Logistics of International Sourcing - Logistical Issues of Pharma Global - Case Study Example

LOGISTICS OF INTERNATIONAL SOURCING (Student Name) (Course No.) (Lecturer) (University) (Date) Introduction One of the most important things that should be considered for the effective management of any business enterprise is effective logistics. In many companies today, the manufacturing and obtaining of goods is in the international scale following the development of globalization, which makes the world a small village, inn which companies and countries can freely exchange goods and services. As a result, there has been a lot of controversy in dealing with logistical issues especially for the companies that engage in international sourcing of products. Today, the companies that operate on the global scale are suffering fluctuations in the transportation costs of their products, irregularity in the cycle times as well as very high costs of inventory investments. Additionally, the customers within the areas of operation of such businesses commonly demand exclusive performance, reduction in the prices of the goods as well as receptiveness of such businesses. Following all these demands, many companies attempt to find ways of improving on the universal logistic processes to increase their affordability, flexibility and consistency. The international logistic processes that are carried out today emulate the practises that were initially done in the local supply chain where the logistics team was mandated with the task of ensuring the regular movement of the supply chain by asking for assistance from the logistics associates through phone calls and fax messages as well as the in- built problem-solving skills that resulted from experience. Today, however, the globalization phenomenon, as well as the emergence and development of technology, has mad the management of logistics a lot easier. In most companies today, communication and solving of logistical issues is enhanced through the presence of technological applications such as the use of spreadsheets, databases such as Access and Fox Pro commonly used in various departments of an enterprise and the use of emails. For any given company competing in the global market to have successful logistical practises, it must give important considerations to the logistics team. International logistics requires the flexibility of the companies in response to the unexpected changes in the environment. However, for any business to be responsive, it must have highly trained individuals. As a result, companies that are successful in international logistics have the realization that the people are the most important assets they have hence establish talent management practises. In most cases, the prosperous companies consider talent management as a priority issue. Hence, they employ very competitive individuals with diagnostic and problem-solving skills as well as team building and the ability to work in a multi -cultural setting. Another important consideration for successful logistical practises within organizations is the process. Following the increased growth of companies in the global market, one of the most important requirements is a strong culture, process and policies within which to act. All these company requirement should be properly aligned to the changing market situations around the globe hence the need for flexibility. Therefore, for companies to have increased success in global networking and innovation, there is the need to have individuals that can make proper decisions to promote global processes that are accustomed to the various regulatory, cultural and network conditions. The other important consideration should be given to the global network established. Of great significance is the consideration that the global network of supply chain is interrelated hence disturbances that may occur at any point in the supply chain interferes with the whole network. To ensure that their supply chain is not disrupted, companies seek to gain an understanding of the capacities and limitations of all the partners within the supply chain rather than just having knowledge of the companies or individuals within the same. Today, one of the most important strategies that is used in logistics and supply chain management is the end to end integration, which encourages the sharing of data and information between companies, hence providing proper understanding of the requirements of the partners. Discussion Importation of products involves bringing the products into one’s residential country from another foreign country. This is done especially by the companies that engage in the global or external sourcing of their products. Generally, companies engage in the external sourcing of products because of the quality and affordability of such products. Despite the benefits of global sourcing to the companies that engage in this practise, importation of goods into one country often comes with a lot of challenges that must be properly addressed. The ultimate aim of any business enterprise is to make profits and ensure customer satisfaction. These needs, therefore, have to be met even in the event of importation of goods. One of the challenges that companies are likely to deal with when importing goods is long lead times. In every business, there is the need to control the records for proper and effective functioning. This delay period involved in the inventory control purposes is known as the lead time. It is given as the sum of the supply delay and the reordering delay. The supply delay is the amount of time taken by the supplier to deliver products once an order is placed while the reordering delay is the time taken before an ordering opportunity arises again. The lead time is often calculated in days. In most cases, when importing products, the lead time takes longer because the foreign suppliers wait for their customers to place orders first and deliver some money to cater for the material costs before beginning to manufacture the products ordered. Lead times may also be longer or shorter depending on the products in question. Another consideration made during importation of goods is substantial minimum order that is likely to be placed on the products. If the products to be ordered for instance are manufactured abroad, there is the likelihood of a heavy minimum order being put on them. However, manufacturers have different minimum orders that should be well known before importing a product. The payment terms is also an important factor that one should consider before importing a product into a given country. In most cases, manufacturers expect to be paid through electronic transfers of money. Importers are thus expected to pay a certain percentage of the money after ordering to cater for the costs of the materials and finish the payment when the goods are ready for shipment. There is, therefore, the need to develop trust between the supplier and the importer to ensure that business is conducted effectively. In essence, management of imports is a challenging task and requires the logistics managers to be well informed of the businesses environments they deal with to be competent enough in the global markets. Effective management of imports by companies is important in ensuring the reduction in the cycle times and enables them to squeeze costs out of their supply chains. Companies that do not manage their imports effectively are likely to suffer a lot of fines and penalties leading to massive disturbances in their supply chains in the long run. With the possibilities of significant delays occurring each time an order is made for the importation of products today, effective supply chain operations require that the risks and uncertainties that are involved are reduced through efficient management practises and the optimum use of technology. Among the important practises in the effective management of the imports in an importing company is the need for a proper understanding of the supply chain by everyone in the business from the senior management down to the juniors to ensure that the customers are provided with high-quality products at affordable rates. Logistical Issues of Pharma Global One of the important logistical issues of concern in the importation of pharmaceuticals and cosmetics is the time and distance. Despite the fact that globalization has made the world more like a village where exchange of goods and services can be done on a global scale, it is important to consider the time and distance before importing a product since this has direct effects on both the modes and cost of transportation required. The movement of the products through several countries requires many processes to be followed right from the manufacturing of the product to the delivery of the same since different countries are involved as the products are shipped within their territories. Importation of pharmaceuticals from India is much more economical compared to importing from the Germany and is likely to ensure that the company saves the extra amount of money. Secondly, the delay time should also be taken into consideration. Since India is much closer to Jebel Ali than Germany, the amount of time taken for the pharmaceutical products to reach the market after delivery will be reduced since it barely takes one week to ship products into the Middle East from India compared to the one month taken in cases of importation from Germany. The distance from Germany to Jebel Ali by sea, for instance, is 7306 nautical miles compared to the less than 3000 nautical miles when importing from India. This makes importation of the pharmaceuticals from India more practical in terms of cost. In importing cosmetics from Brazil, Pharma Global is likely to spend slightly less money compared to importing from Charleston. Importation of cosmetics from Charleston is slightly expensive when the distances are considered. The distance from Sao Paulo to Jebel Ali by sea is 9252 nautical miles, taking 38.6 days for the products to reach the destination compared to 9410 nautical miles between Charleston and Jebel Ali. Another important logistic consideration is the tariff treatments offered by the country of origin of the goods in place (Rajagopal, 2007, p.441). The country of origin of any given goods determines the trade agreements within which they operate hence the types of tariffs that are administered. Therefore, in importing pharmaceuticals from India and cosmetics from Brazil, it is important for Pharma Global to ensure that there is a proper understanding of the tariff rates in the two countries before importing the goods. It is also important for Pharma Global to ensure that they have proper knowledge based on the trade union within which they are operating hence a proper understanding of the duties involved when importing from those countries. The other area of important logistical considerations is the transportation of the goods from the suppliers to the importing company. Since both of the manufacturing companies do not have transportation mechanisms, it is upon the company to transport the goods into Jebel Ali. For Pharma Global, the modes of transportation that will be used in importing the products both from Bangalore and Sao Paulo. Since Pharma Global has been in place for some time and there may be times when the delivery of the products should be done urgently, shipment of the goods will be done using the air freight. However, in such instances, a lot of consideration is given to the size of the shipment. The size of the shipment transported by air should not be too large. In the cases of urgency, a small percentage of the ordered products will be transported by air before the bulk of it is delivered into the Middle East via the sea. To ensure compliance set by the Air Transport requirements, Pharma Global will ensure that the products to be transported are packaged well to avoid injury to any person, packaging of liquids especially the pharmaceutical products will be done in such a way that ensures that the materials used for packing are stable enough even at very high pressure. In cases where there is no particular urgency for the supply of the goods, delivery of the products to the company will be done through sea transportation. While considering the transportation of the goods from their areas of manufacture to the company as a logistical issue, the question of insurance should also be addressed. Damages to the goods during transit both by the air and the sea can sometimes be unavoidable, especially in cases such as accidents due to bad weather, disturbances in the sea or even war (Bookbinder, 2013, p. 175). Among the things that Pharma Global will seek insurance for during the transportation of their products to Jebel Ali are; import duties, failure by the suppliers to deliver the goods, loss or damage to the goods during transit, short shipment by the suppliers, currency fluctuations and performance issues with the finished products. Since the company intends to use both air and water transport, it would be wise to have both freight insurance that will cover costs for the loss or damage to goods throughout the entire shipment process and maritime insurance cover for the damage or loss of the items when transporting via the sea (Fahimnia et al., 2015, p. 35-50). Since the supplying companies have in the past been dealing with the domestic markets only, ensuring the imported products will be the responsibility of the importing company. Also, consideration will be given to the ports of export that are likely to be used. Logistics management involves ensuring that the costs used in importing products in any given county are minimized to guarantee affordability for the customers. Although India has many ports that can be used in transporting the pharmaceutical products to Jebel Ali in the Middle East, the preferred port for Pharma Global is the port of Mundra which is only 1025 nautical miles away hence the delivery of the products can take place in only four days. Importation of cosmetics from Brazil will take place through the port of Sao Paulo. Procedure for external sourcing To successfully import pharmaceuticals from India and cosmetics from Brazil, Pharma Global should go through a number of procedures for the sourcing process to be as effective as possible. The first important step that the company should undergo is to have a proper understanding of the expenditure of the company. The total expenditure of the company is done by the logistics team. The stakeholders that are involved in the process of importation of the products should be well known to the logistics team before the importation process can be commenced. The areas of important consideration in understanding the expenditure of the company include the expenditures by commodities, expenditure by departments and the future projections (Weele, 2010, p. 83). The second step is the supplier market assessment. It is important for the importing company to carry out a market study seeking other suppliers apart from the existing ones. It is also important to know the key suppliers of every product to evaluate the risks as well as the opportunities that can arise. This way, the importing companies are able to investigate and find out the costs of the products as delivered by different suppliers, making them able to minimise the costs of importation of the goods. Thirdly, the company is required to develop a supplier survey. A supplier survey is developed by the importing company to assess the existing and the potential suppliers to find out their capabilities. The survey helps in assessing the feasibility of the project to be carried out. After preparing the supplier survey, the next step that is followed is the development of the sourcing strategy. In developing the sourcing strategy, important considerations are given to the first three steps. Knowing the supplier market helps the importing company in comparing the prices between various suppliers hence enabling the company to choose the supplier with the highest quality of products at affordable rates. There is also the need for the importing company to analyse how well the company employees understand the imported products. Since the companies from which Pharma Global is set to import products from are domestic suppliers, competitive sourcing is not an option, and the company has to co- operate the with the suppliers to decrease the levels of intricacy and increase productivity and to create alternatives that reduce the costs of doing business. The fifth step that is followed in importing goods is the requesting stage. This includes developing proposals to ensure that the requirements of the importing company are communicated tom all the potential suppliers of the product. In the case of Pharma Global, these proposals will include detailed information concerning the product specification, the details about the delivery of products, evaluation criteria, the pricing structure and the financial terms and conditions. Here, a communication plan is also implemented to entice the suppliers. After sending the request for proposals to the suppliers, the importing company should give them time to respond ad follow-up activities should also be done to ensure response from the suppliers. Selection is the next stage that is involved in the process of importation of goods. Here, the sourcing team from the importing company ensures that they use their analytic skills in evaluating the responses from the suppliers. In cases whereby extra information that are not included in the supplier response is needed, the sourcing team is free to find out that information from the suppliers. If the process is carried out manually, there is the need for the process to begin with all the possible suppliers before being narrowed down to the finalists, in this case, the cosmetics company in Brazil and the pharmaceutical company in India. If the team uses electronic negotiation mechanisms, many suppliers may be kept in the process for a longer duration of time, thus causing more competent suppliers to be in a better position of winning the bid. The final selection decision should be made available to the senior officials in the company and how the decisions were arrived at should also be communicated to enable them tackle the cases of the disappointed suppliers. The last step that is involved in the importation of goods is communication with the selected suppliers. After informing the suppliers that they have won the tender, they should be included in the execution of recommendations. The strategies for implementing the recommendations differ depending on the changes made by the suppliers. Incumbents are provided with communication plans that embrace the changes that may occur in specifications, pricing models and improvements in delivery. The communication should be done to both the suppliers and the users of the imported products. In the event of new suppliers, a communication plan has to be developed that manages the transformation from the new to the old at any point within the process of importation. This transition is, however, likely to affect several departments of the company such as finance and customers services. It is also important for the new supplier to show performance matches that are equal to or exceed that of the former supplier (Hinkelman, 2004, p. 22-30). From former suppliers Origin Destination Distance Time (in days) Hamburg, Germany Jebel Ali 7306nm 28 Charleston, USA Jebel Ali 9410nm 42 From the Proposed Suppliers Bangalore, India Jebel Ali 1025 4.3 Sao Paulo, Brazil Jebel Ali 9252 38.6 Table 1.1: Showing the sea distances From the table above, it is important to review the inventory levels in Jebel Ali. The distance between Jebel Ali and Germany is longer compared to the distance between India and Jebel Ali. This means that shipping of pharmaceuticals from India would be more economical for Pharma Global because of the shorter distances and the limited governments involved, reducing the custom duties on the goods. Similarly, importation of the cosmetics from Sao Paulo in Brazil is more economical to Pharma Global compared to the importation of the same from the United States as the delay time is also reduced. In many instances, there is the need for business to ensure satisfaction of the customers. In cases where goods that should be urgently delivered to the customers are delayed by the shipping problems, the customers may be disappointed and seek to source goods from elsewhere. Proper management of logistics should be put in place to ensure that such delays are reduced. One of the proposed ways through which Pharma Global is likely to reduce these delays in shipment is through the application of automated billing. Among the causes of delays in the shipment of goods is the shipping and billing processes that commonly require personal contact. To save on time, the company has introduced electronic billing processes which are faster and reduce shipping delays. Another way that Pharma Global intends to use to reduce the shipment delays and ensure the satisfaction of their customers is through improved warehouse and record control. The company intends to improve on the record keeping and management. A primary way of doing this is to ensure that the capacity of the warehouses are known and aligned with the customer requirements so that goods ado not remain in the warehouse for longer periods of time that they should. From the above discussion, logistics management is important in ensuring that companies that source for goods globally do so at minimum costs so that the customers are able to access the same products at affordable rates. However, this external sourcing of goods is accompanied with a number of challenges that should be effectively addressed by the importing companies for sustainable business practises. Companies that choose to go global should, therefore, have very strong and competent logistic teams to be able to effectively import products at economically sound rates. References Bookbinder, J. H. (2013). Handbook of global logistics: transportation in international supply chains. New York, Springer, p.175. Fahimnia, B., Bell, M. G. H., Hensher, D. A., & Sarkis, J. (2015). Green logistics and transportation: a sustainable supply chain perspective, p.35-50 Hinkelman, E. G. (2004). Importers manual USA: the single source reference encyclopedia for importing to the United States. San Rafael, CA, World Trade Press, p.22-30. Rajagopal. (2007). International marketing: Global environment, corporate strategy, case studies. New Delhi, Vikas Publishing House, p. 441. Weele, A. J. V. (2010). Purchasing & supply chain management: analysis, strategy, planning and practice. Andover, Cengage Learning, p. 83. Read More