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A "New Supply Chain Normal?"
Supply Chain Graphic of the Week, plus more Supply Chain News Bites
SCDigest On-Target e-Magazine
From RetailWire - E-tail Not What Some Cracked it Up to Be
Guest Expert Insight - My Friends are Getting Old, Your WMS May be Getting Old Too!
Expert Insight - Thinking Outside the Box - A Career in Seed Crops or Supply Chain? (Part 2)
This Week on "Distribution Digest"
Your Supply Chain Questions Answered! This Week's Question - How Can We Calculate the Potential Throughput of our Distribution Center?
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July 21, 2009

This Week's Supply Chain News Bites
Only from SCDigest
Supply Chain Graphic of the Week: The Recession and Inventory Levels
This Week's Supply Chain by the Numbers - CSX "Core Price" Increase, Eddie Bauer Debt, Kimberly-Clark Gross Margins, US Exports

Wall Street’s most recent slide continued last week with only 3 out of 22 stocks in our Supply Chain and Logistics stock index recording gains.

In the software group, Ariba fell 10.3%, followed by Descartes (down 9%).  In the hardware group, both Intermec and Zebra were down (0.5% and 9.5%, respectively).  In the transportation and logistics group, Yellow Roadway closed out the week at $1.31 a share (down another 22.5%).

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Each Week:

Global Supply Chain
Trends and Issues
Guest Column

by Chad Collins, HighJump Software

My Friends are Getting Old, Your WMS May be Getting Old Too!

Friendly Advice - Consider Replacing Outdated WMS with Modern Technology


BrainTrust Panel Discussion Question

E-tail Not What Some Cracked it Up to Be

Thinking Outside the Box
by David Schneider, Founder & President,
David K. Schneider & Company

A Career in Seed Crops or Supply Chain?
(Part 2)

Innovative Program at Lehigh Career and Technical Institute Well Prepared Workers for Jobs in the DC



Holste's Blog:
Tips and Tactics for a Successful Material Handling System Implementation

Top Story: Putting Some Numbers to Reverse Logistics
Supply Chain Video: Understanding Lean Thinking in Distribution

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With all other things being equal (and they never are), but nonetheless, in a single tier distribution network, how many distribution centers does it take for the total inventory level in the network to double, versus having just a single DC, according to classic inventory management theory?
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A "New Supply Chain Normal?"

If you watch any of the financial shows, you have probably heard some discussions about a “new normal” coming out of this Great Recession.


The basic sense: that the rules really will have changed, that many long-held belief windows about how people and markets operate must be altered for a new reality.


So, will there be a “new normal” for supply chain too? It’s an interesting and challenging question – not easy to answer for anyone, as I discovered. My quick take: yes, there will be a “new normal” for quite awhile, because if there are important changes in the consumer and other areas of business and government, they inevitably will drive new requirements and response by the supply chain.


But as usual, I first asked a few friends for their opinions. Today, I am just highlighting a few snippets from each response. You will find their complete view points in the Supply Chain Issues and Trends section of next week’s On-Target newsletter.

Gilmore Says:


"There will be a “new normal” for quite awhile, because if there are important changes in the consumer and other areas of business and government, they inevitably will drive new requirements and response by the supply chain."

What do you say?

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your Feedback here

Dr. Tom Mentzer of the University of Tennessee sees four important supply chain-related trends emerging: permanently rising fuel prices, more cautious consumer credit, shifting global consumer patterns, and the return of North America port capacity issues.


“As fuel prices continue to rise, we will see new normal supply chains that emphasize not just carrier-shipper negotiation and fuel surcharges, but rather an emphasis on network efficiency,” Mentzer says.  “This will mean more coordination between shippers to ensure a higher percentage of full truckload shipments – under-utilized trucks will no longer be economically viable for shippers or their carriers.”


Dr. Jim Tompkins of Tompkins Associates says that at one level, it’s hard to talk about a new normal because of the speed of supply chain change we have been seeing for some time.


“The new norm for the supply chain is that there is no new norm. Or, stated differently, the new norm is that the pace of change is so rapid that the new norm is that everything is changing and will continue to change,” Tompkins says. “This leads to the supply chain requirement that supply chain success will only be achieved when supply chains have substantial flexibility and modularity.”


That said, Tompkins adds that the recession has probably highlighted the cost of supply chain complexity for many companies.


“What must change is the need to simplify in areas where simplification can be done, so that the complexity of the supply chain can be managed,” Tompkins says. “So, the new norm is rationalization of suppliers, clustering of suppliers, rationalization of carrier base, reduction of the number of LSPs, utilization of hubs, etc. Simplify, simplify, simplify.”


Along a similar there, Bill Read, who heads Accenture’s supply chain practice, in part emphasizes that a company must simply adapt to a permanent level of increased volatility.


“Business must now expect to routinely deal with issues such as constant currency fluctuations, cautious customers, and rapid swings in the price and availability of key commodities,” he says. Dealing with that will take “new approaches” to the practice of supply chain management. “Masters in this new world develop a clear understanding of the company or business-unit value creation algorithm,” he says – in other words, there will be a new normal for how a business succeeds, and supply chain will play a critical role in the value equation.


Rich Sherman, long-time supply chain analyst and marketer and now president of Gold & Domas Research, like Tompkins asks: “Has the supply chain ever been “normal?”


Though there already has been a strong trend toward risk mitigation, Sherman says that will accelerate as we come out of the recession. “Supply chain managers must invest in simulation tools and auditability of their plans to manage their supply chain for risk, resiliency, and sustainability,” he observes.


I will also note that there was a very interesting issue of the Harvard Business Review in July that basically devoted the entire magazine to the issue of a “new normal” for the general business world. I highly recommend it.


HBR editor Adi Ignatious certainly believes that there will be a new normal: “There's a widespread sense that there will be no going home again -- that the landscape of business has been forever altered,” he writes as an introduction to the issue.


Paul Flatters and Michael Willmott take a look in HBR at how consumers will have changed, arguing for example that many will demand a “return to simplicity.”  They say that “Unlike consumers in previous recessions, who greeted the return of financial stability with a buying spree, current consumers entered the recession feeling bloated. When they regain their ability to spend, they'll continue to buy simpler offerings with the greatest value.”


They also believe that for the first time in many years, consumers will choose to live below their means, or what Flatters and Willmott call “discretionary thrift.”


In a somewhat related note, Georgia Tech’s Ellen Dunham-Jones says we can expect a big contraction in retail space, and many “dead retail zones” dotting the landscape. She cites a figure I didn’t know: the current US ratio of 20 square feet of retail space per capita is at least six times the level found in Europe.


Harvard’s Regina Abrami says we can expect to see more country-to-country Free Trade Agreements, or FTAs, which she argues are actually a subtle form of protectionism. She also notes that China especially is being very strategic about the use of FTA with developing countries: “China already has a few free trade agreements in place, and more are in the pipeline,” she writes. “FTAs allow China to encourage imports in sectors that support national development goals without weakening domestic firms in industries that the Chinese government wants to dominate, such as petrochemicals and telecom. FTAs also cement China's position as a key player in the global economy.”

Finally, Harvard’s Niall Ferguson says that the crisis will give rise to many years of dangerous political and related disruptions, especially in developing countries. So, just as Western countries look there for both sourcing and market development, the risks to doing business there will rise substantially.


So, did we answer the question? In part, it seems to me. I don’t have the space to offer my views, but I will get a chance to do that next week.


Do you think there will be a “new normal” for supply chain management coming out of the recession? If yes, how so? If not, why not? Any of the above observations especially strike you? Let us know your thoughts at the Feedback button below.

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Catching up on a variety of letters this week.


Out Feedback of the Week is from Margo Beytagh of Evergreen Packaging on our piece on the violence in Mexico and its potential impact on sourcing. She says that in a previous role, she sees a lot of room for improvement in Mexico as a sourcing location.


Tim Tsouchlos of Molex says our piece on the "China Price" was a bit too simplistic, but later reached common ground with SCDigest editor Dan Gilmore after a quick exchange of emails.


Thane Callender of Kuehne + Nagel comments on supply chain priorities, while Tony Tyler of eF3 Systems ponders which will bottom first, shipper demand or trucking capacity.


Finally, Mike Powers of VWR liked our Transportaton Quiz at one level, but says other data would be of more use in improving transportation management.

Feedback of the Week – On Sourcing from Mexico:

I was a service parts buyer with Electrolux before moving over to Evergreen Packaging.  We had a large number of parts sourced in Mexico - and a huge amount of problems. Most notably, these were quality and reliability of supply - with reliability probably taking prominence.  Purchase orders seemed irrelevant - they seemed not to understand the idea of scheduling.

Very little was shipped on time and the management of these Mexican suppliers took inordinate amounts of buyer and planner time.


While the organization was attempting to "lean" itself - and Mexico lent itself to that due to proximity - we ended up in frequent backorder situations and expedited freight - pretty much negating whatever cost benefits we might have realized.


I'm sure there are remedies that could have been put in place to ensure supply line continuity - perhaps using an interim company or consultant in Mexico (as is frequently done in China) to deal with these issues - but it was left to the buyers to deal with individual problems as they arose.


Unless Mexico addresses its management and planning issues, I believe an increasing number of procurement professionals might be inclined to look elsewhere.


Margo Beytagh

Buyer, Canton Mill

Evergreen Packaging

On the New China Price:


I find your view too simplistic with regards to ChinaChina supplies much more than simple goods. They provide product design, tool design, manufacturing, management, quality, and increasing levels of sophistication. 

The cost of labor may be declining, but the cost of goods in China is increasingly dependent on their relative cost benefit in their salaried and skilled workforce.  Key skills are still very much in demand as China executes on its global leadership strategy, and the impact on the supply of skilled laborers, much more relevant to China's continued cost competitiveness, should have been addressed in equal balance to the availability of production line workforce.

Tim Tsouchlos
Group Product Manager, Backplane Products
Molex Connector Corp.


Note from Editor:

Thanks, I don't disagree, but I have had discussions with many companies (I guess mostly in lower-value goods, but not entirely) that have seen rising cost pressures in China cause them to move Westward or to other countries. This piece was just trying to say, hey, for awhile the conditions have changed.


Just FYI, see The Supply Chain and China's Dragons:

Many, of course, say the Chinese government is happy/orchestrated the closing of the cheap toy factories, etc., to continue the move upstream in the eastern regions.

Dan Gilmore



Thanks Dan. The pressure to move westward, no argument there. The labor market is still very complex and challenging. On the one hand, low-cost labor left jobless and stranded as plants close, and skilled labor still able to find opportunities and demand increasing wages. The increase in China labor costs for simple goods did create a movement to Vietnam and other locations to chase the low wage.  I see your point if the message was that this trend may change.


On Supply Chain Priorities:

This is an excellent article and is exactly what we are seeing in the market.  As the Global Economy struggles, companies have changed their business strategies to cut costs, while still focusing on providing excellent customer service.  Supply chain strategies have had to change in order to support the business.  


What we have seen is increased outsourcing of the DC and value-added services, more frequent ordering of smaller quantities, and allocation of goods closer to the destination.


Thane Callender

Director Retail Solutions - Orders to Market

Kuehne + Nagel, Inc.

On Demand for Transportation:


Which will decrease the fastest - shipper demand or trucker capacity?


Both are falling but the rate equation depends on which will fall faster.

Carriers are going out of business not only due to higher costs, but to lower volumes (often at lower rates), so their ration of variable revenue to fixed cost is slipping - driving many of them into a cash crunch and out the door.


As they leave the market, the capacity is obviously reduced and the light improves for those carriers remaining.


However, as long as the backhaul rate continues to compete with the headhaul, the carriers will continue to drive each other out of the business.


Tony Tyler

eF3 Systems, Inc.

On Our Transportation Quiz:


While those could be considered interesting pieces of information, I don't know if they help me decide how to improve my transportation/logistics performance.


How about:


What % of miles are empty?


What is the breakdown of freight cost rolling capital, fixed capital, fuel, labor as % of cost?


What is typical in transit for less than 500 miles, 500-1000 miles, 1000 miles and up?


What % cube is achieved LTL?


What % of freight goes through consolidation centers ?


What % freight is 3PL?


Mike Powers

Director of Distribution


Q. With all other things being equal (and they never are), but nonetheless, in a single tier distribution network, how many distribution centers does it take for the total inventory level in the network to double, versus having just a single DC, according to classic inventory management theory?
A. 4 - the formula, actually, is Inventory in All DCs = Inventory in One DC, divided by the square root of the number of DCs in the tier. At 4, inventory is doubled over that held in a single DC. At 9, it triples.