This Week in SCDigest:
NASSTRAC Conference Review and Comment
Supply Chain Graphic of the Week, plus more Supply Chain News Bites
SCDigest On Target e-Magazine
Case Picking Research Study
Expert Insight - Daily Jab: JDA Software has it Going On
This Week on "Distribution Digest"
Your Supply Chain Questions Answered! This Week's Question - How to Calculate Freight Discount for Customer Pick-Up?
Trivia, Supply Chain Stock Index
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NASSTRAC Conference Review and Comment

Back from a hectic week that includes a couple of excellent days at the JDA Software User’s Conference (see nearby blog entry) and then on to the NASSTRAC conference in Orlando.

NASSTRAC, for those who don’t know it, is an association for transportation professionals. I am sure “NASSTRAC” is an acronym for something, but if I once knew what that was, I don’t any more. It had been a number of years since I had been to the NASSTRAC conference, but when Dr. John Langley of Georgia Tech asked me to moderate a panel this year, I happily agreed.

I was just there for a day, but it was a good one. Below, I will summarize and highlight content from key sessions.

Gilmore Says:  

"NASSTRAC really offers a great forum for shippers. More companies should take a look at it."

What do you say?

Send us your Feedback here

 

The main takeaway – whatever benefits logistics professionals have seen from the falling freight rate environment over the past couple of years, there are a whole host of other issues and challenges here and on the horizon.

Lowe's was named NASSTRAC’s “Shipper of the Year.” Accepting the award, Rob Long, Director of Transportation Development, said the key to Lowes’ logistics success was “all about building the right culture and embracing change,” citing Transportation VP Steve Palmer’s role in making that happen within Lowe's.

I also found this interesting: Long talked about the “passion” that transportation professionals have for their craft.

“Everything we do, we do from the heart,” Long said, speaking not only for Lowe's, but for transportation professionals everywhere. You know, I hadn’t really thought of it, but there is a lot of passion amongst transportation managers, maybe more so than in any other area of the supply chain. I wonder how many marketing and sales managers really understand and appreciate that?

A panel discussion on “intermodal” covered that topic, but a host of other issues as well.

Derek Leathers, COO of truckload carrier Werner (which has a growing intermodal business), was especially outspoken – but on point.

With regard to intermodal generally, Leathers cited a maxim that a former mentor had taught him many years ago: “Freight will ultimately find its most efficient path – don’t fight it.” He said “multi-modal really is the future of our company.”

He also said that building the right logistics network and modal strategy will have an impact “10 times” of what can be achieved through hard-ball rate negotiations.

There are many providers, as well as shippers, that attend NASSTRAC, and the issue of “rates” was a constant theme, formally and informally. I overheard one analyst talking to a carrier about rates “stabilizing” right now, and the carrier’s response was “I don’t need them to stabilize – I need them to rise. I lose money at these rates.”

“Unfortunately, in this environment, the concept of economically-sustainable solutions has gone out the window,” Leathers noted.  He said in the past 3 years, average TL rates have gone down 6.5%, while costs have gone up 8%.

“Yet, here in 2009, you see article after article about shippers looking for double-digit rate decreases. That is simply unsustainable for the industry, and will have to change,” he added.

While there is abundant capacity right now in all modes, just what does the future hold?

Leathers said that for truckload transport in 2008, 7.5% of market went bankrupt or left the market; another 7% of capacity left through fleet shrinkage in the surviving carriers. But because demand was off 18%, shippers haven’t noticed – but that day or reckoning may be coming sooner than we realized.

In the Wall Street panel discussion I hosted, Jon Langenfeld, a transportation industry analyst at Robert W. Baird, said it looked like only 70-75,000 class 8 trucks would be procured by US carriers this year – versus a normal expected need for 220-230,000 as pure “replacement” units.

This lost capacity everywhere is setting the stage for a possible fast and steep surge in the other direction when the economy recovers, several observers noted at the event. John Larkin of Stifel, Nicolaus & Co., the other member of my panel, cautioned shippers to be somewhat modest in playing the rate game right now.

That is not only because prices have reached unsustainable levels, but because “many shippers have burned bridges with their carriers as a result of price actions in the first half of 2009,” Larkin said. “Expect the favor to be returned in those cases when the supply-demand environment changes.”

Larkin also said that a huge additional swath of capacity could leave the market rapidly. Many financially troubled carriers for now have not been forced into bankruptcy by their lenders, in part because of the low current sell-off value of the assets that secured the loans. If the banks take a hard-line approach, however, and force many carriers under, it could accelerate the change in the supply-demand equation that almost everyone predicts.

A panel of shippers was also interesting. Much more was discussed than we can cover here, but I will note some highlights.

Steve Ahern of chemical giant BASF noted his company’s interesting transportation strategy. In North America, it has recently developed a series of third-party managed “command centers” – with a focus by mode. So, there is a “command center for rail,” for truck, ocean, etc., that centrally manages that transport across BASF’s 15 business units.

Separately, there is a transportation procurement organization that sources carriers across all modes and manages the contracts. As part of that effort, BASF is like a number of industrial companies that are starting to take control of inbound freight. Key to that change, in part, was changing performance metrics for buyers and also jointly looking at order patterns to better understand how those impact transportation costs.

Unlike many retailers, PetSmart is tying to look at achieving the optimal inbound strategy, said Carol Beaumont, director of supply chain operations. While most often, PetSmart will take control of inbound, in other cases, they determine having the shipper leverage its assets or volume in a lane can be the best total supply chain choice. My experience is that few retailers look at the total picture. PetSmart is also looking to improve inbound visibility, after having made great progress on the outbound side.

My friend John Cutler is the legal counsel for NASSTRAC and other supply chain organizations, as well as individual shippers. He gave an update on actions in Washington that could impact shippers – and it is quite a list. We will summarize this in more detail in an upcoming piece in our On-Target e-magazine, but several points are worth noting here.

For rail shippers, Cutler says the Surface Transportation Board is becoming more shipper friendly than it has been for many years. He expects the bill to revoke the rail anti-trust legislation to pass easily – though what this ultimately will mean is not clear to me. He also expects successful action on the so-called “bottleneck” legislation regarding how rates are determined when part of a full move is served by only one rail carrier, but says it is possible that carriers and shippers may work something out themselves first.

To pay for all this planned infrastructure spend, Cutler expects we will move to a Vehicle Mile Tax (VMT), and perhaps after that a variable VMT, based on time of the day, congestion, etc. In total, this could add up to a significant cost increase for shippers.

There are also competing bills regarding truck capacities. One bill (SHIPA) would mandate a freeze of current limitations and extend them to new roadways. Another would actually increase the maximum weights – it has been introduced by a congressman from Maine, which it turns out allows gross vehicles weights of up to 100,000 pounds right now.

I wish I had more space. We will delve into some of these topics in more detail in On-Target soon. As I discussed with SCDigest reader Terri Ferraro of Famous Footware as I was walking out the door, NASSTRAC really offers a great forum for shippers. More companies should take a look at it.

How do you think the current rate environment will play out? Is it smart or not to beat up the carriers even more right now? Do you think capacity will swing in the other direction – and if so when? Any other comments on our NASSTRAC summary? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.


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A. Click to find the answer below

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YOUR FEEDBACK

We received some truly great feedback on our First Thoughts piece on Lean Manufacturing 2.0.

We published as many as we have room for here, including our Feedback of the Week from John Holbrook, formerly of Lean leader Danaher and now with the Army Fleet Support, who says you have to add Theory of Constraints to really get the most out of Lean.

You’ll find that great Letter and many more below. Keep them coming!


Feedback of the Week – On Lean 2.0:

As a former Danaher (Hennessy Industries) employee, who was hostile to the lean revolution in the mid-1990s, Lean Enterprise thinking just makes "horse-sense."  My Lean journey began with a little dabbling at Eaton, then reinforced by Shingijutsu at Hennessy Industries.  Policy deployment sets a great course and with the usage of Toyota Production System methods, a shop can visually be transformed into a shiny pearl.

But, as I have found out in my Continuous Improvement journey, Lean by itself, when applied, may not lead to immediate profit gains. Rapid fire kaizens can increase local throughputs and increase enterprise employee awareness, but my experience has shown these intangibles may not lead to positive outcomes in cash flow.

Additionally, scattering Six Sigma projects and stamping out variation may lead to localized financial gains and reduced scrap and rework.

Shifting priorities within the 3 to 6-month timeframe of a great Six Sigma projects are frequently squashed by upper management because the problems shift as well.

As an advocate of TLS, the best approach utilizes Critical Chain Program Management (Theory of Constraints) to exploit the bottleneck and subordinate all associated work to the bottleneck.  Since the critical chain typically capsulates the meaty cost of processing, logically, all Continuous Improvement efforts must subordinate to the constraint.  In this way, the wonderful tools of Lean and Six Sigma can be effectively used to minimize the constraint and improve cash flow.  In addition, your customer receives satisfaction quicker with improved quality.

John D. Holbrook
Lean Six Sigma Black Belt
Army Fleet Support, LLC (AFS)


More On Lean 2.0:

I believe your critical statement about Lean 2.0 in a globalized supply chain - in fact, irrespective of whether we are talking about manufacturing or transactional industries - is process visibility/transparency at all times. The critical enabler to accomplish this is, as we all know, technology. It is not a coincidence that things like eKanban have been incorporated into the latest version of ERP modules such as SAP. If this technology or, more precisely, the data from this technology is integrated into a process-centric management information system, one can also start applying Six Sigma to global production processes. This would be Lean (Six Sigma) 2.0  - technology-enabled continuous improvement on any scale.

One more thought on why Lean or other improvement tool sets are not consistently applied in companies. The answer to that is very simple - to apply Lean or Six Sigma across an entire organization would require:

a) sponsorship and buy-in from the entire C-suite, b) complete realignment of the organization along the core business processes, c) establishment of a business process management & governance framework consistently applied throughout all processes, d) the proper training of a sufficient number of resources (without additional day jobs) in continuous improvement methods and capabilities/functionality of current technologies and, most importantly, e) the same people under e) need to have strong change management capabilities - based on my consulting experience, there is a general lack of willingness to undertake such long and resource intensive change processes as they are focused on long-term sustainability of business, and not necessarily on short-term profit through the next big deal as was, and primarily still is, the general business focus. Good luck changing that!

Andreas Freund, PhD
Senior Consultant
Neochange Inc


Over the last five years, a trend has developed where more of our clients consider themselves to be Lean companies; However, the majority of these clients only use the Lean principles in manufacturing. Very few have successfully implemented Lean principles throughout the remainder of the supply chain.

We do a tremendous amount of work in the distribution area where Lean is only sporadically utilized. I believe the reason for this is three-fold: 1.) Many companies perceive Lean as only adding value in manufacturing environments 2.) The remainder of the supply chain has been provided with inadequate training 3.) Many companies see Lean as all or nothing. They fail to understand the value of utilizing the basic principles of Lean.

We have had success in reducing cost by using the principles of Lean in a Cross-functional Teaming environment. This works particularly well in the non-manufacturing areas of the supply chain.

Utilizing Lean does not have to involve a complete overhaull of a company’s operational approach. The application of the basic principles of Lean can provide measurable benefits.

Jimmy Benefield
Senior Director – Strategy, Operations & Transportation
enVista


One reason for the low level of Lean adoption is that Lean Manufacturing initiatives and supply chain management initiatives seem to be decoupled in most companies.  I am of the viewpoint that Lean Manufacturing Programs should come under the larger umberalla of supply chain transformation and Lean Mfg principles/techniques be adopted as a way to achieve plant level/supply chain level improvements.

Aamer Rehman
Vice President - Manufacturing Solutions
i2 Technologies, Inc.


Good opening debate on TLS/Lean 2.0.

The danger of any of the techniques and “consulting approaches” is that the use of the tool takes precedence over the individual needs of the business or client. In my experience, the particular circumstances of a business, including its recent history has a bigger determination on the type of the solution than the type of the tool. Better to have more than one tool in your toolbox. Remember, if you only have a hammer, every fastener looks like a nail.

On why the big guys haven’t jumped into the water: Unlike six sigma, and belt training, Lean is not an almost proprietary set of tools. Not much margin there for them!


Ian Machan
Director
MachanConsulting Ltd


SUPPLY CHAIN TRIVIA

Q. What is the top US manufacturing sector in terms of total transportation spend?

A. Chemical industry

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