Global Logistics-December 2008

Imagine what it would be like to slice inventory in half, cut out 2,000 suppliers, and whittle almost $500 million in total costs from your supply chain. With the help of IBM’s Integrated Supply Chain organization, Australia’s leading telecommunications player, Telstra, is bringing this demand-driven vision to reality.

In September 2006, Telstra entered a strategic seven-year partnership with IBM to overhaul its procurement operations in an effort to capture greater control, visibility, and internal compliance and reduce total supply chain costs.

For Australia’s largest telecom company, procurement is a sizable operation. It accounts for $7 billion annually, and involves approximately 8,000 suppliers across 46 different commodity families—from ordinary office supplies to mission-critical network hardware.

Given the scale of its purchasing operation and the number of vendors in its network, visibility was variable, redundancies were rampant, and costs were out of control. To support a broader end-to-end corporate transformation strategy, Telstra made the decision to outsource procurement to IBM.

The three-phase project began as Telstra built the necessary procurement infrastructure and automated end-to-end processes to support the transformation. Phase II, which started in late 2007, is the truly significant part of the project from a business standpoint, according to Ian Wheatley, executive director for Telstra procurement.

“In Phase II, IBM will provide a single, end-to-end view of our inventory supply chain and enable us to deliver the right part, to the right place, at the right time—improving customer service and reducing costs,” he says.

This phase entails improving Telstra’s efficiency in ordering, managing, and delivering telecommunication parts to technicians and engineers in the field.

Currently, Telstra’s technicians visit inventory stations to source parts. As the company moves toward a demand-driven supply chain, it will deliver supplies directly to technicians’ homes.

The third phase of the project will introduce demand and supply chain planning to fully optimize end-to-end supply chain operations.

“Our supply chain was once seen as a back-office function,” says Wheatley. “Now it’s a competitive advantage.”

Turn Ahead: TexMex Manufacturing

Much of the ongoing discourse about American companies bringing manufacturing back to the United States has proven to be more rumor than reality. Companies heavily invested in areas such as Asia might find it strategically prohibitive to pull out now—especially as some begin targeting offshore markets as new sell-in opportunities.

In light of rising transportation costs and speed-to-market demands, pressures to balance sourcing strategies by nesting some manufacturing and value-added logistics activities closer to home are manifest.

A new federally funded study spearheaded by the Texas Engineering Extension Service, in concert with Texas A&M University’s Global Manufacturing and Distribution Research Initiative, explores the critical success factors necessary to make nearshoring a reality along the Texas-Mexico trade corridor.

The South Texas Trade Corridor Competitiveness Study: Leading Global Supply Chain Throughput in South Texas focuses on the role of the region’s ports, transportation routes, and maquila industries in establishing trade corridors for targeted industries.

Initial results suggest that Asia-sourcing manufacturers struggle with quality issues, increased inventory, and other risks due to lengthening supply chains. The question remains whether this creates opportunity for developing manufacturing along the Texas-Mexico border and whether U.S. businesses will look toward Mexico as more than a “maquila factory.”

Middle East Hot Despite Global Freeze

While much of the world is consumed by the current or looming reality of an economic chill, the Middle East sits squarely in the middle of a logistics infrastructure flare up. Sparked by the Iraq War’s supply and demand surge, and countries such as the United Arab Emirates (UAE) expanding their economic footprints beyond oil production, transportation and logistics activities are heating up—and grabbing the attention of service and manufacturing industries alike.

Logistics business in the region is expected to grow by nearly 20 percent annually, according to Matthew Derrick, general manager of Momentum Logistics, speaking recently at the company’s official launch in Dubai.

Aptly named, the newly christened 3PL is building on the momentum of this anticipated growth to cement a position in the Middle East market. A subsidiary of international port management company Gulftainer, Momentum Logistics is based out of the Sharjah Inland Container Depot (SICD), the future site of the company’s International Logistics City—a 2.3-million-square-foot development that will feature Momentum’s first 82,000-square-foot distribution center.

In close proximity to the Khorfakkan and Sharjah container ports, the SICD is quickly growing into the primary transshipment point for east-west trade bound for markets in Dubai, Sharjah, and Abu Dhabi on the Arabian Gulf Coast.

Outside the Middle East eye, global companies are also ramping up investment in the region, looking to capture a piece of burgeoning container trade between the West and Far East as well as growing consumer demand in the UAE and Saudi Arabia.

Danzas AEI Emirates, part of DHL, a leading provider of logistics solutions, recently opened a 260,000-square-foot multi-purpose logistics facility in Dubai’s Jebel Ali Free Zone, further consolidating the company’s Middle Eastern footprint.

“The Gulf is ideally positioned, with access not just to Europe, Africa, and Asia, but also to the fast-developing Indian subcontinent and its huge manufacturing output,” observes Hermann Ude, CEO of DHL Global Forwarding, Freight. “This is combined with the future benefits of operating from the only free zone in the world to be located between an airport and a seaport.”

As companies with DHL’s clout and service capabilities continue to penetrate the Middle East market, they open up opportunities for U.S. businesses to make further inroads in the region.

To point, Kraft Foods’ Middle East and Africa operation has shown strong growth in the region, reporting a 19.4-percent increase in operating income during the third quarter of 2008. Successful investments in the region, including increased local production of Kraft Foods Power Brands in beverages, cheese, and biscuits, as well as increased efficiencies in local manufacturing and logistics, have driven significant volume, revenue, and profit growth across the region.

The U.S. food and beverage company currently operates six manufacturing facilities in the region, producing a variety of Kraft products. It also has contract manufacturing and license agreements in the UAE, Saudi Arabia, Egypt, and South Africa.

As established global service providers such as DHL and upstarts like Momentum Logistics grow their market share in the region, the Middle East’s allure as a transportation, sourcing, and selling hot spot will draw the interest of expanding global businesses.