Friday, June 24, 2011

International Logistics

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Logistics is the designing and managing of a system in order to control the flow of material throughout a corporation. This is a very important part of an international company because of geographical barriers. Logistics of an international company includes movement of raw materials, coordinating flows into and out of different countries, choices of transportation, cost of the transportation, packaging the product for shipment, storing the product, and managing the entire process.

The concept of logistics is fairly new in the business world. The theoretical development was not used until 1966. Since then, many business practices have evolved and logistics currently costs between 10 and 5 percent of the total cost of an international purchase. There are two main phases that are important in the movement of materials material management and physical distribution;

- Materials management is the timely movement of raw materials, parts, and supplies.

- The physical distribution is the movement of the firms finished products to the customers.

Both phases involve every stage of the process including storage. The ultimate goal of logistics is to coordinate all efforts of the company to maintain a cost effective flow of goods.

There are four logistics concepts such as:

- the systems concept

- the total cost concept

- the after-tax concept

- the trade-off concept

The systems concept is based on all functions of a organization working together in order to maximize benefits. This concept sometimes requires certain components of the organization to operate suboptimally in order to achieve maximum goals of the system.

The total cost concept is based on the systems concept, however goal achievement is measured in terms of cost.

A variation of the total cost concept is the after-tax concept. This goal of this concept is after-tax profit. This concept is becoming very popular because of the many different national tax policies.

The trade-off concept links the system together in a way that is very efficient, but can have trade-offs that might be inefficient. The advantages of such high efficiency must be weighed against the risk involved.

One of the largest obstacles of international logistics is geography. The distance and manner materials must be shipped is the most important step in international logistics. Transportation infrastructures vary greatly throughout the world. International companies must consider all options before starting any operation in another country. Perhaps a country could have easy access by ship, but no way to transport the goods once on the ground. All available routes into and out of the country must be determined in order to judge the feasibility of the operation. Ground shipments are excellent for neighboring countries such as the U.S. and Mexico.

Normally, shipping across ground borders is fairly uneventful and is usually the best method if time and distance allow it. Ocean shipments are divided by three types of service liner, bulk, and tramp. Liner service is regularly scheduled passages on assigned and established routes. This ship routes are similar to taking a plane somewhere. This service is used more for one-time or irregular shipments. Bulk service is contractual for a prolonged period of time. This service is for those needing to ship large quantities on a fairly regular basis. Tramp service is for irregular routes and scheduled as needed. This service would be to destinations liner service normally does not operate, and for large quantities. The type of ocean service you use also depends on where the material must go. Certain types of ships can only go to certain places, and certain ships can only carry a certain type of freight. All alternatives must be fully researched before ocean service can be considered as a valid option. The biggest advantage of ocean shipping is cost. Typically, ocean service is the least costly option, however is also has the slowest travel time. Accidents are infrequent, however if one would happen, large quantities of material are lost all at once. Certain operations could not sustain long periods of down- from time caused by lost goods, which could prove devastating. Additionally, not all countries have adequate docking facilities and material may have to be delivered in another manner. Sometimes, the material can be ocean shipped to a neighboring country, and then trucked across land. Air freight is the quickest method for shipping goods. It also is the most costly. While the airfreight industry has had tremendous growth over the years, it still makes up less than 1 percent of all international freight. Typically, airfreight is used for high value items, and those required to have a short transit time. Perishable goods for instance, practically requires air shipment. Another advantage to air freight is the abundance of facilities throughout the world that are accessible by air.

Transit time is another important aspect of international logistics, and is closely related to the manner in which the material is shipped. Because the ocean freight takes longer, large quantities are shipped. This requires storage of inventory in both countries. By using air freight, the smaller quantities and more periodic shipments can reduce storage costs. Air freight is also more predictable than ocean shipments. Where a ship may be a few days late, the air freight is usually only a few hours late. Predictability is important for many types of shipments, and when it is required, air freight is the mode of choice.

Packaging for international shipments must also be researched. Many times, a single shipment may be trucked, air freighted, and shipped. Packaging for three different types of shipping can be tricky. The most common type of international shipping is in containers. These containers can ride on a truck and then be placed on a ship. Beyond general packaging, climate changes must also be taken into consideration. Care must be taken that the freight is not susceptible to extreme temperatures or humidity. When air freight is being used, the weight of the packaging must be considered for maximum benefit. Extremely heavy packaging can add thousands of dollars to an air freight bill.

Logistics of a storage facility is also very important. How many locations and where they are located must be closely researched in order to yield the most benefit. Sometimes, a location can be chosen based on monetary benefit in addition to logistical benefit. Certain enterprise zones can greatly increase after-tax profits. These types of areas must be researched and compared for cost/benefit.

The final part of logistics is how to tie this system together. All of these different options and concepts must flow together and operate as efficiently as possible.

There are three basic forms of logistics management.

- Centralized logistics management provides that the logistics operations are headed by managers that also head other divisions of the company. This type of management helps avoid internal problems by having a central manager that ultimately decides how logistics and operations are coordinated.

- Decentralized logistics management is based on the fact that a company needs to have a division that helps control the local-adaptation needs. Dealing with different cultures requires input from the local branch. The managers that deal with the cultural differences on a daily basis normally know what works and what doesnt.

- Outsourcing is the final option for logistics management. When this happens, transportation firms concentrate on logistics, and the company can concentrate on its production. There are many cost savings using this type of program, however that lack of control can negatively effect many companies.

International logistics requires many different options and requirements to be met in order for a company to operate internationally. It's like a big puzzle that must be put together, in order for all the goals to be met. As described above, there are many options to consider, and sometimes what appears to be an option really isnt. It is not difficult to hit a road block, and you must start over with a new plan. Once the logistics plan is in place, you must constantly look for improvements in order to maximize profits and goals.

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