Transportation & Distribution Planning

Lecture 27
Global Distribution Management

Course Instructor: Sayda Uzma Tahira

UCP Business School, University of Central Punjab Lahore
 Chapter Outline
By the end of this chapter you should be able
to understand:
Basic elements of global logistics and

distribution

Cost and customer service constraints

Global distribution network design and

strategies
 Introduction
 Expanding trade routes of early civilizations

 Developments in transport, navigation and

communication

 The world has shrunk to the dimensions of a

‘global village

 The connectivity of all regions of the world is

essential for international trade.

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 Global Logistics Elements
 The desired product and service targets and the cost
of meeting those objectives.

 Distance and differences in language, culture, and

legal factors.

 Documentation is more extensive, often resulting in

long delays.

 Financial flows in the form of cash and payment

transaction conversions, pricing, credit management,
insurance, and liability.
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Barriers to Service/Cost Measurement
 Presence of legal and regulatory restrictions, duties
and taxes,
 export and import restrictions,
 local laws and customs
 The number of channel levels in the pipeline,
 the use of intermodal freight carriers over long
distances,
 Packaging and labeling requirements

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 The Offshoring Decision: Total Cost

Key elements of total cost

1. Supplier price
2. Delivery costs
3. Inventory and warehousing
4. Cost of quality
5. Customer duties, value added-taxes, local tax
incentives
6. Cost of risk, procurement staff, broker fees,
infrastructure costs
7. Exchange rate trends and their impact on cost

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 Global Distribution and Total Cost
Performance Dimension Activity Impacting Performance Impact on Cost

Order communication Order placement/receipt More difficult

communication
Supply chain visibility Scheduling and expediting Poorer visibility

Unit cost Production, quality Labor/fixed costs

(production and decrease; quality may
transportation) suffer
Freight costs Transportation modes and Higher freight costs
quantity

Taxes and tariffs Border crossing Could go either way

Supply lead time Order communication, Lead time increase results

supplier production in poorer forecasts and
scheduling, production time, higher inventories
customs, transportation,
receiving
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 Global Distribution and Total Cost
Performance Dimension Activity Impacting Impact on Cost
Performance

On-time delivery/lead time Production, quality, customs, Poorer on-time delivery and
uncertainty transportation, receiving increased uncertainty
resulting in higher inventory
and lower product availability

Minimum order quantity Production, transportation Larger minimum quantities

increase inventory

Product returns Quality Increased returns likely

Inventories Lead times, inventory in transit Increase

and production

Hidden costs Order communication, invoicing Higher hidden costs

errors, managing exchange rate
risk
Stock-outs Ordering, production, Increase
transportation with poorer
visibility
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 Service /Cost Elements

 Response time,
 Order completeness,
 Shipping accuracy,
 Shipment condition

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 Response Time
 Response time refers to the time elapsed from receipt of a
customer order until goods are received by the customer.

 When it comes to global distribution, the market is less sensitive to

long lead times.

 Owing to the size and complexity of the channel, most foreign

customers normally will increase lead times and inventories to
compensate for slower service.

 Possible areas of improvement include;

– Developing alternate distribution systems,
– streamlining paperwork flows and operations,
– the use of computerized supply chain management applications,

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 Order Completeness
 Order completeness can be defined as the
percentage of how close the actual shipment satisfies
the product and quantity requirements of the original
order.

 As the percentage of order completeness grows,

logistics costs decline correspondingly

 The less a company has to handle backorders and

expediting, the less the cost for order completion
processing and shipping.

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 Shipping Accuracy
 Shipping accuracy is the ratio between the number of
deliveries that have the correct products, quantities, and the
total number of deliveries for a specific time period.

 The level of accuracy depends normally on the level of

control, and the higher the level of control the higher the
expense.

 The cost of poor accuracy in global distribution is excessive,

including
– paying for and processing returns,
– reshipping orders,
– canceling orders,
– and loss of customer goodwill.

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 Shipment Condition
 This measurement can be defined as the ratio between
the number of orders delivered in good condition and the
total number of orders shipped.

 Unlike domestic shipments, international orders are often

handled many times as they move through the pipeline.

 At each occasion, the order is exposed to the possibility of

damage.

 Considering the cost of backorders, packaging, and time

spent in order replacement, undamaged orders are a
significant service/cost element.

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 Global Distribution Channel
 Domestic and global distribution differ significantly as
to channel structure and techniques.
 global channel can be broken up into four distinct
sections:
– the domestic channel,
– channels between nations,
– channels within nations,
– and the buyer

Seller’s Channel Channel

Distribution between within Buyers
Channel
Nations Nations

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 Global Distribution Channel
 The global shipment begins its transit through foreign ports to
the customer, it can pass through several iterations of unloading
and reloading, transport consolidation, and warehousing
occurring in different foreign countries.

 These distribution nodes can represent an intermediary,

government customs and tariffs check point, or stocking
location.

 In addition, because of the relative size of the distribution

channel, there are a significant number of options available to
suppliers and customers.

 For example, orders can be filled from several locations in the

channel.

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 Global Distribution Strategies

 Direct system of global trade.

 Consolidation strategy.
 Consolidation strategy within a country.
 Consolidation strategy for multiple
countries.

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Direct System of Global Trade.

Foreign Markets

Supply Lines

Supply
Source

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 Direct System of Global Trade.
 Products are shipped directly from the home country to
intermediaries or customers in a single foreign market.

 The advantages of this system are that there is no need for

foreign warehousing or consolidation and there is less product in
the distribution channel.

 A serious drawback of this system is the accompanying long lead

times for customer delivery.

 The packaging and documentation costs associated with this

system are normally higher than for the other three systems.

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 Consolidation Strategy

Transit Line Supply Lines

Markets

Consolidation Center

Supply
Source

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 Consolidation Strategy
 This channel of distribution attempts to solve some of
the problems of the direct system by interposing a
consolidation center in between the domestic
warehouse and the customer.

 The purpose of the consolidation center is to

decrease the overall cost of transport.

 Product can be shipped from the home country in

bulk and then converted (bulk break) into individual
customer orders and stocking units and distributed
within the foreign market.

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Consolidation Strategy within a Country

Country Boundary

Transit Line Markets

Consolidation CenterSupply Lines

Supply
Source

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Consolidation Strategy within a Country
 Inventory is shipped from the home country to a stocking
warehouse located within the foreign market.

 Delivery to the foreign ware house can be done in bulk and with
slower transportation modes, thereby decreasing shipping costs;

 Order lead times are shorter that in the first two systems;

 customers have greater flexibility in product and quantity selection;

 because the shipment is really an intracompany transfer, the costs

associated with tariffs and documentation are reduced.

 Negatives to the system are the cost associated with maintaining a

foreign facility and higher levels of pipeline inventory.

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Consolidation Strategy for Multiple Countries.

Country Boundary
Supply Lines
Transit Line Markets

Consolidation Center
Supply
Source

Country A Country B Country C

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Consolidation Strategy for Multiple Countries
 It expands on the concept of foreign warehousing by enabling
product sales to multiple foreign markets from a single
strategically positioned warehouse.

 The most significant advantage of this system is reduction in

facilities and inventory stocking costs while preserving shorter
lead times and customer flexibility .

 Benefits, however, might be compromised by transport and

administrative costs as shipments are sent to other foreign
countries.

 Multi-country warehouses should ideally be located in a free-

trade zone, thereby eliminating costs arising from local tariffs
and taxes .

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Choice of Global Distribution Channel
 In deciding which channel system or
combination of systems to implement,
channel planners must carefully review a
number of key factors relating to the
– nature of the product,

– market,

– export requirements,

– and foreign environment.

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 Product-Related Factors

 value density,
 product line variability,
 perishability,
 obsolescence,
 position in the product life cycle,
 expected turnover rate.
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 Market-Related Factors
 the number and size of the foreign customer
base,
 level of expected service,
 sales volume,
 quality of foreign intermediary or company-
owned distribution channels, fitness of product,
 prospects for growth.

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 Export-Related Factors

 Export marketing strategy,

 Sophistication of intermediaries,
 Firm size.

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 Foreign Environment Issues
 sophistication of global channel infrastructure
 political and economic stability,
 degree of government regulation and
customs constraints,
 and the presence of strong, cost-effective
foreign partners and transit contractors.

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 Distribution Operations Costs
 Costs for administrative facilities and warehouses,
 Transportation rates and fleet maintenance,
 Purchasing,
 Value-added processing,
 Inventory, and information processing.
 The expense of developing new marketing channels,
 Maintaining an internal international department,
 Carrying in-transit inventory,
 Insurance,
 Product packaging,
 Customs duties, and taxes

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Risk Management in Global Distribution
Category Risk Drivers
Disruptions Natural disaster, war, terrorism
Labor disputes
Supplier bankruptcy

Delays High capacity utilization at supply source

Inflexibility of supply source
Poor quality or yield at supply source

Systems risk Information infrastructure breakdown

System integration or extent of systems
being networked

Forecast risk Inaccurate forecasts due to long lead

times, seasonality, product variety, short
life cycles, small customer base
Information distortion

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Risk Management in Global Distribution
Category Risk Drivers
Intellectual property risk Vertical integration of supply chain
Global outsourcing and markets
Procurement risk Exchange-rate risk
Price of inputs
Fraction purchased from a single source
Industry-wide capacity utilization
Receivables risk Number of customers
Financial strength of customers
Inventory risk Rate of product obsolescence
Inventory holding cost
Product value
Demand and supply uncertainty
Capacity risk Cost of capacity
Capacity flexibility

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