Although using overseas vendors and manufacturing plants has its drawbacks � more languages, distance and complexity, just to name a few � the savings and advantages that can be attained from doing so have become too considerable for most companies to ignore.
The simple reality is that many countries outside of the United States offer highly competitive plant space and labor, making them extremely attractive as manufacturing venues. Many of the manufacturers in those countries offer highly competitive prices for their finished goods. And many of the economic and political barriers that once prevented companies from venturing beyond their own back yards no longer exist.
Take a Bow
The good news is that you, as logistics professionals, can take some of the credit for the increased attractiveness of international sourcing. Since the early 70s, logistics costs as a percentage of product price have dropped substantially. In fact, when you adjust for inflation, it actually costs less to transport most products now than it did 30 years ago. For example, as much as 30% of a barrel of oil�s delivered price used to be transportation-related; today, that figure is less than five percent. Or it might cost a company just 19� to ship a pair of $100 running shoes from Asia to the United States, provided the shoes traveled in a bulk container.
These reduced costs mean that companies can no longer use high logistics costs as their excuse for not pursuing worldwide sourcing because the added transportation costs are going to be more than offset by the other savings.
Take on Extra Responsibilities
The bad news is your job is probably going to get harder, rather than easier, as a result of this growing international trend. As anyone who�s ever managed a global supply chain can tell you, it can be exponentially more difficult than managing a domestic one.
For starters, it means contending with numerous extra steps. These steps include tracking domestic movement in the country where materials are manufactured, tracking materials from factory to port, monitoring the location of product in port and, if product is moving via less-than-containerload, monitoring how materials are coming together before tracking their progress over the ocean and then overseeing their deconsolidation. In addition, using global suppliers or manufacturing plants means dealing with at least 20 to 30 more days of inventory carrying cost if you use ocean shipping. And it means working with players who have more diverse logistics processes � all in a time when logistics expectations and stakes have never been higher.
While it�s always been important to move and manage materials in a timely and accurate manner, today�s to-the-second production lines make the consequences of a late or mistaken inbound delivery incredibly high because every lost minute can cost tens of thousands of dollars.
And today�s customers are no less demanding. There are some large retailers that fine companies as much as $10,000 if they�re late for deliveries. And the papers are full of stories about e-tailers who missed their deliveries � a service lapse that cost them big in terms of lost business, reputation and Federal Trade Commission fines.
Bottom line? While the literal cost of overseas shipping may be nominal, the importance of the logistics process cannot be discounted. Neither can the importance of strong logistics information systems � because they are the thread that ties the whole process and all the players together.
Get with the Systems
As is the case with most 21st century businesses, the companies that excel in the global supply chain management arena will be the ones that buy or develop the strongest inventory visibility systems. Although the sun eventually set on the former British Empire, the sun cannot set on a company�s sense of where its products and supplies are in the global pipeline. Without such a big picture view, it�s all too easy to end up with a fragmented and confusing production scenario, not to mention added expense. Companies must have a sound sense of what is going on in the world with their products and supplies, and that means having the right communications and integration tools in place. It also means having the right communications professionals in place.
Even within the United States, it can be difficult to exchange information electronically because companies use so many different standards for their electronic data interchange. When doing business internationally, it is essential to recruit or contract with professionals who are fluent in several different computer languages and skilled at finding a common reporting language that can be used by every international player in your supply channel.
Also, bear in mind that different areas of the world have vastly different levels of computer expertise. A supplier in Sweden, a world leader in the use of mobile computing devices, probably won�t have difficulty with anything you throw its way. However a supplier in a remote, third-world location is probably going to need some extra coaching or systems training to learn how to use systems your way.
Parting Words
No current commentary on international business would be complete without some mention of how international supply chain management has changed in the wake of the September 11 attacks. Although those attacks inspired a wave of patriotism not seen since World War II, they have not deterred companies from their plans to move forward with or continue international sourcing. They have, however, made international venues that are closer to home, such as Mexico, Guatemala and Honduras, much more attractive.
Part of this geographic shift reflects an attempt to keep the distance between manufacturing point and end customer as nominal as possible. Another part reflects companies� desire to avoid areas of the world where the economic and political situation is highly volatile. Companies doing business outside of the United States do have to accept that some unrest or uncertainty does occasionally go with the territory. Add to that the fact that some countries� workdays begin hours after ours ends, that there are countless different languages and dialects and that there are myriad import/export issues, and it�s easy to see why some countries decide to take the path of least resistance and keep everything domestic.
However, don�t let these challenges prevent your company from at least considering the merits of international sourcing because there truly is a world of opportunity out there, and if you work with the right kinds of suppliers and 3PLs, the world can be your oyster.
Michael Gardner is global chief operating officer for APL Logistics. For more information, please visit