Logistic Management - Case Study Example

Logistic Management Client Inserts His/her Name Client Inserts Grade Course Client Inserts Tutor’s Name 01/12/2011 TABLE OF CONTENTS INTRODUCTION 3 DISCUSSION 4 Low Production Costs 4 Chinese sourcing operations supplier selection, evaluation and procurement 4 International transportation from China to Australia 5 Australian Customs, Quarantine and Inspection clearance 6 Time Utility and Place Utility 6 Chinese sourcing operations supplier selection, evaluation and procurement 6 International transportation from China to Australia 7 Australian Customs, Quarantine and Inspection clearance 7 Value Addition Activities 8 Chinese sourcing operations supplier selection, evaluation and procurement 8 International transportation from China to Australia 8 Australian Customs, Quarantine and Inspection clearance 9 CONCLUSION 10 LIST OF REFERENCES 12 Appendix 14 INTRODUCTION Logistics can be defined as the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to point of consumption with the aim of conforming to customer requirements (Sreenivas & Srinivas 2005). Logistics can be traced as far back as the history of mankind. It is obvious that the production of various products only takes place in limited geographic regions while their consumption is wide spread hence the need to device an effective way of how these products will reach the targeted consumer. From the more traditional areas of production, purchasing, transportation, and marketing, concepts, methods, and principles of business logistics have been synthesized. This is due to the fact that logical activities have always been and will remain to be fundamental to any organizations success (Graham 1989). Lisa (1991) observes that recent improvement in logistic systems has not only improved production efficiency but has also resulted to increased consumption trends. The use of these principles in world markets underpins the high levels of international trade in the recent decades. A sound management of logistics activities for any organization is imperative given that even though production is normally concentrated in given regions, logistics activities act as the bridge connecting production and marketing locations that are disconnected by time and distance. The same applies to online retailing store in our case. In this essay, I am going to show how the following logistics management (Chinese sourcing operations supplier selection, evaluation and procurement, International transportation from China to Australia, and Australian Customs, Quarantine and Inspection clearance) can contribute to low product costs and add value to place and time utility (Martha & Lisa 1993). DISCUSSION Low Production Costs Logistics costs accounts for about 12% of the world’s gross domestic product. This is according to the International Monetary Fund (IMF). There is no doubt that an attempt to lower logistics costs will ultimately lower the cost of production. One of the findings of the research done by the members of the consortium on why the Australian consumers were attracted to online shipping was “lower prices.” Effective logistics management will definitely result in lower logistics cost which subsequently leads to reduced production costs thus the realization of the research findings. To lower the costs, the organization can more efficiently manage the global supply chain so as to better match supply and demand (Cooper, Lambert & Pagh 2007). Figure 1 shows a summary of the supplier search process. Chinese sourcing operations supplier selection, evaluation and procurement Sourcing for a better operations supplier selection, evaluation and procurement is a vital logistics activity that its execution significantly affects the cost of production of any given firm. To lower these costs, a firm has to come up with strategic sourcing criteria that will act in favour of the organisation. First the organisation must identify qualified potential suppliers through a supplier qualification screening process. The aim of this process is to reduce the likelihood of supplier non-performance (Boer, Labro & Morlacchi 2001). Here, the following aspects are observed; reference checks, financial status checks, surge capacity availability, indications of supplier quality, ability to meet specifications, and buy-in from internal customers. The evaluation method for the suppliers should not only focus on operational metrics such as price, quality and delivery, but also the evaluation should lead a long-term relationship thus considerations should be made regarding the supplier’s capabilities and practices. After the evaluation process, negotiations should be done and the contract awarded (Hedderich, Giesecke & Ohmsen 2006). International transportation from China to Australia Transportation is vital for any firms operation. It adds place value to both the products and services provided by the organisation thus taking a very crucial part in logistics manipulation (Graham 1989). The primary cost-absorbing logistics activity has been identified to be transportation. Statistics have shown that this activity represents ½ to 2/3 of the total logistics costs. Goods are normally sent to the right places at the right time to satisfy the customers’ needs by the means of a well-handled transport system. Identification of the right modes of transportation is essential in an attempt by the company to lower its cost of production which also leads to reduced product prices. In this case, the organization is planning to deal in Car accessories and tools, Leisure products for boating, camping and fishing, and Electrical household appliances. Maritime logistics in this case will be appropriate to transport bulk goods due to its reduced cost of transportation and high carrying capacity. In order to save cost and enhance competitiveness, the firm should make use of large scaled ships and also enhance cooperative operation techniques. The use of E-commerce is an advantage for this firm in that it expands the market area from regional to global and reduces the stock costs therefore lowering the prices (Tseng, Yue & Taylor 2005). Australian Customs, Quarantine and Inspection clearance The Australian Quarantine and Inspection Service (AQIS) is responsible for all the vessels and crafts that enter Australia. All vessels entering the country must report to the quarantine where quarantine inspection is performed. So as to reduce the costs and reduce the risk of violating these customs and quarantine requirements it would be better if the company out sources a customs brokerage and quarantine clearance firm that has an up-to-date knowledge of all the national and international tariffs and regulations. Proper compliance with the required regulations will not only save the company unnecessary costs in form of penalties and delays in clearance but also it will save the time taken for the products to reach the consumer thus lowering the cost of production which in turn lowers the product costs given the profit ranges remain the same (Ports North: Our Ports). Time Utility and Place Utility Chinese sourcing operations supplier selection, evaluation and procurement The main aim of and logistics activity is to ensure that the products are at the right place at the same time. Here, the issue of place utility and time utility emerges. Place utility can be described as having products available where they are needed by the consumers. The products are moved from points of lesser value to points of greater value. Time utility on the other hand refers to having products available when they are needed by customers (Hedderich et al. 2006). The success of any logistics manager is the ability of sourcing for a supplier who is able to conform to these forms of utility. If the four steps of supplier search process i.e. product analysis, supplier identification, supplier evaluation, and supplier selection is adhered to, chances are that the selected supplier will be able to realize these forms of utility that are included in the objectives of any logistics system. Sourcing in logistics has been shown to be directly responsible for making a product available to its place of purchase as well as redistribution on time. The same case applies to place utility (Talluri & Narasimhan 2004). International transportation from China to Australia Transportation in logistics plays a significant role in providing both place and time utilities. The movement of goods form production surplus points to pints where there is demand is directly affected by the efficiency of the transport system in place. Thus, place utility in logistics is primarily created through transportation (Lisa 1991). The extension of market boundaries as a result of place utility leads to increased competition which in turn results into low prices and increased product availability. Goods must not only be available where needed by the consortium’s consumers but also when demanded by them. Transport creates time utility when goods are moved more quickly to where they are demanded. The firm in this case may make use of maritime or freight logistics to make sure the above forms of utilities are realized (Sreenivas & Srinivas 2005). Australian Customs, Quarantine and Inspection clearance The ultimate objectives of any logistics activity are to make sure that products are available where and when they are needed by the customers. Any hindrance or delays arising from the Australian customs, Quarantine and inspection clearance will significantly affect the realization of both the place and time utilities subsequently having an effect on the general wellbeing of the company. It is important that regulation deadlines are adhered to so as to ensure a smooth flow of goods from the supplier to the warehouse and finally to the consumer. For example, according to the Australian Quarantine and Inspection Service (AQIS), owner or appointed agents of vessels arriving in Australia are required to report the impending arrival to the Customs at least 90 hrs prior to the expected date or time of arrival. On arrival, the agent or owner has to call first at the port of entry. Other complicated requirements exist and it would be advisable if the company outsourced another freight forwarding and logistics company to handle the maters (Australian Government: Australian Quarantine and Inspection Service). Value Addition Activities Chinese sourcing operations supplier selection, evaluation and procurement The identification and selection of suppliers is significantly important to any given firm. A logistics manager should be keen to have a partnership with those suppliers who will have a value added impact to the organization. In order to survive in the current competitive global economy, it is essential to develop an existing supplier’s network as well as discover other new suppliers (Talluri & Narasimhan 2004). The process of bringing on board new suppliers in this case is particularly important given that these new suppliers may be superior in one way or another from the existing ones. Also, these new supplier may come handy when the existing suppliers are out of business or their costs may be increasing. The need to reduce supply disruption risks, increase supplier diversity, or drive competition might also an added value of sourcing for new suppliers. The ability to induce favourable terms from the sourced suppliers is a value addition activity to the organisation (Beil 2009). International transportation from China to Australia A proper transportation system is required for a clear frame of logistics to be achieved. Transportation system has been said to be the critical element in a logistics chain. Full advantages of logistics can only be achieved with a well-developed transportation system. In logistics activities, a good transportation system provides better logistics efficiency, promote service quality, and reduce operation costs (Martha & Lisa 1993). It is worth noting that both the government and enterprises’ competitiveness can be increased by a well-operated logistics system. Timely and regional efficacy is provided by a transport system that ensures goods and products are movable thus promoting value addition under the least cost principle. Economy and efficiency in business logistics is based on transportation resulting in the expansion of other functions of logistics system. Service quality and company competitiveness are some of the benefits of a good transportation system. The overall benefit of a well established transport system in any logistics activities is improved product supplier hence increased company profits (Tseng, Yue & Taylor 2005). Australian Customs, Quarantine and Inspection clearance The customs, quarantines and inspection clearance of goods by the Australian Quarantine and Inspection Service (AQIS) ensures that the good are of the required standards and are legally allowed into Australia. This is beneficial to the company in that a confidence in cunsumers to the good is created thus improving customer loyalty to the company’s products. This helps to create a strong consumer base for the company’s products to the advantage of its success. A regular adherence to the required regulations helps in building a sense of trust between the company and the relevant authorities thus ensuring a smooth flow of the company’s logistics activities. On the other hand, the Australian Quarantine and Inspection Service (AQIS) protect the consumers by ensuring that all the goods entering the country are of the required standards. There is no doubt that this logistic activity is of value addition both to the company and the consortium customers (Australian Government: Australian Quarantine and Inspection Service). CONCLUSION As aforementioned, the success of any logistics system is directly proportional to the collective success of individual logistics activities. Therefore good management of logistics activities is imperative for the success of any individual firm. Although logistics management involves controlling the flow of products from the manufacturer or supplier to the end customer, it is worth noting that a reverse logistics channel also exists for many firms. Supplier sourcing is an important aspect of any logistical system and should not only focus in the short-term profit but also place focus on long-term benefits. A proper supplier will directly affect the time and place utilities and value addition in general and at the same time somehow affect the product cost. The primary cost absorbing logistics activities are transportation and inventories maintenance. Proper transportation systems eventually result into reduced product costs, allow for time and place utilities, and add place and time values to products and services. It is always important for the logistics system of any company to comply with the customs, quarantines and inspection clearance regulations of any given country in which it operates. This will not only save on time and place utilities and add value to the company but would also save unnecessary costs which eventually translate into lowered product costs. LIST OF REFERENCES Australian Government: Australian Quarantine and Inspection Service, Cargo Containers. [Online]. Available at: [Accessed 30 November 2011]. Beil, D., 2009. Supplier selection, [Online]. Available at: [Accessed 30 November 2011]. Boer, L., Labro, E., and Morlacchi, P., 2001. A review of methods supporting supplier selection, European Journal of Purchasing & Supply Management, 7 (1), p. 75-88. Cooper, M. C., Lambert, D. M., and Pagh, J. D., 2007. Supply chain management: more than a new name for logistics, International Journal of logistics Management, 8 (1), P. 1-10. Graham C. S., 1989. Integrating the Supply Chain, International Journal of Physical Distribution & Logistics Management, 19 (8), p.3 – 8. Hedderich, F., Giesecke, R., and Ohmsen, D., 2006. Identifying and evaluating Chinese suppliers: China sourcing practices of German manufacturing companies, PRACTIX: Good Practices in Purchasing and Supply Chain Management, 9 (1), p. 15-22. Lisa, M. E., 1991. Supply-Chain Management: The Industrial Organisation Perspective, International Journal of Physical Distribution & Logistics Management, 21 (1), p.13 – 22. Martha, C. C., and Lisa, M. E., 1993. Characteristics of Supply Chain Management and the Implications for Purchasing and Logistics Strategy, International Journal of Logistics Management, 4 (2), p.13 - 24. Ports North: our ports, Customs, Australian Quarantine Inspection & Immigration. [Online]. Available at: [Accessed 1 December 2011]. Sreenivas, M., and Srinivas, T., 2005. The role of transportation on logistics chain, [Online]. Available at: [Accessed 30 November 2011]. Talluri, S., and Narasimhan, Ram., 2004. A methodology for strategic sourcing, European Journal of Operational Research, [Online]. Available at: [Accessed 30 November 2011]. Tseng, Y., Yue, W. L., and Taylor, M. A. P., 2005. The role of transportation in logistics management, [Online]. Available at: [Accessed 1 December 2011]. Appendix Read More