Helping small business develop the SCM advantage.

Logistics comprise about 15 percent of the total cost of operations for most Mexican businesses, compared to just seven to eight percent in developed nations, according to Miguel Trejo, marketing manager of United Parcel Services (UPS) Mexico.

This means that if your company can do better than that--perhaps much better--by developing a SCM strategy, you will have a significant competitive advantage.

This opportunity exists in Mexico's industrial sector where, Trejo says, just 32 percent of companies have a contract with a logistics operator for management of their transportation, storage and distribution operations.

While no one disputes the potential high return on investment an SCM strategy can deliver for a company, which Trejo "conservatively" estimates to be at least 34 percent, setting one up can stretch a firm's financial resources in Mexico, where credit is hard to come by.

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"One of the most important initiatives in Mexico to support the PYMES was made through one of our divisions, UPS Capital Business Credit (CBC)," Trejo said.

CBC was formed and the small business credit project developed after UPS acquired part of the First International Bank of the United States. The CBC program can help a firm obtain financing to buy the machinery and materials it needs to set up its SCM system.

Not only does this program enable companies make the required investments as they develop their SCM systems, but the enhanced level of involvement strengthens UPS's incentive to ensure that the strategy is a success. It also helps UPS develop the level of trust that's essential when a company outsources part of its operation.

Because many UPS operations cross borders, a major part of its marketing focus is on companies that export. With the explosion in Mexican exports and imports since 1994, demand for international logistics services has also grown dramatically.

Another UPS initiative is aimed at smoothing the process of moving goods through customs. It has worked with customs officials in Mexico to develop ways to expedite procedures. The result is a program called Trade Direct Cross Border.

"Basically, this is a service that allows Mexican exporters to move packages to the United States on a consolidated basis and, by doing so, creates the possibility of clearing Mexican and American customs as a single package," said Trejo. "Once the merchandise is on American soil, it gets deconsolidated and every package is sent to its particular addresses."

On the import side, a company can use Mexico's electronic pre-validator to validate its consolidated import declarations in seconds, and then make its payments electronically.

The effort to smooth cross-border movement of goods is logical and necessary because, as Trejo notes, while Mexico enjoys a labor cost advantage over the United States, it is at a labor disadvantage compared to its growing export rival, China.

"With the worsening labor cost disadvantage ... Mexican businessmen must obtain as many benefits as possible from the geographic proximity to the United States," he said. "This means that the ability to move products across the border expeditiously is a definite asset in economic competitiveness."

Companies that move a lot of goods can develop an advantage over their national and international competitors with an SCM strategy. If they wait, in a few years, they will have to install one just to catch up to the others.

--K.E.