SME in the Global Supply chain

Logistics: Key component of competitive strategy

Bill Goldsborough, Ph.DPrincipal - LAS and associates

(415 488 1491)

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Today’s agenda

• Brief review of business globalization• Importance of supply chain in global arena• Logistics as a key component of supply chain• Processes involved in global logistics• One SME’s approach to global logistics• Why today is a good time for the SME to begin

to upgrade its global logistics capability• Next steps for SMEs

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Drivers of business globalization

• Market forces– Sell in international markets– Source from multiple markets– Invest in multiple markets, e.g. ops, R&D

• Policy and technology forces– Trade and capital liberalization– Transport, communications & information technology– Market privatization

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A smooth functioning supply chain is a key condition for success

• Get the right product, in the right quantities, in the right condition to the right place at the right time and at the right price

• To do this need to break down barriers between traditional business functions, e.g. manufacturing, marketing, etc.

• Focus instead on key customer related processes like order cycle, complete orders, on-time deliveries

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Broadly there are 4 key processes a company must perform

Plan Source Make Fulfill

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Process improvement has had a significant impact on the bottom line

• IBM reduced overall costs by $12 billion between 02 & 05, according to AMR

• Increasing evidence of positive correlation between process improvement and key financial indicators, e.g. share price, materials cost, cash to cash cycle times

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Software has been a key enabler of process improvement and has led to closer cooperation

between firms

• Enterprise resource planning (ERP), Supply chain planning (SCP), Transportation planning (TM), Customer relationship Planning (CRM), etc

• Global trade management (GTM) software

• Web-based portals

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Globalization and supply chain technologies have led to a new phenomenon: Global production networks

U.S.

Best Buy

Zoran

Applied Materials

D&H

Asia

Toshiba

Contractfirms

TSMC

(1). (2)

(3)

(4)

(5)(6)

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Logistics (fulfillment) is a key process of the integrated global supply chain

• But, more limited in scope than the supply chain

• Nonetheless it has huge cost and customer service implications

• This combination presents opportunity to improve financial, operational and service performance relatively quickly

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Global logistics is comprised of four key activities that need to be carefully

managed today

• Inventory management

• Transport spend management

• Import/export process management

• Logistics outsource management

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Careful inventory management is more important than ever because of the far flung

nature of the global supply chain

• Holding inventory is costly• Current recession could have long-term impact on

channel management• Examples of tools for managing inventory– VMI– Cross docking– Merge in-transit– Postponement– Optimization– Visibility software

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Visibility software is foundation for global inventory operational and strategic

management

• Operationally– Enables integration of disparate nodes & single window

on activities– Enables management by exception & problem

identification and resolution• Strategically– Provides data for in depth analytics, e.g. root cause

analysis, forecasting– Drives ROI collaborative initiatives with partners

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There are various ways to obtain visibility capability

• Develop in-house, custom designed portals, e.g. Dupont, Cisco

• Lease from outside vendor • Receive from 3rd party provider, e.g. freight

forwarder or carrier• Buy over the web on a per usage basis-SaaS or

on-demand

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Global transport spend management- Historically firms have controlled this poorly

• Terms of sale• Viewed tactically rather than strategically within the

firm• Decentralized decision making • These practices have led to:– Mismatch between mode/service selected and

actual customer need– Lack of awareness of increasing transport options

available to the firm

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But recent changes in the global transport environment enable a more strategic approach

to transportation

• Virtual deregulation of ocean transport• Increased willingness and capability of 3rd

parties to enter into contracts today• Technology breakthroughs that enhance

shipper/provider interface– Rate/Service optimization software– Carrier contract management software– Cargo platforms, e.g. Inttra, G.T. Nexus, CargoSmart– Improved analytics

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Import-Export process management has become increasingly complex

• Compliance, e.g. duty rates, quotas, origin• Facilitation, e.g. trade agreements, CT-PAT,

drawback, FTZ• Security - various programs are now in place,

e.g. 10 + 2 import security filing rule• Safety - principally product, e.g. Bioterrorism

Act requires tracking ingredients in all processing facilities

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The costs associated with failing to manage import-export processes well are

significant• Excess duty payment due to misclassification• Failure to qualify for trade agreement

advantage• Failure to qualify for trade facilitation program• Government financial penalties• Cargo delays, e.g. Brazil• Loss of shipping privileges

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For many firms global logistics outsourcing will become critical to their success

• Outsourcing phenomenon generally

• Logistics provider industry is maturing: Relationships now range from simple to complex and from arm’s length to strategic

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User – Provider relationship continuum

Provider type

Int’l forwarder

increasing:

3rd party Lead logistics provider

Relationship typeTransactional Strategic

•Shared goals•Risk/reward•Robust Systems links•Management integration •Metrics •Modest systems links•Arm’s length

Tradit’lservices, limited

Tradit’l services,

global

Integrated forwarding &

fulfillment

Tech driven, multimodal, global player

Design, reengineering

consulting

Manage 3rd parties, carriers

Fully integrated strategic partner

Traditional Emerging

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Strategic relationships can form between both large and small firms

• Large firms–Cisco and UPS Logistics in Europe–Diebold and Menlo Logistics

• Small firms–Redback Networks and D.W. Morgan

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Case Study: Redback Networks develops global logistics partnership (From Aberdeen Research)

• $115 million designer & marketer of networking equipment to customers worldwide

• Business model is product leadership: provide best most reliable products, including 4 hr parts replacement

• Corporate strategy: leveraged business that outsources to experts all functions that don’t influence customer buying behavior

• The challenge: to align in-house logistics operations with corp. strategy through outsourcing

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Case study continued

• Redback’s Provider requirements:– Meet stringent SLAs to customers– Reduce global service parts depots– Reduce inventory levels– Reduce # of people to run depots and fill orders

• Provider selected: D.W. Morgan– Closed 22 of 50 depots– Deployed a hub-spoke system – S.J., Atlanta, Hong

Kong, Amsterdam– Deployed high level web-based visibility software– Transferred employees to Morgan payroll

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Case study continued

• Results were significant– Total logistics costs reduced by 30 %– Total service depots cut from 50 to 28– Overstocking minimized and inventory in field has

dropped by 50 %

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Today is a good time for SMEs to begin to develop a global logistics capability

• Availability of low cost “on demand” technology• Carrier options available due to deregulation, over

capacity, etc.• Opportunity to enter into strategic, goal based

relationships with vendors • Possible opportunity to participate in production

network phenomenon• To develop new sources of competitive advantage in

a slower growth world economy in which lower cost and customer service will be king

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Next steps for SMEs wanting to develop a more strategic global logistics capability

• Self assessment, (How are we doing today)?– SWOT– Industry structure analysis– Benchmark

• Path forward (What do we want to become)?• What do we need to do to get there? - Gap

analysis• Identify “low hanging” fruit that can be harvested

relatively quickly as recession recedes