For those of you who still shut down your facility once or twice a year to review inventory, I have to ask why. With cycle counting, there is no need for such disruption.

The best way to ensure inventory accuracy is to continually count your products – part of your inventory every day and each item several times per year.

It’s no big secret that cycle counting programs are critical for any company that seeks greater efficiency in the supply chain. And even though it may not deliver perfect accuracy, cycle counting does offer a long list of benefits such as reduced operating costs, higher service levels, improved shipping accuracy, and lower inventory levels.

Some other interesting findings from a recent survey-based report on this topic include:

• Top-performing companies are capable of inventory accuracy greater than 99%, while the average company can achieve 98%.
• Nearly half of companies still use a combination of cycle counting and physical inventory.
• Cycle count frequency rises as the priority of parts increases.
• Scheduling cycle counts is generally the job of an inventory control specialist or inventory control manager.

So what cycle counting initiatives has your company undertaken, if any? Do you need better ways to help you move to cycle counting?

Go!Go!Go!

Jim

To learn more about cycle counting: http://www.tompkinsinc.com/publications/reports/cyclecounting/

Other Resources 

Evolution to World-Class Inventory Management

Cycle Counting Achieves Higher Inventory Accuracy

Inventory Management

Photo Credit: emilio labrador

We all know that globalization is creating longer, more complex supply chains. And naturally, this increases the risk of delay or disruption.

That’s why when we talk about global trade management, we include strategies for risks. So it should really be called global trade and risk management (GTRM).

Our global transportation experts, Don Anderson and Susan Evans, recently presented a Supply Chaincast on Global Trade and Risk Management: Capturing the Business Value. This webcast explores the practices and technologies to reduce total landed cost of goods sold or procured, improve cross-border process cycle times, and boost customer and trading partner satisfaction.

But optimizing your supply chain for cross-border transactions requires more than following rules and regulations. Success stems from a strategic risk agenda that includes:

• Identification and assessment of risks;
• Quantification of potential risk exposure;
• Development of scenarios and contingency plans;
• And establishment of risk mitigation and biz resumption action plans.

To learn more about GTRM benefits and strategies, download the on-demand webcast.

What are you doing to address these risks? What is your  current take on GTRM?

Go!Go!Go! Jim

More Resources

Tompkins Supply Chaincasts

Supply Chain News: Did Major Supply Chain Disruptions from Natural Disasters in 2011 Really Change Approach to Supply Chain Risk Management? (Supply Chain Digest)

 

Photo credit:  Tupwanders

You’ve seen the opinions of Chris Ferrell, transportation expert and Director of the Tompkins Supply Chain Consortium, several times on this blog. Today, he shares his insight into how issues past, present and future affect the ever-evolving transportation industry.

-- Jim 

Now that the Federal Motor Carrier Safety Administration (FMCSA) has made an announcement on its highly-anticipated Hours of Service (HOS) rule, one of the major points of uncertainty within the transportation industry has been removed. 

Whether or not the HOS decision was good is largely a matter of perspective.

From the carrier/shipper point of view, it is fair to say that while the new law is more restrictive than the current regulation, the final product isn’t nearly as limiting as what was originally proposed. The regulation officially hits the books this month, but it will not be subject to compliance until July 2013.

I’m not sure “it could have been worse” really counts as a victory for shippers and carriers. It does represent the elimination of a substantial amount of uncertainty which, in this economy, is enough to restrain investment in both capital equipment and long-term relationships.

So, with that significant hurdle crossed, what’s the next big item to watch for?

While professionals within the transportation industry may make strong, valid cases for driver shortage or equipment age, I believe the statistic to really watch will be fuel.

There is ample evidence to support the argument that when gasoline prices cross the $4.00 barrier, consumers begin to substantially scale back on other expenditures. And while the current national average has been hovering around $3.40 to $3.50, this has been largely due to weakened global demand during a prolonged and tepid economic recovery.

The other potential uncertainty with fuel is on the supply side of the Middle East. For more insight on this, refer to the excellent and succinct analysis of Logistics Management’s Derik Andreoli.

What does the future hold? Well, for one, the civil unrest which occurred during the Arab Spring of 2011 could once again wreak havoc on oil prices in 2012. When the events first occurred, average gas prices briefly spiked above the $4.00 barrier in May before President Obama tapped into the nation’s strategic oil reserves for the sole purpose of keeping the fledgling economic recovery on track.

Now, with Iran rattling sabers, Libya still picking up the pieces from a regime change, lingering unrest in Egypt, accelerated protests in Syria, and Iraq preparing for life without the presence of the U.S. Military, there is a lot of uncertainty that will need favorable outcomes to avoid any kind of supply disruption.

And beginning at a $3.40 price point, if the economy really starts to heat up, or if there is even a small problem in one of a number of OPEC nations, there is not a lot of room between current prices and the point at which consumers are compelled to divert all of their discretionary spending to fuel – a sort of self-imposed governor on the economic engine.

So pay attention to your price at the pump, knowing that the ramifications of fuel reach far beyond your pocket book or the transportation industry and into every corner of the economic recovery.

Also, let us know what you think will have the greatest impact on transportation in the next eight months – fuel, regulations, other?

- Chris Ferrell
 

More Resources

Transportation Report Reveals Industry Insights into Volume, Capacity and Pricing

Transportation Cost Reduction

The 12 Best Practices of Freight Bidding

I am betting that you could answer this question in a variety of ways. But if your answer is somewhere along the lines of “not so well,” here’s some information that should pique your interest.

You may have read about our new partnership with ArrowStream. We are working together to help clients find savings in their order-to-delivery processes.

And last week, a couple of our logistics/transportation experts, Susan Evans and Bill Loftis, presented a Supply Chaincast on Bridging the Gap Between Transportation and Inventory Practices. This webcast showcases an innovative approach to driving inbound logistics savings with the ArrowStream Inbound Transportation Management (ITM) collaborative technology solution.

As a partner, we provide operations strategies, process improvements, and implementation assistance to ensure early and sustainable payback.

The ITM solution helps optimize order patterns to satisfy inventory requirements and optimize transportation. It also allows complete visibility on product (or service) orders, as well as complete visibility on transport constraints, delivery requirements, or financial targets.

Some other benefits include:

• A shared planning system for collaboration between replenishment and transportation
• Improved performance: inventory turns, transportation cost, and service (fewer stock-outs)
• Improved operational issues: less miles and less dock congestion

If you’d like to dig deeper into this topic, download the on-demand webcast: Bridging the Gap Between Transportation and Inventory Practices.

Go!Go!Go!

Jim
 

Resources 

Tompkins Supply Chaincasts

Tompkins Associates, ArrowStream Partner to Provide Innovative Supply Chain Solution for Product Distribution (Press Release)

Transportation Solutions & Assessment

I have asked Bill Loftis, a supply chain and transportation operations expert who recently joined Tompkins Associates, to talk to us about horizontal collaboration once again. He has conducted a number of development and implementation initiatives for clients involving collaboration for improved distribution and transportation. Take it away, Bill!  

In my last post, “Horizontal Collaboration: It’s Back on the Front Burner,” I explained how collaboration has returned to the forefront for progressive shippers.

Today, I want to discuss a particular solution – collaborative distribution.  This solution is particularly compelling for several reasons. 

First, the focus is on service. The idea is to flow products nearly every day to eliminate stock-outs, for the larger purpose of increasing revenue and improving competitive position.  Operating this product flow in response to the actual market (versus forecasting) can be achieved by demand-driven supply chain processes.

Second, collaborative distribution converts a significant amount of truckload mileage into intermodal, so it has a unique sustainability advantage over conventional solutions. 

This is why I have been pushing the collaborative distribution concept recently and will continue to do so.    

But you might be wondering, how is it possible to flow products daily and also use intermodal service?  Three key concepts create this scenario:

1. Combine volumes of multiple shippers to provide high shipping volumes (collaboration).
2.  Create a separate collaborative network and locate DCs close to the customer (in addition to the conventional dedicated network). 
3.  Regularly, consistently move replenishment products that should flow on the collaborative network informed by demand-driven decisions that reflect the market in real-time  – More erratic product flows should be on a dedicated network.

Inventory & Transportation Challenges

Note what I am describing here is a completely different network. That’s what makes it a different and better strategic solution. Dedicated (single company) networks are the default standard in America today, and when cost-optimized to as few DCs as possible (which everyone in practice does), dedicated networks present tremendous cost versus service challenges in inventory and transportation. 

The inventory challenge is created because the economic order quantity is a full truckload, meaning for most customers, delivery frequencies are weekly or often much longer.  This creates tension between the costs versus service: You can either compromise on cost by shipping LTL, or suffer stock-outs on selected items when waiting for the next truckload consolidation.  Not pretty.

Long haul trucking is the transportation challenge. Service-minded shippers are constantly trying to improve service (retailers demand 98% on-time, but shippers only average 94%). In this fragmented space, there is only so much one can do. 

The reality is, for a large CPG manufacturer to achieve 98%, its rates will increase a few points at a cost increase of millions per year.  So they don’t do it, service is less than desired, and stock-outs persist.  This unpredictable supply base is inherent in long haul trucking and is a defining attribute of a cost-optimized dedicated network, made worse in capacity-constrained or high-fuel markets.      

So how is a collaborative network different?  Begin by envisioning what a collaborative network looks like: with DCs placed close to the customer (within 150 miles).

Given high volumes of co-mingling multiple shippers, the economic order quantity (EOQ) and delivery system changes.  With multiple shippers on the same delivery, a shipper’s EOQ becomes a pallet, rather than a truck.  With daily deliveries within 150 miles, this is no longer a long haul network, it is a dedicated shuttle network, similar to outbound retail transportation where 98%+ on-time is standard.  Collaborative networks eliminate the inventory and transportation constraints of dedicated networks. 

The Real Reason for Collaborative Networks

Imagine ... reducing your economic order quantity from a full truckload to a single pallet, and eliminating long haul trucking from your delivery system.  This can happen with collaborative distribution.  My message today is that collaborative networks are superior because they shed these constraints. 

There is much more to discuss (the intermodal advantage, how costs are reduced, how to implement these ideas), which will come in later posts.  But let’s close on the most compelling point:  with such difficulty, why pursue this? 

My opinion:  It’s about service, increasing competitive advantage, and adding value by increasing sales.  It’s not about cutting another penny, but about driving sales. 

To help make my point, I would encourage you to read Steve Demming’s recent contribution on Forbes.com where he says:  “Half a century ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Now it’s less than 15 years and declining even further.”  He suggests the one reason why this happens: “It’s more difficult to add value than to cut costs.” 

Lasting companies add value.  I suggest that logisticians should aspire to this more difficult but smarter path of creating solutions that increase sales.  I believe this is the way of collaborative networks:  more difficult, yes, but also smarter and better.

Thanks for reading, and let me know your thoughts on this topic.    

I have asked Bill Loftis, a supply chain and transportation operations expert who recently joined Tompkins Associates, to talk to us about horizontal collaboration. He has conducted a number of development and implementation initiatives for clients involving collaboration for improved distribution and transportation. Take it away, Bill! 

Have you given any thought to distribution collaboration recently?

If not, now is definitely the time, especially if you think of collaboration as a dot-com era dated concept that yields little value.  Things are changing.  For those who have longed to see the fulfillment of the horizontal collaboration concept, it’s a hopeful sign.

From my most recent experiences with companies, I believe that the collaboration “conversation” has progressed. It seemed to me that, ten years ago, in its infancy, collaboration tended to be a side conversation. Then it faded away (no successful scalable solutions). 

But this year, it’s again become an agenda item.  In fact, I’ve noticed clients engaged in meetings on this topic and have attended large conferences devoted to it.  I’ve also spoken with several large US companies who are engaged in collaborative pilot projects with other shippers.  So this is more than a conversation change – executives are investing in it!

More evidence of progress:  I’ve recently noticed a few service providers explicitly advertising collaborative solutions.  Traditionally, most providers treated collaboration as an internal competency (rather than a stated service offering).  Collaboration was practiced, but it was kept under the radar as an internal efficiency exercise.  Today, more providers are making resource investments (warehouses and trucks) and marketing collaborative solutions.

These are meaningful signs.  Companies are investing in collaboration, and they’re following the key principles of a collaborative solution: combining multi-company volumes on shared resources to service customers with more frequent delivery cycles.  As you well know, any solution that can do this will vastly improve both cost and service performance.    

My goal today is to highlight the fact that collaboration is back in a big way.  There isn’t enough space here to cover the whole subject, so several future posts will tackle these key points:

1. Clearly define various collaboration solutions (differentiate between strategic versus tactical solutions).
2. Propose a compelling value proposition for a strategic collaborative solution to achieve pilot funding.
3. Describe the type of supply chain flow paths where strategic collaborative solutions best fit.
4. Make suggestions on how to solve the leadership vacuum for collaborative solution development.
5. Initiate a strategic collaborative pilot.

For now, I recommend you put collaboration research back on your action list.  Ask your logistics service provider what they’re doing.  Ask eligible supply chain partners if they are doing anything, and see if they would be interested in exploring the issue. 

I feel called to push this because I’m convinced that strategic collaboration solutions, for the right supply chain flows, can be better than any alternative. 

Let me know what you think. Are you seeing more horizontal collaboration these days? Does it have the attention of your supply chain leaders?

More Resources 

Horizontal Collaboration Value Proposition

I hope you enjoyed my previous post about proposed changes in U.S. transportation laws.

Today, I want to relay some thoughts on the Federal Motor Carrier Safety Administration’s Compliance, Safety and Accountability (CSA) proposal, as mentioned in the Supply Chain Consortium’s recent report, Domestic Transportation: Finding the Right Balance of Volume, Capacity and Pricing.

CSA is a well-intentioned proposal with the goal of getting dangerous commercial drivers off U.S. roads. Now you may be wondering, “How could this be controversial?” Well, if these dangerous drivers were the only ones being eliminated from the pool, there wouldn’t be any pushback.

The only problem is that good drivers are getting caught up in the same net. This primarily happens two different ways:

1. As proposed by CSA, the new system views all accidents the same. There is no distinction between a driver who is involved in a fatal accident because he gets rear-ended while stopped in rush-hour traffic and one who falls asleep at the wheel and causes a fatality.
   
2. The system depends on accurate data entry and record keeping by state and local law enforcement officials. In parts of the country where CSA is being piloted, data has been found to be inaccurate a substantial 5% of the time. The idea of one out of every 20 drivers being sidelined – even temporarily – by something as simple as a key-punch error is pretty scary.

Scarier still is the responsibility that CSA puts on shippers. As the rules are currently written, shippers must know that a carrier is in good standing before any loads are tendered – a status that can change from day to day for each carrier.

Furthermore, the shipper’s CSA responsibility extends beyond the carrier of record, to the actual transporter of goods. This substantially complicates the process of brokering loads (allowing carriers to use other service providers) and the entire spot-market process.

All of this means increased administrative burden for shippers, lower capacity for carriers and, ultimately, higher prices for consumers.

Let’s hope this well-intentioned policy gets put on the back burner until a few more of the kinks get worked out.

What do you think about the proposed transportation regulations?

Jim

More Resources:

Domestic Transportation Report

Warren Buffett's Ride on the Rails Is Paying Off, Businessweek article

Transportation Management and Reducing Costs in the Supply Chain

Photo Credit:  lrargerich

A few days ago, I got a chance to read the Supply Chain Consortium’s latest report, Domestic Transportation: Finding the Right Balance of Volume, Capacity and Pricing. Of course I am biased, but I thought it was a must-read for any supply chain leader who is concerned about transportation trends and costs. 

The sidebar piece on the Hours of Service (HOS) and Compliance, Safety Accountability (CSA) proposals makes some great points about a couple of changes that could soon be happening within the industry. I’ll talk about CSA in more detail in an upcoming blog, but today, I wanted to focus on HOS.

Basically, the Federal Motor Carrier Safety Administration (FMCSA) is proposing to increase safety by decreasing the number of hours drivers are on the road. But, at the same time, these new proposals have some potentially devastating negative effects on the industry. 

The two main proposals being touted are:

1. Reducing the length of driving time each day by one hour, allowing drivers to be on the road 10 hours a day, instead of 11. 
2. Adding a component to how “restarts” (essentially weekends) are figured.  Currently, a driver’s “weekend” is calculated as 34 consecutive hours off. In the proposed change, the 34 hours would need to include two periods of downtime between midnight and 6 a.m.  This means a driver finishing his week just after midnight would need to wait up to 57 hours before being eligible to drive again. 

While the industry is not happy about either HOS proposal, the second one is most perplexing, considering that this rule would, effectively, mandate that a large percentage of drivers begin their day during the peak morning rush hours. This idea hardly seems conducive to increasing safety, since there aren’t as many cars on the road at night.

Not to be overlooked is the first issue, reducing the length of time an individual may drive by one hour represents an effective 9% reduction in work force. I know unemployment is still high but, the last time I checked, people weren’t lining up to become over-the-road truck drivers.

Still, if these changes were being proposed to solve a chronic problem and make our roads safer, it would be hard to argue with them (regardless of the cost or imposition). I don’t think anyone, including me, would argue that safety on the roads is not of great concern.

However, the number of fatalities caused by accidents involving large trucks has declined every single year since 2004, including last year – the lowest number on record since the stats started being kept. With all the challenges the economy continues to face, enacting new laws that will constrict supply and increase costs in order to solve a problem that is already under control doesn’t seem like time well-spent.

Or is it a policy that should be accommodated in order to ensure even safer roads? Like the title of the report says, it may come down to “finding the right balance.” What do you think?

Go!Go!Go!

Jim

More Resources:

Domestic Transportation Report

Warren Buffett's Ride on the Rails Is Paying Off, Businessweek article

Transportation Management and Reducing Costs in the Supply Chain

The Tompkins Supply Chain Consortium

Photo Credit: sheqafrica

It seems that now is the perfect time for Logistics Service Providers (LSPs) to help clients improve their performance and customer service.

Why? Easing out of the recession, companies are looking to shore up their core competencies and outsource areas that are non-core. But it is also a critical time for decision making as the economy begins to stabilize and the transportation industry remains in flux.

Transportation has really become a hot topic lately as I talk with colleagues and clients around the globe about rising prices. Without a doubt, the cost of transportation impacts everything and everyone along the supply chain.

Freight volumes are rising to meet demand, but truckload capacity is low due to driver availability, post-recession reduced fleets, and the impact of CSA2010 regulations on driver hours. DC Velocity suggests that rig counts are down by as much as 15 to 20 percent from their 2006 peaks.

With this shortfall in truckload capacity, we have developed a few tips to help LSPs keep their motors running. Read the new article, LSP Top 11: Market Forces Drive Freight Costs Up.

On another note, LSPs are also growing stronger through mergers and acquisitions. They are able to cover more geography and consolidate resources and customer bases – a real benefit for the companies they serve. For example, Swan & Hercules Global Logistics (SHGL) recently acquired the Australia / New Zealand-based GP Logistics (PDF), expanding SHGL’s customer base by an additional 2,000 customers and 50,000 square feet in North American consolidation space.

To learn more about truckload trends, be on the lookout for a copy of the Domestic Transportation Report by Tompkins Supply Chain Consortium, which will be available to download later this month.

So how is your relationship with your LSP? What transportation issues are you experiencing as freight volumes increase? And if you are an LSP, what other trends are you seeing in your industry?

Go!Go!Go!

Jim

More Resources

Supply Chain Consortium for LSPs

LSP Resources

LSP Top 11 in 2011

Photo Credit: doug_wertman

I woke up early this morning, had my tea, and started reading business and industry news as per my usual routine.

The first article I read predicted manufacturing production to outpace the overall economy with 5.5% growth in 2011 and 4.6% growth in 2012, which left me feeling all warm and fuzzy inside. The second story told of transportation woes, the third of a decent fourth quarter for logistics last year, and the fourth of driver shortages and high fuel rates.

I was left with enough hope to keep me optimistic, but enough sense to know that we’ve still got a ways to go.  Every day, the headlines change and we’re left with a slightly different prediction of the future.  One thing I know for sure: in times of uncertainty like these, it’s important to work hard, plan strategically and strive for profitable growth.

In a recent conversation I had with Steve Ganster, CEO of Technomic Asia, we discussed the position of strategic market planning in the supply chain and its main role in helping to create shareholder value.  Strategic market planning is really a hot topic now, being the key process to support both short and long-term growth goals for a company.

You can hear our conversation by listening to this Strategic Market Planning and the Paradox of Profitable Growth podcast.

With all of the uncertainty of the coming years, the role of strategic market planning has definitely changed.  Growth initiatives have been put on the back burner as the focus becomes trimming the balance sheet and streamlining operating costs.  Steve and I discussed the advantages of strategically planning for profitable growth and offer up some suggestions on how to achieve it in today’s marketplace.

How do you plan on integrating strategic market planning in the years to come?  What are your goals for profitable growth?

Go! Go! Go!

Jim

Photo Credit: Skeddy NYC

I can’t tell you how many times lately that I have repeated the phrase “uncertainty is certain” in reference to the coming year. This uncertainty was brought about by change, and I am more than certain that it will continue to feed into change.

One of the changes for 2011 is the newly revised International Commercial Terms*, or “Incoterms.” These changes and why it is so important to understand them are outlined in the Supply Chain Consortium’s new hot topic report, International Shipping and Incoterms.

Four terms were eliminated (DAF, DEQ, DES, and DDU), while two were added (DAP and DAT). The modifications – which went into effect January 1, 2011 – define obligations, risk transfer, and cost sharing for the seller and buyer. They represent substantial clarification for the application of the 11 individual terms, consistent with the way global trade is actually conducted since the last update in 2000.

While it’s key to understand these revisions, it is also a best practice to periodically review freight terms as volume changes or lanes become more predictable. This process may be easily incorporated into the freight bid process to ensure that companies take advantage of the price/risk continuum, or, at least, fully understand the big picture.

For more information on the Incoterms changes and the results of an industry survey on international shipping, you can read the International Shipping and Incoterms Hot Topic Report.

What changes are you adjusting to in 2011? Does it involve modifications in shipping freight?

Go!Go!Go!

Jim

*International Commercial Terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions.

Photo Credit: rhysasplundh

I was recently discussing transportation capacity on Twitter (click here to join in) with a few folks. The big question was: Is the capacity crunch lessening? What’s your view on the subject?

I think the transportation capacity crunch is bound to increase. The recession eased domestic US transportation capacity issues in the short-term, but essentially the problems are unchanged.

With this eventual post-recession rise in shipping volume comes the rise in transportation cost rates and fuel costs as well. How do you keep supply chain transportation costs down and still maintain a well-controlled transportation plan? Supply chain managers are interested in this, and so are executive-level leaders who see the opportunities for post-recession cost savings in their operations.

This transportation question overlaps perfectly with the blog post series I started last week, looking at the supply chain mega-processes: Buy, Make, Move, Store, and Sell. Transportation is the Move piece, and Store relates to inventory, storage, and similar processes.

The “Move” mega-process and profitable growth

One way to save on transportation costs is outsourcing, which was another recent topic being discussed on Twitter. Transportation outsourcing providers offer a full suite of services with potentially advantageous cost savings. (Six more ways to cut transportation costs can be found in this new Tompkins white paper, “Leveraging the Supply Chain for Increased Shareholder Value.”)

The “Store” mega-process and profitable growth

Inventory costs (the Store mega-process) can be so difficult to reduce that “storage cost cutting” seems like a contradiction in terms. With the use of supply chain planning, purchasing and procurement management – and the application of best practices – profitable growth can be reached both in the short and long term.

The supply chain, and its potential to enhance an organization’s profitable growth goals, is really under the spotlight right now. As we enter 2011, supply chain value will continue to be a focus for any company looking to reduce risk and uncertainty while achieving profitable growth.

What are your thoughts on the “Move” and “Store” processes as we jump into the next year?

Go!Go!Go!

Jim

Resources:

Download the Tompkins Associates white paper, “Leveraging the Supply Chain for Increased Shareholder Value.”

Follow me on Twitter

Download the executive briefing from the Tompkins Supply Chain Consortium - Domestic Transportation: The Industry is Moving Once Again

Photo Credit: Keng Susumpow