@ Supply Chain Management

Fiscal Visibility In Supply Chain = Money Saved is the title of a new opinion piece by author Michael Stolarczyk who also blogs at BlogonLog.
Michael notes,

A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country.

The above is an example of how dramatically the options for manufacturing, coupled with logistics options and supply chain technology, for any firm anywhere has shifted in less than two decades. However, this shift has also laid the axe to traditional notions of ownership and control driving up risks across the supply chain and thus inventories (in part to cover the lead times and in part to act as a buffer to rising risk) as well. You might have been used to bull whip effects in a supply chain on a domestic scale. What about bull whip effects on an international scale and what effects will such phenonmenon have on local economies that form part of such global supply chains?
Also remember that a customer’s notion of product availability has not been downgraded as a result of the increased lead times and coordination that firms have taken upon themselves. Instead, if anything, a customer’s notion of product availability and customer service has migrated northwards fueled by better communication and awareness i.e. trends are communicated in real-time these days.
So how have companies executed upon their strategic decision to outsource or offshore or some combination of the two?

“Poorly,” notes Michael,

The need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication.

and,

On average, large companies report their global supply chains are only 50 percent as automated as their domestic supply chains.

and,

The interesting news continues — only six percent qualify their global supply chains as highly automated, and a full 90 percent of all enterprises report their global supply chain technology is inadequate to provide timely information required for budget and cash-flow planning!

Even speaking from personal experience of clients outsourcing logistics functions to third party providers, the word I come across in the operationalization of international procurement is that it is a cacaphonic mess – It should be. We speak different languages, are on different systems, telecommunication is not nearly as reliable, internet is gaining a foothold enterprise wide and some of us just don’t know that time is an important thing or care etc.
So,

There is a bright spot in this picture. The global supply chain technology void affects logistics managers’ the ability to finally deliver crucial financial data — particularly for Sarbanes-Oxley compliance — CFOs/CFOs have taken notice and are now joining the technology crusade. Tying technology investments to a business case outside the supply chain often helps logisticians get the global commerce tools they need.

Michael asserts, with some warrant, that 3PLs are a better solution over in-house developed systems or COTS to handle the complexities of the global supply chain. And in a sense, he is right when he notes the following.

After a company decides to invest in technology, the next question is whether to develop solutions in-house or partner with a technology provider or 3PL. Increasingly, organizations choose to forego proprietary solutions and seek outside help…3PL’s are the way to go!
Many companies still currently use in-house applications to manage their global supply chains, but many seeking to implement new technology say they least favor in-house solutions versus collaboration with 3PL’s.
These organizations plan to use either a best-of-breed on-demand or a licensed software vendor; an ERP vendor; or a 3PL’s technology solution to manage their global supply chain.

But bear with me for a moment the journey that we’ve undertaken in going from the regional supply chain to the global supply chain. In taking the strategic decision to go global, whether it was in order to follow the competition or becoming cognizant of lower unit costs of production or the search for global markets, firms outsourced their supposed “non-core” competency to a third party. Even with the shifted notion of ownership and control in the resultant business scape, firms are realizing that executing the supply chain in the global context requires the acquisition of a whole new set of competencies in order to be competent i.e. even get to the mark let alone use the supply chain as a competitive advantage. So what if you outsourced a central part of the logistics and transportation function to a 3PL – in effect, what you’re saying is that using one’s global supply chain as a competitive advantage is dead on arrival. Well, that’s not entirely fair, why can’t a firm use a 3PL effectively in order to compete? Short answer, sure you can but I’d be hardpressed to find that a 3PL could provide the firm with a competitive advantage. Or in other words, a 3PLs choice of systems is a common offering to both your firm and your competitor and so are the processes that a 3PL executes for you. As for the supply chain structure within which a 3PL operates, continuous improvement on their part will converge similar supply chain designs the closer it gets to the market i.e. there are only a few viable logistics options when you get stateside. So, it isn’t clear to me that taking this sort of line to global supply chain strategy is going to confer competitive advantage. You’ve got to acquire the competency in house as soon as possible and then start innovating your way to distinct competitive advantages – that means, there’s a whole lot of hard work to be done.
There’s another way to view this turn of events. Has globalization of a firm’s operations become the new “floor” (“floor” in the sense that unless you attain this minimal competency, the firm is not even in the same league as other competing firms) for survival in the competitive landscape such that looking to globalization and its consequence as a source of competitive advantage is to overlook the “floor” that is being established. In my opinion, the medium term holds the outlook that globalization will become a sort of threshold which firms would have to scale in order to remain competitive but in the short term, there are so many choices, risks and uncertainties that melding these options together and executing against it offers sources of competitive advantage and also the opportunity to set the “floor” for future competition.

Tags: Competitive Advantage, Fiscal Visibility, 3PL, Supply Chain solutions, Michael Stolarczyk