Answer to Question #248977 in Economics of Enterprise for BRENJAMIN

Question

As the Southern African Development Community strives to move towards a single market, administrative difficulties are only one of many anticipated difficulties for international logistics participants. Using practical examples, examine six (6) other factors that can impact on international logistics operations.

Answer 1

• Customers' reaction to changes in transportation price. - demand elasticity exists in every market, that is, whenever price falls, demand and total revenue of a commodity rises . However, if freight rate decreases, it will not result in a noticeable increase in demand for transportation. Logistics will not decide an increase in the number of shipments abroad just due to a decrease in price.
• The trend of selling complementary products together. - complementary products are those items which are always sold together. For these types of products, logistics practitioners have to take into account the amount of inventory of both items that it is to maintain.
• Substitute products. - a substitute good is one that serves the same purpose as another good in the market. Demand for substitutes show a negative correlation. It is important for logistics professionals to take into account the substitute products in its mix with the others selling in the market, as this influences the quantity of safety stocks that have to be maintained and also the stock out costs.
• Proliferation of alternative options for carriers - there exists a great challenge for logistics professionals to choose from a large pool of delivery services that are continually increasing in number. There is a proliferation of ocean carriers that add up to over 60% of the total value of commodities being shipped globally. It is realised that other ocean routes may be dominated by specific carriers who work as a monopoly.
• Distributor perspective. - an effective distribution and warehousing company strives to maintain the optimal inventory with their suppliers to keep inventory management costs at a reasonable level without excessive safety stock.
• Communication - customer's worst nightmare is running out of the product. Efficient distribution Management must ensure proper flow of information, forecasting and accurate and timely deliveries are provided. Open and continual communication with the customer helps the distributor to anticipate inventory replenishment, schedule equipment and staff delivery.