Dateline: Dallas TX. The Supply Chain Leadership Forum kicked off last night with an Executive Summit led by Michael Press, a seasoned expert in helping businesses get the most out of government incentives. The Leadership Forum is an annual event for members of the Supply Chain Consortium, focusing on supply chain best practices, benchmarking, and networking opportunities for members.

We learned that now is an especially good time for companies to look at government-sponsored incentives. Leaving money on the table is never a good idea – but it is certainly a big no-no in this time of economic recovery. Mike hit the nail on the head when he compared capturing these incentives to “noticing the gorilla in a group.” In other words, it should be obvious that companies need to investigate state, federal and local business incentives, and yet a great number of organizations fail to take this step. They simply do not notice the big gorilla in the room. 

First, you need to understand what events can trigger government incentives. Some of the triggers besides building a new facility include business expansions, consolidations, mergers, and supply chain organization & reorganization. The key is to begin coordinating with government officials upfront during the planning period and understanding how to leverage your needs with their needs.

States are aware that this is a critical period for business, and so it’s a prime time for them to try and attract companies that are expanding into emerging markets like alternative energy. 

Mike also told the group how trends in government incentives have changed in the last 10 years, and it was a real eye-opener for most of us. The top 5 trends are:

For companies seeking these incentives, it is a give-and-take relationship between government and business that takes a patient, steady hand to manage. 

I appreciate Mike taking the time to talk with our Leadership Forum attendees, and I’m looking forward to more good things from this event in the next few days.

Go!Go!Go!

Jim 

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We are only half-way through the series, but I just realized that we are really creating a gold mine of information on the topic. We have looked at profitable growth through the lens of organizational excellence, marketing and solution selling, the service supply chain, and operational and strategic approaches. 

Here are five nuggets of wisdom, condensed for blog readers.  

The supply chain is a major enabler for profitable growth in organizations. Do you have any nuggets of wisdom to add about the topic? Let me know in the comments.

These thoughts are all taken from the profitable growth series on the Global Supply Chain Podcast. You can learn more here: www.tompkinsinc.com/podcast.

Photo Credit: SESConferenceSeries

We all know how wild the inventory picture has been during the recession.

In 2009, companies worked very hard reducing inventory levels to improve cash flow and positively impact company financials. There was the expectation that order fill rates would be negatively impacted as shortages and stockouts became prevalent. But the reality is just the opposite – order fill rates actually improved.

It’s beneficial to get feedback from different industries and market segments to understand what the full picture is on finished goods inventory. What performance metrics are being used? How was customer service impacted? And who is setting inventory targets these days? 

To answer these questions and more, the Tompkins Supply Chain Consortium recently completed the Finished Goods Inventory Hot Topic Report, based on a survey of top retail, manufacturing, and consumer products companies.

This report has been receiving a lot of attention, and we’re working on targeting how this type of inventory is impacting the automotive, consumer products, retail, high-tech, food and beverage, and pharmaceutical industries.

Today, I would like to focus on finished goods inventory in consumer products. If you’d like an overview of all industries, download the full report. 

Go!Go!Go!

Jim

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You’ve heard Dan Avila addressing retail trends here on the Go!Go!Go! Blog a few times over the past year. Today, Tompkins Associates’ “global retail guru” discusses the challenges and outlook for the 2010 peak season. 

Jim 

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As the peak retail season for 2010 rolls around, we’re already seeing some challenges resulting from the supply chain improvements that were made during the 2009 season. 

As you recall, in peak season 2008, many retailers brought in a lot of inventory, stocking their shelves with scores of items in the hope that they would sell. Well, they didn’t, and these retailers were left with product that had to be either discounted heavily or liquidated. This led to a complete and total change in strategy for peak season 2009. Retailers did not want to repeat peak season 2008, so they made some significant changes in merchandising, forecasting, and inventory levels. 

In 2009, retailers reduced the number of items they offered customers, relying on previous top-selling items and not bringing in items if they were unsure that they would sell. 

Retailers also forecasted demand more conservatively. The majority of retailers stocked their shelves in 2009 with items that were sure to sell and at inventory levels that would meet the lower demand that was forecasted, thus avoiding the deep discounts and inventory liquidations of 2008. 

For the most part, retailers in 2009 have succeeded with lower inventory, fewer product offerings, fewer markdowns, and much less inventory liquidation. 

Shortage of shipping capacity and containers impact 2010 peak season 

Since retailers reduced the amount of inventory in 2009 – and with the general reductions in inventory due to the economic slowdown – the steamship companies, who transport much of the product from Asia into the U.S. -- reduced their capacity to meet the decreased demand levels. Now, as peak season shipping from Asia to the U.S. begins, there is a serious shortage of shipping capacity from Asia to the U.S. 

In the last few years, to meet lower demand, many of the steamship companies took ships off-line or went to “slow steaming” – the practice of reducing the speed of steamships to save on fuel which, in turn, adds to the amount of time a steamship takes to get from point A to point B. It is estimated that as much of 11% of steamship capacity has been pulled to offset the reduced shipping volume. 

Another issue affecting capacity is the number of actual containers available to move freight. There are few companies that manufacture ocean freight containers. So when demand dropped, these companies all but stopped manufacturing. 

Now that demand has increased, there is a significant shortage of containers. To further complicate matters, exports from Russia and India have increased, causing further strain on capacity of the steamship lines and consumption of containers. This situation makes it even harder to secure freight for U.S. retailers. 

This problem began to show itself earlier this year when retailers such as Cost Plus World Market and The Container Store were unable to get product into the U.S. for Father’s Day and summer catalog sales, resulting in lost sales and rain checks. 

With the shortage of cargo space on ships, retailers are fighting for space and often outbid each other for freight. Ocean freight from Asia to Los Angeles has increased by as much as 2 to 3 times what it was in 2009. For example, the spot rate for a 40-foot container from Hong Kong to Los Angeles in July 2009 was $871, a five-year low; today the spot rate is up to $2,624, which is a five-year high. 

So to ensure that product is on shelves for the holiday season, some retailers have moved away from the solid supply chain practices implemented in 2009. 

For instance, retailers are beginning to bring product in early – as early as 3 months before normal. They are taking on additional warehouse space to make sure product is in the stores by the holiday selling season. This, of course, is a painful and costly solution to the problem and can be avoided by working closely with and forming strategic relationships with steamship companies. Some retailers have had success in keeping their products moving by paying surcharges and signing up for longer term deals.

I would be interested in knowing what strategies your company is employing to keep freight moving? What are your contingencies?

Thanks,

Dan

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As I was posting my earlier globalization blog this week, I went back and re-read the USA Today article, “Some Manufacturing Heads Back to USA,”, and I became even more troubled this time than when I read it previously. 

I get it that publications look for a popular spin on a topic to attract readers, sell copies and boost advertising. But this is the type of spin that leads to dangerous thinking. 

Let me share with you a few stories from this cover story:

Once again, Wrong! Wrong! Wrong! There is no equilibrium. 

The natural evolution of the business cycles, the replacement of low-skilled jobs with higher-skilled jobs, and the growth of the global standard of living will drive the continued evolution of the dynamic global economy. So, equilibrium shall not occur and should not be even suggested. Equilibrium is unhealthy. 

Dynamic evolution is a key component of the free marketplace and will allow us as a global economy to continue to prosper.

Go!Go!Go!

Jim

Photo Credit: BlatantNews

Oh my, my, my! Twice last Friday, I was surprised by the short-sighted ignorance put forth by well-meaning folks. 

First came an email from a politician telling me what a great job he was doing for me because he was “protecting American jobs by promoting products made in the USA.” Next, I picked up a paper and saw an even more appalling article in USA Today’s Money section entitled Some Manufacturing Heads Back to USA.

Quoting from Nariman Behravesh’s recent book, Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today’s Global Economic Debates, “Short-sightedness is a serious affliction that plagues both politicians and the media.” 

I cannot state this any more clearly, both the political message and the USA Today article are 100% misinformation – wrong and detrimental to the causes that they both claim to be protecting.

I could write a book on this, and probably will write several blog posts. But, to be brief, the politician and USA Today should be ashamed of themselves for taking on such an important subject – “globalization” – and, in an effort to boost their political gain or media hype, presenting an extreme view that distorts the facts and the historical context for improving the standard of living for not only all Americans, but also for everyone in the world.

The key to understanding globalization and the continuous upgrading of jobs – and therefore, the standard of living for all – is free markets.

With free global markets, the most efficient and cost-effective means of satisfying the needs of buyers are established. The efficiency and effectiveness of the free market will allow time for the consumer’s dollar to buy the items they most desire at the best price, which will perpetuate the growth of the standard of living and the creation of better paying jobs.

Yes, there will be jobs lost in each nation during this job migration, but these people must move up to better paying, higher productivity, and more value-added positions to participate in the growth of the standard of living. This is the universal economic evolution that has been happening since cavemen started trading goods, and it is at the very core of specialization and economies of scale.

When free markets are not allowed to work or when people do not move up to higher productivity, negative economic consequences for both the individual and the economy will occur.

Allow me to demonstrate this point in the context of the “double dip” discussion that is in the news almost every day now. In 1930, President Herbert Hoover made one of the largest anti-free market blunders of all time: He signed the Smoot-Hawley Tariff Act, which sharply raised USA tariff barriers on imported goods (buy American). This protectionism policy set off a downward spiral in international trade which led to the Great Depression.

Unfortunately, downward spiral continued as FDR imposed new taxes in 1936 that resulted in a second recession (not a double dip, but a second bonehead political move) from which the economy did not recover until after World War II.

So the facts are clear to me:

More to come on this very important topic … 

Go!Go!Go!

Jim

Photo Credit: Luis Argerich 

I’m thrilled that more supply chain leaders are now “movin’ on up” in their companies. 

As we found in our recent Supply Chain Consortium survey on Supply Chain Organization, nearly half the retail and manufacturing companies surveyed have a supply chain leader at or above the executive vice president level.  This is a positive trend! 

Interestingly enough, about the same time we put out our survey results, IndustryWeek also ran a blog about a similar survey conducted by Cranfield School of Management and Solving Efeso, which found that about two-thirds of the 180-plus senior global supply chain professionals polled have senior supply chain representation in the boardroom.

I’m glad to see that supply chain is more firmly on the radar for a large number of organizations and is becoming more closely aligned with their business strategies. And these findings support the reality of business today – It is supply chain vs. supply chain, and those with the strongest supply chains will come out on top. 

If you’d like to learn more about the findings of our survey and discover what’s going on in your industry, check out the Executive Briefing, The Structure of Today's Supply Chain Organizations: Charting How Companies Organize Their Supply Chains.

Go!Go!Go!

Jim

A few months ago, I interviewed Dr. Kim Woodard for a two-part podcast series we did on global mergers and acquisitions (M&A). Dr. Woodard is the Vice President of Technomic Asia, a Tompkins International company based in Shanghai, and he has worked in the Greater China region for 20 years as one of the most experienced deal makers in the Asia region.

We concluded that M&A in China was about to dramatically accelerate. In fact, China just experienced 12 percent year-over-year GDP growth in quarter 1, and multinational companies couldn't afford to miss out. 

From what I'd read and talked to other executives about – as well as what Dr. Woodard said – it seemed likely that M&A activity in China was sure to go from a spark to a bonfire in a relatively short time. 

Since then, our predictions have begun to prove true. 

Citing a major uptick in M&A, Technomic Asia's general manager Kent Kedl recently published a post in the China Business Blog and Podcast that helps readers understand the process of deal cultivation when developing M&A in China. Read more here.

So what's going on in China now? The best way to find out is to ask the experts on the ground. 

According to a recent USA Today article, a 2008 survey performed by the US-China Business Council found that nearly half of the companies surveyed performed better in China than in their overall company operations. The article went on to point out some of the U.S. industries that are increasingly moving into China, including pharmaceuticals and consumer products. 

The high technology industry is another good example, due to the migration of R&D facilities into China after the country updated its policies and trade practices (see more in this blog post).

You can keep up with the topic of China business and growth development for multinational companies by subscribing to the China Business Blog and Podcast.

Go!Go!Go!

Jim

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