IBS3002 Logistics & International Trade

Introduction to the course

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Contemporary logistics, Murphy (2015) & International logistics, David (2011)
 Introduction to the course

Course overview:
Provide fundamental knowledge on international logistics in the global context
Analyze activities of logistics in international trade
Understand the impacts of environment on international logistics and international logistics
security
Understand issues occurring in logistics enterprises in international trade

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 Introduction to the course
Learning materials:
Contemporary Logistics; 11th Edition; Paul R. Murphy, Jr., A. Michael Knemeyer; Prentice
Hall (2015)
International Logistics: The Management of International Trade Operations; 3rd Edition ;
Pierre David and Richard Stewart, Cengage Learning (2011)

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Introduction to the course

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 Introduction to the course

Assessment:

20% Mid term exam + exercises

20% Group discussion + report & presentation
60% Final exam

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 Introduction to the course
Week Content
1 Introduction to the course
Chapter 1 – An overview of logistics
2 Chapter 1 – (cont)
3 Chapter 2 – Logistics & information technology
4 Chapter 3 – Demand management, order management & customer service
5 Chapter 3 – (cont)
6 Chapter 4 – Inventory management
7 Chapter 4 – (cont)
8 Chapter 5 – Warehouse management
9 Chapter 5 – (cont)
10 Chapter 6 – Packaging for export & material handling
11 Chapter 6 – (cont)
12 Chapter 7 – International logistics
13 Chapter 7 – (cont)
14 Presentation & group discussion 6
Introduction to the course

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 IBS3002 Logistics & International Trade

Chapter 1
An overview of logistics

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Contemporary logistics, Murphy (2015) & International logistics, David (2011)
Topic areas

 Logistics & international logistics

 Logistics & supply chain
 Logistics adds value
 Logistical relationships with the firm
 Logistics activities
 Infrastructure of international logistics

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Logistics

 Definition: is a part of the supply chain process that plans, implements and controls the
efficient and effective flow and storage of resources from the point of origin to the point
of consumption in order to meet the final customer’s demands
 Objective: how to get resources in the right quantity, at the right location, and at the right
time?

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The historical development of logistics

Global
Global
Phạm vi và ảnh hưởng logistics
logistics
Supply
Supply
chain logistics
chain logistics
Corporate
Corporate
logistics
logistics
Facility
Facility
logistics
logistics
Workplace
Workplace
logistics
logistics

1950 1960 1970 1980 1990 2000

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The historical development of logistics
1. Workplace logistics
- The flow of materials within a single workstation
- Objective: to streamline the movements of an individual working at a machine or along an
assembly line
- The principles and theory of workplace logistics were developed by the founders of
industrial engineering workers in WWII ad post WWII factory operations
2. Facility logistics
- The flow of materials between workstations within a facility (factory, terminal, warehouse,
distribution center) -> inter workstation, intra-facility
- The roots of facility logistics was in the mass production and assembly lines that
distinguished the 1950s and 1960s. Many organizations maintained material-handling
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departments (1970s)
The historical development of logistics
3. Corporate logistics
- The flow of materials and information between the facilities and processes of a corporation
(inter workstation, inter-facility, intra-corporate)
- Corporate logistics is sometimes associated with the phrase physical distribution that was
popular in the 1970s
4. Supply chain logistics
- The flow of materials, information and money between corporations (inter workstation,
inter-facility, inter-corporate and intra chain)
5. Global logistics
- The flow of materials, information and money between countries
- Global logistics connects our suppliers’ suppliers with our customers’ customers
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The historical development of logistics
5. Global logistics

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The increased importance of logistics

 A reduction in economic regulation

- Deregulation relaxed government control of carriers’ rates and fares, entry and exit,
mergers and acquisitions… in 1970s, 1980s -> competitive price and flexibility in service
in logistics
 Changes in consumer behavior
- Customized customer, changing family roles, rising customer expectations… ->
logistical implications
 Technological advances
- Technological advances improve the productivity of channel design, order picking
process, shipment tracking -> impact logistics management
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The increased importance of logistics

 The growing power of retailers

- Appearing Big-box retailers - stores both floor space and products for sale (Walmart,
Costco…) -> growing power of retailers
- Powerful retailers such as Wal-Mart, Home Depot, Best Buy have large market share and
low costs and they have superior logistics. Applying CPFR (Collaborative Planning,
forecasting, replenishment) initiatives – trading partners share planning, forecasting data
to better match up supply & demand. For this reason they are considered as “trend-setters”
of logistics.
 Globalization of trade
- Growth in world trade
- Globalization of logistics services
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The system & total cost approaches to logistics

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The system & total cost approaches to logistics

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The system & total cost approaches to logistics
- System approach: indicates that a company’s objectives can be realized by recognizing
the mutual interdependence of the major functional areas (marketing, production, finance
and logistics) of the firms
- Implications of the system approach:
+ One logistics system does not fit all companies
+ Stock-keeping units (SKUs): each different type or package size of a good is a different
SKU -> the proliferation of SKUs means more items to identify, store, and track.
- Intrafunctional logistics – coordinating inbound logistics, materials management, and
physical distribution in a cost-efficient manner that supports an organization’s customer
service objectives.
- Inbound Logistics: Movement and storage of materials into the firm.
The system & total cost approaches to logistics

- Materials management: movement and storage of materials within a firm

- Physical distribution: storage of finished product and movement to the customer
- Total cost approach: coordinate materials management and physical distribution in a
cost-efficient manner -> all relevant activities in moving and storing products should be
considered as a whole, not individually
- Cost trade-offs: changes to one logistics activity cause some costs to increase and others
to decrease
- All relevant logistics cost items are considered simultaneously when making decision

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Supply chain

 Supply chain: an entire system of producing and delivering a product or service, from
the very beginning stage of sourcing the raw materials to the final delivery of the product
or service to end-users. An extended enterprise that crosses the boundaries of individual
firms to span the related activities of all the companies involved in the total supply chain
in satisfying the ultimate consumer
 Supply chain management: coordination / integration of 3 key flows (products /
materials or services, information and financials) within and between firms in the supply
chain to fulfil the final customer’s demands through the most efficient use of resources
 Objective: fulfil customer demands through most efficient use of resources

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Logistics & supply chain

Supply base rationalization, supplier alliances,

Supply
SRM, global sourcing, ethics and sustainability
Foundation of SCM
Demand management, CPFR, MRP, ERP, inventory
Operations
visibility, lean systems, Six Sigma quality systems

Logistics management, customer relationship

Logistics management, network design, RFID, global supply
chains, sustainability, service response logistics
Risk and security management, performance
Integration
measurement, green supply chains

ALL ELEMENTS DRIVEN BY DEMAND

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Logistics adds value

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Logistics adds value

Economic utility – the value or usefulness of a product in fulfilling customer needs or wants.
•Possession utility – the value or usefulness that comes from a customer being able to take
possession of a product.
•Form utility – product’s being in a form that (1) can be used by the customer and (2) is of
value to the customer.
•Place utility – having products available where they are needed by the customers; products
are moved from points of lesser value to points of greater value.
•Time utility – having products available when they are needed by customers.

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Logistics adds value

The five principal types of economic utility which add value to a product or
service are:
 form (what)
 time (when)
 place (where)
 quantity (how much)
 possession (why)

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Logistical relationships within the firm

Finance Production Marketing

Logistics

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Logistical relationships within the firm

 Logistical relationships with finance

 Predicting future cash flows that depend on logistics
 Approving capital budgeting decisions affecting logistics
 Inventory (asset valuation, inventory cost vs inventory units)
 Logistical relationships with production
 The length of production runs
 Postponement: the delay of value-added activities such as assembly, production, and
packaging until the latest possible time

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Logistical relationships within the firm

 Logistical relationships with marketing

 Place decisions: logistics & marketing channel, new strategies for reaching new
customers
 Price decisions: how a product’s transportation costs should be reflected in its selling
price -> higher logistics costs to customers lead to an increase in product price
 Product decisions: the amount of SKUs to hold, stockouts, identification, storage,
tracking, packaging -> higher quantities of inventory necessitate additional storage space
& increase inventory carrying costs
 Promotion decisions: must be coordination between marketing and logistics

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Logistics activities

 Customer service: “Keeping existing customer happy”, “The right person receives the
right product at the right place at the right time in the right condition and at the right cost”
 Demand forecasting: effort to estimate product demand in a future time period
 Facility location decisions: the success of a retail store depends on location of the
relevant warehousing and production facilities
 Inventory management: stocks of goods that are maintained for a variety of purpose
 Materials handling: the short distance movement of products within the confines of a
facility (plant, warehouse)

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Logistics activities

 Order management: management of the activities that take place between the time a
customer places an order and the time it is received by the customer
 Packaging: preparation of product for transit and storage
 Procurement: raw materials, component parts and suppliers bought from outside
organizations to support a company’s operations
 Transportation management: the actual physical movement of goods or people from one
place to another
 Warehousing management: places where inventory can be stored for a particular period of
time
 Reverse logistics: returned product – product recalls, product damage, lack of demand,
customer dissatisfaction
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International logistics Infrastructure

Infrastructure: a collective term that refers to all of the elements in place (publicly or
privately owned goods) to facilitate transportation, communication, and business exchanges.
Transportation Infrastructure
Communication Infrastructure
Utilities Infrastructure
Services Infrastructure
Legal and Regulatory Infrastructure

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Infrastructure of International logistics

 The Transportation Infrastructure allows goods to move efficiently within a country and
between countries. This requires well-maintained seaports, airports, railways, and roads.
 The Communication Infrastructure allows businesses to communicate clearly and quickly.
This requires reliable phone lines, cell phone networks, internet service, and mail delivery
 The Utilities Infrastructure allows businesses to sustain their daily operations. This
requires reliable electricity, energy (natural gas), water, and sewer services.

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Infrastructure of International logistics

 The Business Services Infrastructure allows businesses to find additional competent

logistics help quickly. This includes freight forwarders, couriers, carriers, delivery services,
packing services, and so on.
 The Distribution Infrastructure allows businesses to find agents and distributors, to
develop wholesale and retail channels, and promote their products.
 The Banking Infrastructure allows businesses to move funds and documents quickly and
reliably, both within a country and between countries. This requires a network of bank
branches and well-trained bank employees.

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Infrastructure of International logistics

 The Court Infrastructure allows businesses to settle disputes quickly and fairly. This
includes not only an efficient court system, but also a network of mediators and arbitrators,
and the existence of clear jurisprudence.
 The Intellectual Property Infrastructure allows businesses to protect their intellectual
property (copyrights, patents, and trademarks) with law enforcement services intent on
enforcing intellectual property laws.
 The Standard Infrastructure allows businesses to determine the requirements that their
products and operations must meet. This includes safety, design, and performance standards.

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Transportation Infrastructure

• Ocean and Water Transportation

• Air Transportation
• Railroad Transportation
• Road Transportation
• Other Means of Transportation
Port Infrastructure (I)

• Water Draft
The depth of water determines the size of ships that can call.
• Air Draft
Bridge clearances also determine which ships can call.
• Cranes
Post-Panamax ships need wider/taller cranes than Panamax ships.
• Port Operations
Many ports have strong unions which limit operations.
Port Infrastructure (II)

• Space Limitations
The location of most ports limit their ability to expand.
• Warehouse Space
Availability of reliable storage space for goods in transit.
• Connection to land-based Transportation
Ports need to have reliable access to roads and/or rail lines to keep cargo moving.
The port of YangShan, China
A Panamax ship
A Post-Panamax Ship
The Alameda Corridor between the Port of Los Angeles and the U.S.
 Canals and Waterways

Maritime transportation is dependent on the existence of reliable canals.

The Suez Canal in North Africa and the Panama Canal in Central America are particularly
important. The current trend of building ships too large to fit through these canals is creating
new challenges for the industry.
Other key waterways include the Bosporus Strait in Turkey which connects the Black Sea
with the Mediterranean and the Saint Lawrence Seaway in North America which connect the
Great Lakes with the Atlantic Ocean.
Other canals are less frequently used, such as the Corinth Canal in Greece.
The New Locks on the Panama Canal.
The New Locks on the Panama Canal.
The Suez Canal.
The Corinth Canal.
The Bosporus Strait.
 Airport Infrastructure

• Runways
The lengths of runways determines whether an airport can handle large cargo planes, and the
number of runways determines its capacity.
• Space
Most airports are landlocked and cannot expand.
• Hours of operation
Airports need to be located away from of major cities if they are going to operate at night.
Many airports do not meet this requirement.
• Warehouse space
Storage facilities protect cargo from the elements.
The Kai Tak Airport in Hong Kong (now closed).
The Kobe Airport in Japan.
Railroad Infrastructure

• Gauge
When railroads were first built, countries installed unique railroad track gauges to prevent
rival armies from using them. Today, these gauge differences prevent trains from traveling
quickly between multiple countries.
• Multi-modal
Cargo rail transport has shifted from traditional railcars to multi-modal cars, carrying either
containers or truck trailers.
• Land bridges
Containers are shipped from Asia to Europe through the U.S. railroad network; they arrive
in a port on the west coast, and are transported to an east-coast port by rail.
A dual-gauge track in Thailand.
A double-stack train in the United States.
Road Infrastructure

• Quality
The existence of high quality roadways is important to the continuous flow of goods.
• Congestion
In many countries traffic congestion is stifling and prevents goods from moving quickly.
• Civil engineering structures
Structures such as bridges and tunnels need to be built in many places in order to
conveniently navigate the landscape.
The Lena “highway” in Russia.
Traffic Congestion on the Road to the Port, in Karachi, Pakistan.
The Italian Autostrade, a Succession of Bridges and Tunnels.
 Communication Infrastructure
(Mail)
• Speed
In some countries, mail delivery is quick. In others, very slow.
• Reliability
In some countries, not all mail is delivered: it is lost, abandoned, or sometimes pilfered.
• Delays
In some countries, postal unions have a lot of power and strikes can delay the delivery of
important documents.
• Competition
Firms such as FedEx, UPS, and DHL are very reliable, but they are generally much more
expensive than the public postal services.
A high-speed postal train in France.
 Communication Infrastructure
(Telecommunications)
• Land lines
While some countries have reliable, inexpensive phone lines, others do not have good landline telecommunication
networks.
• Cellular phones
Some countries built cellular phone networks quickly, often because they did not have a good landline network. They
leapfrogged the landline technology, often offering better cellular access than developed countries with reliable
landline networks.
• Internet
Access to the internet is still limited or cost prohibitive in some areas. In others, internet access is fast and inexpensive.
• Leapfrogging
Some countries never build infrastructure in one technology, and “leapfrog” into the next one. Gabon in the next tables .
Landline Penetration

Country Landlines/person
1 Hong Kong 61.8%
2 Taiwan 59.9%
3 Germany 58.2%
4 France 58.1%
5 South Korea 57.9%
6 Switzerland 53.4%
7 United Kingdom 51.6%
8 Japan 50.2%
9 Greece 48.5%
10 Belarus 47.0%
19 United States 39.9%
28 United Arab Emirates 35.4%
60 China 18.2%
49 Panama 15.9%
128 Gabon 1.0%

Countries with a population of more than 1,000,000.

Source: CIA’s World Fact Book
Cellphone Penetration

Country Cell phones /person

1 United Arab Emirates 283.4%
2 Kuwait 268.3%
3 Hong Kong 242.8%
4 Gabon 207.1%
5 Saudi Arabia 187.1%
6 Oman 184.8%
7 Panama 167.3%
8 Estonia 166.9%
9 Bahrain 166.8%
10 Uruguay 164.1%
44 Taiwan 129.6%
51 Germany 123.3%
53 Japan 120.5%
96 United States 98.0%
102 China 94.6%

Countries with a population of more than 1,000,000.

Source: CIA’s World Fact Book
Internet Access

Country Internet Access/person

1 Denmark 96.5%
2 The Netherlands 95.2%
3 Bahrain 94.3%
4 Norway 93.1%
5 Qatar 93.0%
6 Finland 92.8%
7 Canada 91.6%
8 New Zealand 89.4%
9 United Kingdom 88.9%
10 South Korea 88.1%
14 Germany 87.1%
16 Japan 86.3%
53 United States 85.4%
72 China 45.6%
125 Gabon 9.5%

Countries with a population of more than 1,000,000.

Source: CIA’s World Fact Book
Utilities Infrastructure

• Electricity
Unreliable electricity grids and insufficient production capacity can cause blackouts or brownouts,
limiting productivity.
• Water and sewer
Access to clean water (and sewer) is fundamentally important for many manufacturing processes.
• Energy
Reliable pipelines have to be available to deliver natural gas or oil products to the locations where
they can be used.
• Theft
In some areas, theft of utilities is common, making it difficult for utility companies to earn a profit
and invest in new infrastructure.
Tangled Wires in New Delhi, India.
Offshore Wind Farm, the Netherlands.
Banking Infrastructure

• Foreign currency payments

The ability to quickly purchase and sell foreign currencies, either through wire transfers
or currency purchases, is important to firms engaged in international trade.
• Methods of payment
The ability of the banking partners to support alternative means of payment and to
provide assistance to firms engaged in international trade is very important.
• Document exchanges
Banks play a fundamental role in the exchange of trade documents between an exporter
and an importer.
Business Services Infrastructure (I)

• Freight forwarders
Freight forwarders provide significant assistance to firms engaged in international trade by
helping determine the best shipping alternatives.
• Customs brokers
Brokers provide assistance to importers when clearing Customs.
• Couriers
Couriers allow firms to ship documents and small parts using the “next available flight.”
Business Services Infrastructure (II)

• Packing services

Packing services allow exporters to rely on professionals to pack goods destined for export.

• Multiple other services

Carriers, delivery services, etc. are fundamental to implement good international trade
practices, and must exist for exporters to be successful.
Distribution Channel Infrastructure
• Agents and distributors

A strong network of agents and distributors allows an exporter to enter new markets and expand abroad.
• Retail distribution

Efficient access to consumers is important to a manufacturer of consumer goods, and is not available in all
countries.
• Advertising and promotion

Advertising agencies and media allow promotional activities critical to the success of many products and
services.
• Trade shows

For most industries, trade shows present an unequaled opportunity to reach potential customers and trade
partners.
Court Infrastructure

• Speed
Speedy resolution of lawsuits allows businesses to “move on.” Some countries have slow and cumbersome court
processes.
• Arbitration
Disputes can be resolved faster through arbitration. The existence of experienced arbitrators is important to the
conduct of business.
• Mediation
Disputes can also be resolved through mediation, and therefore a group of mediators is often useful to resolve
disputes.
• Fairness
In some countries, the court system is perceived as corrupt or unfair, and that hinders good business relationships.
Intellectual Property Infrastructure

• Protection

Businesses with intellectual property (patents, copyrights, trade secrets) want to make
sure that the countries in which they operate will protect intellectual property. In some
countries, competitors, police, and courts do not respect nor protect intellectual property,
often considering that intellectual property laws favor big foreign corporations over the
local entrepreneur trying to earn a living.
• International Agreements

Some countries have not ratified international agreements on intellectual property and
therefore do not recognize some aspects of foreign patents and copyrights.
Standards Infrastructure

Countries have different standards for products and services offered for sale; these standards are specific and
must be followed.
•Safety
Safety requirements often differ from country to country. Such is the case for vehicles, appliances, and
hotels, for example.
•Design
Product designs are often dictated by local conventions (electrical supply and plugs, plumbing sizes and
pressures, and telecommunication standards, for example).
•Performance
Several countries have performance standards for products, dictating what can be called “natural,”
“organic,” “premium,” and so forth.