West of the Atlantic, there are two big logistics bottlenecks. One is the US border with Canada (where documentary requirements make in-transit goods a cumbersome process). The other is the US border with Mexico, where there have been long standing conflicts over cross-border trucking. East of the Atlantic, you have EU security programs that are not compatible with US programs, and also make for bottlenecks.
In the last few weeks, progress has been made on two of the three big bottlenecks as the US reaches agreement with Mexico on cross-border trucking and agrees to mutual supply chain recognition with the EU.
As per the article in Logistics Management, on Wednesday, July 6, U.S. Transportation Secretary Ray LaHood and Mexico’s Secretaría de Comunicaciones y Transportes Dionisio Arturo Pèrez-Jàcome Friscione signed documents to resolve the long standing conflicts between the trucking industries of the two countries that resulted from the elimination of the pilot program for cross-border trucking in 2009 as part of the Omnibus Appropriations Act. (In response to the act, the Mexican government stated it would place tariffs on roughly 90 American agricultural and manufactured exports as payback. The tariffs amounted to $2.4 Billion of American goods.)
The agreement, focussed on a safety-first program, will lift these tariffs and provide opportunities to increase Mexico-bound US exports and create job opportunities. Furthermore, Mexico will provide recriprocal authority for US carriers to engage in cross-border long-haul operations in that country.
In addition, as per this article in JOC Sailings, the US and EU plan to implement mutual recognition of their supply chain security programs by the end of October. Specifically, mutual recognition between CBP’s C-TPAT and EU’s AEO program will occur, as per the joint statement between the European Commission and the US Department of Homeland Security. Once this is achieved, cargo will flow more smoothly between the US and the EU.
Recently, the Harvard Business Review ran a special series of articles and posts on Making Collaboration Work. Some of these articles were quite insightful and a good read for any Supply Management professional looking to improve the efficiency and effectiveness of her supply chain. In this two part series, we are going to address the insights from three recent HBR posts that capture some key insights.
In collaborate to grow the pie, not just split it, the authors tell us that far too many retailers and manufacturers opt for pie-splitting instead of collaborating to come up with pie-growing strategies and, as a result, the majority of money spent each year on trade promotion just shifts share from one retailer to another or one manufacturer to another. This results in short-term, unsustainable results where companies are merely “renting share” and destroying long-term industry profitability for everyone involved.
As support for their argument, they reference a recent Neilsen Company macro study analyzing trade promotion across 30 grocery categories which found that only 13% of trade dollars actually result in category growth while 15% result in brand switching, 17% result in store switching, and a whopping 55% just results in subsidized volume (where no new consumers or incremental units are purchased). In this last case, customers who would have purchased anyway get a discount while corporate profits are gutted. And while a manufacturer or retailer might think that consumers only want lower prices, a recent analysis across dozens of categories by the Cambridge Group found that only 10% to 30% of households are truly price sensitive and the rest (who make up the majority) want new benefits and innovation and are willing to pay for them.
Thus, manufacturers and retailers need to collaborate, upfront, on innovation strategies with the consumer in mind and grow the pie. If they do, they can actually increase market share, either by creating a new market (because the product is the first to sail a blue ocean) or by robbing share from a different market. Jimmy Dean is an example of the latter. By expanding its frame of reference beyond just breakfast sausage into convenient breakfast meals centered around sausages, it grew the overall category 25%, drove 2/3rds of the growth, and tripled its frozen breakfast sales. Manufacturers and retailers both won by stealing sales that would have likely gone to fast food establishments instead.
In Part II, we will discuss two more HBR posts that address the inherent value of collaboration.