Turn supply chain barriers into success

International companies are taking a close look at network optimization as a way to free up cash and reduce supply chain risk. Relocating production, reconsidering their transportation and logistics patterns, and compressing their cash-to-cash cycles are some of the steps they are taking to turn supply chain barriers into successes and improve their financial positions, according to Rolf Habben-Jansen, the chief executive officer of Maersk Logistics/Damco. Habben-Jansen made those remarks in his keynote address at the 2009 CSCMP Europe conference held in May in Copenhagen, Denmark.

One notable cost-related trend Habben-Jansen has observed: A "China plus one" strategy for sourcing products and parts is taking hold among international companies. Because China represents such a huge and low-cost manufacturing base, companies will continue to depend on production in that country. But they also have begun looking to other low-cost locations to supplement their operations in China. For example, some high-tech companies are moving manufacturing operations to Vietnam while garment makers are shifting production to Indonesia or Bangladesh. "Nobody wants all their eggs in one basket," he said.

Freeing up cash is a big concern now, and rightly so. Among 14 U.S.-based retailer customers of Maersk Logistics, all but four reported cash-to-cash cycle times exceeding 70 days, and only one has achieved a cycle time of just 10 days. "It shows that there is a lot of potential for managing end-to-end supply chains," Habben-Jansen said. "To generate cash, you want to make sure you don't have too much money [tied up in] in your supply chain."

One of the most common conditions restraining cash generation, Habben-Jansen said, is the fragmentation of trucking and warehousing operations through subcontracting to local providers. Another is the prevalence of high transportation costs. For international companies, those high costs often are due to the unfavorable locations of import warehouses. Other reasons include suboptimal warehouse storage patterns, inefficient operations, and a lack of visibility in global supply chains, he added.

Companies can find ways to overcome those roadblocks by running multiple software simulations of their supply chains, Habben-Jansen suggested. That exercise should include mapping vendor locations and transport nodes to determine optimized shipment routing that takes into consideration customer demand, transit times, and transportation costs. For example, some companies could pick and pack items for an individual store at the point of origin rather than at a warehouse or distribution center at the destination location. An assortment of items could then be shipped in an ocean container ready to unload at the retail store and go right out onto the shelf.

Some of Maersk Logistics' customers have discovered that removing carbon emissions from their supply chains has also produced efficiencies and reduced costs. Habben-Jansen noted that when Macy's, the U.S. department store chain, reduced its carbon emissions by 10 percent it also cut its overall supply chain costs by 10 percent. The retailer did that through network optimization, increasing its use of rail transportation, and selecting "greener" carriers. More companies will need to follow Macy's lead, he suggested. "We will all have to think in the future about how we can make our supply chains more green."