global supply chains are here to stay

The phenomenon of globalization is affecting many dimensions of supply chain planning and operations.

By Art van Bodegraven and Kenneth B. Ackerman

Let's deal with some misconceptions about globalization right up front. Globalization is not something that's coming, something we need to get ready for. It's here. In fact, globalization has been a reality of supply chain life for several years, even decades for some companies. So, if you're not involved in a global supply chain now, you are behind. Or, maybe, you don't fully understand how far your supply chain really reaches.

In any case, the phenomenon of globalization is affecting many dimensions of supply chain planning and operations. Let's talk about a few:

• Sourcing and procurement. Mention offshore sourcing, and China comes immediately to mind. But offshoring isn't only about China. Whether in Asia, Central and South America, or Africa, there are nations the world over that offer low-cost, welleducated, and highly motivated workforces—and the technological support they need to produce at a world-class level. It has become a major sourcing challenge to balance sources with markets; to assess the risk of sharing designs and technology with partners who might not view the concept of intellectual property with the same reverence we do; and to find the trade-offs between quality, reliability, and cost.
  
  Take the cost trade-offs, for example. With oil nearing $100 a barrel and people contemplating $200 without blinking, the economics of globalization may be shifting before our eyes. The rationale for outsourcing has always been that high-cost labor can be replaced by low-cost transportation. If that goes out the window, the result could well be a radical restructuring of globalized networks.
• Inventory management. Overall inventory levels in a global supply chain must inevitably rise. The time involved demands greater working stocks in any inventory planning calculation. And time uncertainties because of weather and port congestion demand added safety stocks to accommodate variation in delivery from suppliers. The time lines can get even longer for shippers who choose to move Asian goods to East Coast U.S. ports in search of reduced port congestion.
  
  The inventory quantities can be enormous— multiples of what we've been accustomed to with domestic sourcing—whatever the source location. And there is a limit to how much techniques such as postponement can be used to offset the inventory effects of time and uncertainty.
• Distribution facility location. The creation of time- and cost-effective distribution networks has been made significantly more complex by globalization. Not only have sources been rearranged around the world, but markets have also tended toward global diversity. What was once a set of simple national or regional manufacturing/distribution nodes and spokes has become a complex network of integrated source and destination solutions. Each one must be considered as part of a whole rather than as a stand-alone facility. That takes more than an Excel spreadsheet and some mapping software.
• Outsourcing. What works domestically with logistics service providers (LSPs) tends to be ineffective in globalized supply chains. At home, it may make good business sense to use one LSP for, say, DC operations and another for transportation. But step out into an extended supply chain with its requirements for close integration of operations, and the requirements shift. The LSP must be able to offer global reach, consistency in execution, technology support, and information visibility. It needs to be capable in planning and managing—and sometimes operating—large segments of the global supply chain from sourcing through delivery to customers—all in the most appropriate mode, and all with the "perfect order" mentality.
• Transportation. Globalization isn't changing anything intrinsic in trucking, rail, air-cargo, or ocean operations. It is, however, driving more points of integration among the modes in pursuit of comprehensive solutions.

Today, a company and/or its LSP(s) must know more about all modes and how they can best fit together. In the global supply chain, there's every chance that most (if not all) modes will be involved, to one degree or another.

Manufactured goods must get from the factory to an airport or seaport, then move by air or sea. Even at the earliest stage, managers have to determine how to load containers. That involves decisions on how much downstream distribution preparation to make and how much value-adding to perform.

Upon the goods' arrival, there are more decisions to be made. Should containers move on to distribution locations by rail? By truck? Or should goods be transloaded into trucks for DC destinations, retail store delivery, or other disposition?

It was one thing to manage international shipments back when they were an occasional event. It's quite another now that they're seen as just another part of the everyday routine and are expected to unfold with the clockwork precision we've come to expect from today's synchronized supply chains.

… and that's just the beginning
Well, there's more. The integration of manufacturing into a quick-response cohesive supply chain model is a much tougher challenge when the supply chain is thousands of miles long and order fulfillment cycles are measured in weeks, instead of hours or days.

Warehousing—especially receiving— feels some impact, as well. Unloading containers is often different from handling tractor-trailers. Order quantities tend to be greater than with replenishment from domestic sources. And increased inventories can stress physical capacities, requiring a new level of planning—and flexible access to storage and operating space.

Information systems in the globalized supply chain face greater demands for synchronization and interface across the chain than their domestic counterparts do. And, of course, the requirement for visibility throughout the chain becomes both intense and vital.

When good systems go bad …
Recent catastrophes and recalls in the incredibly globalized toy industry illustrate the vulnerability and fragility of global supply chains. How to replace— quickly—faulty stocks? How to assure product quality from a distance of several thousand miles? How to instill consistent values and ethics in partners of partners, again at a distance? How to repair reputations damaged—possibly destroyed—by the actions (or inactions) of global supply chain partners?

Despite these added complications, customers have not lowered their expectations. They still expect good service in a timely manner. In fact, their demands continue to rise. And with competitive threats looming from all parts of the globe, we've got to execute a significantly more complicated dance just to stay even.

Welcome to the world we are already in.

Art van Bodegraven, practice leader at S4 Consulting, may be reached at (614) 336-0346. You can read his blog The Art of Art at blogs.dcvelocity.com/the_art_of_art.

More articles by Art van Bodegraven

Kenneth B. Ackerman, president of The Ackerman Company, can be reached at (614) 488-3165 or ken@warehousing-forum.com.

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