Global supply chain raises the bar for logistics
Steve Rogers -- Purchasing, 7/14/2005 2:00:00 AM
The breadth, depth and pace of sourcing goods and services have dramatically increased in the past 10 years. So has the complexity of that process. A number of factors have combined to raise the bar for supply chain and supply network performance, not the least of which is the massive trend toward globalization. More specifically, the emergence of highly competitive markets that drive companies toward global footprints. Supply chains of both large and small companies, not just the multinationals, today span continents but still have to cover the last 100 ft. from the storeroom to the consumer shelf or plant assembly line.
At the same time, information flow is increasing rapidly. Everybody knows about the Internet and the Web's impact on business. However, closer examination reveals that the massive investments in fiber-optic communication line capacity behind the now-burst dotcom bubble, both enabled the physical supply chain and created a services supply chain of global scope.
The outsourcing trend is impacting supply chains dramatically. The intense globalization and "frictionless" information flow are driving the need for more efficiency and effectiveness. The doors to global wage arbitrage and distant core- competency access have opened, both in manufacturing and in the services and products that support it. Outsourcing of manufacturing, information technology, order fulfillment, and product design to centers of well educated expertise across the world (India, China and Eastern Europe) has become headline news. Where will the next low-cost country sourcing effort take us? Who knows, but popular opinion is, we'd better find it and get there fast.
Security issues are increasing in the global supply chain. To the longstanding concerns about financial fraud, customs clearance, trade barriers and port labor interruptions has been added identity theft and the specter of terrorist attack. The aftermath of 9/11 highlighted supply chain vulnerability as close as the Canadian and Mexican borders, let alone half a world away. It spawned a series of regulatory, political and governmental interventions adding to the complexity, timelines and documentation of supply lines.
So what does all this mean for the logistics of these global and local supply chains? The implications have been and will continue to be enormous. Supply chains have become longer, more diverse, often with more companies and tasks comprising them. Control points migrate outside the boundaries of the companies whose products flow through the systems. Third parties like Tier 1 auto suppliers and electronics assembly contractors interject control (and sometimes decision) points into the flow.
Logistics system performance continues to require the traditional perfect-order measure driven by customer requirements—on-time delivery, accurate quantity, top quality/no damage and current information on inventory location and quantities flowing through the network all at competitively affordable cost and billed accurately to the customer. What was once space-age technology, like satellite tracking systems, is part of the base expectation's ticket to enter the field today. What's new is the length and breadth of the supply network and the need to respond to (or anticipate) disruptions, opportunities and shifts more rapidly than ever before. Flexibility, security, communication and, especially, time are the added measures that define a perfect order.
Sounds like Mission Impossible, right? Twenty years ago maybe, but today it happens every day and when it doesn't, a competitive edge is lost. The same forces creating these demands are also sources of positive change with new tools and opportunities to exploit. Logistics professionals no longer just expedite and transport via trucks, trains and ships. Rather, they are keys to sourcing customer service and enabling the roll out of rapid innovation by maintaining a lean flow of goods and information throughout the system.
An array of electronic tools exists to streamline and confirm processes. The challenge however is making sense of, and affording, the alphabet soup of tools, providers and integration issues that serve to validate the old adage, "the devil is in the details."
The forces of globalization, information and security have also given rise to the growth of outsourcing. Third- and fourth-party logistics providers along with freight forwarders, customs brokers and logistics consultants, exist to provide translation for the often arcane and unique language of transportation, ocean ports, customs, regulatory clearance and transit insurance. Growing numbers of companies entrust their logistics flows to such experts to gain higher performance and precise execution. Interestingly, yet another group of companies transfers its logistics management along with its production lines to contract manufacturers, assemblers and original design manufacturers (ODM's) that own and run the plants across the world where brand name and private-label products or major subcomponent assemblies are produced.
The issue thus becomes the hollowing out of internal logistical expertise. If logistics is, essentially, sourcing customer service, in doing so, it becomes the operational and planning touch point with customers and suppliers. Therefore managing these outsourcing suppliers and 3PLs becomes an important task. The very specialization and complexity that drive logistics outsourcing also represents the knowledge necessary to manage the outsourcing supplier's operational flow and interface with your important customers and suppliers. The challenge for logistics professionals is to maintain the delicate balance between accessing in-depth, cost-effective, specialized expertise and retaining enough internal skill to manage these 3PL or ODM outsourcing relationships.
Understanding when change is necessary and staying close to customers and suppliers, despite having a third party actually doing the work, is not simple, while blind faith is not prudent. The longer these areas stay outside, the tougher the challenge is to maintain internal knowledge necessary to leverage external expertise. Management of third-party service providers is a growing challenge—abdication can lead to disintermediation from your customers and suppliers. Relationship and performance management have become an ever more important part of the logistics skill set.
The impact of globalization on logistics has been huge and is not about to stop. Recent events reinforce that change will continue. Stresses to international trade like the difficulties ratifying the European Union constitution, outsourcing backlash in the U.S., trade conflicts with China and growing port and air congestion, especially along the Pacific Rim, all promise further change. The longer, more complex, faster supply lines operating in uncertain environments today will continue to drive tomorrow's changes in logistics and the skills needed to manage it.
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