Supply Chain by the Numbers

- June 17, 2016 -

  Supply Chain by the Numbers for Week of June 17, 2016

US Manufacturing Activity Sags Again; The Three Roles in Supply Chain Network Design; US Lags in Infrastructure Spend; FedEx Ground Pays Up to Contract Drivers



That is the level US manufacturing was up in May versus the average month in the baseline year of 2012, according to data released this week by the Federal Reserve. The index fell 0.4% in May to 102.8, the lowest level it has been at in many months, in another worrisome sign for the economy. The May figure was also down a bit from the same month in 2015. The 2.8% total growth since 2012 of course also means that annual growth since then has been tepid, below 1%. Manufacturing capacity utilization also fell in May to 74.8%, well below the 40-year average of 78.5%. That four percentage point difference has a big impact on prices, wages and more. In the late 1980s, capacity utilization reached about 85%, and approached that again in the 1990s. For more insight into the state of US manufacturing, see our Supply Chain Graphic of the Week: An Interesting View of the State of US Manufacturing.




That is the percent of GDP that the US and Canada combined have spent on a variety of infrastructure improvements (roads, railways, ports, water, etc.) from 1998 through 2013, according to a new analysis from McKinsey. That is the same percent as spent by Western European countries combined, but far below the 8.6% invested by China - though we will note that is often as much to stimulate the economy using its massive foreign currency reserves as it is to address real needs, leading to many wasted projects. China's infrastructure spending is currently greater than that of North American and  Western European countries combined, the report also notes. In the US, that share of spending has also fallen following the Great Recession, despite many calls for more investment in this area - but where would the money come from? To fund more public infrastructure, the report favors raising user charges such as highway tolls, among other measures. To encourage more private investment in infrastructure, McKinsey argues for increasing "regulatory certainty" and giving investors "the ability to charge prices that produce an acceptable risk-adjusted return."


That is how many roles are really required to build a supply chain network design competence, according to consultant (and ex P&Ger) Glenn Wergryn, at a presentation on food giant Mondelez's successful effort to build such a global capabilities, at the LLamasoft 2016 user conference this week in New Orleans. Those roles are: (1) design leader, who coordinates and prioritzies project activity, communicates with management, etc. (2) analyst/modeler, the "quant" who frames the question to be answered for each project, and does the modeling and analysis; and (3) data engineer, who develops data requirements for each project, gets the data from other sources into the modeling tool, etc. Wegryn said that while sometimes one person can serve 2 of these roles, rarely can one person do all three. The development of this continuous design capability is part of Mondelez's goal of taking $1.5 billion out of its operating costs.


$240 Million

That's how much FedEx is paying to settle a many years old lawsuit over its former practice of directly hiring independent contractors, many of whom joined together to file a lawsuit claiming that they actually should have been classified as FedEx Ground employees, and thus entitled to overtime pay and other benefits. That settlement will be split by about 12,000 drivers, meaning the average payout will about $20,000 - before the lawyers take their cut. FedEx mostly extricated itself from this legal quagmire in 2011, when it stopped hiring individual contract drivers and instead contracted with courier companies that do the driver hiring. That still has left FedEx with in the end a largely non-union driver force, an advantage over rival UPS, which hires its union drivers directly. FedEx Ground had earlier reached a tentative settlement in a similar lawsuit in California for another $226 million. While the issue seems now finally put to be put to bed at FedEx, the driver classification issue in logistics is far from over in the US - with a big potential impact on costs for shippers in the end.