by Tom Craig, CEO, LTD Management
When we use the term "Global", we talk about imports from Asia to the U.S.; we talk about exports to Europe; we talk about movements within North America - and we talk about more; products, components and finished goods,which never touch the U.S. They move from a vendor in Singapore to a manufacturing plant in the Philippines. Or they move from Hong Kong toGermany. They move within Europe. Global supply chain. Worldwide logistics. Exciting and dynamic.
With such a complex scope of locations, plants, warehouses, vendors and customers, the five key issues of logistics are especially critical with global logistics--
Within these issues are additional influences and factors. For example,time zones. People in the Far East, Europe and North America are all networking at the same time. There is too great a difference in the timezones. This means there must be firm understanding of plans and strategies by each element. Or, there are cultural factors. Different cultures view and understand business topics differently. These understandings and their complexities can compound if the strategies and plans for doing business are not the result of collaborative effort with input by all groups.Plus the company is very decentralized. Different global areas have to meet their own needs, yet must work together to share product and information to make it happen.
All this comes into play, for example, with air freight forwarder and ocean carrier selection. Given the needs of all parties as to cost, availability of space/equipment, responsiveness and delivery/cargo release, a pool of forwarders and carriers can be selected. Primary and secondary designations are assigned for the respective origin-destination lane. But if special situations arise, the origin plant should be given the flexibility to useother than the primary forwarder. He must stay within the list of approved forwarders. Yet if special price, space or other matters develop, he has the explicit approval to make changes. He does not have to wait to contact someone in the U.S. or other location.
Or, conversely, instead of price, he must understand when service is required. Service does not mean getting it on the plane. Service means getting it delivered within the time demanded. A great rate is not good if the shipment does not arrive in time. Or delivering the shipment via a destination airport which delays actual door delivery is not acceptable either. Everyone must understand the responsiveness and adjust as circumstances dictate.
This is just discussing shipping in the global company. Doing it requires integration, information, transfer of product, service and cost. In other words, logistics. Change, and responding to them, as to service or cost should be recognized in the information, data and communication used among the regions. It takes more than late night phone calls and faxes.
Maybe the best way to discuss global logistics is to work through a hypothetical example. You are the worldwide director of logistics for a personal computer manufacturer, Nittany Computers. (We will give a disclaimer here that this discussion does not knowingly reflect or is it based on any computer firm now in business. But the additional complexity which this product has adds to the illustration.)
The sales plan for the fiscal year is built--for each quarter. It reflects the input of the sales people throughout the U.S., Canada, Europe and other regions. While "a rose is a rose," a PC is not quite a PC in global sales.There are differences as to size of memory, speed and other features. These features may be similar within certain countries. One country may have a higher demand for CD-ROM's than another. Or one may require more units with modems than another country usually does. Adding to the differences and product options is a basic component - the computer keyboard. Different countries use different keyboards.This reflects alphabet/language, currency keys, even the number of keys on the keyboard. So if our company here builds too many of a model which does not sell well in the intended country, then the cost for returning the excess units and reconfiguring them for another country's needs can be time-consuming and expensive. It must be done right,the first time.
From the sales plan, the Operations group gets together. First a manufacturing build plan is started. Let's say that Nittany Computers has plants in the U.S., Germany and the Philippines. And from this comes a purchasing plan so that the components arrive. Their vendors are in many countries, and are especially located throughout Asia. Inventory reports must be accurate for raw materials, work in process and finished goods. Plus the logistics plan which must support both the build plan and the sales delivery plan. Logistics runs from vendor shipment to customer delivery.For cost reasons, the basic PC units are built at the plant in the Philippines. The units are sent onto the warehouses in Europe and the U.S.Units requiring special upgrades and configuration are sent to the plants for additional, specific work.
With the continuous changes evolving in the PC market, the sales plan, which is actually developed in the prior quarter, can change. The changes flow through to the build plan, purchasing plan and logistics plan. This means that finished units, built in Asia, must be reconfigured when there are changes. Additional components, including keyboards, must be ordered and delivered in time to the plants. Flexibility and responsiveness are a requirement of these plans. And Purchasing and Logistics have worked closely with their key vendors, carriers and logistics providers to develop the plan reflecting each group's abilities and needs. The plan is shared readily as a working document and is integrated into everyone's operating plans. Time for shipping, customs clearance and delivery is incorporated. To have this responsiveness, while managing costs, the logistics plan for the shipments from the Philippines to Europe and the U.S. is multi-modal. During the quarter, Nittany ships to Germany via sea freight. Sales build during the quarter. Given existing inventories for components and finished goods, which were part of the plan for the prior quarter, there is time to send the items via ocean.
Then as the sales and build plans change during the quarter, Nittany ships to Europe now via sea-air. This reduces the transit time with ocean, yet is not as expensive as air freight. Then as the quarter starts to close,demand breaks loose. Time is urgent. Now Nittany ships its units via airfreight. They did similar with the U.S. requirements, shifting between sea freight and air freight for the units.
To have this responsiveness, while managing costs, the logistics plan for the shipments from the Philippines to Europe and the U.S. is multi-modal.During the quarter, Nittany ships to Germany via sea freight. Sales build during the quarter. Given existing inventories for components and finished goods, which were part of the plan for the prior quarter, there is time to send the items via ocean.
Then as the sales and build plans change during the quarter, Nittany ships to Europe now via sea-air. This reduces the transit time with ocean, yet is not as this process takes its toll with freight costs, inventory levels,manufacturing, scheduling, vendor capabilities and more. No matter how responsive Operations is, there are inherent delays from the time Sales realizes that their sales plan must be changed through to the changes being made and flow through of those changes to Planning, Manufacturing,Purchasing and Logistics. So the Operations group sits down to see if it can improve the time it takes, reduce costs, including inventories while adding to its ability to be flexible and respond to changing country requirements during each quarter. They look at the cost and time required to accommodate the sales changes, and at the inventory at the end of each prior quarter, both component and finished. They also look at how much rework they had to do reconfigure units from one country version to another.This impacts ability to meet sales and costs. Then decide to take a blank sheet of paper and see what they can develop collectively as a team.
From the teamwork, they develop the Vanilla Strategy. (You have to give these things names. Not sure why, but you do.) The key aspect is shipping partially made units -vanilla models- to the plants for final assembly.Shipping the basic models this way creates cost and time savings and postponement manufacturing to reduce inventories and create value-added.If a country has clearly demonstrated a strong ability to accurately forecast its sales requirements, a certain portion, say 75%, of their finished product will be sent to them from the Philippines and will arrive per the work week sales they planned. It will not go to the plant in Germany or the U.S. This will save cost and time. But if a country is not very good at forecasting, it will get a lesser portion, say 25%, of its quarterly requirements direct from Asia. A country which is good at forecasting may get 50% of its requirements directly.
Then for the remaining units, Vanilla kicks in. This means units will be finished at the higher labor cost plants in Germany and the U.S. However,there will be freight savings by shipping the partially-completed units in the special, reusable pack. Nittany will be able to get 250% more units in an ocean container that it can with the finished units. This offsets the labor. In addition, there is less need for air freight.As part of the program, the plant in Germany will print keyboards. Rather than buy finished keyboards from the supplier's facility in Malaysia and then having problems if the various country requirements change, they will buy mostly blank units. This improves their responsiveness to sales changes.In addition, they are able to reduce inventory by 20%. In addition, the German plant will supply the country's weekly requirements within 48 hours of its request.
Not bad. Logistics cost savings, less rework, lower inventories, less hassle within the company and with the suppliers. Better sales responsiveness and more sales. Okay, end of example. This did not cover every aspect with global logistics, but hopefully it gave you some understanding, especially as to the five key issue of logistics. There is movement of product,movement of information, time/service is important, as is cost, and there is integration.World Wide Web/Internet.
Global logistics is dynamic, not only in what is done but the way it is done. No where can this be better illustrated is with the technology and the movement of information. Text and spreadsheets can be moved between different departments and companies via E-mail. Even freight booking and management is going hi-tech. There is a new web site recently developed by Net Logistics in alliance with Microsoft. Its address is http://www.wwship.com. This is a new, pioneering and exciting way for logistics users and providers to find, gather and exchange information. A database; book shipments; obtain rates; global E-mail and more. Electronic global commerce. The potential is unlimited. Timely, cost effective and global. It will significantly aid global logistics.