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April 3, 2008 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Digitization and the Supply Chain

I’ve been thinking a lot about digitization lately, both in terms of how it is and can transform how we think about supply chain management, and also how in other ways it is going to have a severe negative impact on the practice of supply chain in some industries.

Gilmore Says:

"If your product or your customer’s product is one that can be digitized, and you don’t have retirement in sight in the relatively near future, it might be time to consider the process of looking around."

What do you say?

Send us your comments here

After the hype and relatively slow start, the power of digitization to radically transform supply chain processes and even corporate design is increasingly understood. Linear, hierarchical information flow, with significant buffering of data, is going away. The future and, increasingly, the present are all about multi-level, real-time information.

“Reinventing business operations to exploit information technology and facilitate supply chain collaboration means examining every facet of every job,” Ralph Drayer, former Chief Logistics Officer at Procter &  Gamble, and Michigan State’s Don Bowersox, wrote in 2005. “Expanding Internet capabilities provide an information framework that potentially can replace traditional one-to-one, one-to-many, or many-to-one communication with Web-based, simultaneous, many-to-many connectivity. Within that framework, all participants in a supply chain simultaneously have access to the same strategic and operational information.”

Bowersox continued that theme in his collaboration with Nick LaHowchic in the recent book “Start Pulling Your Chain,” which I just reviewed for SCDigest.

“Digitization brings into question the fundamental commandments of how we compete in business” they wrote. Making a sports analogy, they say “Once in play, the knowledge ball is everywhere.[Supply Chain] team members take turns leading in a networked field, and the playbook is continually referenced for context so we can adjust the plays in real time.”

Most of us, including me, don’t yet fully understand how profound this change will be.

Now for the negative side of digitization – and I suspect not many of you know where I am headed here. For years we had predictions of the “paper-less” society that never really materialized, and fits and starts with digitization of other products that has only partially happened to date. Now, however, I think we are on the cusp of some dramatic changes.

The most immediate change has been and will be in the entertainment area, but (somewhat gloomily) it won’t only end there. Think of the whole media and entertainment supply chain, which in many ways has been odd up for quite awhile (see The DVD Supply Chain is Tough).  How long will that supply chain really last? CDs are rapidly already going away in favor of iTunes downloads. Movies on DVD will be next. Not long after that, books (major advances are being made in e-book technology by and Sony). Think of the staggering costs savings. No physical product forecasting to worry about, just financial forecasting. Huge gross margins on every sale. No returns to deal with.

But the main point for me is that this is going way beyond media. If it can be digitized, it will be. Are you in the PC storage or external hard drive business? On-line storage “services” are rapidly becoming the preferred choice for consumers. Yes, those companies are using hardware too, but it’s a few huge storage systems, not millions of small ones.

Camera film is almost gone as a product category now, in favor of digital cameras. Soon the cameras themselves will be gone at the low and maybe even mid-levels, as they are simply embedded in cell phones or some other universal device. If you were running film manufacturing or distribution for Kodak in 1996, did you see this coming? Probably not.

Many may not be aware that the watch industry as we know it is also in deep jeopardy, as the ubiquitous cell phone also makes the watch a purely decorative instrument, not a needed functional one.

If you are Rand McNally, do you see a bright future for the map business, with first the on-line Mapquests and now navigation systems likely soon to be standard in most new cars?

It can go further. Traditional board games, for example, have for a long while been losing out in favor of computer games and game players such as Xbox. But this trend, combined with advances such as large flat screen televisions, probably means that at some point if you do want to play Scrabble or Monopoly you’ll simply reach for the remote, rather than the box in the closet – and you can easily save your game for another day after you tire of the Monopoly battle.

I suspect the market for home paper shredders is pretty good right now, given the identity theft crisis, but what will happen to demand when just about every statement and bill we get is only available on-line? There will simply be much less to shred.

There are surely many more examples.

None of this happens overnight, but as we’ve seen in the camera film, music CDs, and other areas, the decline starts slowly but then can turn precipitous. There are also other spillover effects. As CDs/DVDs take a plunge at some point, for example, so does demand for the specialty ABS plastic resins used to manufacture them (I did some work for Bayer’s ABS plant at one point – very interesting actually).

Luckily, we aren’t going to be digitizing Cheerios or sweat pants any time soon, so most of us can look at the bright side of digitizing the supply chain. But I think digitization will impact more areas than we realize today. If your product or your customer’s product is one that can be digitized, and you don’t have retirement in sight in the relatively near future, it might be time to consider the process of looking around.

What do you see as the opportunity for digitizing the supply chain? Do you think digitization will also eliminate the supply chain for an increasing breadth of products? What are some others that will be threatened by digitization?  Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

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Dan Gilmore


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

April 3, 2008
Supply Chain Graphic of the Week - Benefits of Transportation Management Systems (TMS)

April 3, 2008
Supply Chain by the Numbers: April 3, 2008


As investors on Wall Street continued fretting over the U.S. economy, the major indexes endured an end-of-the week slide.

As for our Supply Chain and Logistics stock index – the results were mixed.  In the software group, Logility was up another 14.5% for the week and JDA climbed 7.2%.  In the hardware group, both Intermec and Zebra were down for the week (.7% and 2.2%, respectively).  In the transportation and logistics group, FedEx was up 4.9%, while Prologis fell 2.8%.        

See stock report.


Each Week:

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

Weekly On-Target Newsletter
April 1, 2008

Sorting it Out

Can Automated Sortation Increase Split Case Picking Efficiency?

Designed Right, Sortation Systems Can Drive Big Efficiency Gains in Pick-and-Pass Operations, Holste Says


Q. By what percent did US exports rise in 2007?

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.

Or, ask your question


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New feature - starting with this week's stories, feedback is also published right on the story page, in near real-time. Take a look! Add your comments!

The Feedback continues to come in at high levels and we're really behind again - bear with us. But keep the letters coming!

We received a surprising number of letters on our piece on how environmentalists are successfully targeting toys made from vinyl. That includes our Feedback of the Week from Jeff Jordan of Alcoa, who says traditional PVC is actually more environmentally friendly than new corn-based plastic. There is also an interesting exchange on this subject between reader Johnny Lucid and SCDigest editor Dan Gilmore.

You'll also find letters on our piece on joint buyer-supplier scorecards, on the seven myths of labor management, the need to build out rail infrastructure, and hiring the right supply chain executives, from a recruiter's point of view.

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 - On Attacks on Vinyl:

Wasn't the problem with the latest toy scare the paint that contained lead? Changing the plastic won't help this much. Moving production to countries that enforce safety regulations will.

The attacks on PVC have been based on incorrect or old information. The industry today is safe, well regulated (FDA, kosher, CONEG, Prop 65, BSE, to name a few) and responsible to the environment. PVC may be the most sustainable plastic today since 57% comes from sea water (chlorine from sea salt) and can have up to 20% bio derived content. Compare that to the poly-ethylene alternatives that are 100% oil based.

PVC is even greener than the corn based PLA since it takes much less energy to produce. PLA, requires a lot of diesel to plow, plant, cultivate, irrigate, harvest and dry. PLA also requires seed, fertilizers, insecticides, and herbicides that require energy to produce.Then comes the fermentation and polymerization process which uses even more energy. PLA also places burdens on the nation's top soil resources that can be depleted if we are not careful. Last but not least, PLA places demands on a resource that is in great demand for other chemical feedstocks, bio-fuels and the nations food supply. This means higher costs at the gas station and the grocery store...have you noticed? Makes one wonder what would have happened if we had a dust bowl problem like during the depression, or some pestilence, or disease.....Makes PVC not look so bad.

Jeff Jordan
Technical Manager
Grottoes Plastic Plant
Alcoa Flexible Packaging

More on Vinyl/PVC:

This is NOT news - the enviro-wienies have been after vinyl for the past 10-15 years. I know, because I used to work for the vinyl industry.

Johnny Lucid

SCDigest Editor Dan Gilmore Responds:

I agree it is not news in one sense, but the article meant just to say the recent success with toys may finally (rightly or wrongly) beget greater activity/success in other areas.

Dan Gilmore

Follow Up from Reader:

Point well taken.

The professional enviro activists will indeed attempt to leverage their recent successes into additional activities - Greenpeace has been after vinyl in toys since at least 1996. When Nike announced it was abandoning PVC back in 98 or so, they let Greenpeace issue the press release. What they are doing is building a "celebrity endorsement" list and they trot that list out every time their campaigns make a move. All in all, despite what the firms actually know about vinyl, i.e., the facts, my personal hunch is that corporations opt to appease enviro groups as a way of purchasing silence from their critics. Whatever one may think of this tactic on the part of American businesses, it is at least a rational explanation for what would otherwise seem irrational behavior.

What's also notable is that Greenpeace's efforts against chlorine and PVC have spawned a cottage industry of for professional enviro activists - Judith Helfand's stupid and ill-informed movie, Blue Vinyl couldn't have been made without the connivance of Greenpeaceniks; Healthcare Without Harm is staffed with lots of chemophobic Luddites, several of whom are former Greenpeace staffers, and housed within that annoying loudmouth Lois Gibbs' (of Love Canal fame) Center for Health Enviroment & Justice, campaigns against the use of vinyl in medical devices and healthcare settings; and then there is the skilled polemicist Bill Walsh, a former Greenpeace toxics campaigner leading the Healthy Building Network in a viral marketing campaign against the use of vinyl building products. None of these activists can be considered even remotely to be scientists. As long as so-called philanthropic foundations make grants to them they will force many companies that make or use vinyl in their products divert resources to defend their materials and products at the expense of shareholders and consumers at large. The founders of many of these foundations are probbly spinning in their graves at how the donor's intent has been so often perverted.

I've often wondered just how many of these activists would, in the event of a life threatening medical emergency, refuse blood transfusions from vinyl blood bags, saline or medication from vinyl IV sets? I wonder how many of them wear Medic Alert bracelets that say, "Please don't save my life if it means using vinyl medical products."

This is not to say the vinyl industry is without its own faults, however the real problems, namely with vinyl chloride monomer, were dealt with 30+ years ago.

Johnny Lucid

On Buyer-Supplier Scorecards:

We recently formalized a supplier score card. The biggest benefit has been increased communication between the buyer and supplier. I believe that anything which increases the level of real communication is a benefit. If the two-way score card can contribute to that, I am in favor. The key is that real beneficial expectations are laid out up front so every stakeholder understands what is required and how they can work to improve the situation.

Dave Nash

On Supply Chain Exec Recruitment:

Most recruiters don’t know the right questions to ask a candidate and, know when they have a good candidate due to their lack of knowledge of this profession.

Gary Webster

On Seven Myths of Labor Management:

While the article correctly identifies seven of the tactical issues of labor management program implementation; the most common misconception is that labor management is a systems project.  Unlike a WMS, where the new system is the crux of a compliance-driven process change, an LMS fails to answer the most fundamental of employee concerns:  “What does this mean to me?  Why is the company doing this?  How will I be successful in this new environment?” 

In fact, we have never once had an employee or supervisor inquire about the LMS; whether it has real-time feedback or the nature of the engineering techniques.  None of these is the essence of what successful programs are all about.  While important components, they should be viewed in their proper perspective: as necessary tools, not the means to an end.

Jeffrey Boudreau
XCD Performance Consulting

On Rail Infrastucture:

Unlike all other transportation service companies, North American railroads provide transportation services and they own & operate their own infrastructure (tracks, right-of-way, signals, etc.) -- an infrastructure that's highly fragmented because each railroad uses its own infrastructure exclusively. Barge operators utilize a single network of navigable rivers, canals and channels; truckers utilize the national highway network; cargo airlines utilize the single network of air lanes.
But the railroads are not nationally integrated and their tracks -- strategically vital as they are -- are not open to competing rail transport service companies.

Not only is this a nutty business model -- Does BNSF specialize in transportation service or in infrastructure maintenance? -- but it leaves the U.S. strategically vulnerable. Meanwhile, heavy industry along BNSF's routes are out of luck because BNSF is now intermodal-focused. And I'm not just picking on BNSF.

John A. Schweizer


Q. By what percent did US exports rise in 2007?

A. 7.7%, the result of the falling value of the dollar. Imports rose by only 1.4%

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