HTML Message Source Supply Chain Digest Weekly Newsletter April 21, 2006

 Checking Your Outsourcing Vulnerability | Why is Oil at $72 per Barrel? | IFCO Nailed for Illegal Workers | VWR Gets Demand-Driven | Trivia | Reader Feedback

  April 21 , 2006 - Supply Chain Digest Newsletter Logistics Edition
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First Thoughts by Dan Gilmore, Editor

Checking Your Logistics and Distribution Outsourcing Vulnerability


Over the past year, I’ve had two conversations, one just a couple of weeks ago, with director-level logistics managers who regularly evaluate and in some cases benchmark their operation not against other traditional companies, as many do, but rather against what they believe a 3PL outsourcer could provide in terms of cost and service for their distribution operations.

The goal is simple: make sure they understand what the “value prop” for an outsourcing alternative would likely be, and to ensure as best they can that their operation, their people and yes possibly their own jobs aren’t easy targets for a lower cost outsourcing option.

“Every year, I take my three key managers, and we sit down and say, ‘If we were a 3PL, how would we do this?’” one director of a consumer goods company told me last year.

“It’s very easy, especially if you are growing, to get a little fat, especially in the overhead area,” he continued. “If you let that happen, it may make your life easier within the company because you have more resources, but it also leaves you more vulnerable to a 3PL alternative.”

In reviewing those comments, I struck me that there was some intersection with our perspective and the following reader discussion stemming from our recent report on Logistics Costs. Many companies in the report were using logistics costs as a percent of sales as the key metric within the company. Especially in a growing company, this could mean staff and cost increase in a way that still looks good against that metric, when in fact there may be a lot of efficiency that could be applied by someone from the outside looking at total costs or cost per unit.

Every few years, this director will actually engage some 3PLs in at least some dialog to get their feedback on what they might do for him. While not of course getting down to an actual proposal, he says the dialog is often helpful – and encouraging, as his approach has led the 3PLs to usually admit there is not a lot of opportunity to reduce operating costs, and instead will start emphasizing that the company could focus on “core competencies” and that whole line of reasoning for outsourcing.

“Every year, I have a very detailed feeling for how our operations stack up against an outsourced alternative, and we feel very good about where we are,” this manager told me.

My other conversation was just two weeks ago with another director of distribution for an industrial company. His situation in a sense is a little more urgent, because the company has not typically placed a high value on distribution, and there is a general trend towards greater outsourcing within its operations. While there is no active effort to look at use of a 3PL, he realizes it could happen at any time.

“So we want to be prepared,” he told me. First, he maintains a powerpoint presentation that lists the value and reasons for maintaining distribution in house, focusing on the group’s performance against goals, continuous improvement, and all the “value-add” it does for the various businesses.

“You have to maintain a log of this stuff over time,” he told me. “It’s too hard to remember it all if you need to with some urgency, and you may not have enough time to do it right.”

Forewarned is forearmed, as they say.

His group also does a similar sort of cost analysis. Like the other company, they challenge themselves internally about what cost per case they think they could run the operation at if they were operating it as a 3PL.

“We’re a little above market in terms of associate pay, but that’s just what we have to deal with,” this director told me. “I think we can be up to about 10% over outside costs and still feel pretty good due to the risks and start-up effort of going outsourced, and the service we provide. But we have to stay under that level.”

The growth rate of 3PLs continues to rise substantially beyond that of overall GDP. For many companies, and even many logistics managers, the move to outsourcing could be a very good thing, and there are all kinds of relationship models available.

But if for any number of reasons you’d prefer not be outsourced, doing an annual check-up versus what a 3PL could offer your company to ensure you are operating “lean and mean” makes a lot of sense.

BTW, don’t miss our first Videocast next Thursday, on creating a “performance-focused” logistics workforce". It’s good stuff, and delivered in a brand new video format. Register here.

Do you think benchmarking against what a 3PL could offer is smart business? What are your recommendations for doing it effectively? Let us know your thoughts.

Let us know your thoughts.

Dan Gilmore


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April 21 , 2006

Why is Oil at $72 per Barrel, with Inventories at Record Levels?

Is it supply and demand, or speculation fever by global commodity traders?

April 21 , 2006

Wholesaler VWR Finds Getting More “Demand-Driven” and Changing Its Approach to the Business Can Pay Big Rewards


Company a prime example of the dynamics in the wholesale segment

April 21 , 2006

Pallet Supplier IFCO Caught in Illegal Worker Sweep    


Feds say more than half the company’s workers had false or mismatched social security numbers


April 13 , 2006

Wal-Mart, Albertson’s, Sign RFID Reader Deals, Bear Sterns Reports

15,000 readers for Wal-Mart, 5000 for Albertson’s, indicate RFID rollouts continuing aggressively


April 13 , 2006

Chrysler’s Flexible Manufacturing Strategy Starting to Payoff, Wall Street Journal Story

Strategy gives company “wider margin of error;” Belvidere plant’s salvation




Q.  When was the inflation adjusted record high for oil prices?


A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

As we noted last week, we had a tremendous amount of feedback on last week's First Thougths piece on Delphi, the UAW, and the Supply Chain - we'll publish many of these next week. Take a look at the story and give us your thoughts - we'd love to hear more. We're publishing just a few catch-up letters this week, including a great one from a militaria officer on our piece on The Wisdom of the Troops. There's another good letter from Australia on our piece on The Limited Brands' Paul Mathews' thoughts on aligning supply chain with the boardroom, and another perspective comparing bar coding to RFID, triggered from our piece last year on Will Mobile RFID Readers Make Portals Obsolete?


Keep the dialog going! 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 wisdom of the troops":

I was initially intrigued by the title of this feedback section because it used the term 'troops' and since I am a military logistics officer, you can quickly ascertain the connection here.


I read the article from Dan Gilmore and the published feedback. The following points may seem self-evident but I feel they need emphasis. The feedback from Edward A. Batko suggested that the middle ground between American/Japanese management styles is the key to successful transformation.  I agree given that my take is that you need both styles of management in play to maximize the chances of implementing successful changes. Good innovative ideas can germinate from anyone.  How the company manages the collection, presentation and acknowledgement of these ideas is the key factor.  I have been working on a defense supply chain transformation project for the past three years. Ideas from the troops have been forthcoming however management has failed in its role to listen, decide and manage the execution of the decision, and leading from the front.  Without the full support of change champion(s) from the higher management levels, real transformation won't happen.  Where it was noted that ideas were floated but never acknowledged, idea generation stopped quickly and cynicism showed up.


The Japanese approach is portrayed as being more conducive to idea nurturing environment because it seems that the top - down approach is depicted as being one-directional "Do what management tells you to do, just because...".  Real success comes from having an open communication pipeline through the chain of command where ideas can be put forward, validated and moved up to the necessary decision point. But this idea won't come forward unless the troops trust their managers and believe that the ideas will be effectively considered.  This 'troop trust' will then be translated into action any time management makes a decision that is to be executed.  Why?  because trust flows top to bottom and in the instances where time is tight and information is scarce, troops and leaders will do what they are told to do because they trust those that they are working with, and know that they have been and will continue to do their best, working for the advancement of the group and not themselves.  However, having a working environment that is a blend of both American and Japanese styles isn't achieved overnight. It must be nurtured and supported by the leaders themselves. 


Major Richard Quinn, CD, MBA


Performance Management Framework

Cadre de Gestion du Rendement

On aligning SCM with the boardroom:

Whilst I wholeheartedly agree with the general points and sentiments of Paul Mathews' article on alignment of the supply chain to the boardroom i feel that the key point to making them work effectively is delivery.

Board members from backgrounds and business units that are not related to the supply chain often find it awkward and difficult to understand the ramifications of supply chain issues and inefficiencies in terms that are relevant to themselves; exactly the point of the article. So having converted these into units and measures that they can understand it must be delivered in a way that is easily accessible, simply presented and readily digested at an individual's level.

Business Intelligence and Data Analytics systems have long promised this but generally failed to deliver. They are usually complex, cumbersome, not real-time and lack complete information due to disparate and non-integrated systems through the entire supply chain. Only when a complete supply chain information infrastructure is built can the ubiquitous deployment of digital Dashboards and other such user-configurable tools, which enable individual board members to view supply chain information in their own terms, be realized.

Only then will alignment of supply chain management activities with CEO and boardroom level concerns be achievable.

Paul Kind
consult20:20 Pty Ltd


On bar codes and RFID:

The use of Mobile Readers brings RFID in line with Barcode. RFID’s primary attribute is automatic data collection – No manual inputs required.


Mobile means that Location Data is derived from tag reading. This leaves open the opportunity to read the wrong location. Even if the right location is read, a manual input will be required to indicate Pick or Place – More opportunity for Error.


I would expect that Barcode will be more accurate, primarily due to the fact that the operator will be required to see what he is scanning.


And, let’s not forget that Barcode is almost free.


Chris Kapsambelis

Barcode Data Systems Corp.


Q. When was the inflation adjusted record high for oil prices?


A. In April 1980, when oil briefly went for $97.21 per barrel in today’s dollars.

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