INTERNATIONAL MARKETING 6e

Chapter 19
Logistics

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A Definition of International Logistics
 “…designing and managing of a system that
controls the flow of materials into, through,
and out of the international corporation”
 In taking a systems approach to linkages
among logistics components, firms can
incorporate efficiencies through system
design and management techniques
• JIT - just-in-time
• EDI - electronic data interchange
• ESI - early supplier involvement
• ECR - efficient customer response systems

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The Phases of International Logistics
 Materials management
• Timely movement of raw
materials, parts, and
supplies through the firm

 Physical distribution
• Movement of the firm’s
product to its customers

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The Systems Concept
 The extensive and complex materials-flow
activities within and outside of the firm must
be considered in the context of their
interaction.
 Total-cost concept
• Minimizing overall logistics costs by identifying
activity-based costs that impact after-tax profits
 Trade-off concept
• Recognize that logistics activities involve trade-
offs in areas such as time-saved in delivery
versus the increased costs of expedited delivery
systems.
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Supply-Chain Management
 An integration of the three system concepts
 Value-added activities connect the
company’s supply side with the demand side
 Efficient supply chain design increases
customer satisfaction and saves money
• reduces inventory holding costs
• increases inventory turnover cycles
• reduces operating costs
• reduces order handling and mailing costs
• makes firm more price competitive

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International Supply Chain Overview
Suppliers Corporation Customers

Domestic/Import Inbound Through- Outbound Domestic/Import

Sourcing Materials flow Materials Sourcing

Order Order Order Order

Processing Placement Processing Placement

Physical
Trans- Trans- Materials Trans- Trans-
Distribution
portation portation Management portation portation
Management

Physical
Customer
Distribution
Service
Management

Supplier- Customer-
Firm Inventory Firm
Storage
Interface Management Interface

Inventory Inventory
Storage Storage
Management Management

Forward and Reverse Flows of Information and, Products, and Funds

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The Impact of International Logistics
 Logistical costs are 10% to 30%
of the total landed cost of an
international order.
 Factors necessary for the use
of logistics as a competitive tool:
• Close collaboration with suppliers and customers
• Technologically advanced information processing
and communication exchange capabilities
• An integrated business infrastructure

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New Dimensions of International Logistics
 The basic differences
• Physical distance
• Currency variation and exchange rate differences
• Border-crossing regulations and documentation
• Transportation modes are intermodal
 Country-specific differences
• Transportation systems and intermediaries vary
• Reliability of carriers may be different
• Computation of freight rates may be different
• Packaging and labeling requirements differ

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Domestic/International Logistics Differences
 Intimate knowledge of the domestic market
 Lack of familiarity of foreign markets
 Basic differences
• Distance
• Currency variation and exchange rate differences
• Varying entry regulations
• Different transportation modes
 Country-specific differences
• Transportation systems and intermediaries vary.
• Reliability of carriers may be different.
• Computation of freight rates may be different.
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International Transportation Issues
 Transportation infrastructure
• Roads, rail lines, airports, seaports, pipelines
 Availability of transportation modes
• Overland shipping, ocean
shipping, air shipping
 Choice of modes
• Transit time, predictability,
cost, noneconomic factors
 Noneconomic Factors
• Government involvement,
the UNCTAD and
the 40/40/20 concept
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Availability of Modes
 “…land bridges and
sea bridges result in
intermodal shipment…”
 Ocean shipping
 Overland shipping
 Air shipping
• Airfreight

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Ocean Shipping
 Three types of vessels
• Liner (Passenger) service
• Bulk service
• Tramp service
 Types of cargo vessels
• Container ships
• Roll-on-roll-off (RORO)
• LASH (lighter aboard ship)

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Choice of modes
 The choice of a logistics platform
• Determined by a location’s ease/convenience of
market reach under favorable circumstances and is
a key component of a firm’s competitive position.
 Considerations in the choice of mode is
important if value of the cargo affect by the
speed and certainty of its arrival time
• Transit time (inventory replenishment, perishable
• Predictability & reliability- weather
• Cost and value of delivery service to shipper
• Noneconomic factors such as the UNCTAD and
the 40/40/20 division of transportation concept
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International Inventory Issues
 Inventory carrying costs can be up to 25% of
the value of an inventory
 Just-in-Time policies minimize inventory
volume by making it available when needed.
 Inventories assist in the movement of
products.
 Factors in deciding on the
level of inventory to maintain:
• Order cycle time
• Desired level of customer service
• Use of Inventory as a strategic tool

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Order Cycle Time
 The total time that passes between the
placement of an order and the receipt of the
merchandise.
• Length of the total order cycle
– Longer cycle in international marketing than domestic
• Consistency of the order cycle
– More complicated delivery mode reduces consistency
 Altering cycle times
• Change transportation methods
• Change inventory locations
• Change ordering process

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International Shipment Documentation
 Bill of Lading
• acknowledges receipt of goods
 Shipper’s export declaration
• states proper authorization for export under
general or special validated export license
 Packing list of contents
 Dock and warehouse receipts
 Collection documents
• commercial (consular) invoice
• certificate of origin
• import and foreign exchange licenses
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Use of Inventory as a Strategic Tool

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International Shipment Support Agencies
 International freight forwarder
• Acts as an agent for international marketer to
move cargo overseas.
 Customs broker
• Acts as an agent to clear inbound goods through
customs and on to their destination.
 Common carrier

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International Storage Issues
 The storage facilities location decision
• Availability
• Adequacy
• Physical
Conditions
 Optimizing the
logistics system
• Rank products by warehousing needs
– “A” products stocked in all distribution center
– “B” products stored only in selected locations
– “C” products with low demand stocked only at
headquarters

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International Packaging Issues
 Protection of Contents
 Environmental Conditions
 Package Design for Storage
 Weight
 Customer’s Instructions
 Handling Facilities

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International Packaging Issues
 Packaging for domestic shipping may NOT be
adequate for international shipping.
 Goods should arrive in a safe, undamaged,

maintainable, and presentable condition.

 Packaging should minimize the stress

of intermodal movement and storage.

 Protected from climatic conditions.

 Weight based on delivery mode.

 Follow customer instructions

for labeling, packaging,

and routing.
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Foreign Trade Zones

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Issue: The Maquiladoras
 “plants in Mexico that make goods and parts
or process food for export back to the U.S.”

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Management of International Logistics
 Centralized logistics management
• Headquarters retains decision-making power and
control, coordinates all logistics.
 Decentralized logistics management
• The “decentralized full profit center model” allows
the organization to respond to local market
conditions. Possibility for loss of coordination.
 Contract logistics
• Growing preference to outsource logistics function
to “third party” specialists such as FedEx or UPS.
 The supply chain and the Internet

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Terms of Sale
 Items to which the buyer and seller must agree:
• What is not included in the price?
• When the seller’s responsibility ends?
• When the buyer’s responsibility begins?
 Incoterms
• international definitions for terms of sale by the
International Chamber of Commerce (ICC)”
 Ex-Works (EXW)
• “price quotes that apply only at the point of origin; the
seller agrees to place the goods at the disposal of the
buyer at the specified place on the date or within the
fixed period”

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Logistics and the Environment
 Reverse Distribution
• “a system responding to environmental concerns
that ensures a firm can retrieve a product from the
market for subsequent use, recycling, or disposal”

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