As we ring in the new year and welcome 2012, I have been seeing a lot of talk about ‘predictions’ for supply chains and business in general cropping up. Predicting anything about business in the last few years is a difficult, if not impossible, task.

I think it would be more worthwhile if we would consider what priorities we should have on our lists for the new year (versus guesswork). These priorities should lead to measurable results – instead of hoping for the best, we know we are working toward what’s best.

With this in mind, Tompkins’ experts prepared priority lists for a variety of industries, including consumer products, food & beverage, footwear & apparel, industrial & equipment, LSPs, pharmaceutical  medical products, and retail.

We also produced priorities for two major factors that will affect us a great deal in 2012: Supply chains in China, and what’s going on in merger and acquisition activity.

Visit the “Strategies to Transform Your Supply Chains in 2012” website to see each article for these individual topics – so you can get an idea of what priorities to expect in your industry this year. I am hoping each of us can harness the great potential that this year brings!

http://www.tompkinsinc.com/2012/

GoGoGo!

Jim

Photo Credit: aussiegall

Over the past few weeks, I have been asked to share my thoughts on some serious issues:

• The impact of political upheaval in North Africa and the Middle East on fuel prices and global supply chains; and
• The impact of the Japanese earthquake and tsunami on the global economy and supply chains.

An important note here – I have no particular insight into the political happenings in North Africa or the Middle East. And except for my natural heartfelt concern for the people of Japan, I have no qualifications or expertise on natural disasters and their terrible aftermath.

However, I do have a few decades of supply chain expertise, and so I have been presenting my informed views in this area. To bring you up to speed, what I have been saying is that uncertainty is certain, expect the unexpected, and be sure that you have contingency and mitigation plans in place to cover supply chain risks.

Our hearts go out to those in Japan dealing with the earthquake’s aftermath and those around the world facing uncertain times. Global supply chains – vital to getting supplies to victims and to keeping their economies growing – are also experiencing uncertainty. It would have been impossible to fully predict the events in North Africa and the Middle East or with the Japanese earthquake. But I did recently predict that “uncertainty is certain” and guess what?  It is.

Over the next few months, other events are bound to develop that will continue to inject high levels of uncertainty into supply chains. Please, do not wait for such events to catch you off guard and leave you scrambling to try and minimize damage to your business. Now, go ahead and evaluate your company’s risks, anticipate the unexpected, and analyze the uncertainties that exist in your supply chain.

Whether it is fuel prices, disaster recovery, commodity prices, transportation capacity, port availability, labor availability, or another factor, get out ahead of the “unexpected” implications.

Supply chain disruptions are simply a part of the realities of today’s global supply chains. It is how you prepare for and lead through this uncertainty that will seal your company’s fate.

More Resources

Supply Chain Consortium Report on Uncertainty

Is Your Company Prepared for Anything? Supply Chain Disruption Calls for Careful Risk Management

The Supply Chain is a Scary Place, World Trade Magazine

Photo Credit: DerekGavey

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.

Here’s a simple phrase that may result in some real misunderstanding: "Emerging markets."

Calling a country "an emerging market" is no longer an accurate description. So let’s dust this concept off, consider what has changed, and see how we should be using this phrase today.

Once in a while in this blog, I take business jargon words and phrases and consider what they used to mean and what they mean now.

Currently, the concept of emerging markets is an especially interesting one to size up. This is because merger and acquisition strategy is on the verge of becoming hot, hot, hot and is impacting the status of emerging markets themselves. This could affect your company in a big way, and you need to be ready.

In the traditional sense, what we used to call emerging markets – such as Brazil, Russia, India and China – are so economically massive and important to the world now, and they’re growing so quickly, that the term really doesn’t apply any more. But, maybe we need to dig a little deeper.

Defining a market as emerging implies that the opportunity for intense, rapid growth exists, but has not yet begun. Some force – whether an innovation or an acquisition – has to knock over the first domino to turn potential energy into rapid growth.

Once this happens, the market’s status changes from emerging to high growth and eventually to mature status. At some future point in time, this cycle can turn to a redefinition state, where changes to the market or to the industry result in a whole new set of dynamics.

You see, I now believe that within a given country’s market, it is important to consider what growth exists by industry, not overall. For instance, where in one market a given industry is still emerging, for another industry, that same market could be high growth.

How does this work? Consider that in a specific country, the food and beverage industry can be mature, but in this same country, the pharmaceutical supply chain is being established and the industry is just emerging. Each industry in each country or region needs to be defined based on its unique characteristics.

Emerging markets may be crowded but also fragmented, and thus huge opportunities exist for growth. And often this growth can be initiated via an acquisition.

The key points that you should keep in mind when considering entry into these markets: Have a rigorous definition for your industry and base your acquisition strategy on your company’s opportunity for growth.

Do you agree that the term emerging markets needs to be viewed on an industry by industry basis and not be applied broadly to a country? What is your company doing in the way of defining emerging markets and laying a claim to capture this high growth potential?

More Resources:

M&A Podcast Series on the Global Supply Chain Podcast: Learn more about the series and subscribe to receive updates when a new podcast is available.

 

Executive Briefing: Sales, Inventory and Operations Planning: Crossing Organizational Boundaries

 

Photo credit: Dave Bleasdale

With recent global economic struggles, discussions about China have become more perplexing.

Some companies are feeling an urge to pull back and run their businesses on American or European soil and not even consider China. Others are going full-steam ahead into China and other parts of Asia without really taking the time to understand how business and supplier relationships in China work in that region.

In a recent podcast discussion with Kent Kedl of Technomic Asia, we talked about a survey from AmCham (American Chamber of Commerce in Shanghai) which showed how American companies that are successfully expanding into China are actually able to use this expansion as a hedge against the challenges they are facing in their home markets.

To stay in the game and become successful, American companies need to learn more about what they have to offer China and be able to sell it to our Asian counterparts. And lest we forget – Guanxi is still key to doing business in China (see a blog post on this topic by clicking here).

For Western companies already in China, or those that are entering the Chinese business market, I recently wrote an entertaining book on the topic. If you like to learn while having a little fun, you may want to check it out. In the book, Caught Between the Tiger and the Dragon, you can follow in the footsteps of the main character, Rich Morrison, as he learns about Chinese business processes the hard way.

Don’t go in blind like Rich. Now is the time to make sure that your company is positioned correctly in the global marketplace. Take the time to understand what your company has to offer to China and determine how to follow through with your goals. Does your company currently have a strategy for expanding to Asia? Or if you are currently conducting business with China, what have you learned?

Go!Go!Go!

Jim

More Resources

The award-winning China Business Blog and Podcast 

Book: The China Ready Company by Steven H. Ganster and Kent D. Kedl　

Recent GoGoGo! blog posts on business in China

Photo credit: theogeo

I am just winding up a wild, seven-day trip to Europe. In the last week, I have been in five different hotels, 10 different towns, and have experienced some fantastic food and several bottles of great red wine.

Let’s see -- One keynote speech (check), 11 client meetings with European companies and 14 client meetings with global companies (check and double-check), and a very successful European staff leadership meeting (check!).

I wanted to share the thrust of many of my discussions and interactions that I have had while on my trip:

Priority 1: Supply chain challenges result from volatility in the marketplace. How do we approach this?

Increased emphasis on the importance of contingency planning

 

More formal commitment to supplier collaboration

 

Increased prioritization of supplier risk assessment

 

Increased focus on SIOP

 

Increased emphasis on speed, agility and flexibility

Priority 2: Globalization has an impact on organizational structure, processes and the future of business. How do we meet this challenge?

Increased priority of eliminating regional boundaries

 

Enhanced awareness and supply chain involvement in M&A

 

Increased focus on optimizing global product flows and distribution network planning

 

Increased awareness of growing China markets

 

Greater emphasis on Total Delivered Cost of purchased goods

Priority 3: There is an increase in inventory turns and the need to capture free cash flow. How should we approach this?

Improved business analysis and specification of inventory requirements

 

Improved demand planning

 

Greater emphasis on the application of inventory analysis tools

 

Enhanced focus on the elimination of obsolete inventory

 

Enhanced focus on product and vendor rationalization

Priority 4: There is a strong drive to reduce transportation costs. How can this best be accomplished?

Increased focus on mode selection

 

More methodical freight bidding processes

 

Application of more sophisticated TMS

 

Greater emphasis on Freight Audit and Payment

 

Higher priority for unbundling freight on inbound purchases

The most interesting part of this list is that it is not much different from the list that would result from seven days of meetings in the U.S. And in fact, it also has a lot in common with the list that would result from a week-long visit in our Asian operations. So, one big observation and two conclusions:

Observation: While I have just explained the similarities of the "Plan-Buy-Move-Store-Sell" of the supply chain, by omission, I have not addressed the real difference in the "Make" component of the supply chain between Europe, the United States and China.

Conclusion 1: Europe and the United States are separated by a wide body of water, but very close in the challenges/opportunities being faced in the marketplace today.

Conclusion 2: China is different from Europe and the United States, but many of the supply chain challenges being addressed in Europe and the United States are not all that different from the China challenges/opportunities.

So, although it is not yet completely one world, it is a small supply chain world after all. Have you been to Europe on business lately, and if so, what are your observations about global supply chain, logistics and other business functions?

Go!Go!Go!

More Resources

Download the white paper: Evolution to World-class Inventory Management

 

New report reveals China as one of the few growth areas for US business around the world.

 

Article from Logistics Insight Asia: What is the supply chain outlook for 2010 in Asia?

Photo credit: Laszlo Photo

Now that all but a few extremely pessimistic economists have decided the worst of the Great Recession is behind us, I continue to be surprised by how folks are surprised by the things that I predicted and wrote about more than a year ago. I guess this can be attributed to the old reality:

In good times many believe good times will never end, and in bad times many believe that bad times will never end.

We are living this reality today. Here are three illustrations:

1. A year ago no one believed the capital markets were as bad as they were (they were not functioning), and now no one believes they are as good as they are. A year ago, companies were starved for capital, and this made the downturn worse. Now the opposite is happening, in that the capital markets are much stronger than most appreciate. The economy is gaining strength and returning to growth sector by sector.

2. A year ago many did not believe unemployment would hit 10%, but it did and worse. This same group of people does not want to believe that now, about 6 months after the bottom of the Great Recession, that the unemployment numbers will begin to fall. Employment numbers will go up, driven primarily by small business, and the American consumer who is returning to the marketplace, with pent-up demand, will restore growth to the global economy.

3. Many felt the China bubble would burst with the Great Recession, and it did not, but now they are saying the Chinese infrastructure investment and credit expansion has beget excess capacity that will result in "The Sky Falling." First of all, it is important to grasp that it is still the American consumer that drives the global economy and not the Chinese consumer, but even more importantly, understand that the 8-9% annual growth of the Chinese economy will continue into the future.

Sure, there will be bumps in the Chinese road, but the reality is that China is in its very early phases of economic development and is handling the residual of the Great Recession very, very well. The continued evolution of China will take place, globalization will be a key factor going forward and the global supply chain will continue to be an important weapon of growing, successful businesses.

What do you think about these three illustrations of reality? Is this what you were expecting?

You’ve had the secret weapon to beating the Great Recession all along. What you need to do now is remove it from hiding, read the user manual, and customize it to your industry sector and company.

In my last blog post, I talked about why we are on the uphill climb to economic recovery. Now I want to talk about developing and using your secret weapon – a Comeback Plan. This should be an actual concrete (while flexible) plan and you need to launch it now – even if you believe that your company’s recovery is a year away. Any delays now can have a major and lasting long-term effect on your organization’s health.

In short, think about the current marketplace, your competition, what you are going to do when the market returns to "normal," how your business is currently performing, and build a plan that will help your company prosper when the time is right.

If you pull this plan out of your arsenal at the right moment, you will blow away your competition and become a leading contender in your industry sector.

The most successful Comeback Plan includes the "Five Steps to Recovery and Growth" (click to watch a video on this topic.) 

Step 1: Environmental Assessment:
Examine the impacts that the following factors are having and will have on your business. These are indicators of when your market will grow.

Step 2: Competitive Intelligence:
Know your competition. What have they done in response to the recession and what are they likely to do going forward? Have they hunkered down or have they raised the competitive bar? Think about how they will respond to what you do and vice versa. Understanding your competitors and staying ahead of their next move will put you in the lead.

Metaphorically speaking, keep in mind that if you are with a group of people in the woods and a bear starts chasing you, you don’t have to be faster than the bear; you just have to be faster than the slowest person. It pays to know what you are up against.

Step 3: Comeback Expectations:
The more you read and understand about the economic recovery, the more prepared you will be. Understand the timing and magnitude of your company’s Comeback from the recession, given marketplace demand and response from your competition. Know when your turning points are and what your recovery lead time and future volumes will be. Although forecasts are not entirely reliable, it’s good to have the full picture in mind when thinking about your company’s Comeback.

Step 4: Organizational Analysis:
This step is about knowing the capabilities of your organization and determining how your organization compares to others (click here to learn more about the process of benchmarking and best practices) performing the same processes. What process upgrades do you need to deploy in order to not only recover, but to also gain market share, grow and prosper? What are the process upgrades that you need to have in place after the recession to enhance customer satisfaction, increase capital efficiency, increase profitability and increase long-term shareholder value?

This is about knowing where you stand, and again, knowing how you compare to your competition. Take into account what you learned during the recession and employ a formal process of global supply chain best practices and benchmarking.

Step 5: Define a Comeback Plan:
After thinking through each of the previous four steps, it is time to create a list of process upgrades that need to occur to allow you to gain market share, grow and prosper. This may not be easy. Many times you will need to plan ahead for lead times of these implementations, and being too cautious or too slow as your organization begins to pull out of the recession could prove to be reckless.

Build and brandish your secret weapon now by creating your Comeback Plan before your competition gets wind of your mission. Keep your eye on the target and Go!Go!Go!

Jim

More on how to build your secret weapon:

Download the new Executive Briefing, The Great Comeback From the Recession: Your Company’s Secret Weapon – Create Your Plan, Reduce Future Risks and Pull Ahead of the Competition.

 

Watch video of a recent live presentation.

Watch for parts 3 and 4 of this Great Comeback blog series in the coming days.

Photo credit: Bogdan Suditu

With an upcoming trip to Germany next week, my thoughts have been even more geared towards the state of the global economy. I have also been thinking about the latest topics for discussion at my meetings there, particularly with the German Association of the Automotive Industry (VDA).

I’ll be visiting the Tompkins Associates’ German office on the heels of some fairly positive news – the country’s GDP grew by 0.3% during the second quarter of this year, following a disappointing contraction of 3.5% during the first quarter.

So things are definitely on the mend in Germany even though full economic recovery will take awhile, just as it will with the rest of the world.

And we all know it’s been a very trying year for the auto industry – no matter what country you’re in. Global demand for automobiles decreased, hence auto manufacturing went down the tubes.

Despite the downturn, Germany continues research and development efforts and believes that this is their key to coming out of the recession stronger.

As a testament to this, the German auto industry has not made cuts in R&D because they know that industry pressure continues to rise and they want to remain competitive. They have a Great Comeback strategy in place, and that’s exactly what it takes to come back strong from the recession.

IT in the supply chain will continue to play a huge role in the auto industry. The downturn has no doubt strained supplier relationship management for manufacturers.

Some in the German auto industry are saying, "There are signs that a technological turning point is occurring concurrently to the worst recession since the start of car making."

Long-term success will be based on new technologies and suppliers’ involvement in promoting technical innovations. Suppliers are going to have to up the ante to stay in the game, mainly their value adds.

I look forward to discussions with the VDA and to learning more about their Comeback plans. I’d really like to hear your thoughts on the global economy, especially on the auto industry’s future.

Now I need to go brush up on my German lingo. Auf wiedersehen.

Jim

It’s always been a question that leads to a certain kinship with others: "Where were you when it happened?" It, of course, being a major world event such as a natural disaster, the 9/11 terrorist attack, or the death of a president or a celebrity. It’s a way of remembering, bonding and healing.

And for some of the most senior folks among us, it was the 1929 stock market crash and the ensuing Great Depression. So on September 15 – the anniversary of Lehman Brothers’ bankruptcy – I ask, "Where were you when the Great Global Recession began?" I will never forget that day, as we watched the Lehman collapse trigger catastrophe in the world’s banking system.

The stock market dropped more than 500 points in one day, and a dangerous domino effect rippled through the global economy in a short period of time, turning a financial crisis into a full-blown recession. Even the most efficient supply chains ground to halt. Ironically, the agility and effectiveness of today’s global supply chains translated into a swift response to the economic downturn. September 15 will go down in history as second only to October 29, 1929 as the most shocking day in the business world. This has been the worst economic meltdown most of us will ever live through: foreclosures, bankruptcies, loss of wealth, unemployment, bailouts, falling GDP, and more.

Looking at the efforts to stimulate the economy and stem the fall-out of the recession, I see a clear pattern of what theoretically should have happened (see diagram below) versus the practical view of what actually did happen.

Lessons Learned

The real recovery and Great Comeback plan took a drastically different course than anticipated. Consider these game-changing detours that I believe have yielded the real Lessons Learned:

Lesson #1, Government Stimulus Moving Too Slowly. The government could not decide on how the final stimulus plan should look, and presidential elections slowed the process. There was a sluggish release of the stimulus, and it did not begin to impact consumers until the first and second quarters of 2009; its full impact will not be realized until well into 2010. This is in no way a political analysis, simply a financial one.

 

Lesson #2, Recovery Rides on Backs of Consumers and Their Needs. Consumers hit their highest savings rates since 1993, with most folks choosing not to spend stimulus funds but to pay down debt and save the money instead. When consumer confidence first began to show gains in the spring of 2009, it was clear that the expected pattern should have been predicted as recovery in consumer spending on necessities first, then low-cost discretionary items, higher priced discretionary items, durable goods, and finally, housing.

 

Lesson #3, Companies Rely on Inventories and Increased Productivity, Not New Hires. Even after consumer spending picked up, production did not increase, since existing inventories were used to fill this demand. Then, once inventories were drained, companies still were not hiring, because increased productivity provided for the increased demand. Finally, in the third quarter of 2009, production began to ramp up and limited hiring began to take place.

 

Lesson #4, Capital Expenditures Recover Last and Sector by Sector. Although company profits are climbing as a result of cost reductions, there is no need to invest in capital equipment since factory operating rates remain stuck below the 70% mark – well below the required 75% mark needed to stimulate capital expenditures. For the most part, increased capital expenditures will become active in third quarter 2010 and beyond to 2011 and will vary by industry sector. In fact, one could argue that failure to focus on a sector-by-sector recovery and over-emphasis on a macro-economic recovery is one of the biggest lessons learned.

Fight Uncertain Future Armed with a Plan

None of us can say with a straight face that we can predict the future. But what we can do is take hold of our own destiny through Comeback planning. Now is the time to put in place the budget scenarios for 2010 that will allow your organization to grow, prosper and claim market share as your sector moves through recovery and onto Comeback.

Many executives have been leading a dual life for the last six months. They work 10 hours a day cutting costs and trying to respond to their boards. Then they spend 5 hours each night trying to get ready for the economic recovery and return to growth and prosperity. Given that we are in the middle of "Budget Season," it is critical that these executives focus entirely on developing their Comeback Plans.

I believe the next two years will be the most exciting in business since 1938. Clearly, the firms that plan for their Great Comeback are going to have the most success in 2011 and beyond.

How are you revving up for the Great Comeback and what are your lessons learned since September 15? We can all learn more in this area!

Jim

Photo credit: David Paul Ohmer