CHAPTER 13 Global Logistics Becton Dickinson's Worldwide Sources


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CHAPTER 13 Global Logistics Becton Dickinson's Worldwide Sources

  1. 1. CHAPTER 13 Global Logistics
  2. 2. Becton Dickinson’s Worldwide Sources
  3. 3. International Logistics <ul><li>Changes to political landscape affect logistics </li></ul><ul><ul><li>The end of Soviet rule in Eastern Europe </li></ul></ul><ul><ul><li>EU economic integration </li></ul></ul><ul><ul><ul><li>Nontariff barriers-a rule that has the effect of reducing imports </li></ul></ul></ul><ul><ul><ul><li>Restrictions on truck traffic, forcing freight onto rail and water </li></ul></ul></ul><ul><ul><li>NAFTA </li></ul></ul><ul><li>Multinational firms </li></ul>
  4. 4. Comparison of Domestic and International Logistics 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 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 Domestic International
  5. 5. International Market Entry Strategies <ul><li>Exporting </li></ul><ul><li>Licensing </li></ul><ul><li>Joint ventures </li></ul><ul><li>Ownership </li></ul><ul><li>Importing </li></ul><ul><li>Countertrade </li></ul>
  6. 6. Major Participants in an International Logistics Transaction Domestic seller Export facilitators Inland transportation carrier Domestic port or terminal of exit Foreign port or terminal of entry International carrier (air, water) Foreign inland transportation carrier Foreign buyer Domestic bank Domestic government agencies Foreign government agencies Foreign bank Information flow Product movement
  7. 7. The Global Logistics Environment Logistics executive Customer service Other activities Warehousing and storage Transportation Packaging Inventory Political and legal Technology Economic Geography Social and cultural Competition Controllable Elements Uncontrollable Elements
  8. 8. Responding to Competition with Logistics <ul><li>Increasing the number of cross-national partnerships, alliances, mergers, and/or acquisitions. </li></ul><ul><li>Expansion of many previously domestic-based organizations into international markets. </li></ul><ul><li>Development of global communications networks operating 24 hours a day. </li></ul><ul><li>Establishment of country and regional warehouses in major world markets. </li></ul><ul><li>Identifying and developing relationships with logistics service providers that offer transportation, storage, materials handling, and other services on a global basis. </li></ul>
  9. 9. Exporting Companies <ul><li>Export distributor </li></ul><ul><li>Customs house broker </li></ul><ul><li>International freight forwarder </li></ul><ul><li>Trading company </li></ul><ul><li>Non-vessel-operating common carrier (NVOCC) </li></ul>
  10. 10. Documentation <ul><li>Country of Origin </li></ul><ul><li>Bills of Lading </li></ul><ul><li>Packing Lists </li></ul><ul><li>Customs </li></ul><ul><li>Certified Shippers - C-T PAT </li></ul>
  11. 11. Free Trade Zones <ul><li>> 225 in the US </li></ul><ul><li>postpone payment of customs or taxes until item is sold </li></ul><ul><li>avoid customs completely if consolidated and re-exported </li></ul>
  12. 12. Ocean Shipping <ul><li>Types of Ocean Cargo </li></ul><ul><ul><li>Petroleum </li></ul></ul><ul><ul><li>Dry-bulk cargoes-grain, ores, sulfur, sugar, scrap iron, coal, lumber, logs in vessel loads </li></ul></ul><ul><ul><li>Containers </li></ul></ul><ul><li>Shipping conferences and alliances pool resources and extend market coverage </li></ul>
  13. 13. Ocean Shipping <ul><li>Types of Vessels </li></ul><ul><ul><li>Containerships </li></ul></ul><ul><ul><li>Lighter aboard ship (LASH) vessels </li></ul></ul><ul><ul><li>Roll On-Roll Off (RO-RO) vessels </li></ul></ul><ul><ul><li>Tankers </li></ul></ul><ul><ul><li>Specialized vessels </li></ul></ul>
  14. 14. A RO-RO Vessel in Jacksonville Florida
  15. 15. International Trade Inventories <ul><li>May vary in small ways from country to country—products may be tailored to fit </li></ul><ul><li>Less is needed (than in U.S.) to serve any one country </li></ul><ul><li>Return items are impossible to accommodate </li></ul><ul><li>Import and export quotas affect value of inventories </li></ul><ul><li>Currency and language differences </li></ul>
  16. 16. CHAPTER 15 Organizing for Effective Logistics
  17. 17. Traditional Logistics Management <ul><li>Sales service </li></ul><ul><li>Channels of distribution </li></ul><ul><li>Product returns and warranties </li></ul><ul><li>Manufacturing </li></ul><ul><li>Purchasing/ procurement </li></ul><ul><li>Traffic </li></ul><ul><li>Warehousing </li></ul><ul><li>Information systems </li></ul><ul><li>Budgeting </li></ul><ul><li>Inventory </li></ul><ul><li>Data processing </li></ul>Responsibilities Objectives Large inventories Low inventories Small and frequent production runs Larger and infrequent production runs Decentralized warehousing Plant warehousing Centralized warehousing Large product assortment Fewer products
  18. 18. Traditional Logistics Management cont. <ul><li>Sales service </li></ul><ul><li>Channels of distribution </li></ul><ul><li>Product returns and warranties </li></ul><ul><li>Manufacturing </li></ul><ul><li>Purchasing/ procurement </li></ul><ul><li>Traffic </li></ul><ul><li>Warehousing </li></ul><ul><li>Information systems </li></ul><ul><li>Budgeting </li></ul><ul><li>Inventory </li></ul><ul><li>Data processing </li></ul>Responsibilities Objectives Rapid order processing Inexpensive order processing Generous returned goods policies Fast transportation Expedited shipments More rigid returned goods policies Low cost transportation
  19. 19. 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
  20. 20. Organization Design for Logistics as a Function Human Resources Logistics
  21. 21. Organization Design for Logistics as a Program President Logistics Manufacturing Engineering Human Resources Marketing/ Sales Finance/ Accounting
  22. 22. Components of Corporate and Logistics Mission Statements <ul><li>Targeted customers and markets </li></ul><ul><li>Principal products/services </li></ul><ul><li>Geographic domain </li></ul><ul><li>Core technologies </li></ul>
  23. 23. Components of Corporate and Logistics Mission Statements (cont.) <ul><li>Survival, growth, and profitability </li></ul><ul><li>Company philosophy </li></ul><ul><li>Company self-concept </li></ul><ul><li>Firm’s desired public image </li></ul>
  24. 24. Ways of Improving Logistics Organizational Effectiveness <ul><li>Strategic goal setting </li></ul><ul><li>Resource acquisition and utilization </li></ul><ul><li>Performance environment </li></ul><ul><li>Communication process </li></ul><ul><li>Leadership and decision making </li></ul><ul><li>Organizational adaptation and innovation </li></ul>
  25. 25. 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
  26. 26. CR (2004) Prentice Hall, Inc. Activity Fragmentation in the Supply Chain President Marketing Finance Operations <ul><li>Distribution channels </li></ul><ul><li>Customer service </li></ul><ul><li>Field inventories </li></ul><ul><li>Revenue </li></ul><ul><li>Cost of capital </li></ul><ul><li>ROI </li></ul><ul><li>Inventory carrying costs </li></ul><ul><li>Supply alternatives and supply costs </li></ul><ul><li>Warehousing </li></ul><ul><li>Purchasing </li></ul><ul><li>Transportation </li></ul>Responsibilities 15-4
  27. 27. CR (2004) Prentice Hall, Inc. Activity Fragmentation in the Supply Chain (Cont’d) President Marketing Finance Operations <ul><li>More inventory </li></ul><ul><li>Frequent & short production runs </li></ul><ul><li>Fast order processing </li></ul><ul><li>Fast delivery </li></ul><ul><li>Field warehousing </li></ul><ul><li>Less inventory </li></ul><ul><li>Cheap order processing </li></ul><ul><li>Less warehousing </li></ul><ul><li>Long production runs </li></ul><ul><li>Lowest cost routing </li></ul><ul><li>Plant warehousing </li></ul>Objectives 15-5
  28. 28. Activity Fragmentation in the Supply Chain (Cont’d) <ul><li>Reasons for fragmentation </li></ul><ul><li>Lack of understanding of key cost tradeoffs </li></ul><ul><li>Traditions and conventions </li></ul><ul><li>Other areas considered to be more important to the firm than logistics </li></ul><ul><li>Organization structure can be in an evolutionary state </li></ul><ul><li>Benefits of fragmentation elimination </li></ul><ul><li>Encourages important cost tradeoffs to be effected </li></ul><ul><li>Focuses on an important, defined area by top management </li></ul><ul><li>Sets the structure within which control can take place </li></ul>
  29. 29. Organizational Choices <ul><li>Informal structure </li></ul><ul><ul><li>Persuasion of top management </li></ul></ul><ul><ul><li>Coordinating committees </li></ul></ul><ul><ul><li>Incentive arrangements </li></ul></ul><ul><ul><li>Profit sharing </li></ul></ul><ul><ul><li>Cross charges </li></ul></ul><ul><li>Semi-formal structure </li></ul><ul><ul><li>Matrix organization </li></ul></ul><ul><li>Formal structure </li></ul><ul><ul><li>Line --creates value in products, therefore it has operating status </li></ul></ul><ul><ul><li>Staff --provides assistance to the line organization </li></ul></ul>
  30. 30. CR (2004) Prentice Hall, Inc. Logistics Matrix Organization 15-8
  31. 31. What is Systems Analysis? <ul><li>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. </li></ul>
  32. 32. General Questions <ul><li>Why do we perform each task? </li></ul><ul><li>What value is added by it? </li></ul><ul><li>Why are the tasks performed in the order they are? </li></ul><ul><li>Can we alter the sequence of the processing steps to increase efficiency? </li></ul><ul><li>Why are the tasks performed by a particular group or individual? </li></ul><ul><li>Could others perform this task? </li></ul><ul><li>Is there a better way for the system to operate? </li></ul>
  33. 33. Problems in Systems Analysis <ul><li>Multiple business functions are impacted. </li></ul><ul><li>There are trade-offs among conflicting objectives. </li></ul><ul><li>Logistics system impacts are difficult to precisely evaluate. </li></ul><ul><li>There are business issues unique to each logistics system. </li></ul>
  34. 34. Systems Integration: Logistics Activities Outside the Firm <ul><li>Third-party, or contract, logistics </li></ul><ul><li>Integrated service providers </li></ul><ul><li>Monitoring third-party performance </li></ul>
  35. 35. Reverse Logistics
  36. 36. What Drives Reverse Logistics and Returns? Wal-Mart Costs = up to 7-8% of costs of goods!
  37. 37. Impacts
  38. 38. Impacts
  39. 41. SCOR and Returns 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. Deliver Supplier Internal or External Your Company Customer Internal or External Source Deliver Make Deliver Make Source Source Plan Return Return Source Deliver Make Return Return Plan Plan Plan Plan Return Return Return Return
  40. 43. Impacts of Reverse Logistics <ul><li>Forecasting </li></ul><ul><li>Carrying costs </li></ul><ul><li>Processing costs </li></ul><ul><li>Warehousing </li></ul><ul><li>Distribution </li></ul><ul><li>Transportation </li></ul><ul><li>Personnel </li></ul><ul><li>Marketing </li></ul>
  41. 44. Reverse Logistics - What is it? The Commercial Perspective <ul><li>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. </li></ul>
  42. 45. Typical Reverse Logistics Activities <ul><li>Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory </li></ul><ul><li>Recycling packaging materials/containers </li></ul><ul><li>Reconditioning, refurbishing, remanufacturing </li></ul><ul><li>Disposition of obsolete stuff </li></ul><ul><li>Hazmat recovery </li></ul>
  43. 46. Reverse Logistics - New Problem? <ul><li>Sherman </li></ul><ul><li>Montgomery Ward’s - 1894 </li></ul><ul><li>Recycling/remanufacturing in 1940s </li></ul><ul><li>World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff </li></ul><ul><li>Salvage and reuse of clothing and shoes in the Pacific Theater World War II </li></ul>
  44. 47. Costs - above the cost of the item <ul><ul><li>Merchandise credits to the customers. </li></ul></ul><ul><ul><li>The transportation costs of moving the items from the retail stores to the central returns distribution center. </li></ul></ul><ul><ul><li>The repackaging of the serviceable items for resale. </li></ul></ul><ul><ul><li>The cost of warehousing the items awaiting disposition. </li></ul></ul><ul><ul><li>The cost of disposing of items that are unserviceable, damaged, or obsolete. </li></ul></ul>
  45. 48. Costs <ul><li>Process inbound shipment at a major distribution center = 1.1 days </li></ul><ul><li>Process inbound return shipment = 8.5 days </li></ul><ul><li>Cost of lost sales </li></ul><ul><li>Wal-Mart: Christmas 2003 - returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers </li></ul><ul><li>PalmOne - 25% return rate on PDAs </li></ul>
  46. 49. Is it a problem? <ul><li>Estimate of 2004 holiday returns: $13.2 billion </li></ul><ul><li>% of estimated 2004/2005 holiday returns: 25% </li></ul><ul><li>Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) </li></ul><ul><li>Electronics: $10 Billion annually in returns </li></ul><ul><li>Personal Computers: $1.5 Billion annually = approximately $95 per PC sold </li></ul><ul><li>79% of returned PCs have no defects </li></ul>
  47. 50. Returns: an Operations Perspective <ul><ul><li>Emerging industry in infancy stage </li></ul></ul><ul><ul><li>Many skill sets involved, deep knowledge of some skills </li></ul></ul><ul><ul><li>Person on Warehouse floor –needs tools </li></ul></ul><ul><ul><li>No Schooling for Reverse Logistics </li></ul></ul><ul><ul><li>No rules or standards </li></ul></ul><ul><ul><li>No methods </li></ul></ul><ul><ul><li>Few Best Practices </li></ul></ul><ul><ul><li>Few comparisons </li></ul></ul><ul><li>How do we know WHAT we should be doing? </li></ul><ul><li>How do we know HOW WELL we are doing? </li></ul><ul><li>Where are the opportunities to improve PROFITS? </li></ul>
  48. 51. Some Key Operational Challenges Operations people face: <ul><li>So many people , from so many departments, at so many locations, from different companies, needed to process one return </li></ul><ul><li>For the group managers, returns is a small, annoying part of their group – Most of a Return is someone else’s problem /fault </li></ul><ul><li>Turn Around Time is often very slow and difficulties often arise that add days to the processing of a Return </li></ul>
  49. 52. Key Operational Challenges - 2 <ul><li>Difficulties arise with process Hand-offs between groups , Outsourced providers and multiple data systems – staff is continually reconciling </li></ul><ul><li>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 </li></ul><ul><li>Often time consuming or difficult to track down the status of a unit </li></ul><ul><li>Stressful work environment due to frequent issues that need to be resolved ASAP </li></ul><ul><li>Senior staff spend considerable time solving processing problems or escalated issues </li></ul>
  50. 53. Best Practices <ul><li>All Returns under control of ONE GROUP </li></ul><ul><li>Very Defined Business Processes </li></ul><ul><li>Process Mapping – author of text found that companies that develop process maps saved up to 40% </li></ul><ul><li>Map all processes and add timelines </li></ul><ul><li>Automate processes where possible </li></ul>
  51. 54. Why are the number of returns increasing?
  52. 56. Cell Phone Returns <ul><li>Nearly 75% of returned phones are determined to have </li></ul><ul><li>“ No Trouble Found” </li></ul><ul><li>63% of returned phones are resold “as is” </li></ul><ul><li>More than 16 hours of use and phone is no longer “new” </li></ul><ul><li>High returns rate impacts Original Equipment </li></ul><ul><li>Manufacturers for products under warranty </li></ul><ul><li>Resold phones are used as scrap or warranty replacements </li></ul><ul><li>California legislation – requires retailers to establish system </li></ul><ul><li>for collection, for reuse, recycling or disposal at no cost to </li></ul><ul><li>the consumer </li></ul>
  53. 57. Source: DHL Presentation to Reverse Logistics Association, Feb 2007
  54. 58. Source: DHL Presentation to Reverse Logistics Association, Feb 2007
  55. 59. NASA Reverse Logistics
  56. 60. Returns Impact All Operational Facets Marketing Product Development Logistics 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
  57. 61. Supply Chain Integrity <ul><li>What is it? </li></ul><ul><li>Why is it important? </li></ul>
  58. 62. Supply Chain Integrity <ul><li>Perfect Order Fulfillment </li></ul><ul><li>Information Security </li></ul><ul><li>Parts integrity – Boeing 787 </li></ul><ul><li>Product integrity – Mattel </li></ul><ul><li>Shipping Integrity </li></ul><ul><li>Inventory Integrity </li></ul><ul><li>Cornerstone of supply chain leadership </li></ul>
  59. 63. Questions??
  60. 64. Summary <ul><li>Global Logistics – controllable and uncontrollable factors </li></ul><ul><li>Impacts on global inventories </li></ul><ul><li>Traditional vs. Non-traditional organizations </li></ul><ul><li>Functional vs. Program design </li></ul><ul><li>Reverse Logistics – impacts, causes, best practices </li></ul><ul><li>Supply Chain Integrity </li></ul>
  61. 65. Thank you for your time Best of Luck to You in Your Next Assignment!!!