Logistics Management in the Modern International Trade Environment

Executive Summary

The present work is dedicated to the issues of logistics management in the modern international trade environment. Since the offered scenario presupposes cooperation of companies in two so much different countries, Japan and Australia, the work includes not only functional elements such as the considerations in the process of choosing shipment methods, material handling and packaging, but the range of ways to handle differences on the cultural, linguistic and traditional level. Such challenges as customs procedures and documentation are also taken into consideration.

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Since the 21st century brought about much change in the logistics science, it is also necessary to study the innovation as an indispensible element of any dynamic field of management – in the present situation such an innovative line has been recognized in wider application of IT in logistics management. For everyone dealing with logistics it is necessary to take IT seriously, because the increasing usage of the Internet and the emerging logistic software significantly increasing opportunities in logistics can aid any enterprise. Proper consideration of reverse logistics is also an innovative paradigm that should not be neglected. Only under the condition of aligned work with the inclusion of all listed factors it is possible to create a wise, financially secure and balanced logistic strategy.

Introduction

Logistics is not an innovation in the current business world – this term comes from the military sphere where it denoted proper distribution of resources, the ability to manage and to arrange the proper flow of materials as well as distribute troops wisely (Russell, 2007). Logistics as a science was introduced into management as soon as it became evident that the distribution of resources in the world is highly inadequate, thus needing exchange and cooperation that in the course of time took the shape of international trade and ensured the overall adequate provision of goods and services worldwide. It is thanks to logistics that nowadays customers do not have to think about their location in dependence on the distribution of commodities – it is now the primary responsibility of producers and retailers to allocate resources they want to sell in the proper place and at the proper moment of time in order to sustain a good competitive advantage at the market where they operate.

Surely, it is clear that some countries or geographical regions should specialize on the production of some specific commodities due to the fact that they have all necessary resources and can do it at a much lower price than it would be done by other countries or regions that would be able to produce those commodities on their own as well, but at the same time they would have to spend much more resources, time and finance on doing that. Buying such unprofitable goods from outside providers has become the most rational decision for everyone who started to think seriously about all advantages offered by logistics and supply chain management.

These seemingly innovative fields of management conceal incomparably more advantages than an enterprise would have using only its own forces and resources. As an example one can consider a logistics management program of the IBM company. The indisputable improvements that it brings to the company are: reduced operational cost, improved quality of service, increased capacity etc. (Logistics Management, 2002, p. 1).

Logistics is getting more and more complex at the present period of time because of the overall integration and globalization processes that are continued at a quick pace and lead to such a situation when the supply chains of certain organizations grow so large that they become hard to coordinate and keep track of. This problem was noticed by Harrison (2008) and was formulated as follows:

“coordination between supply chain partners. I think that is an enormous area which we are still learning an enormous amount about. It’s very difficult to coordinate so many activities across such a broad range of processes which might start in China and end somewhere in Europe” (p. 2).

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Thus, starting the discussion of the situation offered for the present paper’s academic logistics report, it is necessary to understand all implications that guide the formation of a logistics strategy nowadays. A person working with logistics and having a task like this one – to design a logistics strategy to transport wheel dozers and their spare parts from Japan to Australia, within the borders of the Pacific Rim, should first of all think about all components that have to be included into it.

A good example of an algorithm to be used in building up a logistics strategy can be taken from Murray (n.d.) – she states that any logistic strategy would involve strategic, structural, functional and implementation elements. Among others, the issues of competition, transportation and outsourcing are acquiring utmost importance. However, this is surely not the limit, and a logistic strategy has to take into consideration many more elements.

The present paper will investigate all components that logistics management should involve to make the international exchange between Japan and Australia possible. It is impossible to grasp all elements that genuine logistics encompasses, but this paper will be an attempt to underline the most important issues such as transportation, packaging, facing international trade challenges, as well as perspective trends of innovation are currently implemented in logistics to make it more efficient and functional, as well as to make it correspond to the changing needs of businesses and customers.

International Logistics Implications

Difference in cultures, languages

It goes without saying that any country represents a unique, compete culture with its own nation, customs, traditions and beliefs that have been forming throughout the period of its historical development. Thus, it is obvious that culture-based differences often play a crucial role in the establishment of business relations between two companies located in the countries that are very different by all indicators. As in the present case, it is possible to find a large set of differences that distinguish Australia and Japan – all these differences have to be taken into account to avoid misunderstanding, conflicts and challenges on the way of business cooperation.

Japan is a country with many centuries of history; it is considered a high-context country with rich culture, with a complex set of rituals, traditions and hierarchical division not only in the workplace, but in the daily life as well. One more distinguishing peculiarity is the Japanese language – it is fairly considered one of the most complicated languages to study and to understand.

Australia, in contrast to Japan, is a comparatively young country with the majority of population constituting people of European and American origin. The language spoken is English, which may significantly simplify the business connections Australia establishes with other countries, since English is an international language of business and commerce. However, it is still necessary to take into consideration the Japanese world image – in contrast to the liberal, modern Australia, Japanese people are more ethnocentric and patriotic, so they will unwillingly start a new business with a company where not a single person took their time to study Japanese. As noted, by Wood (), among other cultural considerations one should carefully think about the following ones:

“because languages are heavy with idiomatic meaning, learning another language with any fluency inevitably leads to a greater understanding of that language’s cultural antecedents. Often one hears that certain ideas or concepts are “not translatable”. This usually means that one culture’s experience or world view is dissimilar to that of another culture” (p. 39).

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Taking into account this information, it is possible to assume that business communication may be affected by certain language and cultural challenges both in oral and written communication, which can be resolved only by one means – by being open to new experiences and active learning of the partner’s culture, language and traditions. These activities will not only raise the status of one partner in the eyes of another one, but will help avoid the accompanying awkward situations and ambiguities.

Handling customs, tariffs and currency differences

Under the conditions of international trade customs regulations, tariffs and currency differences have become a significant issue to consider for both trading partners, as in our case, Japan and Australia. With both countries being members of one trading territory, namely the Pacific Rim, their customs policies and trading regulations differ significantly, thus ensuring additional attention from the side of logistics management on that issue.

Much work is being done in this sphere nowadays due to the existence of such organizations as the World Trading Organization (WTO) and the World Customs Organization (WCO). Among the recent achievements that should be named in this sphere are the Harmonized System Commodity Description and Coding System implemented by an International Convention of 1988 to simplify the customs procedures in the process of international trade. The main emphasis made by the introduction of this procedure is to shift the focus of customs “from consignment based controls at the frontier to control, inland, using traders’ records” (Branch, 2006, p. 227).

Some other issues to be considered when speaking about customs procedures are the value added tax differences in various countries (also varying depending on whether the goods represent import or export); freight transport and insurance forms, export declarations and other export-import documents have to be thoroughly considered by both sides while their logistics management team is carefully planning the exchange. Customs warehousing and free zones are other topics worth considering while planning the transaction because they may often become the subject of serious challenges, and may require additional capital expenditures in the process of a transaction (Branch, 2006).

Applied Logistics Elements

Sea/Air Freight Transportation

No doubt transportation is one of the most important elements that have to be considered while building up a logistic strategy to handle the international transfer of goods, especially in the present case – the goods that are huge in size and that cannot be transported by land because of the ocean separating Japan and Australia. The key significance of transportation has already been recognized both by theorists and practical businessmen all over the world, which can be proven by the opinion of Tseng, Yue and Taylor (2005) stating that:

“The key element in a logistics chain is transportation system, which joints the separated activities. Transportation occupies one-third of the amount in the logistics costs and transportation systems influence the performance of logistics system hugely” (p. 1657).

As it can be understood from the quotation, transportation is the most expensive part of the supply chain that brings the product to the customer. As in the present case, the choice lies between air and sea shipping with further inland transfer, which will surely contain the significant part of costs of the whole transfer. For this reason it is necessary to seriously consider the opportunity of sea shipment of wheel dozers from Japan to Australia. The reason for this is well outlined by Gourdin (2001) – the author states that sea transportation is comparatively cheap, the capacity of large container ships for loading and unloading, under the conditions of availability of good, powerful sea ports that can handle the container ships of such large sizes as those necessary to ship wheel dozers (and surely there are such ports in the Northern Territory of Australia) (p. 98).

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Thus, ships bear a much larger set of advantages as compared to air transportation – at least in the sense of cost-efficiency. However, air transportation also has many advantages as compared to sea transportation – it is much faster and much safer. If shipment by sea may presuppose some damage of the goods just because of the long period of being exposed to harsh ocean conditions, air transportation is more expensive but still is considered one of the safest shipment methods.

Inland freights will surely be much lower than international shipment freights, this is why it depends only on the location of the sites to which the wheel dozers have to be delivered. However, in case they are already assembled, it is possible to deliver them on their own way, but road transportation is much more acceptable. Railroad transport is less acceptable because of the rarity of equipment, container trains that can handle such cargo. Platforms for different sizes of cars that are available worldwide are a better variant for inland shipment, which will surely be much cheaper in implementation.

Material Handling

Material handling or inventory management in other words, is a very specific issue to be considered by the logistics manager because a wise decision on inventory management may save the company much money and rescue it from excessive expenditures and losses. As it has been historically proven, large inventory used to have many advantages for all participants of a supply chain – producers were always at work, with the assembly lines never stopping, and the customers knew that the goods that needed were always available on the shelf, ready-made and waiting for them to come and buy a necessary item (Gourdin, 2001, p. 13).

However, with the growing competition and lessening stability in the world market it turned out that keeping a large inventory is too costly, which cannot be justified by the wishes of customers get their goods immediately – high prices for warehousing maintenance and growing stock-outs won the battle against eternal availability and delivery speed. Thus, at the present moment the main task of a logistics manager is to determine what amount of goods should be produced at a certain period of time – only this technique appears financially reasonable and economizing (Gourdin, 2001, p. 13).

As a response to the needs of the modern industry, there emerged a set of techniques of inventory management that appeared a real revolution in the world of manufacturing – Just in Time (introduced by Henry Ford’s River Rouge after World War II) and Theory of Constraints (coined by Goldratt in 1997) (Poppendieck, 2000, p. 4).

Packaging

Packaging is a significant issue to be considered in the process of arranging the transfer of purchased goods. It depends on a great amount of variables that have to be considered and appropriately combined to achieve the most optimal variant. Packaging surely depends on the materials of which the product consists, and the way of shipment chosen. The reason for this is that goods are less exposed to spoiling when they are transferred by air or by land, which is not the case for the present situation. Since Japan and Australia are separated by the sea and the size of wheel dozers does not allow their transportation by air, which is very inconvenient for such kind of goods, and in addition turns out to be much more expensive, then packaging should be chosen appropriately to the transportation by sea.

It is clear that wheel dozers cannot be packed in any way because of their huge size, so they need to be transported in special containers for large-size transport. However, the Australian customer is also willing to purchase spare parts for those wheel dozers – as everyone knows, spare parts for automobiles can be of different size, made of different materials and require different kinds of packaging.

Since the spare parts are not likely to be fragile because of their application, they may be packed in plastic or carton bags to ensure their fixedness in the process of shipping. Some fragile parts consisting of glass or liquid components should be packed with excessive caution – into boxes, cases, and metal-lines cases that may be additionally fastened with battens and metal binding (Branch, 2006, p. 189).

Perspectives and Innovation in Logistics

Information Technologies in Logistics

IT is a powerful innovative tool in any sphere of human interaction and functioning – information technologies have found a wide range of implementations in the business field. The fact that IT is the future for nearly all operational processes in management and logistics can be supported by multiple examples from literature and scientific research in the field. The same assumption is found in the work of Murphy and Wood (2007) who make a great emphasis on IT and point out the critical role that information plays in contemporary logistics. They provide evidence from the growing extent of Internet usage in such logistic operations as order management, transportation and surely customer service. And indeed, it is hard to imagine any logistic construction without efficient information exchange that has gained crucial importance in the contemporary reality demanding precision, specificity and speed.

IT can be applied in a company logistics department in a number of ways. As stated by Srivinasa and Saurabh (2001), the most widely spread uses for IT are “transportation planning, online ordering, automatic invoicing, forecasting, shipment tracing and tracking” (p. 5). Surely, IT has been recognized as an efficient tool for creating additional services to increase customer satisfaction and to ensure more efficient sharing and distribution of data. With the help of IT such additional important functions can be introduced in the overall operating process:

  • Supply chain visibility (the way out to achieve the present goal is seen in the creation of a real time data warehouse or an operational data store)
  • Forecasting (the models of supply and demand forecasting may add significantly to ability to predict the change in a supply chain that will be needed within an organization)
  • Customized reports and analyzes (more efficient handling of knowledge pertaining to customer supply chains, which will increase the popularity and reputation of certain business partners).

Obviously, it is not the limit for application of IT in logistics – the overall creation of a valid and well-structured logistic structure is possible only under the condition of using modern, comprehensive logistic software, which is in itself impossible without extensive usage of IT.

Reverse Logistics Management

After having discussed a number of sufficient elements without which a logistic strategy would fail to cater for the needs of either a producer, or a consumer, it is still necessary to discuss some innovative trends that are observed nowadays in the sphere of logistics and that can become truly efficient in the near future. The observations and recommendations have been produced with the proper account of the modern business needs, so it is crucial to treat them in a serious and well-weighed way.

The first factor that is likely to change the modern logistic paradigm is the internet B2B economy introduction and its growing usage by larger numbers of consumers. As it has already been mentioned in the previous section, the Internet is such a meaningful factor in the contemporary business space that it should never be neglected.

The second factor that is actually the subject of the present section is the necessity of reverse logistics emergence. Reverse logistics is the branch of logistics that handles returned goods that did not fit the customer or are spoiled. The necessity of bringing additional attention to this issue is the high portion of goods (nearly 20%) that are annually returned to producers (The New Logistics Management Paradigm: The Impact of Today’s Trends, 2001, p. 1). One fifth is a really huge share of all produced items, so in order to keep the production processes successful and the flow of goods sustainable it is needed to take the issue into close consideration.

The first step to be made on the way to reduction of returned goods, which is the main task of reverse logistics, is to find out the particular reasons for which the goods are actually returned. As it comes from the National Association of Purchasing Management seminar, the main five reasons for that can be outlined as follows:

  • Late delivery
  • Wrong product/quantity
  • Not shipped at all
  • Technical problems
  • Returns (The New Logistics Management Paradigm: The Impact of Today’s Trends, 2001)

As one can see, this range of problems is not surprising for any enterprise, so urgent action has to be taken to prevent such occurrences and to prepare a set of solutions to minimize the financial loss in case they really happen. This is valid both for the Japanese company delivering the wheel dozers, and for the Australian company receiving them – in case some of those problems emerge, there may be much debate about who should bear responsibility and to what extent in the financial form. Thus, to avoid such misunderstanding it is essential to include reverse logistics issues in the logistic plan of the discussed business transaction.

Conclusion

The importance of logistics is extremely high nowadays because of the growing intensity of international trade and a set of existing challenges and elements that have to be taken into consideration while designing and international deal. As in the present case, shipment of goods should be produced on a large distance, the countries are separated by the ocean and the volume of goods restricts the alternatives that can be chosen for shipment. Besides, the countries differ much according to their political organization, cultural conscience, language and traditions. Many customs procedures, difference in currencies and varying outlooks at how business should be done separate the two countries and the two companies that have decided to undertake a common venture.

For this reason there is much to be taken into account while designing the logistic strategy – functional, structural and strategic elements should be aligned wisely to achieve the most reasonable and awaited results. This is why careful work in all directions of logistics implementation, including design of packaging, calculation of necessary inventory items and application of the newest IT software become the key factors of such a transfer’s success.

References

Branch, AE (2006). Export Practice and Management, 5th edn, Cengage Learning EMEA.

Gourdin, KN 2001, Global logistics management: a competitive advantage for the new millennium, Wiley-Blackwell.

Harrison, A 2008, Logistics Management and Strategy: Competing Through the Supply Chain, Knowledge Interchange Podcasts, Cranfield University. Web.

Logistics Management 2002, IBM Postal Solutions. Web.

Murphy, PR, & Wood, D 2007, Contemporary Logistics, New Jersey: Prentice Hall.

Murray, M n.d., ‘Creating a Logistics Strategy’.

Poppendieck, M 2000, ‘The Impact of Logistics Innovations on Project Management’, Proceedings of PMI Seminars & Symposium. Web.

Russell, SH 2007, ‘Supply Chain Management: More than Integrated Logistics’, Air Force Journal of Logistics, Vol. XXXI, no. 2, pp. 56-63.

Srivinasa, RP, & Saurabh, S 2001, ‘Business Intelligence and Logistics’, Wapro Technologies. Web.

‘The New Logistics Management Paradigm: The Impact of Today’s Trends’ 2001. Web.

Tseng, Y-u, Yue, WL, & Taylor, MAP 2005, ‘The Role of Transportation in Logistics Chain’, Proceedings of the Eastern Asia Society for Transportation Studies, Vol. 5, pp. 1657 – 1672.

Wood, DF 1995, International Logistics, New York: Springer.

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