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Rethinking China
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Harry & David Moves from Best-of-Breed WMS to SAP Extended Warehouse Management

Case Study on Why One Leading Company with Complex Distribution Requirements
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Tuesday, May 3, 2011


How Smarter Inventory Analytics Solve the "Out-of-Stock" Scenario for CPG Supply Chains

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Tuesday, May 24, 2011


Operations Rules - Delivering Customer Value Through Flexible Operations, Part 3

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This Week's Supply Chain by the Numbers for April 28, 2011:

  • Government to Block New Boeing Factory?
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  • Stage Stores Sharply Reduces Problem Shipments
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S&OP: Are You Prepared to be Productive?

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Rethinking China


One of the most bothersome anecdotes I have heard lately was the story that a US business executive went to China last year, and met with a high level official there. Somewhere early in the meeting, the Chinese official said to the executive: "China" and pointed his thumb up, and then "US" and pointed his thumb down.  (Wish I could find the reference but I can't; believe I read it in the Wall Street Journal.)


Now, that anecdote  is bothersome if you live in the US (recognizing we now have thousands of readers outside the US)  first because that state of affairs, to the extent it is accurate, is obviously not a happy one.  But perhaps worse is the fact that we (and many other countries actually) may have simply abetted the change in the status quo.


Demography may be (economic) destiny, but that axiom doesn't say anything about when that destiny will actually arrive.


I realize this will border on a political column, and some readers have been critical when I have gone a bit down this path before, but let's just ponder this: has any area of the business done more to change world and economic dynamics relative to China than the supply chain and sourcing from Chinese manufacturers?


"Has any area of the business done more to change world and economic dynamics relative to China than the supply chain and sourcing from Chinese manufacturers?"


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feedback here

The 22nd "First Thoughts" column I wrote for SCDigest was titled "Is Viasystems' "Salvation" Good or Bad for the U.S. Economy?," and discussed how this printed circuit board manufacturer almost went under in 2002, but was able to recover and even thrive basically by shutting down every Western factory it had a moving it all to China.


As I went back to take a look at that piece, I was struck by this quote: "One of Viasystems' owners is quoted as saying 'The whole U.S. electronics industry will be domiciled to China.'" You can take a look here at our early days and read this article if you care to: Is Viasystems' Salvation Good or Bad for the U.S. Economy?" (Think we were OK even back then.)

The "tragedy of the commons" quickly comes to mind, a metaphor I have used only once before on these pages. What is that? A concept made famous by a man named Garrett Hardin in a 1968 article, who noted how sometimes individuals/companies independently pursuing their own self-interest can in the end deliver problems for everyone. The example was the town commons of yesteryear, where farmers could come and graze crops for free. Good for the first farmer, but over time as others joined in the commons was destroyed for all.


Is it not at least reasonable for developed economies to view offshoring like that? Good for an one company, bad for the whole?


As many know, the International Monetary Fund this week predicted that the Chinese economy may now exceed that of the US by 2016, much earlier than previously forecast. Now, many are disputing the prediction, challenging the methodology used to calculate GDP, etc., but the timing  is interesting,  given there seem to be growing consensus that something must change.


Whether you like him or not, it is one of the reasons Donald Trump is gaining media traction if nothing else. His "tough talk" on China may mostly bluster and self-promotion, but it is resonating nonetheless. There is one thing I have to agree with Trump on: China's advance has been largely built on the backs (and jobs) of Western nations generally, and the US in particular.


Take a look at the chart below, on the US trade deficit with China since 1999. On an annual basis, that has risen from $68.6 billion dollars to an incredible $273 billion in 2010 - a 400% increase in 12 years.

But the more amazing number is the cumulative total - over that same 12-year period, the cumulative US trade deficit with China is just over $2 trillion. The same basic pattern holds true with many if not nearly all developed economies (the story is somewhat different with commodity-rich nations such as Australia, but even in those countries there are downsides - more on that in a bit.).


Now, China's economy has been growing at or near double digit levels for a decade or so. But did you know that 50% of that growth is coming from government spending, primarily in areas of infrastructure? And how can China afford to spend like that on infrastructure? Because it has trillions of dollars in reserves accumulated by huge trade surpluses.


So, China is "thumbs up" and surpassing the US in GDP because the US and other developed nations are providing the funding. This makes sense?  It is actually worse, an "unvirtuous cycle" because the government spending is increasing the Chinese domestic market much faster than it would otherwise do, making it increasingly critical for Western manufacturers - or at least "brands" - leading them to do stuff such as Nissan promising to turn over its electric car technology for the right to enter the Chinese market.


I have always considered my a "free trader," but there comes a point when you might have to compromise principle for reality. But maybe you don't have to do that.  This week, I had an email exchange with Paul Craig Roberts, a well-known economist, former under-secretary of the US Treasury Dept. under Ronald Reagan, and certainly a conservative, which generally means a free trade advocate.


Here is what he says: The US does not have a "free trade" situation with China. That is when two countries each produce their own goods and trade them with each other. What the US and other developed nations have is instead a "labor arbitrage" situation - companies shifting work offshore for lower costs to send back to the home market. That is much different say from the worry about Japan 2-3 decades ago. It was Japanese companies themselves that posed the threat, not US companies moving to Japan.


Roberts ads that "It is a mistake for the US government and economists to think of the imbalance as if it were produced by Chinese companies underselling goods produced by U.S. companies in America. The imbalance is the result of U.S. companies producing their goods in China and selling them in America."


So, it ultimately comes back to the supply chain.


I am going to get a "two-fer" out of this, and write part 2 in the next few weeks. But as promised above, I will note that even in the commodity-rich countries like Australia, Brazil and even to an extent Canada, what is emerging is that while they have more favorable trade balances with China, they are reverting back to commodity-based economies, generally considered to be one a lower level of evolution than those based on manufacturing and knowledge industries.


They ship China ore and oil, and China ships back finished goods.


Is it too late to change course? Maybe. I'll discuss this and more in part 2.


What is your take on Gilmore thoughts on "Rethinking China?"  Do you agree with Roberts that there is a difference between free trade and labor arbitrage? What is the role of supply chain in all this, and do we have a 'tragedy of the commons" situation? Let us know your thoughts at the Feedback button below.


Dan Gilmore


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Question: Are there guidelines for when a company should move from plant shipments to a consolidation DC?

See our Expert answers here.

Add your input  - we could use some  more!


We had all kinds of Feedback on Gilmore's column on What to Tell the Students Bureaucrats about Logistics, and publish more of those letters below.

That includes our Feedback of the week from Marc Wulfraat of MWPVL International Inc., who says one thing Gilmore should have added was the need for more women in Logistics. We agree. You will find that and a few others below.

Feedback of the Week - on What to Tell Students and Bureaucrats about Logistics:


If I was addressing a general audience of students and bureaucrats, I would make mention that we need more women in the logistics industry, particularly in logistics management positions.  If I had to venture a guess, I would say that women constitute less than 5 – 10% of logistics and supply chain management positions in the North American context.  This is unfortunate because for the most part, the women that have made it to the top in our industry are darn good at what they do.   


The onus is on the leaders and ambassadors in our industry, and I include you in that population, to go out there and promote  a logistics / supply chain career path as being enriching and rewarding for both men and women.  Our industry is tough because it has the most moving parts that can break, where no standard rule book exists on how to do it right, and where good solid creative thinking and ingenuity can enable game changing competitive advantage for companies.   We all could certainly benefit from an expanded talent pool.       



Marc Wulfraat
MWPVL International Inc

More on What to Tell Students and Bureaucrats about Logistics:


I believe that your overall message is very much on point.  However, you have miss-used the term Logistics.  Throughout the article the term Logistics could easily be replaced with Transportation.  Transportation and SCM are sub-sets of Logistics.  Logistics consists of 10 integrated disciplines that span the entire product life cycle.  These disciplines combine to develop and execute plans necessary to sustain a product throughout its life cycle, including disposal of that product at the end of its life.


The ten elements are currently defined as:  Sustaining Engineering, Supply Support, Maintenance Planning & Management, Packaging, Handling, Transportation & Storage (PHS&T), Technical Data, Support Equipment, Training &  Training Support, Manpower & Personnel, Facilities & Infrastructure, Computer Resources. 

Over the past several years the names of the elements have evolved but the underlying tools processes and policies have remained focused on the end state.  I presented a paper at the 2010 International Society of Logistics – SOLE annual symposium that discussed the very issue I have raised.  SOLE was organized over 40 years ago because of a recognized need for training and research to meet the challenges of the rapidly growing space programs.


As an organization The International Society of Logistics – SOLE mission is to “Advance the Art and Science of Logistics through Education and Research”.  In the last decade or so the term Logistics has been applied to the transportation industry incorrectly

If you would like more information about SOLE visit the web site SOLE.ORG


Harry B. Fanning II  CPL
Spares Demand Forecasting




One thing that is really worth mentioning to students is that throughout your career in this dynamic world of business…go wide, get deep, and stay relevant.  I have had my career within my career changed by plant closing, spin-off, RIF, Job Elimination, not to mention promotions or lateral moves.  It always helped to specialize in an area, but only for a short while. 


I have worked across all Supply Chain domains (Distribution, Transportation, Order Management, Procurement, Demand Management, Production Scheduling, etc.) as a practitioner and then moved into Consulting where I was blessed to create Strategic and Tactical solutions for customers.  Add key skills like Process Improvement and Project Management and you can maintain your relevance because as the industry marches on…you stay with it.


Thanks for your great articles…I really enjoy them.

Patrick A. Boyle



To reach students, it helps to put it in a context that they understand and care about. Talk about a specific product like an iPhone or their Starbucks coffee and how logistics/SCM makes it possible for them to enjoy reasonably priced products from around the world without too much effort on the student's part.


Direct them toward and a definition that will make sense to students: "Supply chain management (SCM) is all the activities that take place to get a product in your hands – from the time of raw materials extraction to the minute you pull out your credit card and take the final product home. SCM focuses on planning and forecasting, purchasing, product assembly, moving, storing, and keeping track of a product as it flows toward you and other consumers."


Good luck!


Brian J. Gibson, Ph.D.

Supply Chain Management

Auburn University

As a former  i2 employee, I feel both proud and joyful when I read your articles.

Not only the contents of your articles are very good but the topics are the one that makes all the difference.  You have knack of picking both challenging and brilliant topics.


The last two that I vividly remember are in the following order; Top 10 SCM break-through in the history of mankind and quantitative strategy on the inventory positioning in a multi-tiered “manufacturing + distribution” system.


And now, this one is an awesome topic too, at least very relevant.  If I may add, the students should be a little clever in making them marketable too.  So, my advise to them is that network/contact a practitioner of the subject and learn the basic functionalities of a traditional manufacturing company, such as DEMAND MANAGEMENT, SUPPLY MANAGEMENT, PRODUCTION PLANNING, DETAIL SCHEDULING, WAREHOUSE MANAGEMENT at a very high level.


Once done that, just compile a list of the top 5 companies that provide solutions in these respective areas of supply chain management.  And pick one area and one vendor and spend another $1000 to take a certification course to learn that application.


They will automatically become highly desirable by any employer.


Thanks and keep writing articles with great topics.



Q: The Institute for Supply Management, which produces the Purchasing Managers Index, is affiliated with what university?
A: Arizona State University.
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