Opening and Widening the Doorway

June 1, 2008
Creating or expanding business opportunities is a particular strength for third party suppliers.

Whether it’s initiating business in an emerging area of the globe, supplementing or growing existing markets, increasingly companies are turning to outside suppliers to overcome logistical challenges they can’t deal with (or chose not to). Through collaborative relationships with suppliers, users can gain local knowledge, consistency and repeatable results. Return on investment is higher when logistics providers aren’t treated like commodities and the relationship doesn’t focus only on price.

For one US automotive company that wanted to introduce its cars to the Chinese and Taiwanese markets, leveraging outsourcing solutions from providers like Exel helped it gain market penetration and expansion in these developing markets. Although the manufacturer established joint and contract ventures for assembly within those Asian locations, it determined that using outsourced logistics services from providers like Exel would speed its market entry. From the outset the manufacturer would use supplies from its North American base and gradually migrate to using local production. As it explains, Exel moved to accomplish four critical factors for success: quickly find and evaluate financially viable component suppliers in China; develop processes to avoid customs delays and regulatory penalties; establish an effective quality and claims process for defective or damaged material; and adopt a lean manufacturing strategy. The Exel solution fully met the manufacturer’s launch schedule.

Dave Rumler, senior director international services for Exel, points to a project the company is handling in Brazil for a major US automotive manufacturer. “The days of storing multi-million dollars of inventory in a warehouse somewhere for line-side use is not cost efficient anymore,” he explains. “For some large automotive customers we provide what we call ‘buffer warehouse services.’ It’s primarily from material that originates in Asia. We’ll hold anything from a two-week to 30-day supply on hand in our facilities. Then we will meter them out to the plants as they are required.”

Rumler breaks Exel services into three areas: transportation and warehouse management, operations management and integrated systems. “From a transportation management perspective,” he claims, “we offer everything including domestic and global forwarding, custom brokerage, and import and export services. As related to the destination side, we offer port and merge management, customs brokerage, deconsolidation, and a big part of what we do today is direct to store delivery.”

Among its international services, Exel provides shipment visibility and manages capacity whether air or ocean as well as inland transportation. The provider’s size and buying power helps command capacity. In addition to automotives major industry groups it serves are consumer, retail, chemical, an industrial, division, life sciences and technology.

In reporting to customers on its international activities, Exel establishes what it calls “milestones.” For air shipments it will manage up to 11 milestones though not all customers request them all. For ocean movements it has nine milestones. Exel provides customers with key performance indicators they use on a daily basis.

Rumler understands that Exel customers view outsourcing as an opportunity and a risk. “From a global sourcing standpoint the key focus is just the efficient movement of product,” he observes. “The ability to execute that really takes expertise at several points along the supply chain. This can include things such as in-country local knowledge; understanding the local infrastructure; local staffing; different business processes; local laws; and cultural differences, just to name a few. There’s a myriad of different and unique aspects of the supply chain. It varies by country, as well. Typically they look to a large 3PL, such as ours, that have the resources and foundations built within those countries.”

Without specific geographic knowledge or assets, creating opportunities for new markets is one reason for engaging the services of a third party provider well established in a region. Another reason for reaching for an outside supplier is to extend market penetration. The desire to grow their business in the Baltic States led Samsung to seek the services of Kuehne + Nagel.

Bob Mihok, the 3PL’s regional manager for Eastern Europe, explains that Kuehne + Nagel, “provides comprehensive warehousing and distribution service throughout the Baltic States. Shipments arrive at our Riga facility from suppliers across Europe and the Far East. There we provide a full range of services, from inbound reception (this includes packaging and seal-integration checks) to storage, picking and packing per EDI orders received from Samsung through to onward distribution to local Samsung trade partners. In addition, we perform value-added services that include serial number management for Samsung mobile phones.”

Mihok observes that customers like Samsung, are increasingly looking for a provider who can support them as their single point of contact for all supply chain requirements. For the hi tech provider Kuehne + Nagel demonstrated its ability to deliver a seamless implementation of their operations through its CTI Customer Implementation Program that includes a clear Toolbox, framed and transparent project stages.

Standardization of its IT systems provides what Mihok characterizes as a “plug-and-play” approach when it comes to linking up a customer’s in house information technology systems with Kuehne + Nagel’s. “This level of standardization in processes and services,” he notes, “also allows for solutions that are implemented at one location for a customer, for instance in Mexico, to be easily replicated at another location, for instance in Poland—a huge benefit when it comes to expanding into new markets.”

Whether opening a new market or expanding an existing one, having on-the-ground support is critical to success. This is where a 3PL, like Kuehne + Nagel, offers strength. Looking further East, toward Russia for example, Kuehne + Nagel is expanding its strategic locations. Mihok recalls that, “last year in Russia, for instance, we opened a new office in Kaliningrad, a new airfreight office at Moscow Domodedovo airport, expanded warehouse space in the dynamic St. Petersburg and Moscow region, as well as extending deeper into Russia and strengthening our network across Eastern Europe.”

Mihok characterizes challenges to doing business in Russia as including infrastructure, things like limited capacity and congestion issues at sea ports; the lack of airports equipped to western standards (except Moscow Domodedovo, which is showing very promising development); weight restrictions; traffic jams in and around Moscow; the railway network, which is important for domestic freight carriage and needs to be linked up with the seaports; and the lack of sufficiently available modern Class A warehouse capacity. A solution offered by Kuehne+ Nagel to overcome some of these issues is to route freight via the Baltic ports into Russia, even on short notice, in order to avoid port congestion at St. Petersburg or delays at the Finnish-Russian overland crossing.

Beyond hi tech, Kuehne + Nagel offers comprehensive services specifically for aerospace, automotive, FMCG, industrial goods, pharmaceutical & healthcare and retail. It also specializes in providing selected niche segments with highly specific, tailored services: for instance the hospitality & casino industry, the beverages industry, emergency & relief logistics, or for oil & gas projects.

Providing for Specific Requirements

Here, according to Kuehne + Nagel’s Bob Mihok, is how a 3PL meets customer needs in new and emerging markets.

Scalability—Scalability has to do with visibility: Established key performance indicators can easily be monitored via our visibility tools, such as our KN Login, as well as via door delivery tools which enable truck drivers to report deliveries just-in-time with mobile devices.

Visibility—A globally standardized monitoring and visibility platform provides complete supply chain and inventory transparency around the clock and around the world. Ranging from basic tracking and tracing features to offering highly sophisticated order and network management applications, it is the customers’ single 24/7 online entry point to all relevant logistics information.

Security—Kuehne + Nagel has an integrated quality, safety, health, environment and security (QSHE) program in place, which systematically addresses all security relevant issues associated with supply chain management. This ranges from equipping warehouses with state-of-the-art security equipment (CCTV, 24/7 guards, etc.), complying with recognized security standards and playing an active role in relevant industry associations.

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