The New World of Global Distribution

 

After September 11, 2001, material handlers had to rethink their supply chain integrity worldwide. They’re gaining strength from a combination of contingency planning, new technology and security consciousness.

 

by Tom Andel, chief editor

 

“That which does not kill me makes me stronger.”  — Friedrich Nietzche, Twilight of the Idols

 

If anything good came out of the September 11 terrorist attacks, it was that material handlers and logistics managers are looking at new ways to strengthen their companies’ supply chains. These events were a wake-up call, but the companies that never fell asleep on the job are setting an example of flexibility that all enterprises should follow — especially those with global distribution.

 

Two examples come out of the pharmaceutical world:

 

• Pfizer uses a lot of air freight and expedited services, owing to the life-and-death nature of its business. If suddenly planes aren’t flying, it needs alternative ways to rush product to customers. One of Pfizer’s strategies has been to build strong relationships with carriers so in the event of a tragedy like September 11 where the air system is shut down, it is still able to arrange fast ground transport and a lot of capacity.

 

“By working in long-term relationships with carriers, it puts us in a better position to secure expedited ground transportation,” says Tan Miller, director of distribution planning for Pfizer. “For a few days after September 11 we used more ground transport to take the place of air.”

 

• Abbott Laboratories is looking at expanding distribution of some products that in the past were shipped out of one facility because of their high value and special handling requirements.

 

“If we go to this approach it will cost us more in capital because we’ll have to invest in more refrigeration and those kinds of things,” says Marty Filson, operations manager, logistics planning and engineering at Abbott. “But, of course, we would be moving closer to our customer and we would have some savings in freight. As for security, because of the business we’re in, that’s always been a priority, as have been background checks.”

 

A new discipline

 

Indeed, success in this new era of uncertainty requires a military mindset and a solid line of command. You need a staff whose advice you can trust.

 

“If I were vice president or general manager of a division of a corporation that had international supply chain components, I’d want my team coming to me saying ‘Here’s how the world has changed,’” says Roger Kallock, chairman of Chagrin Consulting Associates and former deputy undersecretary of defense for logistics and materiel readiness at the Department of Defense. “‘Here is our range of vulnerability that we have as a result of this wake-up call.’ I’d also want to know the range of ways we’re responding. Accelerate attention on those improvement programs that will give you better information across the supply chain so you can make decisions quickly and take appropriate action.”

 

That’s a Just-In-Time management philosophy, but when it comes to JIT production and inventory management, the challenges get harder to manage — especially on a global scale. Delays at border crossings make JIT difficult to plan for.

 

That calls for contingency planning.

 

“What if ...?”

 

Think of all the what-if scenarios that could affect your supply chain, then determine if your company could deal with them.

 

“Let’s say you’re a company with five manufacturing plants and 10 distribution centers around the country,” suggests Dick Powers, president of Insight, a firm specializing in supply chain contingency planning. “It’s conceivable you could lose everything [if there were an interruption]. If I were the logistics manager, I’d start looking at my capacity at various places.”

 

Say demand stays the same. Powers suggests you look at each of your facilities and determine:

 

• If you lost it, what kind of backlog would build up?

 

• Could you accommodate the additional requirements by working more?

 

• Could you increase the capacity of the remaining infrastructure?”

 

Bill Villalon, president of the Americas region of APL Logistics, a global supply-chain management provider based in Oakland, California, says importers are working with third-party logistics providers to answer these kinds of questions. Speaking to delegates at the Annual Textiles and Apparel Trade and Transportation Conference in New York late last year, he cautioned that providing for rapid modal shifts or back-up sourcing options will in many cases involve adding new complexities to the supply chain.

 

“But this has become a reasonable price to pay, thanks to new Web-based visibility tools that can give importers and retailers a better picture of where their goods are at any moment, making management of the supply chain easier and more efficient,” he said. “Specifically, these new information technology [IT] tools make it possible to reroute or rehandle goods in response to rapidly changing market conditions, or to mitigate a military contingency or natural disaster.”

 

Such supply chain integrity is a top agenda item for the National Coalition for Advanced Manufacturing, a Washington, D.C.-based think tank. It is dedicated to the development of policies and programs that help improve the productivity of U.S.-based manufacturers.

 

“September 11 will force people to look at ways to ship goods more efficiently to overcome the additional security requirements,” says Leo Reddy, CEO of this organization. “We need to step up our research on technologies used to inspect, weigh and measure goods going across borders without holding up the vehicles.”

 

Reddy also sees companies bringing production closer to home, especially for high-value-added components. He cites Ford Motor Company, for example, which is planning to build a supplier park on the south side of Chicago. This park will concentrate a large number of Ford’s tier 1 and tier 2 suppliers in one place. Reddy adds that the U.S. will need to concentrate pools of talent closer to home, as well.

 

“We’ve been too dependent on importing technicians and engineers,” he says. “Immigration will be slower and more difficult, and that will put pressure on our education system to produce more skilled technicians out of the U.S. population.”

 

Bulletproof operations

 

While you’re improving the quality of your talent pool, don’t depend so heavily on labor that technology’s potential is forgotten. Some companies are hesitant to use labor for long-term solutions, knowing that labor comes with a lot of liabilities, according to Hau Lee, professor at the Stanford University Graduate School of Business.

 

“If you talk to companies like Hewlett-Packard [H-P], you’ll find that material handling systems will have to be more bulletproof,” says Lee. “That means more automation, less manual handling, and less potential for sabotage. This will make the logistics process more reliable in the eyes of customers, and that confidence enables them to plan their production more reliably.”

 

It’s easy to promote technology, but what about affordability? Lee says widespread use of technology will accelerate the learning curve and the economies of scale will make material handling technologies more affordable.

 

It can start with something as simple as a container seal. For example, Dell is using Savi’s Smart Seal to indicate if containers were opened somewhere along the supply chain. Wal-Mart is using temperature monitors to ensure the safety of the meat it gets from suppliers. It measures trailer or container temperature during transport. Contamination can result if a trucker either doesn’t maintain the temperature at the right level or if there is some terrorist tinkering.

 

“This type of technology enables customs clearance to save days of time,” Professor Lee concludes. “September 11 accelerated these trends.”

 

With the right application of technology and talent, global supply chains will be less vulnerable to terrorism by next September 11. MHM