Category Archives: Supply Chain

If You Want Profits to Go Up, Help People Get Up!

This spring, the Economist published a very interesting piece on how things are looking up for lift-makers who help people who need to get to the top floor, please. The four firms that control two-thirds of the global lift market — Otis (United Technologies), Kone, ThyssenKrupp, and Schindler — have seen their profits, more or less, steadily rise over the last ten years, as their margins increased approximately 10 points.

This is partly due to the fact that global demand for new lifts has gone from approximately 300,000 a decade ago to nearly 700,000 this year. This is primarily due to the urban migration — as approximately 70 Million people migrate to cities every year, where they live in apartments and condos and work in high-rise offices which all use escalators and elevators. And these people, who despise getting stuck in lifts, pay $2,000 to $5,000 a year to keep them running smoothly. As most of these only need a quick check-up and a little grease every few months, margins on maintenance are 25% to 35% compared with 10% on new equipment.

The mega-trend of urbanization provides opportunities for any business that can service the changing needs of the population, which needs to live and work in high-rises. This poses more opportunities for companies in construction, utilities, (last-mile) transportation, and service industries that cater to busy people who need dry-cleaning, maid service, meals on the go, and entertainment. And it also poses opportunity for companies that can optimize the services and servitized supply chain and the last-mile of delivery.

Make Sure Your Savings Don’t Perish With Your Perishables

A recent article over on Inbound Logistics on Cutting Costs When Shipping Perishables had some great tips on how to reduce your perishable related costs while shipping. This post will cover them, and provide some more tips for reducing perishable related costs while also increasing your sustainability.

All ten tips were good, but the following five were very good and often overlooked:

  • Know the seasonality trend in the regions you source from.
    This will allow you to adjust your shipping patterns to take advantage of excess capacity in advance.
  • Become a C-TPAT member.
    This expedites the release of your cargo, which is very, very, very important when shipping perishables. Sometimes it only takes a few extra hours on a truck on a scorching hot day to ruin a shipment.
  • Include ALL commodities to be imported on a single USDA import permit.
    Not only does this save time and money, but it minimizes the chance of a permit being lost and the entire truck held up for one item!
  • Purchase an annual bond.
    Not only does this save time and money, especially if you’d file a lot of single entry bonds otherwise, but, along with C-TPAT membership, it shows you are a serious, regular importer of these goods and not a fly-by-night operation which might exist only to smuggle drugs in the citrus boxes.
  • Do not load produce at night.
    When it’s easy for insects and other pests to get in unnoticed. Not only can a family of spiders ruin the grapes, but they might be illegal in the company you’re importing into, which would result in your truck getting stopped at the border and turned around.

Other ways to save money include:

  • Always home-source during harvest season.
    Unit prices might be higher, but shipping will be lower, and loss will be lower still as you won’t risk losing product in long shipments, which happens regularly when trucks break down and/or get held up at the border. Plus, many people will pay a slight premium for local produce.
  • Know the seasonality for key staples in every region, not just the ones you generally source from.
    This will make sure you’re always sourcing from the region with the most supply, which will help you to get you the lowest costs as you will be able to negotiate better unit prices and secure transportation in advance when prices are low.
  • Always import full trucks.
    With the current cost of fuel, shipping adds a considerable cost component, so you want to minimize it as much as possible. This may require an optimization solution as you have to figure out whether to:

    • order more of a seasonal item to fill the truck, and then make sure an appropriate special is offered by sales to insure the extra units are sold before they perish
    • rebalance out-of-season items from one locale to another – i.e. you would normally buy oranges from Argentina, but moving the order to Mexico during banana season will fill the truck
    • order more of an out-of-season item with a longer life span, keep it properly refrigerated, and increase the length between orders
  • If the perishables will be processed, re-optimize the processing network.
    If you’re going to can, freeze, or otherwise process the perishables into a less perishable product, do it as close to the source as possible, even if it means using new suppliers or investing in new manufacturing plants. These refined products, which are typically denser, and which may not even require refrigeration, will be much cheaper to ship and suffer a lesser risk of loss.
  • Have a plan to sell excess perishables once they reach their prime before they perish.
    50% off at the store is not always good enough, especially if they are marked down an hour before closing on a Tuesday night and will not be saleable tomorrow. For example, even overripe, tomatoes are still great for pastes and soups. You could have each store strike a deal with local restaurants that allow them to buy perishables at prime at a discount before they are unuseable, or, if you are socially responsible, setup a donation program with a local shelter or soup kitchen where the shelter can pick up perishing items each day before close before they perish (and take your cash with them). Done right, you could probably even get a charity tax write off (as long as the items were donated while still edible). You may consider these ideas beyond the scope of sourcing, but you shouldn’t when you consider that 1 in 7 people in the world are undernourished and almost 40% of food is wasted in North America. Fix this. You have the power.

Maintaining Competitiveness – Adaptable Supply Chain Structure

In our recent series on The End of Competitive Advantage, we noted that in many industries, there is no such thing as sustainable competitive advantage. The best a company can hope for is to deftly move from temporary advantage to temporary advantage in an effort to remain in the black.

In order to do this, it has to follow a new playbook with a new set of rules, which include the switch to competing in arenas and not industries, the requirement to get (out) while the gettin (out)’s good, the support of the C-suite, and the continual resource re-allocation to deftly move from one arena to another where temporary advantage can be obtained.

In order to do this, a company needs a supply chain that can keep up. Such a supply chain has an adaptable structure at its core, as per this article on the essence of supply chain flexibility. Such a structure allows a company to get back to business quickly following a disruption. Consider Nissan, the first Japanese car company to get back to business following the 2011 quake. And in the wake of the Thai floods, it was able to contain the issues locally by swiftly resourcing parts from China. It was able to do this because its low-cost “V” platform for vehicles in emerging markets allowed Nissan to extend its production base across the world using standardized parts in different production facilities.

So how do you get an adaptable structure? Start with the checklist presented in the article:

  • focus on risk management, not risk avoidance
    with a 98% chance of a disruption within 24 months no matter what you do, this only makes sense
  • develop a variable cost structure
    that can be applied on a node-by-node basis and ramped up and down as needed
  • launch flexible capacity initiatives
    to adequately handle peaks and troughs in demand
  • establish hedging strategies for critical components
    and put appropriate backup plans in place
  • acquire actual supply chain insurance policies
    and insure specific high-risk events are covered
  • explore shared services models
    and use them where they make sense
  • implement flexible pricing structures
    to support flexible capacity initiatives that allow demand to be rapidly aligned with supply
  • and form cross-functional teams, led by a C-suite officer, to get the job done!

Within days of the Japan earthquake, the CEO of Nissan and a risk management team visited the plant, surveyed the damage, and determined what needed to be done to regain normal operations. The CEO. Take note of that.

Is Your Supply Management Ethical?

Corporate Social Responsibility (CSR) and Corporate Ethics are becoming more important by the day. Just ask BP, the Gap, Chick Fillet, and Monsanto, who have all had to deal with Boycotts in recent years (for oil spills, supply chain factory fires resulting in worker death, stance on gay rights, and genetically modified food). You don’t want to get caught in the cross hairs of an organized activist group like PETA, GreenPeace, or Anonymous.

It only takes one slip up somewhere in your supply chain to become the target of globally organized boycott. Thus, you need to take a step back and ask if your supply management is ethical.

A code of Supply Management conduct, as described in The Procurement Game Plan, is a good start, but it’s not enough. You also need a supplier code of conduct, and you need to insure that not only do your suppliers honour the code of conduct they agree to, but themselves have a code of conduct for their suppliers. The buck stops with you, so you are responsible for making sure the buck is spent ethically. Turning down free World Cup tickets from a potential supplier is a good start, but making sure the supplier adopts a code of conduct that prohibits them from even offering such a wasteful, lavish gift in the first place is better — especially if that money is redirected to safety improvements and community programs for its workers.

Supply Management Ethics provide the foundation for CSR, so it’s important that your organization get them right. One of the experts on this topic is Stephen Guth, Chief Corporate Counsel and VP Vendor Operations for the National Rural Electric Cooperative Association and author of “The Contract Negotiation Handbook”, “The Vendor Management Office”, “Hotel Contract Negotiation Tips, Tricks, and Traps”, “Project Procurement Management”, and a set of free “Procurement Contract Templates”. This fall, Stephen is going to be giving a session on Building a Strong Foundation with Supply Management Ethics at the NLPA Conference where he will go beyond the usual horror stories of supply management professionals in jail jumpsuits and look at supply management ethics through the eyes of a forensic auditor. In this session, you will go beyond the process of learning how to put a code of conduct together and learn what investigators look for, who is most likely to violate supply management ethics, and why. You’ll learn how to identify potential problems and violators before they occur.

If you haven’t already, consider registering for the NLPA Conference today.

CPG: China Packaged Goods

It used to be just “Made in China”. Now it’s also “Shipped From China” and “Shipped to China”. No matter how you look at it, China’s almost always in the equation.

What is SI talking about? In addition to being the primary outsourcing destination for many North American & European MultiNational Organizations, and one of the biggest manufacturers in the world in many areas of CPG, China is now a major driving force behind the global shipping industry. As per this recent article over on the Economist on China’s Foreign Ports, China has a significant influence over sixteen (16) major ports all over the world.

In addition to the major ports of:

  • Shanghai
  • Hong Kong / Shenzhen

China also has a (mainland) stake in:

  • Singapore
  • Djibouti
  • Chittagong (India)
  • Kyaukpyu (Myanmar)
  • Hambantota (Sri Lanka)
  • Colombo (Sri Lanka)
  • Gwadar (Pakistan)
  • Karachi (Pakistan)
  • Tin Can (Nigeria)
  • Lome (Togo)
  • Piraeus (Greece)
  • Antwerp/Zeebrugge (Belgium)
  • Seattle (USA)
  • Los Angeles (USA)

Thus, in addition to being the world’s largest exporter and second-largest importer, in addition to controlling a fifth of the world’s container fleet through giant state-owned lines, and in addition to building 41% of the ships built in 2012, it’s going to control a significant percentage of the global shipping routes. Moreover, in addition to the mainland China stake in the above ports, privately owned conglomerates in China and Hong Kong – including Hutchison Whampoa, China Merchants Holdings, and China Shipping Terminal, are also buying stakes in global ports. These firms also own stakes in Suez, Terminal Link, and a forthcoming port in Tanzania.

In other words, at the end of the day, China will have a stake in every step of the global (Consumer Purchased Goods) supply chain. It will supply at least some of the raw materials (as it controls some global markets, such as rare earth metals where close to 90% come from China), make some of the parts, assemble one or more subcomponents, ship it from a port it controls, on a ship it built, to a port it controls — where the goods will be unloaded using equipment where components came from China, put on a truck where the steel came from China, and delivered to the store where a China Conglomerate owns a minority stake. We might as well just accept the reality and form the Alliance today. Why wait?