Cheaper space and labour overseas mean goods and services can be supplied from abroad at a fraction of the price that could be achieved in the U.K. The financial benefits to be gained by tapping into low-cost production centres offshore indicate that global sourcing and manufacturing are becoming competitive necessities. Business software specialist Syscom offers a primer on identifying and managing the trade-offs.
Manufacturing has been moving away from U.K. shores for many years. Cheaper space and labour overseas mean goods and services often can be supplied from abroad at a fraction of the price that could be achieved in the U.K. Indeed the financial benefits to be gained by utilising low-cost production centres offshore indicate that global sourcing and manufacturing are becoming competitive necessities. As supply chains become increasingly multinational and complex, companies are seeking to establish IT infrastructures to support worldwide interests and strategies.
Why is global supply chain management important?
Effective global supply chain management is a key issue for many businesses. As with traditional local or national supply chain management in the past, today’s increasing focus on this aspect of business operations is driven by a need to reduce the costs of procurement and minimise risks related to sourcing goods. However, because global supply chain management can involve several countries or continents, this itself can bring issues and difficulties that need to be managed.
Things to consider
The plethora of factors that must be considered can make judging where to manufacture a product difficult. Although there are always trends as to which countries are perceived as providing the most competitive supply, the most effective sourcing location will vary greatly from company to company. In the clothing and textile industries, for example, China and India are currently popularly perceived as attractive locations due to their large pools of skilled workers and their relatively low labour costs. The most competitive place to source from, however, will vary greatly according to the market niche a company occupies, the size of their typical orders, the materials than need to be utilised and so forth. Pakistan and Bangladesh, for instance, may be cheaper than China for jeans and shirts, which are both very important markets for these countries.
| Source: International Labour Organisation |
When calculating the overall cost of sourcing or manufacturing overseas, it is essential to take into account the exchange rate and tariffs as well as the additional transportation costs, to which governmental taxes and charges must often be added. While labour costs may be low, these expenses could significantly decrease the profit margin to be gained through offshore supply if they are not planned for and managed appropriately. Other issues which must be factored in include extended shipping times, the customs clearance period and other governmental red tape, labour movement and possible future wage inflation, as well as, in some cases, unpredictable weather conditions which can impact production and shipping.
Naturally one of the most crucial aspects to consider in global supply chain management is supplier selection and the set-up of supplier relationships. Companies sourcing offshore must make decisions about which suppliers to use and how many companies to work with. It is important to weigh up the ease of managing fewer suppliers against the potential problems that could arise should a supplier relied upon for a large percentage of stock be unable to deliver as expected. It is also crucial for a business to consider how they will ensure effective communication with suppliers, as misinterpretations due to language and cultural differences could have a significant impact on your bottom line.
Ethical sourcing
Socially responsible trading became a growing issue during the 1990s when companies with global supply chains–particularly those in the clothing and food industries–were coming under rising pressure form consumer groups, governments and trade unions to ensure decent working conditions for those producing their goods. Since then numerous media campaigns, such as the recent BBC Panorama programme, highlighting the poor working conditions in factories and farms in developing countries have encouraged consumers to purchase ethically sourced products. Moreover, corporate investment companies are increasingly screening their investments according to a range of social and environmental criteria, including an organisation’s efforts to secure adequate labour conditions in their addressing supply chain.
As a result, ethical sourcing is now part of the corporate responsibility agenda of most major organisations, with many implementing corporate codes of practice to ensure that the working conditions of workers producing for them meet or exceed international labour standards. What’s more, ever-increasing customer demand for ethically source items, particularly in higher income groups, means this aspect of global supply chain management is gradually descending from niche to mainstream. With a greater number of companies endeavouring to minimise the exploitation of labour resources in a supply chain, being able to track items and components back to a source has become an important aspect of global supply chain management.
How can software help manage your global supply chain?
Businesses are increasingly turning to the latest software applications to control their supply chains and achieve operational excellence on a global scale. Indeed, ERP and
One company doing just that is rapidly expanding U.K. leisure and lifestyle clothing company, Weird Fish . The Cheltenham-based company has Microsoft Dynamics AX with Microsoft Gold Partner Syscom PLC to
Installing the new system has enabled Weird Fish to manage the key aspects of
• Information visibility;
• Landed cost calculation;
• Global communication;
• Rapid response; and
• Performance monitoring.
“Organisations with global supply chains are realising that complete visibility is paramount in order to obtain effective control,” says Sally Reynolds, a manager foro Syscom PLC. “They are not just looking for ERP systems with shipping calendars to help them manage multiple suppliers– they want software that can go further. More sophisticated systems, such Microsoft Dynamics AX, are in demand as they can handle things like blanket orders, flowline deliveries, and multi-line manufacturing orders as well as generate variable routing and allocation simulations to meet changingcustomer and supplier requirements.”
Using a product data management product alongside ERPppliers to select for a particular product or component. The software also can be used to group suppliers, so for example a company with a proactive attitude towards social responsibility can group suppliers that meet ethical and fair trade codes of practice into a preferred supplier list. The ‘what-if?’ analysis function can be used to immediately see what impact a change of supplier will have on the cost of producing an item and ‘where used’ reports allow a business to calculate the impact a discontinued or late supply of a material will have on production by identifying where specific fabrics or components are being utilised.”
Global communication
The right ERP system will connect a company with its global customers, business partners, and subsidiaries.
“Companies are choosing systemsreens displayed in a particular language according to a user’s log in code, for example, so that employees throughout the world can collaborate effectively.”
Businesses are selecting systems that can aid with supplier communication and extend their business processes to the Internet.
“Ease of document exchange, is very important in streamlining supply chain interactions,” says Jon. “Microsoft Dynamics AX allows us to send electronic documents, such as purchase orders, via email in a variety of formats–including as XML, Excel or CSV–so information can be transferred to supplier and customer systems easily.”
Weird Fish also will work with Syscom to implement the Active Portal within Microsoft Dynamics AX. This will give its suppliers direct, secure access to order information via a Web browser, allowing them to view purchase orders that they need to deliver and check aspects such as the size profiling of the order or delivery dates.
For companies that need to make more detailed order information available to their suppliers, web-based PDM systems can help. This type of software can enable suppliers to view the designs, styles and specifications they are manufacturing and even video demonstrations of the required component handling. “This is particularly important for companies sourcing clothing and apparel as fabric handling can be key to differentiating your product,” says Sally.
Landed cost calculation
The local functionality offered by systems designed to work on a global scale can help companies take into account additional factors, such as local tax and regulatory requirements, which affect the landed costs of items. Tax codes can be saved against delivery codes, for example, to help handle the various tax regimes across the world. “Some systems, such as Microsoft Dynamics AX, will allow companies to trade in any currency,” says Sally, “converting transactions to the monetary standard currency for the company using the exchange rates set up on the system. Trade agreements
Rapid response
Many fully integrated ERP systems now have direct links between demand and supply sides of the business. This means that if, for example, the demand profile for a product changes this will ripple through the system to purchase and production orders. In global supply chain management, where long distance shipping means longer lead times and smaller windows of opportunity in which to respond to market changes, this is vital.
“In clothing and textile sectors, for example,” says Sally, “the retail seasons are shorter than ever so a system that enables a rapid response to changes in the market is particularly crucial for these customers.”
Performance monitoring
The increased complexity of global supply networks can make it difficult to judge how particular aspects of a business are performing and where improvements need to be made. Companies with global supply chains require agile systems that deliver key business intelligence, identifying bottlenecks and monitoring aspects like lead times and supplier performance.
“What’s more, today’s fast-paced market means such key performance indicator (KPI) reports must be available instantly,” says Sally. “Systems such as Microsoft Dynamics AX that can represent KPI results in a simple graphical format are invaluable for highlighting any potential concerns.”
Weird Fish found the insight gained through its ERP system invaluable.
“It gives you the ability to cut and dice data how you want, rather than how someone else thought you might want to,” says Jon. “Alongside the standard reports that every business needs, such as customer turnover, Microsoft Dynamics AX also enables you to easily customise your own reports. The ability to analyse data in a live environment is crucial in meeting customer demands.”
Going global
We now live in a world where more and more products are made abroad or from parts sourced across the globe. Indeed the trend to move manufacturing offshore and source goods from overseas is affecting companies in virtually all sectors, with even distinctively British brands like Burberry and HP Sauce now moving at least some aspect of production abroad. With this come the issues of more complex supply chain networks, making manufacturing offshore a potentially daunting prospect.
However, more and more businesses recognise the benefits of extending their supply chain, or indeed view it as the only viable option. For theses companies, having the correct systems and infrastructure in place is crucial.
“Do your research,” says Sally, “and find out which systems provide the functionality you need to manage the challenges of a global supply chain and make the most of the global market.”
Syscom PLC
