (ETCs) export goods and services.
The ETC locates buyers, arranges for inlandand international transportation, and meetingforeign government requirements.
Allows small and medium-sized firms theability to compete globally.
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Chapter 5 Management of Business Logistics, 7th Ed. 43
Strategic Channel Intermediaries:
Customs House Brokers Oversee the movement of goods through
customs and ensures that paperwork
accompanying a shipment is in order. Operate under power of attorney from the
shipper and can pay any duty on freight.
Much of the paperwork is done ahead of theshipment using integrated computer systems,greatly reducing the time it takes to clearcustoms, thereby reducing transit times.
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Chapter 5 Management of Business Logistics, 7th Ed. 44
Strategic Channel Intermediaries: Ship
Brokers/Ship Agents/Export Packers
Ship brokers act as agents in securing thecharter of a ship.
Ship agents are the local (port) agent of theship operator when the ship is in port.
Export packers supply a shipper specializedexport packing services to help with customsand to protect the goods.
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Chapter 5 Management of Business Logistics, 7th Ed. 45
Strategic Channel
Intermediaries: Ports Port selection is a very important
part of the international logistics strategy.
Different ports often specialize in different typesof shipments.
Selecting the wrong port can add miles, time,and therefore cost to a shipment not
appropriately routed. Overall door-to-door transit time and variability
most important factors.
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Chapter 5 Management of Business Logistics, 7th Ed. 46
Figure 5-4
Port Evaluation Factors
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Chapter 5 Management of Business Logistics, 7th Ed. 47
Table 5-5: Ranking of U.S. Ports by
Containers, Tons, and Cargo ValueBy Containers By Tons By Cargo Value
Long Beach Houston Long Beach
Los Angeles New Orleans Los Angeles
NY & NJ South Louisiana NY & NJ
San Juan NY & NJ Houston
Oakland Corpus Christi Seattle
Seattle Hampton Roads Charleston
Charleston Beaumont Hampton Roads
Hampton Roads Long Beach Oakland
Tacoma Philadelphia New Orleans
Houston Morgan City Baltimore
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Chapter 5 Management of Business Logistics, 7th Ed. 48
Storage Facilities Storage may be necessary for containers,
bulk, or finished goods.
This may require different types of in transitfacilities depending upon the method ofshipment and cargo type.
Longer term storage may require a public orbonded warehouse.
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Chapter 5 Management of Business Logistics, 7th Ed. 49
Packaging Export shipments generally require a higher
level of protection than domestic shipments
because of extra handling and the motion ofthe ocean and its effect on cargo.
Shippers expect to pay more for moreprotection, as settling liability claims can be
very difficult due to the large number of firmsthat may be handling the goods.
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Chapter 5 Management of Business Logistics, 7th Ed. 50
Figure 5-5 Some Symbols Used for
Packing ExportShipments
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Chapter 5 Management of Business Logistics, 7th Ed. 51
Governmental Influences Customs Regulation
Other Customs Functions
Foreign Trade Zones
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Chapter 5 Management of Business Logistics, 7th Ed. 52
Figure 5-6
Export-Import Flowchart
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Chapter 5 Management of Business Logistics, 7th Ed. 53
Governmental Influences:
Customs Regulation Customs regulations of the importing country
have the greatest effect on the international
movement of goods. In place to protect domestic industries from
unfair or predatory competition, thesebarriers to trade are handled differently in
various countries. Duties are expressed either as a percent of
value, a fixed amount, or in combination.
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Chapter 5 Management of Business Logistics, 7th Ed. 54
Governmental Influences:
Other Customs Functions Determine that the goods value is as stated.
Ensure that the goods are properly marked.
Ensure that the items are permitted for entry.
Ensure correct price and quantity.
Control quota amounts.
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Chapter 5 Management of Business Logistics 7th Ed 55
Governmental Influences:
Foreign Trade Zones (FTZs) Goods enter without customs formalities, duty or
bond.
Shippers can break bulk before entry. Goods can be processed, repacked, or remarked
to avoid fines before entry.
FTZs can hold excess goods until the next quotawindow.
Buyer can test or sample before entry.
Goods can be stored indefinitely and/or re-exported without paying duty.