Category Archives: Near-sourcing

Optimizing Your Global Supply Strategy

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Emerging economies are increasingly contributing to the ranks of manufacturing and logistics services suppliers that are already well established along the Pacific Rim. This trend not only heightens the ever-shifting economic activity between and within regions, but also the numbers of global trade end-points and transportation management complexity. For global traders, increasing logistics complexity increases levels of risk.

Coordinating global transport is mission-critical for companies contracting off-shore services, especially for high tech, consumer electronics, pharmaceutical, and retail industries, where short product lifecycles and extremely competitive markets mean that missed shipment dates can result in $millions in lost sales. The following five suggestions can bring you both short- and long-term cost savings.

1. Align cross-business-unit communications with a supply chain visibility tool to streamline connections between regional and global locations, meetings, and decision-making; and unify data governance across all reporting location networks.

2. Continually assess demand shifts and consequent optimal strategic and economic alignment of your transportation and distribution network, looking at a multi-layered approach to global, regional, and local sourcing, inventory allocation, and distribution locations.  Consider a trade planning solution to build scenarios of alternative sourcing or distribution locations.

3. Assure day-to-day visibility of shipments enroute as well as field stocking allocations for servicing global customers. Extend shipment visibility to your customers and assign a global team of stakeholders to regularly monitor inventory allocations and global-to-local realignment based on regional forecast updates, as well as monitoring resulting transportation management re-allocation performance.

4. Pre-plan and develop multi-modal contingency plans for key shipments such as new product introductions.

5. Don’t get caught without a fuel contingency plan. Experts are currently suggesting* that the abrupt reversal of the global economy of 2007 will bring about some fundamental changes in supply chain configurations. The biggest trend driving business today and in the future is the escalating costs of oil and energy. Despite the short-term price volatility these costs can only increase and future success depends on taking the necessary measures to reduce these costs now. Transportation is the logical starting point.

Dr. Larry Lapide, Research Affiliate for MIT Center for Transportation & Logistics, (most recently Director of Demand Management at the MIT Center for Transportation & Logistics). He recently launched MIT’s Supply Chain 2020 Project and is responsible for the Strategy Alignment Workshop.

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McKinsey Study Illustrates New Nearshoring Advantages

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Earlier this year I had the opportunity to hear former president Vincete Fox of Mexico talk about the the changing economics of Nearshoring.  And sure enough, I was sitting next to an executive from a large high technology company that had recently shifted production from Asia back to Mexico.  Roll forward four months and McKinsey today published a nice article Time to rethink offshoring?

The world has changed over the past four years.  China wage inflation has run rampant (19% year over year) and now wages in Mexico are only 15% higher – a small price to pay for a half-day plane ride and the luxury of dealing with operations in the same time zone.

McKinsey then analyzed the impact of increased logistics costs on these sourcing decisions.  Net-net, with fuel increases (crude is up from $28 a barrel to about $100 over the past few years) it is not surprising that the cost of shipping a 40′ is 3 times more expensive than in 2000.  They translated this cost to an equivalent tariff of 11% on the cost of goods.

Considering the increase in wages and logistics costs, McKinsey calculated break-even curves for manufacturing in the US, Mexico and China.  Then, plotted a number of high technology products like servers, copiers and TVs.  Not a big surprise: the curves are shifting in favor of producing in Mexico and for certain (heavy) products like copiers and TVs, the United States.  

The key take away here is that you can’t establish a sourcing strategy without periodically revisiting your assumptions like:

  • Total landed cost including product invoice, duties, excise VAT, other governmental charges, transportation, insurance, and other logistics costs
  • Regulatory controls (both export & import) including licenses, embargoes, quotas, and AD/CVD
  • Country risk including political stability, macro-economic policies, quality of infrastructure, environmental factors, availability of capital, and labor risk.  Check out some good resources at CountryRisk.com and Trading-Safely.com.

Web-based information services are available to keep up to date on changes in landed cost and regulatory environment and optimize sourcing as well as distribution decisions.  

As commodity & freight costs continue to grow and the comparative advantage in labor wages falls, we are seeing the proliferation of preferential trade agreements.   This is becoming a real challenge to not only find these ‘global optimums’ but then put in place the business process and automation to ensure compliance.

 

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No, Vicente, I do not have even one peso for you

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Back in the 1990s, the governors of the two largest border economies in Mexico and the United States were kicking around ideas to expand NAFTA to create a Super NAFTA. Then, in 2000 each was elected to president of their respective nations and the timing looked great for Vicente Fox and the people of Mexico to expand trade and achieve the next level of economic growth.

I had the opportunity to hear Former President Vicente Fox recount his perspectives on globalization at the recent AMR Executive Supply Chain Conference. A renaissance man, he got his start selling soda pop for the world’s largest BevCo, rising to the top spot in Latin America in the Sixties. This success propelled him to tHe Business School in Boston. Post-graduation, he decided to apply his trade at the family cowboy boot business.

Lucky for Vicente, John Travolta, teen heartthrob of Welcome Back Kotter and Saturday Night Live, applied his coolness to boots in the film Urban Cowboy. The Fox family business exploded and Vicente expanded distribution world-wide, learning from the sole up how to build a global business.

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