Subject :- International Marketing

Course:- MBA(III)rd sem

Faculty :- Ms. Parul Gupta

International Logistics and Supply-Chain Management

International Logistics :
• International logistics is the design and management of a system that controls the
Forward and reverse flow of materials, services, and information into, through, and out of the international
corporation.
• Through the implementation of international logistics, the firm can implement cost-saving programs
such as just-in-time (JIT), electronic data interchange (EDI), and early supplier involvement (ESI).
• The two phases of the movement of materials include:
– materials management, or the timely movement of materials, parts, and supplies.
– physical distribution, or the movement of the firm’s physical product to its customers.

Logistics versus distribution management

• Logistics differs from physical distribution management because it is concerned with treating the
problem of the movement and storage of materials as a whole, where physical distribution is only concerned
with movement and storage of materials from producer to customer.

Major logistics considerations

• Warehousing
– How many?
– What type?
• Inventory management
– JIT ‘Just in Time’ logistics management.
• Transportation
– Road
– Rail
– Water
– Pipeline
– Air
– Internet

The total logistics cost concept

1. Order processing and administration

2. Inventory control
3. Transportation
4. Warehousing
5. Materials handling

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What is Transportation & Logistics?

The art of getting the right stuff, to the right place, at the right time

• “Plans , implements, and controls the effective flow and storage of goods, services, and related
information from the point of origin to the point of consumption to meet the customers’ requirements.” -
Council of Logistics Management
• Logistics is concerned with the design and management of systems for the movement of products from
points of production to points of consumption
• Such systems typically encompass activities such as transportation, warehousing, materials handling,
inventory planning, and control customer service, facility location, scheduling and purchasing

Major Logistics Functions

Costs Order Processing

Minimize Costs of Received
Attaining Logistics Processed
Objectives Shipped

Logistics
Warehousing
Transportation Functions Storage
Rail, Truck, Distribution
Water, Pipeline, Automated
Air, Intermodal
Inventory
When to order
How much to order
Just-in-time

Three Concepts of Business Logistics

1. Total Cost Concept

2. Systems Concept
3. Trade-off Concept

• Systems concept
– The extensive and complex materials-flow activities within and outside of the firm must be considered
in the context of their interaction.
• Total-cost concept
– Minimizing overall logistics costs by identifying activity-based costs that impact after-tax profits
• Trade-off concept
– Recognize that logistics activities involve trade-offs in areas such as time-saved in delivery versus the
increased costs of expedited delivery systems.

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The Impact of International Logistics
• Logistical costs are 10% to 30% of the total landed cost of an international order.
• Factors necessary for the use of logistics as a competitive tool:
– Close collaboration with suppliers and customers
– Technologically advanced information processing and communication exchange capabilities
– An integrated business infrastructure

Management of International Logistics

• Centralized logistics management
– Headquarters retains decision-making power and control, coordinates all logistics.
• Decentralized logistics management
– The “decentralized full profit center model” allows the organization to respond to local market
conditions. Possibility for loss of coordination.
• Contract logistics
– Growing preference to outsource logistics function to “third party” specialists such as FedEx or UPS.

Centralized Logistics Management

In international logistics, the existence of a headquarters staff that retains decision-making power over logistics
is important.
To avoid internal problems, both headquarters staff and local management should report to one person.
This individual can contribute an objective view when inevitable conflicts arise in international logistics
coordination.

Decentralized Logistics Management

When a firm serves many diverse international markets, total centralization might leave the firm unresponsive
to local adaptation needs.
If each subsidiary is made a profit center in itself, each one carries the full responsibility for its performance.
Once products are within a specific market, increased input from local logistics operations should be expected
and encouraged.

Outsourcing Logistics Services

The systematic outsourcing of logistics capabilities is a third option.
By collaborating with transportation firms, private warehouses, or other specialists, corporate resources can be
concentrated on the firm’s core product.
One-stop logistics allows shippers to buy all the transportation modes and functional services from a single
carrier.

New Dimensions of International Logistics

• The basic differences
– Physical distance
– Currency variation and exchange rate differences
– Border-crossing regulations and documentation
– Transportation modes are intermodal

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• Country-specific differences
– Transportation systems and intermediaries vary
– Reliability of carriers may be different
– Computation of freight rates may be different
– Packaging and labeling requirements differ

Logistics and Security

• After the terrorist attacks of 2001, companies have to deal with the fact that the pace of international
transactions has slowed down and that formerly routine steps will now take longer.
• Logistics systems and modern transportation systems are often the targets of attacks.
• The need to institute new safeguards for international shipments will affect the ability of firms to
efficiently plan their international shipments.

Logistics and the Environment

• Reverse Distribution
– “a system responding to environmental concerns that ensures a firm can retrieve a product from the
market for subsequent use, recycling, or disposal”
• Since environmental laws and regulations differ across the globe, the firm’s efforts need to be
responsive to a wide variety of requirements.
• Reverse distribution systems are instrumental in ensuring that the firm not only delivers the product to
the market, but also can retrieve it from the market for subsequent use, recycling, or disposal.
• Companies need to learn how to simultaneously achieve environmental and economic goals.

Supply-Chain Management

• Supply-chain management is the integration of business processes from end user through original
suppliers, that provide products, services, and information that add value for customers.

– Supply-chain management connects a company’s supply side with its demand side.
– It opens up supplier relationships for companies outside of the buyer’s domestic market.

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The International Supply Chain

Suppliers Corporation Customers

Domestic/Import Inbound Throughflow Outbound Domestic/Export

Sourcing Materials Materials Distribution
Order Order
Order Order Processing Placement
Processing Processing

Supplier-Firm Transportation Transportation

Interface
Materials Physical Costumer-Firm
Transportation Transportation Interface
Management Distribution
Management Customer Physical
Service Distribution
Management
Storage Storage Inventory Storage Inventory Inventory
Management Management Management

Forward and Reverse Flow of Information, Products, and Funds

Transportation Infrastructure
• A firm’s logistics platform is determined by a location’s ease and convenience of market reach under
favorable cost circumstances.
• The public sector’s investment priorities, safety regulations, tax incentives, and transport policies can
have major effects on the logistics decisions of firms.
• The logistics manager must learn about existing and planned infrastructures abroad and at home and
factor them into the firm’s strategy.

International Transportation Issues

• Transportation infrastructure
– Roads, rail lines, airports, seaports, pipelines
• Availability of transportation modes
– Overland shipping, ocean shipping, air shipping
• Choice of modes
– Transit time, predictability, cost, noneconomic factors
• Noneconomic Factors
– Government involvement, the UNCTAD and
the 40/40/20 concept

Export Documentation

• A bill of landing is a contract between the exporter and the carrier indicating that the carrier has
accepted responsibility for the goods and will provide transportation in return for payment.

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• A commercial invoice is a bill for the goods stating basic information about the transaction, including a
description of the merchandise, total cost of the goods sold, addresses of the shipper and seller, and delivery and
payment terms.
• A freight forwarder specializes in handling export documentation.

International Inventory Issues

• Inventories tie up a major portion of corporate funds, therefore proper inventory policies should be a
major concern to the international logistician.
• Just-in-time inventory policies minimize the volume of inventory by making it available only when
needed.
• The purpose of establishing inventory systems are:
– to maintain product movement in the delivery pipeline
– to have a cushion to absorb demand fluctuations

Three Factors that Decide the Level of Inventory

1. Desired Customer Service Levels
2. Order Cycle Time
3. Use of Inventories as a Strategic Tool

Order Cycle Time

• The total time that passes between the placement of an order and the receipt of the merchandise.
– Length of the total order cycle
• Longer cycle in international marketing than domestic
– Consistency of the order cycle
• More complicated delivery mode reduces consistency
• Altering cycle times
– Change transportation methods
– Change inventory locations
– Change ordering process
.
Special Trade Zones
• Foreign trade zones are areas where foreign goods may be held or processed and then re-exported
without incurring duties.
• Trade zones can be useful as transshipment points to reduce logistics cost and redesign marketing
approaches.
• Governments and firms benefit from foreign trade zones.

Export Processing Zones and Economic Zones

• In export processing zones, special rules apply that are different in other regions of the country.
• These zones usually provide tax-free and duty-free treatment for production facilities whose output is
destined abroad.
• The maquiladoras of Mexico are one example of a program that permits firms to take advantage of
sharp differentials in labor costs.
• Through the creation of special economic zones, the Chinese government has attracted many foreign
investors bringing in millions of dollars.

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The Supply Chain and the Internet
• Because of the internet, firms are able to conduct many more global comparisons among suppliers and
select from a wider variety of choices.
• When customers have the ability to access a company through the internet, the company must be
prepared for 24-hour order-taking and customer service.
• For all countries, but particularly in developing nations, the issue of universal access to the internet is
crucial.