First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  January 8, 2009  

2008 Supply Chain Year in Review


2008 was undoubtedly the most bizarre year of my supply chain career, which dates back to 1990 or so.

From the cost madness of the first half of the year to the economic crisis of the last quarter, combined with a presidential election in the US and the usual turmoil around the globe, there was certainly no lack of news to keep us occupied.

2008 was epitomized during the CSCMP annual conference in Denver in early October, where as we enjoyed generally excellent supply chain presentations inside the convention center, outside the financial crisis was beginning with a vengeance, with the stock market dropping 500 points or more it seemed every day of the show. Part of you felt like racing back and trying to save what was left of your 401k.

I reviewed our coverage over the past year, along with that from some other sources, and made my picks for the top 10 supply chain and logistics news stories of 2008. In a general sense the economy was the big thing, of course, but you don’t need me to tell you that, so it’s not on the list.

Gilmore Says:

In a stunning move, Dell first announced in April that it was largely abandoning its legendary make-to-order supply chain model, as it was too costly (when we all thought it gave it a competitive advantage).

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1. Wildly Gyrating Oil and Commodity Prices: Through the first half of the year, oil and virtually all commodity prices were skyrocketing, sending shock waves throughout the supply chain and pounding the bottom lines of many corporations. In spring of 2008, iron ore companies were raising prices to steel makers by something like 75%. Unbelievable. Oil of course peaked in July at almost $150 per barrel, amid predictions it was headed to $200, and who doubted that at the time? By year’s end, oil was at or below $40 per barrel, and most commodity prices had collapsed.

Good news for many, in a sense, though deflation in general is not a good thing. However, pricing sanity certainly is, and we were clearly in insane territory for awhile. Who can plan in this kind of environment? Supply chain flexibility is key.

2. DHL US Goes Bust: Despite denying the rumors for awhile, parent Deutsche Post first announced in May it was significantly revamping its US parcel network, including outsourcing airlift to UPS. Then in November, it announced it was leaving the US market entirely, except for support for international shipments, by the end of January, 2009. A huge hub in Wilmington, OH shuttered. If you aren’t a big parcel shipper this doesn’t affect you much, but the market needs a third parcel carrier, and the whole DHL saga seems fraught with strategic mistakes.

3. Problems with the Food Supply Chain: First, we had the infamous salsa panic in the US, in which salmonella in some fresh salsas led to the recall of tens of millions of dollars of tomatoes, only to later find it probably wasn’t the tomatoes at all. (The latest, but still somewhat unproven, culprit is said to be bad jalapeno peppers.) Then there was the serious issue of tainted Chinese milk, which was primarily the result of human error/greed, which killed a few and sickened many more. The first incident raised proper questions about why we can’t seem to protect the US food supply chanin better, and why available track and trace technologies are not widely deployed. The second raised still more concerns about the safety of Chinese products, and gave China a real and deserved black eye.

4. New Administration may Bring Changes to the Supply Chain: The election of Barack Obama and a more heavily Democratic Congress had the potential to result in a number of changes that could affect supply chains. That would include: a “card check” law for unionization efforts; potential changes/reversal of some aspects of current free trade agreements; and greater support for logistics infrastructure improvements. With the current economic situation, some of these plans may be delayed, except for infrastructure spending, which will accelerate, perhaps dramatically, as a stimulus. The question: what really needs to be done?

5. Carriers Leaving Market in Droves: Rising fuel prices and falling volumes caused a significant number of truckload carriers to leave the market in 2008. In the Spring, there was actually a call for a nationwide independent truckers strike to protest their miserable lot in life, but it never really came together. The number of carriers leaving the market actually caused many shippers to see tightening capacity in Q2 and Q3, even as volumes dropped, according to the Wolfe Research quarterly shippers survey. When the recession ends, as they all do, before long, we may find we really miss many of those departed carriers.

6. RFID Goes Sideways: More of a trend than an actual news story, but growing interest in RFID for asset tracking and closed loop manufacturing systems was balanced in a negative way by the almost implosion of the interest in RFID for the consumer goods-to-retail supply chain. The news about Wal-Mart’s Sam’s Club compliance mandate is that there is almost no news, and hardly a peep outside of that, versus 2003-2006 when Wal-Mart and RFID were in the news literally almost daily. There is some action in apparel retail item level tracking, however, and what looks like a very solid value prop.

7. Supply Chain Icon Dell Reverses Course: In a stunning move, Dell first announced in April that it was largely abandoning its legendary make-to-order supply chain model, as it was too costly (when we all thought it gave it a competitive advantage) and as part of a strategy to get into the retail market. It later announced even further plans to outsource manufacturing. Amid additional business troubles since then, despite Michael Dell’s return as CEO, Dell is now just another company with a supply chain, and nothing special any more. That is quite a change.

8. i2 is Gone…No, Wait a Minute: We received a tremendous amount of Feedback on our piece on “End of a Supply Chain Software Era,” which looked back fondly on the incredibly interesting history of i2 Technologies, provider of supply chain software to hundreds of companies, as it announced it was being acquired by JDA Software. Most agreed it really did end an era. But hold on! As with many other merger deals, the financial crisis goofed this one up too, and i2 is still i2. Amazing.

9. Global Security Requirement Changes: The US Customs and Border Protection (CBP) agency finalized plans for the so-called “10+2” rule, which requires importers or their designated agents to file “10” types of data elements 24 hours prior to vessel lading overseas. The vessel operator will have to submit the other “2” data elements 48 hours from the vessel departure from the foreign port, adding burdens and new systems requirements for importers. Meanwhile, in the face of strong protests from shippers and other governments, the Department of Homeland Security announced in September that it was backing off from the legislated requirement for 100% container scanning at foreign ports for goods bound for the US set for 2012, in part because in reality it just couldn’t be done.

10. Re-Focus on the “Product Economy”: There is a growing understanding that the US was too focused for many years on financial services and related activities. As the financial crisis hit and took down the economy with it, there have been a growing number of calls, from this column to FedEx CEO Fred Smith to various legislators, that we need to rethink where and how the US competes (the same is happening in the UK). Will anything really happen? Hard to say, but I think the answer will be Yes.

So, there’s my top 10 list for 2008. It was certainly a year to remember – and forget.

What do you think were the top supply chain and logistics stories of 2008? What would you add or subtract from Gilmore’s list? Let us know your thoughts at the Feedback button below.

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