Supply Chain Collaboration for Logistics Excellence

1. Good Private Sector Practices in Logistics ManagementInformation Technology Tools to AchieveCollaboration Among Government, Logistics, Shippers and Customers Robert L. Wallack, Senior Transport & Logistics Advisor to the World Bank

3. Contents • I. Collaboration: Government, Logistics, Shippers, Customers • II. End to End Supply Chain Management: Order, Fulfill, Settle • III. Inventory Management: Controlling Costs • IV. Trade Management: Government Interactions with Business • V. Value Added Service Provider Management: Logistics, Distributors • VI. Conclusion

4. Collaboration: Government, Logistics, Shippers, Customers Management and Director Roles: • Fritz Companies was a United States Customs brokerage, international freight forwarder with an information systems department for electronic data interchange (EDI) building U.S. Customs data interfaces for Fortune 500 companies U.S. imports (Walmart, Boeing, GE, Nova Chemicals, 3M, America Honda, Mellon Bank)—Fritz Companies was sold to UPS Agilent Technologies, Global Tax & Trade, Global Trade & Logistics Solutions (electronic test & measurement high tech products, spin off Hewlett Packard Co.) Goals were to reduce logistics service providers & costs (trucking, warehouse, distributors) by designing and implementing logistics department and company-wide strategies: Such as, Supplier/Vendor Managed Inventory (SMI/VMI), collaborative Web based software applications, Oracle enterprise resource planning (ERP), and design products for the supply chain (fewer purchasing and stocking of components) Crocs Industrial Shenzhen, footwear manufacturer by Taiwan contract manufacturers (Yue Yuen is one CM for Nike, Adidas, New Balance) Opened factory in Vietnam involved China-Asia Free Trade Area. Managed orders in the Shenzhen Special Economic Zone (SEZ) for global distribution, Customs, Packaging, Third Party Logistics (3PL) Massachusetts Institute of Technology (MIT), Supply Chain Strategy & Management, Two Day certificate

5. Collaboration: Government, Logistics, Shippers, Customers • Transportation, Logistics and Customs are services to manufacturers and retailers and their suppliers for the end customer that is the consumer in store or e-Commerce • Manufacturers and retailers suffer from thinning profit margins. Problem: How to take costs out of the distribution channel (supply chain) without compromising service (on time deliveries)? This involves improving profitability and competitiveness. • Solutions are found in collaboration tools of on-line Web based (Internet), software applications, and data processing for automating paper processes • Overarching theme of government (Customs, agencies) is to collect revenues while balance security to the public with trade facilitation for businesses to profit • Need to collaborate among all since technologies are available for sharing data and forming partnerships among business and government to “speed time to market”

6. The State of Logistics, United States of America, 2013 Carrying Costs (US$2.459 Trillion*) All business inventory, in $US billions: Interest $2 Shipper-Related Costs$10 Taxes, Obsolescence, Depreciation, Insurance $330 Logistics Administration $53_________________ Warehousing $137 Subtotal: $469Total Logistics Cost $1, 385 trillion Transportation Costs Motor Carriers: • Truck-Intercity $453 • Truck-Local $204 Subtotal:$657 -percentage of logistics costs making up GDP: 8.2 percent Other Carriers: -* Inventory carrying costs rose 2.8 percent which raised warehousing • Railroads $74 costs by 5.6 percent (manufacturing, wholesale trade, retail trade) • Water International $30 Domestic $7 • Oil Pipelines $13 • Air International $13 Domestic $20 • Forwarders $38 Subtotal:$195 Source: State of Logistics report, Inbound Logistics, July 2014

7. End to End Supply Chain Management: Order, Fulfill, Settle • EDI (Electronic Data Interchange) is standard formats of data to automate Logistics-Customs-Business Processes • EDI status messages show dates which are important as time is money and delays cost loss of business, profits and loss of competitiveness. Common EDI formats are: 1.) Purchase Orders established between the manufacturer and supplier. Sales and Customers can change order by size, color, ship to location. I will explain more later. 2.) Advance Shipping Notice for trucking to fulfill the order on time to delivery date. 3.) Commercial Invoice is for Customs forms to import goods for settlement of duty

8. End to End Supply Chain Management: Order, Fulfill, Settle Status messages: Purchase Order is a contract with customer details Advance Shipping Notice and Commercial Invoice are cargo release/Customs Entry forms with important dates such as: estimated time of arrival, import date, Customs entry date, release date, and for trucker: available date, pick up date & delivery date are conveyed by EDI messages Company logistics strategies are built on reliable EDI transmissions from Order to Delivery by reducing to 15 days from 45-60 days the time from a customer’s order to delivery of the Finished Good (FG). Data transmitted by the EDI standardized formats are how logistics is managed among government, logistics, shippers, customers. In fact, logistics is managed by: Flows: Physical Product movements, information and financial of which various collaborative software platforms can be built. Also, data is needed to measure performance & costsby Key Performance Indicators (on time delivery, landed costs of freight, duty/fees, overhead costs). This was used in Agilent and by Crocs, weekly.

9. Inventory Management: Controlling Costs • Sharing of data by EDI transmissions based on forecast of demand from manufacturer to replenish goods in the warehouse from customer sales data • Collaborate: manufacturer, logistics/warehouse/distributor & government • Inventory has costs to hold in a warehouse: space, taxes, obsolescence. So, high inventory turnover is needed and measured and a service offered by logistics managers as a value add to partner with manufacturer and retailer

10. Inventory Management: Controlling Costs • Agilent solutions: Web based software platforms: e-POD=electronic point of delivery application to assist sales with meeting customer delivery dates, meet government and accounting regulations to recognize revenue at point of delivery and to assist logistics service providers (parts distributors) in managing inventories • Crocs solutions: Collaboration among production planning forecasts by Crocs with the Contract Manufacturers and with logistics service providers (FedEx, DHL, CEVA/Eagle and COSA, PRC to share data for lower inventory and transportation costs. This involved collaboration by testing EDI/ERP order, fulfill and settlement formats between Crocs and contract manufacturers and by Web based visibility software in the logistics companies. • Inventories are held for components to make products and for finished goods. Logistics strategies are by shippers with distributors/Value Add Service Providers to share information and EDI data in order to keep inventory costs low • FactoriesDCsRetailers use software platforms to collaborate (virtual or to replace inventories with information)

11. Trade Management: Government Interactions with Business • In China and Vietnam Yue Yuen was/is a major CM for Crocs. Prior to opening their Vietnam factory there was production research to determine cost savings: This involved China-Asia Free Trade Agreement for Customs tariffs lowered to serve Asia distribution. However, trade liberalization is offset by operational problems. • Failure of collaboration can cost time and money. Some examples are: 1.) The Contract Manufacturer & Crocs had per pair of shoes cost savings in the Shenzhen SEZ. However, the Customs declared per unit of shoes was too low and held up in Shenzhen Customs. This was for classifications/valuations for market entries to China. Crocs needed to include other costs to declare in the price such as: “Assists” of royalties, licensing, tooling. This also impacted Crocs’ transfer pricing for taxes. 2.) Taiwan claimed anti-dumping also based on low Special Economic Zone pricing. • Improved collaboration between for CMs, Crocs and China Customs by: 1.) . Engineering documents needed to backup classification of products & valuations, Importer Self-Assessment, Customs Trade Partnership Against Terrorism (CTPAT) program and sharing of data between CMs, Crocs and Customs both in US and China.

12. Value Added Service Provider Management • Constant Collaboration by information technology for Chargeback Penalties Problem: Customers’ PO (Macy’s, Nordstrom, Foot Locker) have detailed requirements and if not met, then Crocs penalized millions of dollars. Crocs’ sales pushed to make orders and when customers changed orders, then operations in factories can not respond fastenough. So there are information systems in EDI Solutions: PO change order EDI, more collaboration with Yue Yuen & logistics service providers by sharing data and information systems. A strive to “pull” production based on collaboration with information systems instead of “push” • Constant Collaboration to resolve costs and delivery by logistics providers: 1.)Manage by Metrics: weekly “on time delivery” & “landed cost analysis” in Excel • Demands from on-line (mobile) shopping of e-Commerce hasten collaboration

13. Conclusion • Collaboration: Government, Logistics, Shippers, Customers by partnering, sharing information from EDI and related information technology platforms - Directorate for Roads of Vietnam (DRVN) Freight Forwarders Exchange & Haiphong Port Authority “one stop shop” information systems platforms are the way forward • Controlling Inventory Costs by substituting information for inventory since inventory assets create risks -Vietnam applies more information technologies to link value added service providers (distributors, warehouse, truckers) with shippers and end customers • Collaboration is proven to reduce penalties assessed by customers, improve on time deliveries as well as the flows of products, information and cash as supply chains become more complicated.

14. Thank You