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Logistics of Global Outsourcing
David JacobyBoston Logistics Group, Inc.
9/20/05
Northeast Supply Chain Conference
© 2005 Boston Logistics Group, Inc. 2 Boston Logistics GroupBoston Logistics Group
AgendaLow-Cost Country Sourcing!Logistics Implications & ChallengesSuccesses and FailuresYour Supply ChainA Model for Growth
© 2005 Boston Logistics Group, Inc. 3 Boston Logistics GroupBoston Logistics Group
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!
© 2005 Boston Logistics Group, Inc. 5 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 6 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 7 Boston Logistics GroupBoston Logistics Group
More Investment Abroad
0
2,000
4,000
6,000
8,000
10,000
12,000
1994 1995 1996 1997 1998 1999 2000 2001
$USB
Source: Bureau of Economic Analysis
U.S Foreign Direct Investment in China
25% CAGR
© 2005 Boston Logistics Group, Inc. 8 Boston Logistics GroupBoston Logistics Group
China as a Major Trading PartnerImports and Exports Traded with the United States
Billions of US$
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
© 2005 Boston Logistics Group, Inc. 10 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 11 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 12 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 13 Boston Logistics GroupBoston Logistics Group
Offshore Infrastructure ConstraintsCongestionInadequate highway networkSubstandard technologyHigh licensing costsTollsSafety concernsSecurity risksLack of appropriate vehicles & equipmentRegulation and protectionist territories
© 2005 Boston Logistics Group, Inc. 14 Boston Logistics GroupBoston Logistics Group
US Freight Volume Growth
Source: Cambridge Systematics, Reebie Associates, US DOT
Projected Freight Volume Growth through 2020
© 2005 Boston Logistics Group, Inc. 15 Boston Logistics GroupBoston Logistics Group
US Infrastructure Constraints: RoadHighway Congestion Points, 2020
Source: Cambridge Systematics/US DOT
© 2005 Boston Logistics Group, Inc. 16 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 17 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 18 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 19 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 21 Boston Logistics GroupBoston Logistics Group
“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
© 2005 Boston Logistics Group, Inc. 22 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 23 Boston Logistics GroupBoston Logistics Group
Strong-Armed MiddlemenExclusive, licensed Chinese distributorMaterial brokerCustoms agentsFew, large transactions
© 2005 Boston Logistics Group, Inc. 24 Boston Logistics GroupBoston Logistics Group
Critical Lack of InformationUnpredictable sailing datesNo in-transit visibilityLarge buffers of in-process inventoryStock-outs
© 2005 Boston Logistics Group, Inc. 25 Boston Logistics GroupBoston Logistics Group
“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
© 2005 Boston Logistics Group, Inc. 26 Boston Logistics GroupBoston Logistics Group
Supply Chain StrategyRedundant flows identifiedNetwork options evaluated using a multi-echelon inventory management softwareStreamlined global network established
© 2005 Boston Logistics Group, Inc. 27 Boston Logistics GroupBoston Logistics Group
3PL PartneringPartnership objective Multiple service optionsBundled solution• Distribution center• Packaging• Transportation• Export documentation• Customs brokerage
© 2005 Boston Logistics Group, Inc. 28 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 31 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 32 Boston Logistics GroupBoston Logistics Group
International ExperienceInternational businessLocal market knowledgeCultural facilityLanguage capability
Consulting firms, benchmarking groups,
full-time hires
© 2005 Boston Logistics Group, Inc. 33 Boston Logistics GroupBoston Logistics Group
Network ExpertiseNumber, location of facilitiesStocking policies and levelsTransportation/inventory trade-offs
Software companies, consultants, 3PLs
Some Alternative Configurations
© 2005 Boston Logistics Group, Inc. 34 Boston Logistics GroupBoston Logistics Group
Network Expertise
© 2005 Boston Logistics Group, Inc. 35 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 36 Boston Logistics GroupBoston Logistics Group
Pipeline VisibilityDC inventory levelsSeasonal peaksPromotions
Suppliers DistributorsManufacturers Retailers Customers
Sourcing Customer OrdersReplenishmentManufacturing
• Planning • Inventory Management • Warehousing • Transportation
Supply Chain
• Systems
Systems integrators, 4PLs, specialists
© 2005 Boston Logistics Group, Inc. 37 Boston Logistics GroupBoston Logistics Group
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
© 2005 Boston Logistics Group, Inc. 38 Boston Logistics GroupBoston Logistics Group
Thank You!2005 Strategic Sourcing studyLinks, articlesCopy of presentation
David JacobyPresident
20 Donizetti StreetWellesley, MA 02482
Phone: (781) [email protected]
Boston Logistics GroupBoston Logistics Groupwww.bostonlogistics.com