How to Avoid Supply Chain Dead Zones

June 28, 2010
Hedging against uncertainties has become a significant part of logistics costs in many developing or infrastructure-challenged countries.

As supply chains stretch further across national boundaries, it is critical for companies to develop strategic capabilities to efficiently move goods from one country to another while mitigating risks.

"Risk management is an essential ingredient in logistics planning, particularly when it comes to global commerce," said Danny Halim, vice president of industry strategies, JDA Software. "Many companies are still in reactive mode when it comes to adapting their global logistics network that is usually driven by factors or events outside of their control."

JDA Software Group offers these recommendations:

Strategically Evaluate Your Company's Global Logistics Network
Companies should have the capability to evaluate and monitor the effectiveness of their global logistics network from their suppliers to the point of consumption on a continuous basis. Continuous network evaluation enables companies to quickly assess and rapidly adapt to cost and demand changes, especially when introducing new products or expanding into new markets. Global logistics networks are most effective with collaboration between all stakeholders across the extended supply chain. Failing to collaborate can result in extended lead times, late deliveries and higher supply chain risk.

Manage the Risk Factors
Companies must anticipate and manage all possibilities for disruption, using supply chain tools to conduct scenario analysis and develop viable options to mitigate risks. Making uninformed decisions based on inadequate data can hinder the timely delivery of goods and cause stock-out situations or product expiration. For example, companies considering expansion into China and India will quickly realize the inability to access detailed highway data until fully established in the country. While they may not be knowledgeable about network execution until actually conducting business there, factoring in contingency plans, building a proprietary transportation network, linking network design to inventory strategies and increasing safety-stock levels can help companies maintain service levels and effectively access global markets.

Link Transportation to Inventory Management
Visibility into logistics and transportation schedules provides a better understanding of the global movement of goods and helps companies to maintain optimal inventory levels throughout their supply chains. Hedging against uncertainties has become a significant part of logistics costs in many developing or infrastructure-challenged countries. For example, when sourcing from China or India, a company may carry an average of 40 to 60 days of inventory in the United States, whereas sourcing from Mexico or South American countries will only require a company to carry 30 days of inventory. By carrying extra inventory, companies can avoid incurring exorbitant transportation and logistics costs when unexpected delays and trade barriers arise.

Optimize the Product Flow Path
Ensuring that products flow efficiently and timely to the point of consumption is another important factor for a successful global supply chain strategy. Companies must carefully determine optimal distribution methods and transportation modes based on the velocity of the products, demand patterns, as well as handling and transportation costs. Unfortunately, one size doesn't fit all, however. A company's decision to optimize the flow path for each product may be different, or shift over time due to seasonality or economic factors.

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