On Your Mark, Get Set, Go Global
As companies race to enter new global markets, many rely on 3PLs to help hurdle cultural and business barriers, while also controlling inbound transportation, driving down costs, reducing inventories, and ultimately mitigating potential supply chain bottlenecks.
Most sprints are won or lost at the starting block—a misstep, a lapse of concentration, a case of nerves, or perhaps even a poor game plan. A similar case can be made for global outsourcing.
For today’s global player, the pressure to jumpstart the competition is overwhelming. Supply chain speed and velocity are a given, thanks in dual part to web-based communication and data sharing capabilities, and innovative transportation equipment and infrastructure. Technology has similarly leveled the playing field for global companies of all sizes.
In an effort to gain a competitive edge, enterprises increasingly align themselves with third-party logistics providers (3PLs) that can coach them through the hurdles of sourcing, manufacturing, and distributing product in global markets and draw up a strategic blueprint for scaling and managing growth over the long term.
Businesses no longer simply lean on 3PLs; rather, they piggyback on the assets, resources, logistics talent, and contacts global integrators have nurtured in burgeoning markets across the world.
As new markets open up, manufacturers and retailers continuously look for the next best sourcing option. The ability to switch trade lanes, and engage and disengage in different markets with the least amount of effort and investment, is critical to not only maintaining competitive leverage, but also building flexibility and reliability into global supply chains wrought with potential obstacles.
As reliance on global outsourcing grows, businesses glean other advantages: 3PLs help them control inbound transportation, drive down costs, reduce inventories, and ultimately mitigate potential supply chain bottlenecks. Managing product at point-of-origin allows businesses to have better visibility of moving inventory, reroute shipments when problems occur, and negotiate better rates. The result? A more predictable and reliable pipeline for moving product around the world.
“When a business has confidence in its supply chain network, inventory levels reflect that reliability. Having a third-party partner with a global presence is vital to building predictability in the supply chain, especially considering the shortage of airlift capacity in Asia, port capacity constraints on the West Coast, and the current driver shortage,” says Brooks Bentz, associate partner with Accenture.
For their part, 3PLs are taking a bilateral approach to increasing demand for their services. Larger providers with a truly global presence continue to expand their service portfolios, acquire complementary companies, and invest in technology, assets, and infrastructure in an effort to provide a complete end-to-end, one-stop solution. Some are even entering the 4PL stratum, especially as global businesses engage multiple outsourced service providers.
Smaller players are looking at the specific needs of their core customers, focusing on hot regions or industries, and fulfilling a niche capability rather than a full palate of services.
Each type of service provider has unique advantages that match specific outsourcing needs. The first hurdle for global outsourcers is finding the right third-party service provider. Then the race really begins.
When SR Instruments, an industrial scales component manufacturer based in Tonawanda, N.Y., considered making inroads into China it didn’t think twice about contacting PBB Global Logistics. At the time, the Toronto, Canada-based 3PL was launching its first trade mission to China. Theresa Eyring, marketing director for SR Instruments, was a member of that inaugural program.
“We needed to find alternate sources for our electronics parts manufacturing. I joined PBB’s Access China mission because going alone to China is difficult if you don’t know the business or have contacts. PBB introduced me formally to people in China who had similar business opportunities,” Eyring says.
The advantages of partnering with an established player in China are important, especially for businesses with little or no experience operating in Asia.
“For new entrants into China, aligning with a 3PL that is already on the ground and running makes sense. In China, the government wants to be your partner so you need an able intermediary that is familiar with these types of business differences,” says Bentz.
PBB’s Access China trade mission, now in its fifth year, gives companies looking to do business in China the opportunity to meet industry leaders and high-level government officials as well as tour facilities across the country, says Josephine Boyle, director of PBB Global’s Access China Program.
Because logistics infrastructure in China is developing quickly, there is a demand for third parties that can coordinate these business activities.
“Depending on their product, companies need to go to the right area to find a suitable factory,” Boyle adds. “Then they need to know how to communicate with these factories. PBB uses its Chinese resources to facilitate trade arrangements.”
PBB’s value proposition is helping North American companies navigate numerous government and cultural obstacles to building business partnerships in China so they can establish and grow partnerships with Chinese companies.
PBB’s network of agents throughout China can handle problems, answer questions, and arrange trucking, ocean freight, and inbound transportation, as well as final distribution in the United States and Canada. On her first trip, Eyring was able to forge relationships with various agents in China, including an independent consultant that SR Instruments currently partners with to help coordinate and explore business opportunities.
Initially, SR Instruments began working with one factory and in five years has expanded its manufacturing activities to five different facilities in China.
“Each trip we find a new vendor that specializes in a different technique. Because we have a lot of options, we can be selective in picking the company that best matches our business model,” Eyring says.
Alternatively, SR Instruments would have had to work through contacts or brokers in the United States to tap the Chinese market. Currently with PBB, it designs directly with the Chinese factories, eliminating an entire level of operation.
“Now if we need a product, we submit a drawing to a factory for quote and bid, they send samples, and upon approval they manufacture it for us. It’s custom-built to our specifications,” Eyring says.
Aside from helping SR Instruments enter the Chinese market, PBB also coordinates all transportation inbound into the United States and outbound from the manufacturer’s New York headquarters to its customers. The same relationships it has forged in China have translated to the transportation side as well, enabling it to provide a cost-effective and efficient network to handle end-to end distribution of goods.
“If I have a shipment coming to the United States, I email the agent in Shanghai that a 20-foot container will be at this location FOB Shanghai,” Eyring explains. “The agent calls the factory, coordinates the entire effort, and makes sure the shipment gets to the loading dock and on the ship in time. PBB gives us a price quote, so we know exactly what it costs, and also notifies us if there’s a concern with a particular shipment.”
PBB also consolidates shipments with other companies that have similar product going through the same ports, which helps reduce SR Instruments’ freight costs. When shipments arrive at its Tonawanda facility, PBB handles the transportation to end customers.
“We used to call all the trucking companies, get the best bid, and make arrangements for pickup or outbound shipments. Now PBB handles the entire process,” says Eyring.
Moving forward, SR Instruments anticipates bringing on other vendors to co-manufacture more products, but doesn’t expect to establish anything permanent in China.
Not all global businesses are looking simply at sourcing or manufacturing product from new regions; some seek to expand and grow their operations or move assemblage activities closer to major consumer markets. In these circumstances, businesses need a provider that can help them adopt an appropriate inventory and distribution strategy.
“Companies with emerging business in a new region are faced with a dilemma: do they position products in that region to offer responsive order turnaround time and help sales, or do they ship from an out-of-region DC?” asks Bob Bassett, vice president of sales and marketing, Menlo Worldwide, Redwood City, Calif. “When sales are low or customers are few, positioning inventory is risky. There is a greater probability of having too much, too little, or the wrong items.”
Alimentos Capullo, a subsidiary of Associated British Foods PLC, the international food, ingredient, and retail group and parent company of Anderson Clayton Humko Food Companies Inc. (ACH), faced a similar predicament when it expanded its business into Mexico.
In 2003 ACH acquired Unilever Mexico’s oil and shortening business, which includes brands such as Capullo, Mazola, and Inca; then expanded into corn syrups and peanut butter by acquiring Karo and Aladino. Alimentos Capullo emerged as a result of these acquisitions.
“To achieve our first objective—securing a quick and reliable startup—we needed an easy transition for the continued distribution of products already in the market,” says Jorge Gordillo, supply chain director for Alimentos Capullo in Mexico.
Exel Excels in Mexico
To facilitate this transition, Alimentos Capullo partnered with Exel because of its knowledge of Mexico’s consumer sector (it serves customers including Gatorade, Coca-Cola, and Unilever) and its existing network of facilities and infrastructure throughout the country.
The British 3PL, which has American headquarters in Westerville, Ohio, operates more than 30 locations throughout Mexico, with strong presence in the main economic markets of Monterrey, Guadalajara, and Tijuana. Additionally, its network of crossdocks and shared-use transportation provides national distribution capabilities.
“It made sense for us to work with a 3PL that had the market expertise to handle our products,” Gordillo adds. “Exel was already handling most of our products as part of the Unilever operation. Further, we needed a company that could apply its knowledge to creating a startup distribution center operation while helping us secure national coverage for distribution of our products.”
Exel’s local knowledge served as a great asset when Alimentos Capullo began mapping out a network strategy to support entry into the Mexican market. One goal of allying with a 3PL was a widespread rollout, rather than scaled growth.
“We never considered a progressive startup; this was always projected to be a simultaneous countrywide start, which at first glance could have made the project more complex,” Gordillo says. “Our already established and reliable supply chain, however, allowed us to launch countrywide without a problem. We also took advantage of Exel’s existing distribution network in Mexico.”
Ironing Out Internal Obstacles
Having a tightly defined vision of what both parties expected helped iron out any internal obstacles that may have arisen.
“Resistance to change was minimal as both organizations had a clear definition of the project’s final objective,” says Daniel Pardo, Exel’s senior director operations, consumer, retail, health care, chemical, and industrial.
Close collaboration and a strong project management process were key factors in turning a shared vision into a successful network integration for Alimentos Capullo in Mexico, he notes.
Moving forward, Gordillo expects to build on Alimentos Capullo’s existing partnership with Exel and continue to leverage its expertise, knowledge, and assets to maximize the supply chain and ensure on-time, cost-effective product distribution.
“Our core business continues to be marketing and selling branded products,” says Gardillo. “The results of partnering with a 3PL give us no reason to think we can do logistics and distribution any better on our own. We expect to keep this partnership going well into the future.”
Reverse Global Outsourcing
While companies such as Alimentos Capullo look to leverage their 3PL’s in-country assets to facilitate end distribution to customers, others seeking partners that can help broker transportation space in capacity-constrained markets.
Such was the case when Japanese automobile manufacturer Hino wanted to expand its market presence in the United States.
Hino, which produces 93,000 medium-duty trucks annually, was looking to recapitalize its distribution component for the United States, says Derek Kaufman, senior vice president of sales, Hino.
For the manufacturer’s newest breed of trucks, engines and cabs are built in Japan, while American suppliers build the power train. The company’s goal was to manufacture parts in both Asia and the United States, and perform final assembly closer to demand to reap significant cost reductions.
Transporting products through West Coast ports presented clear risks, however.
“Our product comes through the West Coast, then is consolidated in the Midwest,” says Kaufman. “This requires long lead times. We operate on a lean inventory model, which, given obvious complications at U.S. ports, poses problems in maintaining supply chain velocity and fluidity, and not warehousing spare parts as a contingency.”
Moreover, once product is transshipped through the ports, the challenges of finding available truckload and rail capacity are equally daunting—especially for a just-in-time manufacturing and assemblage operation that depends on timeliness and reliability.
“It is difficult moving product over the road in the United States because of capacity constraints, urban congestion, aging infrastructure, fuel costs, and driver shortages,” notes Kaufman. “That’s why working with a 3PL that has established relationships with various modes and companies is vital.”
To facilitate inbound transportation into the United States and redistribution inland, Hino partnered with Vascor LTD, a joint venture 3PL orchestrated by APL Logistics and Japanese forwarder, FUJITRANS Corporation, located in Georgetown, Ky. Vascor focuses specifically on the automobile industry and distribution in North America—an important consideration for Hino.
“Our pedigree is being involved in the automobile and industrial equipment industries. We understand it and we live it,” says Jim Brutsman, manager of business development at Vascor.
Hino had not previously operated in the United States, so it had little knowledge of the U.S. transportation matrix, particularly in the intermodal and trucking sectors. Unlike Japanese automobile suppliers that are accustomed to the demands of a JIT supply chain, U.S. transportation and trucking companies are less experienced with these nuances, notes Brutsman. It would have been difficult for Hino to go it alone or contract with just any carrier.
“One important consideration is educating transportation partners that the inbound supply chain is part of the manufacturing process,” says Brutsman. “Everything is tighter because of Hino’s manufacturing legacy. The time from manufacturer to delivery is shorter because of the simple fact that parts are being produced in the United States.”
Under its current contract, Vascor ships all Hino trucks and parts outbound from Asia, and handles coordination of inbound product from global sourcers. Because of its contacts and partnerships with U.S. trucking and rail carriers, Vascor has been able to leverage its network to meet Hino’s JIT needs.
“Earlier this year, for example, we were able to find available truck capacity when the rails had some issues,” says Brustman. “We have the flexibility and network of carriers to find contingencies.”
In order for Hino to grow market share it needed to be responsive to the market. “We needed a solutions provider that could facilitate this transition and offer us complete coordination with a number of service providers across different modes,” Kaufman says.
Vascor’s flexibility in handling both inbound and outbound shipments, and tuning its system to meet Hino’s market demands has been the key to its success, he concludes.
As more global businesses align themselves with 3PLs, one overriding concern is how well customers will embrace their presence. Third-party logistics providers and outsourcers are collectively trying to create as seamless a transition as possible to ensure all business partners remain satisfied.
“We’re helping customers understand the new local market and how that should be balanced with standard global processes that can be leveraged,” says Exel’s Pardo. “Like most supply chain solutions, integration is key. Market entry solutions are typically integrated with existing solutions.”
Aside from proper assimilation of systems, processes, and technology, transitioning to a new global market also entails cultural integration of employees and business practices.
“Exel has the ability to take on our philosophy and act truly as our face to the customer,” says Gordilla. “Internally, we work as one team. Together, we evaluate goals and devise strategies to attain them.
“Realizing that we have the same working philosophy gives us peace of mind that the customer will receive service just as if it were coming from us,” he says.
Among their different guises, global 3PLs are morphing into sales, marketing, and customer relations liaisons for their customers. Having logistics management expertise is only part of the equation; successful partnerships also require due diligence, research, and savvy in mitigating cultural and business barriers.
Part of PBB Global’s strength, for example, is that it has been involved in bilateral trade development between the United States and China, not only helping U.S. companies create business opportunities abroad, but also assisting the Chinese government in identifying global sourcing options as well.
This perspective has given PBB greater leverage in developing its relationships with the Chinese government and national businesses to make it easier for U.S. and Canadian companies to enter the country and operate effectively.
Another area global businesses and their partners must consider is logistics expertise: will they export middle-level management or recruit homegrown talent? Increasingly global 3PLs tap into local labor pools to recruit employees rather than import expertise from the United States.
“In Asia, in-country offices tend to be staffed by locals. It is uniform across the region; there is little importing of talent,” says Accenture’s Bentz.
Bob Bassett agrees. “Menlo is tapping homegrown talent,” he says. “We may import logistics expertise from the United States for a startup, but our use of U.S. expatriates is low; local talent usually manages our ongoing operations.”
Exel entered the Mexican market approximately 12 years ago with the intent of fully utilizing Mexico’s strong talent base. Expertise from existing operations within the United States assisted with initial startup before returning to their home sites.
“Today, the leadership team in Mexico works hard to develop local talent to support current operations and projected growth,” says Pardo. “Those who are already established within Exel in Mexico play a key role in training our new associates to understand the region’s supply chain nuances.”
Global 3PLs and their customers can similarly help grow logistics expertise by partnering with universities around the world to further develop their programs and offer prospective logisticians an avenue into the global supply chain.
Exel, by example, is contributing resources to support the development of professional logistics activities and educational opportunities. In Mexico, the logistics discipline does not exist as a professional career, so Exel prepares ad-hoc material for academic institutions that is sometimes included within the curricula.
A Global Crossroads
Increased dependence on global outsourcing will likely compel businesses to pursue multiple logistics partners, especially those allying with providers that serve niche needs. The growth of the 4PL industry will likely follow along these growth trends, suggests Accenture’s Bentz, though he doesn’t expect 4PLs to grow into their own niche space.
“The 4PL phenomenon has been evolutionary rather than revolutionary. The market hasn’t matured yet,” says Bentz. “Companies are moving toward streamlining a forwarder pool from 30 to three for example, and they find value in having one single point of contact globally to properly communicate information and manage shipments.
“The 4PL’s role will be to negotiate big deals with 3PLs,” he adds. Major global 3PLs and consultants that offer more objectivity will likely fill the role of the 4PL, and help businesses manage and coordinate their outsourced service providers.
Perhaps even more telling than how 4PLs will factor into future global supply chain management is the direction global outsourcing will take 3PLs—a trend that raises more questions than answers: Will the all-in-one, “I can do everything for you” service providers ultimately fare better than niche players? And where does that leave medium-sized companies?
Current speculation is that middle-of-the-road service providers that offer a solution somewhere in-between and do not gravitate to one or the other pole, will ultimately be pushed out of the marketplace or acquired by larger companies.
Another question that looms large is whether transportation companies will continue to blur lines and expand their value proposition to include value-added activities or contract back to core expertise. There is some consideration that 3PLs are diluting their focus, draining capital, and ultimately straying from their core business interest. Customer demand will ultimately parse out answers to these questions.
Global outsourcers are similarly coming to a global crossroads as they continue to seek new markets and business opportunities. In theory, as companies extend their reach around the globe, their vision of supply chain management should zoom in on managing inbound logistics—the Holy Grail of supply chain enlightenment. Many businesses, however, are still grappling with the sheer size of their supply networks.
“We still have some customers who struggle with a long supply chain—they are long in lead time and long in transit time,” says Menlo’s Bob Bassett. “This reduces agility and increases exposure to inaccurate sales forecasts.”
Clearly, though, global 3PLs are steering enterprises in the right direction. Global outsourcers, for their part, are quickly learning the ropes and how to avoid pitfalls. Jumping the gun without a sound strategy and plan in place, and without stamina for growth, will ultimately leave them chasing the pack.
More so than ever before, supply chain agility rather than speed is the most important strength global businesses can bring to the game. 3PLs will continue to flex their muscles and help businesses realize their short- and long-term goals. Outsourcers can’t wait to get to the starting line.