Category Archives: Global Trade

Is AMR Too Hard on China?

Now it’s well known that, unlike a fellow blogger, I’m not all that high on China (having questioned how innovative LCCS sourcing to China really is back in month one) because I believe that we could be a lot more sustainable, green, and logical and near-source much of what we’re needlessly outsourcing halfway around the globe, but sometimes I think AMR is even lower on China than I am, to the point of being unjustly hard. (Because, as Dick Locke will point out, sometimes they are the best choice. Not always, but sometimes.)

Basically, I found this recent article from AMR on “six reasons to worry about China in your supply chain” a little unfair. While all of the reasons were valid, most of them weren’t exclusive to China. In fact, only two of them were specific to China and most of the rest were pretty generic and applicable across the globe. While the rare earth chokehold — evidenced by the fact that they control 93% of the world wide production of terbium, dysprosium, and other highly specialized high-tech minerals, and the exchange rate by fiat — evidenced by the fact that the Yuan’s exchange rate is still pegged to the dollar, are specific to China, the following concerns are much more global:

  • Capricious Trade RulingsChina isn’t the only communist country that can impose prohibitive export taxes without warning that, in one case, quadrupled the price of yellow phosphorous overnight. Before Chavez started seizing oil companies, he was creating “extraction” taxes of at least 33%. And let’s not forget that protectionist democracies can hike taxes without warning too. For example, last year Obama imposed a huge, three-year tariff on tires imported from China that raised prices for consumers by 35%.
  • Indigenous InnovationSure China has a policy that favours companies using domestically developed IP, but there’s nothing to stop India, which is also focussing strongly on (frugal) innovation from adopting a similar policy. And even if they don’t, with 1.2 Billion people and a burgeoning middle class that will soon be larger than the population of North America, it probably won’t be long before they’re out-innovating us.
  • Rampant IP PiracySure China might consistently top the watch lists, but Russia and Mexico are consistently high as well, and the recent US watch list also includes Spain near the top of the list!
  • Poisons, Pollution, and ContaminationSure the cities in China are bad, but so are the cities in India. And the water in much of India is terribly polluted — over a million children die each year from disease and infection from the polluted water, and it’s a major reason that 50% to 60% of women living in the slums suffer from chronic malnutrition, recurrent gastro-enteritis, and helminthic infections.

Now, I’m definitely not saying these aren’t valid concerns where China is involved, just that these concerns aren’t restricted to China and that if you’re gonna beat on China, you should be fair about it.

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What Can the Right 3PL Do For You?

A recent article in World Trade Magazine on “delivering supply chain excellence” listed seven services beyond simple logistics that your 3PL might be able to do for you. They’re worth looking into, especially if you don’t have the resources or expertise to efficiently manage certain aspects of your supply chain in house.

  • Network OptimizationIf your 3PL is efficient, it has optimized its own network. If it’s forward thinking, it will maintain an industry leading supply chain network optimization solution in-house that it can use to help its clients optimize its distribution network. If you haven’t done a network optimization, chances are your current DC locations are not optimal from a service or cost-of-service perspective.
  • Demand Supply PlanningThe 3PL can use its distribution data and optimization platform to understand how much inventory a client is carrying across their network and how much the client should be carrying at each location within their network to meet demand at the target service level.
  • Centralized BookingIf you have disparities in your booking and PO management processes, the 3PL might be able to offer you a centralized solution by becoming the central booking party of the transaction.
  • Value-Added ServicesA 3PL, well versed in best practice methodologies, might be able to discover hidden opportunities in your supply chain if you give them the chance. For instance, they might be able to reconfigure your warehouse operations to increase the efficiency of packing operations.
  • Price Management3PLs monitor market pricing very closely and know when there are capacity surpluses or opportunities for savings.
  • Designer NegotiationsSome 3PLs maintain relationships with e-Negotiation providers that can handle full rate and capacity information in the RFX and/or auction, which might be backed with decision optimization. They can license these platforms to you for use in logistics negotiations if you don’t have an in-house platform.
  • White Globe ServiceSome 3PLs offer dedicated services for manufacturers and retailers of large, bulky, hard-to-handle products which will include delivery and installation. Examples include appliances and fitness equipment.

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Integration Point Takes Trade Compliance to a New Level

The last time we reviewed Integration Point, one of the twenty-one stops on the 2008 Sourcing Maniacs Vendor Tour, we discussed their global trade solutions and told you they provided another way to get your trade data in order. In that post, we told you about their extensible modularized web-based platform that has effectively solved the core customs, security, and classification challenge as well as the free trade / secure trade zone challenge with solutions that address import and export classification (HTS codes), import documentation requirements, export documentation requirements, C-TPAT, AEO, denied party screening, FTA qualification, duty deferral, customs warehousing, customs control processing, and advance security filing – they have most of what your average multinational based in the US or the EU needs. With regards to three main challenges of global trade — customs, security and classification; free trade / secure trade zones and agreements; and regulatory compliance — they had two nailed.

Since that post, and the Maniacs’ post that followed, they have tackled, and introduced a rather comprehensive, and flexible, solution for compliance and risk management that provides a secure communication channel between you and your supply chain to gather any information you require and apply a risk-based assessment to it. And while the feature set is not yet as rich or as deep as the vendors who tackle compliance and risk as their primary focii — like Aravo, CVM Solutions, Hiperos, Rollstream, SupplierSoft, and others — it is more than sufficient for the majority of global trade organizations that do not yet have an appropriate solution at their disposal.

Like many tools on the market, the solution is survey-based, and allows the user to construct their own surveys for C-TPAT, AEO, SSER, PIP, EMCP, Product Safety, Export End Use, Internal Compliance, Training, or any other compliance initiative, regulatory or otherwise, that they want to track. Each question can be yes/no, multiple choice, check-box list, or list, and lists can have attachments. Each question can be categorized, departmentalized, regionalized, assigned to an industry, given an importance, assigned to a port, assigned a vulnerability, as well as given a type. The questions can be combined into sections, which in turn can be combined into surveys, which can be sent to suppliers, who can then assign each section, or each individual question, to an authorized representative with access to the appropriate information. They can be set up as recurring (as some initiatives, such as C-TPAT have to be re-affirmed yearly), and previous answers can be provided, or hidden to insure a supplier doesn’t just “check the box” without reading the question. In addition, the questions can be formulated in German, Spanish, French, Italian, Japanese, Korean, Thai, or five flavours of Chinese as well as English to support your global supply base. And the system can be configured to send automated reminders to suppliers if they don’t answer in a timely manner, and buyers to let them know that a supplier may need to be contacted.

The solution is integrated with Integration Point’s Supplier Master which allows you to maintain a complete profile for each partner in your supply chain. Each partner, which can be assigned multiple types (such as distributor, freight forwarder, manufacturer, trucking carrier, etc.) can be associated with the compliance programs relevant to it. As a result, your survey can be distributed to all appropriate partners with a single click as well as to predefined partner lists. E-mail, and templating capability, is integrated, and a buyer can choose, and customize, the e-mails to send on survey launch, on reminder, and on completion.

The reporting, which consists of six types of built in reports, is basic, but gets the job done. It allows you to query the status of each survey, against each supplier, to determine which suppliers responded to questions in a manner that implied risk, which questions elicited the most responses of a risky nature, and the overall risk score (determined via user-defined weightings) by survey by supplier, by supplier, and by survey. And if you don’t like the built in reports, you can roll your own with their open query feature that will allow you (or a member of their services team) to define any report you want by way of custom select statements.

Finally, the configurable entry screen allows you to customize the dashboard to insure that you see the relevant data that you need to address, and not data that will lull you into a false sense of security. You can configure it to display the partners with highest risk, the partners who have not answered the most recent survey(s), the risk rating of the most recent surveys, etc. in addition to recent answer activity, sending activity, and a generic statistics summary.

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Alcatel Blames Parts Shortage for Steep Loss

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

Here’s a headline supply managers don’t want to see about their own company:

Alcatel Blames Parts Shortage for Steep Loss

(New York Times, May 7, 2010)

Alcatel Lucent, which makes network equipment for AT&T, Verizon and Sprint, said Thursday that the U.S. economic recovery was accelerating so rapidly it was unable to obtain enough basic electronic parts to meet the demand of U.S. operators.

Alcatel cites supply problems as the key reason their sales declined by nearly 10 percent.

There are so many high level, advanced efforts going on in supply chain integration that it’s easy to lose sight of the basics. The most basic element of a supply strategy is assurance of supply of proper quality parts.

I see a parallel between Maslow’s hierarchy of human needs and supply management needs. It’s also known as the Maslow pyramid. Maslow believed that unless needs at lower levels of the pyramid were met, higher level needs would not be considered or addressed. I\His most basic needs were physiological. His highest need was “self actualization”. To put it simply, he said it’s hard to worry about making friends if you can’t get enough oxygen. Similarly, it’s hard to develop advanced supply management programs such as collaborative R&D, technological road mapping, quality improvement programs or lead time reduction if you can’t get enough parts to keep your lines running.

I put assurance of supply at the bottom of the supply chain need hierarchy. What’s at the top? I believe it’s the ability of the supplier to see through your need pyramid and recognize they are part of your customer’s supply chain, and to cooperate with you on meeting your customer’s needs.

What went wrong at Alcatel? I can hypothesize based on my experience as an electronic component commodity manager. The industry is characterized by wild swings between a buyers’ market and sellers’ market that last for a few years. There’s about 20 minutes of equilibrium during the transition. A lot of the ability to maintain supply when demand increases depends on the relationship the buying company maintains with their supply base during the buyers’ market.

If I were a forensic examiner I would look at how Alcatel treated their suppliers during the downturn. I know what we did and it was successful: We put in place major improvements in our ability to forecast to suppliers. We pressed hard on quality improvement programs, something our good suppliers wanted to do anyway. We got strong commitments from our suppliers not to lengthen lead time in an upturn. We didn’t alter our price renegotiation schedule so we didn’t seem to be taking advantage of the suppliers’ difficulties. In hindsight, that resulted in paying more than we had to during a downturn and less than we would have had to during an upturn. Also, (did I mention this?) we had sufficient supply at short lead times when the market turned.

Thanks, Dick. (Global Supply Training)

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Is China Proving that International Trade is a Zero-Sum Game?

Recently, state-controlled Sinopec spent $4.65 billion (US) to become the first Chinese multinational to buy a direct stake in a major producing oil-sands project in Alberta (Canada) and buy out ConocoPhillips‘ 9% stake in Syncrude Canada Ltd (which is the trophy of Canada’s oil sands projects, producing 350K barrels a day). According to the Globe and Mail, the deal represents the next stage in Chinese investment in the oil sands, as Beijing-controlled companies scour the globe for energy resources and look to diversify the country’s growing imports away from the Middle East.

Sinopec is a subsidiary of China Petroleum & Chemical Corp., which started buying into Canadian Energy projects in 2008 with an initial purchase of a 40% interest in the proposed Northern Lights project in northern Alberta. (It is now a 50-50 partner with France’s Total SA.) China Petroleum & Chemical Corp. is also active in Canada, and will acquire a 60% stake in Athabasca Oil Sands Corp.’s Mackay and Dover projects, a 20% stake in Vancounver-based Teck Resources Ltd, and, in turn, a 20% share in Suncor Energy Inc.’s Fort Hills oil sands project. This is in addition to other holdings in Canada, Venezuela, Brazil, Argentina, and the Middle East.

Wondering what it all meant, I asked Dick Locke, SI’s resident expert in international trade. This is what he said:

Well, it means that sometimes international trade is a zero-sum game. That’s when multiple countries chase a disappearing resource.

 

The US is ill-equipped to deal with this one. Our government and opinion-makers are captured by the duology (if you’ll allow this as a word) of oil producers and car manufacturers who are very conservative about energy strategy. Our population patterns have way too many people living on large lots beyond the reach of effective public transport. China is doing a great job in both solar and wind power development. You probably saw that Applied Materials moved their solar cell manufacturing site and technical expertise to China (Technology Review).

 

While the Chinese government has real problems with human rights, it does think long term and is doing what’s best for its people in this aspect.

In other words, China knows that it needs more energy than it’s currently producing if it’s going to continue to support and modernize its population, and that, just as the world is looking to China as a producer of consumer goods, China needs to look to the world as a producer of energy … and will have to spend much of what it is making to acquire that energy. At some point, the outflows will have to equal the inflows and international trade will China will become a zero-sum game.

Dick Locke, Global Supply Training.

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