Global Logistics Issues

In the drive to reduce costs, auto industry manufacturers are scouring the planet looking for the lowest-cost suppliers.

In the drive to reduce costs, auto industry manufacturers are scouring the planet looking for the lowest-cost suppliers. Attracted to lower-wage areas such as Mexico and China, globalization is stretching supply lines longer than ever. What’s more, major manufacturers are eyeing overseas markets for expanding their sales. This boosts outbound logistics. And a global glut of manufacturing capacity is forcing many manufacturers to shutter redundant plants. The remaining plants are picking up the slack but now must export to more countries.

Internet-based procurement now puts foreign suppliers on almost equal footing as domestic suppliers. Web-based purchases of maintenance, repair, and operations (MRO) supplies are on the rise.

The lowering of trade barriers has also greatly spurred cross-border trade. This has occurred even when the necessary logistics component wasn’t fully understood by purchasing departments anxious to lower piece prices.

Despite this flurry of activity, it is commonplace for even by seasoned managers of domestic logistics to grossly underestimate the complexity of international trade logistics (ITL). Procuring global transportation and related services involves far more players, hand offs, and documentation than for strictly domestic shipments. It almost always involves longer order-to-delivery times. Estimating the arrival times of international shipments is often more voodoo than science.

The auto industry’s emphasis on just-in-time, in-sequence deliveries similarly complicates logistics. The industry’s aspirations to a more build-to-order (BTO) model and “lot-size-of-one” quantities put even more pressure on ITL. For instance, over 40% of Renault’s sales are already BTO.

Logistics practices have traditionally been down right quaint. Shipping or ordering clerks armed with three-ring binders would select carriers, customs brokers and so forth. Often, the search did not extend much beyond finding the first service providers who covered the minimal requirements. Once the shipment began moving, it often would go into a veritable, black hole disappearing for weeks. Even the best-laid plans could be disrupted. For instance, a ship from Asia could hit rough weather, delaying its arrival on the West Coast for two days. In response, the West Coast trucks awaiting that shipment either left empty or sat idly for the two days. These kinds of inefficiencies are rampant in global logistics.

Even the largest multi-nationals avoided closely co-coordinating logistics on a global basis. Instead, they deferred to their operations in each country and let each region manage logistics as autonomously possible.

The Internet changed ITL almost overnight. Nowadays, vendors such as Vastera can aggregate large numbers of international shipments. In doing so, they can develop and maintain huge databases covering country-specific regulations. Literally millions of combinations of carriers, seaports, and so forth are possible for moving a shipment. Consequently, ITL vendors also tap rate and route information on thousands of carriers operating in dozens of countries. Searching this vast space both lowers freight bills and shortens delivery times. Ford Motor Company, for instance, outsourced much of this work to Vastera even though it had a dedicated staff of 150 ITL specialists. The expected cost savings is $1.4 billion. DuPont de Nemours, on the other hand, picked G-Log (Global Logistics Technologies) to manage its ITL.

A bugaboo in ITL is the great uncertainty in shipment arrival times. Materials managers have had little choice but to hedge by increasing safety stocks. Inventory costs consequently are typically high for foreign sourced parts.

Remediating the delivery-uncertainty problem is close tracking of international shipments every step of the way. This is easier said than done. Nevertheless, vendors such as Descartes Systems Group (including through its Centricity subsidiary) offer such tracking. Essential in such end-to-end tracking are both a global logistics infrastructure network and electronic visibility in every facility and carrier along the way. This is far from the case today. Pieces of the puzzle are slowly coming together, however.

Descartes offers a global infrastructure, but considerable additional, specialized, equipment is stilled needed on the ground. For instance, tracking finished vehicles requires a yard management system that knows every vehicle in the yard and where it is parked. The WhereNet has a system like this operating at Ford. WhereNet uses radio frequency (RF) tags in vehicles whose location is sensed by nearby antennas located in the yard.

Maintaining visibility also requires tracking the vehicles when they leave the yard by truck or train. This tracking could be done by global positioning (GPS) systems and satellites, but it is not done routinely now. As a result, the auto industry still does not have end-to-end tracking of vehicles by vehicle identification number (VIN).

A significant trend among logistics vendors should help. Logistics expert Chelsea White at the University of Michigan notes that logistics companies are expanding their services and reach. For instance, Grimaldi Lines, once a traditional ocean carrier, now moves Fiat vehicles from the assembly plant right to the dealers in multiple countries. To do so, Grimaldi acquired or built trucking firms and distribution centers in several countries.

Despite obvious shortcomings, global logistics should markedly improve. Even with the September 11 terrorist attack, pressures to globalize are as strong as ever. Web-based companies and technologically innovative carriers such as UPS Logistics, Ryder, and others will continue to lead the way. Global logistics in as little as three years should be far more seamless and affordable than ever. 

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