International Logistics - Case Study Example

International Logistics Globalization and Liberalization policies have given new dimensions to international trade and most of the scientific management theories have been redefined in order to accommodate the needs of the current globalized business environment. It is not possible for traditional organizations to stick with the same old strategies and to compete in the domestic and international market. Change is obvious in each and every segment of business activities and logistics also not an exception. As per the traditional methods, the procurement of goods was started well before the start of production in order to avoid any possible delay. Most of the organizations were always maintained a good inventory of raw materials in order to sustain the production in case of a shortage of raw materials in between. Organizations were taken such precautionary measures because of their limited access to domestic and international sources of raw materials. But now globalization has opened the doors widely open for both domestic and international business and hence the access of raw material sources is not at all a problem now. Moreover the advancements in computers and internet technologies have made the task easy for organizations to despatch and procure goods in time. For the last ten years or so, the freight transportation industry has been facing new challenges such as time sensitive industrial and commercial practices as well as the globalization of markets. In response to these changes, new information related technologies have developed rapidly. (Roy, 2001)Just-In-Time procurement practices are one of the latest developments in international logistics. “Just-in-time (JIT) is defined as “a philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity”.  It also has been described as an approach with the objective of producing the right part in the right place at the right time (in other words, “just in time”).” (JUST-IN-TIME (JIT) PRODUCTION, 2006)  This paper briefly analyzes various aspects of Just-In-Time procurement practices. Just-In-Time procurement practices Freight transportation industry had faced new challenges in the last decade which affected the supply chains and logistic processes. “The first change may be attributed to the impetus towards inventory reduction which led to Just-In-Time procurement practices.” (Roy, 2001) Just-In-Time (JIT) Procurement System designed to put general purpose materials at the work places only at the time when they are actually needed. Advance procurement was the earlier trend which has given way for Just in time procurement because of the advantages JIT over traditional methods of procurement. “It is an automated ordering system designed to allow the end user/requester to place an order for commercial, off-the-shelf, low-dollar items. (Best Practice: Just-In-Time Procurement System, 2007) As per the business philosophy of JIT, inventory is a waste. If the organization can limit their inventories then they can limit their losses as per this philosophy. Inventory requires lot of spaces and manpower to manage materials. In fact in JIT system, the purchaser actually outsourcing their input inventories to their suppliers knowingly or unknowingly. In other words, the manufacturer, stores the materials they needed till the last moment at the expense of the supplier. Some suppliers, because of the above reasons, charges 5 to 10% more than what they actually charge if the company orders well in advance. Advantage of JIT “JIT has eliminated the need for a conventional purchase order and storage area.” (Best Practice: Just-In-Time Procurement System, 2007) Most of the organizations were forced to leave a sufficient amount of spaces in their company premises in order to store materials. JIT has eliminated the need of big storage area. The management of stored materials were a big problem for organizations because of the difficulty in keeping materials fresh. Climate changes, insect attacks and handling problems were the major headaches for the logistic mangers in keeping the material usable till the time of production. “It eliminated the need for a warehouse and attendants, and the warehouse now houses the procurement department, and the attendants are involved in other productive tasks.” (Best Practice: Just-In-Time Procurement System, 2007) Moreover the formalities of preparation of legal documents like purchase order is not at all required in a JIT system. “The automated JIT system provides the opportunity to order supplies when needed from a personal computer. The system provides information on the supplier's quality and delivery of products” (Best Practice: Just-In-Time Procurement System, 2007) Computerised management of purchasing has reduced lot of headaches for the purchasers. Purchasers quiet often preloaded their computers with the detailed databases of their suppliers and hence identification of proper supplier even at the last moment is possible for them. Negotiations through telephone calls can be reduced a lot because of the convenience of internet technologies. Another advantage of JIT is the assurance of price stability in the market. For example, suppose a company has purchased the raw materials three months before actually they needed it for production. The company may fix the price of the produced goods based on the price of the raw materials they purchased. But the prices of the raw material can come down in this three months period. But even then the manufacturing company may not be able to reduce the price of their finished good because of the higher prices of the raw materials at the time of their purchasing. If the company implements the policy of JIT in purchasing they can sell the product based on the current price of the raw materials. On the other hand, if the prices of the raw materials increase within these three month period, the company will increase the price of their product even if they purchased the materials at a lower price. In any case the consumers will be affected by the price variations in the market. The JIT system has reduced waste, removed the buyer as a middle man and thereby it can save lot of moneys for the organization. (Best Practice: Just-In-Time Procurement System, 2007) As per the conventional system of purchasing, mostly a middle man is associated with most of the purchasing as a negotiator between the supplier and the purchaser. This middle man usually takes fees from both the parties and hence both the parties had suffered a lot in selling and purchasing materials because of their expenses in non productive sectors. JIT can successfully eliminate such non productive expenses. “With the automated system, supplies can be delivered as quickly as the same day and the supplier paid within a week of receipt.” (Best Practice: Just-In-Time Procurement System, 2007) Because of the less formalities associated with JIT, suppliers can supply the product immediately after the order is placed. As per the conventional payment methods the supplier normally gets their payment only after 2 to 3 months as agreed in the purchase order. But as per JIT principles, purchase order is not at all required and hence the suppliers normally get their payments even within a week. Just-in-Time (JIT) strategies have been widely accepted to minimize the waste and to improve performance measures, such as lead time, inventory levels and unit production cost(Singh, & Chand, 2007) JIT enables an organization to reduce the unit price of the product they were manufacturing. For example, for a printing unit printing materials like art cards, art papers and printing inks are a must. But most of these materials may be damaged if kept for a longer period in the storage area because of the climatic conditions. The paper may get faded and the ink may be solidified under extreme weather conditions and hence the organization may lose lot of money because of such damages. Moreover, some people need to be posted at the store in order to supervise these materials on a regular basis. All these requirements will result in increased expenditure for the company and hence they might be forced to increase the unit price of every product they may produce in order to cover the loss caused by these non productive expenses. JIT can reduce the lot sizes (manufacturing and purchase) and thereby it can reduce setup times allows economical production of smaller lots (JUST-IN-TIME (JIT) PRODUCTION, 2006) The reduced size of lot will ensure more quality to the finished goods because of the increased care workers can ensure upon the handling of the materials. Also frequent delivery of the duct is also possible by implementing JIT in an organization. ‘Moreover JIT can reduce lead times (production and delivery): production lead times can be reduced by moving work stations closer together, applying group technology and cellular manufacturing concepts, reducing queue length (reducing the number of jobs waiting to be processed at a given machine), and improving the coordination and cooperation between successive processes’ (JUST-IN-TIME (JIT) PRODUCTION, 2006)  Disadvantages of JIT The main disadvantage of JIT is the unexpected problems which can occur at the last moment. In the conventional methods of purchasing normally the purchaser and the seller get enough time to overcome accidental problems while in JIT system it is difficult to find an alternative at the last moment. For example, as mentioned above, consider the case of a printing unit which have ordered printing materials for the next day. Suppose an accident has occurred while transporting the material from the supplier’s premise to the printer’s territory. The printing company may find it extremely difficult to arrange the materials at the last moment and hence the production may be affected. This will create a deadline change of all the other orders as well which may result in a big loss to the company. “So, if you can get your administrative costs down such that you can make frequent, small orders and if you can predict the demand for the parts with little error, then it are worth going JIT. The opposite becomes the downside of JIT. If you don't have predictable demand, you may easily end up with a shortage of a part and have a work stoppage.” (Prevette, 2006) The price variation of oil can affect the success of JIT system. All the logistic operations need the support of road, rail, air or sea transportation vehicles all operates with the help of oil. So any changes in the price of oil will affect the transportation costs and hence the price of raw materials also can be varied. Critiques of JIT argue that the excessive dependence of JIT on oil prices is not good for businesses and hence procurement of goods at a suitable time is important for the sustainment of production activities. Conclusions Globalization has changed many business concepts because of the wider reach of organizations in the international market. Most of the business concepts has been changed in order to utilize the possibilities offered by globalization. Just-In-Time (JIT) is a modern concept in business especially in logistics and manufacturing of products. JIT has many advantages like elimination of big storage areas, reduction of warehouse manpower, increased price stability of finished goods etc. On the other hand it is difficult to manage unexpected problems by an organization which implemented JIT. References 1. Roy Jacques, (2001) Recent trends in logistics and the need for real time decision tools in the trucking industry, Retrieved on May 11, 2009 from http://www.hicss.hawaii.edu/HICSS_34/PDFs/DTIST02.pdf 2. Best Practice : Just-In-Time Procurement System, (2007), Retrieved on May 11, 2009 From http://www.bmpcoe.org/bestpractices/internal/sandi/sandi_20.html 3. Singh Om Pal,& Chand Satish , (2007) Just-in-Time Practices in Supply Chain: Insight from Electronic Industry Retrieved on May 11, 2009 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1079006 4. Prevette Steve, (2006), Just in Time Problems - Disadvantages of JIT (Just in Time) model? Retrieved on May 11, 2009 from http://elsmar.com/Forums/showthread.php?t=19406 5. Humphreys Paul, Mark KL, Yeung CM, (1998) A just-in-time evaluation strategy for international procurement Retrieved on May 11, 2009 from http://www.emeraldinsight.com/Insight/viewContentItem.do;jsessionid=FC332F8A522400227CE5DCCE1A98F7A6?contentType=Article&contentId=858162 6. JUST-IN-TIME (JIT) PRODUCTION, (2006) Retrieved on May 11, 2009 from http://personal.ashland.edu/~rjacobs/m503jit.html Read More