SCMAP Perspective #237

Published in Port Calls, March 15, 2010

KEY LOGISTICS DECISIONS 1 & 2

Fax 551-3207

Email lizaalmonte@yahoo.com.ph

By Ed Sanchez
SCMAP Executive Director

Key Logistics Decisions

Sometime in the second half of 2007, I gave a talk, Logistics : An Overview, at an event jointly sponsored by the Japan Transport Cooperation Association and DOTC. I was asked to make it very basic, and so it was.

Today I would like to devote space to a portion of that talk, pertaining to key decisions that companies make which have a major effect on their logistics.

I mentioned four decisions in that talk. Today I will deal with the first two. Next issue I will deal with the other two.

Key Decision #1 – Global / regional factory vs. a factory in every country. Where shall I locate my factory?

If you are the logistics director of an MNC, you would be grappling with questions such as : Should I have a factory in every country in Asia / South East Asia, or should I consolidate my factory in one country? And where should it be?

This is sometimes referred to as the regional sourcing decision. Since the turn of the millennium, MNCs have been consolidating manufacturing in one or a few factories. For example, Colgate consolidated manufacturing outside of the Philippines. Nothing is produced anymore on J. P. Rizal, Makati.. Unilever has also closed down most of its factories, but chose to produce deodorant here. P&G chose to stay in the Philippines. Avon chose to stay here. Nestle has stayed and is even expanding its plants. Three years ago Uniden closed its cordless telephones factory here and chose China. I believe Toyota transmission is still being manufactured here? I believe Texas Instruments has decided to stay here.

So the trend has been to consolidate manufacturing in one or a few factories, with some decisions unfavorable to the Philippines, and others favorable.

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Considerations in deciding which country are :

• Total cost to serve all countries, i.e., total manufacturing cost + logistics cost
• Service lead times
• Taxes, tariff, government regulations
• Political issues

Key Decision #2 – Customer focus. Which customers shall I directly deal with? Here the choices are (a) one national distributor (b) several regional distributors (c) many small accounts..

The trend here has been from many small accounts to a few distributors, in order to cover the market. As an example, Unilever up to the mid-1980s had 5,000 customers on credit, excluding retailers on cash basis. Imagine how complicated that was. Especially since computers then were of low capacity and slow. Since then Unilever has divided the country and appointed regional distributors. It awarded them to retiring salesmen. The scheme was not successful at first.

Considerations in deciding which set-up include:

• Capability of distributors
• Logistics capability t handle many accounts / big accounts
• Distance from smaller customers
• Complexity in systems, communication

In the next issue we will deal with the other two decisions.

Strategic Procurement Seminar

SCMAP is issuing a last call for this seminar. The seminar is a one-day seminar on Strategic Procurement, with the following schedule.

Date : Friday, March 19, 2010

Time : 8:00 to 5:00 pm

Venue : Astoria Plaza, Escriva Drive, Pasig City

Fees are P5,500 for SCMAP members andP6,875 for non-members. Both figures are VAT included.

The seminar also targets suppliers and logistics service providers, and will encourage them to

• Understand how customers categorize their company and services
• Improve value and competitive advantage to their customers

Target participants may come from the following functions

• Supply chain, Materials, Logistics, Procurement managers and staff
• Finance managers and other corporate executives
• Marketing and Sales professionals

Seminar topics include

• Supply chain and strategic competitiveness
• Clerical, commercial and strategic level of SCM operations
• Prioritizing your efforts
• Understanding your supply market
• Strategic framework for analysis :
• Generic strategies to reduce supply risks and improve value

Seminar speaker will be Augusto Arguelles, Prof. in Operations & SCM at the Ateneo Graduate School of Business, with over 30 years of consulting and managerial experience in several companies and an Advanced Certificate in SCM, UN Intl. Trade Center

Address inquiries and comments to Ed Sanchez at tel. 671-8670, fax 671-4793, cell 0918-914-1689, or email scmap.org@gmail.com. Those interested in SCMAP training and other activities are requested to send their e-mail addresses. Visit SCMAP’s website at:www.scmap.org

March 10, 2010