1. Fundamentals of International Business

CHAPTER 8:
Logistics
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

2. Fundamentals of International Business
Key Terms
logistics
production logistics
business logistics
supply chain
vertical integration
horizontal integration
point-of-sale terminal
just-in-time (JIT) inventory systems
letter of credit
supplier management
outsourcing
nearsourcing
insourcing
offshoring
inshoring
inbound distribution
outbound distribution
receiving process
Ex Works (EXW)
carrier
bill of lading
freight consolidation
containerization
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

3. Fundamentals of International Business
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
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

4. Fundamentals of International Business
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:
Military
Production
Business
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

5. Fundamentals of International 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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

6. Fundamentals of International Business
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.
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

7. Fundamentals of International Business
Logistics Defined
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

8. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

9. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

10. Fundamentals of International Business
Supply Chain
Horizontal integration
A method of expanding a company by acquiring its competitors.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

11. Fundamentals of International Business
Supply Chain
The main links in the supply chain are:
Inventory management
Storage
Cash flow
Supplier co-ordination
Information processing
Physical distribution
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

12. Fundamentals of International Business
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
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

13. Fundamentals of International Business
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
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

14. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

15. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

16. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

17. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

18. Fundamentals of International Business
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.
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

19. Fundamentals of International Business
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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

20. 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).
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

21. 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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

22. 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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

23. 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
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

24. Methods of Physical Distribution in the Supply Chain
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.
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

25. Methods of Physical Distribution in the Supply Chain
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
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

26. Methods of Physical Distribution in the Supply Chain
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
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

27. Methods of Physical Distribution in the Supply Chain
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.
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Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

28. Methods of Physical Distribution in the Supply Chain
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

29. Issues in the Supply Chain
Issues in the supply chain include:
Reliability of sources
Oil prices
Unstable political climate
Piracy
Optimization
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

30. 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
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.

31. 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.
Chapter 8:
LOGISTICS
Fundamentals of International Business
Copyright © 2010 Thompson Educational Publishing, Inc.