SME in the Global Supply chain Bill Goldsborough, Ph.D

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
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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
Asia
(1)
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Toshiba
(2)
Contract
firms
(3)
D&H
(4)
Zoran
(6)
TSMC
(5)
Applied
Materials
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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
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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 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
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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
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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
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
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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
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