Global Supply Chain Management — September, 2007

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Companies Struggle to Prioritize Supply Chain Risk
Many companies are ready to make investments to ensure the resiliency of their spply chains in the face of unpredictable events like hurricanes and terrorist attack, but they are struggling to prioritize risk mitigation efforts according to a recent survey from Forrester Group. Forrester interviewed supply chain industry leaders from companies like Dell, HP and United Parcel Service for its report, Best Practices: Successfully Managing Security and Risk in a Global Supply Chain.
Prioritizing is particularly difficult for a supply chain that spans geographic borders, involves multiple transportation modes and crosses many carriers and trading partners because the possibilities for disruption can seem practically infinite, says Patrick Connaughton, lead author of the report. "Because building a contingency plan for every step in the process would be prohibitively expensive, companies are faced with the tough decision of where to place their bets," he says.
Forrester interviews consistently revealed that the key to success is putting in place day-to-day processes that can scale in times of crisis, says Connaughton. The best practices with the highest return are in the areas of network design, creating a state of total situational awareness among partners and providers, and integrating better security measures. The Forrester report lists several tactics to implement and pitfalls to avoid in each of these areas.

Transportation and Logistics Execs Worry About Risk--But Don't Do Enough
CEOs of transportation and logistics companies also worry about the risk of network disruptions, according to the 10th annual survey of global CEOs conducted by PriceWaterhouseCoopers consultancy. These executives, in fact, scored far above the average of all CEOs in their concerns about energy prices, energy security, security of the supply chain, terrorism, climate change and pandemics such as bird flu.
"The survey findings reinforce how easily the T&L sector can be harmed by external forces," the report says. Nevertheless, T&L CEOs feel they are average, at best, when it comes to expending resources to meet threats related to most of these issues. "Only against the threats of terrorism and inadequacy of basic infrastructure does the T&L sector expend more resources than the global average," the report says. "Risk and crisis management will be a key challenge in the T&L industry and should be addressed even more actively."
Desipte these concerns, transportation and logistics CEOs are more confident than their counterparts in other industries about the prospects for revenue growth over the next 12 months--60 percent positive as opposed to 52 percent in the total global CEO population.
"This could be attributed to the fact that the T&L industry sector, more than most others, benefits from globalization," says the report. "Global supply chains require transport capacities and the management of material and information flows. The CEOs of logistics service providers, airlines, shipping companies and other T&L providers continue to trust in sustained growth."

Don't Let Offshore "Savings" Evaporate

Failure to adequately plan for disruptions in extended, global supply chains can cost companies all the money they expected to save by moving offshore, and then some, says Bob Belshaw, senior vice president of GE Trade Distribution Services. Speaking at the recent Supply Chain Operations Private Exposition (SCOPE) in Las Vegas, Belshaw cited an Aberdeen Group study from last year which found that half the companies that adopted global supply-chain strategies ended up saving nothing. The lower cost of labor was offset by the need for increased inventory to serve as buffer stock, as a hedge against the variability that arises from longer supply lines. Often such companies found themselves resorting to pricey expedited transportation, in order to get goods to market on time. They were also faced with higher costs related to compliance, documentation and security. In short, says Belshaw, the push for cheap manufacturing in countries such as China can lengthen that all-important cash-to-cash cycle, while compromising customer service.
So what to do? Belshaw doesn't advise U.S. companies to bail out of China and bring their plants back home. They should realize, however, that outsourcing has reached a new level of maturity in corporate operations. No longer does it afford an automatic competitive advantage. "The competition is probably already sourcing in China," he says. The trick lies in adopting a unified approach internally, so that purchasing, logistics, finance and other departments can work together to head off supply-chain disruptions, and minimize their impact when they occur. Another successful strategy is to take a broader view of how working capital is distributed across the supply chain. Vendor-managed inventory arrangements are one way to lower the cost of storing and paying for production parts. But smaller suppliers can't always afford to shoulder the extra financial burden that such programs entail. The obvious alternative--manufacturers taking title to goods earlier--isn't especially attractive either. Instead, a number of third parties are stepping in to assume temporary ownership of inventory, paying suppliers at a discount early, then recouping the full price from buyers. Such entities can help to mitigate the risk of lengthier supply chains, says Belshaw.

NAFTA Provisions Finally Enforced
A long-delayed and controversial program to allow Mexican trucks to deliver goods to and from anywhere in the United States, and U.S. trucks to have the same privilege in Mexico, took effect Sept. 6 after the U.S. Transportation Department granted final approval. Despite continuing protests from the Teamsters and other driver and safety organizations, some Mexican trucks began rolling across the border May 7 under a year-long pilot program. The pilot provides that a specified number of Mexican trucking companies will be able to travel beyond the approximately 25-mile commercial zone that runs along the border. In the first 30 days of the program, 17 trucking companies from Mexico will be given authority by the U.S. DOT to operate in the U.S. Each subsequent month until December, additional companies, up to a total of 100, will be added, if they are certified as safe by the Federal Motor Carrier Safety Administration.
The first two carriers granted operating authority were Transportes Olympic in Nuevo Leon, Mexico, and Stagecoach Cartage and Distribution of El Paso, Texas.
The border had been scheduled to be opened to two-way truck traffic in 1995, but the opening was delayed by President Clinton, who had concerns about Mexican safety regulations.
A NAFTA arbitration panel ruled in 2001 that the moratorium violated the treaty. In February of this year, U.S. Transportation Secretary Mary Peters announced that the Bush administration would go forward with a one-year demonstration project as a prelude to full opening of the border.
The 9th U.S. Circuit Court of Appeals in San Francisco last month rejected a request made by the Teamsters union and other advocacy groups seeking a stay of the pilot plan.

Outlook Is Bright for SCE Market
It is difficult for large multi-billion dollar markets to grow rapidly, but the Supply Chain Execution market will achieve that feat, according to ARC Advisory Group. Supply Chain Execution includes Collaborative Production Management for Process (CPM-P) and Discrete (CPM-D) industries, Transportation Management Systems (TMS), and Warehouse Management Systems (WMS). The worldwide market for SCE is expected to grow at a compounded annual growth rate of 9.9 percent over the next five years, according to a new ARC study. The market was $4.6bn in 2006 and is forecasted to be over $7.4bn in 2011. "It is surprising how fragmented this market remains," writes Steve Banker, service director for supply chain management at the research group. "There are over 250 suppliers. In 2006, the top 10 suppliers' shares of the total market had barely changed from 2003, despite the fact that virtually all of the top 10 suppliers had made SCE acquisitions." Banker is one of the principal authors of Supply Chain Execution Worldwide Outlook: Market Analysis and Forecast Through 2011.

Schneider Logistics Sees Need For Supply Chain Advisory Service
Companies are turning to third party logistics providers these days for a lot more than logistics. "We have long provided our customers with supply-chain engineering, analytics, procurement and other services that leverage our years of experience in transportation management," says Todd Ericksrud, vice president of global logistics sales at Schneider Logistics, Greenbay, Wis. To better market these capabilities, Schneider now is branding them under the name "Supply Chain Advisory Service."
"We basically have taken everything we have in our toolbox to improve the supply-chain performance of our clients and packaged them in a way that lets customers pick and choose the offerings they want," Ericksrud says. "This is another way for us to approach the marketplace,'' he adds. "Early on in the logistics industry, people were offered only a fully outsourced deal. But some companies may not want to outsource all aspects of their business. So we are positioning Supply Chain Advisory Services to offer these people actionable and executable solutions on whatever pieces they do want help with. It complements the other service offerings we have in our portfolio."
SCAS differs from a consulting engagement in that Schneider actually implements what it recommends, Ericksrud says. "We may do a transportation engineering analysis, where we look at everything from network design to on-time delivery requirements and make recommendations for how customers can minimize costs and improve fill rates; or we may help a customers with their carrier bidding process to ensure that they have the best mix of carriers and that the carriers have the best mix of freight," he says.
This type of win/win matching is accomplished using a Schneider proprietary tool called BidSmart.
Since developing BidSmart five years ago, Schneider customers have used it to procure more than $2bn worth of transportation services. On average, these customers have saved 6 percent to 8 percent on their freight bills, Ericksrud says. "Some have saved significantly more and some a little less, but all have realized savings, even in a rising rate environment." Ericksrud emphasizes that these savings do not represent a rate reduction from the carrier base. "Rather, the savings come from aligning the correct carrier to the correct lane," he says. "Some lanes fit better with one carrier than another. We have relationships with so many carriers and know the market so well that we are able to insert a market-making sequence in the process where we talk to both the carriers and the shippers to come up with a solution that makes the both sense for all."

Sinotrans, NRS Form Joint Venture
Sinotrans, China's largest logistics company, and National Retail Systems, Inc., a leading provider of logistics services to U.S. retailers, have formed a joint venture called SinoNRS to offer integrated factory-to-store logistics solutions to U.S. retailers. SinoNRS will offer U.S. retailers a comprehensive suite of transportation, consolidation, warehousing, distribution, trade facilitation and value-added services, such as ticketing, labeling and packaging.
"U.S. retailers are under increasing pressure to shorten their time to market and lower supply chain costs in order to keep up with consumer demands," says Raymond Wisniewski, president and COO of NRS. " SinoNRS will provide the three critical levers for logistics success: control, speed and value. No other competitor will have better capabilities in China or more experience in U.S. retail."
Sinotrans is China's largest logistics provider. With more than 1,600 distribution facilities in China and a staff of over 18,500 employees, it offers integrated ocean transportation, air freight, trucking, distribution, express services and third party logistics services. The Sinotrans network covers all major areas in China from North to South coasts to inland locations and includes the largest customs clearance facility network in China.
NRS operates one of the largest distribution facilities in the New York area close to Port Elizabeth, N.J., including several transload facilities, warehouses and an automated cross-dock that is among the most advanced of its kind in the world. NRS also operates multiple facilities in the Los Angeles area and over 1 million square feet of distribution space within 10 miles from the Port of Long Beach. A new Savannah transload facility opening later this year as part of the company's Gateway Ports strategy will add to NRS' presence in the Southeast with facilities in Greensboro, N.C.; Tampa, Fla.; and Miami.

Past Global Supply Chain Management Issues:
July, 2007

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