Home » Across Borders » Strategic Issues in International Logistics
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IN the last two years, we have seen increasing consolidation, through mergers or acquisitions, in the global logistics and forwarding industry. For many in the industry, the concern is how this will impact on their business. For importers and manufacturers, will this development help them lower their cost and increase their level of productivity and competitiveness? For forwarders and customs brokers, there are fears that the global players will stifle competition in the market and force players to close shop or just focus on market niches.The Global Supply Chain. The last two decades have brought about unprecedented growth in the information and communication technology. Coupled with the lowering of tariffs and the reduction in trade barriers, this has impacted on how companies conduct business across international borders by lowering the cost of bringing goods through these borders.As a result of increasing competition in the market place, companies have shifted their focus from finding ways to maintain their profit margins to simply looking for means to lower production costs and maintain competitive prices to the consumers. For many companies, the way to reducing production costs is to overhaul the supply chain (from the acquisition of raw materials to the provision for sales and after-sales service) in order to promote efficiencies and create savings.Integrated Logistics. As logistics cuts across the whole supply chain, companies specifically look at possible savings opportunities in the transport, insurance, customs clearance, inspection, storage, packing, handling and distribution of goods. Logistics normally refers to the proper management of the supply of materials. This involves securing the exact quantity of materials for delivery at the right time and location at a minimum cost. In international sale transactions, logistics may include inbound (from supplier factory or farm to the buyer in another country) and outbound (warehousing and distribution of the goods to the production lines or retail shops)It is estimated that incoming logistics costs in a typical manufacturing business accounts for 20-30% of the total purchase cost of an article. Clearly, logistics has a direct and indirect impact on the operating profit of a company and on the price of the goods offered in the market place. Thus, many companies have adopted an integrated approach to logistics and distribution management. For logistics and supply chain practitioners, the first step to preparing an integrated logistics system is to identify the strategic issues in the supply chain.Identifying the Strategic Issues. Logistics and the movement of goods and materials can be best seen as a pipeline or flow process. Once a detailed investigation is conducted on each physical process of the transport, distribution and warehousing chain, an overall logistics plan for the company can be developed from a strategic perspective, taking into consideration the demands of other business concerns and business functions – purchasing, production, sales, marketing, warehousing and other external factors. What are the individual steps and processes involved? What are the issues involved in every step or process that must be addressed from a strategic perspective?Logistics Issues. Below is a sample list of strategic issues in logistics: Numerous transport modes and operators Management of high and unreliable import costs Numerous transport and logistics providers Lack of insurance coverage for transporting goods Inconsistent or varying sales and transport contracts Physical distance of suppliers requiring longer lead time Need for automation in the handling of inventory Software system for scheduling and warehouse managementEvaluating Performance. Typical of many businesses, accounting systems normally group costs under conventional categories – direct costs, sales and marketing expense, etc. There is generally no system for identifying the logistics costs at every stage of the supply chain. In other words, there is no activity-based costing. Without this data, there is therefore no way for the company to analyze and study the impact of logistics costs against the total costs and against the sales revenue. There are two basic principles in logistics costing systems: (1) that the costing system should mirror the materials flow; and (2) that the system should be capable of enabling separate cost and revenue analyses to be made by supplier/customer type, by supply/sales market segment and by inbound/outbound distribution channel.Assuming that the logistics cost at each supply chain stage is available, the next stage is to identify the objectives for each stage and establishing key performance indicators. Examples of these indicators would be establishing the delivery time, transport cost per ton/kilometer, factory receiving time, inventory turnover and order fulfillment cycle time.Logistics Alliance and Outsourcing. A major trend in increasing competitiveness in logistics is by partnership and by adding value to the supply chain. A partnership or alliance particularly with an international operator may improve the overall efficiency in the supply chain and reduce the cost of logistics and inventory. An increase in efficiency will definitely result in a higher level of competitiveness in the domestic and international market. By sharing information across the supply pipeline, a logistics provider may be able to reduce logistics and inventory costs by, among others, maximizing transport efficiencies and by reducing lead times and monthly inventories.

A licensed customs broker, the writer is an international trade, indirect tax and customs consultant. He has a Certificate in Purchasing and Supply Management from International Trade Centre (UNCTAD/WTO) and is an accredited trainer of Ateneo Graduate School of Business. Please contact aouvero@customsadvocates.com for your comments or questions.

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