Introduction to global logistics: Global business drivers for logistic services and distribution Lecture on Tuesday 3.1.2017
Global in operations? Vaisala Group Vaisala develops, manufactures and markets products and services for environmental and industrial measurement. Vaisala's markets are global. Vaisala had more than 1 000 employees and achieved net sales of EUR 220.8 million in 2006. Vaisala serves customers around the world. Operations outside Finland accounted for 97% of net sales in 2006. The Vaisala Group has offices and operations in Finland, Northern America, France, United Kingdom, Germany, China, Sweden, United Arab Emirates Malaysia, Japan and Australia.
Challenges Global Business Drivers Characteristics of global business search for wider markets for the products Finns in niche markets tendency to source materials and components on a worldwide basis and to manufacture in whatever offshore locations provide optimum costs economies of scale in purchasing and production manufacturing costs + transportation costs = Min? costs of long supply pipelines may sometimes outweigh the production cost savings reaction time! complex flows of materials, products and information how to integrate and manage linkages between suppliers, factories, distribution centers and customers outsourcing of non-core activities alliances and strategic partnerships
International Economy No closed internal markets anymore! Forces shaping the global economy environmental changes regional economic alliances government regulations increasing uncertainty technological changes communication links manufacturing innovations transportation improvements cultural changes habits and consumption ways of doing business Effects of globalization changing markets less protectionism, leading to disappearing barriers of trade new competitive pressures, monopolies are disappearing more sophisticated customers changing requirements compression of product life cycles faster response to customer requirements =logistics challenge new management strategies
Defining logistics Terminology and elements of distribution and logistics
Logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in- process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements The mission of logistics is to get the right goods or services to the right place, at the right time, and in the desired condition and quantity in relation to customer orders Raw materials components transport warehousing manufacturing delivery Right time!
Logistic tasks Logistics is necessary to: Move goods from suppliers to buyers Move goods within corporation (factory-factorywarehouses- delivery centres) Move finished goods to the customer (wholesale-retail) Products have little value to the customer until they are moved to the customer s point of consumption Time utility- products are delivered at the right time. Place utility- products are delivered to the desired location Transportation and other costs affect the utility
Some Definitions Central terms used throughout the course: Supply Chain Management (SCM) is the integration of Integration business processes from end user through original of suppliers that provides products, services and information players that add value for customers. Logistics Management is that part of Supply Chain Coordination Management that plans, implements, and controls the of activities efficient, effective forward and reverse flow and storage of within the firm goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements.
Some Definitions Distribution Channel is a set of interdependent organizations (middlemen) involved in the process of making a product or service available for use or consumption by the consumer or industrial user. Consists of many stages importer-wholesaler-retailer, etc Different types of channels tendency to shorten channels by e.g. e-business Transportation is a bundle of services responsible for the physical movement of materials between points in the supply chain. Different modes of transportation
Forward logistics 11
Return logistics 12
What is logistics? Key elements Purchasing Material flows Transportation Warehousing Inventory management Control Information flows Distribution
Corporate logistics From the perspective of OUR company
Global Logistics from a company perspective Global logistics - the designing and managing of a system that controls the flow of materials into, through, and out of the global corporation. Major decision areas: cooperate with marketing to set customer service levels facility location decisions- locating plants and warehouses transportation activities (eg. transportation mode selection, vehicle scheduling, carrier routing) inventory management (inventory short -term forecasting, planning and control, cooperate with production to calculate EOQ, sequence and time production ) information collection and flows and order processing warehousing and materials handling packaging
Why global logistics? Low(er) cost sourcing and wider range of goods Increased markets Less dependence on one/few markets Increased economies of scale in manufacturing and logistics Growth potential
Corporate logistics flows
Logistics in a manufacturing firm an example Profit 4% Logistics Cost 21% Marketing Cost 27% Profit Logistics Cost Marketing Cost Manufacturing Cost 48% Manufacturing Cost
Logistics and other functions of the firm Connection to marketing and other functions The four P s of marketing and the impact of logistics on them Price Product Promotion Place
Price Transport pricing Generally, the larger the shipment, the cheaper the transportation rate shipment sizes should be tailored to the carrier s vehicle capacity where possible. Matching schedules Quantity discounts should be tied to carrier quantity discounts. Volume relationships Volumes sold will affect inventory requirements.
Product Consumer, transport and warehouse packaging The size, shape, weight and other physical characteristics of the product impact on storage, transportation and handling, the logistics managers should be included in any decisions regarding these product traits. A minor correction in any of the above could conceivably cost (or save) millions of dollars in logistical costs. Logistics costs are not necessarily paramount, but they need to be considered in the decision making process.
Promotion Push versus pull The most important factor is that the logistics division is aware of any changes in demand patterns so that it can plan for any consequences. Pull strategies tend to be more erratic. Push strategies tend to more predictable. Channel competition The more popular a product, the easier it is to persuade channel members to promote your product. Today most companies have multiple channels = multiple logistics?
Place Wholesalers wholesalers are combining purchases for multiple retailers shipment sizes larger and the number of transactions fewer logistics costs are smaller. Retailers smaller sales are the norm Costs higher for transportation and order processing. Global and multi-country logistics Transportation has many stages E.g. from factory to port port to foreign port- road transport to city local delivery to stores Often delivery transport is the most expensive!
Supply chains Consist of several companies connected by material and information flows
Supply chain challenge managing the material and information flows through many organisations Material Assets Established markets:90,8% Emerging markets: 9,2% Manufacturing Assets We Distribution Assets Suppliers: over 2000 OEMs: over 100 Production Divisions: 22 Distribution Centers: over 50 Retailers: 50 000 Consumers: tens of millions Retail Asset s Target Market
A supply chain for beer
Supply chains and global supply chains & logistics Supply chain is optimized when material, information and money flow simultaneously, in real time, and paperless Supplier Manufacturer Wholesaler Retailer Customer Supply Chain Definition: the flow of material, information and money between corporations Global logistics and supply chains. The flow of material, information, and money between countries. Connects suppliers suppliers with its customers customers internationally. Much more complicated than domestic logistics given the many languages, laws, currencies, time zones, cultures, etc.
World Trade Flows (billion $US) the ultimate drivers of logistic flows 255 188 Western Europe (1,677) 252 195 North America (391) 376 205 333 312 96 207 Asia / Pacific (722) 287 Rest of the World (285) 174 Copyright 1998-2007, Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University. For personal or classroom use ONLY. This material (including graphics) is not public domain and cannot be published, in whole or in part, in ANY form (printed or electronic) and on any media without consent. This includes conference presentations. Permission MUST be requested prior to use.
Logistics Costs Comparison of logistics costs between Finland and some other European countries Great Britain The Netherlands Administration Transportation Holding Costs Warehousing Germany France Finland? % of turnover Source: LORDA ry
Development of logistics & trends Current and future trends
Evolution of logistics Demand forecasting purchasing Production planning Warehousing 1980 Materials management 1990 Material management Packaging Inventory management Logistics 2000 Supply chains Distribution Order handling Transportation Customer service Distribution Information manag. Marketing Strategic planning
Logistics evolution and trends 2010 and beyond 3PL and 4PL third party logistics impact of emerging markets consumers and business environmental issues reverse flows and emissions restricted availability of management and labor global operations vulnerability of global supply networks - risks global sourcing freight exchanges - using the markets Electronic markets ebiz in consumer and business markets
History of Logistics Scope & Influence Supply Chain Logistics Global Logistics Workplace Logistics Facility Logistics Corporate Logistics 1950's 1960's 1970's 1980's 1990's 33 Adapted from:frazelle, Edward Supply Chain Strategy McGraw Hill 2002.
right goods at right time in right quantity in right quality on right place at right costs Summary Drivers for logistics - international trade and global business drivers logistics challenge in the global companies with multiple factories and warehouses Trend toward integrated and coordinated supply chains Challenge remains: how to get the goods in the right place at the right time and quantity Next lecture right place, i.e. transporting the goods