Asia Pacific shipper views
Some of the world's biggest shippers sounded off at a logistics conference in Singapore about overcoming obstacles in the Asia Pacific region.
'LG had been global, but by necessity, not by culture or local customs,' said Didier Chenneveau, executive vice president and chief supply chain officer for LG Electronics, at SCMLogistics World 2008. 'There was very little outsourcing, very little use of partners. Subsidiaries around the world were run by expats from Seoul.'
In the last few years, that's changed, he said, with the Korean company becoming more trusting in the sharing of information with its third-party logistics partners.
'There was often a joke that the price of toilet paper at LG is strategic information,' he said.
Supply chain executives have been able to convince upper management that the company should focus on what it does best, and leave logistics and transportation functions to outside partners, albeit ones who are closely integrated with LG.
'Transportation, distribution, some aspects of manufacturing – this is not where our core competency lies,' Chenneveau said. 'Product design and development, that's our future. We don't want to be running fleets of trucks.'
His chief project these days is homogenizing data, as LG necessarily has to work with a broad range of partners, who all use different systems in different parts of the world. He called it creating 'one version of the truth.'
'Visibility is a challenge because every time I use a new 3PL, they have a different system giving me a different type of visibility data,' he said. 'No vendor out there says they're going to be a repository for the visibility info.'
Finally, Chenneveau said that sometimes low costs in sourcing countries lead manufacturers into practices that are bad for the entire supply chain.
For instance, DVD players being made in China were often stuffed into containers by hand at the factory because labor was cheap and palletization was relatively expensive. But the container was unloaded in Amsterdam, where labor was not cheap.
Meanwhile, Shalyn Lee, vice president of supply chain for Hewlett-Packard's Asia Pacific Personal Systems Group, said the big challenge for HP is managing supply chain variance.
HP operates the world's largest information technology supply chain, $60 billion in all. That accounts for serving 110,000 retail outlets in 170 countries, with 45 million consumers per month. Per day, the company sells 110,000 printers, 75,000 PCs (that's nearly one each second) and 1.3 million printer cartridges.
HP uses 700 suppliers, 119 logistics partners, 32 manufacturing plants and 80 distribution hubs.
Dealing with variances in such a complex chain is a major issue, one that HP addresses by trying to address consumer demand uncertainties.
'We use inventory buffer to overcome process and procurement variances,' Lee said. 'Our retail partners expect us to help them manage their demand and inventory. They want us to replenish faster.'
But there's a difference between buffer inventory and excess inventory, a gap illuminated by HP's experience in China, where it is the second most popular brand and most popular foreign brand.
'A key initiative in China was to penetrate into the remote tier three and tier four cities,' Lee said. 'Initially we let tier one city distributors go to tier three and four cities. But that didn't work. We had a lot of excess inventory.
'So we went ourselves to tier three and four cities and tracked sell-through ourselves. Initially, we had to do a lot of it manually. We even had someone on the street checking with each retailer what was sold that day. Now it's much more automated.'
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| 'There was often a joke that the price of toilet paper at LG is strategic information ' | |
| Didier Chenneveau executive vice president and chief supply chain officer, LG Electronics |
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Finally, Gopalan Natarajan, a Singapore-based supply chain finance director with Unilever, said that commodity and raw material price volatility can wreak havoc with supply chains.
'You cannot predict the commodity markets,' he said. 'They will remain volatile. Palm oil touched an all-time high and nearly an all-time low within four months. Just a few weeks ago, we were discussing scenarios where oil will be $250 per barrel and how that would impact distribution.
'Is it all supply and demand? Of course not. It's not about fundamentals. It's about how funds are flowing between markets. Another question is where do we source from, and how far materials must travel. It's a 40-day value chain in Thailand for us, but it's 120 days in another country in the region.'
To cope with the volatility, Natarajan said companies should focus on cutting waste to improve profitability and increase cash flow. 'Two to 4 percent of turnover is waste,' he said. 'It's a significant amount.'
Andrew Chiang, director of supply chain strategy for Gap, spoke about how retailer-vendor relationships could be strengthened.
'Vendors told us we were making too many changes to our purchase orders,' Chiang said. 'We would order 50,000 pants, then say, 'no we need 40,000' or 'we need 10,000 more XLs.' We decided that we need to put reports together but through the vendor lens, so we could see how they see our orders. We didn't have the luxury to move goods from warehouse to warehouse and our vendors can't turn into logistics experts overnight. We need better communication between us, 3PLs and vendors.'
He also trumpeted the merits of Gap's e-sourcing initiative, where vendors literally bid online, auction-style, on Gap orders.
'Instead of spending two to three weeks haggling over price, why not use 30 minutes on the e-sourcing tool and spend the two to three weeks on strategic collaboration,' he said. 'Get the cost out of the way and invest time on important functions.'
Someone in the crowd reminded Chiang that cost is often directly related to quality and service parameters.
'If we're talking about T-shirts, we take care of the service parameters and quality upfront before the competitive bidding process even begins,' Chiang retorted.
Finally, Eduardo Hagad, supply chain and logistics director for Philippine pharmaceutical manufacturer Sanofi-Aventis, described a situation in his company's home country where relationships meant more than IT integration.
The country's largest pharmaceutical retailer (he didn't mention names) is a family-owned operation that controls about 40 percent of the market.
'But they literally track sales using Excel spreadsheets printed out on a dot matrix printer,' he said. 'But we've gained their trust, and we trust them. We don't ask them for weekly sell-through data because we know they can't give it to us.'