Northeast Supply Chain Conference of Global Outsourcing.pdfPoor data quality + Limited technology +...

Logistics of Global Outsourcing

David JacobyBoston Logistics Group, Inc.

9/20/05

Northeast Supply Chain Conference

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AgendaLow-Cost Country Sourcing!Logistics Implications & ChallengesSuccesses and FailuresYour Supply ChainA Model for Growth

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Key PointsLCCS: defining the 21st centuryLogistics challenges won’t go awayExecution is make-or-break“Forest for the trees” is natural5 steps for successful offshore logistics

Low-Cost Country Sourcing!

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Growing Focus on LCC Sourcing

3.72.7

21%

39%

1

2

3

4

5

2000-2004 2005-20080%

10%

20%

30%

40%

50%

Emphasis % LCCS

=37%

CPO Emphasis on Global Sourcing

=86%

Sources: Boston Logistics Group, Aberdeen

Emphasis % of Spend

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Establishment of IPOs

UK17%

Brazil17%

India18%

China32%

Sing.16%

0%

10%

20%

30%

40%

50%

H.Kon

gE. E

urope

C. Euro

peChin

aIndia

%

Source: Aberdeen Group

Location of IPOs Today Growth Next 3 Years

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More Investment Abroad

0

2,000

4,000

6,000

8,000

10,000

12,000

1994 1995 1996 1997 1998 1999 2000 2001

$USB

Source: Bureau of Economic Analysis

U.S Foreign Direct Investment in China

25% CAGR

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China as a Major Trading PartnerImports and Exports Traded with the United States

Billions of US$

Source: U.S. Bureau of the Census

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

CanadaChinaMexicoJapanGermanyUKKoreaFranceTaiwanSingapore0

50

100

150

200

250

300

350

400

450

500

2005 % of Imports 1998 % of X+M 2005 % of X+M

Logistics Implications and Challenges

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Foreign Business Environment

Varying degrees of familiarity with the host country

CultureLanguage

Politics

Divergent interpretations and expectationsLegal questionsEthical standards and expectationsRegulatory bottlenecksCustoms formalitiesDelays

Issues Potential Complications

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Extended, Multi-Step Supply Chains

More steps to supply chain planning

+Sub-standard

logistics infrastructure

Customs clearance mishapsDocumentation errorsQuality control in the pipelineInventory in the wrong place at the wrong timeLate funds, cash flow issues

Issues Potential Complications

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Low Information Quality

Poor data quality+

Limited technology+

Multiple service provider

relationships

Inadequate coordination of plansDelaysUnintended reverse flowsWasted effort and timeExcess buffer inventoryProduct unavailability

Issues Potential Complications

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Offshore Infrastructure ConstraintsCongestionInadequate highway networkSubstandard technologyHigh licensing costsTollsSafety concernsSecurity risksLack of appropriate vehicles & equipmentRegulation and protectionist territories

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US Freight Volume Growth

Source: Cambridge Systematics, Reebie Associates, US DOT

Projected Freight Volume Growth through 2020

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US Infrastructure Constraints: RoadHighway Congestion Points, 2020

Source: Cambridge Systematics/US DOT

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Overall – Top ConcernsLong transit times & order leadtimes (20-60 days)Not enough people who know the local environmentFrustration with government and regulatory issuesCustoms documentation requirements and delaysPoor communications infrastructure

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Looking for a Golden BulletIs there a “low-maintenance” country?• Brazil (3x): “C” risk, abundant industry• Czech (5x): “B” risk, skills base, proximity to Europe• Malaysia (7x): “A” risk, open, strong industrial base

0 5 10 15 20 25 30 35

Germany

Belgium

US

UK

Ireland

Italy

Israel

New Zealand

Korea

Singapore

Taiwan

Hong Kong

Czech Republic

India

Brazil

Mexico

China

U.S. $ / Hour

Hourly Labor Costs by Country

Sources: Economist Intelligence Unit, Bureau of Labor Statistics, Computerworld

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Looking for a Golden Bullet (cont’d)Locate facilities and suppliers closer?• May reduce supply chain complexity• Doesn’t solve cultural or information problems

Outsource entire supply chain to global 4PL?• Offloads the problem• Possibly expensive, little control

Form a network of partners?• Covers all the bases• Takes time

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No Easy AnswerComplex, inter-related decisions• Production ↔ logistics ↔ mode ↔ service ↔

providerMoving targets• Economics and exchange rates• Transport and handling rates • Service offerings and reliability• Shipping volumes

Lack of information, limited resources

Successes and Failures

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“Bulkco”$1 billion Bulk materials with successive stages of refinementRaw material sources in Asia, South America, and Eastern EuropeBulk shipload and rail carload transportRising energy, transportation, and raw materials costs

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Unresolved Network IssuesSource: widely disparate raw material cost left open multiple source options worldwideForeign port: multiple options for each candidate sourceDomestic port: West Coast MLB vs. Gulf Coast all-water optionsDegree of processing: potential for intermediate processing undeterminedFinal destination: two plants possible

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Strong-Armed MiddlemenExclusive, licensed Chinese distributorMaterial brokerCustoms agentsFew, large transactions

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Critical Lack of InformationUnpredictable sailing datesNo in-transit visibilityLarge buffers of in-process inventoryStock-outs

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“ConsumerInc”Consumer products companyProgressively declining growthSmall, high-value productDistribution to many retail outlets and their DCsLCL and small package transportShift of manufacturing operations to Asia

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Supply Chain StrategyRedundant flows identifiedNetwork options evaluated using a multi-echelon inventory management softwareStreamlined global network established

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3PL PartneringPartnership objective Multiple service optionsBundled solution• Distribution center• Packaging• Transportation• Export documentation• Customs brokerage

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Comparative ExperiencesKSF BulkCo ConsumerCo

International Experience

Internal, limited to 1 individual

In-house & consulting support

Network ExpertiseExecutive committees made critical decisions

on the flySoftware tool

Distribution AssetsDistributed among

multiple transactional partners

Control of DC assets via 3PL contract

Information Management None Visibility technology

provider

Trade Finance Capability

Complex internal transactions Trade finance partner

Your Supply Chain(Exercise)

A Model for Growth

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Building PartnershipsTap international experienceLeverage network expertiseEstablish a primary point of contactEnsure pipeline visibilityEmbed ongoing economic intelligenceSupply Chain

Design

Culture, Local Knowledge

Information and Funds

Gaps to Fill

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International ExperienceInternational businessLocal market knowledgeCultural facilityLanguage capability

Consulting firms, benchmarking groups,

full-time hires

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Network ExpertiseNumber, location of facilitiesStocking policies and levelsTransportation/inventory trade-offs

Software companies, consultants, 3PLs

Some Alternative Configurations

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Network Expertise

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Primary Point of ContactControls goods in the pipelineAccess to real-time informationAuthority to act on your behalfKnows goals and objectivesMeasured to KPIs

3PLs, 4PLs, forwarders

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Pipeline VisibilityDC inventory levelsSeasonal peaksPromotions

Suppliers DistributorsManufacturers Retailers Customers

Sourcing Customer OrdersReplenishmentManufacturing

• Planning • Inventory Management • Warehousing • Transportation

Supply Chain

• Systems

Systems integrators, 4PLs, specialists

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Dynamic Economic IntelligenceEconomic outlookCost and risk profile of the host countryGovernmental regulationsRates and capacity trendsImplications for the:• Supply chain strategy• Network• Providers

Economists, consultants, specialized publications

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Thank You!2005 Strategic Sourcing studyLinks, articlesCopy of presentation

David JacobyPresident

20 Donizetti StreetWellesley, MA 02482

Phone: (781) 283-5788djacoby@bostonlogistics.com

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