Category Archives: Logistics

Supply Chain Difficulties in Latin America

Inbound Logistics recently ran a great article on Beating the Odds in Latin America that did a good job of summarizing the changing situation in Latin America and the challenges associated with your Latin American Supply Chain. Given that it might be true that Latin America “is all about growth”, it’s a market you want to understand.

The first challenge that the article pointed out is that of logistics costs that are high compared to other regions of the world-about 15 percent of the cost of goods sold. Ouch! Like parts of India and Northern China, transportation options are few, roads are not great, rail is (almost) non-existent in many places, and ports are congested. As more investment flows into the region, the situation will improve as it did in China and India. The situation in Brazil in particular is going to improve rapidly with the 2014 World Cup and 2016 Olympic Games on the radar. And this isn’t the only transportation issue. The transportation industry is fragmented in Latin America, with a lot of small players and this makes it more difficult to manage, especially when handling volume spikes.

The second challenge is that of lagging productivity. Average productivity in the region has increased only 1.4% per year for the past 20 years, which is much less than in Asian economies. This is partly due to restrictive labour rules and sector specific regulations but also due to taxes and lack of investment.

The third challenge is that of supply chain expertise — there is a relative lack thereof in Latin America. Universities aren’t even offering logistics degrees yet, yet alone supply chain management degrees. Without even basic Operations Research programs, people entering the logistics field have to learn everything from how to manage a distribution centre to how to interact with customers.

The fourth challenge is that of systems. Technology systems infrastructure generally lack sophistication, and in some cases, even availability. Plus, for an average logistics carrier in the region, a TMS (Transportation Management System) is too expensive for a single company to justify. As a result, many companies end up doing a lot of manual work that is time and cost intensive.

The fifth, and final challenge, that was noted is that of security. Crime is pervasive throughout Latin America, and takes a heavy toll. The homicide rate in some Latin American cities is extremely high. For example, the crime rate in Rio de Janeiro has eight (8) times as many homicides as New York on an annual basis and eleven (11) times as many as Toronto. Plus, surface transportation is the most difficult security risk area of the supply chain in Latin America. Sincethere usually aren’t multiple routes to destinations within a country. In many cases, criminals simply block the highway and start checking trucks to see what products they like and they get away with it because the police are understaffed so they cannot patrol every road.

It’s not an easy situation, but it does appear to be a navigable one for those willing to roll up their sleeves and get their hands dirty.

Halifax Gets It There dot com

Long time readers will know that the doctor has been telling you to set up operations in Halifax (if you haven’t already) if you’re doing business in North America and Europe or if you’re shipping between North America and Europe, India, and/or southeast Asia (including most of southern China) due to its strategic location (on a time-zone halfway between Los Angeles and London) and ready, quick access to many global ports from the Port of Halifax. (the doctor still stands by his 2006 post that said Halifax is The Best Place to Do International Business in Canada!)

The Port of Halifax has made considerable investments in infrastructure over the last five years — as pointed out in this post from 2010 pointing out that Halifax Can Handle Your Ocean Freight as a result of it’s $35 Million Berth Project to insure that it is the deepest North American port on the Eastern seaboard — and is now ready to handle the vast majority of your shipping needs (including heavy lift, special project, roll-on/roll-off, steel coils, forest products, dry bulk, and liquid bulk). At 16.2 m of depth, it can handle 8,800 TEU vessels with a 15.00 m Draft. Plus, it has transload capabilities direct to rail and cross-docking capabilities for efficient consolidation of shipments from 40 ft containers into 53 ft trailers and a full-service grain elevator.

The port’s ocean terminals have 13 berths with over 400,000 square foot of covered storage with direct loading to ship, rail, or truck; a 65,000 square foot cover shed with 20-25 foot vertical stacking capability with six rail loading/discharging bays and 5,000 linear foot of on-dock trackage; four truck loading docks equipped with levellers; and three dedicated cold storage warehouses with HACCP and CFIA approved programs.

As noted in a prior post, Halifax, via the Suez Canal, is a day and a half closer to southeast Asia than any other North American east-coast port and is two days closer to Europe. For example, it’s only 6 days to Rotterdam or Hamburg, 20 days to Singapore, and 21 days to Ho Chi Minh City. And rail to Montreal, Chicago, and Memphis is quite competitive. It’s only 1.5 days to Montreal, 3 days to Chicago, and 4 days to Memphis. And if you want to know how long it will take, the Port’s new HalifaxGetsItThere.com site has a spiffy new Transit Time Calculator in addition to Route Maps, a Schedule-at-a-Glance, and a Daily Status Report.

Just remember that HalifaxGetsItThere.com and come to Halifax. Your business will thank you for it.

World Trade 100’s Logistics Trends for 2012 — Do They Have Weight? Part II

Yesterday, we reviewed the seven trends for 2012 that World Trade identified for the logistics sector in a recent article and asked if they had weight. Today, we answer that question by presenting the reality (that SI perceives) with respect to these trends.

  • Buyers are expecting 3PLs to be the new Jack-of-all-Trades.
    While some of the larger organizations are adapting to their clients’ requests, this won’t hold true in all cases. Only where the requests are for services similar to what the 3PL is already offering and where the 3PL has the necessary expertise will the 3PL be able to successfully offer the service for the long term. As a result, some 3PLs will falter (and maybe even fail) and, ultimately, retrench on their strengths and smarter buyers will seek solutions from the right partners. (Going to the supplier to handle packaging, a best-of-breed software provider for a visibility solution, etc.) The 3PL as the Jack-of-all-Trades trend will be short-lived.
  • Mobility is King, the Cloud is irrelevant.
    Call it ASP, SaaS, Cloud, or Web 3.0 — smart buyers don’t care. They just want a solution that works on the go. They’ll settle for what works, and won’t be satisfied with who has the most buzzwords in their product description. That being said, buyers still on the learning curve may fall for “cloud” in the short term, but if they don’t get results, the services provider will wish they were up in the clouds far from the angry buyers’ reach!
  • Transportation is going back to intermodal.
    The trucking phenomenon is over. The value proposition of intermodal rail can no longer be ignored.
  • Capacity is climbing up the issues list — fast!
    Regulations and lack-of-drivers are severely limiting available capacity, air capacity is also limited, and low-cost ocean routes are not going to last forever. As a result, smart buyers always have an eye on capacity.
  • The rate of system/data integration is going to increase.
    As visibility is a necessity in today’s supply chain. Execution integration will also improve as lean and JIT continues to be applied to the logistics chain. But business integration will take time. Trust, and undisputable business cases, will have to lead the way.
  • Near-Sourcing will happen.
    The value proposition is back, and, like the value proposition of intermodal transportation, it can’t be ignored. It will take time, as you can’t switch suppliers, or end multi-year contracts, over night, but it will happen.
  • Sustainability will continue to lag.
    The reality is that at least 8, if not 9, out of 10 companies only tackle sustainability when forced to do so by regulation or pressured by customers. Very few tackle it for the long-term benefits it can provide an organization because, with the relentless Wall-Street focus on profit quarter-after-quarter, an average organization does not want to bear the up-front cost, no matter how great the potential year-over-year reward in the long-term.

And, most importantly, you’re going to see the following trend start to take shape later this year:

  • A renewed investment in logistics/inventory management/optimization software
    Leading, and better-than-average, organizations are not going to be content to let their 3PLs manage logistics after the fact, when most of the cost has already been locked in, but use advanced software to make sourcing decisions that, when sensible, optimize logistics and inventory costs up-front. Like all sourcing technology trends, it may take a year to pick up steam, but it’s going to happen. Too much money is on the line.

That’s what the doctor thinks. Any divergent opinions?

World Trade 100’s Logistics Trends for 2012 — Do They Have Weight? Part I

Earlier this year, World Trade identified the following seven trends for 2012. The question is, how many are taking shape and, of the ones taking shape, how many are relevant for your supply chain. And are any missing? Let’s start by examining the seven trends WT identified.

  • 3PLs are the new Jack-of-all-Trades
    Apparently, demand for 3PLs to play a role in capacity strategies, to provide technologies that optimize planning and enable visibility in increasingly complex global supply chains, and to increase operational agility is increasing. In addition, some shippers are seeking to consolidate their 3PL bases to relieve an administrative burden of managing multiple providers while leveraging a larger, indirect spend pool. And, some 3PLs are offering more value-added services such as contract and custom packaging, return disposal, and even individual store deliveries.
  • Mobility and the Cloud
    The use of M2M technology is increasing, and more software providers are certifying the use of their solutions for off-the-shelf consumer and ruggedized devices. And some are predicting that 2012 will be a big year for “cloud supply chain”. Supply chain technology vendors will seek ways to use the cloud to facilitate application integration and data visibility, and work with material handling equipment manufacturers to bring MHE automation closer to real world application.
  • Transportation Modes
    There will be more adoption of intermodal transport. This is because trucking faces predicted driver shortages, potential highway user fees, and changing governmental regulations — which is making intermodal rail an increasingly compelling proposition. As a result, new intermodal facilities are being built in several U.S. locations. This option can reduce fuel costs, increase delivery speed, and decrease reliance on OTR (Over-the-Road) trucking.
  • Trucking & Capacity Issues
    New compliance mandates for trucking, including CSA (Carrier Safety Administration) and HOS (Hours of Service) legislation, will further increase capacity challenges in 2012.
  • Partner Integration
    Disparate supply chain players will come together to form partnerships and work together to benefit the entire supply chain. This is because smarter commerce requires seamless integration with all partners in the end-to-end supply chain, particularly in the complex global supply chains of today. Furthermore, the expectation is that this partnership will span the business, execution, and technology layers of the supply chain.
  • Near-Sourcing
    There is an expectation that near-sourcing will likely increase, helped by unstable oil prices, rising labor costs in China (and India), the cross-border trucking program with Mexico, and NAFTA. Plus, Central and South America (and Brazil in particular), which are often on similar time-zones, are also viable sourcing options in many industries, and reachable through land-based inter-modal transport.
  • Sustainability
    According to the article, Sustainability will continue to be a focus for shippers and carriers alike, as long as there is a business benefit.

Not a bad list of trends, and some good arguments for. But what is the reality (that SI perceives)? Stay Tuned for Part II!

If You Are Using a 3PL, Should You Focus on Outcome-Based Pricing?

Yesterday we discussed whether or not you should hedge your transportation costs, given this recent article in Canadian Transportation & Logistics (CTL) that found “global shipping lines grapple with plunging rates, overcapacity, and faltering recover”. Today we discuss another recent Canadian Transportation & Logistics article on “why it pays to focus on outcomes rather than transactions in procuring supply chain services”.

While an outcome-based focus is starting to take hold in some leading Supply Management organizations in their strategic sourcing processes, it’s often focussed on more traditional services where outcomes are easily defined and well understood by the organization. For example, procurement back-office functions where it’s all about throughput improvement (in terms of invoices processed), customer service (where it’s all about trouble-ticket resolution), and preventative maintenance (where it’s all about reducing downtime).

But back-office, customer service, and system up-time are not the only things that can be measured as outcomes. So can 3PL. As per the CTL on global shipping challenges, only 56% of containers delivered on time globally. Fifty-six percent! For those of you going for the perfect order, that’s 44% of your orders that rely on globally sourced products that won’t be perfect as of day one! (That’s why Maersk launched its Daily Maersk service in late October of 2011 which, with daily cut-off and built-in safety margins, allows it to guarantee virtually total reliability between select ports in Asia and Europe.)

Of course, this will require a shift in mindset in both buyers and 3PLs, but if both parties are willing to share greater risks, both parties could reap greater rewards. Current trends seem to indicate that. For example, by focussing on outcomes, Microsoft saved $30 Million by outsourcing its procure-to-pay operation to Accenture One, which doubled profit by focussing on value add activities. And Proctor & Gamble saved $1 Million in the first year of outsourcing $70 Million of facility management to Jones Lang LaSalle.

When the 3PL focusses on process and productivity improvement, and not price reduction, the efficiencies that fall out will most likely lead to cost reductions in the long term. For example, just getting the on-time delivery rate to 94% from 56% will likely decrease expediting costs 86%. And reducing “empty miles” will reduce costs (and likely speed up delivery time-frames as well, shortening lead times).