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Dec. 14 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Supply Chain 2006 Year in Review

As we wind down the year, as usual we are going to do some review and comment on this past year. In part 1, we are going to use some of the highlights from SCDigest to discuss key topics.

This was a year the full impact of globalization really started to be felt. We kicked things off in January with one of our most popular columns on "The Global Supply Chain - You Better Be Good" , in which we argued global supply chain excellence was more than just an emerging skill - for most companies it in fact will be a key determinant of overall company success, even survival. We cited, for example, a large glass manufacturer that in just a few years went from having almost all its production done domestically and its competitive advantage in its production skill and asset base, to one which is now largely sourcing offshore. The game has simply changed, and you better have the playbook.

We had tremendous reader interest in our list of the 11 greatest supply chain disasters of all time, from the Denver Airport automated luggage handling fiasco to the distribution meltdown that put large pharmeceutical wholesaler Foxmeyer out of business (our number 1 pick). If you missed it the first time around, take a look. Should any any of this year's supply chain troubles (think Sony Playstation 3 delays) make the list? We're still debating.

We had a tremendous response to our two part interview series with the founder of the Theory of Constraints Eli Goldratt. The key messages: in the midst of all this complexity, with the right approach you can find the "inherent simplicity," and that a lot more could be achieved intermally if only companies would really strive for "win-win."

We also stirred up quite a bit of commentary with our discussion of "The Intelligent Supply Chain," in which I did a review of my own analysis of what made a supply chain smart in 1999. I think I did OK back then, but updated my thoughts for 2006 - and generated a lot of reader feedback.

We got a similarly strong response from our discussion of the pressures so many companies are facing right now in "A Supply Chain Case Study 2006,"  which told the tales of a couple of companies I had talked to facing similar problems: increasing price pressure from large retailers, causing the need to move production offshore; savings from those efforts that hadn't much materialized yet; strong competition from the private label goods of those same retailers, further driving down prices and blurring more value-added features, etc. As one company told me, the strategy was just to "Keep their head above water for now, and hope a better model emerges over time."

We also caused a bit of stir with our discussion of "wave management" in the warehouse/DC - the question being, is it time in some cases for a new, more continuous flow model? Can't say we completely answered the question, but there is no question that some elements of lean thinking at one end, and the growing complexity of DC operations at the other, at the very least are causing many to at least think about wave processing in new ways.

There's no question there is a powerful and growing focus on better alignment between supply chain and the business/brand, which we discussed in August, and offered a model for supply chain managers to consider. Not uncoincidentally, our supply chain presentation of the year went to Paul Mathews of The Limited Brands, for his talk on "Aligning SCM and the Boardroom."

Also popular was our discussion of "Is it Really Supply Chain Versus Supply Chain," which suggested that the logic of this popular notion that the true competition is between supply chains often falls down a bit, due to the overlapping and complex web of relationships, and the imperative in the end of persuing one's own interest. There's an element of truth to be sure, and especially so in certain examples like Toyota, but generally just to a degree for all but that of the channel master's perspective.

Finally, we generated a lot of response to our piece on

"Synchronizing versus Simplifying Your Supply Chain," which suggested that these two strategies were at some level at odds with each other, and that in large companies especially the trend seemed to be towards simplification. Yes, as many wrote back, you can sometimes synchronize by simplifying, but I'll stand by my original perpsective in general.

There was a lot more of course, but these were many of the highlights. Next week, we'll have some Christmas fun and republish our most popular News and Views articles, Expert Insight submissions, and reader feedback. After a week off, we'll do part 2 that looks at overall supply chain trends in 2006, with an eye towards what will likely be the focus on 2007.

Do you have any comments on this 2006 SCDigest review? Agree or disagree? What topics would you most like to see covered on 2007?


Let us know your thoughts.

Dan Gilmore


Supply Chain 

Videocast Series

Optimizing Transportation and Distribution Performance

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The EQ Factor: Navigating through the Emotions around LEAN Changes Part 2

by Scott Barrella (MS CPIM), Supply Chain Manager, Nestle USA

How you manage the change is critical to both the project's success and your career, and its often more "EQ" than "IQ" that matters.

in part 2, we look at in more detail at the EQ skills needed to maximize your own personal and the project’s potential.

Lean Supply Chains: From Lean Tools to Lean Management

by Jim Womack, Founder and Chairman, The Lean Enterprise Institute

While we've developed lots of lean tools in the past decade, companies still have a long way to go to become lean enterprises; Three ideas to help get you there.



Dec. 14 , 2006

This Week’s Supply Chain News Bites – Only from SCDigest

World Ports’ U.S. Sites Are Sold – To an Insurance Company?

Supply Chain Council Announces New Education and Certification Program

Watch Who You’re Hiring – Meat Packer Swift Gets Raided For Big-Time Illegals

European Union’s New Regulations On Chemicals Expected To Cause Supply Chain Turbulence

Toyota Exec Says Quality Issues May Be Result Of Get-To-Market Pressure - And It Will Modestly Scale Back Expansion As A Result

Dec. 7 , 2006

Transportation Challenges Acronym Submissions

We provide a sample of the more than 350 responses we received


Q. What company is considered to have developed the first centralized transportation load control center, at least in the U.S.?

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.

We're still behind - be patient if your letter has not yet been published

We're just getting to the many responses we received on our First Thoughts piece on using the recent drop in fuel prices to "get the fuel surcharge genie back in the bottle." We received a number of letters, including one from Hank Newman of Recon Logistics, who says he can prove most LTL carrier fuel charges are excessive and padding profits. Also, our feedback of the week from Jeff Stites, Vice President of North American Supply Chain for Cott Beverages, who says our piece was quite timely for their thinking.

There's more strong opinions, which we are sure you will enjoy. New, expanded feedback opportunities coming in 2007!

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 Fuel Surcharges:

A very timely column as we just had a long discussion about this yesterday with our 3PL provider.  A couple of things we discussed:


Should we reset the fuel peg to a more realistic level and would that give us more predictable freight costs over time?


To what degree are carriers hedging fuel to help keep price volatility from becoming a rate issue?  Can we reward carriers that do with better business?  Our sense was that fuel surcharges incent carriers not to hedge or look for other ways to minimize the impact of increasing fuel prices on their customers.


How can we better push for MPG improvements with our carriers, realizing that new emissions standards may be working against that?


To a great extent, we believe that where we have partnership relationships with carriers we can productively discuss these opportunities and where we don’t we’ll get what we negotiate.


Jeff Stites

Vice President, North American Supply Chain

Cott Beverages, Inc.

More on Fuel Surcharges:

I read your article with some specific interest as I am actively helping smaller businesses in NE Ohio manage their LTL transportation.  One of the main issues I focus on is the fuel surcharge.


It is my contention and I can prove it, that tariff LTL fuel surcharges are extremely excessive and that the carriers are certainly profiting from it.  Now, they may not profit as much as you'd think and that's because the large shippers and 3PL's know how to cut down the charge to a reasonable level.  It's the small shippers that get stuck with the bill. 


I have developed a model which I feel is unique in the industry.  It calculates the exact cost of fuel for every individual shipment a company has based on distance, the price of fuel, the LTL rate, and the space occupied in the trailer.  It skews many of the variables in the favor of the carrier.  I then average that entire shipment file and come up with an exact fuel surcharge that varies with the price of diesel.  You would be surprised at how much it varies for each shipper.  Those who ship full, heavy pallets short distances at average rates should have very low surcharges.  Those with shipments at aggressive rates that are long haul should pay more.  The bottom line is that there is a way to exactly determine LTL fuel surcharges and it is unknown to small shippers.


The companies I work with average an annual LTL spend of $200,000, certainly nothing to leverage compared to most larger companies.  Still, I have had success with virtually every carrier, save the largest national carriers such as CCX, Yellow, ABF, etc, in renegotiating fuel surcharges for smaller shippers.  For example, my customer's average fuel surchage when diesel hit $3.00/gallon was 9%.  Compare that to the 20-21% tariff rates they had been paying before.


So, in summary, it is not a simple issue when analyzing LTL fuel surcharges.  Basically, the small company suffers and absorbs all the "profitable" surcharges unless they have knowledgeable representation.

Hank Newman
Recon Logistics


It would seem to me that once surcharges become negotiable, they really are not surcharges anymore.  They are just part 2 of a transportation price.  My advice to a company would be to negotiate the best total cost - base rate and surcharge.  I also would be sure that I understood the basis for the surcharge and exactly how it is being calculated.  If the buyer does not understand the math, they are at the mercy of their service provider.


Herb Shields, CMC
HCS Consulting

The days of buying fuel at $1.15 to $1.25 sure seem to be over, after all Big Oil has figured out that the American public will pay it appears whatever it takes to continue enjoying the freedom that comes with owning and driving your own vehicle down Route 66.  In response to your question should “shippers bear all freight cost” I would say definitely not.

What the Carriers need to understand is that higher fuel costs are here to stay, with that being said Carriers should recognize this as a cost of doing business. Setting sliding rate scales that trigger fuel surcharges at $1.15 to $1.30 is ridiculous after all would you not run immediately down to the gas pump and top off if you could find gas at $1.15. 

It is time for the carriers to pony up and absorb some of the fuel increases and if they must, raise their base rates accordingly.  Fuel Surcharges should not even be considered as a pass through charge until fuel tops the $1.75 per gallon rate. We know quite clearly that FSC has become nothing more than a revenue stream to the bottom line for many carries. Take the Air Cargo industry, for the past 6 weeks all the indicators have pointed to lower fuel prices, yet what you hear from this industry is a “Loud Silence” reluctant to lower their fuel surcharges from the current $0.60 to $0.70 cent range, why would they not immediately reduce this charge, I think we know the answer to that question, only now and because of shipper pressure are we starting to see this industry reduce their surcharges.  


Greg O. Andrews

Director Global Logistics-Transportation


Plummeting fuel prices before a hotly contested mid-term election. What a coincidence!


But seriously, with a forecast of continued volatility for the foreseeable future (regardless if driven by demand or supply), some standard-based formula will have to be applied. This adds a lot of weight to a national or regional index.


Nick Mazeika

Solutions Consultant 

Datex International


Q. What company is considered to have developed the first centralized transportation load control center?

A. 3M, in the late 1980s.

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