Many larger companies are now turning to third party logistics providers (3PLs), third party service providers (3PSP) and fourth party logistics (4PL) providers to run their reverse logistics because of the cost-efficiencies they can provide. This allows organizations to focus on their business priorities and core activities.

A 4PL company is a supply chain services provider that searches for the best supply chain management solutions for its client companies. To do this, it uses its own resources, and outsources to various 3PL companies. The Council of Supply Chain Management Professionals defines a Fourth-Party Logistics Provider as:

An integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions.

4PL providers are typically engaged as a joint venture or through a long term contract with a customer to oversee the customer’s entire supply chain. This is another alternative to off-shoring or foreign outsourcing. 4PL practices provide value by using technology and reconfiguration using other outside resources, such as 3PLs, to manage all supply chain functions as agreed upon with the customer.

4PL services are more managerial in scope, and are more focused on the integration of an organization’s functions and the use of technology in freight, warehouse management, inventory, transportation, and other supply chain needs. This allows 4PL services to provide greater efficiencies, cost-savings, leaner production, inventory management and distribution. This could also include collection and analysis of customer and end user feedback, and reverse supply chain/circular economy functions.

The growth of technology and the need to integrate the data into useful information that can used by organizations to direct its activities, the increasing complexity of the regulatory environment for international trade in both the importing and exporting countries, and the speed at which all this change needs to happen is pushing the growth in 4PL logistics as organizations focus their resources on their core activities.

What is 4PL? Main Components of 4PL

Unlike a 3PL, a 4PL does not own physical logistics assets. Rather, fourth-party logistics providers coordinate intricate networks of carriers, warehouses, suppliers, and other partners. Acting as architects, 4PLs design and manage comprehensive solutions by seamlessly integrating disparate systems and data sources into a unified technology platform. This central nervous system provides complete end-to-end visibility across the supply chain.

Leveraging cutting-edge analytics and optimization tools, 4PLs continuously monitor data and identify opportunities to improve logistics operations. Their services develop multi-channel distribution strategies to optimize transport channels based on factors like cost, speed, and reliability. By aggregating inventory volumes across clients, 4PLs can negotiate better rates with vendors. Rather than directly managing transactions, they focus on providing oversight of partners through rigorous performance management. This arms you with a holistic view to make informed, strategic decisions regarding supply chain inventory fulfillment.

In essence, 4PLs assemble the perfect ecosystem of partners tailored to your supply chain and inventory transportation needs. Your logistics provider will coordinate the orchestration of supply chain activities to help you achieve synchronized, efficient, and innovative logistics execution across your entire supply chain.

Want to learn more about managing your company’s supply chain and logistics to mitigate risks? Chech out the FITTskills Global Value Chain online course!

Benefits of Working With 4PL

Rather than grappling with multiple fragmented vendors, 4PLs offer the benefit of consolidated supply chain management through a single point of contact. Fourth-party logistics provide an adaptable, consultative approach to understand your supply chain needs and design tailored solutions. 4PLs possess both the industry expertise and technological capabilities to drive innovation. A 4PL will stay on the cutting edge of emerging logistics technologies and best practices and bring these to bear for your supply chain.

You gain access to more resources and support without needing to develop extensive in-house capabilities. The 4PL essentially serves as an extension of your team with both broad supply chain knowledge and specialized skills to elevate your logistics operations. They rapidly scale up or down as your business needs change, providing enhanced flexibility. By leveraging a 4PL, you can focus your attention on core strategic initiatives and rely on expert partners to manage your end-to-end supply chain. The result of working with a 4PL is optimized efficiency, visibility, and innovation.

Orchestrating End-to-End Supply Chain Management with 4PL Logistics Companies

An effective 4PL serves as the maestro conducting the symphony of your supply chain operations. They coordinate and oversee the activities of all partners to ensure alignment with your business goals. A 4PL will handle everything from transportation, freight delivery, and last mile logistics to inventory level, warehouse services, and order fulfillment.

Seamless Network Integration

The 4PL intricately links together your entire fulfillment ecosystem comprised of suppliers, manufacturers, 3PLs, carriers, warehouses and other supply chain players. A 4PL will design solutions that seamlessly connect disparate nodes into an integrated supply chain network. The 4PL institutes rigorous performance management across all partners.

Command Centre Oversight

From their centralized command centre, 4PLs maintain complete visibility over your supply chain activities. They monitor and control events in real-time to swiftly address exceptions and make tactical adjustments to optimize operations. The 4PL acts as the air traffic control, directing the daily activities of logistics partners to ensure efficient execution.

Proactive Transportation Optimization

With end-to-end visibility and data-driven insights, the 4PL identifies opportunities to continually improve supply chain processes and strategies. They implement advanced analytics and technologies to drive innovation. The 4PL proactively adapts logistics plans to align with your strategic objectives.

Breaking Down Information and Logistics Silos

The amount of data in supply chains and the logistics industry is exploding exponentially. But trapped in information silos, the data lacks context and actionability. 4PLs solve this by integrating disparate data sources into a unified platform.

Complete Visibility

By aggregating data across all supply chain partners, 4PLs provide complete visibility into inventory levels, orders, shipments, cost of goods, costs and other key metrics from end-to-end. You gain full transparency to make smart strategic decisions.

Streamlined Collaboration

The centralized data environment enables seamless collaboration across your supply chain ecosystem. Rapid information sharing breaks down silos and improves coordination between supply chain partners.

Analytics-Driven Insights

Leveraging the integrated data foundation, 4PLs apply advanced analytics, modeling, and AI to uncover optimization opportunities. Data-driven insights enable fact-based supply chain strategies and inventory planning.

A 4PL can help bring your logistics activities together more cohesively

It is evident with this move towards 4PL services that logistics management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates those activities with other business functions including procurement, sales and marketing, manufacturing, finance, customer service and information technology.

The logistics activities of inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, distribution network design, inventory management, supply/demand planning, and management of third party logistics services providers is a reflection of an organization’s overall business strategy.

In consideration of all the variables, the amount and type of information available through technology, and the assessment of all the combinations and permutations of logistics available is a colossal task that will continue to evolve as international trade grows and innovates.

The post What is 4PL? 4PL providers and how they can help your business appeared first on Trade Ready.

In endeavoring to maximize profit margins, companies have been outsourcing their manufacturing as the cheapest way to source their goods. The focus on ethical sourcing is a relatively new trend.

In recent years there have been some major success stories of companies that have gone out of their way to make their sourcing and manufacturing both ethical and responsible. These companies not only boosted the reputation of their brands, but also ensured that workers on their supply chains were being treated well.

Here is a look four companies who earned outstanding reputations and found international success by going the extra mile to achieve ethical sourcing and manufacturing.

1. Patagonia

Patagonia, an American outdoor clothing company, has used organically grown cotton for all of its products since switching from pesticide-heavy cotton crops in 1994. The clothing company altered its entire supply chain to ensure environmentally friendly, safe working conditions. Furthermore, they provide excellent health insurance and gives paid paternity and maternity leave for all of its workers.

Patagonia has built a very strong reputation for being ethical, environmentally friendly, and using ethical sourcing. This positive reputation only strengthens its brand, and gives conscientious customers more incentive to buy.

2. Starbucks

Starbucks is committed to 100% sustainably sourced coffee, and uses a system called C.A.F.E. (Coffee and Farmer Equity Practices) in order to optimize its sustainable sourcing. There are four ideas at the heart of Starbucks’ C.A.F.E. sourcing system: quality, economic transparency, social responsibility, and environmental leadership.

Starbucks strives to always buy coffee at fair prices and ensure each step of the coffee planting, harvesting, processing and purchasing is always done ethically. The coffee giant even uses third parties to verify that its sourcing is ethical. The standards set by Starbucks are now recognized as the industry standard for ethical sourcing.

Starbucks works with over 170,000 farmers and generates billions of dollars in revenue every single year. Its ability to remain both profitable and set the industry standard for sustainability has been a shining example for North America’s coffee industry.

3. H&M

Clothing retailer H&M is committed to supply chain transparency. They publish a list of 98.5% of their suppliers’ names and addresses on their website and update it on a quarterly basis. Anyone can verify whether their suppliers live up to the standards set by the company. This also ensures they can be held publicly accountable for the conduct of their suppliers.

In addition to sharing its supply chain information, H&M also has a responsible sourcing goal of using only 100% recycled or sustainably sourced materials by the year 2030. This makes H&M a trendsetter, and an ethical leader in clothing retail.

In terms of sustainable and ethical sourcing, the fashion industry is view by many as problematic. If a leading clothing retailer like H&M can demonstrate its dedication to ethical practices and sustainability while maintaining profits, there is a potential to change this reputation as other retailers follow this example.

4. The Dr. Pepper Snapple Group

The Dr. Pepper Snapple Group features a social responsibility section on its website which explains the company’s policies regarding ethical sourcing, and outlines the code of conduct it expects each of its suppliers to follow. This section explains how the Dr. Pepper Snapple Group uses third party metrics from groups like the UN Human Development Index and the International Labor Association to evaluate the ethics and quality of the companies that it sources from. This helps to ensure that all of the materials that go into Dr. Pepper, Snapple, and the other beverages made by this company are from good quality companies who treat their workers fairly.

The social responsibility report outlines further efforts to improve energy efficiency, reduce water use, packaging waste, and more. This report allows anyone to take a deeper look into the ethics of the companies sourcing and get more informed about their suppliers.

How ethical sourcing and manufacturing improves the world and the bottom line

Not every company prioritizes ethical sourcing and many products in developed markets are still tied to unethical business practices. Despite this, the long-term trend is turning towards sustainability.

Social networking sites and the internet are making the world much more connected. Seeing and reporting on ethics violations and bad business practices is easier than ever before

Consumers can send the message that ethical behavior is important to them by making informed decisions when choosing which brands to support by purchasing their products.

The opposite is also true, and socially conscious consumers can now easily use the internet to find ethical brands. Customers are using their purchasing power to send the message that ethical sourcing and manufacturing are important to them. As a result, more businesses will change their practices as they acknowledge it makes good financial sense. This should see a rise in brands competing with each other to build ethical reputations to entice new customers. As a result, ethical sourcing and manufacturing practices will become much more commonplace around the world.

The post 4 companies who succeed by focusing on ethical sourcing and manufacturing appeared first on Trade Ready.

Outsourcing is one of the most difficult and complex decisions for any international trade professional to handle. Often a politically charged topic, it’s been a massively successful strategy for many companies, while others have seen it backfire in spectacular fashion.

There are so many different aspects of international business that can be outsourced and so many locations and partners to choose from. So, it’s important to do your research and think decisions through from a variety of angles.

To help you do that, here are 5 key pieces of advice to approach your research, weigh your options, and make the best outsourcing decisions for your business.

1. Do your analysis to see if outsourcing makes sense for you

In the FITT International Business Guide: Pros and Cons of Outsourcing Product Manufacturing and Services, you’ll review outsourcing as a possible strategy to consider by any company facing the challenges of increasing costs, shortage of labour needed to expand, or competition from home or abroad.

The guide explains that “the key to successful outsourcing is efficient global supply chain management. The decision to outsource or not must be made after a complete analysis of the existing and proposed alternate supply chains.

This process will identify the net benefit to the company of various options, which may include dismissing outsourcing altogether (e.g. too expensive, too complex to establish, too demanding of financial and personnel resources), or choosing to outsource domestically (e.g. simpler to implement within a domestic legal and transportation system), or outsourcing offshore.

Offshoring is more complex but offers higher margins if successful, and as noted above, positions the company closer to existing or potential markets abroad.

Outsourcing allows a company to potentially:

1. Lower operational and labour costs;
2. Focus on core interests and free up assets while delegating secondary processes to third parties;
3. Access world class technologies; and,
4. Move the production processes closer to world markets.

2. Decided to outsource? Don’t just assume it will be to China.

Amy Karam is a speaker, consultant, author and corporate instructor of Stanford University professional development courses, as well as her own workshops. She has diverse experience in Silicon Valley and over 50 countries worldwide. While many companies looking to outsource think of China first as a potential location, she argues that it’s certainly not the easiest.

“The Chinese have been learning from the West and developing their own innovation capabilities by acquiring companies, technologies, talent and resources worldwide. And the Chinese government has been subsidizing the growth and global expansion of many of their homegrown companies on an ongoing basis for almost two decades.

China is not changing course, but this is a building block along their course. By opening themselves up, they became manufacturing giants. By being the manufacturing source for the West, they learned from these other companies.

China wants to compete further up the value-chain and this is a natural evolution in their economic development. They want to be known as more than an outsourcing destination for low-cost manufacturing.

They have been evolving into innovators, not just replicators. China is also preparing for their next generation of advanced workers.

It makes sense. And why wouldn’t the Chinese want to maximize their profit share of their own highly sought-after domestic market?

What should foreign companies already in China do now? China is too big of a market opportunity for foreign companies to give up on entirely. However, the Chinese government makes it extremely difficult to do business in China, and it will likely only get worse. Currently, many foreign companies are required to establish joint ventures with domestic Chinese companies in order to have access to their market, and they are often required to give up majority ownership to the Chinese partner. This also leaves foreign companies feeling insecure about the protection of their intellectual property, among other concerns.

Foreign companies need to operate with their eyes wide open in China.”

3. Outsourcing employment can make sense for small companies or testing new markets

As the former Global Solutions Advisor for SafeGuard World International, Cody Silverman worked with organizations facing challenges in managing their global workforce. He advised them on available solutions in the market while cautioning on risks and limitations, including outsourcing employment.

“If you’re smaller and lack the resources to incorporate in a new country, or are less sure of your company’s long term viability in that market, you may want to consider alternative options.

Employment outsourcing is most commonly used for engaging smaller headcounts, testing market viability, contingent labor, or as an interim solution when speed to market is required.

Outsourcing the employment to a third party company has become an increasingly popular option, not only for businesses, but for non-profits and universities as well.

Some of you may be familiar with PEOs (Professional Employment Organizations), which utilize a “shared employment” model. Outside of the U.S. and Canada, PEOs typically do not exist, and in many cases are in fact illegal.

There is a newer trend in the market to use Employers of Record (EORs) that mitigate the risks of global employment. This has the same overall function of a PEO, except instead of shared employment, it is full employer of record; think of it as an elaborated version of the staffing model.”

4. Are the benefits of outsourcing distribution worth the distance from your customers?

Brent McNiven, CITP|FIBP is an international trade consultant with almost 25 years of experience, particularly in South America and Canada. He points out that outsourcing can separate you from your customers, costing you valuable data and opportunities to give the diversity of each market the attention it deserves.

“Exporters have long defaulted to outsourcing distribution of their goods through various types of partners. We argue that while distributors provide critical value-added services, the traditional approach in agent and distributor management isolates exporters from their end users, restricts flow of market intelligence, and fails to capture potential sales, making this approach ineffective in today’s hyper-competitive landscape.

You don’t “sell to China/India”: at best you sell to one region/sector. With dozens of languages and cultures, and diverse regional sectors, no distributor can reach the entire country. USA, Mexico and Brazil also consist of diverse regions with distinct economies. Yet exporters still assign exclusive rights to one distributor, shutting out huge potential markets.

Outsourcing marketing, sales, and often support functions to a distributor or agent demands significant investment on their part. Few will invest unless they have exclusivity, which is usually awarded countrywide. In contrast, having a foreign affiliate allows surgical precision in assigning exclusivity to multiple agents and distributors for specific sectors, regions and products. We have observed examples where sales immediately increased by over 400% simply by assigning one sector to a new distributor.”

5. There’s no one answer for every company – so what’s most important to you?

Regular TradeReady.ca contributor Bennett O’Brien concluded that there’s no one right answer. Each company must make outsourcing decisions based on its own internal priorities, as much as external factors.

There are both pros and cons to outsourcing manufacturing. Ultimately, it is up to the individual company to decide whether or not using a third party to meet its manufacturing needs is the right decision.

“If a company can find a third party which can provide cheaper labour, less regulation and fewer taxes, but also treats its workers fairly and provides them with a safe working environment and better quality of life, as many do, it can be an excellent option.

However, negative brand implications for putting domestic workers out of the job, and the possibility of forcing foreign workers to work in what are sometimes harsh conditions, may lead other companies to continue their domestic manufacturing practices.

In an increasingly globalized world, opportunities for third party manufacturing will surely increase. The extent to which these opportunities will be taken advantage of is yet to be determined.”

Which of these tips do you find most useful? Have any of your own to contribute? Let us know in the comments below.

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Here are the 7 steps that lead to a successful procurement process.

Step 1: Conduct an internal needs analysis

To begin, you’ll need to benchmark current performance and then identify needs and targets before developing a procurement strategy. This involves the collection of several different types of data.

The purpose for collecting initial data is to benchmark current performance, resources used, costs for all the departments/functions in the organization, and current growth projections. 

Maximize cost savings, create a competitive advantage and minimize potential risks by finding the best possible suppliers or outsourcing opportunities

Step 2: Conduct an assessment of the supplier’s market

In this step, the strategic procurement team identifies potential countries that are feasible sources of the required raw materials, components, finished goods or services. If there are specific requirements, it may limit the number of countries that are suitable. For instance, if one of the raw materials used by the organization can only be found in one country, then options are much narrower. For manufactured products, there will be a much wider range of potential countries from which to select. Services may be limited by the technological requirements of the organization.

Step 3: Collect supplier information

It is important for a company to select suppliers carefully. A supplier’s inability to meet selection criteria can result in significant losses for the organization. The business reputation and performance of the supplier must be evaluated, and financial statements, credit reports, and references must be checked carefully. If possible, the organization should arrange to inspect the supplier’s site and talk to other customers about their experiences with the supplier. The use of agents, who are familiar with the markets and stakeholders, can also be beneficial to this process.

Organizations may select more than one supplier to avoid potential supply disruptions as well as create a competitive environment. This strategy is also effective for large multinational organizations and allows for centralized control, but more regional delivery.

Want to learn more about managing your company’s supply chain and logistics to mitigate risks? Chech out the FITTskills Global Value Chain online course!

Step 4: Develop a sourcing/outsourcing strategy

Based on the information gathered in the first three steps, an organization can develop a sourcing/outsourcing strategy. The following are examples of sourcing strategies:

• Direct purchase: Sending a Request for Proposal (RFP) or a Request for Quote (RFQ) to select suppliers.
• Acquisition: Purchasing from a desirable supplier.
• Strategic partnership: Entering into an agreement with a selected supplier.

Determining the right strategy for you will depend on the competitiveness of the supplier marketplace and the sourcing/outsourcing organization’s risk tolerance, overall business strategy and motivation for outsourcing.

Step 5: Implement the sourcing strategy

Sourcing strategies that involve acquisition or strategic partnerships are major undertakings. In these cases, suppliers are likely to have the following characteristics:

• Involvement in activities core to the buyer, e.g. supply limited raw material for core product, access to highly confidential proprietary knowledge
• One of a limited number of available suppliers with specific equipment/ technology and skilled labour pool
• Part of the broader business strategy

For a direct purchase, organizations may begin with an Expression of Interest (EOI), prepare an RFP or RFQ, and solicit bids from identified potential suppliers as part of a competitive bidding process. The RFP should include:

• detailed material
• product or service specifications
• delivery and service requirements
• evaluation criteria
• pricing structure;
• and financial terms.

Step 6: Negotiate with suppliers and select the winning bid

The strategic procurement team must evaluate responses from suppliers and apply its evaluation criteria.

Bidding suppliers might request additional information in order to make the most realistic bid, and the organization should supply this information to all bidders and enable them to respond to the new information before making a final decision.

The strategic procurement team will then evaluate the received proposals, quotes, or bids, and use the selection criteria and a process to either shortlist bidders to provide more detailed proposals (if reviewing EOIs) or select a first and second successful bidder (if reviewing RFPs or RFQs).

After the evaluation process is complete, the strategic procurement team will enter contract negotiations with the first selected bidder.

Step 7: Implement a transition plan or contractual supply chain improvements

Winning suppliers should be invited to participate in implementing improvements.

A communication plan must be developed and a system for measuring and evaluating performance will need to be devised using measurable Key Performance Indicators (KPIs).

This is especially true in the early stages of using a new supplier. Transition plans are especially important when switching suppliers.

Contractual Supply Chain Improvements

When bringing on new suppliers, it is necessary to transfer information and establish linkages to logistics and communication systems, provide training and even specific physical assets, if required. The implementation of these transfers takes time and expertise to set and start up. Expectations during this time frame should be agreed upon during contract negotiations with time frames for full operations and deliveries.

Transition Plans

The transition from in-house provision of services to an outsourced service provider can be one of the riskier aspects of global outsourcing of services. How the transition to the outsourced service is handled and how it is perceived by staff and the public are very important. Transparency and preparation are key to this aspect of the sourcing strategy.

These simple steps will help you and your team develop and implement a strategic procurement plan.

The post The 7 steps of a strategic procurement process appeared first on Trade Ready.

When selecting suppliers, it’s always a good idea to develop a short list of potential candidates and evaluate their services according to established performance criteria.

The supplier that provides the best added value should be selected.

Value provided by a supplier can be measured by a ratio of price and quality. As price increases, quality should increase at a faster rate. These price and quality criteria should be both qualitative and quantitative, and the supplier should be selected for overall fit and not just for price.

Then, perform background checks on companies (of credit and reputation) in order to minimize company risk. Select the supplier that represents the best value-package to your firm. And regardless of how appealing the supplier may be, the manager should always ensure that core competencies remain inside your company, as these are your company’s reasons for being.

The desirable qualities to look for when selecting external suppliers include:

1. A desire to learn about the factors and priorities that affect your business;
2. Efforts to improve service, with the goal of creating a seamless relationship;
3. Depth of knowledge in dealing with your industry (e.g. a customs broker experienced in dealing with perishable goods), or else the experience to anticipate problems before they occur (e.g. an experienced market researcher would know that respondents in certain countries answer questions in the way they think the researcher wants, which obviously skews the results);
4. Investment in technologies and personnel to facilitate the transmission of information, whether it be documentation, research results or market reports;
5. Ability to grow with your company, whether in a large target country, region or globally;
6. Not dealing with your competing products or services: in the case of freight forwarders and logistics firms this may not be such an issue, but it most definitely would be for trading houses, distributors and agents; and
7. Readiness, interest and ability to feedback information on target countries: without such feedback the firm is isolated from its international business.

In the end, supplier selection is a two-way activity and both parties have to be comfortable to make a collaborative relationship work.

The post 7 things to look for when choosing external suppliers appeared first on Trade Ready.

A few weeks ago, I spoke at the Economic Development Council in Brownsville, TX about the urgent need to bring manufacturing back to America.  Brownsville is an economically depressed area with 7-8% unemployment rate.  The city is working very hard to attract new manufacturers and jobs to the region by making it an attractive location for factories.

With Trump’s promises to bring manufacturing back, there is a lot of speculation regarding whether this means outsourced jobs will be coming back from Mexico and into the Rio Grande Valley region, including Brownsville. Perhaps, but at what price?

The current economy in Brownsville is dependent on the Mexico-U.S. border crossing that separates the city from Matamoros on the Mexico side. This cross-border trade provides a significant portion of jobs in Brownsville such as import brokers and their staff, truckers, warehousing and distribution services.

South of the border

On the Mexico side of the border there are huge industrial manufacturing sites in Matamoros and the industrial areas of Monterrey. In this region, Mexicans make everything from apparel to electronics and automotive parts.

Companies move to Mexico, to take advantage of low-cost labor and low-cost operating environments. Labor rates in some parts of Mexico are on par with China.

In addition, NAFTA adds to the economic appeal of manufacturing in Mexico by eliminating import tariffs between the three signatory countries: Canada, US, and Mexico.

So what might happen in Brownsville, and all along the Rio Grande Valley border areas if NAFTA is renegotiated or the U.S. withdraws from the treaty altogether, as Trump has promised? There are certainly two sides to this story. About half of the residents in the Rio Grande Valley region voted for Trump and half for Clinton, and they will readily offer their differing opinions.

Not your grandfather’s manufacturing job

No matter what the pundits on either side are predicting, and even if NAFTA is modified or scrapped altogether, it is unlikely that all of these jobs will come back to America. Returning manufacturing to anywhere in the U.S. is likely to provide opportunities to modernize and automate production, thereby reducing operating costs and enhancing productivity – ultimately requiring far fewer workers.

Much has changed in the 20 years since NAFTA came into effect. The jobs needed in advanced manufacturing factories are fewer and very different than they were when American manufacturing headed south to Mexico and west to China.

Today’s advanced manufacturing jobs require a host of new skills and technology, for which workers will have to be retrained.

Advanced factories today are full of robots, computerized machine tools, 3D printing and IoT connected machines. These things require completely different skills from those of even one generation ago.

If the NAFTA treaty ended, the U.S. would be free to increase tariff rates on imports, presumably to make manufacturing in the U.S. seem more cost competitive.  But import tariffs mask the problem and allow companies to get lazy about being cost-efficient.  Instead of focusing on productivity improvements and cost cutting, manufacturers wouldn’t have to do much to compete with higher-priced imports. Tariffs protect companies from foreign competition.  Meanwhile, we know that U.S. consumers will have to pay more for imported goods as well as American-made goods. The consumer loses either way.

Another Smoot- Hawley?

On the other hand, there are economists who say that NAFTA has caused the loss of countless jobs to the lower-cost environments in Mexico, and that these jobs will come back in a post-NAFTA trade environment. They argue that instead of doing nothing, we should take every opportunity to raise all import tariffs, eliminate trade agreements, and close our borders to immigrants and trade. This, some say, will make America competitive, even though there is no gain in productivity or cost reduction in American manufacturing.

What they may be forgetting is that we have gone down this pathway before with the Smoot-Hawley Tariff Act of 1930, which raised tariffs on about 900 products.  Historians blame Smoot-Hawley for triggering the Great Depression of the 1930s.  They point out that Smoot-Hawley caused sharp increases in consumer prices, which led to consumers buying fewer products, which in turn led to low demand, lay-offs, high unemployment and ultimately the stock market crash.

For sure, NAFTA has its problems. The import/export paperwork required to track goods moving across the borders and the associated record-keeping can be onerous. Special rules for truckers from Mexico have taken a toll on American truckers, and the effects don’t end there.

But overall, most economists think NAFTA has had a net positive effect on the U.S. economy.

I hope we have learned our lesson from American history. To revitalize American manufacturing we must focus on innovation, automation, productivity and cost efficiency. Let’s not allow history to repeat itself.

For more information on maximizing your supply chain efficiency and navigating the legal issues, check out Rosemary Coates best-selling books 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes.

The post Eliminating NAFTA might bring back jobs, but at what cost? appeared first on Trade Ready.

An effective production plan also enables companies to reduce the amount of stored inventory they hold and make the best use of their manufacturing plant space and equipment.

How to create a production plan

To create a production plan, companies must begin by determining the total amount of product output that the manufacturing department or outsourced company is responsible for in upcoming periods. This amount will be based on forecasted demands.

Companies use demand forecasting to estimate the required amount of product that they must produce to meet customer demands. However, like any forecast, demand forecasting is never completely accurate.

When planning production, managers must also take into account factors that might affect demand and sales forecasts. These include internal factors, such as marketing campaigns and price changes. There are also external factors that influence demand levels, such as consumer behaviour and changes in economic conditions.

The next part of production planning involves the creation of a Master Production Schedule (MPS). This allocates scheduled dates for product completion so that promised delivery dates can be met without creating excess inventory levels. Although a MPS can be created manually, most companies use a software-based system called Materials Requirement Planning (MRP) to develop the MPS.

What is Materials Requirement Planning (MRP)?

MRP first came into existence in the 1970s and has since been updated to take account of rapidly fluctuating global sales forecast demands. The more modern version of MRP is known as MRP II.

The goals of MRP are to enable companies to:

• meet production targets
• reduce requirement for inventory
• plan manufacturing activities and purchasing schedules

To effectively use MRP, several inputs are required:

• Production requirements: This is the amount of required product and when it is required
• Current inventory levels for raw materials, components and finished product: This enables a calculation of the current shortfall in production
• Structure of the production system: This enables the number of production steps to be gauged and production times to be estimated

Scheduling steps of a production plan

Scheduling production activities involves three key steps:

• Exploding
• Netting
• Offsetting
• Machine and human resources needs

Exploding examines the Bill of Materials (BOM) for each product. This lists how many parts are needed for each component or finished product that the company manufactures. The required number of finished products are “exploded” and multiplied by the production requirements to see how many component parts are required in total.

In netting, any available component inventory is subtracted from the requirement determined through explosion. This calculates the amount of each item needed to manufacture the required finished products and enables a purchasing schedule to be created.

Offsetting determines when manufacturing should begin so that all the finished items are available and can be assembled into the final product by the required date for shipping. To perform offsetting, an anticipated time for all manufacturing activities must be estimated.

Machine and human resource needs determines and schedules the exact requirements for the production activity from a machinery and personnel perspective.

Two other key considerations in setting up the MPS are time buckets and the planning horizons. A time bucket is the unit of time around which the schedule is constructed. This is usually daily or weekly.

The planning horizon indicates how far forward a company should plan production schedules. This can be decided by determining the lead times for transporting finished goods to customers and by the time periods for predicted demand.

Planning how to meet requirements

When companies have a solid idea of the amount of product they must produce and of the production schedules that will enable customer demands to be met, they must identify all the strategies that could be used to meet these schedules at a minimum cost. This might involve outsourcing certain aspects of the production. The most appropriate strategy will become the basis for the production plan.

To confirm the appropriateness of the selected strategy, companies must confirm the plan against the following data:

• Materials and purchasing information
• Engineering or process designs
• Sales, marketing and distribution information
• Financial and accounting information
• Human resources information

Addressing fluctuations in demand

Some companies manufacture products for which demand fluctuates wildly at different times. There are three basic production-planning strategies that a company can choose from to address these demand fluctuations.

1. Demand chase strategy: This strategy matches the production rate to the demand rate by employing and laying off employees as demand rises and falls.

2. Level production strategy: This strategy aims to maintain a constant production rate and workforce with demand fluctuations met by changing inventory levels or by allowing order backlogs, in which deliveries are made at a later date.

3. Mixed strategy: This strategy aims to maintain a stable workforce and meet fluctuations in demand by using overtime or additional work shifts or by outsourcing certain tasks.

Each of these strategies has business benefits and disadvantages. The demand chase strategy incorporates substantial costs involved with advertising for new employees and training them, morale might suffer if employees are frequently hired and made redundant and severance pay costs might also become prohibitive.

In contrast, the level production strategy can involve substantial added costs associated with increasing inventory levels. Backlogged orders can result in customer dissatisfaction and lower future sales.

The mixed strategy involves costs associated with paying overtime for extra shifts, while outsourcing can have many cost and quality implications.

Planning how to monitor production

A production plan should also address how a company will monitor the effectiveness of its production activities. Without monitoring, areas in which improvements can be made will not be identified. Companies should be able to monitor the following:

• The production status at any given time
• Production levels and whether they are keeping pace with planned schedules
• Shipment amounts and frequencies and whether they are meeting delivery schedules

The post Improve your supply chain efficiency with a new production plan appeared first on Trade Ready.

I come from a long lineage of autoworkers. Approximately half of my family works for one of the Big Three automotive manufacturers in Canada (GM, Ford and Chrysler).

As a result, I have long heard about how free trade agreements are detrimental to manufacturing workers and how beneficial the Auto Pact (signed by Canada and the U.S. in 1965) was for everyone.

Whenever my dad would mention the Auto Pact, I would roll my eyes and claim union brainwashing on his part. My response was always something along the lines of, “Well, the WTO deemed it illegal so obviously it wasn’t that great!” In 2001 they ruled that the pact unfairly hindered efforts by European and Asian automakers to sell their vehicles in Canada.

The Canadian Big Three labour contract negotiations began again this past September. Once again, talks about the Auto Pact began making its way into social media posts from autoworkers fed up with the race to the bottom.

I had never stopped to look at the Auto Pact or trade agreements from the viewpoint of someone that wasn’t involved in the trade industry. It would be very difficult to have almost two decades of international trade experience, as I do, without being pro-trade.

It was time to take a more detailed look into the Auto Pact and see why this was so favourable to autoworkers. I also wanted to try to understand why they view trade agreements as the downfall to their livelihood and how this can be changed.

What was the Auto Pact, and how did it impact trade today?

The Auto Pact guaranteed duty-free imports and exports of vehicles produced by the Big Three manufacturers across the Canada-U.S. border, so long as specific criteria were met.

For every import of a certain class of vehicle into Canada, a vehicle of the same class had to be manufactured in Canada to maintain the same production ratios as before the Pact. The ratio was 1:1 for passenger vehicles, 0.75:1 for trucks, and 0.55:1 for buses.

The vehicles also required a minimum amount of Canadian Value Added (CVA) in its local production to count as being made in Canada. These amounts were 60% for passenger vehicles, 50% for trucks and 40% for buses.

This agreement worked well for all involved. The Big Three companies could import and export their products across the Canada-U.S. border duty free, and the auto assemblers knew that for each vehicle that was imported, they would be manufacturing a vehicle of their own for export.

No matter what you think of it, free trade is on the rise

I began to examine job losses and gains in both Canada and the United States since the implementation of NAFTA. NAFTA superseded the Auto Pact, which was already on its way to being deemed illegal by the WTO.

There have been approximately 540,000 manufacturing jobs lost in Canada and 682,900 lost in the United States since NAFTA went into force. Although there have been significant gains in employment, most of the high paying jobs that were once available in manufacturing during the height of the Auto Pact have been replaced by precarious service industry jobs with much lower rates of pay. It does not take an international trade consultant to tell you that many of these once high paying manufacturing jobs have gone.

Many people have blamed the loss of these jobs on free trade agreements like NAFTA. This is because a significant portion of the jobs have been moved to countries with which Canada has a free trade agreement, such as Mexico.

Canada currently has trade agreements with 15 countries, and is concluding negotiations or awaiting ratification with the European Union (CETA), the TPP and Ukraine. The Canadian government is currently in negotiations with another seven countries for trade agreements, and an additional seven countries have begun exploratory discussions with Canada.

Despite the many arguments made against these agreements by workers and others, it would appear that the Canadian government is aiming to be a part of as many trade agreements as possible.

Who benefits from free trade most, and is it worth it?

From a business standpoint, I encourage trade agreements and believe they are beneficial to our economy. After all, it is how I make a living. But at what point does the cost of trade agreements for some outweigh the benefits for others?

There are many new facets to trade agreements that go much further than the simple elimination of trade barriers between countries. In my opinion, however, that is all that a trade agreement should encompass: the eventual elimination of barriers to trade.

Unfortunately, what we have seen more and more in these agreements is that, as Martin Khor, Executive Director of the South Centre describes it, “trade measures have become a vehicle for big corporations and social organizations in promoting their interests.”

Governments are giving corporations and lobbyists too much stock in consultation of trade agreements, while those working in manufacturing in North America often do not have the same consultation opportunities and are largely ignored. Lines seemed to have blurred between government and big business, which is one of the first things that needs to be changed.

A simple solution to end the “race to the bottom”

After the regional value content requirements in the Auto Pact, other trade agreements like NAFTA and the TPP have included similar language. However, the required regional value content requirement amounts are getting further and further from responsible trade tactics that benefit both consumers and manufacturers.

All of this has brought to mind a simple solution to the issues that stem from trade agreements and the “race to the bottom” for workers. Those who oppose trade agreements argue that inequalities between countries abound in these agreements, such as companies exploiting cheaper labour, less stringent standards and laws, and the loss of good manufacturing jobs.

My solution seems rather simple when stated but I believe it would be beneficial to all countries involved in trade agreements; start a Global Manufacturing Pact. It would be very similar to the Auto Pact, but allow manufacturers from all around the world to benefit.

This would hold companies who outsource and offshore responsible for keeping manufacturing jobs local. It would also prevent less developed nations to be taken advantage of by developed nations, and eliminate the race to the bottom as there would be no direct competition between the same workers in different countries.

While corporations have benefited greatly from free trade in recent decades, the Auto Pact illustrates that there are ways to enable freer trade while also building a more fair and equitable system for those without corporate lobbyists or shareholder requirements. It is time to make sure that free trade benefits everyone, whether they are a consumer, a corporate professional or even a manufacturing worker.

The post It’s time for a new global manufacturing pact appeared first on Trade Ready.

Today a raging debate is playing out across many stages. Is trade, particularly free trade, beneficial to the nations involved or is foreign direct investment (FDI) stealing away jobs and hurting countries’ economies?

There is no dearth of strong opinions on the matter, as evidenced by the many vocal protests of trade deals in progress and the continuing protectionist discourse during the U.S. presidential election. However, is any argument on the matter speaking from the right statistics? And what are the right statistics to give us a full picture of the economic and social impacts of trade?

Export Development Canada (EDC) decided to embark on a mission to get a more accurate picture of what foreign investment is really doing to Canada’s economy and employment levels.

In July 2015, EDC began a first-of-its-kind web-based survey of 546 Canadian companies with foreign affiliates across a wide variety of sectors. The survey asked a combination of searching questions to find out the truth about foreign affiliates’ employment, operation, wages, and competitiveness.

The findings from the survey painted a much more hopeful picture of what happens at home when Canadian companies invest abroad.

20^th century-style statistics don’t reflect today’s trade realities

“Contrary to popular belief, Canada’s international trade is remarkably diversified,” the whitepaper summary of the report begins.

Canadian companies, both large and small, have made sizeable foreign footprints and begun to tap into emerging market consumption growth and expanding South-South trade networks.

Production networks were once limited to one single country to another. In the last few decades, developments in information technology, complex global value chains, and trade and investment deals have changed the way we trade across borders. Now, production networks look much more like a web, with inputs from several different places before a final product lands in the country where it will be sold.

As Stephen Poloz said, “National economies today no longer fit inside the lines on the map. Companies are simply ignoring those geographical boundaries. This materially affects how we should look at trade and how we should interpret trade statistics.”

Measuring trade in gross terms, rather than examining the value-add inputs from countries along the supply chain, fails to tell us the whole story of where commodities actually came from and where they went. In essence, it’s giving the entire value and origin of the export to the last country that input any component before landing in its final destination.

As Pascal Lamy, former head of the WTO puts it:

Using this logic, iPhones are Chinese.

Foreign affiliate sales have changed the game for Canadian trade

The increase in foreign investment in Canada began seeing major growth in 2003 and has positively impacted the country’s trade diversification and revenue generation. The report states:

“Foreign affiliate sales grew by 61 per cent between 1999 (earliest available data) and 2013. That is nearly double the speed of Canada’s merchandise goods export growth, which came in at 33 per cent, and 1.6 times the pace of total exports (including services), which came in at 38 per cent.”

Investment through foreign affiliates overtook merchandise exports as Canada’s top revenue generator in 2006, and topped exports by almost $40 billion in 2013. This growth has a lot to do with Canadian affiliate sales in emerging markets, which nearly tripled in between 1999 and 2012.

The growth in foreign affiliate sales is largely due to an upswing in trade in services. When the financial crisis hit in 2008, foreign affiliate commodity export sales began to suffer after enjoying a period of prosperity in the previous five years.

During that same period, however, foreign affiliate service exports were steadily increasing. By 2013, they were generating revenue equal to the commodities.

To look at the impact of foreign affiliates another way, Canadian companies exporting services directly earned $160 billion less than Canadian companies with international platforms. Foreign affiliates earned 2.7 times more revenue than their domestic counterparts.

“Offshoring costing Canadian jobs” debunked?

Canadian direct investment, often referred to as offshoring, has a bad reputation for eliminating jobs at home and is commonly misconstrued with outsourcing. Where outsourcing is the practice of hiring a foreign company to produce a product or service, offshoring is when a business expands and sets up shop in a foreign country, while still remaining a branch of a Canadian-owned company.

In the past few years, a measurable downturn in Canadian manufacturing jobs has lent credence to the suspicion that increased FDI has a negative impact on employment at home.

In order to put the blame on offshoring efforts, there should be a correlating increase in manufacturing jobs with those Canadian companies abroad. However, the numbers paint a different picture. Manufacturing employment shrunk by 25% between 2005 and 2010, but since then has remained stable.

There are many economic factors that impact employment rates, but when employee registers are examined in Canadian companies overseas, it’s evident that their workforces also decreased beginning in 2005.

The trends mirror each other, and EDC argues that this makes it highly unlikely that foreign affiliates have been absorbing Canadian jobs.

Foreign investment flows both ways

Manufacturing jobs are facing an observable downward trend worldwide in developed, high-income nations. But it’s not all bad news. Foreign investment flowing into Canada has been a good thing for the country’s manufacturing sector and the data is only now starting to tell us how good.

In 2013, the latest time period we have data from, around 1.9 million Canadians – that’s one third of the total manufacturing workforce – were employed by foreign companies. It’s also notable that according to the latest data, foreign affiliates within Canada have hired 272,000 more people than Canadian affiliates abroad.

To really determine whether outbound investment has a negative or positive impact on the home country’s economy, the key is to look at the rationale behind the investment.

For example, when a company chooses to invest in offshoring in order to cut labour costs, the impact on the home economy is unsurprisingly negative. But, when a company invests abroad in order to grow, and access new markets and global value chains, the results are often positive for both the country of investment and the home country.

As the report so eloquently explains:

Direct investment abroad serves as a beachhead for market access, thus stimulating domestically produced exports and high value-added head office activities.

Want to read EDC’s detailed findings? Click here to read the full report and whitepaper.

The post Canadian companies are driving growth at home through foreign investment appeared first on Trade Ready.

As the third largest country in the Association of Southeast Asian Nations (ASEAN), one of the biggest economic zones in the world, and an emerging manufacturing hub, Vietnam should be on every importer/exporter’s radar.

Over the past few years, Vietnam has been getting major attention as an alternative to China in the manufacturing industry, offering operating costs up to 50% lower than its giant competitor. But Vietnam is a young, still-emerging market that can present its share of challenges to businesses attempting to trade with the nation.

Is your business ready to export to Vietnam?

1. Where are the opportunities?

Vietnam is bursting with potential for importer/exporters looking for a new market. The country boasts a population of over 90 million people, the 14th largest in the world, and a growing middle class. In fact, economists expect Vietnam to be among the top 10 fastest growing economies over the next few decades.

The country’s economy is well on its way to meeting its 2020 goal of being fully industrialized. Vietnam has had its eye on global economic integration and has been actively seeking participation in free trade agreements since the 1980s. Since then it has joined APEC, the ASEAN Free Trade Area and the WTO. Vietnam is also one of the 11 countries participating in both the Trans Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) negotiations.

We asked Julie Nguyen, Director of the Canada Vietnam Trade Council and the International Business and Development Program Coordinator at Centennial College in Toronto, Ontario to outline the best opportunities for Canadian businesses in Vietnam.

“What Canada can offer is education and training (provided in Vietnam and in Canada to international students), health (including infrastructure, facilities and equipment; health care services; and pharmaceutical products), financial services (as Vietnam’s banking system is still in its infancy), and clean technology (Canada’s best kept secret and Vietnam’s high demand),” stated Ms. Nguyen.

What Vietnam can offer is a low-cost high-skilled labour force and a middle class population that look up to Canadian values and quality of life.

2. As an emerging market, Vietnam still poses some challenges to exporters

“Vietnam is positioning itself as a key manufacturing and trade hub in the region. Yet, investing in and trading with Vietnam is not an easy go and requires careful analysis and planning,” advises Emmanuelle Ganne, Vice President, Europe at Allam Advisory Group.

The World Bank’s 2016 Doing Business Report, ranking 189 countries on the ease of starting a business within each nation, found that it takes 10 procedures and 20 days to complete the process of opening a business. Dealing with construction permits requires an additional 10 procedures and 166 days.

Dealing with complicated bureaucracy and constantly changing business policy and law can add to the complications of getting started and running smoothly. Companies looking to do business in Vietnam should also be patient, as negotiations can take some time and often have to through group consultations.

Fortunately, it’s not all bad news. Vietnam has improved in some areas, rising 3 spots in the rankings from 93rd in 2015 to its most recent evaluation of 90th.

According to the report, Vietnam has made starting a business easier by reducing the time required to register a business, made improvements to the credit information system and borrower coverage, and made paying taxes less costly by reducing corporate income tax.

3. Get to know Vietnam’s position in ASEAN

Julie stresses that in order to build successful business relationships in Vietnam, it’s important to get to know Vietnam’s trade history, its relationships with its neighbouring ASEAN nations and its economic position in the region. Ms. Nguyen explains:

Be knowledgeable of the business implications of Vietnam’s importance in ASEAN; the close and dynamic relationships among ASEAN countries; ASEAN’s relations with other non-member Asian countries such as China, Japan, and South Korea, and with major countries outside Asia such as the U.S. and UK.

Since joining the ASEAN economic bloc in 1995, Vietnam has taken on a leadership role in securing peace among Southeast Asian countries, improving economic development in the region, and tightening its ties to its fellow member nations and other major economies in the area.

As the first Indochinese nation to join ASEAN, Vietnam helped end confrontation between the Association and the Indochinese trade bloc. Vietnam has taken a lead in resolving the disputed regions of the South China Sea, making efforts to ensure the conflict is dealt with constructively.

Vietnam was successful in their efforts to have ASEAN pass the Hanoi Declaration on Narrowing Development Gaps, a commitment to integrate neighbouring countries Cambodia, Laos, and Myanmar more thoroughly into the mainstream economic activities of the bloc. The declaration also pushed for reform in infrastructure, communication, technology and human resource development.

Within Vietnam, the government has made strides to restructure its administration to better suit a global market economy. As a result of these initiatives, Vietnam-ASEAN trade, as well as trade with China, Japan and South Korea, has grown significantly in the past two decades.

4. Finding reliable partnerships is critical to export success

As with many Asian nations, developing strong relationships with professionals on the ground will help tremendously when it comes to navigating the often complex processes and administration. Partners can also help you develop business connections and get to know the business culture of the region. Ms. Nugyen says:

Have effective and reliable partners who could get things done for you is the shortest route. It is often trial-and-error until you can find such partners. Look for individuals in companies/organizations whom you can rely on and work with.

Building these relationships takes time, and involves getting to know each other on a personal level as well as a business level. This often involves eating and drinking together, an important part of Vietnamese culture. Study up on the proper etiquette in both social and formal business situations to avoid confusion and unwelcome surprises.

Finding a good partner means taking a detailed look at what your business can offer in this market, and conversely, what a potential partner can offer you in exchange.

“Canadian and Vietnamese partners would need to find special niches to make the partnership work. Canadian businesses tend to look to China, while Vietnamese businesses tend to look to the U.S. market. Being two smaller markets next to two giant ones means that you need to focus on the unique things that you can offer your partner,” advises Ms. Nguyen.

5. Be prepared for unexpected changes in business law

Having local partnerships in the region can also provide critical assistance when it comes to navigating the murky “grey areas” in Vietnam’s ever-evolving legal framework. Much of the business law system requires interpretation, which can lead to confusion over the application and compliance of applicable laws.

A local partner can help you understand and adhere to local regulations, customs, and permits required to do business in the country. Ms. Nguyen warns:

Be ready for unexpected changes in your business, as business law and dispute resolution in Vietnam is still in its infancy.

Vietnam is a burgeoning new market offering plenty of opportunities for North American exporters. There may be challenges in setting up shop and navigating a very different business culture, but the effort can be worth the while for those enterprising enough to try.

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