Download Global Supply Chain

Global Supply Chain
Management
The Global Supply Chain
World Trade Services are Changing
 Value of Global Trade has grown
from U.S. $2 trillion to more than
U.S. $7 trillion since 1985
 Growing participation of new and
developing markets (e.g. China and
India)
 Asian entities now involved in
approximately 66% of international
trade
 Intra-regional trade growing in
Europe
The Global Supply Chain
Trends (2004 – 2006)
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Annual growth in direct sourcing 22%
55% of companies have increased direct sourcing
Technology has not been embraced to support
– 56% use fax, email or courier to deliver PO’s
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80% of all direct sourced imports are FOB
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What does the future hold?
– Can you think of one of the biggest challenges facing freight forwarders and
the global supply chain?
– How can we offset this challenge?
• I.E.: What direction is the industry moving?
The Global Supply Chain
What is the “Global Supply Chain”?
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Both Domestic and International
Begins with the Purchase Order
Ends with liquidation of the purchase
Integrates / Impacts Trading Partners Supply Chains
Many sub – parts all of which add cost, risk and opportunity
Different by Industry
The Global Supply Chain
Three Distinct Parts
Physical Services
Logistics & Carriage
Financial Services
Treasury Management
& Financing
Information Services
Technology
All three, and the costs associated with each, must be managed in
concert with one another in order to maximize your business goals
Information
Services
Financial
Services
Physical
Services
The Global Supply Chain
 Packaging
 Consolidation
 Pre-assembly
 Sequencing
 Material
management
 Inventory
 JIT delivery
 Hub operations
 Assembly
 Packaging
 Material
handling
 Factoring
 Purchase Order
and L/C
financing
 Inventory
 Freight
 Project financing
payments
 Equipment
 Trade financing
financing
 Equipment
 Private fleet
leasing
financing
 EDI services
 Material
Resource
Planning
 Integrated
supply chain
tools
 Production
planning
 Outsourcing
 Inventory
management
 Labour
management
 Transport
 Consolidation
 Customs
Express
 Shipping
 Logistics
 Equipment
financing
 Project financing
 Letter of
Credit
financing
 Credit
servicing
 Workflow
Management
 Transport
Routing
 Tracking
 POD
verification
The Global Supply Chain
Domestic Supply Chain versus Global Supply Chain
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Three primary components are the same
Complexity and imbedded costs are the difference
Global has three distinct movement components domestic only one
1. Origin to departure port (domestic seller)
2. Port-to-Port shipping (ocean or air)
3. Port of arrival to destination (domestic buyer)
The Global Supply Chain
What are the Keys?
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Understanding the differences and their impacts on your company
and your trading partners
Effectively aligning pricing and payment terms with physical,
financial and informational costs to drive greatest benefits
Effective Risk Management
Effective & Integrated Information Management
Effective Financial Management
The Global Supply Chain
Physical Movement of Goods
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What moves from point-to-point
How it moves
COST to move it
Who is responsible for what during transit?
Regulatory impacts
– Customs – outward & inward
– Tax and tariff issues
– Cost of terrorism (US PATRIOT Act)
• Added burden, transit time
• Impact on delivery & scheduling
• CTPAT
Clarification on the“COST”
to move it…
•Oil is expensive, and it’s only going
to get more expensive.
•Oil is a common thread that binds
all markets, and it’s running out.
You’ve seen the headlines….
• “Wal-Mart expects to convert fleet to hybrid
18 wheelers”
• “USPS sees promise in battery powered mail
delivery vehicles”
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Oil only found in a few places
Most have been explored long ago
Peak of oil discovery was in the 60’s
Today we consume 6 times as much oil
as we discover but still increase
production from existing wells.
1956 Hubbert predicts USA oil
production to peak in 1970
It Did
(source EIA Energy Information Administration)
World Proven Oil Reserves per CIA
Source CIA World Factbook
Suspicious Reserves in the Middle East
When Saudi Arabia Peaks The World Peaks
• “The West is deluded to rely on Saudi
oil” Ali-Husseini former Saudi Director
Exploration Aramco
• 5 fields generate 90% of Saudi oil.
• 35 yrs of exploration finds little new oil
• Matt Simmons book details these
concerns.
There is an Arab proverb
• My father rode a camel
• I drive a car
• My son flies a jet airplane
• His son will ride a camel………
US still 3rd Largest Producer
Source: BP Statistical Review of World Energy 2006
Many different projections
about peak World oil
Source: Khebab of The Oil Drum
Oil demand projected to grow
Source: Department of Energy
Oil Prices go for a wild ride
Crude Oil Prices last 10 years
(not adjusted for inflation)
$90.00
$80.00
$70.00
US$/barrel
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
Source: Department of Energy
2006
2007
But over 140 years ….
Source: Energy Information Administration
Where does our oil money go?
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After Peak Oil, exploration and
operating costs will increase
dramatically.
On the Gulf of Mexico, there is
an identified oil well called
“Jack #2” it’s in 7000 ft of water;
it’ll take another 20,000 ft further
to reach oil.
It costs big money to dig for oil
and it will cost bigger money
tomorrow.
Oil is not in friendly places
• “You steal our wealth and oil”
– Osama bin Ladin, Nov 2002
• “Yesterday the devil was here, I can still
smell the sulfur” Venezuelan president
Hugo Chavez referring to President
Bush at the United Nations, 09/20/06
What about other energy sources?
• Coal production in the United States won’t peak
for another 50-100 years.
• Uranium for nuclear energy won’t peak for at
least 50 years.
• Natural Gas peak related to oil peak but global peak
less relevant due to shipping difficulties.
Nuclear Transportation??
USS Nimitz, a nuclear powered aircraft carrier .
Only 4 Civilian Nuclear Ships
Nuclear Savannah 1/7th the size of petroleum powered Emma Maersk
Diesels for today’s container ships
Worlds largest sailing ship Sedov
Only 1/50th size of Emma & 4 times as many crew
Strategies for Supply Chains
• Global Supply Chains may be heavily
exposed.
• How energy intensive is your supply chain?
• Design supply chains for peak oil.
• Re-evaluate global vs. local sourcing often.
Timing will be everything
• Days of cheap energy behind us.
• Market will help the transition, but expect
turbulence ahead.
• Fast, flexible, low petroleum dependency
supply chains will win.
And now, back to our show…
The Global Supply Chain
Information flows are key to managing risk
Buyer
Purchase Order
Payment
Seller
Financing
Payables
(A/P)
Purchase Materials
Dispute Resolution
Receiving
& Customs
Manufacture &
Packaging
Information
Management
Shipping
Document
Presentment
Letter of Credit
Purchase Order
Collections
(A/R)
Negotiate
Terms
Payment
The Global Supply Chain
But is Supply Chain a Business Process?
Demand & Supply Information Gaps
What?
Why?
Lack of integrated information
Disparate IT systems internally.
Limited global trade registry
Lack of global standards.
Information is not synchronized
Information required by several
departments in different formats or
different databases. Functional silos.
Information not available on demand
Lack of integration, synchronization
and discrete silos within an
organization are major obstacles.
The Global Supply Chain
Trade Market Evolution
Letters of Credit
Open Account
Value
Risk
Tipping
Point?
Less bank involvement, greater corporate risk
The Global Supply Chain
The Paradigm Has Shifted
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Is becoming a “corporate-centric” financial supply chain world
– Companies working directly with their suppliers using a familiar
system, online or otherwise.
– Banks are engaging corporations by offering purchase order
management and alternative open account payment methods.
– Greater automation and pursuit of simplification.
The Global Supply Chain
Web-based Trade PO Processing – Open Account
• Submit open account purchase orders
• View images of trade documents and make pay/no pay
decision
• Benefits
– Streamline document handling
– Reduction in costs
– Integration of PO data provides end to end messaging and a
payment platform
– Availability of invoice discounting upon acceptance by the buyer
The Global Supply Chain
Trade Payables Finance
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Financial Supply Chain Web Portal
Communicates invoice status
Establishes date & dollar certain obligation of payment
Certainty allows for accurate risk based pricing and ‘trading’ of obligation
The Global Supply Chain
Web-based Trade Payables Finance
Opposed objectives
Vendor and buyer focused on
reducing capital costs
Chain-conflict in managing terms,
cost of working capital, timing of
payments etc.
Paradigm Shift
Aligned interests
Parties work to move costs ‘out of
chain’ vs. shifting ‘within the chain’
Chain-collaboration in managing
terms, cost of working capital, timing
of payments etc.
Old Paradigm
Buyer ‘Net Inventory
Vendor Invested Inventory
Days = 65
Chain Conflict
Days’ = 45
New Paradigm
Vendor Invested
National City
Buyer ‘Net Inventory
Inventory Days = 25
Inventory Days = 65
Days’ = 20
Efforts to ‘move’
investment within the
chain either through
moving physical
inventory or
‘investment’ via AP/AR
Days.
Chain Collaboration
Risk and capital-need moved out of chain
Capital efficiencies maximized
The Global Supply Chain
Financial Supply Chain Today
Suppliers
• Vendor fulfills PO and invoices Buyer
for $1MM
• Buyer (investment grade company)
receives goods and invoice
• Vendor provides terms of 90 days but
has no visibility to payment date or
amount
• 90 days hence, remits payment for $1MM
• Vendor hedges to offset this uncertainty
• Vendor underwrites Buyer risk
• Vendor finances $1MM for 90 days at a
cost of 9.5%
• Capital cost of holding ‘Buyer risk’ =
$23,424 or 2.3% of the invoice amount
The Global Supply Chain
Global Supply Chain of the Future
Using Information/Technology
Suppliers
• Vendor fulfills PO and
invoices Buyer for $1MM
• Vendor provides terms of
90 days
• National City views payment
obligation on Web Portal
• Vendor views web portal
for future payment detail
• National City evaluates and
values risk of Buyer
• Vendor elects to sell
payment obligation to
National City
• National City, via Web Portal,
offers to buy payment obligation
at a discount rate of 6.5%
• Vendor receives immediate
cash at a discount based on
Buyer’s risk profile
• National City electronically pays
Vendor $1MM less a $16K
discount fee or 1.6% of invoice
• Buyer (investment
grade company)
receives goods and
invoice
• Buyer remits invoice
approval and payment
instructions to Web
Portal
• 90 days hence, remits
payment for $1MM
through Web Portal
(payment cleared to
National City who
bought obligation)
The Global Supply Chain
Concerns Specific to Global Sellers
• Countries and Markets:
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New Markets?
Changing conditions in historic markets?
Your customers changing conditions?
How do stay informed and manage?
• New Foreign Competition:
– Both here and there.
– Who are these guys and where did they come from?
– How do they compete? How do you respond?
• Customer Loyalty:
– Whose responsibility?
– In your industry, what dictates? (partnering, price, quality)
– Do your selling practices help or hurt?
The Global Supply Chain
Concerns Specific to Global Sellers
• Terms of sale, term sheets, catalogues:
– How often reviewed and updated?
– Reflect current competitive landscape?
– Reflect current financial conditions?
• Synchronize your receivables supply chain
– Selling to and Buying from is the primary relationship
– Work with your buyers to
• Leverage the creditworthiness of major foreign buyers
• Leverage lower interest rates in one parties country
• Utilize government sponsored programs to:
– Expand sales
– Reduce Days Sales (Receivables) Outstanding
After all - It is all about when you get paid.