How to Tackle Mission-Critical Logistics in an Emerging Market
Mission-critical logistics in the United States is manageable; acceptable in Western Europe; and nearing acceptability in maturing Asian markets, yet still manageable. In emerging markets such as Latin America, service parts logistics is incredibly immature. Businesses looking to grow in these areas must balance the risk/reward of supporting customers efficiently and cost-effectively.
Service parts represent the second-largest service operations expense after skilled labor. Therefore, optimizing inventory and satisfying customers from the beginning by ensuring the right parts arrive at the right time—and in the right location—is crucial to growing business and driving profitability. This requires a complete logistics infrastructure that links robust, integrated systems throughout the service parts supply chain.
In mature markets, businesses routinely look for ways to optimize and streamline their service parts supply chain to reduce costs and drive efficiency. This requires a responsive and efficient pipeline that can scale part supply to manufacturing demand on the front end, and accommodate customer service demand with aftermarket support and reverse logistics processes on the back end. This integrated, end-to-end supply chain through the entire lifecycle of the finished good is critical. Ensuring process and technology are properly aligned and connected to communicate mission-critical information and visibility between parts suppliers, manufacturing sites, customers, and field service facilities is no small task.
Imagine the difficulties in emerging markets, where manufacturing and distribution capacity is constrained by geography, transportation and logistics sophistication, government regulations, and protocol. The challenges of creating an efficient and responsive distribution network that can deploy mission-critical service inventory so that the bank’s mainframe remains operational and the 911 telephone switch remains functional 24/7 are great. Without this internal infrastructure, typical overnight transportation services and other "standards" we expect don’t exist. Businesses often build expensive inventory buffers into their supply chain to offset potential bottlenecks in matching supply to demand; or seek outside consultation simply to identify the problems and pitfalls they need to consider, then avoid.
FOUR STEPS TO FOLLOW
KNOW YOUR OBJECTIVES: Sometimes businesses open new markets after all the challenges have been considered, perhaps following a customer lead. Manufacturers need to be wary of whether the economy of scale in a new market can expand to support long-term growth needs. New markets don’t have infrastructure and service support density, so initial costs per transaction will be high. Businesses need to be mindful of how they intend to push product to market as well as handle the reverse flow of parts for repair and refurbishment. Will the expense of doing business outweigh the potential reward?
KNOW WHAT TYPE OF PRESENCE YOU WANT AND WHO WILL HELP SUPPORT YOUR ACTIVITIES Businesses need to consider who will assume fiscal responsibility and take ownership and liability for product. Who will be the importer of record? Will you register with an in-country agent to act on your behalf and facilitate contact and interaction with local authorities?
UNDERSTAND THE TOTAL COST OF TRANSPORTATION AND LOGISTICS Manufacturers need to perform necessary due diligence to understand the forward and reverse transportation requirements to meet customer service needs—both to and from market as well as within. Potential tax and tariff ramifications of moving a product into a new market as well as documentation to accommodate shipments within the country also need to be considered. Will taxation of product be more than the product itself? Will it be worth sending a product out of country for repairs and support?
THINK BACKWARD Consider how you will support product and components in the aftermarket. How and where will you repair parts? How will you consolidate returns? How will you return product to market to ensure tax breaks? Given these difficulties, businesses may be inclined to leverage the expertise of a company that specializes in providing these services on a global basis.