Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
For the past decade, talk about sourcing in Asia largely meant sourcing in China. The giant nation opened its doors, invited investment and developed the wherewithal to become the world's workshop—the place to go for low-cost labor and high-quality workmanship. It has prospered as a result.
Withthe spotlight on China, it is easy to forget that until an economic collapse in 1997, the fastest-growing economies in the region were China's neighbors in Southeast Asia. And now those nations are gearing up to go after a bigger share of trade with the West (as well as the rapidly growing intra-Asia trade).
Thailand, Cambodia and Vietnam, along with nations with long-standing economic ties to the United States like India, Malaysia and the Philippines, are looking to get in on the offshoring action. And they're investing in both manufacturing capabilities and trade and logistics infrastructure to make it happen.
China, in the meantime, is scrambling to maintain its advantage over its regional competitors. It is pouring enormous sums into its road, rail and water networks to support its growth—and to spread some of the wealth beyond the coast and into the hinterland. While it is true that its fast-growing coastal cities have lost some cost advantages as wages have climbed, China is still a relatively low-cost place to do business. And it has vast numbers of workers yet available—assuming the country is able to extend its logistics infrastructure to reach them.
That adds up to both complexity and opportunity for U.S.-based procurement and logistics professionals. Economic development in the Pacific Rim is confusing, complex and subject to sudden shifts in political or economic winds, making it tough for even seasoned Asia hands to stay abreast of changes.
Multi-country sourcing adds layers of complexity in the already specialized world of international trade. In many countries, infrastructure development hasn't kept pace with demand. And too often, structural or regulatory barriers create as many headaches as inadequate rail or trucking service.
Spread the risks
Yet for all the difficulties, the potential is too attractive— and too much a competitive necessity—to ignore. Today's cut-throat market environment—particularly in the consumer goods and electronics sectors—essentially requires looking to low-cost Asian sources.
That's true of companies that trade in industrial products as well, says Paul Loftus, a managing partner at consulting firm Accenture. "For a typical industrial products company, the impact of global sourcing on profitability can be substantial: US$100 to US$200 million in annual savings (for a US$5 billion company spending 50 cents out of every sales dollar on direct materials)," Loftus wrote in a recent article, "Procurement for high performance: Global sourcing in the industrial products industry."
Logistics service providers in the region say they're seeing a surge in offshore production. "The trend toward offshore low-cost sourcing is increasing," says Mark Millar, Hong Kong-based director of strategic accounts for UPS Supply Chain Solutions, Asia Pacific, which provides logistics services. "A significant proportion is in China, but other countries in the Asia/Pacific are growing."
Paul Bingham, an economist for the research firm Global Insight, says the efforts by nations in the region to invest in manufacturing and infrastructure create opportunities for U.S. businesses to look beyond China for sources. The challenge will be to persuade potential clients to consider these alternate sources, says Humberto Florez, CEO of third-party service provider DHL Exel Supply Chain Asia Pacific. "The perception is that China is easier than other countries," he says. "But you could be missing an opportunity for doing business [with suppliers] in India, Cambodia or Malaysia that provide good-quality products."
John Langley, professor of supply chain management at the Georgia Institute of Technology, visits China frequently. He says that among companies he talks to, China remains the major attraction, but that many are looking at other nations as part of a "portfolio management" strategy, dividing their business among several nations. "Rather than have 100 percent of their activity in China, they are spreading out the risk," he says. (Langley added that potential outsourcers need not limit their search to the Pacific Rim. He said that when asked what country would be the next hot area for development, most of the respondents to his most recent third-party logistics survey named Russia.)
"I think the idea is to spread the manufacturing base so as not to have all the eggs in one basket," says Millar of UPS. He adds that different regions are developing strengths in particular industries: Thailand in automotive, for instance; Taiwan in high tech; Singapore in health care and pharmaceuticals. And in the case of the apparel and footwear industries, he notes, quotas on garments and shoes are pushing importers to diversify their buys.
Bingham points out that multi-sourcing is only an option for fairly sizable businesses—those with enough scale to spread their production across several countries. "It still depends on having the critical mass," he says. "If you have limited production, the loss of scale overwhelms the advantages. But more and more companies are getting to that critical mass."
Keeping it moving
As nationslike Thailand and Vietnam capture more business, logistics services are likely to follow. For instance, A.P. Moller Maersk Group, owner of one of the world's largest ocean shipping fleets, says it plans to build a major terminal on the Vietnam coast southeast of Ho Chi Minh City. Other shipping lines are following suit. "We are seeing ship lines revisit their rotations," reports Florez. He says once one carrier adds service to a port, others are likely to follow. That could mean more direct service to U.S. ports from more locations, which would accelerate cycle times. Now, many shipments from countries outside China are shipped to ports like Hong Kong for transloading to trans-Pacific vessels.
What helps make investments like A.P. Moller Maersk's possible is that governments are slowly becoming more open to foreign investment. That's crucial to these nations' ability to compete with China. "It's not just about manufacturing costs and utilities, but the ability to get finished goods in and out," Bingham says. Without good logistics infrastructure, total landed costs can still be excessive, no matter how low the manufacturing costs.
India is a case in point. While India has made great strides in capturing service-industry jobs, its attempts to capture manufacturing business often founder over infrastructure issues. Bingham points out that while India has begun some big investments, its spending on infrastructure still pales in comparison to China's.
And China is spending a lot. In his article, Loftus wrote, "China is an infrastructure giant in terms of both supply and demand. China's current five year plan calls for the construction of an additional 6,000 km of rail track, 200,000 km of road, 141 deepwater ports and 57 airports. Its projected energy requirements will necessitate an additional 500 gigawatts of capacity—80 percent of Great Britain's total capacity—every year for the next 10 to 15 years."
But rail lines and highways can be built only so fast, even with a powerful centralized government and few regulatory impediments. And in the meantime, logistics infrastructure development hasn't kept pace with China's ambition.
Langley says that's particularly true of the Yangtze River region, which he says has air, highway and rail issues.
China has other problems, too, Langley says. For instance, moving goods between provinces can result in inventory taxes, even if goods were taxed previously. Other issues are as simple as warehouse technology. Langley cites the case of warehouses in which workers unpack a pallet on a truck, place the goods on the dock and re-palletize the freight—all for the want of dock levelers at the warehouse.
Even something as simple as a truck movement can present challenges. Kris Knutsen, a manager for consultant Deloitte & Touche, reports that long-distance hauling is difficult in China, whose trucking industry is overpopulated by small regional firms. But he notes that the central government in Beijing is pressing provinces hard to reduce protectionist policies that impede logistics efficiency. In a recent company Webcast, Knutsen said that reducing logistics costs is a national goal and part of China's current five year plan. In 2004, logistics expenses represented about 21 percent of China's gross domestic product (GDP), according to numbers compiled for the Council of Supply Chain Management Professionals by Charles Wang, Ph.D., of the China Development Institute in Shenzhen, China. (The comparable number in the United States that year was 8.8 percent.) China's goal, Knutsen says, is to reduce logistics costs to 10 percent of GDP by the year 2020.
Bringing it all together
Supply chain woes are hardly unique to China. UPS's most recent Asia Business Monitor survey showed that although about 80 percent of the respondents said they considered supply chain efficiency to be an important factor in small and mid-sized enterprises' ability to compete, more than 50 percent believed it needed improvement in Asia. More than 60 percent of the respondents in China, India, Indonesia, Korea, the Philippines and Taiwan said supply chain efficiency was lacking in their countries.
Logistics service providers intend to fill at least part of that gap. Like the carriers, they're currently investing heavily across Asia. That's good news for shippers, says Bingham. Not only can carriers and third-party logistics service providers (3PLs) ease some of the trade and transportation complexities in sourcing from multiple countries, but they're also bringing services like consolidation and assembly to the region. "As the 3PLs are opening up shop, they are bringing in best practices," adds Langley.
One of those 3PLs is DHL. "We are setting ourselves up and have [had] good success ... with customers," says Florez. "We have taken the next steps by facilitating infrastructure needed at origin for merge in transit, postponement and handling documentation, so even the smaller retailer can benefit from the existing supply chain."
As an example, Florez points to a kitchen appliance firm (which he is not allowed to name) that imports goods from China, Malaysia and Indonesia into the Americas, as far south as Chile. DHL consolidates all of its Asia purchases at a consolidation center near Hong Kong; configures equipment with appropriate motors and power cords, manuals and cartons for the final destination; and then manages the shipments' movement to destination country DCs.
Millar reports that UPS is seeing similar demand for end-to-end service."Low-cost production is only advantageous for the destination market if you have an efficient supply chain," he says. "What customers are looking for is consolidation from multiple sourcing countries, destined for the same channel, and for those to be consolidated and shipped into the destination market as part of a seamless, integrated supply chain."
At the same time, he says, UPS is also seeing increased demand for value-added services at origin and destination. "If you can move activities up the supply chain, which by nature means lower cost—things like bundling, packaging, labeling, garment on hanger—and have those done at the origin center, then in the destination market you can do deconsolidation and have efficient ground distribution to the destination point."
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.