Guarding the Flow Of Global Production
December 5 2004 by Chief Executive
AS companies rely increasingly on suppliers and factories overseas, keeping their global supply chains safe from terrorism and other disruptions has become an important part of business.
Bob Stoffel, senior vice president at United Parcel Service for its supply chain group, talked recently about ways to limit the risks of long-distance shipping. Here are excerpts from a conversation with him:
Q. What role is technology playing in the management of supply chains?
A. A lot of technology is enabling things that weren’t possible before, such as allowing us to see into the supply chain. We operate in a very dynamic environment, obviously, with security threats, wars, epidemics and a West Coast port strike a couple of years ago. Getting real-time information about where your goods are means that you can make smarter decisions about how to meet your customers’ requirements.
Q. Give me an example of what one of your supply chains can do.
A. Take National Semiconductor. They have manufacturing facilities in Penang, Malaysia, and in China. We manage the distribution of their products from Asia to electronic and computer equipment customers. We can go from order to delivery within 72 hours anywhere in the world.
Q. How have security concerns after Sept. 11 changed how you manage these chains?
A. We work with our customers to declare the items that are coming into the United States before they arrive. Through electronic data interchange, we’re able to access that information and pass it on to U.S. Customs. That avoids any delays.
Q. But it still seems that these kinds of supply chains are vulnerable to any number of bad things. How can you protect them?
A. The keys are information and visibility. You have to be connected to the whole supply chain and know who your reliable suppliers are. If you have multiple manufacturing providers, multiple trade partners, multiple freight forwarders, multiple airlines and other companies stringing together your supply chain, you can’t see everything that is happening unless you have an integrated information technology system.
As a result, we’re seeing more single sourcing and risk mitigation taking place in the United States. By that, I mean there’s more consolidation of supply-chain partners to streamline the processes and create more accountability if something goes wrong. If you don’t have the footprint network around the world, you can’t control the supply chain.
Q. Is your global network big enough to control the entire supply chain?
A. In our case, we don’t have ships, but we can provide ocean service as a freight forwarder. We also could leverage other assets we have in case of a disruption. For example, we could use our aircraft fleet or our small-package network.
Q. Still, if borders are closed and communications are interrupted, doesn’t that disrupt these global supply chains?
A. Not if you have visibility. We do contingency planning for the entire West Coast, for example. We knew in November that there was a backlog of ships at the port in Long Beach. There were 100 ships anchored at the port. There has been a shortage of dock workers and a shortage of trucks and trailers to move goods out of the West Coast. Also, the railroad situation wasn’t good. It was sort of like the perfect storm. And it was all happening at peak season, as retailers were gearing up for the holiday shopping season.
Q. How do you solve problems like these?
A. We know what’s on each ship and what’s in each container. We know the timeline that our customers need these products by. So, as part of the Christmas planning process, we might even offload some goods into commercial or charter airlines. We might divert some traffic through the Panama Canal to come in via the East Coast.
Q. If supply chains keep growing, is the logical conclusion that one day, very few things will be manufactured in the United States?
A. Obviously, these supply chains provide an opportunity to move low-cost manufacturing. That’s why you see some of the de-industrializing of the United States and Western Europe.
But I see an increase in specialty manufacturing in the U.S. and Europe. There will be more final-stage assembly and final component manufacturing near the destination, wherever the customer is. If you can locate those functions near the consumer, you can reduce inventory. There will be fewer part numbers and less inventory sitting in the supply chain. You’ll be able to differentiate those products. So I see more opportunities.
Q. When I ordered a Dell laptop, it arrived at my doorstep directly from Malaysia and included components from Taiwan, Japan and other locations. If something that sophisticated can be assembled abroad, won’t everything go that way?
A. There are some specialized things you can’t ship overseas. Take laptop repair. If you want to get your laptop back in a few days, you’re not going to send it back to Malaysia.
Q. So at the end of the day, all we have left is laptop repair?
A. No, we’re seeing this in different places in high tech. We’re seeing it in semiconductor equipment manufacturing. And in telecommunications network equipment, we’re seeing some final-stage assembly being done closer to the end consumer. Everything is not going away. It’s just a different way of looking at manufacturing.