Complexities, Risks and Opportunities in International Logistics - Essay Example

Complexities, Risks and Opportunities in International Logistics Name Institution Course Date Table of Contents Table of Contents 2 Executive Summary 3 Introduction 4 Complexities in international logistics 5 Network complexity 5 Customer complexity 6 Information complexity 7 Risks associated with international logistics 8 Outsourcing risks 8 Cultural sensitiveness 8 Hijacking and theft 9 Opportunities for international logistics 9 Extension of network 10 ‘Second mouse’ opportunities 10 Simplified of custom regulations 11 Conclusion 12 References 13 Executive Summary Since the inception of globalisation, the strategies used by the manufacturers have changed considerably. Globalisation has resulted to the development of complexities in the international logistic operations that have brought about negative impacts on the supply chain. Complexity can be defined as the difficulty in solving problems measured in relation to time and operations.in addition to complexities, there are various risk associated with international logistic companies that need to be managed. Globalisation has also created opportunities for the international logistic companies that have resulted to expansion and increase productivity. This paper will highlight three major complexities: information, customer and network, three major risks associated with international logistic companies: hijacking and theft, cultural sensitiveness and outsourcing risks, and three opportunities namely: simplified custom regulation, extension of network and ‘second mouse’ opportunities. Introduction Globalisation has histrionically changed the way manufacturers carry out their businesses, offering a chance to reach out to new customer’s particularly in new markets and also it has really exposed business organisations to greater competition (Ferraro, 2010). In the interim, raw materials and suppliers relations should also be managed and controlled on a global scale. The same way there are costs and opportunities of globalisation, there are advantages and disadvantages of global supply chain. To be specific, business organisations are required to manage the related risks. With the inception and growth of globalisation, managing and coordinating supply chains has now become more complex than before and business operations critical than ever before (Ferraro, 2010). The recent disasters involving international supply chains have established the need for efficient risk management in relation to supply chain for manufactures to reduce interferences and maintain normal business conditions as quickly as possible in an event of an outage (Handfield and McCormack, 2008). When a business organisation’s operations are under own control, normally, there contain fewer moving parts. Due to this, the organisation has higher chances for access of information. In such a situation, it is very easy to identify, mitigate, highlight and prioritize for effective decision making (Ferraro, 2010). In a situation influenced by globalisation, there entails more parties involved with less availability of information at a particular point in production process. For this, it becomes hard to identify, mitigate, highlight and prioritize for effective decision-making. Typically, there are factors that affect the supply chain risk all for a lower cost (Handfield and McCormack, 2008). In addition, the capabilities of any business to address risk efficiently have been heavily handicapped by complexity. Today, with manufacturers outsourcing more job to suppliers all over the globe and handling additional suppliers, it is difficult to track or monitor production (Handfirld and McCormack, 2008). The purpose of this report is to highlight the complexities, risks and opportunities in international logistics. Complexities in international logistics Complexity can be defined as the difficulty in solving problems measured in relation to time and operations. With the development of globalization, supply chain has become more problematic and complex over time (Coyle, 2009). Complexity does not necessarily mean complicated since it describes a condition regarding inter-connectedness and inter-dependencies across a range of networks where a change is a component that can affect other elements in unforeseen ways (Coyle, 2009). Logistics can be defined as the management and control of the flow of resources including goods between two points; origin point and the destination point for the purpose of meeting the requirements of a particular customer or corporations. It involves integration of security, packaging, transportation, warehousing, and also inventory. Today the complexity of logistics is able to be modelled, analysed and optimised by plant software although it keeps changing constantly (Coyle, 2009). The problem with complexity is a significant driver of costs within the supply chain business and contributes to variability and uncertainty. Process, range, product, supplier, organisational complexities etc. are examples of complexities of international logistics but the major complexities in international logistics include: Network complexity The more links that are available in a network the more complexity is. Due to out-sourcing of core and non-core undertakings, many business organisations are nowadays more reliant and accustomed to external supplies of commodities and services. These external supplies depend on a web of second and third tier supplies and so on (Gujar, 2013). Due to this, there is a huge possibility that the focal business organisation at the centre of the web of network will not at all be aware of the second or third tier suppliers responsible for up streaming supply chain. Due to this, there is a strong likelihood of the occurrence of disruptions or failure of the supply chain as a result of the extended networks. Also, in the past, business firms considered themselves independent party in the market, thereby managed links to suppliers and customers (Guraj, 2013). However, today, this is no longer sufficient in the networked economies. Thus, organisations are obligated to collaborate with vertical and horizontal partners along the supply chain network. Such partners expect these organisations to integrate their operations and processes. Such an instance need network thinking instead of company thinking (Guraj, 2013). Customer complexity Customer complexity come into being due to too various non-standard service selections and customised solutions (Blecker and Kersten, 2006). Finances and costs of taking care of a range of customers often vary significantly. Every customer show different features with regard to the ordering pattern including size of orders, order requirement in terms of delivery, frequency of order to name a few. Such differences are increased further due to the accessibility of a wide range of service options or customization possibilities. Rising customer expectations in terms of service is one of the major trends and satisfying customers’ requirements and needs is number one logistics goal and objective (Blecker and Kersten, 2006). Therefore, logistics and supply chains operations should enable an organisation satisfy customer’s needs. Nevertheless, as customers become more critical in terms of service delivery, traditional measures most of the time fail when implementing approaches to satisfy customers (Blecker and Kersten, 2006). Information complexity Currently, supply chains are strongly propelled by the exchange of data and information between the various entities and links that entail the entire end-to-end network (Duerre, Marthias and Alexander, 2010). The load and volume comprising the information that flow hugely in all directions is overwhelming and is often inaccurate as it can potentially be affected thus resulting to misinterpretation. Discernibility of demand and supply situations can potentially be obscured in an event where information is filtered or modified especially when it goes through the various entities and levels. The concept of ‘Bullwhip’ effect result when demand signals are significantly distorted owing to the multiple levels and entities in the chain (Duerre, Marthias and Alexander, 2010). In consequence of such distortion, the information that is utilized entirely as input to forecasting and developing activities is flawed thereby leading to reduction of forecast accuracy and cost increase. An example of a business affected by such complexities includes the DHL Company (Ingram, 2015). Its supply chain is becoming enormously complex. With increasing sourcing, distribution and manufacturing processes, shorter product life cycles and increased customer requirements, the company has been faced with the challenge to synchronize the pieces (Ingram, 2015). Some of the forces that affect DHL Company making their supply chain complex include the unrelenting pressure to reduce costs in terms of product and delivery concept; pursuit of new profitable market channels and its acceleration towards product innovation. These forces highly impacts supply chain approaches of DHL Company as well as their tactical activities (Ingram, 2015) Risks associated with international logistics There are various risks that may arise from global logistics business (Handfield and McCormack, 2008). They include financial risks, operation risks, and chaos risks, risks of collaboration costs, demand and supply risks, environmental risks and market risks to mention the least. The major risks associated with international logistics include: Outsourcing risks Outsourcing can be defined as the transfer of business function or activity from a customer to a third party service provider. Some of sourced activities include logistics and distribution services, procurement services, and financial services to name a few (Deepen, 2007). Outsourcing decisions are taken by senior management and is contemplated as larger strategic initiative. Effective outsourcing arrangements are supposed to create more elaborate allocation of responsibilities among involved parties and should bring various benefits. In an event of outsourcing services to offshore providers, a client or customer may be faced with increased costs and risks (Handfield and McCormack, 2008). Offshore outsourcing may incur hidden costs in terms of more expensive vendor selection, cost related to layoffs with regard to employees not relocating internationally, the cost incurred in addressing cultural differences and turnover costs. Overall a logistic company may incur costs up to 50% due to offshore outsourcing (Deepen, 2007). Cultural sensitiveness Cultural differences exist whether a company operate globally, locally or domestically (Trent and Roberts, 2010). Cultural complexities add to issues faced by international logistic companies and supply chain management. When a particular company move a very good logistic expert in another nation, it does not matter how smart he or she is, he will make mistakes unless he or she is sensitized to cultural differences. Companies may lack employees who can identify differences among people, language, laws and culture. The tendency to just assume that people in a particular country have similar culture to what works in one’s state is cultural problem (Trent and Robert, 2010). Hijacking and theft Cargo theft is a logistic risk which has been around for years. It can involve robbers attacking merchants on roads, pirates seizing ships etc. cargo theft is a problem affecting the international logistic companies (Trent and Roberts, 2010). Cargo can be stolen from any point during transportation from manufacture’s to the warehouse. The most sought out products are pharmaceuticals, electronics and food. The trucking companies are often held reliable for all loss incurred. Due to this, companies incur a lot of cost used to compensate the customers for the loss. Even when the logistic company has cargo insurance, its policy may be insufficient (Trent and Roberts, 2010). Opportunities for international logistics Due to globalisation, the world is growing closer together and ideological borders are somehow disappearing. For this, trade barriers are being destroyed and at the same time communication technological advances are creating far-reaching possibilities. Owing to this, the demand for logistic activities is increasingly climbing and thus creating an opportunity for the logistic company especially international logistic company such as DHL Company (Ingram, 2015). Three major opportunities for international logistics include: Extension of network For any organisation that provides a range of products and services to the customers, it is essential for the survival of the business to develop an effective logistic strategy that will highly maintain high service levels at all times regardless of the changes that might occur (Straube, Shihua and Bohn, 2008). This is imperative especially to organisations with complex structures and processes with fluctuating supply chain. More importantly for the industrial and trade organisations, the chances of extending and expanding the networks, especially of the suppliers and the customers farther internationally is more appealing now due to globalisation (Straube, Shihua and Bohn, 2008). After all, this business organisation can search for employees, expertise, conditions and raw materials in carrying out their activities in their locality and even internationally in countries that provide them effective and cost-performance ratio (Straube, Shihua and Bohn, 2008). ‘Second mouse’ opportunities In accordance to the phrase “the second mouse gets the cheese” is an analogy of what is taking place among international logistic companies propelled by globalisation (Coyle, 2009). The capability to learn and copy products quickly and also the technologies developed and used elsewhere, maybe in another international logistic company has propelled many logistic firms to global stature. These logistic companies are growing in business due to the fact that they truly understand between than the competitors how to copy and learn fast products and technologies from other companies (Straube, Shihua and Bohn, 2008). They have established from the experience and the know-how from other companies what to produce and how to go about it (Straube, Shihua and Bohn, 2008). From this, they make incremental improvements in technology and product more particularly ones that concentrate on reducing the costs. Such organisations provide strong competition in the businesses. Simplified of custom regulations Since the1990s, global trade agreements between countries have divided the world into larger chunks of trading masses where products can flow freely unrestrained across the national borders of different countries that once protected their successful industries from outside competitors with huge tariffs, custom duties and penalties (Handfield and McCormack, 2008). Custom regulations and laws and documentation have been made easier. This has made more and more organisations to extend their operations and processes around the world (Straube, Shihua and Bohn, 2008). For instance, the Free Trade Agreement involving United States, Mexico and Canada in 1992 was implemented. Today, Canada has signed deal with European Union and is in the process of negotiating with the 11 nation Trans-Pacific Partnership. Also, the United States is in the process of signing an agreement with EU transatlantic Trade and Investment Partnership involving China and other major Asian countries. Companies are adapting to their supply chains as fast as possible in order to benefit from the lower tariffs, regulations and standards within the established new trade zones (Coyle, 2009). Conclusion Globalisation has histrionically changed the way logistic companies carry out their business. The same way there are costs and opportunities of globalisation, there are advantages and disadvantages of global supply chain. There are a number of complexities, risks and opportunities in international logistics. The major complexities include customer complexity, network complexity and information complexity. On the other hand, the major risks associated with international logistics include hijacking and threats, outsourcing risks and cultural sensitiveness. The major opportunities for international logistic operations include extension of network, simplified custom regulation and second mouse opportunities. The complexities, risks and opportunities in international logistics are attributed to globalisation. It is very apparent to establish that the most efficient means to improve productivity and reduce cost in international logistic operations is through reduction of complexities, managing of risks and taking the available opportunities presented by globalisation. References Blecker, T & Kersten, W 2006, Complexity management in supply chains : concepts, tools and methods, Berlin, Erich Schmidt. Coyle, J 2009, Supply chain management: a logistics perspective, Mason, OH: South-Western Cengage Learning. Deepen, J 2007, Logistics outsourcing relationships measurements, antecedents, and effects of logistics outsourcing performance, Heidelberg New York, Physica Verlag. Duerre, M & Schwandt, A 2010, Logistics: the backbone for managing complex organizations, Bern u.a, Haupt. Ferraro, G 2010, The cultural dimension of international business, Upper Saddle River, NJ: Pearson. Gujar, K 2013, Dynamic aspects of Complexity in Logistics System illustrated in Maritime Logistics Game, München, GRIN Verlag GmbH. Handfield, R & McCormack, K 2008, Supply chain risk management minimizing disruptions in global sourcing, New York, Auerbach Publications. Ingram, T 2015, Sales management: analysis and decision making, Abingdon, Oxon New York, NY: Routledge. Straube, F., Shihua. & Bohn, M 2008, Internationalisation of logistics systems how Chinese and German companies enter foreign markets, Berlin, Springer. Trent, R & Roberts, L 2010, Managing global supply and risk best practices, concepts, and strategies, Fort Lauderdale, FL: J. Ross Pub. Read More