Build a Sustainable Global Logistics Plan
Editor’s Note: This article is an excerpt from “Going Global: Building a Sustainable Logistics Model in the Age of Globalization,” a white paper Copyrighted by C.H. Robinson Worldwide Inc., www.chrobinson.com. Reprinted with permission of C.H. Robinson Worldwide Inc.
Globalization has created staggering opportunities for companies around the world in growing markets like Brazil, Russia, India and China. It has also ushered in a more competitive business environment. Today, whether or not a company produces or sources outside its home country, it is often competing against global organizations.
To survive and thrive under these conditions, organizations must develop efficient and effective global supply chains that can ensure a smooth supply of goods anywhere in the world. Many enterprises expect transportation and logistics executives to determine how to move products freely and efficiently across oceans and borders. While it is valuable to develop a knowledge resource regarding the population, infrastructure, languages, politics, economy, customs, currencies, tax laws, and tariffs for each country that shipping routes touch, it is not enough. The variables of global transportation change faster than the knowledge can be compiled.
Taking advantage of global opportunities requires a strategy that transcends continually changing markets. This white paper offers key considerations to enterprises of any size that are looking to initiate or expand their international logistics capabilities while developing global businesses.
Understanding Globalization and the Changing World
To succeed in global markets, enterprises and logistics professionals must be mindful of the factors that drive change in the international movement of goods:
• Infrastructure development. While some market and transportation infrastructures are currently insufficient to handle fast growth, it’s anticipated that government agencies will shift greater resources toward that development.
From a logistics perspective, this includes the creation and/or expansion of intermodal terminals, roads, airports, railways and ports. Monitoring government investment in these initiatives is critical to the development of an effective global transportation plan.
• The global grid. A highly connected digital and physical network is emerging that is expected to transcend physical, social, cultural, and technological borders. While such a network should help streamline international logistics, it could be hindered by periodic instability and volatility. Global logistics plans should prepare alternate strategies to cope with these conditions.
• Government attitudes toward economic growth and social stability.
Views regarding the balance of strong economic growth, environmental policy, community and social responsibility, product safety, and social services vary by country and culture. These considerations often dictate the development of tariffs, duties, taxes, customs declaration processes, and general import/ export compliance.
• Regulatory materials and energy pricing. Fuel costs will be a determining factor in the decision to approach global markets, source raw materials from abroad, or outsource manufacturing to low-cost jurisdictions. Companies also need to consider the costs associated with sourcing scarce materials.
Logistics must be part of any global business strategy to source products and grow market share. Whether a company handles global logistics internally or outsources some or all of its transportation management, they must understand the crucial role logistics will play in their ultimate success.
Global Transportation Essentials
By definition, global opportunities bring logistics and transportation to the forefront of the discussion. To capitalize on sourcing and sales in global markets—and to successfully price goods and services—an enterprise needs information and analysis unique to logistics, as well as several essential areas of expertise.
1. Supply Chain Finance. Organizations can maintain a free and timely flow of goods across borders by understanding international trade agreements and requirements—letters of credit, tariffs, terms of sale, and other financial considerations.
All financial documentation must be in order to avoid profit-killing delays in buying, selling, and sourcing.
2. Integrated Workflow. Reaching global profitability goals will likely require an integrated workflow approach. While some transportation management systems (TMS) offer software platforms to integrate global inbound and outbound transportation, strategic silos still remain in many enterprises. The information and technology are available to bridge the gaps, but the strategic intent is missing.
Logistics and transportation groups should lead this unification process to create a truly global infrastructure.
3. Real-Time, Dynamic Routing. Global instability and rapidly changing infrastructures in countries around the world call for dynamic routing approaches.
The most efficient route in December may not be in January, since bad weather, political instability, fuel prices, capacity, or any number of other factors can influence that determination. To account for all the variables, effective global transportation strategies will likely employ TMS technology, processes, and expertise, which allow for real-time agility and risk mitigation.
4. Control Tower Visibility. Global logistics will greatly magnify the inefficiencies of spending too much time on tactical or low-value tasks. Granted, international transportation can be far more complex than domestic shipping.
It’s not uncommon for global shipments to touch many intermediaries, each of whom has a distinct set of regulations, cultural beliefs, and IT capabilities.
Nor is technology alone the answer; too many shippers have deployed TMS software, only to have it fail and drive users back to their old, laborious duties.
The most successful global companies use strategies that allow for “acceptable tolerances” in their transportation networks. They rely on event management features of technology to alert operators when attention is needed for out-of-the- ordinary situations. In addition, effective TMS solutions and services should allow users to generate a real time, global “control tower” view of their networks, and to drill down into the specifics of each shipment, such as P.O.s, freight bills,
5. International Portals. While IT savvy and bandwidth vary from country to country, the global IT infrastructure is generally sound enough to allow for visibility into offshore supplier organizations. The ability to communicate with offshore customers or providers is a critical part of the global control tower.
Global supply chains demand access to current information, from advance ship notices and inventory planning to purchase orders and production status updates. While there are often significant hurdles to overcome in terms of language, customs processes, time zones, and currencies, an effective TMS platform — supported by a strong strategic plan — can greatly reduce delays and other costly problems posed by international borders.
6. Security Compliance. Border controls and customs procedures in many countries pose significant and costly barriers for shipments of all kinds.
Automation can overcome manual data entry errors that are often the cause of significant delays and fines. Organizations must also develop processes around security, safety, and compliance in various jurisdictions to prevent unnecessary difficulties and delays, and ensure that suppliers understand and follow those procedures.
7. Total Landed Costs Analysis. Analyzing the total landed cost seems straight-forward, but some shippers have found it can be much higher than expected. Accurately calculating total landed cost — especially as it fluctuates due to a variety of global forces — moves transportation to the center of the pricing and profitability discussion, since it is crucial to helping senior leaders avoid surprises.
8. Managing Risk. Even the most perfectly planned global shipment can be ruined by theft, counterfeiting, hurricanes, floods, political unrest, labor disputes, documentation errors, and mechanical problems. The best practice course of action requires a strategic view of supply chain risks.
Although preventing and managing risk associated with disruptions is clearly more difficult on a global level than it would be regionally or locally, the risk management role is essential for global supply chains. Even in organizations with dedicated risk management staff, questions can arise about who is responsible — headquarters, regional offices, or third-party transportation providers — for predicting, tracking, and resolving disruptions, and for understanding Incoterms (International
Commercial Terms)1 and associated risks around contracts, liability, and insurance.
Companies must decide how much time, money, and effort should be allocated to prevention vs. response. While strategic responsibility should reside at the top of the supply chain, ensuring that suppliers understand the risk priorities, prevention strategies, and response plans is imperative. A plan should include:
• Awareness. Many providers in the supply chain may have little or no risk management capabilities, so identifying the relative strength of core suppliers is important. Keep senior management aware of potential risks, since these vulnerabilities can have an impact on decisions regarding where to source, manufacture, and market products. Awareness and understanding of Incoterm2 can help minimize confusion and misunderstanding of trade contract responsibilities and avoid the associated, costly risks.
• Accountability. Developing a risk management plan that clearly spells out the responsibilities of regional offices and third party providers establishes accountability. Developing and promoting a plan will contribute to vendor selection criteria — and help regional offices and third-party providers understand the expectations for communication and response. Rather than wonder whether they need authorization from the home office, they can take responsibility for resolving issues and communicate updates accordingly.
• Scorecards. A risk management plan should include detailed scorecards for evaluating both in-house and contracted supply chain providers. The scorecards will help everyone understand which capabilities and responsibilities are most critical. They can also provide the data needed to make decisions regarding sourcing, manufacturing, distribution, internal preparedness, and vendor selection. Scorecards should balance risk mitigation, contract, and response capabilities.
• Quarterly reviews. Suppliers and in-house operations should be reviewed quarterly for their handling of incidents to promote proactive risk monitoring.
Data collected before and during these reviews will likely contribute to the strengthening of risk management planning.
• Visual Mapping. A visual map of all transportation routes, with identified risks called out as “hot spots,” promotes a greater understanding and assessment of risk. By monitoring weather events, political unrest, and other elements of risk and visually displaying them on a global map, shippers can develop highly effective prevention and response plans. In addition, a global sales team can use a consolidated visual map of Incoterms during contract negotiations and trade operations, giving them crucial insight as they navigate the conditions of each transportation transaction.
C.H. Robinson Worldwide, Inc., www.chrobinson.com, is one of the largest third-party logistics companies in the world, providing freight services, logistics outsource solutions, fresh produce sourcing, and information services to more than 42,000 customers globally, ranging from Fortune 500 companies to small businesses in a variety of industries.
1 VEDP International Trade. “Fast Facts: Incoterms® 2010.” www.exportvirginia.org, accessed March 30, 2011.
2 Incoterms define the responsibility of importers and exporters (buyers and sellers) regarding liability and the transfer of liability between parties during the transportation process. Although they do not cover ownership of the goods, global trade practitioners rely heavily on Incoterms when negotiating international sales contracts to reduce the risk of trade-terms confusion and outcomes that can affect shipping costs, tariffs, and insurance.
Illustration by ddpavumba at Free Digital Photos.net
• Transportation. Getting to the real costs in this category is a challenge. Be sure to include land, air, and sea costs, along with fuel surcharges, accessorials, and peak season surcharges.
• Product Classification. Customs classifications, size, weight, and volumes all contribute to total landed costs.
• Tariffs and Taxes. Not every shipment incurs taxes and tariffs, but many do. Variables include port of entry or debarkation, product or commodity type, and the prevailing security legislation.
• Returns and Reverse Logistics. Durable goods often require return shipping for repairs or replacement. Also, many products require value-added services, once landed.
• Quality Assurance. Perishable items, products subject to counterfeiting, and goods that require some kind of special handling can significantly increase costs.
• IT Infrastructure. Maintaining a control tower view of transportation networks requires two to three times the IT expense of a domestic operation.1
1 Jim Thompkins. “Transportation Sustainability: It Is Your Father’s Oldsmobile.” Industry Week, January 29, 2010.
• Global trends
- Last 20 years establishing truly global networks
*Cost driven (production costs and shipping costs)
- Factors driving some change to this:
*Natural disasters such the tsunami in Japan and floods in Thailand
*Exchange rate fluctuations (desire to strive to be “exchange rate neutral”
*Rising manufacturing costs in places such as China and eastern Europe
*Falling manufacturing costs in North America (especially energy costs)
*Concern regarding fuel prices (although this changes frequently)
*More selective and discretionary regarding supply sources
*Free trade agreements create some advantages (Mexico and European Union)
*Cost changes make North American locations viable again (especially Mexico)
- Site selection criteria
*Once continent/country decision is made (global factors noted above), then siting factors such as:
*Available space (land and/or buildings)
*Road and/or rail and/or water and/or air
*Proximity to, or even better, confluence of all is ideal
*Allows for better competitive pricing and mode flexibility
*Energy reliability and costs
*Tax and incentives
*Free trade zones
Sweeney can be reached by emailing firstname.lastname@example.org or visit www.mccallumsweeney.com.