In part I, we reviewed Supply Chain Digest’s 2007 Supply Chain Year in Review article, where they picked their top ten news stories for 2007. In Part II we reviewed Supply Chain Digest’s Key Trends Impacting Supply Chain Management and Logistics for 2008, as identified by the nine executives and academics they asked to postulate what 2008 has in hold. In Part III we speculated what the top 10 supply chain related stories in 2008 could be, if the right chain of events occurred. Yesterday, in Part IV we dove into what the first five supply chain related stories of 2008 could be, why they could happen, and what you could do to make sure they do, or do not, happen to you (as the case may be).

In today’s post, we’re going to dive into the last five stories that we postulated and carry the exercise to its logical conclusion. As we mentioned yesterday, the whole point of an exercise that attempts to predict what might happen is to figure out what bad things could happen, how they might come about, and what we can do to prevent them.

US Exports in Manufacturing Rise Rapidly

“The low dollar, coupled with the introduction of new, more efficient technology and leaner practices makes the US the low-cost country of choice for Western Europe.”

The dollar is low, US quality is high, and the only reason the US isn’t the destination of choice is the fact that even with a weak dollar, unionized labour costs in the US are still high. However, high labour costs can be counteracted with more efficient production, which reduces the overall cost per unit. If a number of upstart manufacturers were to introduce new technological innovations that were significantly more efficient than the process and technologies typically used in low-cost countries today, then this decrease in production costs coupled with high quality (mandated by stringent US regulations and the constant threat of a class-action lawsuit should quality be sub-standard) could cause demand for US exports to sky-rocket.

This would be a bit of a double-edged sword for manufacturers. Those manufacturers with the new technology would stand to benefit greatly, while those without could go out of business if the dollar stays low and a recession hits as demand would quickly shift to the more efficient, and more cost-effective, manufacturers.

The ounce of prevention here is to continue to improve your processes, technology, and innovate whenever you can.

Port Congestion Re-Appears as a Result of a Natural Disaster on the West Coast

“The Ports of Long Beach and Los Angeles are almost destroyed by a tsunami caused by a major earthquake off of the coast of California.”

If the Juan de Fuca plate slips against the Pacific plate, a massive earthquake could occur off of the California coastline. This could produce a massive Tsunami that smashes the California Coast and wipes out the ports of Long Beach and Los Angeles, which were the fifth and fourteenth busiest ports in the US in 2004 with a collective 5% of total trade volume. If the ports continue to operate near capacity, losing 5%+ of ocean-freight capacity would be a serious blow to your supply chain.

The ounce of prevention here is to minimize your need for Ocean Freight – by buying locally or near-sourcing from Canada, Mexico, or South America – and to have back up plans to air-freight any key products and components that you have to buy overseas.

Agflation Continues to Rise

“Politicians give in to the AlGorites’ demands and mandate the production of more bio-fuels, despite their inefficiencies. Coupled with reduced crop production due to the massive heat-wave, this causes the prices for many basic food crops to increase by 30% or more.”

Today, bio-fuel is usually associated with ethanol, and corn-based ethanol in particular. However, production of corn-based ethanol is not an efficient or cost-effective process. It currently takes as many as seven gallons of oil to produce eight gallons of ethanol, which is not as fuel efficient as unleaded gasoline. Translated, we’re sacrificing needed food crops for an increase in fuel of a mere 10%! Considering that we’re now experiencing shortages in staples like hops because farmers are planting more corn to try to cash in on the bio-fuel rage, it’s hardly worth it.

The ounce of prevention is to plan now for reduced crops from farmland that can also be used to yield corn – which includes soybeans, wheat, oats, and barley – and higher prices for corn, and related food staples. Start working now on alternate recipes that use less of these foods and more of substitutions.

Services Outsourcing Rises

“In an effort to contain costs, companies start outsourcing services, particularly in contingent labor management.”

If not managed effectively, contingent labor can be very costly for any company that employs a large number of contingent workers on a regular basis. Hourly rates can be higher than the median, workers can be retained longer than necessary on a project, fraudulent billings by less-than-honest staffing agencies can go uncaught, and if workers are retained too long, they are considered part-time employees, and dismissal can result in heavy penalties.

Since cost management will be crucial in the coming months, effective contingent labor force management will become critical for certain groups of companies. Those companies who migrate successfully will gain a great advantage over their peers. Those that don’t could be at a severe disadvantage and have trouble competing against their peers.

The ounce of prevention here is for those companies with large contingent labor forces to put processes in place that will allow them to either outsource their contingent labor management to a third party that can do it better, or to manage it more efficiently with an on-demand SaaS application, as soon as possible.

Major Multi-National X Moves it’s Headquarters to China

“Betting that China is the next global economic powerhouse, X moves its headquarters from the good old U. S. of A. to China.”

Stop laughing. It could happen. Many foreign companies fled the US stock exchange with the introduction of Sarbanes Oxley, and that was just a paperwork act. Now we are in an economic slowdown, with a weak dollar, and a Chinese powerhouse on the horizon. IBM already moved their supply chain operations to China. It’s probably only a matter of time before a global multinational in the Fortune 500 moves its headquarters to China.

What will this mean? Hard to say. That company will have a significant advantage in the growing Chinese marketplace, as well as in the neighboring Indian marketplace, an economy expected to have a middle class population of over 583 million by 2025. That company will have a significant advantage in taking advantage of the most efficient production that China has to offer. But will it be enough to out-distance the competition? I don’t know. However, I do know that it’s something you should start thinking about today!

In part I, we reviewed Supply Chain Digest’s 2007 Supply Chain Year in Review article, where they picked their top ten news stories for 2007. In Part II we reviewed Supply Chain Digest’s Key Trends Impacting Supply Chain Management and Logistics for 2008, as identified by the nine executives and academics they asked to postulate what 2008 has in hold. Then, yesterday, in Part III we speculated what the top 10 supply chain related stories in 2008 could be, if the right chain of events occurred.

In today’s post, we’re going to dive into the first five stories that we postulated and carry the exercise to its logical conclusion. The whole point of attempting to predict what might happen is to figure out what bad things could happen, how they might come about, and what we can do to prevent them.

Company X Toy Recall Fiasco

“Scared off by the recent Mattel Fiasco, Company X decides to shift production back to their former low-cost country location of choice, Mexico. However, their new supplier uses a low quality plastic, and the toys break easily, making them choking hazards to toddlers.”

In 2007, China was painted as the home of low quality, as it was the country associated with the most, and most extensive, quality issues reported last year. However, this is to be expected giving that, last year, the US imported more goods from China than any other country in the world. Imports from China topped 300B last year. Only Canada reached that order of magnitude. (Mexico topped 200B, Japan 140B, and every other country was (well) under 100B.) Thus, you would expect more problems from China imports than imports from any other country.

It’s important to note that the stories that made media headlines were associated with product lines that were valued in the millions, not billions. Why? This helps to demonstrate that quality problems are not associated with a country, but with a specific manufacturer, and, more often than not, a specific manufacturing process. This means that moving your production from one country to another will not solve your problems, it will only replace old problems with new ones.

The ounce of prevention here is to review all of your processes and put inspections and safeguards in place to make sure each step is performed at a high level of quality and that each component and material used in the production of a product is adequately monitored and tested.

Well-Water is the New Spring-Water

“A record heat wave hits and water levels in the lakes and reservoirs drop to dangerously low levels. A new project to lay pipe-lines to wells in neighboring states is announced.”

Whether you believe we are responsible for it or not, Global Warming is here. Temperatures have been increasing along with the frequency of significant natural disasters. You need to plan for it, figure out what it could mean to you, and have disaster mitigation plans and procedures in place.

In the situation described, a heat wave threatens water supply that you need to cool your plant and / or make your product. This is not unlikely, as it coincides with a major prediction by the World Future Society that water will become the new oil in the near future.

The ounce of prevention here is to identify alternate sources of water, and, if possible, drill new wells.

Gold Tops 1,000 an Ounce

“Global recession fears push more and more investors to invest in gold reserves.”

This is a financial prediction, but it has a significant impact for any company that requires gold in the production of its products, and semi-conductor manufacturers in particular.

The ounce of prevention here, for semiconductor manufacturers in particular, is to find alternative mixtures of conductive metal cores (which typically use a mix of gold, copper, and aluminum) and to institute a global recycling program in a big way. After all, these materials have been used in semi-conductor manufacturing for years and, thanks to a historical lack of forward-thinking, will end up in landfills when they could be cost-effectively recycled to keep more dollars in your pocket.

Major Semiconductor Manufacturer X Files for Bankruptcy

“The rapidly rising pricing of gold coupled with stagnant demand for new processors has forced many chip manufacturers to the brink, and even X couldn’t handle the strain.”

As discussed above, when the price of gold tops $1,000 an ounce and, effectively, goes through the roof, this is going to hurt many semi-conductor manufacturers that are already feeling the strain from the economic slowdown and the resulting lack of explosive growth they were expecting as IT appeared to be entering another boom. Some might even go bankrupt.

However, similar challenges will be faced by other manufacturers also dependent on raw materials whose prices are continuing to sky-rocket year after year.

The ounces of prevention are to devise a multi-pronged strategy that identifies alternative materials and production methods that require less of the costly material, that recycle as many last generation products as it can to extract reusable raw materials, and that hedges against continued price increases with good contracts and good financial planning.

Company X becomes Number One Growth Retailer in the US

“Wal-Mart’s lost mojo is picked up by X who focusses on higher quality products, better customer service, and green products, versus just green supply chain practices.”

Constant growth in a market is hard to sustain, and exponential growth in a market is unsustainable. At some point, you will reach equilibrium. Given the sheer number of stores Wal-Mart has, if it’s not there, it’s pretty close. And once you’re at the top, there’s only one way to go: down. The only way Wal-Mart can stay at the top is to be flawless in every way – execution, customer service, and image-wise. Although it’s possible, it becomes more and more unlikely as time goes on. This means that it’s possible that someone else can take part of their market-share. If another company were to take enough, fast enough, they could become the number one retailer from a growth perspective in the US.

However, it’s not just Wal-Mart that’s in trouble – it’s any retailer who’s a leader in their industry. Consumers are fickle, and you never know what will repel them or what your competitors will do next to lure them away.

The ounce of prevention here is to never assume that your products are good enough, your stock-out rate is low enough, and, most importantly, that your customer service is outstanding enough.

Come back tomorrow as we explore the next five hypothetical situations that could, especially if precautions are not taken, become reality this year.

In part I, we reviewed Supply Chain Digest’s 2007 Supply Chain Year in Review article, where they picked their top ten news stories for 2007. Then, yesterday, we reviewed Supply Chain Digest’s Key Trends Impacting Supply Chain Management and Logistics for 2008, as identified by the nine executives and academics they asked to postulate what 2008 has in hold.

So what will this year’s top stories be? That’s hard to say. Although many trends can be predicted at the macro-level over a long period of time, it’s almost impossible to predict specific events at the micro-level over a short-period of time, and that’s what most stories are based on. For example, although it’s a statistical likelihood that a certain number of 28 year olds will die this year, we can’t predict how many will be celebrities and cause the next big media circus. Furthermore, one cannot predict what the next innovation will be that totally changes the landscape. Although we can estimate when the next major innovation might be, based upon historical trends, we cannot know what it will be or how large of an impact it will have.

However, we can speculate, based upon recent trends and the state-of-the-practice, what might happen this year. Since this is a constructive exercise, as it could alert an informed reader as to what might happen if they are ready, or not ready, we’re going to do something different this year and go for it.

The Top 10 Supply-Chain Related Stories of 2008 Could Be:

• Company X Toy Recall Fiasco
  “Scared off by the recent Mattel Fiasco, Company X decides to shift production back to their former low-cost country location of choice, Mexico. However, their new supplier uses a low quality plastic, and the toys break easily, making them choking hazards to toddlers.”
• Well-Water is the New Spring-Water
  “A record heat wave hits and water levels in the lakes and reservoirs drop to dangerously low levels. A new project to lay pipe-lines to wells in neighboring states is announced.”
• Gold Tops $1,000 an Ounce
  “Global recession fears push more and more investors to invest in gold reserves.”
• Major Semiconductor Manufacturer X Files for Bankruptcy
  “The rapidly rising pricing of gold coupled with stagnant demand for new processors has forced many chip manufacturers to the brink, and even X couldn’t handle the strain.”
• Company X becomes Number One Growth Retailer in the US
  “Wal-Mart’s lost mojo is picked up by X who focusses on higher quality products, better customer service, and green products, versus just green supply chain practices.”
• US Exports in Manufacturing Rise Rapidly
  “The low dollar, coupled with the introduction of new, more efficient technology and leaner practices makes the US the low-cost country of choice for Western Europe.”
• Port Congestion Re-Appears as a Result of a Natural Disaster on the West Coast
  “The Ports of Long Beach and Los Angeles are almost destroyed by a tsunami caused by a major earthquake off of the coast of California.”
• Agflation Continues to Rise
  “Politicians give in to the AlGorites’ demands and mandate the production of more bio-fuels, despite their inefficiencies. Coupled with reduced crop production due to the massive heat-wave, this causes the prices for many basic food crops to increase by 30% or more.”
• Services Outsourcing Rises
  “In an effort to contain costs, companies start outsourcing services, particularly in contingent labor management.”
• Major Multi-National X Moves it’s Headquarters to China
  “Betting that China is the next global economic powerhouse, X moves its headquarters from the good old U. S. of A. to China.”

Will these stories happen? Unknown. Could they happen? Definitely! That’s why our next two posts will focus on how these situations could come about and what you can do to make sure that bad fates don’t happen to you.

Less then two weeks after Supply Chain Digest ran their 2007 Supply Chain Year in Review, that was summarized in Part I, in an attempt to answer their question, Supply Chain Digest asked seven “thought” leaders, which is their terminology for executives and academics – as there was not a single blogger in the group, what their predictions were for 2008. The responses were printed in the article on Key Trends Impacting Supply Chain Management and Logistics for 2008. The predictions of the executives and academics were the following:

Jim Topkins, CEO of Tompkins and Associates

• Total Delivered Cost will begin to take hold as a concept
• Strategy will become more important
• Enhanced Visibility and Automation will take hold in logistics

Jeff Karrenbauer, CEO of Insight Inc.

• Companies will re-examine their strategic supply chain design decisions with regards to outsourcing
• The required cross-functional focus needed to reduce costs will not get its due in most organizations

Jon Kirkegarrd, President of DCRA Inc.

• The firms that recognize that a fresh approach focussed on value, cash flow, and light, non-intrusive, web-service-based, value-add software components that work with existing solutions and technologies will be the ones that make progress.
• Successful supply chain technologies will become solution/results focussed, not just technology-focussed.
• Businesses will start to understand that supply chain efficiency is linked to price.
• Multi-stage manufacturing that allows for decision postponement and re-purposing of parts in-line with fluctuations in demand across product lines will start to become common.

Adrian Gonzalez Director, Logistics Executive Council of ARC Advisory Group

• Continued Activity & Hype around “Green” Supply Chain
• Software and Service Provider Business Models will Continue to Change
• On-Demand / SaaS will continue to gain traction – particularly in TMS

Larry Lapide, Director, Demand Management in the MIT Center for Transportation and Logistics

• Extensive focus on controlling oil and logistics costs
• More companies will resume manufacturing in-house

John Langley, Professor of Supply Chain Management at the Georgia Institute of Technology

• Globalization will continue to take up a lot of organizational focus as they try to efficiently and cost-effectively manage their global operations.
• The need for Integrated Logistics will increase.
• “Green” Logistics will continue to attract mind-share, but until profitability is proven, market-share will lag.

Gary Girotti Vice President, Transportation Practice of Chainalytics

• Carrier bankruptcies will increase in 2008.
• Freight volumes will continue to fall in the first half of 2008, but will stabilize by the second half of the year.
• The biggest challenge for shippers will be maintaining service levels as carriers exit unprofitable markets and lanes.
• The biggest challenge carriers will face is staying afloat as lower volumes and reduced margins crunch their cash-flow.

Marshall Fisher, UPS Professor at The Wharton School of the University of Pennsylvania

• Store execution will emerge as an important area

Dwight Klappich, Research Vice President of Gartner

• SCM organizations will have to focus more time and effort on tactical and operational issues driven by economic and competitive pressures.
• Supply chain globalization is about to enter a new phase, driven by the recognition by many organizations that their initial off shoring decisions were made with a myopic focus on product cost, and not a thorough evaluation of total delivered cost.

So what does all this mean for 2008? Stay tuned for Part III.

Supply Chain Digest recently ran their 2007 Supply Chain Year in Review where they identified what they believed the top ten stories of 2007 were. In their opinion, the top ten list is as follows:

1. Mattel Toy Recall Fiasco
   Mattel had to recall millions and millions of toys made in China, including those in iconic Elmo and Barbie lines.
2. Oil Nears $100 a Barrel
   Petroleum-based material costs are rising across the board.
3. Green Supply Chain goes Mainstream
   There was an explosion of interest in green issues.
4. Wal-Mart’s RFID Program Stalls, Changes
   Late in the year, Wal-Mart announces a “change in focus” in its RFID strategy, with an emphasis on promotional items, category management trials, and and Sam’s Club pallet location management, confusing suppliers.
5. Port Congestion Disappears
   A modestly slowing overall economy, the collapse of the housing market and new construction, the decline of the US dollar and other factors led to a swift reduction in the volume of US imports.
6. Agflation
   Commodity prices in general, and agricultural prices in particular, saw continued strong price increases in 2007.
7. Wal-Mart Struggles to get its Mojo Back
   Some store sales have flattened, and overall growth has slowed dramatically.
8. Boeing Finds Outsourcing ain’t Easy
   The much praised approach to the 787 Dreamliner falls flat.
9. Mexican Truckers Almost Enter US
   Thirteen years after the NAFTA agreement to let 100 Mexican trucking companies fully operate cross-border, it almost happens.
10. Lawsuits Cite Carrier Fuel Surcharge Abuse
    Suits were filed against multiple carriers that use multiple modes of transportation.

In summary, costs rose, imports fell, the AlGorites gained a foot-hold, and uncontrolled globalization backfired on a large number of Fortune 500 companies. Regardless of the stories you picked, those are most of the major trends of 2007 across the supply-chain as a whole. The only major story missing is that the software and services sector considered to consolidate, with a large number of acquisitions.

What will this mean for 2008? Come back for Part II where we review Supply Chain Digest’s attempt to answer the problem.