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May 17, 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Transportation Infrastructure and the Future of U.S. Logistics

When it comes to U.S. logistics infrastructure, I keep getting mixed signals.

I’m not long back from the always excellent Supply Chain Executive Forum at Georgia Tech, under the leadership of Dr. John Langley, which was focused this session on Infrastructure Challenges. I heard a lot there about the real infrastructure issues that we face, and came away pretty convinced something needs to be done (more below).

On the other hand, shipper concerns about U.S. ports infrastructure have largely dissipated (for the moment) as delays and congest abate. A combination of shippers taking advantage of alterative ports to Long Beach and some significant improvements in the efficiency of container handling at some of the ports have combined to make the killer delays experienced in 2005 seem like very old news . As we noted in last week’s NewsBites, forecasts are for congestion to be mild even in LA/Long Beach through the rest of the year, even as container volumes continue to rise. (See Container Volumes Continue to Soar, but Congestion Should Stay Mild, Says Latest NRF Study.)

Then at a transportation panel I recently moderated at the i2 User Conference, a group of very knowledgeable transportation pros from companies like Michael’s stores, Penske and Dell were pretty unanimous in their opinion that U.S. logistics infrastructure was not in a “crisis” that should cause anyone to lose a whole lot of sleep. It’s not that they didn’t see some issues, but I will paraphrase their comments as being that the grave concern in some circles about infrastructure has been over done.

So who’s right? I would say, as is the case in many issues, probably a little of both.

The reality is that those on the “crisis” side of things tend to frequently overstate the case. Technology, necessity and other factors generally drive solutions to problems that the handwringers usually underestimate.

But then you look at the data, and wonder if those acutely worried about infrastructure are more than a little right on this one.

At the Supply Chain Executive forum, we heard from Dr. Michael Meyer, a professor of Civil Engineering, head of the Transportation Institute there, and frequent participant in Washington DC committees and elsewhere on infrastructure issues. His main message: If you think it’s bad now, just wait a few more years.

We have had a paltry level of growth in new highway “lane miles,” while the growth in both car and truck “Vehicle Miles Traveled” continues to rise dramatically. The forecasts, as they stand now, paint a similarly depressing picture through 2035, whether you are concerned about your morning commute or trying to get your company’s goods to market. Congestion is starting to spread further and further outside of large urban highways. Despite the current respite in port congestion, the combination of continued 10% annual growth in inbound container volumes and not much new port capacity being built suggests the problems will return sooner rather than later. Meyer showed estimates that said inbound volumes would rise from about 18 million TEU’s (Twenty-foot equivalent units) in 2006 to about 60 million by 2024. There appear to be no real plans, yet, on how to handle this surge.

(Find larger image here).

The dollars required are massive. As just a couple of examples, Meyer said to just barely keep pace will require $61 billion investment in Chicago and $45 billion in Dallas-Ft. Worth for roadwork alone.

So it’s going to take a lot of money, and even by very optimistic assumptions the likely level of such funding alone won’t be enough avoid increasing bottlenecks.

Should we be concerned? Meyer thinks so. He believes that “investment in Transportation Infrastructure is key to national, state and metropolitan economic success.”

Bruce Danhke of Skytech Transportation said at Georgia Tech that he was deeply concerned about the level of opportunities for his kids and grandkids if we don’t address these logistics infrastructure issues. The cost and performance of our logistics systems will put the U.S. at a competitive disadvantage to many other parts of the world.

Most of us are aware of the efficiency of Chinese ports versus those in the U.S., and Meyer noted it is spending massively on logistics infrastructure – with a lot fewer complications in getting things done. When the government decides a new port is required, they just build one, as the massive new (and as yet very little used) port south of Shanghai (built in just two years) demonstrates. No worrying about Not in My Back Yard protests there. Not a good system to live under, but a heck of an advantage for getting certain things accomplished.

In a future issue, we’ll cover more on this topic, including some of the things that are being done, and some of the things that could be done.  Dr. Langley noted to me this week that in a separate personal meeting he had just had, a Washington transportation official suggested we may need to look at some unconventional approaches, as the cost and effort to put down all concrete and rail lines we need is just too much.

All of us should pay a bit more attention to this issue, in my opinion. In a highly competitive, increasingly just in time, supply chain driven world, barriers to the flow of goods across over the road and rails can be just as important as those we focus on through our plants and distribution centers.

Is U.S. logistics infrastructure facing a looming crisis or not? Does it really impact national competitiveness, or is it just a bit of a headache. Will technology and ingenuity and maybe even panic come to the rescue, or are the challenges to big?   What, if anything, can really be done? Let us know your thoughts.

Let us know your thoughts.


Dan Gilmore


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

May 16, 2007
Transportation News: Shipper Suit Alleges Price Fixing by Rail Carriers on Fuel Surcharges, though Details are Questionable

May 16, 2007
Logistics News: Will Expand Its Same Day Delivery Services to Other Markets?

May 15, 2007
The Green Supply Chain: Environmental Group Targets Bottled Water Industry

May 14, 2007
Manufacturing News: What's next for Chrysler, Unions?


It was a calm but mostly down week for our Supply Chain and Logistics stock index last week, with few strong moves up or down.   Software provider Logility gave back just a bit of its strong recent gains, falling 3.7%.

Among the few gainers for the week, JB Hunt (up 1.7%), rail carrier Norfolk Southern (up 2.4%), and 3PL provider Ryder (up 2.0%).

See stock report.


RFID, Used Right, Will Fundamentally Change Distribution Center Operations

Users will Move from a "Periscope" to "Sonar," According to SCDigest's Mark Fralick


by Susan Rider

The Top 10 Must Do's for Logistics Operational Excellence

Is Operational Excellence an Illusive Dream? Here are Ten Steps that will help you Achieve this Goal without Spending a Lot of Money


by Mark Fralick

SOA It Isn't So. . .

With All the Hype around Service Oriented Architecture, Who Can Tell What's Real in Supply Chain Applications?


Have a supply chain or logistics related questions you need answered?

Ask our panel of experts. See our growing list of questions and answers - share your insight.

Reader Question: Can we implement WMS and Labor Management at the same time?


Q. What automotive company has the largest share of the fast growing Chinese market?

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 publishing just a couple of excellent letters this week from our First Thoughts piece a few weeks ago, which argued that companies using Supply Chain Network Design/Network Planning tools on a continuous basis were enjoying some important and not fully appreciated competitive advantage. (See Supply Chain Network Optimization and Competitive Advantage).

Our feedback of the week from Jeff Stites of Cott Beverages agreed with our perspective, while Jon Kirkegaard of DCRA, who has a lot of experience in this subject, thinks our perspective is old news, and not the source of today's competitive advantage.

Good letters both. We have some more letters on this that we will publish next week.

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 Network Planning and Competitive Advantage

We made the change to owning the network optimization process internally because we felt it needed to be a core competency of our supply chain team.  Before that, we bought the capability through consulting partners that did high quality work but there was never any knowledge transfer.  The beverage industry has been changing rapidly and I can’t imagine not having the technology and expertise in house.  Two years ago, we mainly supported the annual budget process; today, we routinely have 3-5 optimization projects going at once and are doing multiple year models.

Acceptance internally did not come easy.  A lack of understanding about how the models worked and what they were most useful for lead to some early dismissing of the results.  Over time, we refined the models and educated other functions and acceptance has improved.  Our modeling software isn’t integrated with our supply chain planning system and we’ll remedy that in the next year.  Improving understanding and integrating with our planning system will get us to the next level of value.

Jeff Stites
Vice President, Supply Chain
Cott Beverages, Inc.

More on Network Planning:

I usually agree with your leading questions but this one is “old hat” and I think not highly correlated with today’s competitive advantage in business through logistics and supply chain.   In the world of yesterday where ABC Mfgr made stuff in Toledo and needed to distribute nationally they all either  directly or through consultants would run a deterministic network optimization to figure out where to put the DC’s.

For certain industries there were popular centroid locations like Columbus, Kansas City, New Jersey, Chicago, Sacramento, etc and then fine tune – in time these locations pretty well coincided with the cities where you today find NFL teams.

However, today’s networks are phenomenally more dynamic (if the company is choosing to use the opportunity for advantage). Therefore, the competitive advantage comes from use of “other peoples assets” in the Return on Assets (ROA) calculation. FritoLay has done everything involved with logistics smartly for decades what you don’t see is more likely the source of the competitive advantage.  Some hints: look into the way the control their potatoes supplies, get growers to align their growing to FritoLay needs and timing without having to own the suppliers, use 3rd parties to make all their non potato products, run their own 3PL type transport desk, the culture/talent pool, route transportation foundation desk, etc.

Competitive advantage comes from buying low and getting paid before you have to pay your suppliers for part if not all of your goods.    This comes from use from smart use of low cost suppliers, matching lead times between buyers and sellers and aligning, building in quality and smart dynamic product innovation.   Most if not all of these concepts are way to fast to be captured in CPLEX deterministic algorithms.

 So competitive advantage in business leveraging supply chain more likely come through:

-- Use of optimization that is dynamic and not deterministic

-- Use other peoples assets vs not vertically aligned ownership with warehouse and facilities that are static and highly immovable

-- Develop business models where transport is just part of the business NOT  transport considered an independent activity (look at Frito Lay route distribution)

-- Use Information and IT as a weapon to know dynamically where to position inventory on a daily basis NOT semi-annually with deterministic algorithms in your own dedicated warehouses

-- Capture and maintain detailed daily inventory sales and location information NOT rounded up yearly or semi annual data

-- A culture no based on perfection but on knowing where and how much to beat the competition

Network optimization is a useful activity but hardly competitive advantage for anymore. To use a metaphor mentioned early in this response deterministic network optimization is like using information to know that Dallas, TX is a good place to position an NFL team… but winning with the team is what happens between the goal lines dynamically in playing the game – people process and technology.   

I personally have never seen network optimization tools able to pas such.. I helped build and refine technology to support these tools  and have used most of the current tools on projects over the years and last time I looked they were pretty much all using the same C-PLEX determistic algorithms. If you have ever done this type of work you quickly learn it comes down to the ability to get real data. I would venture that the data is why these tools are still used as most firms cannot capture real location specific sales and inventory data by day or week (e.g. has Frito Lay has done for decades)  and therefore round up to larger time periods for analysis.

However, real competitive advantage comes from those firms with the daily sales data and daily inventory location specific supplier data and matching this information and holding that inventory for as little time as possible.   When a firm can see this dynamic information they quickly move to dynamic approaches to capture the extra margin or customer relationship and know where to spend their $ for improvement.

Alas, perfection is not the goal but more knowing how to un-run the other guy being chased by the bear this come through dynamic information and tools.

Jon Kirkegaard


Q.  What automotive company has the largest share of the fast growing Chinese market?

A. Perhaps surprisingly, it's Germany's Volkswagon, followed by GM.

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