Acting globally

Magazine Article, Source : The Manufacturer US
Zone : Logistics and supply chain
Published : 05 Jan 2006 16:21

Third-party logistics providers offer a valuable service for manufacturers and distributors, making for more efficient processes as supply chains go global—and get more and more complex.
Matt Bolch reports

T hanks to the Internet, global communication and improved transportation infrastructure, it’s easier than ever to forge international business ties.
But just as the objects you see in the side-view mirror in your vehicle may appear closer than they really are, inking an international deal for raw materials, or finding a global customer for your finished goods, is only a first step in a journey toward fulfilling those obligations.

With the continued push toward efficient manufacturing processes such as lean and six sigma, it’s not enough to know that critical parts are on the way or have been shipped. You need to know where they are in the supply chain, whether they’ve cleared customs, whether they’re sitting in a warehouse or if they’re on the last leg in a journey to your loading dock or your customer.

Keeping up with inbound and outbound shipments on a global basis is not a core competency for manufacturers, which has led to the rise of third-party logistics (3PL) providers. Total annual revenues of US-based 3PL providers in 2004 was about $85 billion. Fourth-party logistics (4PL) providers, a relatively new innovation, manage supply chains from various suppliers while acting as the intermediary between the manufacturer and its suppliers. Both types of providers can help manufacturers negotiate the maze of shipping goods around the corner or around the world.

While software improvements have made keeping up with shipments easier than ever, outsourced logistics suppliers are facing a perfect storm of conditions that threaten their ability to keep up with demand, says Brooks Bentz, a partner at Accenture and a senior executive in the supply chain management practice. Accenture can help manufacturers find logistics partners or manage those relationships, he notes.

Shipping volume into the US has increased, hampering the ability to unload goods on the West Coast in a timely fashion, Bentz says. Higher fuel prices, railroad capacity concerns, and a shortage of truckers also contribute to tight capacity.
“I don’t see it getting better in the short term,” says John Vande Vate, executive director of the Executive Masters in International Logistics program at the Georgia Institute of Technology. Global sourcing and the push toward Lean manufacturing are divergent trends that must be aligned for shipping pressures to ease.

Some companies, most notably Wal-Mart, are offloading goods from ships too large to fit through the Panama Canal and ferrying them overland by rail before loading other ships that transport goods to Gulf of Mexico or East Coast ports, Vande Vate says. Larger boats are not the answer, especially for smaller-volume shippers. “When one of those big boats hits the port of Long Beach, it takes a while to unload, and that’s not good for the little guy,” Vande Vate says. “It may help [larger shippers] on price, but it’ll hit the little guy.”

The consolidation of 3PL providers also threatens smaller manufacturers, according to a survey of 40 of the largest global providers conducted by Accenture and Northeastern University. Considerable consolidation has taken place in the industry, and these mega companies are focusing on the largest customers, leaving many small and mid-size customers to fend for themselves. However, the survey indicates that niche 3PL providers will spring up to fill this void.

Survey participants say that rising costs and downward pricing pressure are continuing challenges, and while radio-frequency ident-ification looked like the next innovation, they don’t feel it will gain traction in their space.
Concerns about infrastructure and pricing aside, customers just want to know one thing: where’s my stuff? The question of visibility looms large for everyone in the supply chain, and it’s an area where technology is being deployed with great success to help customers answer that burning question.

Exostar works with 3PL providers to help customers keep up with shipping and transportation information in one place. “There’s a problem with the portal approach,” says Bill Angeloni, president and CEO of Herndon, VA-based Exostar. “A company with 20 suppliers, each with a portal, has to go to 20 places to find their goods. One-to-one interaction is incredibly inefficient. We think the market will move toward a hub-and-spoke concept” like the Exostar solution, Angeloni says.
Since companies in the supply chain have varying degrees of sophistication, a single platform provides one common standard that everyone can adhere to. “Of our 22,000 customers, many of them are small,” Angeloni says. “Connectivity has been a problem, but there are so many opportunities to become connected, to receive information and push that back into the system to communicate.” An integrated database allows the creation of custom reports and exception dashboards to manage information flow as well as overcome those certain glitches before they become major disruptions. Exostar derives four-fifths of its business from the aerospace and defense industries, so data security remains a key component of the company’s solution.
SAP’s 10th Annual Third-Party Logistics Study 2005 shows improvements in overall service levels but echoes the Accenture study in listing pricing as the most important attribute in selecting a 3PL provider. In the 2004 survey, value-added services were ranked first, according to the survey compiled through a collaboration between SAP and Georgia Tech, Capgemini, and DHL.

“The industry is driven by change,” notes Till Dengel, SAP solutions manager for logistics service providers. “It’s very competitive, and [providers] constantly have to come up with new service offerings and deal with new regulations in a global environment.” And that’s why SAP released its Global Trade Services offering in 2002, which is being used by more than 200 customers in 17 countries, says Matthias Weber, solutions marketing manager for the GTS product. Manufacturers face numerous challenges, including buying and selling products globally, dealing with ever-tight import and export requirements, working with government authorities that have modernized their IT systems and operating in an increasingly complex global environment. “GTS enables manufacturers to manage imports and exports on one platform in one place,” Weber says of the product. “It mitigates the risk of international shipping.”

But any solution is only as good as the weakest link in the supply chain, says Jeremy Sacker, vice president and general manager for North America at Eqos, a software company that pioneered Web technologies for business-to-business supplier management. The company has dual head-quarters in Burlington, MA, and London.
Before joining Eqos, Sacker worked for Best Buy on supply chain issues, and he says that gains suppliers and their customers have achieved over the past two decades are being erased by new suppliers with “prehistoric” communication capabilities and the increased volume of off-shore goods flowing through strained US port facilities. “We’re having to solve the same problems all over again, and I fear the problem is going to get worse before it gets better,” Sacker says. “But having said that, the adoption of technology will increase in developing countries and help improve efficiencies in manufacturing and supply chain.”

Eqos designed a collaborative interface used by trading partners in the supply chain that helps coordinate the flow of information and provides that all-important visibility. It also can allow partners to make sure international labor standards are met and create close ties among users through the interchange of historical data and other communications that can allow customization of services. While EDI remains a popular way to transmit data, electronic data interchange is not common in developing countries, Sacker says, and newer collaborative technologies will receive a greater share of attention in the future.

Regardless of what technology is deployed, that spirit of collaboration lies at the heart of any successful 3PL implementation, says Helmut Porkert, president of Strategic Procurement Solutions, based in Hilton Head, SC. “A manufacturer needs to select a supplier based on their knowledge, not the bid price,” says Porkert, who retired from ChevronTexaco, where he was global chief procurement officer responsible for the company’s supply chain. He’s also executive-in-residence at Georgia Tech, where Porkert lends his expertise to the college’s logistics program.
Price, of course, remains an important consideration, but a healthy working relationship can bring savings through reduced inventory levels and dependable deliveries. Depending on the complexity of a manufacturer’s supply chain, a company can expect to spend six months to a year researching 3PL providers before picking a supplier or suppliers, he says. Porkert encourages three- to five-year contracts and close working relationships, establishing benchmarks of acceptable performance and agreed-upon metrics to measure that performance.

Performance is the ultimate measure, whether shipments are moving across the city or across the world. When 3PL providers were caught up in the supply disruptions caused by last year’s gulf coast hurricanes, Porkert says that customers didn’t want to hear excuses. “‘I don’t care about that,’ they said, ‘I want my stuff,’” Porkert notes. And regardless of company size or industry, knowing where your stuff is at all times remains key.