INTRODUCTION
The industrialized world’s economy is ever changing. During the latter part of the 20th century, and particularly in the last few years, competition in the market place has been on the rise due to efficiencies in transportation, advances in information technology, decreased barriers to foreign trade, a robust and growing world economy, increasingly sophisticated financial markets, an abundance of investment capital and maturation of communication infrastructures. The impact of globalization and open trade on the global supply chain is significant. Logistics activities comprise 11-16% of world GDP. For example the GDP expenditure of: Japan is (11%), USA (8%), European Union-EU (11%), and India (13%).
The world is moving increasingly towards globalization and companies of all sizes have to deal with this fact. Furthermore globalization is putting increased pressure in the optimization of supply chain. Faced with such complexities in the supply chain companies are developing a collaborative approach throughout the all supply chain. This collaboration will provide higher value to businesses; however it will require those same businesses to redesign their strategy to reap the benefits of global competitiveness and integration. The requirements of a global supply chain are becoming ever more difficult for multiple reasons namely: lack of adequate infrastructures from keys counterparts.
In this paper I will attempt to show the impact that globalization has in the supply chain by focusing on infrastructural development. Given the myriad of infrastructures needed in a supply chain I will focus my attention in the necessity to create integrated Information technology infrastructure. In my research I will try to shed some light in the overall infrastructural development in developing countries and the necessity for the public and private sector to cooperate in order to optimize the global supply chain. My final recommendation is that cooperation will be the key to an optimal global supply chain. This cooperation will include bringing together all counterparts in the supply chain from suppliers to end consumers in an IT level and cooperation with nations in which the firm conducts business and is in to develop the necessary infrastructures to assure efficiencies and eliminate disruptions in the supply chain.
Some of the advantages in collaboration that this research will show is reduction in transaction costs minimization of delays, higher quality of service to end consumer, and improved operations management, visibility and efficiency. Although positive results are expected, transition from a competitive to a cooperative business process will offer challenges to firms doing business in a global scale.
The paper is organized as follows: First, I will analyze the nature of the infrastructures in three key markets, United States, Western Europe and China. Moreover, I will analyze the impacts of collaborative IT related to technology infrastructure, business processes, and inter-organizational relationships. Under the same guidelines I will analyze the relationships between private and public enterprise namely governments in the development of infrastructures. I will provide in the end the result of my analysis my conclusion and recommendation.
Overview of Key Supply chain industries in US
Freight
Freight traffic has been having a slow growth. Car loadings at the nation’s largest railroad declined about 5% (year over year) in January. Weak housing and car sales are perhaps the driving causes for such a slow performance. The slowdown in new home construction means that railroads are shipping less lumber and roofing shingles these days. Automakers, meanwhile, have cut production, thereby limiting shipments of both parts and finished goods .
Due to the increase in intermodal traffic through U.S. West Coast ports to inland points, the railroads’ container and track capacity are tight, particularly in the West Coast port corridors and east of the Mississippi River. U.S. railroads generally lack double tracks that allow for dedicated eastbound and dedicated westbound trains. The congestion is limiting the handoff of intermodal containers from the ports to the railroads. These limitations are increased since freight trains compete for the same tracks as passenger trains.
Compounded with the above-mentioned problems are the shortages of labor, locomotives, flat cars, and containers. Burlington Northern Santa Fe Railway and Union Pacific Railway, however, are in the process of making changes including adding personnel, laying more track, and expanding fleets by 10 percent.
Complicating matters, demand for rail comes in waves as opposed to at a steady rate. The new generation of 8000+ TEU vessels, often dump a huge number of intermodal containers on West Coast rails at one time. Additionally, carriers deploy many of their vessels to arrive at the West Coast on weekends to enable cargo availability to customers early in the week. This schedule creates cargo surges that affect the flow of intermodal containers moving to the railroads.
Trucking
The sector had gained a lot of momentum over the past five or so years, as more corporations have looked to improve the quality and speed of their operations.
The current long-haul driver base is too small to handle increases in trade, especially with driver turnover at a historic high. If the current trends continue, experts forecast a shortage of 111,000 drivers by 2014 . Compounded to the shortage of drivers is the fact that road freight corridors, such as Los Angeles, are excessively congested, requiring alternative routs.
Under the economic scenario described above, demand for hauling services would surely fall. In fact, both truckload (TL) and less-than-truckload (LTL) carriers have already experienced a decrease in shipment size and/or weight in the 2006 fourth quarter .
The supply/demand imbalance created by the combination of lower freight demand and more shipping capacity is pressuring pricing, especially in the volatile spot market. Contract pricing is also being impacted, as customers are putting up more resistance to rate increases. Overall, the research forecasts rate increases in the 1% to 3% range in 2007, which is much lower than the 4%-7% of years past .
Ocean Freight
Ocean shipping, the recent trade increase from Asia has meant that vessel strings from Asia to the West Coast of North America are now at capacity the same phenomenon can be seen from ocean shipping from Europe to the U.S. East Coast. This increase has negatively affected vessel strings to ports across the continent. Most major U.S. ports are already at capacity (particularly Los Angeles and Long Beach), and only a few plan to expand. Many existing ports cannot add capacity due to the unavailability of land and concerns from the community about the environment caused by traffic and air pollution. As result of the congestion, ocean carriers and shippers are seeing increased costs. Variability in cargo lead-times to U.S. ports is also significant. During the peak season for 2004, companies experienced delivery variability from 3 to 28 days when vessels were held at anchor outside the ports of Los Angeles and Long Beach due to terminal congestion.
Air Freight
The Air Transport Industry is poised for ongoing profitability improvements this year. Positive trends that took shape during 2006 should support earnings gains at the major carriers. These factors include rising flight demand, along with higher average fares and occupancy rates. The passenger airlines are also limiting cost increases through efficiency measures. Fluctuations in the price of jet fuel are always a concern, as airline earnings hinge considerably on fuel cost changes .
Supply Chain In Europe
The importance of supply chain is being seen across markets. Western Europe has recently been the target by many supply chain firms who strive for growth and collaboration: Over the next five years the spending in logistics in western Europe is bound to increase by EUR 30 Billion which is the equivalent of approximately $40 Billion US dollars. This is triggered mainly by significant developments in Southern European markets. According to the same research, significant growth is bound continue over the next five years.
The technology sector is removing unnecessary stock-holdings and inventory from their supply chains. This trend is driven by the implementation of sophisticated supply chain technologies and processes. There is wider acceptance of just-in-time, build-to-order and lean processes to remove as much perceived “inefficiency’ from supply chains as possible. UK is and is forecasted to remain as the most developed market for logistics in Europe while the German market will benefit from the migration of manufacturing activities eastwards across the continent proving an increasing attractive proposition for EDCs ( European Distribution Centers) and transport hubs.
Supply Chain in Asia/ Africa
China's trade with the U.S. has increased dramatically from $121.5 billion in 2001 to $ 287,772.8 billion in 2006, according to the U.S.-China Business Council. The figures of trade by air are significant. In 2005 about $61 billion worth of goods came into China by air . Manufacturing is often a gauge of industrial/political dominance. China is already the world's largest producer of steel and a major player in cement, tractors, cloth, telephones, microcomputers, automobiles and color TVs.
The booming growth in shipments to and from China is creating both bottlenecks and opportunities. Many major corporations have invested significantly in China due to its growing economy. However the country's underdeveloped transportation infrastructure, fragmented distribution systems, limited use of technology, lack of logistics talent, regulatory restrictions, and local protectionism still limit the efficient distribution of domestic and imported products
Analysis
Supply chain is extending across the globe, thus managing those ever-complex chains require greater focus. Manufacturers and suppliers today have to manage the flow of goods across several countries and are increasingly under pressure from just-in-time processes, the request of customer for greater visibility and quality demands. This task is made increasingly complex by the uneven or non-integrated infrastructures across countries. Logistics markets are different in all imaginable matrixes whether it be size, growth, complexity, outsourcing culture and sophistication. For example the supply chain infrastructures required in the retail markets will differ from those in the automotive sector furthermore the Infrastructures found in United States will be different from those found in China as we have seen in the previous section.
The global competitive market is constantly changing. This changing environment brings new supply chain challenges, and if these challenges are left unmanaged businesses may find increasingly difficult to lower cost in the supply chain and achieve a competitive position.
The complexities in supply chain rarely offer infrastructural solutions that can be used uniformly across markets. Some of the complexities on the global supply chain include:
?More options and complexity
? greater constraints (longer lead times, minimum
?order quantities, etc)
? greater volatility, uncertainty and risk
?increased dependency on supply chain partners
?reduced leverage, flexibility, responsiveness and
?control
?less visibility across the supply chain
?new cost structures
?different set of competencies required to
?manage successfully
The United State has been a champion in supply chain infrastructural innovation however as we have seen previously, its supply chain capabilities still face myriads of difficulties domestically due to the saturation of its exiting infrastructures as result of constant growth of imports. The growth witnessed by US’s ports, trucking and air freight will only put more strain to its infrastructures as more trade volume originating from Asia increases. More troubling is the fact that most of suppliers for US firms are located on foreign countries, mostly developing countries; as result of outsourcing in search for lower labor cost and raw materials.
Various countries in which suppliers are located, lack reliable infrastructures thus creating inefficiencies in a supply chain. Firms want to operate with as little inventory as possible, moving towards a pull and away from a push system of sourcing goods. On the same token there is an increasing pressure for greater visibility and flexibility. The need to build the required infrastructure to support the supply chain is of greater urgency in developing countries where most firms are now outsourcing their manufacturing. It is therefore apparent that in order to succeed more resources have to be invested in developing infrastructures in those growing markets.
The impact of resources put in optimizing logistical infrastructures are apparent in the current position of two growing markets. While China and India are often looked up as the two most fertile markets, logistically its misleading to speak of India and China in the same breath: The changing business climate in India started more than three decades ago however the country still lacks adequate infrastructures to support the continuous influx of firms establishing themselves in the country.
India needs a $500 billion investment to develop its poor infrastructures. Take electricity, for example: the average Indian burns 600 kilowatts per day, while the average person in the United States burns 14,000 kilowatts per day. But Indian demand is increasing and that's going to mean new electrical infrastructure. The market opportunity is great, but only if companies are prepared to bear the burden of infrastructure development.
China is a the biggest growing market in the world. Not so long ago they logistical infrastructures were very unreliable, however recently the government as well as private enterprises have done a conscious effort to develop infrastructures:
China's logistics costs for 2004 were $351.6 billion. They have increased appreciably since then. More than 20% of the nation's GDP is spent on logistics compared with 8% for the U.S. As a percentage of GDP. China high percentage of expenditure can be looked at as inefficiencies in logistics which was arguably the case however; in other hand it is also an indication of the commitment the government and firms had in developing infrastructures. As a sign of positive results is the fact that China's costs have started to come down, indicating an improvement in logistics. Part of their costs involves substantial tolls and a proliferation of small trucking companies that lack efficiencies of scale. China is taking strong steps in developing they infrastructures to accommodate their economic growth e.g. in 2004 China invested $87.8 billion in logistics infrastructure, with 83% of that devoted to transportation improvements. Over the next 15 years, the nation plans to build more than 30,000 miles of expressways.
The growing trend of a more global and the lack of required infrastructures is stretching the supply chains very thin. This reality was recognized by executives at U.S. companies surveyed by Accenture management who have stated that the risk of supply chain disruptions is making it more difficult to recover when failures.
The survey include more than 151 U.S. with more than $1 Billion in revenues companies. The surveyed believe their supply chains are secure from possible disruptions, however it is only due to the fact that nearly two-thirds plan risk-mitigation measures such as boosting spending for improved supply chain management technology, increasing logistics capacity, and developing more accurate forecasting and planning processes.
Seventy-three percent of those surveyed experienced supply chain disruptions in the past five years. Of those, 94% said the disruption impacted profitability and affected their company's ability to meet customer expectations. About half of those described the impact as “moderate or significant”. Of those that had experienced supply chain failures, 36% said it took more than a month to recover, and 32% said recovery took between one week and one month. Looking forward, 50% of the executives expect risks associated with raw-material supplies or parts to increase over the next three years, and 36% anticipate increased risk of service failures due to longer supply chains and lead times. More than one-third of the executives expect increased supply risks associated with port operations and customs delays, geopolitical instability, and potential shortages of skilled workers .
The above research strengthens my position insofar as globalization is putting strain in the supply chain and adequate infrastructures are needed to avert many of the woes that plague business enterprises. However in order to achieve such competencies, firms need to change their mentality, from a competitive to a more collaborative approach.
Cooperation between public and private sector in Infrastructural development
From China’s rapid growth in infrastructure we can see the benefits of the public and private sector teaming up in developing infrastructures. Furthermore due to inherent risk and the cost of infrastructures, private firms should use caution in establish infrastructures on their own. Collaborating with local governments is in the end a more efficient, less costly and risk avert manner of building the needed infrastructures. Private firms have noticed the need to build infrastructures in developing countries to optimize the supply chain: by the end of 2001, developing countries had seen over $755 billion of investment flows in nearly 2500 private infrastructure projects. But investment flows peaked in 1997 and have since dropped by more than half. Macroeconomic crises have severely tested the robustness of this new paradigm. Problems with individual projects related to cancellation or renegotiation have made the headlines.
Critics of the private provision of infrastructure argue that it has made services less affordable, and adversely affected access by the poor to modern infrastructure services. I offer no counter argument against such a claim after all my intentions are simply to show that those infrastructures are needed in order to optimize supply chain. However following the example of China, if this infrastructures are built in collaboration with the government, then the government will be able to subsidize the construction and thus putting less pressure on firms to have quick returns on their investment allowing the poor to also have access to necessary infrastructures.
The decline in public opinions of private provision is matched by the reduced enthusiasm of many investors in developing country infrastructure, driven in part by some disappointing experiences. Governments are often uneasy in letting private firms to develop infrastructures on their on since, private firms are motivated simply by profit thus they will allow inadequate standards infrastructures as long as it meets their needs for at least two reasons. The first firms want to develop infrastructures only to the extent they need them thus resulting in under-investment in provision of these infrastructures. The second reason is coordination failure, in which asymmetric incentives lead participants to pursue investments that are suboptimal for the industry as a whole.
Resolving problems require a commitment to cooperation and coordination of efforts. Thus private firms in collaboration with a governmental agency can create standards for optimal infrastructure development efforts. Direct participation by a government agency can also help eliminate coordination failure, as long as industry participants are willing to accept its leadership. China has been the champion of such approach and they have been very successful.
The impacts of collaborative IT related to technology
The emergence of low-cost communications and information processing has made it possible for firms to revolutionize the way they operate internally, especially in distributing information throughout their organizations. Through the use of Manufacturing and Enterprise Requirements Planning (MRP and ERP) systems, they can operate with lower levels of inventory, can respond more quickly to changes in customer requirements, and can eliminate or outsource costly accounting functions. The problem arises when business counterparts use different IT systems and often those system are even non-existent. Thus to truly optimize the supply chain collaboration at all levels is required in order to decrease bottle necks, cycle and lead times in the supply chain.
The grim reality is that companies have made much less progress in improving the efficiency of communications between their facilities and those of their suppliers and customers, along
their supply chain. A lack of universally accepted and implemented standards for the format and content of messages that flow between supply chain partners reduces the potential for lowering inventory and have significant savings. Instead the lack of collaboration leads to duplication, costly maintenance of redundant systems, and investment in non-ideal information processes. In section, I will argue for supply chain integration (SCI), and its economy impact as well as underline infrastructures that will improve supply chain inside organizations. It is estimated that the total annual costs of inadequacies in supply chain infrastructures to be in excess of $5 billion for the automotive industry, and almost $3.9 billion for the electronics industry. These figures represent about 1.2% of the value of shipments in each industry.
Recommendation
Supply Chain costs are an important factor affecting the competitiveness of both firms and nations. Firms can enhance their market competitiveness by reducing their logistics costs, thus lowering the total costs of goods and services. Greater market competitiveness of a nation’s firms can then give rise to greater national industrial competitiveness on a global scale.
Firms engaged in supply-chain relationships, as customers, suppliers, or providers of services, need to share a great deal of information in the course of their interactions. Over the years, companies have managed these information flows in a number of ways, including telephone calls,letters, telex, faxes, and electronic data interchange (EDI). More recently, firms have begun using the power of the Internet to create more effective and open transmission protocols for machine-to-machine communication of the same high-frequency data now handled by traditional EDI
Examples include IBM's WebSphere, SAP's NetWeaver with ESA, and Oracle's Services Oriented Enterprise (SOE). i2 Technologies has also developed an intriguing global supply chain SOA framework it refers to as the i2 Agile Business Process Platform.
Global demand for an integrated ocean, air, ground, truck load (TL), non-truck load (LTL), fleet management, and common carrier solution is finally gaining momentum due to globalization, capacity constraints, increasing haul rates, and rising fuel costs. TMS solution providers, such as SAP, Oracle with G-Log, Manugistics, and i2 Technologies, are aware of this growing need and are driving software enhancements toward these expanding global needs.
In order to be successful firm need to dramatically improve long range demand and supply planning capabilities in order to better match supply to demand and consistently achieve the following goals: the right item, right location, right quantity, right time.
•Collaborate with local governments and other firms to build necessary infrastructures that will in the long run add flexibility and agility to the supply chain.
•Dynamically optimize supply chain costs, constraints, risks and customer service levels,
•Exchange appropriate and meaningful information with suppliers and customers, and
•Develop the appropriate business culture and acquire the skills, knowledge and tools required to manage the risks effectively.