Service : the new focus in international manufacturing and trade

Major breakthroughs in communications technologies in the 1980s made it possible to monitor all phases of moving a product from raw material sourcing through processing to delivery to the customer. Close monitoring revealed major inefficiencies in the traditional set-up of materials acquisition, production, and distribution - especially large inventory holdings. At the same time, patterns of customer demand began to shift more rapidly, partly because of better communications networks. The need to reduce costs and become responsive to volatile changes in customer preferences forced businesses to substantially restructure their corporate practices. With domestic factor costs rising, manufacturers outsourced intermediate production to foreign enterprises in countries with lower wages. Merchants also sought cheaper supply sources - developments that held promise for developing countries. Many developing countries have been unable to take advantage of structural changes in world manufacturing and trade because they have been unable to deliver the quality of production, fast turnaround, and reliability of delivery manufacturing businesses need to keep up with changing market demand. A new management approach - logistics management - is needed to cut business costs and to be more responsive to rapidly changing markets. Logistics management orchestrates materials acquisition, production, and marketing to reduce inventories to a minimum. Effective logistics management enables many organizations to conduct their business with less than a week's worth of supplies. Such a radical change requires major corporate restructuring and the development of strategic alliances with service providers. Outsourcing of production is projected to continue growing, and the search for less costly supply sources will continue. Developing countries can capitalize on those trends - but only if they substantially improve their infrastructure, liberalize their regulations, and begin to apply modern logistics management techniques. If they do not, their outlook is not promising.