sc digest
January 7, 2016 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet The Year in Supply Chain 2015 bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Santa Cartoon Caption Contest Winners Announced bullet Trivia      bullet Feedback
bullet New Gilmore's Supply Chain Jab and Supply Chain by Design bullet Videocasts and On Demand Videocasts


The Visible Value Chain:
Streamlined Warehouse Operation with Increased Visibility


first thought


Supply Chain Graphic of the Week
The Evolution of the Container Megaship

US Manufacturing Slumps Again in December
Leading Firms Achieve Much Higher Procurement Returns
Supposed Movement to Major Urban Centers Exaggerated
Can Amazon be Stopped?



Week of November 16, 2015 Contest

See Who Took Home the Prize!

Holste's Blog: Does Achieving ROI Get In The Way Of Growing The Business?


Weekly On-Target Newsletter:
January 6, 2015 Edition

Last Chance Cartoon, Xmas SCM Review, 1st US Megaship, Print-Apply in DCs and more

9th Annual Gartner-SCDigest Supply Chain Study

One of the Most Popular and Respected Studies Each Year

As Always, Survey Respondents Receive
Complimentary Gartner Research - a $300-500 Value

A Few Thoughts on the Christmas Supply Chain 2015

by Dan Gilmore

Machine Learning and High Quality Potato Chips

by Dr. Michael Watson


By about how much are current US truckload rates per mile above where they stood at the beginning of year 2000?

Answer Found at the
Bottom of the Page

The Year in Supply Chain 2015

It was again a very interesting year in supply chain for 2015 - 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. Later next week, I will be back for a review of the year in numbers and graphs.

You might also be interested in our list of the top Green supply chain stories of 2015, some of which will make it into the overall top stories, and my blog take on the 2015 Christmas season in supply chain.

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


" is a force all its own. Ignoring the law of large numbers, it continued to grow merchandise sales in the mid-20% range in 2015."


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As always, the state of the economy was key to how we managed our supply chains, and once again in the US we saw sluggish growth, with what is likely again to be full year real GDP growth in the 2% range, in fact maybe a little under that. Once again, as with 2013, Q1 began weakly, up just 0.6%, followed by solid growth of 3.9% in Q2 and then 2.1% in Q3, with Q4 looking like it will be on the low side – and worrisome economic news clearly all round.

That bad news of course includes stock markets tanking this week on a global basis, and the US Purchasing Managers Index, which measures the state of US manufacturing, falling below the critical 50 mark that separates expansion for contraction in both November and December, after 35 months of manufacturing growth.

Euro and Japanese economies as usual were even weaker than in the US, and globally deflation remains a real worry. A major factor was the continued slowdown in the Chinese economy, which several news organizations named as their top story of the year. Officially, the Chinese economy grew just 7%, its slowest pace in many years, but some suggest the real number was 4-5% growth or maybe even just 2-3% grown.

That slowdown has all kinds of ripple effects, most notably continued downward pressure on commodity prices (as Chinese demand cools substantially), a gyrating Chinese stock market, Chinese employment issues and more.

The commodity price collapse and other factors have also slowed growth in most developing economies substantially, bringing into question the strategies of many multi-nationals that bet emerging markets would be their growth salvation, as was all the rage coming out of the Great Recession. That, for now, is no longer the case.

World trade continued to slow, growing about just 2% in 2015, below global GDP growth of about 2.5%, when until recent years global trade generally exceeding GDP growth, often substantially. This is not a good sign, and of course is the key factor in the financial woes of the container shipping industry.

Geopolitically, it was another rough year, with continued tensions over Ukraine that remain simmering and could boil over, growing (and very worrisome) issues with China claiming territory in international waters in the South China Sea and beyond, even worse than usual Mideast conflict led by the growth of ISIS and a resurgent Iran, and a resultant migrant crisis in Europe. The world, frankly, is a mess. The "end of history," Francis Fukuyama famously wrote in the early 1990s. Hardly.

With that high-level overview, here are what I view as the three key trends or themes relative to supply chain in 2015:

Robotics Reaches Critical Mass: There were usually multiple stories daily about some advance in robotics for home and business. Consider now that robots have really become almost as much a digital technology as a mechanical one, meaning they are advancing along the lines of the famous Moore's law for microprocessor development. Just ponder the implications of that for robotics progress.

A related development to all this is the renewed interest in artificial intelligence. Facebook CEO Mark Zuckerberg recently announced his plan to build a computerized butler of sorts using AI that will let friends in by looking at their faces when they ring the doorbell, help Zuckerberg "visualize data in virtual reality" and "understand my voice to control everything in our home."

I want one for Christmas next year. Meanwhile, Amazon announced it would deploy some 15,000 of its Kiva robots in its fulfillment centers in 2015, and sponsored its first robotic picking contest, where university teams from around the world competed to build a robot that can select small items out of static shelving.

One province in China has embarked on an official "robots for humans" program in factories in the region, while Google rather secretly is apparently working on all kinds of robotics, envisioning droids that for example will replace the UPS man. (Will they be made of brown metal?).

In 2015 I believe we reached an inflection point in robotics, the ramifications of which are simply unknown.

ecommerce and The rise of ecommerce continues unabated, with growth in the US (and I assume elsewhere) up consistently 14-16%, quarter after quarter. This of course is driving nearly all retailers to aggressively pursue ecommerce or "omnichannel" strategies, with Walmart spending huge sums to catch up to Amazon, Target rolling out item-level RFID to achieve better in-store inventory accuracy, many retailers moving to store-based fulfillment to increase sales from more inventory to sell, and more.

Yes, there will always be a role for brick and mortar, but 2015 frankly raised a lot of questions relative to what that role will be, with many retailers praying "click and collect," using the store as the pick-up point, will be their salvation. However, several researchers found decreasing in-store traffic in 2015. Macy's, ironically an on-line leader, just announced it was shuttering some 40 US stores after a very tough Christmas season.

"I think Macy's is likely to be a canary in a coal mine," said Ken Perkins, president of Retail Metrics, a retail research firm.

This revolution will in the end have a significant impact on the supply chain strategies and networks of both retailers and thus consumer goods manufacturers.

But then, is a force all its own. Ignoring the law of large numbers, it continued to grow merchandise sales in the mid-20% range in 2015, much higher than overall US ecommerce sales. New analysis from Macquarie Research just this week claims Amazon took an astounding 51% of all US ecommerce sales growth last year. I think that is a little high, as it counted Amazon revenue not coming out of ecommerce (e.g., web services) but it is probably not that far off. Wow.

Amazon refreshed its drone design as it lobbies for easing testing rules, appears to be building its own air cargo capabilities, is pursuing rapid same day deliver all over, as it uses Amazon Prime as a brutal competitive weapon.

Can Amazon be stopped by anyone, individually or collectively?

Oil and Commodity Price Collapse: Despite never ending Mid-East turmoil, oil headed still lower in 2015, after the collapse started in the last 3-4 months of 2014. WTI oil prices started the year just under $60 per barrel, and incredibly ended the year at about $37.00.

These low oil prices helped offset the impact of rising trucking costs in the first half of the year, helped the wobbling economy a bit, and pushed some rail/intermodal cargo back to trucks, while helping to keep inflation low (maybe too low). Who would have believed we'd see this in the summer of 2008, when oil hit more than $140?

The IHS Materials Price Index, which tracks commodities (including energy),is also down about 55% since July 2014 – good for many manufacturers, but not all, and devastating for many economies globally, sending Canada into recession in 2015, for example. Again, a stunning change.

Those are my key 2015 supply chain themes. Again, we will have our full 2014 timeline next week in OnTarget, but the top events for me include: chaos at US ports, especially LA/Long Beach, in first half of year; new US highway bill at last passes, modestly increasing spending, no longer or heavier trucks, 34-hour restart rules again suspended; Walmart in mid-year said to be greatly extending payment terms, and asking vendors to pay a "handling charge" for products moving through its DCs.

Add in the FAA finally issues drone rules that make testing almost impossible; huge explosion/fire in China's Tianjin exposes more SC risks; Mexican truckers at last permitted to operate in US; US carriers substantially increase driver pay but does little to stem shortage; and UN climate agreement reached in December, but with little teeth to it, and no immediate impact on supply chains.

Look for the timeline next week, and the year in graphs next week in this space.

What do you see as key themes, trends or events in supply chain last year? Let us know your thoughts at the Feedback button below.

View Web/Printable Version of this Column

On Demand Videocast:

Trends and Issues Global Sourcing and Trade Management

Results from SCDigest's New Benchmark Study on Practices and Technology in Global Trade

You'll learn the results of the survey, unveiled in a new report launched with this Videocast. Not to be missed by anyone interested in global sourcing, global trade management and supply chain visibility.

Featuring SCDigest editor Dan Gilmore, Gary Barraco, Senior Director of Supply Chain Solutions at Amber Road, and Dan Gardner, President of Trade Facilitators Inc.

Available On Demand

On Demand Videocast:

Using Supply Chain Modeling to Improve Operations and Outperform the Competition

PriceSmart Builds Optimized, Aligned and Dynamic Supply Chain Network

You'll learn about key new trends in supply chain design, where companies are finding the value, and learn the powerful story of how leading retailer PriceSmart has used network design tools to craft its network of the future to support growth, optimize flow paths, and right size inventory levels.

Featuring Frank Diaz, senior vice president, distribution and logistics at PriceSmart, and Toby Brzoznowski executive vice president at LLamasoft and SCDigest's Dan Gilmore

Available On Demand

On-Demand Videocast:

Making Supply Chain Business Intelligence Pay Off for Mid-Market Companies

New Technology Options and BI Use Cases Delivering Competitive Advantage and ROI

Includes demystifying supply chain BI, the keys to deployment success, key trends such as the move beyond scorecards to dashboards, and how new BI offerings are enabling cost-effective, easier to implement BI solutions to mid-market and even many larger companies

Featuring Donna Fritz of TAKE Supply Chain,Tom Dadmun, former head of supply chain for high tech manufacturer Adtran and SCDigest's Dan Gilmore

Available On Demand


As promised, are selection of original responses to our August Logistics Challenge. Great stuff from our readers, including an outstanding response from David Armstong of Inventory Curve.

Feedback of the Week on August Logistics Challenge:


One of the things I've found over the years is that when organizations have supply chain problems, they usually have more than one issue or condition, and that the issues feed on and support each other. These problems can be grouped into four general categories: cultural, organizational, strategic and tactical. In this organization, I see issues that can be placed into each of these categories.

Key observations

• While the freight cost issue is front and center, it appears that the freight manager quit of our frustration and had been faced with the accountability without authority problem. The freight manager seems to have been accountable for freight costs but had no authority to drive behaviors to manage the actual shipping.
• Performance information is available, but not shared/distributed on a timely basis. This seems to have been captured and maintained by the freight manager.
• Given the disparity and lack of transportation knowledge between the managers and shipping supervisors it appears that the plants operate independently.
• Evidence of a training need for basic traffic/transportation knowledge.
• Customer service to the stated shipping standard of a 3-day lead-time was not indicated to be an issue. But it appears there are lots of inefficiencies in plant operations to meet the lead-times.
• There is no evidence of a defined supply chain strategy.
• Given that it was the company president that called, that suggests an opportunity for top-management involvement and commitment to implement improvements.


One of the tools I use is the X-Chart. The X-Chart can serve as a living document and be adapted as situations change.

Major goals and objectives are listed on the top.
General strategies and guiding principles are listed on the right. These are the things we should always commit to do.
Specific actions and tactics to achieve the goals are listed on the bottom.
And related metrics are listed on the left.
Major interactions are highlighted in the corners.

The X-Chart I developed for this organization is shown below and serves a guide for discussion with the president.

Discussion with the president:

Short-term actions:

Inter-plant freight costs are out of control
Organization needs to establish clear responsibility and accountability for freight costs. Is it the branch managers? Is it the freight manager? Is it both?
Reporting of inter-plant freight costs by lane and mode needs to be implemented on a timely basis. The departed freight manager seems to have had that information, but there was no distribution, visibility or action taken based on the information.
Person assigned to the freight manager role needs to have a passion and desire for the position along with the support to drive the necessary changes.
Basic training need to be provided to all 26 branch managers and shipping supervisors on the basic traffic concepts including: small shipments are more costly than larger shipments, premium mode carriers are more costly than LTL and concepts of transit times related to distance. In addition, actual transit times by mode between plants are readily available.
Based on information developed by prior transportation manager, it would seem that an inter-plant routing guide could be prepared and distributed in short order.
Clear direction provided to plants to consolidate daily inter-plant shipments. This might be as simple as awareness and manual consolidation by the shipping supervisors.

Next actions:

It appears that a key driver for the inter-plant shipments is the need to move additives from one plant to another. Better planning, deployment and procurement of raw material additives unique to each plant would eliminate the need for much of the inter-plant shipping.

One situation I have seen in the past is that organizations tend to operate with a job shop mentality - that each order they will receive from a customer is a "one-off" order and not be repeated. In fact, customers tend to order the same things over and over, so with some analysis and planning, the unique additives and their respective volumes used be each plant should be able to be determined.

With that in mind:

Analyze additive usage by plant and by customer.
Use that information to re-evaluate stocking points, procurement and deployment of additives

By improving the balance of additive inventory, production planners should have an easier job to improve batch sizing, production runs and manufacturing effectiveness resulting in higher service and lower costs.

Longer-term actions:

With 26 locations, chances are that locations have different manufacturing competencies. Yet, it appears that each location had developed a "local" customer base that they strive to serve.

Once the short-term and next step actions have been taken, the organization has an opportunity to look at how best to serve the customer base from its 26 (the number could change) locations by evaluating plant capabilities tied to enterprise wide customer needs. And that would service as a good starting point to the development of a supply chain strategy.

David Armstrong
Inventory Curve

  More Feedback on August Logistics Challenge:  

The quick solution is to align incentives. The branch manager should own freight costs and inventory. My guess is that they only own inventory costs, hence the frequent stock-outs that are alleviated with premium freight. By owning both metrics, the branch manager would be able to make the trade-off between inventory and transportation costs.

A long term solution starts with a supply chain design analysis. Branch to branch shipments are not ideal and should only happen as an exception. The design effort should answer questions such as: Do you really need 26 locations making custom product? Where should safety stock be located in the network? Could a central DC hold the raw material? Is three day customer lead time realistic?

Finally, after redesigning the network, implement an improved planning process that uses the forecast error to plan the right amount of safety stock, capacity and safety time to respond to customer demand in an efficient manner.

Benefits will go beyond lower freight costs, and they should see improved customer service, lower fixed facility costs, and reduced inventory.

Patrick McNulty



Q: By about how much are current US truckload rates per mile above where they stood at the beginning of year 2000?

A: Between 25-27%, according to the monthly data in the Cass Linehaul Index, which uses Jan. 2000 as its baseline. That’s a cumulative average growth rate of only 1.5%, by the way.

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