sc digest
January 9, 2015 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet The Year in Supply Chain 2014 bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & By the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Winners Announced bullet Trivia      bullet Feedback
bullet New Stifel Transportation Weekly and New Supply Chain by Design bullet Videocast/On Demand Videocasts

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first thought


Supply Chain Graphic of the Week:

The US Economy Heading into 2015

Streak of Lower Gas Prices Passes 100 Days
Chinese Invade Consumer Electronics Show
No Delivery Fail for UPS in 2014
Few Retailers Can Yet Pool Inventories Across Channels


December 8, 2014 Contest

See Who Took Home the Prize!

Holste's Blog: Uncovering Hidden (in-plain-sight) Storage Space


Register Now for ProMat 2015
March 23-26, 2015
Chicago's McCormick Place - South


Weekly On-Target Newsletter:
January 7, 2015 Edition

Last Chance Cartoon, Market Rate Myth, Top Green, Port Hope, UPS No Fail and more

Stifel Transportation Weekly for January 5, 2015

by John Larkin
Managing Director and Head of Transportation Capital Markets Research
Stifel Financial Corp

Three Ways UPS and FedEx Handled Christmas 2014

by Dr. Michael Watson

SCDigest's 2015 Supply Chain Cartoon and Event Calendar!




Scot Beckenbaugh, the federal mediator named this week to help close the ILWU/West Coast ports negotiations, was key to settling what recent sports labor dispute in another mediator role?

Answer Found at the
Bottom of the Page

The Year in Supply Chain 2014

It was again a very interesting year in supply chain for 2014 - but aren't they all these days?

This week, I will summarize what I feel are the most important key themes and trends of the supply chain year that was. Next week in our OnTarget newsletter, we'll publish our popular timeline of key events over the past year. In two weeks (after a pause for a summary of next week's National Retail Federation conference) I will be back for a review of the year in numbers and graphs.

So let's get right to it, starting with the really big picture.


"After appearing a bit like the boy who cried Wolfe in previous years, 2014 is the year the driver shortage really started to hit home."


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The economy underlying our supply chains started weak in the US and ended strong, with Q1 real GDP falling 2.1% - largely blamed on bad weather - and ending with signs of strength, with the latest estimate for Q3 GDP growth of a robust 5%.

It does feel better economically right now than for a long time, as we learned to live with the "new normal" of positive but weak growth of 2% or so.

But the US economy is somewhat under threat from a global environment that continues to sputter. Growth in Europe has been weak or even negative, with a real and justified fear of deflation. Despite massive stimulus, Japan's economy has again stalled, and it is responding with even more massive stimulus. China's growth has slowed to about 7%, still hefty by most standards, but trending down and putting a drag on other countries and most notably commodity and input prices, good for many but not all and perhaps a sign of weakness.

The first half of the year was also overshadowed by geopolitical events that seemed possible to ignite into real conflict, but luckily mostly did not. That included Russia's invasion of Crimea and Ukraine, tensions in the South China Sea between an aggressive China and many of its neighbors over control of ocean and land, the seeming likelihood Israel would attack Iran's nuclear facilities and more.

But by year's end most of those tensions had died down but certainly not out, with some renewed risks for 2015, as I will discuss below.

With that high-level overview, here are what I view as the four key trends or themes relative to supply chain in 2014:

The Collapse of Oil Prices and the Rise of US Fracking: It is almost hard to believe what is now occurring, with US oil prices falling to below $50 per barrel and global prices just a few bucks above that, down around 50% since the middle of the year. Not much talk of Peak Oil now, is there? Who would have ever guessed, in the absence of a deep recession.

There are many causes, from a strong dollar to weak global demand, but key is surging US production that has taken it to the top of the oil producer list due to the magic of fracking. That has added millions of barrels per day to the global supply. Indeed, Saudi Arabia is said to have decided not to reduce production to drive prices back up because it actually hoped they would fall below where it was economical for US frackers to keep production going.

This astounding turn has more ramifications than we can list here, but let's start with some key ones. The financial pressure the oil price fall is putting on countries such as Russia, Iran, Venezuela and others is good to see, at one level, but could cause them to lash out in some form to take their citizens' minds off all the bad economic news. This is a real danger the longer this lasts.

The big drop in oil and most other commodities increases the still very present possibility of devastating deflation in Europe, Japan and elsewhere, a concern even in the US.

Many commenters have noted that the falling energy prices are a real threat to many Green supply chain and clean energy programs, as the economic landscape has been turned on its head. It was easy to reduce CO2 emissions when the ROI was also strong, but the numbers will often be very different now.

Will it last? Who knows. But if these low prices persist, just as we spoke about the need to rethink supply chain network designs considering that oil would stay at $100 per barrel or more for the long run, should not that same thinking apply on the way down too? Maybe the companies that did little to change their networks in the face of rising oil prices will have the last laugh on this one for a few years.

Continued OmniChannel Madness: OmniChannel developments continued to come fast and furious, so much so that it was hard to keep track of them, even for us here at SCDigest that do it for a living.

Amazon by itself had a series of tests and innovations, including piloting same day deliveries with commercial taxies in San Francisco and rolling out a new immediate delivery service (Amazon Prime Now) in Manhattan using bike couriers. It launched a new line of private label goods that could be a threat to branded consumer package goods companies, announced plans to aggressively expand its grocery business to new markets and much more. "Amazon shows us what is possible," a Walmart exec said.

"Click and collect" emerged as something of a "killer app" for ecommerce, in which customers place orders online and the goods are either delivered to lockers or to a drive through type location at a retail store where merchandise is loaded by a store employee into the consumer's trunk. Walmart is betting big on this strategy, hoping this and same day deliveries using its vast store network will give it an advantage Amazon can't match.

DHL is testing drone deliveries in Europe, Macy's is counting on RFID to empower inventory accuracy for store-based efulfillment, UBER is setting up efulfillment capabilities, etc.

And don't be confused that all this omnichannel madness applies only to retailers.

Acute US Driver Shortage: After appearing a bit like the boy who cried Wolfe in previous years, 2014 is the year the driver shortage really started to hit home. There was a new sense of urgency among trucking companies describing the situation, and nearly all - some substantially - raised driver pay during the year.

But it wasn't nearly enough, as an expanding economy drove freight volumes to record levels, while capacity was capped first by carrier strategy, then by a lack of drivers. So, we saw substantial increases in rates for the last nine months of the year.

According to Cass Information Systems, year over year increases in truckload rates in March through November, respectively, were 6.0%, 5.7%, 5.8%, 5.2%, 7.2%, 7.0%, 6.7%, 7.3%, and 6.5%. This cost nightmare for shippers is being partially offset by falling oil prices, but diesel costs were down only 17% in 2014, much less than gasoline, for a variety of reasons.

If the economy does show strong growth in 2015, watch out.

US Port Chaos: Service at US ports was lousy for much of the year, in some East Coast ports more in the first half of the year, West Coast ports in the second half.

A common theme: chassis mismanagement, of all things. As the carriers exited the low-margin business in recent years and sold it off to third parties on both coasts, chaos generally ensued. It usually was not so much a matter of the total number of chassis at a port, but rather where they were located.

This should be an easy problem to solve, and appears to have ameliorated on the East Coast, with a new program coming at LA/Long Beach soon.

On the West Coast, the chassis issue plus increased volumes plus what sure look like work slowdowns by the ILWU over the lack of a new contract have led to huge congestion and long delays basically since October, causing something of a nightmare for importers.

Those are my key 2014 supply chain themes. We'll have our full 2014 timeline next week in OnTarget, but the top events for me include: workers at a VW plant in Chattanooga vote against unionization in major blow to UAW; Zebra Technologies surprisingly announces it will acquire the radio frequency systems and bar code scanning business from Motorola Solutions; China blocks formation of the P3 network of ocean carriers; US manufacturing finally exceeds 2007 levels in July; UPS and FedEx implement full dimensional weighing programs at year's end; and the NLRB approves "microwave" elections and other changes in December in the biggest change to labor law in decades in a pro-union move.

What's your take on 2014?

Any comments on our review of 2014 in supply chain? What did you see as key themes or events? Let us know your thoughts at the Feedback button (email) or section (web form) below.

View Web/Printable Version of this Column

On Demand Townhall:

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Claim is that Store-Level DRP and New Approach to Forecasting Deliver Big Gains - Does It Stack Up?

Andre Martin , Flowcasting Inventor, JDA Software, Kevin Smith of DePaul University, Parag Jategaonkar of Accenture and Fred Baumann of JDA Software.

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Introducing the New Lead Time/Inventory Level Calculator!

Mark Krupnik of Retalon, Kevin Harris of Compliance Networks and SCDigest editor Dan Gilmore.

Now Available On Demand


We received a large numbers of emails regarding our First Thoughts piece on What Would You Tell Accountants about Supply Chain? Parts 1 and 2.

There were such a number of good ones, we are not going to select a Feedback of the Week, but will rather just publish a few of the better ones thins week and next.

Feedback on What Would You Tell Accountants about Supply Chain?:


Your speech to accountants admirable but maybe can be even more specific?

When you study accounting there are three branches:


1. SEC, GAAP, etc.

2. Tax accounting - we all know what that is


3. Cost accounting

Any good accountant knows cost accounting - either love it or ignore it as not the way the make money

Aligning a cost accounting system around the cash flow, inventory flows, outside commitment flows (e.g. purchasing, contract manufacturing) is a secret weapon for better business management Accountants have been trying to do for years but lack a model to follow. If they would take a lead from a supply chain model to capture cost accounting everyone wins

I think that is all you have to propose then prove a few facts I think we know:

1. measurement of supply chain activities is early warning, measurement far earlier then "accounting"

2. a S&OP or supply chain plan can be a future look at Balance Sheet and Income Statement material changes

3. supply chain measurement of inventory flows a great "audit" tool to know what is going on

4. leverage of supply chain excellence managing lead time can improve working capital

positions. create competitive advantage, etc. - the list goes on.


So then accountants can have facts to know how understanding supply chain can help their clients or help their practice. At least they can say to clients... managing your business using traditional accounting only measurement is not "optimal" ?

The fight goes on but at some point formal business measurement systems will be based on an S&OP based supply chain model... just makes to much sense. In the meantime we will continue to play translator. :)

Jon Kirkegaard

comma This is excellent.

A couple of points for feedback:

First, the article you are looking for is:

"The Path to Higher Shareholder Value", Chief Executive, July/August 1998, Stephen C Johnson, Gerry Marsh, Gene Tyndall.

The gist of this is also makes up the first chapter of our book "Supercharging Supply Chains"

Second, a few points you may want to consider:

Taxes. The Global Supply Network is a critical determinant of the global tax bill that companies pay, in terms of location, value-add operations, facilities, employment, inventory stocking (inventory taxes), etc.

Equally important, the "traditional" notions of inventory as a bad thing are moving fast towards inventory being a competitive weapon, particularly as the cost of capital is so low.

And, perhaps, that accountants should now view inventory explicitly in terms of "unsaleable" or waste, "channel stuffing", a definite liability v. a true asset on the books.

I would also add (but this may be a little less relevant) the fact that the adhering to global trade requirements (and penalties) are important in the core operations of the supply chain.

Finally, we should note that the supply chain is a cash engine (which you mentioned) and a critical driver of customer growth (read "sales" and "margin").

Christopher Gopal, PhD

Drucker School of Management




Q: Scot Beckenbaugh, the federal mediator named this week to help close the ILWU/West Coast ports negotiations, was key to settling what recent sports labor dispute in another mediator role?

A: The 2012/13 lockout of professional hockey players by the NHL, which almost led to canceling the entire season before Beckenbaugh brokered a solution.

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