CH 8-Logistics

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CHAPTER 8:
Logistics
Chapter 8: Fundamentals of International Business

LOGISTICS Copyright © 2010 Thompson Educational Publishing, Inc.
Key Terms
 logistics  insourcing
 production logistics  offshoring
 business logistics  inshoring
 supply chain  inbound distribution
 vertical integration
 outbound distribution
 horizontal integration
 receiving process
 point-of-sale terminal
  Ex Works (EXW)
just-in-time (JIT) inventory
systems  carrier
 letter of credit  bill of lading
 supplier management  freight consolidation
 outsourcing  containerization
 nearsourcing

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

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.
Three types of logistics:

1. Military
2. Production
3. Business

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.

Logistics Defined
Business logistics
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: Fundamentals of International Business Used under license from Shutterstock, Inc.
Logistics Defined

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.

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.

Supply Chain
Horizontal integration
A method of expanding a company by acquiring its
competitors.

Supply Chain
The main links in the supply chain are:

 Inventory management
 Storage
 Cash flow
 Supplier co-ordination
 Information processing
 Physical distribution

Supply Chain
Inventory management
 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
Used under license from Shutterstock, 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

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.

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.

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.

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.

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.
Inshoring
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.

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.

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).

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.

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.

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

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.

Rail
 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

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

Containerization
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.


Issues in the Supply Chain
Issues in the supply chain include:

 Reliability of sources
 Oil prices
 Unstable political climate
 Piracy
 Optimization

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

Foreign Marketing and Canadian Shopping Habits
 Canadian businesses must stock goods from around

the world to compete with online retailers.
 Retailers must guarantee a unique selection of
products by visiting international trade shows or
accessing online distributors.
 Increase in foreign ownership of Canadian
manufacturers means it is more difficult to buy
Canadian-made goods.
 Canadian businesses must remind shoppers that
they sell and produce Canadian goods.


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Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

 Compare the logistics of delivering a product to a local,

Chapter 8: Fundamentals of International Business

Three types of logistics:

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Example of vertical integration in a company that sells canned fish.

Chapter 8: Fundamentals of International Business

The main links in the supply chain are:

Chapter 8: Fundamentals of International Business

Used under license from Shutterstock, Inc

Used under license from Shutterstock, Inc

Companies are reluctant to be responsible for storage of

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Used under license from Shutterstock, Inc

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

Chapter 8: Fundamentals of International Business

The selection of a carrier depends on several

Chapter 8: Fundamentals of International Business

Motorized carriers—trucks, vans, motorcycles

Chapter 8: Fundamentals of International Business

Used under license from Shutterstock, Inc

Chapter 8: Fundamentals of International Business

Used under license from Shutterstock, Inc

Chapter 8: Fundamentals of International Business

Issues in the supply chain include:

Chapter 8: Fundamentals of International Business

Sources of help for Canadian businesses:

Chapter 8: Fundamentals of International Business

 Canadian businesses must stock goods from around

Chapter 8: Fundamentals of International Business

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