Service Stars

3Com relies on logistics to provide world-class post-sales service to its customers in Latin America.

By Toby B. Gooley -- Logistics Management, 6/1/1999

It's often said that the key to successful selling in overseas markets is adapting products, service, and sales techniques to the local culture. Though that may be true, there's also something to be said for bringing the high levels of service that are expected in the United States to other parts of the world. Such a strategy can set a manufacturer apart from the local crowd and may even elevate it far above its competition.

That has been the case for 3Com Corp. of Santa Clara, Calif. The fast-growing manufacturer is best known for its "PalmPilot" handheld computers, but its bread and butter is networking equipment that enables high-speed data, voice, and video communications between computers and cable systems worldwide. 3Com's products are in great demand; the company says its 13,500 employees serve 100 million customers around the world.

One of 3Com's fastest-growing markets is Latin America, where several developments are fueling demand for information technology. The region's explosive economic growth in the past few years and--until recently--its relative financial stability have greatly boosted sales. Privatization in telecommunications, banking, and other important industries, moreover, is providing companies with more capital to invest in information technology. And Latin America's newfound importance in world trade has put pressure on governments and private industry to bring communications capabilities up to levels expected in more developed regions of the world.

Latin America's current economic slump hasn't hurt 3Com's position as the biggest player in that region's networking-products market. An important factor in the company's success is its ability to provide customers with world-class service no matter where they are located. What makes that possible, says Michael Schott, Latin America logistics manager for 3Com's Global Logistics and Services unit, is a logistics operation that allows the company to offer after-sales service levels that are virtually unheard of in the Southern Hemisphere.

Overcoming Roadblocks

3Com faced a number of hurdles in its quest to provide the same fast, efficient after-sales service to customers in Latin America as it does in other markets. Rapid sales growth, the diversity of its customers and products, the number of countries and the distances involved, the widespread reliance by many customers on outdated technology, and regulatory and bureaucratic roadblocks all promised to make that a tough goal to achieve.

Sales growth has indeed been phenomenal: Annual sales in Latin America today exceed $250 million. To support this fast-growing business, 3Com has a total of 18 field offices in Mexico, Brazil, Colombia, Venezuela, Peru, Argentina, Chile, and Puerto Rico. 3Com's field sales and technical staff work with carefully selected "channel partners" (distributors) to design networking solutions that meet the ultimate buyers' needs.

The field staff and distributors sell the full range of 3Com's products, from PalmPilots, modems, and mobile communications cards for laptop computers to everything necessary for creating and maintaining local- and wide-area networks (LANs and WANs). 3Com's customers in Latin America are a diverse group, ranging from multinational corporations, national telecommunications companies, banks, and government agencies to small- and medium-sized businesses and even individual consumers.

The products 3Com sells in Latin America are manufactured at various sites in North America, Asia, and Europe. Newly manufactured items destined for Latin America are shipped to 3Com's primary distribution center in Santa Clara, Calif., where they are sorted by destination country and prepared for international shipment.

After 3Com verifies compliance with all export and import regulations, the newly manufactured items are shipped via airfreight or small-package carrier to their destination countries, says Schott. Typically, the manufacturer ships about 2,000 pieces of hardware under about 250 air waybills each month to Latin America. "We try to consolidate shipments for each country. We have enough volume to ship one or two days each week to Brazil, and then another day to Mexico or Peru," he says. Airfreight containers are used whenever practical, but volumes to other countries often are not sufficient to warrant using that equipment.

3Com has its own administrative staff managing import shipments in Mexico and Brazil, which represent nearly 70 percent of the company's business in the region. "We have some import allocations in Brazil and exemptions from some import requirements in Mexico. To meet those criteria, we have to have every I dotted and all the Ts crossed to make sure we meet all the [governments'] criteria," Schott explains. "Having our own people there means they can address problems on site as they happen."

Even with those privileges, 3Com must work within a number of bureaucratic restrictions. Although the company prefers to use door-to-door service, for example, that's not possible in some countries, says Schott. "In Brazil, door-to-door service doesn't exist for shipments valued over $500," he says. "Because of the regulations there, door-to-door is only available for express service, but we often can't use express because of the high value of our products." Similar restrictions in Mexico mean the company can get door-to-airport service for high-value products but it must make separate arrangements for the rest of the journey. 3Com also is scrupulous about complying with local tax and transportation laws, Schott adds, which may complicate daily operations but helps the company maintain excellent relations with local authorities.

After the Sale

Although delivering new products to customers in Latin America has generated its share of challenges for 3Com, it was relatively easy compared to creating a logistics operation that could manage after-sales service. 3Com wanted to be able to deliver replacement parts and have an engineer or technician on site within two to four hours of receiving a customer's call for help. Few companies have been able to achieve that in the United States; would it even be possible in Latin America, where traffic congestion is legendary, distances between cities are enormous, and road conditions often are poor?

With the help of the right partners, 3Com has indeed been able to meet those demanding standards. To ensure uniform service levels in each of its markets, 3Com wanted a logistics-services provider that could manage transportation, distribution, reverse logistics, and technical support for warranty and critical-parts-replacement programs throughout Latin America. After a thorough search, the company signed an agreement with BHP Logistics of Humble, Texas.

BHP Logistics is a subsidiary of Broken Hill Proprietary Co. Ltd., Australia's giant mining and transportation conglomerate. BHP's parent company has a long history in Latin America, where it has mined minerals and petroleum for decades. BHP Logistics and its sister organization, BHP Transportation, originally were established to serve the parent company's various product groups, moving everything from heavy mining equipment to food for remote work sites. About three years ago, the company increased its focus on logistics services, and today BHP Logistics serves a number of large clients seeking one-stop management of supply-chain services.

BHP performs a wide range of tasks on behalf of 3Com. In the United States, the logistics company oversees warehouse operations, transportation, documentation, arrangements with carriers and freight forwarders, and processing of returned goods for international shipments. BHP now is in the process of setting up a merge-in-transit operation in Miami that will receive products from various 3Com divisions and consolidate them by destination country, which will greatly reduce handling and transportation costs.

In Latin America, BHP developed logistics solutions, including information systems, for 3Com. It also supervises local vendors, including customs brokers and its own local partner, Comlasa. Miami-based Comlasa operates warehouses, trucking and express-delivery services, returns and repair centers, and critical-parts depots under BHP's direction throughout Latin America, explains Rick Foxhoven, BHP's vice president. Comlasa also functions as the importer of record, which significantly reduces the amount of time required for customs clearance. 3Com, meanwhile, sets service standards; retains all sales, trade, and compliance responsibility; selects all transportation vendors; and trains repair technicians.

The lines of responsibility between the two companies are flexible, says Schott. "We don't draw lines between partners. There's no sense of your responsibility and my responsibility. It's all our responsibility," he says. Foxhoven agrees: "We said, let's use the best providers we can identify. If it's yours, that's fine. If it's ours, that's fine, too. Success depends on moving information as much as it does on moving product."

With BHP's help, 3Com today has a 98-percent compliance rate with the stringent terms of its service contracts in Latin America. Even outside of the region's large cities, 3Com is able to have an engineer and/or replacement parts on site within two or four hours of the customer's initial call for help, depending on the contract terms. To make that possible, BHP and Comlasa operate more than 100 parts banks, most of which are open 24 hours a day, seven days a week. The difficulties of transportation in the region make it necessary to have more service locations than are needed in a similar sized territory in the United States. "If a customer is outside a 50-kilometer radius, then we have to create a new parts bank or a drop zone," Foxhoven says. In Brazil alone, for example, there are 35 such critical-parts facilities, he notes. (Some countries do not have parts banks, and service agreements are modified accordingly.)

These critical-parts facilities play an important role in allowing 3Com to meet the unique needs of this market in a cost-effective manner. Previously, employees automatically shipped returned items back to the original manufacturing site in the United States, Asia, or Europe for testing and repair. Today, engineers and technicians trained by 3Com can test returned items at the parts banks. Parts that turn out to be undamaged or can be repaired on the spot now can be returned to stock. Items that are not worth repairing can be disposed of locally, which eliminates costly and unnecessary international shipments.

Software developed by BHP helps 3Com choose the most economical means of handling returned goods. When a part comes back, BHP's employees can check 3Com's parts database, which provides a history of each item by serial number. "We have a history of the part--where it was manufactured and when it was shipped to the customer. We tell [3Com] what we have, and they can look at the part and say 'We've upgraded that part, there's no point in bringing that back,'" says Foxhoven. The software also allows BHP to provide cost, country-of-origin, and tracking information required by customs authorities to ensure compliance with regulations governing returned goods.

Logistics Breeds Success

Schott believes that his company's critical-parts and returns centers have played a crucial role in 3Com's growth in Latin America. "Reverse logistics has been a key ingredient in our success," he says. He cites a study of networking systems users in Latin America conducted in 1998 by an industry research firm, which found that 3Com's sales far outstripped its competitors' sales in the region. "The first reason [cited by the survey respondents]," he says, "was our system of using depots of spare parts and our contract-services network."

This network has become even more important during the region's economic downturn, Schott believes. "In emerging markets, customers tend to have older equipment. They aren't necessarily revamping networks annually or every two years, so the equipment we service tends to be older than what we service in the United States," he says. "That makes the task of ensuring parts and components availability more difficult, but managing an effective reverse-logistics program allows us to get older--and in some cases, obsolete--equipment back into the supply chain."

The region's economic situation will continue to affect buying decisions, adds Foxhoven of BHP Logistics. "The tendency will be for customers to buy fewer new products and to maintain what they have," he reports.

Having a system in place that can support older equipment will help 3Com retain customer loyalty and thus its leading position in Latin America during the current economic crisis and in better times to come, believes Schott. "When we suffer, so does our competition. The differentiator will be what kind of service we can provide our customers."