International Logistics Management

By Robert Chira

The logistics developed by multinational companies consist of many mechanisms and processes. Understanding how they workas well as how different frameworks can result in an efficient system of logistics managementis no easy task.

Robert Chira, a faculty member at Dimitrie Cantemir University in Bucharest, Romania, explains how logistics work in this textbook geared for students and businesspeople. Taking a step-by-step approach, he introduces readers to logistics, explains the importance of logistics in a business environment, and delves into integrated logistics.

He also explores how globalization is affecting logistics management, how logistics can provide companies with a competitive advantage, how to implement the latest competitive strategies offered by financial institutions, and why customer service must be a key part of any strategy.

Moreover, he provides examples of how companies in Romania have leveraged logistics management in different sectors to achieve lasting success.

Unlike other textbooks on logistics, this one goes beyond theory to provide ways to improve logistics in order to accomplish performance objectives. Build a business built to last, and outperform competitors with the lessons in International Logistics Management.

• Language: English
• Publisher: AuthorHouse UK
• Release date: Jul 25, 2016
• ISBN: 9781524632090

Robert Chira

Robert Chira is a member of the marketing faculty at Dimitrie Cantemir University in Bucharest, Romania, where he teaches logistics, commercial management, and project management. He did postgraduate work in supply and sales management with a specialization in logistics before earning his doctorate in 2011. He has also been the general manager of several companies.

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© 2016 Robert Chira. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse 07/20/2016

ISBN: 978-1-5246-3208-3 (sc)

ISBN: 978-1-5246-3207-6 (hc)

ISBN: 978-1-5246-3209-0 (e)

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and such images are being used for illustrative purposes only.

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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Contents

List of Contributors

Preface

Chapter 1: Introduction to Logistics

1.1 Purpose and definition

1.2 Historical data

1.3 The Importance of logistics for the business environment

1.4 Structure of the distribution system

Chapter 2: Integrated Logistics

2.1 The concept of total logistics

2.2 The financial impact of logistics

2.3 The phenomenon of globalization

2.4 The competitive advantage due to logistics

Chapter 3: The Digitization of the Economy and the Remodelling of Marketing Strategies

3.1 Stages for marketing approaches

3.2 The general strategy of the company

3.3 The challenges of the present environment

3.4 Stages of developing a marketing strategy

Chapter 4: Facing Competition in a Global Market

4.1 Analysis of the competitor

4.2 The industry’s perception of competition

4.3 Michael Porter’s competitive strategies

4.4 Value creation and preserving competitive advantage

Chapter 5: Implementing the Latest Competitive Strategies Offered by Financial Institutions to Create a Financial Market on the Rise

5.1 Strategies of intensive growth

5.2 The strategy of diversification

5.3 The strategy of growth through integration

5.4 Strategic business fields strategies

Chapter 6: Features of the Marketing of Health Services in Romania

6.1 Features of health care

6.2 Healthcare market

6.3 Marketing mix in health care

6.4 Political power and public opinion within health care

Chapter 7: New Promotional Price Strategies in the Romanian Banking Services Market

7.1 Price categories

7.2 The specific prices for the financial banking sector

7.3 Elements of price policy

7.4 Price-setting strategies used for financial banking services

Chapter 8: Customer Service Activity

8.1 The importance of customer service

8.2 The components of customer service

8.3 Ensuring good-quality products

8.4 The efficiency of customer service

Chapter 9: Evolution of the Concept of Quality

9.1 The concept of quality

9.2 Awareness of the worldwide importance and role of quality

9.3 The evolution of Total Quality Management (TQM)

9.4 Economic control of the manufactured product’s quality

Chapter 10: Distribution Channels

10.1 Distribution channels

10.2 Alternatives of direct delivery

10.3 Choosing the right distribution channel

10.4 The importance of using specialized distributors

Chapter 11: Challenges of Logistics

11.1 External environment analysis

11.2 Production and supply

11.3 Retailing

11.4 The consumer: the centre of activity in any field

Chapter 12: Characteristics of B2B Distribution Strategy at the International Level

12.1 The importance of production and distribution coordination

12.2 A company’s strategic alternatives regarding the international distribution policy

12.3 B2B marketing

12.4 Challenges of transferring activities in the virtual space

Chapter 13: Brief Considerations Regarding Juridical Regulation and the Jurisprudence Approach to Copyright in the Internet Zone

13.1 Copyright

13.2 Methodology

13.3 Legal regulations of copyright

13.4 Addressing the court on copyright matters

Chapter 14: Logistics Framework

14.1 Historical context

14.2 Logistics strategic planning

14.3 Types of strategies

14.4 The implications on logistics of the product’s life cycle

Chapter 15: Market Failure

15.1 Optimal resource allocation

15.2 Market failure

15.3 Functions of the public sector

15.4 The market with perfect competition

Chapter 16: Forms of the Market with Imperfect Competition

16.1 Imperfect-competition market

16.2 Monopoly

16.3 The market with oligopolistic competition

16.4 The market with monopolistic competition

Chapter 17: The Segmentation of the Distribution Channel

17.1 Product segmentation

17.2 Supply and demand segmentation

17.3 Market segmentation

17.4 The characteristics of segmentation

Chapter 18: Markets, Competition, Prices

18.1 Competition

18.2 Factors that influence competition

18.3 Balanced economy

18.4 The theory of welfare: Pareto-optimality

Chapter 19: Logistics Infrastructure

19.1 The role of warehouses

19.2 Costs generated by logistics activities

19.3 Collecting and analysing the data that are necessary for developing a company’s business plan

19.4 Factors that have an influence on logistics

Chapter 20: The Relevance of Financial Accounting Information to Measuring the Performance of Entities of Public Interest in the Context of Corporate Governance Requirements

20.1 Financial accounting information system

20.2 The importance of internal audit

20.3 The role of FAIS in managers’ decisions

20.4 Proposals to improve the framework of the development of entities of public interest through corporate governance

Chapter 21: The Multicultural Experience of the Contemporary Workplace

21.1 The elements of globalization in the context of global marketing

21.2 The implication of globalization on the manager’s business approach

21.3 Today’s students – the future managers

21.4 Advantages and disadvantages of a multicultural workplace

Chapter 22: The Essentials of Effective Management and Leadership

22.1 Definitions of leadership

22.2 Good leadership – the essential key to corporate success

22.3 Leadership and goals fulfilment

22.4 Leadership styles: choosing the right style for the situation

Chapter 23: Internal Marketing Communication Role within an Organization

23.1 The necessity of internal communication

23.2 Differences between internal and external communication

23.3 The development of the concept of internal communication

23.4 Efficiency as a result of happy employees

Chapter 24: The Impact of Teamwork and Performance in the Workplace

24.1 Stress and performance in teamwork

24.2 Effects of stress on work performance

24.3 Stress and professional performance

24.4 The cost of stress to employers

Chapter 25: Career Management in the Healthcare System

25.1 The professional development of each individual

25.2 Stages of career development

25.3 Career planning models

25.4 Healthcare employees and their career development

Chapter 26: Logistics Management

26.1 Logistics organizational structure

26.2 The logistics manager’s responsibilities

26.3 Personnel selection in logistics

26.4 Pay and other motivators

Chapter 27: Human Resources Management

27.1 The importance of quality management to achieving organizational success

27.2 Techniques used in planning activities

27.3 Considerations for design analysis and job evaluation

27.4 Methods for achieving job evaluation

Chapter 28: Production Management

28.1 Production systems

28.2 Manufacturing resource planning

28.3 Raw material requirements planning

28.4 The inventory process

Chapter 29: The Stock Warehouse

29.1 The role of the warehouse

29.2 The pallet system of management

29.3 Warehouse characteristics

29.4 Obtaining the necessary information for warehouse management

Chapter 30: Transport Management

30.1 Ways of transport

30.2 Contracts in international business

30.3 The characteristics of the import–export contract

30.4 Conditions and delivery terms for international contracts

Sources

List of Contributors

Robert Chira (coordinator) – Chapters 1, 2, 8, 10, 11, 14, 17, 19, 28, 29, and 30; sections 26.1 and 26.2

Valentina Zaharia (Dean of the Faculty of Marketing, Dimitrie Cantemir

Christian University) – Chapter 27

Cristina Bălăceanu – Chapters 15, 16, and 18

Dan Boajă – Chapters 15, 16, and 18

Gheorghe Ciobotă – Chapter 23

Ana Maria Chira – Chapter 26

Eleonora Mihaela Constantinescu – Chapter 3

Mirela Dogaru – Chapters 9 and 24

Tatiana Dosescu – Chapter 28

Gheorghe Marinescu – Chapter 3

Nicoleta Moise – Chapter 20

Adina Mușetescu – Chapters 4, 12, and 21; sections 10.3, 10.4, and 11.1

Ana Irina Nicolau – Chapters 4, 12, and 21

Andreea Nicolescu – Chapters 9, 24, and 28

Ana Cristina Păiușescu – Chapter 13

Monica Predonu – Chapters 15, 16, and 18

Pușa Tania Țăpligă – Chapters 6 and 25

Mirela Cătălina Türkeș (Vînt) – Chapters 5 and 7

Argentina Velea – Chapter 22

Preface

This scientific paper attempts to serve as a guideline, mainly for students in acquiring the knowledge necessary to understand the mechanisms and processes specific to logistics that are developed in multinational companies, and to provide tools for accomplishing efficient management. It is the result of the teamwork of specialists, each of whom are passionate about research and teaching, who have tried to pass on, to everyone who is interested, important theoretical and practical information.

Through the topics dealt with herein, International Logistics Management speaks not only to those within the university environment but also to people who are trying to develop their own businesses, employees of multinational companies, and people who attempt to crystallize the interest in a specific area.

According to the definition provided by the Council of Logistics Management (CLM) – renamed on 1 January 2005 as the Council of Supply Chain Management Professionals (CSCMP) – logistics management is the part of the distribution chain management that efficiently plans, implements, and controls the flow between the producer and the customer; product storage; and services and information from its origins to the consumption point.

Logistics management activities include supply transport management, distribution management, storage, merchandise administration, order processing, network design, stock management, supply–demand planning, building a relationship of trust with suppliers, packing, and other things.

The main logistics goal is not to increase sales but to maximize profit.

Logistics management is concerned with coordinating and optimizing marketing, production, finances, and information technology activities.

Every company’s success is linked to making good decisions by managers at all levels (strategical, operational, tactical). Also, a company needs to be flexible in order to adjust quickly and frequently to changes in the market environment.

Logistics has become the essence of commerce. It is the key to any company’s success, and it provides a high standard of living for the general population.

Chapter 1

Introduction to Logistics

Any specialist in the economic field can recognize the contribution of logistics in all activities developed in the international market.

1.1 Purpose and definition

Because of the recent trend towards intense globalization, a rise in the importance of logistics is easy to observe, especially for multinational companies.

Logistics is often associated with the following concepts: physical distribution, business logistics, materials management, supply, logistics management, supply-chain management, management of distribution channels, and so forth. Most of these areas reflect specific aspects of the logistics field.

Although companies are different (especially those that deal in commercialized products), the term logistics is flexible and comprehensive enough to sum up the variety of activities developed in a dynamic environment that are reintroduced into the distribution system.

Table 1.1 Representation of the flow of logistics

Given the large applicability of logistics to so many fields (e.g. military, economic, and academic), it is hard to find a definition of logistics that works in all cases.

According to the Logistics Institute of Great Britain, logistics represents positioning of a resource at the right time, in the right place, at a correct price, and having the right quality.¹

Before businesses showed a large interest in coordinating processes that belong to the logistics chain, the military field was well organized and able to fulfil logistic activities. Although the problems were considerably different regarding high client expectations, they still offered valuable experience in the history of logistics development.

When compared to more traditional areas of management study (e.g., production, finances, or marketing), merchandise logistics is a relatively new field. The benefits of coordinated logistics management only began to become apparent around 1961, which explains why a generally accepted definition of logistics is still in progress.

One definition maintains that logistics is a branch of the military sciences that involves procurement, maintenance, and transport of materials, personnel, and facilities.

A broader definition considers logistics to be those activities designed to make available to customers the right quantity of goods at the lowest price possible, at the precise time and in the right place.

A better definition of logistics is offered by the Council of Logistics Management (CLM), a professional organization for logistics managers, educators, and practitioners. Created in 1962, CLM’s purpose is education and the formation of new ideas.

In many cases, terms like logistics management and supply-chain management are almost synonymous. In the 1980s, logistics managers began to identify a difference in the purpose of those two practices. According to these professionals, logistics management is concerned with the physical management and distribution of a company’s goods and other inventory. Supply-chain management is concerned with the estimation of demand, management of the supply and acquisition sources, and coordination of activities regarding production.

Supply-chain management is considered to be an evolution of logistics management. More and more companies are switching from logistics management-based procedures to the ones used in supply-chain management, due to a better coordination of various elements of the supply chain.

Supply-chain management is a recent concept, one that includes the essence of integrated logistics. It highlights the logistical interactions that take place among a company’s functions of marketing, logistics, and production, as well as the interactions that occur between companies that are legally separated from the product-flow channel (see Figure 1.1).

Figure 1.1 A pattern of supply-chain management

The advantages of the logistic-chain management are as follows:

• A potential increase (from 25 per cent to 80 per cent) in accuracy when estimating the demand for material resources

• Stock reduction (25 to 60 per cent)

• Improved delivery terms (16 to 28 per cent)

• Increased loading capacity (10 to 20 per cent)

• Increased productivity (10 to 16 per cent)²

• Improvement of research and development potential

• Enhanced focus on core competencies.

The main disadvantages include the following:

• Higher costs of system implementation

• Higher costs associated with switching a partner on the supply chain

• Higher barriers to entry in the supply chain for new suppliers.

Table 1.2 Characteristics of, and observations about, the new systems of supply-chain management

Source: M. S. Fox, M. Barbuceanu, and R. Teigen, "Agent-oriented supply-chain managementˮ, International Journal of Flexible Manufacturing Systems (2000) 12/2–3, 165–188.

Another limit is represented by the fact that the most favourable resources allocation in the supply chain may not always correspond to the best allocation in each production company. It is important to adjust the information system to face these changes regarding stock and logistics activities in general.

Key logistics elements can be recognized in the activities of any major company, as shown in Table 1.3.

Table 1.3 Key elements of logistics

Each of these characteristics has to be considered as a whole and integrated into the business environment of the company.

1.2 Historical data

It can be said that before theory was practice. Logistics makes no exception to this rule. The production of goods, the need to store them, and the mechanism to deliver them are challenges that operations managers have dealt with throughout industrial history. Awareness that this is a chain is of great importance to the success of a company in the business environment.

The most important stages in logistics development are as follows.

1950–1959

In this period, persons or associations specialized in production of goods. Usually, the producer also took care of the distribution and sale of the finished goods.

1960–1969

In this period, the concept of physical distribution was used for the first time. Efforts and reforms were made to make packing, transport, storage, and distribution as efficient and cost-effective as possible.

The term physical distribution covers the movement of goods, as well as efforts needed to provide quality services at lower costs.

1970–1979

Logistical management is a long-term effort. During this period, the concept of integrated logistics was introduced and adopted by many companies in this decade. Its objective was to consider all components (packing, transport, storage, and other activities) as a whole. Entities that specialized in distribution tended to facilitate this process. Meanwhile, the big companies were developing their own distribution structures at a local or regional level.

1980–1999

In this period, several new and important technologies were launched. In order to reduce costs as much as possible, some companies began to practise vertical development, meaning that they purchased their raw materials, their suppliers, and sometimes their distributors. One advantage of integrated distribution is good customer service.

1990–1999

In this decade, companies focused on a new concept known as supply-chain management, a cooperative concept that allows for the existence of many participants in the process of bringing the goods to the final consumers.

2000–2009

The market during this period was very competitive. The distributors were interested, as much as the producer was, in promoting the commercialized goods and also implementing new technology. It became apparent that logistics can influence the success or failure of a business.

2010–Present

The central element of any activity is the consumer. By identifying the consumer’s wishes, companies ensure their business success. Knowing what the customers want has a huge impact on logistics activities as well.

The division of activity into fragments, 1960

The integration of activity 1960–2000, 2001–

60784.png

Figure 1.2 The evolution of logistics towards the supply chain

1.3 The Importance of logistics for the business environment

Logistics is a part of the business environment. It uses both human and material resources, and has a big influence on a nation’s economy.

Logistics makes a big contribution to each country’s GDP, such as 8–11 per cent in Europe and North America, 12–21 per cent in developing countries, 17 per cent in India, and 21 per cent in China (Armstrong and Associates, 2007).

Research carried out by Establish/Herbert Davis (2008) regarding the costs generated by key elements of logistics had the following results:

a) In the United States, transportation is the most important element (50 per cent of the total costs), followed by inventory (20 per cent), storage (20 per cent), customer service (7 per cent), and management (3 per cent).

b) In Europe also, transportation is the most important element (40 per cent), followed by storage (32 per cent), inventory (18 per cent), customer service (5 per cent), and management (5 per cent).

The differences between the United States and Europe are the result of the large travel distances in the United States, the statistics taking into consideration fuel consumption.

A study realized by Datamonitor (2008) shows the fact that global logistics is dominated by retail logistics, with a percentage of 63.9. The development of these areas made a contribution to the setting up of the distribution strategies.

Table 1.4 The contribution of key logistics elements as a percentage to the company’s turnover

Source: Dialog Consultants Ltd

There are no studies that offer for certain an amount that reflects the expenses of international logistics, but these are estimated to be 15 per cent of international commerce. Also, taking into consideration that the company’s profits are subject to taxation, an estimate of taxes paid by the companies to governments is around $500 billion worldwide.³

1.4 Structure of the distribution system

Logistics is concerned with the route of the goods until they reach the final consumer, which means not only transport between A and B, but also what happens when the merchandise reaches its destination and has to be put into storage. Also, logistics tracks the goods from production through assembly.

Logistics specialists are trying to find the best way to deliver products to the customer, taking all the costs involved into consideration.

It can be said that logistics begins before producing a good, because there is a general material flow developed after, as follows:

Supplier (raw materials) → Raw materials inventory → Transfer → Goods production → Transfer → Inventory of the components that need to be assembled → Transport → Storage → Local delivery → Consumer

This example illustrates the easiest form of logistics operations.

A relatively new concept is that of reversed distribution. This happens when a product is being withdrawn from the market. A good way to handle this situation is to designate a manager to plan carefully each detail, as this will avoid any supplementary problems.

The entire distribution chain has to handle the challenges of functioning in reverse in crucial moments. The situation of the volume and location of stock has to be known exactly, as does the most efficient way to withdraw the goods from the market and return them to the company that produced them.

The costs involved in a reversed distribution are two to three times more than in the case of the usual distribution, given the small quantity of items.

Chapter 2

Integrated Logistics

Knowing the key elements of logistics is not enough; one must also make sure that they function as a single whole.

In the context of globalization, logistics may become, especially for multinational companies, an important competitive advantage.

2.1 The concept of total logistics

Total logistics involves according importance to all logistics elements in general, mostly because they are interconnected. One cannot speak about storage without taking into consideration the actual movement of the goods and other things. A necessary activity is planning, such as in the following example: A company that produces toys requires each toy to be individually packaged for transport and commercialization, and then a special wood package is needed in order to form loading units for storage in warehouses. These operations are linked to the use of vehicles, which make the deliveries to the final consumer. Each element has to be thought out as part of a whole. If any problem occurs, it will affect the entire logistics system.

Some products do not require individual packing, meaning that useless costs will be avoided. In the field of logistics, specialists talk about making a certain compromise, or trade-off, formed by four levels, as follows:

1) In each element of logistics

This is the situation in which a manager has to make a simple decision between two possible options, such as storage in a random chosen space each time it is necessary, or using a fixed space in a warehouse. The first one is better, because it is adjustable to each situation, but it is difficult to choose and find a random storage space in a short period of time. In the second case, a warehouse is easy to choose and reserve, but it does not allow one to use the full capacity of that space.

2) Between logistics elements

This means optimization of expenses during the transport of the goods and the choosing of packaging that allows a low purchase cost, and also cheaper transport cost when merchandise is grouped together.

3) Between a company’s functions

If the company is producing a large quantity of goods in order to obtain economy of scale, then the production costs fall, but there are necessary storage operations that will raise the final price of the product.

Table 2.1 Potential logistics compromises

Source: A. Rushton, P. Croucher, and P. Baker, The Handbook of Logistics and Distribution Management (4th edn, the Chartered Institute of Logistics and Transport, 2010).

4) Between the company and external organizations

For instance, a producer sells directly to a retailer, and the latter takes the merchandise to its own warehouses, which can mean a significant reduction in cost.

In any company, managers face three decisions types: strategical, tactical, and operational – as shown in Table 2.2. Choosing a certain way of transporting the products can be a tactical decision for one company and a strategic division for another (it is tactical if the product is destined for a local market, and it is strategic for a company that has a global logistics system).

Table 2.2 Characteristic of the types of logistics decisions

Source: A. Rushton, P. Croucher, and P. Baker, The Handbook of Logistics and Distribution Management (4th end, the Chartered Institute of Logistics and Transport (UK), 2010).

Logistics is dependent on the demand and requests dynamic.

A high integration level allows efficient cooperation between the participants in the logistics chain in order to ensure a quick response to the customer. In specialized literature, this concept is called efficient customer response (ECR). Hutchinson describes ECR as better satisfaction, faster and with lower costs regarding the fulfilment of the customer’s wishes.

The integrated administration of material resources is a superior level that involves a high potential of integrating key functions associated with this process. It exceeds the classical organizational models and promotes a new managerial philosophy that ensures a more active and independent administration of material resources in the economic units.⁴ Still, it has to be noticed that a justification of raising productivity has to be analysed separately for the first phase of implementing the concept, a time when productivity is very low.⁵ During this period, a company makes the transition to computer-based administration.⁶

The existing data can be used for solving multiple problems when they are introduced into a centralized database that will administrate the material resources. The effort of making changes is not only a financial consideration but also involves training the personnel.⁷

The concept of integrated administration of material resources corresponds to the philosophy of the following models: business process re-engineering and lean production.

Lean production is a concept that was initially promoted in the book The Machine That Changed the World,⁸ which presented good practices of this type in the automobile manufacturing industry. The main advantages offered by lean production are high productivity, low costs and short time, and improved quality.⁹

47637.png

Figure 2.1 Lean production model

One of the main objectives of lean production is cutting all activities that do not add value to products and services.¹⁰

The integrated administration of material resources is important operationally and strategically in that it allows a company to compete. Such competition can be realized by reducing the number of hierarchical levels, growing the offered services, differentiating the products from competitors’ products, showing an orientation towards protecting the environment, and reducing the costs associated with these activities.

Lean production involves a decentralization of personnel responsibilities in order to allow the sending of important information in an effective time frame to the right person.

The main things that are valuable for any company that wants to improve its informational system are as follows:¹¹

- Frequent employee communication

- A number of informative meetings between workers and top managers

- Written procedures

- Having a percentage of equipment associated with the administration of material resources that are included in a computer database

- Having a number of decisions that any employee is authorized to take without further approval.

2.2 The financial impact of logistics

Any economic activity is profit-oriented. Logistics can help increase the financial performance of a company.

The most relevant index for measuring a company’s business success is gross profit (income − expenses). Many times statistics are based only on the turnover, which does not offer an accurate financial picture.

Lowering logistics costs involves making transport activity efficient, reducing storage expenses, and also increasing the workers’ loyalty so they become more efficient.

An inventory can be made based on stock, but it also involves the amount of money when the company is working with cash.

In many companies, the cost of materials is a very important part of the final price (about 60 per cent).

Numerous studies have determined that bad management of material resources has a negative implication on the value of the company’s stock shares.¹²

Managers have the task of finding new techniques to administrate material resources in order to reduce costs, improve profitability, and realize a return on investment (ROI).

ROI = (Profit/sales) × Sales / (Fixed assets + working capital)

Table 2.3 The median cost of materials¹³

The efficient administration of material resources can significantly contribute to cost reduction when it comes to a company’s material resources. There are three major costs that need to be taken into consideration: the effective materials cost, the orders’ cost, the cost of stock for materials resources, and the lack of material resources cost.

Table 2.4 The effects of materials cost reduction with 10 per cent