We talked about some of the high level aspects of managing global logistics operations as Lorenzo is an extremely experienced supply chain and operations expert. I’ll add the video below so you can watch the interview in the full details, as well as summarising some of the main details.
Short Intro of Lorenzo Fornaroli
Lorenzo Fornaroli is a senior leader in global logistics with 28 years of experience across industries, markets, company cultures with focus on continuous improvement, 3rd party logistics management and E2E (end to end) supply chain optimisation functions.
Lorenzo started his career in Italy in international trade progressing to leadership roles in both multinationals and start-ups in the UK and Switzerland (IBM, HP, P&G, Cisco, Oodji, Honeywell) and spent 3 years at Huawei’s HQ in China. He currently supports a start-up business and is a member of multiple supply chain innovation groups.
Lorenzo holds an MSc in operations and supply chain management (University of Liverpool), a Six-Sigma green-belt certificate and completed executive education in AI, IOT, Cybersecurity with MIT and Digital Transformation (IMD).
He’s presently working on an interesting project in Saudi Arabia, so go follow him on LinkedIn if you are interested in perhaps learning more.
The Full Interview
I really recommend you watch this as it is jam packed full of really valuable tips for anyone looking to start with international expansion, where managing global logistics operations are one of the main worries that companies have.
Integrating Supply Chain & Operations into the Process
Often when a company receives international enquiries, the sales team follow up “full speed ahead”. They have targets to meet and bring a new client (country) on board seems like a great way to do that. Whilst the sales team may not always like to hear it, it’s better to involve the Operations team at the earliest possible opportunity. It’s important that you’re thinking about managing the global logistics operation from the beginning
Selling to clients generates certain expectations with those customers & involving the supply chain team from the beginning can help to ensure that those expectations are met right from day one.
Lorenzo recommends doing a PESTLE analysis:
P Political analysis
E Economic situation
S Social and cultural factors
T Technological factors
L Legal aspects
E Environmental situation
You need to make sure that your products are compliant and the best way to do this is with comprehensive & early communication between the sales team and the supply chain team.
Differences between Domestic & International Markets in Operations
As a producer, you probably know your domestic market like the back of your hand (& if not, you need to reconsider your international expansion plans unless there are very specific reasons for going international first).
- customer expectations
- transit times
- legal frameworks
- how products are appreciated
- costs for different steps in the operation
These factors are all different as soon as you go abroad so you need to somehow get that knowledge.
Looking at the generic performance objectives (reliability, quality, flexibility, cost, speed) for both your target market and your products specifically can help with this.
eg. a customer wanting to buy toothpaste needs it today, if looking for a new car they are generally prepared to wait a few months
eg in Japan, customers have extremely high expectations of quality
Frequently Made Mistakes
Supply Chain and Operations are typically one of the biggest headaches for inexperienced exporters, (along with “how to get paid”). I asked Lorenzo for his top tips on this:
1) Sales team need to understand what is needed to make the sale physically happen.
Are changes needed to the products? What lead times are required? Which costs need to be factored in? What are the implications of the INCOTERMS chosen?
2) Let the Operation team visit as early as possible
The more information the supply chain team have about how things really look “on the ground”, the better they can plan. If they understand the local situation, they can work out what’s needed in terms of costs, time, amendments to the process etc. This in turn allows the company to better meet the consumers’ expectations.
eg. Working across Indonesia, Lorenzo realised how complicated last mile logistics can be and the impact on delivery times and costs
Read the full article here.
3) Be aware of how to optimise your process
This can be optimisation in terms of time, costs, cashflow etc and comes back once again to how best to meet the customers’ expectations.
eg. When working with Gilette, Lorenzo had to weigh up the options of shipping products to the UK. Seafreight is the cheapest option but takes longer, whilst trucking the products is faster but costs more. What is best for the company? What is the customer prepared to accept?
4) Make sure you’re compliant with local laws
This means taking care of topics such as local standards, labelling and for electronics, plugs…. How can all of these processes be most efficiently carried out?
5) Consider the whole supply chain from manufacturer to end user
This can be a critical factor. Perhaps I deliver by air from Europe to Jakarta – door to door in under a week. However, if the logistics within Indonesia take another 2-3 weeks and cost almost as much as the airfreight from Europe, I need to think about that when planning my stock requirements and cash flow.
What are my real total timings?
What is the cost of my stock? (& how much do I need to plan so that I can ensure a stable supply)
What will that all cost me?
Technology can help with analysing all of these points and forces companies to be more transparent with their processes.
What should companies consider in the beginning?
- Manage the risks
- lots of information available via consultants, organisations such as chamber of commerce etc
- Manage the costs
- how will you track them?
- Manage the execution. How will you control
- internal performance metrics
- supplier relationships
- local performance?
Tap into the experience of organisations or peers who can help you to get a broader picture of the markets you’re targeting. They can prevent you from repeating their mistakes or reinventing the wheel. Consider whether you should engage the support of a consultant.
Plan different scenarios – especially, make sure that you plan for the worst!
Think about what are your negotiables and non-negotiables for entering into the market (& potentially under which circumstances – think scenarios – that you need to consider exiting again)
Don’t assume anything – remember you don’t know, what you don’t know!
Working with 3rd Party Suppliers
In the beginning it’s likely that you’ll work with some 3rd party suppliers to help with logistics and perhaps also warehousing.
Think about how you are going to manage those partners and their ecosystems. You need to be as clear as possible in all your arrangements with them from the very beginning as the quality of your communication is likely to determine the success of your relationship.
Set clear expectations
You need to be clear about
- expectations (both yours, and your customers’)
- the service level agreement between you
- your cost structures as far as possible (& those of your partner)
- how your plans for the markets look – what do you intend to achieve?
Remember the supplier probably knows your industry in general (eg food, electronics, chemicals) however they don’t know the details of your business. So it’s up to you to communicate with them about such topics as:
- peaks and seasonality of your sales
- how you want to communicate
- how the reporting needs to look
- what are the negotiable and non-negotiable risks
- how volatile is your business
- what KPIs (Key performance indicators) you expect him to meet
Key Performance Indicators (KPI’s)
Most KPIs revolve around the trifecta of costs, volume and performance.
There are huge numbers of different metrics that you could be tracking but they come down to these 3 key pillars. You also need to be aware how decisions taken in different parts of the business will affect the KPIs in the supply chain – if you’re starting out in export, these are essential for managing global logistics operations.
eg. If you ask the warehouse to make one shipment with 100 pieces or 10 shipments with 10 pieces has no impact on the turnover, but it certainly has an impact on the costs incurred in the warehouse.
You need to be able to make decisions as to how to handle such situations effectively: when is it more important to save some costs & when do you need to support a customer with their cash flow or a faster delivery?
Productivity type metrics may also be governed by local law. eg in Germany you can’t deliver KPIs to an external company based on the performance of an individual in the warehouse, but only on the team, whereas in the US it would be possible to say “Mr Green achieved x, Mr White y & Mr Blue z in the month of May”.
As in other areas of the business, make sure KPIs are not only measurable, but that you also monitor them on a regular basis. Ask questions so that you understand what is really happening and make sure you investigate WHY.
There are 3 basic costs structures which are available with 3rd party suppliers:
- An all-in monthly fee (this is only likely to be offered to extremely small clients)
- Cost plus (transparent costs + an agreed management fee or %)
- Activity based (log a pallet into/out of the system, picking a carton, preparing documents) etc
The more information that you can share with your service-provider about your operational requirements, the more accurately they will be able to gauge the rates for your goods.
eg. Market requirements such as Pre-shipment inspections, legalised documentation will affect the timing of your shipments as well as the costs and documentation that your service provider is has to provide.
Lessons from the pandemic
It’s really essential to keep a close eye on freight rates as these can make or break your business if they get out of control.
Dependency on a single supplier overseas may bring cost benefits (economy of scale, geo-advantage of location) but also can become a risk factor.
More agile supply chains are needed which can act swiftly in times of crisis to ensure a continuation of the usualy level of service to customers.
Top Tips from Lorenzo for Managing Global Logistics Operations
- gather local intelligence by going to see the situation in the market before you start to sell there
- make sure your products are compliant for the market
- understand how business is done in the target market and what are the customer expectations of your products
- never stop learning and asking questions to deepen & extend your knowledge
- don’t underestimate the importance of end-to-end (E2E) management of your supply chain
- communication across all teams involved in the process increases your chances of success
Don’t rush to sell without gaining an in-depth awareness of all aspects of the market you are looking to enter. You need to approach new markets in a strategic and systematic way. It’s essential that your execution is aligned with your strategy if you want to hit the goals you set at the beginning of your international expansion project. In order to do that, you need to be sure you’re actively managing global logistics operations in your business.
This interview was recorded as part of the Business Beyond Borders Event 2020. Huge thanks to Lorenzo for the time, the extremely value packed discussion and his willingness to support me when I contacted him (cold-call!) via LinkedIn.
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