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Carana Tl Presentation Carana Tl Presentation Presentation Transcript

  • Impact Of Transportation And Logistics On Trade Competitiveness Export and Supply Chain Analytic Tool Introduction CARANA Corporation September 26th, 2006
  • WHY TRANSPORT AND LOGISTICS (T&L)
    • Integration of the world economy provides tremendous opportunities for developing countries to achieve sustained economic growth through trade
      • Reduced tariffs and rules based trade regime leveling the playing field;
      • Companies going global, providing new opportunities for developing countries to become integrated into global value chains;
      • But weaknesses in T&L systems and practices create challenges for exporters in developing countries……….
    Industrial Country Average Import Tariffs: Before and After the Uruguay Round
  • WHY TRANSPORT AND LOGISTICS?
    • Developing country exporters face high transport costs
    • On average freight costs amount to
    • 9.1 percent of import value
    • Dynamic more acute when all costs
    • (beyond freight) are considered.
    • e.g. For some landlocked African
    • countries, transport costs can
    • reach 77% of export value
    • These costs effect profits
    • and ability to succeed in
    • highly competitive markets
    Freight Costs as % of Import Value Source : UNCTAD, “Review of Maritime Transport, 2005,” Chapter 4, data supplied by the IMF.
  • WHY TRANSPORT AND LOGISTICS?
    • Global production and distribution networks
      • Focus on sourcing at low cost locations
    • Just-in-time delivery
      • Focus on reducing inventory costs
    • Requires system where multiple
    • players are linked in continuum
    • of T&L activities
    • In many countries, weaknesses in the
    • export and supply chain impact the
    • efficient and cost effective movement of goods
    • Resulting in lost opportunities………
    Today’s buyers expect more from exporters Supply Chain Management Buyer /Buyer’s Agent Lead Manufacturer Supplier Sub-contractors Quality Control Preparation for Transport Buyer/Buyer’s Agent Manufacturers Freight Forwarders Transport Company Customs brokers Consolidator/ Warehouse Transport & Delivery Transport Company Port Operators Freight Forwarder Consolidator/ Warehouse Customs Broker Customs Border Agencies
  • INSERT GRAPHIC TO ADD MAP MAP IS 6.17” TALL … BUT opinions abound as to relative importance MULTIPLE FACTORS CONTRIBUTE TO EXCESSIVE COSTS AND DELAYS IN MOVEMENT OF GOODS … “ Ports inefficient, too expensive” “ Government officials are corrupt” “ Border crossings too slow” “ More paved roads and better maintenance” “ Can’t get a container when I need it” “ Financing with Credit Card Debt” “ High taxes on new vehicles” “ Landlocked Country!” “ Technical Barriers to Trade!” “ River needs dredging” “ No Cold Storage Options”
  • CARANA EXPORT AND SUPPLY CHAIN ANALYTIC TOOL Developed under USAID Trade Enhancement for the Services Sector (TESS) & LAC Trade Projects
    • Increase awareness of transportation and logistics’ impact on national or value chain competitiveness
    • Filter out “noise ” to focus on T&L issues most critical to national exports and priority sectors
      • Address issues beyond infrastructure and customs
    • Inform public and private dialogue to facilitate decision-making focusing possible T&L interventions
      • Emphasis on highest impact vs. time and financial resources
    Designed to:
  • CARANA EXPORT AND SUPPLY CHAIN ANALYTIC TOOL Developed under USAID Trade Enhancement for the Services Sector (TESS) & LAC Trade Projects
    • Analysis through perspective of selected products (e.g. apparel, coffee, cotton, frozen meat, furniture, mangoes, shrimp, etc.)
    • T&L Operational Environment (e.g. infrastructure, geography, sector policies, corruption, customs/border practices, service provider capacity, etc.)
    • Transaction Process Analysis  Identification of bottlenecks during shipment
    • Cost analysis  Quantification of direct, indirect and ‘excess’ costs along the entire export or import value chain (pre-shipment, domestic and international move, borders/customs, reg. costs) for different modes and corridors
    • Supply Chain Management Evaluation  Identification of weaknesses in management of production and shipments
    Holistic methodology analyzing multiple elements impacting movement of goods :
  • CARANA EXPORT AND SUPPLY CHAIN ANALYTIC TOOL Developed under USAID Trade Enhancement for the Services Sector (TESS) & LAC Trade Projects
    • Nicaragua : Proximity to U.S. market, no major port.
      • Products covered: apparel, bananas, beans, cheese, coffee, fresh fruit, onions
    • Indonesia : Comprised of 17,000 islands spanning width of U.S., vast domestic market and large regional market
      • Products covered: apparel, cocoa, coffee, furniture, plywood, rubber, shrimp
    • Mali : Very poor, landlocked country with transit issues:
      • Products covered: cotton, gold, livestock, mangoes
    • Bulgaria : Proximity to EU market. Important apparel industry depends on speed to market and efficient supply chains.
    • Paraguay : Landlocked country, significant fluvial transport
      • Products covered: agro-chemicals, frozen and chilled meat, sesame, soybean, wood
    Application in five countries with varying geographic locations, levels of development and export scenarios :
  • CARANA EXPORT AND SUPPLY CHAIN ANALYTIC TOOL Developed under USAID Trade Enhancement for the Services Sector (TESS) & LAC Trade Projects
    • Bulgaria
      • Intensive analysis from apparel value chain perspective
      • Emphasis on supply chain management (SCM) within firms
      • Analysis resulted in multiple activities focused on improving SCM and reducing costs through USAID Bulgaria Labor Market Project
    • Paraguay
      • Focus on quantifying cost of T&L weaknesses on specific sectors and overall economy
      • Use of inventory cost function to determine cost of delays
      • Public and private counterparts currently involved in finding realistic solutions to critical issues.
    • Key Strengths of Methodology
      • How can methodology be used in USAID programming
    Today’s Discussion:
  • Export and Supply Chain Analytic Tool BULGARIA APPAREL CASE STUDY CARANA Corporation September 26th, 2006
  • Bulgaria: The Apparel Supply Chain DOMESTIC PRODUCERS INTERNATIONAL BUYERS ASIAN PRODUCERS VOLUME ORDERS HIGHER EFFICIENCY LOWER CAPITAL COSTS LOWER WAGES LOW COST PRODUCTION  HIGHER VALUE DIFFERENTIATORS INFRASTRUCTURE & FACILITIES CUSTOMS & BORDER CROSSING PROCEDURES ACCESS TO FINANCING, INSURANCE AVAILABILITY OF TRANSPORTATION & WAREHOUSING CAPABILITY AND CAPACITY OF INTERMEDIARIES GOVERNMENT REGULATIONS & POLICY BARRIERS
  • The Industry Challenge
    • Guarantee “basics”
      • Low cost
      • Consistent, high quality
      • Reliable deliveries
    • Offer higher value
      • Fashion (smaller order sizes, shorter season sales)
      • Faster sketch-to-shelf time
      • Reduce inventory risk: Make-to-stock  Make-to-demand
      • Provide product services: design, procurement, rapid prototyping
      • Provide management services: supplier management, inventory management, distribution
  • Apparel Transportation & Logistics A critical requirement for global competitiveness
    • Takes advantage of proximity to suppliers and buyers to reduce manufacturing cost disadvantage
    • Improves Time, Cost, Reliability, Quality of Service
  • Transport & Logistics Process
    • 50+ Steps (lead participant)
    • 20 – 40% of value of delivered product
    • Up to 50% local/regional origin
    • Few long term contracts
    • Efficiency & price before service
    • Low visibility to total costs
  • Case Studies
  • Bulgaria’s Apparel Industry Value Chain Migration Path SUBCONTRACT “ CUT MAKE TRIM” “ FULL PACKAGE” MANAGE BRAND DOMESTIC LOGISTICS SELL PRODUCTION SELL “VALUE” INTERNATIONAL LOGISTICS VALUE ADDED SERVICES HR MANAGEMENT SUBCONTRACTOR MANAGEMENT CUSTOMER MANAGEMENT SUPPLIER MANAGEMENT
  • The Relevance Of Supply Chain Management OPERATIONS ENABLER VALUE AVAILABILITY OF INFRASTRUCTURE
    • INVENTORY REDUCTION
    • NEW PRODUCT INTRODUCTION
    • SUPPLIER MANAGEMENT
    • MAKE-TO-ORDER
    • INTEGRATED LOGISTICS MANAGEMENT
    • CUSTOMER SEGMENTATION
    • DISTRIBUTION MANAGEMENT
    PROCESS INTEGRATION SUPPLY CHAIN MANAGEMENT
  • Implications for Manufacturers
    • Lower volumes, faster deliveries
    • New cost structure
    • Change production, contracting techniques
    • Global procurement and supplier management
    • Products offered  Services offered
      • QR, VMI
      • Design & Development
    • Customer knowledge
      • Segmentation & service
    • New competencies and “mind set” required
  • Since the Study: First Quarter in Apparel
    • Selected and consulted with 2 enterprises with widely representative business challenges to realize and demonstrate value
    • Selected enterprises with widely representative business challenges to develop in-depth solutions, implement and demonstrate value
    • Created revised, more targeted seminars
    • Proof of concept: Computer simulations of supply chain solutions using “real-world” data
    • Identified and engaged most active professional associations and NGO’s
    • Conducted “solution seminars” for business owners and executives
    • Gauged priorities and sources of resistance
    • Press coverage – Print and Broadcast
    • Conduct road-shows
    • TESS Study
    • Expanded to related industries: Footwear, Textiles, Leather, Knit, etc.
    Implement Change & Achieve Results Challenge & Educate Decision-makers Develop Solution Awareness and Buy-in Publicize Solutions Establish Need for Change
  • Spring 2006
    • Supply chain projects launched:
    • $33 million annual savings
    • $70 million one-time savings
    •  7300x ROI on training investment
    • 10 week intensive training for decision-makers
    • Case studies, simulations, best practices
    • Techniques, “how-to’s”
    • Localized, cross-industry learning
    • Required opportunity identification & sponsorship development
    • Developed “Fundamentals of Supply Chain Management” education program
    • Gained buy-in from American University in Bulgaria
    • Trade magazines and business press: articles, examples, interview
    • Press coverage – News and Broadcast
    • Conduct road-shows: associations, corporations, general public
    • Expanded to all Bulgarian manufacturers
    Implement Change & Achieve Results Challenge & Educate Decision-makers Develop Solution Awareness and Buy-in Publicize Solutions Establish Need for Change
    • Redesign the supply chain to reduce customer lead times, inventory levels and unnecessary warehousing
    • Increase customer service levels and dealer responsiveness through improved inventory management policies
    • Increase sales, customer service and environmental stewardship by introducing a new product from industrial waste
    • Improve the ability to respond efficiently and accurately to customer inquiries
    • Optimize inventory levels, locations and delivery terms to reflect customer needs and requirements
    634,000 BGN/year 428,000 BGN/year 153,000 BGN/year 840,000 BGN/year 43,536,000 BGN/year
    • Improve the flow of service vouchers from the company’s suppliers to its retailers
    • Improve inventory management processes for the company, starting with two of thousands of products in stock
    • Reduce the cost of the company’s primary product by introducing a new process in the supply chain
    • Reengineer the procurement, production and delivery supply chains of three product families at the end of their life cycles
    • Improve customer service in a high growth service organization by outsourcing non-core support activities
    • Improve inventory management practices, optimize the distribution network and improve supply chain visibility
    • Reduce supplier lead times by 40% through collaborative forecasting and process improvement
    • Reduce the cost of procured materials through improved processes and technology
    1,000,000 BGN/year 15,000 BGN/year 7% reduction in total product costs 4,050,000 BGN/year 45% reduction in annual service costs 17,000 BGN/year 350,000 BGN/year 24,560 BGN/year Participants in the program are required to identify sponsored projects of value to their companies. Participants in the first delivery of this program identified 50,980,560 BGN in annual savings, plus one-time cost reductions of 106,994,000 BGN. This represents a return of over 730,000% per participant on their tuition investment! PARTICIPANT ESTIMATES OF SAVINGS FROM CLASS PROJECTS CLASS PROJECTS DEVELOPED
  • Summer 2006
    • Bulgaria’s first supply chain survey
    • Benchmarks business practices & results with rest of the world
    • Links local best practices with local results
    • Prescribes actionable strategies for known opportunities
    • Unique promotion and distribution mechanism for mass participation
  • Starting Tomorrow
    • Second Supply Chain Program
      • Expanded to include service industries
      • Logistics Service Providers, Telecom, Energy
    • Establish and promote local “proof points”
      • Follow-up and develop spring projects
      • Document and promote case studies
    • Build a deeper bench
      • Programs of guided change for individual companies, supply chain partners, and proximate SME’s
    • Leverage Supply Chain Survey Results
  • Export and Supply Chain Analytic Tool PARAGUAY CASE STUDY CARANA Corporation September 26th, 2006
  • PARAGUAY CASE STUDY Implemented by CARANA Corporation under the USAID LAC Trade Project, 2006
    • Why Paraguay?
    • Landlocked country in South America
      • Quality of T&L system plays larger role in export competitiveness
    • Significant interest and commitment on the part of business community (represented by National Chamber of Commerce and Services of Paraguay, CNCSP) to collaborate in efforts to identify and resolve T&L issues.
    • Sectors and Corridors Analyzed
  • Methodology
    • Data Collection
    • In-depth conversations with T&L service providers, exporters (T&L users), industry representatives and government officials.
    • Identification and quantification of all costs along a given value chain, from factory/farm to final destination
      • Pre-shipment : Packaging, storage, consolidation, health/sanitary inspections and transport to exporter/consolidation point
      • Overland Transport : Overland transport to port of exit
      • Port : Fees for access, time required to entry and exit.
      • Customs : Activities related to release of goods by customs and other officials, customs; includes required certifications and inspections
      • Water Transport : Shipment of goods by river or ocean to destination and expenses related to insurance, handling, and port services.
  • Methodology
    • Focus on Excess Costs in T&L Process
    • Identification of weaknesses or issues that lead to higher costs born by exporter or service provider (e.g. trucking company)
      • Bureaucratic Fees that do not correspond to a service provided or represent redundant fees
      • Technical Barriers to Trade (e.g., SPS requirements resulting in delays that could reduced through electronic submission/receipt of approval)
      • Unnecessary delays along value chain as compared to either reasonable amount of time in Brazil (internal comparison) or existing benchmarks in region (e.g., time to enter/exit port)
    • Measurement of inventory (opportunity cost) and financial costs attributed to the specific issue .
      • Inventory cost calculated at 0.3 to 0.8 percent of cargo value per day.
      • Finance cost calculated by interest rate or $/hour of transport asset delayed
    • Fluvial-Maritime Transportation Process
    EXAMPLE EXPORT CHAIN ANALYSIS: FROZEN MEAT EXPORTS (PARAGUAY – RUSSIA) Direct Costs Pre-shipment Land Transport Port Customs River / Maritime Transport Paraguay Russia Customs Detail: Customs-related and Other Gov’t Agency Costs Incurred in Exporting Frozen Meat to Russia Indirect Costs Inventory Costs Financing Costs
    • Cargo Reserve Law
    • Customs Broker Fee
    • Voluntary fee to Meat Chamber
    • Customs seal
    • Certificate of Origin (Chamber of Commerce)
    • Sanitary Inspection (Ministry of Ag)
    • Document Photocopying Charge
    • Miscellaneous informal fees
    • On-site Customs inspection
    • Registration of Export Shipment
    • Fee for electronic documentation
  • EXAMPLE EXPORT CHAIN ANALYSIS: FROZEN MEAT EXPORTS (PARAGUAY – RUSSIA)
  • EXAMPLE EXPORT CHAIN ANALYSIS: FROZEN MEAT EXPORTS (PARAGUAY – RUSSIA) Analysis of costs breakdown to export via water route
  • Using Results: Prioritizing Issues at Value Chain Level Top Issues by Product and Corridor
  • Using Results: Prioritizing Issues at System Level Top Ten Excess Costs Identified (2005) 10 MOST SIGNIFICANT IDENTIFIED EXCESS COSTS TOTAL IMPACT US$ Border crossings $ 38,404,015 Delays in port access $ 19,556,645 Insufficient river dredging $ 19,377,896 Delays due to poor roads $ 16,615,336 Delays in obtaining health certifications $ 7,232,951 Consular visa requirements $ 6,801,600 Loss of merchandise in the pre-shipment process $ 5,085,551 Delays in payments $ 4,291,192 Cargo Reservation Law $ 3,491,037 Customs brokerage fees $ 3,331,490 SUBTOTAL OF THE 10 MOST IMPORTANT EXCESS COSTS $ 124,187,713
  • Using Results Quantifying Economic Cost of Issues to Inform Cost-Benefit Analyses of Interventions
    • Excess costs generated by Poor Infrastructure
    • Cost of poor roads in pre-shipment phase (farm to exporter) - $16.6 million per year
    • Cost of depth limitations (lack of dredging) in river transport - $19.3 million per year
    • Excess costs generated by regulatory/procedural issues
    • Consular visa requirements – $6.8 million
    • Customs brokerage fees attributed to red-tape and misc. payments (bribes)
    • Cargo reservation law - $3.5 million
    • Delays at border crossings ; $38.5 million
    • Obtaining SPS-related certifications - $7.2 million ($4.8 million in meat)
    • Excess costs generated poor practices and coordination
    • Poor packaging and handling techniques - $5.1 million
    • Poor coordination at ports (resulting in delays in movement/clearance of goods) - $23.5 million
    • Study covered 48% of volume of Paraguayan exports in 2005
    • Transport and logistics costs equivalent to 20% of value of exports (FOB).
    • Approx. 33% of these costs were determined to be excess costs linked to legal, regulatory, efficiency and procedural bottlenecks that can be feasibly reduced in the short and medium term, equivalent to 1.88% of GDP .
      • Extrapolated to macro level, equivalent to 4.26% of GDP.
    • Estimate that 77% of the excess costs identified are Paraguayan responsibility. Estimated 47% of excess costs are linked or attributable to Paraguay’s landlocked country status .
    • Approximately 30% of the excess costs identified could be addressed at private sector level
    EMPIRICAL EVIDENCE UNDERSCORES IMPORTANCE OF TRANSPORTATION AND LOGISTICS…
    • Private Sector armed with solid data to build consensus on key opportunities to improve competitiveness
    • Customs and Policy Makers equipped with economic justification for change and key private sector allies to target
    • Industry groups equipped with tool to calculate total transport and logistics costs, and collaborate on reduction of costs they are able to change (e.g., excess pre-shipment costs)
    • Initiatives are underway (some w/ Lac Trade Support)
      • Chamber using own funds to develop capacity to advocate or consult on T&L issues; Serving as spokesperson for Private Sector
      • LAC TRADE support to Chamber to address bureaucratic issues in short term
      • LAC TRADE support to Chamber to develop T&L index to track costs on ongoing basis.
    … INFORMING PUBLIC / PRIVATE DIALOGUE ON KEY OPPORTUNITIES TO INCREASE COMPETITIVENESS…
  • Export and Supply Chain Analytic Tool SUMMARY OF STRENGTHS AND UTILITY CARANA Corporation September 26th, 2006
    • Flexible methodology easily tailored to country context; sector-specific or macro-economic focuses
      • Easily integrated into TCB or Export Development Programs
      • Input for MCC program prioritization
    • Enables stakeholders to zero in on the issues that really matter; determine relative importance to economy/sector
      • Infrastructure, legal and regulatory polices, customs and borders,
    • Facilitates identification of ‘Quick Wins’ at value chain level Improvements in pre-shipment,supply chain management practices
      • Investments in value chain specific assets and techniques (e.g. cold chain, hanging garment containers)
      • Improvements in product specific regulations and procedures (e.g. SPS certifications and procedures)
    Summary of Strengths of Export and Supply Chain Analytic Tool
    • Facilitating public-private engagement for programs and policies focusing on trade facilitation
      • Consensus around critical issues and proposed interventions
      • Support for follow-up analysis and feasibility studies
      • Tracking performance over time
    • Support for T&L Improvements at Value-Chain Level
      • Building capacity of producers, manufacturers and exporters to use modern T&L solutions (e.g. packaging, supply chain management)
      • Promotion and facilitation of investments and upgrades in value-chain specific T&L assets and services (e.g. cold chain)
    • Support for T&L Improvements at Systemic Level
      • Privatization of public transport assets, development of PPPs
      • Policy reform in transport service sectors
      • Customs modernization programs
      • Multi-country initiatives to improve regional T&L systems; focus on improving landlocked countries’ market access.
    How can USAID use the tool for programming?