Global Logistics and Purchasing*

Considering about global production, some of the core decisions to be made, include where to produce, strategic role of any production site used and make or buy decision. Additionally, two key supply chain functions should be focused.

Logistics

According to Hill and Hult (2017), logistics is the part of the supply chain that plans, implements and controls the effective flows and inventory of raw material, component parts and products used in manufacturing.

The core activities performed in logistics include

  • global distribution center management
  • inventory management
  • packaging and materials handling
  • transportation
  • reverse logistics

Global distribution center or warehouse is a facility that positions and allows customization of products required for delivery, to worldwide wholesalers or retailers or directly to consumers anywhere in the world. These distribution centers are used by manufacturers, importers, exporters, wholesalers, retailers, transportation companies and other agencies. A distribution center is at the center of the global supply chain. This is mainly due to the order processing and fulfillment part.

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Hence, distribution centers are the foundation of a global supply network. They allow either a single location or satellite warehouses to store quantities and assortments of products. They also allow for value added customization. Thereby, they should be located strategically in the global marketplace with the consideration of the total labor and transportation cost.

Global inventory management is the decision making process related to raw materials, work-in-progress and finished goods for a MNC. These decisions include quantity of inventory to hold, what form to hold in and where to locate it in the supply chain.

For example, Toyota has about 8.7% of its assets in terms if inventory. A company’s global inventory strategy must effectively trade off the service and economic benefits of making products in large quantities and positioning them near customers against risk of having too much stock.

Packaging is in all shapes, sizes, forms and uses. This has three forms.

  • Primary packaging holds the product.
  • Secondary packaging is designed to contain several primary packages.
  • Transit packaging is the pallet or unit load used to transport both primary and secondary packaging.

Thereby, regardless of where the product is in the global supply chain, packaging is intended to achieve a set of multi layered functions.

  • Perform
    • Ability to handle the product during transport
    • Ability to be stored for typical lengths of time for a particular product category.
    • Provide convenience expected both by supply chain partners and end customers
  • Protect
    • Ability to contain the product’s properly
    • Preserve the products to maintain their freshness or newness
    • Provide the necessary security and safety to ensure that the products reach their end destination in their intended shape
  • Inform
    • Give logical and sufficient instructions for the use of the products inside the package
    • State compelling product guarantee
    • Inform about service for the product- if and when it is needed

Transportation

This refers to the movement of raw material, component parts and finished goods throughout the global supply chain. This typically represents the largest percentage of any logistics budget.

The primary drivers of transportation rates and the resulting aggregate cost are distance, transport mode, size of load, load characteristics and oil prices. In this case, the transport cost overseas is highly affected by the economies of scale. Therefore, larger shipments are usually less expensive than smaller shipments. Characteristics of the shipment also matters. For example, the product density, value, its perishability, potential for damage should be considered.

Reverse logistics is the process of planning, implementing and controlling efficient flow of inventory, from the point of consumption to the origin. Thereby, reverse logistics aims to optimize the after market activity. This saves both money and environmental resources. Thereby, it is critical for global supply chains.

Purchasing

In the case of purchasing, first an appropriate strategy should be developed for global purchasing and then the type of purchasing strategy should be selected.

In this case, there are 5 levels from domestic to global.

  • Level 1- Domestic purchasing
  • Level 2 & 3- International purchasing
  • Level 4 & 5-Global purchasing

Accordingly, there are 4 main choices of purchasing strategies.

  • Domestic internal purchasing
  • Global internal purchasing
  • Domestic external purchasing
  • Global external purchasing

The above strategies come into the international arena with a set of generic options. These include

  • Outsourcing(External purchasing)
    • Buying products or services from one of its suppliers that produces them somewhere else.
  • In-sourcing(Internal purchasing)
    • Producing internally
  • Off shoring(Global external purchasing)
    • Buys from one of its suppliers producing outside the home country
  • Off shore outsourcing(Global external purchasing)
    • Buying from a supplier other than the one in which the product is manufactured
  • Near shoring (Facilitates global external purchasing)
    • Transfers technology processes to suppliers in nearby countries
  • Co-sourcing
    • Employees inside the firm and external suppliers both are used to perform the tasks

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