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Dec. 21 , 2006 - Supply Chain Digest Newsletter
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Featured Report

Designing A Superior Distribution Network: A Roadmap To Success

This proven roadmap for a superior distribution network design and strategy will enable your company to minimize operating costs and tax burden, maximize customer service, and improve flexibility to adjust to changes in business strategy and growth.

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First Thoughts by Dan Gilmore, Editor

'Twas the Night Before a Supply Chain Christmas 2006

It's back. First published in 2003, we have revised for 2006 our popular "Twas the Night Before a Supply Chain Christmas," a takeoff on the famous Clement Moore piece. We think you will enjoy it.

Twas the night before Christmas, and I was alone in the DC.

Not much inventory left – we forecast right, I can see.

Our performance reports were hung by the office with care,

And it looked like 2006 bonuses soon would be there.

As VP of Supply Chain, the buck stops right here,

But I would say overall we had a pretty good year.

Now the job isn’t easy – for me or my team.

This year’s challenges were as great as I’ve ever seen.

Cycle times shorter – we took out one more day,

While working with 5% less budget, by the way.

Oh the Transportation headaches! Capacity and cost!

But it just doesn’t matter – great customer service can’t be lost.

We re-optimized the network, pursued global sourcing in full,

And kept driving our supply chain to less push, and more pull!  

As I pondered our year, there quick arose such a sound,

I feared a tall bay of rack in reserve had gone down!

I jumped into my Cushman, raced past each and every dock door,

Towards the back of the DC – what would I find on the floor?

But as I swung round bulk storage, I saw I had nothing to dread,

For there sat St. Nick, on a new Raymond truck, green and red.

The red matched his bright suit, which could not have been finer,

Though a small tag in the back did say “Made in China.”

He was hanging some stockings from the racking’s first beam,

And I could see on each one the names of my supply chain team.

On a pallet sat a big bundle, which he grabbed with a laugh,

And I wondered what Santa could have in store for my staff.

He said, “I brought you the gifts that will help you to achieve,

Supply chain excellence and agility in 2007, I believe.

“For your director of transportation, a real-time load optimizer,

And carrier bid tools, so your freight contracts are wiser.

“For your forecasting head, real-time demand information,

And a new S&OP process that better guides allocation.

“For your inventory team, I can remove much of their pain,

Through complete visibility across every echelon in the chain.

“Your DC manager will like the voice pick system she’ll be receiving,

And the advanced  WMS that supports task interleaving.

“For you, a new Supply Chain dashboard, with all the metrics you want,

So you can see by the second who’s performing, and who’s not!”

Then he paused for a second, and put a finger to his lips,

Reached in his bag, and pulled out a fistful of chips.

“And the greatest gift of all, as I’m sure you’ll agree,

Is for everyone, everywhere – lots of RFID!”

He dropped the tags in the stockings, turned round with some flair,

Pushed a button on the Raymond, and it took off in the air!

“Thank you Santa,” I shouted, “These are really great tools!

But we’ll need help to deploy them, configure business rules!”

Santa yelled, “Yes, the value from tech is sometimes not resultant.

But my elves are just coders – better hire lots of consultants!”

And I heard him exclaim, as he floated high above,

“Yes supply chain’s sure hard, but it’s the business we love!”

Hope you enjoyed it. You can access a pdf here if you would like. Nearby, you'll find some of our most popular pieces from 2006, as well as some of our favorite letters from readers.

We're off next week. Thanks for another great year. You'll see many exciting new features in early 2007. See you next year!

Did you enjoy Twas the Night Before a Supply Chain Christmas? What issues and topics would you like to see us cover in 2007? How can SCDigest be improved? Let us know your thoughts.

Let us know your thoughts.

Dan Gilmore

Featured Events

Supply Chain 

Videocast Series

Optimizing Transportation and Distribution Performance

You simply can get more goods on each truck. How optimization at the order demand level will deliver lower transportation spend and significant gains in productivity, and how leaders like P&G and Nestle are achieving real bottom line results.

It's an outstanding, highly educational presentation.

More information and to register.


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.


Oct. 20 , 2006

CSCMP Lessons from The Limited Brands, Toyota, Hershey, Caterpillar, Ingram Book, and More

Didn’t Make it to San Antonio? We summarize key takeaways here

Aug. 31 , 2006

How do Lean, Agile, and “Leagile” Supply Chain Strategies Compare?

Interesting research dissects the trade-offs among different models

Aug. 24 , 2006

Is Accounting a Barrier to Supply Chain Excellence?

As supply chain rapidly evolve, accounting for the costs uses decades-old models

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 4 , 2006

The Impact of Lead Time Variability

“When you aren’t sure when your ‘stuff’ is arriving, you wind up with too much ‘stuff’,” says Georgia Tech’s Don Ratliff; opportunity to join benchmarking effort

March 8 , 2006

Building a Flexible Supply Chain Network

Supply chain strategy expert offers tips for achieving agility and responsiveness


Feb. 9 , 2006

Procter & Gamble on RFID/EPC – Three Categories of Products, Three Main Benefits

Procter & Gamble discusses its framework for RFID/EPC evaluation and deployment


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

It was another great, great year of reader feedback to SCDigest. Below, we print some of the best letters we received in 2006. Those include: Steven Schroeder of Kraft on wave management, Warren Martin of University of Alabama at Birmingham on our analysis of The University of Arkansas' analysis of RFID and out-of-stocks, Thomas Dadmun of Adtran on our interview with Theory of Constraints father Eli Goldratt, Bruce Lewis of Bunzl on how to measure logistics costs, David Schneider of Pep Boys on transportation costs and network design, Major Richard Quinn on listening to "the wisdom of the troops," Lalit Panda of Harman Consumer Group on "The Intelligent Supply Chain," and Bruce Welty of Scenic Technology on the slower, but better, pace of RFID adoption.

Take a look - we are sure you will enjoy them. 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 on "To Wave or Not to Wave?":

I'm of the opinion, the real secret to optimizing the warehouse does not come from the scope of Order Release, but from the WMS' ability to intelligently and dynamically prioritize, group, assign and execute the work tasks created by the Order Release. I have found the most efficient order release grouping to be the Shipment (The whole Truck Load).

Anything more or less than this adds unnecessary complexity to the WMS' work task management logic. It has also been my experience that a WMS with intelligent work task management should have 2 - 4 hours of warehouse work in the work task queue. Anything less than 2 hours runs the risk of not exploiting the optimization opportunities, and anything over 4 hours runs the risk of not being able to quickly make informed decisions when exceptions occur.     
Steven K. Schroeder
Sr. Mgr. M&A - Cross Enterprise Initiatives
Kraft Foods, Inc

Feedback On "Wal-Mart out of Stock Study":

Your calculations are interesting. Based on your numbers, it seems the sales and profit benefits from RFID may not be as large as hoped. The result of a retailer having out-of-stock is an immediate reduction in sales. The implications for manufacturer's or wholesaler's brands are different. If customers cannot find their favorite brand on the shelf, most people will select another brand. So for a manufacturer being out-of-stock is a much more significant immediate problem than for a retailer. For the manufacturer, the out-of-stock can cost a sale and decrease market share since your competitors get your lost sales.

Furthermore, your analysis assumes that all products have the same profit margin. In fact profit margins may widely differ based on the local price and buying power. Specific information on which products were out-of-stock and their margins would allow someone to calculate the overall impact. The repeat purchase intentions by customers are lowered by a retailer being out-of-stock. At some point in time, customers will go to another store to be able to buy all of the goods they want in one location. There is a substantial danger in loosing customers. As more firms try to come closer to Wal-Mart's low prices, the cost of two shopping stops rather than one is significant to many consumers. Additionally based on the design and implementation of the specific inventory system, lost sales may adversely affect reorder sizes.

Warren Martin, PhD
School of Business
University of Alabama at Birmingham


Feedback on the "Theory of Constraints":

Overcoming behavioral resistance is a key to any project's success whether it be TOC theory of Constraints or implementing an ERP system. You must have the employees on your side, winning, or you will face resistance no matter what. The "what's in it for me" syndrome coupled with "you're telling me I have been doing it wrong all this time" are two barriers that must be overcome. I have found two solutions to this over the years, 1) you will learn new concepts, use leading edge processes or tools and be able to increase your current skill set making you more valuable for future positions; 2) you have been able to achieve significant progress and success to this point, now let's continue to move it further up the road to world class excellence. In this way you have developed a win-win frame work and acknowledged their past contribution.

Once you have passed through those hurdles, easier said than done, the TOC concepts are simple to understand and milestones are achieved easily. I have been a disciple of Goldratt since I first read his book. I keep a case of his books in my office to hand out to new hires and share with visiting colleagues. Exponential gains can be had by discovering the true bottlenecks no matter how complex the process. But you cannot start or get any momentum going if you do not have the folks on your side to begin with. Let's face it, they want to win. They do not care that much if you are successful, they want to be. Therefore you have to get the team understanding that this is their win, their claim to fame, their project, not a top down driven "Corporate project". Once this is achieved they will put the shoulder to the grindstone to make themselves and the team successful. Only with team success and folks understanding it is a WIN ( employee ), WIN (company), WIN ( customer) will you be successful. I am looking forward to reading part 2.

Thomas L. Dadmun
VP, Supply Chain Operations


Feedback on "Logistics Costs, Up or Down?" :

I think is essential to measure logistics costs as an absolute number, because a “percent of sale measurement” distracts a summary metrics viewer from seeing the real migration of the business' cost basis.

The mistake of using percent of sales as a company’s only meaningful metric will become very obvious during the deflationary portion of the cycle.  The escalation of absolute costs can hide in the euphoria of top line growth only to surface as a huge swing in percentage increase when the market and the associated top line falls, even if the absolute cost remains relatively stable.  However, all to often as budget conscious managers we are willing to take the win and the associated credit without acknowledging the windfall aspects of the cycle.

Bruce Lewis


Feedback on "Supply Chain Network Design":

Really, the effect of transportation costs on logistics network design started to have an effect in 2002 when the hours of service changes started to take effect.  The rising cost of fuel is adding sharpness to what has been a dull pain in cost and fleet management.

One thing to remember in network design is the "cost density" of the product being distributed.  Too many times I have seen analysis that assumes that $1 of merchandise is the same as another $1 of merchandise.

Case in point is the change in our merchandise mix over the past 2 years.

Our $value per cubic foot has dropped over 40% in the past two years, making our distribution model much more cost sensitive to changes in cubic foot demand.  My point is that if you are distributing small items that have a high value per cubic foot (like drugs), your network will be much lest sensitive to transportation and storage space costs than a enterprise moving a lower cost per cubic food commodity (like tires).

There is one other point, and that is who pays the freight from the distribution points.  If the customer is paying the freight, such as in "to consumer" internet retail or apparel, then your model is insensitive to what is the most expensive transportation costs, outbound to the customer.


David Schneider

Director - Logistics

Pep Boys Auto

Feedback 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

Feedback on "The Intelligent Supply Chain":

I usually read your column with interest and your comments on the Intelligent Supply Chain from your notes from 1999 struck me as particularly relevant. Most of what you say rings true from my experience though I am surprised that companies have not able to reduce the bull whip effect with all the investments in Demand Planning and Supply Network Planning systems. Makes you wonder whether software is mostly smoke and mirrors in what it can truly deliver. It may also be possible, as you note some what towards the end that investment in people has not kept pace with technology investments so it may be that there aren’t enough trained experts to manage the demand models. In the final analysis, demand and supply models need interpretation so technology is obviously not the be all and end all of getting the process right. Thoughts I would like to add to your notes are:

I believe there is unexploited potential of significant benefits from linking factory planning to demand signals to reduce the bull whip. While supply network planning is a step in that direction, true integration at BOM level for executing to real time demand changes has been the vision and I believe is still a goal for most companies. The complexity of such an exercise across multi product, multi locational production systems cannot be denied but should certainly show results. Also I think a characteristic of an intelligent supply chain is the intelligent use of intermediaries and the proactive sharing of information that can help increase efficiencies in transportation and logistics, which in theory is no different than integrating with the factories. Most logistics providers do not delve deep into their customers’ process issues to determine whether they can optimize their services to meet the specific challenges a customer faces. We have done some work in that area with carriers which has shown results.

I would like to commend your column and say that its one of the most “intelligent comment chains” in the logistics arena. Do keep it up.

Lalit Panda

SVP Supply Chain and IS

Harman Consumer Group

Feedback on "RFID Slower, Better "

As usual, another great article on a relevant topic.

Your restraint and balance continue to amaze me, especially in your sidebar about Alien.  To date, the RFID craze has been academically-driven, vendor-driven and compliance-driven, hardly compelling business trends.  It was started by some great academics/technologists that were even greater marketers.  For the past 5-6 years I have been reading articles that look to me to be written by some staff (or contract) journalist who was asked by the editor to “go and write an article about RFID”.  Lo and behold, they found the original works published by the PhD’s and regurgitated their own original script.

The real answer as to why RFID has not gotten very much traction (and Alien’s IPO was cancelled) was simply that the financial characteristics of RFID for the Supply Chain are very poor.  There is negative ROI for the customer, the price of the chips is too high and needs to drop significantly (who wants to invest in a company where the underlying price has to drop to pennies to be viable?), the competitive product (barcodes) is actually quite inexpensive and very effective (we’ve all gotten pretty good at what we do after 20 years!), and the industry has been over-invested allowing companies that have no real business to continue to bid down the projects, thereby killing the market.

Given your comments “we are about where we should be”, I agree with that.  My guess is this technology will ultimately find a place and will afford many vendors the opportunity to improve their solutions.  It is probably not the “next big thing”, but it is one piece we all need to consider in our strategy, but only when the customers say they need to have it.

Bruce Welty

CEO, Scenic Technology

EIR, Great Hill Partners


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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