INTERNATIONAL LOGISTIC MANAGEMENT

www.eiilmuniversity.ac.in

Subject: INTERNATIONAL LOGISTIC MANAGEMENT Credits: 4

SYLLABUS

Overview

Logistics: Definition, Evolution, Concept, Components, Importance, Objectives; Logistic Subsystem; The work

of Logistics; Integrated Logistics; Barrier to Internal Integration.

Marketing and Logistics

Customer Focused Marketing; International Marketing: Introduction, Definition, Basis for International Trade,

Process, Importance; International Marketing Channel: Role of Clearing Agent, Various Modes of Transport,

Choice and Issues for Each Mode, Transport Cost Characteristics.

Basics of Transportation

Transportation Functionality and Principles; Multimodal Transport: Modal Characteristics; Modal

Comparisons; Legal Classifications; International Air Transport; Air Cargo Tariff Structure; Freight: Definition,

Rate; Freight Structure and Practice

Warehousing and Material Handling

Warehousing: Evolution, Importance and Benefits, Operating Principles, Alternatives; Material Handling:

Managing Warehouse Resources, Material Handling; Automated Material Handling: Order Selection Systems,

ASRS Systems, Information Directed Systems, Special Handling.

Containerization and Chartering

Containerization: Genesis, Concept, Classification, Benefits and Constraints; Inland Container Depot (ICD):

Roles and Functions, CFS, Export Clearance at ICD; CONCOR; ICDs under CONCOR; Chartering: Kinds of

Charter, Charter Party, and Arbitration.

Inventory Management and Packaging

Inventory Management: Introduction, Characteristics, Functionality, Components, Planning; Packaging and

Packing: Labels, Functions of Packaging, Designs, Kinds of Packaging; Packing for Transportation and

Marking: Types of Boxes, Container, Procedure, Cost, Types of Marking, Features of Marking

Documentation

Terms of Sales: Introduction, Expert Sales Contact, International Contact Terms, CIF Contact, Duties of

Importers, FOB Contacts; Documentation in Logistics: Invoice, Packing List, Certificate of Origin, Bill of

lading, Shipping Bill, Marine Insurance, Bill of Entry

Information Technology

Information and Communication: Information Functionality, Principles of Logistic Information, Information

Architecture, Planning / Coordination, Logistic Information System Flow; Application of Technology In

Logistics: Electronic Data Interchange, PC, Artificial Intelligence / Expert Systems. Applications of New

Information Technologies

General

Co-ordination Role of intermediaries; General Structure of Shipping Industry; World Seaborne Trade and

World shipping; U. N. Convention on Liner Code of Conduct

Suggested Readings:

1. International Marketing by Sak Onkvisit & John J. Shaw, Publisher: Prentice Hall of India

2. International Marketing by Gupta and Varshing, Publisher: Sultan Chand and Sons

3. Logistic Management and World Sea Borne Trade by Multiah Krishnaveni, Publisher: Himalaya

Publication

4. Logistic and Supply Chain Management by Donald J. Bowerson, Publisher: Prentice Hall of India

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The role of logistics has so for been perceived by many seniormanagers and chief executives. As nothing more than gettingthe right product to the right place at the least cost. To besuccessful logistics managers of recent times however, a widerperspective has to be developed, with due realization of thestrategic role of logistic management within the organization.Strategic management of acquisition, movement and storage ofraw materials, semifinished parts and finished goods throughan organization and its marketing channels, to fulfill customersorders in a most cost-effectively manner does fulfill the value-chain process and plays vital role in contribution towardsorganizational profitability.

In todays environment of Survival of the fittest more andmore companies tend to examine, restructure and repositiontheir operations to gain competitive advantage, and in this,logistics can play a vital role in the integration and differentiationstrategic designed to produce the desired competitive advantage.A trade-off has to be planned between cost and servicestandards. International logistics is often well managed at anoperational level with an emphasis on reducing costs, but itshould be more developed towards a strategic level where anopen attitude would encompass the potential to operateinternational logistics system concentrating more on service.

Under the strategic logistical management, choice of transporta-tion mode is a fundamental part. Transport cost includes allcosts associated with the movement of product from onelocation to another. The average transport cost range betweenfive to six per cent of the recommended retail price of theproduct.

Sea transport and air transport feature as major modes oftransportation; in international trade. In recent years there has

International Logistic Management

Course Overview

been development of multimodal transport involving acombination of the various modes of transportation. Still interms of tonnage, sea transport covers a higher percentage ofinternational transportation.

Over the years, the discipline of business has developed frombeing mere warehousi8ng and transportation issues to that of aboardroom entanglement. Hence the fundamental grasp of thisdiscipline by students of Commerce, International Business,Economics, Business Administration, Professional in Import-Export Management and entrepreneurs venturing into overseasbusiness should lead them to further questioning, probingtowards perfection and challenging the developmental issues inthis area.

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. Lesson No. Topic Page No.

Lesson 1 Concepts Objectives and E lements of Logistics 1

Lesson 2 Logistics Subsystem 6

Lesson 3 Integrated Logistics 15

Lesson 4 Customer-focused Marketing 24

Lesson 5 International Marketing 37

Lesson 6 International Marketing Channel 44

Lesson 7 Transporation 50

Lesson 8 Multi-Modal Transport 56

Lesson 9 International Air Transport 63

Lesson 10 Freight 74

Lesson 11 Freight Structure and Practice 78

Lesson 12 Warehousing 87

Lesson 13 Material Handling 94

Lesson 14 Automated Material Handling 100

Lesson 15 Containerisation 104

Lesson 16 Inland Container Depot 111

Lesson 17 Chartering 118

Lesson 18 Inventory Management 122

Lesson 19 Packaging and Packing 129

Lesson 20 Packing for Transportation and Marketing 136

Lesson 21 Terms of Sales 142

Lesson 22 Documentation in Logistics 148

Lesson 23 Information and Communication 172

Lesson 24 Applications of New Information Technology 179

Lesson 25 Co-Ordinate - Role of Intermediaries 185

Lesson 26 General Structure of Shipping Industry 192

Lesson 27 World Seaborne Trade and World Shipping 196

Lesson 28 U.N. Convention on Liner Code of Conduct 200

CONTENT

INTERNATIONAL LOGISTIC MANAGMENT

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UNIT I CONCEPTS OBJECTIVES AND

ELEMENTS

LESSON 1: UNIT 1CONCEPTS OBJECTIVES AND

ELEMENTS OF LOGISTICS

Topics To Be Covered In Lesson11. Definitions of logistics2. Evolution of Logistics3. Concept of Logistics4. Components of Logistics5. Importance of logistics6. Marketing Logistics7. Objectives of logistics8. Article

References1. Muthiah Krishveni:Logistics Management &

Seaborne Trade Edition2,Himalaya PulishingHouse Isbn-81-7866-996-x

2. Closs J.david,Bowersox.j.donald,LogisticalManagementEdition 3,Tata Mcgraw Hill,Isbn 0-07-043554-5

3. Internet site www.iisc.murali @iisc.edu

1. Introduction of Marketing Logistics2. Definition of Marketing Logistics3. Evolution of Marketing Logistics & Intl.Logistics4. Concept of Logistics5. Components of Logistics system.6. ArticleDear friends this is your first class for the specialization subject.I hope that you will enjoy first and the rest of classes with me.We would be interacting a lot for new ideas to come out. Sorefresh your brain and enjoy the subject.

Lets us Start The Subject With theConcept and Definitions of LogisticsLogistics is new unique, it never stops! Logistics is happen-ing around the globe 24 hours a days Seven days a week duringfifty-two weeks a year. Few areas of business involve thecomplexity or span the geography typical of logistics. Logisticsis concerned with getting products and services where they areneeded whenever they are desired.Most consumers take a high level of logistical competency forgranted. When they go to store, they expect products to beavailable and fresh.It is rather difficult to visualize any marketing or manufacturingwithout logistical supportModern logistics is also a paradox. Logistics has been per-formed since the beginning of civilization: its hardly new.However implementing best practice of logistics has become

one of the most exciting and challenging operational areas ofbusiness and public sector management

According to Council of LogisticsManagementLogistics is the process of planning, implementing andcontrolling the efficient, effective flow and storage of goods,services and related information from point of origin to pointof consumption for the purpose of conforming the customerrequirement.Logistical management includes the design and administrationof systems to controls the flow of material, work- in process,and finished inventory to support business unit strategy.Logistics is the designing and managing of a system in order tocontrol the flow of material throughout a corporation. This is avery important part of an international company because ofgeographical barriers. Logistics of an international companyincludes movement of raw materials, coordinating flows intoand out of different countries, choices of transportation, costof the transportation, packaging the product for shipment,storing the product, and managing the entire process.

We Will Analyze the Figure of Evolutionof LogisticsLogistics Evolution

Fragmentation Evolving Integration Total Integration

1960 1980 2000

Demand forecasting

Purchasing

Requirement Planning Materials

Production Planning Management

Manufacturing Inventory

Warehousing Logistics

Material Handling

Industrial Packaging

Finished goods Inventory

Distribution Planning Physical Distribution

Order Processing

Transportation

Customer Service

Fragmentation 1960 This era was known as fragmentationbecause every thing that done was disintegratedEvolving Integration : At this stage of time new concepts ofLogistical management were evolvingTotal Integration : In the present scenario because of techno-logical advances logistics has evolved as part of management

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Concept of LogisticsThe concept of logistics is fairly new in the business world. Thetheoretical development was not used until 1966. Since then,many business practices have evolved and logistics currentlycosts between 10 and 25 percent of the total cost of aninternational purchase. There are two main phases that areimportant in the movement of materials: material managementand physical distribution; Materials management is the timely movement of raw

materials, parts, and supplies. The physical distribution is the movement of the firms

finished products to the customers.Both phases involve every stage of the process includingstorage. The ultimate goal of logistics is:To coordinate all efforts of the company to maintain a costeffective flow of goods.Word, Logistics is derived from French word loger, whichmeans art of war pertaining to movement and supply ofarmies. A military concept Fighting a war requires:

a. Setting of an objectiveb. Meticulous planning to achieve the objectivec. Troops properly deployedd. Supply line consisting weaponry, food, medical

assistance, etc. maintained Plan should be such that there is minimum loss to men &

materialLike fighting a war in the battlefield, the marketing managersalso need a suitable logistics plan that is capable of satisfying thecompany objective of meeting profitably the demand oftargeted customers.Inbound logistics + Material Management + Physical Distribu-tion =LogisticsNow we will discuss each and every term in this above summation Inbound logistics covers the movement of materials

received from suppliers Material management describes the movements of

material & components within a firm Physical distribution refers to movement of goods

outward from the end of the assembly line to the costumer. Supply- chain management is somewhat larger than

logistics and it links logistics more directly within the userstotal communication network & with the firm engineeringstaff. It includes manufacturer and suppliers but alsotransporters, warehouses, retailers and customersthemselves.

We Will Cover Each One These Terms In Our ComingChapters In Details

Importance of LogisticsLogistics has gained importance due to 8 trends Transportation cost rose rapidly due to the rise in fuel prices

Production efficiency was reaching a peak Fundamental change in inventory philosophy Product line proliferated Computer technology Increased use or computers Increased public concern of products Growth of several new,

large retail chains or mass merchandise with large demands &very sophisticated logistics services, by pass traditionalchannel & distribution.

Reduction in economic regulation Growing power of retailers GlobalizationThe interrelation of different logistics element and their costsshould be based on total cost rather than individual costs.Now Lets Concentrate and discuss the objectives of Logistics

Operating ObjectivesIn terms of logistical system design and administration, eachfirm must simulta-neously achieve at least six different opera-tional objectives. These operational objectives, which are theprimary determinants of logistical performance, include rapidresponse, minimum variance, minimum inventory, movementconsolidation, quality, and life-cycle support. Each objective isbriefly discussed.

Rapid ResponseRapid response is concerned with a firms ability to satisfycustomer service requirements in a timely manner. Informationtechnology has increased the capa-bility to postpone logisticaloperations to the latest possible time and then accom-plishrapid delivery of required inventory. The result is elimination ofexcessive inventories traditionally stocked in anticipation ofcustomer requirements. Rapid response capability shiftsoperational emphasis from an anticipatory posture based onforecasting and inventory stocking to responding to customerrequirements on a shipment-to-shipment basis. Becauseinventory is typically not moved in a time--based system untilcustomer requirements are known and performance is commit-ted, little tolerance exists for operational deficiencies

Minimum VarianceVariance is any unexpected event that disrupts system perfor-mance. Variance may result from any aspect of logisticaloperations. Delays in expected time of customer order receipt,an unexpected disruption in manufacturing, goods arrivingdamaged at a customers location, or delivery to an incorrectlocation-all result in a time disruption in operations that mustbe resolved. Potential reduction of variance relates to bothinternal and external operations. Operating areas of a logisticalsystem are subject to potential variance. The traditional solutionto accommodating variance was to establish safety stockinventory or use high-cost premium transportation. Suchpractices, given their expense and associated risk, have beenreplaced by using information technology to achieve positivelogistics Control. To the extent that variances are minimized,logistical productivity improves as a result of economical

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operations. Thus, a basic objective of overall logistical perfor-mance is to minimize variance.

Minimum InventoryThe objective of minimum variance involves asses commit-ment and relative turn velocity. Total commitment is thefinancial value of inventory deployed throughout the logisticalsystem. Turn velocity involves the rate of inventory usage overtime. High turn rates, coupled with inventory availability, meansthat assets devoted to inventory are being effectively utilized.The objective is to reduce inventory deployment to the lowestlevel consistent with customer service goals to achieve thelowest overall total logistics cost. Concepts like zero inventorieshave become increasingly as managers seek to reduce inventorydeployment. The reality of reengineering a system is thatoperational defects do not become apparent until inventoriesare reduced to their lowest possible level. While the goal ofeliminating all inventory is attractive, it is important to remem-ber that inventory can and does facilitate some importantbenefits in a logistical system. Inventories can provide improvedreturn on investment when they result in economies of scale inmanu-facturing or procurement. The objective is to reduce andmanage inventory to the lowest possible level while simulta-neously achieving desired operating objectives.To achieve the objective of minimum inventory, the logisticalsystem design must control commitment and turn velocity forthe entire firm, not merely for each business location.

Movement ConsolidationOne of the most significant logistical costs is transportation.Transportation cost is directly related to. the type of product,size of shipment, and distance. Many Logistical systems thatfeature premium service depend on high-speed, small-ship-ment transportation. Premium transportation is typicallyhigh-cost. To reduce trans-portation cost.. it is desirable toachieve movement consolidation. As a general rule, the larger theoverall shipment and the longer the distance it is transported,the lower the transportation cost per unit. This requiresinnovative programs to group small shipments for consoli-dated movement. Such programs must be facilitated byworking arrangements that transcend the overall supply chain.

Quality ImprovementA fifth logistical objective is to seek continuous quality improve-ment. Total quality management (TQM) has become a majorcommitment throughout all facets of industry. Overallcommitment to TQM is one of the major forces contributingto the logistical renaissance. If a product becomes defective or ifservice promises are not kept, little, if any, value is added by thelogistics. Logistical costs, once expended, cannot be reversed. Infact, when quality fails, the logistical performance typically needsto be reversed and then repeated. Logistics itself must performto demanding quality standards. The management challenge ofachieving zero defect logistical performance is magnified by thefact that logis-tical operations typically must be performedacross a vast geographical area at all times of the day and night.The quality challenge is magnified by the fact that most logisticalwork is performed out of a supervisors vision. Reworking acustomers order as a result of incorrect shipment or in-transitdamage is far more costly than performing it right the first time.

Logistics is a prime part of developing and maintainingcontinuous TQM improvement.

Life-Cycle SupportThe final logistical design objective is life-cycle support. Few itemsare sold without some guarantee that the product will performas advertised over a specified period. In some situations. thenormal value-added inventory flow toward customers must bereversed. Product recall is a critical competency resulting fromincreasingly rigid quality standards, product expiration datingand responsibility for hazardous consequences. Return logisticsrequirements also result from the increasing number of lawsprohibiting disposal and encouraging recycling of beveragecontainers and packaging materials. The most significant aspectof reverse logistical operations is the need for maximumcontrol when a potential health liability exists (i.e.. a contami-nated product). In this sense, a recall program is similar to astrategy of maximum customer service that must be executedregardless of cost. Johnson & Johnsons classical response to theTylenol crisis is an example of turning adversity into advantage. Theoperational requirements of reverse logistics range from lowesttotal cost, such as returning bottles for recycling, to maximumperformance solu-tions for critical recalls. The important pointis that sound logistical strategy cannot be formulated withoutcareful review of reverse logistical requirements.Some products, such as copying equipment, derive their primaryprofit from selling supplies and providing aftermarket. service.The importance of service sup-port logistics varies directly withthe product and buyer. For firms marketing consumer durablesor industrial equipment. the commitment to life-cycle supportconstitutes a versatile and demanding operational requirementas well as one of the largest costs of logistical operations. Thelife-cycle support capabilities of a logistical system must becarefully designed. As noted earlier, reverse logistical competency,as a result of worldwide attention to environmental concerns,requires the capacity to recycle ingredients and packagingmaterials. Life-cycle support, in modern terms, means cradle-to-cradle logistical support.

We Will Now Cover the Components ofLogisticsThe components mainly comprises of the part mostly of whichwe have already covered in our earlier semestersWith the help of the figure given below can you tell me withhow many terms are you aware with?????Yes that very nice of all of you that you are aware of most ofthe terms .But dont panick!!! I would be covering each term in detail sothat you can revise with me

For the Components See the FigureGiven BelowInputs Into LogisticsNatural ResourcesHuman ResourcesFinancial ResourcesInformation Resources

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CaN Anyone Tell Me What TheseResources Regarding LogisticsManagement????Management ActionsPlanningImplantationControl

We Have Already Discussed These Termsin First and Second SemestersLogistics ManagementRaw MaterialIn-Process InventoryFinished Goods

These are the Systems Through WhichProducts Goes From Suppliers toCustomers.Logistics ActivitiesCustomers ServiceDemand forecastingDistribution communication

Logistics management Logistics Management Suppliers customers Outputs of Logistics Input into logistics

Raw materials In-process inventory Finished goods

Marketing orientation

(competitive advantage)

Time and place utility

Efficient

movement to customer

Proprietary asset

Natural resources(land facilities, and equipments)

Human resources

Financial resources

Information

resources

Logistics Activities Customer Service Demand forecasting Distribution communications Inventory control Material handling Order Processing Parts and service support Plants and warehouse site selection Procurement Packaging Return goods handling Salvage and scarp disposal Traffic and transportation Warehousing and storage

Management actions

Planning Implementation Control

Inventory ControlMaterial HandlingOrder ProcessingPart & Service SupportPlant and Warehouse side selectionProcurementPackagingReturn goods handlingSalvage & scrap disposalTraffic & transportationWarehousing & Storage

Outputs of LogisticsMarketing OrientationTime & Place UtilityEfficient Movement to CustomerProprietary asset

We Would Be Covering the Last TwoComponents of Logistics in Our ComingChapters

Components of Logistics Management

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Questions for Self-analysation1. What do you understand by term LOGISTICS? Explain it

with the evolution concept.2 .With the help of suitable figure discuss the components of

logistical systems.3. Define the term LOGISTICS, with suitable example .And

the importance of logistics in todays business life.4. With the help of suitable example clearly explain the

objectives of Logistics.

ArticleSourceBusiness Horizon,32:1, January-Febuary 1998 pp44-50

Why Tylenol Remains Number OneJohnson & Johnsons McNeil Consumer Products Di-visionwas hit with a major crisis in September 1982. Their top-seHingproduct line, Tylenol, was linked to seven deaths in the Chicagoarea. At the time of the incident, Tyleool eojoyed 35 percent ofthe $1 billion analgesic market, but by the end of September,this market share had dropped 80 percent. Currently, Ty-lenol isagain the top-selling brand with approximately 30 percent ofthe now $2,7 billion analgesic market. t How Was Johnson &Johnson (1&J) able to regain mar-ket share and a leading imageafter such a damaging tragedy? Its recovery was successfulbecause of reverse logistics capability coupled with a marketingstrategy that focused on protecting the consumer and goingabove and beyond what was necessary to instill] trust and animage of security. This recovery plan is a pos-itive prototype forother corporations to follow, which, in effect, may increase thepotential for voluntary prod-uct recants across a variety ofindustries.When the List news reports hit about cyanide-tainted Extra-Strength Tylenol capsules, J&J was unsure whether thetampering occurred in its manufacturing operations or at theretail level. As such, its first efforts were directed at pinningdown the problem. As soon as the lot numbers were identifiedfrom the first few deaths, J&J stopped production in the plantresponsible. At the same time, it halted all Tylenol commercialsnationwide and began recalls that eventually involved 31 millionbottles of product, which had a retail value of $100 million.Another strategy that J&J took was to work openly and closelywith the media. 1&J has traditionally main-tained a distancefrom the press, but in this case it felt that openness and honestywould help reduce consumer panic and provide a vehicle fordisseminating critical information. A crisis team was puttogether that included J&J as well as McNeil executives and topman-agers. This team was quite sure that the tampering hadoccurred at the retail level since the incident was iso-lated toChicagos West Side and other samples from the same lot werenormal. Regardless, they began the recall with the remaining93,000 bottles from this lot.The expenses of this first phase of the recall included $1million just for phone calls and telegrams to doctors, hospitals,and distributors.The sixth poisoning ensured that the tampering was at the retaillevel since the bottle came from a lot manufactured at its secondplant. Since the cause was now isolated, J&1 could concentrate

on containment. The first step was to advocate a total recall.While this step was in some ways unnecessary, J&J felt it was akey step to ensure consumer confidence. At first, the FBI andFDA advised against a total recall because of the potentialpsychological response of the person whotampered with theproduct and the response of consum-ers in general. However,after a copycat strychnine poi-soning in California, all partiesagreed that complete removal was the best solution.This total recall entailed the following: (I) adver-tisements statingthat NcNeil would exchange tablets for capsules, (2) thousandsof letters to the trade to explain the incident and recall procedures,(3) media statements, (4) a sales force of over 2,000 employees tocontact doctors and pharmacists to regain trust and restore theirrecommendations that had traditionally served as the mainpromotional avenue for Tylenol products, (5) an extensive reverselogistics system that included buying products back from retailersand con-sumers and shipping returns to disposal centers, and (6)creating a tamperproof package. It is estimated that recall costswere at least $100 million, most of which involved the reverselogistics operations.By January 1983, the new tamperproof bottles of Tylenol wereon the retail shelf. Consumer confidence was obviously regainedas a result of the extensive voluntary recall] program, effectivepublic relations, and sales programs and repack operations. Thisconfidence was shown by the fact that at the end of theyear,Tylenol had regained almost 30 percent of the marketAlthough market share has remained at about 30 per-cent, salesdollars have more than doubled. since the total industry saleswere about $1 billion in the early 1980s but are now $2.7 billion.

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In 1991 the Council of Logistics Management (CLM) aprestigious, professional organization, defined logistics as theprocess of planning, implementing & controlling the efficient,effective flow the point of origin to the point of consumptionfor the purpose of conforming to customer requirements.Logistics means the art of managing the flow of raw materialsand finished goods from the source to the user.To get goods from where they arise to the right place in theright form, at the right time, at the right cost.Logistics or physical distribution or distribution logistics is anintegral part of Marketing Process.

Essence of Logistics in MarketingMarketing Process is successfully completed when Products are produced and priced to satisfy the identified

needs of the segment of buyers Arrangements are made to supply these goods through

selected distribution channels An awareness is created among the buyers about the

availability of the goods through information facilitation & Goods are physically supplied to the buyers at the place &

time selected by them. Besides satisfying the customers need, the marketing process

must be profitable to the seller.So in the Marketing sense, utility is not merely the usefulness ofa product to satisfy the customer needs but also moving theproduct from a manufacturing facility to the user.Thus, Logistics is a link between the manufacturing & sellingprocess that leads to the creation of place and time utility.While the production element in the marketing mix(product, price, place & promotion) leads to creation ofform utility by taking decisions as product line variety, design,colour brand, service, etc. the distribution element comprisingdistribution channel fixation & physical movement, createstime & place utility by ensuring that the produced goodsreach the place & time choosen by the buyer.Logistics is the designing and managing of a system in order tocontrol the flow of material throughout a corporation. This is avery important part of an international company because of

LESSON 2:LOGISTICS SUBSYSTEM

1. Marketing Logistics.2. Concepts of Logistics with respect to functions of

organization.3. Logistics Subsystems.4. Elements & Key factors of logistics system5. Trade-Off Analysis6. Types of Trade-Off Analysis

geographical barriers. Logistics of an international companyincludes movement of raw materials, coordinating flows intoand out of different countries, choices of transportation, costof the transportation, packaging the product for shipment,storing the product, and managing the entire process.

Marketing Trends Past Expectations Todays Expectations

Products Standardized Products

Customized Products

Forms Predefined Often Configurated Time Now as available When wanted Quality Acceptable Exceed Expectations Price Low Competitive Value

Added Services

Minimal Complex

Relevance of Logistics in ExportManagementInternational trade is becoming a more important part of theGNP in the industrially advanced countries. Many firms in thesecountries have production centers world wide for markets allover the world. Lack of local resources, small size of homemarket and many other reasons has resulted in functionalcenters being maintained in various countries.Issues associated with international transportation of finishedgoods are essentially the same as those that apply to transporta-tion in domestic trade. But, under international operations,goods can be out of exporters control for longer period oftime, more documentation is required, packaging may be morecostly and shipping insurance is more costly.The transportation alternatives include ocean shipping andcontainerization as well as airfreight. The basic activities involvedin the flow of goods, like transportation, warehousing andholding of inventories, should be integrated in a systemsapproach. The systems approach would recognize the trade-offs, such that sometimes more expensive airfreight may beopted for, instead of less expensive ocean shipping, because ofsavings in warehouse and inventory costs.In the field of exports, it should be noted that transportsystems in developing countries are generally not as efficient asin the industrially advanced countries. Transportation is oftenconsidered to be the most important single determinant ofplant location.Firms in international trade also try to reduce amount ofunnecessary product packaging, since packing material canaccount for almost 40 per cent of the weight of the productsshipped. A company can reduce inland transportation chargesby locating its distribution facilities adjacent to container ports

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or airports. The burden of documentation can be easedthrough computerization.Export management involves marketing in overseas market.Hence the discussions on the interface of logistics withmarketing holds good for the relevance of logistics in exportmanagement. Yet, in addition, export management has certainunique features, as discussed above, to be understood in thecontext of relevance of logistics to export management.

Importance of Logistics as a StrategicResourceLogistical Management includes the design and administrationof systems to control the flow of material, work-in-progressand finished inventory to support business unit strategy.Discussion of the concept of logistics, its place in the value-chain process leading to profitability, its contribution as one ofthe primary functions and its interface with other functions ofthe firm bring outs its importance as a strategic resource.However, to be of a real strategic influence, a good amount ofcompetency has to be achieved and a well-defined logisticalmission and objectives has to be committed to, by every one inthe firm, especially the top management.1. Logistical Competency : Logistics involves detailed and

complex work. Logistical management starts with howlogistical competency fits into a firms overall strategicpositioning. It is fundamentally important to view logisticsas to how it can be exploited as a core competency. Forlogistical competency to develop, it is important to developan integrated framework that defines and relates keyconcepts. This integration should be in such a way thatcompetitively superior logistical performance contributes tooverall enterprise strategy.Logistical competency is a relative assessment of a firmscapability to provide competitively superior customer serviceat the lowest possible total cost.This typically means that logistical performance is dedicatedto supporting any or all marketing and manufacturingrequirements in a manner that exploits delivery capability. Inshort, the strategy is to provide superior service at a total costbelow industry average.Alternative logistical capabilities, emphasizing flexibility,time-based performance, operational control, postponementcapabilities, and most of all a commitment to perfect serviceperformance typically characterize the service platform ofsuperior logistic achievers.So friends we can say that all enterprises must performlogistics to achieve their basic business goals. One of severalcompetencies required to create customer value is logistics.When logistics becomes a cornerstone of basic businessstrategy, it must be managed as a core competency.

2. The Logistical Missi on: Logistics exists to satisfycustomer requirements by facilitating relevant manufacturingand marketing operations. The challenge is to balance serviceexpectations and cost expenditures in a manner that achievesbusiness objectives.Basic logistical service is measured in terms of

1. Availability2. Operational performance, and3. Service reliability

1. Availability means having inventory to consistently meetcustomer material or product requirements.

2. Operational performance deals with the elapsed time fromorder receipt to delivery. Operational performance involvesdelivery speed and consistency. A firms operationalperformance can be viewed in terms of how flexible it is inaccommodating unusual and unexpected customer requests.

3. Service reliability involves the quality attributes of logistics.For logistics performance to continuously meet customerexpectations, it is essential that management be committedto continuous improvement.

Do you know in 1956, in an effort to explain conditions underwhich high-cost air transport could be justified, Lewis, Cullitonand Steele conceptualized the total cost of logistics.Total cost was positioned to include all expenditures necessaryto perform logistical requirements. The authors illustrated anelectronic parts distribution strategy wherein the high variablecost of direct factory to customer air transport was more thanoffset by reductions in inventory and field warehouse costs.They concluded that the least total cost logistical way to providedesired customer service was to centralize inventory in onewarehouse and make deliveries using air transportation.The concept of total cost, although basic, had not previouslybeen applied to logistical analysis. Managers typically focused onminimizing functional cost, such as transportation, with theexpectation that such effort would achieve the lowest combinedcost. The total-cost concept opened the door to examining howfunctional costs interrelate.The appropriate level of logistics cost expenditure must berelated to desired service performance. The simultaneousattainment of high availability, operational performance, andreliability is expensive. A significant managerial challenge stemsfrom the fact that logistical cost and increased performance havea no proportional relationship.The typical logistical system in an enterprise seeks to developand implement an overall logistical competency that satisfies keycustomer expectations at a realistic total-cost expenditure.Overall, logistical management is concerned with operations andcoordination. Operations deal with strategic movement andstorage. To complete the total operations mission. Attentionmust be directed to integrating physical distribution, manufac-turing support, and procurement into a single logistical process.These three areas, functioning as an integrated and coordinatedprocess, can best provide operational management of materials;semi finished components, and finished products movingbetween locations, supply sources, and customers of anenterprise.The mission of the logistical system is measured in terms oftotal cost and performance. Performance measurement isconcerned with the availability of inventory, operationalcapability, and quality of effort. Logistical costs are directlyrelated to desired level of performance. As a general rule, the

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greater the desired performance, the higher the total logisticscost. The key to effective logistical performance is to develop abalanced effort of service performance and total-cost expenditure.The strategic integration of logistics is fundamental to anenterprises success. While a firm may not select to differentiatecompetitively on the basis of logistical competency, it mustperform logistical responsibilities as part of the fundamentalprocess of creating customer value. The relative importance thata firm places on logistical competency will determine the degreeof emphasis on achieving internal and external integration.Flexibility is key to logistical competency. Logistical flexibilityresults from integration and from implementing time-basedcontrol techniques.

There are Four Logistics Concepts The systems concept The total cost concept The after-tax concept The trade-off conceptThe systems concept is based on all functions of a organizationworking together in order to maximize benefits. This conceptsometimes requires certain components of the organization tooperate suboptimally in order to achieve maximum goals of thesystem.The total cost concept is based on the systems concept, howevergoal achievement is measured in terms of cost.A variation of the total cost concept is the after-tax concept.This goal of this concept is after-tax profit. This concept isbecoming very popular because of the many different nationaltax policies.The trade-off concept links the system together in a way that isvery efficient, but can have trade-offs that might be inefficient.The advantages of such high efficiency must be weighed againstthe risk involved.Logistics is a system having number of components, which canbe combined in different proportions to achieve a set objective.Long-term objective is profitability, short-term objective is tosurvive competition by recovering marginal costs.

Logistics Sub-Systems Physical Supply or Management of flow of raw materials,

spare parts, consumable stores and machinery & tools fromsuppliers.

Physical distribution or management of finished goodsfrom the factory to the buyers &

Logistical Controls for managing the logistics system, ithelps an efficient co-ordination of physical supply &distribution sub-systems.

Objective of an ideal logistic system is to ensure flow of supplyto the buyer:- In Correct Quantity At Desired location At Required time At useable condition At the lowest total cost

Thus the objectives encompass efforts to coordinate physicaldistribution and material management in order to save moneyor improve service.Elements of logistics system Transportation Warehousing Inventory Management Packing & Utilization & Information & CommunicationWhen economists originally discussed supply-and-demandrelationships, facility location and transportation cost differen-tials were assumed either nonexistent or equal amongcompetitors.Given a facility network and information capability, transporta-tion is the operational area of logistics that geographicallypositions inventory. Because of its fundamental importanceand visible cost, transportation has received considerablemanagerial attention over the years. Almost all enterprises, bigand small, have managers responsible for transportation.Finding and managing the desired transportation mix is aprimary responsibility of logistics.Network of three of the functional areas of logistics - informa-tion, transportation, and inventory - can be engineered into avariety of different operational arrangements. Each arrangementwill have the potential to achieve a level of customer service atan associated total cost; In essence, these three functionscombine to create a system solution for integrated logistics. Thefinal functions of logistics - warehousing, material handling,and packaging - also represent an integral part of an operatingsolution. However, these functions do not have the indepen-dent status of the three previously discussed. Warehousing,material handling and packaging are an integral part of otherlogistics areas. For example, merchandise typically needs to bewarehoused at selected times during the logistics process.Transportation vehicles require material handling for efficientloading and unloading. Finally, the individual products are mostefficiently handled when packaged together into shippingcartons or other types of containers.Logistics is viewed as the competency that links an enterprisewith its customers and suppliers. Information from and aboutcustomers flows through the enterprise in the form of salesactivity, forecasts, and orders. The whole process is viewed interms of two interrelated efforts, inventory flow and informa-tion flow.Information flow is a key element of logistics operations.Paper-based information flow, increases both operating costand decreases customer satisfaction. Electronic informationmovement and management provide the opportunity to reducelogistics expense through increased coordination and to enhanceservice by offering better information to customers.Information flow was often overlooked because it was notviewed as being important to customers. The Council ofLogistics Management recognized this change in 1988 when itincorporated material, in-process, finished goods and informa-tion into its definition of logistics.

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Transportation is a key activity in the logistics value chain as itmoves product through the various stages of production andultimately to the consumer. The primary functions includeproduct movement, product storage and integration ofinternational production and distribution operations. Themajor transportation principles involve economies of scale andeconomies of distance.While effective distribution systems should not be designed tohold inventory for an excessive length of time, there areoccasions when inventory storage is justified. While the traditional warehousing role has been to maintain asupply of goods to protect against uncertainty, contemporarywarehousing offers many other value-added services. Theseservices can be described in terms of economic and servicebenefits. Economic benefits include consolidation, break bulkand cross-dock, processing/postponement, and stockpiling.Service benefits include spot stocking, assortment, mixing,product support, and market presenceThe handling of products is a key to warehouse productivity.Handling activities include receiving, in storage handling, andshipping. Packaging has a significant impact on the cost andproductivity of the logistical system. An integrated logisticsapproach to packaging operations can yield dramatic savings. A marketing mix is a compilation of activities designed toattract customers while simultaneously achieving businessobjectives. The so-called four Ps -products/service, promotion,price, and place - constitute a generic marketing mix. The key toformulating an effective mix strategy is to integrate resourcescommitted to these activities into an effort that maximizescustomer impact. Logistics ensures that customer requirementsinvolved in timing and location of inventory and other relatedservices are satisfactorily performed. Thus, the output oflogistical performance is customer service. Logistical competenceis a tangible way to attract customers who place a premium ontime and place--related performance. Thus the discussion on the objectives, logistics interface withmarketing and the system elements brings out the depth of thescope of logistics in the efficient functioning of any businessentity. The key to excellent logistics is to achieve integration ofboth internal and external operations. Such integration requiresclear identification concerning the role that logistical competencyis expected to play in overall enterprise strategy.

Key FactorsInvolved in efficient and effective and effective logistics systemare Shippers (users of logistics) Suppliers (of logistics services)

Carrier (rail, road, sea, water, pipeline) Warehouse Providers Freight forwarders Terminal operators (port, stevedores, etc

Government (regulator of logistics)

Trade-off AnalysisTrade-off analysis is a family of methods by which respon-dents utilities for various product features (usually includingprice) are measured. In some cases, the utilities are measuredindirectly. In this case, respondents are asked to consideralternatives and state a likelihood of purchase or preference foreach alternative. As the respondent continues to make choices, apattern begins to emerge which, through complex multipleregression (and other) techniques, can be broken down andanalyzed as to the individual features that contribute most tothe purchase likelihood or preference. The importance orinfluence contributed by the component parts. i.e., productfeatures, are measured in relative units called utils or utilityweights.In other cases, respondents are asked to tell the interviewerdirectly how important various product features are to them.For example, they might be asked to rate on a scale of 1 to 100various product features, where 1 means not at all important totheir purchase decision and 100 means extremely important totheir purchase decision.Trade-off analyses produce several types of information. First,they tell us what features (and levels of features) are mostvalued by customers. Second, they allow us to model how likelypeople will be to purchase various configurations of products,the share of revenue these products will most likely receive andwhat role price plays in the assessment of acceptability.There are four main types of trade-off:ConjointDiscrete ChoiceSelf-explicatedHybridOne additional model, the MACROModel2, will be discussedwhich does not fall into any of the above four categories.We will discuss each of these trade-off types after reviewing afew basic concepts.

Experimental DesignA critical issue in most trade-off methods is the selection ofproduct attributes to be combined together to create eachproduct configuration to be tested.If every possible combination of attributes were included in thestudy, the study would be said to be using a complete or fullfactorial design. This is desirable but very seldom practical. Forexample, if we had 6 attributes with 3 levels each, the totalnumber of possible combinations would be 36 or 729. This ismuch too large to ask one respondent to rate (and 6 attributeswith 3 levels each is untypical modest).When a fractional factorial design is used, only a fraction of thetotal possible number of product combinations needs to betested. For the above example, a fractional factorial design couldbe generated (usually with the help of a computer) that wouldrequire perhaps as few as 14 product configurations to be rated.It must be kept in mind, however, that whenever a fractionalfactorial design is used, some information will be lost. It is thejob of the researcher creating the experimental design to ensurethat the information being sacrificed (usually higher order

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interaction effects) does not compromise the projects ability toanswer the research objectives.

BridgingOccasionally, even with the most efficient fractional factorialdesign, we still end up with more products than can bepractically accommodated. One possible solution to thatproblem is bridging3. Bridging allows the attributes to bedivided into two or more sets (with some attributes commonto all sets). Each set of attributes is treated like its own trade-off study. A fractional factorial design is created for each set ofattributes. Respondents are asked to rate or rank two smallersets of products rather than one large set. The utilities arecalculated for each trade-off exercise independently and bridgedtogether to create one final set of utilities.

Cognitive and Non - Cognitive BehaviorCritical to the selection of an appropriate trade-off technique isthe issue of which type of behavior, cognitive or non-cognitive,best represents the behavior being measured. Cognitivebehavior is behavior that is based on rational, consciousdecision-making. Such factors as price, functionality or durabilityare typically cognitive. Non-cognitive behavior is behavior that isbased on less tangible or even less conscious factors such asstatus, aspiration, insecurity, perceived taste, etc. One mightargue that the selection of a life insurance policy, a computer or awater heater are all cognitive decisions and that the selection of abeer, a skin cream or a pair of pants are all non-cognitive. Onemight also argue that all decisions made by humans are non-cognitive.However, trade-off techniques that employ direct questions(self-explicated and hybrid) all assume that the behavior beingmodeled is cognitive, because at least some of the productfeatures are being rated in a way that requires both awarenessand honesty from the respondent. That is, the respondentmust be aware of the degree to which a product feature affectshis or her purchase decision and also be willing to admit to thatdegree of affect.Additionally, any data collection methods that rely on verbal orwritten descriptions of product features all assume that thebehavior being modeled is cognitive, because the process ofunderstanding a verbal or written description is itself a cognitivebehavior.Non-cognitive trade-off models should be based on an indirecttrade-off technique (conjoint or discrete choice) and datacollection that relies on experience rather than language tocommunicate the product choices. For example, if you aremodeling the pant selection process, show respondents a varietyof pants that they can see and touch. A consumer may respondto the phrase light blue pants very differently than he or shewould to a particular pair of light blue pants.

The Four Main Types of Trade-offI. Conjoint

Conjoint analysis is the original trade-off approach and useslinear models. There is metric conjoint, where respondentsmonadically rate various product configurations, and non-metric conjoint, where respondents rank a set of productconfigurations. There are also full-profile conjoint, partial-

profile conjoint and pairwise conjoint. Full-profile conjointuses all product features in every product configuration.Partial profile conjoint uses a smaller subset of availableproduct features in the product configurations. Pairwiseconjoint requires the respondent to rate their preference forone product over another in a paired comparison. We willonly discuss conjoint methods in general in this paper.Conjoint models are simply regression models which areconstructed for each individual respondent. Typically, eachrespondent rates or ranks 20 to 30 product configurations.Each product configuration contains different levels of theproduct attributes being tested. If the product levels arevaried appropriately (the role of experimental design), aregression model can be estimated for each individual, usingthe product ratings as cases. The coefficients from the modelare the utilities or utils.A conjoint approach should be used if a limited number ofattributes needs to be tested and utilities need to beestimated for individual respondents, e.g., conjoint-basedsegmentation.

2. Discrete ChoiceDiscrete choice differs from conjoint in that respondents areshown a set of products from which they pick the one theymost want to buy or none if they are not interested in anyof the choices shown (rather than rate or rank choices).Respondents are shown several sets of choices sequentially.For each choice set, they are asked to pick one or none. Thisis in contrast to most forms of conjoint where respondentsare not allowed to choose none of the product options(MACRO incorporates no-buy choices into its conjointmodels). The discrete choice procedure has the advantage ofbeing more like the actual purchase decision process than doany of the data collection methods used in most conjointstudies.Also, in conjoint methods, the mathematical modelsconstructed to simulate market behavior are based on linearregression models. In discrete choice, the basis is themultinomial logit model4, which is non-linear. Anotheranalytical difference is that, in conjoint procedures, the utilityweights are estimated for each respondent individually. Theseweights can often provide the basis for a very powerfulcustomer segmentation. Most commercially available formsof discrete choice do not allow this option, although thismay be rapidly changing.Further, because discrete choice models are generallyestimated at the aggregate level, there exists the possibilitythat respondents will have strong but opposite preferencesto one another. These preferences will effectively cancel eachother out when the model is constructed at the aggregatelevel, yielding the incorrect conclusion that respondents hadno strong preference. This is sometimes referred to as theheterogeneity problem.There are two basic forms of discrete choice: classic andexploding data5. Classic discrete choice involves showing arespondent a series of sets of products (as described above).In exploding data discrete choice, respondents are asked to

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rank order a set of products based on purchase interest(similar to non-metric conjoint). This rank-ordered data setcan be transformed into a format suitable for logit modelestimation. Exploding data discrete choice has the advantageof more efficient data collection over classic discrete choice.The exploding data approach creates many times more datapoints (or cases) than the classic approach with the sameinterview length.Discrete choice should be used if the primary objective ofthe study is to estimate market share or price sensitivity, alimited number of attributes need to be tested and thesample population is known to be homogeneous withrespect to all product attributes.

3. Self-ExplicatedConjoint and discrete choice both determine respondentsutilities indirectly.Self-explicated determines respondents utilities directly. Withself-explicated scales, respondents are asked directly howimportant all levels of all attributes are to their purchaseinterest. Despite its conceptual simplicity, self-explicatedmodels have been shown to be comparable to conjointmodels.Self-explicated conjoint analysis requires respondents toreveal their utilities directly. Accordingly, standardquestionnaire methods can be used to collect theinformation. The technique involves the following steps:

Respondent are informed about all the attributes and theirlevels, and the respondents are then asked to identifyattribute levels that are totally unacceptable to them

From among the acceptable levels of the attributes,respondents are asked to indicate which are the mostpreferred and least preferred levels of each attribute

Using the respondents most important attribute as ananchor, elicit importance ratings for the other attributes (on a0 - 100 scale)

For each attribute, rate the desirability of the differentacceptable levels with the attribute

Utilities for acceptable attribute levels are obtained bymultiplying the importance rating and the desirability ratings

The utilities are then entered into a choice simulator program,and choice information similar to other conjoint programs canbe obtained.Self-explicated approaches are useful when there are a largenumber of attributes and the decision process being modeled iscognitive.

IV. HybridHybrid models are models that use a combination of the abovetechniques. The most famous hybrid model is ACA, AdaptiveConjoint Analysis.

Adaptive Conjoint AnalysisIn this procedure, a computer program prompts the interviewerwith questions. The procedure is as follows:Respondents are first walked through a battery of feature-importance ratings and rankings; second, through a series of

pairwise trade-offs of different product configurations. Theproduct configurations shown to any one respondent may notinclude all of the attributes being tested.The configurations to be paired are based on the answers to theimportance questions and rankings asked in the beginning ofthe interview. Items that are considered of little importanceshow up in the comparisons less often. Items that are consid-ered of greater importance show up in the comparisons moreoften.For each pair of products being tested, the respondent is toindicate which product they prefer and the degree to which theyprefer it. The software continues prompting with pairwise comparisonsof product configurations until enough data has been collectedto estimate conjoint utilities for each level of each feature. Sincethe procedure is adaptive, only a fraction of the total number ofpossible product combinations is tested.ACA is an approach that is appropriate for building preferencemodels of cognitive behavior with large numbers of attributes.It may not be as useful when price sensitivity, non-cognitivepurchase decisions or interaction terms are to be modeled.

Cake Method and Logit-Cake MethodOther hybrid models include the Cake Method8 and the Logit-Cake Method9. Both of these models have been developed byMACRO Consulting and were designed to overcome weak-nesses in other models.

Cake MethodThe Cake Method is a unique, proprietary approach toconjoint analysis which offers several advantages over otherconjoint methods:A large number of product features (50 or more) can beincluded in the modelFirst order interactions can be estimated at both the disaggre-gate and aggregate levelsThere is complete control over the experimental design, in afull-profile formatSince product combinations are specified, via traditionalexperimental design, before the interview takes place, physicalexhibits can be easily incorporated into the interviewThe approach involves a specific data collection procedure as wellas a unique analytic protocol. The basic outline of the approachis to Collect self-explicated scales on most of the product

attributes tested Conduct a full-profile conjoint exercise with a limited

number of product attributes, some of which are commonto the self-explication exercise

Estimate conjoint utilities for each respondent Bridge self-explicated scales to utility weightsThe Cake Method should be used when there are a largenumber of attributes, utilities need to be estimated forindividuals, interaction terms need to be measured and thepurchase decision is at least partially cognitive.

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Logit-Cake MethodThe Logit-Cake Method is a unique, proprietary approach tochoice-based trade-off analysis which offers several advantagesover other conjoint methods: A large number of product features (50 or more) can be

included in the model The heterogeneity problem long associated with aggregate

logit models is avoided The traditional advantages of logit models over conjoint

models are maintained First order interactions can be estimated Shippers (users of logistics)Shippers (users of logistics)

There is complete control over the experimental design, in afull-profile format

Since product combinations are specified, via traditionalexperimental design, before the interview takes place, physicalexhibits can be easily incorporated into the interview

The approach involves a specific data collection procedure aswell as a unique analytic protocol. The basic outline of theapproach is to:

Collect self-explicated scales on all product attributes tested Conduct a full-profile choice-based exercise with a subset of

product attributes Segment the sample based on self-explicated scales Estimate logit models for each respondent cluster Bridge self-explicated scales to logit-based utility weightsThe Logit-Cake Method should be used when there are a largenumber of attributes, market share and price need to beestimated, interaction terms need to be measured and thepurchase decision is at least partially cognitive.

MACROModelOne other model will be discussed in this paper. It does not fallinto any of the four main types of trade-off models. In fact, itis not strictly speaking a trade-off model because it does notestimate utilities for any product attributes. TheMACROModel was developed by MACRO Consulting toaddress a specific research methods need that frequently occursin new product development and packaging.The MACROModel is a unique approach to new productscreening which offers several advantages over other methods: A large number of concepts or packages (50 or more) can be

screened at one time Price sensitivity can be calculated for every new product

concept screened Price/volume can be individually optimized for every

product concept tested New product concepts can be screened and/or completely

rank ordered on consumer appeal, market share, unitvolume, gross dollar volume or gross profits

The approach involves a specific data collection procedure as wellas a unique analytic protocol. The basic outline of the approachis to:

Sort a stack of new product concepts cards (all new productconcepts, each at three price points) into two piles: woulddefinitely buy and would not buy. Note: Stack would containseveral existing products as reference.

Have them rank order the would buy pile on a continuumfrom most want to buy to least want to buy.

Note: If the number of items to be sorted is too large forone sorting exercise, the task can be broken down intoseveral smaller exercises, with two or three items commonacross sorting tasks. After the data are collected for allrespondents for the various sorting exercises, a bridgingtechnique can be used to incorporate the data from theseparate exercises into one rank ordering of all of the itemsused in the study.

Once the data are combined into one rank order data set foreach respondent, the MACROModel (a first choice share ofpreference model) can be constructed.

The MACROModel should be used when the product is toocomplex to decompose into attributes, e.g., packaging graphics,when a large number of highly different products are to beincluded, e.g., new product screening, when price sensitivityneeds to be measured and when products will be screenedbased on their revenue potential.

ConclusionThere are a variety of approaches to trade-off analysis, each withits advantages and disadvantages. Which trade off procedure isbest is dependent on the issues and constraints of eachmarketing problem. The marketing problem should bediscussed with a researcher who is knowledgeable in all appro-priate methodologies before a research approach is selected.Thus trade-off are necessary . The aspects of trade-off analysis are Within One logistics Elements :- Trade-off that occurs

within a single element Between logistics Element:- Trade-off that are possible

by considering the impact of one on the other Interface between company functions:- These trade-off

are brought about through impact on production. Between the Company & other organizations:- These

trade-off benefit all concerned organizations.

Forms of Logistics Management.1. Centralized Logistics ManagementCentralized logistics management provides that managersthat also head other divisions of the company head the logisticsoperations. This type of management helps avoid internalproblems by having a central manager that ultimately decideshow logistics and operations are coordinated.

2. Decentralized Logistics Management Decentralized logistics management is based on the fact that acompany needs to have a division that helps control the local-adaptation needs. Dealing with different cultures requires inputfrom the local branch. The managers that deal with the culturaldifferences on a daily basis normally know what works andwhat dont.

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3. OutsourcingOutsourcing is the final option for logistics management. Whenthis happens, transportation firms concentrate on logistics, andthe company can concentrate on its production. There are manycost savings using this type of program, however that lack ofcontrol can negatively effect many companies.International logistics requires many different options andrequirements to be met in order for a company to operateinternationally. Its like a big puzzle that must be put together,in order for all the goals to be met. As described above, there aremany options to consider, and sometimes what appears to bean option really isnt. It is not difficult to hit a road block, andyou must start over with a new plan. Once the logistics plan isin place, you must constantly look for improvements in orderto maximize profits and goals.

Source for Trade Off Analysis1An edited version of this article was published in the February,1998 issue of Quirks Marketing Research Review.2P. Richard McCullough, MACROModel-A Price Sensitivityand Volumetric Approach to New Product Concept Screening,Mountain View, CA, 1995. A MACRO white paper.3Pierre Franois, Douglas L. MacLachlan and Anja Jacobs,Bridging Designs for Conjoint Analysis: The Issue of AttributeImportance, Leuven, Belgium, 1991-2. An unpublished paper.4R. Duncan Luce, Individual Choice Behavior: A TheoreticalAnalysis, New York: John Wiley, 1959.Richard R. Batsell and Abba M. Krieger, Least-Squares Param-eter Estimation For Luce-Based Choice Models, June, 1979.5Randall G. Chapman and Richard Staelin, Exploiting RankOrdered Choice Set Data Within the Stochastic Utility Model,Journal of Marketing Research, August, 1982.6V. Srinivasan, A Conjunctive-Compensatory Approach To TheSelf-Explication of Multiattributed Preferences, DecisionSciences, 1988, vol. 19.7ACA is a product of Sawtooth Software, Inc., Sequim, WA.Sawtooth Software offers a broad range of trade-off softwareproducts.8P. Richard McCullough, The Cake Method-A ProprietaryHybrid Conjoint Approach to Trade-off, Mountain View, CA,1997. A MACRO white paper.9P. Richard McCullough, The Logit-Cake Method-A Propri-etary Hybrid Choice-Based Approach to Trade-off, MountainView, CA, 1997. A MACRO white paper.

Questions For Self-analyzationQ1 What is the relation between Marketing and Logistics.

Quote a Suitable example to prove the relationship.Q2 What are the subsystems of Logistics

Management?Expain the importance of about each systemwith respect to the importance in business.

Q3 What do you understand by Trade-Off Analysis. Explainthe various techniques used to do the same. Also explainthe importance of trade-off analysis.

ArticleSource: International Business (1998). Fifth Edition.Zinkota, M., Ronkainen, I., and Moffett, M. Fort Worth:The Dryden Press

International LogisticsIntroductionFor the international firm, customer locations and sourcingopportunities are widely dispersed. The firm can attain astrategically advantageous position only if it is able to success-fully manage complex networks, consisting of its vendors,suppliers, other third parties, and its customers.Logistics costs comprise between 10% and 30% of the totallanded costs of an international order. Thus, internationallogistics is a competitive tool.Effective international logistics and supply-chain managementcan produce higher earnings and greater corporate efficiency.

DefinitionInternational Logistics is design and management of a systemthat controls the flow of materials into, through, and out ofthe international corporation.By taking a systems approach, the firm explicitly recognizes thelinkages among the traditionally separate logistics componentswithin and outside the corporationBasic goal of logistics: effective coordination of:A Materials Management: timely movement of raw materials

Parts, and supplies into and through the firm; andB Physical Distribution: movements of the firms finished

products to its customers.

Supply ManagementSupply-Chain Management: a series of value-adding activitiesconnect a companys supply side with its demand side.This approach views the supply chain of the entire extendedenterprise, beginning with the suppliers suppliers and endingwith consumers or end users.Close collaboration with suppliers is required to develop a just-in-time inventory system, which in turn may be crucial tomaintaining manufacturing costs at globally competitive levels.In the U.S. 40% of shipments are under a just-in-time/quickresponse regime.A Differences between Domestic and International

Logistics Distance Currency variation Border-Crossing Process (additional intermediaries) Transportation modes Packaging and Labeling requirements InfrastructureB International Transportation Issues Some countries may have excellent inbound and outbound

transportation systems but weak internal transportationlinks.

New routs of commerce have opened up

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Extreme variations also exist in the frequency oftransportation services.

C Availability of Modes Ocean Shipping: liner service (regularly scheduled passage);

tramp service (available for irregular routes and scheduled ondemand)

Container ships, Roll-on-Roll-off (RORO) Air ShippingD Choice of Modes Predictability: tracking Transit Time Noneconomic Factors

IV - Export Documentation And TermsA - Bill of Lading: contract between the exporter and the carrierindicating that the carrier has accepted responsibility for thegoods and will provide transportation in return for payment.B - Commercial Invoice: is a bill for the goods stating basicinformation about the transaction, including a description ofthe merchandise, total cost, address of the shipper and seller,and delivery and payment terms

V - IncotermsThe responsibilities of the buyer and the seller should bespelled out as they relate to what is and what is not included inthe price quotation and when ownership of goods passes fromseller to buyer.Incoterms: are the internationally accepted standard definitionfor terms of sale by the International Chamber of Commerce.A. Ex-works(EXW) : apply only at the point of originB. Free Carrier (FCA): applies only at a designated inland

shipping pointC. Free Alongside Ship (FAS): exporter quotes a price for the

goods, including charges for delivery of the goods alongsidea vessel at the port.

D. Free on Board (FOB): applies only to vessel shipments. Theseller quotes a price covering all expenses up to and includingdelivery of goods.

E. Cost and Freight (CFR): seller quotes a price for the goods,including the cost of transportation to the named port ofdebarkation.

F. Cost, Insurance, and Freight (CIF): price includes insurance,all transportation, and port charges, documentation charges,freight fowarder fees, and other insurance charges.

G. Delivery Duty Paid (DDD): the seller delivers the goods,with import duties paid, including inland transportationfrom import point to the buyers premises

VI - International Packaging IssuesPackaging is of particular importance in international logisticsbecause it is instrumental in getting the merchandise to theultimate destination in a:a. Safeb. Maintainable, andc. Presentable condition

The responsibility for appropriate packaging rests with theshipper of goods!!Packaging decisions must take into account:a. Climateb. Weight of packagingc. Packaging materialStresses in Intermodal Movementa. Acceleration, vibrationsb. Dropping Impactc. Rolling, Swaying

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LESSON 3:INTEGRATED LOGISTICS

1. The Work of Logistics. Network Design Information Transportation Inventory Warehousing,Mtrl.Handling,Packaging

2. Interated Logistics. Inventory Flow Information Flow

3. Barriers to Internal integration Organization Structure Measurement system Inventory Ownership. Information technology Knowledge Transfer Capability

Some qualifications are in order regarding the formal organiza-tion of human resources devoted to logistics. Managers areacutely interested in organizational structure because it directlyreflects responsibility, title, compensation, and power . Manymanagers have the perception that grouping responsibility forall logistical activity into a single organizational unit willautomatically stimulate effective integration. This perception iswrong because it emphasizes structure over mana-gerial practice.Formal organization structure alone is not sufficient toguarantee integrated logistical performance. Some of the mosthighly integrated logistical operations exist without organiza-tional accountability to a single executive. Other enterprises thathave highly formalized logistics reporting arrangements alsoachieve superior results. Generalization regarding how logisticsorganizations should ideally be structured is premature at thispoint of subject development. Logistical organization struc-tures vary significantly depending on specific mission, type ofbusiness, and available human resources. The goal in creatinglogistical sensitivity is to stimulate all managers within anenterprise to think and act in terms of integrated capabilities andeconomies.

Logistical Competency is Achieved byCoordinating1. Network design2. Information3. Transportation4. Inventory5. Warehousing6. Material handling7. Packaging.

Work related to these functional areas is combined to create thecapabilities needed to achieve logistical requirements. Attentionis directed to an introductory discussion of each facet oflogistical work and how they interact in a typical business.Two qualifications are important when discussing logisticalwork from the vantage point of a single enterprise. First, allfirms require the support and cooperation of many otherbusinesses to complete their overall logistical process. Suchcoop-eration unites the firms in terms of common goals,policies, and programs. From the perspective of the totalsupply chain, efficiency is improved by eliminating duplicationand waste. However, cross-organizational coordination requiresjoint planning and relationship management.Second, there are service firms that perform logistical work onbehalf of their customers such as transportation carriers orwarehouse firms. Such specialists are supplemental to or may besubstitutes for a customers employees performing the involvedwork. When outside specialists are used in a logistical system,they must be willing to accept reasonable managerial directionand control from their custom-ers. Therefore, while theperformance of a specific task may be outsourced to specialists,the contracting firms management remains responsible forsuccessful performance of the required work.

Network DesignClassical economics neglected the importance of facility locationand overall net-work design. When economists originallydiscussed supply-and-demand relation-ships, facility locationand transportation cost differentials were assumed to be eithernonexistent or equal among competitors. However, thenumber, size, and geographical relationship of facilities used toperform logistical operations directly affect customer servicecapabilities and cost. Network design is a primary respon-sibilityof logistical management since a firms facility structure is usedto provide products and materials to customers.Typical logistics facilities are manufacturing plants, warehouses,cross-dock operations, and retail stores. Determining how manyof each type of facility are needed, their geographic locations,and the work to be performed at each is a significant part ofnetwork design. In specific situations, facility operation may beoutsourced to service specialists. Regardless of who does theactual work, all facilities must be managed as an integral part ofa firms logistical network.The network design requirement is to determine the numberand location of all types of facilities required to performlogistics work. It is also necessary to deter-mine what inventoryand how much to stock at each facility and where to assigncustomer orders for shipment. The network of facilities forms astructure from which logistical operations are performed. Thusthe network incorporates infor-mation and transportationcapabilities. Specific work tasks related to processing customer

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orders, maintaining inventory, and material handling are allperformed within the network design framework. The design of a network must consider geographical variations.The fact that a great deal of difference exists between geographi-cal markets is easy to illustrate. The fifty largest United Statesmetropolitan markets in terms of population account for over55 percent of all product sales. Therefore an enterprise,marketing on a national scale, must establish logistical capabili-ties to service these prime markets. A similar geographicdisparity exists in typical material and component part sourcelocations. When a firm is involved in global logistics, issuesrelated to network design become increasingly more complex.The sidebar discussion of Laura Ashley s network designhighlights such complexity.See The Box For Laura Ashley

InformationThe importance of information to logistical performance hashistorically not been highlighted. This neglect resulted from thelack of suitable technology to generate desired information.Management also lacked full appreciation and in-depth un-derstanding of how fast and accurate communication couldimprove logistical performance. Both of these historicaldeficiencies have been eliminated. Current technology is capableof handling the most demanding information requirements. Ifdesired, information can be obtained on a real-time basis.Managers are learning how to use such information technologyto devise new and unique logistical so-lutions.

Location RedesignLaura Ashley, based in the United Kingdom, produces womensand childrens fashions, curtain and uphol-stery fabric, wallpa-per, linens, and decorating acces-sories in trademark floralpatterns. While it had always maintained excellence in productdesign and develop-ment, Laura Ashley suffered sinking profitsbecause of its complex, costly, and inefficient logistics system.Laura Ashley found that too many carriers and too manysystems were resulting in an overall loss of man-agerial control.To regain control, Laura Ashley had to reorganize its logisticaloperations. Implementation of Laura Ashleys new logisticsstructure began with the transfer of all in-house logisticsoperations to Business Logistics, a division of Federal Express.Business Lo-gistics task was to restructure, improve, andmanage every aspect of the flow of goods and informationwithin the Laura Ashley supply chain. Prior to reorganization, Laura Ashley had five major ware-houses, eight principal carriers, and ten uncon-nectedmanagement systems. The result was extremely long lead timesfor customers, huge inventories, and too many stockouts. Acustomer looking for a fast- selling item from a warehouse inGermany would be told that the item was out of stock and thatnew supplies would not arrive for several months. At the sametime, the item could be overstocked in a warehouse in Wales.On average, 16 percent of all product lines were out of stock atthe retail stores. Laura Ashley realized that it needed to reanalyze the location ofits current facilities. The recommendation was to close allwarehouses except one in the United Kingdom, which would

be converted from serving local customers only to servingglobal customers. The single location, at Newtown, allows closeproximity to the manufacturing sites in the United Kingdom.The New-town facility is a world processing center, acting ascost would be offset by increased efficiency. In the past, theproblem of unpredictable demand resulted in higher inventoryto cover up uncertainty and maintain customer service.Laura Ashley knew that it would have more pre-dictable flowwith a single service location as opposed to a number of smalllocations. Random demand could now be pooled over theentire market area, allowing spikes in one area to level out lowdemand in another. Transportation costs were offset by turnrate in inven-tory .In fact, Laura Ashley discovered that thesingle hub system actually decreased transportation costs byreducing the amount of cross shipping. By shipping direct tothe retail store from the United Kingdom ware-house, the leadtime from order to shipment was about the same but theproduct was shipped only once instead of being shipped andhandled at many different loca-tions.Laura Ashley has taken its reorganization beyondjust costreduction. The firm now sees the opportunity to increase serviceand flexibility, and it plans to resup-ply shops anywhere in theworld within twenty-four to forty-eight hours. Advancedsystems and communica-tions will be used to monitor andcontrol world inven-tory .Federal Expresss global carriernetworks will en-sure that goods arrive at their destination intime. Laura Ashley also plans to launch a mail-order businessthat will feature forty-eight hour delivery to the end con-sumersdoor anywhere in the world. Its current $10 million mail-orderbusiness has been growing strong, but until now the companyhad to limit growth because it could not keep up with expand-ing orders. The new superior location network will make thisgrowth pos-sible and profitable However, the technology is only as good as the quality ofinformation. Defi-ciencies in the quality of information cancreate countless operational problems. Typical deficiencies fallinto two broad categories. First of all, information received maybe incorrect with respect to trends and events. Because a greatdeal of logistics takes place in anticipation of future require-ments, an inaccurate appraisal or forecast can cause inventoryshortage or over commitment. Overly optimistic forecasts may