The ratio of world trade to the GDP of the globe as a whole, an index also used to measure openness of economies, increased by 20 percent to just over US$20 trillion by the end of 2011. The sharp rise in global trade over the past two decades is partly due to innovations in logistics as well as changes in policies in trading countries, which has led to a reduction in the cost of delivering goods and services across borders.
A report launched by WEF indicates that removing supply chain bottlenecks could significantly enhance global trade. For example, if counties were to improve border management and necessary infrastructure, especially transport systems, to just half the level of Singapore, the global GDP would shoot by 4.7 percent which is about six times what we would get by scrapping all import tariffs.
Challenges facing international supply chains
Basically there are 7 challenges facing companies trading across borders. These are:
- Sub-optimal sourcing results caused by inadequate data on total cost
- High overhead costs incurred in managing global sourcing and logistics needs
- High cost of expediting freight
- Disconnect between domestic and inbound international transportation operations
- Highly varying inbound lead-time
- Reactive logistics management where a proactive approach would be most suitable
- Lost sales and high inventories as organizations struggle to meet demands of the long supply chain.
The biggest challenge actually is the long learning curve necessary to fully understand the rules of global trade. From government regulations to transportation lanes, complex product flows, sourcing and third party relationships, it becomes almost impossible to manage every step of the supply chain effectively.
Solutions to these challenges
- Process automation – if companies can replace slow manual processes with “one touch” flow of activities, they would be taking the first step towards increased efficiency while cutting on costs.
- Improved visibility – where is the shipment? When is it arriving? Is the expected arrival date different from the planned date? When shipment is visible, you can schedule activities without worry and even plan for tolerances.
- Managing total delivered costs – this refers to the ability to analyze and even predict total cost of the supply chain right from the source of supply to the point of distribution. This should help when making sourcing and logistics decisions.
- Complying with regulations – due to increasing security concerns in the supply chain, there are a number of requirements to which you will need to comply, with failure to which you may face fines, delays or penalties.
- Dynamic routing – instead of static, redundant routes, companies operating across borders must now “rate shop” to come up with efficient combinations of routes, carriers and third parties to reduce costs.
- Managing variability – variability of lead time can cause uncertainty, risk and usually require inventory buffering. Reducing a 4 day variability by even 1 or 2 days can save you millions worth of inventory costs and reduce loss of sales by a substantial margin.
- Integrating planning and execution – global logistics has always suffered because information that decision makers need is stored at multiple points and thus takes a bit of time to access. Having a “single workplace” containing all the information needed throughout both planning and execution can help solve this problem.
While it’s true that not every item on the above list will be appropriate for every company, together these solutions provide the right framework for developing a working logistics strategy for companies that trade across borders.