Global supply chain management not only welds a cornucopia of benefits, it is quickly becoming a must-have for companies that move products in world trade across international boundaries. In an unprecedented display of urgency and innovation, businesses are seizing the new opportunities afforded by free trade and, in the process, implementing supply chain management technologies which, 10 years ago, didn't even exist. Core to this decade of change is the increasing numbers of companies that are sourcing product globally and moving at least some aspect of their supply chain offshore to take advantage of competitive advantages in different parts of the world. China, with its low-cost labor market, has already grabbed the lion's share of mass manufacturing, while a host of other countries carve out their respective niche. Indeed, it is now not uncommon to find, for example, companies capable of sourcing components in Asia, performing final assembly in places like Brazil, then shipping finished products to consumers in the United States or Europe.

One of the first broad sectors to broadly grasp this comprehensive world-wide capability is electronics. Given the tight margins found in manufacturing, cost considerations across the board are paramount if a company is going to stay competitive. But in an industry where speed to market is critical, the supply chain has to be sufficiently integrated to deliver the right products at the right time or the advantages of low cost production will be lost in a sea of depreciating inventory.

“What is hot today is not tomorrow,” states Dr. Ir. Hans van Wijngaarden, business manager for Philips Applied Technologies (PAT) in Eindhoven, the Netherlands. PAT is the supply chain arm to Royal Philips Electronics. “A consumer product can become obsolete if movement within the supply chain takes more than three months,” he states. “Price erosion can be more than 30 percent, particularly for new digital products such as LCDs.”

Professionals wanted

Correspondingly, in keeping with the imperatives of supply chain integration, a fresh set of credentials is critical for the employees who are being hired to stay on top of increasingly complicated global activity. New performance metrics are being invoked to appropriately measure the impact of performance. Where the principal measure used to be 'pound per mile,' now with an integrated supply chain critical to success the criteria executives use to gauge performance include such measures as the cost of being out of stock when inventory is delayed because of quality issues or customs inspectors, or the rate of success in integrating common scheduling of outsourced components so timing can be aligned between shipper and receiver. Gone are the days when a company's traffic manager simply coordinated shipments with transportation providers.

Transportation remains the critical segment of supply chain considerations. With multiple options, making the right choices is vital. Given the rise in fuel prices, base costs are fluctuating and trending upwards. When all the pieces of the supply chain are put together, logistics is the cost center where significant savings and competitive advantages (or, for that matter, disadvantages) can be realized on many levels. But understanding those costs and how to play all options off against the other is extremely complicated.

“It's one thing to understand the total cost of moving product around the world,” states Dr. David J. Closs, professor of Business Administration in the Department of Marketing and Supply Chain Management at Michigan State University. “The risk of inventory costs is harder to determine. This is where companies are struggling today.”

Logistics functions have become so important that for many companies they fall under the watchful eye of the Chief Financial Officer (CFO). “The objective of a lot of companies is to get their arms around the supply chain from the beginning to the end and to integrate the process to insure delivery is consistent with requirements,” reports Dr. C. John Langley, Jr., professor of Supply Chain Management and Director of Supply Chain Executive Programs at the Georgia Institute of Technology.

Dr. Langley maintains there are those who can do the job. “The problem is most businesses are structured as 'functional silos'-departments that work well individually but do not coordinate with each other,” he remarks. “Those managing the supply chain do not always have the ability to do exactly what they think they need to do.”

Enter the 3PLs

In this environment of heightened complexity and competition, companies are turning to the specialized services of 3PLs for value added competence in supply change management.

“While global trade is not a new phenomena, it is new to a lot of companies,” states Gene Long, president, Consulting Services, UPS Supply Chain Solutions (UPS SCS). Not too many companies have the resources or the staff to devote to the complexities required to manage global supply chain issues effectively. The burden on that staff would be phenomenal.

“Today's long distance supply chain reaches around the world, embraces cultural barriers, and encompasses a number of complexities,” Long observes. “An American auto manufacturer, for example, may want to source airbag sensors from a supplier in Korea. But because the supplier is in Korea, the company now must deal with language and legal barriers. There may also be trade regulations that the Korean company does not know exist. The American company may not be aware either.”

The impact of time differences around the globe and how this plays into global supply chain management is also critical, particularly when it comes to time-sensitive shipments. Also important are different labor regulations and policies in different countries that can affect supply chain flows and adversely impact deadline shipments (in the Middle East, for example, Friday is the weekend, but Sunday is not).

Providing the requisite expertise needed to maintain supply chain continuity is one of the key services offered by a 3PL. UPS SCS, for example, promotes itself as able to provide a single-source supply chain solution for the logistics and distribution needs for any type of enterprise. Core to its services is its ability to help companies design their supply chain so that they can use the most efficient methods available for sourcing, manufacturing, transportation and order fulfillment.

UPS has built trans-boarder services into all of its transportation products by keeping the supply chain contained within one carrier. “By doing this we have taken multiple players out of the loop,” Long explains. “For example, if one sourced in Korea five years ago, they would have had to deal with a supplier, a company to collect the goods, a freight forwarder, a line haul carrier, a customs broker, and a bank. Now all that is necessary is the supplier and the bank.”

Transportation companies that already had a foothold in global markets were among the first to implement 3PL services. Steamship concern American President Lines (APL Ltd.) spun off APL Logistics, which today offers a comprehensive range of global supply chain management solutions through more than 250 offices or facilities in more than 50 countries on six continents.



“Right now we are particularly active in Asia and North America,” states Brett Harper, a vice president at Oakland-based APL Logistics. “In Asia, we are one of the largest consolidators of goods. In North America, we operate one of the continent's largest distribution facility networks.” The company also just announced an extensive joint venture in Europe that should substantially improve its presence there as well.

In early 2001, APL Logistics, which is owned by Singapore's NOL Group, started acquiring leading 3PLs in other regions of the world. “We realized that to be the kind of logistics partner our clients needed, we had to have the ability to see things through from end to end,” Harper comments.

For the most part, the role of the 3PL in supply chain management is consistent to the type of business and services these companies have done in the past: moving shipments. “But it seems they are gaining a larger portion of the business,” remarks Dr. Terry Harrison, professor of Supply Chain and Information Systems, Penn State University.

Whirlpool Corporation, with annual sales of over $13 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers around the globe, for example, has benefited significantly by partnering with 3PL provider Penske Logistics. In 1999, the company, which markets Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other major brand names in more than 170 countries, set a goal to reduce costs throughout the supply chain by using a single logistics provider. Penske was charged with consolidating the distribution processes from Whirlpool's two incumbent logistics providers and establishing consistent processes and supply chain visibility. In fulfilling this mission, Penske implemented third-party and proprietary IT solutions that integrated all order-to-delivery data and streamlined delivery processes as well as validated Whirlpool's network infrastructure and processes.

The advantages of this comprehensive approach have been even greater than expected. “Penske has a deep relationship with Whirlpool at all levels,” states Brian Hancock, Whirlpool vice president of supply chain. “Even Penske's CEO is very involved.” Some 2,200 Penske employees now run Whirlpool's outbound and a portion of its inbound operations.

Most significantly, Penske has reduced Whirlpool's overall distribution and transportation costs while the white goods manufacturer has increased control and visibility over its entire supply chain.

The most recent development: Whirlpool has just announced it will integrate its global supply chain by similarly coordinating all logistics operations in Europe, Latin America and Asia. (The company has already doubled its overseas finished goods business in the last three years.) “We sell a lot of products overseas,” Hancock states. “The 3PL's help us to integrate our region-to-region shipments. The idea is to plan globally, but act locally.”

Whirlpool has become so successful that its 3PL partnership with Penske is now a cost center in of itself. Acting as a Fourth Party Logistics provider (4PL), Whirlpool sells these service to other companies.

Changing business models

One more wrinkle to the complexity of a global supply chain is the challenge of flexibility-of being able to quickly reroute shipments to accommodate a sudden oversupply in one location versus an undersupply in another.

“If you have the advanced knowledge of where the shipment is within the supply chain, you can synchronize such activities,” states Dr. Langley.

Until reasonably lately, the inability to track and trace, particularly shipments already en route, was limited and correspondingly held back optimal supply chain flexibility.

“Historically, there have been black holes where you have a gap in the information as to where the product is,” states Dr. Langley. That's been changing, however. Academics agree that perhaps the biggest difference today from the global supply chain five years ago is the ability for companies to know where their shipments are at any given time. It made a difference to Thomson's Connectivity Business Unit.

Meeting in-stock requirements is a big issue for Thomson, a manufacturer of set-up boxes for broadcast TV networks. The failure to deliver on schedule to highly demanding clients Wal-Mart and Target can result in lost sales and financial penalties. To ensure against this, Thomson's Connectivity Business Unit needed inbound visibly and reliability. By knowing where the products are from start to finish, Thomson can anticipate problems, proactively switch products around, and alert customers in advance of unavoidable delays.

Rather than build costly and daunting end-to-end visibility in house, Thompson hired TNT Logistics North America.

TNT implemented a proprietary supply chain executives system, MATRIX™. The technology allows TNT and Thomson to view the shipments from port of departure to its final destination (including status on the water, port of arrival and intermediate rail locations). “The customer knows where their material is at all times,” states Shannon Pennigton, Business Systems Analyst, Technology Services TNT Logistics North America.

Problems at hand

Collaboration is critical to successful integration, especially when an outside party 3PL is involved. Fully effective collaboration, however, requires a great deal of trust yet most companies hesitate to share proprietary information with outsiders (studies indicate that only 10 percent of manufacturers do so).

“This is depressing because there is so much cost and opportunity to be gained by sharing information,” comments Dr. Paul Dittman, director of Corporate Partnerships for the Integrated Value Chain Forums at the University of Tennessee. “Not having this information creates anxiety and disappointment on both sides, plus expediting costs.”

It doesn't have to be this way-certainly not for large manufacturers or small or mid-size firms, especially given today's modern inventory management systems. “But instead, too many companies are leaving a lot of money on the table,” Dittman concludes.

One reason for this, think experts, it that many companies continue to prefer using a fragmented patchwork of transportation as a tactic to avoid putting all their eggs in one basket. Another is the fear of small and mid-sized shippers that, without the leverage of a big volume shipper, they will lose bargaining power and be forced to accept inferior service.

“Small and mid-level companies also are not adopting technology as fast as the big guys,” comments Dr. Harrison. “But they are increasingly expected to plug into this visibility infrastructure. If they don't, they will have trouble competing.”

3PL advocates, thus, are quick to point out their services are not limited to large corporations. A wide host of companies are anxious to collaborate with small and medium-sized manufacturers and offer the same benefits as those enjoyed by the big companies. Those companies that take this leap of faith with a 3PL are likely to jump ahead on the supply chain integration curve. After all, businesses that adjust to new economic and business conditions are soundly positioned to grasp new opportunities when they come their way with an integrated supply chain able not only to provide information but also react quickly to it.

Sidebar: Velocity and Visibility is ADTRAN's Key to Success

High tech manufacturers are finding that a well managed supply chain is their weapon in today's fiercely competitive environment.

“It's is all about getting product to market quickly and ahead of the competition,” states Greg Andrews, director, Global Logistics-Transportation for Huntsville, Alabama-based ADTRAN, Inc. “This means decreasing lead and cycle times and not carrying loads of inventory.”

Since 1985, ADTRAN has been in the business of high-speed solutions from digital transmission equipment to network routing and internet security products. ADTRAN has consistently held dominant leadership positions thanks to its world-class engineering, reliable products and customer support.

In 2000, the company decided the time had come to implement new global supply chain policies.

“We looked at the supply chain as a key integral part of our business, not just a segment or silo of our business,” Andrews states.

Consequently, a vice president of supply chain management was hired, along with a supply chain finance manager and a supply chain project manager who looked into supply chain software solutions. Various departments were aligned under the vice president of supply chain and became involved in collaborative planning, manufacturing, and forecasting. The company then began managing that suite of tools in an effort to collaborate with its suppliers and create visibility within supply chain processes.

“As we exhaled, they inhaled,” Andrews states. “It's all about collaborative thinking. After all, supply chains can be fragile.”

Supply chains can be subject to a number of uncontrollable events such as geopolitical problems, rising fuel charges, port strikes, and natural disasters. “The longer you stretch your supply chain, the more apt it is to break. You have to keep focused and constantly work against the negative influences that seek to disrupt the flow of the supply chain,” Andrews points out. “That is why you have to be in sync with it and understand how it works. Pull one lever, four levers pop up. You pull four levers and five pop up.”

A key challenge is rolling out multiple products for fast changing markets. “In high tech if you're sourcing new material from Asia, you don't want to play ping pong across the Pacific to fulfill global needs. You need to manufacture close to your source,” Andrews states.

“We are all about velocity and speed to market,” states Andrews. “We give the customer customized solutions on short lead times.”