World Wide Shipping June
By THOMAS CRAIG
President LTD Management
SUPPLY CHAIN MANAGEMENT IS JUST ONE CHALLENGE
Two primary issues continue to be international and supply chain management. Customers, competitors and suppliers are global. Since supply chain management (SCM) extends from suppliers' doors right through to customers' doors, international trade dramatically extends the supply chain for importers and exporters. SCM is what customers require; it can create competitive advantage. The challenge for logistics then is to make sure that international sourcing and sales are effectively managed.
The challenge can be seen with the five key logistics issues of supply chain management-movement of product, movement of information, time/service, cost and integration. This must be understood by all parties involved in international trade-suppliers, manufacturers, distributors, ocean carriers, freight forwarders, ports, intermodal carriers, drayage companies, trade development/foreign investment organizations and everyone else active in international trade. If everyone does not work together, then international logistics is not a process, but rather a series of jointed and disjointed transactions. Yet this is difficult since not all parties know who all is involved with their shipments and transactions. The services are homogenized and commoditized rather than tailored to specific needs of customers.
MOVEMENT OF PRODUCT
Product movement is different with international, and the impact ripples throughout the supply chain. Shipping between countries involves more than shipping between states. Sourcing from Hong Kong to Chicago creates roughly an 8000-mile supply chain. Selling to a customer in Frankfurt, Germany is over a 4000 mile supply chain. Add additional sourcing origins and sales destination or have a global supply/sales network not involving the U.S. and the length and complexity of a company's supply chain becomes significant.
There are two transport options for U.S. companies engaged in international trade-ocean and air (excluding trade with Canada or Mexico). Ships, unlike trucks in domestic transport, do not move every day. Same with planes for cargo. This creates a surge effect with peaks and valleys, rather a daily stream of product movements. In-transit inventory becomes both a benefit and a problem with the longer distances.
Companies have to create flexibility to compensate for the surge. Forecast accuracy becomes even more important. Work plans must have contingencies built in; extra inventories may be needed at certain times. The ability to pull up supplier schedules must be there. Typhoons in the Pacific, winter storms in the North Atlantic or dock strikes can upset shipping schedules. Staggering shipping plans to use ocean carriers or air forwarders who provide a fast, reliable transit time. Using MLB service into the East or Southeast may be needed. At other times, slower transit options may be needed-as opposed to carriers with longer transit times or all-water service options.
Multi-mode transport strategies can, where the product permits, buffer the surge effect by creating a pipeline with product moving at all times. Multi-mode also has use as a quarter evolves. For example, if sourcing from Asia to supply a Europe distribution or manufacturing operation, then a quarter could begin using all ocean transport. Then a shift to sea-air as the quarter moves. Finally shifting to air freight as the end of the quarter ends, yet also starting to ship via ocean to load the supply chain for the next quarter.
Product movement includes more than transportation. For example, add in different pallet or shipping carton specifications between shippers. These can slow down order preparation/shipping or receiving.
Also, many parties are involved with international transportation. Truckers who move containers or cargo to and from sea ports or airports, customs brokers, carriers, forwarders each have their own operational particulars and idiosyncrasies, which can hinder the efficient movement of shipments. Complexity from the involvement of multiple parties exists.
The other challenge with SCM international logistics, and will be with the emerging emphasis on E-commerce is that customer orders sizes are reduced. This means smaller shipments to pick and ship, the impact of which ripples through the other key logistics issues.
MOVEMENT OF INFORMATION
Information and how it moves changes with international. Countries have differing requirements on documentation, for both exporting from one country and importing into another. Weights and measures expressed in metric units. More than sending and receiving faxes or email is involved. This is about technology. Not all trading partners or countries may be active in electronic or internet information transmission. Multiple handling of faxes creates delays and possible data errors. Add in language differences and time zone differences.
Information must be disseminated throughout the chain; it must flow both ways. One way to do this is through the use of Enterprise Resource Planning (ERP) type software. ERP is not just for large corporations; it benefits all parties and all sized companies. Some application is useful for all companies involved in global trade. The initial difficulty with ERP was that it looked inward, creating limitations on the ability to perform SCM functions. This is not so now.
Speed, accuracy and completeness of information are important. For example consider an air freight shipment. Speed of transit is required. If not done properly, cargo can move faster than the information necessary at destination to customs clear or delivery it. This then negates much of the benefit of air shipping.
Information is more than just data movement per se. It is also an important factor at a warehouse for receiving or shipping. Warehouse management systems, a key in SCM effectiveness, work well when shipping cartons are received in well-made cartons, with proper descriptions and with bar codes properly placed in machine-readable format.
Companies must understand what service they are buying when they use an ocean carrier or freight forwarder. Understanding service means knowing more than just the port-to-port rotation schedule. It includes the inland movement, container availability and other aspects that affect the total movement time. The greater distances with international impact the time inventory is moving in the supply chain. In-transit inventory can be a positive factor as an inventory buffer. Yet it is also unavailable for satisfy customer orders.
Longer transit times have a direct effect on lead times and cycle times and on inventory levels, both of which impact sales responsiveness and operating capital requirements. Just-in-time, vendor managed inventory and other programs have to recognize the time factor. Manufacturing must build in the total time in its production schedule. Purchasing must select vendors that are dependable in meeting their schedules; delays have a domino effect throughout the supply chain.
Numerous costs are incurred with international. Transportation is an obvious cost. Freight prices can vary widely for export and import, or by trade lane. There are new costs, not just transportation. Customs duties, insurance, fees to brokers and forwarders and other fees are part of the landed cost for international trade. There is additional warehouse cost to unload or load loose cargo, not on pallets. Additional inventory is carried, whether it is shown as raw materials, work in process or finished goods.
Some costs are charged in different currencies. Even some charges in U.S. dollars are really conversions from another currencies. For example, air freight is quoted in the origin country currency. As the conversation rate between that currency and the U.S. dollar fluctuate, logistics costs can change. Monetary difference is a factor in costs, whether directly or indirectly charged.
There are also hidden costs with international logistics, especially when it comes to suppliers not complying or understanding the supply chain strategy. This situation often occurs when suppliers pay for the transport bill and therefore choose the carrier or forwarder to be used. Suppliers look at their own bottom line and select a low-priced ocean carrier or forwarder. If the low price alternative is a slower transit service option, then there can be supply chain ramifications. Slower transit creates hidden impact and costs throughout the length of the chain. The freight savings enjoyed by the supplier can be dwarfed by the effect throughout the supply chain with inventory, service, cycle time and meeting customer requirements. In these situations, purchasing must make suppliers understand the overall supply chain strategy and must hold suppliers accountable and responsible for their non-compliance.
Integration is necessary for both product and information movement, for reducing time and inventory and for driving inefficiencies from the supply chain. Without integration there are inherent gaps in the process, gaps that cause delays and errors. Alliances are mandatory for success. Discrete, separate-acting parties to the process are supply chain problems, not solutions.
Supply chain management is a process. That means that everyone involved must work together in a partnership. Everyone is broad. It includes departments within the company. It's not about inbound or purchasing or outbound or sales or whatever internal company name is involved. It is about meeting the requirements of customers, recognizing this reaches from suppliers right to each customer. Organization silos cannot impede the process, or there is no process. Integration must include those outside the company-suppliers, distributors, packagers, transport carriers, warehouses and others involved in the supply chain.
Integration must be both forward and backward in the supply chain. Both directions are critical. SCM emphasis with suppliers may be an area that is not emphasized enough. Suppliers are vital to supply chain management. They must understand their role and what is expected of them for SCM success. More than low product prices is at stake; not meeting SCM requirements has a cost impact far beyond selling price.
Many international suppliers are located in Asia. The time difference limits the ability for making operational responses as changes or problems occur. Suppliers who know and understand the supply chain requirements can respond effectively, without having to go back to a central purchasing office located in another region of the world.
Global logistics takes planning, management and control.. Centralized, strategic plans must be complemented with decentralized operations, all working together in an integrated process.
The international implications of supply chain management are often not understood. Those who do understand it and who implement tailored programs do and will gain competitive advantage.
Advantage will mean market differentiation, increased market share, firmer customer penetration and higher profits. Conversely, those firms that continue to practice traditional shipping and other trade practices will struggle to meet real customer needs and to move away from price pressures. Ocean carriers, air forwarders and 3PL firms (whether asset based or a logistics service provider approach) will gain competitive advantage for themselves; this advantage means both additional business and higher profits. Trade development organizations and foreign investment agencies can and should use supply chain management to build competitive advantage for their country's manufacturers and exporters/importers and to attract capital investment.
Those who rise to the challenge will benefit; the business impact is there to be had. The economic potential of the internet and e-commerce is beginning to be seen in the U.S. As e-commerce grows globally, the financial benefits of leaders in supply chain logistics can be exponential. It is not about shipping and receiving, not transportation. It is logistics and supply chain management.