This week in SCDigest:
Rebuilding Supply Chains for the Future
Supply Chain Graphic of the Week and Supply Chain by the Numbers
New Cartoon Caption Contest Begins This Week!
SC Digest On-Target e-Magazine
Expert Contributor: Balancing Push and Pull Strategies
This Week In "Distribution Digest"
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  Newsletter Archives                  Can't View In E-mail? April 7, 2011 - Supply Chain Newsletter

Featured Sponsor: IHS

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Videocast Series: Operations Rules - Delivering Customer Value Through Flexible Operations

Part 3: Mitigating Supply Chain Risk from the Known-Unknown to the Unknown-Unknown

Featuring David Simchi-Levi, Professor of Engineering Systems at MIT

Wednesday, April 20, 2011



Upcoming Videocast:
Vendor Compliance 101: It's about Supply Chain Excellence, not Chargebacks

How Top Retailers Successfully Develop Programs that Leverage Vendor Compliance For Lean Supply Chain Benefits

Featuring Gough Grubbs, SVP of Distribution & Logistics for Stage Stores, Greg Holder, CEO of Compliance Networks

Tuesday, April 26, 2011

This Week's Supply Chain News Bites
- Only from SCDigest

Supply Chain Graphic of the Week: The Evolution of Supply Chain Optimization Technology

This Week's Supply Chain by the Numbers for April 7, 2011 - Transportation Edition:

  • Inland Waterways for Container Freight?
  • Moving Cheerios with Less Fuel
  • Diesel Pain at the Pump
  • Carriers to be Scrounging for Trucks in 2012?

Complimentary White Paper:
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April 4, 2011 Contest

See The Full-Sized Cartoon and

Send In Your Entry Today !



Softeon, a rapidly growing provider of WMS and related supply chain software solutions, is looking for Project Managers.

Ideal candidates will have solid knowledge of distribution and logistics processes, excellent communications skills, and be able to manage customer projects end to end.

May consider some recent graduates with

related degrees as trainees.

Position in based in the Northern Virginia area

Respond Here





Weekly On-Target Newsletter
April 6, 2010 Edition

New Cartoon, Inland Waterways, Dell QA, Reissued Classic and more


By Greg Marmulak
Vice President of Professional Services

JustEnough Software

Balancing Push and Pull Strategies


Holste's Blog: Underperforming DC Systems Are Often the Result of Decisions Based on Non-Substantiated Data
Top Story: Gene Gagnon Classic ''Supervising on the Line'' Updated and Re-Issued for 2011
Top Story: Our Favorite New Products from ProMat 2011
Vendor News : Kollmorgen Introduces Mobile Order Picking Solution for Automated Lift Truck Operation at ProMat 2011

Rebuilding Supply Chains for the Future

I will admit to being somewhat overly focused on the "supply chain of the future?"

Why? Several reasons.

First, I really believe we are on the cusp of new, dramatically different levels of automation, in everything from case picking in distribution centers to real-time supply chain decision support, that will have a game-changing impact on supply chain practice.

Second, I very much like the concept of historical eras and "inflection points." So, my quick summary is that we have seen the foundation era (late 1980s through mid-1990s), when supply chain thinking (cross functional, improving the links) first took hold; the technology era of the mid-1990s through the dot com collapse of 2000-01, when supply chain software took dramatic leaps forward and became seen as essential to supply chain success, to the point of mania in some cases.

Next was the Lean/continuous improvement era starting after the tech collapse until the middle of the next decade or so, when we took a step back from technology and focused on process and taking Lean concepts beyond manufacturing; and finally the global/virtual supply chain era from then until now, with a nasty recession in the middle, where being global became critical on both the buy and sell sides of the supply chain, and when outsourcing and virtualization, with both their benefits and challenges, drove much supply chain strategy.


"I believe most of us can concur that the supply chain of the future is going to require very different skills sets among executives and mid-level managers than have been needed the very recent past."


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That analysis is not perfect, there are overlaps, etc., but think it is roughly right.

I believe we may see even bigger shifts in the coming decade, largely as noted above stemming from a variety of step-changes in supporting technology (cloud computing, real-time optimization, robotics, visibility) and the impact that will have on supply chain processes and even organizational structures.

All that as an intro into yet another view of the supply chain of the future, this time from the smart folks at McKinsey, the management consulting firm.

Let's take a look.

McKinsey makes a bold statement right up front: "Many global supply chains are not equipped to cope with the world we are entering," McKinsey says. "Most were engineered, some brilliantly, to manage stable, high-volume production by capitalizing on labor-arbitrage opportunities available in China and other low-cost countries. But in a future when the relative attractiveness of manufacturing locations changes quickly—along with the ability to produce large volumes economically—such standard approaches can leave companies dangerously exposed."

Here is a reality McKinsey observes and with which I completely agree: The world is changing rapidly, most noticeably with the rise of emerging economies across the globe, and not just China. That in turn will almost certainly lead lead to much higher levels of volatility in demand and supply, and greater levels of supply chain complexity than most of us have known to date. It makes perfect sense to argue that most supply chains as currently constructed are not well-suited to this new environment.

For example, meeting increasingly tailored product requirements in a company's home market is tough enough. Now try doing that globally across diverse economies, cultures, religions, etc.

McKinsey offers this factoid as evidence of this global impact: Mobile-phone makers introduced 900 more varieties of handsets in 2009 than they did in 2000. It is likely to get worse before it gets better.

The upshot, McKinsey says, is that for "would-be architects of manufacturing and supply chain strategies there is a greater risk of making key decisions that become uneconomic as a result of forces beyond your control."

I would add a complementary perspective: supply chain network design used to be mostly about the math (optimization) and the ability to drive the optimal solution through the supply chain in a timely manner. Increasingly, it is about how good a company's assumptions are, and managing the trade-offs between cost and flexibility. You place your bets.

The winning formula, McKinsey argues, is a two-pronged strategy:

1. "Splintering” traditional supply chains into smaller, nimbler ones better prepared to manage higher levels of complexity.

2. Using supply chains as "hedges" against uncertainty by reconfiguring manufacturing footprints to weather a range of potential outcomes.

Let's start with number 1. The idea of multiple supply chains has been around for some time and seen a resurgence in the recent past, including a lot of work we have done here. But how do you do that in practice? McKinsey argues that a detailed SKU analysis is a good place to start, such as one consumer durables manufacturer recently did to understand SKU volumes and volatility (see figure below).


Full Size Image

After the analysis, the company split its "one-size-fits-all" supply chain, mostly based on production in China, into four distinct splinters. For high-volume products with relatively stable demand (less than 10 percent of SKUs but representing the majority of revenues), the company kept the sourcing and production in China. Facilities in North America became responsible for producing the rest of the company’s SKUs, including high- and low-volume ones with volatile demand (assigned to the United States) and low-volume, low-demand-volatility SKUs (divided between the United States and Mexico).

The bottom line here is that McKinsey says the supply chain winners of the next decade will be those that decompose their supply chains and tailori them to focus on what best meets customer needs at lowest cost based on any number of different criteria, and that doing so will make those supply chain more responsive to change and actually reduce supply chain complexity by the very nature of having this focus.

On to number 2, which is connected to number 1, and goes something like this: in an era of increasing dynamics and uncertainty, having a supply chain that can react more rapidly to change than a competitors is a significant advantage

The basic concept is similar to "real options theory," which says there is value in investing in a flexibility to take any of several alternatives in the future versus locking in on one choice today. The value of having those future options can be calculated, and compared to the cost of creating those options. Any easy example would be spending extra money today to have additional manufacturing or distribution capacity/space down the road at a given facility.

McKinsey thinks that supply chain agility in this dynamic world is of critical, even existential importance: "The ability of supply chains to withstand a variety of different scenarios could influence the profitability and even the viability of organizations in the not-too-distant future," McKinsey says. Going further, it adds that "The goal should be identifying a resilient manufacturing and sourcing footprint—even when it’s not necessarily the lowest-cost one today."

It cites the example of one manufacturer that is creating a supply chain that can quickly make adjustments based on currency and labor cost swings.

So at the end of the day, McKinsey says that to win in the global supply chain moving forward, companies need to be much better at segmenting their supply chains rather than using a more universal approach, and that having production/supply chain capabilities in more places than is cost optimal in the short term may be cost optimal in the mid-term based on the the added flexibility in this dynamic environment.

I will simply add this. Whether you agree or disagree with this thinking, I believe most of us can concur that the supply chain of the future is going to require very different skills sets among executives and mid-level managers than have been needed the very recent past.

Are you ready?

What do you think of McKinsey's two-pronged recommendations? Will companies really accept a higher cost model for now to have flexibility for the future? Is the example SKU analysis shown a good place to start? Let us know your thoughts at the Feedback button below.


Dan Gilmore


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Q: About how many miles of navigable "inland waterways" capable of moving cargo in the US (including intercoastal waterways) are there in the US?
A: Found at the Bottom of the Page


We're publishing some very recent letters this week stemming from editor Dan Gilmore's blog post last week on Geiger Counters for the Supply Chain?, which pondered the potential problems business face if even trace amounts of radiation were detectable in products coming from Japan.

That includes our Feedback of the week from Ralph Salier-Hellendag, a "business anthropologist" with some very interesting thoughts on the subject. You will find that letter and several others below.

Feedback of the Week - on Geiger Counters for the Supply Chain:


Given our sensitivity to radiation, I would not be surprised that any thing from Japan will be view as suspect for the time being and until the facility over there is "capped". Americans have a great underlying fear of radiation and are quick to avoid it wherever possible. Even to the point of having their granite counter tops tested and removed if there is any sign of radiation. While this fear is present, it is poorly understood and "even made fun of" with a great risk to anyone who tries to sell any thing that could be contaminated.

No one really knows what a safe amount of radiation is and this is the basis of much of this fear. While there is radiation all around us all of the time that we are totally unaware of, once we have a heightened awareness, it does not subside for quite a long time. It would behoove those importing items from Japan to demonstrate a before and after reading of radiation if they can to prove to their customers that it is not an issue.

My background is that of a Business Anthropologist. I study the effect of such things on business systems and on the culture as a whole. For Americans there is an underlying fear that the radiation plume from Japan will come to the US and we will not have the necessary protection.

Some companies that get material from Japan are now very concerned that the parts and supplies will be contaminated (The Toyota plants in the US have already shut down and are awaiting the results of tests being done on parts from Southern Japan). Those from the north are also being tested but most were shipped before the accident. Others are being rejected out of hand. And it doesn't just effect Toyota, many US car companies import parts from that part of the world and are very worried. Food stuffs, glass ware, electronics etc...

Are all suspect and are being tested. The issue however is the validity of the testing, the transparency and our general distrust of the government to do things right #1 and then tell us if there is something wrong #2. It is an interesting predicament.

Ralph Salier-Hellendag
ONEOXY Services Team

More on on Geiger Counters for the Supply Chaion Geiger Counters for the Supply Chainn:


Like it or not, this threat is real.

Special customs processes should be initiated for all cartons, boxes, inner packs, and items coming from Japan. Are there any plans? I don`t think I would be musing over this during dinner, (and as you know, I regard myself as a fun guy).

Mark Shuda


Absolutely, companies who are purchasing product internally have a responsibility to insure that they are safe whether it's for this particular reason or others. This was brought to light when the children's toys were discovered to have toxic paint.

If companies choose to ship or manufacture products from wherever, they do have the responsibility for quality assurance. Consumers are less tolerant currently for exposed radiation products or toxic products. As consumers become more aware, they will be more likely to rebel against such products. As I say this, I think of all the intelligent people that still smoke :)!

Susan Rider

Rider & Associates

The manufacturers need to get out front of this issue as the recent news out of Japan is quickly raising the fears of the consumer. With recent reports of radiation in area fish, and news that the water gushing into the Pacific had radiation levels millions of times above the regulatory limit, any product that comes out of any ocean is going to going to give the consumer reason to pause.

Letting the consumer know that the product has been safeguarded and proactively letting the consumer know the product has not been tainted with radiation will help to alleviate some consumer fear.


Larry Negrich

Retail Business Development Consultant

Avnet Technology Solutions

Of course companies should be thinking about every safety aspect that affects their products. Toxicity comes in many forms, and many U.S. importers and domestic manufacturers have been exposed as inept at ensuring that their products are safe in all the ways they should be safe. The weekly published recall lists are staggering. The effort to "get the lead out" is still an ongoing effort in China and here after more than a decade of publicity. Poor Toyota, first with their millions of recalled vehicles and now suffering the events in their homeland. Poor parents of babies that guillotine themselves with sliding crib slats.

So now we have another product concern: Potential radiation beyond the levels we endure daily from natural sources. What are the daily levels we endure from sunlight and the ground (yes, the ground)? Put a number on it. How much radiation did our Astronauts receive in space without negative effects? If we're going to deal with this new concern, we need to understand it better.

Retailers need to help their customers understand it better. Perhaps a well-crafted and informative TV campaign from the National Chamber Of Commerce, FMI, or other retailer groups. It's a prudent first step, to be followed by continued education and product monitoring. But first, stem any mindless, uninformed panic.

Not to be flippant or unfeeling, but remember that Godzilla was born in the minds of Japanese survivors of the bombs we dropped on them during WWII. A monster created by radiation. Now we have the potential of creating another radiation monster--unless we get in front of it with information and education.

M. Jericho Banks

President, CEO

Forensic Marketing LLC

Q: About how many miles of navigable "inland waterways" capable of moving cargo in the US (including intercoastal waterways) are there in the US?
A: A little more than 25,000, across which moves about 13% of total freight ton-miles each year.
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