Global Logistics

• Summary:– So What Should You Take Away

From This Class?

The Global Corporation

Fully integrates product design, materialsupply, production, distribution, accounting,marketing, and finance on a world-wide basis.

Typically design their operating strategyobjectives around four components:Technology, Marketing, Manufacturing, andLogistics.

Geographic

Sectorial Functional

RETAIL INDUSTRY EXAMPLES

WAL MART

C + QC + Q C + SC + S

S + QS + Q

Contractual Agreements Equity Arrangements

TraditionalContracts

Non-TraditionalContracts

No NewEntity

Creation ofNew Entity

Dissolution ofEntity

Arms-length

Buy/Sell ContractsFranchising

LicensingCross-Licensing

Joint R&D

Joint Product Development

Long Term Sourcing

Joint Manufacturing

Joint Marketing

Shared Distribution

Shared Service

Standard Setting

Research Consortia

Minority EquityInvestments

Equity Swaps

Joint Venture Mergers

Acquisitions

FORMS OF ALLIANCEFORMS OF ALLIANCE

WHAT TYPE OF ALLIANCE?WHAT TYPE OF ALLIANCE?

LEVEL OF COMMITMENTLEVEL OF COMMITMENT

STRATEGIC STRATEGIC IMPORTANCEIMPORTANCE

Acquisition

Minority Interest

Joint Venture

Joint Marketing

Joint Development Projects

Licensing Agreements

Alliance/Consortia

Commercial Contracts

Technology Trials

Low

Medium

High

Low High

TRADITIONAL APPROACH SUPPLIER PARTNERSHIPS

Primary emphasis on Price Multiple Criteria

Short term Contracts Longer Term Contracts

Evaluation by Bids Intensive and Extensive Evaluation

Many Suppliers Fewer Selected Suppliers

Improvement Benefits shared basedon relative Power

Improvement Benefits are sharedmore equitably

Improvement at Discrete TimeIntervals

Continuous Improvement is sought

Problems are Suppliers’responsibility to Correct

Problems are jointly Solved

Clear delineation of Businessresponsibility

Quasi-Vertical Integration

Information is Proprietary Information is Shared

NOVELTY(Outsource/In-House)

TechnologyQuality

PROPRIETARY(In-House)

TechnologyQualityService

COMMODITY(Outsource)

Price

UTILITY(Outsource)

Co-OperationService

Criticality of the Part to Final AssemblyLow High

Low

High

Strategic Valueof the Part in

Isolation

To-Make or NOT To-Make?To-Make or NOT To-Make?

Criteria Used by BOSE to Select Categories for JIT II

1. There is a MATURE, TRUSTING Relationship with the BEST Supplier in the Category.

2. The Supplier has a GOOD ENGINEERING Capability.

3. The Volume in the Product Category exceeds $1 Million.

4. The Product Category involves a lot of TRANSACTIONS, creating a need for an in-plant representative.

5. The Technology in the Category is NOT changing at a Revolutionary Pace.

6. The Category DOES NOT involve Proprietary or Core Technologies (Such as Acoustics and Electronics).

PURCHASINGPURCHASING

* Selecting and qualifying Suppliers

* Rating Supplier performance

* Negotiating Contracts

* Comparing price, quality, and service

* Sourcing goods and services

* Timing Purchases

* Setting terms of sale

* Evaluating the value received

* Measuring inbound quality

* Predicting price, service and

Demand changes

* Specifying the form in which goods

are to be received

Activities Associated with Purchasing:

VENDORS

PLANTS

DISTRIBUTIONCENTERS

CUSTOMERZONES

TWO EXTREMES OF LOGISTICS NETWORKSTWO EXTREMES OF LOGISTICS NETWORKS

CENTRALIZATIONCENTRALIZATIONBenefitsBenefits

• Risk Pooling / Variance Reduction Effect

• Economies of Scale

• Economies of Scope

• Learning / Experience Curve

• Coordination Advantages

DECENTRALIZATIONDECENTRALIZATIONBenefitsBenefits

•Product / Process Improvements - Proximity to suppliers

•Customer Satisfaction - Proximity to markets/customers

•Cost Savings - Sourcing, Production, Logistics - Financing

•Risk Diversification / Portfolio Effect - Technology Risk - Financial Risk

* InventoryInventory is Higher- Higher in-transit inventories

- Pipelines are longer and slower- Higher Safety Stock levels

- Longer lead times- Political uncertainty- Production uncertainties

- More SKUs

* Facilities Network More Difficult to ControlControl

- Several languages and cultures- Labor norms - Customs- Infrastructure

DOMESTIC vs GLOBAL LOGISTICSLogistics ElementsLogistics Elements

* TransportationTransportation is More Difficult and Costly- Freight rates- Intra-country transport- Different modes- Complex documentation and intermediaries- Consolidation

* ServiceService is Slower and More Costly- Lead times are longer- Pipelines are longer- Uncertainty about availability- Order processing is more difficult- Stockouts are more frequent

Economic Factors:Economic Factors:a) Type of Product

* Product Life Cycle and Perishability * Strategic classification

b) Nature of Demand

c) Proliferation of Products

Environmental FactorsEnvironmental Factorsa) Level of Customer Service required in the

Market

b) Routing Requirements

c) Host Governments Regulations and Actions

Organizational FactorsOrganizational Factorsa) Marketing-Manufacturing Interface

b) Intra-Subsidiary Traffic and Accounting

c) Strategic priorities (C,Q,S,F) and Metrics

FACTORS AFFECTING YOUR LOGISTICS ROLE

Understand the Logistics Function and the Role you might play

De-emphasize the Short Term Cost Advantage

Emphasize the Long Term Service, Quality and ReliabilityAdvantages

Emphasize your willingness to adjust to the dynamics of market fluctuations

Manufacturing Excellence is Fundamental(i.e., is LogisticsLogistics in your Core Competence Core Competence?)

ACTION PLAN

ADVANTAGES OF GLOBAL LOGISTIC

* Rationalization of Resources

* Increase Potential Market Size

* Economies of Scale and Scope (i.e., minimization of Costs)

* Flexibility: Operational, Financial, Responsiveness

* Improve Internal and External Service

* Risk reduction through diversification

* Technology Development and R&D (i.e., upgrading Quality)

* Faster Response to the Dynamic Forces of the Global Economy

KEY TAKEAWAYSKEY TAKEAWAYS

1) Logistics is the natural link between Operations and Marketing to 1) Logistics is the natural link between Operations and Marketing to make more efficient the flow of goods and information along the make more efficient the flow of goods and information along the logistics system. Optimization of individual linkages does not guarantee logistics system. Optimization of individual linkages does not guarantee

global solutions and that is why you need a Global Logistics Approach.global solutions and that is why you need a Global Logistics Approach.

e.g., Resource Oriented Logistics, User Oriented Logistics , Information Oriented Logistics

2) When determining and forecasting future Demand, do not confuse historical sales 2) When determining and forecasting future Demand, do not confuse historical sales with Real Demand. Try to incorporate substitution rates and information about with Real Demand. Try to incorporate substitution rates and information about stockouts. When measuring service, don’t confuse individual measures with order stockouts. When measuring service, don’t confuse individual measures with order measures.measures.

e.g., mail orders versus POS information; link information with members of the logistics system via EDI, ECR, CR and CFAR; line fill rate versus order fill rate

3) Not all products (or customers) are equally important. Classify products according 3) Not all products (or customers) are equally important. Classify products according to logistics needs as well as financial indicators. Proliferation of SKU’s to logistics needs as well as financial indicators. Proliferation of SKU’s complicates the logistics management.complicates the logistics management.

e.g., ABC versus ORG, clear rules for introducing and retiring products from the market

4) Outsourcing is a great alternative for rationalizing the existing resources of 4) Outsourcing is a great alternative for rationalizing the existing resources of a company. However, do not outsource without analyzing the strategic fit a company. However, do not outsource without analyzing the strategic fit with the core competence. with the core competence. e.g., strategic role of the part in isolation versus strategic role of the part to final assembly

5) 3PL companies are an excellent alternative for outsourcing logistics. 5) 3PL companies are an excellent alternative for outsourcing logistics. However, make sure the needs as well as the specific measurement is However, make sure the needs as well as the specific measurement is determined in advance.determined in advance.e.g., show me the value measurement, determination of the base case for comparison

6) 6) Cost, Quality, Service, and FlexibilityCost, Quality, Service, and Flexibility are the dimensions that allow for a are the dimensions that allow for a better understanding and management of the the logistics system. There better understanding and management of the the logistics system. There are at most two winning criteria and two qualifying criteria. These criteria are at most two winning criteria and two qualifying criteria. These criteria are dynamic and change with the nature of competition. The best alliances are dynamic and change with the nature of competition. The best alliances are the ones where your qualifying criteria are your partners winning are the ones where your qualifying criteria are your partners winning criteria. criteria.

KEY TAKEAWAYS Cont.KEY TAKEAWAYS Cont.

P - COST

P - QUALITY

P-SERVICE

P-FLEXIBILITY

The 4Ps of Operations and Logistics

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