Logistics: Shipping The Goods

Global Logistics

By Carmen Pang,Executive EditorLogistics: Shipping The Goods

As trade becomes more globalized, a well-laid-out logistics strategy is key to
success.Artwork courtesy of Schneider Logistics Inc.There is a standard supply chain saying about
having the right product in the right place at the right time at the right price — it all comes
back to that,” said Tony Ross, Cap Gemini Ernst & Young’s (CGE&Y) Irving, Texas-based
logistics and fulfillment consulting practice leader for the Americas, when asked what logistics
and supply chain management should strive to achieve. “What I’d like to add is: having the right
product in the right place at the right time at the right price while maximizing profitability.
That’s a very key phrase to add.”In the past decade, manufacturing has seen tremendous gains in
productivity and efficiency, so much so that some companies now consider logistics and supply chain
management the last frontier in further achieving corporate leanness and maximizing profits.For a
textile industry that is going to be quota-free in 2005, one can count on it becoming even more
globalized than it is today. This provides another added incentive to finetune every step of the
supply chain.Outsourcing — A Welcome TrendWhile the trend of outsourcing seems unstoppable in many
aspects of manufacturing, and many executives wince at the mere mention of the word, quite a few
textile manufacturers are embracing the idea of outsourcing their logistical needs to third-party
logistics companies.3PLs, logistics parlance for thirdparty logistics suppliers, are companies that
specialize in arranging and managing some or all aspects of transportation and distribution on
their clients’ behalf.“Between the late 1980s and early ’90s, the 3PL market was born,” said Doug
Olson, U.S.-based Schneider Logistics Inc.’s general manager/ vertical leader for manufacturing and
consumer products. “Why? Because many businesses in the ’90s started to focus on reengineering
their core competencies. They decided that there are companies out there that do transportation
better than they do. These [transportation] companies have a lot of experience, plus a lot of
purchasing power and knowledge in the market.” To demonstrate what kind of purchasing power 3PLs
have, Olson said Schneider Logistics, which is the 3PL arm of trucking company Schneider National
Inc., purchases more than $2 billion worth of transportation annually on its clients’ behalf. The
majority of the company’s business is between North America and Europe, but it is actively growing
its emphasis on Asia. In China, where market-oriented manufacturing activities are springing up
everywhere, 3PL is one of the fastest-growing industries, according to the 2003 China Logistics
User Survey, published jointly last August by the U.S.-based Georgia Institute of Technology
(Georgia Tech), the Singapore-based Logistics Institute Asia Pacific and theChina-based Institute
of Logistics and Transportation of the China Communications & Transportation Association.One
company that relies heavily on 3PLs is U.S.-based athletic wear and activewear manufacturer Russell
Corp. Scott Mosteller, vice president of supply chain at the company’s Athletic Group, which
oversees branded merchandise such as Russell Athletic, said his division has contracted a freight
forwarder to handle its shipments from the 20 or so countries it sources from, including Pakistan,
India and Brazil.“It’s a cost-benefit analysis of how much it would cost to use a freightforwarding
company versus how much it would cost to build the same network in-house,” Mosteller said.As the
3PL industry matures, some firms are starting to specialize in serving a particular product sector
or focusing on a specific mode of transportation.“I believe as more and more companies begin to use
3PLs, the providers will develop capabilities that are really tailored to a specific industry’s
needs,” said John Langley, professor of supply chain management at The Logistics Institute (TLI)
and director of the Supply Chain Executive Programs at Georgia Tech. “As they build up a critical
mass of customers, [these providers] also are trying to figure out their own core competencies.
They may find out that they really can’t be core-competent in serving a broad range of industries.
If they focus on a specific industry, they will not only do a better job for that industry, but
they also grow their business in that industry and maybe gain a much larger market share.”“It could
become attractive to us,” Mosteller said. “We are growing our sourcing volume year by year, and as
we get more total volume and units in, it’ll give us some flexibility to look at specialization to
reduce cost.”

UPS Supply Chain Solutions uses ships — along with trucks, planes and railcars — to transport
freight for its diverse customers.Timing Is EverythingThe logistical challenges faced by the
textile industry are no different from those experienced in other sectors of manufacturing —
shrinking product cycles, multiple vendors and manufacturing locations, rising expenses, and lack
of process visibility, among others.As with all other consumer goods, the textile product cycle is
getting shorter and shorter. Consumer tastes are fickle, and what sells today may be shunned
tomorrow, which is why logistics plays an important role in ensuring that the right products are at
the retailers at the right time.“The key is for companies to get their products at the lowest cost
from their manufacturing sources to their facilities and then to their stores without having to
store the goods for a long time,” Ross said. “For example, summer fashion is ordered or made the
previous summer or fall. Many retailers do not have large distribution centers or warehouses, and
they don’t want to receive the products in October or November of last year. They want to get it in
January.“In addition, retailers forecast what to allocate to each store, but the mix may have
changed by the time fashion comes around or the forecast didn’t hit quite accurately,” Ross
continued. “After they disperse the products to the stores, the stores then have to ship to each
other to rebalance inventory. We see interstore shipment as an expense and a customer service
issue.”A typical supply chain process flow starts with the manufactured goods being packaged and
shipped. Upon their arrival at their destination, the goods then will be delivered to a
distribution facility where individual labeling and packaging take place. Finally, the retail-ready
items are delivered to the final retail outlet.To reduce the amount of time products spend in
transit, the logistics industry is looking for ways to tweak the process. U.S.-based UPS Supply
Chain Solutions (UPS-SCS) offers what it calls Distribution Center By-Pass. The company operates a
number of logistics centers where much of the shipment preparation work, such as labeling and
palletizing according to final retail store destination, is done. Because each pallet can include
items from different manufacturers and suppliers headed for the same final retail store, upon
arrival at its destination, the pallet can be transferred directly to the store, thus bypassing the
distribution center.One such logistics center that UPS operates is in Shenzhen, China, which serves
the vast manufacturing region of southern China.

Schneider Logistics purchases more than $2 billion worth of transportation annually on its
clients’ behalf. An Ocean AwayPrecise timing itself is a moving target. Add in the unpredictability
that results from shipping goods from suppliers on one continent to buyers on another, and ensuring
a smooth logistics operation becomes a science.“More manufacturing continues to go overseas, and
the supply chain has become elongated. That makes it more complex,” said Lynette McIntire,
director, UPS-SCS. McIntire pointed out that instead of manufacturing textiles in South Carolina
and shipping products to New York, production now takes place in different countries across oceans,
which means there are more steps to manage as well as more things that could go wrong in between.
“The thing about being a global provider is you adapt to the local condition — you make it work.
The key is having reliable information,” she said.For the textile industry, the flow of goods is
mainly from the new manufacturing regions, such as Asia and Eastern Europe, to the markets in the
West. “The logistics challenge of bringing products from multiple manufacturers in, say, a given
Southeast Asian region is consolidating those manufacturers who might be from multiple countries to
a port for export, then getting accurate information as to how your containers are loaded, then
tracking those containers, making sure when they get to a port in the United States that they’re
then moved effectively and efficiently whether by rail or truck,” CGE&Y’s Ross said.“In most
supply chains, especially for international, you’re looking at trying to connect maybe 20 or 30
different entities to get a product from its original source through to its end consumer,” Olson
said. “Trying to make that work and simplify it so everybody understands the goal is hard. A good
company will make sure [the different parties in its supply chain] understand what its needs are
and what the drive is for the company’s mission.”In other words, the supply chain cannot be treated
as stand-alone pieces; instead, it involves an integrated and synchronized flow of both goods and
information. “A highly integrated supply chain is one whose participating companies communicate and
work effectively together,” Langley said.

Scott Mosteller, Russell CorpSuch integration, or visibility as Mosteller calls it, is what
Russell hopes to achieve with its transportation supplier. “The main issue that we have struggled
with is visibility of the product coming through the supply chain,” he said. “In many cases, we
lose visibility of it when it leaves the supplier until it shows up at our doorstep. Knowing that
the containers have actually reached Los Angeles and are waiting in Customs would be important for
us, especially for something that’s timely. A lot of times, instead of having that at our
fingertips on our keyboard, we have to actually call, and [the freight forwarder] has to trace it
down.”This is where technology can play a role. In fact, the question of how to leverage
information technology to achieve supply chain objectives is one of the topics that came up during
meetings of the Supply Chain Executive Forum, an industry group founded by Georgia Tech’s TLI and
led by Langley, who pointed out there are software tools available to help companies to better
understand and forecast their logistics needs, such as cost and time.“Supply chain visibility tools
are going to go a long way for people to get a good handle on their product flow,” Ross said. ”As
they get information about their product flow, it’s going to reveal to them where there may be cost
reduction opportunities because a lot of new information becomes available.”On the other hand,
Olson stressed that technology can only help so much. “Logistics is about people, process and
technology,” he said. “Technology is an enabler. But the more important thing is, do the companies
that you are trying to align with really understand and have good processes? Do their people
understand the processes? Are the processes aligned with the technologies? Sometimes people have
the technologies, but the processes don’t align, and you don’t have an effective organization.”

Rising CostsOne challenge that faces manufacturers and transportation providers alike is the
recent run-up in fuel prices. Manufacturing has moved to regions where low labor costs are
attractive; but, will the increasing cost of shipping negate any gains in production costs?In
addition, because of the geographic shift of manufacturing centers, demand for freight capacity has
become very unbalanced — namely, there is extremely high demand for routes going from Asia,
particularly China, to the West, but not vice versa. This also has driven up shipping expenses as
ocean and air carriers try to cover their costs of sending back empty containers.“The last couple
of years have been a great situation for asset-based providers to get rate increases, and they’ve
continually gotten those because the market balance is allowing them to,” Olson said. “If managed
effectively through a logistics provider, it can offer you alternatives or help to effectively
negotiate rates.“In the near term, the ocean [shipping] industry is in a very good position to
continue to get increased rates. It all has to do with a balance of capacity and demand. But, if a
new ocean [shipping] line enters the lane, that could rapidly change. In that industry, it’s about
asset utilization.”The End GoalAlmost all industry experts agree that the ultimate goal of
logistics is to improve operation efficiency and customer satisfaction. But, improving operation
efficiency through logistics is more than just lowering the costs of shipping products.“Logistics
should not only be an income statement activity where it’s just an expense or line item,” said
Olson. “In other words, when I spend X amount of transportation dollars, it should start to
leverage the balance sheet. It should start to reduce the cost of working capital by taking
inventory out of the pipeline. That frees up capital dollars for either more investment or further
acquisitions.”McIntire agreed. “Many companies look at supply chain cost simply as the cost per
kilo from point A to point B, and not at how much is tied up in inventories, and so forth,” she
said.In terms of satisfying customers’ needs, it is easy to make the mistake of assuming speed is
the only thing that matters. “The goal is to make sure service requirements are met exactly — that
is, making sure shipments are on time, which means not late and not early,” Langley said.

UPS-SPS can help customers consolidate their goods before they leave the point of origin.What
Does The Future Hold?How can the industry prepare for the future? The advice logistics experts
offer to the industry is: collaborate and reconfigure.”I see a continuing emphasis on the
participating organizations in the supply chain coordinating and collaborating because they have to
in order to satisfy their customers’ requirements,” Langley said. He added that TLI — whose members
include companies that are involved in the different stages of the supply chain, such as
manufacturers, retailers, 3PLs and technology firms — was established precisely to encourage more
collaboration. “The goal is that when issues come up, you can find somebody in the room who can
help address them,” he said.“A lot of manufacturers have got to look at their supply chain and
reconfigure. They need to ask if they are set, from a logistics perspective, to be able to
collaborate, because the future is collaboration,” Olson said. “I see a lot of reconfiguration [of
the network] — when companies are out there trying to collaborate, they realize that there are only
so many of their suppliers in their network they can truly collaborate with.”There is no doubt that
logistics and supply chain management are important aspects of any company. To see just how
important, consider this, as suggested by Ross: The current CEO of Wal-Mart Stores Inc. rose up
from the logistics and transportation ranks.

Summer 2004