Managing Global Enterprises: Best Practices for Managing Supply and Distribution Chains

Transcription

1 Bank of America Merrill Lynch White Paper Managing Global Enterprises: Best Practices for Managing Supply and Distribution Chains Executive summary Managing a global enterprise requires working closely with suppliers and distributors to identify and audit foreign partners, manage theft, and control costs and risks related to overseas shipping, ground transport and other logistics. Contents Know your business and supply chain Build a supply chain with vendors you can trust...2 Keep abreast of global politics...3 Local labor forces: people make your business run smoothly...3 Global climate: ignoring environmental implications is risky...4 Develop a key team on the ground...5 Controlling overseas distribution and logistics...5 A crash course in managing a global enterprise: lessons learned...6

2 MANAGING GLOBAL ENTERPRISES: BEST PRACTICES FOR MANAGING SUPPLY AND DISTRIBUTION CHAINS 2 Managing a global enterprise is full of complexities, particularly when overseas production and distribution factors are involved. Understanding the steps necessary to ensure distribution, while mitigating risks and protecting your business, is critical to running a successful business. The good news is that while some steps may require significant capital investments, others simply require time and attention. Know your business and supply chain The first step is to understand your business beyond the headquarters level. Try taking a thousand-foot view of your business. If you are in a consumer goods industry, this will require a deep dive into your supply chain. Chances are your company will require the use of foreign agents and vendors at varying levels, since you won t have the resources or expertise to do everything internally. The key is to take a holistic view of your company and understand the processes and flows of your supply chain from the bottom up. This will allow you to identify areas that may require external resources and allow you to more accurately identify and assess risks and areas for improvement. Industry working groups and associations, both at home and abroad, can be valuable resources. They can facilitate key relationships with potential customers and business partners and keep you abreast of changes within your industry. These groups may also be able to act as lobbyists in the countries you do business in. The U.S. government also offers resources for small and mid-sized businesses, including the business government website (business.usa.gov). Each U.S. embassy also has a website containing information on local business laws and regulations. Build a supply chain with vendors you can trust In a global organization, you have to rely on vendors and agents. Developing a close relationship with these vendors is one of the most important steps you can take to protect your business. They are key to ensuring everything runs smoothly, from manufacture to delivery, while also reducing the likelihood of theft. There are steps you can take to build a trusted vendor network: Do y your homework on competitive costs: It is your responsibility to be up to speed on competitive pricing for vendors in every market you are involved with. Talk to other businesses in similar industries, hire seasoned veterans or consider hiring consultants. Always y ask for and check references: You have to be able to trust your vendors and agents. One of the easiest ways to do this is to hire people who others trust. Keep y the number of businesses you work with to a minimum: You want your vendors and agents to become an extension of your company. Close and transparent relationships can help achieve this.

3 MANAGING GLOBAL ENTERPRISES: BEST PRACTICES FOR MANAGING SUPPLY AND DISTRIBUTION CHAINS 3 Communicate y clearly and often in writing. Be clear about your standards of doing business. Put any agreements in writing and have vendors formally sign off on them. Be sure you understand what they expect or require from you. Contracts need to be clear and flexible for severing business ties if issues arise. If y your overseas partners plan to subcontract, make sure they are required to notify you in writing. Contracts should state that all production standards will be maintained. You do not want to discover, after the fact, that unnamed subcontractors are responsible for poor quality or delays in shipping. You also don t want to be featured in an anti-child labor media campaign as a result of harsh conditions at a subcontractor s facilities. Institute y a financial review or audit process: This can be done internally or by an external auditing company that will check compliance to your manufacturing agreements, as well as production quality and standards. Make sure any outside company has expertise in your industry. Develop clear review guidelines, and do this on an annual or semi-annual basis. Keep abreast of global politics Your global business is responsible for adhering to local laws and regulations. While you need to trust your business partners, relying solely upon them, without a basic understanding of the local geopolitical scene, exposes your business to unnecessary costs and risks and leaves you vulnerable to future lawsuits and issues. Smart steps include the following: Stay y current on political situations in all the countries where you do business. Utilize both official news reports and unofficial local sources. Political unrest can shut down factories, slow production and/or prohibit goods from leaving the country. In case of a crisis, you will be better prepared to react effectively and efficiently, limiting the impact on your business. Examples: y When the Arab Spring began in Egypt, local manufacturers were forced to modify their export shipping expectations. During the 2009 coup in Honduras, curfew restrictions on factory production and other industrial work caused massive production delays. Develop y close relationships with business partners on the ground and communicate on a weekly basis. They will often have a better picture of the true situation. Develop y firm contingency plans and a clear crisis strategy, including a comprehensive communications plan that covers all locations. Local labor forces: people make your business run smoothly Labor unrest can be just as disruptive as political unrest. Make sure you are knowledgeable about local labor situations: Understand y and keep up with any union issues and activities in both your supply and distribution chain. Example: y In December 2012, harbor clerks in California went on strike. When 10,000 dockworkers chose not to cross the picket lines, container operations shut down completely. Businesses were forced to divert their shipments to other ports and deal with the repercussions of late arrivals.

4 MANAGING GLOBAL ENTERPRISES: BEST PRACTICES FOR MANAGING SUPPLY AND DISTRIBUTION CHAINS 4 Understand y current trends in wage issues, both by country and industry. Examples: y Wage riots in Bangladeshi factories caused numerous factory shutdowns over the past five years. The New York Times reported on January 24, 2013, that skilled workers in China no longer wanted to work in factories, resulting in labor shortages that caused many companies to look outside of China for manufacturing capacity. Be y aware of reputational risks. Work with reputable factories and realize that you may be responsible for conducting local quality and environmental audits. Conduct regular human rights assessments or have your vendors and agents conduct those assessments. Use International Labor Organization standards to develop your own assessment tools or hire social compliance service providers like Level Works, INFACT or Verite to guide a program. Example: y Since 2010, more than 300 people have died in fires in apparel factories in Bangladesh. Large global apparel companies that used these factories had their brand reputations smeared in the subsequent national and international media firestorms. They should have proactively assessed the risks of doing business in a country with weak building codes and fire safety infrastructure. Be y on top of the social situations within a supply chain. Problems may range from childor forced-labor issues to dealing with large groups of migrant laborers. Many of the large apparel companies noted in the Bangladesh example blamed their subcontractors for the substandard labor conditions. If you are a subcontractor, it is your responsibility to have social compliance controls. Global climate: ignoring environmental implications is risky Environmental regulations have become increasingly important for global businesses over the past five years. Regulations vary widely depending on country and product, but some common sense steps have universal application: Be y aware of any potential environmental waste discharge issues that result from your manufacturing processes. Have y at least some knowledge of local environmental regulations. If you are a smaller business, you can probably adhere to the bare minimum. However, larger businesses set the tone for future governmental regulations, so be aware of what the big businesses are doing. Keep y tabs on the goals of non-governmental organizations (NGOs). Organizations like Greenpeace can influence local regulations and result in businesses adopting platforms that go far beyond current environmental standards. Greenpeace spent 2012 heavily engaged with consumer-goods companies, campaigning for the detoxification of their supply chains. Understand y environmental shipping implications. There are significant negative environmental impacts in air, ground and shipping transportation. Knowing your carbon footprint is an emerging trend; organizations like the World Resources Institute, Environmental Protection Agency and Carbon Disclosure Project can offer assistance.

5 MANAGING GLOBAL ENTERPRISES: BEST PRACTICES FOR MANAGING SUPPLY AND DISTRIBUTION CHAINS 5 Develop a key team on the ground A top-quality team on the ground is the single most critical element to managing global logistics and operations. Steps for assembling a top-notch global team may include the following: Working y in collaboration across all functional departments, develop and codify all roles and responsibilities. Job titles and responsibilities need to be clearly defined in writing and understood by both the employee and management. Use y a skilled human resources recruiter, be it someone on your internal staff or an outside recruiting firm. Identify y and hire a dedicated local manager in every overseas location who is familiar with local customs, laws and regulations, as well as relevant international exports laws. Then hire a local team to support that person. Your y dedicated local manager should be responsible for managing relationships with any local companies you use. Make sure your manager has the authority to insist that all parties honor your codes of doing business. Hire y agents with intimate knowledge of local Customs offices and officials. Good relations with Customs offices, both abroad and in the U.S., can greatly expedite shipments, and provide protection against theft and counterfeit goods. Make sure U.S. Customs offices are notified in writing which foreign partners will be shipping goods in to the U.S. All Customs shipping communications should clearly identify product and quantities. Make y sure your legal counsel understands the codes and requirements of the countries you do business in. This will help streamline any legal processes and make contracts easier to create and enforce. Don t y forget insurance. You will need product liability insurance as well as insurance for product inventory at every point of your supply chain, from raw materials to finished goods. Check with both domestic and overseas insurance agencies to obtain the appropriate coverage. Larger y companies should have employees on the ground who can create and communicate formal standards related to human rights and the environment. Internal standards should meet the most stringent of local standards. Communication of these standards to local vendors and agents, as well as your own employees, can help reduce the chance for situational labor and environmental risk. Assign y employees to be responsible for assessing local risks and relaying that information back to a designated employee at headquarters. Controlling overseas distribution and logistics The size of your distribution and logistics team will depend on the size and complexity of your business. Regardless of size, there are key elements that should be taken into consideration when developing this department: y Develop and implement a formal management system for operations, especially logistics and distribution. Define clear roles and responsibilities and create clear policies and procedures.

6 MANAGING GLOBAL ENTERPRISES: BEST PRACTICES FOR MANAGING SUPPLY AND DISTRIBUTION CHAINS 6 Plot y different distribution scenarios, and assess the risks associated with each plan before going forward. Learn from the mistakes and successes of your competitors. Be y agile. China may be a cheaper place for manufacturing today, but factors like rising fuel costs can have strong and immediate impacts on the transportation chain. It may quickly become more efficient to produce product closer to home. Consider y consolidating your distribution chain and bringing manufacturing closer to market. This can reduce employee and product transportation times and costs, and give you greater control. Know y the movement of your product. Have vendors sign contracts that obligate them to incur costs if product is defective, missing or significantly late. If you know where your product is, you also lower your risks for theft. Understand y your theft risks. Talk to others in your industry to identify trends in theft and protection. You may need to employ locks, GPS tracking devices, seals, etc. A high-value product may require the services of an outside security agency. Overseas transportation companies often represent the largest theft risk and should be thoroughly vetted. A crash course in managing a global enterprise: lessons learned The truth is that managing a global distribution and supply chain is complex. Unique challenges will apply to every company. However, there are some global maxims that apply: Cheaper y isn t always better. Cheaper outright costs, like labor or materials, can come with larger long-term costs such as poor quality, unsatisfied customers, unstable supply chain operations and shipping delays. Solid y formal management systems provide a foundation that allows for better agility and resilience, as well as easier and more efficient growth. You will know your weaknesses and strengths and be in a better position to identify growth markets. You y need to stay current with local socio-economic and geopolitical factors that could affect your distribution facilities. Be aware of reputational risk, costs and challenges. Be informed about industry innovations and new market categories. People y are your best investment in a global enterprise. Hire the best people you can in every location you do business in. Give them the responsibility they need to carry out their jobs and reward them accordingly. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed Bank of America Corporation