Chapter 12: Logistics and Distribution Flashcards
Logistics: Your competitive advantage
• Logistics –” a group of services that is concerned with the effective movement of materials and information from their source to the point of consumption “
-Emergence of global supply chains makes has increased the importance of logistics
Logistics has two key functions
- Materials management
2. Physical distribution
- Materials management
Involves the movement of raw materials or components from domestic suppliers to the company’s production line and through the manufacturing process.
- Physical distribution
Involves the movement of goods or services from the manufacturing process to the customer.
• The distribution of products occupies the other end of the logistical chain
–For small shipper with limited time and resources, or a larger volume shipper with little knowledge should use a freight forwarder
Freight Fowarders have:
- Detailed knowledge of distribution modes and methods used around the world
- Can consolidate small shipments
- May offer column-rate opportunities
- Provides documentation and makes freight arrangements
- Offers a specific logistical services such as crating, marking, and warehouse
The role of freight forwarders:
• Moving the freight • Generate shipping documentation • Security • Timeliness • Cost effectiveness • Work closely with customs brokers Can be a source of competitive advantage
The role of customs brokers:
- Dealing with border regulations
- Generate customs documentation
- Ensure shipments conform to border requirements
- Ensure taxes and duties are paid to government
Complexities of international trade make the use of freight forwarders more critical:
- Language
- Unfamiliar regulations and distribution networks
- Currencies
- Documentation
Modes of Transportation
Ocean freight Air freight Rail transport Road transport Multi-modal
Modes of transportation depend on
- Cost of shipping
- Transportation time required
- Importer’s preferences
- Competitor’s price
Air freight
- Fast delivery, greater security and lower insurance costs because if is in transit for a shorter period of time
- More expensive to sip products.
- Some products have to be air freight because of time sensitivity (perishable nature)
- Small shipments in special containers made specifically for different models of aircraft.
- Charged by the weight of the dimensions
Rail transport
- Offers relatively fast shipment of land at lower costs than trucks
- High volume of product
Road transport
Trucks are involved in one way or another in nearly every movement of goods between suppliers and customers.
Multi-modal
Mix of two of more
Ocean freight
• Three types of ocean carriers
○ Conference carriers–> primarily carry manufactured products and charge standardized rates.
○ Independent shippers–> have lower rates, service the major routes regularly and accept reservations on a first-come , first-serve basis
○ Tramp vessels–> offer lowest rates but do not offer regular service because they go wherever they are hired to carry freight on a “spot” basis.
• Shipped with steel containers
Advanced logistics
Advanced logistics refers to the new technologies that have dramatically affected how goods are handled as they are transferred from one leg of their journey to another in distribution centers and other transportation modes.
- Objectives:
- Shorten lead times
- Minimize inventory
- Cut costs
- Maximize efficiency and productivity
- Means of attaining objectives:
- Sophisticated software
- Computerized conveyor systems
- Automated warehousing operations
- Electronic scanning of bar-coded packages
Incoterms: International Commercial Terms
- Purpose:
- Clearly define the rights and obligations of each party involved in an international shipment
- Simplify the logistics process
- Minimize misunderstandings between importers and exporters
• Means:
* 11 acronyms to define various shipping terms and arrangements between exporter and importer * Assign responsibilities, costs and risks between the exporter and the importer * Risk, ownership, and responsibility for payment may transfer at different points
11 rules - two distinct classes:
RULES FOR ANY MODE OR MODES OF TRANSPORT • EXW EX WORKS FCA FREE CARRIER CPT CARRIAGE PAID TO CIP CARRIAGE AND INSURANCE PAID TO DAT DELIVERED AT TERMINAL DAP DELIVERED AT PLACE DDP DELIVERED DUTY PAID RULES FOR SEA AND INLAND WATERWAY TRANSPORT • FAS FREE ALONGSIDE SHIP FOB FREE ON BOARD CFR COST AND FREIGHT CIF COST INSURANCE AND FREIGHT
EXW–>
EX WORKS
seller handles product until they are ready to ship it out of factory, buyer has to arrange for transportation and the loading of the product onto the boat
FOB–>
freight on board–> sellers responsibility stops as soon as the product is on the boat
CIF
Cost Insurance and Freight–> sellers responsibility ends when the shipment is received by the buyer at the dock, the unloading of the product is the buyers responsibility
DDP-
delivered and duty paid – sell is responsible for everything until there is a confirmation of receipt .
Exportation documentation
• Documents serve a number of purposes:
• Communicating information about the buyer, seller and the products being shipped to the many parties involved in and regulating the movement.
–Countries have their own documentation requirements (some are universal)
commonly used exportation documents
- -commercial: Invoice
- -Financial: Letter of Credit (L/c)
- -Shipping: Bill of Lading (B/L)
- Regulatory “ Certificate of Origin
- -Health& Safety: Dangerous Goods Certificate
–commercial: Invoice
Identify supplier and customer, value of transaction, duty and tax information
–Financial: Letter of Credit (L/c)
Banking information, release funds to supplier at appropriate time
–Shipping: Bill of Lading (B/L)
Identify supplier, contents, destination, transportation particulars
– Regulatory “ Certificate of Origin
Ensure shipment is in compliance with appropriate trade rules
–Health& Safety: Dangerous Goods Certificate
Ensure dangerous shipment is authorized
Health and safety: Product compliance
products must conform to regulations designed to ensure that when used, they do not harm consumers, property or the environment.
Health and safety:Packaging:
- Exported without damage to the integrity and quality of the goods
- Transported without damaging or harming people, other goods or the environment
- Transported at minimal cost
Health and safety: Labelling:
• Language • Best-before dates • Safety information • Format • Information on the product itself or the packaging in which is is sold ○ Two types § Required by law § Provided by manufacturer
Security: mitigating risks: Threats to the cargo:
- Damage from mishandling
- Damage caused by water, temperature, or contamination
- Theft
Security: mitigating risks: Threats from the cargo:
• Leak or escape of dangerous materials
-Terrorism
