With the rise of advanced communications technologies in the past decade, the act of interfacing with business partners, whether they are down the street or on the other side of the world, has become significantly easier. Leading the way, of course, has been the Internet and all the communications technologies that have been developed to run over its tentacle-like appendages.
Along with a significant decrease in the cost of voice traffic and an explosion of connectivity by way of ever-sprouting cellular networks, technology concerns associated with connecting with business partners throughout the world are quickly becoming an afterthought. It is this breaking down of technological barriers that has become one of the biggest trends in the global market and the way in which business is conducted between countries and continents.
Professor James Bookbinder of the University of Waterloo’s Department of Management Sciences focuses his research on the topics of logistics and inventory management, transportation and distribution. The rise of technology’s importance is clear to him just by observing the main topics of discussion amongst those he communicates with in these industries.
“I was surprised in the last couple of years just how synonymous with technology logistics and supply chain management has become,” says Bookbinder. “Five years ago, the discussion was about trucks and inventories and better deliveries and material handling devices. Now it’s all about new software products.”
These increasingly robust offerings help to address a reality pointed out by Bookbinder that remains as true today as it did in the past: the further away business is happening, the more important it is to have good information.
For instance, when tracking the shipment of a product, an e-mail can be sent saying it is on the way and when the recipient can expect it. Even something as simple as an advanced shipping notice, while easy enough to do locally, such as with a shipment from Quebec going to Toronto, can become difficult with distance.
“It’s easy to do when you’re in the same time zone and, short of an accident on highway 401, you can accurately predict the time it’s going to arrive,” says Bookbinder. “It’s harder to do when you’re dealing with international supply chains and when the distances are greater. There are also more steps involved, with some of the product delivered by air, some by water. (Companies) have to coordinate all that to create one finished product.”
When partnering with firms in different locations around the globe, ensuring that communications systems are able to speak to one another is another major hurdle for firms to cross, says Bookbinder. In many local warehouses, for instance, two different management systems are often in place that don’t work together, causing inefficiencies.
“If that happens in the transactions that occur locally, day in and day out, I’ve got to believe there are going to be some difficulties in expanding one’s business with a new partner who has a different software design,” he says. “How do you work together and how do you make things happen in other areas of the world?”
The offshoring effect
More efficient networks have allowed firms to move some of their operations to far-off locations, such as India and China. This practice, commonly known as offshoring, has in many cases reduced production costs due to advantageous economic conditions and cheaper labour costs.
With the extra distance, however, challenges arise that perhaps weren’t there before, Bookbinder points out.
“Staffing and cultural differences will be important,” he says. “Cultural factors are always important when dealing with different parts of the world. Companies have tried to transplant product lines to another part of the world and it didn’t work. There’s the local knowledge you have to have. If I’m exporting product to Europe, I have to have local knowledge. I need a partner in whom I have confidence in that area, with the knowledge and contacts and desire to make it work.”
The challenges can become greater when businesses set up shop in developing economies, Bookbinder says.
“In the former Soviet Union, it’s been even harder to enforce those contracts although for some reason Russia is becoming more popular again. It’s easier in the European environment because there is more of a shared legal system (with North America), and the common law and the approach to contracts and enforcements are the same.”
Bookbinder also points out that physical security concerns become more pressing the further afield a business takes its operations.
“The theft of cargo is a big issue; containerized shipments can be tampered with.” According to some estimates, Bookbinder says, this kind of pilfering is worth US$50 billon annually, worldwide — which could be an underestimation because not every incident is reported. “Preventing that is almost as good as another gross margin on your product, if less of it is going to be stolen in the supply chain.”
Trade in the Americas
Much of Professor Bookbinder’s research has centered around the North American Free Trade Agreement (NAFTA). While it includes Canada, the U.S. and Mexico, Bookbinder says he originally envisioned that community to grow and include much of South America as well. Things aren’t turning out that way, though.
“The problem is that in Latin America, each country is so different. Is (a country’s) currency stable? What are the politics like? Even the infrastructures — we think Mexico has some logistic challenges, but it’s ahead of a good number of countries in South America.” Bookbinder believes that regardless of what happens in this area, Canada will have its place in the global economy “as long as there are good high-tech products coming from firms such as Research in Motion.”
Despite the rising importance of technology in the global market, Bookbinder cautions that managers and executives should not stray too far from the core aspects of their businesses and should look upon tech as a way to help them carry out the fundamental aspects of their business.
“We’re forgetting that technology is a means to an end; we still have to get product from here to there,” he says of the logistics industry. “But more and more, the CIO is going to have to feel comfortable with some of the logistics activities, because he or she may need to evaluate the hardware and software in light of the supply chain activities that need to be carried out.”
Bookbinder draws on his experience with the logistics arena to illustrate how this type of divergent thinking has occurred in the past.
“Some years ago, it was big that we stopped talking about physical distribution and then about logistics,” he says. “It seemed to be a major advance but we forgot about the physical distribution (aspect)….Maybe we should be worrying about more efficient delivery from distribution centres to the retail stores. It’s so important, but we started concentrating on the bigger picture.”
Eventually, Bookbinder believes, a balance will be achieved between effective use of technology within the logistics industry and maintaining a hard focus on the nuts and bolts of moving wares from point A to point B.
“It will even out eventually because the firms that are able to evolve the technology will survive, and the ones who didn’t will get absorbed or they will die.”