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Explore changes in market opportunities, cultural considerations, and global logistics strategies within the vast supply chain ecosystem. Learn how to adapt to evolving business environments to maximize customer value and profit.
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Chapter #11 The Global Logistics Environment
Overview • We will restate the definition and purpose of a supply chain • We will examine some of the changing market opportunities • We will reemphasize the importance of cultural issues • We will identify the leading global logistics strategies
Overview • We will discuss the impacts of documentation, customs regulations and foreign trade zones • We will examine the role of logistics facilitators in a global market logistics strategy
Introduction • The World Trade Organization (WTO) came into being in 1995 • Replaced the General Agreement on Tariffs and Trade • Mission is to administer international trade law • Significant impact on ease of conducting global trade • Committed to simplifying international business
Introduction • Management’s challenge today is to develop a logistics system that will meet customers’ often radically different needs by understanding • The cultural differences • The business environment differences • Maximizing customer value and business profit
The Global Supply Chain • Global logistics requires management to make decisions that recognize the contributions of the entire supply chain • The supply chain includes all the actors impacting the value delivered to the final customer • Vendors • Producers • Intermediaries • Logistics providers, etc.
The Global Supply Chain • World wide logistics cost estimated > US $3.4 trillion for 1996 in a 1998 study…and going up! • United States logistics cost during 2003 were: • US $650 billion • 8.5% of the Gross National Product
Changing Market Opportunities • New markets in developing nations • Lots of sales potential • But high accompanying risk • Developing markets will surpass industrial nations in share of global economic consumption in the next 10 years
Changing Market Opportunities • Direct result of increasing • World population • Standards of living • Per-capita income • Foreign investment and shifting financial flows
Changing Market Opportunities • Multi-lateral trade organizations encourage countries to engage in economic cooperation • More efficient use of resources • Expanded market opportunities • Minimization of cross border costs and other issues
Changing Market Opportunities • Some such organizations include: • European union…finally making real progress • North American Free Trade Agreement • Latin America’s Mercosur • Pacific rims ASEAN • Encourages businesses to trade within their block but often inhibit trade between blocks
Changing Market Opportunities • Global integration of trade is slowly: • Reducing red tape • Reducing documentation hurdles • Smoothing transportation issues • Standards are making economies of scale achievable in logistics and business in general
Changing Market Opportunities • Reduction of trade barriers has increased competition and has obvious benefits for customers…still, many oppose this liberalization • But, requires managers to change outlook and strategies…constantly, and not all can!
Changing Market Opportunities • As we have seen in this country during the later half of the 20th century, the more people have, the more they want • This means new markets are opening at an increasing rate…all opportunities for the firms that can compete
Changing Market Opportunities • As with the development of any strategy, the first issue is to figure out what the “new” customer really wants…where is the value added • Cultural differences local business focus • Economics force global strategy, especially for logistics
Changing Market Opportunities • Cheap and efficient labor and transportation require competitive strategy to include global sourcing of • Raw materials • Parts • Components • Products • Services
Changing Market Opportunities • Global sourcing is increasingly important for all companies and both products and services • Must find the right suppliers…but must manage on a day-by-day basis
Cultural Issues in Logistics • Logistics managers (really all managers) must understand the cultural factors influencing their global customers • Our products and services must be delivered within a context that is comfortable for the customer
Cultural Issues in Logistics • A successful strategy for one market may be a total flop in another…some times even another area of the same country • Bottom line is to deliver customer satisfaction and the appropriate value…or our competitors will displace us
Global Distribution Strategies • There are a number of strategy alternatives available to us when we decide to enter a new global market • The basic trade-off to consider is between investment risk and extent of control
Global Distribution Strategies • Once again, we point out that a viable business and logistics strategy may require different strategies for each market • Little risk in the industrialized nations • High risk in developing nations…but also the potential for high gain
Global Distribution Strategies • Exporting is the strategy of engaging a middleman to sell our products in some markets • Such middlemen may: • buy goods and resell • act as a broker finding a foreign buyer for our products/services
Global Distribution Strategies • Risk is minimized…no investment, but control is released • We can easily fail in a market without knowing why • Good strategy for firms just entering the global market place
Global Distribution Strategies • Licensing involves contractually transferring the right to make our products or provide our services in a country to a third party • Still very little risk…accept possibly to our reputation • But, more control, at least to the extent it is formalized in the contract
Global Distribution Strategies • Two issues to consider with licensing: • How do you terminate the relationship if you are unhappy with performance • Your licensee may become your competitor at the end of the contract…licensing agreement
Global Distribution Strategies • Joint Ventures involve investment in a local company…often the only way to obtain some ownership if foreign investment is discouraged • Allows us to use the skills of a local partner • Certainly increases our level of control, although we most often have a minority position
Global Distribution Strategies • Obviously, the risk is higher; we are invested in-country • Also limits our options with respect to changes in our approach to the market • Often JVs end up being most advantageous to the in-country partner
Global Distribution Strategies • Ownership of a foreign subsidiary provides the firm with the maximum amount of control • Much higher risk, of course • Can eliminate many costs such as import duties since we are now a “local” firm • Perhaps enough to offset higher risk
Global Distribution Strategies • Certainly ownership has market impact - the appearance of permanence as we have discussed earlier • Once again, however, we have limited our ability to respond or withdraw as a result of investment • Bottom line is to find the right strategy for each market as we move globally
Documentation • Documentation of international shipments can be overwhelming • We have discussed the issue with transportation and purchasing but a quick review is in order • Number of documents varies by country and product • Must often be prepared in multiple languages • Regulations are constantly changing
Documentation • Problems are being resolved…slowly • Multiple documents with same information • Lack of coordination between various agencies • Real progress coming with EDI and other electronic information systems
Documentation • Errors in documentation can result in • Shipment delays • Penalties • Added costs as we try to satisfy the customer • New, expedited shipments • Big problem is impact on our customers and thus their satisfaction
Documentation • US Customs is striving for paperless import customs declarations within 10 years • Providing external interfaces to their system • Other countries are changing as well • But it is a long, long road • Since 9-11, new security concerns are responsible for new programs such as: • “Secure Container” program • “Green Lane” programs
Customs Regulations • Customs laws are implemented to: • Generate revenues • Through fees and duties • Protect domestic industries • By keeping the price of foreign imports high
Customs Regulations • Customs laws are implemented to (continued): • Guard against illegal imports • Not just drugs, arms, etc • Products that don’t meet safety codes • Products that may have environmentally harmful effects, agricultural goods for example • Customs regulations are local, often don’t make any sense, but are still the law
Customs Regulations • Once again, our failure to understand local customs regulations can directly impact our customers • Stranded goods • Higher cost through penalties, etc. • Customs can be a bottleneck adding significant cost to our supply chain and ultimately the cost of our goods and services
Customs Regulations • Speeding up the process by inspecting and assessing at point of origin • Recognized inspection companies • Inspect at a place of our choosing • Seal the shipment…RFID • Green Lane programs • Secure container initiatives, etc.
Foreign Trade Zones • FTZs are designated areas within a country that are treated by Customs as foreign soil • Created to smooth the flow of goods by easing impact of customs regulations • Can be one or more buildings or just a designated area within a larger facility • Don’t pay duties/fees until the products are moved out of the FTZ, “imported” into the country
Foreign Trade Zones • In many countries, FTZs can be used to repackage, assemble and even manufacture goods for final import…or even shipment to another market
Foreign Trade Zones • For business, FTZs offer the opportunity to take advantage of quantity discounts and economics of transportation • Carrying cost is lower…duties not yet paid • Assembly and manufacturing may save on final import cost…don’t pay on waste • Use of cheaper labor • Duties based on final product or raw materials, whichever is cheaper • Sole purpose of FTZ is to facilitate international business
Intermediaries and Facilitators • Firms just moving into the global market may not have the skills necessary to effectively conduct business • To reduce risk, many new ventures are launched using some form or middleman • Exist in virtually every country • Know the local laws and culture • The exporter we discussed earlier is one broad type of intermediary • May be a short term entry strategy or a long term part of our strategy…and vary by market
Intermediaries and Facilitators • International Freight Forwarders focus on arranging international transportation • Combine small shipments to achieve economies of scale • Take care of virtually all activities including our agent • Documentation • Payment • Shipment, etc.
Intermediaries and Facilitators • Minimizes knowledge required on our part • Cost known ahead of time • Long term or single shipment contracts
Intermediaries and Facilitators • Non vessel-owning common carriers specialize in less-than-container load ocean shipments • Perform many of the functions of a freight forwarder • But don’t act as our agent, just another type of common carrier • Reduce our transportation costs through consolidation
Intermediaries and Facilitators • Export management companies act as our agents in non-domestic markets • As we discussed earlier • May sell our products themselves • Or broker sales with foreign companies • A good strategy for new entrants in global market
Intermediaries and Facilitators • Export trading companies locate overseas buyers and • Handle most of the documentation • Transportation • Risk with respect to meeting foreign government regulations
Intermediaries and Facilitators • Export packers provide packaging services for overseas shipments • Saves us the expense of investment • They know what is required • Package for protection and security • Provide special labeling as required • Insure packaging meets any special “local” regulations
Intermediaries and Facilitators • Customs brokers get our goods through local the local customs process • Ensure compliance with laws • Ensure documentation is complete • Resolve any disputes in a timely, favorable fashion • Often used as consultants by experienced global firms