Chapter 4 Managing logistics internationally

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Chapter 4Managing logistics internationally
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Framework
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Content
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Drivers and logistics implications of
internationalization

• Key issue

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Drivers and logistics implications of
internationalization
Motivations for International Expansion

• Increase Market Share
• domestic market may lack the size to support
  efficient scale manufacturing facilities
• Return on Investment
• large investment projects may require global
  markets to justify the capital outlays
• weak patent protection in some countries implies
  that firms should expand overseas rapidly in
  order to preempt imitators

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Drivers and logistics implications of
internationalization
Motivations for International Expansion

• Economies of Scale or Learning
• expanding size or scope of markets helps to
  achieve economies of scale in manufacturing as
  well as marketing, R D or distribution
• can spread costs over a larger sales base
• increase profit per unit
• Location Advantages
• low cost markets may aid in developing
  competitive advantage
• may achieve better access to

• Raw materials
• Lower cost labor

• Key customers
• Energy

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Drivers and logistics implications of
internationalization
International Corporate-Level Strategy
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Drivers and logistics implications of
internationalization

• Strategy and operating decisions are
  decentralized to strategic business units (SBU)
  in each country
• Products and services are tailored to local
  markets
• Business units in one country are independent of
  each other
• Assumes markets differ by country or regions
• Focus on competition in each market
• Prominent strategy among European firms due to
  broad variety of cultures and markets in Europe

Logistical network Mainly national Sourcing,
storage and shipping on a national level and
duplicated by country
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Drivers and logistics implications of
internationalization

• Products are standardized across national markets
• Decisions regarding business-level strategies are
  centralized in the home office
• Strategic business units (SBU) are assumed to be
  interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination across
  borders (which also makes it difficult to manage)

Logistical network Limited number of production
locations that ship to markets around the globe
through a highly internationalized network with
limited localized warehouse and resources.
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Drivers and logistics implications of
internationalization

• Seeks to achieve both global efficiency and local
  responsiveness
• Difficult to achieve because of simultaneous
  requirements
• strong central control and coordination to
  achieve efficiency
• decentralization to achieve local market
  responsiveness
• Must pursue organizational learning to achieve
  competitive advantage

Balanced local sourcing and shipping (e.g. for
customized products and local specialties) and
global sourcing and shipping (for example for
commodities).
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Drivers and logistics implications of
internationalization
The International Supply Chain
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Drivers and logistics implications of
internationalization
Internationalization
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Drivers and logistics implications of
internationalization
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Drivers and logistics implications of
internationalization
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Case study

• The Deskjet-plus is one of several printers
  manufactured by the Vancouver Division of HP.

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Case study
Factory-localization
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Case study

• Three major sources of uncertainty can affect
  HPs supply chain

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Case study

• Under factory-localization, HP ships different
  versions of the Deskjet-Plus to two non-US DCs by
  sea, with a transit time of about a month.
• This long lead time limits DCs ability to
  respond to fluctuations in the demand for
  different versions of the product.
• To ensure prompt service for the customers,
  European and Far East DCs have to maintain high
  levels of safety stocks.

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Content
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The tendency towards internationalization

• Key issue

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The tendency towards internationalization

• Focused market Vs. focused factory

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The tendency towards internationalization
The advantages and disadvantages of focused
factory
Cost Lead time
Advantages Lower production costs through economies of scale Specialized equipment may be able to manufacture quicker
Disadvantages Higher transport cost Longer distance from market will increase lead time
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The tendency towards internationalization

• Centralized inventory

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The tendency towards internationalization

• Centralized inventory

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Case study
Improving the forecast accuracy of product-mix
demands is very difficult.
1
Improve process yields, and to reduce machine
downtimes at the plant.
DC-localization
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3
Reduce shipment lead time between manufacturing
and distribution, for example, shipping by air.
Localization at DCs
Quick shipment is costly.
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Case study
Localization materials

• Motors
• Flex cables
• Key pad board
• Plastic mechanics
• Plastic-skin
• Carriage motor
• Plastic-gears

Stage 1 printed circuit board assembly and test
(PCAT), performed at factory
US version

• Application-specific integrated circuits
• Read-only memory
• Raw logic board

• US version
• European versions
• Far East versions

Logic board
Unlocalized printer
Raw head driver board
Head driver board
Localization materials
Stage 2 final assembly and test (FAT), performed
at factory
performed either at factory or at DC
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Case study
Inventory levels at all sites of Deskjet-plus
printers supply chain
Factory-localization DC-localization
Far East DC Printers 13.4 9.8
Far East DC Localization materials 0 11.0
European DC Printers 5.2 3.5
European DC Localization materials 0 5.2
US DC Printers 3.2 3.2
US DC Localization materials 0 0
Factory Printers 2.8 2.8
Factory Localization materials 3.9 0
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Content
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The challenge of international logistics and
location

• Key issues

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The challenge of international logistics and
location
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The challenge of international logistics and
location
Domestic logistics
International logistics
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The challenge of international logistics and
location
Activity Multiple freight modes and cost options
Freight mode Industry Cost Speed Availability
Air O O O O
Sea O O O O
Rail O O O O
Road O O O O
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The challenge of international logistics and
location
Location analysis
Phase
Strategic decision to restructure and invest in
plant network
Project plan
Specification of project plan
Implementation of plan
Geographical scope
Selected location
Continent (e.g. Asia, Europe)
3 to 4 countries
Regions within selected countries
Location within regions
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The challenge of international logistics and
location

• Four-phase decision making process
• Deciding upon the appropriate level of
  centralization-decentralization
• Selecting relevant location criteria
• The availability of physical infrastructure
• The availability of warehouse sites
• Central position in the regional market
• Selecting criteria weightings
• An economic trade-off analysis of structures and
  relevant locations

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Content
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Organizing for international logistics

• Key issue

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Organizing for international logistics
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Organizing for international logistics

• Postponed manufacturing
• A specific combination of the three generic types
  of postponement (Bowersox and Closs,1996)
• Form postponement postponement of final
  manufacturing or processing activities
• Time postponement delaying of the forward
  movement of goods until customer or orders have
  been received
• Place postponement positioning of inventories
  upstream in centralized manufacturing or
  distribution operations to postpone the forward
  or downstream movement of goods

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Organizing for international logistics
Achieving worldwide learning capabilities
Achieving global efficiency
Achieving local responsive capabilities
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Organizing for international logistics
Reconfiguration processes for companies
Starting point Global structure Localized structure
Heritage in market Little, greenfield approach Extensive, brownfield approach
Supply chain scope Narrow, involving inventory and final manufacturing Broad, involving inventory, manufacturing and sourcing
Focus Decentralizing final manufacturing and inventory into market Centralizing inventory and final manufacturing at continental level and globalizing manufacturing and sourcing
Tendency Single, placing activities into market Multiple, relocating within market and moving outside market
Timetable Short (1-10 months) Long (number of years)
Authority Global, top-down directions Local, bottom-up iterative process
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Stages in the implementation of postponed
manufacturing local starting point
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Stages in the implementation of postponed
manufacturing global starting point
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Organizing for international logistics
Supply chain reconfigurations involved in
postponed manufacturing
Industry Sourcing and primary manufacturing Inventory keeping Final manufacturing distribution Service and sales
software
Wine
Transport
Telecom
Pharma
Fashion
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Content
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Managing for risk readiness

• Short term risk readiness
• Inventory policies to reflect volatility
• Transportation network redesign
• Reconsider sole and global sourcing arrangements
• Long term risk readiness
• Develop contingency plans and risk protocols
• Audit preparedness
• Train plant management and staff
• Report to senior management on risk profiles and
  preparedness

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Managing for risk readiness

• DELL case global sourcing and transportation
  post 9-11
• The events of 9-11 changed the dynamics of
  importing and exporting products into the USA
• Air traffic control
• post 9/11 customs and security requirements for
  global trade
• Order increasing

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Managing for risk readiness

• Flexible Strategy
• Flexibility to take advantages of different
  scenarios
• Requires a flexible supply chain
• multiple suppliers
• flexible facilities
• various distribution channels
• Can be expensive to implement
• coordination mechanisms
• capital investments
• loss of economies of scale

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Managing for risk readiness

• Implement Flexible Strategy
• Production shifting flexible factories and
  excess capacity and suppliers
• Information sharing anticipate market changes
• Global coordination
• Political leverage