Sept/Oct 2003

Brazil is rapidly taking its place in world markets, says consultant Andrew Morgan, and presents an open book for judicious application of information technology lessons learned elsewhere

As markets in the UK and across Europe become increasingly competitive and sophisticated, key challenges for supply chain managers are those of improving demand planning and forecasting, and enhancing supplier reliability. Their goal in all cases is to gain competitive advantage through reduced inventory carrying cost, optimised storage, handling and transport costs, improved product availability and heightened responsiveness to consumer demand.

Manufacturers and retailers alike have taken the initiative to implement new software systems, to centralise and aggregate their demand planning processes, and to collaborate with their suppliers to improve forecasting accuracy and delivery performance.

So what's the connection between this situation and Brazil? The first key point is that Brazil is becoming a supplier to the world - not only for traditional commodities such as poultry meat, fruit, orange juice, soya, and paper pulp, but also for complex products such as aircraft, buses, car engines, electronics and further processed food items.

As part of the global supply chain, Brazil is learning how to compete as a supplier to the UK and European markets. It's worth noting at the outset that these products, are not "cheap and nasty" but "low-cost and world class" - as evidenced by the number of global procurement decisions being made in their favour, and new strategic alliances with overseas partners.

Wide-ranging initiatives are under way to advance such developments (see panel), and they present a remarkable opportunity to develop an international supply chain. Companies can apply the techniques learned progressively over the past four decades in the United States and Europe. However, the vast geographical scale is one challenge, and the imbalance of trade between South America and Europe is another.

Language is also an inevitable barrier, especially when it comes to understanding what is not said. The task of linking disparate management cultures is crucial. Brazilians are astute businessmen and good financial managers accustomed to trading for the best price in global markets. So it takes courage and patience to encourage them to resist the temptation of a short-term profit opportunity in favour of the long-term commitment to a demanding market such as Europe.

The second key point is that much of the change is being made possible by technology. An example of transport technology development is the fact that shipping lines such as Maersk can now offer containers that can maintain set temperatures to the close tolerances required for the transport of fruit. Logistical management ability and overall supply-chain capabilities are being improved by increases in service frequencies of vessels able to access the relatively shallow draft conditions of the southern Brazilian ports, and by increases in the numbers of onboard reefer plugs (electrical sockets for powering refrigeration motors at sea). Also, information technology reports container status and location via the Internet during the typically three-week voyage.

synchronisation

Brazil has a record of enthusiastic adoption of new information and communication technologies. However, it's no good just computerising existing practice. New ways of doing things are required to produce synchronised flows of information and product regardless of the physical, political, economic and cultural barriers. The following three examples from the cold chain highlight some current issues.

During the implementation of ERP systems, corporate emphasis in Brazil is on manufacturing, financials, sales and stock control, and insufficient attention is paid to logistical management. This deficiency relates in part to the lack of a clearly defined and mapped end-to-end network and process involving essential data elements.

There is greater need for a highly visible final customer delivery date, and for "gateway" points at which progress is logged and reported. These are crucial for assessment of time-based performance. It is also important to determine the level at which product identification should operate - case, pallet, ISO container - since this has an impact on traceability (for food safety) and "best before end date" compliance. These elements are often either non-existent or obscured, yet they are essential for measurement, reporting and improving supply chain performance.

Another technology opportunity relates to demand planning. In Europe, software provider Agilisys has had good success with implementing its systems in multi-site manufacturing environments, as at Bernard Matthews. This knowledge could be transferred. Poultry production has some interesting constraints; live birds will continue to grow, different weights will suit certain markets, and as production is a "disassembly" operation, it will inevitably result in additional products, which have to be sold. Consequently there will always be a "push" element.

The trick is to be able to plan in a way that accounts for competing demands from different markets, and then make a commercial decision about the preferred product mix. Should this be based on customer service (most orders filled) or profit (most value-added products)? The decision process also involves interaction between central planning and multiple factory locations, each capable of producing a different mix of products.

inventory management

The other outstanding opportunity is for effective inventory management software that can be used both for strategic planning and for ongoing regular review. European software providers have extensive experience working in retail and wholesale distribution, so why not apply these techniques to modelling the complete supply chain? This would assist determination of inventory levels and positioning for best service and cost.

One key factor in setting stock levels is obviously supplier order lead-time variability, closely linked with delivery reliability and predictability issues. This takes us back to the theme of having a properly designed network and process. Current logistical arrangements have too many unknowns.

The third key point is that supply chain integration is most achievable for those organisations willing to face the cultural challenge. Integration requires three elements - availability of good-quality data to make planning decisions; a corporate willingness to share data and information between partners; and competent systems and processes for both information and product flows.

As regards the international food supply chain, although most of the components are now available, there is a way to go, and this has several causes. In part, at all management levels there is a lack of vision about the way local decision-making can have an impact in the final market. Time-based and profit performance are new disciplines, since traditional indicators focus solely on cost. With low labour costs, there is a tendency to retain inefficient working methods and operating procedures. Also, domestic transport and warehousing operations between factory and port are fragmented, and a lot of small operators are involved.

However, within Brazil one UK-based conglomerate, Exel, has cleared cultural hurdles for two major clients. At Louveira, in the state of São Paulo, the company operates a 110,000 sq m distribution centre for Gessy Lever, linked with cross-dock outbases in Curitiba and Rio de Janeiro and facilities at the manufacturing plant. In Bahia, its Ford operation employs 600 people and provides lineside support to Ford itself and to twenty full-service line suppliers. Both situations are good examples of applying the latest information systems and management techniques combining international and local experience.

So it can be done.

To recap, the evidence is that Brazil is committed to achieving a new significance in global markets. Interestingly, Furlan's initiatives to promote an export culture include the introduction of a virtual market place for traders on the Internet.

Intelligent application of information technology - possibly delivered through new forms of technology transfer - will assist this transformation. This will include closer specification of ERP systems, linked to the use of specialist software for aspects like demand planning and inventory management. But this can only happen if new end-to-end supply chain networks and processes are introduced that incorporate adequate definition of all the logistical steps and variables, together with properly specified and administered key performance indicators.

There are many positives. There is growing awareness among Brazil's corporate leaders of the importance of the global supply chain to their commercial objectives. There is an enthusiasm for the latest information technology. The country's hard-working young professionals learn fast and are eager to develop their logistical abilities. The potential is for cooperation between all parties to provide world-class products at competitive prices, delivered "in full and on time" through a truly integrated supply chain.

Andrew Morgan is a consultant with many years of logistical management experience. He is a director of Supply Chain Europe Limited, which is a practice focused on development of the supply chain between South America and Europe. He can be contacted on 01242 570334. www.supplychaineurope.com

Brazil's top-ten economy

With a land area approximating to that of the United States, over 170 million people including 35 million consumers, and one of the top ten world economies with a nominal GDP of US$473 in 2002, Brazil is obviously a country to be taken seriously. The domestic market therefore continues to attract inward investment, particularly from the United States and Europe. Examples include Ford's new plant in Bahia; Renault's development in the South; Carrefour's renewed expansion in the grocery market; and Accor's decision to extend its hotel network. And among the export leaders are Brazilian companies such as Embraer (aerospace), Marco Polo (bus bodies), Sadia, Perdigão and Seara (agribusiness), and Votorantim (metals, pulp and paper, and citrus).

Such developments are matched by President Lula's election promise to promote export trade. As reported in the Financial Times (2 July), Luiz Furlan, Brazil's trade and industry minister, has announced 33 per cent export growth to $33bn (£19.8 billion) and a trade surplus of more than $10 billion for the half-year through June.

Although this trend will ease as a result of the appreciation of the Brazilian currency, the real (R$), against other currencies, Brazil is expected to hold its own for the rest of 2003. Furlan's objective is annual export growth of 15 per cent, and he is working to imbue Brazil's corporate sector with an aggressive approach to exporting.