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 

Let’s be honest.  No matter what we read in the news or hear from our colleagues, we’ve all got our own analysis of the years past and insights about the years to come. 

Much like picking out a fantasy football team, we strategically position ourselves, our companies and our decisions based on our own predictions. Then we hope for the best.

Sometimes, people get lucky with their draft of predictions. Then at other times, they probably wish they’d consulted someone else.  Whether you’re the expert in your specific area of supply chain or you have a general working knowledge of it all, there’s bound to be a few areas where you could use some expert guidance.

Recently, dozens of industry analysts and executives got together and provided just that – expert guidance and outlooks in Supply Chain Brain’s 2011 Resource Guide. 

In the guide, supply chain experts weigh in on more than 32 industry sectors. Gene Tyndall, an EVP with Tompkins, provides insight on why old ways of management won’t work as the economy recovers.  A few other Tompkins analysts comment on the high-tech industry, historical planning in the consumer packaged goods industry, integration challenges in pharmaceutical and biotech industries, and inventory performance.

In this recovering economy, it can’t hurt to listen to what experts in the supply chain world have to say and add it to your own knowledge base.

What’s your outlook for 2011? What do you already see working for you and what do you have planned?

Go Go Go

Jim

Photo Credit: Ben Newcomer

I’ve been known to hold onto a thing or two when it’s past its prime. I have my favorite mug, my favorite shirt, and I even make sure I squeeze every last drop out of my toothpaste tube.

And don’t get me started on the laptop that I kept until the hard drive decided that it was at the end of its life cycle.

Like me, most consumers want to get as much use as possible out of a product. And while we have seen consumer spending rising lately in a number of sectors, folks really do seem to be holding onto products for a longer period of time today.

Is it a permanent sign of shifting values or a reaction to the recession, or both? I certainly cannot know what is in the minds of all consumers, but this New York Times article supports my observations that product life cycles seem to be growing.

As we continue to preserve our belongings, this not only helps us cut costs, but it has the added benefit of environmental sustainability. Not to mention, we are able to spend our money in other areas.

So with this ability to spend, we are not expecting a potential decrease in consumer demand in the coming year. As the article on Bloomberg News suggests, there is pent-up demand – and a 3.2% increase in consumer spending is expected for 2011.

Overall, the economy is growing and this can be attributed in part to consumer spending. Therefore, it seems that holding onto products longer and increased consumer spending are not necessarily incompatible. This concept shatters some old patterns of thinking and is worth exploring further.

What have you been seeing lately in relation to consumer spending? Do you think extended product life cycles and increased consumer spending can peacefully co-exist?

Go!Go!Go!

Jim

More Resources:

White Paper: "Sourcing and Selling in Challenging Economic Times: How Retailers Should Re-think Their Operations and Methods"

Consumer Products

Photo Credit: hindsightbrid

I am in the midst of a series talking about “Top 11 Priorities for Profitable Growth” in this blog.

But sometimes routines have to be interrupted for big deals – and this is certainly one of those times. Next week, the leaders of the two largest economies in the world will meet to discuss trade and foreign policy.

Key issues that U.S. President Obama and China President Hu Jintao are likely to cover include the reevaluation of the RMB, world consumption of energy, and the policies of indigenous innovation and intellectual property rights. Each of these issues impacts global supply chains and logistics and will frame how we conduct business in the future in Asia.

Because Tompkins Associates (through its subsidiary, Technomic Asia) has its pulse on the global supply chain, we have seasoned experts in the China market – including Michael Zakkour - who can navigate the ins and outs of the visit and what it could mean for global business.

Read more in the China Business Blog and Podcast: President Hu's State Visit A First.

More Resources:

Technomic Asia

Tompkins International, China

Photo Credit: futureatlas

Although it was pretty cold and really early in the morning (or late at night, depending on your point of view), I know a few intrepid souls who woke up (or stayed up) to watch the total lunar eclipse this past week.

Even though the heavy clouds over the local area here in North Carolina dramatically parted just in time to witness the eclipse, it was still too hazy for even binoculars to assist in viewing it with more than minor detail.

The eclipse is something that was predicted far in advance, and it was sure to occur. Even so, the people I know in my local area who tried to view it did not get to see much of it, although they tried very hard. The eclipse was certain to happen, but the viewers who wanted to see it could not be certain they'd have a fantastic view of it. 

Hearing about this experience reminds me of the winding down of the Great Recession and the uncertainty that company leaders are experiencing today.

The only thing that seems to be certain is uncertainty. The cloudiness and haziness force us to give up predicting things and do our best to work toward ensuring profitable growth. This is especially true going into 2011, as many of our important priorities before the recession had to be pushed to the side so we could totally focus on cost reduction and weathering the difficulties the economy presented.

To help companies of various industries and sectors see a little better through the fog, we at Tompkins have compiled lists of the Top 11 Priorities for Profitable Growth. I hope you will review them so your company has a brighter future, and that it illuminates what 2011 will bring.

I am going to highlight each of these Top 11 lists over the next month in a series of blog posts, including lists for retail, automotive, consumer products, food & beverage, high technology, LSPs, merger & acquisitions, the service supply chain, and pharmaceutical & medical products. Each area has its own priorities for profitable growth, as well as a few major overlapping concerns.

Top 11 Priorities for High Technology

For example, in the high technology industries, there is great potential for profitable growth in the area of sustainable business. E-waste is a problem that requires innovation to solve it, as each new generation of high technology (such as the switch from 3G to 4G cell phones) naturally means that too many old cell phones end up in landfills, creating pollution.

High technology companies are already using reverse logistics and other supply chain solutions to the problem, including better product design and recycling programs for their products.

Also on the list of top priorities in high technology – globalism and emerging markets. Companies around the world are gearing up to sell to the growing consumer base in China, and this will be a busy playing field for high-tech in the next year.

Be sure to visit the Top 11 website and get started on what your 2011 priorities will be. I look forward to a year of profitable growth for your company!

GoGoGo,

Jim


Resources:

Download the Executive Briefing - Uncertainty is Certain: Perceptions of Future Risk on the Rise 

“How are you doing?” seems like a very simple, non-threatening question. Right? 

But consider the following responses I have received to this straightforward question recently:

 

- Ok, how are you? 

- What do you mean how am I doing? 

- I read in the paper that a recovery is underway, not sure what they mean, because this is not so for my company. 

- I am still here, I guess that is good?

- Why do you ask me a question like that? 

 

- First, all answers must be considered in the context that we are only 2 years removed from the shock, the panic of 2008. The fall of 2008 was an ugly time, and many have not yet exorcised it from their brains. 

 

- Second, an honest reaction to the “how are you doing?” question has to be placed in the context of 2009. The theme for many people in 2009 was survival. As companies cut costs, very few of us felt they were secure in their position. Many were surprised by actions their company took in 2009 and when asked in 2010, “how are you doing?” an honest reaction may be one of relief in even being asked that question. 

 

- Once one’s brain goes beyond 2008 and 2009, it is typical to consider the recent challenges and hard work of aligning their supply chain with the requirements of 2010 – and the reaction is one of relief that there is light at the end of the tunnel.  The challenge, however, is attempting to truly understand the requirements of 2010 as the level of uncertainty is great, and therefore, there still remains a significant amount of heartache in feeling good about “how they are doing.”

 

- The good news is that I am beginning to see, for many, the reality of next year as we see the return of refining and evolving your supply chain for profitable growth in 2011. I see a time coming where our efforts are once again focused on the application of supply chain excellence to both increase the top line through growth as well as the bottom line through reduced supply chain costs. 

1. Quoting from a statement in the article: “A lot of companies who have gone there [he’s referencing buying from Asia] to take advantage of cheap labor are starting to tell us that if you calculate total costs and don’t just look at wages, it’s actually not worth it.” 
   
   Wow! How to respond to such total nonsense? Obviously, firms need to evaluate the total delivered costs of all manufacturing decisions. If firms actually make decisions on wages alone, I doubt they are still in business. It’s difficult to believe that the USA Today would even print this.
   
   
2. The article indicates that GE is bringing jobs back from China because the workers at their new plant in Louisville will be working for $13/hour instead of the $22/hour that the company used to pay. What's more, GE received state and local credits of $25 million over 10 years as well as federal incentives. 
   
   This story is told as a “success story” of bringing manufacturing back to the US. Workers going from making $22/hour to $13/hour (plus substantial government grants) may be a success for GE, but it’s not for these workers, the standard of living, or the US economy.
   
   
3. The article also notes that a company called Diagnostic Devices, which has experienced increased inventory costs as well as the complexities of dealing with a global supply chain, responded to these issues by moving production to an automated operation in Charlotte, NC, to eliminate the challenges. 
   
   Of course, I do not know the details, but this very well could be an excellent example of when offshoring of manual operations leads to a return to the US due to an automated, higher productivity solution. But this is not a globalization debate – just a sign of the ongoing evolution of the free market.
   
   
4. Many of the other topics in this particular USA Today article have to do with the decades-old complaint of product quality, shipping costs, demand planning, inventory management and intellectual property. 
   
   Three words here: “blah, blah, blah.” These silly cheap shots, which have been addressed by many firms in many ways, create opportunities for some education on supply chain.
   
   
5. Only one last point and I will leave behind my news media beef for now. Early on in the article, there is a quote from Simon Ellis, who says, “I think we’re going to start to see a slowing of lost jobs, and we’ll see some jobs coming back. At some point it will balance out, and we’ll reach an equilibrium.” 

1. Free markets work to increase standards of living for all.

2. Interfering with free markets will hurt everyone in the long run.

3. Employment is always the last indicator to respond after a recession, and the deeper the recession, the longer it takes.

4. We need to stay the course: Continue to encourage free trade and encourage people to increase productivity.

5. Politicians and news media need to stop the sensationalism.

Chris Ferrell, Associate Director of Tompkins Supply Chain Consortium, almost needs no introduction. He has written a few guest posts on the Go!Go!Go! blog, and he really knows his way around the transportation industry. Today, he has some insights for us on the new numbers from the DOT’s Bureau of Transportation Statistics that were just released on Wednesday.

------------------------------------------------------

Last month the Tompkins Supply Chain Consortium published an Executive Briefing on the state of (U.S.) domestic transportation and its usefulness as an early indicator for the overall economy. As I say in that report, the first tangible signs of how things are likely to play out on a macro-level will show up in transportation. 

For contrast, think about manufacturing and distribution networks – while less constrained than ever, they still require long lead times to fundamentally change. And at the same time, planning activities are company-specific and, by design, rarely available for public scrutiny. But for transportation, obligations are few and all the data one needs for analysis is publicly available.

Since the Executive Briefing was written, the DOT’s Bureau of Transportation Statistics has published two additional months of data, and the news is not promising. 

The May 2010 number ended a streak of consecutive months with growth and, in fact, erased all the gains made in April and some from March as well. And the year-over-year gain of 4.4% is offset by the fact that May 2009 marked the absolute bottom of the Great Recession. Another month or two of decline and you won’t have to be an economist to see that the oft-predicted “W-shaped” recovery will already be three-fourths complete. (I’ve added the yellow W to TSI-Freight/GDP chart to show you the potential outline of events.)

If this potential scenario becomes a reality, a vulnerable transportation industry that has already been reduced considerably could be decimated (literally a 10% reduction in total capacity) just prior to a steep and sustained recovery. 

Although I would like for everyone to remain optimistic, I encourage you to be aware of the numbers and plan for the future of your company. To that end, I’d like to leave you with a link to a recently published article in Logistics Today that discusses some of the long-term projections of the transportation industry and the different challenges shippers will be facing down the road.

So while your organization goes about the process of securing adequate capacity at the most favorable price for the forthcoming fall busy season, you may do well in the long run to verify your service providers’ financial health and to remember that we could be months away from the shoe being on the other foot – a robust economy being hampered by a capacity-constrained transportation industry for quite some time. But that’s just my opinion. What do you think?

-- Chris

More Resources:

Domestic Transportation Executive Briefing: The Industry is Moving Once Again

Transportation Sustainability Hot Topic Report

Summertime is here, and along with warm weather and vacation, this tends to be the time when everyone is out and about enjoying the great outdoors. I’ve noticed people heading to the beach or hiking in the mountains – since in North Carolina, we have both!

With the nice weather, I’ve also noticed more motorcycles on the road. Most of the time people are wearing helmets and other protective gear. It is probably a lot hotter and maybe a little more restrictive and uncomfortable to wear all of that, but the consequences of wrecking without wearing that gear are far worse than a little discomfort.

Summer has also brought with it some pretty high expectations and excitement for the end of the recession and a return to growth and prosperity. Companies that maintained their talent and strategy while cutting all other costs were able to weather the recession. It’s now time for these organizations to take advantage of the opportunities available for overcoming the competition.

Keep in mind that it’s easy to fall into the trap of moving much too fast – and actually, reckless speed without a plan or understanding the great change that took place because of the recession can be fatal. Think of it as riding your motorcycle down a highway at 70 MPH without a helmet – it might be convenient at the time, but you’re taking a big risk. 

Avoid this recklessness and think ahead instead. Here are three mistakes to avoid when developing a profitable growth plan in the post-recession market:

1. Not taking the right amount of time and care to understand your current position and your customers’ desires.

2. Don’t focus too much on future profitable growth so that you miss existing opportunities. Instead, achieve goals over time. Otherwise, you risk moving much too fast for your stakeholders and growth plan to adjust, and expectations can’t be met.

3. Not allowing for the time and planning needed to properly fund new initiatives with the capital required, which must flow from other profit sources that should first be cultivated – before jumping in without the capital needs to fund your profitable growth.

I cover a lot more details on how to return to profitable growth in this installment of the Global Supply Chain Podcast series. It’s the first of 10 podcasts I’ll be publishing over the next few months on the topic of profitable growth. 

You can listen to it here or read the text transcript: http://www.tompkinsinc.com/podcast/transcripts/6-15-10_podcast44-profitable-growth-part-1.asp

Also, be sure to subscribe to the podcast to receive each one as it becomes available on the first and third Tuesday of every month. http://www.tompkinsinc.com/podcast/subscribe.asp

Go!Go!Go!

Jim 

If there is one silver lining from the Great Recession, it is that companies are creating new business and supply chain strategies based on lessons learned. 

But as I thought about this, I began to wonder how companies' supplier relationship management outreaches have been affected, and what that impact means long term for industries in which interactions between organizations and their suppliers were already strained.

 

It is likely that during the past 18 months or so, companies have been focusing on critical business needs instead of how they are getting along with their suppliers. I am certain that economic conditions have forced companies to make decisions that have negatively impacted these important connections.

 

If the good feelings and dealings have slipped away, how do you get back on track? First, begin by assessing the damage – is the relationship neglected, dampened, broken or severed? Then, take strong steps to address what is really wrong with supplier bonds.

 

In the recent Supply Chain Consortium Executive Briefing, Supplier Relationships: Picking Up the Pieces, co-authors Justin Brown and Bruce Tompkins outline some of the best steps to take in order to mend these relationships. 

 

So how has the recession affected relations with your suppliers? What type of damage control are you doing? 
 

Go!Go!Go!

Jim

 

 

More Resources 

Executive Briefing: Supplier Relationships - Picking up the Pieces

Article: Supplier Relationship Management: It Takes the 'Big R' to Win Global Sourcing Game

Podcast: Supply Chain Partnerships and Supplier Relationship Management in Asia (Listen or read the text transcript)

You might assume, and rightly so, that adding safety features to something would result in a clear outcome: fewer accidents. 

However, due to the nature of risk management, the outcome in this situation (and any other when trying to mitigate risk) could actually end up increasing risk. 


For example, there is the case of what happened when a portion of taxicabs in Munich were newly equipped with much safer anti-lock brake systems (ABS). The anticipated outcome was that the ABS taxis would have fewer accidents. But the actual outcome was no change in the rate of accidents for the ABS taxis versus the non-ABS taxis. Although the city of Munich tried to manage risk, the result was not what they intended.


A detailed study discovered that the taxi drivers who had the ABS had become inferior drivers, because their brakes were better. They braked harder, they tailgated, and they merged more aggressively. Accidents were not reduced by the use of ABS, but rather allowed the drivers to drive faster and more recklessly without increasing their rates of accident. 


The result of risk management in the case of the taxicabs in Munich is an illustration of the concept of risk homeostasis. At the most basic level, the phrase risk homeostasis is the idea that changes made to reduce risk may actually increase risk. In essence, risk management can itself be a risk.


Risk homeostasis can also work to decrease risk when an increase in risk was anticipated. As an example, in the late 1960s, Sweden changed over from driving on the left-hand side of the road to driving on the right. As you might think, it was projected that this switch would increase risk and create a higher rate of accidents. But, the opposite proved true. Drivers compensated for the increased risk by driving more carefully. Accidents dropped the year after the switch, before eventually returning to their prior levels.


Due to my interest in supply chain consulting, I began wondering how to apply the concept of risk homeostasis to supply chain risk – which I view at its highest level as dealing with supply risk and demand risk. 


Supply Risk:

As an example of supply risk, I have seen a procurement-oriented approach that focused on contract conformance and supplier performance, and along with the core supplier concept, resulted in consolidation of suppliers. But this, due to the financial viability of the supplier, resulted in greater risk, not less. 


Risk homeostasis teaches us to consolidate, but not to go too far, or risk reduction may beget an increase in risk. 


Demand Risk: 

Working to increase forecast accuracy is typically seen as a good tool to reduce demand risk. But what happens in situations like now, when we come out of recession, is that the historical basis of the forecast is no longer valid. (For more on the uselessness of forecasts during this recession, see my earlier post, “The Forecast: Cloudy with a 100 Percent Chance of More Useless Forecasts.”)


Since we have reduced forecast error during the recession, we falsely believe we do not need to check the forecast as we come out of the recession. 


We then wind up with unanticipated levels of supply and demand in the market. For example, there is a huge global shortage of electronic components that presently exists because of forecast error, which means companies in these industries aren’t able to fill orders.


Risk homeostasis is at work here, as we reduced risk by reducing forecast error, but this false sense of confidence when the market shifted actually resulted in higher risk.


All of this boils down to something many of us learned a long time ago, even before we learned the phrase risk homeostasis. Addressing risk in one aspect of the supply chain may very well increase risk elsewhere in the supply chain. When attempting to manage risk, always use your experience and judgment to evaluate not only the positive consequences, but also the negative. 



More Resources 

Article - Inventory Management: Proper Planning Can Lead to Big Improvements

Article - Top 40 Risks in Outsourcing 

Article - Flexible, Adaptable, Redundant and Secure: Strategies for a Resilient Supply Chain 

Global Supply Chain Services and Risk Management

Supply Chain Best Practices

Photo Credit: Peyman