March 11, 2002

CargoNews Asia/Logistics Asia

The super-models of the supply chain

By Marcia Jedd, Minneapolis

Logistics Asia Logistics models around the world used to be as varied as going from one end of a country to another. During the past decade, differences in logistics models have lessened - in North America, Europe and Asia-Pacific.

"Asia is more like Europe in its logistics models as both are fragmented markets. The US is the most unified," says Rene Buck, president of the Netherlands-based Buck Consultants International logistics consultancy. Of course, diversity regarding tax structures and regulations, which vary greatly by country, makes Asia more akin to Europe in its supply-chain structure. All major multinationals now source and manufacture on a global basis, no longer limiting these functions primarily to their home regions. Neither do companies even manufacture full product lines at a single location, preferring various sub-assembly points.

Buck notes that prior to the formation of the EU in 1993, which eased border restrictions, Europe was based on a per-country distribution centre (DC) model. From 1993 through to 1999, inventories went from country-specific to generic, thus encouraging global sourcing, while serving to diminish the number of DCs a company had to operate to one or two throughout Europe.

Around the year 2000, a new logistics model in Europe emerged, which focused on the speed and flexibility of supply chains. The new model is based on the trend toward value-added logistics and postponed manufacturing. The model leverages regional warehousing, merge in transit (MIT) and vendor managed inventory (VMI) formats to support customised product manufacturing to serve fragmented, niche markets. These flexible supply chains are more complex than their centralised forerunners, with regional DCs (RDCs) replacing centralised DCs and the addition of rapid fulfilment centres for parts and product distribution in close proximity to customer bases.

The emphasis on speed and flexibility of the new supply chain model is driven by customised production, shortened product life cycles and Web-based technology that has sparked demand for integrated solutions for products and services. The model heavily relies on globalised sourcing and production, and in many cases, outsourced production and logistics services to 3PLs.

These flexible logistics models also use more long-distance air and ocean freight. "There's a heavier reliance on air freight as well as ocean," Buck says. This was the conclusion of a study of 100 European companies by the Holland International Distribution Council (HIDC) where companies reported air and ocean usage as a mode of transportation increased dramatically from 1997 to 2001, doubling in some cases, particularly on the supply or inbound side. Buck sees the trend happening globally.

Buck stresses that reliance by a home region on other world regions for sourcing and manufacturing contributes to the shift towards uniformity of logistics models across regions. Many logistics insiders agree that during the last few years, this flexible supply chain model has spread to Asia, taking cues from Europe and the US. "Asia is becoming increasingly important to the US and Europe on a low-cost manufacturing basis," Buck notes. Firms which previously manufactured in Western Europe are looking to source in Eastern Europe. Firms are also shifting to lower-cost regions within Asia, such as eastern China, the Philippines and Thailand.

Paul Graham, managing director for Asia Pacific at UK-based Exel, agrees that logistics models in Asia resemble their European and US counterparts. "Due to globalisation, we are seeing a trend of Asia Pacific adapting more closely to western trends with global entities wanting a 'copy exact' type model and standardising their global support systems and structures," he says. Graham attributes the emerging world-class model to multinationals adopting similar approaches to their manufacturing environment and in-house systems. "Most of the multinationals have now gone through the installation of their ERP systems and now need and want to focus on standardising their supply chains on a global basis," he says.

Logistics models within Asia are particularly dynamic now as companies scramble to relocate to lower-cost countries for manufacturing. Lynn McIntire, spokesperson for UPS Supply Chain Solutions, notes that the company's customers are evaluating locations in Asia for manufacturing and distribution. "There's fierce competition between Taiwan, China, the Philippines and Singapore to be seen as the leading logistics centre for the region," she says. Consequently, manufacturing plans are in flux, prompting companies to evaluate their supply operations closely.

Both Buck and Vittorio Favati, executive vice-president of Asia Pacific for Eagle Global Logistics, suggest that the evolving US-born direct ship model first made famous by Dell Computers in the late 1980s has crossed borders. Favati sees high-tech and other manufacturers in Asia emulating the model. The direct ship model encompasses aspects of VMI and MIT programmes, permanently altering distribution pipelines as distributors and middlemen are shut out, but importantly, shifting the cost of holding inventory away from the manufacturer to suppliers.

Buck concludes that increased dependency on information and knowledge is one of the largest contributors to the uniformity currently emerging among logistics modes worldwide. Most of the major 3PLs have launched global initiatives to standardise their information systems.

http://www.logistics-asia.com