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Technology Lifts Logistics(HKTDC Hong Kong Trade Services, Vol 02,2002)

Vol 2, 2002

Transport, Courier & Logistics

Technology Lifts Logistics

Critical Calculations Can Fine Tune Inventory Levels

Hong Kong Eases Logistics Bottleneck

Technology Lifts Logistics

LOGISTICS is all about rights - making sure the right goods in the right quantities arrive in the right places at the right times. Success at this is vital for supply chain management (SCM).

Advancing technology helps tremendously. SMEs must use enabling technologies to achieve accuracy and efficiency in the flow of trade information, physical goods and funds.

Among the relevant technologies are data management (standard product identification and related repositories), data carriers (standard barcode/radio frequency) and data communication (standard electronic messaging in XML/EDI format). All are essential to integrate diversified business functions and coordinate activities among organizations.

Finding the right mesh is a challenge, but success pays handsomely. Hong Kong Article Numbering Assn chief executive Anna Lin says the biggest challenge in business is how to fulfill customers' ever-changing needs at the lowest possible costs.

"Control of inventory and shortening the production cycle, ordering lead time and delivery time are crucial to reduce costs," she says. The 13-year-old association is an independent, non-profit group helping Hong Kong industry with the global electronic identification of goods and services and open-standard end-to-end supply chain communication.

Ultimately, the aim is to streamline how products are sourced, ordered, located, tracked and delivered. "Speed is everything," says Jardine Logistics Services (HK) Ltd group vice-president Robert Wong.

Electronic Point of Sales (EPOS) technology, already common in stores, is one technology with additional applications in logistics. Beeping barcode scans via the EPOS system are an increasingly common sound. Such technology allows staff to instantly capture sales records and stock inventory levels, making stock flow more effective. In short, EPOS is a basic tool to capture valuable market information and record consumer demand, which can be channelled to manufacturers using XML/EDI technology.

No longer is SCM an issue of mechanical or operational excellence. Now it involves collaboration, according to executives at e-business solutions provider SAP Hong Kong Co Ltd. SAP customers need robust platforms for extended virtual supply chains open to all suppliers, customers and partners.

The trend toward integration requires a complete SCM solution with cross-function uses like supply chain planning and execution, plus integration of data warehousing. All must integrate seamlessly.

Next-generation SCM will move to customer-centric, demand-driven models for design, production and replenishment of both products and services.

Hong Kong's government is determined to nurture physical and cyber infrastructure for a growing logistics industry linked to the southern Chinese mainland. In 2001, Hong Kong created two official bodies, LOGSCOM and LOGSCOUNCIL, combining government and private sectors to work on logistics development projects.

Hong Kong's role is evolving due to mainland membership in the World Trade Organization. Lin says Hong Kong and the Pearl River Delta will become close strategic partners, forming a strong supply chain base for regional and global markets. Hong Kong's logistics sector must handle export-goods trade and serve the mainland's burgeoning domestic market.

"Hong Kong's competitive edge should come not just from pricing, but also efficiency, reliability and value-added services," Lin says.

Shenzhen's government also stresses logistics and will invest HK$30bn (US$3.8bn) on related projects in the next three years. Priority goes to building six logistics industrial parks and a mail processing centre.

Three parks - Yantian Port Logistic Park, Western Port Logistic Park and the Airport Logistic Park - will provide international services. Two others - South China Int'l Logistic Park and Pinhu Logistic Park - will be regional centres while Sungang-Qingshuihe Logistic Park will serve Shenzhen's own booming economy.



Logistics Gains For SMEs

HOW do hi-tech logistics benefit SMEs? The reality is that integrated supply chain management (SCM) solutions built on open platforms allow small companies to shorten go-to-market and turnaround times. This reduces product life cycles, meaning faster business, swifter payments and higher productivity.

Small companies need Web-enabled SCM solutions to excel in overseas markets and exchanges. Visibility in the flow of global demand and supply patterns means better understanding of market trends. It also eases costs while maximizing profitability.

"Improved technology enhances any service provider's capability. Before the Internet age, EDI (electronic data interchange) was a very structured and expensive option for small companies. Today, Web-enabled tools make it more affordable. Tracking and chasing can be done online," says Jardine Logistics Services (HKG) Ltd group vice-president Robert Wong.

While investing less, SMEs can compete for clients on even terms with big corporations. "With the introduction of e-business infrastructure, SMEs with limited resources to develop their own systems can use Web-based systems to enhance their competence," Wong says.

On the Chinese mainland, the picture is slightly different. Lack of sufficient bandwidth is a hindrance there. "Without broadband, it takes so much longer to download information from the Internet," Wong says.

Critical Calculations Can Fine Tune Inventory Levels

An understanding of basic management theory is essential for proper inventory management, especially for fast-moving consumer goods like medicine, food or chemicals.

THE ability to practically manage warehouse stock requires detailed knowledge of service levels.

"Up to 90% of all companies do not know their service levels," says Bausch and Lomb logistics director Johnny Wong.

Knowing all the details about service levels is vital to effective stock planning and warehouse management, especially in big markets like the Chinese mainland. The bigger the market and greater the distances, the less any SME can afford to miscalculate its inventory management.

In essence, a company's service level represents the minimum stock required to cover all eventualities in shipment and sales.

Proper inventory management, especially for fast-moving consumer goods like medicine, food or chemicals, requires an understanding of basic management theory to serve as a guideline for success.

First, ascertain if current inventory levels are adequate to cope with any critical demand level. Running out of stock, especially in high-demand items, is disastrous.

Consider costs of each product and expiry dates. Items with closing expiry dates should not be in a warehouse. Whether this means selling the goods or giving them away is less important than the monthly inventory-balance report.

Another important concern is whether the information system in operation is adequate and gives accurate readings.

The most critical factors for stock planning and warehouse management are the service level (order-fill rate), forecast accuracy and shipment arrival accuracy.

Imagine making painstaking plans for all shipments to arrive in August and allowing appropriate lead time, but then discovering that stock is going much faster than expected. Meanwhile, unforeseen problems delay the shipment a week and you run out of stock. This situation must be avoided.

The reality that nothing goes exactly to plan must always be considered when designing inventory management systems. Accounting for any problems requires the creation of a safety level as an absolute minimum to which inventory can be allowed to drop.

"On an ideal stock-level-versus-time graph, the stock level is inversely proportional to the passage of time. As time proceeds, stock levels diminish. From month to month, a pre-determined leeway is allowed so stock always returns to appropriate levels," Wong says.

However, such graphs have limitations and are only a rough guide in successful inventory management. In practical terms, sales managers must first estimate sales figures for each month.

An extra percentage must be allocated for "trial" items that may be sold or given away. For inventory management, the fate of such items does not matter - only that they depart from warehouse stock.

Forecast sales figures must be added to "trial" figures to calculate total usage for the month.

After this, calculations focus on the frequency of incoming shipments. If six shipments will arrive throughout the year, stock accounting must cover a two-month period plus ability to ensure adequate stock if anything disrupts the shipping schedule. Total usage for the next two months becomes the current-month inventory level.

In summary, order the level of stock necessitated by service levels, considering any expiry dates on items that cannot remain in the warehouse.

Closely monitoring service fluctuations means being better equipped to deal with any problems in the accuracy of sales forecasts and shipment arrivals.


Hong Kong Eases Logistics Bottleneck

Opportunities are multiplying for providers of logistics solutions on the Chinese mainland, says this Hong Kong Trade Development Council report.

THE Chinese mainland's accession to the World Trade Organization (WTO) gives Hong Kong firms golden opportunities to render tailor-made logistics solutions for various manufacturing and services industries, says a Hong Kong Trade Development Council (TDC) report.

The report, entitled China's WTO Accession - Enhancing Supply Chain Efficiency, covers three major areas: transportation and express cargo, freight forwarding, and logistics services, and suggests strategies for Hong Kong players to develop for the mainland market.

According to the WTO, the mainland was the world's sixth-largest exporter in 2001, exporting US$266bn worth of goods. The country has been successful in turning itself into a production powerhouse.

TDC assistant chief economist Joseph Tsang, however, points out that logistics have become a bottleneck for the mainland to further sharpen competitiveness.

"Cost will not be sufficient to guarantee further success. Logistics management will become an indispensable competitive tool for mainland suppliers to compete in the world and domestic market," he says.

The report quotes estimates that logistics in the mainland's industrial production took almost 90% of the whole production cycle time and 40% of general production cost.

"Inefficient logistics support and high inventory levels affect the competitiveness of wholesalers and retailers on the mainland," says Tsang.

According to the report, there is little integration in the provision of logistics services. Most companies participate in one or a few sub-sectors, rather than a total service for the whole logistics flow.

"As no logistics company has more than a 2% share of the mainland market, there are considerable untapped opportunities. Mainland logistics opportunities for Hong Kong companies will come as much from relaxation of regulatory constraints as the global trend towards more demanding service requirements," Tsang says.

The report predicts WTO accession will bring decisive and favourable changes to the regulatory regime of foreign investment in the mainland's logistics sector.

  • Freight forwarding: majority ownership in joint ventures (JV) will be allowed one year after accession, with wholly foreign-owned subsidiaries allowed within four years. Foreign companies will no longer be obliged to undertake only international freight forwarding.
  • Logistics sub-sectors: for storage, warehousing, express delivery and ground transport, majority-owned JVs will be allowed 1-2 years after accession, while wholly-owned enterprises will be allowed in 3-6 years.

In response to easier market access, Hong Kong players should leverage their experience in supply chain management, e-logistics, international freight forwarding, logistics facilities operation and management, as well as financial capability, to form JVs with local or foreign players.

The report also suggests a more diversified regional strategy for Hong Kong companies due to economic policy favouring inner regions, improved transport to these regions and relatively low competition there.

"The risk of investing in second-tier cities will be higher than in coastal cities, but opportunities and potential rewards are also greater for those gaining early entry to the more challenging, fast-growing markets," adds Tsang.

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