CHICAGO – The economic downturn has infected the world and effected demand and supply chains from raw materials to the doorsteps of customers. International expert Michael Muth recently interviewed a few supply chain specialists to learn what changes they are making in reaction to the global recession.

Robert Tepe Jr. is a business unit controller at Siemens Energy & Automation and Charice Shianna is a senior logistics specialist also at Siemens Energy & Automation. Kurt Skillman is vice president of materials at Toshiba. Skillman is responsible for the supply chain from factories in China to the U.S. and to customer locations.

Michael Muth: The price of oil has fluctuated wildly in the past year. What role does oil play in your supply chain?
Siemens: Oil plays a large role in our drop-ship supply chain as the majority or Siemens products move from Europe to our customers in the United States. Though we were initially buffered due to contractual agreements, increased prices have caused fuel surcharges to become a significantly higher portion of our overall transportation spend than in years past.

Toshiba: It plays a significant role in our transportation costs.

MM: How have oil prices led to change in supply chains?
Toshiba: We have had to reduce our ratio of expedited air shipments while focusing more on deferred shipping methods. We’ve also been adding new transportation solutions to our portfolio to reduce cost.

Muth: Many firms have switched from air and truck to rail and ocean freight to avoid the effects of higher oil prices. Like the airlines, many firms have increased the use of hedging oil futures.

Siemens: Increased oil prices have placed even higher emphasis on our resolve to partner with full-service carriers that take a proactive role in moving our freight in the most cost-effective manner available while at the same time preserving the quality of the shipments that are delivered to our customers.

MM: How has your supply chain reacted to the increased perception of risk?
Toshiba: We have increased our focus on external factors such as fuel costs, economic indicators and sales trends.

MM: How has your supply chain adapted in reaction to the credit crunch?
Toshiba: We are employing new distribution solutions into specific regions that target significant order fulfillment, lead-time reduction and reducing the cash-to-cash cycles for our customers in order to ease the impact on credit.

MM: Have you adjusted your supply chain in reaction to global warming and environmental concerns?
Toshiba: We have taken several measures around reducing packaging, using more green materials and reducing our carbon footprint in the transportation area.

Siemens: Here again, we have placed emphasis on partnering with companies that are taking a proactive approach to quantify and measure their carbon footprint.

We are very interested in partnering with companies that are strategically positioning themselves to take advantage of cap and trade types of programs and with whom we can realize future benefits in reduced emissions, higher fuel efficiency and green technology investments.

Muth: Siemens seems to be a deeply partner-oriented company. This has advantages and disadvantages. While they can offload some problems, they might not always have the control they’d like when depending so much on partners.

Geographical Issues

MM: Have you expanded or contracted your geographical scope while changing your supply chain?
Toshiba: We have been expanding our geographical scope in an effort to reduce cost in our delivery mechanisms.

MM: Are these changes happening within regions or between regions?
Siemens: There are, of course, obvious advantages for Siemens in the reduction of our overall trade imbalance as well as a stronger dollar. However, we do have strategies in place to shelter our exposure.

We employ certain strategies both within regions and between regions. One example would be that we consolidate shipments on both the international and the domestic legs of a drop-ship journey.

Toshiba: Our changes are happening primarily between regions.

MM: Are there regional differences?
Siemens: There are some regional differences due to differences in rules and regulations.

Toshiba: Definitely. The differences are particularly in the Latin America regions.

Muth: Instead of offshoring, some companies are looking at “nearshoring” or “rightshoring” in response to risk and cost escalations in further-flung sourcing destinations in the world.

Internal Issues

MM: What internal changes have you made as a result of these changes in the supply chain?
Toshiba: We have made minimal changes. The main supply chain changes have been absorbed into our existing resourcing as well as systems and transportation network capabilities.

MM: Are these changes happening within specific components of your supply chain?
Toshiba: Yes. The changes are predominantly with our delivery mechanisms.

MM: What technologies have you adopted to deal with these changes?
Toshiba: We have invested in a transportation optimization solution.

MM: Can you give some specific examples of recent supply chain changes?
Toshiba: We have recently implemented a finished goods bulk shipping solution, new ocean and rail shipping solutions, new direct-to-customer shipping solutions as well as a new transportation optimization modeling capability.

MM: How have these changes affected your human resources?
Toshiba: They have been absorbed.

Muth: Given the massive changes in the worldwide economy, I’m surprised Toshiba isn’t implementing more change. It’s reassuring to hear it doesn’t seem as if they’ve been forced into major layoffs.

Timing Issues

MM: How adeptly do supply chains actually change?
Toshiba: It depends on the causal factor impacting the supply chain. Some measures are relatively quickly implemented (such as alternative transportation solutions regionally) while others require greater organization coordination and can take longer than desired.

Siemens: We find the most flexibility in our supply chain comes in partnering with full-service providers. They can look to a variety of options in maximizing our capability so we can respond to customer and situational demands.

This allows us to change the shipping mode for orders. We apply these methods to both heavy as well as small package shipments.

Muth: Supply chains can be monolithic and thus very averse to change. That’s where Siemens working with partners can be a real advantage. Changing suppliers and supplying from a different continent can be a huge undertaking.

MM: How quickly are these decisions made?
Toshiba: Some are made in days and others a few months. Some can take six months or longer depending on the necessary support from our team in Japan.

Siemens: Due to the size and global nature of Siemens, changes to the supply chain are long-term decisions. This places even more emphasis on our need to partner with full-service providers.

MM: How proactive versus reactive is your change?
Toshiba: Our change is historically more reactive. However, based on current perceived risks, we are now more proactively looking ahead.

Siemens: We believe our business has been very proactive in driving the industry in the direction of drop shipment. This has been a high priority and distinct advantage for us and for our customers. We are constantly challenging our partners to provide a more cost-effective, efficient and flexible supply chain.

Muth: I would think Fortune 500 companies like these have sizeable planning staffs plotting out what-if scenarios for many possibilities as well as backup plans for various alternatives. Whether or not these were considered as the economy deteriorated remains to be seen.

MM: What are the drivers of supply chain change?
Toshiba: Our customer requirements (i.e. service-level agreements, supply visibility windows, supply reliability, flexibility, routing guides, etc.), our factory locations and our geographical distribution network.

MM: What problems are you confronting in implementing these changes?
Toshiba: The main challenges we face are in the changes that require global coordination.

MM: What results do you expect as a result of these changes?
Toshiba: A more cost-effective distribution, reduced lead times into certain regions resulting in improved cash-to-cash cycles for our customers as well as new green shipping solutions.

Muth: Despite all this upheaval, a focus on the customer still reigns at Toshiba and Siemens. While dealing with people around the globe continues to be a problem, success means better business for us all.

Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at muth@midwestbusiness.com.
Click here for Muth’s full biography.

Previous Columns in 2007:
Q&A: Lih Tah Wong of Computer Mail Services on E-Mail Filtering, Blacklisting (4/13/2009)
Q&A: World Trade Center Illinois Chairman Neil F. Hartigan, Director Bilal Ozer (3/3/2009)
Recession: International Causes, Effects of Today’s Global Financial Crisis (1/19/2009)
Q&A: Ex-Chicago Tribune, ‘Caught in the Middle’ Writer Richard Longworth (1/5/2009)
Q&A: Midwest Regional Director Michael E. Howard of Export-Import Bank (6/17/2008)
Q&A: Intetics Managing Partner Alex Golod on Belarusian Economy (4/15/2008)
Q&A: Intetics Managing Partner Alex Golod on Protecting Intellectual Property (4/9/2008)
Q&A: Intetics Partner Alex Golod on Being a Jack of All Trades (3/31/2008)
Q&A: Motorola WiMAX Director Tom Mitoraj on Unstoppable Freight Train (11/26/2007)
Q&A: Motorola WiMAX Director Tom Mitoraj on Global WiMAX Differences (11/20/2007)
Q&A: Motorola WiMAX Director Tom Mitoraj on Widespread WiMAX Growth (11/12/2007)
Q&A: InterPro Translation CEO Ralph Strozza on Translation Tools, Costs (9/18/2007)
Q&A: InterPro Translation CEO Ralph Strozza on Globalization, Translation (9/11/2007)
Q&A: InterPro Translation CEO Ralph Strozza on Intercultural Translation Issues (8/7/2007)
Q&A: Madison Capital Partners CEO Larry W. Gies on Specific Country Issues (7/10/2007)
Q&A: Madison Capital Partners CEO Larry W. Gies Jr. on Cultural Differences (6/26/2007)
Q&A: Madison Capital Partners CEO Larry Gies on International Private Equity (6/11/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Foreign Deal Making (5/15/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Middle-Market M&A (5/8/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Middle-Market Firms (4/24/2007)
Q&A: George Filley of NAVTEQ in Chicago on Data Localization, Reach (3/27/2007)
Q&A: George Filley of NAVTEQ in Chicago on Partners, Personal Privacy (3/20/2007)
Q&A: George Filley of NAVTEQ in Chicago on Digital Mapping (3/7/2007)
Click for 2006 column archive.
Click for 2005 column archive.
Click for 2004 column archive.

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