Monthly Archives: August 2013

UPS Has An Awfully Simple View of Supply Chains

A recent article over on Forbes.com presented 3 Ways to Manage A Global Supply Chain from UPS. The article focussed on how to ease the transition when a business is going global for the first time. It gave three pieces of advice:

  • Look to Local Experts
    When expanding internationally, find a partner that is a local market master who can guide you in developing the brand in that market. Whether it’s taking the time to seek out the right suppliers, or contracting with a skilled business consultant in the area who can do the same, there’s no replacement for local expertise.
  • Invest in IT
    Managing a global supply chain means a constant interaction with data. Furthermore, while a variety of supply chain best practices are available, but some can be ineffective if companies don’t select the IT solution that best meets their specific supply chain requirements.
  • Diversify and Appreciate Suppliers
    Developing good relations with all partners in your global supply chain will benefit everyone and lead to better negotiations, production, and delivery.

This is all valid advice, but it’s not how you manage a global supply chain. It’s how you improve a global supply chain. To manage a global supply chain, you have to first:

  1. Design a global supply chain.
  2. Create the technological infrastructure to manage and run it.
  3. Create a management framework.
  4. Staff up the management team.

then you find the local experts, work with suppliers, and make use of your IT and management assets. You can’t apply best practices if you do not have any best practices to apply them against.

Supply Chain Security Pays – Why Are You Still Not Doing It?

Recent studies have show that just one in six organizations have continuity plans in place 1 and that of the 43% of organizations that implement supplier codes of conduct, only 25% of these organizations perform even minimal monitoring 2. In other words, organizations are not implementing proper security-based risk management plans, even though they have a 98% chance of experiencing a major supply disruption in the next 24 months. And of the one in six organizations that are implementing security plans, only one in four of these organizations are making the effort to make sure their suppliers are conducting business in a proper, low risk way.

This is despite the fact that we’ve had hard data for over seven years that demonstrates the solid cost reductions for those organizations that invest in supply chain risk management and security. As outlined in this 2006 Sourcing Innovation Post on Quantifying the Value of Supply Chain Security Investments, the benefits of investments include:


  • Improved Product Safety
    38% reduction in loss; 37% reduction in tampering

  • Improved Inventory Management
    14% reduction in excess inventory; 12% increase in on-time delivery
  • Improved Supply Chain Visibility
    50% increase in data access; 30% increase in data access timeliness
  • Improved Product Handling
    43% increase in the automated handling of goods
  • Process Improvements
    30% reduction in process deviation
  • More Efficient Customs Clearance
    49% reduction in cargo delays; 48% reduction in cargo inspections
  • Speed Improvements
    29% reduction in transit time; 28% reduction in delivery time windows
  • Resilience
    30% reduction in problem identification, response, and resolution times
  • Higher Customer Satisfaction
    26% reduction in customer attrition; 20% increase in new customers

Just do it already!

1 The Weakest Link, UK Plc’s Supply Chain; Zurich
2 Safe Supply Chains Help Produce Sustainable Business, Zurich and Rockwell Automation, 2012
3 Innovators in Supply Chain Security: Better Security Drives Business Value, Stanford Global Supply Chain Management Forum and IBM, 2006

The Summer of … Music?

Not that long ago we indicated that today we can carry 40,000 songs in our pocket even though it has only been 125 years since you had to go see a live band to hear a song. It turns out that this is the summer of music since it has been exactly 45 years since the first music concert to have more than 100,000 paid attendees finished. On August 3 and 4th, 1968, The Newport Pop Festival in Costa Mesa, California was the first music concert to achieve the feat. Even though concerts were the primary means of spreading music for centuries, it hasn’t even been half a century since the super concert, that we now take for granted as they happen every summer all over North America. It was an organizational fiasco, but probably helped future planners and promoters of such events do a better job. One thing it did demonstrate was the importance of ensuring sufficient supply to meet demand. If you run out of food and water halfway through the first day of a two-day event, your planning has failed miserably.

The Wheatland Hop Was 100 Years Ago Today

And while it may sound like a new dance craze, it was actually a riot that took place during a strike on the Durst Ranch in Wheatland, California that resulted in four deaths. It was among the first major farm labour confrontations, blamed on the radical syndicalist trade union of the Industrial Workers of the World, and a * example of what an organization can expect if it tries to take advantage of poor workers in developing, and more importantly, emerging countries or, even worse, workers at home by trying to force interns and low-salaried workers to work long hours for little pay and no benefits.

As per the Wikipedia entry, in the summer of 1913, Durst advertised for temporary workers with a promise of ample work at high rates of pay for every hop picker that arrived on the farm by August 5. In this particular year, the supply of willing workers almost doubled the demand, and Durst slashed pay rates. To make matters worse, not only were workers on his farm making roughly half of what workers on other farms were making (for toiling twelve hours a day in fields that could reach 110F / 44C), but the workers were forced to live in tents on a barren hillside that they had to rent for 75c/week when they made, on average, $1.50 a day with drinking water a mile away and unspeakably unsanitary toilet conditions. And to add insult to injury, Durst retained 10% of the earnings until the end of the harvest, and only paid it out if the workers stayed until the end of the harvest.

It was only a matter of days before a temporary local chapter of the IWW was organized that demanded a better pay rate per lb of hops picked, worker supervision of measurement of the hops, provision of drinking water in the fields, improved toilet facilities, and assistants to help women and children load and unload heavy hop sacks. Durst responded that toilet conditions would be improved, water would be provided in the fields, and one worker could be allowed to witness the weighing process. The local chapter of the IWW then threatened a strike. Durst responded by calling the sheriff (who could not do anything for lack of an arrest warrant). By the end of August 2, a mass meeting for all of the workers was planned for August 3. On the 3, with a mass meeting underway, Durst went into town to gather authorities to put down the revolt. The sheriff, a number of deputies, and the district attorney was pulled into the ranch.

Upon arrival, shortly after the mass meeting had begun, the sheriff and his men tried to arrest the leader of the of the local IWW chapter, but workers intervened. In response, one of the law enforcement officials fired a shotgun into the air, which was taken as an act of aggression and which prompted a full-fledged riot and an attack on the sheriff, the deputies, and a district attorney.

Unfortunately, instead of being a warning siren for other farm and ranch owners that used migrant workers, it was only the first of other bitter strikes between California growers and farm workers that would take place over the next couple of decades.

In a nutshell, Corporate Social Responsibility is more than just good PR, it’s good business.

Will Darrell Issa Save the Post Office? Or Put Another Nail in the Coffin?

Early last week, Darrell Issa, a Representative of California and chairman of the the US House Oversight and Government Reform, signed off on H.R. 2748, the Postal Reform Act of 2013 which is designed to bring the United States Postal Service (USPS) to financial solvency with cost-cutting reforms and innovative new sources of revenue.

SI has been asking if the US Post Office can be fixed for a while now, with its most recent post on the subject last summer (Source). Given that the USPS has more debt than 50+ countries have capita, fixing it is a tall order – especially when the US needs to identify immediate savings of almost 20 Billion plus (as it keeps bleeding red with losses of 15.9 Billion in 2012 and 3.2 Billion in the first two quarters of 2013).

Key points of the plan, as summarized in this Logistics Management article, include:

  • moving from door to curbside delivery and neighbourhood boxes, which could save 4 Billion annually,
  • ensuring small and rural post offices are protected from a disproportionate number of closures,
  • creating a Chief Innovation Officer,
  • protecting existing collective bargaining agreements,
  • recalculating projected liabilities for employee pensions, and
  • offering additional relief from retiree health care benefit payments.

While SI has to say it likes the first and third options, that’s not going to be enough to generate the savings required giving that costs are going to keep rising.

SI agrees with Rob Martinez, President and CEO of Shipware Systems Corp, cited in the Logistics Management article, who noted that a comprehensive plan that addresses multiple options is required if the USPS is to become solvent again. However, SI’s approach, which differs from Mr. Martinez’s, would involve the following:

  • maximization of neighbourhood box and curbside deliveries,
  • an immediate end to Saturday mail delivery,
  • global restructuring and consolidation of postal facilities until all are at least break-even*,
  • freedom to revise operational practices to take advantage of savings identified by Procurement and new sources of revenue identified by Marketing and Innovation, and
  • freedom to enter into co-opetition agreements with the major private delivery companies to share resources and routes, for both long-haul and last-mile deliveries, in ways that save both parties money.

SI does not agree with eliminating the pension prepayment mandate, freeing up a percentage of pension funds to ensure ongoing solvency, or cutting contributions to retiree health benefits. Not sufficiently funding these payment obligations is what got the USPS, and a whole bunch of other public and private organizations, into this mess in the first place. (However, SI fully supports a careful recalculation of the unfunded liability to make sure the payments do not exceed what is required.) Plus, it’s the USPS after all. Congress, who dumbly vetoed elimination of Saturday mail delivery, isn’t going to stop lending the USPS money until they find a way out of this mess, so it’s not like the USPS has to worry about bankruptcy. The USPS has to get it right, not exacerbate the problem.

And in SI’s view, the current plan will not save the post office and may even put a nail or two into the coffin because every provision except the provision to move to neighbourhood boxes and curbside delivery is likely to increase costs in the long run.


* SI agrees that every town needs a postal facility and that anyone in a rural area should have a post office within a reasonable distance, but doesn’t agree that this means that existing facilities stay open. They may need to be reduced in capacity and change locations. For example, here in Canada, many locations are sublet in retail establishments, and drug stores in particular (which are open long hours). These micro locations can be staffed by one person and cost next to nothing.