Tuesday 22nd Aug 2017 - Logistics & Supply Chain

Complexity and the extended supply chain

The August convention of Supply Chain Standard’s round table was partnered by Kewill who were keen to explore some of the issues around global trade management. With the volumes and distances of global trade increasing remorselessly, there are many factors from supplier relationships to tracking and tracing which were perhaps seen as trivial in a domestic or regional trading environment, but now are known to be critical, but there are also quite new concerns emerging. Chairman and SCS editor Nick Allen invited Dr Carlos Mena (see panel for affiliations) to outline some of Cranfield’s findings on the issues around the topical subject of ‘carbon footprints’ in the global trade context.

Mena and colleagues have recently completed 15 months of research, and he noted ‘a major change in the business mindset, even while the research was in progress. At the beginning we found very little consciousness in firms around carbon emission issues – now, the same firms are begging to see the output of our research! With a few exceptions, notably in the food and consumer electronics supply chains, most firms have very little idea of their carbon footprint, or even of how you would go about measuring it. It’s not something they want to do themselves – they are looking to their logistics partners for help – and they want to keep sourcing globally, but at the same time to at least appear to be finding solutions, or have their 3PLs find solutions for them’. (Mark Johnson from Kuhne + Nagel commented that the prominence of the electronics industries was unsurprising – they already know that environmental features such as 30 degree washing cycles are of marketing value, so they are already ahead of the game).

But Jeremy Davidson of NYK Logistics asked ‘What do they want us to do? Already the likes of Toyota require us to provide CO2 data for bringing components in; over the years we have experimented with everything from auxiliary sails on ships to using airships (and you can’t get much greener than that!) but at the end of the day it’s all driven by the customer – they make the decisions on where they want to source, and how they want to bring product to the market’. There are things NYK can do – buying more efficient vehicles, for example. Johnson pointed out that K+N is by contrast not asset-based, so solutions are more in terms of using as much rail as possible between ports such as Southampton and Felixstowe, and hubs like Hams Hall – but conceded that this is as much a response to port congestion as to environmental imperatives.

Davidson re-emphasised customer leadership. For Tesco, for example, quite a lot of non-food inbound has shifted to rail, at the customer’s behest because they see a marketing benefit. ‘It won’t be long before CO2 numbers appear on product packaging, and then there will be all sorts of audit issues – there isn’t at present one accepted way of doing this’.

Problems of fragmentation
Colin Beaumont from BIFA noted that one of the problems is the fragmentation of the logistics industry. ‘There are very few end-to-end supply chains under single control. The majority of freight forwarders have only bits of the supply chain under their control’ and Johnson suggested another problem lay in the fact that even in the bigger companies, Boards very often do not have anyone representing the totality of the supply chain – it’s all done at a lower level, driven by separate P&L accounts. ‘We were giving the same message 30 years ago’, remarked Beaumont, ruefully. He continued by suggesting that in pursuing the goal of ‘sustainable transport’, to use the current terminology, all we can do is develop the ability to control what we can control, and spread the ‘gospel’ to the other supply chain components. Davidson noted that NYK ‘hasn’t yet signed up with anyone with a promise that “we shall reduce CO2”, because we can’t control it’.

The limits of controllability might, suggested Allen, equally be applied to the knotty topic of inventory, it being a received wisdom that longer-distance supply chains almost inevitably imply higher levels of goods in the system. Johnson cavilled ‘In theory, you shouldn’t have to increase production or holdings – if you have got visibility. IT has to be the key tool to know what is where in the supply chain’. But Davidson suggested the solution lay at a much more fundamental level – that of linking planning to supply. ‘It’s about the way companies plan and control inventory. We can give them information about what we hold in our warehouses, but there’s not a lot we can do about inventory in other supply chain elements – except to some extent if we are being asked to operate on a VMI basis: and even then, there are inventory financing costs that aren’t always understood by the customer’. Mena emphasised the need for data to feed processes, but in Davidson’s view the key was to change and improve processes first, then use IT to supply the visibility. Beaumont suggested that also key was having confidence in the supply chain – there are many uncertainties, risks, potentials for disruption; the longer the supply chain the more exposed to risk you are, and human factors dictate that if supply is uncertain, inventory will be hoarded. Philippe Bentz of Kewill confirmed his experience that ‘Warehouses are mushrooming all over Europe, because people want to feel that their stocks are within easy reach. They may manufacture elsewhere, but they want their stocks over here’.

Is this symptomatic of a disconnect between the supply chain and purchasing? ‘A tricky one’, said Davidson, ‘factories have to operate to capacity in a standardised way to be efficient’. But sometimes you can do clever things. He cited some Far Eastern air-conditioning manufacturers. This is obviously a seasonal business, albeit with different seasons in different parts of the world, but even within defined seasons demand can fluctuate remarkably – this summer, UK sales are surely down, but in southern Europe demand is 30 per cent over prediction. Davidson explained that manufacturers have adopted the technique of loading a ship, scheduled to call at certain ports, and allowing local sales companies to ‘bid’ for the equipment while it is on the High Seas. Clearly, though, this can only work for a reasonably standard product, and one that has, in this instance, the right literature, electrical specifications etc.

Other examples of good and bad practice were mentioned. Plastic Christmas trees are produced in Far Eastern factories year-round to ensure production efficiency – but there seems no good reason why stocks should be held in expensive European warehousing, rather than in cheaper Asian sheds. Similarly, shouldn’t quality control (failure of which is a major cause of excess inventory) be carried out at the point of origin, rather than in the destination country?

Environmental, and indeed ethical, issues are increasingly important in global trade management. To what extent, asked the Chairman, can or should logistics service providers, who after all may have a much greater local presence and knowledge than their customers, help to monitor compliance in these areas? Davidson saw this as ‘a slippery slope. Each customer must look after their own ethics. As a shipping line we make sure we don’t do things like sending ships to be scrapped on some Indian beach, but we’ve got enough to do ensuring our own business is legal and ethical. If customers want things like fair trade policies, that’s their problem and their responsibility’. Beaumont agreed that ‘These issues are attached to brands – it’s the brand holder’s responsibility’. Mena asked ‘Since companies hire firms to audit their supplies around the world, why shouldn’t a 3PL offer to do the audit – they have the people on the ground’. But Bentz suggested this would require completely different skill-sets. Logistics is all about finding synergies between different customers and supply chains: that is very different from offering services tailor-made to a particular brand’s sensibilities.

Connecting across borders
However these issues play out, and there is clearly a way to go before any consensus approach is arrived at, the timely acquisition of global trade data, and the ability to convert this into useable information, is clearly crucial. Evan Puzey from Kewill gave his insights from the marketplace. ‘Companies want supply chain visibility to help control things, and this means information sharing, getting every player to connect across borders, languages, cultures, technologies. That is in theory getting easier, with the Internet, and even things you can do with mobile phones.

‘But actually, companies don’t want Manufacturers have adopted the technique of loading a ship, scheduled to call at certain ports, and allowing local sales companies to ‘bid’ for the equipment while it is on the High Seas – this can only work for a standard productjust to be connected to every other firm in the supply chain; they want everyone to feed data into a central pool’ .

‘We find that the retail space is the most advanced here – they have always been early adopters, for example of EDI, and they are now moving to multiple channels of information gathering and working further up the supply chain, which helps address the inventory question. We know one UK fashion retailer that in fact takes a Critical Path approach to information: the cutting, stitching, QA and other steps feed data in’, and what was a generalised three-month view of the supply chain becomes a series of individual steps that can be monitored, controlled, altered.

Beaumont noted that ‘technology tends to move much faster than peoples’ ability to adopt it’ and Bentz commented that while big retailers can use techniques such as factory gate pricing to make their world simpler, most freight forwarders are stuck with a multiplicity of partners using different systems, trading on different Incoterms and generally presenting a much greater level of complexity, and thus more of a challenge for achieving visibility.

Equally, said Davidson, major accounts in, for example, the US insist that ‘you will feed data in this format to our system’ so the forwarder or logistics partner has less scope to add value, and certainly can’t charge for it. K+N, said Johnson, are developing a free public access system that would give customers access to the data on the whole network, the parts that K+N are managing and the parts that may be handled by competitors. ‘Globally, only a very few companies can handle a consignment right through to destination, and a customer may well be content with performance on one route but want to put other routes out to the market, so you will always have your competitors sitting beside you. We need to work with those competitors: the difficult part is convincing them that they should help you’. Additionally, Bentz noted, there is a trend for manufacturers and shippers to take some of their logistics management back in-house because they want to recover control, and they realise that sometimes using a lot of small or specialised forwarders and couriers may be cheaper than giving all the business to company X, which means more parties involved and greater complexity. Beaumont said ‘The market is big enough to cope with whatever changes come up. For my 50 years in the industry I’ve been told that ‘there will be 20 big companies for the whole world’ – it’s never happened and I don’t ever see it happening. There are so many niche markets and so many specialist providers; even the big LSPs are going back to their core businesses and sub-contracting niche activities, while smaller companies are creating world-wide groupings to match the big company networks. It’s an organic market, moving all the time and changing from one year to the next’.

The people issue
Besides information management, and the environment, the third big issue to come up in research, said Dr Mena, was the people issue – how to get multicultural teams to work globally, that understand local cultures such as that in China where networks are based more on family and friends than on arms-length business relationships, but at the same time can be globally capable. Davidson claimed that ‘NYK is about as multicultural as you can be, but we have difficulties in, for example, the Far East: in many places organised logistics is a new industry, and it’s difficult to find people who understand’.

Mena noted that China is sending people to be trained at Cranfield ‘in masses’. In a few years time these will be in senior positions, but said Davidson, ‘the problem is today’.

Equally, said Evan Puzey, Kewill is finding that customers no longer have the expertise in-house: in everything from customs regulations to commodity coding, customers are looking for external support.

Meet the panelists

[asset_ref id=”305″]Nick allen (chair) editor supply chain standard
‘It’s a received wisdom that longer-distance supply chains almost inevitably imply higher levels of goods in the system’

 

[asset_ref id=”306″]Dr Carlos Mena senior research fellow, Cranfield
‘Most firms have very little idea of their carbon footprint, or even of how you would go about measuring it’

[asset_ref id=”307″]Colin Beaumont director general, BIFA
‘There are very few end-to-end supply chains under single control. The majority of freight forwarders have only bits of the supply chain under their control’

[asset_ref id=”308″]Evan Puzey GLOBAL VP Product Management, Kewill
‘Companies want supply chain visibility and this means information sharing, getting players to connect across borders, cultures, technologies’

 

[asset_ref id=”309″]Mark Johnson international forwarding operations, Kuhne + Nagel
‘In theory, you shouldn’t have to increase production or holdings – if you have got visibility.’

 

[asset_ref id=”310″]Jeremy Davidson deputy MD, NYK Logistics
‘Factories have to operate to capacity in a standardised way to be efficient. But sometimes you can do clever things’

 

[asset_ref id=”311″]Philippe Bentz business consultant, Kewill 4
‘Warehouses are mushrooming all over Europe, because people want to feel that their stocks are within easy reach.’

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