The 10 Keys to Global Logistics Excellence Supply Chain Thought Leadership Series

The 10 Keys to Global Logistics Excellence

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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

ii 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 I’m not sure to substantially exceed overall what to think about economic growth, meaning that trade all this globalization 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 reality 1. 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

How Does Your Company’s Performance in China Compare With That Of Your Competitors ?

Talent Development Quality Sourcing Cycle Times Reduction in Lead Times from China Rate of Growth in China Sourcing Total Net Landed Cost Savings (Percentage) Total Net Landed Cost Savings (Absolute) Total Dollars Sourced from China 0 1 2 3 4 5

Clearly Average Clearly superior lagging behind

Source: McKinsey/American Chamber of Commerce

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

3 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:
Sub-optimal sourcing results due to inadequate total cost data
High overhead costs to manage the global sourcing and logistics function Global Logistics and Trade
High inventories and lost sales as Management Requires Learning companies struggle to match the Rules of a New Game supply and demand in the long supply chain expanded across multiple sourcing
High costs for expedited freight relationships, third parties and transportation lanes, it becomes a
High levels of inbound lead-time daunting challenge for the company to variability manage these logistics flows
Reactive rather than proactive effectively. logistics management

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

4 The 10 Keys to Global Logistics Excellence

The Ten Capabilities of Global Logistics Leaders Managing Total Delivered Cost

8.0% While “best practice” in this comparatively new discipline is being 6.0% redefined on a continuous basis, High Performers 4.0% Supply Chain Digest has identified 10 Low Performers capabilities, encompassing processes, 2.0% skill sets and technology, that companies striving to achieve global 0.0%

Variance to Expected Costs Q1 Q2 Q3 Q4 logistics excellence must develop. 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 costs. At the most basic level, we often hear 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.

5 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 3. End-to-End Visibility as the purchase order number, SKU, 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

6 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 By deploying a robust, real-time from foreign ports to domestic plants visibility system, a company like high and distribution centers are often tech giant Cisco is able to operate a frustrated by the lack of visibility to totally outsourced global supply chain the actual status of orders in the with a relatively small corporate staff, offshore factories. 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

7 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
Purchase order acceptance execution of global logistics.
Production status updates

Quality checking Not managing these requirements well
Compliant bar code labeling of leads to a series of real and potential items and cartons problems:
Shipment routing
ASN generation
Fines or other penalties for a failure to comply In the future, this will likely include
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 Global logistic leaders reduce the time documentation and delays inherent and cost of inbound processing by for those not participating in enabling their suppliers to produce programs like C-TPAT ASNs and properly label the goods.
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

8 The 10 Keys to Global Logistics Excellence goods. I don’t think many mid-sized 6. Dynamic Routing shippers realize the challenges they are going to have getting the goods into the country before long if they Many international logistics flows tend have not made the same level of to be fairly static after they are commitment, and it is going to cause designed. A shipment from say Hong them some pain.” Kong to a distribution center in Dallas will use the same carriers into the

same inbound port for movement on a Global logistics leaders are taking an consistent mode further inland. That is increasingly aggressive approach to beginning to change, however, for security, both to improve the flow of reasons related to both cost and goods in the short term as well as agility/risk mitigation. protecting themselves from the impact of external threats and potential problems. Global logistics leaders are starting to develop more dynamic routing

capabilities that will allow them to Technology provides some of the “rate shop” for the most effective answer here, and will increasingly do combination of carriers, routes and so, especially as we enable complete third parties such as freight forwarders track and trace and other capabilities that will meet delivery constraints, in a through RFID-based systems. fashion more consistent with how Software that manages denied party domestic transportation is managed. screening and other regulatory requirements is already being used by hundreds of companies, and we expect An even bigger driver of dynamic adoption to continue rapidly in others. routing might be the increased supply chain agility it will provide. For

example, should a given inbound Global logistic leaders also embrace a delivery be cross docked from an mindset that recognizes the security inbound DC to a series of regional and regulatory trends and how they outbound DCs, or would direct delivery will impact their ability to move to a store or customer be the better product. A growing number of choice for some of the inventory? companies understand the need for a While there are many variables to level of “insurance” that may not have consider before executing this specific an immediate payback, but which inbound strategy, there are many ultimately delivers huge value by scenarios where having the flexibility protecting the company and its to dynamically determine inbound or brands. outbound routings will be beneficial.

Savvy companies will be at the head of This may be especially true in the area the line for both required and of mitigating risk. For example, if the voluntary compliance, and in making labor strife on west coast ports was to investment in developing highly secure repeat itself, the ability to quickly and supply chains. accurately determine the transportation alternatives and costs would be extremely valuable.

9 The 10 Keys to Global Logistics Excellence

Consider another scenario: a component supplier in Asia supplying ATLANTIC CONTAINER North American production plants has TRANSIT TIMES a major problem, immediately 30 reducing available output. The supplier 25 in Easter Europe that produces for 20 MIN plants in that region can meet the 15 AVG need, but how will the product move, 10 85% 5 and at what cost? 0 90% 95% Y /N AV 99% With supply chain agility and risk rno/SAV oa/S ivorno n L Genoa/NY e mitigation at the top of most Chief Livo G Supply Chain Officer’s priorities, having dynamic routing capabilities for International Shipments Inbound or global movements will be an Outbound are Subject to Considerable increasingly common attribute of Variability in Delivery Times supply chain leaders.

Global logistics leaders use supply chain data and performance 7. Variability Management management systems to better understand both the level of supply variability and the root causes of that Variability is the Achilles Heel of long flux. They work hard to shrink total supply chains. As reported in Supply delivery lead times and the range of Chain Digest, preliminary work by The those lead time windows that are used Logistics Institute at Georgia Tech, for by inventory planners to determine example, showed there is a significant safety stock levels and purchase order level of variability in international timing. Reducing the variability by logistics moves, with a tremendous even 1-2 days can drive millions of impact on inventory levels and dollars in inventory savings and reduce customer service (see illustration). lost sales due to stock outs.

For example, in the data shown in the chart, while the average transit time Variability is the Achilles Heel of from a supplier in Livorno, Italy to the long supply chains. port of New York was only about 12 days, it took four additional days of lead time, or a total of 16 days, to The capability to understand and reach a level in which 90% of all improve the long-term performance of shipments were received, and even both suppliers and logistics service higher for a 99% confidence level. providers in terms of cycle times, Even at 16 days, that’s a swing of timeliness, quality and accuracy is 33% in extra lead time versus the central to time compression, planning “average,” greatly contributing to effectiveness, and risk reduction. uncertainty, risk, and required inventory buffers.

10 The 10 Keys to Global Logistics Excellence

Logistics leaders are deploying technology that enables them to 8. Integrated International and have a single “work space” that Domestic Workflow contains both functionality and data across the full international Until just recently, most companies planning and execution lifecycle. were forced to manage the combined international and subsequent domestic This is changing rapidly, driven by moves really as separate processes customer demand. While TMS vendors from both a planning and execution still have some work to do to fully link perspective. international and domestic planning and execution, workable solutions do There has been both an organizational now exist, and we expect rapid element to this split, as well as improvement over the next 24 technology limitations. Functional months. boundaries within organizations, for example, contribute to this lack of In concert with these technology integration between international and improvements and better internal domestic movements. understanding of the opportunities, we expect the concept of the centralized Until very recently, the availability of transportation management, well appropriate software has also been established in many companies on the lacking. Transportation Management domestic side, to expand along with System (TMS) suppliers have had the technology to embrace the full plenty to invest in just to improve their spectrum of global and domestic capabilities for domestic transportation transportation requirements. The management. There is also a large technology to do so is increasingly technical challenge of developing a available. software solution capable of modeling a complete, multi-leg, multi-modal international inbound through 9. Integrated Planning and domestic routes. Until the past few Exe cution Platform years, the demand for this type of comprehensive solution has also been limited. All of which means there really One of the challenges of global weren’t solutions available capable of logistics is that the information that end-to-end optimization. decision-makers need tends to be in multiple places, and is hard to access. As a result, companies were forced to While related to process automation treat the international and domestic and supply chain visibility, we believe elements as separate point-to-point logistics leaders are deploying moves. This created extra effort, technology that enables them to have contributed to a somewhat siloed a single “work space” that contains approach to international and domestic both functionality and data across the logistics, and eliminated opportunities full international planning and for reducing cost by a more complete execution lifecycle. optimization.

11 The 10 Keys to Global Logistics Excellence

This integrated workspace is anchored Data becomes real-time for by the operational skill to secure and scheduling, in-transit visibility and maintain the information backbone performance measures of carriers. with the diverse data structures that Transportation planners have a full are needed by the various global picture of the total delivered costs of logistics processes. the integrated domestic and international legs.

Data becomes real -time for The powerful result : end-to-end, scheduling, in-transit visibility optimized global logistics control and performance measures of and cost minimization. carriers. Transportation planners have a full picture of the total delivered costs of the integrated 10. Financial Supply Chain domestic and international legs. Management

Many organizations still rely on manual It is often said that supply chain systems to manage international management is about the freight movement, even on the management of materials, information execution side, as we have discussed and cash. The reality is that in most above. companies and most supply chain processes, the “cash” element of this

definition is not really connected. As they advance into a more integrated environment, a globally- enabled transportation management In global logistics, however, the system serves as the information “financial supply chain” can be much backbone to the organization. Access more directly linked with the physical to common applications and data and information flows. Letters of provides for an integrated workspace Credit, financial settlement processes, for all stakeholders of product goods and other financial related capabilities delivery. This means they have easy must often be mastered to expand the access to such information as: network of potential trading partners on both the buy and sell sides, as well
Carrier and cost information, such as to ensure the timely flow of goods as rates, capacities, contract is not interrupted by issues with commitments, etc. financial flows and related
Movement schedules and shipment documentation. details
Related data, including costs, While many companies have appointments, in-transit status developed internal skill sets around available to all
Performance measures and these capabilities, we are beginning to reporting see solutions from software vendors that provide financial supply chain Global logistics leaders are taking this capabilities and services, generally even further by providing even more associated with modules for generating dynamic information and decision- import and export documentation. support tools.

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Leveraging these capabilities, The Lack of Global Logistics international product movements can Technology Enablement be designed to minimize tax and tariff implications and take advantage of While not every one of these 10 trade preferential agreements with capabilities may be appropriate for foreign countries. Global logistics every company’s situation, we believe decisions are then made based on that together they provide a solid greater consideration of the financial framework for developing a strategic supply chain impact. Ultimately, plan for building out process transportation planning and execution capabilities and technology support functions are tightly linked with across global logistics planning and automated financial approval and execution. By evaluating your current settlement tasks. capabilities and improvement plans against this framework, it will help to A more advanced area of Financial identify areas for improvement and to Supply Chain Management relates to prioritize investment in people, development of a “tax efficient supply process and technology. chain.” While beyond the scope of this report, total tax liability can be There is simply no question that for significantly impacted by the country most companies, technology from which a product is sourced, enablement of global supply chain and where and when value is added to the logistics processes is well behind other product, the physical flow of the areas of the enterprise and supply goods, and who takes ownership chain operations themselves. when. As the total impact can be substantial, supply chain leaders will consider tax implications in the design As analyst Dwight Klappich at Gartner and execution of their global supply recently wrote, “Even sophisticated chain strategies. companies that have more global supply chain experience and were early adopters have only automated a Even sophisticated companies small fraction of their global trade that have more global supply operations.” 3 chain experience and were early adopters have only automated a small fraction of their global There are a variety of reasons for this. trade operations. The growth of offshoring happened so quickly, relative to most business trends, that many companies were Global logistics leaders will closely link knee-deep in the strategy and the movement of cash and excellence execution before they could really in the Financial Supply Chain to assess technology needs. expand trading partner relationships, maximize profitability, and ensure the flow of goods is not disrupted. Similarly, the seeming potential of substantial cost reductions from moving to low cost country sourcing alone seemed attractive enough that many companies simply assumed the benefits could be achieved through the

13 The 10 Keys to Global Logistics Excellence sourcing decisions alone. As we have It does take a different kind of tried to make clear in this paper, software to do global well. Respected however, the reality is that challenges IT commentator Eric Keller recently of estimating and achieving the right wrote that although “it’s a foregone level of savings leaves many conclusion that manufacturers will companies less than fully satisfied with continue their relentless push to their global sourcing strategies. Many offshore manufacturing…it doesn’t look to improved technology appear companies have rethought the enablement to drive increased IT portfolios.” He further observes that performance. “Unless companies that are offshoring make major changes [to their IT solutions stack], they will run into The software solutions available to quality, compliance and logistics help support these processes are also problems sooner rather than later.” 4 relatively new in many respects, at least compared to other areas of the supply chain. Known by a number of Supply Chain Digest thinks Keller is different names (Global Trade right on. Management, Global Commerce Management, International Trade The reality also is that today most Logistics, Global Transportation), some companies that have acquired global of the pieces, such as denied party logistics technology have done so to screening and import/export meet an immediate pain point or documentation, have been around for requirement. This means that the a number of years, though are still technology has often been adopted on lacking in complete maturity. Other a “point” basis, rather than by global logistics technology areas, such considering the full spectrum of as visibility and transportation current and future needs, and management that covers both developing a master plan for international through domestic enablement of the global supply chain execution, have arrived more recently. process. The fact that these solutions are newer is no doubt also a factor in the relatively low level of technology Solving immediate needs will always enablement to date. take precedence, but Supply Chain Digest believes it is important to take Until fairly recently there were a step back and identify what kinds of few robust technology tools to capabilities are likely to be needed support global logistics over time to achieve your goals for processes . global logistics efficiency, effectiveness, cost and service. Nonetheless, significant strides are being made in many areas of global Summary logistics software, with many vendors now able to offer relatively For most industries and for many comprehensive suites of solutions that companies, the ability to achieve and address many if not most process sustain global supply chain excellence requirements. will be a substantial determinant of their overall corporate success.

14 The 10 Keys to Global Logistics Excellence

For a variety of reasons, companies As always, the result is dependent on have moved into global sourcing and the mix of people, process and exporting programs without fully technology. Implementing more understanding the complexity of the advanced systems will only address planning and execution requirements, part of the challenge, but we see a and with insufficient technology growing gap in the technology support. capabilities between global logistics leaders and the laggards that will have a strong impact on relative supply To a large degree, this is chain performance. understandable. You have to walk before you can run. However, it is also clear that for too many companies this We encourage you to use our scenario results in much higher costs diagnostic in Appendix A to assess than expected, significantly reducing your current capabilities, and to help or even eliminating the estimated chart a course for improvement along benefits of global strategies. our 10 dimensions of capability.

It is also clear that in an area that is It’s pretty simple in the end: your much more complex than domestic company’s market success depends on logistics activities, technology support global supply chain excellence. for global logistics is at an immature stage for all but a small number of We recommend you gain a greater companies. This lack of technology understanding of what the leaders are support contributes strongly to the achieving, and what capabilities you challenges in controlling costs and need to achieve peak performance. executing effectively. Assess your current strengths and weaknesses, using our Diagnostic as In fairness, until fairly recently there one useful tool in the process. Then were few robust technology tools to develop a strategic master plan for the support global logistics processes. global supply chain that will deliver Most of those available were designed industry-leading performance, or at to solve very specific problems, rather minimum operational parity. than providing a more comprehensive set of solutions. When it comes to the global supply chain, you better be good. Today, that has changed significantly. While there is still room for continued advancement in global logistics and trade management solutions, there are systems available right now that can automate and improve a significant portion of the global logistics challenge. The robustness and functionality of the software is consistently improving, in tandem with the growing customer demand for global logistics solutions.

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Sponsor Perspective: RedPrairie

As you can see, the international logistics process can introduce significant cost and risk within the supply chain. Without firm management of the individual process steps, supply chain delivery costs can climb unexpectedly.

Companies wishing to establish global supply chain processes need to take steps to build their own internal competencies and infrastructure to achieve well managed and cost effective global distribution. Making use of industry leading Transportation and Global Trade Management Solutions will help to create a controlled and well managed process infrastructure that can deliver cost reductions and efficiencies in global supply chain delivery.

Best of Breed companies are aggressive about managing the details of Global Trade Management and International Trade Logistics. They put into place systems, such as that provided by RedPrairie, to create a controlled workflow across the individual steps of international logistics.

For over 30 years, RedPrairie has enabled leading global companies to create competitive advantage through supply chain excellence. Our Global Trade Management (GTM) solution provides comprehensive tools for moving goods safely and economically across borders and through international trade lanes.

RedPrairie provides industry-tailored solutions for diverse markets, including consumer goods, retail, food and beverage, building products, high tech / electronics, third party logistics, industrial / wholesale, automotive and service parts, and pharmaceuticals.

For additional information on how to successfully advance your global logistics strategies, call 1.877.733-7724, email [email protected] , or access www.RedPrairie.com

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About Supply Chain Digest

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Our flagship publications – Supply Chain Digest and Supply Chain Digest – Logistics Edition – deliver news, opinions and information to help end users improve supply chain processes and find technology solutions. Subscribe today – it’s free at www.scdigest.com .

For more information, contact SupplyChainDigest at: PO Box 714 Springboro, OH 45066 937-350-7915 [email protected]

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The 10 Keys to Global Logistics Excellence

Appendix A - Global Logistics Capabilities Diagnostic

This diagnostic provides a tool to gauge your Global Logistics capabilities in comparison to other companies and against your potential for improvement in capability and results. It can be used to develop a prioritized roadmap for enhancement in people, process and technology.

Your Level: For each capability, enter 0 if you aren't even at Manual Level, 3 for Manual, 7 for Basic Competence Level capabilities, and 10 for Leadership Level capabilities

The Diagnostic starts on the following page. Scoring indicators are provided at the end.

The development of the Global Logistics Capabilities Diagnostic was sponsored by RedPrairie.

18 The 10 Keys to Global Logistics Excellence

Section A Total Delivered Cost Management Global Logistics Process Automation

Score Level I: Manual/ Lagging Yourself

"One off" analyses that manually estimate the total Little systems support for global logistics  0 logistics costs of different sourcing alternatives - planning and execution processes. Significant  3 estimates that typically remain static. reliance on spreadsheets and other "improvised" technology tools. Characteristics:  7
Rule of thumb cost estimates Characteristics:

Infrequent revision of cost basis
Dependence on freight forwarder to handle  10
Partial coverage of possible cost sources
Phone call & fax booking procedures
Booking is case by case, not a repeatable process

Level II: Basic Competence Systemic approach to delivered cost analysis, Technology that solves the basic "ocean  0 using a database of carrier rates, customs, booking" problem and automates the routine duties, tariffs, etc. tasks of global logistics execution.  3 Characteristics: Characteristics:  7
Spreadsheet-calculated costing
Cross ocean shipper rate shopping
Cost basis regularly updated
Paperwork submission integrated into booking
 10 Versions of cost elements maintained workflow
Uploaded transit schedules

Typical Results of Improvement to Level II

Improved sourcing decisions from more accurate Increased administrative efficiency and reduction in data and the ability to compare more alternatives, time from when a movement is planned to when it is ability to estimate transport cost as cost of goods booked. sold with reasonable accuracy.

Level III: Global Logistics Leadership Comprehensive, dynamic calculator of total Integrated ocean booking workflow including:  0 delivered costs using detailed, highly accurate data across numerous cost categories,
Automated paperwork submission  3 including the cost of inventory.
EDI booking transactions (tender/response)
Automated rate shopping
Optimized domestic planning to international  7
System calculated costing
Dynamically updated rate tables movement planning for best port of exit/entry
Determination based on cost and service  10
Costs include both domestic and international movement components

Typical Results of Improvement to Level III

Best decisions with regard to lowest total cost Better tactical deployment of day-to-day shipping to sourcing options. Negligible differences between gain cost and transit time optimization. Automation expected total global logistics costs and actuals, of manual booking and paperwork activities. precise cost of transport accounting.

Diagnostic Sponsor: RedPrairie 19 The 10 Keys to Global Logistics Excellence

Section B

End-to-End Visibility Supplier Portals and ASN Capabilities Score Level I: Manual/ Lagging Yourself

 0 Production and shipment status based largely on Little or no real systemic integration with offshore  3 faxes, phone calls and emails. suppliers. Inbound supplier transit management not  7 a part of the equation.  10

Level II: Basic Competence

"E-visibility" via EDI and web integration with Web portals that provide some level of visibility, the  0 carriers, forwarders, customs offices and other ability to generate ASNs, and print bar code labels.  3 service providers.

 7
Shippers post freight movement requests and/or  10 detail
ASN notices delivered

Typical Results of Improvement to Level II

Ability to quickly answer the "where is it" question? Improved visibility, and streamlined receiving Some ability to proactively identify issues and take processes that can reduce inbound logistics costs by corrective action. as much as 30%.

Level III: Global Logistics Leadership

Proactive event management, based on Portals that support workflow for end-to-end supply  0 defined milestones by lane and chain processes, including:  3 comprehensive global scheduling.  7
Purchase order management
Production status updates  10 Very advanced users integrate logistics event
QA sampling by local agents management into other systems, such as inventory
Online coordination of routing/scheduling planning or promotions calendars, to better end to end understand the impact of logistics delays.

Typical Results of Improvement to Level II I

Further reductions in inventory and out-of-stocks Lower sourcing overhead, error reduction, decreases through a more proactive resolution to issues. In an in lead time variability, and reduced problems with advanced case, a better understanding of what receiving out-of-spec product. Reduction of manual issues really impact financial performance. efforts for scheduling and appointment coordination.

Diagnostic Sponsor: RedPrairie 20 The 10 Keys to Global Logistics Excellence

Section C

Total Product Identification and Dynamic Routing Regulatory Compliance Score Level I: Manual/ Lagging Yourself

Heavy reliance on in-house experts to classify Totally static route definitions. Manual evaluation of  0 goods and process compliance conformance (HSC transit alternatives. High dependence on freight  3 coding, customs, denied party checks, etc.). Limited forwarders. No optimization between ocean and  7 use of bar codes/RFID to track product and domestic legs.  10 container movements. Manual processes for ensuring buy/sell sources pass regulatory checks.

Level II: Basic Competence

 0 Some use of automatic identification tools to Some systems-based capability to change inbound or mandatory and voluntary regulatory programs. outbound global routings based on changing cost  3 Basic installed or on-line tools for product dynamics or supply chain disruptions.

classification, compliance checks, denied party
On-line transit schedules for planning alternatives  7 screening.
Basic cost basis routing optimization
Consideration of multiple carrier alternatives  10 based on best cost/delivery

Typical Results of Improvement to Level II

Systemized approach to identify products and Reduced supply chain risk. System modeled ensure conformance to regulatory and export rules. rates/lanes give realistic view of cost/service Minimized labor for these tasks. advantages between shipping alternatives. Opportunistic reduction in costs or improvements in service based on environmental/market changes.

Level III: Global Logistics Leadership

Online systems for product classifications and
Systematized modeling of shipping alternatives  0 compliance checks, at each process stage with dynamic visibility to rates, schedules, (order acceptance, shipment execution) capacities, and contract agreements
Generation of appropriate
Ability to easily identify opportunities for routing   3 customs/duty/shipping export paperwork changes to reduce cost or lead times
Automated document submission
Ability to quickly assess the times and costs of  7
RFID and sensor-based container tracking alternative routings in case of major supply chain
Proactive knowledge pursuit of emerging disruptions  10 regulatory and security programs
Optimization of domestic to ocean movement for
Detailed inventory genealogy maintained as best overall cost/service alternative selection product crosses borders
Participation in "green lane" programs for expedited paperwork approval

Typical Results of Improvement to Level III

Reduced supply chain risk. Better control, plus Improved decision-making for day-to-day shipment conformance/compliance automation result in less scheduling, reduced risk, lower freight costs, and violations/exceptions of government regulations. improved service. Ability to react quickly and provide Significantly reduced time spent in paperwork cost and time effective alternatives when transit processing, approval cycles and overall transit time. exceptions occur. Preferential treatment in the case of supply chain disruptions. Ability to react rapidly to inventory or security issues.

21 The 10 Keys to Global Logistics Excellence

Section D

Variability Management Integrated International and Domestic Workflow Score Level I: Manual/ Lagging Yourself

Little systemic understanding of global lead time Domestic and international logistics teams are  0 variability. organized independently using separate manual systems. Characteristics:  3
Manual transit schedules Characteristics:
No carrier communication of transit exceptions
Manual coordination, if any  7
Appointments manually set into paper
Phone, fax carrier coordination calendars
No evaluation of cost impact between  10
Lack of precise lead-time components results independent domestic and international routing in the existence of "extra time" buffers in decisions schedule
Plan based on worst case delivery

Level II: Basic Competence

Measurements of schedule variability exists by Tight integration of international planning and  0 lane, with defined lead time ranges available to execution processes and teams, using a common buyers, marketers and inventory planners; transportation management system. generally with variability ranges of a few days per  3 lane. Characteristics:
Cross visibility to international and domestic leg  7 Characteristics: planning
Availability of most current schedules on-line
Ability to cost the aggregated journey  10
Appointment tracking systematized
Planners united to common measurements
On-line visibility to exceptions allows recovery replanning

Typical Results of Improvement to Level II

More precision in goods flow schedules results in Reduction in total logistics costs through a more lower inventory levels and fewer out-of-stocks. holistic approach to process and carrier/mode Customer service improves with ability to manage coordination across international and domestic in-transit exceptions more effectively. moves.

Level III: Global Logistics Leadership

Root cause analysis of variability through use of Global approach to transportation process  0 analytic applications. management. Capability to model and optimize a full multi-leg, multi-mode movement from international Characteristics: origins to final domestic delivery.  3
Dynamically updated transit schedules
On-line appointment capture  7
Coordinated domestic/international legs w/minimal drayage buffering  10
Leverage “green lane” processing

Typical Results of Improvement to Level III

Continuous improvement in lead time variability. Proliferation of logistics "best practice" across Reductions in overall transit times and buffered geographic regions, as appropriate. Lowest total inventory carrying levels and costs. Customer logistics/freight costs. satisfaction improved with reliable delivery schedules.

22 The 10 Keys to Global Logistics Excellence

Section E

Integrated Planning and Financial Supply Chain Management Execution Platform Score Level I: Manual / Lagging Yourself

 0 Information sources critical to transportation The assessment of carriers for insurance, letters of  3 planning are paper based and widely distributed credit and the act of moving cash in support of the  7 across the organization. Information commonly out transportation delivery are manual processes.  10 of date or difficult to retrieve.

Level II: Basic Competence

An automated transportation management system Basic carrier checks are available on-line to validate  0 serves as the information backbone to the carriers for appropriate insurance and other financial organization. Access to common applications and qualifications. Movement of letter of credit can be an  3 data provides for an integrated workspace for all automated function. Tracking of payments is

stakeholders of product goods delivery. accomplished but most likely there is little  7
Carrier details available to all including tariffs, coordination between the transportation management  10 capacities, contract commitments, etc. system and the financial systems to provide online
Movement schedules, shipment details on-line validation and verification. to all stakeholders
Dynamic associated data including costs, appointments, in-transit status available to all
Performance measures and reporting integrated into the system

Typical Results of Improvement to Level II

The organization has a coordinated view to the Basic automation of carrier approval processes transport delivery equation. reduces manual tasks. Financial events begin to be captured in a systematic fashion to provide audit trails and to be used in carrier assessment and determination of actual cost equation.

Level III: Global Logistics Leadership

The informational ability of the transportation Product movements that are designed to minimize  0 management system becomes much more tax and tariff implications take advantage of trade  3 dynamic. Data is real-time for scheduling, in-transit preferential agreements with foreign countries and  7 visibility and performance measures of carriers and make transport delivery choice decisions based on  10  delivery becomes dynamic. A full picture of the fully financial supply chain considerations. Linkage of

landed costs of the integrated domestic and transportation planning and execution functions with international legs becomes available. automated financial approval and settlement tasks.

Typical Results of Improvement to Level III

End-to-end, optimized global logistics control and Advanced financial supply chain management can cost minimization. improve margins by several points.

Diagnostic Sponsor: RedPrairie 23 The 10 Keys to Global Logistics Excellence

Diagnostic Scoring

As indicated in each section, assign your company a level of capability based on the characteristics provided.

If you do not believe that you have even yet achieved the Manual Level, assign a score of 0. Otherwise, assign a score of 3 for Manual, 7 for Basic Competence, and 10 for Leadership Level.

Score Ranking:

0 to 40 points: Your company is significantly behind the average company in terms of global logistics capabilities

40-60 points: Your company is probably about average for the market today, though many are rapidly adding capabilities

60-80 points: Your company is well ahead of most other companies, and you are delivering major benefits to your lines of business and shareholders

80-100 points: You are a global logistics leader; probably fewer than 5% of companies fall into this category, and we do not believe any could currently score a perfect 100.

The diagnostic gives you a good idea of your capability position vis-à-vis both other companies and against your potential for improvement in both capability and result. It can be used to develop a prioritized roadmap for improvement in people, process and technology.

24 The 10 Keys to Global Logistics Excellence

End Notes

1. “Supply Chain 2006 – a Case Study” ; Supply Chain Digest, June 1, 2006; http://www.scdigest.com/assets/FirstThoughts/06-06-01.cfm 2. “The Challenges in Chinese Procurement”; McKinsey Quarterly, 2006 Special Edition; http://www.mckinseyquarterly.com 3. “Client Issues for Global Trade Management” ; Dwight Klappich, Gartner Group; Sept. 12, 2005 4. “Why are Enterprise Engines Running in Reverse?” ; Erik Keller, in Manufacturing Business Technology; January, 2005; http://www.mbtmag.com/current_issues/2005/jan/col2.asp

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