Chapter 15 Global Distribution and Logistics In International

Chapter 15 Global Distribution and Logistics

In International Distribution The firm sells to its customers: n directly through its own sales force. n indirectly through independent intermediaries. n indirectly through an outside distribution system with regional or global coverage.

Channel Configurations Manufacturer Originator Agent Wholesaler Retailer Agent Industrial Distributor Consumer Industrial User Consumer Products Industrial Products Consumer / Industrial User Services

Channel Design Considerations Ø Company objectives n Ø Customer characteristics n Ø What do they need, why, when, and how? Distribution culture n Ø Determined by company objectives for market share and profitability. The structural linkages and functional characteristics of existing channels. Competition n What channels does the competition use?

Channel Design Considerations Ø Character n Ø Capital n Ø The nature of the product impacts the design of the channel. Describes the financial requirements for setting up a channel system. Cost n is the expenditure incurred in maintaining a channel once it is established.

Channel Design Considerations Ø Coverage The number of areas in which a product is represented and the quality of that representation. Types of coverage n Intensive n Selective n n n Exclusive

Channel Design Considerations Ø Control n Ø Continuity n Ø The use of intermediaries, product type, and the marketer’s use of power will determine the amount of market control. Responsibility of the marketer and is expressed through market commitment. Communication n n Provides the exchange of information that is essential to the functioning of the channel. Social, cultural, technological, time and geographical distances may cause problems.

Intermediaries n n Types of intermediary relationship n Distributorship n Agency Type of exporting function n Indirect exporting n Direct exporting n Integrated distribution

Intermediaries n Screening Intermediaries Performance n Professionalism n

Channel Management n n n Coordinating two independent entities with shared goals. The relationship needs to be managed for the long term. Factors complicating channel management n n n Ownership Geographic, cultural, and economic distance Different rules of law

Gray Markets (Parallel Importation) Arguments for: n n n The right to “free trade. ” Consumers benefit from lower prices. Discount distributors have found a profitable market niche. Arguments against: n n Gray marketers take unfair advantage of trademark owner’s marketing and promotion. Parallel imports deceive consumers by not meeting product standards or expectations of after-sale service.

The Solution to the Gray Market Problem? n A contractual relationship that ties businesses together.

International Logistics n designing and managing of a system that controls the flow of materials into, through, and out of the international corporation (e. g. , JIT, EDI, ESI etc. ).

The Phases of Int. Logistics n Materials management Timely movement of raw materials, parts, and supplies through the firm n Physical distribution Movement of the firm’s product to its customers

n Total-cost concept n n Minimizing overall logistics costs by identifying activity-based costs. Trade-off concept n Recognize that logistics activities involve trade-off in areas such as timesaved in delivery versus the increased costs of expedited delivery systems.

Efficient supply chain design n n n 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

The Impact of International Logistics n n n 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.

Dimensions of Logistics Basic differences n Distance n Currency variation and exchange rate differences n Varying entry regulations n Different transportation modes Country-specific differences n Transportation systems and intermediaries vary. n Reliability of carriers may be different. n Computation of freight rates may be different.

International Transportation Issues n Transportation infrastructure Roads, rail lines, airports, seaports, pipelines n Availability of transportation modes Overland shipping, ocean shipping, air shipping n Choice of modes Transit time, predictability, cost n Noneconomic Factors Government involvement, the UNCTAD and the 40/40/20 concept

International Shipment Documentation n n 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 invoice certificate of origin import and foreign exchange licenses

International Inventory Issues Factors in deciding on the level of inventory to maintain: Order cycle time n Desired level of customer service n Use of Inventory as a strategic tool n

Order Cycle Time The total time that passes between the placement of an order and the receipt of the merchandise. Altering cycle times n Change transportation methods n Change inventory locations n Change ordering process

International Storage Issues The storage facilities location decision n Availability n Adequacy n Physical Conditions Optimizing the logistics system n 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

International packaging Issues n n n 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.

Logistics and Environments Reverse Distribution n A system responding to environmental concerns that ensures a firm can retrieve a product from the market for subsequent use, recycling, or disposal.