Supply chains in Latin America and the Caribbean

Dr Eric Lambourdière Dr Eric Lambourdière Assistant Professor University of French West Indies

Dr Elsa Corbin Dr Elsa Corbin Temporary Assistant Professor University of French West Indies

Supply chains in Latin America and the Caribbean – Challenges Challenges and Opportunities Opportunities Transportation, Security and Logistics Forum U i University of Bayamon it f B February 20th 2009

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

World Logistics Performance Index o d og s cs e o a ce de

Source : www.worldbank.org

No data

2.14 <= LPI <=2.38

1 <= LPI <=2.14

2.38 <= LPI <=2.89

2.89 <= LPI <=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Customs

Source : www.worldbank.org

No data

2.14 <= Customs <=2.38

1 <= Customs <=2.14

2.38 <= Customs <=2.89

2.89 <= Customs<=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Infrastructure as uc u e

Source : www.worldbank.org

No data

2.14 <= Infrastructure <=2.38

1 <= Infrastructure <=2.14

2.38 <= Infrastructure <=2.89

2.89 <= Infrastructure <=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

International Shipment e a o a S p e

Source : www.worldbank.org

No data

2.14 <= International shipment <=2.38

1 <= International shipment <=2.14

2.38 <= International shipment <=2.89

2.89 <= International shipment <=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Tracking and Tracing

Source : www.worldbank.org

No data

2.14 <= Tracking & Tracing <=2.38

1 <= Tracking & Tracing <=2.14

2.38 <= Tracking & Tracing <=2.89

2.89 <= Tracking & Tracing <=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Timeless

Source : www.worldbank.org

No data

2.14 <= Timeless <=2.38

1 <= Timeless <=2.14

2.38 <= Timeless <=2.89

2.89 <= Timeless <=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Logistics Competences og s cs o pe e ces

Source : www.worldbank.org

No data

2.14 <= Logistics competence s <=2.38

1 <= Logistics competences <=2.14

2.38 <= Logistics competences <=2.89

2.89 <= Logistics competences <=5 1 is the lowest score and 5 is the maximum score

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Characteristics of LAC supply chains

Diversity exists in :

•Culture, •Langages, •Currency, y, •Regulations, •Organizational forms and stages of economic development

•Long distances L di t •Several borderlines (paperwork) •Low volumes per SKU •Low volumes per SKU (Stock Keeping Unit) •High distribution cost (High inventories) (High inventories) •Corruption in borderlines •Hijacks

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

LAC Supply chain networks are very complex

The logistics market is very fragmented

Little consolidation due to fragmentation and gouvernmental regulations

Domestic freight movement is primarely by truck and secondly by rail

Small and mid‐size players in the market players in the market

Most import and export flux is using maritime channels (exept mexico)

Shortfall of truly national logistics carriers because of : because of : ‐up‐front investment ‐ high financing charges

Local and subregional players leaders on their market through : ‐ corruption corruption ‐ basic monopolistic practices

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Cultural mindset in LAC supply chain

A lack of trust in the supply chain pp y Strong « win‐lose » way of thinking in the supply chain Can have a negative impact on supply chain management Can be major sources of resistance to change

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

A Region with High Logistics Cost

Logistics cost as percentage of product value, g p g p , 2004.

35 30

20 15 10

Perceenta ge

25

5 0

Source : Guasch and Kogan (2006)

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Opportunities and Challenges Oppo tu t es a d C a e ges – Recipes Recipes for competitiveness titi

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Several reasons explain this idea :

The increase of labor cost of labor cost in Asia

The rising cost of cost of transport

Inefficient Inefficient supply chain operations

The risk generated by the inconvenience of the time difference

Poor logistics Poor logistics service performance

The development of US near‐ shoring

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 1 – Strategy and optimize the supply chain network ¾Availability of materials ¾Availability of materials ¾On‐time fulfillment of demand

¾Service objective ¾Service objective ¾Stock‐out Cost

Service

Variability

Time

LAC Stock Levels

Cost

¾Raw materials ¾Work‐in‐Process (WIP) ¾Finished goods ¾Sourcing

Economics Source : adapted from Gattorna (2003)

¾Manufacturing costs ¾Sourcing materials costs ¾Transportation costs ¾Materials handling costs ¾Materials handling costs ¾Process execution costs

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 2 – Achieve functional excellence functional excellence Improving the supply chain integration of Latin America and the Caribbean corporations From traditional supply chains …

Raw Materials

Storage

Make Process

Manufacturing

Storage

Deliver Process

Local National Regional Retailers Distribution Distribution Storage

Customers

Source Process

… to integrated supply chains g pp y

Raw Materials

Manufacturing

Distribution Center

Retailers

Custome ers

Supply Chain Management

Material flow (delivery) Information flow (order)

Source : adapted from Rodrigue, J.P. (2006)

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 3 – Integrate demand and supply Implement an effective demand and supply planning process Business direction & intent

3‐year strategic plan Annual business plan Monthly planning process •Medium sales plans •Cost/service tradeoff ‐ Inventory control ‐ Service level ‐ Sales plan ‐ Production plan •Promotion planning •Production planning and scheduling •Placement, promotion adjustment •Distribution Di t ib ti planning l i •Competitive response •Latest forecast vs business plan

Monthly planning process Weekly planning process ee y p a g p ocess

Demand & Supply operations planning process

Daily planning process

•Short term sales plan •Rates of sale & production (product availability & distribution readiness) •Maintenance adjustments •Production scheduling

•Business goals and objectives by business (category in future) •Portfolio & brand planning •Capacity planning •Promotion calendars •Network Network strategy •Competitive positioning •New product introduction

•Event management •Line failure •Delists •Rejections Source : adapted from Parekh (2008)

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 4 – a e ge Organize and O ga e a d measure for supply chain efficiency

Migrate from a functional or sub‐process logistics orientation ….

Direction

Production

Sourcing

Manufacturing

Marketing/Sales

Marketing

Sales

Administration

HR

Finance

Logistics

Inventory Mgt/ Inventory Mgt/ Warehousing

Distribution

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 4 – a e ge Organize and O ga e a d measure for supply chain efficiency

…. to a single cross boundary logistics process Direction

Production

Logistics

Sourcing

Manufac‐ turing

Marketing/Sales

Marketing

Sales

Administration

HR

Finance

Plan Execute Regulate

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 4 – a e ge Organize and O ga e a d measure for supply chain efficiency

Emerging markets Developing markets Developed markets companies p companies p companies p

Localize the supply chain Key characterictics f for supply chain management

•Optimize local operations •Integrate processes where possible

Regionalize the supply chain

Rationalize the supply chain

•Integrate Integrate •Collaborate •Think centrally or regionally •Act locally

Source : adapted Accenture (2003)

•Rationalize C ll b •Collaborate •Synchronize

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 4 – a e ge Organize and O ga e a d measure for supply chain efficiency Focus on performance measures and benchmarks Focus on performance measures and benchmarks

Goals The vision Market Market satisfaction Customer if i satisfaction Quality

Financial Financial measures

Flexibility

Delivery

Productivity

Process time

Operations The performance pyramid Source : adapted from Gattorna (2003)

Cost

Measures

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 5 – Integrate technology systems architecture hi Extense the use of integrated demand and supply planning and execution systems and tools Customer

•Customer demand forecast •In transit/ Deliveries •Goods receipts

IOM (Order management

ERP

Legacy

WMS

Integratio on tools

Advanced Planning and Scheduling •Supply chain planning •Constraint based master planning •Forecasting

SCP

DP

DF

•Transport optimization p p

•Customer TCP/ DC collaboration TCP/ DC

TMS

TCP/ DC

•Shipment requests •Track and trace •Track and trace 3PL

•Order processing •Demand fulfilment

•Forecast /Materials requirement •Procurement process

Source : adapted from Gattorna (2003)

•Supplier collaboration Supplier

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 6 – a e ge 6 Source Sou ce capability intelligently

People

3PLs

Logistics infrastructures

Capabilities

Support

Overcome organizational inertia

Overcome resistance to resistance to change

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 6 – Source capability intelligently bili i lli l Supply chain risks that concerned executives for their companies’ most recent strategic operational planning cycle their companies’ most recent strategic operational planning cycle 43%

Availability, cost, quality of labor R l t Regulatory concerns Reliability of suppliers Commodity shortages/ price fluctuations Fluctuations in foreign exchange rates Fluctuations in foreign exchange rates Intellectual property theft Obsolescence of product inventory/technology War terrorism other geographical concerns War, terrorism, other geographical concerns Problems with supply chain infrastructure Natural disasters / Plant breakdowns/mechanical failures Other 0

10

20

30

Percentage of respondents Source : McKinsey & Co (2008)

40

50

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 6 – Source capability intelligently bili i lli l

Develop people’s skills

1.

1 Educate

2.

2 Recruit

3a.

Train

3b.

Engage Engage

3c. Re‐ Train

4. Retain Framing the issues and solutions Source : Parekh (2008) Source : Parekh

3d.

Engage

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 6 – Source capability intelligently bili i lli l Develop people’s skills Common foundation Supply chain analysis, tools and techniques Supply chain concepts and processes

Specialty areas Supply chain planning Product development

Procurement & e exchange e‐exchange

Manufacturing

Fulfillment

Leadership skills World class supply chain expertise W ld l l h i ti Value and creation W ld l l h i l d hi World class supply chain leadership Source : Gattorna (2003)

Service Management & Customer support

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 7 – a e ge Extand a d the supply chain …

Extend the traditional supply chain pp y

Collaborative supply chain planning

Collaborative Collaborative Manufacturing

Collaborative customers’ relationships

Collaboration to virtual

Collaborative suppliers’ relationships

synchronization

Collaborative products design

3PLs Partners/ Alliances/ Partners/ Alliances/ Ventures

Manage a portfolio of supply chain relationships Source : adapted from Gattorna (2003)

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 7 – a e ge Extand a d the supply chain …

T R U S T Relationships

Transactional

Collaborative

Alliance

Supply chain relationships and trust Source : Burt & alii. (2003)

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Challenge 7 – … and become (part of) world class supply chains. f) ld l l h i National Supply Chain pp y

International Supply Chain pp y

Global Supply Chain pp y

National

Geographical network extension

‐ Factoryy Distribution center

Representative High-throughput DC

Source : adapted from Rodrigue, J.P. (2000)

Supply Chains in Latin America and the Caribbean – Challenges and Opportunities

Thank you for attention !

Thank you for attention !