LSCMS Blog

There has been more and more written recently about China no longer being the country of choice for low cost sourcing due to increasing labour costs, an aging workforce and a range of other reasons.

A report by KPMG International revealed that while “no single country can match the scale of China, countries such as Bangladesh have large low-wage workforces that are now starting to be employed, while Southeast Asian countries are making moves to remove tariffs and customs restrictions”.

Countries like Indonesia, India, Vietnam, and Cambodia will be benefitting in various ways, especially in areas of specialised production such as footwear, hand-stitched fabrics and metalware, Asia Times Online reported.

The report “Product Sourcing in Asia Pacific: New locations, extended value chain” pointed out that preferential trade terms have benefitted exports from Cambodia and Bangladesh to the European Union, while Indonesia has been an increasingly popular sourcing destination for Japanese and North American buyers.

Most companies have shifted “closer to end markets over the past three years driven by high transportation costs, concerns over further carbon taxes, and the development of centralised approaches to inventory” despite them having accepted their continued reliance on China.

The changing environment is leaving companies no choice but to reassess sourcing strategies, according to KPMG’s Asia Pacific chair of consumer markets Nike Debnam, pointing out the trend where soft demand in many Western consumer markets is making it difficult for companies to pass on higher costs to consumers.

Companies that source in China are finding it necessary to consider new supply models or destinations to sustain productivity gains.

China is still an important source for food and beverage and consumer goods, but the crucial need of optimising costs has spurred the frequency of production being scattered across several countries.

Bangladesh is well-positioned to improve as a sourcing destination due to its strong sectors such as apparel, frozen food, and agricultural products.
With an export target of US$26.36 billion for the year ending next July, executive director of the Bangldesh Frozen Food Exporters Association Mohammad Abul Bashar believed the country is likely to exceed the target by 20-25%.

While poor foreign direct investment inflows and intra-regional trade may hamper the country, it is seeing a growing number of exports of non-conventional goods and services such as jute and IT

There has been a dramatic rise in the use of smartphones in the supply chain and now PC World Magazine is suggesting that the iPAD could shortly make an appearance on the shop floor. The major ERP vendors are certainly looking at how the iPad could be introduced into their mainstream applications. SAP has already indicated that it is looking at producing a manufacturing application for the iPad.

The warehouse software vendor, Red Pararie, is also said to be developing applications that can incorporate the iPad. Markley Enterprises, a customer of Red Prairie, modified its browser-based warehouse management system so that it could be used on iPads mounted to forklifts in the warehouse. The iPads, covered in an industrialized casing, are configured to run apps that assist with managing inventory or picking orders and there is also talk about applications iPAD applications being used that interface with Transport Management Systems that can be used effectively in vehicle fleets.

Bloomberg Businessweek is reporting that colleges that offer Supply Chain Management (SCM) programs are turning down applicants as courses are oversubscribed. A popular SCM undergraduate course, offered at Lehigh University in Pennsylvania had to turn down applicants for its SCM course for the first time last semester.

The reason why students are looking to supply chain focused courses is that employers are looking to fill their supply chain jobs with applicants who have some kind of formal education in SCM. Major companies are identifying the supply chain as the area where they can become more efficient and they need experienced employees or graduates with good supply chain education. This is seen at Arizona State University’s W.P Carey School of Business who reported a 100 percent placement rate for the supply chain MBA’s who graduated in May of this year.

Logistics and SCM courses offered by schools in Asia, especially in Polytechnics experience a similar trend. It is however noted by many Logisticians that whilst a good basic education in Logistics and SCM is desirable, ours is one industry that relies heavily on experience and ability so whilst a good basics are desirable, an ability to learn and apply new concepts and ideas is an even greater asset.

Sept. 15 (Bloomberg) — When Prologis Inc. built Japan’s first logistics center in 2002 for inventory management, storage and distribution, potential clients and lenders told the company to invest in malls or apartments instead.

“Investment in logistics facilities was unheard of in Japan,” said Tokyo-based Miki Yamada, president of Japan operations at Prologis, the world’s biggest warehouse owner. “Everyone said it doesn’t work and no one was interested.”

Now, Japan’s distribution centers are rebounding from record-high vacancies two years ago amid demand for modern storage after the March 11 earthquake and tsunami destroyed industrial spaces, drawing investors looking for returns amid a slump in the office market. Investment in logistics may surge to more than 2 trillion yen ($26 billion) this year from almost zero in 2002, according to CB Richard Ellis Group Inc.

“The earthquake in March reaffirmed the importance of logistics and supply chain management,” said Yamada. “As companies continue to seek efficiencies, the demand for modern, efficient distribution facilities will undoubtedly continue to increase moving forward.”

“Logistics properties have become popular,” said Tokyo- based Naoshi Ogikubo, chief executive officer of Diamond Realty Management Inc., a unit of Mitsubishi, Japan’s biggest trading house. “That may lead to a gradual increase in property prices for modern warehouses as the office and retail leasing markets remain tough.”

The higher return of distribution and storage centers has been partly helped by a shortage in supply after the collapse of Lehman Brothers Holdings Inc. in September 2008 froze credit markets. The addition of new space fell by about half in 2009 and plunged 74 percent in 2010 in Japan, Los Angeles-based CB Richard Ellis said.

“Modern logistic facilities have really become the store front for e-commerce,” said Jeffrey Schwartz, deputy chairman of Singapore-based Global Logistic.

With that first distribution center in Shinkiba near Tokyo Bay, San-Francisco based Prologis pioneered leasing large facilities to Japanese logistics companies that offer a range of services such as inventory management, storage and distribution of goods. Prior to Prologis, firms traditionally owned their own storage space or leased space from warehouse operators.

Source: Business Week, 18.Sep.2011

Boeing Co (BA.N) said on Friday it would not make the planned first delivery of its 747-8 Freighter to Cargolux CLUX.UL on Monday, citing “unresolved issues” with the airline.

Boeing, the world’s second-largest plane maker, was set to make first delivery of the freighter version of its elongated 747 to a customer on Monday, marking the start of a new chapter in the life of the aircraft that has been Boeing’s most recognizable plane for decades.

The plane maker, which had planned three days of celebrations to mark the long-awaited first delivery, did not disclose the problem and referred questions to the customer.

A Cargolux spokeswoman was unreachable by phone and did not immediately respond to an e-mailed request for comment.

Boeing spokesman Jim Proulx said the company was working with Cargolux to resolve the issues. He declined to say how the snag would affect the 747-8F delivery schedule.

“We are working with our customer to determine a date for delivery,” Proulx said.

While Boeing declined to identify the source of the friction with Cargolux over the 747-8, aviation experts suspected the dispute was over performance guarantees related to fuel consumption of the General Electric (GE.N) engines. The 747-8 features GE’s GEnx-2B67.

Source: Reuters 16.Sep.2011

The next ten years will see a seismic shift in the balance of power in global supply chains, predicts John Manners-Bell, CEO of Transport Intelligence.

Like their Japanese and Korean counterparts in the 70′s and 90′s respectively, Chinese manufacturers are fast developing from low cost suppliers of cheap goods for foreign OEMs into global brands in their own right.

This shift has been largely prompted by the Chinese authorities who have encouraged companies to migrate up the value chain. This is sensible in an economic environment where inflationary pressures are making it increasingly difficult for Chinese manufacturers to compete on cost alone. There is also a political imperative which sees globalisation as the next logical step for Chinese companies.

This has major implications for the associated logistics market. Bringing a Chinese brand to Western consumers will mean that these companies will be increasingly taking control of their supply chains. They will establish distribution networks in North America and Europe and in some cases have already done so. This is a long way from the factory-gate strategies that all pursued in the 1990s.

Haier is one example of these emerging brands. It has already achieved leadership in the domestic appliance market with a share of about 6%. It now not only manufactures in China but in Italy, the US and in various countries throughout the developing world. Where Haier led many are following: Lenovo, Huawei, ZTE, Tsingtao, Datang Telecom and China Telecom are just a few of the most expansive. ZTE, for example is the world’s fourth largest mobile phone manufacturer, a market in which it is competing against Nokia, Ericsson as well as domestic rival Huawei.

Why is this development so important? Simply put, a wave of Chinese companies will enter Western markets in need of downstream logistics services. Haier for example signed a contract with CEVA Logistics as long ago as 2008. However, the trend will gather pace and logistics service providers will need to be aware of this change in customer profile if they are to take advantage of the opportunities it offers.

Moreover there are deeper reaching consequences for the structure of the global logistics industry. There is no reason that the trend of globalisation of Chinese companies should be reserved to manufacturers. As their supply chains spread throughout the world, there would be a natural inclination for exporters to use Chinese logistics providers to facilitate their growth. Hong Kong based Kerry and IDS have already entered the global M&A market, and there is no reason to think that Sinotrans, China’s domestic giant, should not do the same.

If this is the case, the global logistics market could look very different in the coming years with the possibility that Asian providers emerge as the dominant force.

It was recently reported in the times of India that the sexual temptation produced by the here-today-gone-tomorrow aviation lifestyle is producing a disproportionate number of divorces.

“Around 300 cases of divorce and open relationships have come to me in the past four years, of which 70 per cent come from the aviation industry,” said marriage counsellor Nisha Khurana.

“A number of marriage counsellors in Gurgaon and Delhi, whom I have worked with, agree that the industry has a high rate of divorces, which is primarily because of the nature of work, hectic hours and long stays out of home,” Dr Khurana said.
A typical working day in an aviation worker’s life is spent either in the airport and flights, or in different cities where they have to stay over, said the report.

“We fly around eight hours a day and on an average, spend four days a week away from home. Even on the days we get back home, we usually end up taking enough rest before we start work again,” said Oman Air pilot Koustuv Goswami.

An unidentified pilot said loneliness of the flying life induces aviation workers to give into vices which lead to infidelity and divorce.
Said another unidentified fifty-something pilot: “When people around you don’t frown on things like these, you gradually start accepting them as a norm.”

This pilot, now living with his flight attendant girlfriend, divorced his wife of 20 years. “I love to have a lot of women around me, and I do. I really tried to make my marriage work initially, but could never derive much happiness out of it. Now I’m happily single again, and now feel much happier,” he said.

Most cabin crew members, said the report, find it difficult to avoid temptations, especially with all the money around.
“I started working at the age of 18 with a starting salary of INR80,000 (US$1,670). For the first few years, I just spent all my money on alcohol and drugs. It is like a black hole that just sucks you in till you realise that there’s no going back,” said the former 29-year-old female flight attendant, now attending the School of Open Learning in Delhi University, after quitting her job with Qatar Airways

Australian Transport Minister Anthony Albanese was warned by US security advisers that body scanners could not reliably detect home-made explosives before committing to a $28.5 million plan to X-ray international travellers.

With trials of new X-ray imaging technology just concluded at Sydney airport and currently being held in Melbourne, the department says volunteers have been queuing up to undergo a scan.

It says 40 per cent of participants were found to have metallic or non-metallic objects — mostly wallets and jewellery — in or under their clothing.

But a cable from the US embassy in Canberra, leaked by WikiLeaks, reveals that Mr Albanese and local security advisers were told the technology was “not foolproof”.

“Even the newest body scanners have an unimpressive hit rate on home-made explosives,” then US Homeland Security chief Jane Holl Lute said during a visit to Australia in January last year. The briefing occurred in an atmosphere of heightened concern following the attempted Christmas Day terrorist attack on a flight to the US.

The local Office of Transport Security has sought to calm health fears by selecting a “millimetre wave” machine that uses radio waves with an energy level claimed to be comparable to a mobile phone handset held some metres away.

And to quell privacy concerns, it has chosen “automatic threat recognition” software that generates a box on a human outline to indicate areas for investigation, rather than naked images.

Mr Albanese’s spokeswoman told The Australian all the major issues had been covered.

“The image that is generated is the same for all passengers,” she said.

“It appears as a stick figure and the images cannot be stored or shared in any way.”

The department has just released a privacy impact assessment on the implementation of body scanners, with submissions due this month.

But the spokeswoman did not confirm whether the program has been independently assessed for radiation safety.

While the Australian Radiation Protection and Nuclear Safety Agency says the risk of increased cancer incidence due to exposure to airport screening technologies is low, its expert radiation health committee says any new use of radiation on humans “must be justified” prior to introduction.

“Technologies should be evaluated based on the expected reduction of the threat, as weighed against the risks associated with the technology and social and legal implications,” it says.

It cites including individual doses per scan, exposure levels for operators and likely acute and chronic screening risks.

Toyota Motor Corp is working to create a robust supply chain that would recover within two weeks in the event of another massive earthquake like the one on March 11 that is still affecting output after six months, a top executive said.

Toyota and other Japanese automakers were forced to halt a large portion of their production both inside and outside Japan for months after the earthquake and tsunami cut off the supply of hundreds of parts from the country’s devastated northeast.

“We’re making checks now to see what needs to be done to enable a recovery within two weeks when the next one — expected in the (central) Tokai region — hits,” Executive Vice President Shinichi Sasaki told Reuters in a recent interview.

“We’re about 80 percent done with those checks.” Sasaki, in charge of purchasing, said Toyota was taking three steps to fight supply chain risks that he expected would be completed in roughly five years.

The first step is to further standardize parts across Japanese automakers so they could share common components that could be manufactured in several locations, he said.

The second step is to ask suppliers further down the chain to hold enough inventory — perhaps a few months’ worth — for specialized components that cannot be built in more than one location, or take anti-quake measures that guarantee safety against any tremor or tsunami, he said.

This was to prevent a repeat of what happened this time with Renesas Electronics Corp, whose production of certain microchip controller units (MCUs) is still seen a few weeks away from full restoration.

Part of the second step would involve developing technology that would provide more options for parts and materials, such as substituting rare earths found mostly in China.

The third step to becoming more resilient was to make each region independent in its parts procurement so that a disaster in Japan would not affect production overseas.

Sasaki said the measures would also help offset losses from the strong yen by eventually lowering costs and creating a natural hedge — whereby costs and revenues are in the same currency — cutting foreign exchange exposure within regions

KEITH Tantlinger, whose invention set in motion the creation of the ubiquitous shipping container 60 years ago, has died at the age of 92, reported the New York Times recently.

Tantlinger’s box, large, heavy and metal, was the first commercially viable modern shipping container, though other shipping containers had been in existence for the better part of a century.

Tantlinger’s key refinement was the corner mechanism that locks containers together – allowing them to be lifted by crane, stacked high. More than any other innovation, this made the modern container revolution possible.

The son of a citrus grower, Keith Walton Tantlinger was born in Orange, California, on March 22, 1919. He earned a bachelor’s degree in mechanical engineering from Berkeley. During World War II he worked for the Douglas Aircraft Company, a precursor of McDonnell Douglas, where he designed tools used to produce B-17 bombers.