Giselle Joy Balogo Professor: Maria Kristina C.

Ortiz, DBA

BSBA 4B

Module 7

International Logistics and Supply Chain Management

ACTIVITY 7.1

How can the role of information and technology influence the materials management functions?

Answer

Materials management includes sourcing, materials or parts inventory management, transportation

between suppliers and manufacturers. In the current economic climate, inventory management has
become a critical issue for companies. With today's inventory management technology, managers can
track the performance of their inventory. It helps to store and retrieve large amounts of data in a short
period of time and at lower cost by using hardware and software networks and workstations. Through
the information technology, the combination and configuration of data can create distinctly new and
vital information that can become the basis for quick and effective decision-making.

Self-Assessment Question 7.1

Based on your reading, state two major stages involved in international logistics.

Answer

International logistics refer to the management of the flow of materials, parts, supplies and other
resources into, through and out of the international firm. This process consists of two major stages: (a)
Materials Management - this stage of the process refers to the management of the flow of materials,
parts, supplies and other resources from suppliers to the firm and between subsidiaries within the firm
itself. Materials management, therefore, also includes sourcing, materials or parts inventory
management, transportation between suppliers and manufacturers; and (b) Physical Distribution - the
physical distribution stage involves the flow of finished products from the firm to the customers. As in
materials management, this stage also involves the selection of appropriate modes of transportation,
the carrying costs of inventory costs and speed of delivery to customers. Physical distribution is often
managed as part of a firm’s marketing function.

ACTIVITY 7.2

In your own words, what is the role of logistics in the management of international services?

Answer
The very essence of a business is to exchange goods or services for money or trade. Logistics is the path
those goods and services take to complete the transactions. Sometimes goods are moved in bulk, such
as raw goods to a manufacturer. And sometimes goods are moved as individual disbursements, one
customer at a time. Logistics management is that part of supply chain management that plans,
implements, and controls the efficient, effective forward and reverses flow and storage of goods,
services and related information between the point of origin and the point of consumption in order to
meet customers' requirements.

ACTIVITY 7.3

Let us suppose a firm must decide whether to produce a component part in house or to outsource to an
independent supplier. To manufacture the component part, a high amount of investment is required,
while the most efficient suppliers are located in countries with fluctuating exchange rates. What are the
pros and cons of:

(a) Manufacturing the component part in house; and

(b) Outsourcing to an independent supplier.

Which option would you recommend? Why?

In-house production is an activity that is conducted within the same business. You are able to perform
the task using the time and effort of your own employees and any other assets that the company
already has. While insourcing can be cost-effective, you often have to play your cards just right. Often
when you handle fulfillment needs in house, there is a lack of flexibility if you want to diversify your
products or scale your business.

When you outsource your manufacturing, you're not just reducing the cost of labor on the floor. You're
also minimizing HR resources, training, management time, overtime pay, sick and holiday pay, and other
labor costs. Seamlessly scale up or down – Production demands can be unpredictable. However, the
suppliers are located in countries with fluctuating exchange rates which cost also the company.

I recommend In-house production, the investment is a long term effect to the company which you may
able not to relay on outsourcing. The major ethical issue of outsourcing is taking away employment
opportunities from one's own country when the function is outsourced to a company from another
country.

ACTIVITY 7.4

In your opinion, what are the problems that a firm may encounter when making wrong decisions
regarding location?

Answer

Generally, a bad location decision may result to low sales and production. When the management or
firm is far from its projected target market, it will be difficult to meet the market's demands. Poor
location is among the chief causes of all business failures. In determining a site for a retail operation, you
must be willing to pay for a good location. The cost of the location often reflects the volume and/or
quality of the business you will generate.

Self-Assessment Question 7.2

International transportation can be divided to three parts. Explain each part.

Answer

Transportation determines how and when goods will be received and represents a significant element of
cost. Thus, a reduction in transportation costs can provide an opportunity for the firm to increase their
profits. International transportation can be divided into three parts, as follows: (a) Transportation
Infrastructure - an established transportation network consists of superhighways, bridges, tunnels,
ports, and air and rail facilities. Transportation infrastructures vary from country to country. Some
countries, for example, may have excellent port facilities but lack internal highways and roads; (b)
Availability of Transportation Modes - international transportation frequently requires ocean and
airfreight modes, although some goods are shipped abroad by rail or truck; (c) Choice of Transportation
Modes - the appropriate choice of the available modes of transportation will be strongly influenced by
the needs of the firm and its customers. The performance of each mode must be considered on four
dimensions.

ACTIVITY 7.5

In your opinion, what is the importance of transportation in a firm’s decision to conduct international
business?

Answer

The transport and logistic sector is an integral part in terms of facilitating international trade as it allows
firms to effectively complete imports and exports of goods and services and associated transactions. It's
essential for any business to be able to procure materials, take them to a production location, and
distribute their final goods. Transportation connects companies to suppliers and customers, creating an
important framework that allows supply to meet personal and professional demands.

ACTIVITY 7.6

In your opinion, how has the Internet enhanced the supply chain management system?

Answer

The internet provide real benefits, primarily, cost reductions and improved performance in the areas of
improved customer service, reduced inventory, lower supply-chain costs, improved delivery date
accuracy, enhanced management control and decreased order-fulfillment cycle time. The Internet also
provides managers with the ability to track out‐of‐stock inventory items in field depots. The overall
benefit of the Internet to firms in managing inventory in their supply chains is to keep inventory levels
low, reduce overall holding costs, and still provide high levels of customer service.

ACTIVITY 7.7

Name some Philippine firms which have received the ISO 9001:2015 certification.

 Iso Certified in The Philippines

 TelTrends International Corporation. Network Routers, Switches, CCTV Cameras, PBX.
 Veridion.
 Iatree Trading Philippines.
 Allen Trading.
 Silver Pan Food and Catering Services.
 RNL Medical and Diagnostic Center, Inc.
 Dynamic BDLS Management and General Services.
 Magna Prime Packaging Corporation.

EXERCISE
1. Explain differences in international logistics that differentiate it from domestic
logistics.

Domestic freight forwarding is simply the distribution of products within a country. Both
shipper and receiver and the goods are within the country boundaries. As for
international freight forwarding, the products reach far and wide, beyond the
boundaries of the country of origin. Domestic logistics companies have a single logistics
manager to supervise and manage all sides of planning and execution related to the
movement of goods. On the other hand, international logistics will have a corporate
logistics manager who will coordinate logistics activities with other managers.

2. Describe how firms can use inventory as a strategic tool.

An inventory strategy is a day-to-day methodology to follow for ordering, maintaining

and processing items in your warehouse. For a small operation, inventory management
is a fairly straightforward job to handle, but as your volume increases, you need a more
established plan. For example, you can store raw materials or work in progress near the
machines they'll be used with.” With other items, such as finished goods, you may
prefer to keep them in a single designated storage area. Stock is easier to measure when
it's in one place.

3. In the “make or buy” sourcing decisions, explain the advantages of “make” to the firm.
 Advantages of “Make” Decision - apart from lower costs, manufacturing component
parts itself would allow the firm to invest in highly specialized assets, protect proprietary
product technology and facilitate the scheduling of related processes. The following is
the advantages: (i) Efficient in Productions - the firm may be more efficient in the
production of the component parts than any other firm. Boeing, for example,
outsources some component parts to their aircraft, but produces the aircraft wings in-
house because it is more efficient compared to any other firm in the world. It therefore
makes little sense for Boeing to outsource this particular activity; (ii) Facilitate
Specialized Investments- investment in specialized assets refers to investments in
equipment that can be used for a specific purpose in the manufacturing of a uniquely
designed component. As an example, Ford has developed a high-performance, high-
quality and uniquely designed fuel-injection system, which increased fuel efficiency, and
can help sell more Ford cars. To manufacture the fuel-injection system requires
investments in specialized equipment that can only be used for this particular purpose;
(iii) Protect Proprietary Product Technology - this refers to technology that is unique to a
firm and gives the firm a competitive advantage. The firm would not want the
technology to fall into the hands of competitors. Thus, the firm may prefer to make such
component parts in-house to maintain control over its technology; and (iv) Improved
Scheduling - through vertical integration, the firm may be able to save costs because it
makes planning, coordination and scheduling of related processes easier. For example,
Ford’s vertical integration into steel foundries, iron ore shipping and mining made it
possible for the firm to achieve tight coordination and scheduling enabling it to produce
engine blocks within 24 hours. Ford substantially reduced its iron ore inventory holding
costs.

4. Explain what is meant by the 40/40/20 guideline recommended by UNCTAD in

international shipping

The United Nations Conference on Trade and Development (UNCTAD) has

recommended, for balance of payment reasons that 40 per cent of shipping between
two countries be allocated to vessels of the exporting country, 40 per cent to vessels of
the importing country and 20 per cent to third-country vessels (the 40/40/20 guideline).
Firms have to adapt their choice of modes within the international transportation
environment they operate in. One of the important elements introduced by the
Convention was the cargo sharing formula applicable to conferences, also known as the
40-40-20 rule. It suggests that cargo should be divided 40 per cent each to national
vessels of the originating and destination country, and 20 per cent to other vessels.

5. Give five reasons why firms pursue a global sourcing strategy.

The firm may also decide to purchase most materials or parts from independent
suppliers while producing the most expensive parts itself. The reasons for firms to
pursue global sourcing strategies can be summarized as follows: 1. Reduce costs
through cheaper labor, land and facilities and/or less restrictive work rules; 2. Improve
quality; 3. Increase exposure to technology available worldwide; 4. Improve the process
of supplies delivery; and 5. Supplement domestic supplies with foreign sources.