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February 28, 2008 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

End of a Supply Chain Era

When they write the history of supply chain management, I am fairly confident they will note that we entered a new era somewhere right around 2007-08.

Gilmore Says:

"I guess I would just say that all these developments tell me nearly every company in every sector is going to have to enter this New Supply Chain World Order. There will be some pain. "

What do you say?

Send us your comments here

In short, it just isn’t about us (North America, Western Europe) any more, and in a more profound way, more than just the surge in offshore manufacturing over the past 10 years. To borrow from a political phrase, I suggest we are now entering a New Supply Chain World Order – one that is truly global, with important ramifications for all of us in the supply chain business.

So, what prompts this proposition? Consider some recent news and developments, some of which we’ve reported on:

  • Boeing and India’s Tata Industries have just agreed on a plan to form a joint venturethat will initially include more than $500 million of annual defense-related aerospace component production work in India for export to Boeing and its international customers – a huge move for Boeing.
  • Siemens has just said it plans on building more basic versions of many of its products at much lower prices to penetrate the rapidly growing markets in developing countries, where it sees a market opportunity of about $150 billion annually. Of course, it will make an increasing number of those products in those developing markets as well, where it sees growth potential far exceeding the markets in North America and Europe (See Siemens Announces Strategy to Penetrate World Markets with Lower Cost Products.)
  • There is a significant economic slow down in the US; under traditional circumstances, this would have already led to reductions in oil and other commodity prices. Not any more. Commodity prices continue to go up.
  • Why? Well, China already uses more of the world’s copper supply (20%), than any other country, for example. Its demand for steel was up about 12% in 2007, and about the same growth is expected for 2008. Consumers in India and China are buying automobiles at rapid rates. Etc.
  • Procter & Gamble is again using supply chain innovation to gain competitive advantage, but this time not in better continuous replenishment with Wal-Mart, but in micro-delivery methods to affordably get its shampoos and soaps to tiny sales channels in developing markets.
  • As never before, China’s manufacturing companies are moving from being low-cost manufacturers of labor-intensive goods to using “cost innovation” to become major competitive threats in product category after product category. China International Marine Containers Group, for example, in just a relatively few years went from being a nothing player to now commanding a more than 60% global market share of container manufacturing, decimating several formerly dominant European, Korean and South African competitors in the process. But that company is just one of many. Look at Haier in appliances, and dozens of companies most of us have never heard of in other segments. (See The Supply Chain and China’s Dragons.) Consider also India’s Tata Motor’s plans for building affordable cars for developing economy consumers that will cost just $2500 US dollars.
  • All the cash and liquidity right now – and likely for some time to come – is in places like Russia, China, and the Middle East, flush with commodity or export-driven riches. They may be using that to buy into Western companies, as China’s government-owned sovereign fund recently did in acquiring a stake in US financial giant Morgan Stanley. Even if political pressure or regulation, which may occur, blocks many of these attempts at direct ownership, the cash gives them clout, and may enable them to lock up commodity and other assets in other developing markets (e.g., Dubai World Ports). (See Will Your Next Company Owner Be China or Russia?.)
  • IBM has moved its global procurement headquarters and US executives to Hong Kong; Dell is in the process of making a similar move with its logistics group to Singapore.

I am not the first to note there is a big difference between being “international” and being truly global and would suggest that we are entering a phase now that, for most of us, mandates that we take a total global approach.  The big change as I see it is that this now means you can’t even think about the global supply chain from a US or European-centric point of view, which is what most companies do.

The supply chain groups in international divisions are often treated as somewhat second cousins, for example – they are the last to get the new technology; processes and best practices are developed from a US-centric point of view, etc.

That is simply all going away.

Competitors will increasingly not be from Europe or Japan, but China and India. The growth opportunities, in turn, will be largely fought on their home turf, or on neutral courts like Brazil where it’s hard to say who has the advantage.

Companies will move processes to wherever they can best be accomplished, as Caterpillar is already doing in moving many white collar tasks to places around the globe. Demand planning and forecasting being performed for the entire enterprise out of India? Coming soon.

Yes, this is in part the message of Thomas Friedman’s The World is Flat; in that book, he noted the role of supply chain innovations in contributing to rapid globalization. And to a great extent, many of the high tech industry companies have already entered this new era.

So I guess I would just say that all these developments tell me nearly every company in every sector is going to have to enter this New Supply Chain World Order. There will be some pain. It will be difficult to see the world though a different set of spectacles.

But those companies that don’t, in the long run, will be experience even more pain.

If you have a better phrase to capture this shift than the New Supply Chain World Order, I am happy to hear it. But whatever we call it, it’s coming to your company and your supply chain like a high speed train.

Do you think we have or are entering a new supply chain era that goes beyond even our initial approaches to globalization? What will the impact be, and what will companies have to do to succeed? How will we have to change the way we think about supply chain management?

Let us know your thoughts.

Want a printable version? Go to:


Dan Gilmore


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March 24, 2008



Best Practices in Distribution Center Design, Operations and Management Workshop

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

February 27, 2008 Supply Chain Graphic of the Week - Understanding Batch Order Picking

February 27, 2008
Supply Chain by the Numbers: February 27, 2008


Thanks to a late rally on Friday, the U.S. stock market held somewhat steady last week and, for the most part, our Supply Chain and Logistics index did the same. 

In the software group, Logility continued its recovery of recent losses (up 5.8%).  In the hardware group, Zebra fell another 2.1%, while Intermec was up 1.8%.  In the transportation and logistics group, CSX was up 2.8%; however, Yellow Roadway slipped 9% this week following the news that Standard & Poor’s Rating Services had cut its corporate rating.

See stock report.



Bringing Lean Strategies to Companies in Process and Hybrid Manufacturing Industries

How to Reduce Waste, Work-in-Progress inventory and Cycle Time while
Increasing Throughput via Improved Resource Utilization

More Information or to Register

BRAINTRUST PANEL: Discussion Question

US Retailers Take Their Business Virtually All Around the World

How significant an opportunity are sales made online to consumers in foreign markets for US-based retail businesses?


Q. What do most observers agree was the major contribution of the Auto ID Lab at the Massachusetts Insitute of Technology?

A. Click to find the answer below

EXPERT INSIGHT: Guest Contribution
by Ken Ruehrdanz, Business Development Manager, Dematic

Conserve Power, Be Green and Save Money with Material Handling Automation

With Power, Less Can Mean More - More Environmental, More Money

EXPERT INSIGHT: Guest Contribution
by Ken Matson, President, Invar Systems

Sortation System Upgrades

Often, the Upgrade Path Can Be The Least Disruptive and Most Economical Choice to Increase Material Handling System Throughput


Each Week:

-Global Supply Chain
-Distribution/Material Handling
-Trends and Issues

Weekly On-Target Newsletter
February 26, 2008


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.

Or, ask your question


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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.

The Feedback continues to come in at high levels. This week, we make good on our offer to let some vendors who did not make our list of best new products of 2007 toot their own horn, as representatives from Dehora Consultancy Group (in Amsterdam) and Agillence do. More vendors should have made the effort!

Our feedback of the week is a short and sweet letter from Beat Schären of Ciba Chemicals, who agrees with the Penn State study finding we have a long way to go in fully measuring total landed costs. Steve Simmerman of NextView agrees with Ken Miesemer of St. Onge about the use of "count-back" in case picking, while Chris Racelis says there is more to the story about Chrysler's dispute with Plastech.

Finally, AMR's John Fontanella weighs in on the debate over plastic versus wood pallets.

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.

Feedbacks of the Week - Total Landed Costs

I have to say you hit the nail with this article. Ciba is a global chemical company facing the same issues. Not all six categories are being used, so far. Currently I'm running a project with the aim to review our inbound logistics (part A: Inbound Europe) (part B: Inbound US).

Please send me more about Supply Chain Logistics!

Beat Schären
Head Logistics Procurement EMEA
Ciba Specialty Chemicals Inc.

On Best New Products of 2007

Since you ask for feedback on missed items in this column, I have an offer for you.

The product is called ICRON. It is an APS solution, nothing much new here, but it combines the very smart Algorithms with general labor management strategies, rules and regulations, therefore it can use it calculating expertise in the area of labor management and this being a top ten trend for 2008 it will be a huge step forward, they also expanded from logistics to healthcare and other complex labor situations, where they offer solutions to a level of detail previously not available.

Onno Oosterhof
Dehora Consultancy Group

Your article was very interesting. I wanted to give an overview of next generation supply chain optimization solutions that may be of interest to you.

Our CEO, Dr. Sean Siwhan Kim, and Dr Paul Bender worked together for a long time in Bender Management Consulting (bought by SynQuest) developing first generations of supply chain solutions. In 2003, Dr Kim started Agillence to develop next generation optimization solutions.

During the last 5 years, we developed the following solutions to address the special needs of our customers.

ALLO (Agillence Lean Logistics Optimizer): Manufacturers successfully adopting lean in their production but are willing to expand beyond factory to logistics. Their dilemma is lean Vs costs in logistics. Over the last four years, we developed a special solution for Toyota Manufacturing to design their inbound network with different lean constraints practiced by Toyota. Interestingly, we found interest for the same solution for the distribution side also. Dr Jeffrey Liker even took our Toyota project as a case study in his “The Toyota Way Fieldbook” on how Toyota adopts technology. I am enclosing a soft copy of the chapter.

ASCD (Agillence Supply Chain Designer): Traditional supply chain design tools approximate the last mile costs (DC to customer). We found that this approximation leads to larger error in actual implementation. Hence we developed a design tool which does network design along with customer routing also. Our routing considers even varying customer service requirements.  We have successfully adopted this solution in the top 2 of 4 beverage companies in US.

Srini Paruchuri
Vice President, Professional Services
Agillence, Inc.

On "Count-Back":

Ken Miesemer makes several good points in his ‘count-back’ article. I applaud his thoughts on taking a look at the costs and benefits of count-back across the entire supply chain. As most supply chain people know, the cost to correct picking errors is often not fully evaluated or even worse, it goes ignored.

A simple mis-pick can result in subsequent mis-picks based on bad inventory quantity and the whole thing begins to snowball. A simple mis-pick has a huge ripple effect in terms of order accuracy, shipping costs, administrative costs to deal with customer satisfaction/inventory management issues, etc. – add the true cost to correct a mis-pick across the supply chain, coupled with customer dissatisfaction, and I agree with Ken that the cost/benefit would be very, very compelling in favor of count-back.

It’s the old saying…”if you don’t have time to do it right, when will you have time to fix it." Thankfully, newer supply chain applications are adopting process modeling and workflow to help analyze these supply chain processes more effectively. We are working with customers to use workflow technology to more accurately map out and improve processes within the DC in order to improve overall supply chain costs and accuracy resulting in tremendous benefits for customers, warehouse operators and the bottom line.

Steve Simmerman
NextView Software

On Chrysler Versus Plastech:

Chrysler’s tactics simply sped up the inevitable.  Chrysler just miscalculated by bringing a knife to a gun fight.  I wonder how big the check was that Chrysler had to scratch Plastech to continue supplying parts?  Probably $1 less than the cost Plastech calculated it would cost Chrysler to idle their plants until their scheduled court date next week.  I agree with Chrysler when they throw out the word “blackmail."  The bean counters at Cerberus knew that the $200-250 million bailout package was not going to keep Plastech’s outstretched hand from coming back a few months later.  This story is better than a novel and if you follow the money all the way through various “shell companies” I’m sure you will find it leads right to Julie and Jim Brown’s Swiss bank account.

Chris Racelis

On Wood Versus Plastech Pallets:

On wood vs plastic pallets, several of my clients are working with a company called IGPS, who is in competition with CHEP for the Pallet Pool Market. Thought I would comment on this article. The company uses synthetic pallets with an RFID chip imbedded in it, which is intriguing in and of itself (think Sam’s Club Mandate). I’m not a chemist so I don’t know specifics, but I don’t think IGPS’ pallets are made from polyethylene, which was the subject of this study.

From my understanding, their pallets are made from materials much friendlier to the environment. It might be worth some follow up to clarify. Other benefits I can see using plastic pallets are much longer life, recyclable, more sanitary and free of insects. There are many applications where synthetic pallets are superior to wood pallets, and I hate to see the entire category painted with the same brush in terms of impact on the environment.

John Fontanella
VP Research
AMR Research


Q. What do most observers agree was the major contribution of the Auto ID Lab at the Massachusetts Insitute of Technology?

A. Until the MIT effort, led by David Brock and Sanjay Sarma, most companies thought of RFID as being best suited as "portable databases," with resulting hefty tag costs. The lab promoted the idea of much simpler, less expensive tags that would carry relatively little information (such as a serial number), relying on database look-ups for the rest. That work is the basis for the EPC Global specifications that drive the use of RFID in consumer goods to retail applications, as well as other industries.

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