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January 10, 2008 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Supply Chain Year in Review

As we start off 2008, I thought it would be a good idea to look at the top stories and events from 2007 that had an impact supply chain and logistics professionals.

Gilmore Says:

" The predictions made in 2006 for $100 per barrel oil finally were realized. While other transportation pressures have somewhat abated, the cost of fuel continues to pound transportation budgets."

What do you say?

Send us your comments here

In the past, we’ve looked more at “trends,” and in reality that is easier than focusing on specific stories. It is, I believe, more difficult to think about the top supply chain stories in the same way we might think about those from politics or sports, but nonetheless I think we can compile a pretty decent top 10 list:

1. The Mattel Toy Recall Fiasco: After several rounds of recalling millions of toys made in China, including iconic brands such as Barbie and Elmo, this was the number 1 story in 2007 for several reasons. It dominated news coverage for many weeks, and really did focus the public and legislators about potential issues with product safety from Chinese and other imports. While calls for an “import czar” and drastic inspection mechanisms haven’t materialized, the incident has led many companies to look more closely at their own supply chain processes for offshored goods, and added costs to many more who enhanced inspection processes in the US.

Oil Nears $100 a Barrel: The predictions made in 2006 for $100 per barrel oil finally were realized. While other transportation pressures have somewhat abated, the cost of fuel continues to pound transportation budgets. It’s not just transportation costs – petroleum-based materials are key components of many products, significantly increasing costs for manufacturers ranging from tire makers to candles.

3. The Green Supply Chain goes Mainstream: At the beginning of 2007, we picked the Green Supply Chain as our number one trend for the coming year. It is more of a trend than a story, I suppose, but clearly there was an explosion of interest in Green issues, as well as a slew of conferences, a whole track at the CSCMP conference, an increasing number of execs and managers with Green-related titles, and more.  A lot changed in 12 months.

4. Wal-Mart’s RFID Program Stalls, Changes: A negative story in the Wall Street Journal on Wal-Mart’s RFID program progress and lack of value for vendors caused a vigorous rebuttal from CIO Rollin Ford and a handful of other large suppliers, but in retrospect now seems to have been right on the mark. Late in the year, Wal-Mart announces a “change of focus” in its RFID strategy, with an emphasis on promotional items, category management trials, and Sam’s Club pallet location management. Vendors are rightly bemused and confused.

5. Port Congestion Disappears: A modestly slowing overall economy, the collapse of the housing market and new construction, the decline of the US dollar and other factors led to a swift reduction in the volume of US imports. After years of double digit gains in container volumes arriving in US ports, the tonnage went flat and, in some cases, even mildly negative. Combined with improvements in port productivity, the congestion seen from Long Beach to New York just sort of went away in 2007. While we shouldn’t get complacent – more improvements are needed – companies might re-look at port strategies, as diversion from Long Beach and earlier arrivals for the Christmas season may be less necessary.

6. Agflation: Commodity prices in general, and agricultural related products specifically, saw continued strong price increases in 2007. Many blamed the high demand for corn stemming from the ethanol lobby, as prices for corn, wheat, and derivative products soared. There was push back from food manufacturers and others, as profit margins were hurt and consumer prices increased, causing some in Washington to re-look at the ethanol equation. But for many CPG companies, wholesales, retailers and restaurants, the rise in agricultural product costs is a huge supply chain and procurement issue.

7. Wal-Mart Struggles to get its Mojo Back: The world’s largest company, primarily a victim of its own awesome size, got beat up for most of the year on Wall Street and in the press. Same store sales have essentially gone flat, and overall growth has slowed dramatically. Tesco’s entry to the US market in 2007 may cause further challenges. A variety of strategies to go upscale and otherwise stoke growth have mostly not been successful. Wal-Mart may simply not drive the supply chain thinking of its vendors and outside observers the same way in the future.

8. Boeing Finds Outsourcing isn’t Easy: The aerospace giant’s much praised approach (see below) to building its new 787 Dreamliner falls flat, as problems obtaining parts ranging from fasteners to major assemblies causes six-month or more delay in the scheduled shipment of the new aircraft, and $2 billion set aside to help suppliers and expedite the effort. Ouch.

9. Mexican Truckers Almost Enter US: Early in 2007, the Bush administration finally moved on the terms of the 1994 NAFTA agreement to let 100 Mexican trucking companies fully operate across the border. Protests from politicians, the Teamsters and others followed, leading to legislation that attempted to block the move, citing safety concerns. Just last week, it appears the Bush administration has found a way to continue moving forward on the program despite the new laws. This will play out for a long time, but I believe ultimately will happen.

10. Lawsuits Citing Carrier Fuel Surcharge Abuse: A number of class action law suits were filed against carriers across modes, charging unfair profiteering from fuel surcharges. The moves were given some legs by a report from a chemical industry association that alleged the rail carriers had benefited by more than $6 billion from 2006 to Q1 2007. Shipper participation is modest thus far, but if many major shippers jump in to join these suits, hundreds more companies are likely to follow.

We can’t also help but note the dangers of publications praising companies too early for pioneering supply chain initiatives. In the 1990s, for example, one publication named a new adidas DC its “warehouse of the month” – before it went live, upon which it had a warehouse management system software meltdown of historic proportions.

In October, about the time the Dreamliner delays were hitting the news big time, Purchasing magazine named a Boeing procurement exec its supply chain manager of the year. Think they would like to have that one back.

Lots in store for you from SCDigest in 2008!

What’s your reaction to our list of the top stories for 2007? What would you add, subtract, or comment upon? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


Workforce Management in the Supply Chain Videocast Series

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Part 1: On Demand
Getting Real Results from Engineered Labor Standards

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The Role of LMS Software in a Performance Culture

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Part 4: Ensuring a Successful Performance Management Program with Feedback and Continuous Improvement
Feb 5, 2008

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Hot Topics in
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Videocast Series

What key new issues and technologies are coming to the forefront of Supply Chain?

Part 1: On Demand Leveraging the Green Supply Chain

Part 2: On Demand
Securing the Global Supply Chain

Part 3: On Demand
The Ten Keys to Global Logistics Excellence

Part 4: Demand Driven Multi-Echelon Inventory Management
January 15, 2008

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

January 10, 2008
Supply Chain Graphic of the Week – Protecting Intellectual Property in China

January 10, 2008
Supply Chain by the Numbers: January 10, 2008


The first week of 2008 brought dismal news for Wall Street as investors returned from the New Year break to face $100 per barrel oil prices and a rise in the unemployment rate.

In keeping with the overall market’s trend, our Supply Chain and Logistics stock index results for last week were similarly bleak.  In the software group, Logility was down 15.2%.  In the hardware group, Intermec was down 12.6%, and in the transportation and logistics group, Yellow Roadway was down an astonishing 27.2%.

See stock report.

Supply Chain InView

by: Ann Drake

A Work in Progress

Key to Effective Change is Pro-active Evaluation

The Executive View

by: Gene Tyndall

Gene Tyndall Assessing the C-Level Titles of COO and CSCO

Is there a Difference and Does it Matter?


Weekly On-Target Newsletter
January 8, 2008


Q. What is an EDI 753 transaction?

A. Click to find the answer below


Reader Question: Can Bucket Brigades Work with Mechanized Order Picking?

Reader Question: Is there a True Global RFID Standard?

See our expert answers at the links above. Share your knowledge or perspective.

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We're really behind again - bear with us. But keep the letters coming! In the next few weeks, we'll start adding feedback right on specific story pages, so you can see what others are saying.

Catching up on letters sent in late 2007 this week.

Our Feedback of the week is from Arnold Maltz of Arizona State, who rebuts a short letter we received from another reader on our summary of a study Maltz and Tom Speh authored on Import Warehousing, questioning the studies value (See Import Warehouses - The Next Bottleneck in Global Supply Chains?)

Phil Carlson of Kraft says our comments about DC automation as part of our Supply Chain Megatrends series was off base - flexibility is in. We'll note we agree, as we hope we clarified in our "Two Paths for DC Automation."

Author Praveen Gupta says that contrary to one article we summarized, Lean strategies do not have be be barriers to innovation. (See Manufacturing News: Do Lean Strategies Thwart Innovation?)

All are good - take a look.

Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

On Import Warehouse Study:

Since my name came up in Tom Miralia's comments on Import Warehousing, I thought it appropriate to respond to his concerns.

1) Mr. Miralia is partly correct in that I learned much that I did not know as I talked to people up and down the West Coast.  Frankly, part of my reason for proposing the project was that I figured if I didn't know much about this, perhaps other people were in the dark, also.  I've since given versions of this presentation several times.  The people who were not familiar with the issues have thanked me (especially my students).  The people working in this area are impatient for solutions, and I certainly can't claim to have definitive answers.

2)  None of the people I talked to are Prologis clients, and each of the U. S. participants independently commented on the lack of available land close to or at their respective ports.  This even extended to one company that was operating right next to a port but found what was left on the port unacceptable.  Interestingly, since we did the study one of our Southern California participants has moved significantly closer to the San Pedro ports (they were in Ontario).  I have not asked how they found the new property or if their costs have gone up.

3)  As a professor, I have the luxury of seeing both sides of recommendations, but let me be more specific in my opinions.

If imports continue to grow, as well as ship sizes, then we need to do something to make the ports more efficient.

In my mind, the first step is to go to some version of 24-7 operations wherever necessary.  I know the unions will fight this and it may increase costs, but I would make this change the first priority.  Most of the warehouses I talked to had 24 hour drop yards so the "no place to put the containers" argument doesn't look as compelling to me as before I started this.

If possible, I think we need to fill in the "black holes" in visibility, especially from when the ship docks to when the drayage people know the container is available for pickup.  I talked to a couple of folks who had tested RFID on the containers, so far unsuccessfully.  Instrumenting the ports to automatically locate containers (including where they are in a stack) is going to take cooperation with the steamship lines, the terminal operators, and the ports themselves, at a minimum.  The people I talked to in Vancouver said they were designing and installing a "dashboard" that would be accessible to all the players, and if it works, that might be a model.  I gather other ports are looking at this also, so the issue becomes currency and accuracy of information, including who pays for the tags, readers, and servers.

A complementary possiblity is to turn the major ports into "through" stations whose purpose is to turn the ships as fast as possible and get the containers to some off-port facility-call it an inland port if you like.  The problem at LA/Long Beach in particular is that 16-20% of the freight offloaded there stays in the area, and thus requires some kind of pickup/delivery operation.  In theory, pulling containers off the ship and getting them on doublestack trains as fast as possible ought to minimize port congestion.  In practice, I was told that the rail infrastructure is not yet up to the task and also that transloading close to the port can be very economical, which probably means drayage.  One of the possible items on our research agenda is to look more closely at the inland port phenomenon.

This year things have gone better for lots of reasons.  If import growth resumes, I expect we will all need to think about and act on these issues.  Since some of them are political, some are between labor and management, and some involve a concentrated steamship industry, I don't think this will be easy.  But it appears that some ports are moving relatively quickly.

As an academic, I would be delighted to continue the discussion.

Arnold Maltz
Associate Professor
W. P. Carey School of Business
Arizona State University

On Megatrends and DC Automation:

I think you picks are right on target with the one exception of "Distribution Automation".  If you are referring to machines and automated warehouses, I don't see it.  If you are talking about computer systems that create more automation I absolutely agree.  I was on an analyst conference call this morning and automation (warehouse hardware) was mentioned as a negative.  Flexible processes were the hot topic which requires less automated warehouses and very flexible systems processes. 

Phil Carlson

On Lean and Innovation:

Lean does not thwart innovation. Innovation is thwarted by the leaders because they have not created need for innovation. I am not a fan of Lean as it is, but I am concerned that experts make one thing look bad in order to address problems of others. My question for Dr. Melnyk follows, “Is innovation being stifled in corporations because of Lean or Six Sigma?” Are US corporations less innovative due to Lean?

In my opinion, answers to both of the above questions are No and No. Thus, presenting Lean Strategies thwart innovation is an academic issue that may suit its academic purpose but is not applicable in the real world. Today, US corporations are not innovative because they are run on cost, not on organic growth. Until leaders establish the fundamental strategy of achieving sustained profitable growth and commit to create jobs, they would not understand the need for innovation, and thus would not pursue innovation at the desired rate. Actually, what I have found that business growth requires innovation, and profit require Lean and Six Sigma. Thus, there is no conflict between Lean and innovation, unless the leadership sees profit and growth two competing aspects of business. As a fact of matter, profit and growth need each other in order to sustain. Similarly, lean and innovation need each other in order to perpetuate.  

Praveen Gupta
Author, Six Sigma Business Scorecard
Business Innovation in the 21st Century


Q. What is an EDI 753 transaction?

A. Request for routing instructions, used generally by vendors for customers controlling inbound freight. Used relatively little thus far, however.

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