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  June 1 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Supply Chain 2006 - A "Case Study"


I recently had conversations with two companies about what’s going on in their business and supply chains, which I believe neatly sum up where a large percentage of companies are at right now.

These were casual conversations, not meant as formal interviews, so I am going to keep the companies anonymous, and actually create a single composite company out of these two very similar stories. But I think many of our readers will see themselves in this description.

The company is a consumer durables manufacturer. After decades of U.S. manufacturing and market leadership, a variety of pressures has led it to announce it is closing some U.S. production capacity and moving to China, with rumors that more U.S. facilities – maybe eventually all of them – will suffer a similar fate.

This is despite the fact that the company had considered itself a very “Lean” manufacturer, and operated traditionally in a very just-in-time mode. What happened? Perhaps the biggest change is the mix of distribution channels. The company has a huge amount of its business now going thru Big Box retailers, versus a more traditional dealer network in the past.

That means more price pressure. Traditional channels were fairly price insensitive. This comes not only from Big Box retail buyer expectations for pricing, but because the retailer may offer its own private label alternative – sourced from China, of course. Gross and operating margins are decreasing.

In fact, the company’s number 1 competitor, and the number 2 brand in the market, is one of its retail customer’s own private label brand. Which makes things very interesting, because of course the retailer knows all there is to know about what they can buy the name brand for, what sells and what doesn’t, etc. In fact, it generally waits for the branded product line to innovate, observes what sells and what doesn’t, and then knocks off the most successful models.

The private label goods are lower quality, but when the consumer, with little expert sales help in the aisles, sees nearly identical products from a visual perspective side-by-side, the name brand and the private label, and the private label offers a nice discount, it’s a tempting choice. It is believed the retailer manipulates things to maintain the balance of name brand and private label sales that makes the most sense for it at the time.

They would love to sell direct over the web, but the retailers go ballistic at that idea.

Are the savings from China really materializing? No, not yet. They know they are not really good at global sourcing and global logistics yet. Plus, this is requiring major changes in their supply chain network and distribution strategies, and therefore short term cost increases there as well. They feel at one level they are taking some backward steps, as again they are in many respects moving from a very Lean supply chain model to one characterized now with lots of inventory and very long lead times.

The future: Figure out this global supply chain thing. Try to use advertising and other techniques to promote the value of the brand. Keep analyzing the network and inventory flows to squeeze out costs. Keep their head above water for now, and hope a better model emerges over time.

Obviously, this is from the perspective of a consumer goods manufacturer. The perspective of the retailer of course would be quite different.

There is no implied editorial comment here. It simply represents I think a reasonable meta-type for so many companies and their supply chains for 2006.

Right now, I am pondering on what it all means. One thing for sure, as I suggested earlier this year, is that if you want to survive, you better get good at the Global Supply Chain. Beyond that, I’m not sure. I’d love your thoughts in helping me sort it out.

Don't forget to take a look at our June Videocast Series. If you are thinking about new WMS or TMS technology, you'll find two detailed, outstanding sessions with information you will find nowhere else. Also: the RFID-enabled WMS, Real-Time Supply Chain Integration, and the Performance-Focused Logistics Workforce. More info on all the above.

Does our “case study” represent a good summary of where many companies are in their supply chains in 2006? What does it mean for how companies should be thinking about their futures and their future supply chains? Or are we off the mark? Let us know your thoughts.
Let us know your thoughts.

Dan Gilmore


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Interlog Summer 2006

The After-Sales Product Support & Service Parts Logistics Event Of The Year

You need to increase your bottom line in the after-sales market! While so many things are a shot in the dark, one thing has proven to be predictable in obtaining results— the knowledge shared at Interlog Summer.

June 12-15, 2006

Hyatt Regency at Gainey Ranch-Scottsdale, AZ

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June 1 , 2006

Does Incentive Pay in the Warehouse Work?


New report from ARC Advisory Group says Yes; productivity goes up, and so does employee satisfaction

June 1 , 2006

Even in China, You Have to get “Lean”


Just being there no longer enough, McKinsey report notes

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



Q. What year was the SCOR supply chain model first released?

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 way behind. We received a large number of letters on our First Thoughts piece on "Thinking About TMS," including several vendors who took us up on the offer to mention those we didn't include in our brief categorization of suppliers. Our feedback of the week though is from Ted Uhlman of Rodale, who simply notes the value these kinds of articles in SCDigest can bring to the market. Thanks! You'll several letters on TMS below. We are going to have to find a new mechansism, because we just don't have room for the feedback in this newslette format alone. But keep the comments coming!

BTW, if you are interested in TMS, please consider our outstanding Videocast in June on How to Select a TMS!

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 "Thinking about TMS":

I thought your review of the TMS market was excellent.  It was concise and in a few minutes I felt like I knew everything about the current state of the TMS market. Thank you.

Ted Uhlman


As companies look to manage cost more effectively the freight budgets which continue to grow is size have become very visible to the finance groups within these companies.  With financial groups watching closely transportation management is always looking to save money and improve service.  The TMS systems can take a tremendous amount of information and make least cost carrier selection much easier.  TMS systems ability to combine orders, create multiple stop truckloads, and run modeling scenarios makes for a very quick ROI.

Ralph Folkes


Love it!  We recently implemented a TMS and are questioning the value.  Your article will help frame our thoughts!

Of all the propaganda I get I always make sure to read yours as they are relevant to my job and not advertisements for some vendor.

Marianne Hitzel

Logistics Manager

Pliant Corporation

Interesting and very true.  We have found that most prospective companies, particularly manufacturers, are slow to get on the technology bandwagon.  We are currently working with two manufacturers who each have a freight spend in excess of $60,000,000. Both of these companies use the “intuitive” manual system of paper and spreadsheets. What I mean about “intuitive” is that many shippers intuitively know the transportation business, as it relates to their company. Their processes and business requirements are “unique”. Therefore a canned TMS solution is perceived to have too many gaps.

What we are finding is that you can’t teach some old dogs new tricks. Many of the Transportation Managers we have spoken to are near the end of their career and “change” would present a world of hurt. Obviously, the correct sales direction to take would be to take the business case to senior management. However, it’s amazing how “hands-off” senior management can be when it comes to transportation management.

Doug Colter


The supply chain doesn’t belong to the warehouse industry!  As the developer of LTL/400 (for asset-based carriers) and 3PL/400 (for non-asset carriers), I can assure you that many of my TMS customers (regional and superregional LTL’s, specialized commodity carriers, IMC’s, local delivery carriers, warehouses) are extending their reach in the supply chain.  My applications run on the IBM System i5 server family, which has a very strong presence in the transportation, logistics, and distribution industries.  I have customers handling 50 shipments/day to over 20,000 shipments/day; this enormous range is due to the reliability, scalability, and low total cost of ownership (TCO) of the i5 family, where system prices range from $15,000 to $5,000,000 and up.

The non-asset operators (freight brokers and intermodal marketing companies) are moving into new modes of transportation, especially LTL.  But they’re finding that the LTL pricing business model (rates, discounts, auditing, adjustments) requires significant software technology to meet customers’ expectations.  As transportation experts with formidable negotiating skills and bulk buying power, 3PL’s may offer more flexibility and lower prices than a warehouse’s “in-house” transportation management program.

The asset-based carriers are used to touching freight and have provided primitive warehousing (in the form of the dock “storage”) for years.  In addition, most carriers have reasonable technology capabilities so formalizing the “storage” process by installing basic WMS technology is not a big step.  And they’re going the other direction as well, by adding non-asset capabilities that allow them to control the freight from inside the manufacturer’s production facilities (in the Far East or Europe).  The end result is they’re getting a longer piece of the supply chain by taking a few links on each end.  Today, any surviving (read “profitable”) asset-based carrier must be an excellent operator; the management rigor required for success in today’s asset-based LTL and TL marketplace means that those carriers will likely be good operators in the warehouse marketplace when they move into it.

Ayers Rock has customers using WMS’s at pickup (vendor sweeps) and for delivery (load planning and order consolidation).  Note that there’s no unallocated inventory in these situations…yet.  It’s inevitable that these carriers will handle “inventory” sooner than later, and then they’ll be warehouse operators with excellent transportation management skills.  We’re currently developing a lightweight WMS integrated into LTL/400 to support carriers’ initial requirements as they move into formally manage static freight.

Reeve Fritchman


Ayers Rock Software LLC


Q. What year was the SCOR supply chain model first released?


A. 1996

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