Global Logistics and Supply Chain Strategies - May 2008 - (Page 52)

trade agreements, both bilateral and multilateral. FTAs offer duty-free treatment of goods with a minimum level of local content, or produced within one of the member countries. They may also result in faster clearance of cross-border shipments. Current examples include the North American Free Trade Agreement and the pact between the European Union and Mexico. Many others remain in the proposal stage, notes Brockwell, and companies should keep tabs on their progress as a criterion for future sourcing decisions. A good global trade management (GTM) system can help to identify opportunities available through FTAs. It can also guide companies through the maze of customs regulations that must be observed by a global trader’s network of customs brokers, freight forwarders and carriers. But the ultimate responsibility for compliance rests with the shipper, many locations. “It’s much more complex than that when you’re transferring or reconciling inventories, or running a smart dock, crossdock, postponement operation or light assembly,” says Warner. “You’re dealing with bills of material and new SKU configurations. It’s not quite as simple as firing up a PC and your mobile card.” Cargo security is another pressing issue in many developing nations. In Colombia, Savi has partnered with Emprevi, a locally based provider of logistics and security services, to track the movement of freight from in-country factories to ports of exit on a real-time basis. The program is intended to protect the goods from theft, and assure Colombian customs officials that the containers have not been loaded with illegal narcotics. According to Smith, it has saved shippers $300 per container on security and handling costs, while reducing the number upriver locations, where the boxes can then be stripped and reloaded with export cargo. The program could help carriers to hold the line on freight rates by reducing the cost of moving empties, according to Phil Behenna, senior vice president of IAS. Landed Cost Calculations The final decision on whether and how much to outsource production to an emerging economy comes down to an assessment of its real price tag. But that’s where many companies appear to be falling short. Looking only at more obvious factors, such as worker wages and transport expense, they fail to understand the concept of true landed cost. Mid-sized companies, which tend to have less experience in global markets, are especially prone to unpleasant surprises for this reason. “Just understanding what [outsourcing] does to their payment terms can be a challenge,” says Brockwell. “They might get stuck with more working capital requirements.” Often a company’s analysis of risk and reward will be based on the movement of freight in a perfect world. But glitches in complex, global supply chains are inevitable. And when they happen, an importer might find itself resorting to premium air freight in order to avoid an interruption of supply. Such actions are common, especially during seasons of peak demand for transportation capacity. “The FedExes and the UPSes of the world are getting rich on expedited shipments from China,” says Bilsback. In the alternative, a company will keep extra inventory close at hand, weighting down the balance sheet and boosting the risk of product obsolescence. Aspects of landed cost include expense incurred by production, inventory carrying and logistics, Fantasia says. Additional considerations include local government policies, political stability and the risk of natural disasters. All are factors from the time an order is placed with a new supplier, to the delivery of finished product to final destination. And all are necessary for managers to make an educated “go or no-go decision” about whether to outsource. In some cases, the evaluation will lead to a mixed strategy, combining overseas production with limited sourcing or storage closer to the customer. Either way, Fantasia cautions, “you don’t want to over-engineer the problem.” Senior managers should “The most critical is a lack of visibility into the supply chain. And with that comes a lack of information.” — Joe Fantasia of Deloitte Consulting Engoian says. No outsourcing arrangement can protect a company against severe penalties for trading with buyers on a denied parties list, or violating rules on import quotas or local content. Other types of information technology address the problem of tracking shipments in remote places. Shippers complain of “black holes,” where the precise location of freight can’t be fixed, even in the most developed countries. The problem is exponentially worse in areas where communications structure is lacking, or operators are unaccustomed to the reporting needs of modern-day supply chains. Conventional wisdom states that computers and the internet have made it possible to communicate from just about anywhere on the globe. Indeed, a number of developing countries have leapfrogged from virtually no telephone service to a network of cellphones and satellite links in a matter of years. But there are still gaps in of time-killing inspections by customs. In addition, data gathered by the program can potentially be tied into Savi’s global network of information on shipment status. Ocean carriers, meanwhile, are struggling to track containers and keep them from vanishing into the hinterland of developing nations for days at a time. In China, they need to make import boxes available for exports as quickly as possible, while minimizing the movement of empty containers. (The huge trade imbalance between China and the U.S., favoring Chinese exports, ensures that a large number of import boxes will enter the country empty.) Yet that goal becomes harder to achieve as international commerce moves deeper into China’s interior. International Asset Systems, a vendor of technology to monitor the status of transportation equipment, is working with logistics providers in China to fill empty inbound containers with domestic freight, bound for 52 MAY 2008

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Global Logistics and Supply Chain Strategies - May 2008

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