International Trade:Physical Distribution - Essay Example

College: International Trade Physical Distribution The process of exchanging goods, services and capital between countries or across international territories or borders is referred to as international trade. Notably, it is the international trade that sets the foundation for the establishment of the world economy. Some of the factors that contribute to the development of the international trade include foreign market analysis, international ethics, monetary environment, physical distribution and international law. This article shall focus on the supply chain aspect of the physical distribution and how the proper and effective application of its factors can make a business have a competitive edge over the rivals. Key factors that influences the physical distribution consists of proper supply and value chains, appropriate logistic objectives and efficient supply network. According to Slack (2008), a supply chain is the sequence of business processes and activities from suppliers through to customers, that provides the flow of products or services and information that drives customers satisfaction. For an effective supply chain in international trade, a business should ensure that there is a successful conversion of the input to output. Furthermore the resources should be properly utilised such that there is neither waste nor waste. An effective supply network should be designed to produce the exact specifications of the customer. On the other hand, a linear map of the way in which value is added through a process from raw materials to finished product is known as the supply value chain. A business gains a competitive advantage in international trade by delivering value to customers through performing more efficient supply chain activities compared to rivals and by doing so creating differentiation. International trade involves the physical distribution and transportation of goods and services. To ensure customer satisfaction, a business must have speed as the key objective so as to have a smooth flow of goods and services from the source to the end point. The effective management of this flow increases the value of place and time utility. Description on the studied company This section of the article will explore the supply chain management applications in a company of choice. For the purpose of understanding fully the application of the physical distribution principles in international trade, a case study was conducted on Dell Company. This is a multinational company that is based in the United States and deals with the production of information technology models that are specifically made according to the customers’ specifications. The company was founded by Michael Dell and has grown to be one of world’s largest corporations which sell network servers, desktop personal computers, some selections of computer software and notebook computers among others directly to customers. Michael Dell began the company while still in the university by having the parts purchased in wholesale assembled into clones then sold them to customers. At present time, Michael Dell is the chief executive officer of the company and his shares in the company constitutes 14 percent of the total shares. Literature review With the rising acceptance of supply chain management and logistics as vital concerns of a business, it is hardly shocking that there is an increasing appreciation on the fact that extra input in terms of investment is required to facilitate the achievement of high level of competences and also proper managerial skills. In an effort to comprehend the extent to which supply chain management and logistics impacts on the performance of a business, studies and research have focused on developing a profile that details the proficiencies required for the supply chain manager and logistics of the future. Whereas various research has concentrated only on the strategic supply chain management, other studies has attempted to show the challenges brought about by the efforts by the organisations to reconcile the present competences and those needed for future achievement. Accordingly, Christopher (1992) suggests that a key feature of the current business environment is the idea that supply chain completes, not companies. Much of the recent work puts more emphasis on the supply chain management. In his argument, Lee (2002) appreciated the fact that managing supply chains is a complex and challenging task because of the continuing trends of expanding product variety, short product life cycles, increased outsourcing, globalisation of businesses and continuous advances in information technology. Research indicates that in the recent years the supply chain management, an area that was once regarded to be only for minor concern to managers, has grown in acceptance and is now at the forefront of the business planning. In fact some earlier studies held the same view that supply chain management now has representatives in the top echelons of most organisations (Lancioni, 2000). Most studies reveal that both the supply chain managers and the logistic managers play a fundamental function in making sure that success and competitiveness of a firm is sustained. In this regard, some of the research work has been geared towards understanding the roles of the aforementioned managers. While the terms supply and management are frequently applied interchangeably, Cooper et.al (1997) argued they are distinct because of they vary in both definition ad application. However, some philosophers argue that during these initial stages of the acceptance and implementation of these ideas both logistics and chain management tends to be managed jointly (2005). According to the annual survey conducted on the logistics managers in the United States at the Ohio State University (LaLonde and Ginter, 2004) and in Australia (Sohal and D’Netto, 2004) it was observed that the general view regarding the sector was that people were working within a function for many years, the number of female logistic managers was significantly low as compared to that of men and there was a regular job rotation. Researchers are of the view that in the present day knowledge, people and talent are instrumental in the successful operation of the supply chain. Christopher (2005) noted that a panel of seven philosophers of supply chain management was in agreement that despite many years of process break troughs in this field, adaptive chain supply was still an elusive business target. Nevertheless, some thinkers have argued that as the market develops to be more complex talent becomes more crucial than technology in the success of supply chain management (Kirby, 2003). This opinion is shared by other researchers who claim that managers are critical in supply chain (Van Hoek et al, 2002). Some of the studies in the area of the roles played by the managers in supply chain indicate that management skills, business skills and logistics skills are essential for the top level logistics manager (Murphy and Poist, 1991 & 1994). Besides, these researchers also stressed that it is necessary for managers to have good communication skills to facilitate an effective upward and downward communication in an organisation. Analysis of the interview The critical issue and the objective in the interview on the company of choice, Dell, were to familiarise with the criteria employed by the company in selecting their suppliers and the practices involved in maintaining a good working relationship with these suppliers. From the interview conducted on one of the senior supply chain manager, it was obvious that Dell Company was very systematic in sourcing its suppliers and in particular applied clear guidelines. According to the interviewee, evaluating the purchasing procedures of a potential supplier is one of the most important procedures in the selection process because it reveals the level of effectiveness in operations of the inward bound supply chain. It also became apparent that another supplier evaluation criterion was the assessment of a structure for logistic management. This is particularly important in determining the ability of the supplier to meet the quantities and prompt deliveries requirements. In addition, it was noted that the quality of the supplier systems, product, facility and process had an impact on how the company operates. Another way of establishing the suitability of a supplier is to examine the manner in which a supplier pushes its productivity. This will give a clear indication on the control measures institutes by the supplier. Likewise, the stability of a supplier may be perceived to be long-term if it is ready to engage in lasting investment and also demonstrates steadiness in ownership. Another perimeter in determining the Furthermore, it also became evident from the interview that the better the supplier is in product development the quicker shall be the product turn around time. In addition, a good supplier is the one conforms to the environmental regulations and in most cases have environmental evaluation at company level for their firm as well as for their suppliers to the customers. Other important considerations obtained from the interviews include the way in which a supplier is managed in terms of the value placed on high standards and quality, the vibrancy of operations management, the risk assessment and risk mitigation plans put in place and the laid down mechanisms that will ensure customer satisfaction. It was also clear that the intensity of the utilization of skills and technology was essential in choosing a supplier. An excellent supplier should possess superior functional systems, advanced industrial processes and adequate product knowledge. Besides, a supplier should ensure advanced standard of engineering proficiency by applying the most modern technology in the tools and equipment as well as the production locations. Discussion of the interview and the literature review From both the interview conducted and the literature review, a number of key factors that influence the supply chain came to the fore. In international trade the supply chain ranges from simple to very complex supply networks. Normally, for the complex supply chains, proper management decisions and a well coordinated inventory decisions are vital due to the diverse number of products and services involved. Consequently, if such compound supply chains are inefficiently managed then a business may encounter shortcomings and inconveniences that might impact negatively on the profitability. Some of these negative effects include the time delays in terms of delivery, excess inventory, incompatible systems and incorrect forecasting among others. In physical distribution, the optimisation, systematic assessment and analysis of the material flow in the supply chain is referred as the material flow management. The supply chain is categorized into internal and external supply chains. Internal supply chain is a value chain that falls within the boundaries of an organization and involves key business processes like manufacturing, distribution, purchasing as well as material planning and scheduling. On the other hand, external supply chain takes into account the relationship between the organisations and the supplies as well as the organisations and the customers. In order for all these business entities to have a good working relationship which shall facilitate ideal business environment, they should fulfill some basic responsibilities. This implies that the supplies should ensure that they promptly supply a high quality and the right quantity of materials to the organisations. Besides, they should also consider ways of enhancing an even better relationship by enticing the organisations through discounts and offering transport services. On the other hand, quality is fundamental in the supply chain management because quality work ensures that deliveries are done without faults and therefore enabling the business achieves its set goals. Another crucial factor that influences the efficiency of the supply chain management is the logistics management. The principal goal of any business is to ensure that customer satisfaction is achieved by offering an excellent customer service. To realise this objective, a firm must put in place proper systems necessary for the effective movement of materials through their supply chains (Waters, 2003). Modes of transportation vary from road, rail, water, pipeline and air. It is the responsibility of the supply chain manager to determine the convenient means. The function played by information technology in a supply chain can not be undermined. Accurate information is critical in decision making since decision made by the supply chain managers are based on the received information. In addition, the information should be of the right kind and readily accessible. Likewise information is very helpful in establishing the right quantity of inventory so that instances of understocking and excessive inventory are mitigated. Making important decisions like the vendors required, routing and shipment modes require appropriate information. Furthermore, information technology is vital in acquiring proper pricing and sourcing details. In its endeavor to produce goods or services, a firm may have to obtain some constituents for its products or services from external sources. Various firms have different reasons for outsourcing. In general, the reason ranges from obtaining superior designs, gaining access to latest technology, concentrating on firm’s core undertaking to mitigating the operations costs among others. However, there are risks that may result from the outsourcing. Key among these includes double outsourcing, loss of control, ineffective management, loss of client focus and hidden costs. A sourcing type where goods and services are consumed within the same region or city as the firm’s headquarters having all the facilities is referred to as a local source. Conversely, a national source refers to the type of sourcing that occurs where headquarter of the source lies within a country at the same time having facilities in various regions spread across the country. It is important for a business to devise ways that shall facilitate elimination of wastes in order to improve its profitability. Moreover, activities that do not add value should be dealt away with. Since all levels of firm’s operations are prone to wastages, participation of everyone is key in realising this goal. Lack of proper management of the wastages may impact negatively on the inventory. There is therefore need for a business to ensure that proper planning and control procedures are put in place to ensure that wastage levels are reduced to significantly low amounts. Conclusion It is clear that supply chain management is critical for the success of the physical distribution in international trade. Customer satisfaction is guaranteed if the supply chain efficiently and effectively managed. Secondly, proper planning is instrumental in the management of costs related to inventory. Effective utilisation of information technology may facilitate efficient management of inventory, pricing and revenue management, logistics as well as in sourcing. As a result, transportation and inventory costs may reduce significantly and improvement in responsiveness. This implies that an operation is able to grade itself using measures like benchmarking on the basis of the present goals. Despite the fact that outsourcing might have some risks, its benefits are quite overwhelming. Through outsourcing, the supply manager may develop and manage a viable supply base that may facilitate cheaper and reliable access to materials. A firm can improve its profitability by increasing its efficiency with respect to cutting down on cost related to material wastages and eliminating activities that are non value adding. Moreover, supplier consolidation will occur that will see supply chains integrate causing networks to compete against other networks and supply chains acting as an entity will compete against other supply chains and not firm against another firm. The performance objectives in an organisation which includes flexibility, quality, dependability, speed and cost are positioned according to its rank in the product life cycle, market demands and competition. Finally, apart from assessing the product it is equally important to measure efficiency of processes. References Coyle, J.J; Bardi, E.J. & JR. Langley, C.J. (1994). The Management of Business Logistics. 5th ed. 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Supply Chain Management, 4th Ed. Pearson Prentice Hall Krajewski, L,J.; Ritzman, L.P. & Malhotra, M,K. (2010). Operation Management – Processes and Supply Chains. 9th ed. Pearson Education, Inc. Read More