Executive Briefings

Despite Obstacles, Shippers Score Successes in Asia

Partnerships are the key to introducing supply-chain innovations, reducing inventory and coping with a shortage of modern infrastructure.

Asia is ground zero for some of the most dramatic innovations in supply-chain thinking today. U.S. retailers and distributors are hooking up with Asian manufacturers and consolidators to slash costs and transit times. Distribution models are undergoing radical change in response to hot new trends such as electronic commerce and build-to-order.
But Asia hasn't fully embraced the supply-chain revolution. Beyond port cities, basic infrastructure is lacking. And many old distribution methods remain in place. Even in highly industrialized countries such as Japan, there is still too much inventory and not enough information to replace it. Asian shippers need to become more integrated with their service providers in order to capitalize on the development of global logistics, said Steve Palagyi, a director in the Dallas office of Pattiglio Todd Rabin & McGrath.
Companies sourcing in Asia face the additional challenge of finding enough air and ocean capacity to move their goods to market, added Susan de Gozzaldi, manager of Andersen Consulting in San Francisco. But economic recovery in the region, which is just beginning, should motivate carriers to increase services and balance out load factors.
Shippers and providers will continue to work together on streamlining the supply chain in Asia. For those looking to adopt just-in-time fulfillment strategies bridging the Pacific, the solutions start here.

Nike Eliminates Its Hong Kong Headaches
Until recently, U.S. manufacturers in China had no choice but to ship their exports out of Hong Kong. But as Nike Inc. recently found out, that's hardly the case today.
Nike has cut the cost of shipping Chinese-made footwear by moving it through the Port of Mawei. That's the closest Chinese port to Fuzhou, site of the largest of four regional Nike factories.

"If I've got to have a 50-page document with all kinds of boilerplates, I don't call that a relationship."- Jack Roscoe of Nike

Mawei was selected by ACS Logistics, part of the Oakland, Calif.-based APL Logistics group of companies. Nike had previously used ACS for consolidation services in the Philippines, but never before in China. Now it was hiring the vendor to revamp its Chinese distribution strategy, with an eye toward reducing drayage and bypassing pricey and congested Hong Kong.

ACS had exactly two months to come up with a solution, following its appointment by Nike in May of 1997. In addition to finding a new port of export for the client, ACS was instructed to set up a consolidation facility with state-of-the-art information technology, then convince Chinese Customs officials to locate at the site.

The choice of Mawei followed numerous site visits by ACS to ports in the area, as well as meetings with Customs. Besides being close to the Nike plant in Fuzhou, Mawei serves all Nike-nominated ocean carriers and allows for bonded customs activities. And it's a quick truck ride from Nike's new consolidation center in Fuzhou.

At the facility, ACS accepts incoming cartons of footwear from Nike's Chinese manufacturing plants, scans them by barcode, and consolidates them into outgoing containers. The vendor uses electronic data interchange to receive purchase order information from Nike, and to send packing-list data back to the customer. Shipments then move under China bills of lading to the nearby Port of Mawei, where ACS relinquishes control to ocean carriers' feeder services. The trip takes less than an hour, said Jack Roscoe, third-party logistics manager at Nike headquarters in Beaverton, Ore.

Because Mawei is a small river port, Nike's containers still end up traveling to Hong Kong for linehaul service to the U.S., Europe and elsewhere. But that leg of the journey is no longer Nike's problem; the terms of shipment are FOB Mawei. The shipper needn't worry about trucking or feedering footwear to Hong Kong, a two-and-a-half day trip that used to cost US$1,600 per container, Roscoe said. Nike also avoids paying Hong Kong's steep labor and terminal handling charges.
Nike has realized further savings by consolidating in Fuzhou and shipping out of the region in full containers. Previously, said Roscoe, it would send less-than-containerload lots direct from the factories to Hong Kong, incurring much higher trucking costs.

Overall savings from the new plan have been "considerable," said Roscoe. "The closer you can get consolidation to your factory base, the cheaper it is."

ACS provides Nike with a unique logistics procedures (LP) document that details all of its obligations to the customer "in excruciating detail," said Robert Hanelt, director of marketing and planning. The LP is used to educate vendors about Nike's strict requirements on matters such as the order, nature and timing of documentation.

Information is a key element in any supply-chain partnership, said Hanelt. In an effort to provide the customer with maximum visibility of product in transit, ACS has extended its data link to include ocean carriers, customs brokers, truckers and railroads.

As for Nike, it prefers not to have a formal contract with ACS - just a service agreement less than two pages long, attached to a rate sheet for each point of origin. And Nike's lawyers never see it.

"If I've got to have a 50-page document with all kinds of boilerplates, I don't call that a relationship," said Roscoe. "Not in my terminology."

The New Vendor Hub: One Step Beyond
Manufacturers are stepping up the pressure on vendors to participate in just-in-time delivery programs. Those that refuse - never mind the difficulty of compliance - are likely to lose the business.

It's a familiar story to Roberts, Stephens, Van Amburg Packaging (RSVP) Inc. In 1997, the Soquel, Calif.-based producer of specialized packaging was asked by a disk-drive maker in Thailand to place inventory right beside the factory, and pay all the costs of getting it there. The customer even suggested that RSVP set up a plant on site.

Previously, the manufacturer had bought packaging from RSVP in the U.S., where most of the product is made, then arranged for transportation to Thailand. Squeezed by heavy competition and mounting demands for service by its own account base, the company no longer wanted to deal with that particular headache.

The answer lay in creation of a vendor hub, a fast-growing trend among high-tech and automotive producers. But RSVP ended up taking the concept a step further than most.
Into the picture came Circle International, the San Francisco-headquartered logistics provider with roots in freight forwarding and customs brokerage. Circle offered RSVP an unusual program: Through its Circle Trade Services (CTS) division, it would purchase the customer's product outright, stock it at Circle's 60,000-square-foot warehouse in Thailand, and sell it to the manufacturer as needed.

The plan was attractive to RSVP, which couldn't afford to diversify distribution, let alone manufacturing, of its tightly engineered packaging materials. The company already has plants in Chicago; Sparks, Nev.; and Ireland. Nearly all its innovative product is sold to a handful of customers in Southeast Asia.

Formed in 1989, RSVP started out as a traditional distributor and reseller of foam, corrugated materials and tape, said President David Roberts. The company hit its stride with development of "thermoformed" material trays, produced under the trademarked name of Xerostat, to replace Styrofoam. Made entirely out of recycled, one-gallon plastic milk bottles, the new material was tougher, more compact and reusable. It proved ideal for protecting delicate items such as disk drives and finished computers from damage in transit.
Circle designed a door-to-door program for RSVP, tailored to the specific needs of the end-user. CTS's purchases from RSVP are keyed to production forecasts received from the manufacturer in Thailand, whom it charges a single fee which includes the cost of production, transportation and customs clearance. Deliveries are made within four hours of a request.

Even with Circle's built-in profit margin, the materials end up costing the manufacturer less than before, according to Kim Wertheimer, executive vice president of logistics. That's because Circle can draw on its overall volumes to get better ocean freight rates, and the buyer doesn't have to maintain a global purchasing infrastructure.

As for RSVP, it gets paid more quickly than before. It can eliminate foreign accounts receivable. And it needn't make a huge investment in overseas warehousing or manufacturing, Robert said.

Having seen Circle's proposal, the customer withdrew its request for an RSVP manufacturing facility in Thailand. Such programs are an increasingly popular way for manufacturers to meet local-content requirements at overseas plants, but not every vendor is able to comply. "It wasn't a deal-breaker," said Wertheimer. "Their objective was to have proper product there."

Circle hopes further to work with RSVP as the customer broadens its account base. It is already moving RSVP's packaging from the U.S. to a second disk-drive manufacturer in Malaysia, although that arrangement doesn't involve Circle taking title to the goods. Wertheimer sees the service as helping RSVP to attract new business around the world. "We've been able to prove the concept and package it," he said.
No other provider offered RSVP a similar program, said Roberts. Consequently, he feels comfortable sharing with Circle the most sensitive details of a highly proprietary product. "I can't envision that that's a typical relationship you can have very often," he said.

In Malaysia, It's Not Easy Being Green
When venturing into a new territory, one should seek out supply-chain partners with deep experience in that area. Or so goes conventional wisdom.

When Mayne Nickless Logistics set out to establish a Malaysian operation, it turned to a warehouse management system (WMS) vendor that was just as green as it was. In fact, Mayne Nickless was the very first customer of EXE Technologies Inc. in Malaysia.

Both Mayne Nickless and EXE were seasoned providers, yet both had to learn quickly about a market that differed sharply from anything they had served before. Their common customer was Unilever, one of the world's largest producers of consumer packaged goods, itself determined to overhaul its Malaysian distribution network.

Mayne Nickless Logistics is a leading Australian-based provider of third-party logistics, with a strong presence in warehousing and time-critical delivery. While it has a history of doing business in Asia, it didn't open a regional office in Malaysia until January 1995, according to Managing Director Clive Steele, who is based there. Unilever was its first customer.

The key lies in crafting relationships with vendors that extend well beyond the purchase stage. "It isn't the case that you buy something and say goodbye."
- Clive Steele of Mayne Nickless

Mayne Nickless has since amassed a roster of blue-chip clients in Malaysia, including S.C. Johnson, Kellogg and Malaysian Newsprint Industries, for which it manages a supply chain that generates 550,000 tons of product per year.

But it was the Unilever account that launched Mayne Nickless into the Malaysian market, which is highly complex and tough to serve. Unlike in the developed world, where grocery distribution tends to be dominated by a handful of major chains, Malaysia is home to countless small outlets. The Malaysian distribution center of Mayne Nickless ships to more than 1,000 customers a week, Steele said. Orders can be as small as single units.

In Australia, Mayne Nickless had developed a number of software packages internally. This time, it decided to purchase an off-the-shelf WMS that could be partially customized, from a vendor that would constantly upgrade its capabilities. "In most cases these days," Steele said, "competitive advantage doesn't come from writing your own software."

Enter EXE. The Dallas-based software provider also had some Asian experience; it had been installing its products there since 1994 under the name Neptune Systems. (Neptune merged with Dallas Systems in 1997, creating EXE.) Ben Hood, EXE's Asia/Pacific director of sales consulting, said the vendor was attractive to Mayne Nickless because it already had sales support personnel in Singapore, an hour's plane ride from Kuala Lumpur. Major U.S.- based competitors didn't even have people on the continent. Said Steele: "We had to have someone with on-the-ground support and with a package that was easily written in a number of languages."

Mayne Nickless implemented EXE's supply-chain executive software, dubbed EXceed, at the end of 1997. Not surprisingly, there were numerous glitches that had to be addressed. The job took so long that Mayne Nickless, EXE's first customer in Malaysia, became its third installation, said Hood.

Gradually, however, the partners got the system up and running properly, with tangible results. Not counting stockouts, which are beyond its control, Mayne Nickless saw its on-time performance on behalf of Unilever rise from 75 percent to its current level of 99.8 percent.

Equally important to Mayne Nickless was the sudden availability of crucial shipment data. No longer did the provider have to rely on "myth and legend" to explain why a shipment was late, or an order wasn't fulfilled, Steele said. "Now we're down to talking about facts."

The same goes for Unilever, which is using the information it gleans from the system to better manage its operations and cut down on stockouts, both at the warehouse and on store shelves throughout Malaysia. Steele said the new WMS has improved reliability to the point where customer orders have become more realistic, and are not necessarily geared toward stockpiling product in the event of late shipments or improperly fulfilled orders.
"That's still done, but it's on the way out," said Steele, "now that the customer is confident that he's going to get what he ordered."

The fact that neither Mayne Nickless nor EXE was an old Malaysian hand may actually have strengthened their partnership. "We're both new in Asia, and both trying to become the leader," said Steele. "That's where our goals are compatible."

Today, EXE's Malaysian office, with a staff of 20, is in the same business park as that of Mayne Nickless. EXE also has established an Asia/Pacific training center in an area just outside Kuala Lumpur, designated by the Malaysian government as a developing "multimedia super-corridor."

"Companies in Malaysia can see that we've committed to the market," Hood said.

Mayne Nickless and EXE have since teamed up on another Unilever contract, this time in Thailand. Steele said Mayne Nickless hopes to expand its services throughout Southeast Asia, using its central distribution center in Malaysia as a springboard.

The key to a successful partnership, Steele says, lies in crafting relationships with vendors that extend well beyond the initial purchase stage. "It isn't the case that you buy something and say goodbye," he said. "There are constant requirements for change."

Always a First Time For Just-in-Time
t's hard to say no to IBM. So when the giant computer maker told all of its monitor suppliers to implement a just-in-time delivery model with a maximum response time of 48 hours, Lite-On Technologies Corp. didn't hesitate for a moment.

With headquarters in Taipei, Taiwan, Lite-On claims to be the fourth-largest monitor manufacturer in the world. It also produces CD-ROM drives for personal computers. Formed in 1989, the company had already achieved revenues of US$800m by 1995.

Yet Lite-On had no prior experience in supplying product globally on a JIT basis, said Jasmine Chan, logistics department manager. Nor had the third-party logistics (3PL) provider it hired to do the job, Golden, Co.-based GeoLogistics. For both companies, it was a matter of on-the-job training.

GeoLogistics was awarded a six-month contract - hardly a ringing endorsement by Lite-On, but indicative of the need to build trust.

Lite-On previously had worked with ocean carriers, and sometimes freight forwarders, to move product directly from its manufacturing plants to major customers such as IBM, Compaq, Hewlett-Packard and Dell Computer. Like many computer makers, however, IBM had become concerned about the cost and inefficiency of managing large parts inventories. In early 1997, it gave monitor suppliers an ultimatum: adopt a JIT model, vendor-managed inventory and 48-hour delivery from the receipt of pull instructions -or lose IBM's business.

Lite-On immediately began the search for a suitable freight forwarder or 3PL. The winner would have to be able to accomplish numerous tasks, including the placement of inventory near IBM's plants, JIT deliveries, a real-time tracking system, value-added distribution services, and electronic data interchange for conveying status information.

GeoLogistics had been acting as a freight forwarder for Lite-On in Taiwan under one of its previous incarnations, LEP International. That prior relationship was a key factor in Lite-On's choice of GeoLogistics over at least three other qualified vendors. But the fledgling 3PL, formed only last year out of three separate companies, had done nothing of the scope delineated by Lite-On in response to the challenge by IBM.

GeoLogistics initially was awarded a six-month contract - hardly a ringing endorsement by Lite-On, but indicative of the need to build trust within a supply-chain partnership. Despite the contract's brief term, the 3PL moved aggressively to implement the required services. A project team, consisting of representatives of all three companies, sat down to sketch out a brand new supply chain.

Today, GeoLogistics supports Lite-On's network of distribution centers in Glasgow, Scotland; Breda, the Netherlands; Dusseldorf, Germany; Sydney, Australia; Toronto, Canada and Singapore. Another logistics provider, DiMarco, manages a pair of U.S. facilities for Lite-On in Sacramento, Calif. and Raleigh, N.C., although GeoLogistics still carries out JIT services at those locations, according to George Faas, manager of logistics programs.

At the DCs outside the U.S., GeoLogistics has responsibility both for inbound and outbound transportation. It arranges for transportation between Lite-On's manufacturing sites and the DCs.

It also delivers components from JIT hub to the customer's assembly plant within four to 24 hours of a pull request. The vendor's information system, accessible via the Internet, provides global visibility of product that is in transit, in the warehouse, or delivered to IBM and other customers of Lite-On.

GeoLogistics performs a number of value-added services for the client, including quality control, testing, reworking product, printing barcoded labels, submitting daily inventory reports and weekly quality reports, and daily invoicing of Lite-On's customers for delivered product.

Faas admits to a steep learning curve for GeoLogistics in the early days of the relationship. "We didn't really know what we were getting into," he said. "It was a rough startup."

Operations have since smoothed out considerably. Chan said the arrangement has dramatically improved Lite-On's service and customer responsiveness. With greater visibility in the supply chain, Lite-On has shifted the basis of its planning model from actual orders to IBM's demand forecasts.

GeoLogistics has benefited as well. Its newfound experience in a wide range of value-added services can be parlayed into additional business, said Faas. IBM already has referred other suppliers to GeoLogistics to set up additional JIT facilities. And Lite-On awarded GeoLogistics a new, one-year contract, which seems likely to be renewed when it expires at the end of 1999.

The standard operating procedures developed by GeoLogistics are of mutual benefit. They give Lite-On a yardstick by which to monitor the vendor's performance. And they make it easier for GeoLogistics to take on additional value-added business at its distribution facilities around the world. "If Lite-On or any customer were to walk into any GeoLogistics facility, they would see the same thing," said Faas.

For Lite-On, the wakeup call from IBM may have been just what it needed to achieve its ambition of becoming the second-largest maker of monitors, and largest in CD-ROMs, by the year 2000. "This offers entry into a world market where they have no physical presence," said Faas. "They can be there tomorrow because they have inventory there."

Creating Value in a Price-Sensitive World
Companies in a true supply-chain partnership are a bit like couples who have lived together for years and find themselves completing each other's sentences. A good provider can anticipate the customer's needs - often before the customer knows what they are.

Or so believes Amkor Technology Inc., which recently linked up to its biggest customer, Texas Instruments, via business planning and collaboration software from i2 Technologies. As a result, Amkor can gauge TI's need for additional semiconductor product before TI discovers that it needs more, said Ernest Maune, vice president of strategic planning with Amkor Wafer Fabrication Services (AWFS).

In the same manner, said Maune, Dallas-based i2 has built into its software a feature that anticipates phased improvements in the supply chain, as the user becomes more comfortable with the system. Gone are the disappointments when a complex and expensive application doesn't start showing maximum results on Day One.

"A true partnership is when you agree to share a significant portion of information real-time, where in the past you kept it
hidden like a deck of cards."
- Tim Dimbero of i2 Technologies

Westchester, Pa.-based Amkor thrives in a highly specific and demanding field. With 1998 revenues of $1.57bn, its reputation has been built on packaging, assembly and testing of integrated circuits. The product then moves to semiconductor producers such as TI.
Two years ago, Amkor decided to extend its services to include basic manufacturing of digital processing chips. It made an exclusive arrangement with a Korean subcontractor, Anam Semiconductor Inc., which fabricates wafers at a foundry in Buchon on the outskirts of Seoul.

Wafers are becoming more of a commodity as their price plummets. So Amkor, a newcomer to the business, saw the need to differentiate itself from the pack. Its plan was to tightly integrate business processes with those of its account base - "to become a virtual extension of our customers," said Mike Scott, director of business planning.

The company decided to capitalize on its inexperience by building a world-class system from the ground up. It turned to i2 in part because the software vendor had already installed systems at TI.

In addition, said Scott, i2's suite of applications, dubbed Rhythm, had features that were specific to the semiconductor industry. For example, Rhythm allowed for the re-entry of semi-finished product into the plant. Unlike most manufacturing, where product comes off the assembly line and goes out the door, wafers travel back and forth between production and testing. The company's off-the-shelf product also contains a number of information templates designed specially for the semiconductor business.

The fact that Rhythm required minimal configuration was especially attractive to Amkor. Maune decries systems that call for constant tinkering with each new release of the software. "Customization is a support annuity for software providers," he said.

The Irving, Tex.-based company's software falls into the category of electronic business process optimization (eBPO), according to Tim Dimbero, director of the semiconductor business unit. Elements of eBPO include supply-chain management, advanced planning and scheduling, customer management and collaboration, and product lifecycle.

Amkor was most interested in two modules of Rhythm, Factory Planner and Supply Chain Planner. The first handles forecasting and production planning at an individual plant. The second ties that information back into a company's enterprise resource planning (ERP) system to permit long-range planning across the entire supply chain, including closer collaboration with customers.

In Amkor's case, it receives production and sales data directly from TI, then uses that data to construct its own production plans. The results are relayed back to TI.

Through better communication with its customer, Amkor can reduce the need for inventory, which it would otherwise have to carry on its books until shipping to the customer. In place of expensive product, Amkor gets a real-time picture of work in process, committed delivery dates, and detailed information on product yield and cycle time.

Amkor can respond more quickly to changes in consumption, said Maune. Moreover, any production capacity that isn't currently dedicated to TI can be used to serve another customer.

On the other hand, the visibility afforded by Rhythm allows Amkor to take certain calculated risks with regard to future demand, Maune said. The company might order what appears to be too much product, then bank on either selling it, or later scaling back production and bleeding off the excess stock.

That's better than being caught with too little inventory by a demanding customer, said Maune. "You can only start so many lots a day. If you pass up the ability to start on a lot of wafers, you lose it forever."

Amkor's next step is to install an ERP tool in its Boise office. As of mid-May, the system was in the prototype stage and expected to be live within four months. Yet Amkor already was seeing measurable results from implementation of the i2 software.

According to Scott, it was able to take an order for integrated circuits on one day, and start the manufacturing process on the following day. TI, meanwhile, was seeing reduced cycle times and inventory levels, and a greater number of stock turns.

Collaboration isn't just the goal of the Rhythm software - it's a hallmark of the relationship among Amkor, TI and i2. Dimbero said the parties communicate freely to avoid problems stemming from differences in their respective planning cycles. "A true partnership is when you agree to share a significant portion of information real-time," he said, "where in the past you kept it hidden like a deck of cards."

Third-Party Business: Dream or Nightmare?
If selling software to individual companies is like fishing for trout, then selling to a third-party logistics provider would be like hooking a whale.

That's how Renaissance Software Inc. must have felt when it secured Air Express International (AEI) as the first 3PL user of its warehousing software package on behalf of multiple customers. Renaissance quickly found out how demanding its newest client would be.

First rule of third-party logistics: Don't say no. So when AEI announced that the entire system had to be up and running within six weeks, Renaissance scrambled to comply. It was merely responding to the same kind of service expectations imposed on AEI by its own customer base.

Renaissance, based in Lake Success, N.Y., signed a contract with AEI, headquartered in Darien, Conn., in October of 1997. The package in question was Renaissance's International Warehouse Management System (IWMS). While AEI licensed a variety of supply-chain applications from Renaissance, its primary interest at the outset was in installing warehouse software that could be applied to any customer.

The buyer's decision was by no means automatic. Steve Schwark, AEI's vice president of worldwide logistics, hired an outside consultant to validate his choice of Renaissance. In the end, the consultant agreed that the vendor was best for AEI, both in software functionality and sales support by management. As for Schwark, he was lured by the system's AS/400 platform, conforming to AEI's own, along with its ability to handle multiple customers and shipments moving under humidity and temperature controls.

What put Renaissance over the top, said Schwark, was its willingness to meet AEI's specific requirements, including the need to respond quickly to the underlying account base. "As much as you try to convince new customers not to add unique requirements to your plate, they always seem to want to do that," he said.

"They took the time to understand that we were going to be different. There was a lot of exchange of information and business plans." - Steve Schwark of AEI

In reality, about 80 percent of the system is usable by all customers without the need for modifications, said Schwark. But that remaining 20 percent can pose problems if the software provider isn't willing to cooperate. In addition, AEI needed IWMS to blend smoothly with other parts of its information-technology offering, including transportation management.

In turning to Renaissance for WMS, AEI was going with a vendor that had no prior experience with third parties. The package was bound to be deployed differently than in the past. "You're always implementing, always winning new business," said Steven J. Christensen, vice president of sales with Renaissance. Which may help to explain why Schwark sought backup from a consultant.

Even now, he admits to some initial hesitation. "You always have a little uneasiness," he said. "But they convinced us that they had the desire and the wherewithal to support our needs. We decided it was worth the risk."

Renaissance's first implementation for AEI was at a multilingual warehouse in Singapore. But the job is far from finished. AEI's worldwide warehouse network totals some 2 million square feet, with individual facilities ranging in size from 5,000 up to 125,000 square feet.

As of May, the task of installing IWMS at all locations was about 60 percent complete. At the same time, AEI was looking to another software provider to create a bonded-warehouse module for its European operations. The whole project was due to be finished by the end of the year.

Having a sophisticated WMS in place systemwide is of clear benefit to AEI, which is depending on the package to enable 20 percent annual growth in its warehouse product. But Renaissance wins, too.

The arduous task of supporting AEI prepares the vendor for additional sales to third parties - a seemingly endless source of new business. Renaissance continues to handle most of the system changes demanded by AEI's customers, as well as 70 percent of warehouse personnel training, according to Louis J. Schilt, chief operating officer.

His chief concern is that companies tend to implement too quickly. "They don't want to do the classic business study before going live," Schilt said. Training, too, may get short shrift if a warehouse is under intense pressure to turn on the system. And companies end up paying for their impatience in the end.

It was the commitment of both sides to a true partnership that ensured the successful implementation of IWMS at AEI's facilities. Schwark praises the vendor for paying attention to the third party's unique needs.

"They took the time to understand that we were going to be different," he said. "There was a lot of exchange of information and business plans."

AEI drew heavily on the resources of Renaissance to get the system in place - and was willing to pay for that expertise. "We were both looking for a relationship where we could make some money," Schwark said.

Schilt attributes Renaissance's success to its willingness to do whatever it takes to support a valued client. Often that meant long hours for the vendor's employees, but Renaissance made the deadline. And it learned just how demanding third-party logistics and warehousing customers can be.

"Anybody who wants to get into the 3PL or 3PW business had better be ready to jump through hoops," Schilt said.

Osram's Supply Chain Is as Clear as Glass
With all of the changes that Osram Sylvania Products Inc. has undergone in the last 40 years, it's no surprise that the company would have built up a veritable army of logistics providers around the world.

The well-known maker of lighting products has had several ownership changes over the years. GTE bought Sylvania, originally established nearly 100 years ago to serve the market for replacement fluorescent tubes, in 1958. Germany's Osram, a subsidiary of Siemens, took Sylvania off GTE's hands in 1993, getting a company with a greatly expanded product line from its distant origins.

In the process, Osram Sylvania had acquired a roster of more than 125 freight forwarders and customs brokers in the United States alone, according to Bill Rooney, international traffic manager at the glass division in Exeter, N.H. Toward the last half of the 1990s, the company began to view that setup as inconsistent with the goal of establishing an efficient global supply chain. Many of its service providers were small mom-and-pop shops, Rooney said, better suited for niche markets located close to manufacturing points.

In 1996, Osram Sylvania launched an intensive search for a single provider to handle as much of its business as possible. But it was pulled up short by many of the larger forwarding and brokerage houses, who were eliminated from contention one by one because they lacked the ability to function in multiple markets. Said Rooney: "There was a lot of fluff, and no stuff."

Making the search even more difficult was the still-undefined nature of Osram Sylvania's needs. To a large extent, they would end up being shaped by the abilities of the chosen provider. Rooney said the company wasn't even sure it would find a truly global partner, and that its original ambitions didn't necessarily lie in that direction anyway. "Initially we were doing it to improve what we had in the states," he said.

BDP sent its own personnel to the Osram Sylvania factory in China to set up
standard operating procedures for shipment processing.

The glass division of Osram Sylvania acted first, choosing BDP International as its favored provider. BDP, a Philadelphia-based freight forwarder and customs broker, is known for its heavy investment in information technology. In fact, it was systems that served as BDP's biggest selling point to Osram Sylvania. "They had instant access to everything," said Rooney.

BDP got the account at the end of 1996, and the relationship blossomed over the following year. Since then, BDP's position in the Osram Sylvania supply chain has extended deep into global markets. It now acts as sole freight forwarder and customs broker, handling imports and exports by ocean and air, for the glass business of Osram Sylvania. BDP Transport, a newly formed non-vessel operating common carrier, consolidates smaller export loads into full containers.

On the import side, BDP coordinates inbound shipments to Osram Sylvania's customers in the U.S. Using 15 ports of entry, it clears all freight with Customs via remote location filing from its Boston office, according to Rick Correnti, general manager of BDP Boston. For Osram Sylvania, the arrangement provides the kind of economies of scale that were impossible to achieve with the host of smaller brokers that had previously cleared shipments at the ports.

Currently, BDP is focusing on the client's shipments to and from China. The forwarder sent its own personnel to the Osram Sylvania factory in China to set up standard operating procedures for shipment processing, Correnti said. As a result, BDP's internal systems allow for visibility of product all the way back to the source. Osram Sylvania has access to all purchase orders, along with information on Customs clearance and delivery, on a real-time basis.

Before, said Rooney, "we never knew where the containers were. We were notified when they left. Eight weeks later they showed up at the dock. In between there was nothing." Poor communications might also result in containers sitting on the docks for up to two weeks, piling up demurrage charges.

BDP has shown itself willing to help out even when it was not directly responsible for the shipment. In one case, Osram Sylvania turned to BDP to rescue some stalled containers at the port. Within three hours, the boxes had been delivered to destination. In Canada, another forwarder was stymied when Canadian Customs announced that the fumigant used in a shipment from Asia was banned in that country. BDP stepped in and quickly resolved the problem with Customs officials.

In less than three years, Osram Sylvania has revamped its global distribution network, with the U.S. serving as hub. The next step, said Rooney, is to link the various spokes, setting up traffic lanes that bypass the U.S. altogether.

The partnership with BDP exists at all levels of Osram Sylvania, with an emphasis on new ideas and long-term planning. "It's a case of not just upper management, but also the people that are doing the work," said Rooney. "They're the ones that can tell us yes or no."
Osram Sylvania executives are now working to make BDP the exclusive logistics provider for the entire company. "It's a slow process," said Rooney. "People within Osram Sylvania have got relationships built with existing forwarders. It's hard to get them to change."

HP Pushes Aside Obstacles in India
Few countries pose a greater number of unique challenges to logistics professionals than India. Its population of more than 984m offers a huge opportunity for foreign suppliers. But getting product to market is a formidable task.

Darien, Conn.-based AEI Corp. has extensive logistics operations in Asia. Yet India requires three times the effort of serving other countries in the region, said Trevorlyn Menezes, AEI's director of sales for Asia, the Indian subcontinent, Middle East and Indonesia.

Just getting enough airlift into India is a major concern. So is clearing Indian Customs, which has a reputation for being slow and bureaucratic. First, imports must be processed by handling agents, who may or may not be employed by the airline that flew them in. A day might go by before they can manually key in information about the shipments and pass them on to Customs.

Import clearances can only be handled by a limited number of certified individuals. Many are part of family-run businesses chosen for their close ties to Customs, not the quality of their work, Menezes said. Then there's the generally poor state of India's road system, making key locations in the immense country difficult to reach.

All of those concerns were factors in the decision of Hewlett-Packard Co. last year to change logistics partners in India. The Palo Alto, Calif.-based high-tech leader had been shipping personal computers, printers and toner cartridges into the country for a number of years, said Yew-Khuan Tan, HP's regional logistics manager in Singapore. But the relationship wasn't working out.

"In India, it's a tricky situation," said Tan. "A partner must be willing to invest in the country. Not many are willing to do that, because there are still a lot of limitations on foreign ownership."

HP solved the dilemma with the help of AEI, which has a long-standing, exclusive partnership with Lemuir Air Express, an Indian-owned warehouser and logistics firm. Lemuir supplies the kind of home-grown expertise and physical infrastructure needed to serve the country, Menezes said.

AEI's door-to-door program for HP begins in Singapore. It relies on twice-weekly freighter service by Singapore Airlines, as well as belly capacity on passenger aircraft, and private charters.

Many HP shipments received by AEI in Singapore fly out on the same day. There, AEI breaks down and reconfigures incoming shipments to take maximum advantage of limited space. It works closely with airlines to guarantee that whole orders travel on the same aircraft.

All HP shipments to India are customized and prekitted at factories in Asia and Europe. Monthly volumes range between 180 and 200 metric tons. AEI handles documentation and tracking electronically through its in-house LOGIS system, with daily booking reports uploaded to HP. In addition, it faxes invoices and manifests from Singapore the moment a shipment departs.

AEI has made a substantial investment in serving India without a long-range commitment from Hewlett-Packard.

Product travels to three Indian hubs, in Delhi, Mumbai and Bangalore. AEI has three or four certified agents at each location to expedite Customs clearance. Through prefiling under Customs' "green channel" program, reserved for trusted, well-established importers, AEI can save up to one and half days in the clearance process, Menezes said.

For payment of duties, it maintains a prepaid deposit account that is debited by Customs when the shipment arrives. "In the last few years," said Menezes, "Indian Customs has become very flexible."

AEI retains responsibility for HP's shipments all the way to customers, who are mostly distributors but may also be end users. The result is a 94-percent achievement of HP's goal of 10 days' turnaround time, from receipt in Singapore to final delivery. "The moment a shipment hits our doorstep," said Menezes, "the clock starts ticking."

Tan said AEI has gone a long way toward offsetting the lack of capacity and poor infrastructure that plague shippers to India. And while she doesn't attribute HP's recent boost in sales there entirely to the AEI program, she points to a marked increase in customer satisfaction on deliveries.

She lauds AEI making a substantial investment in serving India without a long-range commitment from HP. The contract has no fixed period and can be terminated in 30 days. "The partners have to trust that our philosophy is strong enough to warrant that kind of decision-making," Tan said.

Asia is ground zero for some of the most dramatic innovations in supply-chain thinking today. U.S. retailers and distributors are hooking up with Asian manufacturers and consolidators to slash costs and transit times. Distribution models are undergoing radical change in response to hot new trends such as electronic commerce and build-to-order.
But Asia hasn't fully embraced the supply-chain revolution. Beyond port cities, basic infrastructure is lacking. And many old distribution methods remain in place. Even in highly industrialized countries such as Japan, there is still too much inventory and not enough information to replace it. Asian shippers need to become more integrated with their service providers in order to capitalize on the development of global logistics, said Steve Palagyi, a director in the Dallas office of Pattiglio Todd Rabin & McGrath.
Companies sourcing in Asia face the additional challenge of finding enough air and ocean capacity to move their goods to market, added Susan de Gozzaldi, manager of Andersen Consulting in San Francisco. But economic recovery in the region, which is just beginning, should motivate carriers to increase services and balance out load factors.
Shippers and providers will continue to work together on streamlining the supply chain in Asia. For those looking to adopt just-in-time fulfillment strategies bridging the Pacific, the solutions start here.

Nike Eliminates Its Hong Kong Headaches
Until recently, U.S. manufacturers in China had no choice but to ship their exports out of Hong Kong. But as Nike Inc. recently found out, that's hardly the case today.
Nike has cut the cost of shipping Chinese-made footwear by moving it through the Port of Mawei. That's the closest Chinese port to Fuzhou, site of the largest of four regional Nike factories.

"If I've got to have a 50-page document with all kinds of boilerplates, I don't call that a relationship."- Jack Roscoe of Nike

Mawei was selected by ACS Logistics, part of the Oakland, Calif.-based APL Logistics group of companies. Nike had previously used ACS for consolidation services in the Philippines, but never before in China. Now it was hiring the vendor to revamp its Chinese distribution strategy, with an eye toward reducing drayage and bypassing pricey and congested Hong Kong.

ACS had exactly two months to come up with a solution, following its appointment by Nike in May of 1997. In addition to finding a new port of export for the client, ACS was instructed to set up a consolidation facility with state-of-the-art information technology, then convince Chinese Customs officials to locate at the site.

The choice of Mawei followed numerous site visits by ACS to ports in the area, as well as meetings with Customs. Besides being close to the Nike plant in Fuzhou, Mawei serves all Nike-nominated ocean carriers and allows for bonded customs activities. And it's a quick truck ride from Nike's new consolidation center in Fuzhou.

At the facility, ACS accepts incoming cartons of footwear from Nike's Chinese manufacturing plants, scans them by barcode, and consolidates them into outgoing containers. The vendor uses electronic data interchange to receive purchase order information from Nike, and to send packing-list data back to the customer. Shipments then move under China bills of lading to the nearby Port of Mawei, where ACS relinquishes control to ocean carriers' feeder services. The trip takes less than an hour, said Jack Roscoe, third-party logistics manager at Nike headquarters in Beaverton, Ore.

Because Mawei is a small river port, Nike's containers still end up traveling to Hong Kong for linehaul service to the U.S., Europe and elsewhere. But that leg of the journey is no longer Nike's problem; the terms of shipment are FOB Mawei. The shipper needn't worry about trucking or feedering footwear to Hong Kong, a two-and-a-half day trip that used to cost US$1,600 per container, Roscoe said. Nike also avoids paying Hong Kong's steep labor and terminal handling charges.
Nike has realized further savings by consolidating in Fuzhou and shipping out of the region in full containers. Previously, said Roscoe, it would send less-than-containerload lots direct from the factories to Hong Kong, incurring much higher trucking costs.

Overall savings from the new plan have been "considerable," said Roscoe. "The closer you can get consolidation to your factory base, the cheaper it is."

ACS provides Nike with a unique logistics procedures (LP) document that details all of its obligations to the customer "in excruciating detail," said Robert Hanelt, director of marketing and planning. The LP is used to educate vendors about Nike's strict requirements on matters such as the order, nature and timing of documentation.

Information is a key element in any supply-chain partnership, said Hanelt. In an effort to provide the customer with maximum visibility of product in transit, ACS has extended its data link to include ocean carriers, customs brokers, truckers and railroads.

As for Nike, it prefers not to have a formal contract with ACS - just a service agreement less than two pages long, attached to a rate sheet for each point of origin. And Nike's lawyers never see it.

"If I've got to have a 50-page document with all kinds of boilerplates, I don't call that a relationship," said Roscoe. "Not in my terminology."

The New Vendor Hub: One Step Beyond
Manufacturers are stepping up the pressure on vendors to participate in just-in-time delivery programs. Those that refuse - never mind the difficulty of compliance - are likely to lose the business.

It's a familiar story to Roberts, Stephens, Van Amburg Packaging (RSVP) Inc. In 1997, the Soquel, Calif.-based producer of specialized packaging was asked by a disk-drive maker in Thailand to place inventory right beside the factory, and pay all the costs of getting it there. The customer even suggested that RSVP set up a plant on site.

Previously, the manufacturer had bought packaging from RSVP in the U.S., where most of the product is made, then arranged for transportation to Thailand. Squeezed by heavy competition and mounting demands for service by its own account base, the company no longer wanted to deal with that particular headache.

The answer lay in creation of a vendor hub, a fast-growing trend among high-tech and automotive producers. But RSVP ended up taking the concept a step further than most.
Into the picture came Circle International, the San Francisco-headquartered logistics provider with roots in freight forwarding and customs brokerage. Circle offered RSVP an unusual program: Through its Circle Trade Services (CTS) division, it would purchase the customer's product outright, stock it at Circle's 60,000-square-foot warehouse in Thailand, and sell it to the manufacturer as needed.

The plan was attractive to RSVP, which couldn't afford to diversify distribution, let alone manufacturing, of its tightly engineered packaging materials. The company already has plants in Chicago; Sparks, Nev.; and Ireland. Nearly all its innovative product is sold to a handful of customers in Southeast Asia.

Formed in 1989, RSVP started out as a traditional distributor and reseller of foam, corrugated materials and tape, said President David Roberts. The company hit its stride with development of "thermoformed" material trays, produced under the trademarked name of Xerostat, to replace Styrofoam. Made entirely out of recycled, one-gallon plastic milk bottles, the new material was tougher, more compact and reusable. It proved ideal for protecting delicate items such as disk drives and finished computers from damage in transit.
Circle designed a door-to-door program for RSVP, tailored to the specific needs of the end-user. CTS's purchases from RSVP are keyed to production forecasts received from the manufacturer in Thailand, whom it charges a single fee which includes the cost of production, transportation and customs clearance. Deliveries are made within four hours of a request.

Even with Circle's built-in profit margin, the materials end up costing the manufacturer less than before, according to Kim Wertheimer, executive vice president of logistics. That's because Circle can draw on its overall volumes to get better ocean freight rates, and the buyer doesn't have to maintain a global purchasing infrastructure.

As for RSVP, it gets paid more quickly than before. It can eliminate foreign accounts receivable. And it needn't make a huge investment in overseas warehousing or manufacturing, Robert said.

Having seen Circle's proposal, the customer withdrew its request for an RSVP manufacturing facility in Thailand. Such programs are an increasingly popular way for manufacturers to meet local-content requirements at overseas plants, but not every vendor is able to comply. "It wasn't a deal-breaker," said Wertheimer. "Their objective was to have proper product there."

Circle hopes further to work with RSVP as the customer broadens its account base. It is already moving RSVP's packaging from the U.S. to a second disk-drive manufacturer in Malaysia, although that arrangement doesn't involve Circle taking title to the goods. Wertheimer sees the service as helping RSVP to attract new business around the world. "We've been able to prove the concept and package it," he said.
No other provider offered RSVP a similar program, said Roberts. Consequently, he feels comfortable sharing with Circle the most sensitive details of a highly proprietary product. "I can't envision that that's a typical relationship you can have very often," he said.

In Malaysia, It's Not Easy Being Green
When venturing into a new territory, one should seek out supply-chain partners with deep experience in that area. Or so goes conventional wisdom.

When Mayne Nickless Logistics set out to establish a Malaysian operation, it turned to a warehouse management system (WMS) vendor that was just as green as it was. In fact, Mayne Nickless was the very first customer of EXE Technologies Inc. in Malaysia.

Both Mayne Nickless and EXE were seasoned providers, yet both had to learn quickly about a market that differed sharply from anything they had served before. Their common customer was Unilever, one of the world's largest producers of consumer packaged goods, itself determined to overhaul its Malaysian distribution network.

Mayne Nickless Logistics is a leading Australian-based provider of third-party logistics, with a strong presence in warehousing and time-critical delivery. While it has a history of doing business in Asia, it didn't open a regional office in Malaysia until January 1995, according to Managing Director Clive Steele, who is based there. Unilever was its first customer.

The key lies in crafting relationships with vendors that extend well beyond the purchase stage. "It isn't the case that you buy something and say goodbye."
- Clive Steele of Mayne Nickless

Mayne Nickless has since amassed a roster of blue-chip clients in Malaysia, including S.C. Johnson, Kellogg and Malaysian Newsprint Industries, for which it manages a supply chain that generates 550,000 tons of product per year.

But it was the Unilever account that launched Mayne Nickless into the Malaysian market, which is highly complex and tough to serve. Unlike in the developed world, where grocery distribution tends to be dominated by a handful of major chains, Malaysia is home to countless small outlets. The Malaysian distribution center of Mayne Nickless ships to more than 1,000 customers a week, Steele said. Orders can be as small as single units.

In Australia, Mayne Nickless had developed a number of software packages internally. This time, it decided to purchase an off-the-shelf WMS that could be partially customized, from a vendor that would constantly upgrade its capabilities. "In most cases these days," Steele said, "competitive advantage doesn't come from writing your own software."

Enter EXE. The Dallas-based software provider also had some Asian experience; it had been installing its products there since 1994 under the name Neptune Systems. (Neptune merged with Dallas Systems in 1997, creating EXE.) Ben Hood, EXE's Asia/Pacific director of sales consulting, said the vendor was attractive to Mayne Nickless because it already had sales support personnel in Singapore, an hour's plane ride from Kuala Lumpur. Major U.S.- based competitors didn't even have people on the continent. Said Steele: "We had to have someone with on-the-ground support and with a package that was easily written in a number of languages."

Mayne Nickless implemented EXE's supply-chain executive software, dubbed EXceed, at the end of 1997. Not surprisingly, there were numerous glitches that had to be addressed. The job took so long that Mayne Nickless, EXE's first customer in Malaysia, became its third installation, said Hood.

Gradually, however, the partners got the system up and running properly, with tangible results. Not counting stockouts, which are beyond its control, Mayne Nickless saw its on-time performance on behalf of Unilever rise from 75 percent to its current level of 99.8 percent.

Equally important to Mayne Nickless was the sudden availability of crucial shipment data. No longer did the provider have to rely on "myth and legend" to explain why a shipment was late, or an order wasn't fulfilled, Steele said. "Now we're down to talking about facts."

The same goes for Unilever, which is using the information it gleans from the system to better manage its operations and cut down on stockouts, both at the warehouse and on store shelves throughout Malaysia. Steele said the new WMS has improved reliability to the point where customer orders have become more realistic, and are not necessarily geared toward stockpiling product in the event of late shipments or improperly fulfilled orders.
"That's still done, but it's on the way out," said Steele, "now that the customer is confident that he's going to get what he ordered."

The fact that neither Mayne Nickless nor EXE was an old Malaysian hand may actually have strengthened their partnership. "We're both new in Asia, and both trying to become the leader," said Steele. "That's where our goals are compatible."

Today, EXE's Malaysian office, with a staff of 20, is in the same business park as that of Mayne Nickless. EXE also has established an Asia/Pacific training center in an area just outside Kuala Lumpur, designated by the Malaysian government as a developing "multimedia super-corridor."

"Companies in Malaysia can see that we've committed to the market," Hood said.

Mayne Nickless and EXE have since teamed up on another Unilever contract, this time in Thailand. Steele said Mayne Nickless hopes to expand its services throughout Southeast Asia, using its central distribution center in Malaysia as a springboard.

The key to a successful partnership, Steele says, lies in crafting relationships with vendors that extend well beyond the initial purchase stage. "It isn't the case that you buy something and say goodbye," he said. "There are constant requirements for change."

Always a First Time For Just-in-Time
t's hard to say no to IBM. So when the giant computer maker told all of its monitor suppliers to implement a just-in-time delivery model with a maximum response time of 48 hours, Lite-On Technologies Corp. didn't hesitate for a moment.

With headquarters in Taipei, Taiwan, Lite-On claims to be the fourth-largest monitor manufacturer in the world. It also produces CD-ROM drives for personal computers. Formed in 1989, the company had already achieved revenues of US$800m by 1995.

Yet Lite-On had no prior experience in supplying product globally on a JIT basis, said Jasmine Chan, logistics department manager. Nor had the third-party logistics (3PL) provider it hired to do the job, Golden, Co.-based GeoLogistics. For both companies, it was a matter of on-the-job training.

GeoLogistics was awarded a six-month contract - hardly a ringing endorsement by Lite-On, but indicative of the need to build trust.

Lite-On previously had worked with ocean carriers, and sometimes freight forwarders, to move product directly from its manufacturing plants to major customers such as IBM, Compaq, Hewlett-Packard and Dell Computer. Like many computer makers, however, IBM had become concerned about the cost and inefficiency of managing large parts inventories. In early 1997, it gave monitor suppliers an ultimatum: adopt a JIT model, vendor-managed inventory and 48-hour delivery from the receipt of pull instructions -or lose IBM's business.

Lite-On immediately began the search for a suitable freight forwarder or 3PL. The winner would have to be able to accomplish numerous tasks, including the placement of inventory near IBM's plants, JIT deliveries, a real-time tracking system, value-added distribution services, and electronic data interchange for conveying status information.

GeoLogistics had been acting as a freight forwarder for Lite-On in Taiwan under one of its previous incarnations, LEP International. That prior relationship was a key factor in Lite-On's choice of GeoLogistics over at least three other qualified vendors. But the fledgling 3PL, formed only last year out of three separate companies, had done nothing of the scope delineated by Lite-On in response to the challenge by IBM.

GeoLogistics initially was awarded a six-month contract - hardly a ringing endorsement by Lite-On, but indicative of the need to build trust within a supply-chain partnership. Despite the contract's brief term, the 3PL moved aggressively to implement the required services. A project team, consisting of representatives of all three companies, sat down to sketch out a brand new supply chain.

Today, GeoLogistics supports Lite-On's network of distribution centers in Glasgow, Scotland; Breda, the Netherlands; Dusseldorf, Germany; Sydney, Australia; Toronto, Canada and Singapore. Another logistics provider, DiMarco, manages a pair of U.S. facilities for Lite-On in Sacramento, Calif. and Raleigh, N.C., although GeoLogistics still carries out JIT services at those locations, according to George Faas, manager of logistics programs.

At the DCs outside the U.S., GeoLogistics has responsibility both for inbound and outbound transportation. It arranges for transportation between Lite-On's manufacturing sites and the DCs.

It also delivers components from JIT hub to the customer's assembly plant within four to 24 hours of a pull request. The vendor's information system, accessible via the Internet, provides global visibility of product that is in transit, in the warehouse, or delivered to IBM and other customers of Lite-On.

GeoLogistics performs a number of value-added services for the client, including quality control, testing, reworking product, printing barcoded labels, submitting daily inventory reports and weekly quality reports, and daily invoicing of Lite-On's customers for delivered product.

Faas admits to a steep learning curve for GeoLogistics in the early days of the relationship. "We didn't really know what we were getting into," he said. "It was a rough startup."

Operations have since smoothed out considerably. Chan said the arrangement has dramatically improved Lite-On's service and customer responsiveness. With greater visibility in the supply chain, Lite-On has shifted the basis of its planning model from actual orders to IBM's demand forecasts.

GeoLogistics has benefited as well. Its newfound experience in a wide range of value-added services can be parlayed into additional business, said Faas. IBM already has referred other suppliers to GeoLogistics to set up additional JIT facilities. And Lite-On awarded GeoLogistics a new, one-year contract, which seems likely to be renewed when it expires at the end of 1999.

The standard operating procedures developed by GeoLogistics are of mutual benefit. They give Lite-On a yardstick by which to monitor the vendor's performance. And they make it easier for GeoLogistics to take on additional value-added business at its distribution facilities around the world. "If Lite-On or any customer were to walk into any GeoLogistics facility, they would see the same thing," said Faas.

For Lite-On, the wakeup call from IBM may have been just what it needed to achieve its ambition of becoming the second-largest maker of monitors, and largest in CD-ROMs, by the year 2000. "This offers entry into a world market where they have no physical presence," said Faas. "They can be there tomorrow because they have inventory there."

Creating Value in a Price-Sensitive World
Companies in a true supply-chain partnership are a bit like couples who have lived together for years and find themselves completing each other's sentences. A good provider can anticipate the customer's needs - often before the customer knows what they are.

Or so believes Amkor Technology Inc., which recently linked up to its biggest customer, Texas Instruments, via business planning and collaboration software from i2 Technologies. As a result, Amkor can gauge TI's need for additional semiconductor product before TI discovers that it needs more, said Ernest Maune, vice president of strategic planning with Amkor Wafer Fabrication Services (AWFS).

In the same manner, said Maune, Dallas-based i2 has built into its software a feature that anticipates phased improvements in the supply chain, as the user becomes more comfortable with the system. Gone are the disappointments when a complex and expensive application doesn't start showing maximum results on Day One.

"A true partnership is when you agree to share a significant portion of information real-time, where in the past you kept it
hidden like a deck of cards."
- Tim Dimbero of i2 Technologies

Westchester, Pa.-based Amkor thrives in a highly specific and demanding field. With 1998 revenues of $1.57bn, its reputation has been built on packaging, assembly and testing of integrated circuits. The product then moves to semiconductor producers such as TI.
Two years ago, Amkor decided to extend its services to include basic manufacturing of digital processing chips. It made an exclusive arrangement with a Korean subcontractor, Anam Semiconductor Inc., which fabricates wafers at a foundry in Buchon on the outskirts of Seoul.

Wafers are becoming more of a commodity as their price plummets. So Amkor, a newcomer to the business, saw the need to differentiate itself from the pack. Its plan was to tightly integrate business processes with those of its account base - "to become a virtual extension of our customers," said Mike Scott, director of business planning.

The company decided to capitalize on its inexperience by building a world-class system from the ground up. It turned to i2 in part because the software vendor had already installed systems at TI.

In addition, said Scott, i2's suite of applications, dubbed Rhythm, had features that were specific to the semiconductor industry. For example, Rhythm allowed for the re-entry of semi-finished product into the plant. Unlike most manufacturing, where product comes off the assembly line and goes out the door, wafers travel back and forth between production and testing. The company's off-the-shelf product also contains a number of information templates designed specially for the semiconductor business.

The fact that Rhythm required minimal configuration was especially attractive to Amkor. Maune decries systems that call for constant tinkering with each new release of the software. "Customization is a support annuity for software providers," he said.

The Irving, Tex.-based company's software falls into the category of electronic business process optimization (eBPO), according to Tim Dimbero, director of the semiconductor business unit. Elements of eBPO include supply-chain management, advanced planning and scheduling, customer management and collaboration, and product lifecycle.

Amkor was most interested in two modules of Rhythm, Factory Planner and Supply Chain Planner. The first handles forecasting and production planning at an individual plant. The second ties that information back into a company's enterprise resource planning (ERP) system to permit long-range planning across the entire supply chain, including closer collaboration with customers.

In Amkor's case, it receives production and sales data directly from TI, then uses that data to construct its own production plans. The results are relayed back to TI.

Through better communication with its customer, Amkor can reduce the need for inventory, which it would otherwise have to carry on its books until shipping to the customer. In place of expensive product, Amkor gets a real-time picture of work in process, committed delivery dates, and detailed information on product yield and cycle time.

Amkor can respond more quickly to changes in consumption, said Maune. Moreover, any production capacity that isn't currently dedicated to TI can be used to serve another customer.

On the other hand, the visibility afforded by Rhythm allows Amkor to take certain calculated risks with regard to future demand, Maune said. The company might order what appears to be too much product, then bank on either selling it, or later scaling back production and bleeding off the excess stock.

That's better than being caught with too little inventory by a demanding customer, said Maune. "You can only start so many lots a day. If you pass up the ability to start on a lot of wafers, you lose it forever."

Amkor's next step is to install an ERP tool in its Boise office. As of mid-May, the system was in the prototype stage and expected to be live within four months. Yet Amkor already was seeing measurable results from implementation of the i2 software.

According to Scott, it was able to take an order for integrated circuits on one day, and start the manufacturing process on the following day. TI, meanwhile, was seeing reduced cycle times and inventory levels, and a greater number of stock turns.

Collaboration isn't just the goal of the Rhythm software - it's a hallmark of the relationship among Amkor, TI and i2. Dimbero said the parties communicate freely to avoid problems stemming from differences in their respective planning cycles. "A true partnership is when you agree to share a significant portion of information real-time," he said, "where in the past you kept it hidden like a deck of cards."

Third-Party Business: Dream or Nightmare?
If selling software to individual companies is like fishing for trout, then selling to a third-party logistics provider would be like hooking a whale.

That's how Renaissance Software Inc. must have felt when it secured Air Express International (AEI) as the first 3PL user of its warehousing software package on behalf of multiple customers. Renaissance quickly found out how demanding its newest client would be.

First rule of third-party logistics: Don't say no. So when AEI announced that the entire system had to be up and running within six weeks, Renaissance scrambled to comply. It was merely responding to the same kind of service expectations imposed on AEI by its own customer base.

Renaissance, based in Lake Success, N.Y., signed a contract with AEI, headquartered in Darien, Conn., in October of 1997. The package in question was Renaissance's International Warehouse Management System (IWMS). While AEI licensed a variety of supply-chain applications from Renaissance, its primary interest at the outset was in installing warehouse software that could be applied to any customer.

The buyer's decision was by no means automatic. Steve Schwark, AEI's vice president of worldwide logistics, hired an outside consultant to validate his choice of Renaissance. In the end, the consultant agreed that the vendor was best for AEI, both in software functionality and sales support by management. As for Schwark, he was lured by the system's AS/400 platform, conforming to AEI's own, along with its ability to handle multiple customers and shipments moving under humidity and temperature controls.

What put Renaissance over the top, said Schwark, was its willingness to meet AEI's specific requirements, including the need to respond quickly to the underlying account base. "As much as you try to convince new customers not to add unique requirements to your plate, they always seem to want to do that," he said.

"They took the time to understand that we were going to be different. There was a lot of exchange of information and business plans." - Steve Schwark of AEI

In reality, about 80 percent of the system is usable by all customers without the need for modifications, said Schwark. But that remaining 20 percent can pose problems if the software provider isn't willing to cooperate. In addition, AEI needed IWMS to blend smoothly with other parts of its information-technology offering, including transportation management.

In turning to Renaissance for WMS, AEI was going with a vendor that had no prior experience with third parties. The package was bound to be deployed differently than in the past. "You're always implementing, always winning new business," said Steven J. Christensen, vice president of sales with Renaissance. Which may help to explain why Schwark sought backup from a consultant.

Even now, he admits to some initial hesitation. "You always have a little uneasiness," he said. "But they convinced us that they had the desire and the wherewithal to support our needs. We decided it was worth the risk."

Renaissance's first implementation for AEI was at a multilingual warehouse in Singapore. But the job is far from finished. AEI's worldwide warehouse network totals some 2 million square feet, with individual facilities ranging in size from 5,000 up to 125,000 square feet.

As of May, the task of installing IWMS at all locations was about 60 percent complete. At the same time, AEI was looking to another software provider to create a bonded-warehouse module for its European operations. The whole project was due to be finished by the end of the year.

Having a sophisticated WMS in place systemwide is of clear benefit to AEI, which is depending on the package to enable 20 percent annual growth in its warehouse product. But Renaissance wins, too.

The arduous task of supporting AEI prepares the vendor for additional sales to third parties - a seemingly endless source of new business. Renaissance continues to handle most of the system changes demanded by AEI's customers, as well as 70 percent of warehouse personnel training, according to Louis J. Schilt, chief operating officer.

His chief concern is that companies tend to implement too quickly. "They don't want to do the classic business study before going live," Schilt said. Training, too, may get short shrift if a warehouse is under intense pressure to turn on the system. And companies end up paying for their impatience in the end.

It was the commitment of both sides to a true partnership that ensured the successful implementation of IWMS at AEI's facilities. Schwark praises the vendor for paying attention to the third party's unique needs.

"They took the time to understand that we were going to be different," he said. "There was a lot of exchange of information and business plans."

AEI drew heavily on the resources of Renaissance to get the system in place - and was willing to pay for that expertise. "We were both looking for a relationship where we could make some money," Schwark said.

Schilt attributes Renaissance's success to its willingness to do whatever it takes to support a valued client. Often that meant long hours for the vendor's employees, but Renaissance made the deadline. And it learned just how demanding third-party logistics and warehousing customers can be.

"Anybody who wants to get into the 3PL or 3PW business had better be ready to jump through hoops," Schilt said.

Osram's Supply Chain Is as Clear as Glass
With all of the changes that Osram Sylvania Products Inc. has undergone in the last 40 years, it's no surprise that the company would have built up a veritable army of logistics providers around the world.

The well-known maker of lighting products has had several ownership changes over the years. GTE bought Sylvania, originally established nearly 100 years ago to serve the market for replacement fluorescent tubes, in 1958. Germany's Osram, a subsidiary of Siemens, took Sylvania off GTE's hands in 1993, getting a company with a greatly expanded product line from its distant origins.

In the process, Osram Sylvania had acquired a roster of more than 125 freight forwarders and customs brokers in the United States alone, according to Bill Rooney, international traffic manager at the glass division in Exeter, N.H. Toward the last half of the 1990s, the company began to view that setup as inconsistent with the goal of establishing an efficient global supply chain. Many of its service providers were small mom-and-pop shops, Rooney said, better suited for niche markets located close to manufacturing points.

In 1996, Osram Sylvania launched an intensive search for a single provider to handle as much of its business as possible. But it was pulled up short by many of the larger forwarding and brokerage houses, who were eliminated from contention one by one because they lacked the ability to function in multiple markets. Said Rooney: "There was a lot of fluff, and no stuff."

Making the search even more difficult was the still-undefined nature of Osram Sylvania's needs. To a large extent, they would end up being shaped by the abilities of the chosen provider. Rooney said the company wasn't even sure it would find a truly global partner, and that its original ambitions didn't necessarily lie in that direction anyway. "Initially we were doing it to improve what we had in the states," he said.

BDP sent its own personnel to the Osram Sylvania factory in China to set up
standard operating procedures for shipment processing.

The glass division of Osram Sylvania acted first, choosing BDP International as its favored provider. BDP, a Philadelphia-based freight forwarder and customs broker, is known for its heavy investment in information technology. In fact, it was systems that served as BDP's biggest selling point to Osram Sylvania. "They had instant access to everything," said Rooney.

BDP got the account at the end of 1996, and the relationship blossomed over the following year. Since then, BDP's position in the Osram Sylvania supply chain has extended deep into global markets. It now acts as sole freight forwarder and customs broker, handling imports and exports by ocean and air, for the glass business of Osram Sylvania. BDP Transport, a newly formed non-vessel operating common carrier, consolidates smaller export loads into full containers.

On the import side, BDP coordinates inbound shipments to Osram Sylvania's customers in the U.S. Using 15 ports of entry, it clears all freight with Customs via remote location filing from its Boston office, according to Rick Correnti, general manager of BDP Boston. For Osram Sylvania, the arrangement provides the kind of economies of scale that were impossible to achieve with the host of smaller brokers that had previously cleared shipments at the ports.

Currently, BDP is focusing on the client's shipments to and from China. The forwarder sent its own personnel to the Osram Sylvania factory in China to set up standard operating procedures for shipment processing, Correnti said. As a result, BDP's internal systems allow for visibility of product all the way back to the source. Osram Sylvania has access to all purchase orders, along with information on Customs clearance and delivery, on a real-time basis.

Before, said Rooney, "we never knew where the containers were. We were notified when they left. Eight weeks later they showed up at the dock. In between there was nothing." Poor communications might also result in containers sitting on the docks for up to two weeks, piling up demurrage charges.

BDP has shown itself willing to help out even when it was not directly responsible for the shipment. In one case, Osram Sylvania turned to BDP to rescue some stalled containers at the port. Within three hours, the boxes had been delivered to destination. In Canada, another forwarder was stymied when Canadian Customs announced that the fumigant used in a shipment from Asia was banned in that country. BDP stepped in and quickly resolved the problem with Customs officials.

In less than three years, Osram Sylvania has revamped its global distribution network, with the U.S. serving as hub. The next step, said Rooney, is to link the various spokes, setting up traffic lanes that bypass the U.S. altogether.

The partnership with BDP exists at all levels of Osram Sylvania, with an emphasis on new ideas and long-term planning. "It's a case of not just upper management, but also the people that are doing the work," said Rooney. "They're the ones that can tell us yes or no."
Osram Sylvania executives are now working to make BDP the exclusive logistics provider for the entire company. "It's a slow process," said Rooney. "People within Osram Sylvania have got relationships built with existing forwarders. It's hard to get them to change."

HP Pushes Aside Obstacles in India
Few countries pose a greater number of unique challenges to logistics professionals than India. Its population of more than 984m offers a huge opportunity for foreign suppliers. But getting product to market is a formidable task.

Darien, Conn.-based AEI Corp. has extensive logistics operations in Asia. Yet India requires three times the effort of serving other countries in the region, said Trevorlyn Menezes, AEI's director of sales for Asia, the Indian subcontinent, Middle East and Indonesia.

Just getting enough airlift into India is a major concern. So is clearing Indian Customs, which has a reputation for being slow and bureaucratic. First, imports must be processed by handling agents, who may or may not be employed by the airline that flew them in. A day might go by before they can manually key in information about the shipments and pass them on to Customs.

Import clearances can only be handled by a limited number of certified individuals. Many are part of family-run businesses chosen for their close ties to Customs, not the quality of their work, Menezes said. Then there's the generally poor state of India's road system, making key locations in the immense country difficult to reach.

All of those concerns were factors in the decision of Hewlett-Packard Co. last year to change logistics partners in India. The Palo Alto, Calif.-based high-tech leader had been shipping personal computers, printers and toner cartridges into the country for a number of years, said Yew-Khuan Tan, HP's regional logistics manager in Singapore. But the relationship wasn't working out.

"In India, it's a tricky situation," said Tan. "A partner must be willing to invest in the country. Not many are willing to do that, because there are still a lot of limitations on foreign ownership."

HP solved the dilemma with the help of AEI, which has a long-standing, exclusive partnership with Lemuir Air Express, an Indian-owned warehouser and logistics firm. Lemuir supplies the kind of home-grown expertise and physical infrastructure needed to serve the country, Menezes said.

AEI's door-to-door program for HP begins in Singapore. It relies on twice-weekly freighter service by Singapore Airlines, as well as belly capacity on passenger aircraft, and private charters.

Many HP shipments received by AEI in Singapore fly out on the same day. There, AEI breaks down and reconfigures incoming shipments to take maximum advantage of limited space. It works closely with airlines to guarantee that whole orders travel on the same aircraft.

All HP shipments to India are customized and prekitted at factories in Asia and Europe. Monthly volumes range between 180 and 200 metric tons. AEI handles documentation and tracking electronically through its in-house LOGIS system, with daily booking reports uploaded to HP. In addition, it faxes invoices and manifests from Singapore the moment a shipment departs.

AEI has made a substantial investment in serving India without a long-range commitment from Hewlett-Packard.

Product travels to three Indian hubs, in Delhi, Mumbai and Bangalore. AEI has three or four certified agents at each location to expedite Customs clearance. Through prefiling under Customs' "green channel" program, reserved for trusted, well-established importers, AEI can save up to one and half days in the clearance process, Menezes said.

For payment of duties, it maintains a prepaid deposit account that is debited by Customs when the shipment arrives. "In the last few years," said Menezes, "Indian Customs has become very flexible."

AEI retains responsibility for HP's shipments all the way to customers, who are mostly distributors but may also be end users. The result is a 94-percent achievement of HP's goal of 10 days' turnaround time, from receipt in Singapore to final delivery. "The moment a shipment hits our doorstep," said Menezes, "the clock starts ticking."

Tan said AEI has gone a long way toward offsetting the lack of capacity and poor infrastructure that plague shippers to India. And while she doesn't attribute HP's recent boost in sales there entirely to the AEI program, she points to a marked increase in customer satisfaction on deliveries.

She lauds AEI making a substantial investment in serving India without a long-range commitment from HP. The contract has no fixed period and can be terminated in 30 days. "The partners have to trust that our philosophy is strong enough to warrant that kind of decision-making," Tan said.