Sourcing and selling opportunities abound in today's global marketplace. But with those opportunities come challenges—particularly for a company's logistics and supply chain operations.

As a producer of flavorings, breadings, and other food ingredients, Griffith Laboratories has a long history of working with customers and suppliers around the globe. Our experience operating 20 facilities in 14 countries worldwide has provided us with a number of insights into running a successful global supply chain. These insights may prove valuable to other companies, whether they are expanding into a new region or entering into an international market.

To gain a competitive advantage through their global supply chain, companies need to recognize and attempt to control a long list of variables. These include:

• Distance. Sourcing or supplying a region far removed from your corporate headquarters can be a difficult balancing act. On the one hand, the more remote suppliers and customers are, the greater the cost of paying personal attention to them. Yet on the other hand, this personal attention is critical for managing potential problems such as inconsistent service quality and inadequate infrastructure. Companies can compensate for not being in the immediate area in a number of ways. One of the most productive is to visit the location in person to understand and verify the infrastructure when you are actually designing your fulfillment or sourcing processes—and not just when you are implementing them. Also, it is important to develop relationships that can act as your eyes and ears. One invaluable, and often-underutilized, resource in this regard is the global freight forwarder that has a local presence in the country and a detailed, first-hand knowledge of its culture and unique challenges.
• Infrastructure inconsistencies. Companies engaging in international commerce will find that logistics infrastructure varies widely from country to country. They need to make certain that the local infrastructure is adequate for all forms of transportation they plan to use—roads, maritime ports, airports, and rails. They also need to make sure that sufficient capacity for moving their freight exists across the various modes.
• Differences in standards. To avoid potential misunderstandings, companies should be aware of differences in standards that may affect the supply chain process. These can range from simple issues such as different units of measure (for example metric vs. English measurements) to more complex ones such as different definitions and understandings of "service."
• Political risks. Your company's supply chain can be disrupted not only by business concerns but also by local unrest and instability or by government interference. Such risks are not just associated with "less developed" countries. During the summer of 2000, for example, high fuel prices and shortages caused many companies to experience major logistics problems in Europe. Companies also should be prepared to deal with bureaucracy and regulations that can change dramatically—sometimes with little or no forewarning. Griffith Laboratories experienced this in Colombia. In the space of one month, we had to cope with two port strikes, a 50-percent turnover in customs officials, and four changes in the documentation required by customs. One effective way to navigate around those political risks is to take advantage of all available resources. For example, we would not have been able to handle the situation in Colombia as well as we did without the expertise of our global freight forwarder and the in-country relationships developed by our customer. Other potential sources of intelligence include the U.S. State Department, security consulting firms, The Economist magazine's country reports, and international cargo insurance firms. Companies also should talk to others who have direct experience conducting business in the area. Networking with industry experts is essential for success in international operations.
• Financial issues. Among the many financial considerations in international trade, one with a direct bearing on supply chain management is the letter of credit (LOC). Companies need to bear in mind that letters of credit are considered legal tender. For this reason, they should play an active role in the LOC generation process and in developing terms to support efficient distribution and sourcing. Supply chain managers also need to be aware that LOCs can lead to certain constraints and dangers that could affect their operations. For example, a LOC can restrict the number of shipments. This means that the shipper will have to pay the duties and tariffs on any subsequent shipments needed to complete the order.
• Duties and tariffs. Duties and tariffs can change based on the description of the product, where value is added to the product, who is buying the product, and even the company's relationship with individual customs officials. A company—and/or its freight forwarder—must stay on top of all these changes and variations.
• Distribution costs and cycle times. In international trade, the actual cost of manufacturing a product frequently amounts to only half (or even less) of the product's total cost. Distribution costs—such as freight, warehousing, duty and customs, in-transit inventory-carrying costs, and inspection and returns—make up a significant portion of those nonmanufacturing costs. Likewise, distribution takes up a significant portion of the total cycle time. The best companies design speed into the system. They carefully consider key decisions such as where to locate consolidation points, assembly points, and repair centers right from the start.

Underpinning all of these variables are cultural and language issues. Culture and language have a significant influence on business behaviors and communications within a country or region. This point may seem like common sense, but it is surprising how often it is overlooked. Understanding a culture and learning a language require a good deal of effort and attention. But that effort will deliver important dividends in the form of a smoother, more successful operation. Many companies with excellent strategic concepts and plans for entry into an international market have failed miserably because they overlooked the cultural issues.

Companies have a variety of resources at their disposal to help them understand the local business culture and control these variables. These resources include the U.S. Chamber of Commerce, the U.S. State Department, magazines such as World Trade and The Economist , and even the U.S. Postal Service. The most important resource, however, may be your global forwarder partners. I cannot stress strongly enough the value of a good global freight forwarder. When evaluating and selecting a freight forwarder, look to forming a long-term business alliance. Spot purchasing freight-forwarder services precludes many of the value-added benefits of a true alliance.

Companies that carefully consider all of the variables and succeed in implementing an effective global supply chain will reap many rewards. Competitive advantages such as consistent and reliable deliveries, shorter cycle times, and lower inventory-carrying costs will help push them to the forefront of their chosen global marketplaces.