July 2009 | News | Global Logistics

Global Logistics

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Nationalism is alive and thriving, and that has some public and private sector interests around the world worried that inward-pressing cultural forces could scuttle past efforts to break down bureaucratic trade barriers.

Look no further than the recent riots and long-simmering feud between ethnic Han and minority Uighurs in China—a conflict originally stoked by Uighurs' resentment toward government policies on labor equality in the workplace. Despite the European Union's widespread efforts to assimilate monetary and cultural differences, and grow trade synergies among member states, virulent strands of nationalism still exist there, too.

The Chinese government won't be cowed by this latest civil unrest; it's merely a blip on the country's ever-expanding economic radar. But elsewhere, fears are rampant that a widespread and lingering recession will compel governments, businesses, and consumers to pull back and protect their collective and respective interests. It's a natural survival instinct that breeds nativist attitudes toward commerce and trade, with both positive and negative consequences.

Labor Unrest

In terms of labor, economic nationalism protects domestic workers. But workers vote, too, which creates tension in the Western world, where labor is at a cost disadvantage. Authoritarian societies such as China have less proletarian-induced political pressure and are more easily able to quell resistance when it happens. To this end, they are acting more nationalistic, if less democratic.

The prelude to and postscript from this year's G8 Summit, which convened in L'Aquila, Italy from July 8 to 10, resulted in vigorous debate about how nationalism relates to economic recovery, free trade, and climate policy. In a meeting before the Summit, the International Chamber of Commerce (ICC) urged Italian Prime Minister Silvio Berlusconi and other global leaders to resist the pressures of economic nationalism amid these imminent challenges. "With the world as economically integrated as it has become over recent decades, any lurch into economic nationalism would dislocate commercial activity even further," observed ICC Honorary Chairman Marcus Wallenberg.

Paris-based ICC is the largest, most representative private sector association in the world, with hundreds of thousands of member companies in more than 130 countries. The United States Council for International Business (USCIB), based in New York, serves as ICC's American national committee.

The ICC praised recent promises by G20 leaders to refrain from raising trade barriers before the end of 2010, hoping signs that the recession may be bottoming out in some major economies would help increase manufacturing and consumer demand, and release credit worldwide.

The global association also encouraged the world's most industrialized countries to find more effective ways to reduce growing imbalances in their external current accounts and warned against a mood of regulatory enthusiasm in business sectors where self-regulation is working well.

Regulatory enthusiasm for climate control is raging. Rajat Gupta, ICC vice chairman and senior partner emeritus of the McKinsey Company, is resolute in calling for a unified position on emerging sustainability efforts. "Climate change is perhaps the best example of a global problem requiring a global solution," he says. "We are worried, however, about proposals in some countries to enact unilateral trade measures to address concerns arising from differences in climate policy among countries."

Cap and Trade or Cap and Tax?

In the United States, environmental policy stands front and center as a building drama unfolds on Capitol Hill. "Cap-and-trade" proponents are quickly pushing legislation through Congress, as "cap-and-tax" opponents hastily lobby for carbon offset tariffs on U.S. imports—one unilateral move after another, with the hopes they balance each other out. Some say that's progress; others think it's just cruel politics.

The idea of creating a level playing field, however, has been a rallying cry for the ICC and other private sector interests petitioning government and industry leaders to resist protectionism.

UPS CEO Scott Davis described global trade as a "positive force at a time when we are operating without a map and without precedent," while addressing government and business leaders at the Detroit Economic Club's National Summit this past June.

"Trade is a major force for good, for growth, and for jobs," Davis observed. "The threats are from both economic turmoil and the protectionist impulses it drives. We must argue that protectionism is the worst response at the worst time. We can't let political expediency cloud global reality."

But embracing and executing policies that encourage and ensure fluid trade, create jobs and economic growth, and tow the sustainability line ultimately pit social conscience against national self-interest—especially when it comes to green politicking.

The USCIB chimed in with its own position on tackling climate change during the G8 Summit. "Policies should be tailored to work with national priorities and capabilities," the USCIB declared. "All energy options have to be pursued to promote a balanced and non-discriminatory energy mix ≠ including traditional, renewable, and nuclear energy sources ≠ while exploiting fully the potential of energy efficiency."

As the USCIB suggests, "tailored policies" or compromises need to be made. Some countries exploit opportunities to harness nuclear energy and non-renewable fossil fuels; others seize the natural potential of renewable resources; fewer still grapple with the challenges of curbing emissions altogether. But as China and other less-developed nations prove true time and again, playing the green card isn't realistic if it means choking a coal-fueled economic engine.

Other Western-facing countries are locked into the doctrine of Green Trade, embracing its commendable potentials while sometimes ignoring its pitfalls.

"To facilitate the commercial diffusion of energy-efficient and low-carbon technologies, G8 countries should actively promote freer trade and investment liberalization, and support strong rules for intellectual property rights protection," the USCIB noted. "All countries should drop 'buy local' clauses in their stimulus plans, as this will undermine the effective deployment of green technologies."

Carbon Footprint vs. Human Imprint

In the United States, the "buy local" mantra may not even be an option, depending on how government weighs economic liberty versus environmental chastity. Reducing carbon footprints may, in fact, displace human imprints from the U.S. industrial landscape.

There are spoken and less well-spoken, and equally ambiguous, assents and dissents that an emissions tax on American production may or may not force U.S. businesses and consumers to ultimately source manufacturing plants, consumer goods, and most importantly labor, elsewhere.

What does all this timely discussion and debate about global free trade and climate policy really prescribe? To echo the words of UPS's Davis: "We can't let political expediency cloud global reality." But is there time for political cloudiness to catch up to global expediency?

If nothing else, it suggests a need for more time and more discussion about striking an equitable balance between national self-interest and global altruism, between what is good for U.S. industry and labor and what looks and feels good in the global mirror.

In the short term, opportunities exist to coalesce government and private sector support for sustainability efforts in a more collaborative way, instead of creating division. The Environmental Protection Agency's SmartWay Transport Partnership is one such example.

Realistically, in the long term, the war for free trade and green peace will likely be one of attrition—of pretense, then reality. Even with globalization, the world remains an uneven playing field, and climate policy is no different. There are countries that will be leaders, others that will follow, and those that will remain resolute in doing things their own way.

Connecting the Cosmic Supply Chain

Satcon Technology Corporation's future potential is blowing in the wind and shining from the sky. Its only suppliers are the earth and the sun. But its customer base is 6.7 billion strong, and growing. Naturally, the company is focusing on universal supply chain management to match renewable resources to ready demand.

Headquartered in Boston, Satcon Technology Corporation designs and manufactures energy systems for solar photovoltaic, stationary fuel cells, and energy storage systems, which allow utilities to capture renewable energy sources. The company recently announced plans to expand its global manufacturing capacity to more than 600 megawatts in 2009, between its manufacturing facilities in Burlington, Ontario, Canada, and Shenzhen, China. In concert with this production surge, Satcon is partnering with third-party logistics provider DB Schenker Logistics to provide global logistics and transportation services.

"As demand for our commercial and utility scale solutions increases worldwide, we must construct an international supply chain capable of delivering high levels of service and support for our customers," says Pete DeGraff, Satcon's vice president of worldwide sales and marketing.

"The combination of increasing our international manufacturing capacity and our partnership with Schenker will enable us to continue to deliver competitive product lead times, local spare parts inventories, and global logistics capabilities and ensure a high customer service level over the entire lifecycle of their solar projects," he adds.

Satcon will partner with DB Schenker's solar division to deliver global transportation services for its inverter operations located in Burlington; Shenzhen; and Fremont, Calif. Satcon will also utilize DB Schenker in North America, Europe, and Asia to provide logistics and distribution services, including final delivery to customers through the service provider's extensive land transport network.

India Attracts New Company

A delegation of 10 ports and logistics companies from the United Kingdom recently visited Chennai, India, to explore options for investing in the country's emerging port complexes. The invitation came as a result of the Indian government's stimulus package aimed at accelerating the growth of infrastructure via a private-public partnership working model.

The UK port development industry has reached critical mass with little room for additional growth, says Gordon Rankine, chairman, UK Ports and Terminals Group. By contrast, India has abundant potential and the government has placed a number of port-related projects on the fast track.

The delegation emphasized India's need for logistics parks—including ports, air terminals, roadways, rail connectivity, and warehouses—to manage cargo moving through its complexes. The country's reckoning as an offshore rival to China demands government make a concerted effort to develop India's ports and invest in inland transportation infrastructure to build out this network. By comparison, China currently touts nine container facilities among the world's top 50 ports. Of its 12 coastal ports, India has one, Jawaharlal Nehru, among the top 50; and it only surpasses one Chinese port, Dalian, in terms of TEU volume.

But the promise of growing foreign investment from countries such as the UK bodes well for India's future as a manufacturing and logistics crossroads.

The delegation expressed interest in engaging in technical consultancy, port management, and operations partnerships. European port companies are all looking at emerging markets now, however, and the most popular destination is the Middle East. "The Indian government might need to incentivize port activities in India to attract those companies here," says Rankine.

RFID Wave Ready to Surge?

Walmart has been a vanguard in applying RFID technology throughout its supply chain, and encouraging suppliers and partners to comply. Now, other global-spanning pioneers are making the hype more hip.

Following the well-publicized Radio Frequency Identification (RFID) pilot programs engineered by German retailer METRO Group and IBM, European apparel retailer Charles Vˆgele is exploring its own horizons with the much-hyped visibility standard.

The $1.3-billion, 851-store Swiss retailer recently implemented Checkpoint Systems' Merchandise Visibility software to provide a comprehensive, source-to-store solution across its entire supply chain—from point of manufacture to point of sale—using standard EPC Gen 2 labels.

Charles Vˆgele's application combines the strengths of the Thorofare, N.J., integrated solution provider's capabilities in shrink management and merchandise visibility—including hardware, services, and tags—and its Check-Net global ticketing service. The bundled implementation enables retailers to streamline their supply chains by applying smart tags to apparel merchandise at point of manufacture, and reading the tags throughout logistics operations to the retail point of sale.

Once at the store, retailers can improve operations and increase shelf availability by tracking item-level merchandise throughout the facility: into the back room, on the selling floor, in fitting rooms, and at point of sale. This visibility enables users to optimize inventory replenishment, reduce out-of-stocks and on-hand inventory, and improve sales. For Charles Vˆgele, this means getting the right merchandise to the right store shelves at the right time—which is no small task given the fact that it has 70 million garments sourced annually from more than 400 suppliers through 34 consolidation hubs in Asia and Europe.

"Our adoption of RFID has transformed and improved our operations from source to store," says Thomas Beckmann, vice president of supply chain, Charles Vˆgele Group. "We have begun streamlining operations and supporting sales in ways that were not possible before; in many ways this marks the beginning of a retail revolution."

Charles Vˆgele can now track and trace individual garments along its entire supply chain, gaining unprecedented real-time visibility. This capability enables retailers to reduce logistics errors automatically, eliminating exceptions such as packing errors and inaccurate shipments.

The benefits of the Merchandise Visibility solution extend throughout Charles Vˆgele's stores as well. Employees can capture a more accurate view of merchandise on the sales floor and in the back room, re-stocking inventory faster and more efficiently than using the previous manual process.

Valtra Leans on RFID

Finnish tractor manufacturer Valtra has partnered with a compatriot RFID solution provider, Vilant Systems, to pull supply to demand by automating material supply processes and buffer management at its Suolahti manufacturing plant.

The RFID system triggers replenishment orders based on material consumption movements directly to suppliers. Goods-receiving is automated with RFID-enabled conveyors. Gates at the dock doors and material stock levels are maintained in real time, therefore improving efficiency, reducing errors, and preventing shortages.

In Valtra's system, RFID-enabled forklifts read tagged pallets as they move from the material buffer to the consumption area where orders are triggered for replenishment. Goods- receiving dock doors and inbound conveyors are also equipped with RFID readers for automatic goods reception, and Vilant's software controls the readers and integrates the information to the manufacturer's ERP system.

Thus far, inbound visibility is improving material availability within the factory. Goods-receiving automation saves labor cost in the inbound process. Real-time visibility of goods movements enhances control, and inventory information is more accurate. The real-time replenishment for material consumption improves inventory cycle time.

In total, the RFID system improves many areas of material flow, which is one key component of modern lean production improvement methodology.

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