Category Archives: Global Trade

Only 5 More Years …

Until the 500th anniversary of the sail date of the first Voyage of Circumnavigation!  Four Hundred and Ninety Five Years ago today, five ships (the Trinidad, San Antonio, Concepcion, Santiago, and Victoria) under the command of Ferdinand Magellan left Seville, Spain, in an expedition that, even after the death of Magellan in the Philippines on 27 April 1521, would be the first to circumnavigate the globe under the command of Juan Sebastian Elcano (who was Magellan’s second in command) when the Victoria returned to Spain on 6 September 1522.  This voyage took the fleet to the Canary Islands, the Cape Verde Islands, Santa Lucia Bay, Rio de Solis, Cabo Virgenes, around the tip of South America, to the Sharks’ Islands, San Pablo Island, the Ladrones Islands, Palawan, Brunei, Tidore, Ambon Iasland, Timor, The Cape of Good Hope, and then back to Spain.

Considering that there is no record of anyone completing the feat prior to this voyage, that the voyage was finished in 3 years in a time when you were sailing by sail alone, and that, even today, circumnavigation efforts take amateur sailors a year and half, this was no small feat*.  (For example, Laura Dekker, whose voyage was interrupted at several points, took 518 days to circumnavigate the globe in her 38 foot yacht.)

It was a historic day as Magellan, and Elcano, discovered new trade routes that would be utilized for centuries to come!

* Although it would have been faster had Magellan not tried to convert the Lapu-Lapu of the Philippines to Christianity, which not only cost the voyage time, but Magellan his life.

Once You Get the Three T’s, What’s the Next Step To Asia Pacific Dominance?

In our last post on Why There Are No World Class Procurement Organizations in Asia Pacific, we noted that the primary reason that no business head or CPO in Asia-Pacific reported their Procurement capabilities as great is the classic Triple-T problem — a lack of talent, technology, and transition management. When we reviewed the seven things that Bain indicated procurement teams lack, we noted that all were fundamentally an instantiation of a talent, technology, or transition management problem.

However, getting the three T’s in place is just the first step. The next step is to apply them properly. Where do you start? One place to start is with the six enablers outlined in the article. While the doctor thinks it is debatable that these enablers will help a company establish 4th generation Procurement, like the article suggests, it will definitely up an organization’s game and put them on par with their counterparts in the western world.

So what are these enablers?

1. Better Organization

This requires the organization to acquire a clear procurement mandate, a streamlined organization that appropriately delineates global vs. regional vs. local responsibilities, and clear roles and decision rights across Procurement. In addition, the organization needs to elevate critical decisions to senior management (to ensure they not only have senior management buy-in but support), implement a feedback loop from internal customers to end consumers, and establish effective reporting channels.

2. Better Processes

This requires better category management, vendor management, and information management. Sustainable savings come from holistic category management, not point commodity sourcing. Suppliers only improve when properly managed. And information quality is key to Sourcing, Procurement, and all related aspects of Supply Management.

3. Better Tools & Systems

Leaders have integrated and transparent data for both direct and indirect spending. Good decisions require good data. Good data can only be obtained from good tools.

4. Better P&L Effectiveness

Leading companies have pull-based demand management with enforced compliance and formalized budgeting for all categories. They employ sourcing platforms that allow a company to see the direct effect of a sourcing decision on the bottom line.

5. Better Talent Management

Just because you have talent today, this does not mean you have talent tomorrow. If you don’t continue to educate and advance your talent, they will leave you for a competitor who will. Plus, as your organization grows, you will need to add more talent. Without a proper talent management strategy, your talent equation can only be solved for a single point in time — if you are a lucky one.

It’s a hard climb, but a feasible one. And if you review the SI archives, you will find many posts about how to improve in each of these areas. Happy Hunting!

15 Ways to Shave Costs From Your Supply Chain Part II

As per yesterday’s post, earlier this year, Inbound Logistics ran an article on 163 Ways to Supercharge Your Supply Chain that had good advice to improve your global logistics, customs, documentation, expedited shipping, warehousing, optimization, equipment, trucking, 3PLs, maritime, security, risk management, and general supply chain operations. Besides all of the obvious ways to improve your supply chain and cut your costs, and the more advanced ways that are covered regularly on SI, there are a few often overlooked nuggets of cost savings that should be singled out because they cost many companies money and go undetected. Today we will cover the remaining eight (8).

3PLs
Determine What Each 3PL Does Best
Most 3PLs excel in a niche such as global logistics, transportation, or warehousing because most of them started off focusing on one function and added others as they grew. Understand their strengths, and weaknesses, before selecting a 3PL.

Inventory Accuracy
Establish external and internal product traceability.
It’s not just inbound and outbound shipments, but internal transfers between different warehouse locations, etc. that need to be tracked. Knowing you have 10 units of a product is only useful if you know where the units are.

Lean Logistics
Manage your empty container flow.
Moving empty containers is equivalent to burning money. It’s a complete waste.

Seasonal Peaks
Know Your Overflow Potential Before You Need It!
Don’t be scrambling for overflow space and trailers, etc. when you need it — have a plan in advance.

Maritime
Bypass Distribution Centers
If you can consolidate a large shipment that can go directly to a store, or a local DC that serves multiple stores, do so — temporary storage costs money and so does unnecessary unloading and reloading of inventory.

Port Selection
Know Your Port’s Infrastructure Limits
Especially if the port is near capacity. If the port isn’t investing in infrastructure to expand capacity, or can no longer expand its infrastructure, then it should be expected that the port will hit capacity and that could be a problem for your organization in the future if you plan to do more global trade.

Security
Protect Against Malicious Behaviour By Former Employee … Credentials
It’s not just the former employee that can cause you problems, it’s their credentials! Just because an employee left on good terms does not mean that their login and access credentials won’t cause problems. A current employee trying to arrange an inside job will happily use the ill-gotten password of that esteemed former employee for their illegal gain.

Risk Management
When Selecting Geographically Distributed Vendors, Consider the Ports!
Multiple suppliers who ship through the same primary port can all be taken offline as a result of a typhoon that destroys the port.

For another 148 ways to optimize your supply chain, see the Inbound Logistics article on 163 Ways to Supercharge Your Supply Chain.

15 Ways to Shave Costs From Your Supply Chain Part I

Earlier this year, Inbound Logistics ran an article on 163 Ways to Supercharge Your Supply Chain that had good advice to improve your global logistics, customs, documentation, expedited shipping, warehousing, optimization, equipment, trucking, 3PLs, maritime, security, risk management, and general supply chain operations. Besides all of the obvious ways to improve your supply chain and cut your costs, and the more advanced ways that are covered regularly on SI, there are a few often overlooked nuggets of cost savings that should be singled out because they cost many companies money and go undetected. Today we will cover the first seven (7).

Global Logistics
Collect Data About Your Products
Not only is understanding product composition vital to correct classification, which determines your tariffs, but it makes sure you don’t get any surprises when you product gets detained at the US border because your new hard drives with built in encryption were designed primarily for industrial information security and do not automatically qualify under Category 5, Part 2 of the Electronic Code of Federal Regulations like your hand-held personal digital cameras.

Customs
Focus on What You Can Control
When it comes to customs, you have no control — but you can create a position for a Customs Compliance Officer and make sure everything you do is fully compliant, fully documented, and fully auditable at a moment’s notice to prevent unnecessary delays when some newbie mistakes your fig paste ship for hash.

Documentation
Confirm Document Receipt
Just because you sent the documents, it doesn’t mean they were received, even if they weren’t returned (or the e-mail didn’t bounce). For critical shipments make sure the documents were received and noted in the system before your goods hit the border.

Expedited Shipping
Eliminate Padding
It’s a typical situation where everyone along the logistics chain adds “safety” time to ensure on-time delivery. It only takes a few layers to transform a shipment required by 9 am into one that is required by 5 am which requires expensive expedited shipping. Make sure unnecessary padding is not added to the delivery time.

Warehousing
Processes Need to be Quality Based
When a mistake happens, get to the real root cause. As per the article, if a forklift knocks off a sprinkler, don’t just ask why it was so high and how to prevent the forklift from getting so high again, but if it should even have been there in the first place. It might not just be a storage height issue, but an overall storage plan issue. If boxes are being stacked to the ceiling in multiple locations, maybe you need a new storage arrangement or maybe you need more storage space!

Equipment
Recognize the Environmental Impact of Your Pallets
Plastic pallets, which require oil, cannot be repaired and must be melted down to be recycled — requiring more energy that likely uses more oil. Wood pallets are easily repaired and recycled.

Trucking
Place your production facilities close to major cities.
Metropolitan areas have a substantial concentration of LTL trucking firms and terminals, which minimize your freight charges.

Come back tomorrow for Part II.

Are Money Launderers Putting Your Trade At Risk?

According to a recent article in the Economist, Trade is the Weakest Link in the Fight Against Dirty Money. And, as a result, your supply chain is threatened. But let’s back up a bit. The article starts off by noting that:

Cuddly toys don’t have to be stuffed with cocaine or cash to be useful to traffickers. A few years ago American customs investigations uncovered a scheme in which a Colombian cartel used proceeds from drug sales to buy stuff animals in Las Angeles. By exporting them to Colombia, it was able to bring its ill-gotten gains home, convert them to pesos and get them into the banking system.

But this is not the only way cartels are abusing trade. For example, we also have mis-invoicing, and the example of:

A front company for a Mexican cartel might sell $1m-worth of oranges to an American importer, while creating paperwork for $3m-worth, giving it cover to send a dirty $2m back home. One group of launderers was reportedly caught exporting plastic buckets that cost $970 each from the Czech Republic to America.

And now, to make matters worse, as chronicled in “Drug Cartels are ruining Cinco de Mayo” (CNN Money, May 5, 2014), in addition to using trade to launder dirty money, when they don’t get their way, drug cartels are using violence to take control of high-value shipments, bolstering their ability to not only launder money across borders but control entire commodity markets in a country, which means they make large profits off of their money laundering activities.

So, you have:

  1. Old-Fashioned Laundering where money is converted to products, shipped, sold and converted back to money
  2. Mis-Invoicing Laundering where money is converted to products, bought low, and sold high
  3. Market-Manipulation Laundering where cartels force products high on the market through demand manipulation so they can buy high, sell slightly higher, and not attract attention because the products are being bought and sold near market price

And each threatens your supply chain.

With old-fashioned laundering, a trading partner could be buying and selling your product to launder money, putting your company at risk of being identified as an accomplice to money laundering.

With mis-invoice laundering, your company is part of the money laundering scheme, which means someone in your company is part of the money laundering scheme, and this could bankrupt your company if the DoJ swoops in and shuts your company down while the mess is sorted out.

With market-manipulation laundering, if you are a buyer or a seller of the product being manipulated, you are affected as your costs can quickly skyrocket and your product lines will be at risk if your competition senses the situation and scoops up available inventory before you do.

Unfortunately, there’s not much you can do on your own except maintain vigilance and make sure that your supply chain is not involved. You do this by way of regular auditors from independent third parties who report not to the people doing the trading and keeping the books, but the CEO and CFO who could be criminally on the hook if the money laundering schemes of terrorist organization are aided and abetted by the company.