Introduction
International logistics is a careful balancing act that balances between convenience and cost. Exporters seek to send their goods to places where they are bound to fetch a good price without inordinate costs that would then eat into the profit margins (Wisner, Tan & Leong, 2014). Even before creating a logistics plan, therefore, the selection of a region or country to export goods to is thus crucial. Once the country is selected, the next plan is to develop means of exportation that maximizes on the pros, for which the country was selected while still diminishing the cons pertaining to the selected country. An integral part of the logistics plan is the transportation plan, which relates to how to get goods from the manufacturer to the local distributors in the destination country. Based on the above, several bearing factors come into play when selecting a country to export to and also the transportation plan aspect of the logistics plan.
Key among the factors is the nature of goods to be transported and how bulky, brittle, and perishable they are (Wisner, Tan & Leong, 2014). Another issue is the distance to be traveled and cost per unit distance, including the different types of transport modes necessary. How and where the goods will be transported the moment they land in the destination nations is also an important bearing factor (Dwarakish & Salim, 2015). Further, there are secondary factors such as laws, rules, and regulations relating to the destination country. A good transportation plan seeks to balance between the nature of the goods being transported and the prerequisites of the transport system in order to arrive at a best case scenario from the perspective of cost and efficiency.
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New Export Country, Challenges and Advantages
After a careful consideration of all bearing factors, the most suitable export destination for International Logistics, Inc. (ILI) is Chile, a country along the Pacific Coast of South America. ILI deals in the manufacturing and distribution of high tech equipment and are based in the USA. Whereas a conglomerate like ILI might have manufacturing plants in different parts of the USA, the current hub for high tech manufacturing is the West Coast of the USA, along with the Pacific Ocean. The first primary advantage of Chile is that it lies along the Pacific coast. Further, even if manufacturing was to be spread to other hubs closer to the East Coast, ILI can still take advantage of the Panama Canal. The second advantage of Chile, therefore, is ease of access from both US coasts. The third advantage of Chile is that it is informally described as a strip of coastal land since every major city in Chile is reasonably close to the coast (Bensassi et al., 2015). Considering that high tech goods are both bulky and non-perishable, Chile is extremely suitable for marine transport.
Among the key disadvantages of Chile is the distance from the USA, since Chile is among the furthest countries from the USA within the Americas. Chile’s coastal convenience is also not lost to other companies, thus its harbors and ports are extremely busy and with relatively expensive amenities (Gitling & Fuentes, 2012). The disadvantage of distance is, however, countermanded by the advantage of convenience as outlined above. Further, Chile is a rapidly growing economy with a fledgling middle class, high purchase power, and a stable government making it a worthy market for high tech technology, a fact that also makes up for the long distance (Bensassi et al., 2015). The political stability also operates as a positive factor when it comes to laws, rules, and regulations (Gitling & Fuentes, 2012). The advantages of Chile as an export destination thus heavily outweigh the disadvantages.
Supply Chain Assessment
Executive Summary
This supply chain assessment evaluates all areas of the supply chain for ILI specifically to Chile. Among the important elements evaluated include the nature of products to be transported, the nature of the target market, and the kind of transport amenities to be utilized. The primary focus of the assessment will be to evaluate how to balance the prerequisites of the supply chain in order to maximize efficiency and profitability. With this being a novel logistics process geared towards a novel market, the assessment will be based on research, as opposed to the evaluation of an already existent supply chain systems.
Overview of the Product
With ILI being a high tech equipment conglomerate, the products to be exported will be a wide variety of goods which vary in size, nature, and volumes. High tech equipment ranges from minute products such as smartphones and their spare parts to massive equipment such as vehicles and heavy machinery. A particular prerequisite of the product that is fundamental to the supply chain is that the products are fragile, but not perishable. Due to the fragile nature, care and attention must be paid to avoid damage. Conversely, due to their non-perishable nature, proper planning can exponentially reduce transport and warehousing costs (Christopher, 2016). Finally, the products to be exported are manufactured and transported by ILI itself, a fact that gives t he company a high level of control over the supply chain systems. Control in supply chain systems is an important currency for cost-cutting .
Overview of the Market
Chile, the target market is on its way from being a developing economy into being a fully-fledged developed economy (Gitling & Fuentes, 2012). High tech equipment is an important building block for industrialization, a fact that exponentially improves the marketability of ILI products in Chile. The subject of marketability is important in supply chain management because of economies of scale. An export market that has a high demand means that goods can be transported in bulk without an inordinate need for high warehousing cost (Christopher, 2016). A sustained high market, combined with an effective manufacturing rate and flawless transportation can almost eliminate warehousing costs. In terms of market assessment, the remoteness of Chile becomes an advantage since it reduces competition both from the USA and other technology supplier countries such as China, Taiwan, and Japan. The nature of the market is thus a positive bearing factor.
Supply Chain Complexity
With supply chain management being a careful balancing act between cost and efficiency, complex supply chains complicate the balancing act to the detriment of the company (Wisner, Tan & Leong, 2014). In the instant scenario, the supply chain is relatively uncomplicated. ILI shall be dealing with goods that it manufactures internally, to a particular export market. The supply chain will include the three processes of establishing demand, creating products to meet the demand then transporting the product to the target destination. Transportation also eases the supply chain process due to the location of Chile. Goods can be moved directly from the nation of origin to the destination nation, without the need for expensive means of transport such as air (Christopher, 2016). The supply chain may not be easy, but it is simple, thus creating a high chance for the company to make the best of it in terms of profitability.
Processes and Systems
As reflected above, the supply chain will have three main processes, each having several systems. Establishing demand will be the most complex system since it also includes demand creating systems such as marketing. The potential market is available, but it needs to be converted into an actual market. Establishing the market is also an important element when it comes to stock since the market needs cannot be met immediately due to manufacturing and transportation aspects (Wisner, Tan & Leong, 2014). If demand is overestimated, there will be an oversupply, thus extra warehousing costs. If demand is underestimated, there will be a need for accelerated production and transport, which increases costs (Christopher, 2016). The second process is manufacturing to meet the market needs, a process which will be easier since it involves ILI’s areas of operation. The final process which may also be complicated is the logistics process.
Transportation Plan
Shipping Options
The shipping option segment of the transportation systems is among the key reasons why Chile as a country was selected in the first place. The USA has a massive coastline and an elaborate system of waterways that makes it accessible to both the Atlantic and Pacific oceans. Conversely, almost the whole of Chile is within proximity of the Pacific Ocean. Most of the main cities in Chile also happen to be along the coast from Arica in the north, to Santiago, the capital at the center, through to Punta Arenas in the South (Cascada Expediciones, 2018). Marine transport is thus the most suitable shipping option for ILI to get its products to Chile. Ships can access both the manufacturing and delivery points of the transport system. Further, small ships can bring the products together which would then be packed into larger ships for the long journey to Chile. The large ship can then dock at Santiago, the nation’s capital where the goods would be cleared. Smaller ships can then get the products to the various destinations up and down the expansive Chilean coast. To supplement marine transport, road transport can be used to get the products from the point of manufacture to the smaller ships, and also from the smaller ships in Chile to the warehouses.
Shipping Documents
An effective transportation plan seeks to save both time and money, hence the documentation aspect of a transportation part is as important as the actual transportation process. High tech equipment falls under a variety of control systems from the source, the destination, to the international sections in between the two (Christopher, 2016). The nature of documentation also varies exponentially depending on the particular products being transported. For example, equipment that can be used for communication only will need different documentation from equipment that can be used as weapons. Agricultural equipment will also need different documentation from transport-related gadgets. Some equipment also falls under international laws, treaties or embargos.
With documentation being extremely complicated yet critical, the best approach is to have specialized external experts handling the documents. The document experts will be working on the documentation-related process as the company works on bringing manufacturing and preparation of goods for transport. An important aspect of documentation in international transport is dealing with the respective customs departments of the two countries (Christopher, 2016). The external expert would be suitable for handling this aspect of documentation too.
Packing, Marking, and Labelling
The packing of goods for the international process is a critical element of the transportation plan and is also a careful balancing act between cost and efficacy (Christopher, 2016). Being too careful about packaging increases both the cost of packaging, the cost of transport, and the duration of logistics. Conversely, being too cavalier about packaging can damage the goods. Effective packing requires the best procedure process based on a comprehensive plan complete with basic rules and sequences. The plan should vary depending on goods with the sequences reducing the time it takes to pack each item. Since the mode of transport is marine, weight is not a primary consideration but making the packaging airtight and proofed from damage from impact is. The labeling and marking should also be elaborate and comprehensive including cautions, warnings, and directions (Christopher, 2016). It is important to note that the US is a mainly English speaking nation while Chile’s national language is Spanish, a fact that can create contradictions and misunderstanding. The labeling and marking should thus be based on Incoterms, the international language used in international shipping.
Transportation Insurance
Transport insurance is another critical part of the transport plan, which also includes a balance between cost and effectiveness. Paying too much for insurance will eat into the profits while compromising increases risk in the case of an accident or incident (Wisner, Tan & Leong, 2014). The best approach to marine insurance is to have a long-term relationship with an established insurer to ensure savings through economies of scale. To lower insurance costs, ILI should also ensure that all measures are put in place to reduce the risk of damage or theft of the goods while on transit.
Freight Forwarders
To succeed in international transport and logistics, there is the need for a level of expertise and experience that ILI cannot be able to garner within the period necessary to prepare for the Chile export project. Further, specialization is critical to success in entrepreneurship. ILI needs partners who are as good in transport as ILI is good in making high tech equipment. To cut costs, ILI can develop the infrastructure to transport its products from the warehouses to the waterways in America and also from the waterways in Chile to the warehouses. The most important part of the transport system is the approximately five thousand miles from either the east or west coats of the USA to Santiago. For this long-distance transportation, it would be necessary to contract a company that can be handling the bulk transportation for and on behalf of ILI.
Approach to Transport
With most of the modalities for transport already worked out, the final and fundamental element of the transportation plan is to determine how the goods will be transported. There are two primary ways that goods can be transported from the USA to Chile by boat. The first way is to hire ships and transport the goods by the shipload. The second way is to have the goods transported alongside other cargo in ships, managed by a specialized logistics company. As indicated above, the average distance from the USA to Chile by ship is slightly over five thousand miles. A large cargo ship can make the distance in about 7 days. According to the concept of economies of scale, the larger the ship, the less expensive transportation will be per unit luggage (Wisner, Tan & Leong, 2014). Larger ships carry approximately half a million tones load. To be able to have its goods transported solely by hired ships, ILI will either need to delay transport until half a million tones are attained, or increase warehousing to handle such a luggage as and when the ship disembarks. The most suitable option would be to have a partnership arrangement with a shipper so that ILI can only transport the amount of product needed from time to time, so as to minimize warehousing costs, without augmenting warehousing costs.
Recommendation for Implementing the Transportation Plan
The efficacy and effectiveness of the transport plan above are dependent on the dual factors of creating a vast market for ILI products in Chile and also having the market as stable and as predictable as possible. The transport plan above will be more effective and cheaper if ILI transports large amounts of cargo regularly and also if the company can be able to predict with a reasonable level of accuracy how much of each product is needed at different times. The first recommendation, therefore, combines both timely transportation and research and advertising (Christopher, 2016).
The second recommendation relates to the aspects of transport that ILI will be handling internally. Within the USA, ILI as a conglomerate already has an elaborate and comprehensive internal transportation and logistics systems. To save on costs, the transportation needs of the new Chile division can be worked into the already established transportation systems and processes. With proper management of records, the product needs for Chile can be handled and managed alongside the product for the local US market. It is noteworthy that there are more Spanish speakers in the USA than the entire population of Chile. Many of these Spanish speakers are situated in Coastal areas such as Florida and California, a fact that can ease management of the Chile product in the two coastal areas. Eliminating the needs to develop local transport infrastructure for the Chile venture will exponentially reduce costs for ILI (Christopher, 2016).
The third recommendation relates to establishing partnerships to effectuate the elements of the transportation plan that cannot be effectively handled by ILI. Among these elements include documentation, marine transport, custom and excise, and insurance. Seeking to have different partners handling the different elements of the transport plan will exponentially complicate the process (Wisner, Tan & Leong, 2014). It is worthy of notice that Chile was selected specifically because of the general simplicity of exporting bulk goods from the USA to Chile. Simplicity was also an important element in selecting the marine transport option. To avoid complicating the simple plan, ILI should establish and approach a singular entity that can handle the entire portfolio of the transportation plan that cannot be handled by ILI internally. Some companies such as the A.P. Moller–Maersk Group combine Marine transport services with those of logistics. Such a company can handle shipping, insurance, documentation, and excise all under one contract. Having a singular contract to handle all international affairs will save ILI both time and money.
Finally, ILI will need a local infrastructure within Chile that will handle marketing and sales. The company can extend the infrastructure used for sales and marketing so that it can also be used for inland transportation. When the external contractor has delivered the goods at the respective ports in Chile, they can then be taken over by ILI staff, using ILI infrastructure to get the goods to ILI warehouses. Further, ILI can effectively refine its supply chain management that goods can be moved from the shipping contractor directly to the customers thus reducing warehousing as much as possible and cutting more costs (Christopher, 2016). The close liaison should be maintained between the ILI component of the transport system and the external component to ensure that refined supply chain system operates efficiently, effectively, and flawlessly.
Conclusion
The supply chain assessment above presents a choice of an export choice for ILI, why the choice has been made, and finally how to make the choice work. The choice made for the expert expedition is the South American coastal nation of Chile. The nation of Chile stretches for hundreds of miles across the Pacific coast of South America with every corner of the country being relatively proximate to the coast. This proximity was an important bearing factor in the selection of Chile as a destination for ILI high tech equipment. However, ease of access was not the only consideration. Chile was also selected because it is in the process of transiting from a developing economy into a developed economy. The nation is thus in dire need of high tech equipment and has the will and pecuniary capacity to buy. Therefore, Chile will provide a large and steady market for ILI, which is a positive bearing factor for an efficient and effective transportation plan. Once the market for products is established, ILI will prepare the necessary products across the USA. The products will then have to be transported through internal processes to local waterways, through which they will be moved to US ports. From the ports, external contractors will handle both transport and logistics to Santiago in Chile in large ships. Smaller ships will then move the cleared goods up and down the Chilean coasts where they will be received by ILI transport teams to be moved to their respective eventual destinations. By keeping the process large, simple, and cheap, ILI’s profits will be augmented.
References
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Cascada Expediciones. (2018). Chile's most famous ports. Retrieved from https://www.cascada.travel/en/News/Chiles-Most-Famous-Ports
Christopher, M. (2016). Logistics & supply chain management . London: Pearson UK
Dwarakish, G. S., & Salim, A. M. (2015). Review on the role of ports in the development of a nation. Aquatic Procedia , 4 , 295-301
Gitlin, L. N., & Fuentes, P. (2012). The Republic of Chile: An upper middle-income country at the crossroads of economic development and aging. The Gerontologist , 52 (3), 297-305
Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: A balanced approach . Boston, Massachusetts: Cengage Learning
