Ikea Logistics

Here is an interesting article by Forbes.com about a company using logistics as a competitive advantage. Ikea has always been known for providing decent quality furniture and home furnishings at a reasonable price. One of the ways in which Ikea is able to keep their prices low for the end consumer is through their utilization of logistics. Below are a few of the key supply chain methodologies that Ikea adheres to:

1. Packaging and design – Ikea’s approach to packaging and design makes the buying process simpler for the consumer. Smaller packaging allows the customer to transport purchased product in their own vehicle. Smaller packaging also allows Ikea to maximize rack space in a warehouse storage environment.

2. Cargo transportation – Packaging is designed to maximize the the cube of ocean containers and domestic over-the-road trailers. This allows Ikea to ship more units at a time which has direct impact in the reduction of their overall landed costs.

3. Strategic Manufacturing – Ikea manufactures product all over the world with 31% of their products manufactured in low cost environments in Asia.

It’s not only about being able to fit a coffee table into a customer’s Ford Explorer. The packaging also is designed to squeeze as many units as possible into trucks delivering inventory to the stores. The end result is twofold: First, products that are broken down into the elements that pack best, yet don’t compromise the product’s design or function; and, second, better use of stock and warehouse space.

UPS may make hostile bid for European logistics company

Up until Deutsche Post acquired Exel Global Logistics, UPS was long rumored to be interested in acquiring the logistics giant. Now that Deutsche Post is completing is acquisition of Exel, UPS is looking at other European 3PLs and did not rule out a “hostile bid” in order to take one over:

The US parcels delivery giant has been linked with Exel PLC, the British supply chain group that last week agreed a 3.7 bln stg takeover by Deutsche Post AG, and has retained Goldman Sachs to advise it.

“If we think it helps and the customers need it, we would [make a hostile bid],” he told the paper in an interview at the company’s global headquarters in Atlanta, Georgia.

He declined to comment on UPS’s interest in Exel.

Sources close to the company however told the paper its interest in Exel had been “overblown”, indicating the firm was looking to “fill holes” in its international operations but not take on such a “huge” firm as Exel.

New Orleans Port Cleanup

One month after Hurricane Katrina ravaged the Gulfport area, the Port of New Orleans is now operating at 20% capacity. Experts estimate that the total cost to bring the port back to full operating capacity is 1.7 billion dollars and could take months if not years to complete the necessary repairs. Read the entire article here.

On a related note, cargo containers that were swept all over the Gulfport area are causing quite a stink. Hurricane Katrina blew containers, many filled with costly spoiled cargo, into housing neighborhoods and business areas. Residents of the areas are tired of the smell and the nuisance caused by their presence.

Restaurant owner Bill Vrazel, who hopes to reopen his damaged family business quickly, got fed up with the 14 containers clogging his parking lot. So he paid a contractor to rid his property of the hulking, stinking metal boxes.

City leaders want the companies to remove their own debris. Port officials say they can’t move equipment they don’t own. And a spokesman for one company said it only received permission Tuesday afternoon from Gulfport officials to start cleaning up.

So it remains unclear who will move the containers and when.

“There is so much to do, we don’t want to be slowed down,” Vrazel said. “That port ought to start one week ahead of time and move (the containers) to the other side of the tracks. This happened in Camille. There ought to be a lesson in this.”

Last weekend, a backhoe tugged and dragged containers away from Vrazel’s Fine Food Restaurant on Beach Boulevard. But a mangled container with mysterious rotting cargo still sits in an empty lot next to Bobbie Hawkins’ shattered home on Rich Avenue.

The container destroyed a neighbor’s house before landing in the middle of the road. It was later pushed into the side yard when the roads were cleared, Hawkins said.

“That came from the port. They should come get it. They have the trucks and the equipment,” Hawkins said. “It smelled so bad, I almost threw up.”

Looks like this problem will get worse before it gets better.

Quick News : Wed 28-Sep-2005

A number of industry leaders in the logistics/transportation field in Southern California met last week to discuss solutions to the flow of goods through Southern California :

Approximately 75% of containers arriving in the ports of Los Angeles and Long Beach currently travel through the Alameda Corridor and Riverside to destinations outside California. This commerce impacts more than 2,020,500 jobs and has a trade value of $196 billion.
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Congestion is also a key challenge driving the need to improve the goods movement. Currently, congestion at the ports of Los Angeles and Long Beach is driving shippers to use other ports, including Mexico and Seattle. However, as they exist, the ports of Los Angeles and Long Beach do not have additional real estate where they can expand, so future port expansion must occur inland, creating a new challenge: finding a suitable place for an inland facility.

“The closest inland port will be east of Barstow,” quipped B.J. Patterson, vice president of the Western Region for NFI-National Distribution Centers. “An inland port may be a viable solution, but no one is stepping up to the plate.”
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“It will take a growing commitment from the private sector to deal with moving goods in a way that creates jobs, keeps prices down and at the same time mitigates negative impacts such as pollution and congestion,” said Norm King, executive director of San Bernardino Associates Governments (SANBAG).

The state of California presented its “Goods Movement Action Plan,” expected to be completed by the end of 2005. Projected at $48 million, the plan outlines a number of priority projects, including enhancement of the Interstate 710 Corridor, Alameda Corridor East, a BNSF Rail Intermodal Facility and improvements to Northern California’s Interstate 80/680 interchange.

Funding will be achieved through federal support (transportation fund reauthorization, customs revenue, energy bills and other federal programs), state support (existing revenue, Proposition 42 and revenue, tax credit and Garvee bonds) and public-private partnerships (user fees, tolls and private contributions).

Other Action Plan steps attempt to support environmental and community mitigation by providing air pollution reduction incentives, agreements and regulation, as well as grade separation projects. Experts believe it will take an approximate $2-4 billion just to address the region’s 120 at-grade train crossings.

As anyone who imports cargo via seafreight through the west coast knows, the growing congestion problem at the ports in Southern California threaten supply chains nationwide. And the problem is only going to get worse as trade with East Asia continues to grow by large margins. All of the plans this article talks about are too little too late, but the fact they are at least discussing the problems is a good sign. No matter what, there will be no easy or quick solutions.

In another story about port infrastructure, or the lack thereof, coastal provinces in China with access to major ports and goods are enjoying enormous financial success – while those provinces without access to the same ports or lacking the infrastructure to provide easy access to goods and services are stuck in relative poverty. However, plans to provide rail links from the remote regions of China to Europe could improve their situation :
While living standards have soared along the seaboard, particularly in the southeast, remote inland regions that are home to hundreds of millions of Chinese have been left far behind.
Now there is the prospect that geography might work to close this gap.
New and proposed rail container links between China’s inland regions and Europe could open vast areas of the country to international trade.
The biggest advantage of rail freight from China to major cities in Europe is that it cuts the transit distances by half.
“The potential is enormous,” said Manmohan Parkash, a Manila-based Asian Development Bank specialist on China’s railroads. “Rail could capture a substantial part of the trade between China and Europe.
Already there are suggestions that rail container links with Europe could increase manufacturing investment in China’s Inner Mongolia Autonomous Region, a remote northern area once better known for its open plains and nomadic herders.
In March, Chinese railroads began a container freight service between Hohhot, the capital of Inner Mongolia, and Frankfurt.
Packed with electronics, home appliances and textiles, the first scheduled service took 16 days to haul 100 containers over the 9,000-kilometer, or 5,600-mile, route.
To ship this cargo by sea from Tianjin, the nearest port to Hohhot, would normally take about 40 days.

And finally, in another story about the effort to increase security in the Malacca Strait, Malaysia is taking more steps to improve and increase security for this important shipping lane:
On Malaysia’s part, the government will launch a dedicated agency for patrolling its maritime zones through the newly-established Malaysian Maritime Enforcement Agency (MMEA) in November.

The agency, which will come under the purview of the Prime Minister’s Department, will initially have a fleet of 72 vessels drawn from the various maritime-based agencies like the Marine Department, Royal Malaysian Navy, Royal Malaysian Police and Royal Malaysian Customs. It will eventually have about 4,000 employees.

The MMEA, which will function like a coastguard force, certainly has a lot on its hands: Besides ensuring peace and security, its functions, among others, include enforcing maritime laws, assisting in search and rescue operations, conducting checks on sea pollution, and providing aerial and sea surveillance.
You can also read more information about the Malacca Strait here.

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