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July 17, 2008 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

1H 2008 Supply Chain and Logistics Review

As we are wont to do, I thought it would be fun to look back on the first six months of 2008 from a supply chain perspective.

It was a rather tumultuous half of a year.

Obviously, the big story of the year so far has been the unprecedented rise in oil and therefore diesel fuel costs and transportation expense.

How bad was it? Certainly 2007 was a tough year too, but on January 1, the average retail price for No. 2 diesel in the US was $3.34; on June 30, it was $4.64 cents. That’s a rise of $1.30, or an amazing 39% increase in just six months, after big price increases the previous year. Ouch. Also of note, a dramatic slowdown in Russian oil output reported in the Spring contributed to global supply problems – and gave “Peak Oil” theorists some additional supporting data.

It’s no surprise, therefore, that when Rosalyn Wilson and CSCMP delivered the annual State of Logistics 2008 report in June, it found logistics costs, at 10.1% of US GDP in 2007, had risen to their highest such level in 10 years. Total logistics costs rose 7% despite a slowing economy, clearly demonstrating you are not alone – logistics costs have been eating up the profits of many companies not only in the US but across the globe.

Gilmore Says:

"That’s the supply chain and logistics news that mattered in the first half of 2008 from our view. It’s fun to take a look back – we forgot half this stuff ourselves, and we do it for a living."

What do you say?


Send us your comments here

In early May, the American Trucking Associations presented to a Congressional committee a multi-part plan to mitigate what it calls the “oil crisis,” and the ATA ideas made good sense to most of us. Of course, little or nothing has happened in Washington since. Around this time, we also heard about the huge number of trucking firms, both large and small, that were exiting the business – with capacity ramifications down the road. Supposed plans for an independent trucker strike in April never really materialized, however.

Oil wasn’t the only commodity on the rise. In fact, almost every other commodity was up strongly as well in the first half of 2008: natural gas, metals, agricultural products, oil derivatives, etc. The end is not in site. As we reported, major iron ore producers raised prices to steel manufacturers around 75% earlier this year, which obviously will have inflationary pressures on a variety of products and costs.

Huge numbers of companies – Starbucks, Kraft, Kodak, etc. – blamed rising input prices for disappointing earnings. But after taking the rising input prices in the shorts for awhile, many manufacturers started raising prices in 2008. Steel manufacturers have been adding general “surcharges” to each ton of steel – in what came as a surprised to many companies that thought they had fixed price contracts, but which turned out only to set a “base” price.

Dow Chemical was among the companies that led the charge here, raising prices some 20% on average a couple of months ago, then an amazing 25% more in the past few weeks.

The big supply chain news in the Spring was Dell’s announcement that it was fundamentally altering its existing supply chain strategy, under supply chain chief Mike Cannon’s leadership. The revered “make-to-order” model was being de-emphasized; a legendary Austin area PC factory shuttered; much greater focus on selling through retail channels, and plans to produce a lot more machines offshore.

We took this as a watershed supply chain event, as Dell and its supply chain were for a decade simply the altar to which most supply chain observers bowed. Many respondents to SCDigest said Dell was simply reacting to a changing market, and we agreed, but to us an era was clearly over.

More recently, DHL made big news when it proved the rumors true that it was going to significantly revamped its North American network, announcing in June that is was closing its huge Wilmington, OH air hub, totally outsourcing airlift operations to UPS, and moving many more additional local deliveries to the US Post Office. The rumor mills have been flying, with some predicting this actually presages a larger global deal between UPS and DHL. We’ll see. In any case, parcel shippers need a viable third alternative to UPS and FedEx to maintain some balance of negotiating power.

The North American Material Handling Show was held in Cleveland in April, the off-year show from the Material Handling Institute that rotates with the larger ProMat. SCDigest Materials Handling Editor Cliff Holste and I were glad to see some true innovation for the first time in a while, and we noted that “the robots are coming.” There were innovative “robots” for use in distribution from Kiva Systems, Seegrid and others.

After Mattel and other quality problems in 2007, concerns about Chinese quality issues soared again after Baxter International had major issues with its drug Heparin, which appears to have been caused by defective raw materials from some Chinese suppliers. All the exact linkages are unclear, but hundreds of people world wide were sickened and a 20 or more thought to have died as a result, leading to calls for greater regulation of Chinese imports.

Early in the year, the National Surface Transportation and Revenue Study Commission released a report calling for major investment in US transportation infrastructure, and smartly called the need for such a matter of economic competitiveness. But where will the money come from? The report said that additional funding for logistics infrastructure over current investment projections to the tune of almost $200 billion dollars will be needed through 2020.

Wal-Mart, after announcing it was dramatically rethinking its approach to RFID in late 2007, decided to make a stand as – for the first time – it announced in January penalties for non-compliance with its Sam’s Club RFID mandate. As the initial requirements are at the pallet-level only, it probably won’t get too much pushback from suppliers for now. Later planned mandates for item-level tagging may be a different story.

Finally, in one piece of good news, the falling dollar has triggered a surge in US exports, which have been rising for the year much faster than imports for the first time in many years. That actually has triggered a run on outbound containers, which often are not placed in the Midwest and other heavy export areas – causing headaches for outbound logistics managers, and in some cases actually causing companies to lose sales for lack of a container.

That’s the supply chain and logistics news that mattered in the first half of 2008 from our view. It’s fun to take a look back – we forgot half this stuff ourselves, and we do it for a living.

What is your reaction to our list of the top supply chain stories in 1H 2008? What would you add? Do you expect the last half to be equally tumultuous? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

Want a printable version? Go to:

www.scdigest.com/assets/FirstThoughts/08-07-17.php

 

Dan Gilmore

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NEWS BITES


This Week’s Supply Chain News Bites – Only from SCDigest

July 17, 2008
Supply Chain Graphic of the Week - The Transportation Benefits of Improved Packaging

July 9, 2008
Supply Chain by the Numbers: July 17, 2008


SCM STOCK REPORT

Wall Street’s downward spiral of late added a rollercoaster feature last week, and our Supply Chain and Logistics stock index mostly benefited from the wild ride. 

In the software group, results were mixed as JDA climbed 7.2% while Logility fell 7.8%.  In the hardware group, both Intermec and Zebra lost ground (14% and 4.3%, respectively).  In the transportation and logistics group, Yellow Roadway was up 8.8%, followed by CSX (up 5.7%) and Norfolk Southern (up 4.9%).  

See stock report.

SCDIGEST ON-TARGET e-MAGAZINE


Each Week:

-RFID/AIDC
-Transportation
-Procurement/Sourcing
-Manufacturing
-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
July 15, 2008
Edition


SUPPLY CHAIN MEGATREND SERIES - LATEST MEGATREND!

Featured Megatrend: Actionable Visibility

Watch Gilmore, Tyndall, Collins Discuss and Debate the Issue

View Supply Chain Megatrends Focused Web Page, Download the Executive Brief

EXPERT INSIGHT:
Supply Chain InView
By Ann Drake


3PL Bids - The Good, the Bad, and the Only (Part 2)

Six Questions to Assess Whether your Outsourcing Relationship is On Track

EXPERT INSIGHT:
Managing SCM Performance

By Kate Vitasek


How Good Is Your Supply Chain Data Quality? (Part 3)

Data Cycle Counts: You Track Inventory Accuracy - Why not Data Accuracy?

SUPPLY CHAIN TRIVIA


Q.
What is generally considered the first Warehouse Management System, in North America at least, to run based on RFID tracking rather than bar codes?

A. Click to find the answer below

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YOUR FEEDBACK

Catching up as always this week on a variety of letters. Remember, feedback now is also available at the bottom of each article.

Our Feedback of the Week is from Brazil's Wilma Maria Roberto, who agrees with the need for an integrated supply chain organization, but says it's tough convincing other functions of the benefits. Jim Uncheat agrees supply chain software os getting better, but thinks "SOA" will really make the difference. Bradley Todd comments on the recent observations that closed loop RFID is where the action is now, Niak Wu adds some thoughts on Root Cause Analysis failures, and Walter Nodleman thinks we're un-American to be providing tools to help offshore decisions - to put it mildly.

Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week - On the Integrated Supply Chain Organization:

You cant imagine how excellent is your article: Congratulations!

Unfortunately, the need for integrated supply chain management may seem obvious to Supply Chain executives, but not for our partners from Sales, Marketing and so on.

Everybody is totally focused on increasing power instead of achieving excellence in performance, cost and customer service!

Mainly here in South America we´ve been facing, even at global companies, the same day in, day out of explaining the real meaning of Supply Chain; can you imagine the size of effort to reach an integrated model?

I see all it as professional opportunities and I am totally convinced that this role is on our hands and attitudes as yours come directly to help us!

By the way, I take opportunity to congratulate the new Megatrends series as well.

Wilma Maria Roberto
Supply Chain Executive
Brazil


On Better Supply Chain Software:

I believe you have captured a number of the key points about a maturing software industry. There has been considerable consolidation in the solution provider base and the orientation to producing real value versus hype has never been stronger.

I also believe you understated the importance of SOA and the need for companies to understand how a SOA architecturecan affect their supply chain practices. While supply chain applications like TMS, WMS, and OMS all have their own compelling value propositions the opportunity to create strategic competitive advantage in the supply chain will come through SOA oriented solutions. SOA solutions lower the cost and speed the process of supply chain integration/collaboration as a complement to these other applications. Supply chain collaboration,visibility, process control, performance measurement, and adaptive execution further enhance lean strategies, perfect order programs, risk mitigation, and global supply chain effectiveness. Now that SOA has passed its hype phase and early development challenges it is time for supply chain professionals tounderstand the technicallimitations that have changed.

Jim Uchneat
Supply Chain Consulting LLC


On Closed-Loop RFID:

Companies focus on different things based on the goals of the company. For instance, start up’s focus on making people aware that they exist and have something new. More mature companies with significant customer bases are keen on insuring that customers keep buying their products.

I have never seen this more clearly displayed than in the RFID world. For a few companies, mine included, we have quietly observed the UHF EPC Global phenomena analytically. What is the reality of it? What are the features of the UHF RFID systems that merit consideration? How will it fit into closed loop applications? Can money be made and customers needs be met with these systems? What are the real economics of these systems in open loop applications?

I have been able to answer most of these questions and come to conclusions over the last 12 months but my real goals have been and remain insuring that customers finds solutions to their very real problems using our rugged industrial RFID solutions.

Bradley Todd
Manager, Americas RFID Sales
Datalogic Inc



On Root Cause Analysis:

Interesting article. Many a time, most managers would prefer to withhold information/knowledge rather than to impart it. This, I believe, is in the fear of a subordinate one day being able to surpass him/her information-wise. Truth be told, this will definitely be true but what a subordinate lacks is experience and experience only comes with time.

I opine that a possible cause of stagnancy in a company/department roots from managers who are overly protective of their turf, project the wrong message across without really knowing the facts and are reluctant to gain clarity in areas in which he/she is not competent at. This I assume stems from the mindset of some managers that think they are supposed to be almighty and blessed with omni-knowledge.

It really does seem strange that at this day and age with myriad books on managing people and companies, we all still make the same old mistakes.

A chain is only as strong as its weakest link.

Niak Wu, Koh


On Impact of Offshoring:

I was going to write my feedback to David Busch. Then I discovered that i had covered all the same points two years earlier to Dan Gilmore, editor at Supply Chain Digest.

Similar article in supply chain digest today. Similar reaction to such material from me. The selling out of my country and my countrymen by criminals who value green and black dollars – rather than the American flag, is in my mind still treason. SCDigest disgusted me in 2006, and you prove that things haven’t changed in two years.

There are many Americans like myself who are gleeful this week when we read about the corporations that are being driven out of business because they can’t sell communist china stuff to millions of unemployed Americans. I refer to ... Http://money.aol.com/special/retail-stores-closing-doors

the issue today is not which country to choose in your matrix. The week of Memorial Day in the United states of America is not a time to be choosing country of loyalty by means of a matrix.

The issue should be ... Why should your citizenship in my country be honored and permitted, when your behavior is so blatantly anti-American during war time ?

Walter a Nodelman


SUPPLY CHAIN TRIVIA

Q. What is generally considered the first Warehouse Management System, in North America at least, to run based on RFID tracking rather than bar codes?

A. An International Paper facility in Texarkana, in which paper rolls were tracked using RFID tags in the cores. It was implemented in 2002, using in-house developed software and custom readers on clamp trucks.

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