Table Of ContentThe 10 Keys to Global Logistics Excellence
Supply Chain Thought Leadership Series
The 10 Keys to
Global Logistics Excellence
Research Sponsored by:
i
The 10 Keys to Global Logistics Excellence
Table of Contents
Global Supply Chain – You Better Be Good…………… 1
Time and Distance……………………………..……………… 2
Where Do the Lost Savings Go? …………………………. 3
The 10 Capabilities of Global Logistics Leaders…….. 5
Lack of Global Technology Enablement …..………….. 13
Summary………………………….................................... 14
Sponsor Perspective …………………………………………. 16
About Supply Chain Digest……………………………...... 17
Global Logistics Capability Diagnostic………………… . 18
End Notes ……………………………………………………….. 25
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The 10 Keys to Global Logistics Excellence
The Global Supply Chain – You Better be Good
Globalization of the world economy
and our supply chains has advanced at
an almost unbelievable speed. Growth
in world trade, and corresponding
cargo container movements, continues II’’mm nnoott ssuurree
to substantially exceed overall wwhhaatt ttoo tthhiinnkk aabboouutt
economic growth, meaning that trade aallll tthhiiss gglloobbaalliizzaattiioonn
volumes are doubling every 5-7 years.
Being part of this global economy is
high on the priority list of most
companies today, whether it is to
capitalize on global sourcing
opportunities to reduce costs and
assets, take advantage of private
Let’s look at one real world example. A
labeling strategies, or tap into the
billion dollar division of a Fortune 200
surging business and consumer
industrial company had succeeded for
markets of China, India and other
decades making glass-related products
developing markets.
for automotive, aerospace and other
industries. Its success was in large
Yes, The World is Flat, as Thomas part based on exploitation of its
Friedman of the New York Times wrote manufacturing advantages:
in his best selling book. What proprietary production processes,
Friedman called “supply chaining” is significant investment in assets, and
fundamental to this leveling effect, as its position as the low cost producer –
barriers to trade and interdependence at least in North America.
are reduced across the globe. Supply
chain managers are caught in the
But recently, due to the increased ease
middle, with a changing decision
of global sourcing, manufacturing
environment and a lack of clear
quality improvements overseas, and a
information to help guide the decision
reduction in glass-related tariffs, its
process.
market dynamics have changed
substantially. In just a few short
What this says very simply is that for years, the company is moving from
most product-based companies today, using nearly 100% in-house
excellence at the global supply chain production to being almost entirely
won’t be just a desirable goal; it will in reliant on offshore sources (using both
fact become a fundamental its own plants and those of contract
requirement for the business to vendors). As a result, its huge
succeed and prosper. It’s that domestic production asset base is
important. largely being shuttered. Its
manufacturing cost advantages are
gone, and the company’s competitive
1
The 10 Keys to Global Logistics Excellence
advantage based on traditional It’s pretty simple, really: going global
production expertise and engineering means adding time and distance to
is also quickly eroding. your supply chain. Those two factors
add cost, complexity, and frequently
risk.
Does this manufacturer need to be
great at the global supply chain to
succeed? The answer is obviously Yes. Many companies early in their
What’s equally clear is that many if not offshoring evolution find that
most companies are very early in this managing this new set of skills and
globalization journey, and are facing capability requirements is extremely
vexing challenges to the smooth and challenging. Often, savings expected
cost-efficient flow of goods across the from the global sourcing initiatives fail
globe. Even those companies that are to materialize, at least in part.
well down the global supply chain
curve are finding that after getting the
SCDigest, for example, recently
basics down, they encounter a whole
profiled a consumer hardware
new set of opportunities and
company that illustrates this reality1.
challenges in achieving operations
Under pressure from major big box
excellence on a global scale.
retailers for lower prices, the company
is in the process of moving much of its
Given this situation, global logistics manufacturing capacity to China and
and trade management are becoming other low cost country sources.
board level concerns. It’s therefore
critical that supply chain and global
To this point, however, the expected
logistics organizations put in place the
savings from offshoring have not
people, processes and technology
materialized. The company is just
required to deliver world class cost and
starting to analyze the factors, with no
service performance.
clear answers yet, other than a belief
that there were many “hidden” costs
Time and Distance that were not fully anticipated.
Thomas Friedman is right, This is a scenario that we hear on a
fundamental changes across many consistent basis. In fact, a recent
areas of business, politics and the survey from McKinsey and the U.S.
supply chain have “flattened” the Chamber of Commerce of Western
world and led to an explosion of trade companies importing product from
and global sourcing. Yet, as global China found that the majority of
logistics professionals know only too respondents believed they were behind
well, it is still a long way from their competitors in such areas as total
Shanghai to Peoria, especially when landed cost savings from offshoring,
the product being moved will have to on-time delivery, and other key supply
go through numerous steps from chain metrics (see illustration below)2.
manufacturing to delivery, involving Considering that generally companies
multiple governments, companies and tend to over rate their performance
third party service providers. versus others, this data is a powerful
statement of the challenges of doing
global supply chain well.
2
The 10 Keys to Global Logistics Excellence
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A majority of companies believe they are executing Chinese
outsourcing strategies less effectively than the competition
Where Do the Lost Savings needs to hold due to the lengthening
Go? of the supply chain. As a result, the
company is trying to hit a total cost
savings target that was not achievable
Why do so many companies have
from the start.
problems achieving the level of
savings they expected from offshoring
and global sourcing initiatives? At the 2. The company cannot yet
highest level, the challenges can be execute a global supply chain well:
categorized in two inter-related areas: In this situation, the company has in
fact well-estimated a realistic total
supply chain cost, but much of the
1. The potential savings were
savings slips away through problems
simply over-estimated: When
in execution.
calculating the expected cost of
globally sourced products, companies
frequently miscalculate or fail to These execution issues often simply
consider a number of cost elements. derive from a lack of experience and
For example, the company may have global logistics skill sets, but the
made assumptions about the total complexity of global logistics can
transport costs to move the product create execution challenges even for
from Asia to the home country that more seasoned organizations. In
prove to be too low, or the company addition, the general lack of strong
may find that it badly underestimated technology support for the global
the amount of buffer inventory stock it supply chain versus other functions in
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The 10 Keys to Global Logistics Excellence
the company often compounds the
execution challenges.
Some of the specific areas where we
frequently see challenges in global
logistics execution include:
(cid:1) Sub-optimal sourcing results due
to inadequate total cost data
(cid:1) High overhead costs to manage the
global sourcing and logistics
function Global Logistics and Trade
(cid:1) High inventories and lost sales as Management Requires Learning
the Rules of a New Game
companies struggle to match
supply and demand in the long
supply chain expanded across multiple sourcing
(cid:1) High costs for expedited freight relationships, third parties and
transportation lanes, it becomes a
(cid:1) High levels of inbound lead-time
daunting challenge for the company to
variability
manage these logistics flows
(cid:1) Reactive rather than proactive effectively.
logistics management
(cid:1) Disconnect between inbound
Even those companies that have
international movements and
developed significant experience and
domestic transportation operations
capabilities with global logistics find
that achieving true excellence is as
Part of the challenge is that there is a much a journey as a goal. Few of
long learning curve simply to fully these more experienced companies,
understand the rules of this new global for example, have fully optimized total
game. The daunting array of programs international and domestic inbound
and regulations that must be managed flows, achieved the full level of supply
just to keep compliant with chain visibility they desire, or have the
governmental requirements alone agility they would like to make near
takes a substantial effort on the part real-time decisions that can improve
of importers and exporters. This is cost and service.
especially true for those lacking one of
the available tools for managing so
But global logistics leaders are
called “denied party screening,”
getting closer to the level of
producing compliant documentation
capabilities that lead to
and other paperwork, managing duties
operational excellence, and which
and tariffs, etc.
we believe provide strong
competitive advantage.
But it goes much beyond just the
regulatory aspects. Understanding
these complex physical product flows,
and most importantly the hand-offs
between each step and node in the
supply chain, is critical. When
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The 10 Keys to Global Logistics Excellence
The Ten Capabilities of
Managing Total Delivered Cost
Global Logistics Leaders
s
t8.0%
s
While “best practice” in this o
C
comparatively new discipline is being d 6.0%
e
t
redefined on a continuous basis, c High Performers
e
p4.0%
Supply Chain Digest has identified 10 x Low Performers
E
capabilities, encompassing processes, e to2.0%
skill sets and technology, that c
n
companies striving to achieve global ria0.0%
a Q1 Q2 Q3 Q4
logistics excellence must develop. V
They are detailed below.
Leader in Delivered Cost Management
At the end of this report, we also offer Have Small Actual-to-Budget Variance,
a Global Logistics Capabilities While Low Performers Are Hit with
Diagnostic tool that enables you to Unanticipated Costs
compare your current capabilities in
engines,” is simply required to make
each of these 10 areas across three
optimal sourcing and logistics
advancing levels of maturity. We are
decisions, and to ensure that
confident you will find it valuable as a
execution is aligned with upstream
mechanism to identify areas in which
sourcing decisions. One key metric:
you are operating strongly, as well as
how accurate are the actual delivered
areas that need additional attention
costs versus expectations? Many
and support.
companies experience high levels of
variance, while capability leaders have
relatively trivial variances month to
1. Total Delivered Cost
month.
Management
Total Delivered Cost Management 2. Global Logistics Process
involves the ability to analyze and
Automation
predict the total supply chain costs
from the source of supply to its final
In general, few companies have well
point of distribution. It includes the
automated global logistics processes.
capability to roll up both international
As a result, there are still many
and domestic logistics costs by product
manual steps in most organizations.
and delivery route, plus the ability to
Logistics personnel commonly spend
accurately calculate all the applicable
too much time on low value activities
duty, tariffs and other customs-related
needed to get the freight to move, and
costs while factoring in any
not enough time on developing better
preferential trade agreements. More
plans and approaches to drive
advanced capabilities would include
continuous improvement.
the ability to model and estimate
inventory levels and total carrying
At the most basic level, we often hear
costs.
companies refer to this as the “ocean
booking” problem – the laborious
This level of capabilities, empowered
process of simply identifying and
by automated “total cost software
transacting international moves.
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The 10 Keys to Global Logistics Excellence
But it is also much more than that. By deploying a robust, real-time
The reality is that global logistics visibility system, a company like
execution is simply much more Cisco is able to manage a totally
complex than domestic transportation. outsourced global supply chain with
Execution requires dozens of links; by a relatively small corporate staff, and
many estimates, there can be as many manage performance as if the
as 25-30 hand-off points within a functions were all handled internally.
complex global move, involving
multiple parties with greatly varying
levels of technology. operational goals of nearly every
company that does business globally.
The ultimate goal in global
logistics execution: “one touch” What is global supply chain visibility?
information flow for all activities. It starts with the ability to answer very
basic questions: Where is it? When
Importers and exporters do, however, will it arrive? Is the expected date
have control of their own technology different from the planned date?
decisions. For a variety of reasons,
automation of global logistics planning
Event management/notification plays a
and execution processes is well behind
key role, since the amount of data
most other areas of supply chain and
generated means that the only
logistics management. In some cases,
manageable approach is to have
existing ERP or logistics systems
systems that proactively identify
simply have not been architected to
exceptions to the plan. In their most
well-support offshoring strategies and
basic form, visibility tools enable a
global logistics requirements, leaving
company to define a schedule for all of
companies at a dead end.
the activities within a particular move,
with configurable tolerances. If an
Global logistics leaders have deployed activity or milestone is not completed
technology that greatly automates within the scheduled time, or no
many of these manual booking information is received when expected,
processes, managing global an alert is sent via any of numerous
transportation carriers, rates, and mechanisms (email, page, etc.)
execution in a single environment. notifying both the impacted party (e.g.
the importer) and others (e.g., a
freight forwarder) of the problem.
The ultimate goal in global logistics
execution: “one touch” information
flow for all activities. Visibility systems should make it easy
to find and drill down on information
from many points of reference, such
as the purchase order number, SKU,
3. End-to-End Visibility
freight bill, etc. Users should then be
able to easily see the related
In the last 24 months, global supply information. Visibility systems should
chain visibility and event notification also facilitate the development of
have gone from being somewhat “role specific” system
vague concepts to emerging as key configurations to meet the
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The 10 Keys to Global Logistics Excellence
information needs of managers in a pure logistics perspective, but also in
transportation, purchasing, inventory the context of how the delay might
management, and other areas of the impact production inventory levels, or
business. merchandising or promotional plans.
In a global logistics visibility system, While all exceptions need to be
the timeliness and accuracy of monitored, some are more important
information is critical. While there is than others in terms of the impact on
no magic bullet that can solve all the the rest of the organization. Looking
data quality issues, global logistics across areas to understand the impact
leaders are using a variety of will reduce overhead costs and better
mechanisms, such as direct EDI align logistics with the business.
integration with ocean carriers, and
web portals for other service
Global logistics execution is complex –
providers, to achieve high levels of
it requires an advanced “traffic
near real-time visibility, data
control” capability in the form of real-
timeliness and accuracy. Leaders are
time visibility to avoid congestion and
also monitoring incoming data for
ensure the smooth flow of goods.
potential quality issues, such as
“syntax” errors or missing information.
4. Supplier Portals and ASN
Facilities and touch points under direct Capabilities
or indirect control should also utilize
bar code scanning (and perhaps soon Integration with offshore suppliers can
RFID) to generate status updates on be challenging, but it is essential to
shipments and inventory, improving managing the global supply chain.
both data accuracy and timeliness. Even companies that have achieved
significant visibility for goods moving
from foreign ports to domestic plants
By deploying a robust, real-time
and distribution centers are often
visibility system, a company like high
frustrated by the lack of visibility to
tech giant Cisco is able to operate a
the actual status of orders in the
totally outsourced global supply chain
offshore factories.
with a relatively small corporate staff,
and manage performance as if the
functions were all handled internally. In addition, the ability to receive
timely, accurate Advance Ship Notices
Global logistic leaders reduce the (ASNs) from overseas suppliers is
time and cost of inbound critical for both effective inventory
processing by enabling their planning and to streamline the
suppliers to produce ASNs and inbound flow of goods.
properly label the goods.
Most companies today are not well
At the advanced end of global supply integrated with overseas suppliers,
chain capabilities, companies are and many still receive information
taking event notification to the next about what is on incoming shipments
level. For example, they are look at via fax or other manual methods.
potential shipping delays not only from Problems with the accuracy of that
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The 10 Keys to Global Logistics Excellence
information means that not until the 5. Total Product Identification and
container is actually opened can what Regulatory Compliance
was shipped be completely
determined.
Supply chain security concerns are
growing, and are certain to increase.
Many process, language, and
This is true both internal to companies
relationship barriers exist when trying
as well in response to efforts led by
to better integrate offshore suppliers.
national governments. In the U.S., a
Nonetheless, the availability today of
variety of mandatory and voluntary
web-based supplier portal technology
programs, such as import and export
to improve integration and visibility
restrictions, Customs-Trade
with overseas (as well as domestic)
suppliers means the opportunity to
Global logistics leaders embrace
address these issues has never been
a mindset that recognizes
easier.
security and regulatory trends
and how they will impact their
Many companies are providing ability to move product.
suppliers with web-based tools that
enable them to execute a growing list Partnership Against Terrorism (C-
of processes, including: TPAT), Operation Safe Commerce, and
many others place an increasingly
difficult array of burdens in the
(cid:1) Purchase order acceptance
execution of global logistics.
(cid:1) Production status updates
(cid:1) Quality checking
Not managing these requirements well
(cid:1) Compliant bar code labeling of
leads to a series of real and potential
items and cartons
problems:
(cid:1) Shipment routing
(cid:1) ASN generation (cid:1) Fines or other penalties for a
failure to comply
In the future, this will likely include (cid:1) Delays in the movement of goods
capabilities to support encoding of inbound and outbound from a
RFID tags as well. variety of causes, including
problems with appropriate
documentation and delays inherent
Global logistic leaders reduce the time
for those not participating in
and cost of inbound processing by
programs like C-TPAT
enabling their suppliers to produce
ASNs and properly label the goods. (cid:1) Risk to the company’s brands
They also minimize inventory and should any problem with supply
stocks outs through better visibility to chain security emerge
actual order status at offshore
production sites.
One executive at a major specialty
retailer recently had this to say: “We
are aggressive participants in all
aspects of regulatory compliance
and non-mandatory programs that can
help us ensure the smooth flow of
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