Global Logistics

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CHAPTER 13 Global Logistics
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Becton Dickinsons Worldwide Sources
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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

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Comparison of Domestic and International
Logistics
Domestic
International
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
Cost Transport mode Inventories Agents Financial
risk Cargo risk Government agencies Administratio
n 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
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International Market Entry Strategies

• Exporting
• Licensing
• Joint ventures

• Ownership
• Importing
• Countertrade

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Major Participants in an International Logistics
Transaction
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The Global Logistics Environment
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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.

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Exporting Companies

• Export distributor
• Customs house broker
• International freight forwarder
• Trading company
• Non-vessel-operating common carrier (NVOCC)

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Documentation

• Country of Origin
• Bills of Lading
• Packing Lists
• Customs
• Certified Shippers - C-T PAT

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Free Trade Zones

• gt 225 in the US
• postpone payment of customs or taxes until item
  is sold
• avoid customs completely if consolidated and
  re-exported

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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

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Ocean Shipping

• Types of Vessels
• Containerships
• Lighter aboard ship (LASH) vessels
• Roll On-Roll Off (RO-RO) vessels
• Tankers
• Specialized vessels

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A RO-RO Vessel in Jacksonville Florida
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International Trade Inventories

• May vary in small ways from country to
  countryproducts 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

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CHAPTER 15 Organizing for Effective Logistics
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Traditional Logistics Management
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Traditional Logistics Management cont.
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Control Exercised By Logistics Executives Over
Selected Logistics Functions
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Organization Design for Logistics as a Function
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Organization Design for Logistics as a Program
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Components of Corporate and Logistics Mission
Statements

• Targeted customers and markets
• Principal products/services
• Geographic domain
• Core technologies

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Components of Corporate and Logistics Mission
Statements (cont.)

• Survival, growth, and profitability
• Company philosophy
• Company self-concept
• Firms desired public image

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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

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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
structurewill therefore always improve
performance. Peter F. Drucker
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Activity Fragmentation in the Supply Chain
Responsibilities
President
Marketing
Finance
Operations

• Distribution channels
• Customer service
• Field inventories
• Revenue

• Cost of capital
• ROI
• Inventory carrying costs

• Supply alternatives and supply costs
• Warehousing
• Purchasing
• Transportation

CR (2004) Prentice Hall, Inc.
15-4
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Activity Fragmentation in the Supply Chain
(Contd)
Objectives
President
Marketing
Finance
Operations

• 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

15-5
CR (2004) Prentice Hall, Inc.
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Activity Fragmentation in the Supply Chain
(Contd)

• 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

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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

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Logistics Matrix Organization
15-8
CR (2004) Prentice Hall, Inc.
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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.

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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?

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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.

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Systems Integration Logistics Activities
Outside the Firm

• Third-party, or contract, logistics
• Integrated service providers
• Monitoring third-party performance

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Supply Chain Security
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Supply Chain Security

• A Global Perspective

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Top 5 European Ports

• Rotterdam 9.287 million TEUs in 2005
• Hamburg 9.088 million TEUs
• Antwerp 6.488 million TEUs
• Bremen 3.735 million TEUs
• Giora Tauro 3.161 million TEUs
• LA/Long Beach 7.485 mil TEUs

Source Logistics Today, Feb 07, p.1, 20
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Other Key Ports

• Singapore 23.2 million TEUs
• Hong Kong 22.602 million
• Shanghai 18.080 million
• Shenzhen 16.2 million
• Pusan 11.94 million

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Rotterdam

• gt 900 intermodal barge moves daily to 72
  locations
• gt 200 rail moves
• 220 million people within 600 miles of Rotterdam

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Rail

• gt 15 of cargo to Germany via rail
• 13 of Belgium cargo
• 14 of French cargo

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Other issues

• 9000 distribution centers in the Netherlands
• 2000 - 64.4 billion USD in logistics and
  distribution in The Netherlands

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Containers

• Cost to X-Ray containers
• Manpower
• Delays
• Radiation

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Why should you care about SC Security?

• Is it a US problem?
• Global Problem
• Heathrow Airport delays Superbowl weekend 2005
• RFID is this the solution?
• ISO Guidelines for SC Security
• Terrorism Insurance

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Transportation Worker Identification Credentials

• Port Employees
• Long Shoremen
• Unescorted access personnel

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HR 1

• Air Cargo Bill phase in inspection of all air
  cargo
• Sea Cargo safe seal shippers of gt75K TEUs to
  US have 3 years to comply

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C-TPAT

• Security Freight Initiative
• Inspection of high risk containers _at_ gt50 ports

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Other issues

• theTruecosts.com costs of piracy and fakes
• Rotterdam 19 of all European Volume
• Amsterdam 440 million metric tonnes
• www.HIDC.com Holland International Distribution
  Council

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Orlando International Airport

• No staffing of doors for employee entrance to
  baggage claim areas
• Guns smuggled into planes by employees
• no requirement for us to staff those doors OIA
  Spokesperson TSA not my job!
• Identified as security issues in 2004
• 2006 ½ of TSA Screeners failed test that
  measured how well employees could identify
  explosives, guns and other weapons on the scanner
  but can identify bottles of mouthwash and
  toothpaste

Source Mike Thomas, Orlando Sentinel, Mar 15,
2007, p. B-1
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Air Cargo World 2/07

• Bans on Russian Flights to Georgia
• Unfit Antonovs on list published by the
  International Civil Aviation Organization 462
  aircraft considered not air worthy
• Not a terror threat but still a SC Threat
• Mostly used throughout Africa

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International BioTerrorism

• Peter Pan Peanut Butter e coli 2007
• E-coli from fresh Spinach 2006
• Chi Chis e-coli from green onions 2003
• Taco Bell e coli 2005
• None were terrorist attacks but impacted supply
  chains

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Supply Chain SecurityAnd Homeland Defense
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Supply Chain Security

• We have proved to our management that good
  security is good business. Ann Lister of Texas
  Instruments

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Agenda

• What is Supply Chain Security
• How does it tie to Homeland Security?
• Is it Important?
• Is it a Problem?
• Risk Assessment
• Risk Management
• Conclusions/Questions

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Important?

• September 11, 2001 - 2 billion per day lost
• Longshoremen Strike 300-500 ships backed up
• Potential loss of attack to major port - 20
  billion estimate
• 2008 estimate 12 million containers into US up
  to 200 million containers world wide

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Problem?

• Terrorism
• Obsolescence
• Pilferage
• Information Breach
• Proprietary Data Camera Phones Thumb Drives
• Cyberspace Security
• RFID Data Security
• 66 of Sealift Containers arrive at 20 Major
  Ports
• gt58 of all inbound containers come through New
  York/New Jersey, Los Angeles, Long Beach
• 44 through Los Angeles/Long Beach in 2003
• Lengthening of Supply Chains coupled with
  Globalization

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Recent Headlines

• New Budget includes 10.2 Billion for Border
  Security.
• Battling the Bad Guys 2005 Was a Tough Year
  Dec 2005 Baseline Magazine
• Major Data Theft Leads to Major Legal Problems
  Baseline Magazine
• Polo Ralph Lauren Lost Point of Sale Data
• No One Stop Shopping to Stop Database
  Pilferages E-Week, Dec 21, 2005

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Recent Headlines

• GAO Report Container Security Expansion of
  Key Customs Programs Will Require Greater
  Attention to Critical Success Factors
• Security and Risk Strategy Become Integrated
  Top Trends for 2006, CIO Magazine, January 2006
• Computer Security Becomes More Critical CIO
  Magazine, January 2006
• Supply Chain and Security Remain in the
  Forefront
• ISO Publishes Supply Chain Security Guidelines
  Plant Engineering Magazine, Sep 06
• New Budget Includes 10.2 Billion Increase for
  Border Protection

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Recent Headlines

• Supply Chain Security Poses Opportunities,
  Obstacles E-Week, Sep 23, 2005
• Supply Chain Risks Threaten the Worlds Biggest
  Companies Logistics Today Financial
  executives at some of the worlds biggest
  companies believe supply chain risks post the top
  threat to companies revenues.

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Risk Assessment

• If you do things the way youve always done
  them, youll get the same things youve always
  got.
• -Darrell Waltrip

This is not your Dads Supply Chain! Security is
an integral part of the Supply Chain and
Homeland Defense
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Purpose of Risk Assessment

• Identify those areas of the supply chain that
  are vulnerable to interruptions of support flow.

• People
• Processes
• Technologies
• External events

The identification and of hazards assessment of
hazards to determine risk to include the
probability and the resulting severity.
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Risk Assessment

• Supply Chains are inherently complex, dynamic,
  and fluid, characterized by uncertainty,
  ambiguity, and friction. These characteristics
  cloud the operating environment they create
  risks

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Risk Assessment

• Terrorism
• Port Security 12 million containers annually
• Port Security 300 US Ports
• Longshoremen Strike 2002
• Potential Airport Attack LAX MPS LGA

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Risk Assessment/Management Steps

• Identify the hazards.
• Assess hazards to determine risks.
• Develop controls and make risk decisions.
• Implement controls.
• Supervise and evaluate.

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How do you identify your Supply Chain Risks?

• You have to know your processes
• Process maps
• Understanding processes
• Understanding where risks are
• Internal Risks
• External Risks

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What are your Hazards?

• Theft
• Pilferage
• Competition
• Information Systems
• Cell Phones
• Thumb Drives
• Camera Phones
• Disgruntled Employees
• Lack of Training

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Risk Management
Risk management takes a new shape in extended
supply chain. Risk management and the security
of supply chains took on a new emphasis after
the attacks of September 11, 2001 and the
reactions of the world to security. Included in
this heightened security awareness are
initiatives such as C-TPAT and Homeland
Security initiatives. - Logistics Today
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Risk Management

• Identify the hazards.
• Assess hazards to determine risks.
• Develop controls and make risk decisions.
• Implement controls.
• Supervise and evaluate.

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Risk Management

• Conserving resources while avoiding unnecessary
  risk
• Deciding on the approval of an alternative
• Identifying feasible and effective control
  measures where specific standards do not exist

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What is a Catastrophic Risk?

• Inaccurate receipts?
• Customer Satisfaction?
• Sloppy Warehousing?
• National Emergency?
• Hurricane?
• Or, Only when it makes it to CNN?

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Risk Management Programs

• Mitigate Risk
• Eliminate Risk
• Consequences of Risk or Mitigation probability
  and severity
• Courses of Action Analysis Feasible, Suitable,
  Acceptable?
• Manage Risk not react to Risk!

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New Problem?

• There were no secure rear areas.
• General Joseph Heiser on Vietnam Logistics
• Sun Tzu Chapter 1, The Art of War

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Supply Chain Security

• Supply Chain Security must protect the path from
  the supplier to the customer.
• End to End Security
• End to End Visibility RFID
• Information Security
• Personal Daily Obligation
• Operational Security
• Security and Velocity

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Final Thought
With an estimated 12 million cargo
containers coming into the United States, coupled
with an increase in the amount of jobs taken off
shore The resultant increase in imports and an
ever changing terrorist enemy Supply chain
security is extremely important to Homeland
Defense!
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Supply Chain Security
If master small things, Anything becomes
possible - Mr. Miyagi The Next Karate Kid
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Questions??