CHAPTER 13 Global Logistics Becton Dickinson's Worldwide Sources

CHAPTER 13

Global Logistics

Becton Dickinson’s 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

CostTransport 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 16% of world GDP todayMainly ocean and air, with significant intermodal activityHigher levels, reflecting longer lead times and greater demand and transit uncertainty

Heavy reliance on forwarders, consolidators, and customs brokersHigh, owing to differences in currencies, inflation, levels and little recourse for defaultHigh, owing to longer and more difficult transit, frequent cargo handling, and varying levels of infrastructure developmentMany 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

International Market Entry Strategies

• Exporting

• Licensing

• Joint ventures

• Ownership

• Importing

• Countertrade

Major Participants in an International Logistics Transaction

Domestic seller

Export facilitators

Inland transportation

carrier

Domestic port or terminal

of exit

Foreign portor terminal

of entry

International carrier

(air, water)

Foreign inland transportation

carrier

Foreign buyer

Domestic bank

Domestic government

agencies

Foreigngovernment

agencies

Foreign bank

Information flow

Product movement

The Global Logistics Environment

Logisticsexecutive

Customerservice

Otheractivities

Warehousingand storage

Transportation

Packaging

Inventory

Political and legal

Technology

Economic

Geography

Soc

ial a

nd

cu

ltu

ral

Com

petition

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 country—products 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

V P M arke tin g V P P rod u c tion V P F in an c ia l

C E O

•Sales service•Channels of distribution•Product returns and warranties

•Manufacturing•Purchasing/ procurement•Traffic•Warehousing

•Information systems•Budgeting•Inventory•Data processing

Responsibilities

ObjectivesLarge inventories Low inventoriesSmall and frequent production runs

Larger and infrequent production runs

Decentralized warehousing Plant warehousing

Centralized warehousing

Large product assortment

Fewer products

Traditional Logistics Management cont.

•Sales service•Channels of distribution•Product returns and warranties

•Manufacturing•Purchasing/ procurement•Traffic•Warehousing

•Information systems•Budgeting•Inventory•Data processing

Responsibilities

ObjectivesRapid order processing

Inexpensive order processing

Generous returned goods policies

Fast transportation

Expedited shipments

More rigid returned goods policies

Low cost transportation

V P M arke tin g V P P rod u c tion V P F in an c ia l

C E O

Control Exercised By Logistics Executives Over Selected Logistics

Functions

Transportation

Warehousing

Inventory control

Order processing

Packaging

Purchasing and procurement

89% 94% 97% 98% 90%

70 93 95 97 88

55 83 81 79 74

43 76 67 61 55

8 70 37 48 39

15 58 44 51 41

Activities 1966 1976 1985 1990 1999

Percent of Reporting Companies

Organization Design for Logistics as a Function

E n g in eerin g M an u fac tu rin g M arke tin g /S a les F in an ce /A ccou n tin g

P res id en t

Human Resources Logistics

Organization Design for Logistics as a Program

President

Logistics

ManufacturingEngineeringHuman

ResourcesMarketing/

SalesFinance/

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

• Firm’s 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 structure…will therefore always improve performance.

Peter F. Drucker

CR (2004) Prentice Hall, Inc.

Activity Fragmentation in the Supply Chain

PresidentPresident

MarketingMarketing FinanceFinance OperationsOperations

•Distribution channels

•Customer service

•Field inventories

•Revenue

•Cost of capital

•ROI

•Inventory carrying costs

•Supply alternatives and supply costs

•Warehousing

•Purchasing

•Transportation

Responsibilities

15-4

CR (2004) Prentice Hall, Inc.

Activity Fragmentation in the Supply Chain (Cont’d)

PresidentPresident

MarketingMarketing FinanceFinance OperationsOperations

•More inventory•Frequent &

short production runs

•Fast order processing

•Fast delivery•Field

warehousing

•Less inventory

•Cheap order processing

•Less warehousing

•Long production runs

•Lowest cost routing•Plant warehousing

Objectives

15-5

Activity Fragmentation in the Supply Chain (Cont’d)

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

CR (2004) Prentice Hall, Inc.

Logistics Matrix Organization

Tra ffic& w areh ou s in g

C u s tom erservice

S a lesfo recas itn g

M a rke tin g

In ven to rym an ag em en t

A ccou n tin g& in fo rm ation

p rocess in g

F in a n ce

P rod u c tionsch ed u lin g

Q u a lityassu ran ce

P u rch as in g& m ate ria ls

m an ag em en t

P ro d u c tio n

P re s id e n t

Fun

ctio

nal a

utho

rity

Project authorityLogistics\SC coordinator

Tra ffic& w areh ou s in g

C u s tom erservice

S a lesfo recas itn g

M a rke tin g

In ven to rym an ag em en t

A ccou n tin g& in fo rm ation

p rocess in g

F in a n ce

P rod u c tionsch ed u lin g

Q u a lityassu ran ce

P u rch as in g& m ate ria ls

m an ag em en t

P ro d u c tio n

P re s id e n t

Fun

ctio

nal a

utho

rity

Project authorityLogistics\SC coordinator

15-8

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

Deliver

Supplier

Internal or ExternalYour Company

Customer

Internal or External

SourceDeliverMakeDeliverMakeSource Source

Plan

Return ReturnSource DeliverMake

Return

Return

PlanPlan PlanPlan

ReturnReturn Return

Return

Suppliers’suppliers

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 Ward’s - 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 Wal-Mart = 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 else’s 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

5. 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

6. Often time consuming or difficult to track down the status of a unit

7. Stressful work environment due to frequent issues that need to be resolved ASAP

8. Senior staff spend considerable time solving processing problems or escalated issues

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

MarketingMarketing Product Product Development Development

LogisticsLogistics ProductionProduction PurchasingPurchasing FinanceFinance

Product ReturnsProduct Returns

Processes – all different GroupsProcesses – all different Groups

Authorize, Receive, Ship, Credit, Authorize, Receive, Ship, Credit,

Inventory, Inspect, Test, Repair, DispositionInventory, Inspect, Test, Repair, Disposition

Multiple LocationsMultiple Locations

Outsourced PartiesOutsourced Parties

Each with - their own processesEach with - their own processes

- their own priority- their own priority

Processes – all different GroupsProcesses – all different Groups

Authorize, Receive, Ship, Credit, Authorize, Receive, Ship, Credit,

Inventory, Inspect, Test, Repair, DispositionInventory, Inspect, Test, Repair, Disposition

Multiple LocationsMultiple Locations

Outsourced PartiesOutsourced Parties

Each with - their own processesEach with - their own processes

- their own priority- 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!!!