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The supply chain: how delivery companies in Mexico are linking transport to profits.

Many entrepreneurs don't realize it, but the way their companies manage the movement of goods can mean the difference between getting the sale and missing it--or making a profit and losing money. The process of getting goods to customers is known as supply chain management (SCM). The unassuming name hides its paramount importance.

Tales of the SCM exploits of companies like Wal-Mart and Dell Computer are the stuff of legend. Not that many years ago these SCM pioneers shaved costs and opened vast new markets by investing heavily in systems that track inventory and ensure on-time delivery of goods, even on short notice.

It's less well-known that today those same opportunities are available for companies whose annual sales do not run into the billions of dollars. Thanks to ever-cheaper software and outsourcing, others can emulate them at much lower cost.

One sector that has become active in helping firms to improve their supply chains are the companies that used to be known as messenger firms. Just a few years ago they saw themselves simply as delivery services. Now companies in Mexico like UPS, Fedex, DHL and Estafeta are recognizing the opportunity for helping their small business customers with the entire supply chain process.



But though the offerings of such services have broadened, specialists in the market claim that not everybody is getting on board.

Erik Markeset, general director of the Mexico branch of CP Consulting, a U.S.-based firm specializing in logistics, sees several reasons.

First, he said, not everyone is aware that an efficient supply chain can be a competitive advantage.

What's more, Markeset believes that many managers are not aware of how much it's costing them to move and store inputs and finished goods. These managers don't see how CSM-generated cost reductions can improve margins and generate sales opportunities.

He has found that many companies, especially medium-sized family-owned enterprises, fear change, even though globalization makes change an ever-more-urgent necessity for success and even survival. The status quo worked in the closed business environment of a generation ago, but not anymore.

Companies also worry that a sophisticated SCM system would simply cost too much. They believe that, short of making an investment they can't afford, there is little they can do to improve their system.

That may have been true a few years ago, says Markeset, but it's no longer the case.

"Technology is cheaper every day," he said, "and the Internet makes it ever more accessible. Enterprise applications used to be available only to the largest companies because they could afford the software licenses, implementation costs, and infrastructure. That is less true every day."

One low-cost way to lower SCM costs is by outsourcing part of the supply chain operation, though that brings with it another concern.

"Mexican companies are particularly suspicious of outsourcing (because) that involves entrusting a third party to perform an activity once done internally," said Markeset.


The companies have a point. A high level of trust must exist when companies hand over part of their operations to an outsider, and that's one of the hurdles the big delivery service firms must overcome as they develop their SCM programs.

On the plus side, outsourcing has proved to be an effective way to add value to a product through the supply chain while lightening the financial burden. To compete successfully it might be indispensable.


The most daunting question for many entrepreneurs is: what will all this cost? First, there's an extensive operations review and the prospect of installation of new equipment and software. Companies might also need to retain first-rate outside expertise to guide them through the process, though the package delivery companies are working to keep these expenses to a minimum.

What value would you get from an outside consultant?

"We (CP Consulting) would approach a client by asking what their objectives were in terms of the cost of their transportation services, control of their transportation decisions, and visibility of their supply chain, both in- and out-bound," said Markeset.

In terms of technology needs, he said, "we would also try to determine what their requirements are and what their current capabilities are ... to determine what is an appropriate investment in technology. Once we help select the software we then support the implementation."

If done properly, these "costs" are really investments, with payoffs in higher efficiency, lower expenses, higher levels of customer satisfaction and the potential for reaching new markets.

Return on investment varies with each operation, but Markeset says it's reasonable to expect to recover the initial investment within two to three years, an estimate that's confirmed by Estafeta Mexicana's Ingo Babrikowski and Miguel Trejo of UPS Mexico.

By upgrading the supply chain system, you'll not only lower operating costs, you'll be better able to keep your present customers happy and gain new ones. You may be able to charge a premium with the value-added element of guaranteed ontime deliveries.

The cost of standing still--of continuing to operate with a supply chain you know is less than satisfactory--can be the most expensive decision of all. That applies doubly if you operate in a competitive sector or if you are an exporter, since most customers in the U.S. and Europe have little patience for late deliveries.

RELATED ARTICLE: Strengthening the Links

Supply Chain Management (SCM) looks like a straightforward process: you get an order, fill it and ship the goods.

Today's efficient supply chain goes much further and, while some may be smaller than others, they aren't necessarily shorter. A supply chain can start as far back as the manufacturer's suppliers and end as far forward as the customer's customers. It must keep track of supplies and inventory on the road and in the warehouse. It might involve moving imported supplies or export orders through customs.

Exactly how should a business go about planning for an improved chain of supply?

The first step is to set goals: to decide which parts of your supply chain need shoring up and which provide the best opportunity for better margins, better service or new customers. This involves a complete review of all operations. Since you may be opening the door for new sales opportunities, it should include the marketing side.

You should then decide which elements need the most attention in your supply chain. Is it customer service? Do you need to shorten delivery times? Are warehousing costs out of control? Is inventory control weak? Is the main priority to reduce costs? Do you want to attract new customers?

Establishing goals and setting priorities enables you to work your way through the options, alternatives and tradeoffs you'll face as you put the system in place. You can decide the best way to deploy your resources and where you can cut corners. That's important in any SCM system, but even more so when the budget is limited.

You need a clear understanding of what service providers can do for you. Who are the people who will set up and maintain the system? Do you need to hire new staff or should you do it with outsiders? Do the benefits of outsourcing outweigh the costs?

The answers to these questions will be determined by your goals and by the nature of your business--the size of the operation, the type of product you are selling, the technology involved, the nature of your existing or desired market and the commercial conditions under which you operate.

This may seem like a complex series of decisions, but it can be the key to improved margins--and new customers.
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Article Details
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Author:Emmond, Kenneth
Publication:Business Mexico
Geographic Code:1MEX
Date:Dec 1, 2005
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