Ask someone in Latin America about the state of supply chain technology, and he or she will probably tell you that the region is a decade behind the United States.

Why the 10-year lag? It's not because of Latin America's vine-filled jungles, mile-wide rivers, or forbidding mountain ranges—although these topographical features have made it tough to build reliable infrastructure. Rather, it's a result of decades of instability in this diverse region, which stretches more than 7,000 miles from the United States-Mexico border to the islands of Tierra del Fuego at South America's southern tip. Given the region's long history of economic volatility, governments and the private sector have had little incentive to invest in costly new technologies.

But that situation is quickly changing. As Latin America's economies stabilize, the region is becoming a competitive exporter. Consumer demand is rising, and that has drawn retailers and manufacturers from North America, Europe, and Asia to its fast-growing cities and industrial centers. Multinationals like Wal-Mart, Coca-Cola, and Sony have forced competition on these markets. They've also brought along some high expectations: They want the same data quality and supply chain visibility they enjoy in more developed parts of the world. All of these factors make for an upbeat forecast for supply chain technology south of the border, though vendors will still find there are hurdles to clear.

Different priorities
In at least one respect, the supply chain technology market in Latin America is similar to that in North America: Warehouse management systems (WMS) and transportation management systems (TMS) are the most frequently used types of software, says Francisco Giral, CEO of NetLogistik, a Mexico City-based consulting firm and systems integrator that represents several U.S. technology providers, including RedPrairie and Vocollect. Other types of software, automated material handling systems, and voice-directed solutions are less common, but sales are nonetheless growing, Giral says.

Despite that similarity, the factors driving demand for supply chain technologies in Latin America are quite different than in the United States, says John Price, president of InfoAmericas, a Miami-based business intelligence firm with offices in Mexico and Brazil. In the U.S. market, he says, the most important drivers are the costs of labor, space, real estate, and financing inventory, in that order. In Latin America, labor, space, and real estate costs generally are not major considerations. Instead, the top priorities are minimizing both security risks and financing costs.

InfoAmericas classifies Latin American countries in four tiers relative to their usage of supply chain technologies:

• Tier 1: Mexico's export economy, dominated by large exporters, multinationals, and their suppliers. Assembly operations that moved to northern Mexico in search of cheaper labor adopted sophisticated logistics practices and technologies to compensate for higher transportation costs and greater distances from suppliers and customers.
• Tier 2: Mexico's domestic economy, Brazil, Puerto Rico, and Panama. Multinational retailers and third-party logistics service companies (3PLs) are leaders in implementing supply chain technologies here.
• Tier 3: Chile, Argentina, Colombia, Uruguay, Costa Rica, and Venezuela, which Price calls "the next frontier" for logistics. These countries need world-class logistics capabilities to help them compete internationally.
• Tier 4: The rest of Latin America, where multinationals have a minimal presence and technology investments focus on cargo security.

Top priority: security
Who are the technology leaders in the region? Price says companies that handle high-value, high-volume products like pharmaceuticals and electronics—where security and integrity of product handling are top priorities—"spend pretty lavishly on logistics technology."

In Mexico, adds Giral, retailers and grocery chains are leading the way—in part because of competitive pressures from multinationals like Wal-Mart. When it comes to material handling systems, however, the pharmaceutical industry, with its specialized handling requirements, is in the vanguard. Still, it's a small universe: Probably fewer than twodozen companies in Mexico have such sophisticated systems as pick-to-light and automated storage and retrieval, he says.

Large exporters also have incentives to invest in technology. For instance, Chile's produce and seafood exporters, which compete in North America, Europe, and Asia, want software that will help them understand their lead times, optimize inventories, and reduce costs, says Michael Schetman, director of international business development for the Americas for technology provider Savi Networks.

When you look at businesses in general, however, the number-one reason for investing in technology remains security—and in Latin America, "security" means preventing cargo theft and drug smuggling, not terrorism. "Cargo insurance costs are astronomical, as are the claims for theft and other losses, so [companies] have to make every effort to mitigate those costs," says Price. "If a technology can do that, customers will buy it."

The traditional approach has been to hire guards to ride shotgun with trucks and containers, notes Neil Smith, acting CEO of Savi Networks. But companies in fast-growing economies like Colombia and Brazil have been receptive to the use of RFID, global positioning system (GPS) devices, and cell-phone-based systems to track and monitor assets.

In Colombia, Savi has teamed up with the technology firm Emprevi Ltda. This locally owned company has more than 20 years of experience managing logistics risks for clients like Johnson & Johnson, Pfizer, and Gillette. The two partners operate an RFID-based system that tracks the location and security status of shipments between Colombian factories and seaports. A network of readers captures data that has been transmitted from electronic container seals and routes the information to transportation security software, Schetman explains. In addition to reporting location and security status, the software also sends alerts about security breaches and other exceptions to users' e-mail accounts, cell phones, or personal digital assistants (PDAs).

But wait a minute—RFID and cell phones in the jungle? It's true. Although many rural areas have no access to telecom networks, basic services are now available in most population centers. In regions where utilities and telecom infrastructure are unreliable, satellite-based solutions are popular. Savi and Emprevi are a little more creative: They're successfully using solar-powered RFID readers in some parts of Colombia.

Buy globally, implement locally
Sales channels for software and automated systems in Latin America differ considerably from those in the U.S. market. In a culture where personal relationships still matter, few technology firms sell directly to end users, says Price. Instead, they may partner with logistics service providers, which offer software to clients as a value-add. That system has made third-party logistics companies and freight forwarders "incredibly important" in introducing technology to the mostly family-owned companies in this region, he says.

The Latin American market is not yet lucrative enough for companies to develop technology specifically for that region, so products designed for the United States and Europe dominate the marketplace, says Schetman. In some countries, foreign software has a virtual lock on the market because users can get more mature, proven products for roughly the same price they'd pay for homegrown solutions. One exception is Colombia, where political unrest and security worries have kept most foreign logistics companies and technology vendors away. According to Price, Colombian companies have developed about half a dozen competitive logistics applications.

Foreign products may dominate sales, but when it comes time for implementation, Latin American buyers prefer to work with local firms. Many of the locals started out as developers, Price says, but their inability to invest in second- and third-generation technology, together with the lack of legal protections for intellectual property, pushed most of them to become service companies allied with foreign vendors.

Buyers' preference for local partners is based as much on cost as it is on shared language and culture, says Giral. Similarly, demand for product customization has more to do with corporate customs than with cultural differences. But language can still influence buying decisions. Brazilian companies, for instance, prefer to buy from and work with Portuguese-speakers, and communication problems can arise even in Spanish. For instance, when Mexico-based NetLogistik develops a "dictionary" of templates in a service-oriented architecture application for RedPrairie in Argentina, it must change about 30 percent of the terms to reflect differences in vocabulary.

Filling the knowledge gap
Despite a bright outlook for supply chain technologies in Latin America, one problem threatens to strangle future growth: a severe shortage of technical experts.

"Latin Americans are extremely well educated, but they are untrained," says Price. That is, higher education is very traditional and classical; the university system does not turn out enough scientists, engineers, and technicians, and there is nothing like the technical colleges that fill that role in Europe.What's missing from the labor pool, he says, is the competent, mid-level technician. As a result, companies find that they have to spend a lot more on technical training than they expected.

For Giral's company, the solution to that problem has been to hire young engineers from Mexico's top universities and teach them what they need to know. Similarly, Savi takes a "train the trainer" approach, with the goal of creating a pool of experts who can manage operations and customization in Colombia, says Schetman.

Interestingly, technology itself may help to mitigate the effects of Latin America's knowledge gap, Schetman notes. Hosted on-demand solutions that are now beginning to take hold in the region require comparatively little in the way of implementation time and expense; more important, perhaps, is that they can be upgraded and supported over the Internet by the application service provider.

For now, depending on outsiders to develop and support supply chain technologies may indeed be the most sensible course for a region that is still finding its economic way. Latin America's "watch and wait" approach to technology adoption has served it well in the past, says Giral, who points to Mexico's communication infrastructure as an example. Because conservative Mexican buyers waited for U.S. companies to work out all the bugs, he says, the country was able to leapfrog over intermediate telecom systems and go directly to fiber-optic communications—and do so at a speed unmatched in most of the United States.

Editor's note: A useful source of information about the technology capabilities of third-party logistics service companies is Who's Who in Latin American Logistics and Supply Chain Management, published by Armstrong & Associates Inc. in partnership with InfoAmericas. Profiles of 88 global and local companies include details of their services, facilities, information technology capabilities, major customers, and more. For information, go to www.3PLogistics.com.