Supply chains are going global, yet most firms' systems are designed solely for domestic orders.

It's been a difficult time for Larry Merritt, director of global logistics at Lexington Home Brands, in Lexington, N.C. In less than three years, the $167 million home furnishings company has completely changed its business model. "We've gone from being a manufacturer to being an importer," Merritt says. The reason? Globalization. "A lot of new companies have entered the furniture industry, and they source overseas." To keep up, the company shuttered 14 manufacturing plants and support operations in North Carolina—the last cased-goods plant closed in December— shaving nearly 4,000 people from its workforce of 5,000. Profits have increased, but "it's been tough," Merritt says. "It's not what we wanted to do. But at the end of the day, it's a matter of survival."

International trade has always been big business for big companies. But in the age of globalization, it's become a must for midsize and smaller firms, too. (See "Think Big," page 52.) Part of the blame rests on the "Wal-Mart effect," which has trained consumers to be more concerned about price than brand—and forced many companies to follow suit. But there are plenty of other factors, including the growth of outsourcing, expansion of membership in the World Trade Organization, and the spread of regional trade treaties such as the North American Free Trade Agreement. According to Hau Lee, a professor at the Stanford Graduate School of Business and codirector of its global supply-chain-management forum, these factors have led U.S. companies to realize that "the world is their factory." And they have taken action: Roughly 55 percent of all raw materials for U.S. manufacturing is now imported. In fact, while U.S. exports increased by a mere 4 percent between 1999 and 2003, imports shot up 23 percent.

Yet most companies' current supply-chain management systems aren't properly equipped to deal with global anything—a fact that's costing midsize firms as much as $134 billion each year in missed savings, according to the Aberdeen Group. Sure, international orders can be logged and tracked the old-fashioned way—with spreadsheets—but the manual process of entering data and figuring tariffs, exchange rates, delivery times, profit margins and logistics is a daunting task, especially when evaluating multiple bids from suppliers in multiple countries. And having a separate system for international orders doesn't provide the systemwide visibility that's critical in creating a more flexible, leaner supply network—the key to survival in a global marketplace.

New software products that help companies manage global logistics, evaluate sourcing options, and share data between trading partners are a step in the right direction, but as usual they aren't a panacea. To compete in a global marketplace, CIOs need to rethink the entire supply chain, reevaluating policies, processes and even the architecture of the supply chain itself. The first step is to gain greater visibility into supply chains from end to end, and then to share that insight with all the stakeholders along the value chain.

This article was originally published on 03-06-2006
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