Global Logistics and Intermodal International Transport. The forces driving globilisation. Economic Growth 3/7/2016

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1 Global Logistics and Intermodal International Transport Kate Hughes & John Whiteley 1 The forces driving globilisation Economic growth Supply Chain Perspective Regionalisation Technology Deregulation 2 Economic Growth Rapid growth in many countries Decline in own country s population growth Over capacity Global expansion The search for profit & growth 3 1

2 Supply chain perspective Adoption of a total supply chain perspective by large manufactures & distributors Outsourcing leads to growth of specialist logistics providers Supply chain perspective leads to the formation of alliances with global suppliers 4 Regionalisation Initial expansion into nearby geographic regions Countries formalised partnerships as treaties to protect trade. E.g. EU, NAFTA, ASEAN The world has three main trading regions : Europe, North America, Pacific Rim Goal of regionalisation - to treat intraregional movements as if they had the same country origin & destination 5 Technology Mass market communications exposes international consumers to foreign goods Stimulates a convergence of global needs & preferences Increased capability to exchange information 6 2

3 Deregulation Financial Deregulation Global finance & foreign exchange - supported by technology Transport deregulation Predominately North America EU growth of cabotage Cabotage is the haulage of goods between two points in the same country by a vehicle registered in another country. 7 Global Logistics Management - Global Companies Do not just export Typically source materials & components from more than one country Often have multiple assembly or manufacturing locations Markets its products world wide Global trends for international marketing has been growing for years There is now interdependence between suppliers, manufacturers, & customers Brands may be global but some have to be customised to meet specific needs of some countries 8 Managing the Global Pipeline Global Companies Global companies aim to grow their business by extending their markets They seek cost reductions through the economies of scale of purchasing & through product by focused manufacturing & assembly operations Problems for global companies: World markets are not homogeneous - There are still local variations required A high level of co-ordination of complex global logistics leads to high costs 9 3

4 The centralisation of inventories & information Globalisation also leads to rationalisation of inventories Globalisation leads to the Centralisation of warehouses & regional distribution centres 10 The centralisation of inventories & information Major Issues Emerging Development of strategies not to centralise inventory physically, but to locate strategically near customer or point of production. How to manage inventory by controlling it centrally. The creation of virtual or electronic inventory The strategy is to reduce the penalties of centralised physical stockholding such as double handling, higher transport charges & the advent of possible longer pipelines- The objective are firstly to reduce the amount of inventory held in the logistics system. Secondly to reduce the response time to the next stage in the supply chain & ultimately to the customer. 11 Global Logistics Management - The Focused Factory The aim is to limit the product range produced & mix the manufacturing of products in a single location. The objective is to maximise economies of scale. To treat the world as one market Production is being rationalised into fewer locations. Smaller ranges of products are being produced, but greater volumes of those products. The objective is to satisfy whole regional markets from one location. 12 4

5 Trade off Issues Transport costs Delivery lead times Possible increase in inventory Local packaging 13 Extended & Unreliable transit times Transit times Transit times : Sea Freight from Japan to Rotterdam = approx., five weeks Transit times : Air Freight from Japan to Rotterdam, Dispatch to receipt of air freight = approx. five days Shipping by Sea can represent considerable investment in inventory on the shipping routes 14 Extended & Unreliable transit times Sea transport constrains logistics principles of postponement, that is the delay in shipment until the last moment. It is necessary to plan ahead over several months to maintain global shipping route transfers of product from manufacture or storage to market point of sale or other regional distribution locations It can be argued that their is a trade off between maintaining high inventories on sea routes & a flexible market response by providing shorter transit times by using air transport. 15 5

6 Extended & Unreliable transit times Pipeline management can save costs on storage by using shipping routes for in transit storage. The global plastics companies have formed partnerships with container shipping lines to achieve these benefits. The net result is that product is stored in containers & not silo s, therefore saving the cost of investing in storage facilities & allowing a flexible floating storage operation to existing & emerging markets. 16 Extended & Unreliable transit times Delays in transit time can occur due to customs clearance problems which arise due to problems with documentation, whether it is complete or if errors exist or if it is suspect. Problems can arise due to the need to inspect a percentage of goods crossing tariff barriers. This is necessary to check the declaration of goods for Ad Valorem duties ( This is a % of the value of the freight to pay import duties) & for smuggling. 17 Issues resulting from globalisation Logistics & Supply chain management are being seen as critical to the success of globalisation of companies. The complexity of logistics is increasing as logistics is in tern influenced by: An increasing range of products Shorter product life cycles Market place growth The number of supply/market channels 18 6

7 Freight Mode & Cost Options Transport Options : There are a wide range of options in selecting the type of transport service & the company or companies that provide freight shipping services. Use can be made of companies that provide Intermodal services, providing mixes of sea/rail, sea/road, sea/air, sea/ barge, road rail, Sea/rail/road, & so on. Mixes of service routing & mode of transport can be arranged depending on logistics needs of product type & customer demand. 19 Freight Mode & Cost Options Transport Options : Different types of container equipment Industry standards is to allow international movement of containers throughout the worlds intermodal transport systems. Specialised equipment to move goods with wide ranging characteristics has been developed Equally diverse is the type of road transport used to move containers Different types of shipping can be selected & used according to the product. A selection of different types of companies can be used to organise international shipping activities 20 Key considerations in selecting transport systems Key considerations in determining a carrier or transport option will consider many options. The relative importance of each factor will depend on the specific needs of the shipper. What transport links are available Does the system or choice of transport added value in terms of creating time & place utility. The greater the buyer - seller distance the greater the transportation costs & storage that may be required Factors of speed, safety of goods, reliability & the trade off between cost & speed need to be considered. 21 7

8 What are some key advantages of transportation systems ROAD Advantages Road transport has the inherent ability to provide service to most locations Useful for small shipments Small shipments plus low transit times help reduce inventory carrying costs Road is important to maintain or improve customer service levels. Road can provide safe transport of commodities Disadvantages The goods must have a certain value to allow for transportation costs Relatively high cost Environmental impact 22 What are some key advantages of transportation systems RAIL Advantages Primary use for long distances to gain cost advantages over road Geared to transport large volumes of low value, high density goods Reliable in diverse weather conditions Disadvantages Low accessibility compared to road Carriers cannot deviate from fixed track routes Sometimes a long transport time relative to road or air Consolidating freight into rail wagons or waiting for scheduled rail services can add to delays 23 What are some key advantages of transportation systems AIR Advantage Speed Disadvantages High cost of service Accessibility limited to airports Land carriers are used to transport freight to & from airports Reliability due to weather can be a problem Congestion at airports Environmental impact 24 8

9 What are some key advantages of transportation systems SEA Advantages Primarily long distance movers of freight Preferred mode for low value, high density, long distance goods movements Cost Global networks of logistics infrastructure & personnel Disadvantages Disruption from weather Requires land movements Traffic must be directed via ports/shipping terminals Environmental impact 25 An alternative approach to reappraise the logistics value chain Ship sub assemblies & assemble closer to customer Local operation closer to customer provides localisation & finishing. Modifying different products Central Inventory holding for theatre of operations Local language packaging Direct customer delivery for all markets within the theatre of operations without further handling. 26 Global Logistics Management : Global considerations Global considerations Network structuring for production & transportation optimisation Information systems development & control Inventory positioning Inventory sourcing decisions International transport mode & transport sourcing decisions Trade off analysis & throughput cost control 27 9

10 Global Logistics Management : Local considerations Local considerations Order fulfilment & customer service management Inventory management & control Warehouse management & local delivery Customer profitability analysis & channel cost control Liaison with local sales & marketing management 28 Organising For Global Logistics Strategic structuring & overall control of logistics flow - Centralised to achieve world wide optimisation of costs. Control & management of customer service must be localised against the requirements of specific markets to ensure competitive advantage is gained & maintained As the trend towards out-sourcing everything except core competencies increases then so does the need for global cooperation A global logistics information system is the pre-requisite for enabling the achievement of local service needs whilst seeking global cost optimisation 29 10