SME in the Global Supply chain

1. SME in the Global Supply chain Logistics: Key component of competitive strategy Bill Goldsborough, Ph.D Principal - LAS and associates (415 488 1491)

2. Today’s agenda • Brief review of business globalization • Importance of supply chain in global arena • Logistics as a key component of supply chain • Processes involved in global logistics • One SME’s approach to global logistics • Why today is a good time for the SME to begin to upgrade its global logistics capability • Next steps for SMEs

3. Drivers of business globalization • Market forces • Sell in international markets • Source from multiple markets • Invest in multiple markets, e.g. ops, R&D • Policy and technology forces • Trade and capital liberalization • Transport, communications & information technology • Market privatization

4. A smooth functioning supply chain is a key condition for success • Get the right product, in the right quantities, in the right condition to the right place at the right time and at the right price • To do this need to break down barriers between traditional business functions, e.g. manufacturing, marketing, etc. • Focus instead on key customer related processes like order cycle, complete orders, on-time deliveries

5. Broadly there are 4 key processes a company must perform Make Fulfill Plan Source

6. Process improvement has had a significant impact on the bottom line • IBM reduced overall costs by $12 billion between 02 & 05, according to AMR • Increasing evidence of positive correlation between process improvement and key financial indicators, e.g. share price, materials cost, cash to cash cycle times

7. Software has been a key enabler of process improvement and has led to closer cooperation between firms • Enterprise resource planning (ERP), Supply chain planning (SCP), Transportation planning (TM), Customer relationship Planning (CRM), etc • Global trade management (GTM) software • Web-based portals

8. Globalization and supply chain technologies have led to a new phenomenon: Global production networks U.S. Asia (1). Toshiba BestBuy (2) Contract firms (3) TSMC D&H (4) Zoran (5) (6) Applied Materials

9. Logistics (fulfillment) is a key process of the integrated global supply chain • But, more limited in scope than the supply chain • Nonetheless it has huge cost and customer service implications • This combination presents opportunity to improve financial, operational and service performance relatively quickly

10. Global logistics is comprised of four key activities that need to be carefully managed today • Inventory management • Transport spend management • Import/export process management • Logistics outsource management

11. Careful inventory management is more important than ever because of the far flung nature of the global supply chain • Holding inventory is costly • Current recession could have long-term impact on channel management • Examples of tools for managing inventory • VMI • Cross docking • Merge in-transit • Postponement • Optimization • Visibility software

12. Visibility software is foundation for global inventory operational and strategic management • Operationally • Enables integration of disparate nodes & single window on activities • Enables management by exception & problem identification and resolution • Strategically • Provides data for in depth analytics, e.g. root cause analysis, forecasting • Drives ROI collaborative initiatives with partners

13. There are various ways to obtain visibility capability • Develop in-house, custom designed portals, e.g. Dupont, Cisco • Lease from outside vendor • Receive from 3rd party provider, e.g. freight forwarder or carrier • Buy over the web on a per usage basis-SaaS or on-demand

14. Global transport spend management- Historically firms have controlled this poorly • Terms of sale • Viewed tactically rather than strategically within the firm • Decentralized decision making • These practiceshave led to: • Mismatch between mode/service selected and actual customer need • Lack of awareness of increasing transport options available to the firm

15. But recent changes in the global transport environment enable a more strategic approach to transportation • Virtual deregulation of ocean transport • Increased willingness and capability of 3rd parties to enter into contracts today • Technology breakthroughs that enhance shipper/provider interface • Rate/Service optimization software • Carrier contract management software • Cargo platforms, e.g. Inttra, G.T. Nexus, CargoSmart • Improved analytics

16. Import-Export process management has become increasingly complex • Compliance, e.g. duty rates, quotas, origin • Facilitation, e.g. trade agreements, CT-PAT, drawback, FTZ • Security - various programs are now in place, e.g. 10 + 2 import security filing rule • Safety - principally product, e.g. Bioterrorism Act requires tracking ingredients in all processing facilities

17. The costs associated with failing to manage import-export processes well are significant • Excess duty payment due to misclassification • Failure to qualify for trade agreement advantage • Failure to qualify for trade facilitation program • Government financial penalties • Cargo delays, e.g. Brazil • Loss of shipping privileges

18. For many firms global logistics outsourcing will become critical to their success • Outsourcing phenomenon generally • Logistics provider industry is maturing: Relationships now range from simple to complex and from arm’s length to strategic

19. User – Provider relationship continuumProvider type Traditional Emerging Int’l forwarder 3rd party Lead logistics provider Fully integrated strategic partner increasing: Manage 3rd parties, carriers • Shared goals • Risk/reward • Robust Systems • links • Management • integration • Metrics • Modest systems • links • Arm’s length Design, reengineering consulting Tech driven, multimodal, global player Integrated forwarding & fulfillment Tradit’l services, global Tradit’l services, limited Transactional Strategic Relationship type

20. Strategic relationships can form between both large and small firms • Large firms • Cisco and UPS Logistics in Europe • Diebold and Menlo Logistics • Small firms • Redback Networks and D.W. Morgan

21. Case Study: Redback Networks develops global logistics partnership (From Aberdeen Research) • $115 million designer & marketer of networking equipment to customers worldwide • Business model is product leadership: provide best most reliable products, including 4 hr parts replacement • Corporate strategy: leveraged business that outsources to experts all functions that don’t influence customer buying behavior • The challenge: to align in-house logistics operations with corp. strategy through outsourcing

22. Case study continued • Redback’s Provider requirements: • Meet stringent SLAs to customers • Reduce global service parts depots • Reduce inventory levels • Reduce # of people to run depots and fill orders • Provider selected: D.W. Morgan • Closed 22 of 50 depots • Deployed a hub-spoke system – S.J., Atlanta, Hong Kong, Amsterdam • Deployed high level web-based visibility software • Transferred employees to Morgan payroll

23. Case study continued • Results were significant • Total logistics costs reduced by 30 % • Total service depots cut from 50 to 28 • Overstocking minimized and inventory in field has dropped by 50 %

24. Today is a good time for SMEs to begin to develop a global logistics capability • Availability of low cost “on demand” technology • Carrier options available due to deregulation, over capacity, etc. • Opportunity to enter into strategic, goal based relationships with vendors • Possible opportunity to participate in production network phenomenon • To develop newsources of competitive advantage in a slower growth world economy in which lower cost and customer service will be king

25. Next steps for SMEs wanting to develop a more strategic global logistics capability • Self assessment, (How are we doing today)? • SWOT • Industry structure analysis • Benchmark • Path forward (What do we want to become)? • What do we need to do to get there? - Gap analysis • Identify “low hanging” fruit that can be harvested relatively quickly as recession recedes