Monthly Archives: March 2013

Despite the fact that the US has a 100 year lead on China on the rails

China is kicking the USA’s @ss when it comes to rail. A couple of months ago, China launched the world’s longest high-speed rail route from Beijing to Guangzhou, in South China, which connects the two cities that are 2,298 km apart, in an eight-hour commute! (Source: China Daily) That’s about two and a half times faster than you can commute between two cities using the fastest ground transportation in the US.

It’s bad enough that there’s no Free Market on the Rails, but the fact that this appears to have completely stalled Rail development in the US is just insane. There’s only one route in the entire US that exceeds 175 kph, official high speed, and the average speed over the line is 135 kph. In comparison, the high-speed trains in Japan and China operate at an average of 220 kph and 285 kph!

The sad thing is that it will be at least 15 more years before the US has a decent high-speed rail line, and that’s only if the California High-Speed Rail Authority actually starts to build their high-speed rail line between Anaheim and San Francisco, which seems to be perpetually stalled (as construction has not yet begun and the completion date for the first phase has been pushed until 2018 in their efforts to save a dime while losing the dollar). And if the California High Speed Rail Authority fails, then we’re looking at 2040 before Amtrak builds its high-speed rail between New York and Washington. (Wow! Twenty-seven years to build two hundred and thirty miles worth of track. Are they serious? At the rate China builds high-speed rail lines, they’d have it built in five and a half months! The railroad tycoons must be doing cartwheels in their graves!)

If China continues to progress in leaps and bound across the board in supply chain infrastructure while the US sits still, the Economist will be right and China will overtake America as the world leader before the end of the current administration (which is too busy appeasing the fat cats and slashing its own productivity to notice). It’s a sorry state of affairs, but maybe you should be manufacturing in China — for the emerging Chinese consumer!

Adoption a Problem? Incentives are the Answer!

Just make sure they are the right incentives.

As per this article by Mitch Free on Forbes.com on the Best Advice a CEO Ever Received, your incentive plan works. You will get the results you incentivize, so be careful of and monitor for unintended consequences.

As per the article, Mr. Free couldn’t understand why, when he took his car in for a wash, the attendant was so insistent in fixing a “pitting” on his windshield that he couldn’t see that the attendant even offered to do the fix for the same price as the wash and give the wash for free, which did not make much sense. So Mr. Free emailed the owner, who stated that he was paying a $5 commission on window repair sales, and none on car washes, in an effort to increase window repair sales and that Mr. Free’s e-mail explained why there was a big spike in people getting their windshields’ fixed but not getting their car washed. It was an unintended consequence of the incentive plan.

The same holds true where Supply Management software is concerned. Adoption will depend on the incentive plan. A proper incentive plan will go a long way to getting utilization, but an improper one will go even further to jeopardizing your supply management returns. For example, if you made a worker’s bonus contingent on using the new e-Procurement system, and then calculated a certain percentage of his bonus based upon total spend put through the system, you might find that, at the end of the year, that worker put as much spend as he possibly could through the system. And while you might think this is the intended consequence, you might also find that spending overall on indirect categories such as office supplies, computer and electronics equipment, and temp services increased 10% year over year. Why? Instead of doing quick RFXs and then negotiating bulk purchases with the lowest bidder, the buyer bought everything he could through the vendors already integrated (via EDI, punch-out, etc.) with the e-Procurement system, even though most of the purchases were for off-contract items that were, on average, 10% higher than rates that could have been obtained with a new sourcing contract with another vendor.

In this scenario, the right incentive plan would be to incentivize buyers on achieved year-over year savings on spend under management, where spend under management is that spend that is negotiated or managed through a supply management system, whether it is the e-Procurement system, the e-Sourcing system, or the Contract Management system. This way, the system will be used when it’s appropriate, and the buyer is only rewarded when savings are achieved.

Free Market? What Free Market?

In the developed world, we supposedly have a free market, defined as a market structure in which the distribution and costs of goods and services, wage rates, interest rates — along with the structure and hierarchy between capital and consumer goods — are coordinated by supply and demand unhindered by external regulation or control by government or monopolies. (Dictionary.com) However, every time you turn around these days, governments are imposing new policies to restrict free trade (which allows for a free market on a global scale) or failing to abolish old policies that allow monopolies to persist in this day and age.

For instance, after taking steps to bust up the telco monopolies, the U.S. has now made it illegal to unlock your cellphone. (Read the full decision if you like.) In other words, instead of being forced to use one monopoly, you now get to choose between six mini-monopolies. (Now, it’s true that the FCC will investigate the U.S. mobile phone unlocking ban, but it’s no guarantee they will reverse the decision.) The absurdity of this cannot be put into words. (Imagine if you had to buy your TV through the cable company and you couldn’t use the TV again if you switched cable providers. Does this make sense? Basically, the law is saying a telco carrier gets to choose how you use YOUR phone.)

But this isn’t what I’m ranting about today, as this is a Supply Management blog after all. My rant today is about the fact that it’s 2013 and we are still subject to captive shipping in the railroad and inland barge industries because there is no mandated reciprocal switching (in the United States). So, not only are you forced to use the carrier that owns the line your port/warehouse/etc. is located on, but you cannot ship to a destination if that carrier does not service it. Not only does this increase shipping rates by an average of 20% by some accounts, but it forces many shippers to use long-haul trucking way more than they would otherwise need to.

The fact that captive shipping has not been eliminated is costing the U.S. economy billions of dollars each year. As per a recent report issued by the National Industrial Transportation League (NITL), and summarized in DC Velocity, the introduction of new switching rules that would allow for limited reciprocal switching between the nation’s four major railroads could save rail customers up to 1.2 Billion a year. Simply allowing a (truly) captive shipper or receiver to gain access to a second rail carrier if the customer’s facility is located within a 30-mile radius of an interchange where regular switching occurs would shave up to 1.2 Billion off of shipping costs according to the accepted Revenue Shortfall Allocation Method (RSAM) formula. (So imagine how much could be saved if reciprocal shipping was mandated across the board or more freight shipped rail instead of truck!)

The Surface Transportation Board (STB) could use the powers granted to it under the Staggers Rail Act of 1980 and order the railroads to create reciprocal switching agreements between each other to eliminate captive shippers, but since they’ve had thirty three years to do this, and have made zero progress, it’s not likely to happen. So we’re going to have a monopoly until, as the DC Velocity article notes, angry shippers descend on Capitol Hill and demand that Congress update the Staggers Rail Act to include mandatory reciprocal switching. Maybe then we’ll finally have a free market on the rails two-hundred and fifty years after the first railroad* (Montresor’s Tramway) was built in the US.


* Note that the first railway in North America, drawn by horses, was not built in New York, but in Nova Scotia forty-four years earlier to support the construction fo the Fortress of Louisbourg in Cape Breton! (Source: Nova Scotia Railways)

Supply Chain Planner — Here are Three Solutions to Nearly Every Problem

A recent piece over on Supply Chain Cowboy on Three Silver Bullets to Solve Nearly Every Supply Chain Fire simultaneously enthralled and shocked me because I cringe every time I hear that air freight is one of the three solutions to your current supply chain dilemma, as it is a prime indicator of a major supply chain issue — specifically, lack of planning.

But there are ways to avoid the issue. The first one is:

Supply Chain Forecasting Systems

A good, modern, supply chain forecasting system is the best way to figure out not only what you are going to need, but when you are going to need it and when you are going to have to get the orders in and production started in order to meet shipping deadlines and avoid the need for air freight.

The second way to avoid the issue is:

Supply Chain Visibility

(Near) real-time visibility into where your stuff is from your suppliers, their suppliers, and their raw-material suppliers. All delays have ripple effects, and the best way to prevent a hiccup, or disruption, that will force you to have to use air-freight is to have real-time visibility all the way through your supply chain so you can be aware of a potential issue as soon as it happens.

And the third silver bullet, I’m sad to say, is:

Standby Air Freight

Good forecasting will significantly reduce the number of emergencies and the number of times you have to ship air-freight to meet a deadline, and good supply chain visibility will reduce this number even further as you will be able to order from secondary suppliers or ship through back-up carriers when hiccups or disruptions do arise to meet the deadlines laid out in your forecasting system. That being said, no technology will completely eliminate the need. There will always be unexpected events that will cause interruptions at the last minute where the only recovery option is to air freight reserve stock. If the Super Panamax ship gets delayed a week in port because of customs issues after your cargo is loaded, there’s nothing you can do. Or if a second tier supplier gets cut off because of a civil uprising and you have to arrange for the first tier supplier to get replacement product from another second tier supplier further away, there may be no other way to get the product fast enough. That being said, the number of instances where there is no way but up should be few and far between with good supply chain planning and visibility systems.