You’ve seen the opinions of Chris Ferrell, transportation expert and Director of the Tompkins Supply Chain Consortium, a couple of times already on this blog. Today, he shares his insight into some floundering international transportation capacity issues.

--- Jim 

As much of the Eastern Seaboard braced itself for Hurricane Irene last week, I was reminded of the age-old saying “Hope for the best and plan for the worst.” It was a large storm with widespread impact (and thankfully downgraded) but it could have been much worse without adequate preparation.

To me, this is also the perfect quote to sum up the overall economy right now, including one of its strongest leading indicators: fuel costs.

Over the past month, we have anxiously awaited the verdict of the debt ceiling, begun to absorb the blows of the first credit downgrade in U.S. history, experienced an earthquake and a hurricane in parts of the country that aren’t accustomed to them, and seen yet another longstanding Middle East regime fall. During that time, fuel prices – which had been quietly creeping back up following a tumultuous spring – have fallen about $0.14 to a national average of $3.58 per gallon).

But even though fuel hasn’t been making the headlines recently, it’s going to play a vital role in the overall economy’s recovery. You see, during the first half of the year, with the Middle East in turmoil, the fuel market was beginning to look a lot like 2008 right before things went very bad. 

Numerous studies from 2008 have shown that $4.00 per gallon for fuel represents a tipping point at which American consumers start to think and act differently. While the current numbers are far from the May highs of $3.96, the U.S. is not out of the woods until we are through the traditional consumer holiday spending season. A recovery that is looking more fragile each month, particularly a battered retail industry, cannot afford a repeat of 2008.

On the positive side of things, the relatively recent fuel spike of 2008 seems to have left an ineradicable impression on business leaders – based on a Supply Chain Consortium Hot Topic survey conducted earlier this year. Many respondents consider their organization better prepared for the current situation. Relative to 2008, consider:

• 70.0% believe their transportation staff is more knowledgeable.
• 61.7% identify their distribution network as being more optimized.
• 60.0% are doing a better job of partnering with carriers and brokers to keep fuel costs in check.
• 48.3% have a superior systemic ability to optimize shipments.
• 47.5% have increased their ability to switch loads to more fuel-efficient modes.
• 45.8% believe their 2011 budget anticipated fuel costs better.
• 26.7% (primarily wholesalers) have an improved mechanism for passing-through fuel costs.

But being better prepared than 2008 is a very relative term and will only fractionally lighten this situation. If the average price of gas tops the $4 mark before Thanksgiving, the economy may not be able to avoid sinking back into recession.

With that being said, we should hope for the best and plan for the worst in this fragile economy.

Chris

Photo Credit: Sean MacEntee 

It’s tempting to look at China and other low-cost countries as an “either/or” proposition in terms of moving manufacturing there from the US. Some would like to see it as a black or white issue:

• Either companies can manufacture in low-cost countries like China more cheaply…
• Or, when they are no longer as cheap, companies stop manufacturing there.

The assumption that many people who see it this way would make is that companies would then bring back manufacturing to the US, once wages in countries like China increase.

It is not an “either/or” dilemma, however. There are many other factors to consider here.

Case in point – the best companies are moving operations to low-cost countries not only to save money, but also to enhance their opportunities to tap into the market of the country itself.

Yes, China does currently offer a low-cost manufacturing and sourcing opportunity, but the country itself also represents a rapidly growing market. Some smaller cities in China are seeing 30 percent market growth, and China’s GNP is rising. This growing market is a huge incentive for companies to manufacture in China and then sell in China.

This brings up the discussion of whether or not manufacturing operations that were moved to locations outside of the US will ever move back to the US. This isn’t bound to happen soon, and even if it somehow did, it would be a step backward.

Not only do the factories in the US no longer exist to return to, the low-paying, low-skill jobs that would come with them are not what the US needs. In my opinion, this scenario would represent returning to a lower standard of living in the US.

I found a recent report by the Federal Reserve Bank of San Francisco very interesting. The FRBSF’s research shows that more than half the amount that US consumers spend on products made in China actually stays here – going to American companies, workers, marketers, retailers, and transport providers.

So don’t fall into the trap of using assumptions and misconceptions about China – especially considering the opportunity that the country’s consumer market represents.

For more valuable information on this topic, check out this series of podcasts on Replacing China Myths with Facts.

Understanding Globalism in China

China’s Business Evolution

China’s Overall Evolution

More Resources

Caught Between the Tiger and the Dragon

Asia Supply Chain Excellence Report - August 2011

China Business Report: AmCham Shanghai & Technomic Asia Survey Shows U.S. Companies Thrive in China

Photo Credit: kiwinz

There are old sayings about “not making important decisions when you’re angry” and “not driving when you’re angry.” I wonder if this applies to blogging? Maybe … or maybe not.

Right now, I am so disgusted over situations that I have encountered lately that I went back to June’s Harvard Business Review and reread the excellent article “Before You Make That Important Decision” in an attempt to calm me down.

In the article, the authors pose 12 questions to help executives review the quality of the recommendations given to them by their support team and any potential biases that may have distorted the reasoning of the support team (and thus the bad recommendation handed to their leaders).

I highly recommend the article in full, as in this blog I only discuss the three questions that relate to my current state of discontent.

Okay, I am already starting to calm down as I write. In retrospect, I had a great week – landing a handful of new projects and participating in two very successful client presentations. So what then got me so angry that I could chew the heads off of 8-inch anchor bolts?  

I have recently talked with two company leaders who will wind up with clogged shower drains because their hair is full of sand after having it buried in the sand. Now, do not get me wrong, I know I am not going to win every proposal I write and I understand there are some folks who will make key decisions based on factors that I do not understand.

But this boggles my mind:

• Unwise Decision #1: This company leader has a supply chain that does not work. Their organization requested proposals from four consultants, three of which are good companies and one company that I have never heard of and does not have a website. Yep, you guessed it – the support team consisting of the current supply chain leadership recommended to the CEO that they select the “Stealth Consultant” to address the firm’s major supply chain issues because “Stealth” was 30% cheaper than the other three firms.
• Unwise Decision #2: This company has procurement processes and systems that date back to the 1970s. Decentralized administrative buying with little to no aggregation of volume for leveraged spend; limited visibility into direct spend; and no visibility into indirect spend. The potential was for the company to save over $5 million per year.  In the category of “Are you kidding me??” the recommendation of the existing procurement folks to the CEO was to not hire an experienced consultant, but “to do it themselves.” Wow, amazing, considering that they have no culture of training for new skills and no inherent procurement skills other than to “put up enough road blocks and it will go away.”

The Three Questions that Should Have Been Asked:

So what were the three questions from the Harvard Business Review article that the CEO should have asked for both “Unwise Decisions #1 and #2?

• “Were there dissenting opinions within the recommending team?”
• “Have credible alternatives been considered?”
• “Are the people making the recommendation overly attached to past decisions?”

Great questions, right? Unwise decisions, right? Very disappointing to see CEOs making these types of crucial decisions based on bad recommendations from support teams. I believe that leaders should know when to challenge “group think” with important decisions that affect their profitable growth and their customers.

So thanks for letting me rant here and give some honest feedback. Hopefully, I gave you a few beneficial things to ponder when it comes to supply chain decisions.

GO! GO! GO!

Jim

Photo Credit: _gee_

Do you have “supply chain intimacy”? If not, do you want it, and how do you get it? Or, even more basic, what exactly is it? Let me help:

• Supply chain intimacy, defined: It is having a detailed and thorough knowledge of your company’s supply chain.
• Should you want supply chain intimacy, and how do you get it?  Yes, it is a critical competency to maximize your company’s profitable growth results from having a robust understanding about the art, science and processes of your supply chain and its impact on your company’s success.
• If you have supply chain intimacy, what do you do with it?  This is an important question for the ongoing vitality of your career. If you have it, you need to do three things:     
  • Grow it
  • Gain more global experience
  • Gain more leadership talent

If you need to acquire supply chain intimacy, or wish to grow it, five actions are necessary:

1. Do a deep dive into each of your company’s supply chain mega processes of PLAN-PROCURE-MAKE-MOVE-STORE-SELL. You cannot be intimate with your supply chain by only being a “buy” expert, or a “move” expert. End-to-end breadth and depth is the key.
2. Understand the relationships and interactions among your company’s supply chain processes and the impacts of key performance indicators (KPIs). Do not focus on supply chain KPIs at the peril of your company’s performance. Understand the many trade-offs and compromises that need to be made to balance the processes that beget great customer satisfaction, low costs, amazing speed and high flexibility.
3. Become adept at manipulating your company’s supply chain to achieve profitable growth. This entails going beyond the “profitable” focus that results from lower cost and truly grasping that the supply chain also has a huge impact on the “growth” side of your business and that the real goal in supply chain is to both grow the top line and the bottom line.
4. Develop the ability to collaborate both externally and internally. External collaboration with suppliers (supplier relationship management) and with customers (customer relationship management) is essential to achieving supply chain intimacy. This includes collaboration internally across the organization to include IT, finance, HR, marketing, sales, etc. to assure that the supply chain is aligned and contributing to the overall strategy of the firm.
5. Increase your capability to execute continuous improvement and transformational changes to achieve organizational excellence. The pursuit of supply chain excellence requires both tactical and strategic planning, as well as precise execution.

So this is what supply chain intimacy is all about.  Your success in helping your company move forward depends upon it.

Go!Go!Go!

Jim

More Resources

Supplier Relationship Management

Podcast #60: The New Frontier for Profitable Growth in Business:
Leveraging the Supply Chain -- Shareholder Value, Part 1 of 8

Podcast #61: Strategic Market Planning and the Paradox of Profitable Growth

I like challenging quizzes that reveal surprising facts. Not only can you learn valuable information this way, but you also have something to impress folks with at parties.

Try these 20 questions on for size:

1. Which country currently enjoys the #1 consumer market for luxury goods?
2. Which country manufactures 80% of all the toys in the world?
3. Which country ranks second in the world in Fortune Global 500 companies?
4. Which country has adopted the slogan, “Go West Young Man” to promote a more equal distribution of wealth?
5. Which country will see 100 new cities in the top global 600 cities evolve over the next 15 years?
6. Which country‘s exports grew by 20% in the first half of 2011?
7. Which country has the fastest growing consumer market in the world?
8. Which country has the highest percentage of its GDP coming from manufacturing?
9. Which country’s business leadership believes their top constraint to growth is the availability of qualified labor?
10. Which country will have the greatest exit of labor-intensive manufacturing jobs over the next decade?
11. In which country did 87% of the American business leaders say they had revenue growth in 2010?
12. In which country did 79% of the American business leaders say they were either profitable or very profitable in 2010?
13. In which country is the World Bank forecasting a 9.3% growth in GDP in 2011?
14. In which country does 12% of their GDP come from agriculture, but almost half of the population works in agriculture?
15. Which country has more pigs then the next 43 pork producing countries combined?
16. Which country’s GDP now accounts for 9.5% of world’s GDP?
17. Which country’s economy grew seven times as quickly as the United States’ economy over the past decade?
18. Which country expects to see exports rise 12.4% in 2011, but be outpaced by a rise in imports at the rate of 13.2%?
19. Which country is the most attractive emerging market for apparel retailers?
20. Which country’s retail growth is expected to increase at the rate of 15-30% over the next five years?

Well, here is the surprise – the answer to all 20 questions is China! The China economy is the 900-pound dragon in the room of growth. This country is no longer an emerging economy; it is an “emerged” economy.

The China economy is running on steroids, and this presents your company with the greatest growth opportunity of all time. You need to have a clear strategy not only on how to import from China and Asia, but also a strategy to achieve profitable sales of your products into China and Asia. In unison with this importing of products from Asia and selling into Asia comes the essential need to pursue excellence in your supply chain.

In fact, I am so passionate about this opportunity that I have just created a newsletter called the Asia Supply Chain Excellence Report. This complimentary resource will keep you up to date on business trends and best practices in Asia and help your company achieve supply chain excellence.

Get your organization engaged with this awesome growth opportunity.

Go!Go!Go!

More Resources

Subscribe to Asia Supply Chain Excellence Report

China Business Blog and Podcast

China is Changing Supply Chains Around the World: Facts and Trends

Photo Credit: tuchodi