Category Archives: Logistics

CSA 2010 – Yet Another Act to Increase Your Logistics Costs

Not that long ago, I warned you that black boxes are coming for logistics carriers and that while they are unlikely to make a significant impact on safety, they are going to make a significant impact on your logistics carriers’ operational costs and your logistics costs. Now I’m going to warn you about the “Federal Motor Carrier Safety Administration Comprehensive Safety Analysis 2010” (FMCSA CSA 2010) which is also more likely to increase your costs than your supply chain safety.

The initiative, designed to achieve a greater reduction in large truck and bus crashes, injuries, and fatalities contains four elements:

  1. measurement,
  2. intervention,
  3. safety evaluation and information technology, and
  4. COMPASS.

COMPASS is a comprehensive overhaul of the way FMCSA and its partners collect, manage, and convey safety information which requires a major overhaul of the IT infrastructure and the implementation of a portal, database, data warehouse, mobile interface, and data exchange.

But the costly step is intervention. If the measurement system indicates that the FMCSA needs to intervene with a logistics carrier, the FMCSA, depending on severity, can:

  • issue a warning letter,
  • perform a targeted roadside inspection,
  • do an off-site investigation, and/or
  • do an on-site investigation.

And if an issue is discovered, the FMCSA can issue a comprehensive notice of claim/settlement to the carrier, and increase their costs, which increases yours.

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Have Low Cost Brands Priced Themselves Out of the Supply Chain?

A recent article over on World Trade Magazine that describes “a new spin on just in time” describes the impact of SKU proliferation on supply chains and how many distributors and 3PLs now have to deal with replenishment requests from retailers that are less-than-pallet or less-than-case. As a result of name brand and private-label brand proliferation across many categories of consumer goods, there are now more products competing for the same shelf space and retailers are carrying less stock of each item and issuing more frequent replenishment requests for fast-selling items.

The article also notes that, as a result of the recession and a (dramatic) increase in quality in private label brands, we’re seeing consumers move from premium brands to what might be appropriately called, more mainstream products, and staying there. This means that private label brand sales are steadily increasing at the expense of name brands of similar quality that have gone from being the low-cost option to the more expensive option. At some point, a tipping point will be reached and the name brand product will disappear from the shelf.

Think about it logically. As sales of a certain brand increase, that brand becomes a top-seller and an important contributor to the store’s bottom line in that category. Priority will be placed on the brand to minimize the risks of stock-out and to find ways to decrease the cost to maintain the increasing sales trend. In-stock thresholds will be bumped up and order quantities will increase, decreasing the amount of storage available, and in-stock thresholds for, the low-cost name brands. At some point, the replenishment cost for the low-cost name brand, which will always be less-than-pallet and/or less-than-case will become prohibitive, as it will increase the product’s cost (in contrast to the decreasing cost of the private-label brand which now has sufficient volume to be replenished economically), and the sales will start to drop substantially relative to the private-label brand. At this point, the retailer will just drop the low-cost name brand, knowing it will be able to make up most of the sales in its own private-label brand. It’s been happening for years.

Here in Canada, President’s Choice, the private-label brand of Superstore (owned by Loblaws Inc, which is a top 2 or top 3 grocery retailer in most Canadian provinces), has been bumping low-cost name-brand alternatives off of the shelves for years. For many types of products, your only choice now is private-label or considerably more expensive name brand. And since PC products are often as good as the similarly priced low-cost name brands, or no-name brands, if not better, no one cares. (In some categories, you literally have to pay twice as much for a premium brand to find something better.) In the US, Target is a prime example. They have their own housewares and clothing lines, and they are often better than many of the more expensive name brands. As a result, many stores typically only carry the Target brands or the (considerably) more expensive premium brands.

In other words, it seems that the low-cost brands, that launched big in the 80’s, have now priced themselves out of business as the big-retailers now individually account for enough demand that they can not only cut production and distribution costs, but marketing costs as well. As that can typically shave another 10% off of the product price, it looks like the days for are numbered for many of these brands. I wonder if ABC(c) knew when it introduced its now-classic Why Pay More campaign in the late 80’s (in Canada) that it was the beginning of the end. Less than 20 years later, it would be dumped by Colgate-Palmolive to Phoenix Brands where it continued its slide into brand obscurity.

Any differing opinions?

Another Headline from the Land of D’Oh! Parallel Picking Improves Order Picking Efficiency

Let’s see. One order at a time. Ten orders at a time. I wonder which methodology is better?

But seriously, parallel picking, done right, is always going to be better than serial picking. The issue is, how do you do it right? An efficient parallel operation is going to not only have multiple people picking orders at the same time, but multiple people picking multiple orders at the same time.

But which way is best? Does each person run around picking multiple orders at the same time, collecting multiple items from each zone to minimize their steps? Or is each individual assigned to a zone and required to find all of the items in the zone for all orders being processed and bring them to a central area for packing?

And if you use the latter method, how do you insure that an order is packed as soon as all items are available? How do you simplify the packer’s task of finding the right item if items from multiple orders are continually poring in? How do you prevent the pickers from getting in each others way if they are converging from all over the warehouse to a small central location? How do you make sure the packers aren’t overwhelmed with too much product at once or underwhelmed with too little product at once? Those are the real questions, and the ones that went unanswered in this article in “parallel picking” in Supply & Demand Chain Executive.

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Are You Ready For The New EU ICS and ECS Legislation?

That’s right — in addition to the new UK Bribery Act, you now have to deal with the EU’s new Import Control System (ICS) and Export Control System (ECS). The ICS, which is the electronic security declaration management system for the importation of goods into the EU, comes into effect with the Export Control System, which is the electronic security declaration management system for the exportation of goods out of the EU, on December 31, 2010. Following in the footsteps of similar electronic customs filing systems, like the US Importer Security Filing (better known as 10+2), the EU is now requiring that a number of data elements must be sent to the EU customs office of first entry before the merchandise enters the territory.

Considering that the data requirements outlined in Annex 30A (as amended by Regulation 169/2010) defines seven (7) different tables of approximately 30 elements each (one for air & sea, express consignments, road, rail, AEO, diversion requests, and “simplified procedures”), and that the Consolidated FAQ (for Annex II) is 53 pages, there is a considerable amount of documentation that needs to be reviewed in order to make sure your organization is compliant. While it is theoretically as simple as insuring that, depending on the mode of transport, a set of data fields is provided before the goods enter the territory or, depending on shipment time an/or country of origin, the filing is made before the goods leave the port, verifying compliance is not likely to be as simple.

Plus, as this recent article points out over in MM&D on how you have to “prepare for complexity”, you have the added complexity in that you will have to handle the specifications for 27 separate countries when the regulations come into effect.

For more information, refer to the European Customs Information Portal.

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Has Global Sourcing Finally Started to Level Off?

Has the ever-increasing cost of oil and its effects on global shipments combined with the ever-increasing risk of outsourcing to low-cost locations that are high-risk and the down economy finally put a damper on global sourcing? Has it levelled off? It’s a good question considering that it seems that there are now almost as many stories about companies returning to near-sourcing as there are stories about companies outsourcing for the first time.

It’s a tough question to answer, but one thing we can do is look at the data and the projections based on the data. The U.S. Department of Transportation Federal Highway Administration just released the Freight Analysis Framework version 3 (FAF3) that provides estimates for tonnage and value, by commodity type, mode, origin, and destination for 2007 as well as forecasts for 2015 through 2040 in 5 year increments, based on data from a variety of sources.

According to the data and the corresponding forecasts, total freight movement in 2015 is only expected to be 4% greater than total freight movement in 2007, suggesting that shipping has plateaued as the projected increase in freight is only half of the projected increase in population (which is estimated to be about 8% between 2007 and 2015). And while one might be tempted to conclude that the rate of increase in global trade would slow accordingly, the estimates seem to indicate that by 2015, the share of globally sourced products will increase by almost 17%, or increase at a rate that is four times that of the total increase in sourcing.

This suggest that, by 2015, global sourcing will soon account for 13.3% of shipments by weight and 22.9% of value. In other words, 2 out of every 15 products are will soon be of foreign origin and more than $1 from every $5 you spend will leave the country.

In other words, it looks like the near-sourcing global-sourcing naysayers are still in the minority camp.

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