Category Archives: Supply Chain

What Will Be The Top 10 Supply Chain Stories of 2008? Part III

In part I, we reviewed Supply Chain Digest’s 2007 Supply Chain Year in Review article, where they picked their top ten news stories for 2007. Then, yesterday, we reviewed Supply Chain Digest’s Key Trends Impacting Supply Chain Management and Logistics for 2008, as identified by the nine executives and academics they asked to postulate what 2008 has in hold.

So what will this year’s top stories be? That’s hard to say. Although many trends can be predicted at the macro-level over a long period of time, it’s almost impossible to predict specific events at the micro-level over a short-period of time, and that’s what most stories are based on. For example, although it’s a statistical likelihood that a certain number of 28 year olds will die this year, we can’t predict how many will be celebrities and cause the next big media circus. Furthermore, one cannot predict what the next innovation will be that totally changes the landscape. Although we can estimate when the next major innovation might be, based upon historical trends, we cannot know what it will be or how large of an impact it will have.

However, we can speculate, based upon recent trends and the state-of-the-practice, what might happen this year. Since this is a constructive exercise, as it could alert an informed reader as to what might happen if they are ready, or not ready, we’re going to do something different this year and go for it.

The Top 10 Supply-Chain Related Stories of 2008 Could Be:

  • Company X Toy Recall Fiasco
    “Scared off by the recent Mattel Fiasco, Company X decides to shift production back to their former low-cost country location of choice, Mexico. However, their new supplier uses a low quality plastic, and the toys break easily, making them choking hazards to toddlers.”
  • Well-Water is the New Spring-Water
    “A record heat wave hits and water levels in the lakes and reservoirs drop to dangerously low levels. A new project to lay pipe-lines to wells in neighboring states is announced.”
  • Gold Tops $1,000 an Ounce
    “Global recession fears push more and more investors to invest in gold reserves.”
  • Major Semiconductor Manufacturer X Files for Bankruptcy
    “The rapidly rising pricing of gold coupled with stagnant demand for new processors has forced many chip manufacturers to the brink, and even X couldn’t handle the strain.”
  • Company X becomes Number One Growth Retailer in the US
    “Wal-Mart’s lost mojo is picked up by X who focusses on higher quality products, better customer service, and green products, versus just green supply chain practices.”
  • US Exports in Manufacturing Rise Rapidly
    “The low dollar, coupled with the introduction of new, more efficient technology and leaner practices makes the US the low-cost country of choice for Western Europe.”
  • Port Congestion Re-Appears as a Result of a Natural Disaster on the West Coast
    “The Ports of Long Beach and Los Angeles are almost destroyed by a tsunami caused by a major earthquake off of the coast of California.”
  • Agflation Continues to Rise
    “Politicians give in to the AlGorites’ demands and mandate the production of more bio-fuels, despite their inefficiencies. Coupled with reduced crop production due to the massive heat-wave, this causes the prices for many basic food crops to increase by 30% or more.”
  • Services Outsourcing Rises
    “In an effort to contain costs, companies start outsourcing services, particularly in contingent labor management.”
  • Major Multi-National X Moves it’s Headquarters to China
    “Betting that China is the next global economic powerhouse, X moves its headquarters from the good old U. S. of A. to China.”

Will these stories happen? Unknown. Could they happen? Definitely! That’s why our next two posts will focus on how these situations could come about and what you can do to make sure that bad fates don’t happen to you.

What Will Be The Top 10 Supply Chain Stories of 2008? Part II

Less then two weeks after Supply Chain Digest ran their 2007 Supply Chain Year in Review, that was summarized in Part I, in an attempt to answer their question, Supply Chain Digest asked seven “thought” leaders, which is their terminology for executives and academics – as there was not a single blogger in the group, what their predictions were for 2008. The responses were printed in the article on Key Trends Impacting Supply Chain Management and Logistics for 2008. The predictions of the executives and academics were the following:

Jim Topkins, CEO of Tompkins and Associates

  • Total Delivered Cost will begin to take hold as a concept
  • Strategy will become more important
  • Enhanced Visibility and Automation will take hold in logistics

Jeff Karrenbauer, CEO of Insight Inc.

  • Companies will re-examine their strategic supply chain design decisions with regards to outsourcing
  • The required cross-functional focus needed to reduce costs will not get its due in most organizations

Jon Kirkegarrd, President of DCRA Inc.

  • The firms that recognize that a fresh approach focussed on value, cash flow, and light, non-intrusive, web-service-based, value-add software components that work with existing solutions and technologies will be the ones that make progress.
  • Successful supply chain technologies will become solution/results focussed, not just technology-focussed.
  • Businesses will start to understand that supply chain efficiency is linked to price.
  • Multi-stage manufacturing that allows for decision postponement and re-purposing of parts in-line with fluctuations in demand across product lines will start to become common.

Adrian Gonzalez Director, Logistics Executive Council of ARC Advisory Group

  • Continued Activity & Hype around “Green” Supply Chain
  • Software and Service Provider Business Models will Continue to Change
  • On-Demand / SaaS will continue to gain traction – particularly in TMS

Larry Lapide, Director, Demand Management in the MIT Center for Transportation and Logistics

  • Extensive focus on controlling oil and logistics costs
  • More companies will resume manufacturing in-house

John Langley, Professor of Supply Chain Management at the Georgia Institute of Technology

  • Globalization will continue to take up a lot of organizational focus as they try to efficiently and cost-effectively manage their global operations.
  • The need for Integrated Logistics will increase.
  • “Green” Logistics will continue to attract mind-share, but until profitability is proven, market-share will lag.

Gary Girotti Vice President, Transportation Practice of Chainalytics

  • Carrier bankruptcies will increase in 2008.
  • Freight volumes will continue to fall in the first half of 2008, but will stabilize by the second half of the year.
  • The biggest challenge for shippers will be maintaining service levels as carriers exit unprofitable markets and lanes.
  • The biggest challenge carriers will face is staying afloat as lower volumes and reduced margins crunch their cash-flow.

Marshall Fisher, UPS Professor at The Wharton School of the University of Pennsylvania

  • Store execution will emerge as an important area

Dwight Klappich, Research Vice President of Gartner

  • SCM organizations will have to focus more time and effort on tactical and operational issues driven by economic and competitive pressures.
  • Supply chain globalization is about to enter a new phase, driven by the recognition by many organizations that their initial off shoring decisions were made with a myopic focus on product cost, and not a thorough evaluation of total delivered cost.

So what does all this mean for 2008? Stay tuned for Part III.

What Will Be The Top 10 Supply Chain Stories of 2008? Part I

Supply Chain Digest recently ran their 2007 Supply Chain Year in Review where they identified what they believed the top ten stories of 2007 were. In their opinion, the top ten list is as follows:

  1. Mattel Toy Recall Fiasco
    Mattel had to recall millions and millions of toys made in China, including those in iconic Elmo and Barbie lines.
  2. Oil Nears $100 a Barrel
    Petroleum-based material costs are rising across the board.
  3. Green Supply Chain goes Mainstream
    There was an explosion of interest in green issues.
  4. Wal-Mart’s RFID Program Stalls, Changes
    Late in the year, Wal-Mart announces a “change in focus” in its RFID strategy, with an emphasis on promotional items, category management trials, and and Sam’s Club pallet location management, confusing suppliers.
  5. Port Congestion Disappears
    A modestly slowing overall economy, the collapse of the housing market and new construction, the decline of the US dollar and other factors led to a swift reduction in the volume of US imports.
  6. Agflation
    Commodity prices in general, and agricultural prices in particular, saw continued strong price increases in 2007.
  7. Wal-Mart Struggles to get its Mojo Back
    Some store sales have flattened, and overall growth has slowed dramatically.
  8. Boeing Finds Outsourcing ain’t Easy
    The much praised approach to the 787 Dreamliner falls flat.
  9. Mexican Truckers Almost Enter US
    Thirteen years after the NAFTA agreement to let 100 Mexican trucking companies fully operate cross-border, it almost happens.
  10. Lawsuits Cite Carrier Fuel Surcharge Abuse
    Suits were filed against multiple carriers that use multiple modes of transportation.

In summary, costs rose, imports fell, the AlGorites gained a foot-hold, and uncontrolled globalization backfired on a large number of Fortune 500 companies. Regardless of the stories you picked, those are most of the major trends of 2007 across the supply-chain as a whole. The only major story missing is that the software and services sector considered to consolidate, with a large number of acquisitions.

What will this mean for 2008? Come back for Part II where we review Supply Chain Digest’s attempt to answer the problem.

Is Near (Cost Country) Sourcing Near At Hand?

A recent article in World Trade Magazine, an Executive Overview on “Near-Sourcing”, has the doctor wondering if this is finally the year where people realize that going crazy on low-cost country sourcing is not always the smart way to go.

If the low-cost country is half-way around the world, as opposed to just a country or two away, then you’re going to greatly increase lead time and if we’re talking a rapidly developing economy, you’re going to greatly increase risk as well. That’s why the doctor has been preaching home-cost country sourcing, where you find a way to source in the local region in a globally competitive way. In other words, the doctor believes that near-sourcing, if you can achieve it, is the way to go.

The article, which defines near-sourcing as any kind of sourcing strategy that shrinks distance a measurable degree, notes that low-cost country sourcing with an extended overseas supply chain introduced a lot of risk factors into sourcing. It also noted that a recent AMR report that found that although 90% of companies surveyed confirmed they were outsourcing aspects of production, 56% admitted that the total landed cost relative to prior sourcing efforts had actually increased.

Let’s repeat that: 56% of companies that jumped on the low-cost country sourcing bandwagon found that their total-landed costs actually increased! That’s why the doctor continually promotes total cost of ownership modeling and value-based strategic sourcing enabled by true decision optimization. Otherwise, you might find that what you thought sounded like a good decision was actually a very, very bad one. As the article notes, without proper modeling, you might get hit by one or more of the following hidden costs:

  • unplanned air / expedited freight
  • the ‘fatal cost’ of poor quality
    just ask Aris Isotoner (oh wait, you can’t!) or Mattel
  • the ‘third shift’ effect
    (lost revenue due to counterfeiting from the vendor that works two shifts for its customers and one for itself)
  • the cost of distance
    (outsourcing to ‘under-performers’ typically doubles inventory holding costs)
  • rising fuel costs

And, when all is said and done, if you didn’t thoroughly investigate the new “low-cost” country sourcing opportunity, and do proper modeling, you too might find that your costs actually increased.

Sustainability and The Economist: Part II

The latest issue of The Economist, not wanting to be outdone, just ran a number of articles on sustainability that are, at the very least, worth a mention. Today we tackle the last five.

In “do it right”, we are reminded that the industry has been more or less shaken into adopting CSR policy, that globalization is largely responsible for bringing the issue into the spotlight, but that an economic recession would be bad news for the CSR industry – as companies might then see it as a luxury that could be done without. It also tries to deduce, should corporate goodness continue to flourish, how CSR might evolve. Will it be a wave of disruptive innovation that features a new breed of “social entrepreneur” that takes over as the driving force, following Mr. Benioff’s example of committing 1% of equity, profits, and time to community good? In comparison to the state of affairs today, where the same few and familiar names pop up again and again, an entrepreneurial model of tackling social and environmental problems would stir up the CSR world.

In just good business, we are told that although CSR is now mainstream, few companies are doing it well. With such a broad focus that spans everything from volunteering in the local community to looking after employes, from helping the poor to saving the planet, many companies are finding it hard to know what to focus on. CSR today appears to be composed of three broad layers. The basic layer is corporate philanthropy where companies allocate about 1% of pre-tax profits to worthy causes. On top of that is risk management to prevent disasters and worker exploitation. On top of that is an opportunity layer, where they try to find value in CSR.

In “the feel-good factor”, we are told that many people like CSR because helping the environment and others makes them feel good. The WFP connection is partly why three out of four applications apply to TNT. KPMG employees now donate 40,000 hours a year. Volunteer programs at Salesforce.com involve 85% of its workforce. The trend is catching on – and those companies that buy in are more likely to attract talent than those that do not.

In “the next question”, we’re told that, clearly, CSR has arrived. But is it working? First of all, sceptics still matter as they are found, disproportionately, in senior management. The reality is that the welfare a company creates in the form of jobs, products, or innovation still dwarfs anything they do, or are likely to do, in the name of CSR. Furthermore, a socially conscious and bankrupt business is no good to anyone. In addition, since the focus of business should be to return value to the shareholders, they are probably limited to focussing on the “sweet spot” where initiatives are good for profits and social welfare, which might, in actuality, and unfortunately, be quite limited for the average business. But interest in Socially Responsible Investment (SRI) is on the rise, along with a general surge in interest in anything climate-change related. So CSR will march, or at least stumble, forward.

In “a stitch in time”, we are told that business leaders embrace CSR for a number of reasons. When the CEO of Wal-Mart realized that it’s “not just our customers, but our communities, our countries, and even the world”, he converted. Yahoo! started to accept it in the aftershock of being blamed for the jailing of two Chinese dissidents. And some companies are lured by the glamour of joining organizations like the Clinton Global Initiative. The rhetoric might be about doing the right thing, but a large driver appears to be risk management – about limiting the damage to the brand and bottom line that can be inflicted by bad press, boycotts, and the burdens of legal action. Not the best reason, but maybe beggars can’t be choosers.