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Copyri ght 2013 by The McGraw-H il l Companies, In c. All ri ghts reserved.McGraw-Hill/Irwin
Global Logistics& Supply Chains
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Region Country Name Logistics (Millions) GDP (Millions)
Logistics as % of
GDP
North America Canada 128,490 1,510,957 8.50%
Mexico 89,676 1,088,128 8.24%
United States 1,173,720 14,264,600 8.23%
Region 1,391,885 16,863,685 8.32%
Europe Austria 25,907 415,321 6.24%
Belgium 46,749 506,392 9.23%
Czech Rep 16,418 217,077 7.56%
Denmark 22,423 342,925 6.54%
France 188,005 2,865,737 6.56%
Germany 341,371 3,667,513 9.31%
GrBritain 169,947 2,674,085 6.36%Greece 51,770 357,549 14.48%
Hungary 8,721 156,284 5.58%
Ireland 22,122 273,328 8.09%
Italy 152,238 2,313,893 6.58%
Netherland 83,106 868,940 9.56%
Norway 44,475 456,226 9.75%
Poland 54,920 525,735 10.45%
Portugal 11,898 244,492 4.87%
Spain 151,513 1,611,767 9.40%
Sweden 44,864 484,550 9.26%
Region 1,436,445 17,981,814 8.22%
Pacific Rim Brazil 141,610 1,572,839 9.00%
China 1,160,349 8,083,000 14.36%
Egypt 15,219 162,164 9.38%
India 114,846 1,209,686 9.49%
Hong Kong 16,642 215,559 7.72%
Japan 440,482 4,923,761 8.95%
Korea S. 98,365 947,010 10.39%
New Zealand 9,799 128,492 7.63%
Russia 163,575 1,676,586 9.76%
Saudi Arabia 30,067 481,631 6.24%
Singapore 16,771 181,939 9.22%
Turkey 65,494 729,443 8.98%
Region 2,273,218 20,312,110 9.26%
Other 4,648,152 15,492,391 30.00%
Global 9,749,700 70,650,000 13.80%
Table 11.2 Estimated 2008 national
logistics cost
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Understanding the complexityoflogistics in the a globaleconomy
Setting the firm on a path
through the stages ofinternational development Export/Import
Local presence
Globally integrated enterprise
Managing the global supplychain differently from domesticoperations
Global supply chain integration
requires
NASA photo View of the Earth seen by Apollo 17 crew traveling toward the moon
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North American operating challenges Open geography
Extensive transportation options
Limited cross-border documentation
European operating challenges Relatively compact geography Numerous political, cultural, regulatory
and language situations
Congested transportation infrastructure
Pacific Rim operating challenges Island-based geography Relatively poor infrastructure
Extensive water and air shipments totravel vast distances
Complexity of logistics systems vary
significantly in each major global region
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Logistics in a global economy face more
complex operating characteristics
Increased uncertainty results
from
Greater distances
Longer leadtimes
Decreased market knowledge
Increased variability arises from
Unique customer requirements
Unique documentation
requirements Shifting political environments
Decreased control results from
Extensive use of international
service firms
Potential customs requirements
and trade restrictions bygovernments
Decreased visibility results
from
Longer transit times Longer holding times
Less ability to track shipment
locations
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INCOTERMS: What do they say about
responsibilities for costs/activities?
Source: ODM Group
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Figure 11.1
Generic International Strategies
Transnational
StrategyGlobal
Strategy
Multi-domestic
Strategy
No
International
Strategy
Low High
ForceTowardsLocal Responsiveness
Force
TowardsGlobal
Integration
High
Low
Source: Fitzsimmons, James and Mona Fitzsimmons (2011). Service Management: Operations,
Strategy and Information Technology, Seventh Edition (New York: McGraw-Hill). Pg. 352.
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Table 11.3
Differential Characteristics of Global Services
Development
Stages
Service
Focus
Marketing
Strategy
Delivery
Strategy
Management
Strategy
Human Resource
Development
No
international
strategy
Standard
product for
local market
Single
strategy
focused on
local market
Direct to customer Single simple
financials
Operated by
entrepreneur with
limited specialization
Multi-domestic
strategy
Domestic
marketing
and delivery
Domestic
customers
Collaboration Transaction
driven with
integrated
financials
Management with
home country focus
Global strategy Local marketcustomization
Focused
specific
market areaswhich may
cross
international
boundaries
Subsidiaries with
local presence
Decentralized
operations with
local profitresponsibility
Limited top
management with
internationalexperience
Transnational
strategy
Global
branding and
integrated
operations
Global
customers
Worldwide flow of
key resources
Centralized
planning in global
sites
International training
and experience
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Managing the global supply chain
Five major differences between
domestic and international
operations
Performance cycle
structure
Transportation
Operational
considerations
Information
systems integration Alliances
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Longer performance cycles for international operations Domestic is measured in days
International is measured in weeks or months E.g. fashion merchandise takes 30 to 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 this change requires higher asset commitment Inventory is in transit for longer periods
Length of the performance cycle is a major
difference
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Removal of intermodal ownership and operation Reduced complexity of operation and tracking of international
shipping
Increased carrier privatization Government-owned carriers often costly and unreliable Privatization has led to increased availability of efficient carriers
Relaxing of cabotage restrictions in European Union Increases trade efficiency
E.g. US corporations save 10% to 15% in intra-European shipping costs Major constraints on physical infrastructure capacity
Significantly increasing demand on port and airport capacities
Infrastructure in much of the world was built over 50 years ago
Transportation is impacted by four
significant global changes
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Systems integration typically
lags the acquisition or merger
used to make the enterprise
global
Requires a substantial capital
investment
Requires two system types to
be integrated
ERP system
Global planning system
Few firms have fully integrated
global information systems or
capability
Information systems integration is a major
challenge
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Cost
Transport mode
Inventories
Agents
Financial risk
Cargo risk
Government
agencies
Administration
Communication
Cultural differences
About 10% of U.S. GDP today
Mainly truck and rail
Lower levels, reflecting short-order, lead-time
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
Estimated at 14% 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
Domestic International
Domestic and International
Characteristic Differentials
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Logistics Performance Index (LPI)
Measures a countrys performance across sixlogistical dimensions1. Efficiency of the clearance process by border
control agencies, including customs
2. Quality of trade- and transport-relatedinfrastructure
3. Ease of arranging competitively priced shipments
4. Competence and quality of logistics services
5. Ability to track and trace consignments6. Timeliness of shipments in reaching the
destination within the scheduled or expecteddelivery time
14
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Highest- and Lowest-Rated Countries
Based on Overall LPI Score
Country LPI Rank LPI Score
Singapore 1 4.13Hong Kong,
China2 4.12
Finland 3 4.05
Germany 4 4.03
Netherlands 5 4.02
2012 Rankings
United States: Rank of 9th (3.93)
United States: Rank of 14th (3.84)
http://lpisurvey.worldbank.org/international/global?sort=asc&order=Countryhttp://lpisurvey.worldbank.org/international/global?sort=asc&order=LPI+Rankhttp://lpisurvey.worldbank.org/international/global?sort=asc&order=LPI+Scorehttp://lpisurvey.worldbank.org/international/global?sort=asc&order=LPI+Scorehttp://lpisurvey.worldbank.org/international/global?sort=asc&order=LPI+Rankhttp://lpisurvey.worldbank.org/international/global?sort=asc&order=Country -
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Option 1: Domestic Purchase (USA)
Supplier
Warehouse in
Southern USA
Customer
Warehouse
Manufacturing &
Packaging Process
OrderFulfillment
Truckload
Option 2: Purchase in China - Ocean Shipment
China
Supplier
Customer
Warehouse
Supplier
Warehouse in
Southern USA
Manufacturing &
Packaging Process
Order
Fulfillment
Inspection
Process
Truckload40 Ocean
Cntr.
The Global Supply Chain: Total Cost
Example - Shipping Process
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The Global Supply Chain: Total Cost
Example - Shipping ProcessOption 3: Purchase in China - Air Shipment
China
Supplier
Customer
Warehouse
Supplier
Warehouse in
Southern USA
Manufacturing &
Packaging Process
Order
Fulfillment
Inspection
Process
TruckloadAir Transport
What other services or distribution options can be added?
Inspection?
Smaller shipments from supplier to customer warehouse?
Direct ship to end customer, bypassing customer warehouse?
Smaller Shipments ???
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The Global Supply Chain:
Total Cost Example - Plastic Cups in ChinaUSA Cost China Cost by Ocean
Raw Material Cost
Resin 2.40 2.40
Colorant 0.70 0.70
Package 1.32 1.32
QA Inspection N/A 0.15
Tooling Amortization 2.00 1.00
Molding Labor 0.35 0.18
Assembly/Packaging Labor 3.75 0.15
Freight 0.87 1.43
Port Terminal Handling N/A 0.08
STANDARD PURCHASE PRICE 11.39 7.41China Markup (10%) 0.74
Duty/Broker fee N/A 0.19
TOTAL COST TO BUYER 11.39 8.34
PRICE WITH 30% PROFIT 14.81 10.84
Inventory Carrying Cost (15%) N/A 0.82
Comparison Cost 14.81 11.66
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USA Cost China Cost by Ocean China Cost by Air
Raw Material Cost
Resin 2.40 2.40 2.40
Colorant 0.70 0.70 0.70
Package 1.32 1.32 1.32
QA Inspection N/A 0.15 0.15
Tooling Amortization 2.00 1.00 1.00
Molding Labor 0.35 0.18 0.18
Assembly/Packaging Labor 3.75 0.15 0.15
Freight 0.87 1.43 4.63
Port Terminal Handling N/A 0.08
STANDARD PURCHASE PRICE 11.39 7.41 10.53
China Markup (10%) 0.74 0.74
Duty/Broker fee N/A 0.19 0.19
TOTAL COST TO BUYER 11.39 8.34 11.46
PRICE WITH 30% PROFIT 14.81 10.84 14.90
Inventory Carrying Cost (15%) N/A 0.82
Comparison Cost 14.81 11.66 14.90
The Global Supply Chain:
Total Cost Example - Plastic Cups in China
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A list of general sourcing guidelines for
use in decision makingTable 12.5 Sourcing Guidelines