Monthly Archives: May 2013

Summer is One Month Away. Is Your Supply Chain Ready?

It should be. Why? The top three challenges you are likely to face this summer are the exact same as the top three challenges you faced four years ago in 2009. Back in 2009, Kelly Thomas, Group Vice President of Global Accounts at JDA and a regular contributor to JDA’s Supply Chain Nation blog published a guest contribution in the Supply Chain Digest on the Top 3 Supply Chain Challenges This Summer, which are also the Top 3 challenges your supply chain is going to face again this summer because, as we all know, the economy is cyclic and some cycles are faster than others.

So what are the challenges?

1. Cost Containment

Costs are soaring again. As SI has stated repeatedly, there are no more savings to be had in this type of inflationary market. The best you can hope for is cost avoidance, and in some categories, containing costs to reasonable year-over-year increases. With staple food reserves still low, burgeoning demand for energy and metals in Asia, and a slowly recovering global market, costs are going up — and can be expected to do so for some time. The time of net zero inflation is over. The best we can hope for is we don’t return to the 80’s. While those of us who have been around for a while may have fond memories of the 80’s as the decade that gave us PCs and Pac Man, we also have not-so-fond memories of rapid inflation at the start of the decade (which we try to forget). Containing costs is going to take your fanciest footwork (so let’s hope your old timer purchasing pros who weathered the storm in the early 80’s are still around to give you some advice) and may not even be possible if you don’t have a good handle on

2. Risk Management

Considering that, as SI has been pointing out for over a year now, at least 80% of organizations are vulnerable to a major supply chain disruption, every company should have someone responsible for managing risk. However, two thirds of company’s don’t. This is one of the reasons risk, and risk management, continues to be high on the challenge list. But I have to be honest. It’s going to be hard to get a good grip on risk if you don’t have a handle on your number one supply chain challenge this summer, which is

Supply Chain Visibility

Let’s be honest. In today’s multi-tier, multi-national supply chain, it’s hard enough to get a handle on this at the best of times. But during the summer, where it’s likely that there won’t be a single day where there isn’t at least one key person vacationing somewhere unreachable and not watching that everything is going as it should, something is going to get missed. Something is going to go wrong. The only question is whether the screw-up is minor, such as shipping 1000 units instead of 1100, or major, such as shipping merchandise intended for the US to Europe instead and having it seized and destroyed because it violated WEEE or some other environmental regulatory act that is stricter than what it is currently in the US.

Considering the complexity of the modern supply chain, the speed at which it is operating, and the costs associated with even a minor mishap, this is one area where you definitely need a software solution to help your organization keep a handle on things. One such solution is that offered by Resilinc, which is covered in these recent posts:

Are You Ready for Africa?

Probably not. Should you be?

Probably not yet. But it should be on your radar.

A recent article over on Inbound Logistics declared Africa an attractive target for foreign exploration, especially in Europe and Asia, due to abundant natural resources, a growing labor force, and its proximity to the European and Asian consumer markets. And while I agree that it looks attractive from an exploration perspective, I don’t think its ready from an expansion perspective. For starters, there’s the social unrest, the need for more government collaboration, and the (utter) lack of logistics infrastructure (in many places), as pointed out in the article. In addition, there’s the rampant piracy (which appears to be a sanctioned activity and standard operating practice in the Somali government who jailed a US pilot for bringing money into the country to secure the release of foreign vessels held by Somali pirates), the child and slave labour along the Ivory Coast (especially in the chocolate supply chain), and the constant (civil) conflicts in many of the African nations.

Simply put, Africa just isn’t ready to join the global economy on the main stage, and won’t be for at least a decade (or two). Unless you have a large bank account and are willing to build your own infrastructure, hire your own private security army (of soldiers to hire), and set up your headquarters somewhere where there is no Foreign Corrupt Practices Act (FCPA) or Bribery Act because you will have to grease the hands of the local (underpaid) civil servants to get anything done, you’re probably not going to succeed.

In other words, if you’re not a Global 500 multi-national that has already conquered China and India to the extent possible and needs to start preparing now for the 2025 African conquest, it’s too early. The only exception SI can see is if you’re a Chinese or Indian Company and believe that you need to outsource to lower costs. Then, since the rest of Asia is in the same cost bracket, Africa is the only place left that potentially has lower labour and overhead costs. The article states you should also be looking at Africa if you need gold, diamonds, precious metals, timber, oil, coffee, cotton, and cocoa — but all of this you can get elsewhere. There are big Diamond mines in the North (with Russia being the largest producer and Canada finding new deposits in the arctic as well). Australia is the second largest Gold producer in the world (as well as the third largest diamond producer). Everyone knows that Canada has rocks and trees, so you can get your timber in the North too. China controls the precious metals market. And nine countries produce more oil than Nigeria, the biggest oil producer in Africa. (They may tap out some day, but there are lots of oil sands and tar pits in the North that can be tapped.) Get your coffee from Brazil or Venezuela or even Vietnam. China and India are the world’s biggest cotton producers. Cocoa? Africa, and the Ivory Coast, leads here but the Republic of Indonesia is the second largest producer and Brazil is the sixth. Ramp up production in those countries. Grow a few less soybeans if you have to. 😉

Obviously you’ll need to be in Africa someday if you’re big, but not in the next decade. Let the wealthy global multinationals pave the way and make the mistakes and expand when the economy is ready for it. For now, you still have to get Asia under control.

India is Bigger and Bigger Business By the Day!

While it will likely be at least twenty-five (25) years before India overtakes the United States in GDP, companies are starting to bet big on India, including Anglo-Dutch multinational Unilever that bet big on India with a US $5.41 Billion open offer for a 22.52% stake in its Indian subsidiary Hindustan Unilever Ltd. That’s big, big bucks as far as India is concerned. If you look at the Global 500, and their revenues for 2012, only seven exceeded 30 Billion in Revenue (Oil & Natural Gas, Tata Motors, State Bank of India, Hindustan Petroleum, Bharat Petroleum, Reliance Industries, and Indian Oil). Five of these are in the petroleum industry, one is a bank, and one is an automobile company. None are CPG.

This is a big step for Unilever, who obviously sees India as the next China and wants to guarantee their stake. If the deal goes through, it could be the first of many. In addition to having to Mandarin-ize Your Supply Chain, you may have to add some Hindi to the mix. Are you ready?

No Matter Where You Stand, There’s Always Room for Improvement!

As pointed out in our recent post on Where We Will Find Solutions to our Supply Management Problems, Denmark may have taken fourth place overall in the Global Creativity Index, but it was only 14th in tolerance. Let’s hope it remembers this on the 20th anniversary of the
Maastricht Treaty Referendum which resulted in riots in the NØrrebro area of Copenhagan, which was the first time since World War II that police opened fire against civilians (and injured 11 demonstrators). Protests should be peaceful — on both sides.

Need a Truck?!

Believe it or not, counter to every nerve in your body, you should be buying a portion of your freight business on the spot market! Take a minute, get those gasps out, and SI will explain why.

Simply put, for the vast majority of product-based companies, freight is the one category that is inefficient from a contract perspective. At first thought, this might not make sense as efficiencies and cost savings typically come from good planning, but this is precisely why you can often get significantly better rates spot-buying your freight than contracting it.

To see this, you have to look at the situation from your carrier’s viewpoint. It is most efficient, and most profitable, when it’s trucks are kept full. Your contracts keep your carrier’s trucks full at most half the time. Specifically, your contracts keep your carrier’s trucks full from point A to point B. Maybe it has a few pallets to take back to point A, but that doesn’t fill the truck, and it’s only efficient (from your point of view) if the carrier waits until the truck is full to take the pallets back. In order to maximize efficiency and profitability, the carrier needs business from point B back to point A. The chances of the carrier getting precisely this business when competing against 70,000 other carriers and only getting called to the bid on one of every 10,000 or 20,000 freight contracts being tendered are probably 40,000 to 1. Not good odds.

Plus, even if the carrier’s lucky enough to get business that geographically fills, say, 80% of the route from B back to A, chances are the timing doesn’t line up right and the truck ends up sitting idle for a few days on a regular basis, which also takes away from efficiency or profitability.

Because of this, and because of the fact that the carriers have to hedge their bets when you ask them to contract three, six, and twelve months out, you end up paying, on average 14%-15% more for contracted freight than you do freight purchased efficiently on the spot market (if you know what you are doing or use a good freight brokerage). In particular, even if you’ve done a great job on your contract, you’re probably paying, on average, over $1,400 for a load that you could get for $1,300 or less on the spot market.

That’s why Sean Devine and John Labrie, each with over a decade of transportation sourcing and optimization (at CombineNet, Emptoris, and Con-Way), built — the first automated truckload brokerage service. This service, built on an advanced real-time truckload optimization model, takes your requirements, searches their database of over 70,000 carriers (and current spot market prices) across the United States (each with an average of 4 trucks), and gets you a quote that is, on average, $100 less than you would expect to get otherwise (buying yourself with a limited selection of carriers), and $200 less than you would if you were contracting months in advance (based on an average truckload price of $1,400+ and an average savings of 15%).

It’s quick, simple, and almost obvious — and that’s what makes it so useful. As a buyer, all you have to do is define the acceptable authority types (contract, common, broker), the acceptable / required equipment types (bus, van, flatbed, refrigerated, dry van, etc. — they allow for 16 different types), the cargo authorities (private, property, etc.), the safety alerts you will (not) accept (unsafe driving, driver fitness, etc.), the required number of power units, and where you need the trucks and the system will identify the relevant carriers. Define your shipping requirements, and it will generate binding quotes. It’s that simple, and if you use the right mix of contract and spot-buy freight, it could save you a lot of money.

Please note that the right mix is key! Even if the 15% savings are there for you, it’s probably not a good idea to put all of your freight on the spot market. You need to know you have enough reserved freight for critical products (at critical times) and carriers need to know they have enough baseline business to sustain themselves. the doctor‘s gut is that you probably want a 2 to 1 ratio between contract and spot market, on average. In some industries and/or categories, this ratio will be higher (because, let’s face it, you don’t care if you get those office supplies a day late), and in others it will be lower. But a 2 to 1 ratio is probably a good starting point.