Category Archives: Logistics

How Do We Fix The Procurement, Logistics and Supply Chain Disconnect? (Part 1)

First, a history lesson.

Back in the beginning, in 1885, Railroad Barons were building the nation during the Gilded Age, writing the first handbook on purchasing, and managing their logistics and vertically integrated supply chains in house.

But as technology advanced, so did the need for mass production and specialization, and production of components that could be easily, and more economically, produced by a third party started to be done by the third party so the firm could focus on more specialized production in house. But then the Panic of 1893 set in, the Guilded Age began to come to an end, and the Progressive era began.

The Progressive Era, which focused on social and political reforms, also saw continued technological progress as well which occurred as the railroad era gave way to the automotive era (symbolized by the Ford Model T in 1908), the introduction of the first production line, and the need for improved logistics (enabled by Autocar Truck, one of the first motor truck companies) as supply chains slowly lengthened and became more complicated.

These functions were still managed in-house as part of a single function, buying from American companies, even if the materials were coming from halfway around the world (as the American company would buy from the American importer), and everything worked well (unless unions got in the way — but that’s not the subject of this post). Then we saw the New Era, which lasted a little over a decade until the Great Depression happened, which was bad, but it led to the New Deal, which saw more political reforms, and then we got World War II, which, when it ended, led to the post-war economy which ushered in the American Dream for the Consumer and the rise of the management consultancy (and marketing agency) for the Business — where the former had just began two decades earlier.

During this era, we saw the rise of McKinsey that revolutionized corporate structures through the institution of professional management, performance-based pay, and strategic planning. This led to the introduction of downsizing (unnecessary middle management) in the 1960s, the 7S framework in the 1970s (that focussed on aligning strategy, structure, systems, shared values, skills, style, and staff) that introduced the importance of systems, and then the 1980s brought outsourcing of talent and offshoring of unspecialized supply.

This led to the split of logistics from supply chain to manage the transportation from global countries, and the split of Procurement from Supply Chain as that was a back-office function that could be outsourced, and the great divergence began. Once costs started soaring, we saw the introduction of the first dedicated Procurement software in the 1990s, the proliferation of platforms and the rise of Procurement in the 2000s, and the rest, as they say, is history.

Procurement became a completely standalone process, and purchasing became completely separate from supply chain and logistics. During the age of globalization where conflict was low, free trade flowed, and stagflation ruled, everything worked well. But then we got COVID, tariff/trade wars, global instability and increased conflicts, critical strait closures, and supply chains breaking on a daily basis. Decisions made by Procurement months, or years, ago in isolation don’t hold up any more. Neither do processes that assumed sourcing events could take months. Neither do risk mitigation plans that assumed you could just switch to the other supplier in the region (who you gave a volume minority contract to) when the region has been cut off.

The days of Procurement succeeding stand-alone are gone. It must operate in a supply-chain-aware, logistics-aware, and geopolitical aware context. But, for the most part, except for supplier selection in the seven-step-sourcing process of your choice, it doesn’t do any of this. So how do we fix the disconnect?

Logistics is in BIGGER Trouble.

There’s been a truck driver shortage for almost two decades. I remember writing on the estimated shortage of 240K drivers back in 2013.

Moreover, with so many drivers being immigrants or cross-border drivers from Mexico, and the immigration crackdown in the US, it’s only become much worse, as chronicled yet again in the latest #HFSResearch piece.

However, I don’t think their answer of autonomous fleets in the answer. The tech isn’t there yet (as even Tesla can’t deliver fully reliable and safe autonomous vehicles yet, and it’s been working on them the longest in North America), half the states don’t even support testing of such vehicles yet, and, as always with new tech, we’re one bad accident away (as a result of rushed trials) from a major backlash that will stall progress for a decade.

I think it’s time we look back and take lessons from history (which I know most of my American colleagues have forgotten, or you wouldn’t be so enamoured with your current administration that is looking to the 1930s for its administrative policy and looking to the 1880s for its industrial policy), and remember the beginnings of trade. It was horse and carriage (well, mule-and-wagon or donkey-and-wagon) until we got the first cargo ship, which could move mass cargo by sea. Great for port cities, not so great for inland cities. Then the train was invented, and that revolutionized transport (and then travel). Locomotives quickly became more and more powerful, standardized tracks allowed them to run coast to coast, and up to 200 cars of cargo and people could be carried at once, especially if multiple locomotives are used. TWO HUNDRED RAIL CARS.

A flatbed rail car can be up to 89′ in length and 10′ wide.

A standard cargo container, used on ships, is 20′ x ‘8 or 40′ x 8’. A properly engineered flatbed rail car can hold two long or four short containers.

A typical long haul transport truck today is 53′ x 8’6″ (x 13’6″ high). No reason the trailer can’t be replaced with a specially designed 42′ x 8’6″ flatbed that could lock and load a standard 40′ container or that automated systems to lock and unlock couldn’t be designed to easily allow movement between both ships and rail cars AND between both rail cars and trucks. This would considerably shorten the distance that 400 containers (200 flatbeds x 2 containers each) would need to be transported across American roads, and significantly free up the availability of 400 drivers per train (and corresponding lane).

An average long-haul route in the US is 500 miles+! (With many routes up to 800 miles, or more).

An average short-haul route in the US is closer to 150 miles.

Long haul trucking could be reduced by 2/3 if rail was used more and all routes were short haul! Considering long-haul trucking accounts for about 200 Billion miles a year in the US, that’s 120 Billion miles that can be freed up, which greatly reduces the driver need! (If a driver drove 60 miles/hour for 50 weeks a year, that’s 120K miles.) In fact, it reduces the need by almost 100K drivers! It might not solve the entire problem, but it would be a huge dent!

It’s time we start looking back as well as forward if we want to solve the problems of today!

The reality is that over 500 BILLION miles of annual trucking is just too much! Almost 73% of freight by weight should NOT be moving by inefficient truck transport! Trucking.org has some good, and scary, statistics.

This post first appeared in a slightly abbreviated form on LinkedIn.

Why You Need BTCHaaS!

Nine years ago we told you that you needed MROaaS, and you most definitely do, but it’s not enough anymore, now that you can’t predict what your parts are going to cost now that you’re Back in the U.S.S.R, you also need BTCHaaS: Border Transport Cost Heuristics as a Service.

Basically, now that USA border tariffs (and counter-tariffs from Canada and Mexico) are more unpredictable than the weather (where 3 day forecasts in some areas approach 97%, East Coast Canada excluded, and 10-day forecast accuracy is approaching 50%), and come and go on a daily basis, you need a border transport (BT) solution that uses predictive analytics solution that minimizes your tariff impacts that uses cost heuristics (CH) derived from similar prior patterns in similar tariff announcements and withdrawals, costs per day of delay, and spoilage risk.

Basically, you have this dilemma. When a tariff is announced on the border your truck is scheduled to cross for the day it is scheduled to cross, do you

  1. accept is a cost of business, do nothing, and have it cross as normal
  2. send it to a truck stop and tell it to wait for a revised decision tomorrow
  3. turn it back around, unload, and do without (for now)

Depending on:

  • the value of what’s in the truck
  • the risk of spoilage
  • your contractual requirements
  • storage costs on the other side of the border
  • the tariff(s) that will be applied

Your best option on any particular day will vary. For example:

  • if the tariff is likely to be rescinded in the next three days, and you can wait a day or three, maybe you tell the driver to wait and pay an extra one to three days of salary/transport fee
  • if the tariff is not likely to be rescinded in the next three days, but likely within the next few weeks, and the tariffs would be in the tens or hundreds of thousands of dollars, and you can do without the goods for a few weeks, maybe you send the truck to a local warehouse and pay a temporary storage fee
  • if the tariff is not likely to be rescinded at all, and you can do without the goods in the short term, and you are not contractually obligated to take them (which might also be the case if the tariffs are so high that they qualify as force majeure), maybe you turn the truck around and drop them off where you picked them up
  • if the tariff is not likely to be rescinded, and you can’t do without the goods, then you should just cross the border

But that’s not an easy decision to make on the spot. You need to know

  • the transport, and waiting, cost per day
  • the (potential) cost of (additional) spoilage (i.e. 5% of produce may spoil)
  • the (potential) cost of any delay
  • the cost of the tariff
  • the cost of localized storage (plus the additional unloading and loading fees)
  • the likelihood of a decision change within a short time frame (3 days) and a mid-time frame (3 weeks) based on market data and sentiment analysis to tariff announcements

and do all the calculations and make recommendations based on the possibilities for you, a human with human intelligence (HI!), to accept or reject. After all, if the truck is carrying 2 Million of electronics or auto parts, a 25% tariff is 500K, and it doesn’t cost anywhere near that to make the driver wait an extra couple of days (and to hire a few security guards to keep it safe), and will be worth it if the likelihood of a reversal, or significant reduction, is high.

So yes, MROaaS is not enough anymore … you now need BTCHaaS!

There is a Price of Relocating to “Friendly Countries”, but There Are also Corresponding Cost Reductions

This originally posted on January 3 (2024), but is being reprinted in case you missed it due to the rising importance of near/home shoring!

A recent article in El Pais on the price of relocating factories to ‘friendly countries’ noted that according to the European Central Bank (ECB), 42% of the large companies in the Old Continent that it has recently surveyed have resolved to produce in allied countries as a means of reducing risks. However, this relocation carries economic consequences, and international institutions — such as the IMF and the ECB — warn of its impact on growth and soaring prices.

The article is right. Some prices will go up as countries move out of countries in, or likely to engage in conflict, both of the physical (war) and the economic (closed borders, significant tariff increases, rolling lockdowns, etc.) variety, and move to more “friendly” countries. (As far as SI is concerned, it shouldn’t just be “friendly” countries, it should be “friendly countries close to home”. At least companies are realizing that China and/or the lowest cost country is not always the answer when that answer comes with risks that, when they materialize, could lead to skyrocketing costs and losses that dwarf five years of “savings”.

Furthermore, even though 60% of those contacted said that changes in the location of production and/or cross-border sourcing of supplies had push up their average prices over the past five years, this hasn’t been true across the board, it doesn’t have to be true, and some of those could still see savings as they optimize their new processes, methodologies, and supply chain network. (Changes don’t reach full efficiency overnight, and sometimes it is two or three years before you can optimize a supply chain network due to existing contracts, infrastructure, etc.)

Why are costs (initially) going up for many companies?

  • wages: many of the “friendly” countries are more economically mature, or advantaged, with a higher standard of living buffered up by higher wages / better social systems
  • utility charges: in “friendly” countries that are using newer, cleaner, sources of energy or limiting energy production from burning (coal, oil, natural gas) have energy costs that are often higher as the initial infrastructure investment has not been amortized, water costs could be higher if more processing inbound or outbound is required, and so on
  • production overhead: chances are that the factories are newer, required a large investment that isn’t anywhere close to being paid off yet by the owner, and you’re paying a portion of the large interest payment to the investors/banks as part of the overhead

However, it’s important to note that:

  • productivity: will go up when you move to a locale where the workforce is more educated and skilled and is better able to employ automation and modern practices, and thus gets more efficient over time, countering the initial wage increase
  • energy costs: will reduce over time as a solar farm or wind farm can produce renewable energy for decades, with the initial investment often being paid back within one third to one quarter of that time; as a result, energy prices should remain flat(ter) over time than in the locales where they are still burning dwindling fossil fuels (which rise every year in cost) and have not yet invested in renewables
  • overhead: will decrease once the investments are paid back (and the interest payments are gone), which means it can stay flat as other production related costs rise (compared to older plants which will eventually reach a point where the revitalization investment becomes significant on a regular basis)

In addition to:

  • logistics costs: will reduce when you choose a friendly country closer to your target markets (since most freight is ocean freight on fossil fuel burning cargo ships)
  • disruption costs: will reduce as less risk translates into less (costly) disruptions over time

So while costs may go up a bit at first, at least relatively speaking, they will go down over time, especially as network and process optimizations are introduced and obtained from experience with the new network, suppliers, and technologies.

Don’t Abuse Lean and Mean — The Four Horsemen of the Shipocalypse Don’t Need Any Help!

If you are in Procurement or Logistics, you know that the time of cheap, fast, and reliable — which we had for almost two decades, is now long gone and likely to never return. That is because the four horsemen have turned their attention to global trade … specifically, global logistics … and have brought:

  • war: the conflict in the Red Sea, one of the two most important waterways in the world, has made most transport almost impossible
  • famine: the droughts in Panama, the other of the two most important waterways in the world, have reduced its capacity by at least 1/3 for at least 1/3 of the year
  • pestilence: plague has returned, taking down the necessary workers (and closing the necessary ports) with it
  • death: corporate greed and union response have stepped in here to bring certain death to global supply chains if things don’t change:
    • oil prices: the more they go up, the more unaffordable our dirty ocean freight becomes
    • limited capacity: greedy corporations scrapped ships during the pandemic for insurance claims, sometime ships that hadn’t even made a single voyage … and now that they’ve learned they can raise prices up to 10X pre-pandemic prices for a single container during peak season, and the richer (luxury good) companies will still pay the rates, they have no incentive to bring capacity back
    • union demands: inflation has been rampant, workers have been impacted, and they want their pre-pandemic buying power … and, as I’ve noted before, labour unrest and strikes is now one of the biggest risks in your global supply chain

As a result, the last thing you want to do is help the horsemen bring your supply chain to a a halt, but that’s exactly what you keep doing day in and day out as you keep pursuing, and applying, lean, mean, and JIT (just-in-time) where it doesn’t belong.

As noted by the author of this recent LinkedIn article on how you have (less than) two weeks to stave off supply chain chaos, we’re at the point where a one day stop in any part of the supply chain turns into one week to recover from, a one week stop in any part of the supply chain turns into one month to recover from, and a one month stop in any part of the supply chain totally f*cks us for a year! (Since the effects are not linear but exponential!) And it’s all your fault.

Lean and mean was supposed to be about efficiency in manufacturing and lack of waste, not slashing inventory to dangerous levels, not slashing capacity to dangerous levels, and was certainly NOT meant to be used by idiot MBAs (which stands for Master of Business Annihilation) with no concept of what the corporation does running global corporations off of spreadsheets alone!

So stop applying it to inventory and capacity! Thank you.