BOP Business

To: Students
1. Must be punctual (15 minutes rule)
2. No telephone, drink & food during lecture
3. Do not leave class without permission!
Please go to toilet before the class starts.
No rule without exception!
Examination 60%
Class performance 20%
Class attendance 10%
Papers 10%
How to proceed this class ?
Reading assignment (text book)
More discussion
Questions and answers
Practical knowledge
Case studies
Attendance and participation to the class
– get high point
Topics 1 : BOP Business
World Population is around 7billion.
There are 4 billion people is on BOP
which is less than US$3000 a year.
Base of Pyramid Business
Current situation of BOP population
world population 7 billion
Annual income per
4 billion
Background 1
1) Saturated market of developed
2) Size of population and population
growth rate
3) Economic growth rate
4) Rate of younger generation
5) Aggressive acceptance of developed
technologies etc.
1) 1.6 billion 3rd world residents need
glasses, but less than 5% have.
2) Governments are preoccupied with
life threatening maladies and urban
optical shops are inclined to sell highend glasses.
The failure of both Government & Market
SCOJO New York
•+3.00 Reading Glasses
SCOJO is a famous reading glasses
company in USA which is selling very
fashionable & high-end reading glasses
US$ 42~US$112.
They started BOP business.
Cost (producing & delivery) =$1
Wholesale price
Retail price
= $3
Back Ground 2
1) In BOP, there are many types of
job, which can not be sufficiently
carried out if your sight is not
2) 1.6billion would need reading
Especially, 95% of 35~80 years old
population needs reading glasses.
Scheme Business
Local Entrepreneurs
Training of local entrepreneurs in BOP market
Before starting this class
Now we are in a global society – one
Economically and culturally, a world
become more smaller than ever by
media, IT (information technology)
and transportation.
WTO, ACEAN and FTA will integrate
each market into one world market –
no border.
Recent happenings
1. The growing power of retailers
2. Technological advance
3. Globalization of trade
= International Trade
WTO News Release
Following the record-breaking 14.5% surge in
the volume of exports in 2010 world trade
growth should settle to a more modest 6.5%
expansion in 2011.
this would be higher than the 6.0% average
yearly increase between 1990 and 2008.
Global supply chains cause goods to cross
national boundaries several times during the
production process, which raises measured
world trade flows compared to earlier decades.
Competition is not just in
domestic market but also,
in international market.
The Logistics & SCM is a
key for the success in
international trade.
This is the reason why we must study
“Supply Chain Management”
Topics 2 World Logistics
World Bank reported that
world rank of “logistics” which
is called
“Logistics Performance Index”
Germany, Singapore and Sweden
are the best 3. Japan is 7th , USA
15 , China 27 and Thai 35
among 155 countries.
WB said the credibility of
logistics would be more
important than price and cost in
international trade.
International LPI Ranking
1 Germany
2 Singapore
3 Sweden
4 Netherlands
5 Luxembourg
6 Switzerland
7 Japan
9 Belgium
10 Norway
11 Ireland
12 Finland
13 Hong Kong 3.88
14 Canada
15 USA
16 Denmark 3.85
17 France
18 Australia 3.84
19 Austria
20 Taiwan
21 New Zealand 3.65
22 Italy 3.64
23 Korea, Rep. 3.64
24 U A E 3.63
25 Spain 3.63
26 Czech Republic 3.51
27 China 3.49
28 South Africa 3.46
29 Malaysia
30 Poland 3.44
31 Israel 3.41
32 Bahrain 3.37
33 Lebanon 3.34
34 Portugal 3.34
35 Thailand 3.29
Thai LPI
35 Thailand
International shipments 3.27
Logistics competence 3.16
Tracking & tracing
International Logistics
(& Supply Chain)
Yoshio Maki, Visiting Professor
May 2012------September 2012
Part 1. Concept of Logistics
(& Supply Chain)
1) Logistics
2) Supply Chain Management
This is very difficult to teach
just Logistics.
1) What is Logistics?
① Origin
The word “Logistics” comes from the Greek
logistiki , meaning accounting and financial
organization. Logistics is considered to have
originated in the military‘s need to supply
themselves with arms, ammunition (powder,
shot, shrapnel, bullets, cartridges and primers
etc.) and rations (foods) as they moved from
their base to a forward position.
From Wikipedia
② Definition
by Council of Logistics Management
Logistics is that part of the supply
chain process that plans,
implements, and controls the
efficient, effective forward and
reverse flow and storage of
goods, services and relate
information between the point of
origin and the point of
consumption in order to meet the
customers’ requirements.
What is customer’s requirements?
needs & wants
Seller’s market Buyer’s market
After world war II, seller’s market
was created because of massproduction.
Products had to be marketed not
just produced and sold.
Mass Production
The first “modern” mass-production
system was Ford Type T assembly line
(conveyer belt) at Highland Park Factory
of Ford in 1914.
Many factories followed this system
and especially, during WWII, massproduction system was developed for
the armament industry in USA.
Needs are things people must have to
live—food, clothing, and shelter.
Wants are things people would like to
have but do not need in order to live.
Effective “marketing” converts needs to
2) Supply Chain
① Definition
A supply chain is all activities
associated with the flow and
transformation of goods from the raw
material through to end user as well as
the associated information flow.
Coordinating not only within
organizations but across organizations
as well.
Change to new ideas
1 NCPDM(The National Council of Physical
Distribution Management)was established
in 1963.
2 (NCPDM changed its name to CLM (Council
of Logistics Management) in 1985.
3 CLM changed its name to CSCMP(The
Council of Supply Chain Management
Professionals)in 2005.
SCM is wider concept than Logistics
Logistics is essentially a planning
orientation and framework that
seeks to create a single plan for
the flow of products and
information through a business.
On the other hand, SCM (Supply
Chain Management) builds upon
this frame work and seeks to
achieve linkage and co-ordination
between the processes of other
entities in the pipeline, i.e.
suppliers and customers and the
organization itself.
Thus, one goal of SCM might be
to reduce or eliminate the buffers
of inventory that exist between
organizations in a chain through
sharing information on demand
and current stock.
Supply Chain Chart
Parts supplier
End user
End user
Parts supplier
Maki Factory Warehouse
Parts supplier
End user
End user
End User
Bullwhip Effect
The term "bullwhip effect" refers to the
magnification of demand fluctuations as
orders move up the supply chain.
Improved forecasting techniques at any
one level in the supply chain cannot
eliminate the bullwhip effect and may
worsen it if used improperly.
Information flow and coordination of
orders across the supply chain offer the
only hope of taming the bullwhip effect.
Size of this preview: 800 × 600 pixels. Other resolutions: 320 × 240
Topics 3 Real Business
My Business 1
I am importing Bioniche IV Vitamin C around
170,000 vials a year.
①Cash discount
@€6.9 x 170,000 vials = € 1,173,000
€ 1,173,000 x 0.05 = € 58,650
=THB 2,316,000
②Currency exchange gain (profit)
JPY37 x € 1,173,000 = JPY43,401,000
=THB 17,360,000
I am selling this product to around 300 registered
Japanese medical doctors.
Yearly Sales
unit price JPY1,785 x 170,000 vials
€6.555 (CIF Tokyo) x 170,000 x JPY98
15%(import & delivery charge) + 5% tax=20%
109,000,000 x 1.2
= JPY 130,000,000
Gross profit (= Sales – Cost)
303,000,000 – 130,000,000
= JPY173,000,000=THB69,000,000
Business Chart
Money & Product Flow
(Hong Kong)
Maki Corp.
Part 2. Why Logistics & SCM ?
1) Economic impact of logistics
Logistics cost in GDP is increasing year
by year but logistics as a percentage of
GDP is decreasing year by year.
Logistics cost is around 10% of GDP and
one of the most important components
in a country’s economy. Logistics also,
play an important role in economic
growth and development.
2) Competitive Advantage
Logistics & SCM can provide a
major source of competitive
Successful companies either
have a cost advantage or they
have a value advantage, or
combination of two.
① Cost advantage
Not just, production cost by
economy of scale (achieving
bigger sales volume and/or
improving market share),
Logistics & SCM can provide a
multitude of ways to increase
efficiency and productivity and
hence contribute significantly
to reduced unit cost.
② Value advantage
Market have become more servicesensitive.
Not just a product itself but also
delivery service, after sales services,
financial packages, technical support
and etc.
Customers are looking for reduced lead
time, just-in-time delivery and valueadded services.
Logistics & SMC supports cost
reduction & service enhancement.
③ Customer satisfaction
Logistics Also Plays a Critical Role in
Customer Satisfaction.
Many services organizations make
the mistake of focusing the vast
majority of their customer service
and satisfaction activities on
external issues, often to the
exclusion of key internal issues such
as inventory management and
However, these key internal issues can
also play an important role in facilitating
desired levels of customer service and
A services organization should focus not
only externally, at its direct customer
interface and interaction, but also
internally, at its global inventory
management and logistics activities as
well - especially as they might impact a
multinational customer base.
3) The best example 1
Logistics started military supply system
and the supply chain idea started from
Toyota is one of the biggest and the
most profitable car manufacturers in
the world. Toyota “Kanban” and “ JIT
(Just in Time) system” is the one of
the best examples of Supply Chain.
Partnership with each company is
the key to success of the supply
They must disclose and share the
necessary information each other.
As a team, these companies to
save cost, time and energy to
achieve the target of the team.
What is Kan-ban?
More than 20 years ago, Kanban
System was developed , by Mr.
Taiichi Ohno, a vice president of
Kanban scheduling systems
operate like supermarkets. A small
stock of every item sits in a
dedicated location with a fixed
space allocation.
A Kan-ban (看板) is a card
containing all the information
required to be done on a product
at each stage along its path to
completion and which parts are
needed at subsequent processes.
Customers come to the store
and visually select items. An
electronic signal goes to the
supermarket's regional
warehouse detailing which items
have sold. The warehouse
prepares a daily replenishment
of the exact items sold.
These cards are used to control
work-in-progress , production, and
inventory flow. A Kan-ban System
allows a company to use Just-InTime (J.I.T) Production and Ordering
Systems that allow them to
minimize their inventories while still
satisfying customer demands.
A Kan-ban System consists of a
set of these cards, with one
being allocated for each part
being manufactured, that travel
between preceding and
subsequent processes
The Best Example 2
One of the most advanced products
distribution system in retail industry
is 7-Eleven.
We will study this company as a
special study later.
4) Logistics & SCM contributes to
an Economic Utility
An economic utility is the satisfaction
that a consumer receives by deciding to
purchase a particular good or service
from a specific manufacturer or
The actual amount of satisfaction that is
achieved can be compared to the
ability of similar goods or services to
provide a similar level of satisfaction or
possible provide even greater benefits
① Possession utility
Additional consumer value
created by transferring a
product's ownership
② Form utility
The value given to a product by
virtue of the fact that the
materials and components which
comprise it have been combined
to make the finished product.
③Place utility
The value given to a product
by virtue of the fact that it is
where it is wanted.
④ Time utility
Enhancing a product's
marketability by making it
available at a convenient time.
5) Logistics activity
① (Raw) Material Management
Raw materials, component parts etc.
brought from outside organizations
(70% of defects from non-quality
materials from outside
Just for your reference
This is a presentation material
for Pharmaceutical industries in
India but very common for any
Sr.D.M.O (Selection Grade Officer) (on study leave),
B.Sc., M.B.B.S., D.P.H (Madras medical college, Recognized by MCI)., D.I.H.,
PGCH&FW (NIHFW, New Delhi)
III rd year Post graduate student in M.D Community medicine
Department of Community medicine
Sree Ramachandra Medical College,
It is concerned with planning,
organizing and controlling the flow of
materials from their initial purchase
through internal operations to the
service point through distribution.
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
•To gain economy in purchasing
•To satisfy the demand during period of
•To carry reserve stock to avoid stock out
•To stabilize fluctuations in consumption
•To provide reasonable level of client services
Objective of material management
•Right price
•High turnover
•Low procurement
•& storage cost
•Continuity of supply
•Consistency in quality
•Good supplier
•Development of
•Good information
•Product improvement
•Make or buy decision
•New materials &
•Favorable reciprocal
Economy in material management
•Containing the costs
•Instilling efficiency in all activities
Four basic needs of Material management
1.To have adequate materials on hand
when needed
2.To pay the lowest possible prices,
consistent with quality and value
requirement for purchases materials
3.To minimize the inventory investment
4.To operate efficiently
Basic principles of material management
1. Effective management & supervision
It depends on managerial functions of
• Planning
• Organizing
• Staffing
• Directing
• Controlling
• Reporting
• Budgeting
2. Sound purchasing methods
3.Skillful & hard poised negotiations
4.Effective purchase system
5.Should be simple
6.Must not increase other costs
7.Simple inventory control program
Elements of material management
1.Demand estimation
2.Identify the needed items
3.Calculate from the trends in Consumption
during last 2 years.
4.Review with resource constraints
Functional areas of material management
1. Purchasing
2. Central service supply
3. Central stores
4. The print shops
5. The pharmacy
6. Dietary
& Linen services
Procurement cycle
• Review selection
• Determine needed quantities
• Reconcile needs & funds
• Choose procurement method
• Select suppliers
• Specify contract terms
• Monitor order status
• Receipt & inspection
Objectives of procurement system
•Acquire needed supplies as inexpensively as
•Obtain high quality supplies
•Assure prompt & dependable delivery
•Distribute the procurement workload to avoid
period of idleness & overwork
•Optimize inventory management through
scientific procurement procedures
Inventory control
It means stocking adequate
number and kind of stores, so that
the materials are available
whenever required and wherever
required. Scientific inventory
control results in optimal balance
Functions of inventory control
•To provide maximum supply
service, consistent with maximum
efficiency & optimum investment.
•To provide cushion between
forecasted & actual demand for a
Economic order of quantity
EOQ = Average Monthly Consumption X Lead Time [in months] + Buffer Stock – Stock on hand
•Re-order level: stock level at
which fresh order is placed.
•Average consumption per day x
lead time + buffer stock
•Lead time: Duration time between
placing an order & receipt of
•Ideal – 2 to 6 weeks.
(ABC = Always Better Control)
This is based on cost criteria.
It helps to exercise selective control when confronted
with large number of items it rationalizes the number
of orders, number of items & reduce the inventory.
About 10 % of materials consume 70 % of resources
About 20 % of materials consume 20 % of resources
About 70 % of materials consume 10 % of resources
Small in number, but consume large
amount of resources
Must have:
•Tight control
•Rigid estimate of requirements
•Strict & closer watch
•Low safety stocks
•Managed by top management
Must have:
•Moderate control
•Purchase based on rigid
•Reasonably strict watch & control
•Moderate safety stocks
•Managed by middle level
Larger in number, but consume lesser
amount of resources
Must have:
•Ordinary control measures
•Purchase based on usage estimates
•High safety stocks
ABC analysis does not stress on items
those are less costly but may be vital
Material management is an important management tool
which will be very useful in getting the right quality &
right quantity of supplies at right time, having good
inventory control & adopting sound methods of
condemnation & disposal will improve the efficiency of
the organization & also make the working atmosphere
healthy any type of organization, whether it is Private,
Government ,Small organization, Big organization and
Even a common man must know the basics of material
management so that he can get the best of the available
resources and make it a habit to adopt the principles of
material management in all our daily activities
② Order processing
Between the time a customer
places an order and the time it is
received and paid by the customer.
Operational elements
Communication elements
Credit & payment elements
③ Packaging
Consumer packaging and Industrial
packaging. Industrial packaging is
protective packaging that prepare a
products for storage and transit.
④ Transportation
The actual physical movement of
goods from one place to another.
⑤ Inventory
Stock of goods that are maintained
for a variety of purposes such as
for resale to others as well as
support manufacturing. (mass
production-too much products-too
much inventory)
⑥ Warehousing
Places where inventory can be
stored for a particular period of
⑦ Material handling
Short distance movement of
products within factory,
⑧ Customer service
Keeping existing customers happy
Five Rights
Right products
Right place
Right time
Right condition
Right cost
6) Factors driving logistics improvement
① Globalization of the economy &
② Government deregulation
③ Transportation technology change
④ Information technology change
7) Other activities
a. Demand forecasting
b. Parts & service support
c. Reverse Logistics
d. Communication -Bullwhip effect
Reverse Logistics
We refer to the term "reverse logistics"
as all activity associated with a
product/service after the point of sale,
the ultimate goal to optimize or make
more efficient aftermarket activity, thus
saving money and environmental
Forward Logistics (SC) vs. Reverse
Logistics (SC)
Supply Chain vs. AfterMarket SC
RMA management
In recovering value from scrap materials received
through the product returns, reverse logistics
function helps identify hidden value through our
return materials warranty evaluation process.
During the return material authorization (RMA)
management screening process, each component is
tested and inspected to identify materials that
currently fall under manufacturer warranty for
credit recovery
1. Please define Supply Chain and
Logistics respectively by yourself.
2. Why logistics can be such an important
component in country’s economy?
3. How does Logistics contribute to time
and place utility?
4. Explain the significance of the fact that
the purpose of logistics is to meet
customer requirements.
Topics 4 Franchise ranking
Top 100 Global Franchises Rankings
7 Eleven
Burger King
Pizza Hut
Wyndham Hotel Group
Ace Hardware Corporation
Dunkin' Donuts
Sandwich & Bagel Franchises
Fast Food Franchises
Chicken Franchises
Convenience Store Franchises
Fast Food Franchises
Pizza Franchises
Hotel Franchises
Home Improvement Retail Franchises
Bakery & Donut Franchises
Car Rental & Dealer Franchises
Number of Franchising stores
46,004 stores
KFC begins franchising in 1952 and would be
the first franchising company in the world
Part 3. Mode of Transport
Transportation services has changed
dramatically during the last 20 years.
Freight rates were relatively fixed by
Government regulations until early 1980s.
There were was very little differentiation
among suppliers of transportation in
terms of either quality or price.
Deregulation allowed pricing flexibility for
carries and also significantly reduced
restrictions on transportation services and
Today, a wider range of transportation
alternatives exists for product or raw
material movement than ever before.
For example, a firm may consider for
hire-transportation, private
transportation or variety of contractual
arrangement with different transport
1) Principles
There are two principles guiding
transportation management and operations.
① Economy of scale
Transportation cost per unit of weight
decreases when the size of the shipment
② Economy of distance
Transportation cost per unit of distance
decreases as distance increases.
2) Transport Functionality
Transportation functionality provides two
major functions : Movement & Storage
① Product movement
Since transportation utilizes temporal,
financial and environmental resources,
it is important that items be moved
only when it enhances product value.
② Product storage
Although the major objective of transportation
is to move product from an original location to
a prescribed destination, there is a less
common function: storage.
Product storage in transportation can be costly.
However, it may be justified from a total cost
or performance perspective when loading &
unloading costs, or the ability to extend lead
times are considered.
3) Shipper, Carrier & Consignee
The shipper and the consignee have the
common objective of moving goods from
origin to destination with in a prescribed time
at the lowest cost.
Today, wide range of transportation
alternatives exist for product movement.
Carriers and shippers have the flexibility to
negotiate responsibility and cost for all
transportation services.
Shipping Chart
ETD June 10
ETA June 16
4) Five Modes of Transports
① Motor Carriers
② Railroads
③ Air Carriers
④ Water Carriers
⑤ Pipelines
mode of transport
⑥ Electronic Transport
This is the fastest and the newest
mode of transport.
flexible and cost efficient
be used only for data, music, pictures,
book, electric energy
① Motor Carriers
Highway transportation has expanded rapidly
since the end of WWII.
Motor carriers have flexibility because they
are able to operate on all types of roadway.
Motor carries favor manufacturing and
distributive trades, short distance, high value
Compared to railroads, motor carriers have
relatively small fixed investments in terminal
facilities and basically maintenance of roads
and highways are operated publicly.
Advantage of Motor Carriers
1. Speed
2. Door to Door Service
3. Extensive Road Network
4. High Competition
5. Low Damage
Disadvantage of Motor Carriers
1. High Cost
2. Low Capacity
3. Weather Sensitive
② Railroads
Railroads have handle the largest
number of cargos in USA before WWII.
Japan and European counties had the
same tendency.
However, railroad share of revenues and
ton-miles is declining because of the
extensive development of roads and
highways for motor carriers.
The Union Pacific in USA is using new
information technology and improves their
service to customers, and started intermodal
service with truckload carriers.
Thai railroad is operated by The State Railway
of Thailand. Because of development of Bus
transportation which is more economical and
punctual operation than railroad, railroad
transportation is not so popular in Thailand.
In December 2010, following Chinese plans to
extend their (standard gauge) network to
Xishuangbanna(西双版納)on the China-Laos
border and further into Laos, the Thai
government agreed to start negotiations on
building a standard-gauge network.
This would initially involve two lines: from
Bangkok to the Lao border, and a longer line
from Bangkok along the peninsula to the
Malay border.
Topics 5 Standard gauge
Rail gauge is the distance between
the inner sides of the heads of the
two load bearing rails that make up a
single railway line. Sixty percent of
the world's railways use a standard
gauge of 4 ft 8½ in (1,435 mm).
Traces the origin of the 4 ft 8½ in
gauge even further back than the
coalfields of northern England,
pointing to the evidence of rutted
roads marked by chariot wheels
dating from the Roman Empire.
We can see the evidence of
1435mm chariot wheel marked
roads at Pompeii and Ercolano, Italy.
City of Pompeii
The city of Pompeii is a partially
buried Roman town-city near
modern Naples in the Italy . Along
with Herculaneum, Pompeii was
partially destroyed and buried under
4 to 6 m (13 to 20 ft) of ash and
pumice in the eruption of Mount
Vesuvius in AD 79.
Advantage of Railroads
1. Capacity
2. Capability
3. Low cost
4. Reliability & Safety
Disadvantage of Railroads
1. Low Accessibility
2. Few Operators
3. Limited Network
4. Long Transit Time
5. Double Handling
③ Air Carriers
A very new mode of transport is
airfreight. The first consignment of
cargo carried by air was transported
between London and Paris in 1924.
Since this first cargo, flight the carrying
capacity and efficiency of aircraft has
developed and increased dramatically.
The movement of cargo by air is a highly
specialized business, which is, in many
respects, very different from moving
cargo by sea or overland
. It is subject to restrictions that arise
from the nature of the aircraft itself.
Its significant advantages lies in the
speed, and the biggest disadvantage
is the high cost.
However, this can be traded off for
high speed which allows other
elements of logistical design such as
warehousing and inventory.
• Two major changes have taken place over
recent years in many manufacturing industries
and it is due to these changes that air freight
is becoming a popular choice for transporting
products internationally. The reason for this
increase is:
• The growing volume of technology-based
products, these products are becoming lighter
and smaller while their value is becoming
greater justifying the expense of air freight
The second is the rapidly increasing
trend in many industries towards "justin-time" (JIT) inventories JIT is most
effective where the goods in question
can be moved by air. The benefits of JIT
ordering are:
–A substantial reduction in capital
–A substantial reduction in
Advantage of Air Carriers
1. Speed
2. Low Inventory Cost
3. Reliable Service
4. Low Damage
5. High Frequency
Disadvantage of Air Carriers
1. High Cost
2. Limited Accessibility
3. Weather Sensitive
④ Pipeline
Pipelines are significant part of the
US transportation system.
In addition to petroleum, natural gas,
manufacturing chemicals, cement,
flour and water. Pipelines operate on
24 hours ,7days a week.
Pipelines are the highest fixed cost
and lowest variable cost.
Advantage of Pipe line
1. 24 HR operation
2. Low variable cost
Disadvantage of Pipe line
1. Low Accessibility
2. Few Operators
3. Limited Network
4. Highest fixed cost
Special Notice Internship To Japan
1) One month March or April 2013
2) At Maki Corporation Tokyo, Japan
3) Student
Airfare B30,000 & Meal B30,000
4) Company
Hotel & commuter fee
5) Hopefully 2 boys or 2 girls
Maximum 2 boys & 2 girls
6) Application dead line is July 17, 2012
VISA to Japan could get in Khon Kaen???
Maybe, I could arrange internship in China or
Hong Kong? No commitment!
Topics 6 Smart TV
Like a smart phone, the smart TV is
developing very much especially by Samsung
and LG, Korean manufacturer. Sony
introduced “Internet TV”.
However, Samsung Smart TV would be much
better than Sony, Panasonic, Toshiba and
Accessing Apps, Signature Services and browsing
are easy.
Voice and gesture controls, face recognition, the
Smart Touch Remote Control and the Smart View
Mobile App, all provide unique ways to interact
with your TV.
Gesture control
Voice control
Wifi installed
SKYPE camera installed
Dual core processor
Topics 7
Fortune Global 500 companies
132 companies
Germany 32
Thailand 1
Top 10
Revenues ($ millions)
Royal Dutch Shell
Exxon Mobil
WalMart Stores
Sinopec Group
China National Petroleum 352,338
State Grid
Toyota Motor
Air vs Ocean
Maki told that 99.7% of international trade
used ocean transportation in Japan.
Mr. Doi of Mitsui OSK told that 99.5% of
international trade between North America
and Japan used ocean transportation in terms
of volume base.
How about percentage of ocean
transportation usage for International trade in
the world?
Transportation Modal Shares of
World Trade
1. By volume (millions of metric tons)
2. By value (billions of dollars)
Overland/Other 14.32%
⑤ Water Carriers
Water is the oldest and the most
important mode of transportation.
The original sailing vessels were replaced
by steamboats in early 1800s and by
diesel power in 1920s.
The main advantage of water
transportation is the capacity to move
extremely large shipments. The main
disadvantage of water transport are the
limited range of operation and speed.
Advantage of Water Carriers
1. Huge Capacity
2. Low Cost
3. Safe
4. Pollution
Disadvantage of Water Carriers
1. Slow
2. Limited Accessibility
3. Weather Sensitivity
4. Low frequency
5) Types of Containers
① Dry storage container
The most commonly used
shipping containers;
they come in various
dimensions standardized by ISO.
They are used for shipping of dry
materials and come in size of 20ft, 40
ft and 10ft.
40" Dry Freight Container (L 40' x W 8' x H 9,6')
Interior Dimension
Door Opening
Tare Weight
Cubic Capacity
Pay Load
L 12,052m x
W 2,352m x H 2,390m
W 2,340m x H 2,280m
8.265 lbs – 3.750 kg
2,390 cuft – 67,7 cbm
63.385 lbs – 28.750 kg
20" Dry Freight Container (L 20' x W 8' x H 8,6')
Interior Dimension
L 5,898m x
W 2,352m x H 2,393m
Door Opening
W 2,340m x H 2,280m
Tare Weight
5.070 lbs – 2.300 kg
Cubic Capacity
1,172 cuft – 33,2 cbm
Pay Load
62.130 lbs – 28.180 kg
40" High Cube Dry Container (L 40' x W 8' x H 9,6')
Interior Dimension
L 12,032m x
W 2,352m x H 2,698m
Door Opening
W 2,340m x H 2,585m
Tare Weight
8.605 lbs – 3.940 kg
Cubic Capacity
3.045 cuft - 86 cbm
Pay Load
61.025 lbs - 27.860 kg
45" High Cube Dry Container (L 45' x W 8' x H 9,6')
Interior Dimension
L 13,556m x
W 2,352m x H 2,698m
Door Opening
W 2,340m x H 2,585m
Tare Weight
10.625 lbs - 4.820 kg
Cubic Capacity
3,045 cuft - 86 cbm
Pay Load
61.025 lbs - 27.960 kg
② Flat rack container
With collapsible sides, these are like simple
storage shipping containers where the sides can
be folded so as to make a flat rack for shipping
of wide variety of goods.
③ Open top container
With a convertible top that can be completely
removed to make an open top so that
materials of any height can be shipped easily.
④ Tunnel container
Container storage units provided with
doors on both ends of the container,
they are extremely helpful in quick
loading and unloading of materials.
⑤ Refrigerated ISO containers
These are temperature regulated shipping containers
that always have a carefully controlled low temperature.
They are exclusively used for shipment of perishable
substances like fruits and vegetables over long distances.
⑥ Car carriers
Car carriers are container
storage units made especially
for shipment of cars over long distances.
They come with collapsible sides that
help a car fit snugly inside the containers
without the risk of being damaged or
moving from the spot.
⑦ Tanks
Container storage units used mostly
for transportation of liquid materials, they are
used by a huge proportion of entire shipping
industry. They are mostly made of strong steel
or other anti corrosive materials providing
them with long life and protection to the
Topics 8
Another use of containers
6) Containerization
History of Containerization
Modern container shipping celebrated its
50th anniversary in 2006. Almost from
the first voyage, use of this method of
transport for goods grew steadily and in
just five decades, containerships would
carry about 60% of the value of goods
shipped via sea.
The idea of using some type of shipping
container was not completely new.
In 1955, Malcom P. McLean, a trucking
entrepreneur from North Carolina, USA,
bought a steamship company with the idea
of transporting entire truck trailers with their
cargo still inside. He realized it would be
much simpler and quicker to have one
container that could be lifted from a vehicle
directly on to a ship without first having to
unload its contents.
His ideas were based on the theory
that efficiency could be vastly
improved through a system of
"intermodalism", in which the same
container, with the same cargo, can
be transported with minimum
interruption via different transport
modes during its journey. Containers
could be moved seamlessly between
ships, trucks and trains
This would simplify the whole logistical
process and, eventually, implementing
this idea led to a revolution in cargo
transportation and international trade
over the next 50 years.
Containerization is contributing greatly
to international transportation and
international trade.
Intermodal Transport
Intermodal Transport is using more
than two modes of transportation
(rail, ship, air and truck), without any
handling of the freight itself when
changing modes.
The method reduces cargo handling,
and so improves security, reduces
damages and loss, and allows freight
to be transported faster.
Two modes of transport
1. Sea-Rail Link
2. Sea-Road Link
3. Sea-Air Link
Multi- Modes
1. Road –Sea –Air Links
2. Rail-Sea-Road Links
3. Air-Sea-Rail Links
International Multimodal Transport
International Multimodal Transport
is operated by one carrier using more
than two modes of transportation.
Operator issues one single transport
document to cover more than two
modes of transportation and take a
responsibility for all modes of
Thailand has Multimodal Transport Act 2005 .
Thailand manufacturers can send their
products from Bangkok to Seattle by
Sea and then send them to Chicago by
International Multimodal transport
operator issues one bill of lading to
cover Bangkok to Chicago.
1. Describe the five modes of
transportation. (Also, 6th mode)
2. What is the most advantage and
disadvantage of each mode of
3. What is intermodal transportation?
4. Why is Motor Carrier Freight
Transportation the most preferred
method of product shipment?
8) Evaluating the suitability
of transport modes
The exporter & importer involves the
process of deciding which is the most
ideal mode(s) of transport.
The ultimate selection can vary
seasonally and by quantity. Some
services vary considerably from summer
to winter due to market demand and
climate conditions.
Moreover, the dispatch of a small
quantity, urgently required may
be ideal for airfreight, but a larger
consignment, needed less
urgently for later dispatch may be
suitable for a deep-sea container
and LCL schedule under
consolidation arrangements.
FCL = Full Container Load
FCL is the abbreviation for a “Full Container
Load” used in the International shipping
Industry for Exporting and Importing sea
freight cargo. This term is commonly used to
describe an international sea freight service
that is designed for ocean freight shipments of
cargo where an exporter or importer has
exclusive use of a dedicated sea freight
container (normally a 20ft or 40ft container).
LCL = Less than Container Load
When you don’t have enough cargo
for a full container (FCL), you need
LCL (less than container load)
service. This is a sea freight service
which groups a number of
customers shipments together into
a container load and gets your
shipment moving without delay.
TEU=twenty-foot equivalent unit
Standard unit for describing a
ship's cargo carrying capacity, or a
shipping terminal's cargo handling
capacity. A standard forty-foot
(40x8x8 feet) container equals two
TEUs (each 20 x 8 x 8 feet).
Container ship
The biggest container ship
2006 Emma Mærsk
397.7 m/1,305 ft 56.4 m/185 ft
Maersk Line/Denmark
The first container ship
The world's first purpose-built
container ship was the Clifford J.
Rodgers, built in Montreal in 1955
and owned by the White Pass and
Yukon Route. Its first trip carried 600
containers between North Vancouver,
British Columbia and Skagway, Alaska,
on November 26
The Clifford J. Rodgers
Part 4. Freight
Freight is the reward payable to the
carrier for the carriage of goods.
Now, International Transportation is
one of the most important factors in
In many cases, we must get raw
materials, parts, finished goods from
foreign countries. There are several
mode of transports like as vessels, air,
tracks, railroads, pipelines and a
combination of these modes of
1) Basic idea of freight
The most basic is the decision of what
kind of transport to use: air freight or
ocean freight. Whether you’re a
business that will be shipping overseas
all the time or an individual moving to
a new country, deciding whether to go
with ocean freight or air freight is an
important choice. There are four key
factors you should consider when
making this decision.
① Cost
Airlines bill you by what is called a
chargeable weight. Chargeable weight is
calculated from a combination of the
weight and size of a shipment. Sea
carriers charge per container rates for
shipping in standard containers (20’ and
40’ being the most common sizes).
While weight can factor into the price
from sea carriers, their charge tends to
be based more on the size of a shipment.
If you are shipping less than a
container load, your price is often
determined by cubic meter. With
larger and heavier shipments, it is
often much cheaper to ship by sea.
As a shipment gets smaller, the
margin between the prices gets
smaller and sometimes air will even
end up less expensive.
② Speed
When it comes to speed, there is no
question that air freight is usually much faster.
Since time is money, this factor could more
than make up for a higher cost of flying cargo.
Many sea shipments can take around a
month to arrive while an air shipment takes a
day or two. For most business shipping,
faster is better.
When it comes to the individual
moving a household, it is often good
to have the extra time to prepare
for the arrival of household goods in
a new country. It should be noted
that technology keeps moving
forward in the international
shipping world.
③ Reliability
Air freight shipping has a much, much shorter
history than ocean freight shipping, yet air
freight tends to win the battle of reliability.
Flights get delayed by weather and other factors,
but airlines tend to be very on top of their
schedules. Ocean carriers are notorious for
being bad about this. It is not uncommon for
ships to be off schedule. For many, a day or two
here or there doesn’t hurt; however, for many
businesses, a day or two could have serious cost
With airlines, there are usually
daily flights back and forth between
major cities around the world.
Because of this, missing a flight
doesn’t cause much of a delay for a
cargo shipment. Ocean lines tend to
have weekly schedules. Missing the
cutoff at a seaport means a longer
④ Environmental Impact
While the social awareness of environmental
issues can change the way the public looks at
a company and affect its bottom line, we all
have a responsibility of taking care of the
planet on which we live. It would seem that
ocean freight wins this category. CO2
emissions are much higher in air freight
transport than ocean freight transport.
This causes cargo shipping by air to
have a much larger carbon
fingerprint than cargo shipping by
sea. However, considering oil spills
and the water ecosystems affected
by ocean freight, gives pause.
Perhaps the jury is still out on this
final factor.
Reducing Air Pollution from International
Because of their reliance on petroleum-based
fuels and their dramatic growth rates in recent
decades, air and sea transport are
responsible for significant emissions of both
traditional (criteria) air pollutants (e.g. sulfur
oxides (SOx), nitrogen oxides (NOx)) and
greenhouse gases (e.g. carbon dioxide (CO2)).
International seaborne and airborne
transportation are estimated to
produce perhaps more than 7% of
total global CO2 emissions from the
combustion of fossil fuels at present.
But compared to other transport
modes, these have few options for
transitioning to other fuels in the
near- to medium-term.
Topics 9 CNGV
CNGV is an alternative fuel vehicle that uses
compressed natural gas (CNG) as a clean
alternative to other fossil fuels. Worldwide,
there were 14.8 million CNGV by 2011.
Compressed Natural Gas Car in Thailand is
quite popular now.
1. Clean energy and cost efficient
2. Thailand found a source of natural gas in the
Gulf of Thailand in 1981. It allows the country
to depend on domestic energy sources.
Benefits of NGVs
85-99% Methane
Clean burning
Exhaust emissions from NGVs are much lower
than those from equivalent gasoline-powered
Reduced greenhouse gas emissions
Noise reductions
Lower cost
By Paweenuch Chainuwat Email: [email protected]
2) Factors determining Freight Rate
The pricing of air and sea
transport services, usually in
combination with land transport
services, is dependent on the
forces of supply and demand.
① Nature/ Value of commodity
Ex. Dangerous Goods
Class 1: Explosives
Class 2: Gases
Class 3: Flammable Liquids
Class 4: Flammable Solids
Class 5: Oxidizing Substances &
Organic Peroxides
Class 6: Toxic and Infectious
Class 7: Radioactive Material
Class 8: Corrosive Substances
Class 9: Miscellaneous Dangerous
Substances & Articles
Ad Valorem (“at value”)
An ad valorem freight rate (Ex. 3~5% of
cargo value) is one where the freight is
based on the value of the goods. An ad
valorem bill of lading is one where the
value of the goods is shown on the face
of the document, which value then
becomes the carrier’s limit of liability, in
return for this increased liability the
carrier will charge an addition to the sea
②. The origin & destination
of commodity
③. The nature of packaging
& convenience of handling
④. The load-ability of transport unit
⑤. The susceptibility of the cargo
to damage & pilferage
⑥.The need heavy lift, strong room,
live stock facilities, etc.
⑦. The mode of transport
3) Ocean Freight Rate
① Freight Pricing ---- Base rate
Base rate + Surcharges
More than 20 years ago, each
freight conference has a published
class rate, commodity rate etc. They
are very strict and must use their
published rate if we use the first
class carriers. (There are no
conference vessels also.)
Because of deregulation in USA in
1984 and 1998 , conferences are very
weak, they do not publish tariffs. Each
ship company negotiates with each
customer who wants to use a vessel for
transport. Base rate is negotiable.
Big companies like Sony are
doing a bid every year for
their transport of goods for
several thousand of containers.
For LCL customers, shipowner company do not collect
cargos from customers.
Freight forwarder is doing
this business on behalf of
Minimum freight rate
$125 per CBM / $125 minimum charge.
It is often less expensive to dispatch small
consignments by air than by sea.
Cubic Meter
A cubic meter is something 1 meter long by 1
meter wide by 1 meter high
1m x 1m x 1m = 1 CUBIC METER
Technically cubic meter could be any
combination of lengths as long as all three
dimensions multiplied together equals 1.
0.5m x 0.5m x 4m = 1 CUBIC METER
Revenue ton
For calculation of freight
If cargo is rated as weight or measure,
whichever produces the highest revenue will
be considered the revenue ton. Weights are
based on metric ton and measures are based
on cubic meter.
Ocean shipment 1M3 = 1,000kgs
Air shipment 1kg = 6,000CM3
② Fees and surcharge
B/L Charge
Minimum Bill of Lading Charges:
Ex. Less Than Container Load Cargo: US$ 100
Full Container Load Cargo :
General Dry Cargo US$ 350
Refrigerated Cargo US$ 500
Hazardous Cargo US$ 500
All Other Cargo US$ 350
b) Freight surcharge
Freight surcharge is other than freight base
rate like as BAF & CAF.
Currency Adjustment Factor (CAF)
This arises when freight rate is related to
floating currency such as YEN.
YEN Appreciation Surcharge=YAS
If the rate were based on US dollar, then
Japanese yen rate of exchange in June 2012
would go up or down, CAF ( Currency
surcharge) is imposed to minimize loss of ship
Bunker Adjustment Factor (BAF)
Fuel cost is a substantial proportion of direct
voyage cost. Ship-owners are not prepared
absorb the variation in fuel prices.
If fuel prices increase, ship-owners impose
BAF (Bunker surcharge)
Ocean Freight Rate
In case of LCL Cargo
BAF : US$8.00/RTN
Less than 3RTN
0 - 1 RTN : US$ 20/BL
1 - 2 RTN : US$ 15/BL
2 - 3 RTN : US$ 10/BL
4-10RTN : US$8/BL
Please calculate the freight charge for the
following cargo.
1) Furniture
3 cubic meter
2) Material handling machine
5 cubic meter
4) Air freight
Airline freight rates are based on a
"chargeable weight", because the
volume or weight that can be loaded
into an aircraft is limited.
The chargeable weight of a shipment will
be either the "actual gross mass" or the
"volumetric weight", whichever is the
Airfreight calculation
Chargeable weight x Freight rate
Fuel Surcharge (& Other surcharge)
Air shipment
1kg = 6,000CM ³
Weight:8kgs < Volume weight:10kgs
30cm X 40cm X 50cm÷6,000=10kgs
→ Chargeable weight is 10kgs
Fuel surcharge
Thailand All Destinations (except where
indicated below)
39.00 THB / CW
Thailand Asia (except Southwest Pacific)
20.00 THB /CW
Thailand Latin America 80.37 THB/CW
Thailand Mexico
65.03 THB/CW
I will accept all 5 students to go to Tokyo
to study at my office for one month
between March-April 2013.
China/Hong Kong
Maybe I could ask 3 students to go to
Guangzhou, Shenzhen, Shanghai or Hong
Kong for one month between MarchApril 2013 , but not confirmed yet.
What is a warehouse?
A warehouse is a commercial building
for storage of goods. Warehouses are
used by manufacturers, exporters,
wholesalers, retailers, transport
businesses, customs (exporters,
Importers), etc.
They are usually large plain buildings,
equipped with loading docks to load
and unload consignment from trucks.
In simple words, warehouse is a
facility where the supply chain holds
or stores goods, until they are
needed by the customers.
Warehouse can be owned by
manufactures, wholesalers, retailers
to store the goods.
Many years ago, individual
households functioned as selfsufficient economic units.
Consumers performed storage
and accepted the attendant risks.
Meats were kept in
smokehouses, and perishable
products were protected in
underground food cellars.
Transportation capability developed,
it become possible to engage in
economic specialization.
Product storage was shifted from
households to retailers, wholesalers,
and manufacturers
The warehouse initially viewed
as a storage facility.
Now we have a public
warehouse as a business to store
the goods for customers.
Part 5
Management of Warehouse
A warehouse is a typically
viewed as a place to store
inventory. This perspective of
storage created a tendency to
consider warehouse as “a
necessary evil” that added costs
to the distribution process.
Companies seeking to operate
effectively between points of
procurement, manufacturing and
consumption gave little attention to
internal warehouse operations.
However, changing requirement of the
retail environment more than offset any
reductions in warehousing gained
through manufacturing improvements.
1) Warehousing Functions
A warehouse was a place to
store inventory, however,
now it is a very important
to understand as a
switching facility in a
logistics system.
Toys and Christmas cakes are
seasonable products and sell in a
very short period.
But manufacturing them all year
② Interface
Warehouse is a point of
interconnection between parts
suppliers and factory or
between factories and
Consolidation, Break Bulk and
A warehouse receives and
consolidates products from a
number of manufacturing plants
destined to a specific customer
on a single transportation
Coca Cola
Tipco F & B
Consolidation Warehouse
Break bulk
A break bulk operation
receives combined customer
orders from manufacturers
and ships them to individual
Break bulk
Break bulk
The term cross docking refers to
moving product from a
manufacturing plant and delivers
it directly to the customer with
little or no material handling in
Cross docking not only reduces
material handling, but also
reduces the need to store the
products in the warehouse In
most cases the products sent
from the manufacturing area to
the loading dock has been
allocated for outbound deliveries.
In some instances the products
will not arrive at the loading
dock from the manufacturing
area, but may arrive as a
purchased product that is being
re-sold or being delivered from
another of the companies
manufacturing plants for
shipment from the warehouse.
③ Production Support
To steady supply various parts and
components to a factory as they
need. =JIT
④ Marketing Support
To supply various products at one
time for customer needs
⑤ Value-added service
a. Packaging
b. Labeling
c. Blending or Mixing
d. FRM (Floor-Ready Merchandise)
FRM started from Apparel
industry and merchandise is
ready to floor of retailer with
hanger, labels and price tag. So
that retailers could display it at
their store within few minutes.
The Rich
Millionaire / Billionaire
Millionaire= The Rich
By Merrill Lynch’s definition, the
rich should have more than
US$1 Million as financial asset.
Japan has 1.4 million people in
the rich category.
(Around 1 % of population.)
William E Heinecke: Expanding waistlines nationwide
American sociologist Leonard
Begley classifies all households
with net worth exceeding USD 1
million as "The Rich". There were
10 million people around the
globe who are classified as U.S.dollar millionaires as of 2008.
from wikipedia
Financial Asset
A non-physical asset.
Examples of financial assets
include bank accounts and shares
in a publicly-traded company.
Financial assets are distinguished
from physical assets like real
estate and personal property.
Carlos Slim Helú
Carlos is the wealthiest people in the
world. He was born on January 28, 1940,
in Mexico City to a family of Lebanese
Christian immigrants. He became a
billionaire after the economic crash of
1982 when he purchased investments at
low prices that would later be extremely
valuable. In 2000, he founded the
Foundation for the Historic Centre of
Mexico City to restore and save
significant buildings.
He is the chairman and chief
executive of telecommunications
companies Telmex and América
Móvil. América Móvil, which in 2010
was Latin America’s largest mobilephone carrier, accounted for around
US$49 billion of Slim's wealth by the
end of 2010. His corporate holdings
as of March 2012 have been
estimated at US$69 billion.
World Richest Persons
Carlos Slim Helu
& family
$69 B
Bill Gates
$61 B
Warren Buffett
$44 B
Berkshire United
Hathaway States
Bernard Arnault
$41 B
Amancio Ortega
$37.5 B 75
Larry Ellison
$36 B
67 Oracle
$30 B
64 H&M
Eike Batista
Stefan Persson $26 B
Li Ka-shing
$25.5 B 83 diversified
Karl Albrecht
$25.4 B 92 Aldi
Thai Richest Persons
Dhanin Chearavanont & F
$7 B
Charoen Sirivadhanabhakdi $5.5 B 67
Chaleo Yoovidhya
$5 B
Aloke Lohia
Krit Ratanarak
CP Group
Beer Chang
Red Bull
$1.9 B 53
$1.2 B 65
Media, real
estate BBTV
Interesting Thai Rich Person
When you see restaurants
like Dairy Queen, Burger King and
Swensen’s in Thailand, you have one man
to thank -- or curse -- in the name of
globalization: William E. Heinecke.
The 61-year-old founded his company, Minor
Group, in 1967, and now owns more than a
thousand restaurants and 27 hotels in
Thailand and throughout the Asia Pacific
Other brands his company controls in
Thailand include the Marriott, the
Four Seasons, Pizza Company and
Thailand has been good to Heinecke:
he is thought to be worth $425
million. Heinecke was born in the
U.S. but his family moved to Thailand
when he was a teenager. He is now a
Thai citizen.
You might not know:
The resilient Heinecke beat Pizza Hut at their
own game. He bought the Pizza Hut franchise
in Thailand in 1980 but had a contract dispute
with its U.S. parent company.
Pizza Hut then closed in Thailand, but
Heinecke built a new company -- Pizza
Company --using Pizza Hut’s old store
locations. The result: he captured some 70
percent of Thailand's pizza market in just six
Chinese Richest Persons
Robin Li
$10.2 B
$8.1 B
manufacturing China
$6.5 B
He Xiangjian $6.2 B
Hui Ka Yan
real estate
$5.8 B
History of warehousing
Individual households are self-sufficient
units. Consumers performed storage by
Transportation capability developed
Economic specialization
Product storage was shifted to retailers,
wholesalers and manufacturers.
Warehousing's roots go back to the creation of
granaries to store food, which was historically
available for purchase during times of famine.
As European explorers began to create
shipping-trade routes with other nations,
warehouses grew in importance for the
storage of products and commodities from
afar. Ports were the major location for
World War II impacted warehousing in
several ways, including the need to
increase the size of warehouses and the
need for more mechanized methods of
storing and retrieving the products and
materials. As mass production grew
throughout manufacturing, the needs of
efficient and effective warehousing
capabilities grew with it.
Mass- production
Too much Products
Need efficient
Warehousing capabilities
Warehousing & Logistics
2) Warehouse Benefits
Economic benefits of warehousing
result when overall logistical costs
are directly reduced by utilizing one
or more facilities.
It is not difficult to quantify the
return on investment of an
economic benefit because it is
reflected in a direct cost-to-cost
For example, if adding a
warehouse to a logistical system
will reduce overall transportation
cost by an amount greater than
the fixed and variable cost of the
warehouse, then total cost
Changing requirements of the retail
environment more than offset any
reduction in warehousing gained from
through manufacturing improvements.
The retail store, faced with the necessity
of stocking an increasing variety of
products, was unable to order sufficient
quantity from a single supplier to enjoy
the benefits of consolidated shipment.
The cost of transporting small shipments
made direct ordering prohibitive. This
resulted in a need to utilize warehouses
to provide timely and economical
inventory assortments to retailers.
At the wholesale level of the channel of
the distribution, the warehouse become
a support unit for retailing.
① Consolidation and Distribution
Parts and Products Warehouse
② JIT (Just In Time)
Parts Warehouse
③ Production Economies
Products Warehouse
④ EOQ ( Economic Order Quantity)
Parts Warehouse
⑤ Quantity Discount
Cash Discount / Seasonal Discount
/ Trade Discount
Parts Warehouse
⑥ To Maintain Supply
Products Warehouse
Parts Wrehouse
Manufacturing support
Assembly plant
⑦ Customer Service Policy
Service benefits gained through
warehouses in a logistical
system may or may not reduce
A warehouse improve in the
time and place capability of the
overall logistic system
⑧ Minimizing Total Logistic Cost
To reduce total cost is an
important idea in logistics
system .
3) Type of Warehouse -1
1) General Purpose Warehouse
2) Distribution Center
Distribution Assortment
Distribution Center
In Transit Mixing
A&B products
Transit Mixing Point
A&C Products
A,B&C Products
4) Type of Warehouse-2
Warehousing Alternatives
We have three options of public,
private and contract warehouse.
It is very important to decide to
have our own warehouse, rent
the space at a public warehouse
or get specially tailored
warehousing services from a
contract warehouse .
1) Public Warehouse
A public warehouse is operated as an
independent business offering an range of
service like as storage, handling and
transportation. Public warehouse are used
extensively in logistical systems. Almost any
combination of services can be arranged with
the operator either for a short term or over a
long duration.
Classification of Public warehouse
General merchandize
Special commodity
Household & furniture
a. Advantage of Public Warehouse
① Lower variable cost-lower pay
scale, better productivity
② Greater operating &
management expertise
Variable & Fixed Costs
All the costs faced by companies can
be broken into two main categories:
fixed costs and variable costs.
Variable costs
Variable costs are costs that vary with
output. Generally variable costs
increase at a constant rate relative to
labor and capital. Variable costs may
include wages, utilities, materials
used in production, etc
Fixed costs
Fixed costs are costs that are
independent of output. These remain
constant throughout the relevant range
and are usually considered sunk for the
relevant range (not relevant to output
decisions). Fixed costs often include
buildings, machinery, etc.
③ Financial Flexibility
④ Flexibility to change location,
size and number of facilities
⑤ Economies of Scale
b. Disadvantage of Public Warehouse
① Space Availability- cannot expect to get
a space any time
② Specialized Service- cannot expect to
accept easily specialized service like as a
private warehouse
③ Communication – cannot expect better
communication like as a private warehouse
2) Private Warehouse
Private warehouse is operated
by the company owning the
product. However, actual
facilities maybe owned or
a. Advantage of Private warehouse
① Control The company has a decision making
② FlexibilityThe company can adjust customers’
special needs.
③ Cost Less cost than public warehousing
because of no profit markup.
④ Market Presence7-eleven RDC in Khon Kaen is more
responsive to local customers in this
area for quick response and delivery
b. Disadvantage of Private Warehouse
① Investment –
big investment for land, facilities and
material handling equipments
② Flexibility No flexibility to change location, size etc.
No financial flexibility
3) Contract Warehouse
Contract warehousing combines the
best characteristic of both private
and public operations.
① long term relationships
② To share risks
③ lower cost than public warehouse
④ Expertise, flexibility, economies of
4) Special Purpose Warehouse
Refrigerated Warehouse
Chilled Warehouse
Flammable Storage Warehouse
Bonded Warehouse
5) Warehouse Operations
Identifying & Sorting
Damage Protection
Order picking
Transportation & Packing
Inventory Checking
Part 6
The warehouse industry found itself
recovering from a recession at the
start of the twenty-first century,
partially brought on by the hype of
the dot-com bubble and the excess
production created after it burst.
It also coped with new methods of
distribution, such as just-in-time (JIT)
manufacturing—where warehousing
is unnecessary because products are
shipped directly to customers.
Warehousing companies are now
striving to become more than simply
storage facilities.
They are transforming themselves
into "third-party logistics providers"
or "3PLs" that provide a wide array
of services and functions. In addition
to packing and staging pallets,
contemporary warehousing facilities
offer light manufacturing, call
centers, labeling, and other nonstorage options.
Third party logistics refers to outsourced
tasks for businesses which help them
manage their supply chain, such as
warehousing, picking, packing, shipping
and inventory management. Some 3PLs
might also help with the administrative
side of these tasks, such as invoicing and
accounts receivable
Fourth party logistics companies serve as
consultants who manage the relationship
between the principal company and one or
more 3PLs to make sure all operations are
running smoothly. They can carry various
levels of responsibility, from advice on
choosing the best companies, right up to the
day-to-day management of essential
logistical tasks being performed for the
principal company.
Future of warehousing
We are looking at how warehousing will
be transformed into a highly automated
environment. There would be no labor
required in the first place, in fact they
will be no space for humans to walk
(except for service engineers).
There will be rails and tracks all around
on which automated pick Robots
would move to pick and put away
pallets and cases around the
warehouse. These robots would move
on horizontal and vertical tracks and
can reach every location within each
zone where they operate. There will be
sensors all over the warehouse to
guide robots, round the clock.
Part 7
Global Logistics
Why global logistics become more
and more important?
1) Domestic and Global
Whereas an effective logistics system is
important for domestic operations. Domestic
logistics focuses on performing value-added
services in a relatively controlled
Global logistic operations must
accommodate all domestic requirements and
also deal with increased uncertainties
associated with distance, demand, diversity,
and documentation.
2) Localized focus and global production
For more than 20 years, there has
been a steady trend towards the
worldwide marketing of products
under a common brand umbrella --like Apple, Coca-Cola, IBM, Toyota,
Sony etc.
At the same time, the global
company has revised its previously
localized focus; manufacturing and
marketing its products in individual
countries, and now instead will
typically source on a worldwide
basis for global production and
The global company seeks to grow
its business by extending its markets
whilst at the same time seeking cost
reduction through “scale of
economies” in purchasing and
production and through focused
manufacturing and/or assembly
Strategy change of the global company
Localized focus
Seeking scale of economies
Global production & distribution.
In this direction, we have two challenges.
a. World markets are not homogeneous.
b. We need a high level of co-ordination
the complex logistics of managing
global supply chains which may result
in higher cost and extended lead times.
How to mange the links in the global
chain from sources of supply through
to end user?
There is a danger that some global
companies in their search for cost
advantage may take too narrow a view
of cost and only see the purchasing or
manufacturing cost reduction that
may be achieved through using low
cost supply sources.
In reality, it is a total cost trade-off
where the costs of longer pipelines
may outweigh the production cost
The trend towards global
organization of both manufacturing
and marketing is highlighting the
critical importance of logistics and
supply chain management as the
key to profitability.
Localized Focus Global distribution
& manufacturing
Mfg. Cost Reduction > Logistic Cost
Management of Logistics
& Supply chain is critical.
3) Globalization in the supply chain
To remain competitive in this new global
environment, companies will have to
seek ways in which costs can be lowered
and service enhanced, meaning that
supply chain efficiency and
effectiveness will become ever more
What degree of centralization is
appropriate in terms of management ,
manufacturing and distribution, and
how can the needs of local markets be
met at the same time, as the
achievement of economies of scale
through standardization.
Three ways are implemented as their
global logistics strategies.
Three Global Logistic Strategies
① Focused Factories
② Centralization of Inventories
③ Postponement and Localization
① Focused Factories
By limiting the range and mix of
products manufactured in a single
location, the company can achieve
considerable economies of scale.
The global business will treat that
the world as one market and
produce fewer products in volume.
The nationally oriented business
will have “local for local” production.
However, a number of crucial
logistics trade-offs maybe
a. The most obvious trade-offs is the
effect on transport costs and
delivery lead times. The cost of
shipping products , often of
relatively low value, across greater
distances may erode some or all of
production cost saving.
b. Similarly the longer lead times
involved may need to be countered
by local stockholding, again possibly
offsetting the production cost
c. The needs for local packs with
labeling in different languages
or even different brand names
and packages for the same
d. No flexibility to produce “variety
“ of products at focused factories
where volume and economies of
scale are critical issues.
Sony decided to bring back assembly
line of digital camera and
camcorders to Japan. Sony was
producing these products in China to
seek lower labor cost.
② Centralization of inventories
The globalization trend has
encouraged companies to
rationalize production into fewer
locations, so too has it led to a trend
toward the centralization of
③ Postponement & Localization
Although the trend to global brands
and products continues, there are
still significant local differences in
customer and consumer
Postponement is based on the principle
of seeking to design products using
common platforms, components or
modules but where the final assembly
or customization does not take place
until the final market decision and/or
customer requirement is known.
④ Thinking global and acting local
The implementation of global pipeline control
is highly dependent upon the ability of the
organization to find the correct balance
between central and local management.
Increasingly, the difference between success
and failure in global marketplace will be
determined not by sophistication of product
technology but rather by the management
and control of global logistics pipeline.
⑤ The future of global sourcing
Offshore sourcing was a big trend for
more than 20 years to seek “low
cost”. However, true cost of global
sourcing is greater than originally
Losses from global sourcing
① Increasing cost of transportation
② Needs higher level of inventory because
of longer lead time
③ Mark-downs or write-offs because of
short life cycle market
④ Quality problems
⑤ Loss of intellectual property
Local for local
Seeking low cost
Global sourcing
Realizing true total cost
Global + Local
Special study
The biggest franchising system in the world.
Seven & i Holdings
7-Eleven is a part of Seven & I
group in Japan. This company
group started as Ito-Yoka Do,
super market chain stores.
Ito-Yoka Do bought out 7-Eleven
(convenience store), Seibu and Sogo
(Department stores) and many
other retailers.
Now Seven & I group is the biggest
retail company in Japan and Asia.
7 & I is the 14th biggest retailer in
the world with sales US$5.7billion .
Walmart is the largest retailer in the
world. and is also the biggest
private employer in the world with
over two million employees.
Store Network of Seven & i Holdings
Global : approx. 48,000 stores
Japan : approx. 15,000 stores
Number of Customer Store-Visits per Day
Global : approx. 48 million
Japan : approx. 17 million
World Top 15 retail Company
(Million US$)
Wal-Mart Stores
Costco Wholesale
8 Home Depot U.S.
9 Walgreen
10 Aldi
11 Target
12 Rewe
13 CVS Caremark U.S.
14 Seven &
15 Auchan
1. What is 7-Eleven?
1)7-Eleven is an international
franchiser, licensor, and operator of a
chain of convenience stores.
2) It is also, since March 2007, the
largest chain store in any category,
beating Subway & McDonald's by
10,000 stores.
3) Its stores are located in more
than eighteen countries, with its
largest markets being Japan, the
United States, Thailand, Korea,
Taiwan and Malaysia.
Number of Franchising stores
46,004 stores
KFC begins franchising in 1952 and would be
the first franchising company in the world
2 Convenience store & 7-11 Japan
Franchising system
1)What is a convenience store?
Small centrally located store featuring ease
of access, late-night hours, and a limited
line of merchandise designed for the
convenience shopper. Convenience stores
charge above-average prices compared to
large supermarkets that generate largevolume sales.
CS vs Super Market like Big C
CS vs Wholesale Club like Makro
7-Eleven Japan Franchise system
1) Type of ownership
a. Land and buildings Franchisee
b. Seven-Eleven Japan provides
2) Sales equipments, computers, etc.
Seven-Eleven Japan provides
3) Contract period 15 years
Utilities Seven-Eleven Japan 80%;
Franchisee 20%
4) Seven-Eleven charge (royalty)
43% of gross profit
An amount calculated on a sliding
scale based on gross profit
5) 5-year incentives and 15-year
contract renewal incentives
(reductions in franchise fee are
Market Concentration Strategy
7-Eleven’s fundamental strategy
is market concentration,
whereby a high concentration of
stores is positioned within one
Effects of area market concentration strategy
1) Greater familiarity with
2) Efficient construction of
production bases
3) Effective sales promotions
4) Efficient construction of
distribution structure
5) Improved efficiency in guiding
franchised stores
6) Preventing entry by competitors
3. 7-Eleven History
from Wikipedia
7-Eleven has its origins in 1927 in
Dallas, Texas, USA.
When an employee of Southland Ice
Company started selling milk, eggs
and bread from an ice dock.
Although small grocery stores and
general merchandisers were present
in the immediate area, the
managers of the ice plant
discovered that selling "convenience
items" such as bread and milk were
popular. Eventually, several
locations would open up in the
Dallas area.
Initially, these stores were open from 7
a.m. to 11 p.m., The company began to
use the 7-Eleven name in 1946.
By 1952, 7-Eleven opened its 100th
In 1962, 7-Eleven first experimented
with a 24-hour schedule in Austin, Texas.
In 1963, 24-hour stores were
established in Las Vegas, Fort Worth,
and Dallas.
In the 1980s the company ran into
financial difficulties and was
rescued from bankruptcy by ItoYokado, its largest franchisee.
The Japanese company gained a
controlling share of 7-Eleven.
Number of 7-Eleven
as of September 30, 2007
South Korea
Total 33,220
Number of 7-Eleven
Japan as of February 29, 2012 and other area as of June, 2012
14,231 (11,837)
7,503 ( 6,173)
6,660 ( 4,199)
6,442 ( 1,568)
4,852 ( 4,651)
1,848 ( 1,337)
Total 47,298(33,220)
4. 7-Eleven Japan
7-11 Japan announced that they
would like to open more than 1,500
stores (and close less than 600
stores) in 2013 fiscal year.
(opening 1250 stores in 2012.)
It is a big tendency in Japan that
more the aged and housewives
become their customers recently.
Because of Market concentration
Strategy, there are 7 prefectures out
of 47 prefectures which has no 7-11
stores. They are preparing to open
7-11 stores in these prefectures.
The daily sales turnover at new
opening stores is JPY 600,000
(THB240,000) in March-May 2012.
(JPY520,000 =THB200,000 in 2019)
After 2011 Tohoku earthquake and
tsunami, people have come to a
new understanding of the
convenience stores.
Number of Convenience stores
in Japan
7-Eleven Japan
Family Mart
Circle K Sunkus
Other CVS
14,311 as of July 2012
5. 7-ElevenThailand
The franchise in Thailand is the
Charoen Pokphand Group. Their
name was changed to CP ALL.
There are 6,660 7-Elevens in
Thailand, of which more than 1,500
are in Bangkok, making Thailand
have the 3rd largest number of
stores after Japan and US.
7-11 Regional Distribution Center
1) RDC
Regional Distribution Center
For 7-11, RDC in KK was the pilot
distribution center and this size of
Distribution Center would be more cost
efficient compared with their big
distribution center.
2) Chilled warehouse
They have a Chilled warehouse for
butter, cheese ,milk, sausage, ham, etc.
First In, First Out.
FIFO accounting is a common method
for recording the value of inventory. A
firm records the last units purchased as
inventory value.
Last In , First Out
LIFO accounting, a historical
method of recording the value of
inventory, a firm records the first
units purchased as inventory value.
5) QC
Quality Control
Seeing is Believing
We will visit 7-Eleven RDC in Khon
Kaen from 9:30 AM~12:00 on 29th
6. 7-Eleven China
1) 7-11 started to establish Seven Eleven (Beijing) Co. Ltd. and wanted to
make a original China model store. Ex.
Chinese loves warm foods than
Japanese customer. So, each store has
a kitchen to cook warm foods.
Now, 7-11(Beijing) has 147 stores and
7-11 (Chengdu) has 41 stores.
2) April 2009, 7-11 established 7-11
China and gave franchise right for
Shanghai to President Chain Stores (統
一超商) which has 4,651 store in
Now they have 1,604 stores in Shanghai
How to calculate Freight?
1)Ocean freight
Revenue Ton (RNT)
2) Air freight
Chargeable weight
1) Revenue ton
For calculation of Ocean freight
If cargo is rated as weight or
measure, whichever produces the
highest revenue will be considered
the revenue ton(RNT). Weights are
based on metric ton and measures
are based on cubic meter.
Ocean shipment 1m3 = 1,000kgs
Furniture Volume 3m3 Weight 1250Kg
Revenue ton 3m3 1250 Kg--------> X RTN
BAF: US$8.00/RTN
CAF : 12% of base rate
Volume 3m3
Weight 1250Kg
Revenue ton 3m3>1250Kg---> 3RTN
BASE: US$50 RTN 50x3
BAF: US$8.00/RTN 8x3
CAF : 12% of base rate 150x0.12
THC:US$35/RTN 35x3
= 150
= 24
= 35
= US$482
Sewing Machine Volume 4m3 Weight 5500Kg
BAF: US$8.00/RTN
CAF : 12% of base rate
Sewing Machine Volume 4m3 Weight 5500Kg
Revenue ton 4m3 < 5500Kg---> 5.5RTN
BASE: US$40 RTN 40x5.5
BAF: US$8.00/RTN 8x5.5
CAF : 12% of base rate 220x0.12
CFS CHARGE:US$ 50/RTN 50x5.5
THC:US$35/RTN 35x5.5
= 220
= 44
= 35
= US$792.90
2) Chargeable weight
The Chargeable Weight is the Actual
Gross Weight or the Volumetric
weight of the shipment – whichever
is the greater.
The chargeable weight is calculated
as follows:
1 metric ton = 6 m3
Stationery Weight:8kgs
Volume:30cm x 40cm x 50cm
Actual Gross Weight is 8kgs
Volumetric weight
30 x 40 x 50 = 60,000
60,000/6000= 10 kg
10kgs is greater than 8kgs, so the
Chargeable Weight will be 45kgs
Ex. 2
Maki Company is planning an import
shipment into Thailand from Varun Company
in Germany.
The shipment consists of 3 boxes, each
weighing 15kgs, and each measuring 48cm
(length) x 34cm (width) x 34cm (height).
Using our instructions above:-
Actual Gross Weight = 3 boxes x 15kgs each =
total 45kgs
Volumetric Weight in kg
= (48 x 34 x 34cm) x 3 boxes / 6000 = 27.74kgs
45kgs is greater than 27.74kgs so the
Chargeable Weight will be 45kgs
Part 8 Terms of Sale
1) What is Terms of Sale (Trade Terms)
The buyer and the seller should
determine when & where to transfer
the goods, payment etc.
a) The goods
b) Payment for the goods, freight charges,
insurance for the in-transit goods.
c) Legal title to the goods
d) Required documentation
e) Responsibility for controlling or caring
for the goods in-transit
2) Common Trade Terms
Even professional businessmen do
not use proper trade terms at the real
business occasions.
Because they have no clear definition
on trade terms.
It is very important to understand the
correct interpretation of delivery
trade terms.
Incoterms and usual trade terms have
a big difference in most cases.
The 3 most common trade terms
a) Ex Factory
=Ex Works / Incoterms
b) FOB (Free On Board)= FCA / Incoterms
In USA, they are still using their own trade
terms from “American Foreign Trade
Definitions” in 1941. FOB terms are using very
differently from Incoterms.
c) CIF (Cost, Insurance & Freight) = CIP/ Incoterms
This is not a product trade but a document trade.
a) Ex Factory
EX-FACTORY is where a seller’s
responsibility ends when the buyer
at point of origin, i.e., factory,
accepts merchandise.
This can also be written as ExWarehouse, Ex-works, Ex-Mill, etc.
EX Factory
Ex. 1
Sunny, 22 years old Thai, wants to sell his watch
to Japan.
Maki, Japanese guy asked him to pick it up at
his shop in Khon Kaen.
Watch Patek Philippe
THB2 million
FEDEX charge to Tokyo, Japan THB2500
b) FOB
Free on Board" means that the seller
delivers the goods on board of the vessel,
nominated by the buyer at the named port
of shipment or procures. The risk of loss of
or damage to the goods passes when the
goods are on board the vessel by the seller,
and the buyer pays all costs from that
moment onwards.
FOB may not be appropriate where
goods are handed over to the carrier
before they are on board the vessel, for
example goods in containers, which are
typically delivered at a terminal.
In such situations, the FCA rule should
be used in Incoterms .
FOB requires the seller to clear the
goods for export, where applicable.
However, the seller has no obligation
to clear the goods for import, pay any
import duty or carry out any import
customs formalities.
Ex. 2
The seller (exporter) is in Khon Kaen,
Thailand wants to sell a pick-up tracks to
the buyer in Japan.
FOB Bangkok US$20,000
The seller pay all charges until the
warehouse at Leam Chabang Port and the
cost to clear the custom for export.
The buyer (importer) will pay freight to
Tokyo and insurance. Title of the goods
passes at Leam Chabang Port.
c) CIF
FREIGHT) is a shipment where
all shipping costs are paid by the
exporter, including insurance.
Narin, 23years old ,Khon Kaen, Thailand
wants to buy a washing machine from
Whirlpool, Chicago USA.
The product cost : US$ 2,000
Ocean freight : US$400
Insurance : US$80
Custom clearance charge in Thai THB1500
Import duty : 35%
Truckage LC Port to Khon Kaen : THB850
3) Difference from USA Trade terms
FOB shipping point (or FOB shipping point,
freight collect) = FCA shipping point
FOB shipping point, freight prepaid
= CPT destination
FOB destination (or FOB destination,
freight prepaid) = DAT destination
FOB destination, freight collect
=No Incoterm equivalent
4) Incoterms
① What is Incoterms?
Incoterms was created by
International Chamber of
Commerce (ICC) in 1936.
(Buyers) had a lot of troubles
relating to the rights and
obligations of each parties.
Because, each country has
deferent interpretations and
The purpose of Incoterms is to
provide a set of international
rules for the interpretation of
commonly used trade terms in
foreign trade.
② Problems on Incoterms
Incoterms is the most common rules
of international & domestic trade.
If the exporters and the importers use
Incoterms, we will reduce a lot of
troubles between two parties.
However, not so much companies are
using Incoterms and many of them do
not understand the details of
Especially, FOB and FCA terms are
misusing at everywhere in the world
and make it more complicated.
Many students are studying
Incoterms at colleges & universities,
but they do not have much chance to
use at real business word after
③ History
In order to remedy the trade troubles from
misunderstandings, disputes and litigation, with
waste of time & money, ICC published a set of
international rules for the interpretation of
trade terms called Incoterms in 1936.
In 1953, 1967, 1976, 1980,1990, 2000&2010
Incoterms was added and/or amended to adjust
the current international trade practices.
Now we are using Incoterms 2010.
④ Scope of Incoterms
The scope of Incoterms is
limited to matters relating to
the rights and obligations of the
parties to the contract of sales
with respect of the goods sold.
(not including intangibles like
as computer software)
⑤ Misconception of Incoterms
There are 3 common misconceptions
on Incoterms
a) Incoterms should apply to the contact
of sales not to the contract of carriage.
b) Incoterms is limited to the rights
& obligation of the parties on the
delivery of goods sold. (Not all the
duties in the contract of sales.)
c) This is not an international law for
international trade. The exporters
& the importers wishing to use
Incoterms 2010 should clearly
specify that their contract is
governed by Incoterms 2010
in their contract of sales.
If you want the Incoterms 2010
rules to apply to your contract,
you should make clear in the
contract, through such words as,
the chosen Incoterms rule
including the named place
followed by Incoterms 2010.
EXW 499/80 Mitrapharp Rd. Khon
Kaen, Thailand, Incoterms 2010
Incoterms 2010
The International Chamber of
Commerce has released the table
of contents to the Incoterms 2010.
Incoterms 2010 consists of only 11
Incoterms, a reduction from the
13 Incoterms 2000.
The Incoterms 2010 are
organized into two categories;
Incoterms for any Mode or
Modes of Transport
Incoterms for Sea and Inland
Waterway Transport Only.
Any Mode or Modes of Transport
E-Term EXW- Ex Works
F-Term FCA - Free Carrier
C-Term CPT - Carriage Paid to
CIP - Carriage and Insurance Paid to
D-Term DAT - Delivered At Terminal (new)
DAP - Delivered At Place (new)
DDP - Delivered Duty Paid
Sea & Inland Waterway Transport Only
FAS - Free Alongside Ship
FOB - Free On Board
CFR - Cost and Freight
CIF - Cost, Insurance and Freight
Any Mode or Modes of Transport
EXW (Ex Works)
The buyer bears all costs and risks
involved in taking the goods from the
seller's premises to the desired destination.
The seller's obligation is to make the
goods available at his premises (works,
factory, warehouse). This term represents
minimum obligation for the seller. This
term can be used across all modes of
The Seller’s Obligations
A1 General obligations of the seller
The seller must provide the goods and
the commercial invoice in conformity
with the contract of sale and any other
evidence of conformity that maybe
required by the contract.
Any document referred to in A1~A10
may be an equivalent electronic record
or procedure if agreed between the
parties or customary.
EXW (named place of delivery)
A2 Licenses, authorizations, security
clearances & other formalities
Where applicable, the seller must
provide the buyer, at the buyers
request, risk & expense, assistance in
obtaining any export license, or other
official authorization necessary for the
export of the goods. Where applicable,
the seller must provide the buyer, at
the buyers request, risk & expense, any
information in the possession of the
seller that is required for the security
clearance of the goods.
A3 Contract of Carriage & insurance
a) contract of carriage
The seller has no Obligation to the buyer
to make a contact of carriage
b) contact of insurance
The seller has no Obligation to the byer
to make a contact of insurance. However,
the seller must provide the buyer, at the
buyer’s request, risk and expense (if any),
with information that the buyer needs for
obtaining insurance.
A4 Delivery
To place goods at disposal of the
A5 Transfer of risks
Must bear all risk & loss until A4
A6 Allocation of costs
To pay all cost until A4
A7 Notice to the buyer
Must give sufficient notice
A8 Delivery document
No Obligation
A9 Checking-Packaging-Marking
Must pay cost of checking, packaging &
A10 Assistance with information & related
Must render assistance any documents for
export/import and necessary information
for insurance
The Buyer’s Obligations
B1 General obligations of the buyer
Must pay the price as provided in the
B2 Licenses, authorizations, security clearances
& other formalities
Must obtain any export & import license at
own risk & expenses
B3 Contracts of Carriage & insurance
No Obligation
B4 Taking Delivery
Must take delivery of the goods
B5 Transfer of risk
Must bear all risk & loss after A4
B6 Allocation of costs
Must pay all cost after A4
B7 Notices to the seller
Must give sufficient notice
B8 Proof of delivery.
To provide evidence of having taken
B9 Inspection of goods
Must pay the costs of pre-shipment
inspection including inspection by the
A10 Assistance with information & related
Must pay all costs & charges for A10 and
reimburse .
FCA (Free Carrier)
The seller's obligation is to hand
over the goods, cleared for export,
into the charge of the carrier
named by the buyer at the named
place or point.
If no precise point is indicated by the
buyer, the seller may choose within the
place or range stipulated where the
carrier shall take the goods into his
charge. When the seller's assistance is
required in making the contract with
the carrier the seller may act at the
buyers risk and expense. This term can
be used across all modes of transport.
FCA( Named place of destination)
CPT (Carriage Paid To)
The seller pays the freight for the carriage
of goods to the named destination. The risk
of loss or damage to the goods occurring
after the delivery has been made to the
carrier is transferred from the seller to the
buyer. This term requires the seller to clear
the goods for export and can be used across
all modes of transport.
CPT (named place of destination)
CIP (Carriage & insurance Paid to)
The seller has the same obligations as
under CPT but has the responsibility of
obtaining insurance against the buyer's risk
of loss or damage of goods during the
carriage. The seller is required to clear the
goods for export however is only required
to obtain insurance on minimum coverage.
This term requires the seller to clear the
goods for export and can be used across all
modes of transport.
CIP (named place of destination)
DAT (Delivered At Terminal)
New Term - May be used for all transport
Seller delivers when the goods, once
unloaded from the arriving means of
transport, are placed at the disposal of the
buyer at a named terminal at the named
port or place of destination. "Terminal"
includes quay, warehouse, container yard or
road, rail or air terminal
Both parties should agree the terminal
and if possible a point within the
terminal at which point the risks will
transfer from the seller to the buyer of
the goods. If it is intended that the
seller is to bear all the costs and
responsibilities from the terminal to
another point, DAP or DDP may apply.
DAT (named place of destination)
Seller is responsible for the costs and risks
to bring the goods to the point specified in
the contract.
Seller should ensure that their forwarding
contract mirrors the contract of sale
Seller is responsible for the export
clearance procedures.
Importer is responsible to clear the
goods for import, arrange import
customs formalities, and pay import
If the parties intend the seller to bear
the risks and costs of taking the goods
from the terminal to another place then
the DAP term may apply
DAP (Delivered At Place)
New Term - May be used for all transport modes
The Seller delivers the goods when they are
placed at the disposal of the buyer on the
arriving means of transport ready for unloading
at the named place of destination. Parties are
advised to specify as clearly as possible the point
within the agreed place of destination, because
risks transfer at this point from seller to buyer.
If the seller is responsible for clearing the goods,
paying duties etc., consideration should be given
to using the DDP term.
DAP (named place of destination)
Seller bears the responsibility and risks to deliver
the goods to the named place. Seller is advised to
obtain contracts of carriage that match the
contract of sale. Seller is required to clear the
goods for export
If the seller incurs unloading costs at place of
destination, unless previously agreed they are not
entitled to recover any such costs.
Importer is responsible for effecting customs
clearance, and paying any customs duties.
DDP (Delivered Duty Paid)
The seller is responsible for delivering the
goods to the named place in the country of
importation, including all costs and risks in
bringing the goods to import destination.
This includes duties, taxes and customs
formalities. This term may be used
irrespective of the mode of transport.
DDP (named place of destination)
Sea and Inland Waterway
Transport Only
FAS (Free Alongside Ship - named
port of shipment)
The seller must place the goods alongside
the ship at the named port. The seller must
clear the goods for export. Suitable only for
maritime transport but NOT for multimodal
sea transport in containers (see Incoterms
2010, ICC publication 715). This term is
typically used for heavy-lift or bulk
FOB (Free On Board - named port of shipment)
The seller must load themselves the
goods on board the vessel nominated
by the buyer. Cost and risk are divided
when the goods are actually on board
of the vessel (this rule is new!).
The seller must clear the goods for
The term is applicable for maritime
and inland waterway transport only
but NOT for multimodal sea
transport in containers. The buyer
must instruct the seller the details of
the vessel and the port where the
goods are to be loaded, and there is
no reference to, or provision for, the
use of a carrier or forwarder.
Misuse of FOB
This term has been greatly misused
over the last three decades ever since
Incoterms 1980 explained that FCA
should be used for container shipments.
CFR (Cost & Freight)
The seller must pay the costs and freight
required in bringing the goods to the named
port of destination. The risk of loss or
damage is transferred from seller to buyer
when the goods pass over the ship's rail in
the port of shipment. The seller is required
to clear the goods for export. This term
should only be used for sea or inland
waterway transport.
CIF (Cost, Insurance & Freight)
The seller has the same obligations as
under CFR however he is also required to
provide insurance against the buyer's risk
of loss or damage to the goods during
transit. The seller is required to clear the
goods for export. This term should only be
used for sea or inland waterway transport.
First In, First Out.
FIFO accounting is a common method
for recording the value of inventory.
A firm records the last units purchased
as inventory value, but it does not
necessarily mean that the exact oldest
physical object has been tracked and
Last In , First Out
LIFO accounting, a historical
method of recording the value of
inventory, a firm records the first
units purchased as inventory
value. This method is not fit to
International Financial Reporting
Reference books
1) Logistical Management by Donald J.
2) Essential of Supply Chain Management by
Michael H. Hugos
3) Logistics & Supply Chain Management by
Martin Christopher
Built to Last: Successful Habits of Visionary
Companies by Jim Collins & Jerry I. Porras
A Big Hairy Audacious Goal is a
strategic business statement which
is created to focus an organization
on a single medium-long term
organization-wide goal which is
audacious, likely to be externally
questionable, but not internally
regarded as impossible.
Thank you very much for taking my class.
I hope all of you would have a nice future.
I would like to help you as much as possible.
If you need me please contact me at the following
e-mail address.
[email protected]

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