Introduction
Logistics is defined as the integrated analysis and active management of an enterprise’s entire supply chain (Coyle, Gibson & Bardi 2008). According to Coyle et al. (2008), the success of contemporary business organisations is increasingly pegged on the effective management of international logistics networks. The increase in low-cost sourcing countries and rising sales volumes in relation to international customers is prompting firms to seek improved ways of managing costs. In addition, uncertainties and complexities of moving products across borders are becoming increasingly manageable. Modern global trade involves the movement of goods and services from one country to the other.
According to Kirkeby (2007), a number of factors are reshaping the pattern of trading and economic activities in the world today. Such elements include information and communication technologies, integrated logistics, and globalisation. The consequences of these developments include, among others, alteration of the flow of physical trade. The restructuring has increased the effectiveness and efficiency associated with the allocation of resources. In addition, dynamics lead to economic growth and increased competition. Furthermore, the freedom of choice with regards to the consumer is attained.
As a result of the occurrences and trends in the global trade platform, as well as alterations in the manufacturing locations, logistics managers in new divisions have to take into consideration a number of issues before exporting. The following report highlights some of the issues that should be factored in when developing a logistics and supply chain from the new locations to the Middle East. In addition, the report also compares some aspects of the previously existing logistics and supply chain management from the Netherlands and the U.S with the proposed one. The division’s global logistics management system in the two newly established manufacturing plants in Brazil and India requires extensive considerations. The discussions are made in the context of medical care International, a global company involved in the manufacture and supply of pharmaceutical and cosmetic products.
Logistical Issues
Physical Distribution Challenges
Physical distribution challenges are among the key issues that logistics managers of the new manufacturing plants have to deal with. According to Coyle et al. (2008), a number of contemporary companies are seeking to improve their international logistics processes. The main reason behind this concern is the increasing lead times, heightened business risk, and a rise in supply chain uncertainties. Exporting from Brazil and India will require visibility. In addition, it will need metrics for management of the overseas logistics service providers and vendors. As a result, managers have to do things in a new way.
One of the major physical distribution challenges the logistics managers are likely to face entails the determination of the mode of transport for the cosmetic and pharmaceutical products. In addition, the most efficient and effective route of transportation has to be identified. According to Heaver (2002), difficulties associated with physical distribution vary on the basis of export location. In light of this, it is apparent that transporting products from Sao Paolo Brazil to Jebel Ali will pose a greater challenge compared to the movement of merchandise from India.
Kirkeby (2007) views transportation as the single most important element in relation to logistics in any firm. It is noted that transportation is essential as it helps the firm to ‘create’ time, manage quantity, and deal with place utility (Heaver 2002). In addition, proper management of the transportation challenges enables the company to engage in large scale production. Furthermore, it leads to increased competition and geographic specialisation.
According to Coyle et al. (2008), between 30 and 75 per cent of the total expenses incurred in logistics in the global market fall under transportation. According to Kirkeby (2007), the role played by transportation in the logistics systems is very complex. It entails more than just the movement of merchandise. Consequently, the logistics managers in the two manufacturing plants have to engage in the quality management of the transportation network.
Quality transportation can be established and sustained through well-selected transport systems. Such systems will ensure that goods are dispatched at the right time. In addition, the products will be sourced from the right place. Such a development will enhance customer satisfaction. A well-developed channel and mode of transport facilitate efficacy. In addition, it acts as a link between customers and manufacturers. Consequently, it becomes clear that transportation forms the basis of efficiency and economic transformation in business logistics (Coyle et al. 2008). In addition, the movement of goods and services expands the functions of other logistics systems, such as service quality and competitiveness (Kirkeby 2007).
Exporting pharmaceuticals and cosmetics from Sao Paulo, Brazil, will require a combination of both land and maritime logistics. The former system entails railway, pipeline, and road freight transport (Kirkeby 2007). Land logistics, especially that involving road freight transportation, should complement the functions of other systems. It should provide support to maritime and air transport. Land logistics has a number of advantages. One of them is the increased level of accessibility, especially in the UAE. However, the system has unique weaknesses. They include, among others, traffic jams, accidents, and environmental pollution (Coyle et al. 2008).
On its part, maritime logistics involves transportation by sea. It is noted that the method is cheap and provides more carrying capacity compared to other systems (Heaver 2002). Maritime transportation provides a very vital link between continental markets, especially in international transportation. However, just like road transport, its maritime network has some setbacks. They include vulnerability to weather fluctuations, which affect schedules. Other challenges include longer transportation time compared to other networks.
Cost Challenges
The demand and the price of the commodity to be transported should justify the costs incurred in handling equipment and specialised ships (Cullinane & Khanna 2000). Pharmaceutical products from Sao Paolo, Brazil, and cosmetics from Bangalore, India, are not bulky. However, in spite of this, it is important to determine such costs as ocean freight expenditure per month. In addition, the logistics manager will need to compute the costs that may be incurred in rail and road transport.
According to Kirkeby (2007), companies are finding that inadequate visibility in relation to transportation expenditure leads to an increase in unanticipated budget discrepancies. In the long run, unpredicted low product margins may interfere with the effective transportation of goods. The outcomes are likely to persist in spite of the fact that medical care has sourced products from low-cost countries (Coyle et al. 2008). Consequently, the cost factor should be taken into consideration before embarking on the exportation process.
According to Cullinane and Khanna (2000), fuel costs and increased government regulations are immensely contributing to the challenges faced in international logistics. For instance, in some countries, clean energy regulations make transportation by land very costly. Other policies make transportation very time-consuming. Since these factors affect the carriers, they, in turn, pass these expenses to their customers, driving the costs up for every stakeholder in the business chain.
Security Challenges
Security has become a major issue in international logistics. It affects all the modes of transport available. For instance, the Horn of Africa has become a major security concern for large maritime carriers due to the constant attacks by pirates who hold ships for ransom. Another example is where merchandise from Yemen to Chicago was intercepted and found to contain bombs (Coyle et al. 2008). The security lapse occurred in spite of the fact that the logistics companies transporting the cargo (FedEx and UPS) are among the most prominent carriers in the global market.
It is thus essential for logistics managers to consider the risks associated with the mode of transport or carrier they choose for their products. According to Heaver (2002), security concerns are relative to the products being shipped. However, it is notable that failure to manage risks associated with the logistics process can bring immense losses to the company in terms of costs and customer loss.
Service and Relationship
Medical Care International India and Brazil will rely on third-party logistics (3pl) providers for the exportation of their products and management of routes. According to Dicken (2003), 3PL’s provide a wide array of value-added services to their clients. The services include, for instance, freight forwarding, customs brokerage, packaging and labelling, and bill payment and auditing (Heaver 2002).
Service, therefore, becomes a major factor of consideration when outsourcing logistics services. Kirkeby (2007) argues that measures of service such as transit tie as well as transit time variability need to rank ahead of other factors such as cost in the selection of a logistics service provider. Heaver (2002) agrees that most firms give significant thought to the services level derived from various modes and carrier, even before considering costs. Service is also determined by the frequency it is offered since this determines the timelines of products delivery. According to Dicken (2003), a weekly call is regarded as the minimal level of service. However, this can also be determined by the shipper.
Service does not play a very vital role while selecting the mode of transportation. The product characteristics play this vital role since this determines the choice of decision. In this case, the products are pharmaceuticals and cosmetics. The characteristics of these products, such storage on transit requirements play the most significant role in selecting the mode of transport. According to Kirkeby (2007), if the mode of transport does not meet the level of service required for the particular product, then this ceases to be an option.
The relationship with the selected carrier or 3PL provider also plays a very significant role in the entire export process. According to Dicken (2003), companies should be able to converge with their carriers in order to establish relationships. Such relationships are beneficial. They provide information on industry trends. In addition, they facilitate the planning and allocation of products to the carriers. Establishing such links enables the business to exploit the facilities provided by the carriers. The interactions are especially significant during periods of difficulties in a volatile market.
Environment
One of the major growing concerns in logistics is the environment, especially when selecting the mode of transport. Environmentalists are agitating for the conservation of energy. Consequently, many companies are seeking to become environmentally friendly (Cullinane & Khanna, 2000). For instance, some companies are engaging in programs such as SmartWay initiated by the Environmental Protection Agency (Voss, Tsikriktsis and Frohlich 2002). The program provides incentives and motivates shippers into improving their fuel efficiency so as to reduce environmental impact (Kirkeby 2007).
According to Dicken (2003), an estimated 57% of the carbon monoxide emissions polluting the air is attributed to the transport industry. The sector is thus a key target of governmental regulations. Consequently, among the main reasons why companies engage in environmental initiatives is in order to comply with government regulations. In addition, companies engaging in environmental conservation are also being more favourably viewed by consumers (Dicken, 2003).
An example of a regulation guiding emissions is from the EPA Office of Transportation and Air Quality. The regulation requires that by 2018, the majority of trailer tractors should have achieved a 20% reduction in greenhouse gas emissions and fuel consumption (Voss, Tsikriktsis & Frohlich 2002). Other regulations also exist locally, of which the logistics managers should consider while sourcing for 3PL’s. It is also essential that Medical Care International logistics managers consider this factor which can also enhance its corporate image.
Modal Selection
According to Dicken (2003), selecting the mode of transport depends to a large extent on the nature of product that is to be delivered. The selected mode of transportation should be economical for the particular products. Kirkeby (2007) argues that modal decision selection should be weighed towards capacity and cost. In addition, In addition, the same should be motivated by corporate citizenship and regulations, as well as environmental concerns.
Carrier Selection
According to Dicken (2003), the key deciding factor in selecting carrier tends to be service. In most cases, majority of the shippers come together to create clusters. Logistics managers can choose from these clusters on the basis of their capacity to handle the assignment at hand. As outlined earlier, the chosen carrier should be able to offer services suitable to the transportation of the various products, ranging from time to capacity and storage requirements.
Relationships also play a major role in the selection carrier, especially in relation to the future. According to Kirkeby (2007), a prevalent trend among shippers is formation of strong relationships with the carriers. The reasoning is in order to extenuate ill effects that might arise from highly competitive and globalising market. In case of market instabilities, companies need the reassurance that the carrier will avail capacity relevant for growing volumes as well as economies emerging from recession (Heaver 2002).
According to Kirkeby (2007), the availability of adequate storage space and capacity determines the productivity and efficiency of sea or airports. This is because in most instances, there are mismatches between the rate at which cargo is transhipped, and rate at which it enters and leaves given ports on the landward side (Heaver 2002). Consequently, storage space functions as a safety net. It strikes a balance between the deliveries sourced through land and sea.
Heaver (2002) argues that modal and carrier selection functions do not have to be necessarily carried out in a stepped manner. On the contrary, these decisions are blended together, or even in some instances made simultaneously. For instance, mode and carrier selection in MedicalCare International should be based on the characteristics of the pharmaceuticals and the cosmetics. As a result, capacity is one of the most important factors taken into consideration when selecting the mode of transport and the carrier.
Routes and Number of Port Calls
The choice of ports is also very significant depending on where the products are destined. The chosen 3PL services provider should be using a route which favours timely delivery of the products to port. According to Dicken (2003), a route with less port calls is associated with low average transit times. In addition, the route does not require a large number of ships.
However, a reduction in the number of port calls may raise a number of challenges. One of them is associated with difficulties to access inland destinations. Consequently, delays can arise inconveniencing delivery of products, and hence likelihood of losses. Since Jebel Ali has a well equipped port, the chosen route from the manufacturing plants should have fewer ports of call.
Proposed Routes
Transportation of the pharmaceutical from Sao Paolo Brazil to Jebel Ali UAE will be carried out by sea. The proposed port from which the shipment will be facilitated is Port Santos. The city of Santos in Brazil hosts Port Santos, which is also located in the state of Sao Paolo. Apart from being the closest port of call, it is considered the busiest and largest port in Latina America (Ports.com 2014). Port Santos is regarded as one of the most modernised in Brazil, and boasts of a wide range of cargo handling facilities. The facility has the capacity to deal with bulky consignments.
The route from Port Santos to Port Jebel Ali will be from the Atlantic Ocean to the Indian Ocean. In the Indian Ocean, the route passes through the Mozambique Channel into the Arabian Sea, Gulf of Oman, and the Persian which host the Port of Jebel Ali (Ports.com 2014).
Bangalore is among India’s largest cities located in the state of Karnataka. The city does not however have a sea port, although it is connected by a National Highway to the Port of city of Mangalore also located in Karnataka state. Consequently, the cosmetics from Bangalore should first be transported by road to Port of Mangalore. The cosmetics from Bangalore to Jebel Ali should hence be transported from Bangalore by sea. The route of the shipment from the Port of Mangalore will begin at Laccadive Sea into the Arabian Sea. The shipment will then be passed through the Gulf of Oman and finally into the Persian Sea where the Port of Jebel Ali is located (Ports.com 2014).
Transit Times and Inventory Levels
Transit Times
Table 1 below shows the transit times of the proposed routes of present suppliers (Sao Paolo and Bangalore India), and those of the former suppliers (Rotterdam, Netherlands, and Baltimore USA):
Table 1: Transit times of the proposed routes
Transit time in days is based on travel speed of 10 Knots for the computations.
Inventory Levels: Review and Recommendations
The transit time of pharmaceuticals supplies from Sao Paolo Brazil has apparently increased by 1.6 days which is a very slight deviation. Due to the small difference in the timeframe, the inventory in Jebel Ali can be maintained at the same quantity. The inventory of pharmaceuticals in Jebel Ali can be maintained to be covering for a duration o four weeks, since the supply is almost at the same rate.
On the other hand, the transit time of cosmetics from Baltimore, USA and Bangalore, India indicates a very major alteration. The transit time from the present supplier has been reduced by more than two thirds. The transit time has been reduced by 30.3 days, which a very significant figure.
One can assume that the transit time of the cosmetics from Baltimore, USA to Jebel Ali has been reduced by two thirds due to the new supplier in Bangalore, India. Consequently, changes in the inventory held at Jebel Ali have to be made. Since the inventory of cosmetics held at Jebel Ali covered for six weeks, this duration has to be reduced.
The recommendation is that the inventory of cosmetics held at Jebel Ali should be adjusted to cover for only one week. In excess, the inventory can be held to cover for two weeks at most. It is the most economical adjustment. Otherwise, there will be too much accumulation of cosmetics inventory at Jebel Ali.
Conclusion
Global logistics management has become very extensive, not only in Medical Care International, but amongst most of the contemporary businesses. Until recently, majority of the components making up the logistics and supply chain although functionally related have been operated differently. For instance, there is need to effectively manage supply networks in maritime transport and bulk trades. As a result, many businesses have realised that interdependence among entities is inevitable. Maritime, inland and air transportation are all supplementing each other, without the means of describing which the best is. In addition, managers are paying attention to Just-in-Time consignments. It is important to reduce the storage and inventory expenditures associated with these deliveries. Consequently, maritime and hinterland connections are being thought of very essential in facilitating economics in logistics.
Several challenges have been shown as being of significance in international logistics. Some of these factors have included quality of service, relationships between suppliers and logistics services providers, and cost and security challenges among others. All these factors play a very vital role in the management of international logistics. The new manufacturing plants in Sao Paolo, Brazil and Bangalore India apparently do not have any vehicles of their own for the purpose of transporting the products. Consequently, it is proposed that the plants should opt for third or fourth party logistics service providers. Third party logistics service providers provide a host of value added services. The service should include for instance warehousing, transportation and other logistical functions.
The advantages of using 3PLs for Medical Care International logistics management cannot be overstressed. Apparently, outsourcing logistics services provides more efficiency than relying on in-house capabilities, especially considering the global level of operations. Medical Care International will also have the time to focus on core-competencies. Ultimately, manufacturing is evolving towards just-in-time (JIT), for which 3PLs provide significant support. In addition, 3PLs ensure timely deliveries of parts or even finished products, since they already have established supply chains and other logistics structures.
References
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