Logistical Issues of Middle East Division of MedicalCare International - Essay Example

GLOBAL LOGISTICS ………………………….. College ……………………………… ……………….. Words count: 3422 Table of Contents Table of Contents 2 Introduction 3 2- Logistical Issues 3 2.1. Environmental Issues 3 2.2. Logistical Procedures to be Considered 6 2.3. Modes of Transport 9 2.4. Ports selected for exporting 10 3. Transit Times and Inventory Levels 10 3.1. Inventory handing in Jebel Ali 11 5. Conclusion and Recommendations 13 5.1. Recommendations for inventory 14 5. References 15 1. Introduction Logistics in recent years has evolved tremendous changes from being a mere classic transport function to a strategic and a cross functional area of business and management. Advances in globalization and technology have eventually motivated both practitioners and academic interest in global logistics. Today’s highly competitive business contexts and fragmented value chains require that production materials as well as finished goods are supplied to factories and warehouses or shops in right time, in right quantities, in right conditions and in proper convenience (Gracht and Darkow, 2012). This paper will present a report to discuss various logistical issues and logistical procedures that should be considered by Middle East Division of MedicalCare International (MEDMI) before commencing the export of pharmaceuticals from Sao Paulo, Brazil and cosmetics from Bangalore, India. This report will discuss various modes of transport and destination ports that can be depended for MEDMI’s supply chain procedures. 2- Logistical Issues In order to develop and sustain effective global logistics, the management of MEDMI will have to address environmental issues apart from a number of issues related to logistics networks, inventory handling, organizational relationship, and performance measurement. These issues are discussed below: 2.1. Environmental Issues The global presence of MEDMI will certainly impact the channel structure it chooses for transportation between Jebel Ali and ports in Sao Paulo and Bangalore. Transportation between these ports involves longer distance leading to greater levels of risks, uncertainties and costs. Complexity of channel relations and costs for logistical operations will increase proportionately or more than proportionately when the firm’s network relation between global supplier, intermediary and customer expand (Gourdin, 2006). 2.1.1. Competitive Contexts Severity of competition in global logistics is one of the main issues the management of MEDMI will have to address before starting exporting from Bangalore and Sao Paulo. Firms playing in global logistics compete with others through product differentiation or other strategies, and therefore, it is important to evaluate those factors that contributing to the competitive advantages of its competitors. 2.1.2. Marketing Issues Marketing strategies and distribution systems are normally interrelated. Well before arranging the export from Bangalore and Sao Paulo, managers of MEDMI have to take strategic decision regarding what type of distribution will be most supportive of its marketing strategies. There are three modes of distribution; intensive, exclusive and selective distributions. Intensive distribution involves selling through as many channels as possible and this type of distribution is typically used for items like soft drinks, cosmetics, cigarettes etc. Exclusive distribution involves a narrow channel system with very few numbers of intermediaries. Selective distribution incorporates some, but not all possible outlets. This is perhaps the most common method by which majority of consumer goods are transported. 2.1.3. Technology Technology plays extremely significant role in almost all business and other fields to drive or fuel changes. It is not only a driver of change, but a facilitator as well. In global logistics, the challenge related is to evaluate and effectively implement appropriate technology to make logistics operation easier and convenient (Coyle, et al, 2007). Global logistics will certainly face severe competition from other global logistics firms, and one major factor to their competitive advantage will be advanced technology. Technology offers new resources to the firms to help them achieve competitive edge. Changes in technology affect logistics in the form of manufacturing innovations allowing more efficient means of restructuring and redesigning the product and market mix elements (Dornier, Ernst and Fender, 1998). 2.1.4. Regulatory Requirements Government regulations have significant impacts on logistics operations. For MEDMI, it is very important to evaluate the regulatory requirements for arranging transportation and other logistical operations from Bangalore and Sao Paulo to Jebel Ali. Due to government regulations in India and Brazil, MEDMI will have to undergo major paper works and complex formalities apart from common issues such as delays, errors, etc. When exporting, MEDMI must deal with numerous forms and documents in order to ensure that all pharmaceuticals meet laws and regulations established in Brazil and cosmetics meet laws and regulations established in India. Importer’s international trade accounts are subject to random clearance audits to evaluate whether proper customs duties were paid and to determine whether any concerned trade regulation has been breached (Sakchutchawan, Hong and Callaway, 2011). 2.2. Logistical Procedures to be Considered 2.2.1. Managing Information There are basically three key flows in logistics; material, resources and information. Out of these, information flow is more complex and multi-faceted, and therefore, managing information is critically important in logistics. The technology and communication systems available to an organization enable collection and storage of abundant data, however, some organizations fail to take advantages of these abundant data to convert them to useable information to improve decision making and other strategic organizational proceedings. While arranging transportation of pharmaceuticals from Sao Paulo and cosmetics from Bangalore, the management has to ensure that a strategic information and knowledge management system has been adopted to gain maximum synergy in operations. 2.2.2. Logistics Networking Apart from necessary requirements of plants, distribution centers and terminals, a global logistics system requires an effective and flexible network system that can respond and change with the dynamics of marketplace both in long and short runs (Coyle, Langley, Gibson and Novack, 2007). For the export of pharmaceuticals from Sao Paulo and cosmetics from Bangalore, the logistics management needs to understand the networking requirements so as to arrange well before commencing the exports. Global logistics involves effective network of organisations that are linked through upstream and downstream organizations in different processes that produce values of products and services (Mangan, Lalwani and Butcer, 2008). Technology companies may have to move manufacturing operations to another country within few months due to changes that may occur in global business contexts. Due to various factors such as port strike, floods or hurricane that can affect global operations, the network system must be flexible so as to respond to unexpected or uncertain incidents that threat smooth business operations worldwide. Network configuration is an important issue to be addressed by the management well before starting the logistics operations. Sheu and Lin (2012) noted that there has been growing recognition that network configuration must be addressed prior to the operations of global logistics. It involves planning hierarchical framework for global logistics to integrate transnational facilities. It also involves coordinating activities of all transnational facilities such as depot-depot, depot-hub and hub-hub shipments and transportations. 2.2.3. Complexity Globalized marketing systems caused greater levels of complexity for organizations in terms of customer and supplier relations, transportation requirements, trade regulations, taxes, insurance etc (Coyle, et al, 2007). MEDMI should take necessary steps to simplify various aspects of its logistics. The management should verify transportation and warehousing requirements from both Sao Paulo and Bangalore so as to combat complexities involved. 2.2.4. Inventory Deployment In supply chain, inventory is often duplicated is one of the major issues organisations often experience in global logistics. With careful coordination and integration between various channels involved in the supply chain, inventory handling risks can be reduced. Apart from better coordination and integration, MEDMI has to take measures of compression and postponement so that they can also have significant positive impact on transportation and other processes in logistics (Coyle, et al, 2007). 2.2.5. Organizational Relationship Global logistics requires building and maintaining organizational relationship and collaboration with external vendors, customers, transportation companies, warehousing firms, export agencies etc. Both collaboration with marketing, sales, manufacturing, finance and other departments, internal to the firm, as well as collaboration with companies or agencies external to the firm are critically important to successful logistics (Coyle, et al, 2007). For MEDMI, the manager has to plan for establishing and sustaining an effective organizational relationship with internal departments as well as external firms before starting exporting of pharmaceuticals and cosmetics to Jebel Ali. 2.2.6. Transportation Management Transportation is a critical component in logistics. It is the main channel that makes logistics work. One basic purpose of strategic logistics is to deliver right quantities of goods in right time, in right quality, at right cost and to the right destination. This can be achieved only if transportation is managed effectively. Choosing right modes of transportation is one important issue to be addressed. Modern business strategies such as just in time manufacturing (JIT) and lean logistics will work only if transportation is managed effectively. For transporting pharmaceuticals and cosmetics from Sao Paulo and Bangalore, MEDMI has both air and sea transports and the management has to take decisions regarding the most appropriate mode of transport between these destinations. 2.3. Modes of Transport The five basic modes of transportation for logistics are rail, road, air, water and pipeline. All these transportation modes have different impacts on economic, environmental and other factors. Out of these five modes of transport, pipeline is useful only for gasoline, petroleum and chemical products. So, pipeline cannot be used for transporting pharmaceuticals and cosmetics to Jebel Ali. Road transportation is used only for relatively shorter distance, and mostly within the country. Road and rail transportation cannot be chosen for MEDMI’s exports from Brazil to Jebel Ali, because, North Atlantic Ocean situates between Brazil and UAE. Similarly, road and rail transport cannot be considered from transporting from Bangalore to Jebel Ali, because, Arabian Sea situates between India and UAE. However, both rail and road transports will be required for transporting goods from company locations to sea ports. More specifically, for instance, rail transport will be used for transporting cosmetics from the factory in Bangalore to sea port in Mumbai. Only sea and air transports are possible for transporting goods from Brazil and India to UAE. Air transport, as compared to water carriage, is costly due to increased fuel consumption by airlines. But, it is the speedier mode of transportation of all the available choices, and most global logistical firms have to often depend on air transport when there is urgency. Air transport is preferable for transporting highly valued goods, and those goods that are light weight and are small in quantities. When there are bulk quantities of pharmaceuticals or cosmetics, MEDMI will use water carriages such as container ship. 2.4. Ports selected for exporting For transporting pharmaceuticals from Brazil, Sao Paulo will be chosen, because it is the busiest container port in Latin America and it has great facilities of loading and unloading cargoes and containers. For transporting cosmetics from India to Jebel Ali, Ahmadabad Terminal will be selected, because, it is nearest to Bangalore. 3. Transit Times and Inventory Levels   Starting Place Port of Loading Country Port of Discharge Final Destination Country Distance Transit Time 1 Baltimore Baltimore Terminal USA Jebel Ali Mina, Jebel Ali UAE 15474 KM 24 days and 20 hours 2 Rotterdam Rotterdam Terminal Netherlands Jebel Ali Mina, Jebel Ali UAE 11557 KM 18 days and 13 hours 3 Sao Paulo Santos Terminal Brazil Jebel Ali Mina, Jebel Ali UAE 15269 KM 24 days and 11 hours 4 Bangalore Ahmadabad Terminal  India Jebel Ali Mina, Jebel Ali UAE 3689 KM 4 days and 22 hours The above table shows the distance in KM for transportation between starting point and the final destination and the transit time that will be taken for each transit. In some cases, factory situates quite away from the port of loading, and this involves inventory handling and depending on either rail or road transportation. This is very evident in the case of transporting cosmetics from Bangalore to Jebel Ali, because, port of loading is in Ahmadabad which is away from Bangalore. Distance in KM and the transit time shown in the table are found by suing the Distance and Time calculator placed in SeaRates.com. Table showed four distances and four transit times, the first two are from Baltimore in USA and Rotterdam from Netherland. Middle East Division of MedicalCare International has been importing pharmaceuticals from a factory in Rotterdam and cosmetics from a factory in Baltimore, but due to significant growth in sales across the globe, the management decided to import goods from new factories in Brazil and India. The above table compares the transit time and distance between these four transport options. Summary of the findings: The transport from Baltimore to Jebel Ali port takes 15474 KMs and 24 days and 20 hours as transit time. From Rotterdam to Jebel Ali, it involves 11557 KMs and it takes 18 days and 13 hours. From Santos Terminal in Brazil to Jebel Ali, transport will take 15269 KMs, and a transit time of 24 days and 11 hours. From Ahmadabad port in India to Jebel Ali, it involves 3689 KMs, taking a transit time of 4 days and 22 hours. 3.1. Inventory handing in Jebel Ali In global logistics, inventory handling causes several risks and costs, and these are closely related to transit time. The time that will be taken for transportation- in simple words- transit time means that an inventory cost is associated with the time period even while goods are in motion. As far as transit time and inventory costs are considered, the basic point to be noted is that, the longer the time period, the higher the cost (Coyle, et al, 2007). As Mangan, Lalwani and Butcher (2008) noted, a key strategy of most organizations in global logistics is to reduce the amounts of inventory that they hold in transit as well as in warehouses. Some organizations attempted to eliminate warehouses altogether. Since inventory handling involves greater risks and costs, some organizations strategize ‘mobile warehousing’ whereby they use transport as ‘warehouses’ eliminating loading and unloading of goods. Normally, organizations are required to evaluate the time period for in-transit inventory and work-in-progress inventory in terms of the proper tradeoffs. Various transportations modes take different times for transit. Air transport, for instance, takes very less time as compared to sea and other modes of transport, but the price charges for this service is bigger than that in other modes. But, the advantages of higher pay in turn result in to less inventory handling or fewer costs for inventory in transit. In other words, sea ports take more time in transit and it results in more inventories in transit (Coyle, et al, 2007). Taking decisions regarding inventory holding and reviewing various options to eliminate inventory costs are critically important steps in global logistics. Inventory actually costs money. Various intermediaries and partners involved in logistics invest significant amounts of money in holding inventory in various forms. For instance, it takes 24 days to transport pharmaceuticals from Sao Paulo to Jebel Ali. It is nearly one month, and it means that larger amounts of money are invested in inventory (Mangan, et al, 2008). From business point of view, money that has been invested in inventory could also be invested elsewhere to earn a return. Inventory also ties up working capital and it affects cash flow too. If it affects working capital negatively, the outcome will be more dangerous as the survival of entire firm will be threatened. Inventory takes space in warehouses or in the company. These are the main reasons why firms are seeking measures to eliminate inventory holding and to reduce risks associated with inventory handling. Just in time manufacturing, mass customization and direct marketing strategies that have been implemented by some modern companies including Dell inc. were meant to truly eliminate inventory handling costs. When it comes to the case of MEDMI, in future, it will have imports of pharmaceuticals and cosmetics from four destinations, namely Baltimore, Rotterdam, Sao Paulo and Bangalore, causing a transit time of 24 days, 18 days, 24 days and 1 day respectively. As these transportations involves relatively longer transit time, it is imperative that the logistics management of MEDMI in Jebel Ali has to review the level of inventory to be held in its warehouses in Jebel Ali before consolidating or preparing these goods for distributing GCC countries and other parts of the world. The management has to review the levels of inventory that the company may hold in Jebel Ali, for the following reasons:- 1- Inventory handling, comprising of frequent loading and unloading, is risky in nature. 2- Inventory takes spaces in warehouses. For loading, unloading, verifying, counting, consolidating and other works, more numbers of labors or additional technology working will be required, leading to additional operational costs for the company. 3- Inventory holding in warehouses may cause damages if extra care is not given to the stock. 4- When more inventories are tied up in warehouses, it often leads to tying up of ‘old stocks’ as new stocks will be unknowingly taken for consolidation and supplying. 5- It will consume a part of working capital of the company. 5. Conclusion and Recommendations This report is prepared to present to the logistics management of Middle East Division of MedicalCare International, a global logistics company situated in UAE to help its management arrange effective exporting of goods from its two new factories in Sao Paulo and Bangalore. First section of this report discussed various issues that affect global logistics. The logistics management of MEDMI has to consider these factors well before starting the logistical operations from Brazil and India. These issues are environmental issues such as marketing, competition, regulatory requirements and technology. Other operating issues are network design for logistics, managing information, inventory deployment etc. The second section of the report presented a detailed table showing distance in KMs and the transit times for all the four options of transports. They are transports from Baltimore, Rotterdam, Sao Paulo and Bangalore to Jebel Ali. This section has summarized the key findings from this table. The third section of the paper detailed the importance of reviewing the inventory handling at Jebel Ali while considering all the four different transit times based on the transit times detailed in the table. This section recommended MEDMI that the company should strategically use ships in transit as warehouses and to follow a strict time scheduling for transportation. 5.1. Recommendations for inventory 1- Transit to be utilized as warehouse: In order to eliminate inventory handling risks and costs and to avoid expenses to be incurred in loading, unloading, stock verification etc, MEDMI is recommended to use transit as warehouses. Goods are warehoused in ships, either container or cargo ships, or they are arranged in a way to arrive at Jebel Ali only when the good are actually required. Goods from these ships will be directly taken for consolidation, and not to be warehoused. For this purpose, proper communication between all the intermediaries including transportation agencies and ship managers is required. In order to avoid warehousing and to eliminate costs for handling inventories in warehouses, the company is recommended to strategically use ships in transit as ‘warehouses’ and to properly communicate with intermediaries to arrange ship arrival time only when the goods are actually needed for final preparatory works. 2- A strategic time scheduling to be adopted: Timing is an important factor. For instance, if all the four ships arrive in Jebel Ali on same day, the company will face greater levels of complications for inventory managing. If a strict and strategic time scheduling is not followed, the company will not be able to meet market demands in right time. 5. References Coyle, J.J, Langley, C.J, Gibson, B.J and Novack, R.J., 2007, Supply Chain Management, A Logistics Perspective, Eight Edition, Cengage Learning Gourdin, K. N., 2006, Global Logistics Management: A Competitive Advantage for the 21st Century, Second Edition, Blackwell Publishing, Dornier, P, Ernst, R and Fender, M, 1998, Global Operations and Logistics: Text and Cases, John Wiley and Sons Inc Gracht, H. A and Darkow, I.L, 2012, The future role of logistics for global wealth – scenarios and discontinuities until 2025, Emerald Group Publishing Limited, Vol- 15 NO. 5, pp. 405-419 Mangan, J, Lalwani, C and Butcer, T, 2008, Global Logistics and Supply Chain Management, John Wiley and Sons Sakchutchawan, S, Hong. P.C, and Callaway, S.K., 2011, Innovation and Competitive advantage: Model and Implementation for Global Logistics, International Business Research Sheu, J and Lin, A.Y.S., 2012, Hierarchical facility network planning model for global logistics network configurations, Applied Mathematical Modelling, Elsevier Read More