SME in the Global Supply chain Logistics: Key component of competitive strategy Bill Goldsborough, Ph.D Principal - LAS and associates (415 488 1491) 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 2 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 3 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 4 Broadly there are 4 key processes a company must perform Plan Source Make Fulfill 5 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 6 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 7 Globalization and supply chain technologies have led to a new phenomenon: Global production networks U.S. Best Buy Asia (1) . Toshiba (2) Contract firms (3) D&H (4) Zoran (6) TSMC (5) Applied Materials 8 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 9 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 10 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 11 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 12 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 13 Global transport spend managementHistorically 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 14 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 15 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 16 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 17 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 18 User – Provider relationship continuum Traditional Int’l forwarder Provider type 3rd party increasing: •Shared goals •Risk/reward •Robust Systems links •Management integration •Metrics •Modest systems links •Arm’s length Tradit’l services, limited Tradit’l services, global Emerging Lead logistics provider Integrated forwarding & fulfillment Tech driven, multimodal, global player Manage 3rd parties, carriers Design, reengineering consulting Transactional Fully integrated strategic partner Strategic Relationship type 19 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 20 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 21 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 22 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 % 23 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 24 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 25