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  May 25 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

From ECR to Just Do It


For a decade and a half now, we seen a parade of consumer goods-to-retail initiates all designed to reduce inventory, speed the flow of goods, and reduce out-of-stocks. Efficient Consumer Response, Quick Response, CPFR, and most RFID/EPC have all emphasized a related value prop, which never quite seems to be realized.


We’re actually busy on some retrospectives on a couple of those industry initiatives now, but some recent news has me thinking about it right now.


It appears that a few leading retailers, notable Wal-Mart but also others such as CVS, are reaching the goals by just doing it, with new strategies around inventory and goods flow that has far reaching implications for both the supply chain and maybe the top and bottom lines of many consumer goods companies.


Last fall, as we reported, Wal-Mart announced its ReMix logistics strategy. In summary, it involves utilizing separate “high velocity” distribution centers, or large areas of existing DCs, for extremely fast moving goods such paper products, toothpaste, some food items, and seasonal products. Outbound pallets will be built with store layout in mind, enabling them to be rolled directly onto the floor for rapid shelf replenishment. With all Wal-Mart’s logistics prowess, the traditional model meant fast moving goods were delivered on the same trucks as slower moving items, often forcing store personnel to sort through a lot of other goods to find the items most in need of replenishment.


Wal-Mart is attacking inventory from several angles, including RFID, but it isn’t RFID that is likely to have the real short or even medium term impact. As we reported two weeks ago, with inventory growing much faster in relation to sales over the past few years than its historical average, Wal-Mart has decided to look hard at pruning SKUs and driving more frequent vendor shipments to get its sales to inventory growth ratio back in line.


Interestingly, a number of consumer goods and even some transportation and packaging companies have cited Wal-Mart and some other retailer moves as behind soft Q1 volumes and/or subdued projections for coming quarters.


My quick summary (leaving it short and sweet for a Memorial Day 2006 weekend):


  • As we’ll write more about soon, there is an increased understanding of the role of inventory reduction in driving corporate cash flow and profits.
  • One wonders sometimes whether for all the talk about taking inventory out of the chain, whether consumer goods companies in reality are quite happy with well-stuffed retail channels, and the ability to push lots of truckloads out at quarter’s end.
  • The impact will certainly involve (as is happening right now) a “one-time reset” of channel inventories, dampening consumer goods company sales in the short term, but as an excellent Bank of America research note recently noted, there are longer term implications as well. We summarize this research note, including some charts, in News and Views nearby. It’s worth a read.
  • It seems to me that for all the fancy initiatives, plain old blocking and tackling maybe be the best way to take out inventory. Analyze SKU counts. See what really contributes to profit. Streamline flows.
  • Wal-Mart’s ReMix program makes great common sense to me, as massive a program as I am sure it is to revamp a network of that size, especially one that had been finely tuned to a different model for so many years.


All these changes appear to be working. As noted, we’ve seen a variety of suppliers commenting on reduce sales volumes.


Noted Wal-Mart Chief Financial Officer Tom Schoewe, speaking at a recent Lehman Brothers conference in New York: "Go into our stores today and compare it to six months ago and you're going to see a lot less inventory" on overhead shelves, in backrooms and in trailers behind the stores. He added: "I'm feeling pretty good about inventory."


Seems like it’s clearly good for Wal-Mart. Will it really be good for consumer goods companies as well?


What are your thoughts on Wal-Mart’s inventory policy changes? Did we maybe need less collaboration and more direct action to reduce inventories? And what’s the impact of manufacturers on all this?

Let us know your thoughts.

Dan Gilmore


If you are considering integrating voice directed solutions into your warehouse or are just interested in learning more about the benefits of voice directed logistics solutions, this report is a must read:

Knowledge You Need Before Purchasing Voice-Directed Applications in Your Warehouse


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Building a Performance-Focused Workforce
The RFID-Enabled WMS
Real-Time Supply Chain Integration
How to Select a WMS - The "No Spin Zone"
How to Select a TMS - The "No Spin Zone"

May 25 , 2006

Will Retailer/Wal-Mart Inventory Cut Backs Mean Sales Risk for Consumer Goods Companies?

Maybe yes,  says Bank of America research

May 25 , 2006

New Texas Plant Shows How Toyota Continues to Gain Advantage over GM

Lower labor costs, starting with a “clean piece of paper,” drive improved productivity and costs versus even one of GM’s most efficient operations

May 25 , 2006

New Cannondale Associates Report Offers New Way to think about Retailer Segmentation

Continued shift away from traditional grocery channels


Q. About what percentage of cars made in the U.S. last year were produced in the factories of foreign automakers?

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.

The letters are pouring in - Thank you!

We are catching up on a variety of topics this week, including another letter on "The Intelligent Supply Chain" from Sharat Satyanarayana of Frost & Sullivan, which is our Feedback of the Week. You'll also find letters on Lead Time Variability, Doing an Outsourcing Vulnerability Check-Up, and the Theory of Constraints, based on our interview with TOC originator Eli Goldratt.

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 Intelligent Supply Chain:

Where the term “Supply Chain” is concerned, I would tend to agree with the advocation of 'supply network' as this seems to be a more holistic way of looking at parameters that impact the performance and delivery of any organization's value chain.

Getting back to the aspect of Security related issues for the global supply networks, I believe there should be an comprehensive approach to all aspects such as the financial supply chain, the physical supply chain (including international trade logistics) and global trade management (compliance, documentations, classifications, etc.). When these three gears lock in easily, along with their own complex machinery, the drive towards becoming an “intelligent” supply network will be successful.

Sharat Satyanarayana
Industry Analyst
Logistics & Supply Chain Management
Frost & Sullivan

On Lead Time Variability:


We are a 3PL serving many industries and most clients focus on the outbound shipments to consignees.


Inbound shipments to a DC are often discussed initially in the client set up process and then the metric is either not reported or watched closely enough.


The cost of this is a lot more than one would think. The types of cost are associated with:

  • Truck detention
  • Dock Worker overtime
  • Rail Detention
  • Pier Detention
  • Inbound mistakes due to surge capacity.


Inter modal and rail shipments are often longer lead times with opportunities for delays and increased lead times everyday.


Mark L. Ofenloch

VP Business Operations

Nexus Distribution

On Theory of Constraints

I agree with Chris Russell on the "religion" aspect [on the Theory of Constraints]..

I remember a warehouse that was supposed to last for 5 years being filled in 2.  Someone noticed most of the stored material was packaging and decided to put the high volume items on JIT.  Then some one decided "if some is good, more is better" and put all packaging on JIT.  A few of us notice the $3 carton we only used one of per month suddenly cost $5 each and that a single carton laying on the dock would quickly find it's way astray and the real cost would multiply some more.  I'm not sure if the accountants ever caught on.

Paul Phelps
Molex Incorporated
Automotive Division

On Doing an Outsourcing Check-Up

Very interesting perspective on an "old" topic.  We're starting to see companies rethinking the value proposition of outsourcing, obviously due to disappointing results.  After many years working in the food and CPG supply chains, I have become a big supporter of outsourcing logistics operations, but only for the right reasons.  "So that resources can be focused on core competencies" is not one of these "right reasons".  The notion that a company should evaluate/benchmark the value proposition of a 3PL is absolutely a wise idea, but it should be an objective assessment, not a turf protection strategy, or for that matter a headcount reduction strategy by someone in finance.  Oh yeah, the "right reasons" include:  1) true, significant cost savings (most likely found in freight consolidation opportunities), 2) variable capacity (primarily DC operations, inventory storage), 3) speed of implementation (network configuration changes to add or delete nodes), 4) improve customer service.  If an assessment of a 3PL utilization strategy does not result in significant value potential in any of these areas, the company should not move forward.


Dave Sandoval

B.U.S. Systems, Inc.



Q. About what percentage of cars made in the U.S. last year were produced in the factories of foreign automakers?


A. Approximately one-third

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