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January 22, 2001

Ship It!

continued...page 2 of 2

Illustration by Oreste Zevola

More on logistics:

sidebar:FedEx And UPS Lead The Logistics Pack

Ready For The Returns? (1/8/01)

A Shipping Efficiency Pro (1/8/01)

TechWeb News: Asian Electronics Market Wrestles With SCM (12/19/00)

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The E-commerce company's skill in handling the logistics and compliance of alcoholic beverages is helping it move beyond consumer E-commerce. A number of companies that provide alcohol to hotels and restaurants have approached WineSmart about transporting large wine orders to their customers, so WineSmart is setting up a B-to-B logistics operation. It will transfer shipments not only from its Netherlands warehouse but eventually from wineries and warehouses around the world.

On the other hand, Ford Motor Co., the United States' largest importer, decided last summer it didn't want to be in the logistics business anymore, despite considerable technology developed in-house to handle its operations. Ford signed a 10-year deal with Vastera to handle its global trade management and merge its customs operations with Vastera's. Ford turned over its physical logistics to Expediters International.

Vastera and Expediters took over what had become a gargantuan task. With 112 plants in 25 countries, Ford was importing $24 billion in goods annually. Vastera will have to keep track of about 600,000 automotive parts. The deal, worth a minimum of $45 million over the first four years, will help Ford save roughly $1.4 billion in transportation costs by minimizing import and export duties through trade incentive programs and other optimizations, according to Vastera. And it will let Ford focus on making cars. "We came to the conclusion that in giving Vastera the reins to manage our trade operations, we could focus on our core competencies," says Jerry Joyce, Ford's director of global logistics.

Other companies have turned over all or part of their logistics to partners that are perhaps better-suited to handle the complexities. K-Swiss Inc., a maker of athletic footwear in Westlake, Calif., ships shoes from plants in China, Taiwan, and Thailand to a California distribution center, where retail chains pick them up. K-Swiss is negotiating with retailer Footstar Inc. in Mahwah, N.J., to manage inbound shipments of K-Swiss goods to Footstar stores. The shoemaker will have to get the goods only to Hong Kong, and Footstar will take over from there. The arrangement means K-Swiss won't have to worry about the retailer's shipments, and Footstar will be able to better control its supply chain. K-Swiss hopes to strike similar deals with other retailers to offload even more of its logistics tasks. "We're trying to optimize what everyone's [role] is," K-Swiss VP of operations Ed Flora says.

Eileen Long Photo by Bill Cramer K-Swiss and Footstar exemplify a significant trend--the integration of logistics into the overall business model. "Logistics is starting to push back into the supply chain," Circle International Group's Stoddard says.

Aspect Communications Inc., a San Jose, Calif., vendor of call-center devices and customer-relationship management software, is planning a central supply-chain and logistics platform through which its various providers can update and check logistics information. A chip manufacturer's inability to get raw materials, for example, affects how quickly it can ship finished products--which, in turn, affects how quickly Aspect can build and deliver a call center for a customer in Europe. "It's critical to know the status of all of these individual manufacturers so we know when all of our materials will arrive," says Ken Kormanak, Aspect's senior manager for international services.

Logistics often boils down to a conflict between opposing forces: the cost of shipping vs. the cost of storing inventory. That's the issue Unisys Corp. grapples with in its service operation, which handles its own contracts and those of other hardware vendors such as Dell. Unisys' service network includes 200 distribution centers and 9,000 holding points, handling $200 million worth of inventory. The key to Unisys' logistics management is a custom-built inventory system and data warehouse that anticipates where--and how urgently--parts are needed, says Eileen Long, head of Unisys' service design operations. "Our tools allow us to quickly find answers and act on them," she says. "When we get a request, service people have visibility to every [computer] part in the world."

Bruce Pettyjohn Photo by Gary Parker As hard as as it can be to move goods from place to place, the most difficult part of the global logistics trip may be the journey through red tape. While pacts such as the North American Free Trade Agreement have eliminated many trade barriers and costs among international partners, "paperwork and bureaucracy haven't gone away," says AMR analyst Michael Bittner. Because there's no way of knowing how long it will take goods to cross international borders, the average company keeps 25% of its internationally sourced inventory at warehouses or distribution points, says analyst firm Benchmarking Partners. That's costly, as are the duties that can be levied if the company doesn't know how to participate in a country's trade programs.

Air Products and Chemicals Inc. in Allentown, Pa., knows how difficult trade regulations and compliance can be. The company, which does half its business overseas, ships chemicals used for everything from keeping McDonald's hamburger meat cold to building semiconductors. Many of the chemicals are dangerous--some burst into flames when exposed to air--so it's no surprise that governments tightly regulate and control the shipments.

Keeping track of which products need which customs documentation is a difficult task under the best of circumstances, and Air Products was doing it all manually. Often, an order would be ready to ship when someone would come in with a compliance issue, and the shipment would be held up. Air Products never made any mistakes, says Karen Drahushuk, international customer service manager, but there were close calls that could have been costly. "If you don't comply, you not only cost your company millions of dollars in fines, but future business," she says.

Air Products is working with Vastera to help keep the trade restrictions untangled. Vastera employs trade experts in countries around the world and constantly updates a knowledge base called TradeSphere that flags products that might be noncompliant. It automates the process so that anyone at Air Products or other customer companies entering changes necessary to make a product compliant can enter them directly into the system. Vastera then generates the necessary documentation for customs.

Photo by Reed Rahn But automation only goes so far. Aeromax Corp., in Prescott Valley, Ariz., manufactures wind-powered electric generators in China, and it expects customs officials to take up to a week inspecting its carbon turbines as they come into port in Long Beach, Calif. It's hard to speed that up, even with software such as Computer Associates' InterBiz Logistics, which Aeromax is evaluating. Each shipping container has to be manually inspected. "Technology isn't going to help us," at least with the customs process, says Aeromax CEO David Sears.

Delivery of goods can also be hampered by prohibitive duty taxes. When CDWorld.com, which does 40% of its business internationally, ships CDs to customers in Brazil, it pays up to $20 per package. But Brazil levies high duties based on both the cost of the product and the cost of the shipping. That pushes a $12 CD up to almost $100. Not surprisingly, when customers go to the post office to pick up their orders, they might not be inclined to accept delivery. If so, CDWorld has to eat the cost of the product, shipping, duties, and return shipping. That's tough to swallow in a low-margin business. "If you have a 5% margin and you lose $100, it takes a lot of sales to get it back," says CDWorld president Bruce Pettyjohn.

CDWorld uses software from ClearCross Inc. to help international customers figure out customs costs before buying. The Web app has customers enter the number of CDs, estimated weight, price, and destination, and tries to give them the total cost. Pettyjohn says the tool may scare customers away, but at least they know what to expect before buying.

Which goes to show the global village can be a confusing place for both consumers and suppliers. Technology helped create the problem, and now it's trying to help solve it.