CHAPTER 13

Global Logistics

Becton Dickinsons Worldwide Sources

International Logistics
Changes to political landscape affect logistics
The end of Soviet rule in Eastern Europe EU economic integration
Nontariff barriers-a rule that has the effect of reducing imports Restrictions on truck traffic, forcing freight onto rail and water

NAFTA

Multinational firms

Comparison of Domestic and International Logistics

Domestic
About 10% of U.S. GDP today Cost Transport mode Mainly truck and rail

International
Estimated at 16% of world GDP today Mainly ocean and air, with significant intermodal activity Higher levels, reflecting longer lead times and greater demand and transit uncertainty Heavy reliance on forwarders, consolidators, and customs brokers High, owing to differences in currencies, inflation, levels and little recourse for default High, owing to longer and more difficult transit, frequent cargo handling, and varying levels of infrastructure development Many agencies involved (e.g., customs, commerce, agriculture, transportation Significant paperwork; the U.S. Department of Commerce estimates that paperwork cost for an average shipment is $250 Voice and paper costly and often ineffective; movement toward electronic interchange but variations in standards hinder widespread usage Cultural differences require significant market and product adaptation

Inventories
Agents Financial risk

Lower levels, reflecting short-order, leadtime requirements and improved transport capabilities
Modest usage, mostly in rail Low Low Primarily for hazardous materials, weight, safety laws, and some tariff requirements Minimal documentation involved (e.g., purchase order, bill of lading, invoice) Voice, paper-based systems adequate, with growing usage of electronic data interchange and Internet Relative homogeneity requires little product modification

Cargo risk
Government agencies

Administration
Communication Cultural differences

International Market Entry Strategies

Exporting Licensing Joint ventures

Ownership Importing Countertrade

Major Participants in an International Logistics Transaction

Domestic bank Domestic government agencies Domestic seller Export facilitators Inland transportation carrier Domestic port or terminal of exit International carrier (air, water) Foreign port or terminal of entry Foreign government agencies Foreign bank Foreign inland transportation carrier Foreign buyer

Product movement

Information flow

The Global Logistics Environment

Customer service Other activities Logistics executive

Warehousing

Competition

Inventory

and storage

Packaging

Transportation

Responding to Competition with Logistics

Increasing the number of cross-national partnerships, alliances, mergers, and/or acquisitions. Expansion of many previously domestic-based organizations into international markets. Development of global communications networks operating 24 hours a day. Establishment of country and regional warehouses in major world markets. Identifying and developing relationships with logistics service providers that offer transportation, storage, materials handling, and other services on a global basis.

Exporting Companies
Export distributor Customs house broker International freight forwarder Trading company Non-vessel-operating common carrier (NVOCC)

Documentation
Country of Origin Bills of Lading Packing Lists Customs Certified Shippers - C-T PAT

Free Trade Zones

> 225 in the US postpone payment of customs or taxes until item is sold avoid customs completely if consolidated and re-exported

Ocean Shipping

Types of Ocean Cargo

Petroleum Dry-bulk cargoes-grain, ores, sulfur, sugar, scrap iron, coal, lumber, logs in vessel loads Containers

Shipping conferences and alliances pool resources and extend market coverage

Ocean Shipping

Types of Vessels
Containerships Lighter aboard ship (LASH) vessels Roll On-Roll Off (RO-RO) vessels Tankers Specialized vessels

A RO-RO Vessel in Jacksonville Florida

International Trade Inventories

May vary in small ways from country to countryproducts may be tailored to fit Less is needed (than in U.S.) to serve any one country Return items are impossible to accommodate Import and export quotas affect value of inventories Currency and language differences

CHAPTER 15
Organizing for Effective Logistics

Traditional Logistics Management

CEO VP Marketing VP Production VP Financial

Responsibilities

Sales service Channels of distribution Product returns and warranties

Manufacturing Purchasing/ procurement Traffic Warehousing

Information systems Budgeting Inventory Data processing

Objectives Large inventories Small and frequent production runs Decentralized warehousing Large product assortment Low inventories Larger and infrequent production runs Plant warehousing Fewer products Centralized warehousing

Traditional Logistics Management cont.

CEO

VP Marketing

VP Production

VP Financial

Responsibilities

Sales service Channels of distribution Product returns and warranties

Rapid order processing Generous returned goods policies Fast transportation Expedited shipments

Manufacturing Purchasing/ procurement Traffic Warehousing

Information systems Budgeting Inventory Data processing

Inexpensive order processing More rigid returned goods policies Low cost transportation

Objectives

Control Exercised By Logistics Executives Over Selected Logistics Functions

Percent of Reporting Companies
Activities 1990 1999 Transportation Warehousing Inventory control Order processing Packaging 1966 89% 70 55 43 8 1976 94% 93 83 76 70 97% 95 81 67 37 1985 98% 97 79 61 48 90% 88 74 55 39

Purchasing and procurement

15

58

44

51

41

Organization Design for Logistics as a Function

President

Engineering

Manufacturing

Marketing/Sales

Finance/Accounting

Human Resources

Logistics

Organization Design for Logistics as a Program

President

Logistics

Engineering

Manufacturing

Human Resources

Marketing/ Sales

Finance/ Accounting

Components of Corporate and Logistics Mission Statements

Targeted customers and markets Principal products/services Geographic domain Core technologies

Components of Corporate and Logistics Mission Statements (cont.)

Survival, growth, and profitability Company philosophy Company self-concept Firms desired public image

Ways of Improving Logistics Organizational Effectiveness

Strategic goal setting Resource acquisition and utilization Performance environment Communication process Leadership and decision making Organizational adaptation and innovation

Logistics/Supply Chain Organization

A good organization structure does not by itself produce good performance--just as a good constitution does not guarantee great presidents, or good laws, or a moral society. But a poor organization structure makes good performance impossible, no matter how good the individual managers may be. To improve organization structurewill therefore always improve performance. Peter F. Drucker

Activity Fragmentation in the Supply Chain

Responsibilities

President
Marketing Finance Operations

Distribution
channels Customer service Field inventories Revenue
CR (2004) Prentice Hall, Inc.

Cost of capital ROI Inventory

carrying costs

Supply
alternatives and supply costs Warehousing Purchasing Transportation

15-4

Activity Fragmentation in the Supply Chain (Contd)

Objectives

President
Marketing Finance Operations

More inventory Frequent &

short production runs Fast order processing Fast delivery Field warehousing
CR (2004) Prentice Hall, Inc.

Less inventory Cheap order

processing

Long production runs

Less
warehousing

Lowest cost routing Plant warehousing

15-5

Activity Fragmentation in the Supply Chain (Contd)

Reasons for fragmentation Lack of understanding of key cost tradeoffs Traditions and conventions Other areas considered to be more important to the firm than logistics Organization structure can be in an evolutionary state

Benefits of fragmentation elimination Encourages important cost tradeoffs to be effected Focuses on an important, defined area by top management Sets the structure within which control can take place

Organizational Choices
Informal structure -Persuasion of top management -Coordinating committees -Incentive arrangements -Profit sharing -Cross charges Semi-formal structure -Matrix organization

Formal structure -Line--creates value in products, therefore it has

operating status -Staff--provides assistance to the line organization

Logistics Matrix Organization

President
Marketing Finance Production

Traffic & warehousing

Inventory management

Production scheduling

Customer service

Accounting & information processing

Quality assurance

Sales forecasitng

Purchasing & materials management

Logistics\SC coordinator
CR (2004) Prentice Hall, Inc.

Project authority
15-8

Functional authority

What is Systems Analysis?

Systems analysis refers to the orderly and planned observation of one or more segments in the logistics network or supply chain to determine how well each segment functions.

General Questions
Why do we perform each task? What value is added by it? Why are the tasks performed in the order they are? Can we alter the sequence of the processing steps to increase efficiency? Why are the tasks performed by a particular group or individual? Could others perform this task? Is there a better way for the system to operate?

Problems in Systems Analysis

Multiple business functions are impacted. There are trade-offs among conflicting objectives. Logistics system impacts are difficult to precisely evaluate. There are business issues unique to each logistics system.

Systems Integration: Logistics Activities Outside the Firm

Third-party, or contract, logistics Integrated service providers Monitoring third-party performance

Reverse Logistics

What Drives Reverse Logistics and Returns?

Wal-Mart Costs = up to 7-8% of costs of goods!

Impacts

Impacts

SCOR and Returns

Plan

Plan

Plan

Plan

Plan

Deliver Return

Source Return

Make

Deliver Return

Source

Make

Deliver Return

Source Return

Source Return

Make

Deliver Return

Return

Supplier Internal or External

Customer

Suppliers suppliers

Your Company

Internal or External

Customers customers

Processes associated with receiving returned products for any reason. These processes extend into post-delivery customer support. The process includes communication between the customer and last known holder or known return center and the generation of associated documentation.

Impacts of Reverse Logistics

Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing

Reverse Logistics - What is it? The Commercial Perspective

Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities

Processing returned merchandise damaged, seasonal, restock, salvage, recall, or excess inventory Recycling packaging materials/containers Reconditioning, refurbishing, remanufacturing Disposition of obsolete stuff Hazmat recovery

Reverse Logistics - New Problem?

Sherman Montgomery Wards - 1894 Recycling/remanufacturing in 1940s World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Costs - above the cost of the item Merchandise credits to the customers.

The transportation costs of moving the items from the retail stores to the central returns distribution center. The repackaging of the serviceable items for resale.
The cost of warehousing the items awaiting disposition. The cost of disposing of items that are unserviceable, damaged, or obsolete.

Costs

Process inbound shipment at a major distribution center = 1.1 days Process inbound return shipment = 8.5 days Cost of lost sales Wal-Mart: Christmas 2003 - returns = 4 Days of Supply for all of WalMart = 2000 Containers PalmOne - 25% return rate on PDAs

Is it a problem?
Estimate of 2004 holiday returns: $13.2 billion % of estimated 2004/2005 holiday returns: 25% Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) Electronics: $10 Billion annually in returns Personal Computers: $1.5 Billion annually = approximately $95 per PC sold 79% of returned PCs have no defects

Returns: an Operations Perspective

Emerging industry in infancy stage Many skill sets involved, deep knowledge of some skills Person on Warehouse floor needs tools No Schooling for Reverse Logistics No rules or standards No methods Few Best Practices Few comparisons

How do we know WHAT we should be doing? How do we know HOW WELL we are doing? Where are the opportunities to improve PROFITS?

Some Key Operational Challenges Operations people face:

1. So many people, from so many departments, at so many locations, from different companies, needed to process one return 2. For the group managers, returns is a small, annoying part of their group Most of a Return is someone elses problem /fault 3. Turn Around Time is often very slow and difficulties often arise that add days to the processing of a Return

Key Operational Challenges - 2

4. Difficulties arise with process Hand-offs between groups, Outsourced providers and multiple data systems staff is continually reconciling Collect little data about a Returned unit; it often has errors, so it may get handled incorrectly or we have to believe what the customer tells us Often time consuming or difficult to track down the status of a unit Stressful work environment due to frequent issues that need to be resolved ASAP Senior staff spend considerable time solving processing problems or escalated issues

5.

6. 7. 8.

Best Practices

All Returns under control of ONE GROUP Very Defined Business Processes Process Mapping author of text found that companies that develop process maps saved up to 40% Map all processes and add timelines Automate processes where possible

Why are the number of returns increasing?

Cell Phone Returns

Nearly 75% of returned phones are determined to have No Trouble Found 63% of returned phones are resold as is More than 16 hours of use and phone is no longer new High returns rate impacts Original Equipment Manufacturers for products under warranty Resold phones are used as scrap or warranty replacements California legislation requires retailers to establish system for collection, for reuse, recycling or disposal at no cost to the consumer

Source: DHL Presentation to Reverse Logistics Association, Feb 2007

Source: DHL Presentation to Reverse Logistics Association, Feb 2007

NASA Reverse Logistics

Returns Impact All Operational Facets

Marketing Product Logistics Development Production Purchasing Finance

Product Returns

Processes all different Groups

Authorize, Receive, Ship, Credit, Inventory, Inspect, Test, Repair, Disposition Multiple Locations Outsourced Parties Each with - their own processes - their own priority

Supply Chain Integrity

What is it? Why is it important?

Supply Chain Integrity

Perfect Order Fulfillment Information Security Parts integrity Boeing 787 Product integrity Mattel Shipping Integrity Inventory Integrity Cornerstone of supply chain leadership

Questions??

Summary

Global Logistics controllable and uncontrollable factors Impacts on global inventories Traditional vs. Non-traditional organizations Functional vs. Program design Reverse Logistics impacts, causes, best practices Supply Chain Integrity

Thank you for your time

Best of Luck to You in Your Next Assignment!!!