International Logistics, Part 5 : Logistics and Security

Firms worldwide have been exposed to the vicissitudes of terrorism, which often aims to disrupt the flow of supply and demand in order to damage economic systems. Logistics systems, the true soft spots of vulnerability for both nations and firms, are often the targets of attacks. For instance, in the issue of seaports, some 95 percent of all international trade shipments to the United States arrives by sea and is then transferred to truck and rail. In most instances, the containers are secured by nothing more than a low-cost seal that can be easily broken. Similar to imported merchandise, exported products also need to be protected by companies as they leave the country in order to prevent terrorists from contaminating shipments with the goal of destroying foreign markets together with the reputations of the exporting firms.

Security measures instigated by governments will affect the ability of firms to efficiently plan their international shipments. There is now more uncertainty and less control over the timing of arrivals and departures. There is also a much greater need for internal control and supervision of shipments.Security measures for international shipments affect the ability of firms to efficiently plan their distributions. Increased inspections of containers, new security programs to protect ports, and other new protective policies and decreasing the efficiency and effectiveness of international shipping and logistics. Consequently, the costs of

Security measures for international shipments affect the ability of firms to efficiently plan their distributions. Increased inspections of containers, new security programs to protect ports, and other new protective policies and decreasing the efficiency and effectiveness of international shipping and logistics. Consequently, the costs of value chain and supply chain activities have increased substantially. There is now more uncertainty and less control over the timing of arrivals and departures. Companies may be inclined to produce more essential products themselves locally instead of relying on outside producers to deliver those products on time.

Similarly, costs may rise if companies choose to purchase goods from suppliers located in close proximity or from suppliers that are more familiar – and therefore more safe – in order to reduce their vulnerability. Companies may also increase their inventory holdings in hopes of protecting against delays caused by sudden heightened security measures against terrorism. Holding more inventory or drawing goods from more than one source will increase the ability to meet the customers’ demand at ties when an outside producer is unable to deliver on time. Flexibility of supply chains is therefore a necessity when logistics security is at risk from terrorism.

Firms with a JIT regimen are exploring alternative management strategies because the proves of moving goods has become more expensive. Some firms are considering replacing international shipments with domestic ones, where transportation via truck would replace transborder movement and eliminate the use of vulnerable international transportation.

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.