Reference no: EM131780491

Compare and contrast the differences involved between purely domestic logistics operations and the challenges of global logistics systems as related to aviation and aerospace companies.

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Whereas an effective logistics system is important for domestic supply chain integration, it is absolutely essential for successful global sourcing, manufacturing, and marketing. Domestic logistics focuses on performing movement and storage activities to support supply chain integration in a relatively stable and consistent environment. Global logistics must support operations in a variety of different national, political, and economic settings while also dealing with increased uncertainty associated with the distance, demand, diversity, and documentation of international commerce.

The operating challenges of global logistics systems vary significantly in each major global region. The North American logistics challenge is one of an open geography with extensive and flexible transportation options and limited need for cross-border documentation. The European logistician, in contrast, is confronted by relatively compact geography involving numerous political, cultural, regulatory, and language situations. The European infrastructure is also quite congested because of population density and the fact that many of the roads date back centuries. The Pacific Rim logistical challenge faces an island-based environment with relatively poor infrastructure, requiring extensive water and air shipments to transcend vast distances. These different characteristics require that firms having global operations develop and maintain a wide variety of capabilities and expertise.

In the past, an enterprise could survive by operating with unique North American, European, or Pacific Rim business strategies. While it was easier to create and operate unique regional strategies, the resulting duplication often resulted in loss of economies of scale and poor asset utilization. While regionalization remains viable for some firms, those desiring to grow and prosper must face the challenges of designing and operating a globally integrated enterprise. Strategic business initiatives must change as a firm and its supply chain become progressively more global.

Logistics in a Global Economy

Global operations increase logistics cost and complexity. In 2008, the last available estimate, logistics cost for industrialized nations exceeded $9.4 trillion, or 13.8 percent of estimated global gross domestic product (GDP). Table 11.2 lists GDP and estimated logistics cost by country. In terms of complexity, global operations, in contrast to domestic operations, are characterized by increased uncertainty, increased variability, decreased control, and decreased visibility. Uncertainty results from greater distances, longer leadtimes, and decreased market knowledge. Increased variation results from unique customer and documentation requirements as well as shifting political environments. Decreased control results from the extensive use of international service firms coupled with potential government intervention in such areas as customs requirements and trade restrictions. Decreased visibility results from longer transit and holding times with less ability to track and determine exactly where shipments are located.

These unique challenges complicate development of an efficient and effective global supply chain strategy. Fortunately, there are forces that both drive and facilitate globalization and necessitate cross-border logistics operations.

Globalization Strategies

Supply chain globalization can be characterized using four strategies: (1) no international strategy; (2) multi-domestic strategy; (3) global strategy; and (4) transnational strategy. The characteristics and the supply chain implications of each stage are discussed.

The first characterizes firms that have no international strategy. This describes firms that are involved only in domestic operations. While there may be some international transactions in the form of sourcing or delivery, there is no systematic strategy or plan to organize or grow international operations. The advantage of domestic-only operations is that it substantially minimizes complexity, and there is minimum coordination necessary across supply chain and other firm functions. The disadvantages of no international strategy are that it is difficult to respond to customers that operate globally and growth is typically limited to local markets.

The second, or multi-domestic, strategy characterizes firms that operate in multiple nations implying that they have operations in multiple countries, but the country in which the corporate headquarters is located is the dominant country. For this strategy, firms typically have separate, semi-autonomous supply chains in each global region. For example, if a firm is headquartered in the U.S., all activities completed outside the U.S. are international and are often treated as secondary to domestic operations. Generally, the international operations are used to support domestic operations, particularly with respect to sourcing raw materials and goods for resale. In this case, the logistics and supply chain operations within each region are independent. The advantage of a multi-domestic strategy is that the firm can focus on local markets while minimizing overall coordination requirements. For example, a firm can focus on key growth markets while minimizing the operational complexity between markets. The disadvantages of a multi-domestic strategy are that it is not responsive to globally based customers, and it is difficult to develop economies of scale.