OMGT2088 Topic 1 - Globalisation & Logistics

8/19/2019 OMGT2088 Topic 1 - Globalisation & Logistics

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OMGT2088 INTERNATIONAL

LOGISTICSDr Vinh Thai

School of Business IT & Logistics

Topic 1: Globalisation, International Trade,

Logistics & Supply Chain Issues



• Globalisation of markets, production & supply

chains

• International trade

• The logistics concepts

• Logistics versus supply chain management

• Value-added role of logistics

• Factors affecting the cost and importance oflogistics

• International logistics management issues

RMIT University©2016 OMGT2088 – Dr Vinh Thai 2

Topics




Learning Outcomes

• Upon completion of this module, you should be

able to understand:

– globalisation of production, markets, and supply

chains,

– what international trade is about,– key important logistics concepts, its value-adding role

and influencing factors,

– the interrelationship between logistics and SCM andtheir importance in international trade,

– key management issues in international logistics.



RMIT University©2016 4

Some Food for Thought…

OMGT2088 – Dr Vinh Thai




Globalisation of Markets


• Globalisation is the ‘ process of increasinginterconnectedness between societies such that

events in one part of the world more and morehave effects on peoples and societies far away’(Bayliss and Smith 2001, p. 9)

• Globalisation has enabled the production anddistribution of products and services on a

worldwide basis – It is a consequence of convergence, which is the

tendency for the tastes and preferences of people in

different countries to become similar




Globalisation of Markets (C)


• Convergence is encouraged by global linkages -networks of individuals, institutions and countries

which tie together trade, financial markets,technology and living standards (Czinkota et al.2005)

• Linkages in the network are facilitated by TV,radio, movies, the Internet, by music and transport

• Global linkages result in people in manycountries wearing jeans, drinking cola and eatingpizza and hamburgers, etc.




Globalisation of Markets (C)


•Developments in communications and transportationtechnologies have moved the world towards

becoming a ‘global village’ of interdependent people

•Goods and services, as well as people, travel betweencontinents and this has led to an economic systemthat transcends national boundaries and markets

•National markets and their associated economic

systems are no longer isolated from one another bydistance, time or culture: they have merged into onehuge global market




Globalisation of Production


• The sourcing of goods and services fromlocations around the globe to take advantage of

national differences in the cost and quality of factors of production ... to lower their overall coststructure and/or improve the quality or

functionality of their product…. (Hill 2005, p. 7)

• How does globalisation of production takeadvantage?




Globalisation of Production (C)





Globalisation of Supply Chains





What does International Trade mean?


International trade = Exporting and Importing

SELLING (within the country) BUYING

EXPORTING (across the border) IMPORTING

•SIMILAR IN MEANING BUT THEINTERNATIONAL DIMENSION ADDSCOMPLEXITY TO THE PROCESS OF BUYING

AND SELLING.




What does International Trade mean? (C)


• Dudley (1989, p7) says that

– exporting involves the sale of our product or

service in a foreign market. It necessitates findingforeign markets, setting up marketing organisations,developing business within those markets, making

transactions, physically shipping goods to markets,managing the movement of documents and managingthe process of getting paid.

• “The basis of exporting is marketing;

the basis of importing is purchasing”.




The Concept of Logistics


• Logistics Management is that part of Supply Chain

Management that plans, implements, and controls

the efficient, effective forward and reverse flow and

storage of goods, services and related information

between the point of origin and the point of

consumption in order to meet customers'

requirements.

(Council of Supply Chain Management Professionals)• The 7Rs (7 Rights): product, customer, place, time,

quantity, quality, price




The Concept of Logistics (C)





The Concept of International Logistics


Component

Component

Raw material

Component

Component

Raw material

Nairobi

Amsterdam

Chicago

Hong Kong

Option

Finished goods

Peripheral

AccessorySubassembly

Subassembly

Subassembly N. America

Europe

Asia/Pacific

S. America

Africa/M.East

Raw materials WIP Final assembly Distribution Customers




The Concept of International Logistics (C)





The Concept of Logistics: The Magic Formula


Energy = Mass X (C) Speed of Light2

(Einstein)

Efficiency = Movement X Speed of

Communications2

(Logistics)




Logistics versus Supply Chain Management


• From late 1980s, logistics has been extended to cover a

wide range of interest & activities – This practice is

called SCM

• Often used interchangeably with ‘logistics

management’.

• There are subtle differences

SCM is the integration of all activities associated with

the flow and transformation of goods from raw

materials through to end user, as well as information

flows, through improved supply chain relationships, to

achieve a sustainable competitive advantage.




Logistics versus Supply Chain Management (C)


• Supply Chain Management encompasses the planning and management of all activities

involved in sourcing and procurement,conversion, and all Logistics Managementactivities. Importantly, it also includes

coordination and collaboration with channel partners, which can be suppliers, intermediaries,third-party service providers, and customers. In

essence, Supply Chain Management integratessupply and demand management within andacross companies (CSCMP).




Logistics versus Supply Chain Management (C)





The Start and End of Logistics


• Where should logistics start and where should it end?

• It is said that logistics commences with finished

products from the end of production line to the

consumer, or to get the right goods to the right place, at

the right time, in the right form and at the right cost

• Today, logistics embraces the whole process from the

point of origin of resources to the point of destination,

including material management and distribution

• Disposal is increasingly being seen as the end point,

since ‘reverse logistics’ is now repeatedly taken into

consideration as part of the whole logistics process




Logistics Questions: Location


• Location of resource inputs (Where?)– Where to find material needed

– Where to find labour and parts supply, etc• A decision on location includes also what

product to produce & which plants to produce

them in• When resources are found, another question is

where to put them together to transform raw

materials into WIP or finished products:– Where to set up production bases or factories?

– Where to build warehouses or distribution centres?

– Where to establish branch organisations? Etc.




Logistics Questions: Movement and Storage


• Movement and storage of resources and productsfrom the origin of resources to the final destinationof finished products– how to transport from A to B, by air, sea, road or

combination of them;– when should the transport start; which route should be

chosen;

– should storage be needed; is packing needed and if so,when and how etc.

• The two groups of logistics questions are logicallyinterrelated

• Logistics concerns space and time, and is about toanswer the questions of location, movement andstorage of economic resources.




Value-added Role of Logistics


•Most commonly referred to in terms ofeconomic utilities:

– Form utility

– Place utility

– Time utility

– Possession utility




Important Logistics Concepts


• Total costs: the

essence of

logistics is to

minimise total

costs of

logistics rather

than cost of an

individual

activity

PlaceCustomer service

Warehousing

costs

Processing and

information costs

Lot quantity

costs

Inventory

costs

Transportation

costs

Product

PromotionPrice

L O G I S T I C S

M A R K E T I N G




Important Logistics Concepts (C)


• Cost trade-offs: a useful analysis tool aiming atminimising integrated logistics costs

• At the stage of planning and assessing integratedlogistics system, different combinations of cost elementsshould be sought, analysed & compared to identify an

optimal portfolio• All major cost elements in a logistics system are

interrelated; thus a best combination must exist with

which total costs are the minimum

• Reducing a cost element may incur another; so a totalcost saving must be sought




Important Logistics Concepts: An Example


Cost Centers Rail Motor

Transportation $ 3.00 $ 4.20

Inventory 5.00 3.75

Packaging 4.50 3.20

Wareo!sing ".50 .75

Cost o# ost %ales 2.00 ".00

Total Cost $ "5.00 $ "3.00

F Aff i h C d I f




Factors Affecting the Costs and Importance of

Logistics


• Competitive relationships: Price & Customer Service

– Order cycle: short order cycle leads to less inventory level

F t Aff ti th C t d I t f





Logistics (C)



– Substitutability: the more substitutable is the product, the more

importance is customer service – Inventory effect: cost of lost sales is inversely related to inventory

cost






Logistics (C)



– Transportation effect: similar to inventory effect






Logistics (C)


• Product relationships

– Dollar value: the higher product’s dollar value, the greater costs of

transport, inventory, warehousing, material handling






Logistics (C)



– Density: weight/space ratio. Transport, inventory & warehousing

costs decrease if product’s density increases






Logistics (C)



– Susceptibility to damage: the greater the risk, the higher transport

& warehousing costs






Logistics (C)


• Market relationships

– Degree of intra-mode & inter-mode competition: the

more competition, the cheaper the service

– Government regulations related to transport: may affect

competition & thus costs

– Balance or imbalance of freight traffic: transport cost is

lower with a balanced traffic

– Location of markets, both resources and consumptionareas: this has implication on transport distance & thus

cost






Logistics (C)


• Spatial relationships: direct impact on transport

cost & indirect impact on inventory & warehousing

cost




Management of International Logistics


• Drivers: costs, economies of scale/new market, e-

commerce, globalisation

• Enablers: ICT, transportation

• Risks: longer lead time-responsiveness/time to market,

transportation cost, inventory and handling cost,geopolitical threats/cross border issues, transportation

breakdowns, cultural sensitiveness

• Activities: network design, risk management

Issues of International Logistics Management:





Complexity


• Process complexity- too many steps

• Product complexity- too many unique

components

• Customer complexity- too many service demand

• Supplier complexity- too many suppliers






Potential Hidden Costs


• Commissions to customs brokers

• Financing charges, letter of credit fees,

exchange rate differentials

• Foreign taxes imposed

• Extra inventory and carrying costs

• Extra paperwork/documentation

• Inventory obsolescence, deterioration,spoilage, pilferage

• Packaging

• Fees for consultants, inspectors

• Insurance

• Import tariffs

• Fees for intermediaries

• Warehousing fees,Port/airport handlingcharges

• Risk and Security






Length of the Performance Cycle


• Longer performance cycles for international operations

– measured in weeks or months e.g. fashion merchandise takes 30to 60 days

• Reasons for longer order cycle to delivery cycle times

– Communication delays

– Financing requirements

– Special packaging requirements

– Ocean freight scheduling

– Slow transit times

– Customs clearance

• Overall higher asset commitment is required

– Inventory is in transit for longer periods






Others


• Operational considerations:

– Multiple languages for both product and

documentation

– Large amount of documentation

• Information systems integration

• Integration with other supply chain partners

– horizontally

– vertically



• The globalisation of markets, production &

supply chains will continue

• Logistics is essential for international trade, and

there are important logistics concepts

• International logistics possesses key issues which

have to be managed sensibly


Concluding Remarks – So What?

Documents

OMGT2088 Topic 1 - Globalisation & Logistics