World Bank Report Ranks Singapore No. 1, Stresses the Importance of Logistics to Global Economy
Singapore is rated as the world's top logistics hub in a new study from the World Bank, Connecting to Compete: Trade Logistics in the Global Economy. The study is based on a world survey of international freight forwarders and express carriers and includes a Logistics Performance Index (LPI). Singapore earned the highest LPI. Others in the top 10, in order of ranking, are: The Netherlands, Germany, Sweden, Austria, Japan, Switzerland, Hong Kong, United Kingdom and Canada. The U.S. is 14th on the list.
"Being able to connect to global markets is fast becoming a key aspect of a country's capacity to compete, grow, attract investment, create jobs and reduce poverty," said Danny Leipziger, World Bank vice president for poverty reduction and economic management. "But for those unable to connect, the costs of exclusion are large and growing."
"As a main driver of competitiveness, logistics can make you or break you as a country in today's globalized world," said Uri Dadush, World Bank Trade Director. "You can have very good customs, but poor performance in only one or two areas of the supply chain has serious repercussions in the country's economic performance creating a perception of unreliability."
The study provides concrete examples. A distant country like Chile can sell fresh fish and perishable fruits to consumers in Asia, Europe, and North America thanks to well functioning supply chains. On the other extreme, importing a 20-foot container from Shanghai to N'djamena, the capital city of the landlocked country of Chad, takes about 10 weeks at a cost of $6,500, as compared to the four weeks and less than $3,000 that it takes a landlocked country in Western or Central Europe to make the same shipment.
Another finding of the survey is that developing countries where trade has been central to their economy perform better than others with similar incomes. Examples include South Africa (24), Africa's top performer, Malaysia (27), Chile (32), and Turkey (34) among upper middle income countries; China (30) and Thailand (31) among the lower middle income, and India (39) and Vietnam (53) among the lower income.
In terms of how developing countries are doing per region, Korea (25) is the top performer from East Asia; Chile (32) from Latin America, followed by Argentina (45), and Mexico (56); India (39) from South Asia; Oman (48) from the Middle East; and Turkey (34) from Eastern Europe.
According to Connecting to Compete, success in improving logistics performance will also depend on the overall governance and institutional context. While solicitation of informal payments (e.g. bribes) is rare among the top 30 countries of the LPI, it turned out to be common among lower performers (about 50 percent of respondents.)
In addition, the study notes that individual reforms, such as customs modernization, need to be combined with improvements in all aspects of the supply chain. "Countries need to better coordinate border procedures with other agencies, improve telecommunications, information technology, physical infrastructure, and facilitate the functioning of competitive private services, such as trucking, customs brokering, and warehousing," said Arvis.
"A comprehensive reform of logistics and trade facilitation is essential to close the logistic gap," added Mustra. "There should be improvements in the markets for logistic services in order to reduce coordination failures, especially those attributed to public agencies active at the borders, and to build strong support for future change and economic development."
The report and related material is available at:
Schneider's Acquisition of BaoYun Underscores 3PL Trend
The 2007 survey of 3PL executives, conducted annually by Dr. Robert Lieb of Northeastern University, revealed a continuing trend among large 3PLs to expand their global operations. In many instances, Lieb says, the most expeditious way for a 3PL to achieve that expansion is to acquire a company in the new market that has complimentary services to its own. "We are seeing a lot of that now with respect to the Asia Pacific market," he says.
One example of this trend is Schneider Logistics' acquisition in September of BaoYun Logistics, one of the top 30 privately held logistics companies in China. Martin Winchell, China managing direction at Schneider Logistics, notes that the purchase is a good match since BaoYun's "strong and diverse" customer base fits well with Schneider's own, encompassing clients in the consumer product goods, retail, automotive and general manufacturing sectors. The purchase extends Schneider's reach across China as well, to all of the country's major regions and cities. In addition, says Winchell, "Warehousing and cross-docking capabilities were added to the portfolio."
Schneider Logistics first began operating in China in 2005 as a supply chain consulting company offering services specifically aimed at the domestic Chinese market, Winchell says. A separate entity, Schneider Logistics (Tianjin) Co. Ltd., was later established to offer domestic transportation and logistics services. With the acquisition of BaoYun, "Schneider Logistics now offers a Pan-China solution set including transportation management, warehousing, consulting and 3PL services," says Winchell.
The combination also gives customers of Schneider Logistics the benefits of both local expertise and global management practices, he says. "China is a series of local markets, each one having slightly different characteristics," he explains. "Understanding local operating parameters is key to servicing clients. BaoYun has been operating in China for more than 10 years, and this experience will provide us with the foundation to meet current and future challenges."
At the same time, Winchell says, operations in China are become more sophisticated and Schneider Logistics' experience and technology position the company well as a solutions provider for the country's increasingly complex supply-chain demands. "We are striking a balance that offers the best value for clients in China's dynamically changing logistics environment," he says. "We are constantly looking to grow with our customers as they expand and as their needs and requirements change over time. We are planning on growing from this base organically, but we are continually reviewing our strategy and evaluating opportunities." Winchell says Schneider Logistics will add freight forwarding and "first mile" solutions in China over the next 12 months.
Quality Issues Present Challenge, May Lead to New Thinking on Outsourcing
China may still be attracting new business but, as recent headlines demonstrate, the offshore migration is not without its problems. Quality issues have U.S. and European consumers on alert and are forcing the Chinese government to begin addressing corruption issues that have impacted manufacturing quality. And whether it is lead-tainted toys made in China or foods tainted with E. coli grown in the United States, quality failures can break a company, says a weekly Alert from AMR Research, Boston.
Reassuring a wary public in the aftermath of such a failure is a massive undertaking that requires every member of the value chain. AMR analysts recently gathered to discuss how businesses are being affected and to talk about ways in which companies can deal with the problem. They identified a number of best practices in each area to assure quality control or efficient recalls. Each step will be detailed in a coming report, but here is a preview:
Despite all the technology to manage global collaboration, some companies are finding that nothing beats an actual physical presence to assure quality in and quality out.
Top high-tech manufacturers and retailers, including Apple, IBM, AMD, Cisco, Best Buy, Dell, HP, and Kodak, among others, banded together to form a oversight group called the Electronic Industry Code of Conduct (EICC) to assure quality and compliant products from overseas manufacturers.
If quality does become an issue, retailers need standard policies and procedures in place for recall and reverse logistics, and employees need to be trained on how to deal with it. Since most products for the 2007 holidays are already on their way to or in the warehouse, it may be too late for this year. But retailers do need to plan for next holiday season, not to mention for all the time in between.
Retailers should join consortium groups to help ensure the products it buys meet environmental, social, and compliance standards. As more retailers launch private-label products, instituting all of these practices becomes even more vital.
Ã¢â‚¬Â¢ Despite recent recalls, the food industry is better equipped than most to deal with quality issues, because it has long had to contend with regulations requiring thorough food labeling. Other industries can take a page out of their playbook and adopt some of the food industry's best practices in these areas. Ditto the pharmaceutical industry, which has stringent regulations to assure only quality medications and medical devices make it the patient. The recall of a child's toy should be as rare as the recall of a heart stent.
Turning to other low-cost sourcing options, India is seeing a surge of outsourced manufacturing as quality and corruption issues hamper operations in China. China is about where the United States was 150 years ago in terms of government oversight for environmental health and safety. It will be many years before China will have the rules and bureaucracy in place to put manufacturers at ease. In the meantime, they'll need to take on the expense of self-governing or turn to other regions, like India. Some perceive India to be a more controlled environment, and so able to produce safer products. Call it "different-shoring." Brazil and Mexico may also be options for nearshore alternatives. Some are also bringing it home. That Made in the USA label may mean something again to shoppers if quality problems continue to plague products made overseas.
Flu Season Revives Pandemic Worries; Supply Chains Need to be Prepared
Avian flu may have fallen off the headlines, but the risk of a global pandemic hasn't diminished. As of July 2007, the confirmed human deaths resulting from H5N1 avian influenza has increased by 21 percent, compared with 2006, according to the U.S. Department of Health and Human Services (HHS). Experts at the World Health Organization and elsewhere say that the world is now closer to an influenza pandemic than at any time since 1968, when the last of the previous century's three pandemics occurred.
Should a pandemic strike, global supply chains could become completely paralyzed if they are not prepared. The HHS reports that some economists predict that a pandemic could produce an effect on the worldwide economy similar in depth and duration to that of an average postwar recession in the United States. Despite this, only 28 percent of companies feel they are prepared to face the business challenges of a pandemic, an AMR Research survey of 112 businesses in the manufacturing and services sectors indicates.
Preparing for pandemic risk requires a concerted effort across all facets of the business, spanning structural and IT infrastructure, employees, suppliers, and customers. Service and technology providers can be used in preparing for and mitigating the risk in the following ways:
Have risk-focused consultants design a company-wide mitigation plan.
Use network analysis systems to gauge supply chain vulnerabilities and pinpoint the potential fail points in companies' supply networks. These tools also can help companies develop multisourcing strategies and identify alternate transportation modes and redundant production capacity to avoid or delay business interruptions in the event of a pandemic.
Use simulation tools to map the future network state in the event of a pandemic. For example, with these tools, companies can measure how and for how long they can satisfy their network demand using local suppliers or stockpiled inventory.
Use sense and response tools to manage ongoing supply chain disruptions.
More on the recent survey regarding pandemic risk readiness and details on best practices to prepare, see "How Prepared Are Companies for a Pandemic?"
Logistics Industry Gets Good Marks in User Study
In a study entitled The State of Logistics Outsourcing: 2007 Third-Party Logistics by consulting firm CapGemini, the industry appears to be doing many things right. Most users are satisfied with their 3PL relationships, with 85 percent defining their logistics outsourcing efforts as successful. But some users do report chronic problems with 3PL providers and a significant number of users say that 3PL information technology capabilities are not sufficient.
The study found that 3PLs need to become a source of advice and innovation for their customers and the customers need to apply professional management skills to the area of logistics services to optimize the abilities of the 3PLs.
Looking at emerging markets, the top five expansion destinations for companies are China and India as clear leaders followed by Russia, Brazil and Poland. But proximity certainly influences choice, with Eastern Europe more popular with European companies while Latin America is more of a choice for those in North America. Asia Pacific companies choose China and India as the main destinations but Vietnam rates as "more interesting" to them than Russia. Latin American companies do look to China to expand but generally not to other countries outsider their own continent.
On the issue of collaboration, when asked about which business processes would benefit most from improved collaboration with 3PLs, respondents seemed to associate the greatest benefits with business processes such as inventory management, customer order management, customer service and supplier order management. No matter the benefits, users feel successful collaboration should pay for itself in measurable financial terms.
Boeing's Delay Raises Questions about PLM
The Boeing Company's 787 Dreamliner was supposed to be a marvel of industrial planning and design. It is one of the first airliners to be completely digitally designed using PLM (product lifecycle management) software, and the first-ever virtual rollout of an aircraft. Using Dassault Systems PLM software, Boeing used exact 3-D models of parts and assembly tooling to plan and layout its production lines--a process that would massively reduce rework on the 787 and dramatically increase time to market, the company said.
But on Oct. 10, before the first planes could even be built, Boeing announced a six-month delay in the initial deliveries of the 787 Dreamliner--from May to December 2008--citing supply shortages, particularly with obtaining composite materials.
Industry insiders believe Boeing's PLM implementation had little to do with the Dreamliner's delayed delivery. Suppliers came up short, out of sequence and/or delivered unfinished parts. But the situation begs the question: What good is PLM if it can't account for the supply chain outside your control? In other words, when will the promise of PLM really be fulfilled?
"We're still seeing a very high fragmentation on how PLM is used, even though PLM vendors understand the vision," said IDC research analyst Joe Barkai. He says the answer is "Supply by Design," a concept for pushing PLM processes out to suppliers as a way to collaborate on a design concept along the supply chain.
"Thinking about design for the supply chain goes far beyond just having a database for suppliers. It really is the need to understand a supplier's capabilities, strategy and how that impacts design and vice versa," said Barkai. "So while Boeing has a very robust design and practice on simulation, they failed on design for the supply chain. Where they are in the process they should not be surprised by suppliers not being able to design (composite materials) on time. I don't think it's the tool. It's how you implement the tool in your process. Boeing sort of missed it."
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