1. GLOBAL LOGISTICS AND DISTRIBUTION
CHAPTER OVERVIEW
Definition of Global Logistics
Management of Global Logistics
Free Trade Zones
Maquiladora Operation
Global Retailing

2. Introduction
Global logistics and distribution have played a critical role in the growth and development of world trade and in the integration of manufacturing on a worldwide scale.
The use of appropriate distribution channels in international markets increases the chances of success dramatically.
In the United States, the total logistics cost has amounted to nine to eleven percent of the country’s GDP every year in the last decade.

3. Introduction
As firms start operating on a global basis, logistics managers need to manage shipping of raw materials, components, and supplies among various manufacturing sites at the most economical and reliable rates.
The development of intermodal transportation and electronic tracking technology has resulted in a quantum jump in the efficiency of the logistic methods employed by firms worldwide.

4. Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 16
Copyright (c) 2007 John Wiley & Sons, Inc.

5. 1. Definition of Global Logistics
Global logistics is defined as the design and management of a system that directs and controls the flows of materials into, through and out of the firm across national boundaries to achieve its corporate objectives at a minimum total cost (see Exhibit 16-1).

6. 1. Definition of Global Logistics
Materials management refers to the inflow of raw material, parts, and supplies through the firm.
Physical distribution refers to the movement of the firm’s finished products to its customers, consisting of transportation, warehousing, inventory, customer service/order entry, and administration.

7. 2. Management of Global Logistics
The following factors contribute to the increased complexity and cost of global logistics:
Distance
Exchange rate fluctuations
Foreign intermediaries
Regulation
Security

8. 2. Management of Global Logistics
Modes of Transportation
Value-to-Volume Ratio
Perishability
Cost of Transportation
Ocean Shipping
Liner Service
Bulk Shipping
Air Freight
Intermodal Transportation

9. 2. Management of Global Logistics
Warehousing and Inventory Management
Hedging Against Inflation and Exchange Rate Fluctuations
Benefiting from Tax Differences
Logistic Integration and Rationalization
E-Commerce and Logistics

10. 2. Managing Global Logistics (contd.)
Third-Party Logistic (3PL) Management
The largest 3PL sector is the value-added warehousing and distribution industry.
Logistical Revolution with the Internet
The trend toward third-party logistics is a result of the Internet and the intranet as well as concentrating on core competencies.

11. 3. Free Trade Zones
A free trade zone (FTZ) is an area that is located within a nation (say, the United States), but is considered outside of the customs territory of the nation.

12. 3. Free Trade Zones
US FTZ’s are licensed by the Foreign Trade Zone Board and operated under the supervision of the US Customs Service. Presently, some 700 FTZ’s are in operation. Across the US, about 335,000 jobs are directly related to activity in FTZ’s.

13. 3. Free Trade Zones
FTZs provide many cash flow and operating benefits to zone users and include (see Exhibit 16-2):
1. Duty deferral and elimination
2. Lower tariff rates
3. Lower tariff incidence
4. Exchange rate hedging
5. Import quota not applicable
6. “Made in U.S.A.” designation

14. 4. Maquiladora Operation
The maquiladora industry, also known as the in-bond or twin-plant program, is essentially a special Mexican version of a free trade zone and was started in 1965.

15. 4. Maquiladora Operation
Mexico allows duty-free imports of machinery and equipment for manufacturing as well as components for further processing and assembly, as long as 80 percent of the plant’s output is exported.

16. 4. Maquiladora Operation
Mexico permits 100 percent foreign ownership of the maquiladora plants in the designated maquiladora zone. Automobiles and electronics product assembly makes up the bulk of the plants.
Most of the maquiladora plants are located along the U.S.-Mexico border, such as Tijuana across from San Diego, Ciudad Juarez across from El Paso, and Nuevo Laredo across from Laredo. Other cities include Monterrey, Mexico City, and Guadalajara.
Mexico has been an attractive location for labor-intensive assembly because of cheaper labor.

17. 5. Global Retailing
In developed countries, retailing employs between 7 percent and twelve percent of the workforce.
In 2004, Wal-Mart was the largest retailer in the world with a total revenues of $285 billion. Only 10 percent of its sales are generated outside its core NAFTA region, compared with Carrefour’s 20 percent of sales generated outside its core Europe region.

18. 5. Global Retailing
Retailing involves very locally entrenched activities, including stocking of an assortment of products that local consumers prefer and seasonal promotion. Adaptation is a key success factor.

19. 5. Global Retailing
In general, European retailers tend to be more willing to customize their marketing and procurement strategies to various local market peculiarities than US or Japanese retailers.
“Push” versus “Pull”:
The traditional supply chain powered by the manufacturing push is becoming a demand chain driven by consumer pull, especially in the developed countries.

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Push Versus Pull
Chapter 16
Copyright (c) 2007 John Wiley & Sons, Inc.

21. 5. Global Retailing On-Time Retail Information Management
Reduced Inventory
Market Information at the Retail Level
Strong logistics capabilities can be used as an offensive weapon to help a firm gain competitive advantage in the marketplace.
Retailing Differences Across the World:
Industrialized countries tend to have a lower distribution outlet density than the emerging markets

22. 5. Global Retailing
The advanced facilities available in the developed world allow a much higher square footage of retail space per resident,due to the large size of the retail outlets.
Large-Scale Retail Store Law (LSRSL) in Japan- this law helped to protect the small retail stores
Germany (store hours limited) and China (basket shopping behavior) support adaptation
approach.

23. 5. Global Retailing E-commerce and Retailing
Countries such as Japan and Germany are warming up to the same e-commerce revolution as the United States has experienced.
E-commerce is not limited to the developed countries.
China is already the fastest growing Internet market in Asia.

24. 5. Global Retailing
Brazil is the most wired nation in Latin America. Along with the growth of internet access is expected a similar growth in entrepreneurial e-commerce operators.
Despite the rapid growth of the Internet, the need for local or regional distribution of products is likely to remain as important as it was before the Internet revolution.