Stronger links = fewer kinks

Kieran Ring, Global Institute of logistics, talks about how it’s going to take more than just clever technology to sort out the global supply chain.

As the level and complexity of global trade increases, so is the volume of inventory traffic in Europe’s ports, transport networks and storage. In short, as space becomes an ever more valuable resource we must improve the efficiency of our supply chains or find ourselves in gridlock. But, as EI discovered in an insightful interview with Kieran Ring, the brains and personality behind the Global Institute of logistics, it’s going to take more than just clever technology to sort out the kinks in the global supply chain – we’re going to have to talk to one another.

INFRA. How would you sum up the key needs or inefficiencies in the global supply chain today and the challenges facing supply chain managers?
KR. Frankly, it would be difficult to discuss the global supply chain without looking specifically at the enormous impact that China has had on world freight movements per se. For example, 40 percent of US corporations will source their inventory for their domestic markets from overseas subsidiaries this year and 25 percent of all world freight trade will come out of china. It’s interesting to look at the changing balance between the three major forces – Europe, Asia and the US – with most leading thinkers now talking about the de-industrialisation of Europe and the US and the re-industrialisation of Asia.

So I suppose, in fairness, if companies are forced to head to low costs centres such as China to find a better price and remain competetive, the biggest challenge will be maintaining visibility. With the lengthening of the global supply chain has come a loss of visibility, which is of course further hindered by language barriers, time zones, and other simple practical things that get in the way of being able to see where you stand.

Especially now that the concept of just-in-time is standard practice, inventory should never be standing still; it should always be dynamic and moving toward the source of consumption in the shortest possible time. While for the most part, we mastered this in the 80s and 90s, the new challenge is maintaining just-in-time or inventory flow in the context of an ever-lengthening global supply chain.

INFRA. I understand the Institute fosters and promotes ‘relationship orientation’ as a key change agent in addressing some of these challenges. Can you tell me more about what this means?
KR. In light of the challenges mentioned above, we need to assess our own organisational culture and behaviour. IT is clearly the real enabler when it comes to visibility – if all partners along a chain are working with the same IT platform it is a great help – but, let’s be honest, that’s incredibly difficult across such a broken up supply chain. Consider, for example, that on average a product sourced from inland China will go through 27 different sets of hands on its way to the port.

What we sense at the Institute is that the real antidote or solution to the problem of visibility in the GSC is a reemphasising of relationship excellence – something scientists or academics are referring to as ‘relationship orientation’. We all know that ‘getting along’ with one another is the best way to do business, but we’re proposing that should be taken one step further. It’s not just a nice idea, but central to the business relationship and there’s a direct link between the level of interaction between supply chain partners and the level of visibility. We find that it is one of the simplest ways that people can gain confidence in outsourcing or in developing a global supply chain from a distance.

INFRA. So, it’s almost as though we need to go back to more traditional means of communication. I guess, while IT is great, it also has its limitations…
KR. IT is of course an incredible enabler. Today, best-of–breed providers that have grown up in this vertical are rapidly being consolidated into the larger brands. This was even witnessed in the DHL Excel merger, which created the biggest logistics service provider in the world. They admitted that their biggest challenge would be getting their IT functions – a combination of hundreds of different legacy systems, client service systems, best-of breed, etc.,– to successfully join up. Everyone is scrambling right now to get all of these old systems to talk to one another. So we still don’t have a complete solution in IT.

I’m not sure we can ever describe the art and science of talking to one another as ‘traditional’, but it is central to our success. While IT isn’t, and never will be, a panacea for everything, relationship excellence will always be a great way to get the best out of people.

INFRA. We read much in the business press about the benefits of business process outsourcing (BPO), but its role in supply chain management is new to me. Can you outline how it can be of benefit in the global supply chain sector?
KR. This was a revolution that essentially had its genesis in the minds of people like Michael Dell or Jack Welch, who once famously said that your back office should be someone’s front office. It rings true when I think of my own offices. When I come across the administration department, for example, I don’t feel motivated to stop there or to consider how they could improve their processes. Jack Welch realised that there are specialists in the market who can treat that department as a front office and who can look for process efficiency and improvement. BPO grew up from that simply logic.

This approach also coincides with Michael Dell’s revolution, which was largely necessitated by a lack of start-up capital. He said that if he could get other stakeholders to join him in his vision they’d bring a certain provision – an expertise in executing certain elements that he couldn’t do so well himself.

Of course, when you outsource the component parts of a product you face a new challenge – how do you merge all of these components together at the point of consumption. It was this problem that necessitated the development of a system now known in the logistics industry as Dynamic In Transit Merge (DITM) – in other words, the final elements of your computer (your mouse, keyboard, etc.,) may only join the main consignment one mile before it reaches your front door.

BPO is the revolution from which we’ve squeezed more costs out of the supply chain and is now the older brother to knowledge process outsourcing.

INFRA. So is there pressure on outsourcers to have the right IT infrastructure and visibility in place to deal with this influx of information from a multitude of sources and IT systems…
KR. When companies outsource their various business and knowledge processes, the ideal scenario would be to outsource those processes to a company that has the same software systems. Manufacturers running on Oracle or SAP are asking that they now follow the revolution and become the solution suppliers to those companies to whom they outsource. This is essentially what is happening; the large IT providers are acquiring the best-of-breeds that were allowed to germinate in the smaller outsourced parts and are trying to get everything working on the same platform.

This then throws up the next big challenge – if we’re serious about moving IT to one or a few platforms then we need a huge amount of standardisation. This is something the industry is trying to educate logistics service providers and BPO providers about.

INFRA. So what role does the Global Institute of Logistics play in raising standards and knowledge in the sector?
KR. The Global Institute was born at a time when group participation as an idea was on a decline – membership of political parties and in all types of traditional organisations and trade associations was on the wane, because people were becoming more time poor. There was a real need to foster a more collaborative approach in the global supply chain as globalisation takes hold.

We convened in the mid-1990s as a thinktank for though leaders, academics and early innovators, but had no idea that what we were discussing then would become so relevant in today’s world economy. We became a fully integrated institute in order to give people a real opportunity to get involved in thought leadership. In essence, we became a media organisation; our key people all come from media backgrounds and we are blessed to have some of the finest supply chain thinkers as members.

With a plethora of correspondents and researchers worldwide, we are able to break the key stories and to predict and capture the key trends and developments in the industry. In fact, we have become very adept at spotting developing trends, in particular identifying early adopters. The world is roughly divided into two types of people – those who wait to see what proves to be efficient and then adopt it, and the pioneers, who want to be early adopters, try new things out and break new ground. The GI brings together those early adopters.

The reality is that, as individuals from different parts of the chain, learn to relate to one another more closely – the port terminal operator, shipper, manufacturer – they talk more and understand that there are processes they could do better. After all, no matter how many times you sit down with a piece of paper and try to reengineer a supply chain, in reality you need to go in as close as you can, right back to the point of your product being ordered.

I believe that in the future we should all try to do what Michael Dell once said – to only build what the consumer has ordered in advance. This is the Utopia that we are all trying to achieve worldwide, and the key to achieving that goal is through relationship excellence.

INFRA. Are you positive that some of these changes will happen and what emerging issues or trends do you predict for the years ahead?
KR. The global freight market is now worth 2.7 trillion, and 25 percent of that is literally tied up in inventory. As we achieve greater relationship orientation and more joined-up thinking, we will also get more visibility. By developing IT systems – we believe by 2007 there will be a real integrated solution available – and relationship orientation in the supply chain, it will create the kind the kind of visibility that will prevent the build up of safety stocks.

No matter how you cut the cake, we are running out of space, port space, air space, and as trade grows, the space available becomes more limited. The less inventory in the chain, the more efficiently we can use that valuable space. While we have become very good at engineering out the physical transactions, the challenge now is to reduce inventory. If we can achieve a combination of the above goals, the future is bright.

Kieran Ring is CEO at the Global Institute of Logistics (www.globeinst.org) a New York-based, not-for-profit, organisation concerned with the proliferation of best practice in global logistics and supply chain. Ring founded the Global Logistics Forum at the European Institute of Transport before going on to found the Global Institute of Logistics in 2003.