Executive Briefings

A Fertile Ground For Efficient Supply Chains

A series of successful logistics partnerships belies Latin America's reputation for poor communications, outdated infrastructure and unreliable service.

A lack of high-quality infrastructure doesn't seem to be stopping companies from forging state-of-the-art supply chains in Latin America.

For all the talk of antiquated ports, narrow roads, inadequate airports and state bureaucracies, companies are making few if any compromises on service in Latin America. The region is host to the same quality of logistics services, if fewer in number, than in more developed parts of the world.

General Motors has assembly plants in Santos and Sao Paulo, Brazil that are every bit the equal of its operations in the U.S. and Europe. It maintains a just-in-time supply line with minimal tolerance for error at any point in the process. APL Ltd., the container and logistics arm of Singapore's Neptune Orient Lines Ltd., carries GM's time-sensitive parts and equipment between the U.S. and Brazil, and within Latin America.

Shippers complain of continuing restrictions on imports into Brazil, and high duties on certain consumer items that act as a virtual ban on foreign products. All the same, many are sourcing production there, for sale to the U.S. and within Latin America's own growing consumer market. Companies such as Procter & Gamble, Sony and General Electric are seeing exponential growth in regional sales. Others such as GM, Volkswagen and Lucent are finding in Latin America fertile territory for efficient manufacturing operations.

Such successes are migrating beyond the traditional Latin American markets of Mexico and Brazil into Chile, Venezuela, Argentina and elsewhere. The horrifying inflation of the 1970s and 1980s is gone; in its place are privatization, economic development and partnerships with world-class logistics providers. And while Latin America still has a long way to go before offering consistently reliable infrastructure, much of the continent appears to be traveling irreversibly in that direction.

Asia's recent currency crisis had a serious ripple effect on Latin American economies. On the positive side, instability in Asia caused many companies to look at manufacturing closer to the lucrative U.S. consumer market. NAFTA has provided a further incentive, in the form of duty-free treatment for components assembled and sold within Canada, the U.S. and Mexico.

Moreover, the advent of high-tech communications, particularly the internet, has presented Latin American countries with a relatively inexpensive means of connecting with the rest of the world. For the first time, companies doing business in the region can track finished goods and raw materials throughout their supply chains. APL says it is handling more than 70,000 electronic transmissions per month, on behalf of customers in Latin America.

Even the most seasoned multinationals are turning to established logistics providers in order to gain a foothold in Latin American markets. For 3PLs, the trick is to combine local knowledge with the kind of management expertise that is honed in more developed trades. As a result, many logistics partnerships are still engaged in the agonizing process of trial and error. But there have been plenty of success stories along the way.

Delphi: A Piecemeal Approach to Marriage
The most comprehensive partnerships don't always start out that way. Ryder Systems Inc. took over the cross-border warehousing and transportation business of Delphi Packard Electric Systems in pieces.

Delphi had been using another provider to manage dedicated distribution centers in El Paso and Laredo, Tex., its two gateways for parts flowing between the U.S. and Mexico. Ryder had been hired to handle inbound and outbound transportation.

Either way, it was a big contract. Based in Warren, Ohio, Delphi Packard makes power and signal distribution systems for the world's 20 largest automakers. While its core business remains trucks and automobiles, it recently has expanded into non-automotive products such as smoke alarms and computers.

"Once you get to the Customs inspector,
it's quick. It's getting there that's the
problem."
-Jorge Salas of Ryder Systems

Delphi Packard is one of six divisions of Delphi Automotive Systems, the Troy, Mich.-based parts supplier with 1999 revenues of $29.3bn. Ryder serves numerous units of the parent company, which was spun off by General Motors in an initial public offering in May of 1999.

In the case of Delphi Packard, a previous warehouse operator "was not meeting our expectations," says Jim Borzi, director of Mexico west operations for production, control and logistics. Six months ago, that task was added to the duties of Ryder, which was already routing shipments, managing communications and monitoring the compliance of Mexican carriers on selected routes.

Ryder moves raw materials and components from the U.S., Europe and Asia into the border DCs, where items are cross-docked and shipped over the road to 32 Delphi plants in Mexico. The finished goods are then run back through the DCs to auto manufacturers throughout the U.S.

The job entails approximately 45,000 raw-materials part numbers and 15,000 finished items, all moving under extremely narrow delivery windows, according to Jorge Salas, Ryder's director of customer logistics. In Mexico, the vendor has long-term relationships with a handful of domestic carriers that are strong in their respective regions. Notwithstanding the freedoms of NAFTA, Mexican law requires that all domestic over-the-road shipments be handled by Mexican carriers.

Prior to the Ryder partnership, Delphi Packard relied on a personnel-management firm that left it with no sense of performance levels, says Borzi. By handing the complete package over to Ryder, the company could track activities throughout the supply chain in both directions. Yet Delphi Packard keeps just one of its own employees on hand, with Ryder supplying all warehouse staffing and managing day-to-day operations.

Borzi doesn't worry about being out of touch. "We didn't just hand over the keys," he says. Delphi Packard already was familiar with Ryder as a transportation provider. And it continues to reevaluate the partnership based on mutually developed performance standards.

Despite Ryder's success as a multi-service provider, Delphi Packard prefers to work with more than one third party. For northbound traffic out of Mexico, it uses an independent customs broker for border clearances. Southbound, it does the job in-house, drawing on 20 years' experience in Mexico. But Ryder is still accountable for any disruptions in cross-border flows, says Salas.

Ryder and Delphi Packard have worked to eliminate non-value-adding steps in the supply chain. One way is to maximize use of truckload transportation on long-haul routes southbound to the border DCs. Meanwhile, says Borzi, worker productivity has improved significantly. If actual head count hasn't gone down, it's because Delphi Packard has taken on more contracts over the past 10 months.

Some problems are out of Ryder's control. Veterans of U.S.-Mexico trade have long complained of the punishing delays that trucks experience in crossing the border, especially at Laredo. Competing with armies of passenger cars, and depending on the attitude of customs officials toward a particular shipment, they may take hours or even several days to reach the broker on the other side. A busy day finds trucks backed up for five miles or more.

Delphi Packard's southbound shipments tend to have an easier time at El Paso because that is the crossing point for goods destined for maquiladora plants close to the border. Many items move duty-free because they are destined for reexport after undergoing processing and assembly in the Mexican plants. Laredo, on the other hand, is where shipments cross the border on their way to plants deeper in Mexico's interior. From the viewpoint of customs officials, that is a more complicated transaction, says Salas.

A brand new bridge in Laredo dedicated to commercial truck traffic could speed up the process, but only if customs increases the number of inspectors instead of merely shifting them from one place to the other, says Salas. At the moment, there simply aren't enough bodies to cope with the steady rise in border traffic, which has partially offset efficiencies caused by a reduction of paperwork and other forms of red tape, he says.

Southbound moves occur with relatively few delays at Mexican customs, Salas says. Northbound can be a major problem, as U.S. Customs battles drug traffickers, illegal immigrants and a chronic shortfall of staffing. In El Paso, he says, there are only two inspectors on duty at a time.

Pre-clearance of cargoes, an increasingly popular method driven by the revolution in electronic communications, can only do so much to help. "Once you get [to the inspector], it's quick," Salas says. "It's getting there that's the problem."

Delphi Packard and Ryder are looking at ways to make the whole process more efficient-for example, through the use of returnable containers. Their review will run the gamut from raw materials to finished goods. Not all of those tasks will involve Ryder, says Borzi, "but they are a key contender in all of that."

GE: A Company-Wide Push for Excellence
No company is more obsessed with quality than General Electric Co. Under the leadership of Chairman and Chief Executive Officer Jack Welch, GE has pushed relentlessly for improvements at all of its business units. It is one of the chief adherents of Six Sigma, a rigorous quality program which tolerates only the most infinitesimal rate of performance defects.

GE has taken that same aggressive philosophy to sourcing product in Mexico. Two years ago, it began searching for quality carriers that could participate in a company-wide transportation program linking Mexico with the U.S. The long-term strategy was to bring Canada into the picture as well, allowing GE to deal with a minimal number of reliable providers for all of North America.

That in itself was unusual. Beyond the customary corporate dicta about goal-setting and customer service, GE has granted its business units a high degree of autonomy, especially in the areas of logistics and supply-chain management. Indeed, given the wide disparity of products and services that emanate from those sectors-household appliances, transportation equipment, lighting products, plastics, jet engines, broadcasting, financial services-it's difficult to imagine how GE could lump everything together for purposes of transportation.

In fact, GE never intended to dictate the use of one or more carriers for all of its activities in Mexico. But it did hope to promote sourcing in that country, by developing quality suppliers that could be utilized at the discretion of the relevant business units. Chuck Jakubchak, manager of transportation sourcing, was hired at the corporate level expressly for that purpose.

The name that kept popping up in Jakubchak's research was Roadway Express, Inc. The Akron, Ohio-based carrier didn't have much of a history with GE, although the two happened to be in negotiations around the time Jakubchak was conducting his search in Mexico. He chose the carrier not long after visiting Roadway's facilities in Monterrey.

One strong factor in the selection was Roadway's willingness to participate in the Six Sigma effort in Mexico. Others, according to Jakubchak, included the carrier's North American scope, technology, website, tracking and tracing capabilities, and Border Ambassador service, by which Roadway works with brokers, carriers and customs officials to expedite the movement of freight across the U.S.-Mexico border.

Roadway subsequently won the Hammer Award, bestowed by the federal government for innovative public-private partnerships. It was cited for working with government agencies and the Association of Laredo Forwarding Agents to improve the effectiveness of U.S. Customs' Automated Export Service. Roadway acted as pilot carrier, linking up to its customers via an electronic service center operated by the forwarders' association.

Given a wide array of carriers, and the freedom to choose among them, GE's business units nevertheless found themselves gravitating to Roadway, which offered uniformly fast transit, Jakubchak says. In a number of GE's Mexican operations, some of which were allowing suppliers to arrange for transportation, transit times had been slow or maddeningly inconsistent.

Within six months, the average number of days that GE products spent in transport went from 20 to fewer than 10.

"When we came along with a plan, people started jumping on board," he says. GE business units that make extensive use of Roadway's services include tools, motors and locomotives.

The new program quickly made a difference in GE's Mexican supply chain. Within six months, the average number of days that product spent in transport went from 20 to fewer than 10, according to Bob Carr, Roadway's vice president of international. "No doubt we can take that number down even more," he says.

GE also turned to Roadway for a host of value-added features, including electronic communication of key data. The carrier worked closely with GE's suppliers and plants throughout Mexico to coordinate movements and ensure compliance. One Roadway employee was stationed full-time at the border exclusively on behalf of GE, says Carr.

Roadway also provided an intra-Mexico service that linked plants and suppliers within the country. It works with a dedicated linehaul carrier which runs domestic trailers painted in Roadway colors between Mexico City and points such as Monterrey, Guadalajara and San Luis Potosi. The result: Roadway won GE's

"Carrier of the Year" award in its first full year of serving the company.
The honor was no guarantee of continued business. Despite GE's desire to create long-term partnerships, every choice of carrier is an economic one. "We'd like to leverage GE's volumes among all the divisions," says Jakubchak, "but Roadway has to be competitive."

Roadway conducted supplier training sessions in Monterrey on such topics as proper packing and documentation. And it offered itself as a resource for GE's suppliers to call with additional questions.

As a veteran of the U.S.-Mexico trade, Roadway continues to work at moving goods over the border with a minimum of delays. Carr says the opening of a second bridge at Laredo should ease the extreme congestion that has plagued that crossing for years. The development of Customs' Automated Export System will help by dramatically reducing paperwork; electronic filings under the program increased by 9,300 percent between 1997 and 1999.

Jakubchak expects to make greater use of Roadway beyond Mexico. "The success in Monterrey and Mexico in general has caused us to really take a look at what we're doing in the U.S.," he says. "As we get more comfortable with [Roadway], we see them growing their business with us."

Sony: Ramping Up for Big Growth in Sales
Companies need quick solutions in order to keep pace with rapid growth. In the case of Sony's operations in Mexico, the time between negotiations and the opening of a new distribution center was less than four months.

The Sony supply chain might have seemed sufficient to the casual observer. Prior to this year, the company had one main facility in Mexico City for the domestic distribution of audio and video electronics components, the handling of replacement parts and a service center. The warehouse covered 200,000 square feet. Four others, of approximately 10,000 square feet each, were located in Tijuana, Guadalajara, Monterrey and Veracruz.

But Sony was looking well beyond its current market position in Mexico. It was projecting sales growth of at least 40 percent annually over the next three years, says Carlos Irving Rojas, logistics manager of Sony Mexico. The existing distribution network wouldn't be able to cope. Already the company was having trouble making the necessary transfers of inventory in order to keep up with demand outside Mexico City.

Guadalajara, viewed as Sony's second biggest market in Mexico and its most promising area of growth, was selected as the location for a new and bigger regional distribution center. Sony turned to Alpharetta, Ga.-based Redwood Systems, a subsidiary of Consolidated Freightways, to create and manage the facility.

Following a visit by Sony to the Guadalajara facilities of Redwood, negotiations began in January of this year, with operations under way by mid-April. The new center for Sony covers 50,000 square feet and is projected to expand to 100,000 square feet by year's end. It combines inventory from the previous warehouses in Guadalajara, Monterrey and Veracruz.

Sony trained warehouse personnel on
Thursday, transferred inventory on
Saturday, and shipped the first order on Monday..

Sony continues to occupy three other DCs in Mexico: the main one in Mexico City, and a pair of smaller free trade zone operations in Tijuana and Cancun. The Tijuana facility is run by Border Trade Services, an independent third-party logistics provider. Operations there take up between 10,000 and 20,000 square feet, depending on seasonal requirements.
But Guadalajara is Sony's fastest-growing operation. A dozen other Redwood clients have dedicated space and dock doors there, an arrangement that Rojas views as a plus in the short term. Shared space means shared overhead, he says, at least until Sony's growth necessitates occupying the entire facility within the next two to three years. Other users can be accommodated at Redwood warehouses in the area, says Luis Rivas, the provider's divisional manager for Mexico.

The Sony warehouse represents but a small portion of Redwood's total business in Guadalajara, which is fast becoming a center of high-tech assembly and distribution for Mexico. Redwood's 370,000-square-foot operation includes a 40,000 square-foot semi-clean room for finished assembly of various items. Shipping destinations include South America, Singapore, Israel and Russia.

While consumer electronics shipped out of the new DC are sold only within Mexico, sourcing is from multiple points. Sixty percent of the items are produced in Mexico, 30 percent in Asia and 10 percent in the U.S., says Rojas.

A major selling point of the Redwood facility was its present size and ability to expand. Most Mexican warehouses lack large container yards and access to shipping docks for the easy marshaling of equipment, Rojas says. In Guadalajara, Sony has 56 docks.

The new DC features radio-frequency terminals which connect directly to Sony's AS400 computer system in Mexico City. Data on imports, consolidation and distribution flow into the company's ERP system from J.D. Edwards, which links into Sony's global network. Redwood's menu of services includes receiving, putaway, shipping, and total inventory control.

Sony plans to ship more than $200m worth of product out of Guadalajara this year. That number is expected to grow dramatically. Current volumes are one-quarter those of Mexico City, but should equal them by 2001.

By reducing the number of distribution points within Mexico, Sony hasn't jeopardized its ability to reach customers quickly. On the contrary, says Rojas, the former order-cycle times of 12 to 16 days have been reduced to a maximum of five. The improvements were the result of Sony's supply-chain reengineering effort, in tandem with logistics partners such as Redwood.

Sony wasted no time getting up to speed in Guadalajara. With the help of Redwood and its own experts, it trained warehouse personnel on a Thursday, transferred inventory from the old locations on Saturday, and shipped the first order on Monday. Rojas says the new facility is second only to the Mexico City distribution center of Wal-Mart Stores as the best in Mexico.

The country still presents challenges. There is a substantial knowledge gap between young, adaptable workers and their older managers, Rojas says. And Mexico's infrastructure still isn't good enough to sustain a modern-day supply-chain, with its demands for minimal inventory, fast transit, and strict adherence to schedules.

The presence of 3PLs from the U.S., Japan and Europe has raised the level of logistics performance in Mexico, says Rojas. Still, infrastructure investment is lacking, especially outside the major industrial and distribution centers of Mexico City, Guadalajara and Monterrey.

Manufacturers are increasingly turning to 3PLs to help defray the cost of building an efficient supply chain in Mexico. "I have limited resources of international traffic," says Rojas. "Redwood will be a means of increasing my operation without affecting my internal numbers."

Lucent, TMA: The Secret Is Dedicated Equipment
A third-party logistics provider and truckload carrier are working together to solve problems of equipment balance and availability in Mexico.

The 3PL, Transportation Management Associates Inc. (TMA) of Mocksville, N.C., relies on the trailer-pool and haulage services of Joplin, Mo.-based Contract Freighters Inc. to move product between Mexico and the U.S.

They operate in a trade that has been marked by equipment shortages, cargo theft, political strife, red tape, and chronic congestion at the border. Even with passage of NAFTA, shippers still face severe challenges in getting goods to market on time. Delays are common in the handoff between U.S. and Mexican carriers at the border.

The situation was worse back in early 1996, when the consumer products division of Lucent Technologies Inc. chose to distribute telephones and answering machines directly from its plant in Guadalajara, instead of moving them through distribution centers in California and North Carolina first.

TMA was given the job of shifting all existing inventories to Mexico. For transportation, it turned to truckload carrier CFI, a specialist in cross-border business. The trucker utilized vans and flatbeds to complete the one-time job.

More work was to come. TMA soon was given responsibility for managing Lucent's outbound program of finished product back to the U.S. It was a critical time for Murray Hill, N.J.-based Lucent, the former Bell Laboratories, which had just been spun off by AT&T Corp. and needed to prove itself as an independent company.

TMA had told Lucent it could do a better job of servicing outbound traffic from Mexico than the previous provider. Now it had to make good on the promise. Essential to the plan were a steady stream of quality equipment and a means of crossing the border with minimal delays.

To ensure the continuous movement of Lucent's northbound business, CFI established a dedicated pool of trailers with a select number of Mexican carriers. Freight would be carried to the U.S. terminals of less-than-truckload carriers or parcel handlers, for next-day delivery to major retailers such as Best Buy, Staples and Office Max.

For the first leg of the journey, CFI chose Mexican carriers with whom it had close ties, says Gary Nichols, director of dedicated fleet services. It helped TMA to select operators with a reputation for punctuality and well-maintained equipment. Further expediting Lucent's freight was a pre-clearance program with U.S. Customs for high-volume goods of a repetitious nature.

Lucent had just been spun off by AT&T Corp. and needed to prove itself as an
independent company..

CFI plays a critical role as intermediary between Mexican carriers and LTL providers in the U.S. "We've got to be at their facilities at a specified time each day," says Nichols. "If we miss, it's a total service failure."

Failures are a rarity. According to TMA co-owner Lee McCulloh, CFI's on-time delivery rate is 99 percent. In what Nichols claims is the industry's first dedicated cross-border service, CFI has contracts with Mexican carriers who assign drivers permanently to the same trucks, and equip them with on-board computers.

As a result, CFI can provide 48 hours' transit from Mexico to Knoxville, Tenn. five times a week, promising deliveries on a just-in-time basis. That translates into three to five days' transit from the manufacturing line in Guadalajara to consumers anywhere in the U.S.

The arrangement continues in the wake of Lucent's sale early this year of its consumer telephone manufacturing business to Hong Kong-based VTech Holdings Ltd. The $113m deal included Lucent's assembly plant in Guadalajara, giving VTech its first factory outside China. And it doubled the size of VTech's telecommunications products business overnight.
TMA sought to balance out Lucent's northbound program with freight moving in the other direction. Through CFI's connection to Tremec, a Mexican producer of automotive transmissions in the state of Queretaro, the 3PL was hired to manage an inbound program. (CFI also participates in outbound movements for Tremec, but not in conjunction with TMA.)
TMA spots CFI trailers at an LTL hub in Indianapolis, which receives parts from Tremec's large vendor base in the U.S. Midwest. From there, CFI moves full truckloads to Queretaro. TMA, in turn, scans invoices and relays shipment data to Tremec over the internet. The carrier's service partners utilize CFI's bilingual website for status information.

Tremec's freight used to be shipped south by multiple LTL carriers at a higher cost. The consignee had no clear idea as to what was in the trailers. With TMA overseeing inventory, Tremec now has full visibility of product on the move, McCulloh says.

TMA manages another inbound program for Xerox Corp., which ships parts for copier machines from the U.S. to a plant in Mexico. A New York-based cartage agent moves the materials over a cross-dock into dedicated CFI trailers for the trip south.

Additional equipment is frequently required to handle peak volumes. "We've tried every other named big carrier there is as a backup," says McCulloh. "But we couldn't do it without CFI."

Security hasn't been a big concern for TMA and its clients. Most high-value freight moves within Mexico in escorted convoys, which have cut down sharply on hijackings. The location and status of CFI's trucks can be pinpointed instantly through satellite tracking.

The state of roads and communications in Mexico's interior leaves much to be desired, although Nichols notes recent improvements. Phone lines for internet-based tracking and tracing are more stable than those for voice, he says, and Mexico's phone system has been upgraded.

CFI's own assets are expanding in line with growth in cross-border traffic. Recently it acquired enough land to double the size of its terminal facility at Laredo. It has also increased operations at El Paso, and has opened a new facility at Otay Mesa, Calif.
The real key to efficiency in the trade - full access by U.S. and Mexican truckers to each other's domestic routes - is still a ways off, if it ever comes. In the meantime, shippers and carriers are pursuing creative solutions that make the border as inconsequential as possible.

Dana: Distance No Barrier To Serving the U.S.
One of the unwritten laws of third-party logistics might be: Never say no to new business. Even if you have only two days in which to take over a big account.

C.H. Robinson Worldwide Inc., the freight forwarder and logistics provider based in Eden Prairie, Minn., had been courting the business of Danaven C.A., the Venezuelan arm of auto-parts giant Dana Corp. Joe Mulvehill, vice president of C.H. Robinson, was working in the Miami office back in 1990, when he got word that Danaven was ready to switch from another third party.

By convincing truckers to eliminate
overland charges to Jacksonville,
Robinson saved Danaven $1.5m a year..

Although it represents only a slice of Toledo, Ohio-based Dana Corp., which had sales of more than $13bn last year, Danaven controls a substantial amount of business between Venezuela and the U.S. Robinson oversees the door-to-door movement of auto parts from 13 Venezuelan manufacturers to Dana's U.S. plants, as well as to vehicle makers.

Products moving on a regular basis include filters, hoses, belts, pistons and tubing, according to Danaven Operations Director Gustavo Flores. The division's annual sales are around $200m a year, 65 percent of which is exported.

Robinson's responsibilities include moving shipments from Venezuelan plants to the port, usually Caracas; customs clearance into the U.S.; and domestic trucking to final destination. In the course of a move, Robinson will spot trailers at the plant or port, secure bookings and track shipments by ocean. Danaven subsequently entrusted the provider with its supply chain in the reverse direction, for the movement of spares from the U.S. to assembly points in Venezuela.

Robinson also negotiates with ocean carriers. It moves Danaven's parts in cost-efficient containerloads, consolidating product from the Venezuelan plants for shipment overseas.

Mulvehill says Danaven initially was reluctant to turn over the responsibility for carrier negotiations. It was persuaded by the promise of savings resulting from the combined purchasing power of Robinson's client base. The provider's first contract netted a reduction of between $100 and $150 per container-not an insubstantial amount, considering that Danaven was shipping 3,000 containers a year by ocean.

Robinson has crafted a number of creative solutions over the life of the partnership. Three years ago, it shifted its U.S. receiving warehouse from Miami to Jacksonville. At the same time, it convinced truckers to erase the $300-per-shipment rate differential between the two cities, eliminating overland charges to Jacksonville, where distribution and warehousing were cheaper. The concession saved Danaven $1.5m a year, Mulvehill says.

Many obstacles stand in the way of forging an efficient supply chain between Venezuela and the rest of the world. Flores cites high inflation and overvaluation of Venezuela's currency, the bolivar. The Venezuelan economy has long been dominated by petroleum production, causing its fortunes to rise and fall in line with worldwide oil prices. The excessive value of the bolivar could serve as a disincentive to importers and hamper the nation's competitiveness in global markets, Flores says.

Access to petroleum income has its obvious upside. Compared with much of Latin America, Venezuela's transportation infrastructure is in reasonably good condition and could support additional trade. "Infrastructure is not optimal," adds Mulvehill, "but it's sufficient."

At least most of the time. Last December's heavy rains led to extensive flooding, with mudslides forcing temporary closure of the Port of Caracas. Freight had to be shipped through the smaller facilities of Puerto Cabello, 75 miles away.

As of May, shippers were still feeling the impact of the winter rains, although it had lessened from the height of the crisis in January and February. "It's a seven-day-a-week, 24-hour-a-day job just trying to get through it," Mulvehill says.

For the most part, Danaven doesn't experience the logistical problems of other Latin American importers and exporters. Monsanto, the big producer of chemicals and agricultural products, must cope with a seasonal surge in the movement of seeds from Argentina and Chile to the U.S. The vast majority moves within a six-week period, forcing the shipper to employ a combination of regular container services, chartered vessels and even air cargo to get its product to market.

The nature of the Latin American trades has changed drastically in the last year and a half, Mulvehill says. Before then, northbound movements were relatively inexpensive, and southbound was the heavy leg. Today, because of the sluggish state of regional economies, the problem is reversed. Northbound freight rates are on the rise, and southbound is the bargain.

Robinson's duties on behalf of Dana have recently broadened to include movements from the U.S. to Europe, and from Europe to South America. Flores says Danaven is building a new operation in Venezuela to sell product in other international markets, a program in which Robinson could play a role. According to Mulvehill, the provider is already beginning to handle shipments from Brazil to Venezuela.

P&G: The Global Giant Starts Small, Grows Fast
It's not easy to think of Procter & Gamble as a small company. But that's a fair description of the multinational's market position in Chile just two years ago.

Cincinnati, Ohio-based P&G had been involved in a joint venture with a local Chilean paper company for the distribution of diapers and feminine protection products. The supporting infrastructure for that arrangement was a hodgepodge of half a dozen warehouses in the Santiago area. Most were no bigger than 2,500 square meters and lacked modern features such as multiple doors and racks, says Luis Erana, suppl- chain manager for P&G in Chile.
Given the modest nature of P&G's Chilean business, the setup was adequate. At least until the company made its move for a bigger slice of the market.

Buying out its partner's half share in the joint venture, P&G immediately saw a small increase in volume with the addition of health and beauty care products. But the company had more ambitious plans. It was preparing to import detergents, dishwashing soap and other major items from its global portfolio.

P&G anticipated a rise in throughput from 20,000 to nearly 60,000 cases a day. Erana, who had just arrived in Chile, devised a three-year plan to build enough warehouse space to handle the surge.

Vowing not to continue the old pattern of numerous small and inadequate facilities, Erana called for a master distribution center in Santiago to service all of P&G's brands in Chile. And he began searching for a "world-class" logistics provider with whom to partner.

The final choice of Jacksonville, Fla.-based GATX Logistics seemed an unlikely one, given its history with P&G. In the early 1990s, it was chosen to operate a warehouse for cosmetics products in Mexico. That arrangement was terminated when P&G deemed the facility inadequate. For its part, GATX felt P&G's requirements were unrealistic, given a lack of quality targets and inventory controls, according to Fabio Duque, operations manager in Santiago. Whatever the reason for the failure, the provider didn't get another P&G contract for nearly a decade.

It jumped at the chance to prove itself in Chile. Erana says P&G was impressed by GATX's knowledge of the market, achieved in part through a joint venture with local partners. Duque says GATX worked hard to commit to P&G's expectations while quoting the best possible price. By the time the new contract took effect in August of 1999, Duque had been inside P&G's warehousing operation for two months, learning exactly how it worked. "They needed a smooth transition," he explains.

Eight months later, GATX opened a new state-of-the-art warehouse covering 30,000 square meters, of which 20,000 are currently dedicated to P&G. (The rest is used by Boston-based Gillette Co.) The facility includes 15 doors and dock levelers for easier loading and unloading.

In October of this year, the installation of racks and other specialized equipment will reduce P&G's share of the warehouse to less than 18,000 square feet. The change should save the company $10,000 a month, says Duque.

The new building is more than a place to store product while it awaits shipment to stores. It was designed as a flow-through center with the smallest amount of buffer stock possible. GATX performs a number of value-added services, including the application of stickers to comply with local regulations, customization of product, and inclusion of promotional materials and packaging. Much of that work used to be done by several vendors around Santiago, Erana says.

P&G moved into a single distribution facility in Chile with minimal disruptions. There were no missed shipments as the company shifted inventory and operations. Says Erana: "We went from nothing to world class in a weekend."

Perhaps mindful of its experience with P&G in Mexico, GATX provides the customer with monthly reports on its performance, including full cost of operation. It tracks key metrics on both a daily and monthly basis, and has achieved nearly 100-percent inventory accuracy, claims Duque.

Chile's geography presents logistics planners with unique challenges. The long, narrow country runs nearly 4,000 miles from north to south. Nearly half the nation's population lives around Santiago, with the rest scattered in remote areas. The north consists mostly of desert, while land in the south breaks up into a series of fjords.

Freight costs can be high because the tight concentration of population presents carriers with few backhaul opportunities, says Erana. When product is available for hauling in the opposite direction, it often consists of agricultural, mining or seafood items, which are incompatible with consumer products.

For P&G, some of those disadvantages are offset by the presence of Gillette in the same Santiago warehouse. Duque says GATX has been working to build more full pallets to stores around Chile for better economies of scale. It can combine shipments by the two customers for even greater efficiencies - an idea that remains novel in the supposedly advanced U.S.

P&G currently arranges transportation into and out of the Santiago warehouse, but that could change as the company becomes more accustomed to outsourcing in Chile. Duque says the company is already reaching beyond the country's borders, exporting small amounts of product to Peru, Bolivia and Venezuela.

Erana says Chile will play an important role in regional distribution. Its port infrastructure is in good condition, and with the development of roads running in an east-west direction, "it would be the door into [South America's] southern cone."

A lack of high-quality infrastructure doesn't seem to be stopping companies from forging state-of-the-art supply chains in Latin America.

For all the talk of antiquated ports, narrow roads, inadequate airports and state bureaucracies, companies are making few if any compromises on service in Latin America. The region is host to the same quality of logistics services, if fewer in number, than in more developed parts of the world.

General Motors has assembly plants in Santos and Sao Paulo, Brazil that are every bit the equal of its operations in the U.S. and Europe. It maintains a just-in-time supply line with minimal tolerance for error at any point in the process. APL Ltd., the container and logistics arm of Singapore's Neptune Orient Lines Ltd., carries GM's time-sensitive parts and equipment between the U.S. and Brazil, and within Latin America.

Shippers complain of continuing restrictions on imports into Brazil, and high duties on certain consumer items that act as a virtual ban on foreign products. All the same, many are sourcing production there, for sale to the U.S. and within Latin America's own growing consumer market. Companies such as Procter & Gamble, Sony and General Electric are seeing exponential growth in regional sales. Others such as GM, Volkswagen and Lucent are finding in Latin America fertile territory for efficient manufacturing operations.

Such successes are migrating beyond the traditional Latin American markets of Mexico and Brazil into Chile, Venezuela, Argentina and elsewhere. The horrifying inflation of the 1970s and 1980s is gone; in its place are privatization, economic development and partnerships with world-class logistics providers. And while Latin America still has a long way to go before offering consistently reliable infrastructure, much of the continent appears to be traveling irreversibly in that direction.

Asia's recent currency crisis had a serious ripple effect on Latin American economies. On the positive side, instability in Asia caused many companies to look at manufacturing closer to the lucrative U.S. consumer market. NAFTA has provided a further incentive, in the form of duty-free treatment for components assembled and sold within Canada, the U.S. and Mexico.

Moreover, the advent of high-tech communications, particularly the internet, has presented Latin American countries with a relatively inexpensive means of connecting with the rest of the world. For the first time, companies doing business in the region can track finished goods and raw materials throughout their supply chains. APL says it is handling more than 70,000 electronic transmissions per month, on behalf of customers in Latin America.

Even the most seasoned multinationals are turning to established logistics providers in order to gain a foothold in Latin American markets. For 3PLs, the trick is to combine local knowledge with the kind of management expertise that is honed in more developed trades. As a result, many logistics partnerships are still engaged in the agonizing process of trial and error. But there have been plenty of success stories along the way.

Delphi: A Piecemeal Approach to Marriage
The most comprehensive partnerships don't always start out that way. Ryder Systems Inc. took over the cross-border warehousing and transportation business of Delphi Packard Electric Systems in pieces.

Delphi had been using another provider to manage dedicated distribution centers in El Paso and Laredo, Tex., its two gateways for parts flowing between the U.S. and Mexico. Ryder had been hired to handle inbound and outbound transportation.

Either way, it was a big contract. Based in Warren, Ohio, Delphi Packard makes power and signal distribution systems for the world's 20 largest automakers. While its core business remains trucks and automobiles, it recently has expanded into non-automotive products such as smoke alarms and computers.

"Once you get to the Customs inspector,
it's quick. It's getting there that's the
problem."
-Jorge Salas of Ryder Systems

Delphi Packard is one of six divisions of Delphi Automotive Systems, the Troy, Mich.-based parts supplier with 1999 revenues of $29.3bn. Ryder serves numerous units of the parent company, which was spun off by General Motors in an initial public offering in May of 1999.

In the case of Delphi Packard, a previous warehouse operator "was not meeting our expectations," says Jim Borzi, director of Mexico west operations for production, control and logistics. Six months ago, that task was added to the duties of Ryder, which was already routing shipments, managing communications and monitoring the compliance of Mexican carriers on selected routes.

Ryder moves raw materials and components from the U.S., Europe and Asia into the border DCs, where items are cross-docked and shipped over the road to 32 Delphi plants in Mexico. The finished goods are then run back through the DCs to auto manufacturers throughout the U.S.

The job entails approximately 45,000 raw-materials part numbers and 15,000 finished items, all moving under extremely narrow delivery windows, according to Jorge Salas, Ryder's director of customer logistics. In Mexico, the vendor has long-term relationships with a handful of domestic carriers that are strong in their respective regions. Notwithstanding the freedoms of NAFTA, Mexican law requires that all domestic over-the-road shipments be handled by Mexican carriers.

Prior to the Ryder partnership, Delphi Packard relied on a personnel-management firm that left it with no sense of performance levels, says Borzi. By handing the complete package over to Ryder, the company could track activities throughout the supply chain in both directions. Yet Delphi Packard keeps just one of its own employees on hand, with Ryder supplying all warehouse staffing and managing day-to-day operations.

Borzi doesn't worry about being out of touch. "We didn't just hand over the keys," he says. Delphi Packard already was familiar with Ryder as a transportation provider. And it continues to reevaluate the partnership based on mutually developed performance standards.

Despite Ryder's success as a multi-service provider, Delphi Packard prefers to work with more than one third party. For northbound traffic out of Mexico, it uses an independent customs broker for border clearances. Southbound, it does the job in-house, drawing on 20 years' experience in Mexico. But Ryder is still accountable for any disruptions in cross-border flows, says Salas.

Ryder and Delphi Packard have worked to eliminate non-value-adding steps in the supply chain. One way is to maximize use of truckload transportation on long-haul routes southbound to the border DCs. Meanwhile, says Borzi, worker productivity has improved significantly. If actual head count hasn't gone down, it's because Delphi Packard has taken on more contracts over the past 10 months.

Some problems are out of Ryder's control. Veterans of U.S.-Mexico trade have long complained of the punishing delays that trucks experience in crossing the border, especially at Laredo. Competing with armies of passenger cars, and depending on the attitude of customs officials toward a particular shipment, they may take hours or even several days to reach the broker on the other side. A busy day finds trucks backed up for five miles or more.

Delphi Packard's southbound shipments tend to have an easier time at El Paso because that is the crossing point for goods destined for maquiladora plants close to the border. Many items move duty-free because they are destined for reexport after undergoing processing and assembly in the Mexican plants. Laredo, on the other hand, is where shipments cross the border on their way to plants deeper in Mexico's interior. From the viewpoint of customs officials, that is a more complicated transaction, says Salas.

A brand new bridge in Laredo dedicated to commercial truck traffic could speed up the process, but only if customs increases the number of inspectors instead of merely shifting them from one place to the other, says Salas. At the moment, there simply aren't enough bodies to cope with the steady rise in border traffic, which has partially offset efficiencies caused by a reduction of paperwork and other forms of red tape, he says.

Southbound moves occur with relatively few delays at Mexican customs, Salas says. Northbound can be a major problem, as U.S. Customs battles drug traffickers, illegal immigrants and a chronic shortfall of staffing. In El Paso, he says, there are only two inspectors on duty at a time.

Pre-clearance of cargoes, an increasingly popular method driven by the revolution in electronic communications, can only do so much to help. "Once you get [to the inspector], it's quick," Salas says. "It's getting there that's the problem."

Delphi Packard and Ryder are looking at ways to make the whole process more efficient-for example, through the use of returnable containers. Their review will run the gamut from raw materials to finished goods. Not all of those tasks will involve Ryder, says Borzi, "but they are a key contender in all of that."

GE: A Company-Wide Push for Excellence
No company is more obsessed with quality than General Electric Co. Under the leadership of Chairman and Chief Executive Officer Jack Welch, GE has pushed relentlessly for improvements at all of its business units. It is one of the chief adherents of Six Sigma, a rigorous quality program which tolerates only the most infinitesimal rate of performance defects.

GE has taken that same aggressive philosophy to sourcing product in Mexico. Two years ago, it began searching for quality carriers that could participate in a company-wide transportation program linking Mexico with the U.S. The long-term strategy was to bring Canada into the picture as well, allowing GE to deal with a minimal number of reliable providers for all of North America.

That in itself was unusual. Beyond the customary corporate dicta about goal-setting and customer service, GE has granted its business units a high degree of autonomy, especially in the areas of logistics and supply-chain management. Indeed, given the wide disparity of products and services that emanate from those sectors-household appliances, transportation equipment, lighting products, plastics, jet engines, broadcasting, financial services-it's difficult to imagine how GE could lump everything together for purposes of transportation.

In fact, GE never intended to dictate the use of one or more carriers for all of its activities in Mexico. But it did hope to promote sourcing in that country, by developing quality suppliers that could be utilized at the discretion of the relevant business units. Chuck Jakubchak, manager of transportation sourcing, was hired at the corporate level expressly for that purpose.

The name that kept popping up in Jakubchak's research was Roadway Express, Inc. The Akron, Ohio-based carrier didn't have much of a history with GE, although the two happened to be in negotiations around the time Jakubchak was conducting his search in Mexico. He chose the carrier not long after visiting Roadway's facilities in Monterrey.

One strong factor in the selection was Roadway's willingness to participate in the Six Sigma effort in Mexico. Others, according to Jakubchak, included the carrier's North American scope, technology, website, tracking and tracing capabilities, and Border Ambassador service, by which Roadway works with brokers, carriers and customs officials to expedite the movement of freight across the U.S.-Mexico border.

Roadway subsequently won the Hammer Award, bestowed by the federal government for innovative public-private partnerships. It was cited for working with government agencies and the Association of Laredo Forwarding Agents to improve the effectiveness of U.S. Customs' Automated Export Service. Roadway acted as pilot carrier, linking up to its customers via an electronic service center operated by the forwarders' association.

Given a wide array of carriers, and the freedom to choose among them, GE's business units nevertheless found themselves gravitating to Roadway, which offered uniformly fast transit, Jakubchak says. In a number of GE's Mexican operations, some of which were allowing suppliers to arrange for transportation, transit times had been slow or maddeningly inconsistent.

Within six months, the average number of days that GE products spent in transport went from 20 to fewer than 10.

"When we came along with a plan, people started jumping on board," he says. GE business units that make extensive use of Roadway's services include tools, motors and locomotives.

The new program quickly made a difference in GE's Mexican supply chain. Within six months, the average number of days that product spent in transport went from 20 to fewer than 10, according to Bob Carr, Roadway's vice president of international. "No doubt we can take that number down even more," he says.

GE also turned to Roadway for a host of value-added features, including electronic communication of key data. The carrier worked closely with GE's suppliers and plants throughout Mexico to coordinate movements and ensure compliance. One Roadway employee was stationed full-time at the border exclusively on behalf of GE, says Carr.

Roadway also provided an intra-Mexico service that linked plants and suppliers within the country. It works with a dedicated linehaul carrier which runs domestic trailers painted in Roadway colors between Mexico City and points such as Monterrey, Guadalajara and San Luis Potosi. The result: Roadway won GE's

"Carrier of the Year" award in its first full year of serving the company.
The honor was no guarantee of continued business. Despite GE's desire to create long-term partnerships, every choice of carrier is an economic one. "We'd like to leverage GE's volumes among all the divisions," says Jakubchak, "but Roadway has to be competitive."

Roadway conducted supplier training sessions in Monterrey on such topics as proper packing and documentation. And it offered itself as a resource for GE's suppliers to call with additional questions.

As a veteran of the U.S.-Mexico trade, Roadway continues to work at moving goods over the border with a minimum of delays. Carr says the opening of a second bridge at Laredo should ease the extreme congestion that has plagued that crossing for years. The development of Customs' Automated Export System will help by dramatically reducing paperwork; electronic filings under the program increased by 9,300 percent between 1997 and 1999.

Jakubchak expects to make greater use of Roadway beyond Mexico. "The success in Monterrey and Mexico in general has caused us to really take a look at what we're doing in the U.S.," he says. "As we get more comfortable with [Roadway], we see them growing their business with us."

Sony: Ramping Up for Big Growth in Sales
Companies need quick solutions in order to keep pace with rapid growth. In the case of Sony's operations in Mexico, the time between negotiations and the opening of a new distribution center was less than four months.

The Sony supply chain might have seemed sufficient to the casual observer. Prior to this year, the company had one main facility in Mexico City for the domestic distribution of audio and video electronics components, the handling of replacement parts and a service center. The warehouse covered 200,000 square feet. Four others, of approximately 10,000 square feet each, were located in Tijuana, Guadalajara, Monterrey and Veracruz.

But Sony was looking well beyond its current market position in Mexico. It was projecting sales growth of at least 40 percent annually over the next three years, says Carlos Irving Rojas, logistics manager of Sony Mexico. The existing distribution network wouldn't be able to cope. Already the company was having trouble making the necessary transfers of inventory in order to keep up with demand outside Mexico City.

Guadalajara, viewed as Sony's second biggest market in Mexico and its most promising area of growth, was selected as the location for a new and bigger regional distribution center. Sony turned to Alpharetta, Ga.-based Redwood Systems, a subsidiary of Consolidated Freightways, to create and manage the facility.

Following a visit by Sony to the Guadalajara facilities of Redwood, negotiations began in January of this year, with operations under way by mid-April. The new center for Sony covers 50,000 square feet and is projected to expand to 100,000 square feet by year's end. It combines inventory from the previous warehouses in Guadalajara, Monterrey and Veracruz.

Sony trained warehouse personnel on
Thursday, transferred inventory on
Saturday, and shipped the first order on Monday..

Sony continues to occupy three other DCs in Mexico: the main one in Mexico City, and a pair of smaller free trade zone operations in Tijuana and Cancun. The Tijuana facility is run by Border Trade Services, an independent third-party logistics provider. Operations there take up between 10,000 and 20,000 square feet, depending on seasonal requirements.
But Guadalajara is Sony's fastest-growing operation. A dozen other Redwood clients have dedicated space and dock doors there, an arrangement that Rojas views as a plus in the short term. Shared space means shared overhead, he says, at least until Sony's growth necessitates occupying the entire facility within the next two to three years. Other users can be accommodated at Redwood warehouses in the area, says Luis Rivas, the provider's divisional manager for Mexico.

The Sony warehouse represents but a small portion of Redwood's total business in Guadalajara, which is fast becoming a center of high-tech assembly and distribution for Mexico. Redwood's 370,000-square-foot operation includes a 40,000 square-foot semi-clean room for finished assembly of various items. Shipping destinations include South America, Singapore, Israel and Russia.

While consumer electronics shipped out of the new DC are sold only within Mexico, sourcing is from multiple points. Sixty percent of the items are produced in Mexico, 30 percent in Asia and 10 percent in the U.S., says Rojas.

A major selling point of the Redwood facility was its present size and ability to expand. Most Mexican warehouses lack large container yards and access to shipping docks for the easy marshaling of equipment, Rojas says. In Guadalajara, Sony has 56 docks.

The new DC features radio-frequency terminals which connect directly to Sony's AS400 computer system in Mexico City. Data on imports, consolidation and distribution flow into the company's ERP system from J.D. Edwards, which links into Sony's global network. Redwood's menu of services includes receiving, putaway, shipping, and total inventory control.

Sony plans to ship more than $200m worth of product out of Guadalajara this year. That number is expected to grow dramatically. Current volumes are one-quarter those of Mexico City, but should equal them by 2001.

By reducing the number of distribution points within Mexico, Sony hasn't jeopardized its ability to reach customers quickly. On the contrary, says Rojas, the former order-cycle times of 12 to 16 days have been reduced to a maximum of five. The improvements were the result of Sony's supply-chain reengineering effort, in tandem with logistics partners such as Redwood.

Sony wasted no time getting up to speed in Guadalajara. With the help of Redwood and its own experts, it trained warehouse personnel on a Thursday, transferred inventory from the old locations on Saturday, and shipped the first order on Monday. Rojas says the new facility is second only to the Mexico City distribution center of Wal-Mart Stores as the best in Mexico.

The country still presents challenges. There is a substantial knowledge gap between young, adaptable workers and their older managers, Rojas says. And Mexico's infrastructure still isn't good enough to sustain a modern-day supply-chain, with its demands for minimal inventory, fast transit, and strict adherence to schedules.

The presence of 3PLs from the U.S., Japan and Europe has raised the level of logistics performance in Mexico, says Rojas. Still, infrastructure investment is lacking, especially outside the major industrial and distribution centers of Mexico City, Guadalajara and Monterrey.

Manufacturers are increasingly turning to 3PLs to help defray the cost of building an efficient supply chain in Mexico. "I have limited resources of international traffic," says Rojas. "Redwood will be a means of increasing my operation without affecting my internal numbers."

Lucent, TMA: The Secret Is Dedicated Equipment
A third-party logistics provider and truckload carrier are working together to solve problems of equipment balance and availability in Mexico.

The 3PL, Transportation Management Associates Inc. (TMA) of Mocksville, N.C., relies on the trailer-pool and haulage services of Joplin, Mo.-based Contract Freighters Inc. to move product between Mexico and the U.S.

They operate in a trade that has been marked by equipment shortages, cargo theft, political strife, red tape, and chronic congestion at the border. Even with passage of NAFTA, shippers still face severe challenges in getting goods to market on time. Delays are common in the handoff between U.S. and Mexican carriers at the border.

The situation was worse back in early 1996, when the consumer products division of Lucent Technologies Inc. chose to distribute telephones and answering machines directly from its plant in Guadalajara, instead of moving them through distribution centers in California and North Carolina first.

TMA was given the job of shifting all existing inventories to Mexico. For transportation, it turned to truckload carrier CFI, a specialist in cross-border business. The trucker utilized vans and flatbeds to complete the one-time job.

More work was to come. TMA soon was given responsibility for managing Lucent's outbound program of finished product back to the U.S. It was a critical time for Murray Hill, N.J.-based Lucent, the former Bell Laboratories, which had just been spun off by AT&T Corp. and needed to prove itself as an independent company.

TMA had told Lucent it could do a better job of servicing outbound traffic from Mexico than the previous provider. Now it had to make good on the promise. Essential to the plan were a steady stream of quality equipment and a means of crossing the border with minimal delays.

To ensure the continuous movement of Lucent's northbound business, CFI established a dedicated pool of trailers with a select number of Mexican carriers. Freight would be carried to the U.S. terminals of less-than-truckload carriers or parcel handlers, for next-day delivery to major retailers such as Best Buy, Staples and Office Max.

For the first leg of the journey, CFI chose Mexican carriers with whom it had close ties, says Gary Nichols, director of dedicated fleet services. It helped TMA to select operators with a reputation for punctuality and well-maintained equipment. Further expediting Lucent's freight was a pre-clearance program with U.S. Customs for high-volume goods of a repetitious nature.

Lucent had just been spun off by AT&T Corp. and needed to prove itself as an
independent company..

CFI plays a critical role as intermediary between Mexican carriers and LTL providers in the U.S. "We've got to be at their facilities at a specified time each day," says Nichols. "If we miss, it's a total service failure."

Failures are a rarity. According to TMA co-owner Lee McCulloh, CFI's on-time delivery rate is 99 percent. In what Nichols claims is the industry's first dedicated cross-border service, CFI has contracts with Mexican carriers who assign drivers permanently to the same trucks, and equip them with on-board computers.

As a result, CFI can provide 48 hours' transit from Mexico to Knoxville, Tenn. five times a week, promising deliveries on a just-in-time basis. That translates into three to five days' transit from the manufacturing line in Guadalajara to consumers anywhere in the U.S.

The arrangement continues in the wake of Lucent's sale early this year of its consumer telephone manufacturing business to Hong Kong-based VTech Holdings Ltd. The $113m deal included Lucent's assembly plant in Guadalajara, giving VTech its first factory outside China. And it doubled the size of VTech's telecommunications products business overnight.
TMA sought to balance out Lucent's northbound program with freight moving in the other direction. Through CFI's connection to Tremec, a Mexican producer of automotive transmissions in the state of Queretaro, the 3PL was hired to manage an inbound program. (CFI also participates in outbound movements for Tremec, but not in conjunction with TMA.)
TMA spots CFI trailers at an LTL hub in Indianapolis, which receives parts from Tremec's large vendor base in the U.S. Midwest. From there, CFI moves full truckloads to Queretaro. TMA, in turn, scans invoices and relays shipment data to Tremec over the internet. The carrier's service partners utilize CFI's bilingual website for status information.

Tremec's freight used to be shipped south by multiple LTL carriers at a higher cost. The consignee had no clear idea as to what was in the trailers. With TMA overseeing inventory, Tremec now has full visibility of product on the move, McCulloh says.

TMA manages another inbound program for Xerox Corp., which ships parts for copier machines from the U.S. to a plant in Mexico. A New York-based cartage agent moves the materials over a cross-dock into dedicated CFI trailers for the trip south.

Additional equipment is frequently required to handle peak volumes. "We've tried every other named big carrier there is as a backup," says McCulloh. "But we couldn't do it without CFI."

Security hasn't been a big concern for TMA and its clients. Most high-value freight moves within Mexico in escorted convoys, which have cut down sharply on hijackings. The location and status of CFI's trucks can be pinpointed instantly through satellite tracking.

The state of roads and communications in Mexico's interior leaves much to be desired, although Nichols notes recent improvements. Phone lines for internet-based tracking and tracing are more stable than those for voice, he says, and Mexico's phone system has been upgraded.

CFI's own assets are expanding in line with growth in cross-border traffic. Recently it acquired enough land to double the size of its terminal facility at Laredo. It has also increased operations at El Paso, and has opened a new facility at Otay Mesa, Calif.
The real key to efficiency in the trade - full access by U.S. and Mexican truckers to each other's domestic routes - is still a ways off, if it ever comes. In the meantime, shippers and carriers are pursuing creative solutions that make the border as inconsequential as possible.

Dana: Distance No Barrier To Serving the U.S.
One of the unwritten laws of third-party logistics might be: Never say no to new business. Even if you have only two days in which to take over a big account.

C.H. Robinson Worldwide Inc., the freight forwarder and logistics provider based in Eden Prairie, Minn., had been courting the business of Danaven C.A., the Venezuelan arm of auto-parts giant Dana Corp. Joe Mulvehill, vice president of C.H. Robinson, was working in the Miami office back in 1990, when he got word that Danaven was ready to switch from another third party.

By convincing truckers to eliminate
overland charges to Jacksonville,
Robinson saved Danaven $1.5m a year..

Although it represents only a slice of Toledo, Ohio-based Dana Corp., which had sales of more than $13bn last year, Danaven controls a substantial amount of business between Venezuela and the U.S. Robinson oversees the door-to-door movement of auto parts from 13 Venezuelan manufacturers to Dana's U.S. plants, as well as to vehicle makers.

Products moving on a regular basis include filters, hoses, belts, pistons and tubing, according to Danaven Operations Director Gustavo Flores. The division's annual sales are around $200m a year, 65 percent of which is exported.

Robinson's responsibilities include moving shipments from Venezuelan plants to the port, usually Caracas; customs clearance into the U.S.; and domestic trucking to final destination. In the course of a move, Robinson will spot trailers at the plant or port, secure bookings and track shipments by ocean. Danaven subsequently entrusted the provider with its supply chain in the reverse direction, for the movement of spares from the U.S. to assembly points in Venezuela.

Robinson also negotiates with ocean carriers. It moves Danaven's parts in cost-efficient containerloads, consolidating product from the Venezuelan plants for shipment overseas.

Mulvehill says Danaven initially was reluctant to turn over the responsibility for carrier negotiations. It was persuaded by the promise of savings resulting from the combined purchasing power of Robinson's client base. The provider's first contract netted a reduction of between $100 and $150 per container-not an insubstantial amount, considering that Danaven was shipping 3,000 containers a year by ocean.

Robinson has crafted a number of creative solutions over the life of the partnership. Three years ago, it shifted its U.S. receiving warehouse from Miami to Jacksonville. At the same time, it convinced truckers to erase the $300-per-shipment rate differential between the two cities, eliminating overland charges to Jacksonville, where distribution and warehousing were cheaper. The concession saved Danaven $1.5m a year, Mulvehill says.

Many obstacles stand in the way of forging an efficient supply chain between Venezuela and the rest of the world. Flores cites high inflation and overvaluation of Venezuela's currency, the bolivar. The Venezuelan economy has long been dominated by petroleum production, causing its fortunes to rise and fall in line with worldwide oil prices. The excessive value of the bolivar could serve as a disincentive to importers and hamper the nation's competitiveness in global markets, Flores says.

Access to petroleum income has its obvious upside. Compared with much of Latin America, Venezuela's transportation infrastructure is in reasonably good condition and could support additional trade. "Infrastructure is not optimal," adds Mulvehill, "but it's sufficient."

At least most of the time. Last December's heavy rains led to extensive flooding, with mudslides forcing temporary closure of the Port of Caracas. Freight had to be shipped through the smaller facilities of Puerto Cabello, 75 miles away.

As of May, shippers were still feeling the impact of the winter rains, although it had lessened from the height of the crisis in January and February. "It's a seven-day-a-week, 24-hour-a-day job just trying to get through it," Mulvehill says.

For the most part, Danaven doesn't experience the logistical problems of other Latin American importers and exporters. Monsanto, the big producer of chemicals and agricultural products, must cope with a seasonal surge in the movement of seeds from Argentina and Chile to the U.S. The vast majority moves within a six-week period, forcing the shipper to employ a combination of regular container services, chartered vessels and even air cargo to get its product to market.

The nature of the Latin American trades has changed drastically in the last year and a half, Mulvehill says. Before then, northbound movements were relatively inexpensive, and southbound was the heavy leg. Today, because of the sluggish state of regional economies, the problem is reversed. Northbound freight rates are on the rise, and southbound is the bargain.

Robinson's duties on behalf of Dana have recently broadened to include movements from the U.S. to Europe, and from Europe to South America. Flores says Danaven is building a new operation in Venezuela to sell product in other international markets, a program in which Robinson could play a role. According to Mulvehill, the provider is already beginning to handle shipments from Brazil to Venezuela.

P&G: The Global Giant Starts Small, Grows Fast
It's not easy to think of Procter & Gamble as a small company. But that's a fair description of the multinational's market position in Chile just two years ago.

Cincinnati, Ohio-based P&G had been involved in a joint venture with a local Chilean paper company for the distribution of diapers and feminine protection products. The supporting infrastructure for that arrangement was a hodgepodge of half a dozen warehouses in the Santiago area. Most were no bigger than 2,500 square meters and lacked modern features such as multiple doors and racks, says Luis Erana, suppl- chain manager for P&G in Chile.
Given the modest nature of P&G's Chilean business, the setup was adequate. At least until the company made its move for a bigger slice of the market.

Buying out its partner's half share in the joint venture, P&G immediately saw a small increase in volume with the addition of health and beauty care products. But the company had more ambitious plans. It was preparing to import detergents, dishwashing soap and other major items from its global portfolio.

P&G anticipated a rise in throughput from 20,000 to nearly 60,000 cases a day. Erana, who had just arrived in Chile, devised a three-year plan to build enough warehouse space to handle the surge.

Vowing not to continue the old pattern of numerous small and inadequate facilities, Erana called for a master distribution center in Santiago to service all of P&G's brands in Chile. And he began searching for a "world-class" logistics provider with whom to partner.

The final choice of Jacksonville, Fla.-based GATX Logistics seemed an unlikely one, given its history with P&G. In the early 1990s, it was chosen to operate a warehouse for cosmetics products in Mexico. That arrangement was terminated when P&G deemed the facility inadequate. For its part, GATX felt P&G's requirements were unrealistic, given a lack of quality targets and inventory controls, according to Fabio Duque, operations manager in Santiago. Whatever the reason for the failure, the provider didn't get another P&G contract for nearly a decade.

It jumped at the chance to prove itself in Chile. Erana says P&G was impressed by GATX's knowledge of the market, achieved in part through a joint venture with local partners. Duque says GATX worked hard to commit to P&G's expectations while quoting the best possible price. By the time the new contract took effect in August of 1999, Duque had been inside P&G's warehousing operation for two months, learning exactly how it worked. "They needed a smooth transition," he explains.

Eight months later, GATX opened a new state-of-the-art warehouse covering 30,000 square meters, of which 20,000 are currently dedicated to P&G. (The rest is used by Boston-based Gillette Co.) The facility includes 15 doors and dock levelers for easier loading and unloading.

In October of this year, the installation of racks and other specialized equipment will reduce P&G's share of the warehouse to less than 18,000 square feet. The change should save the company $10,000 a month, says Duque.

The new building is more than a place to store product while it awaits shipment to stores. It was designed as a flow-through center with the smallest amount of buffer stock possible. GATX performs a number of value-added services, including the application of stickers to comply with local regulations, customization of product, and inclusion of promotional materials and packaging. Much of that work used to be done by several vendors around Santiago, Erana says.

P&G moved into a single distribution facility in Chile with minimal disruptions. There were no missed shipments as the company shifted inventory and operations. Says Erana: "We went from nothing to world class in a weekend."

Perhaps mindful of its experience with P&G in Mexico, GATX provides the customer with monthly reports on its performance, including full cost of operation. It tracks key metrics on both a daily and monthly basis, and has achieved nearly 100-percent inventory accuracy, claims Duque.

Chile's geography presents logistics planners with unique challenges. The long, narrow country runs nearly 4,000 miles from north to south. Nearly half the nation's population lives around Santiago, with the rest scattered in remote areas. The north consists mostly of desert, while land in the south breaks up into a series of fjords.

Freight costs can be high because the tight concentration of population presents carriers with few backhaul opportunities, says Erana. When product is available for hauling in the opposite direction, it often consists of agricultural, mining or seafood items, which are incompatible with consumer products.

For P&G, some of those disadvantages are offset by the presence of Gillette in the same Santiago warehouse. Duque says GATX has been working to build more full pallets to stores around Chile for better economies of scale. It can combine shipments by the two customers for even greater efficiencies - an idea that remains novel in the supposedly advanced U.S.

P&G currently arranges transportation into and out of the Santiago warehouse, but that could change as the company becomes more accustomed to outsourcing in Chile. Duque says the company is already reaching beyond the country's borders, exporting small amounts of product to Peru, Bolivia and Venezuela.

Erana says Chile will play an important role in regional distribution. Its port infrastructure is in good condition, and with the development of roads running in an east-west direction, "it would be the door into [South America's] southern cone."