The Making Of A Successful Global Supply Chain
By Alan Gershenhorn
World trade, by its very nature, is more complex than purely domestic commerce. As more American manufacturers and retails continue to enter the global arena, they are becoming familiar with the added demands being placed on their business models. Not surprisingly, they are increasingly and intently focusing on the supply chain.
Many thriving companies know that the competitive advantages that make for success depend on how well they manage international trade. Fundamental amongst these advantages is the deployment of the supply chain, not only as a logistics delivery mechanism, but more importantly, as a strategic part of the business. In order to fully optimize the advantages of a world-class supply chain, best practices often include outsourcing its management. There are multiple reasons, all of which impact on strategic alignment. Outsourcing the global supply chain frequently allows businesses to save capital, access specialized international trade expertise, and gain freedom to better focus on their core competencies of making and selling products.
The decision to outsource, despite many advantages, is not lightly made. It effectively puts much of the company's operation at risk and mandates critical choices: how much of the supply chain and how much of its customer relationships can the company confidently put in the hands of others?
The supply chain industry has evolved as customers' needs changed in the face of trends and business dynamics. By now the list is well known. It includes the new "enabling" technologies such as the Internet and vastly improved supply chain visibility tools. At the same time, increased globalization, with production in Asia (particularly China) is dramatically transforming traditional manufacturing arrangements. The same thing is happening with the emergence of new consumer markets in Asia and Eastern Europe. The process is being accelerated by trade liberalization and, particularly, bilateral free trade agreements.
As these factors converge and companies expand globally, the initiative to provide third-party logistics has correspondingly grown. In order to accomplish strategic goals, companies sought guidance from supply chain and logistics providers as a result of the complexity of the processes it takes to keep commerce moving safely, efficiently and in compliance across borders.
Prior to these activities, the biggest concern supply chain professionals faced was the impact a local disruption, such as a parade or highway accident, had on the flow of commerce. In those days, companies were able to adapt more quickly to disruptions because supply chains were much more localized and controllable-which is much less the case today.
Flexibility and visibility are critical
Now it's another story. Supply chains are much more fragile as they have become more elongated, complex and global. The slightest disruption can now cause ripples through an entire organization, sometimes even entire economies.
World events now have the potential to impact far-flung supply chain arrangements. Terrorist activities, natural catastrophes, wars and labor unrest now have the potential to have their disruption significantly leveraged beyond their immediate occurrence.
In recent years, these grand scale events have highlighted the fragile nature of global supply chains, and the need for "flexibility" to respond to these unforeseen circumstances. Flexibility is all about options in services and capabilities, global reach and geographic locations of operations, and the power of the IT infrastructure. It comes down to the depth of experience and expertise in supply chain management and contingency planning.
Capabilities, reach and expertise are three keys to supply chain flexibility. They increase the probability that risk can be better managed, potential damage controlled, and a competitive advantage maintained. While there are few 'fast and firm' rules, there are certain constant facets, which decision-makers should take into account to insure that their global supply chains possesses sufficient flexibility to be able to overcome adverse developments.
- The scope and scale of the operations, which allows inventory and orders to be dispatched from other locations to replace shipments stalled or blocked;
- Availability of multiple transportation providers so that you can change modes and get preferred status in the event of a wide-based crisis; this portfolio of providers should extend to vendor sources as well;
- Visibility into inventory to know the location of goods so that you can replace lost orders with additional stock in cases of both localized and wide-based crisis;
- A knowledgeable and creative problem-solving team that is able to revamp a network on-the-spot based on emerging conditions;
- Contingency plans in place so that you know what your customers' priorities are - to help you triage and concentrate your efforts appropriately.
Managing and optimizing the freight transportation network is not as simple as it used to be, but managing multiple carriers across multiple modes is a complex task. The available options for air, ocean, ground and rail freight keep expanding. This is good news. Great options make for greater flexibilities for such activities as time sensitive goods, less than container loads and full container loads, as well as the full range of less than truckload and truckload shipments inbound or outbound. But it also makes for more complicated management systems as forward-looking businesses move beyond 'old school' logistics and implement an integrated supply chain.
The integrated supply chain includes transportation-but it is about a lot more. In addition, when extended to the global level it encompasses distribution, order and inventory management, customs brokerage, returns management, parts distribution and warranty services. Add to this the fact that all these independent processes are inter-connected and in order to have visibility, those interconnected relationships must be monitored as goods get 'handed-off' from one system to another.
Visibility is critical to a successful global supply chain, particularly in an era when security, free trade agreements, and regulatory mandates figure ever more prominently in commercial flows. In technical terms, visibility allows businesses to focus on how much inventory is readily available in a warehouse, where it is stored, when ownership is transferred, and when it has been allocated to fulfill an order. In a grander sense, these 'readings' together incorporate all the activities involved in getting goods from maker to seller to buyer. By capturing accurate and relevant information about shipments and inventory, informed decisions about orders about production, inventory and distribution can be made while goods are in transit.
This is looking at the supply chain from end-to-end with a holistic view. If one is to be able to act knowingly on information and foresee how those actions will impact a shipment's movement (as well as how they'll impact customers, costs and deliveries), such a holistic perspective is imperative. If, for example, a business knows of roadblocks occurring ahead of a shipment, it is better able to help avoid delays and provide time to reroute a shipment or inform customers about the severity of an unavoidable delay. The value of true visibility, while it entails tracking shipments, is not simply viewing the inner-workings by way of static information at periodic points. Rather, it is being able to respond to what is visible in the supply chain.
Because needs are continually changing, there will always be additional capabilities needed "yesterday." We, like others, have teams devoted to bringing these capabilities to customers-such as route profiles, expanded line item detail reporting, exception reporting, and multimode seamless tracking.
As is becoming increasingly apparent, the mission of the supply chain professional has expanded and involves improving business processes by bringing providers, shippers, consumers, and goods closer together, and most significantly, enabling global commerce.
The bottom line is that in an age of globalization, goods, information and funds need to move effectively and efficiently on a worldwide scale. Supply chain events need to be synchronized throughout the product life cycle. As with other aspects of business, this is becoming the domain of specialized professionals-integrated logistics providers able to offer the necessary combination of intellectual assets to understand the global supply chain from a systems perspective and the physical assets to implement optimal processes.
Supply chain efficiencies deliver sustainable value
Organizations destined to succeed within globalism need to instill within their corporate cultures the recognition that demand forecasting, procurement, manufacturing, distribution, transportation, and product life cycle activities must all be intertwined. The convergence of all these separate silo functions occurs within the supply chain. As industry leaders have figured out, a well-run supply chain can be a competitive advantage that improves the balance sheet, income statement and customer experience.
Finding supply chain efficiency is not necessarily synonymous with cost cutting, which is generally a short-term solution. Although cutting workforces and operating costs may have immediate impact on decline in operating expenses, it more often than not falls short of intended results. The real value is obtained through strategic measures that have sustainable cost reductions.
Indeed, research we have conducted demonstrates that when supply chain is put at the forefront of every cost reduction strategy, it is possible to obtain a reduction in cost of goods sold that starts at three percent by month two and then subsequently increases to 10 percent into perpetuity. Moreover, supply chain-centric management enables to focus of the organization to shift to more demand-centered production. Supply chain productivity is at the core of most cost models and, perhaps surprisingly to some, also leaders to significant productivity gains. In terms of financial performance, we have found that gaining productivity in the supply chain through reduced working capital and COGS (cost of goods sold), as well as improved asset utilization, yield valuable results. Improvement in these areas hits the bottom line of both income statements and balance sheets.
Efficiencies in the five areas that result from a superior supply chain management-inventory reduction, product rationalization, customer segmentation, supplier base management and network optimization-can go beyond the financials to also help drive a firm's strategic and marketing initiatives. Correspondingly, companies that have made supply chain management a core competency are laying the foundations for an integrated organization able to sustain flexibility and responsiveness vital to growth in the era of globalization.
Alan Gershenhorn is Vice President of Global Transportation and Shared Services at UPS Supply Chain Solutions. Mr. Gershenhorn has 25 years of logistics and distribution experience at UPS, in both the U.S. and international operations.
Sidebar: The Six Characteristics of Companies that Successfully Manage Global Supply Chains
1. They act as 'thought leaders,' who seek and find more efficiency in the supply chain.
2. They maintain global capabilities and partnerships to maximize service reach and expertise.
3. They utilize integrated systems to coordinate activities throughout the entire supply chain from raw materials and components to the end-consumer.
4. They incorporate visibility tools to both track product movements and also obtain information with which to make financial decisions, serve customers, respond quickly to competitive threats, cut costs and speed delivery.
5. They adapt to new security requirements and provide guidance to their partners in order to comply with new regulations.
They encouraging the opening of more world economies to improve trade practices.
The Coming Thing In Logistics Software Is Global Supply Chain Visibility
By Amy Zuckerman
As the 2005 automobile models start flooding from all over the world onto dealer lots, consider all the factors that differentiate one vehicle from another-from model to engine type to color and features. Take those factors and multiply them by each dealer order pouring into assembly and manufacturing plants scattered far and wide. Nowadays, the orders may not just be for a customized paint job, but all the way down to specific engineering options. Each of these inputs reverberates all the way through the global supply chain of industry suppliers.
Now imagine a context where all that information is transmitted globally, 24/7 and in real-time, and you begin to have an inkling of the mind-boggling amount of data that has begun to be processed electronically in the name of Visibility as the New Supply Chain kicks into gear. As Thomas Sanderson, President and Chief Operating Officer of Transplace, a 3PL and logistics software developer based in Plano, Texas, explains, the "volume of information that software systems will have to handle in the future will grow exponentially" as visibility processes in general-and radio frequency technology identification (RFID) and other wireless technologies in particular-mature.
"Instead of tracking products at the stock number level, you'll have to keep that information at every individual case of that product. When you start keeping track of receipts, disbursements, inventory level at the specific case level, those software systems will have to scale up tremendously to handle that amount of increased transaction volume," he says.
David Simchi-Levi, a professor of engineering systems at MIT, and cofounder and chairman of LogicTools, Inc., a Chicago, Illinois-based software vendor, agrees that the New Supply Chain will entail unimaginable complexity to be managed through technology. He cites the expanded need for reliability as well as visibility. One of many technology developers creating products to help 3PLs "manage uncertainty" within the supply chain, Simchi-Levi points out that new software is required to transmit wireless data from devices ranging from cell phones to radio frequency identification (RFID) readers. Then there's software in development to run computerized data warehouses and provides analysis tools. And, software to enable collaboration between supply chain partners-whether shippers, manufacturers or suppliers-so they can share data and information cross enterprises.
The ideal of a fully integrated, collaborative, visible and reliable supply chain is compelling. But, is it really plausible as an operational tool? Drawing-board vision is one thing, implementation another. And, we're certainly not there yet. To determine the present state of the art, World Trade sought out some leading providers-people actually in the trenches serving customers-to discuss current developments in logistics technology. There are solutions being deployed to improve data management, increased use of the web to deploy software and even efforts to create global computer platforms so all functions are integrated worldwide This article offers a glimpse of a number of them, some of which may be the stepping stones to a future 'holy grail' where every party has a seamless global supply chain with 24/7 data visibility.
Dynamic network design
The job of managing the flow of materials and parts to 39 assembly and powertrain plants for Ford Motor Co.'s inbound logistics operation is handled by Penske Logistics, based in Reading, Pennsylvania. Headquartered in Dearborn nearby their customer, Penske experts based at the company's Ford Penske Logistics Center continually pursue cutting-edge software and computing solutions that will allow for real-time monitoring and adjustments to just-in-time manufacturing and shipping/logistics schedules.
Through advances in network design, Penske experts seek to push worldwide supply chain flow to the max. Not surprisingly, one of the top priorities they are exploring, according to Tom McKenna, Penske's Senior Vice President of Logistics Engineering, is real-time data feed into data warehouses that will allow logistics managers to monitor shipping and warehousing events and processes while they occur. "Technologies such as supply chain event monitoring, real-time visibility over the web, wireless and RFID (radio frequency identification), are all capturing more data that tells us about what is occurring within the supply chain," says McKenna. The pressing problem is knowing what to do with the data once you collect it in order to be able to make structural changes to improve an operation.
Penske's answer to data overload is a proprietary framework, or variety of software tools, which they call Dynamic Network Design. According to McKenna, the intent is to "marry the data being captured with business intelligence and statistical analysis software (from companies like Business Objects and SAS) to derive meaningful statistical measures and indicators that can be tracked and interpreted." To what end? "To quickly identify fundamental trends and shifts occurring within the networks themselves."
In the future, he envisions applying what's called "software agents" within their management system network that will be able to automatically conduct network redesign to match supply chain cycles (such redesigns are already being done for major customers but they are done manually).
Web hosting
There are two main ways to deploy software throughout your operation-install it directly in-house or have it downloaded from a web hosting site. Tom Sanderson at Transplace thinks the route to threshold advances will be hosted logistics software. The reason is mostly cost.
"The manufacturers and retailers don't have millions of dollars they want to spend on software licenses, hardware, and implementation fees for logistics software on the chance that 12 or 24 or 36 months later it's going to pay back," he says. "Look at what's happened to sales at i2, Manugistics, and others. It seems pretty clear that the buyers are really balking at that method of delivery."
The hosted model, on the other hand, "lets that software be delivered without the up-front costs and without the license fees," Sanderson explains. "You still need to integrate the systems. You need a link between the manufacturer's ERP (enterprise resource management) system and the logistics software. But, it's not nearly as great an implementation challenge. You don't have the data center issues, the extra licensing fees for things like Oracle, and so on."
Web delivery in his opinion also allows mid-tier players access to more costly software solutions. "Whereas previously really good software could only be affordably implemented by the largest companies, now you can get quite a bit of really high-end software through the hosted or the ASP (application service provider) model, either on a transaction or subscription fee price. So suddenly now, the same type of capability that the big manufacturer or big retailer could have is readily available to the mid-market."
He also argues that a hosted logistics technology platform (of the sort that Transplace provides customers) allows far greater opportunities for collaboration. "We can put a basket of freight into the technology that covers multiple, different types of manufacturers and retailers and look for good synergy that will improve the trucking company utilization, and take empty miles out, and create a win-win by looking across that basket of freight," not to mention the shared visibility and alignment. "That web-based hosted logistics technology lets all of those players link in, both to create information in the systems as well as to have access to the information that's in the systems with nothing more than an Internet connection and a web browser on their desktop. And, all the security can be managed by the provider," he adds.
Linking to the web and wireless
There's another avenue of technology advance being explored. Combine web-based applications with wireless data feed from either satellite transmission or the new 'smart' cell phones and you have some potent new opportunities to drastically beef up transparency throughout your supply chain. Today's cell phones are evolving into the new generation of wireless devices that actually have embedded operating systems based on programming languages like Java that can maneuver between a wide variety of computer operating systems.
This is another arena Penske is exploring, says Peter Smith, Senior Vice President of Logistics Technology, using a wide variety of wireless communication technologies to keep information flowing throughout warehousing and delivery. For example, the company utilizes a Qualcomm satellite communication system that allows "drivers and dispatchers centers to exchange information digitally and capture time-sensitive information such as arrival times, departure times and downtime." All of this information is transmitted in near real-time via satellite network, "which has the added bonus of being able to calculate the truck's location by triangulation," he adds.
Drivers are also issued a Symbol hand-held PDA (pager) device to ensure that correct freight is being picked up and/or delivered at each stop as part of the company's Mobile Order Tracking System (MOTS). Symbol wireless devices have Microsoft-based WinCE operating systems of their own that carry software applications developed by Penske. These devices are loaded on a daily basis with trip information for that day's deliveries or pickups, which are then entered (number of pieces, parts, weights, etc.) in the system, typically by scanning data from a bar code label.
The information collected by MOTS, however, cannot be accessed in real time. Developing the capability to do this constitutes the next level of challenge. To address this, Smith says Penske has adopted a lower cost platform using a smart phone with Java language capability and global positioning to do the trick. Add to these functions the ability to store and forward messages while out of a coverage zone, and he says the smart phones "provide satisfactory and even superior performance relative to satellite service with ten-fold savings in equipment costs, and at half the monthly communication cost."
Versatility is also accentuated through this approach. "One great advantage of mobile computing is that new capabilities can be harnessed without the need to throw out or replace existing backbone supply chain execution systems.
Global integrated platforms
Aligning disparate operating systems and standardizing language within one global IT platform presents one of the great challenges in implementing the New Supply Chain. Bax Global, which operates a global network of nearly 500 offices in 133 countries from its offices in Irvine, California, is pursuing a five-year plan to converge all internal IT systems.
Despite previous efforts to this end, Bax's CIO Doris Hall notes that, "it's hard to manage updates when you converge a system globally and you have to manage time zones, languages and all the basics of working globally." The web presents a great opportunity, however, to do this. "With web technology evolving, it's more secure, fast and stable."
To provide substantive value to a customer's supply chain, key business processes must be aligned with strong communication "all along the way," observes Hall. This, in turn, entails developing global data visibility and warehouses, which Hall points out, require applications that can function in multiple countries, but at present such world-wide integration frequently can't be provided. One alternative is to use integration applications to pull a networked system together, but this represents a lesser solution.
Even with these limitations, though, Hall points out that both financials and data reporting systems are currently integrated for global use, thereby providing "real-time visibility to key information around the world," she says. "When someone enters an operational transaction in Asia, people in the Americas and Europe can see that transaction and plan their action for it." And, once a shipment has arrived at destination, a transmission can be dispatched into the global network that will automatically trigger the customer's invoicing system.
