Global Logistics—May 2006

Technology Key to Global Supply Chain Success

With the continued growth of global trade and the increased risk and complexity associated with global supply chains, technology solutions are more important than ever for enterprises operating worldwide.

In particular, Global Trade Management (GTM) and Enterprise Resource Planning (ERP) solutions will be at the forefront of successful global supply chain operations, according to new research from Dedham, Mass.-based ARC Advisory Group.

The GTM solutions market grew to approximately $222 million in 2005, and is expected to reach $405 million by 2010—a healthy 12.8-percent cumulative annual growth rate (CAGR)—according to ARC’s recent report, Global Trade Management Solutions Worldwide Outlook.

While previously viewed as a cost center, executives are shifting their perspective on the importance of global trade management.

"Historically, CEOs and CFOs failed to grasp the role of global trade management relative to financial performance and strategic objectives," explains Adrian Gonzalez, director of ARC’s Logistics Executive Council and author of the GTM study.

"This perspective, however, is beginning to change. The Sept. 11 terrorist attacks and the 10-day shutdown of West Coast ports in 2002 showed many executives that disrupting the flow of global trade can have significant financial consequences."

Regulations Drive Tech Adoption

A greater focus on risk management, as well as the need to comply with Sarbanes-Oxley and government security regulations is also driving the increased use of GTM solutions.

Though programs such as the Customs-Trade Partnership Against Terrorism and the Container Security Initiative are meant to streamline global trade processes and reduce risk, they also place new requirements and constraints on companies.

These new requirements can add cost to the supply chain, finds the report. As a result, companies are seeking technology solutions that manage these new initiatives while keeping financial risk at bay.

"Complying with these regulations is dependent on having access to timely, accurate, and complete information and establishing process control. These are the same success factors required to create more secure and efficient global trade operations," says Gonzalez.

For many of the same reasons, global businesses are also flocking to ERP solutions. The worldwide market for ERP is expected to grow at 4.8 percent CAGR over the next five years, jumping from $16.7 billion in 2005 to more than $21 billion in 2010, reports ARC senior analyst Steve Clouther in Enterprise Resource Planning Worldwide Outlook.

The increase of China’s manufacturing prowess—both as an outsourced base for U.S. and European companies as well as for its own homegrown needs—has helped trigger the adoption of ERP solutions.

Retailers and manufacturers have made manufacturing in China a key part of their global logistics strategies; likewise, ERP providers are looking to China as a major source of revenue in the coming years.

Additionally, while ERP solutions have always been essential to manufacturing efficiency, top ERP providers are now targeting supply chain pain points as well. Industries such as government, banking/finance, health, retail, distribution, and education/administration are now using ERP systems to manage global logistics functions, explains Clouther.

Faster Flight Times

Shippers moving goods between Europe and China are happily slashing air cargo travel time thanks to a newly approved air route.

In a move that has been discussed since 2000, China recently granted The International Air Transport Association (IATA) approval to implement a new route for international traffic that reduces flight times between China and Europe by an average of 30 minutes. Officially known as Y-1, the route will initially speed travel time for 110 flights per week.

The new route provides shippers with more options when shipping air freight between Asia and Europe, and allows cargo airlines to better optimize routings. Y-1 will cut airline fuel costs by an estimated $30 million, and lessen airlines’ impact on the environment, according to IATA.

Global Teams: SCM’s New Workforce

With supply chains stretched further and further across the globe today, logistics employees—from warehouse workers to design engineers and supply chain executives—and business partners—including outsourced manufacturing, warehousing, and/or distribution providers—are also spread out across the world.

This setup presents a bevy of management challenges for supply chain executives.

How can logistics professionals best coordinate with overseas employees and partners to maximize business efficiency and team performance?

A little extra effort and a well-planned communications strategy are a good start, says J. LeRoy Ward, executive vice president of ESI International, a project and contract management training firm headquartered in Arlington, Va.

Ward spoke to Inbound Logistics recently to offer advice and strategies for boosting the efficiency of employees and partners, regardless of where in the world they are located.

JW: Today’s global business environment means a renewed focus on communications and relationship building when it comes to organizing and managing supply chain teams. One key element to successfully managing a global team is to make people feel they’re actually on a team—which can be hard to do when they don’t see one another regularly.

The first step is to develop a detailed communications plan. You might, for example, send each team member a daily e-mail to check in; a weekly team e-mail to gather thoughts on a particular subject; a conference call once every two weeks; a monthly video conference or webinar update; and either a team meeting or in-person visit once each quarter or once every six months.

Other ideas include a team newsletter, an intranet site where employees and partners can post blog entries, or another medium where individuals can gather and share ideas. If a communications structure is not put in place, communication becomes extremely challenging.

Additionally, it is critical for managers and executives to travel to global offices to ensure success. It’s not enough to merely jump on planes and visit your colleagues, however—you must have a plan for what you want to accomplish and it must be communicated before you meet.

Visit as many people as possible at your global sites—managers, stakeholders, executives, clients, and anyone who can boost your department’s performance—to maximize your time spent on the road.

IL: What challenges do global teams present, and how are companies working to overcome them?

JW: Managers face a variety of challenges when working with supply chain teams and partners spread across the globe. One common issue involves language barriers, and how communications come across to international team members.

Americans casually use many business terms such as "value-add," "think outside the box" and "value proposition," that can leave non-native English speakers scratching their heads. It is hard to know how many of these phrases you use unless you consciously listen for them in your communications. During conference calls, don’t use your typical speech pace unless you know for sure your colleagues understand you, and be mindful of using American business slang.

E-mail can be helpful for communicating with global teams. Often, people who struggle with English can read and understand the language better than they can speak it. When you communicate via e-mail, recipients have the time to interpret, digest, then respond to you.

JW: American business culture is direct and forthright. We send e-mails to people without saying hello, we jump into the body of the e-mail without a proper salutation, and we end our missives with an electronic signature. This is not the case when dealing with other cultures and nationalities, especially in Europe and Asia, which are bound to be key areas for global supply chain teams.

It’s important to be mindful of this and to be polite and courteous in all international communications. Trying to build relationships over thousands of miles takes the best diplomatic skills you can muster.

There are, of course, certain cultural subtleties at work in every country—while citizens of other nations will not expect you to know the detailed ins and outs of their culture, politeness in business dealings will go a long way.

Knowing certain "ceremonial" business aspects of the cultures on your team can also be helpful. The method for exchanging business cards in Japan, for instance, is vastly different from the United States.

The correct way to present a business card to a Japanese businessperson is to use two hands, and offer the card with the writing positioned so the receiver can read it. They expect you to say something such as, "I am most honored to make your acquaintance," while providing your name and title. Your Japanese colleague will receive your card the same way.

Knowing these subtle differences can go a long way toward putting your foreign supply chain partners at ease and building the relationships that are so critical for success with multinational teams and business partners.

South-of-the-Border Trade Volume Goes North

For the third year in a row, Latin America-U.S. trade hit record highs in 2005, proving the area’s increasing prominence as a global trade partner, according to JP Morgan Chase Vastera. Latin America posted trade surpluses with both the United States and with China—one of the few regions in the world to do so.

Chile posted the strongest increase in trade in percentage terms (42.3 percent), followed by Paraguay (38.9 percent), Venezuela (36 percent), Ecuador (30 percent), and Peru (27.7 percent).

Mexico registered the strongest growth in dollar value (up $23.5 billion), followed by Venezuela ($10.7 billion), Brazil ($4.7 billion), Chile ($3.5 billion), and Colombia ($2.5 billion).

Only Cuba and El Salvador posted declines in U.S. trade, by 10.5 percent and 2.2 percent respectively.

The recent free trade agreement between the United States and several Latin American countries is credited with boosting trade.