Trading Bloc

A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where barriers to trade (tariffs and others) are reduced or eliminated among the participating states. It is a group of countries within a geographical region that protect themselves from imports from non-members. A group of countries who have joined together to promote trade. This might be through relaxing protectionist barriers or even having a common currency.

Examples of trading blocs include :

EU-European Union), NAFTA -North American Free Trade Agreement), ASEAN-Association of Southeast Asian Nations, EEA – The European Economic Area, CEFTA -The Central European Free Trade Agreement.

Types of trade Bloc

Preferential Trade Area: Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc.

Free Trade Area: Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or eliminate barriers to trade on all goods coming from other members.

Customs Union: Countries that belong to customs unions agree to reduce or abolish trade barriers between themselves and agree to establish common tariffs and quotas with respect to outsiders.

Common Market: This is a customs union in which the members also agree to reduce restrictions on the movement of factors of production – such as people and finance – as well as reducing barriers on the sale of goods

Advantages of Trade Bloc
• Firms can enjoy economies of scale, in a trading bloc, firms can produce goods and services with a lower average cost because trading blocs allows firm to have large scale of production
• Trading blocs brings firms closer to each other and create greater competition, consumers will be benefited with better quality of goods and services in a lower price, they will have more choices
• Firms within the bloc can enjoy a tariff free environment
• Countries within the trading bloc can have more international bargaining power

Disadvantages of Trade Bloc
• unfair against countries out of the Trading Blocs –
• Groups not within the Blocs have to pay Tariffs in order to transfer goods
• Countries within the Blocs have to pay higher price to buy goods input from countries out of the Blocs
• May take over local producers
• Workers are often exploited by global companies and paid low wages for long hours

 

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Introduction to Macroeconomics 1

WHAT IS MACROECONOMICS ALL ABOUT?

Macroeconomics is a branch of economics that focuses on the behavior and decision-making of an economy as a whole. It describes and explains economic processes that concern aggregates. An aggregate is a multitude of economic subjects that share some common features. By contrast, microeconomics treats economic processes that concern individuals.
For example, the decision of a firm to purchase a new office chair from company
X is not a macroeconomic problem. The reaction of Austrian households
to an increased rate of capital taxation is a macroeconomic problem.

From the foregoing, macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions.  They develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, government spending and international trade.

Though macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research on the national level: output, unemployment, and inflation.   Macroeconomics investigates aggregate behavior by imposing simplifying assumptions (“assume there are many identical firms that produce
the same good”) but without abstracting from the essential features.
These assumptions are used in order to build macroeconomic models. Typically,
such models have three aspects: the ‘story’, the mathematical model,
and a graphical representation.

ISSUES ADDRESSED BY MACROECONOMICS

The issues addressed by macroeconomics are as follows;

  • What determines a nation’s long-run economic growth?
  • What causes a nation’s economic activity to fluctuate?
  • What causes unemployment?
  • What causes prices to rise?
  • How does being a part of a global economic system affect nations’ economies?
  • Can government policies be used to improve economic performance?

 

Truckload Fuel Surcharge

A fuel surcharge is a way of adjusting the amount paid to move freight by taking into account significant variation in fuel prices, compared to historical levels.It is a method for sharing or transferring risk.

Because fuel is a large part of the cost of truckload transportation, most carriers and shippers participate in a fuel program of some kind.

The majority of fuel programs use a five, six, or seven cent multiplier. Simply put, for every five, six, or seven cent change in fuel prices, the fuel surcharge goes up or down a penny.

HOW FUEL SURCHARGES WORK

Fuel surcharges are made up of three main components: index, peg, and escalator. Each of these components influences how surcharges are applied and the extent to which the carrier and/or shipper bears the cost.

Trucks average between 5 and 7 mpg (depending on how the truck is driven), so fuel is a large part of the cost of truckload transportation. Fuel surcharges kick in when the price of fuel goes up for an extended period.

Truckload carriers typically make very little after taxes, so even a small increase in fuel can make the difference between making money and losing money. Fuel surcharges provide carriers with compensation for increases in fuel costs. Line haul plus fuel surcharge must meet the market rate. Anything lower may cause carriers to refuse freight in the long run.

KEY NOTE: Miles per gallon(MPG), a measurement of fuel economy in automobiles. Miles per gallon (mpg) is commonly used in the United States, the United Kingdom, and Canada (alongside L/100 km).

COMPUTING FUEL SURCHARGES. 

Fuel surcharges are typically computed in one of  two ways:
1. Cents per Mile:
In this method, the fuel surcharge increases or decreases by a penny each time fuel goes up or down by X cents per gallon. This is the most common method used by shippers.
2. Percent of Rate:
This method increases the rate by X% for every Y cents per gallon increase in fuel. Unfortunately, this method of fuel surcharge is not very effective for truckload carriers because a carrier’s mpg doesn’t change with the price a carrier charges in a lane, but the fuel surcharge does.

 

Reference: C.H. Robinson; MIT Centre for Transportation and Logistics

 

What is Logistics Hub

A logistics hub is a center or specific area designated to deal with activities related to transportation, organization, separation, coordination and distribution of goods for national and international transit, on a commercial basis by various operators.

These operators may own, lease or rent the buildings and/or the facilities of the hub. These include warehouses, storage areas, distribution center, offices, trucking and shipping services.

Logistics hub has be defined: as the integrated centers for transshipment, storage, collection,and distribution of goods(Jorgensen, 2007)

Logistics hubs provide not only traditional activities such as storage, but also value-added logistics services such as labeling, assembly, semi-manufacturing, and customizing. These centers combine logistics and industrial activities effectively in major port areas to create country-specific and/or customer-specific variations or generic products.

KEY POINTS: *Generic Product is a  good that is sold using the name for the type of good that it is, rather than a brand name. They are are distinguished by the absence of a brand name*

A PERFECT LOGISTICS HUB

 

The Logistics Hub is intended to serve as a catalyst for the development of a logistics-centered economy, which encompasses the broader initiatives supporting the business reform, as well as policies aimed at unlocking investments in the Micro, Small and Medium-sized Enterprises (MSME) sector. Thus a logistics hub promotes growth, job opportunities and prosperity in a country.

 

SUPPLY CHAIN

WHAT IS SUPPLY CHAIN

A supply chain is a series of processes linked together to form a chain. It is the sequence of processes involved in the production and distribution of a commodity. The supply chain is the network created among different companies producing, handling and/or distributing a specific product. The supply chain encompasses the steps it takes to get a good or service from the supplier to the customer.

Supply chain begins with the ecological, biological, and political regulation of natural resources, followed by the human extraction of raw material, and includes several production links (e.g., component construction, assembly, and merging) before moving on to several layers of storage facilities of ever-decreasing size and increasingly remote geographical locations, and finally reaching the consumer.

KEY NOTE: Logistics is not supply chain. logistics refers to the distribution process within the company whereas the supply chain includes multiple companies such as suppliers, manufacturers, and the retailers.

A SUPPLY CHAIN NETWORK

A supply chain network shows the links between organization and how information and materials flow between these links.  The more detailed the supply chain network the more complex and web like the network becomes.

A supply chain network can be strategically designed in such a way as to reduce the cost of the supply chain; it has been suggested by experts that 80% of supply chain costs are determined by location of facilities and the flow of product between the facilities.Supply chain network design is sometimes referred to as ‘Network Modelling’, due to the fact a mathematical model can be created to optimize the supply chain network.

FLOW OF INFORMATION AND CARGO IN A SUPPLY CHAIN NETWORK

The two types of flow in a Supply Chain Network are:

  1. MATERIALS/CARGOES FLOW: Is the movement of goods from raw primary goods (such as Wool, Trees and Coal etc.) to complete goods (TV’s, Radios and Computers) that are to be delivered to the final customer.
  2. INFORMATION FLOW: Is the demand from the end-customer to preceding organizations in the network.

Supply chain allows Firms to move product from the source to the final point of consumption. Leading firms around the world, from large retailers to high-tech electronics manufacturers, have learned to use their supply chain as a strategic weapon.

 

BUSINESS MODELS AND STRATEGIC SOURCING

Business Models.

Business Model is a representation of its core business practices. Despite the size or industry in which a business operates, a business model details how an organization creates and delivers products or services, specific business processes, infrastructure, customer acquisition strategies and the intended customer base. Brick-and-mortar and e-commerce form two categories under which business can operate. In the current business environment, business models come in a variety of forms that include direct sales, franchise, freemium and subscription models.

Consultants at IBM Global Business Services, interviewing 765 corporate and public sector leaders world-wide, found that firms that were financial outperformers put twice as much emphasis on business model innovation as underperformers. Going a step further, Giesen and colleagues (Giesen, Berman, Bell, & Blitz, 2007), also from IBM, looked at the relationship between business model innovation and firm performance.

They identify three types of business model innovation, namely industry models (innovations in industry supply chain), revenue models (innovations in how companies generate value), and enterprise models (innovations in the role the structure of an enterprise plays in new or existing value chains).

They report two key findings:

1) each type of business model innovation can generate success,

2) innovation in enterprise models that focuses on external collaboration and partnerships is particularly effective in older companies as compared to younger ones.

Business Models, Innovation, and Technology Management
The business model concept has also been addressed in the domains of innovation and technology management. Two complementary views seem to dominate the research. The first is that companies commercialize innovative ideas and technologies through their business models.

The second is that the business model represents a new dimension of innovation, which spans the traditional modes of process, product, and organizational innovation, and involves new forms of cooperation and collaboration.Business models can not only entail consequences for technological innovations; they can also be shaped by them. Calia, Guerrini, and Moura (2007) show how technological innovation networks can provide the resources necessary for business model reconfiguration. They present the results of a case study of a technology company in the aluminum industry, finding that the impact of technological innovation, when it is the result of a collaborative effort in a network of technological partners, might not be limited to the new product’s technological features, but can result in changes in the company’s operational and commercial activities, which ultimately
correspond to a change of the business model.

STRATEGIC SOURCING. 

Sourcing refers to a number of procurement practices, aimed at finding, evaluating and engaging suppliers for acquiring goods and services. The scope of strategic sourcing extends beyond supplier price negotiation and takes into account the total cost of ownership.

A systematic and fact‐based approach for optimizing an organization’s
supply base and improving the overall value proposition.

What Strategic Sourcing Entails.

1. Focused on the Total Cost of Ownership (TCO) incorporating
customer needs, organizational goals, and market conditions
2. Getting the best product/ service at the best value.
3. Driven by a rigorous and collaborative approach.
4. Addresses all levers for savings.
5.  Decisions based on fact based analysis and market intelligence
6. A continuous process.

 

PURCHASING VS PROCUREMENT.

Purchasing refers to the process of ordering and receiving goods and services. It is a subset of the wider procurement process. Generally, purchasing refers to the process involved in ordering goods such as request, approval, creation of a purchase order record (a Purchase Order or P.O.) and the receipt of goods.

Procurement is the overarching function that describes the activities
and processes to acquire goods and services. Importantly, and distinct from “purchasing”, procurement involves the activities involved in establishing fundamental requirements, sourcing activities such as
market research and vendor evaluation and negotiation of contracts. It can also include the purchasing activities required to order and receive goods.

KEY POINT: PURCHASING BY NATURE IS REACTIVE WHILE PROCUREMENT IS PROACTIVE.
The procurement process can be divided into five key steps:
a) Define the business need.
You need to understand what the fundamental business requirement is. At this point, it is important to understand the difference between a requirement and a solution. For example, the business
requirement is to source some software to help to get information published on the company intranet. An item of software to publish information on the company intranet is a solution – not a requirement. The requirement is to be able to publish information on the intranet. It may be that an outsourced solution is a better option.
b) Develop the Procurement Strategy.
Depending on the scale of your project, there could be a very wide range of potential solutions and approaches to your business need and a number of ways of researching the market and selecting a supplier.
c) Supplier Selection and Evaluation.
After researching the market and establishing your procurement approach, you need to evaluate the solutions available. This may involve a formal tender process or an online auction. Your criteria for comparing different solutions and suppliers are critical. Weight the key criteria heavily and don’t attach too much importance to aspects that will have little impact on the solution.
d) Negotiation and award.
Even when you have selected a supplier it is important that detailed negotiations are undertaken. This is not just about price. Think in terms of Total Cost of Ownership. A cheap product is not so cheap if the
carriage costs are huge or if the maintenance contract is onerous.
Consider carefully the process by which the goods or services will be ordered and approved; how they will be delivered and returned if necessary; how the invoice process will work and on what terms payment will be made. Considering the whole Purchase to Pay process (P2P) at the outset can reduce costs and risk significantly
e) Induction and Integration.
No goods or services should be ordered or delivered until the contract is signed, but this is not the end. It is vital that the supplier is properly launched and integrated. The P2P process needs to be in place and needs to be understood on both the buy-side and the supplier-side.

 

 

 

For more details on this subject, drop a comment or send a question (s) on our ‘ask a question’ page.

CARGOES

WHAT IS CARGO:

The word cargo refers in particular to goods or produce being conveyed – generally for commercial gain – by ship, boat, or aircraft, although the term is now often extended to cover all types of freight, including that carried by train,van, truck, or intermodal container.

Freight is usually organized into various shipment categories before it is transported. An item’s category is determined by:

  • the type of item being carried. For example, a kettle could fit into the category ‘household goods’.
  • how large the shipment is, in terms of both item size and quantity.
  • how long the item for delivery will be in transit.

Shipments are typically categorized as household goods, express, parcel, and freight shipments.

 

DIFFERENCE BETWEEN CARGO AND FREIGHT. 

Freight is used especially when you transport goods by a train or by a truck. The goods become cargo when they are transported by a ship or by a plane.

Cargo and Freight are two terms related to transporting of goods. The term “freight” is used when the volume of goods are loaded on a semi-trailer on a truck or on a semi-trailer on a train. This is the main reason why there is a freight truck and a freight train. The “freight” is also the term used for the payment when the certain goods are transported. However, freight can also mean a cargo being transported via truck, train, plane, and ship. But mail can’t be considered as freight. Freight can refer to many things. It may mean the product, merchandise, amount payable, or money charged. Most cargo being transported can be referred to as freight.

“Cargo,” on the other hand, is usually used when the goods are transported via plane or ship. This is the main reason why there are cargo ships and cargo planes. Mail may also be called cargo. The term “cargo” is used specifically on goods only; it does not mean the payment or the money being charged for the transport. This means any product that is being transported is always called a cargo. Containers are usually used in transporting the goods called cargo.

 

CATEGORIES OF CARGOES

The categories of cargoes include;

1. Gas Cargo

Gas is one of the more unusual cargoes to move across our oceans. In its raw state, it has none of the free-flowing, easy-to-load properties of liquid cargoes, such as crude oil and grain. So, to make it easier to transport it is converted into that same liquid state by extreme cooling or pressurisation.

The gas itself is normally propane or methane, known as LPG (link to gas in dictionary) and LNG (link to gas in dictionary) respectively and can be used in a variety of applications from environmentally-friendly fuels and refrigerant to propellant in packaged aerosols and in industrial chemical processes.

2. Liquid Bulk Cargo

All of us will have come across liquid bulk cargoes in everyday life in one from or another. From gasoline to fuel our cars, to fruit juices and cooking oil for consumption in the home, it’s difficult to live the lives we live today without them.

These free-flowing liquid cargoes, which also include crude oil, liquefied natural gas and chemicals, are not boxed, bagged or hand stowed. Instead, they are poured into and sucked out of large tank spaces, known as the holds, of a tanker.

3. Dry Bulk Cargo

 From grains to coal and from sugar to cocoa, dry bulk cargoes cover a range of produce and raw materials that have two features in common: they are unpacked and are homogeneous. These two properties make it easier for dry bulk cargoes to be dropped or poured into the hold of a bulk carrier.

As the name suggests, dry bulk cargoes need to be kept dry, any moisture that finds its way into the cargo could ruin the entire load, at considerable cost to the ship owner. It may also be surprising to learn that many dry bulk cargoes are classified as ‘Dangerous Goods’ requiring special attention during loading, transportation and discharge, as they could shift during shipment, causing ship instability.

4. Refrigerated Food Cargo

When we go to the supermarket to buy fresh produce, most of us do not stop to consider where that produce has travelled from. In fact, you may be surprised to learn that less than half the apples sold in major British supermarkets originate from Britain; more likely they have come from European Union states, or even as far a field as New Zealand.

Such fragile and time sensitive cargoes require special transportation that will keep goods at the right temperature to maintain freshness, run to strict schedules to ensure that the produce reaches its final destination in the optimum condition. To meet these demands, special refrigerated cargo ships house temperature-controlled containers suitable for the safe carriage of chilled or frozen cargoes, referred to reefer containers.

A wide range of commodities are shipped under refrigeration, including: fresh fruits and vegetables, fresh and frozen meats, poultry, and seafood, dairy products and eggs, fresh juices and frozen concentrates, and live plants and flowers.

 5. Special Purpose Cargo

There are many different types of cargoes shipped around the world, some more unusual than others. While containers, crude oil and dry bulk get the most attention, other cargoes that fall outside of these categories are just as important to daily life.

Over-sized goods, such as a non-motorised barges or road sections, are one such cargo, while heavy cargoes, such as industrial generators and reactors, also require special treatment. Another specialist cargo is livestock, which needs to be transported in comfortable surroundings so that the cattle or sheep reach their final destination undistressed and in optimum condition.

6. Passengers

It is not just commodities that move from A to B by ship: many of us have experienced life at sea as a cargo, simply by taking a cross-Channel ferry from Dover to Calais. With the many safety and quality considerations necessary for carrying passengers, a cargo of people is in fact not so different to the many others of cargoes carried.

Passenger ships need to cater for the demands of people, be that with the provisions of seating, refreshments, entertainment and/or sleeping facilities. For passenger ships on longer journeys, a huge amount of food and fresh water stores need to be on board and there must be proper facilities for the storage of waste water and the massive amount of rubbish generated.

7. Unitised Cargo

Manufactured products and perishable goods come in a variety of shapes and sizes, often with considerable storage constraints. Consequently, these cargoes need to be treated very differently to free-flowing dry bulk cargoes, like grain.

Unitised cargoes can be very diverse, covering forest products, metals and metal goods, machines, electronics, food chemicals, raw materials, and investment and consumer goods, among others.

 

 

Reference: Marine Soft tech.

For more information on cargoes, you can use the ‘ask a question page’.

MANAGING QUALITY

Quality management can be seen as the entire organization as all functions helped in designing and producing quality. Quality is not just an act of production but something the organization should strive to provide for the customer.

Quality is defined as meeting or exceeding customer requirements now and in the future. Making the product or service fit for the customer’s use. Quality is one of the four key objectives of operations besides cost, flexibility and delivery.

DIMENSIONS OF QUALITY

Eight dimensions of product quality management can be used at a strategic level to analyze quality characteristics. The concept was defined by David Garvin.

There are eight such dimensions of quality. These are:

1. Performance:

It involves the various operating characteristics of the product. For a television set, for example, these characteristics will be the quality of the picture, sound and longevity of the picture tube.

2. Features:

These are characteristics that are supplemental to the basic operating characteristics. In an automobile, for example, a stereo CD player would be an additional feature.

3. Reliability:

Reliability of a product is the degree of dependability and trustworthiness of the benefit of the product for a long period of time.

It addresses the probability that the product will work without interruption or breaking down.

4. Conformance:

It is the degree to which the product conforms to pre- established specifications. All quality products are expected to precisely meet the set standards.

5. Durability:

It measures the length of time that a product performs before a replacement becomes necessary. The durability of home appliances such as a washing machine can range from 10 to 15 years.

6. Serviceability:

Serviceability refers to the promptness, courtesy, proficiency and ease in repair when the product breaks down and is sent for repairs.

7. Aesthetics:

Aesthetic aspect of a product is comparatively subjective in nature and refers to its impact on the human senses such as how it looks, feels, sounds, tastes and so on, depending upon the type of product. Automobile companies make sure that in addition to functional quality, the automobiles are also artistically attractive.

8. Perceived quality:

An equally important dimension of quality is the perception of the quality of the product in the mind of the consumer. Honda cars, Sony Walkman and Rolex watches are perceived to be high quality items by the consumers.

QUALITY MANAGEMENT

Quality management ensures that an organization, product or service is consistent. It has four main components: quality planning, quality control,quality assurance and quality improvement. Quality management is focused not only on product and service quality, but also on the means to achieve it. Quality management, therefore, uses quality assurance and control of processes as well as products to achieve more consistent quality.

Walter A. Shewhart made a major step in the evolution towards quality management by creating a method for quality control for production, using statistical methods, first proposed in 1924. This became the foundation for his ongoing work on statistical quality control. W. Edwards Deming later applied statistical process control methods in the United States during World War II, thereby successfully improving quality in the manufacture of munitions and other strategically important products.

KEY NOTE: THE EIGHT PRINCIPLE FOR QUALITY MANAGEMENT SYSTEM STANDARD INCLUDE:CUSTOMERS FOCUS, Mutually beneficial supplier relationships, , LEADERSHIP,  PROCESS APPROACH, Factual approach to decision making, Involvement of People,  Continual improvement, System approach to management.

For more information on quality management visit ‘ the ask a question page’.