Chapter Eight Fundamentals of International Business

CHAPTER 8: Logistics Chapter 8: LOGISTICS Fundamentals of International Business logistics production logistics business logistics supply chain vertical integration horizontal integration point-of-sale terminal just-in-time (JIT) inventory systems letter of credit supplier management outsourcing nearsourcing Chapter 8: LOGISTICS insourcing offshoring inshoring inbound distribution outbound distribution receiving process Ex Works (EXW) carrier bill of lading freight consolidation containerization Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Chapter Objectives By the time you finish this chapter, you should be able to: ▪ Compare the logistics of delivering a product to a local, national, or international market ▪ Describe the key factors that influence the ways in which a company may deliver its product to an international market ▪ Compare the advantages and disadvantages of different modes of transportation for distributing a product to different world markets ▪ Identify, drawing on a variety of sources information to facilitate the import/export process ▪ Explain the role of the Canada Border Services Agency Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Logistics Defined Logistics The management of the flow of goods and services both into and out of an organization, from the point of origin to the point of consumption. It consists of transportation, inventory management, warehousing and storage, and packaging. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Logistics Defined Production logistics Logistic processes within a company, usually a manufacturing business, that ensure that each machine and workstation in a plant has the right material in the right quantity and quality at the right point in time. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Logistics Defined Business logistics Used under license from Shutterstock, Inc. A process that ensures a steady flow of needed materials and information to all parts of a business through a network of computer terminals, transportation links, and storage facilities. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Logistics Defined Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Supply chain The sum total of all activities involved in moving raw materials, processed goods, and finished products into an organization, and moving the semi-processed or finished goods out of the organization toward the end-consumer. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Vertical integration A form of business organization in which a company owns the whole supply chain, or significant portions of it, from acquisition of raw materials to retailing. Example of vertical integration in a company that sells canned fish. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Horizontal integration A method of expanding a company by acquiring its competitors. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain The main links in the supply chain are: ▪ Inventory management ▪ Storage ▪ Cash flow ▪ Supplier co-ordination ▪ Information processing ▪ Physical distribution Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Inventory management Used under license from Shutterstock, Inc ▪ For retailers, this requires a system that records sales ▪ Usually a point-of-sale terminal, a system that tracks retail sales by recording the code or stock number of each stock-keeping unit (SKU) ▪ In larger companies, this becomes more complex, particularly if they design and manufacture the products they sell Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Storage Four possible locations for the storage of goods: Place where the goods are made Warehouse Distribution centre Place that receives the goods Used under license from Shutterstock, Inc ▪ ▪ ▪ ▪ Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Companies are reluctant to be responsible for storage of goods because it takes up valuable space and increases the possibility that they will have to deal with damage or theft. Each link in the supply chain tries to pass goods on as quickly as possible. Just-in-time (JIT) inventory systems are used to eliminate storage altogether. JIT requires suppliers to make and ship the materials that factory or retailer needs quickly enough that the goods and materials arrive at the workstation, factory floor, or retail store just as they are needed. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Cash-flow management Involves negotiating payment terms, setting up the method of payment, and arranging exchange of funds across the supply chain. Letter of credit A financial guarantee, issued by a buyer’s bank, that they have sufficient collateral on deposit to pay for a shipment. Letters of credit are often used for international transactions. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Supplier management Often referred to as sourcing or procurement, the practice of finding reliable sources for the products and services that a business needs. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Outsourcing The strategic use of outside resources to perform activities that were previously handled internally by the company itself. Nearsourcing Sourcing particular business functions or services, such as telemarketing, to a company in a foreign country that is relatively close in distance. Insourcing A company’s establishment of a specific division within the business, such as an advertising department or customer call centre, to handle a function that is normally outsourced. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain Offshoring The transfer of certain business functions by a company to a branch of the company that is located in another country, usually to save on labour costs. A company’s contracting out of a function to other businesses within its own country, for example to another state or province where labour is cheaper or facilities are better. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Used under license from Shutterstock, Inc Inshoring Supply Chain Information management As the complexity and speed of business around the world increases, information technology is necessary for effective supply chain management. Each member of the supply chain requires instant access information, and all members need to be networked to the same information source. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain - Physical Distribution Inbound distribution The process of receiving goods that are sent to a company. Receiving process The established system that a receiving manager uses to monitor and track goods arriving at a business. This process normally includes: inspecting containers for obvious physical damage, making sure that all of the containers have arrived, assigning stock numbers (SKUs) to new items, and recording the location of each item (for example, warehouse, selling floor). Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain – Physical Distribution Outbound distribution The process of arranging the shipment of goods from a company to its customers. Normally, the seller is responsible for for arranging the shipment of goods to the buyer. Ex Works (EXW) Term of sale that indicates that the buyer is responsible for carrier selection, customs documents, and all charges. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Supply Chain – Physical Distribution Carrier A company hired to transport goods. Bill of lading The official document that indicates that a transportation company accepts goods for shipment. It describes the items being shipped, lists their quantity and weight, gives the value of the shipment, and provides the name, billing address, and shipping address of the buyer. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Methods of Physical Distribution in the Supply Chain The selection of a carrier depends on several different factors: ▪ What is being shipped ▪ Weight of the shipment ▪ Speed of delivery required ▪ Cost of the carrier ▪ Destination of the shipment Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Methods of Physical Distribution in the Supply Chain Motorized carriers—trucks, vans, motorcycles ▪ ▪ The cost of shipping a full truckload (FTL) is lower than shipping a less-than-truckload (LTL). Many motorized carriers offer freight consolidation, where goods from different sellers (shippers) are stored in a warehouse until there is an FTL of goods bound for a particular destination. Used under license from Shutterstock, Inc Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Methods of Physical Distribution in the Supply Chain Rail ▪ ▪ Used under license from Shutterstock, Inc ▪ Trains are slower than truck transport and have a more limited range Ideal for long distances and much cheaper than truck transport Can carry materials from ports to inland cities Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Methods of Physical Distribution in the Supply Chain Ocean freight ▪ Used by importers and exporters that deal with businesses on other continents ▪ Inexpensive but slow, and must be used with at least one other carrier, as ships cannot go door to door Air freight ▪ Very fast, but very expensive ▪ Weight restrictions limit size of air shipments According to World Bank estimates, air transport is usually 12 to 16 times more expensive than sea transport. Therefore, goods transported by air tend to have a higher value-to-weight ratio and/or are particularly time-sensitive. Air freight can also be used to deliver smaller and more customized orders or to compensate for delays in other supply chains — like when a production input is required immediately and must be delivered quickly to replenish inventories. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Methods of Physical Distribution in the Supply Chain Containerization Used under license from Shutterstock, Inc The use of standard-sized reusable metal boxes, designed to fit on top of each other, to store and ship freight. Intermodal shipping is the process of using more than one mode of transportation to ship containers. Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Methods of Physical Distribution in the Supply Chain Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Issues in the Supply Chain Issues in the supply chain include: ▪ ▪ ▪ ▪ ▪ Chapter 8: LOGISTICS Reliability of sources Oil prices Unstable political climate Piracy Optimization Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. Getting Help with the Supply Chain Sources of help for Canadian businesses: ▪ Department of Foreign Affairs and International Trade ▪ The Canadian Trade Index ▪ Frasers ▪ Customs brokers ▪ Industry Canada ▪ Canada Border Services Agency Chapter 8: LOGISTICS Fundamentals of International Business Copyright © 2010 Thompson Educational Publishing, Inc. https://www.iata.org/contentassets/bc041f5b6b9 6476a80db109f220f8904/canada-the-value-of-a ir-transport.pdf https://ontruck.org/member-dashboard/stats/#:~: text=Trucks%20also%20move%2076%25%20o f,between%20Canada%20and%20the%20U.S. https://www.railcan.ca/101/canadas-freight-railw ays-moving-the-economy/#:~:text=Today%2C% 20around%2070%20per%20cent,exports%20ar e%20moved%20by%20rail.