It's often said that managing a global supply chain is a lot like running a three-ring circus. But instead of a whip, you need technology and good partners.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
Sourcing internationally may be a competitive necessity today, but it can also be a perilous journey, as Martin White will attest. White was supply chain director for the U.K.-based grocery giant Sainsbury's in the late 1990s when the company set out to expand its international sourcing, and he remembers hitting a lot of potholes along the way. Despite 130 years in the grocery business, Sainsbury's had little idea of the challenges it faced, and its inexperience occasionally led to stumbles. Or as White puts it, "We committed every crime in the book." What started Sainsbury's down the international sourcing road was the decision to expand into non-food product lines—clothing, stationery, home electronics, and the like—in a bid to keep up with competitor Tesco. For reasons of cost, that would mean sourcing from outside the European Union.
Initially, Sainsbury's looked to what White terms the Near East: countries like Turkey, Morocco, and some of the Central European nations. The retailer chose those countries because they were both low cost and relatively nearby, which kept transit times down. White says goods shipped from Turkey or Morocco could reach the U.K. in as little as three days. Eventually, though, the lure of low-cost sourcing farther East proved too strong to resist, says White, who is now European research director for retail consumer goods for the consulting firm AMR. "Then we had the stampede to China and to some extent, India," he says. And that's when the trouble began.
Almost overnight, Sainsbury's found itself grappling with issues it hadn't faced before. The retailer quickly learned, for example, that it wasn't enough just to find low-cost suppliers with reasonable lead times; it also had to make sure those suppliers would be stable and reliable. There were new decisions to make as well. Sainsbury's had to choose whether to work with suppliers through agents or by going directly to their factories and plants. Further, the decision to do business in underdeveloped countries carried with it an ethical responsibility to investigate labor conditions in potential vendors' factories.
Supplier troubles were only the beginning. As the first shipments began to roll in, more problems arose. White recalls receiving containers with labels in Chinese and no other identification. He remembers finding goods other than what was expected when cartons were opened. That, of course, meant more work for the staff. "We were opening up pretty much every box," says White. Predictably, handling costs went through the roof.
Before long, the problems caused by these uneven and unpredictable shipments began to be felt at the store level. "We were getting patchy displays, with 50 to 60 percent of the expected merchandise," reports White. Clearly, practices had to change.
And change they did. Over time, Sainsbury learned its lessons and got the assistance it needed. With the help of technology designed to bring visibility to international transactions and product flow, it eventually gained control over its international supply chain.
A new level of challenges
The problems faced by White and Sainsbury's are common, says Chris Foulkes, chief product officer for Eqos, a U.K. based vendor of sourcing and supplier management software solutions for worldwide retail supply chains. And it's easy to see how they happen, he adds. For one thing, few companies realize at the outset how much the processes involved in international trade can vary from domestic procedures.
Then there are the added difficulties of having to work with a dozen or more third parties for a single transaction, Foulkes says. "You are dealing with a whole community of people, and changes come quickly. You may be dealing with a supplier you will never deal with again. You have to reform relationships very quickly."
Retailers like Sainsbury's that are expanding into new lines of business face some added challenges. One of those is the need to adjust to a very different type of schedule, says Foulkes, whose clients include Sainsbury's and other food retailers. "A lot of food retailers have lots of experience selling fast-moving consumer goods and churning product a dozen times a year. Where a typical lead time might be 10 days or even two days within the U.K., they now have to manage a supply chain with up to 18 months' lead time and turn rates of once or twice a year. The problems they have to address are fundamentally different."
Ironically, it often turns out that the biggest hurdle for companies attempting to integrate their external supply chain operations is a lack of coordination in their internal operations. Even after the two-plus decades of movement to coordinate operational functions within corporations, it is still often the case that purchasing, distribution, and transportation within companies have difficulty coordinating their efforts when it comes to international sourcing.
Nathan Pieri, vice president of marketing for Management Dynamics, a supplier of global trade management software, says he continues to see that as a problem, even within large companies. "They are often not on the same page for the lowest delivered cost," he contends.
Modern technological tools can go a long way toward helping managers understand total landed costs and evaluate potential sourcing risks and the tradeoffs associated with different scenarios, says Pieri. In addition, he says, those tools often prove valuable in the subsequent, ongoing execution of a sourcing plan and can help with that internal coordination he senses is often missing.
"Technology really is a leveler," adds Pieri. "Without good technology, it is impossible to get everyone on the same page unless they are in the same room. That does not happen often, especially in global trade."
What you get depends on what you see
In the case of Sainsbury's, the retailer was able to get the technological help it needed from its major international carrier, Maersk Line, and from Eqos. White tapped into their systems to improve track and trace capabilities, to set up an extranet to allow the speedy exchange of data with suppliers, and to work with suppliers on new product introductions.
Foulkes says his company's systems, which are based on a service-oriented architecture, provide visibility of orders over the long time frames involved in international sourcing, something he says many order management systems are not able to do. In addition, he says, the Eqos system, which is designed to make it easy for trading partners to tap into the system, provides a single management process for all the parties engaged in a transaction.
Getting control over Sainsbury's international sourcing took the better part of two years, says White, but it was worth the wait. "Once we got it under control, we could predictably know what was on the water. If someone could not ship, we could see that in real time. We got visibility, and that did give us control of our supply chain," he says.
White acknowledges that what Sainsbury's accomplished is not unique— he notes that some of the clothing retailers have made great strides in this area. But the lessons learned still bear repeating. "I would recommend to anyone going into this to get a good workflow software tool to help in the journey," he says. "We also learned that we have to have control ourselves rather than rely on the vendors. You have to be the ringmaster."
New trends take shape
From his new vantage point as a consultant, White says he's seeing a shift in global sourcing patterns. More buyers these days are developing postponement strategies in which they do their major sourcing in low-cost countries, but arrange for final configuration to take place closer to the point of consumption. White cites the example of goods like washing machines that eat up a lot of cube in shipping containers. Some companies, he says, are purchasing the motors in low-cost countries, but having the casing manufactured and the final assembly take place in the destination country, or at least closer by. That sort of practice is happening more often with consumer goods or consumer electronics, where packaging may wait until reaching a DC in the consuming nation. That saves shippers from moving manuals, foam packaging, and the like across great distances. "You get better density in transit," he says.
But that sort of strategy requires superb synchronization among the moving parts, he warns. "It puts more pressure on the logistics chain," he says. "You have effectively added a stage, with work-inprogress in the chain. You are producing semi-finished goods, and you don't want a warehouse full of semifinished goods. You can end up with a lot of stuff that is obsolete before its time. That is not the best lean supply chain.
"My key piece of advice would be to decide how much you want to do yourself and how much with a quality partner," he adds. "Some of it is quite tricky." White considers visibility across the supply chain to be crucial. "Having a window on the world … is quite important," he says. "And there is no substitute for sending your own people and having them on the ground. They can visit the factory and chase things through freight expeditors. You also need a good tax and customs expert on your team. It is easy to fall afoul of the import regimes."
Too much too soon?
It's important to note that it's not just the novices that get into trouble with global sourcing. Even companies with long experience in international procurement sometimes find themselves overwhelmed, particularly when they're expanding their operations. "What we're finding is that companies are ramping up quite a bit faster in this area, whether they're going to Brazil or Shanghai or back to Mexico," says Bob Bassett, vice president of sales and marketing for Menlo Worldwide, a leading third-party logistics service provider. "They are ramping up faster than their infrastructure can handle."
Bassett says the result is that many end up turning to logistics service providers like Menlo to take advantage of the provider's existing network and transportation management capabilities. "Typically, what we have found is that the customer handles procurement and sourcing decisions … and then [hires Menlo to] handle the front-end and back-end activities." Among other activities, he says, third parties can help customers calculate the goods' total landed cost and evaluate the risks of supply chain disruptions—including potential political or security threats or factors affecting the reliability of the transportation systems in a particular sourcing location.
Bassett says that sort of knowledge is one of the key attributes of an experienced logistics service provider. "The design of the network and the knowledge that goes into understanding cultures and trade and transportation costs are more important to us than the infrastructure," he says.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”