sc digest
April 12, 2012 - Supply Chain Newsletter

This Week In SCDigest

bullet Q1 Supply Chain Review
bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic of the Week and Supply Chain by the Numbers bullet This Week In "Distribution Digest"
bullet Cartoon Caption Contest Continues This Week! bullet Trivia
bullet New Expert Contributor bullet Feedback

FEATURED SPONSOR: Seagull Scientific


For easy, codeless, integration of barcodes
and RFID with your existing software...

first thought

Q1 Supply Chain Review

We have received a lot of very positive feedback for our semi-annual and annual reviews of the key supply chain events and issues over each period. So many things happen in any given time frame it is difficult for us to keep track of it all, and we do this for a living, meaning the challenge to keep up for folks with real jobs is that much harder.

So I am delivering a review of Q1 supply chain developments this week for a very good reason: it was actually quite a momentous quarter. Whether we’ll continue to do this quarterly or not I will wait to see based on how much action there really is.


"Why would want to own the company instead of simply acquiring the technology as is usually the case? That isn’t yet clear.'"


Send us your
feedback here

The top story of the quarter without any question was the on-going saga of Apple and the labor conditions in its outsourced supply chain. It started in January, when Apple released an extraordinary and unprecedented Supplier Progress Report, which was based on 229 audits of suppliers across multi-tiers, based on the company’s supplier code of conduct for labor, environmental, and other areas of behavior. (See Apple's Groundbreaking Moves to Audit its Extended Supply Chain for Compliance to its Supplier Code of Conduct.)

The number of audits performed were up 80% from the previous year, and the need for report itself was driven by increased scrutiny of the hugely successful Apple’s supply chain practices, such as news of a rash of worker suicides at the giant Foxconn complex in China that assembles iPads.

We said at the time that this report, which aired Apple’s own dirty laundry, likely would become a model that many other companies will have to replicate. Days later, the New York Times published a couple of new articles again critical of labor conditions at Apple suppliers. Meanwhile, just two weeks ago the Fair Labor Association, hired by Apple to do some of these audits, released its analysis of labor practices at three Foxconn factories, and while some headlines said the report was a real indictment of conditions at Apple suppliers, the truth was almost the opposite, with most of the negative findings quite modest.

Still, multi-tier scrutiny of the supply chains of large companies is really here (as Nike has known for years), and in the end this will drive offshore costs up and produce reputation risk. Foxconn says it is deploying thousands of robots to replace humans due the rising costs and labor headaches all this is causing.

Building the Supply Chain from the Shelf Back!

Please Take Our Brief Survey Now

After the half year disruption that the 2011 earthquake and tsunami in Japan had on its supply chain, costing the company huge sums of money and its place as the world’s largest auto producer, Toyota announced sweeping changes to its supply chain strategy in February. The goal was to reduced time to recovery (TTR) to just two weeks from a similar disaster in the future.

That came following a multi-month effort to fully map its supply chain, down to tier 2 and 3 suppliers, many of which the company did not have visibility to before. It is using that map to first identify what is says are hundreds of risk points it did not know it had before, and to work with suppliers to add inventory, second production facilities, and other strategies to get to that two-week TTR goal.

That Toyota had control of its supply chain was “an illusion,” one company exec said. We predict many other companies will eventually go down similar paths. (See Toyota Taking Massive Effort to Reduce Its Supply Chain Risk in Japan).

On a very related note, our good friend Dr. David Simchi-Levi of MIT unveiled his new Supply Chain Risk Exposure Index in a Videocast on our Supply Chain Television Channel in February. This represented true supply chain innovation, and addressed the vexing issue of the inability of most companies to really quantify their level of exposure to supply chain risk. Most companies use a 2 x 2 type matrix that positions various potential risks along two dimensions: (1) probability of occurrence and (2) dollar impact of the disruption. Each dimension is then divided into two or sometimes three sections, representing low or high (or in-between) levels, an analysis which then is used to prioritize risk mitigation strategies.

But what is mitigating those risks worth? That is one problem with the traditional approach, as is the fact that it generally involves looking at discrete risks in isolation, not the supply chain as a whole.

Simchi-Levi’s Risk Exposure Index addresses both those issues and more in a very innovative way, and which he says is generating lots of interest from companies across the globe. In a very short summary, the approach calculates the full dollar impact from a disruption through its TTR at different nodes or levels, than combines those costs across a given supply chain to calculate a total risk exposure. You can find more detail here: Supply Chain: Risky Business.

Rising diesel and gas prices were big news in Q1, even as underlying oil prices didn’t move all that much in the quarter. The price for West Texas intermediate started the year at about $99 per barrel and ended the quarter at about $102, though it did peak at $110 a couple of times in February. Prices at the pump soared by much higher percentages, however, driving up logistics costs and threatening again a still fragile economic recovery.

The Material Handling Institute of America (MHIA) held its first MODEX tradeshow and conference in Atlanta in February, a replacement in a sense for the discontinued North American Material Handling Show that ran in the off-year from the bi-annual ProMat show in Chicago that is MHIA’s premiere event. See MODEX 2012 Full Review and Comment.

The aim is to make MODEX more of a supply chain show than the material handling and supply chain execution software oriented event it replaced. Not a whole lot of success yet in that regard, from our vantage, as it seemed not that different in scope from NAMH, but at the same time it was a better show with more energy and attendance. Good potential here, but execution will be key to creating an event that addresses the broader supply chain.

UPS finally raised its offer high enough to acquire Europe’s TNT Express to bolster its position in the European parcel market, likely causing some problems for rivals FedEx and DHL there.

In a quite surprising move, announced in March it was buying Kiva Systems, a maker of a unique robotic picking system, for $775 million. Kiva’s solution has largely been deployed in dot com facilities, including Zappos,, and, which Amazon itself later acquired. But why would want to own the company instead of simply acquiring the technology as is usually the case? That isn’t yet clear, nor is whether Kiva will have the capacity to do much more than service Amazon’s potential huge demand for the robots. We will keep you posted. See In Astounding Move, Buys Robotic Material Handling Provider Kiva.

In a move that surprised me and many others, a provision to allow heavier trucks on US federal highways (up to 97,000 pounds versus 80,000 today, with the addition of a sixth axel) was shot down in the final House language for a new surface transportation bill. Though that legislation is still floating around, it seems for now the move for heavier trucks that would allow much greater transportation efficiency for many shippers which now weight out before they cube out, is done for a good while, even though it appeared to have strong bi-partisan support.

The defeat was in part a result of a brilliant lobbying campaign by rail interests, which for example mobilized local sheriffs in dozen of Congressional districts to contact House members against the legislation. Also, while many shippers, as represented by the Coalition for Transportation Productivity, were pushing hard for the change, it is not clear that truckers themselves were really all that behind the law, worried they would wind up giving away the capacity for free. The association that represents independent drivers was against it. A similar provision to allow longer double trailer trucks was also defeated, but I was less surprised by that. See Legislation to Allow Heavier Trucks Dismissed from Highway Bill, in Blow to Shippers.

There was more, but think those were the top stories. If I missed something here you think was important, please let me know.

What do you think were the top stories for Q1? Anything we missed? Any reaction to these developments? Let us know your thoughts a the Feedback button below.


Supply Chain Graphic of the Week:

Another View of Peak Oil

This Week's Supply Chain by the Numbers for April 13, 2012:

  • The Advantage
  • Natural Gas Prices Impacting Supply Chain Strategy
  • Truck Driver Turnover Finally Slows
  • Is Chinese Trade Surplus Going to Shrink?


April 3 , 2012 Contest

See The Full-Sized Cartoon and

Send In Your Entry Today!


Weekly On-Target Newsletter:
April 11, 2012 Edition

Embedded 3PLs, Visibility in CPG to Retail, Nat Gas Trucks Update and more


Supply Chain Volatility
Never Stops

Justifying The Cost Of a TMS By Automating Freight Audit and Payment

Holste's Blog: Recent Developments in Order Fulfillment Methods & Technologies Have Renewed Interest in DC Automation


Top Stories: As 3PLs and Clients Hope to get More Strategic, is an ''Embedded'' Strategy the Way to Make it Happen?

Top Story: Holste on Sortation Systems in Distribution

Top Story : Undercover Boss Hits the Distribution Center for the Second Time, and Paints a Lousy Picture of Work in the Warehouse

Visit Distribution Digest


Applying B2C Technology
Trends to Voice Picking

Stephen Gerrard
Vice President of Marketing & Strategic Planning
Voxware, Inc.


Anti-Dumping and
Countervailing Duties

J. Anthony Hardenburgh
Vice President,
Global Trade Content
Amber Road


What is the primary difference between a GS1128 bar code (formerly UCC128) and a regular code 128 symbol?
Answer Found at the Bottom of the Page

Tuesday's Videocast:

Operations Rules for Driving Business Value & Growth

Part 2: Supply Chain Segmentation for Improved Profitability - Strategies to Trim the Long Tail

Featuring Dr. David Simchi-Levi, Professor of Engineering Systems, MIT

New On Demand Videocast:

The End of Cheap Oil

Is Your Supply Chain Obsolete?
Conserve, Cooperate, Get Lean.

Featuring Chuck Taylor, Former Transportation Executive, Founder of Awake!, and Peak Oil Prophet; Greg Holder, CEO and Founder, Compliance Networks; and Kevin Harris, Director, Compliance Networks

Important Research Project:

Building the Supply Chain
from the Shelf Back

These responses will be aggregated and become part of a new report on Building the Supply Chain from the Shelf Back to be released later this Spring.

Can you please help by taking this quick 10 minute survey? All respondents will receive a summary of the data in just a few weeks.

Tuesday, April 17, 2012

Now Available On Demand

Survey Home


More of the excellent feedback we received on our couple of First Thoughts columns related to Metrics and Supply Chain Performance.


Feedback of the Week: On Metrics and Supply Chain Performance:


Great article focused on a key aspect of supply chain management. I have two different, though related, perspectives of why supply chains go off the rails.

1. To me the craziest supply chain metric is plan conformance. In truth I mean measuring plan conformance at more than a daily level, perhaps allowing that in fairly stable industries this could go out as far as a week. This is crazy because of the assumption that he plan was correct in the first place. Several studies, including one by Terra Technology, have shown that a weekly level forecast is typically about 52% accurate, whereas during NPI this drops down to 35%. Admittedly Terra's customers improve this to 70% accuracy for mature products, but this still leaves 30% forecast error. (According to Terra, the typical forecast accuracy has improved only a few % over the past 8 years.) Since the demand plan is typically used to drive the supply plan, how accurate is the supply plan? So why are we forcing the organization to conform to a plan that is inherently wrong, well inaccurate anyway.

2. All plans are based upon assumptions of both demand and supply. These are assumption and, in many cases, assumptions are wrong to some degree. And stuff happens too. Trucks break down, machines fail, yields drop, ships get delayed, containers fall off of forklifts, etc. Today's extended, global, and outsourced supply chains amplify the effects this disruptions have on the supply chain because there is less time to react because it takes longer to understand the impact of an event because of lower visibility. While every effort is made to buffer against uncertainty and disruptions, most companies cannot afford the inventory required to mitigate against all the risks.

What I am missing in the discussion about supply chain management is what do we do when the plan is wrong. The discussion for the past 25 years has been about creating the perfect plan, the optimal plan. This is all fair and well if you can get anywhere close to a perfect forecast, but every indication is that we're not going to get there any time soon. If we can't get to a perfect forecast, and therefore we can't get a perfect plan, what skills and capabilities should we develop to deal with the inevitable mismatch between actual demand and planned supply? The first is the ability to detect when actual demand is different from planned demand quickly.

More important is the ability to determine the impact this mismatch has on the supply plan. How much of the actual demand can be satisfied by supply plan? Where are the major mismatches? The second is that once these have been identified, how does the supply chain respond quickly and effectively?

Our view is that planning is the first step. The question is where will the next breakthrough come from: Learning to plan better, or learning to detect and respond to real demand quickly and effectively.

Trevor Miles
VP, Thought Leadership


More on Metrics and Performance:


Another great article that poses a great set of questions.

Actually, I think both hypotheses are probably correct.

Wrong metrics: I have seen many organizations track performance to a set of metrics, doing things they knew were not optimal for the business, but that drove a payoff, such as a bonus entitlement. There are others that have not worked through what really counts, and how to measure it. This might be a small company that hasn't taken the time to work out how to measure customer service as they grew. When the warehouse got full, they couldn't get orders out, customers started complaining, they realized they might be missing something. Or management only expect purchasing to place orders, so they don't measure savings or risk mitigated, because no one cares.

Wrong Targets: I am reading "Good by Choice" by Jim Collins, and the three core concepts are highly relevant. I think they can help companies develop the right plans, and select the right metrics to track progress and identify issues early.

Fanatic Discipline: Pace your organization to work at a reasonable tempo all the time, and they will become really good at doing a solid job. Continuous improvement and lean/6 sigma initiatives can stretch that every day, major upgrades can change the game.

Empirical Creativity: small investments with clear objectives allow you to work out what the right big investment is, whether it's new equipment, a new product or service, or a new market.

Productive Paranoia: Understanding risks and evaluating how significant they are and what to do about it if they happen. I am not suggesting that anyone could have forecast the Iceland volcano eruptions and the effect they had on flying, the Japanese Earthquake/Tsunami, the Thai and Australian floods, or the unrest in the Middle East. But brainstorming on what major uncertainties could certainly have informed contingency plans. Air Travel was halted after 9/11; the 2004 tsunami disrupted southeast Asia for months - Haiti is still suffering from the destruction; There have been signs of worker unrest in China (apparently many employees have not returned to work after they went back to celebrate the New Year). Great companies, if you believe Collins, have a plan to deal with this unpredictable disruption. Surges and collapses in activity can be assessed this way too.

Great job Dan, keep up the good work.

Nick Seiersen


I would like to argue that Supply Chain Performance Management is not a topic to take off the list, but instead focus the discussion on "which metrics matter and why", and steering customers to knowing that it doesn't have to be that hard -- especially with analytics technology and applications in the market today.

Our SCPM product which won the SCC technology innovation award, makes it easier for supply chain professionals focus on metrics that matter, and provides them an easy path to identify the root cause of a metric trend or an exception generated by the system based on a combination of metrics, and proactively manage the situation. Even more compelling if focused on metrics that matter is then the comparison to cascading goals - financial and operational.

You're right: target setting which starts to help establish the framework, would help compare performance against a certain goal/objective. The app also has a way to capture these targets -- example: what should my cash-to-cash cycle time be? But it requires an organization change in mindset, which I do hope your columns can steer the companies to.

Padmini Ranganathan
Analytics for Industries and Lines of Business
SAP Solutions Marketing



Q: What is the primary difference between a GS1128 bar code (formerly UCC128) and a regular code 128 symbol?

A: The use of 2-4 digit application identifiers preceding the data encoded. For example, the well-known GS1 serialize case code has an application identifier of 00. In the printed bar code, the AI will be in parentheses (00).

© SupplyChainDigest™ 2003-2012. All Rights Reserved.
PO Box 714
Springboro, Ohio 45066