Logistics and the Invisibility of the Supply Chain

Today’s international businesses are affected by two basic contrasting elements representing the competitive advantages that could enable one country to sell more exports than another. The first is the price, or we can say the cost. This is a traditional element that has done more to make some exporters than others.

But now there is a second one, speed, which does not necessarily go hand-inhand with the best prices or production costs. For instance, we now have speed that permits delivery of goods and services at a date closer to the time of consumption, thereby avoiding a series of financial costs related to storage, administration and safety that can absorb any inefficiency in production costs.

Just a few exporters have been able to join both competitive advantages (speed and cost), because it isn’t easy to produce quickly, nor cheaply, even though at the end of the road, for everyone, the acquisition cost of the large international buyers has good results. This is true even if it is for the same product cost, even if there is no reduction in the costs related to warehousing.

However, in both cases there is a common denominator that has been positioned not only for global businesses, but also for the locals. Of course I am referring to logistics. For its definition we should understand as logistics the art of reaching “something”, i.e. efficiently coordinating the “whole”, while eliminating whatever “part” that does not contribute a true value toward reaching the objective. I know that this definition is a little technical, but it needs to be clear in order to understand that it deals with a culture of business more than just a technique of working.

Of course, logistics is made up of tactics, languages, automated processes, invisible suppliers, a lot of communication and a specific, defined and shared common objective. It permits us to reduce costs, time, storage and effort in favor of providing a good or service according to the conditions demanded by the final consumer who is the “leader of the project”. This is someone who has to know the system even better than he knows himself.

Of course there are different types of markets. Some are more demanding in price and others are more exacting in quality. But this doesn’t take any value away from the investment that has been given to logistics in global businesses. This is because they have permitted the supply chain to react more quickly to the necessities of the market.

Unfortunately, many (but many) businesses have not turned around far enough to see logistics as one of the big problemsolvers. This is especially true when they are faced with modern challenges which are very much heightened in the countries of the so-called emerging world, where Mexico is.

I haven’t been able to discover the reason why, there is this lack of attention surrounding an element that has decisively demonstrated its effectiveness: logistics.

And above all when formal and public studies have made known that up to 25% of product price is the cost of the elements that deal with logistics. The main components of the quarter portion of the product price are of course transportation (40%) and storage (a little less than 25%). Other elements that are less important in terms of costs, continue being significant and attractive in order to inject logistics into businesses in favor of much more effective coordination.

This refers not only to the flow of materials but also with each of the links is not fully believed yet, that this deals with an art that has to be further developed and implemented.

Of course, logistics not only has a lot to do with transportation, but also with manufacturing, product design and customer service. In addition, there is the selection of material suppliers, just as it is with all the rest of service providers who operate knowing that a product will be consumed at the end of the chain. In this separate category are the banks, the insurers, the customs agents, the stevedores, the distribution centers and, of course, the customs authorities from the countries that intervene in these global businesses.

For us logistics basically permits the participation of all these suppliers and sub-suppliers in an environment of invisibility, that is to say, without noting what each does that corresponds, in their turn at the right time, without “bothering” the other. The rest of the links have many things to do, nothing more important, however, than that of the rest of the suppliers. But it’s all part of the same concerted effort, which is an investment in value.

The supply chain (coordinated by means of logistics) looks a lot like the mechanism of a clock. It has as its purpose to tell time for the owner. For that aim there are more than 100 small pieces that are all moving. If one of them is missing then the clock does not work. But no single piece is “worried about” any other but they are dedicated, in “body and soul”, to efficiently carrying-out their function.

In the face of the speed of commerce, the drop in production costs, the treatment of many products as if they were “commodities” and the growing demands of the final consumers, it is a given that the businesses of the first decade of the new century will be very different from those that we experienced in the past century of international business.

But worse yet (to say it in another way), it has recently been demonstrated that for us it is a given that during this second decade, that just got underway, because of an increases in the knowledge of the markets by international business “players”, each action is more profound and the technological advances continue making substantial progress.

There are inventions, discoveries and developments, for instance, to a degree that it is estimated there will be a duplication of all the intellectual property in existence up to the year 2010–in just the next 10 years! This is something that will allow us to write a new chapter about international businesses that, assuredly, will include smaller businesses that are agile and highly adaptable.

We are in the beginning of a new era of global business. It beckons us to develop new business techniques, new ways to present our products and services along with a demand requiring us to utilize all the creativity that is within our reach. Welcome to the era of intelligent logistics!

Eduardo Reyes has a Bachelor’s Degree in International Relations from Universidad Nacional Autonoma de Mexico. He has several post-graduate courses in International Business, certified by different universities, including Harvard, Southern Methodist University, Universidad Iberoamericana, among others. He has written and published 52 books specialized in international business and foreign trade, as well as articles and manuals. He is currently head of Bufete Internacional, a Foreign Trade Consultants and Attorneys Firm.
He may be contacted at:
ereyes@bufeteinternacional.com.mx