Globalisation and the internet age have revolutionised Supply Chain Management (SCM). However, almost everything we buy has to be shipped and delivered in the physical world, as Alan McTaggart, group logistics director at Hong Kong-listed power tools and consumer products company TTi, knows. He answers questions about some of the main challenges involved.
How can you control shipping costs when the oil price has been so volatile? That's a huge problem for everyone in the industry right now. Last year we were being quoted US$500 for an FEU (40-feet equivalent unit) sea-freight to Europe. Now it's going up to US$3,500. Shipping companies lost around US$20 billion between them last year, and they're desperate to make some back. I've had contracts cancelled and I've had to accept surcharges. We could be looking at up to 60 per cent added cost.
Is there a case for 'reverse globalisation': sending production back closer to the point of final sale? At the moment the numbers don't add up. To supply the US you're almost certainly looking at Mexico and South America, but the cost of shipping to the West Coast is not that much less, and the delivery time benefit is not that significant yet for the mass consumer goods market. To manufacture in Mexico, probably 50 per cent of the components will have to be shipped in from China.
What trends are you seeing in your customers' approaches to SCM? In Europe, we've been asked to supply goods FOB: free on board - effectively we put the goods on the ship in China and the customer uses the money we discount for the shipping to manage the SCM process from there. In the US, though, we're being asked to deliver to local distribution centres and hold the inventory until the customer draws it down.
What advice would you give companies looking to improve their SCM? Make sure you have expertise and a well-defined strategy in-house before you go to a full-service SCM company such as DHL or Panalpina. They have the IT platforms you need, but you need strong professionals inside the company.
Do you see consumer habits changing? It's a hard call, obviously. However, we could be approaching a phase where people look to buy one quality product to last a long time rather than buy cheap and then throw it away when it stops working.