As countries in the Americas move toward multilateral and bilateral trade negotiations,¹ U.S. business executives are reminded again of the challenges of managing operations in different cultures and countries. We are fast approaching the 2005 deadline for all 34 countries participating in the Free Trade Area of the Americas (FTAA) to reach an initial agreement on all aspects of trade liberalization. (For more on the FTAA initiative, see www.ftaa-alca.org.)

As the FTAA and other trade agreements in the Americas move forward, North American supply chain professionals will need to plan and execute operations in Latin America. To do that effectively, they need to understand how logistics and the supply chain are managed in Latin American companies. Most of the analyses done to date have focused on traditional infrastructure limitations, trade barriers, and customs issues in the region. Although these are important, the success or failure of any supply chain activity ultimately rests on the competency of the people in charge of logistics operations at the other end of your supply chain. In fact, the logistics managers at these companies will have a major impact on the success or failure of the FTAA final implementation. The message for U.S. supply chain professionals is clear: The more you understand the logistics organization and people in your partner companies, the better you can engage them in responding to the challenges and opportunities.

We believe that some key findings from a study we conducted on Organizational Structures for Logistics in Latin America can help in that learning process.² The study's objective was to identify how logistics and supply chain management are organized and executed at Latin American companies. We received 184 questionnaires (21.6 percent response rate) from 18 countries, which were classified into five regions. The most significant participation came from the Andean Region (Colombia, Venezuela, Ecuador, Peru, and Bolivia), followed by Mercosur (Argentina, Brazil, Uruguay, Paraguay, and Chile), Central America (including the Caribbean), and Mexico.

The study team classified the data by economic sector to allow for a more robust analysis and a more accurate comparison of results. Of the eight sectors classified, manufacturing had the highest participation in the sample (27.5 percent), followed by service (18.7 percent) and food and beverages (13.8 percent).

The first question of the survey asked whether the company had an upper management position for logistics and/or supply chain management (SCM). Seventy-seven percent of the companies reported that they did have an executive in charge of the logistics and/or supply chain function. The remaining 23 percent did not, which means that logistics/supply chain responsibilities were assigned to some other functional area in the organization. The fact that a logistics and/or SCM position exists in an organization does not in itself indicate that the function is being performed effectively. Yet the absence of such a position on the organizational chart suggests a high probability of substandard supply chain performance. The challenge in the region is to convince those 23 percent of the strategic importance of the logistics and supply chain management function.

Drilling down into how logistics/SCM is organized, the study inquired into the three processes that we believe capture the overall logistics and supply chain management activities: demand management, supply management, and fulfillment management. Specifically, the survey asked who in the organization held responsibility for the following key activities within those three processes: customer service and order processing (demand management); purchasing and supply management/inventory management and planning (supply management); and transportation and distribution management and warehouse and distribution-center management (fulfillment management).

As we can see from the aggregate sample responses shown in Exhibit 1, the "traditional" functions of transportation and distribution management and of warehouse and distribution-center (DC) management are mainly the responsibility of the logistics function. We see this as a positive finding that positions these activities well for organizational and strategic alignment with the other supply chain processes.

The same cannot be said about customer service and order processing or about purchasing and supply management. In each of these cases, the reporting responsibility is outside of logistics, spread across other functional areas. With regard to customer service and order processing, fully 23 percent of the companies surveyed said that this activity fell to a department not directly associated with logistics—that is, customer service. Another 28 percent said that order entry reported to marketing and sales (which may be justified as this activity is a demand-management process).

For purchasing and supply management, close to half of the companies surveyed said this was the responsibility of upper management or finance. (Only 27 percent reported that it fell under logistics.) This reflects a traditional tendency among Latin American companies to depend on the chief financial or administration officer for purchasing activities. However, as the purchasing and supply management functions become integrated into the overall supply chain, we expect to see this dependency decrease.

Overall, the findings paint a picture of good logistics foundations in many Latin American companies—but with plenty of room for improvement and integration. Certainly, the companies themselves are increasingly aware of the strategic role that logistics and supply chain management can play in creating competitive advantages. That's evident in our experiences at the Latin America Logistics Center (LALC), an Atlanta-based research and educational institution. Since its founding in 1996, the center has focused on understanding the challenges associated with Latin American logistics and creating education and research programs to address those challenges. The center is continually asked by Latin American companies such questions as: To whom should logistics report? What process and activities should be part of a logistics? Who should be responsible for managing suppliers?

As for the Free Trade Area of the Americas pact itself, nobody knows for sure when the agreement will be finalized. But there is considerable optimism based on the success of earlier trade agreements in the region. However, as we learned from the North American Free Trade Agreement (NAFTA), those companies that are best prepared for the new trade environment are the ones that benefit the most. The challenge is not only for Latin American companies to improve their supply chain capabilities and become more competitive but also for U.S. companies to better understand the Latin America business culture and capabilities—particularly when it comes to logistics and SCM. By accomplishing these things, both Latin American and U.S. companies position themselves to take full advantage of the emerging free trade opportunities.