International Logistics, Part 3: Inventory as a Strategic Tool

International inventory can be used by the international corporation as a strategic tool to dealing with currency valuation changes or hedging against inflation. By increasing inventories before an imminent devaluation of a currency, instead of holding cash, the corporation may reduce its exposure to devaluation losses. Similarly, in the case of high inflation, large inventories can provide an important inflation hedge. In such circumstances, the international inventory manager must balance the cost of maintaining high levels of inventories with the benefits accruing to the firm from hedging against inflation or devaluation. Many countries, for example, charge a property tax on stored goods. If the increase in tax payments outweighs the hedging benefits to the corporation, it would be unwise to increase inventories before a devaluation.

Despite the benefits of reducing the firm’s financial risk, inventory management must still fall in line with the overall corporate market strategy. Only by recognizing the trade-offs, which may result in less than optimal inventory policies, can the corporation maximize the overall benefits.

International Logistics, Part 2: The New Dimensions of International Logistics

In domestic operations, logistics decisions are guided by the experience of the manager, possible industry comparison, an intimate knowledge of trends, and the development of heuristics – or rules of thumb. The logistics manager in the international firm, on the other hand, frequently has to depend on educated guesses to determine the steps required to obtain a desired service level. Variations in locale mean variations in environment. Lack of familiarity with these variations leads to uncertainty in the decision-making process. By applying decision rules developed at home, the firm will be unable to adapt well the new environment, and the result will be inadequate profit performance. The long-term survival of international activities depends on an understanding of the difference inherent in the international logistics field.

Basic differences in international logistics emerge because the corporation is active in more than one country. One example of a basic difference is distance. International marketing activities frequently require goods to be shipped farther to reach final customers. These distances in turn result in longer lead times, more opportunities for things to go wrong, more inventories – in short, greater complexity. Currency variation is a second basic difference in international logistics. The corporation must adjust its planning to incorporate different currencies and changes in exchange rates. The border-crossing process brings with it the need for conformance with national regulations, an inspection at customs, and proper documentation. As a result, additional intermediaries participate in the international logistics process. They include freight forwarders, customs agents, custom brokers, banks, and other financial intermediaries. The transportation modes may also be different. Most domestic transportation is either by truck or by rail, whereas the multinational corporation quite frequently ships its products by air or by sea. Airfreight and ocean freight have their own stipulations and rules that require new knowledge and skills. Since the logistics environment is different in each country, logistical responsibilities and requirements must also be seen from a country-specific perspective.