Monday, July 31, 2006

Inland Ports versus Coastal Ports

Are you considering using an inland port instead of the usual coastal port? That's a decision many companies are analyzing as they face high fuel and transportation costs, as well as congestion at larger ports. Choosing an inland port may not work for every company, but it can help achieve greater supply chain management success through the use of multiple transportation modes.
Here are his 10 tips for evaluating inland ports.

1. Consider your transportation needs. How do you ship your product? Do you use rail, road, water, air, or a combination? See if the inland ports are well-connected to these transportation modes. For instance, consider how far the port is from the airport or railway. Align your needs with the port's location.

2. Do a transportation analysis. Calculate what you spend now, then project what it would cost to use barge in an inland port system. Moving inland and shipping via barge could save money in the long run. In addition, check out the carrier service offered at the inland port. What kind of barge lines or short-line railroad carriers operate from the port you are considering? Evaluate the carrier service the port offers, whether you have contracts with those carriers, and if they can meet your freight handling needs.

3. Analyze the port's location. Understand the markets you serve and if the port is within close proximity to those markets. Get to know how the port's location can offer both north-south and east-west transportation options. If the port is located along the Inland Waterway System, for example, does it provide access to both the Gulf and the Great Lakes? Does it offer access via road and/or rail to the increasingly popular north-south NAFTA corridor? The inland port could also offer important east-west connections that give your business access to booming coastal freight activity.

4. Check out the financial incentives. Many inland ports are attracting business through incentives. Find out if the city or port offers attractive lease rates, bonding ability, or Foreign Trade Zones. Such incentives might make choosing an inland port a good business decision.

5. Make sure the inland port can meet your delivery needs. If you run a just-in-time inventory operation, you need to be particularly sensitive to the fact that it could take additional efforts to schedule product inflow and outflow, especially if you use barge transportation. Shipping via barge means you most likely will use several lock and dam systems, which will translate into slower transportation times, despite cost savings. Carefully plan your inbound and outbound transportation. Consider how critical timing is for your operations. How will your delivery method affect your supply chain? Can you meet your customers' needs efficiently? How often will you need expedited freight to handle emergency situations? Will an inland port be the best area from which to service customers and distribute product?

6. Consider the port's capabilities. Check if the inland port has the ability to expand and the manpower to execute your logistics needs -- onloading and offloading products, for instance. Ports are often landlocked. Find out if the inland port can offer adequate space to expand if necessary. Know what freight handling options are available at the port, and their costs. What type of cranes or onloading/offloading capabilities, for example, does the port have? Can the equipment already in place easily be used to handle your products? What will it cost? If equipment is not in place, will the port allow you to use the necessary equipment? At what cost? It is vital to know how you can leverage the freight handling system the port currently uses.

7. Enlist the help of trade associations. Utilize existing networks to find help and best practices. The place to start is a trade association or port-focused organization. Check out Inland Rivers, Ports, and Terminals Inc.; the National Waterways Conference; the American Association of Port Authorities; or the Upper Mississippi, Illinois, and Missouri River Association. These organizations offer insight into the port industry and can help you stay abreast of current issues.

8. Review port management and operations. Take time to fully assess the port's lease rates and terms. Also determine if the port favors short-term or long-term leases, or if you can purchase property at the port and build to your specifications. Investigate what types of shared services -- trucking/rail lines, large conference rooms -- might be available to your company. Check to see if the port includes you in its marketing materials, and/or gives you a presence on its web site.

9. Evaluate the region where the port is located. Fully examine the business climate -- cost of doing business, available workforce, and quality-of-life issues -- that you and your employees will find valuable.

10. Examine the companies currently operating at the port. Are they satisfied with the port and its operations? Note which companies could complement your business, and vice versa. Having a location in a port, which is often an industrial maritime development park, could serve as a catalyst for your company.
What do you guys think? Do you have any further suggestions?

Monday, July 24, 2006

Exel Earns Award of Excellence from the GIL!

The Institute has honoured Exel in recognition of the company’s outstanding contribution to the development of global supply chain excellence.

The ‘Award of Excellence’ was presented by Kieran Ring, Chief Executive of the Institute at the North American Industry Dinner held to honor the memory of founding Chairman Robert V. Delaney, during the US 3PL Summits at the Buckhead Intercontinental, Atlanta on 27 June 2006. Exel was identified by the Institute through its research on how supply chain strategy is being deployed by global consumer product brands in support of sourcing in China. The Institute’s study of ‘best in class’ in Supply Chain Management on the Trans Pacific route has taken place over the last 24 months and as a result of this study the Institute has conferred its highest honor, the ‘Award of Excellence’.
Mike Gardner, chief development officer, Exel, said this award illustrates the company’s objective of strategically and operationally supporting shippers in improving their supply chain from purchase order to point of purchase. “As the supply chain continues to lengthen in response to the globalization of new markets, we’re actively working with our customers to devise and implement solutions making their businesses more competitive,” Gardner explained. “Additionally, we’re leveraging the global expertise and resources of our colleagues throughout the DHL Logistics division to customize strategies for our customers’ unique challenges.”
Speaking at the presentation Kieran Ring said:
“Over the last year, the maritime logistics piece is the one that has talked to us the most, particularly as we looked at trade between China and the US. It’s no longer a competitive advantage for US firms to source in China; practically everyone is there. As a result, most logisticians in the US would like to narrow the Pacific Ocean. That’s not going to happen, but thought leadership and good relationships can make a difference.”
Exel's Senior Director Michael Stolarczyk attended the dinner to accept the award. On receiving it, he said:
“It’s a great honor to be involved in this initiative with amazing companies like Home Depot (also recognised on the night). The award is wonderful, but I see it not as a destination, but as a challenge for continuous innovation on this collaborative journey.”
Mr Stolarczyk explained that the aim of Exel was to help shipper organisations improve their operations “from PO (purchase order) to PoP (point of purchase),” and that sharing information and achieving greater visibility were important elements of that.

Tuesday, July 18, 2006

Total Landed Cost Versus Supply Chain Reality

Total landed cost is the sum of all costs associated with making and delivering products to the point where they produce revenue -- usually your customer's door.

So, if you employ tactics to reduce costs in all discrete functions from manufacturing through delivery, you'll have a lower total landed cost, right? Theoretically, yes. But in the real world, cost savings in one area often result in cost increases in another.

Raw materials and freight are cheaper in volume, for example. But warehousing and inventory costs go up when that volume lands on your dock. Conversely, show me a warehouse that operates on just-in-time deliveries, and I'll show you a high freight bill.

To find the lowest total landed cost, you have to think strategically. Rather than view your supply chain as a series of discrete functions, think of it as a whole. Your goal is to reduce the cost of that whole.

This approach helps you think outside the box. Rather than focus on lower warehouse costs, for example, you begin to wonder if you need that warehouse at all. That idea, in turn, sets off a chain of thoughts -- transportation changes, stable inventory, different sources of raw material, origin warehousing, EC versus WC Flow get the picture.

Once you've conceived a strategic approach for lowering total landed cost, it's time to model it. Spreadsheets are cumbersome, and modeling software is expensive and has a steep learning curve, so outsourcing the development of your model is often your best bet. Yeah, being from Exel, I like that option the best!

When choosing someone to develop the model, look for an expert in supply chain design and operations, not just a techie who knows how to drive the software. You need someone who can create solutions from practical logistics experience. IE; find a solid organization with lots of real world experience...

It's good to run various "what-if" scenarios. Don't simply model a pre-conceived solution and accept the result. If you have a supply source in China, for example, run a model that compares it to a source in the United States. This tests and quantifies the trade-offs between a longer chain that has lower unit costs but greater inventory, and a shorter chain with less inventory but higher unit costs. (yep, going back to my "outsource in West Viriginia" quote)

It's also good to run sensitivity analyses to determine how robust the model's design is. Test it by modelling transportation costs against oil prices, or a total disruption in your supply chain, such as a port strike. What are your options in those situations? In these times, be as creative in the doom and gloom scenarios as possible...seems reality is scarier than out collective imaginations now...

As you might guess, a model's quality depends on the quantity and quality of the data it is built upon. Models are also time-dependent: the more complex your supply chain, the longer it takes to develop a model. The potential savings, however, are great -- typical companies save 6 percent to 12 percent. Let me re-phrase that...most companies could save around 5%.

Adapting the model with a successful process in hand, and continuing focus on the total landed cost, you can put on your tactical hat, and fuss over discrete tactical functions. Work the supply chain backward from the customer, one function at a time -- keep in mind that every supply chain process or function you compromise from the model affects other processes, either positively or negatively.

Remember that supply chains are perpetually changing, so the right model today can easily be wrong tomorrow. A new product introduction, a different vendor, increased freight costs, new sourcing areas -- these all impact your total landed cost strategy.

The good news is that a strategy is easier to modify than to create. The model you used to finalize the first approach will still be there to tinker with. It is ever changing, but why not select a 3PL to sort this out under a continuous improvement program...that is always driving out costs. The 3PL's have IT, operations, and engineering professionals that are at the ready to model, create scenarios, and tweak your supply chain! Give them a chance by sharing some info and an idea for the future...see where they can take it!

Tuesday, July 11, 2006

The Final Mile...or is that Miles?

For U.S. retailers with broad global supply chain operations, "last mile" -- the portion of transit from the final delivery center to the customer's door -- is really the last hundreds of miles from the destination port to the store. This crucial part of logistics, which accounts for the majority of a shipment's cost and complexity, is becoming increasingly difficult for retailers to manage.

To a certain degree, retailers are victims of their own success. As global sourcing expands and companies become more proficient at managing inbound supply chains, container trade between Asia and the United States continues to explode. This places a growing burden on the U.S. intermodal transportation infrastructure.

This burden will create more frustration for retailers, according to trade forecasts. Inbound container traffic will continue to grow, congestion at and around ports will pose larger delays, and transporting product -- and ultimately, revenue -- from the ports to the shelf will be increasingly difficult, particularly during peak season. How well retailers manage the last mile inside the United States plays a critical role in their ability to compete.

As the importance of last mile distribution excellence increases, so does the value of U.S. logistics assets -- trucks, distribution centers, land, people, technology, and anything else that helps cargo move smoothly and efficiently. You know me...people and process are the most important factors!

Just look at what companies are willing to do to buy and protect U.S. logistics assets. The Dubai Ports deal was only the latest example of a foreign company accepting a large price tag for U.S. assets.

Deutsche Post's multi-million-dollar acquisitions of DHL, Airborne Express, and Exel forced UPS and FedEx spending millions on Capitol Hill to protect their U.S. markets. And Netherlands-based APM Terminals, the terminal management division of Maersk, is building a costly new facility in Virginia that will be one of the world's most advanced marine terminals.

Foreign companies realize the importance of last mile logistics control inside the largest consumer market in the world. Why? They know that what occurs after containers are dropped at U.S. ports can make or break a logistics strategy. Retailers that have control over this portion of their supply chain will be market winners...but this does not mean that it has to be controlled in-house...

A responsive last mile supply chain allows retailers to meet demand, manage seasonal peaks, and drive hot merchandise to the shelf quickly and efficiently.

Information technology is essential for providing last mile visibility, control, and flexibility. But technology by itself is only a tool. People and effective business processes drive results. To get those results, retailers need real-time control of various assets on the ground to maximize sales and reduce logistics costs as much as possible.

Keep Your Options Open
Three critical factors control inbound last mile logistics today: options, options, and options. Can you feed imports quickly into your distribution network from ports on both coasts? Do you have the right crossdock and consolidation facilities in the right places to build cost-effective truckloads? Do you use pool distribution to streamline store delivery? Can you bypass your DCs and go right to the store to move hot merchandise if necessary? Do you have a 3Pl that can on all of these opportunities?

As the importance of last mile logistics control grows, the answers to those questions will continue to have a great impact on retailers' overall competitive position. Look around...see what the major retailers are doing. They are looking to the outside, for more flexibility and productivity...which means cash flow velocity! Not just supply chain speed...

Wednesday, July 05, 2006

GIL's Maritime Logistics Council Is Launched!

The Global Institute’s Maritime Logistics Council, launched in China in April, has held its first meeting in North America. A group of council members presented the ideas behind the initiative during the Eyefortransport Outsourcing Logistics and 3PL Summits held in Atlanta at the end of June.

Chief executive, Kieran Ring, introduced the council to an audience of executives from, mainly, shippers and logistics service providers. He told them that shippers had described the maritime logistics situation as "a black hole". Logistics service providers have always promised end-to-end visibility, but when it came to ports, all visibility seemed to vanish, he said.

He explained that the institute’s search for thought leadership in this area had led it to South China, and to the Yantian International Container Terminals (YICT) operation at the port of Yantian in Shenzhen, run by Hutchison Port Holdings. The business model and the way of working there demonstrated a new way of thinking, Mr Ring said.

The council’s executive director, Wilmer Aguilar, is business development director of YICT. He told the audience in Atlanta that a high level of collaboration with carriers on the ocean side and logistics companies on the land side — with the port operator in the middle — was the key element of his company’s approach. But he made it clear that the overall aim was always to bring benefit to shippers.

One important shipper organisation to achieve accreditation from the institute during the Atlanta event was Home Depot. Its manager for supply chain security and global risk, Ben Cook, took part in the council presentation and explained that better coordination would help companies such as his to increase control of their activities overseas, which would lead to improved lead-times and tighter security.

One senior commentator, Hutchison Port Holdings general manager, John Kok, told the audience that the increased focus on security could deliver a whole series of supply chain benefits.

He explained: "Some people think this is overhyped and that bad things will never happen. But it’s not the thought of a major event — such as a bomb in a container — that keeps us awake at night. If, after a bomb goes off, and the bad guys announce they’ve planted two more somewhere, we have to go and find them.

"There could be 20 million containers in transit. How do you check them all, and how long will it take? The only option politicians feel they have at the moment is to push a big red button to stop everything. That’s what keeps us awake at night, and that’s why we think the maritime supply chain and security are so important."

Mr Kok went on to say that the devices, systems and practices companies will put in place to improve security — even if it’s in response to government mandates — will make it clear what is in a box and if anyone has tampered with it. They will also deliver the supply chain visibility everyone has been striving for. Then, if a terrible event does occur, the whole maritime logistics chain will not grind to a complete halt, or will not freeze up for long.

Home Depot’s Ben Cook agreed, and said his company had already gained unexpected benefits from the increased attention supply chain security is receiving. "It’s helped us tighten down on loss prevention, for example," he said. "We have had some healthy dialogue on supply chain inefficiencies as a bi-product of our people going out to factories for security reasons."

Another new US-based member of the council, Michael Stolarczyk, a senior director at Exel Logistics, said he supported the notion that there was a need to create trust and collaboration right across the supply chain.

This would bring added security, he agreed, but would also offer companies such as his the chance to move goods with greater speed. He said he believed initiatives such as the Maritime Logistics Council offered the industry a good opportunity to start sharing. "We have to communicate and share as an industry," he added, "or we’ll create opportunities that other people will take advantage of."

Another newly accredited company, logistics service provider Hellmann Worldwide, is represented on the council by its Asia-based president for development, Paul Goldsbrough. He said during the session that his company, too, had already found ways of using ports to improve its clients’ supply chains.

The example he offered was of a toy manufacturer that had begun moving products to ports in the US and the UK from China, and then to stores directly from the port of arrival. "In the past, the goods moved first to a distribution centre about 600 kilometres from the port," he said. "Shipping them directly to stores from the port is saving thousands of movements, with a financial saving about £350 each time."

The last member of the council to speak was the chief executive of value-added service provider SgT, Marc Castagnet. His company has carved out a role for itself by offering upstream logistics services such as quality control and lab testing at factories in China (and many other countries), or at ports.

He explained that closer collaboration with ports operators such as YICT had already delivered important benefits for his company. "Yantian is in a free-trade zone," he said. "That means that physically your goods are in China, but virtually they are not."

With up-to-date communications in place, including XML and EDI, he said SgT was able to deliver an important set of services to clients around the world from ports such as Yantian.
YICT’s Wilmer Aguilar concluded that the interface between ports and logistics service providers is still underdeveloped. As a result, client organisations, the shippers, can have a degree of visibility into what is happening, but will typically only find out that their cargo is on the ocean 48 hours after the container ship carrying it has departed.

He said he was in no doubt that initiatives such as the Maritime Logistics Council can provide more visibility, and provide it earlier in the process.