Category Archives: Supply Chain

Sustainable Supply Chains Sacrifice China! (Most of the Time.)

Last Friday we posted China is the Enemy because, especially where your supply chain is concerned, China has just demonstrated what SI has known for over a decade — it is the enemy. (This isn’t the only situation where China or the CCP is the enemy, but those are different rants. Note that we do NOT equate China or CCP with Chinese people. Most Chinese are NOT the enemy of your supply chain or democracy just like most Americans are NOT the enemy of intelligence and common sense.)

Long time readers will know that in the naughts, SI spent a lot of bandwidth telling your deaf ears that you should be investing heavily in nearshoring and home country sourcing because of the dangers of outsourcing in general, and, the dangers of oversourcing to a specific country, like China, in particular — which have finally become very apparent. It’s too bad it took a freakin’ pandemic to make clear how dangerous it is to outsource so many critical products and JIT materials to a country halfway around the globe, especially when such sourcing in bulk across the industry leads to the lack of capacity close to home due to factory closures and talent evaporation.

There’s a reason the doctor told you two weeks ago to remember the 80’s (and the early 80s in particular) … and that’s because that’s the last time most multi-national corporations in the Americas got outsourcing right … when they were near-sourcing to Mexico (who should build the wall just to keep Trump out, but that’s yet another rant for another day).

Let’s face it, some stuff just shouldn’t be sourced from home. Stuff that’s not critical, stuff that’s very expensive to make at home (but easily trucked across a single border) for various reasons (which can go beyond labour to energy costs if there are no affordable renewable sources nearby, transportation costs for raw or unprocessed materials are ridiculous otherwise, etc.), or stuff where most of the raw materials or necessary environmental conditions (for growing, mining, etc.) are just not present at, or near, home.

But when you consider a typical organization, how much stuff really falls into this category? First of all, you have to exclude any product for (re)sale that’s a primary profit line. Then you need to exclude any raw material or component critical to production unless you just can’t get it nearby. Then any product necessary for security or safety. And so on. At the end of the day, you don’t have much left, and if you’re doing the analysis right, you’re going to be left with:


  • raw materials and products just not available nearby (because you need certain growing conditions, large deposits of a mineral only found in certain geographies, etc.)
  • processed materials or chemicals where the raw materials are very expensive or dangerous to transport
  • products unique to a culture or region
  • novelty or other items not critical to your business

which (before the short-sighted wall-street loving common sense hating clueless and unskilled consultants of the late 80’s and early 90’s, like Steve Castle, put everything into the outsourcing bandwagon and blinged it out beyond belief) were the only products a company would outsource halfway around the world and still the only products a company should be sourcing from halfway around the world. Everything else should be near-sourced, and if really critical or the cost differential is small, home-sourced.

This also means that just shifting everything to another country in the BRIC, and India (which is ruled by a more open, transparent, and dependable democracy) in particular, is also NOT the answer. (They may not be the enemy, but they are still NOT the answer.)

So, unless you want your Supply Chain to completely collapse after the next global disaster, go back to basics, remember the smart outsourcing decision from the 80s, reopen those Mexican factories, and start near-sourcing again. And then, where you can, bring it back (close to) home.

Supply Chains in 2020 …

… are going to be hard to predict, and more complex than even the true experts are predicting. Why?

1. Tariffs, Trade Wars, and Escalating Tensions

Once upon a time, tariffs were well understood, changed rarely, and could be easily calculated into total cost of ownership equations. This allowed an organization to make long term sourcing decisions with a solid understanding of long term costs. But with trade wars on the rise, tensions escalating, and tariffs being introduced and increased on an almost daily basis … no sourcing decision is safe beyond the minute it is made.

The situation is not going to get any better, and, in fact, might get worse. As a result, the ability to track not only costs, but tariffs, tensions, and risks thereof is going to get more complex than even the average expert expects.

2. Carrier Complexity

Carriers continue to come and go at the regional and local level (as a result of recently introduced or increased insurance requirements in some countries), ocean carrier availability depends on overall demand, suitability depends on costs which depend on availability and unpredictable energy costs, and air carrier availability depends on plane availability (which is affected when planes get grounded), weather and the non-occurrence of natural disasters (such as volcanic eruptions and hurricanes and severe thunderstorms that ground airplanes), and, of course pilot availability (impacted by strikes).

Then we have the risks of war closing off routes and even downing commercial planes. The risks of regulation limiting driver, pilot, conductor, and captain availability and/or putting carriers out-of-business. And of course the risks of escalating high-tech theft, including theft from moving vehicles.

3. Automation and AI

Automation is taking humans out of the equation, and AI is threatening to take even more out. This isn’t a good thing. Automation can streamline tactical processing and information gathering and processing, but not strategic decision making. And despite what some enthusiasts may claim, AI does not improve the situation … in fact, it makes it worse.

You see, with so many unknown variables across such a broad spectrum, no AI solution can even know all of the data to monitor, yet alone interpret it all properly when there is no foundation to measure against with so many new situations cropping up daily. AI will work the 90% to 95% of the time that the statistics says it will, but will fail in the remaining situations, and fail miserably. All of the savings or efficiencies the solutions will deliver across the first 19 solutions will be undone, and then some, in the 20th situation when the solution goes unchecked.

Even without getting into specifics, supply chain complexity will be a challenge in 2020. And, if things get worse, it could be a nightmare. We hope you’re ready.

Aspects of the Tax Efficient Supply Chain

Many companies overlook function-based tax planning where the supply chain is involved. Considering that tax reductions, or even tax payment delays in Free Trade Zones can save a company millions and millions of dollars, and free up millions more in working capital, tax considerations should play a major role in your supply chain, and in your supply chain finance, efforts — especially now that tariffs are skyrocketing and you need every source of savings you can find.

When you consider that tax-planning affects both supply chain steps (including supply, distribution, retail channels, and customer delivery) and supply chain management processes (including procurement, EDI, merchandising, financing, branding, and asset management) and that it applies both above-the-line (taxes that impact operating income) and below-the-line (taxes that impact income-based taxes), it has far reaching implications. Furthermore tax issues permeate every aspect of identifying, acquiring, importing, transporting, distributing and selling goods and tax planning can impact almost every aspect of the supply chain. This means that tax savings can be almost anywhere. Some of the possibilities that have been noted on this blog in the past include the following:

  • Procurement
    Ownership of the transaction is key as it allows the taxpayer to determine the subject matter, value of each component, and the appropriate jurisdiction, because the right balance can minimize tax.

    • in many states, intangible assets are not subject to property tax — thus, including a warranty cost in a capitalized asset unnecessarily increases a company’s property tax base
    • in many states / jurisdictions, electronically downloaded software is not subject to sales tax
    • disconnecting volume or contract inducement payments from the purchase of the underlying property can cause sales or property taxes to be overstated
    • appropriate planning can often reduce customs and duties
  • Brand Management
    Brand management also has tax implications.

    • the determination of where branding occurs in the supply chain, and thus where value is added, determines the situs of taxability and the value of goods for import, export, and tax purposes
    • the ability to license and protect IP associated with the brand often impacts the jurisdiction of income taxation
    • the situs of where IP is held impacts the tax costs of dispositions
  • Merchandising and Marketing
    Critical in retail operations, they carry their own tax implications.

    • site selection determines property tax
    • capitalization of store design costs have tax implications
  • Finance
    Finance structuring can have significant tax implications.

    • the capital structure of a legal entity can impact its franchise tax profile
    • internal leverage can reduce state income taxes in some jurisdictions
  • Customer Relationship Management
    There are tax implications in building an infrastructure to compile and store customer information.

    • there are state income tax implications wherever such data is stored and maintained.
    • an ability to license and protect IP impacts the jurisdiction of income taxation
    • capitalization of CRM software has property tax implications
  • Distribution of Asset Management
    Distribution management is more than just minimizing logistics costs.

    • an incorrect valuation of inventory can lead to higher taxes
    • some jurisdictions have sales tax exemptions for transportation equipment in inter-state commerce
    • distribution activities that are not separated into separate legal entities can expose a company’s major profit centers to unnecessary multi-state income taxation
  • Retail
    • the employee-intensive nature can lead to process-based payroll tax incompliance and / or unnecessary over-payments
    • state income tax savings can often be found on international distribution assets
    • inefficiently designed gift-card programs can cause unnecessary escheatment of funds

Furthermore, this might just be the tip of the iceberg in tax savings opportunities available to your supply-chain based business. Especially when you consider the numerous benefits of tax-efficient procurement, which include:

  • prevention of incorrect or duplicative taxation
  • matching subsequent rebates or discounts with original purchases to reduce the overall taxable purchase price
  • structuring the transaction to fit within a statutory or regulatory exemption
  • unbundling taxable items from non-taxable items
  • identifying taxes that can be reclaimed

In addition, tax-efficient procurement will:

  • improve the sales tax audit trail and reduce the time required to respond to audits
  • allow for more efficient refund claims when errors have been made or the corporation is entitled to a tax rebate / refund
  • greater certainty regarding tax requirements

So get tax efficient. And maybe you can at least counter all of the duties and tariffs being imposed in the trade war.

Algorhythm: Twenty Years Later and the Optimization Rhythm Has Not Missed a Beat

It’s been almost a decade since we covered Algorhythm (Part I and Part II), and that’s because the last time the doctor caught up with them mid-decade, they were deep into creating their new accelerated cloud-native rapid application development platform, called AppliFire, with native mobile-first development support capabilities. And while it was very interesting, it was not Supply Chain focussed at the time, and not the core of what SI covers.

But fast forward about five years later, and Algorhythm has re-built their entire Supply Chain Planning, Optimization and Execution Management platform on top of this new development platform and now has one of the most modern cloud-native suites on the market — which not only has the capabilities of big name peers like Kinaxis, E2 Open and Infor, but also the ability to run on any mobile platform with seamless integration across modules and platforms.

And their optimization capabilities are still among the best on the market, and possibly only rivaled by Coupa Sourcing Optimization (powered by their Trade Extensions acquisition) — demonstrated by the fact that whether you are dealing with a demand plan, manufacturing plan, production plan, supply plan, logistics plan, route plan, or any other plan supported by the system, their system can find the optimal solution no matter how many demand locations, plans, sites, suppliers, products, lanes, etc. — and can do so rapidly if the user doesn’t overload the scenario with unnecessary constraints. (Even without constraints, these models can get huge, as the doctor knows all too well, but yet they solve rather rapidly in the Algorhythm platform.)

The Algorhythm suite of twelve (12) integrated Supply Chain Planning, Optimization, and Execution Management Modules is not only one of the most complete end-to-end suites on the market, but one of the most seamlessly integrated as well. It’s very easy to take the output of the “Demand Planner” (which allows the entire organization to collaborate on forecasts) and pump it into the “Manufacturing Network” (which integrates with the “Distribution Network” and “Inventory Planner”) to create a manufacturing (site) plan and then pump that into the “Production Planner” to create a manufacturing schedule by site and then push that into the “Logistics Planner” to determine the best logistics plan and then push that output into the “Route Planner” to optimize lanes and so on. (The suite also includes a “Supply Planner” to optimize individual shipments for JIT manufacturing; a S&OP planner to help sales and operations balance demand vs. supply; a “Manufacturing Execution System” to break PDI (Production Parameters) down, fetch actual production data, and validate results; a “Distributor Ordering” Management module to automatically create distributor orders across thousands of distributors; and a “Beat Planner” to optimize last mile delivery for outbound supply chain for distributors or CPG companies in geographies — like Asia — where last mile is difficult (due to inability to send large trucks, need to restock daily, etc.) With the exception of strategic sourcing and initial supplier selection, they basically have inbound demand to outbound supply covered in terms of supply chain optimization and management once you know the suppliers you are going to buy from and the products that are acceptable to you.

The UI is homogenous across the suite, and the modern web-based components such as drill-down menus, buttons, pop-ups, and so on make the suite easy to use — especially when it comes to tables and reports. The application supports built-in dynamic Excel like grids and tables which can be altered dynamically on the fly with built-in pagination to make navigation and view-control navigable, especially on tablets (for users on the go). It also supports standard (Excel-like) charts and graphs with drill-down, as well as modern calendar and interactive Google Map components. Navigation is easy, with bread-crumb trails so a user doesn’t get lost, and response time is great. It’s powerful and useable, which is exactly what you need to manage your supply chain on-the-go.

There’s a reason they have some of the biggest names in the F500 as clients, and that reason is their unique combination of

  1. power,
  2. ease of use, and
  3. and understanding of the Asian supply chain needs (especially around last-mile delivery).

The last point is especially relevant as many of the big name American (and even German) supply chain companies don’t really understand the unique complexities of (last-mile) supply chains in India and Asia. However, Algorhythm’s unique capability combined with their understanding has made their platform a force to be reckoned with in a market that is one of the hardest in the world. And as a result, they have built a platform that is more than sufficient for every other market as well. the doctor is looking forward to seeing more of Algorhythm outside of the Asian market as, at least in his view, the supply chain market in general needs a good kick in the pants as innovation there-in has considerably lagged the Source-to-Pay market that we primarily cover here on SI.

So if you need a good Supply Chain Orchestration solution, the doctor strongly encourages you to check out Algorhythm … you won’t be disappointed.

A Great Day in American Automotive History …

Sixty years ago Today the Ford Motor Company produced it’s 50 millionth automobile the Thunderbird, and fifty years ago today General Motors produced it’s 100 millionth automobile, the Tornado, putting the automobile revolution in full swing and launching the Automotive industry to its height (before their downfall began in the 1970s and 1980s with a series of engineering, manufacturing, and marketing mishaps and disasters, a downfall which continued in the 1990s where the recession resulted in weak auto sales and operating losses). Up until the 1980s, the US was the largest automobile producer in the world until Japan overtook it.

Producing a million units of anything in the 50’s was a feat, especially for something as large and complex as an automobile, and the fact that American companies could do it … and do it well … means that they used to have great supply chain management. Remember, even local and vertically integrated supply chains are still supply chains and this goes to show the value of near-, and home-, sourcing and (deep) control over key aspects of your supply chain.

Significant (non optimization backed) cost savings always comes at a price, and that price is usually an increase in risk. Be careful. Or your company could meet the same fate of the US automotive manufacturers, many of whom had to enter into bankruptcy and receive big bailouts from the government just to stay alive.