1. 1a Enterprise Logistics and Integration into Global Supply Networks Nimish Jhaveri CARANA Corporation Consultant World Bank Knowledge Economy Forum April 2007

2. 2 Overview The Relevance of Transport & Logistics Challenges Successes Considerations

3. 3 Trade liberalization increases the need for improved transport & logistics performance Freight Costs as % of Import Value Source: UNCTAD, “Review of Maritime Transport, 2005,” Chapter 4, based on data supplied by the IMF. Industrial Country Average Import Tariffs Before and After the Uruguay Round Source: Marcelo Paiva Abreu (2004), "Trade in manufactures: the outcome of the Uruguay Round and developing country interests"

4. 4 Transportation is just one element of logistics efficiency… 100156 69 62 15 10 Administrative Order Processing Inventory Carrying Warehousing TRANSPORT COSTS OTHER COSTS MANAGE TIME, INFORMATION & PROCESS MANAGE MOVE

5. 5 … and logistics efficiency has a direct impact on trade A 10% reduction in… Shipping costs Trade related processing costs Trade related processing time Variation in processing time Results in a… 14.2% increase in trade 2.5% increase in trade 1.4% increase in trade 3.1% increase in trade Adapted from Study of 80 countries by Hausman, Lee and Subramanian, World Bank and Stanford University, 2005

6. 6 Example: Nicaraguan Coffee Managua to Miami via Puerto Cortes Drive Time (18%) Border Crossing (3%) Load & Discharge (2%) Security Curfew (50%) Productive Time (23%) Idle Time (27%) Planning and scheduling inefficiencies Documentation errors cause delays at the border Lack of fleet management technologies Regional border customs not consistent TRANSPORTATION UTILIZATION

7. 7 Result: Logistics costs for Nicaraguan exports are competitive regionally, but not internationally INTERNATIONAL MARKETS REGIONAL MARKETS Logistics Costs as Percentage Of Market Value International averages for developed and developing countries

8. 8 Impact: Low logistics efficiency curtails SME access to global supply networks and higher value markets REGIONALGLOBAL Ad hoc transactions with intermediaries Compete on price, labor Independent operators Long term relationships with end-customers, transportation providers and value chain partners Compete on higher service and value Efficient supply chain

9. 9 Transportation Network Efficiency Logistics Infrastructure Availability Customs and Border Requirements Banking & Financial Services Logistics Service Intermediaries The constraints imposed by the logistics environment varies widely by country and industry Argentina Kenya Brazil Poland Romania Belarus Ukraine Belgium Australia Canada Japan Singapore United States Logistics Costs/GNP

10. 10 SUPPLIER CUSTOMER Efficient Transportation Networks Logistics Infrastructure Customs and Border Requirements Banking & Financial Services Logistics Service Intermediaries Moving up the value chain requires business innovation Supply chain excellence Higher service levels Smaller, just in time shipments Shorter delivery lead times Global competitors with lower costs Limitations of logistics environment More demanding business environment

11. 11 Case Study: Bulgarian Apparel Manufacturers Logistics innovation captures greater value SUBCONTRACT CUT MAKE TRIM FULL PACKAGE BRAND MANAGEMENT None QC, Packaging Subcontractors Buyer QC, Packaging Consolidation Customs Subcontractors Domestic suppliers Buyer International supplier QC, Packaging Consolidation Warehousing Customs Subcontractors Domestic suppliers International suppliers Distribution centers International retailers QC, Packaging Consolidation Warehousing Customs Distribution DOMESTIC TRANSPORT INTER- NATIONAL TRANSPORT SERVICES Increasing Importance of Logistics

12. 12 Exporters increase value through better logistics

13. 13 Transferring Knowledge and Technology for Change Challenges Enterprise culture –High dependence on few senior managers –Tactical, conservative mindset –Confident, entrepreneurial Available Resources –Limited investment in plant, equipment, IT –Human resources “Don’t know what you don’t know” –Limited exposure to leading management solutions –Limited demand for new knowledge

14. 14 Transferring Knowledge and Technology for Change Approaches we have successfully applied Awareness Building Publications 1-day, industry specific seminars Seminars for educators Case for Change Supply chain benchmarking Operations modeling & simulations Value chain analysis Education & Engagement Supply Chain Leadership Programs for executives Guided implementation of change projects Practitioner network Industry Resources Customer partnerships Logistics intermediaries Supplier integration IT vendors Funding EU Funds PPP Venture Capital Local Proof Points Industry specific success stories Quantification of benefits Local “champions”

15. 15 Lost sales, obsolescence, discounts High Inventories & cash requirements TIMECASH Case: Value Chain Improvement Bulgarian exporter of industrial equipment SUPPLIERS SUB ASSEMBLY ASSEMBLYDISTRIBUTIONCUSTOMERS Value Chain € 25 million in 49 countries Seasonal products, 1000’s models

16. 16 Case: Value Chain Improvement Bulgarian exporter of industrial equipment SUPPLIERS SUB ASSEMBLY ASSEMBLYDISTRIBUTIONCUSTOMERS NEW PARTNER Reduced inventory by 2% of sales Increased sales by 4% Manufacturing - Outsourced low tech - Increased capacity - VMI & delayed assembly Product Design & Engineering Actions Procurement - Reduced suppliers - Collaborative planning, QC TIMECASH Reduced cash requirements

17. 17 Case: Outsourcing Argentinean fruit producers SITUATION 1997 – fruit producers in Rio Negro Valley need to lower prices, increase delivered quality Transportation infrastructure not adequate – both in terms of cold chain, and land transport services IMPLICATION / CHALLENGES Individual producers not able to negotiate on volume High loss rates in produce during land transport (16yr fleet age avg.) Unable to meet increasingly rigorous quality demands by market SOLUTION SELECTED 24 producers (75% of Exports) - Logistics Management Company 65% ownership of Port Terminal with Port Operator Partner Joint negotiations on land and maritime transport costs, rigorous infrastructure improvement RESULTS Price negotiations with trucking companies – profitable service, reduced damage Consolidated shipping freight rates Efficient T&L costs, compete on supply and quality, traceability

18. 18 Final Thoughts Supply chain innovations expand opportunities Innovators take a risk Identify successful innovations & adapt the system to reduce risks for followers Knowledge & know-how Supply chain partnerships Laws & Regulations Performance Standards Industry structure Logistics Infrastructure Access to capital Information availability

19. 19 Questions?