First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  January 10, 2008  

Supply Chain Year in Review

Gilmore Says:
The predictions made in 2006 for $100 per barrel oil finally were realized. While other transportation pressures have somewhat abated, the cost of fuel continues to pound transportation budgets.

What do you say? Send us your comments here

As we start off 2008, I thought it would be a good idea to look at the top stories and events from 2007 that had an impact on supply chain and logistics professionals.

In the past, we’ve looked more at “trends,” and in reality that is easier than focusing on specific stories. It is, I believe, more difficult to think about the top supply chain stories in the same way we might think about those from politics or sports, but nonetheless I think we can compile a pretty decent top 10 list:

The Mattel Toy Recall Fiasco: After several rounds of recalling millions of toys made in China, including iconic brands such as Barbie and Elmo, this was the number 1 story in 2007 for several reasons. It dominated news coverage for many weeks, and really did focus the public and legislators about potential issues with product safety from Chinese and other imports. While calls for an “import czar” and drastic inspection mechanisms haven’t materialized, the incident has led many companies to look more closely at their own supply chain processes for offshored goods, and added costs to many more who enhanced inspection processes in the US.

Oil Nears $100 a Barrel: The predictions made in 2006 for $100 per barrel oil finally were realized. While other transportation pressures have somewhat abated, the cost of fuel continues to pound transportation budgets. It’s not just transportation costs – petroleum-based materials are key components of many products, significantly increasing costs for manufacturers ranging from tire makers to candles.

The Green Supply Chain goes Mainstream: At the beginning of 2007, we picked the Green Supply Chain as our number one trend for the coming year. It is more of a trend than a story, I suppose, but clearly there was an explosion of interest in Green issues, as well as a slew of conferences, a whole track at the CSCMP conference, an increasing number of execs and managers with Green-related titles, and more.  A lot changed in 12 months.

Wal-Mart’s RFID Program Stalls, Changes: A negative story in the Wall Street Journal on Wal-Mart’s RFID program progress and lack of value for vendors caused a vigorous rebuttal from CIO Rollin Ford and a handful of other large suppliers, but in retrospect now seems to have been right on the mark. Late in the year, Wal-Mart announces a “change of focus” in its RFID strategy, with an emphasis on promotional items, category management trials, and Sam’s Club pallet location management. Vendors are rightly bemused and confused.

Port Congestion Disappears: A modestly slowing overall economy, the collapse of the housing market and new construction, the decline of the US dollar and other factors led to a swift reduction in the volume of US imports. After years of double digit gains in container volumes arriving in US ports, the tonnage went flat and, in some cases, even mildly negative. Combined with improvements in port productivity, the congestion seen from Long Beach to New York just sort of went away in 2007. While we shouldn’t get complacent – more improvements are needed – companies might re-look at port strategies, as diversion from Long Beach and earlier arrivals for the Christmas season may be less necessary.

Agflation: Commodity prices in general, and agricultural related products specifically, saw continued strong price increases in 2007. Many blamed the high demand for corn stemming from the ethanol lobby, as prices for corn, wheat, and derivative products soared. There was push back from food manufacturers and others, as profit margins were hurt and consumer prices increased, causing some in Washington to re-look at the ethanol equation. But for many CPG companies, wholesales, retailers and restaurants, the rise in agricultural product costs is a huge supply chain and procurement issue.

Wal-Mart Struggles to get its Mojo Back: The world’s largest company, primarily a victim of its own awesome size, got beat up for most of the year on Wall Street and in the press. Same store sales have essentially gone flat, and overall growth has slowed dramatically. Tesco’s entry to the US market in 2007 may cause further challenges. A variety of strategies to go upscale and otherwise stoke growth have mostly not been successful. Wal-Mart may simply not drive the supply chain thinking of its vendors and outside observers the same way in the future.

Boeing Finds Outsourcing isn’t Easy: The aerospace giant’s much praised approach (see below) to building its new 787 Dreamliner falls flat, as problems obtaining parts ranging from fasteners to major assemblies causes six-month or more delay in the scheduled shipment of the new aircraft, and $2 billion set aside to help suppliers and expedite the effort. Ouch.

Mexican Truckers Almost Enter US: Early in 2007, the Bush administration finally moved on the terms of the 1994 NAFTA agreement to let 100 Mexican trucking companies fully operate across the border. Protests from politicians, the Teamsters and others followed, leading to legislation that attempted to block the move, citing safety concerns. Just last week, it appears the Bush administration has found a way to continue moving forward on the program despite the new laws. This will play out for a long time, but I believe ultimately will happen.

Lawsuits Citing Carrier Fuel Surcharge Abuse: A number of class action law suits were filed against carriers across modes, charging unfair profiteering from fuel surcharges. The moves were given some legs by a report from a chemical industry association that alleged the rail carriers had benefited by more than $6 billion from 2006 to Q1 2007. Shipper participation is modest thus far, but if many major shippers jump in to join these suits, hundreds more companies are likely to follow.

We can’t also help but note the dangers of publications praising companies too early for pioneering supply chain initiatives. In the 1990s, for example, one publication named a new adidas DC its “warehouse of the month” – before it went live, upon which it had a warehouse management system software meltdown of historic proportions.

In October, about the time the Dreamliner delays were hitting the news big time, Purchasing magazine named a Boeing procurement exec its supply chain manager of the year. Think they would like to have that one back.

Lots in store for you from SCDigest in 2008!

What’s your reaction to our list of the top stories for 2007? What would you add, subtract, or comment upon?

Let us know your thoughts at the feedback link below.

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