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October 23, 2015 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Pacific Islands and the Supply Chain bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet Supply Chain by Design and Expert Insight bullet Videocasts and On Demand Videocasts


Download this Ebook to learn the top eight reasons supply chain analysts say they prefer supply chain modeling software to spreadsheet-based solutions

first thought


Supply Chain Graphic of the Week
What are the Top Logistics Concerns of Shippers?

Amazon Keeps Building New Logistics Facilities
OPEC Strategy Hurting US Oil Producers
18 Year Olds Should Drive Trucks on Federal Highways, ATA Says
Walmart Pulls Back on Made in USA Labeling



October 13, 2015 Contest

See The Full-Sized Cartoon and Send In Your Entry Today!

Holste's Blog: Factors That Drive Automation


Weekly On-Target Newsletter:
October 21, 2015 Edition

New IoT Cartoon, WMS Success, 3PL Study Part2, WMT Made in US Issue and more

CSCMP Report: Five Supply Chain Design Lessons from Benjamin Moore and How One is Used by Amazon in their 1-hour Delivery Service

by Dr. Michael Watson

WMS Myth Number 2 - Fast Path Implementations are Always a Good Thing

by Mark Fralick



Townhall Meeting! The State of Retail-Vendor Relationships 2015

Results from SCDigest's New Benchmark Study of Retailers and Their Suppliers - and SCDigest's New Index to Measure the State of the Relationships

Featuring Interactive Event Format - Live Expert Panel and Audience Questions

Featuring Greg Holder,CEO, Compliance Networks, Kim Zablocky, President,

RVCF (Retail Vendor Compliance Federation), Victor Engesser, Retail Executive Advisor, RVCF and SCDigest's Dan Gilmore


What did Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestlé Purina PetCare, Procter & Gamble, and Unilever, have in supply chain common in 2004?

Answer Found at the
Bottom of the Page

Pacific Islands and the Supply Chain

There could be a new shooting war very soon, on some scale - is your supply chain ready?

For the past month or so I have been delivering trip reports from the usual Fall season conferences. I am going to take a sharp turn in a very different direction this week, even though I did attend and speak at a good conference at Penn State University last week on Omni-channel commerce. I am will hold back that report for another week, other than to note most of the crowd there politely but noticeably booed when I announced my Ohio State Buckeyes connections. That was before OSU's solid thumping of PSU last Saturday.


"Tensions are escalating rapidly, and we could have an incident between the US and China in just a few weeks, if not days."


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Feedback here

But I digress.

When most of us think of a Pacific island, perhaps pleasant images of Tahiti or Fiji or Gilligan's Island run through our heads. But today, we need to think of different kinds of islands - ones that just could have huge supply chain implications.

The first of those would be something called the Spratly Islands in the South China Sea. The second would be the unusual concept of an artificial island, created out of sand in the middle of the ocean. And China, of course, is at the center of both controversies.

China is claiming ownership of the Spratly Islands, a collection of small landforms that as the map below shows are far, far from the Chinese mainland. Vietnam and The Philippines naturally dispute these claims, but lack of course the military might to defend their rights.

By what logic China should claim ownership of these islands I have no idea, but that is what has happened over the last few years. But it gets worse. China has also claimed ownership of seven small rock formations in the same area, around each of which it has now constructed artificial islands, bringing in mountains of sand to create 3000 acres of territory, to which it is adding ports, airstrips, military type facilities and more.

The theory seems to be: Why battle the claims out for years in international courts, when we can just build and occupy the fake new islands and claim a fait accompli.

Why would China want to do this? Part of it is just China's ever present drive to assert what it sees as its historical rights, but it is also no doubt a strategic play too. First, building up a strong naval presence there would certainly give China a powerful position to assert its authority or use its military should real conflict breakout in the region.

It would also potentially give China commercial control of sea lanes for the busiest area of container ship traffic in the world. Would China start using that control to charge foreign vessels for using its territory? China could also claim to control the airspace smack dab in the middle of the South China Sea?

Thanks to Jeff Smith of The Diplomat, I learned that the UN Convention on the Law of the Sea (UNCLOS) does not prohibit land reclamation such as China is pursuing, but Article 60 bars states from claiming expanded rights for artificial islands built atop what were previously just rocks and low-tide elevations. Rather than the expansive 12-nautical mile territorial sea and 200 nm exclusive economic zone granted to "natural" islands, UNCLOS stipulates that artificial islands are only entitled to the rights enjoyed by the original feature before land reclamation, which isn't much.

While China has not explicitly stated what it believes its rights would be, other statements seem to make it clear it would not recognize the limited UN rights cited above.

Tensions are escalating rapidly, and we could have an incident between the US and China in just a few weeks, if not days.

As China proceeded with its island building efforts, many US analysts began to call for "Freedom of Navigation Operations" (FONOPS) around the artificial islands. The FONOP program, in operation since 1979, involves sailing and flying ships and planes through waters and airspace to challenge (and make clear America does not recognize) illegal or excessive territorial claims.

China, to put it mildly, is not in favor of that program.

US Defense Secretary Ashton Carter has repeatedly asserted that the US military "will fly, sail, and operate wherever international law allows." Yet still no FONOPS have yet been ordered - while China's rhetoric has grown more confrontational. 

On May 25, China's Foreign Ministry warned that FONOPS were "highly likely to cause miscalculation and untoward incidents in the waters and airspace" and were "utterly dangerous and irresponsible." Around the same time, the state controlled Global Times warned that: "If the United States' bottom line is that China has to halt its [land reclamation] activities, then a U.S.-China war is inevitable in the South China Sea."

On Oct. 15, the Global Times then wrote that China "should be ready to launch countermeasures according to Washington's level of provocation. If the U.S. adopts an aggressive approach it will be a breach of China's bottom line, and China will not sit idly by."

The same day, Admiral Yang Yi warned the China would deliver a "head-on blow" to any foreign forces "violating" China's sovereignty. There have been many more similar warnings and declarations.

This confrontation "is momentous, a defining power struggle between the reigning world power and the rising one," Peter Hartcher wrote last week in the Sydney Morning Herald. "The history of our region is being written in each decision from Washington and Beijing."

This, in short, is a very, very, big and dangerous deal.

So is the US likely to soon sail within Chinese claimed waters? It looks so, as it inevitably must. Hartcher also says that the US Navy is now reportedly planning to sail right into the 12 nautical mile zone that defines territorial limits around the Spratly Islands, defying Chinese claims and asserting freedom of navigation for international vessels. 

Folks, this is going to happen. Almost any day.

So what transpires then?

1. China could loudly complain, but take no real action.
2. China could confront US Naval ships, "escorting" them through the waters.
3. China could first warn the US, and then start firing on US vessels if they do not leave the territory.

Given its many public statements on its response to such a challenge, number 1 seems highly unlikely to me. I would hope China would not be so headstrong that it goes for number 3, leaving my guess we see some variation of number 2.

But that of course would further escalate tensions, and lead to months/years of the same scenario repeating itself, which seems likely to inevitably lead to number 3 in the end. Or does America just decide to complain but do nothing provocative?

What happens upon option 3? I have no idea. Perhaps a smallish skirmish leads to some form of diplomatic talks where a resolution is eventually reached. But my guess China will never be willing to give up its claims, though it might agree to allow navigation of its water and air space. For now.

All this, BTW, in the context of the just finalized Trans-Pacific Partnership free trade agreement between the US and 11 other Asian nations, one that notably left China out of the mix. China initially strong opposed the pact, but has been more positive about it lately.

Would China really risk severely harming its Western export golden goose for the sake of a few ersatz islands far from its mainland shore? Most analysts agree China intends to assert its place as the superpower of Asia and achieve some form of hegemony over countries in the region. At some point, it will need to move things to another level to achieve that aim.

If your supply chain is dependent on China or other countries in the region, or growing in China is key to your strategic plan, you sure better keep your eyes focused to this one. Let's pray we don't see a shooting war, but many are worried.

On another bit of cheery news, UK's The Telegraph reported this week that Russia is collapsing economically, and may soon be out of its oil money reserves. What will a cornered Putin do then? Not pleasant to think about either, though with fewer supply chain implications, I think, though getting the price of oil back up is Russia's only path out of its misery.

There are supply chain risks, and there are supply chain risks. The China island dispute is of a class we haven't seen in a long time.

What do you think of these South China Sea island conflict? What do you expect to happen? What should companies be doing, if anything? Let us know your thoughts at the Feedback button (email) or section (web form) below.

View Web/Printable Version of this Column

October Videocast:

Making Supply Chain Business Intelligence Pay Off for Mid-Market Companies

New Technology Options and BI Use Cases Delivering Competitive Advantage and ROI

Includes demystifying supply chain BI, the keys to deployment success, key trends such as the move beyond scorecards to dashboards, and how new BI offerings are enabling cost-effective, easier to implement BI solutions to mid-market and even many larger companies

Featuring Donna Fritz of TAKE Supply Chain,Tom Dadmun, former head of supply chain for high tech manufacturer Adtran and SCDigest's Dan Gilmore

Wednesday, Oct. 28, 2015

New On Demand Videocast:

Innovations in Supply Chain Design

How Smart Companies are Finding New Ways to Reduce Costs and Improve Performance

Includes a Number of Real World Case Studies about how Leading Companies are Putting these new Applications to Work

Toby Brzoznowski, Exec Vice President at LLamasoft, Dr. Michael Watson, Partner Opex Analytics Lead Author, Supply Chain Network Design and Dan Gilmore, Editor, SCDigest

Available On Demand

On-Demand Videocast:

The Six Uses Cases for Distributed Order Management Systems

Distributed Order
Management is Rising!

From Omnichannel Fulfillment to Enterprise Order Hub, We Detail the Six Use Cases for DOM - New Insight Only from SCDigest!

Featuring Dinesh Dongre, VP Product Strategy, Softeon and SCDigest's Dan Gilmore.

Available On Demand


We received some decent feedback on both our daily video coverage of CSCMP 2015 and our request for ideas to improve the conference. You will find a selection below.

Feedback of the Week on SCDigest's CSCMP Coverage


I am a proponent of conferences like these for many reasons. I think it is short sighted to rule them out as being frivolous, or just a vacation. Alas, I wasn’t able to attend this one mostly because I am Canadian, which means expensive long distance travel, and a 30% currency conversion on top. Sadly that makes one of the best available conferences also the most expensive.

That being said, I just want to thank Dan and SCD for the daily video highlights and subsequent print articles. I watched them the minute they arrived and will read everything I can about the conference and its content. Great job on coverage for those of us who are interested.

Steve Hogg, P.Log. CCLP
Director, Supply Chain Services
Fraser Direct Logistics

  More on CSCMP Coverage  

I don't know how Dan gets it done, but these daily video summaries are excellent!


Keep it up!

Dawn Herring
Richmond, VA

  Feedback on Ideas to Improve CSCMP Conference  

I think the conference was great with respect to structure, organization, logistics.

My comments for you to consider given Dan's participation on the organizing committee for 2016 (which is in and of itself great news):

1. The conference is WAY too expensive.

a. Particularly for small business people like me
b. What can be done to cut costs? (e.g. I don't need motivational speaker on Wednesday.)
c. I think if the price dropped attendance would rise. My hypothesis is based on conversations with people who would consider going if price were lower

2. Content

a. I liked the structure along the 4-5 conceptual pillars
b. Lots of recycled material and "updates" from previous years, but I guess that is fair and to be expected
c. Too many consultants and vendors presenting (sometimes even solo, which is not acceptable)

3. Attendance by non-US logisticians

a. Disappointingly low
b. Could be a truly global conference
c. Obstacles:

i. Price. (Idea: a discount for attendees from outside the US?)
ii. Content. Too US-focused.
iii. CSCMP leadership and staff have no sensitivity whatsoever for non-American perspectives. Either for the needs of the individual professional to the needs of non-US RTs.

Erik Markeset


My feedback on CSCMP:

- The selection process for the awards favors those who have the resources to get themselves elected. Why not make this a vote among the members? Never heard of the Leancor CEO, although his acceptance videos were great.

- The keynotes are not all that relevant - there should be more by industry experts, maybe in smaller format

- The track chairs seem to be the same people every year - the topics this year were particularly boring as well as the content (the ones I went to)

- I found the panels hard to follow - maybe they should be in smaller setting where it is easier to interact.

- I agree with your comment on having 4 hour long sessions instead of 3 for 1.5 hours


- To bringing in more people:

1) Reduce the cost of attendance - I would send more people if it were cheaper and had more learning content

2) Convenient location - Midwest

3) Provide more ways to interact - small topic related meetings where you can have a meaningful discussion

Name withheld by request



Q: What did Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestlé Purina PetCare, Procter & Gamble, and Unilever, have in supply chain common in 2004?

A: They were the 8 original Walmart vendors involved in the first RFID pilot, sending tagged cases and pallets of product with EPC tags to a single distribution center in Sanger, TX. Things largely went downhill from there.

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