The purpose of multinational firm is to benefit from system synergism. Therefore the coordination of international logistics at corporate headquarters is important. Without coordination, subsidiaries tend to optimize their individual efficiency but jeopardize the overall performance of the firm.
Centralized logistics Management
If headquarters exerts control, it must also take the primary responsibility for its decision. To avoid internal problems, both headquarters staff and local logistics management should report to one person. This person can then become the final arbiter to decide the firm’s priorities. Of course, this individual should also be in charge of determining appropriate rewards for manager, both at headquarters and abroad, so that corporate decisions that alter a manager’s performance level will not affect the manager’s appraisal and evaluation. Further, this individual can contribute an objective view when inevitable conflicts arise in international logistics coordination.
Decentralized Logistics Management
If a firm serves many international markets that are diverse in nature, total centralization would leave the firm unresponsive to local adaption need. If each subsidiary is made a profit center in itself, each one carries the full responsibility for its performance, which can lead to greater local management satisfaction and to better adaption to local market conditions. Yet often such decentralization deprives the logistics function of the benefits of coordination.
A growing preference among international firms is to outsource, often referred to as contract or third-party logistics (3PL) Most companies have outsourced at least one major logistics function such as customs clearance, transportation management, freight payment, warehouse management, shipment tracking, or other transportation-related functions. The main thrust behind the idea is that individual firms are experts in their industry and should therefore concentrate only on their operations. 3PL providers are experts at logistics, with the knowledge and means to perform efficient and innovative services for those companies in need. The goal is improved service at equal or lower cost.
Logistics providers’ service at equal or lower cost. Logistics providers’ services vary in scope. Some may use their own assets in physical transportation, while others subcontract out portions of the job. Certain other providers are not involved as much with the actual transportation as they are with developing systems and database or consulting on administrative management services. In many instances, the partnership consists of working closely with established transport providers such as the FedEx or UPS.
One of the greatest benefits of contracting out the logistics function in a foreign market is the ability to take advantage of an existing network complete with resources and experience. One of the main arguments leveled against contract logistics does not and should not require the handing over of control. Rather, it offers concentration on one’s specialization – a division of labor.