If you are reading this LogisticsViewpoints blog post today, July 2, you can be categorized as one of the following:

  • Not a US resident – today is just Thursday to you
  • A US resident working today, but wishing you weren’t working
  • A US resident, working, but mentally already on 4th of July vacation
  • One serious logistics enthusiast

Now on to this week’s logistics news:

GreeceGreece and its seemingly never ending clash with its creditors reached a new threshold this week, as it missed a billion euro payment to the IMF and failed to renew a credit agreement. Subsequently, the country enacted capital controls, limiting Greek citizens’ access to euros.  This capital disruption will undoubtedly have a negative impact on productivity and the Greek supply chain. In the short term, companies will likely have to rely on existing back up plans or readily available options. In the longer term, as the article notes, this crisis will serve as an additional blow to the reliability of conducting business in Greece, and companies are likely to respond by reducing their exposure to the risks inherent in having Greece as a node in one’s supply chain.

A CSX train carrying flammable chemicals (acrylonitrile) derailed and caught fire in eastern Tennessee this morning, leading to evacuations within a two mile radius of the site. A recent increase in oil transportation by rail and a number of derailments have increased calls for railcar safety improvements to minimize the damage from future derailments. It is likely that the derailment of this chemical shipment will cast light on the existing safety guidelines for hazardous chemical transportation.

President Obama signed into law a bill that provides him with the ability to “fast track” a potential Pacific Rim trade deal (the Trans Pacific Partnership) that has recently been contentiously debated in Congress. The key features of the TPP include the elimination of tariffs and barriers to trade and investment, the development of production and supply chain among the TPP members, regulatory coherence, competitive and business facilitation, support for small and medium sized businesses, economic development initiatives, innovation initiatives, and potential for agreement expansion.

BTS US Nafta tradeUS-NAFTA trade value declined by 6.8 percent in April, when compared to the same month in 2014. However, the decline was mainly due to the reduction in fuel prices. The value of trade fell across all modes, except air. Pipeline values decreased by 44.9 percent, while waterborne freight fell by 22.8 percent. The Bureau of Transportation Statistics reports trade in value, so these numbers are affected by price volatility of commodities such as oil, and comparisons do not directly reflect changes in volume.

TPPTANAP, the Trans Anatolian Natural Gas Project, has signed a deal with CEVA Logistics in Turkey for the movement of gas pipes. In April, I wrote a post, Iran and International Trade Expansion that discussed TANAP and its importance to gas supply in southern Europe. The CEVA deal involves ground transportation and contract logistics services supporting the movement of 1.2 million tons of steel pipes into 2018.

From the M&A file, Kuehne + Nagel announced that it entered into an agreement to acquire Memphis-based ReTrans, a non-asset based intermodal transportation management company with over $500 million in revenue and 300 employees.


Have a great weekend!

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TMSI have been conducting a lot of research around TMS applications recently, and my colleague Steve Banker and I began to discuss how TMS providers keep their implementations on track. We determined that the providers must use a set of criteria and KPI’s to make sure that the project stays on time and on budget. The big question we had, however, was “what KPI’s do they use?” I recently spoke to Vivek Chhaochharia, Senior Solutions Director, Global Consulting Services at JDA about how they keep implementations on track.

Vivek informed that JDA has two main components to keeping an implementation on track. First, every implementation has a baseline set of KPI’s to keep the project on track. And these KPI’s are in place across the board, meaning every implementation of every project. To begin, JDA makes sure the implementation is adhering to cost, time, and resource constraints. JDA also performs a solution quality audit, to make sure the solution will meet the needs of the customer. Finally, JDA performs a program quality audit. The program quality audit is performed to make sure the customer is happy, and that business needs are being met. It also measures the quality of design of deliverables, and how is the project doing in terms of change management and risks. These audits are done every 4 months, or depending on what stage they are in, it can be more often. There are quality checks done before testing, and after every stage to make sure they are on track.

Vivek also mentioned that there are five main KPI’s in place for TMS-specific implementations: overall ROI (or value), solution acceptance, planning cycle times, productivity impact, and a global template approach to deployment. Additionally, there are often customer-specific KPI’s that are used to measure the program.

Below is an outline of how JDA uses each of these KPI’s to keep a TMS implementation on track.

Overall ROI

At the beginning of the implementation, a modeling study is performed. This looks at the current baseline as well as the functionality needed to execute on the business today. The company studies to see what areas they can benefit. Depending on the implementation, what the overall value could be. During design and construct, they make sure they are on track

Solution Acceptance

Here, JDA looks at the quality of planning. When the company runs an optimization, how many are turned out as unplannable? This could be determined by missing rates, bad data, shipment windows too small, etc. The goal is to get as close to 0% as possible. The company also looks at how often the user needs to touch the results of planning. Again, the goal here is as close to 0% as possible.

Planning Cycle Times

This KPI looks at specific windows where planning cycles need to be finished. This is key for keeping the implementation on time.

Productivity Impact

JDA looks at the current size of planning team. What will the size be after implementations and what tasks will they be performing. The goal is to ensure that future productivity will not be impacted during or after the implementation.

Global Template Approach to Deployment

This KPI is designed for global rollouts of TMS application. The company designs a global template which can be customized at a later date. This makes each region faster, at about 1/3 the time of normal implementation.


The key part of these KPI’s is to make sure they are communicated to the customer. According to Vivek, JDA is in constant communication with their customers during the implementation process. First, the company sets a baseline with customers. They figure out what to achieve and how to achieve it. During the initial phase, they define the criteria and KPI’s. The project manager and solution architect are responsible for defining both. During all phases of the implementation, feedback is communicated through a variety of means, including reports and meetings.

ARC Advisory Group (www.arcweb.com) tracks the enterprise software market on a quarterly basis. We track the revenues of fifteen prominent publicly traded enterprise software companies, translate financial results reported in foreign currencies to US dollars using an average exchange rate for the given reporting period. The suppliers’ reporting period for this analysis is the quarter ended March, 2015 unless stated otherwise.

The suppliers included in this report recorded combined quarterly revenue of $21 billion, representing a 3.7 percent year-over-year decline rate. The year-over-year change in supplier revenues ranged from a reduction of 12.5 percent to growth of 17.6 percent. Seven suppliers, ClickSoftware, EMC, IBM, IFS, Infor, Oracle and PTC reported year-over-year decreases in software or product revenues. The decline was mainly due to strengthening US Dollar against other currencies. The euro depreciated relative to the dollar by over 17.6 percent from 1Q2014 to 1Q2015.

The percentage figures mentioned in the research and development (R&D) expense column are a factor of total revenues of the company and not just the enterprise portion of revenues considered for some of the suppliers in the report.

Here is the key chart from the report showing the included suppliers and their growth:

Q1 2014 Q1 2015 YoY Growth R&D Expense % of Revenue
American Software/Logility (4Q ends April) $25.9 $27.6 6.5% 13%
Autodesk (1Q ends April) $592.5 $646.5 9.1% 30%
ClickSoftware $28.4 $26.7 -5.8% 18%
Dassault Systèmes $688.3 $735.2 6.8% 19%
Descartes (1Q ends April) $40.8 $44.4 8.8% 17%
EMC Information Intelligence Group $154.0 $138.0 -10.4% 14%
Hexagon Technology Division $375.5 $395.0 5.2%
IBM Software Segment $5,661.0 $5,199.0 -8.2% 7%
IFS $107.4 $94.0 -12.5% 10%
Infor (4Q ends April) $685.4 $658.7 -3.9% 15%
Manhattan Associates $113.6 $133.5 17.6% 10%
Oracle Software Segment (4Q ends May) $8,914.0 $8,400.0 -5.8% 13%
PTC $328.7 $314.1 -4.4% 19%
QAD (April) $68.5 $69.3 1.1% 15%
SAP $4,027.5 $4,122.4 2.4% 20%
Total $21,811.4 $21,004.5 -3.7%

Supplier Revenues for Calendar Q1 2014 vs. Calendar Q1 2015 (Millions of Dollars)

The enterprise software market growth has grown consistently except for the last two quarters. The chart below shows the quarter over quarter growth of enterprise market since 1Q15.


Year over Year Enterprise Software Growth

Currency translations effect played a major role during the quarter as was the case in 4Q14. Many companies witnessed negative growth as a result of currency conversion. The chart below shows the performance of Euro vs. Dollar since 1Q2013.


Impact of Euro Translation of Euro-Denominated Revenues

This is a quarterly report, timed after all the companies on the list release their revenues. If you would like a complete copy of this analysis, including the results of the fifteen enterprise software companies covered, please contact chanf@arcweb.com.



Kehat Shahar, the Vice President of Supply Chain Planning at SanDisk, spoke on the journey that SanDisk has taken to improve their supply chain operations at the eft conference on June 18th in Chicago.  While most of the content for this article came from the speech at eft, some information came from the company’s 10-K, and some from an interview Mr. Shahar gave at a JDA conference that is posted on LinkedIn.

SanDisk is a leader in flash storage solutions.  This $6.6 billion company garners about two thirds of their sales from commercial clients, all the smart phone companies buy their flash drives.  The other third of their products are sold through retail chains.

sandisc flash

SanDisk has invested heavily in a vertically integrated business model, which includes a high volume, manufacturing facility in Japan based upon a joint venture with Toshiba.  This supply is “captive” – it is fully controlled by SanDisk. They also purchase non-captive flash memory from other suppliers.

The wafers are sorted and tested at captive and third-party facilities in China, Japan and Taiwan. Their products are then assembled and tested at both their in-house facilities in Shanghai and through a network of contract manufacturers.  Finally, the millions of units they produce are shipped out of regional distribution centers run by 3PL partners.

Mr. Shahar said that SanDisk’s journey to substantially improve their supply chain operations began in 2008.  At that time, they primarily served the retail channel, including big retailers like Walmart and Best Buy.  In 2008, they were a build to forecast company with a frozen forecast period of six weeks.  But their forecast accuracy was poor, only 50-60 percent accurate.  Consequently, they had too much inventory and poor service levels.  They knew they had to change.

They did not believe they could sufficiently improve forecasting to solve their problems, so they focused on responding to “certain demand” – committed orders.  This required manufacturing and replenishment agility.  They moved from a build to forecast to a build to target process.  This allowed them to reduce their frozen production fence for their captive WIP manufacturing to two times per week.  To support these quicker planning cycles, SanDisk became more rigorous in measuring variability in supply, manufacturing quality, and demand, and then working to reduce that variability. Less variability allows for quicker lead times and the ability to hit service levels with lower inventory levels.

SanDisk also worked to delay product differentiation through postponement.  They build generic inventory and delay creating the unique SKU until an order arrives.  The company also continues to work to drive in more component commonality across their product lines.  Agility is supported by air transport; their raw materials, work-in-process, and finished products are primarily shipped via air.

While their agility was greatly improved, they realized that different customer segments need different service levels.  Big collaborative planning, forecasting and replenishment (CPFR) retail customers in the US require that they make inventory commitments at the store level.  In emerging markets, customers want a low price and quick delivery; for some SKUs they need be able to deliver within 24 hours.

Further, in 2009-10, their focus on the commercial business greatly increased.  These are primarily vendor managed inventory relationships; SanDisk’s goal is to be the number one or two supplier on these customer’s scorecards.

All of this planning was, and continues to be, facilitated by supply chain planning tools that recommends what to build on a daily basis.  They use an advanced planning system (APS) and a multi-echelon inventory optimization (MEIO) solution from JDA to support this.  The APS starts by planning for 3 weeks of inventory to be held by their DCs.  Then the IO solution looks at the supply and demand inventory variability and the lead times they have experienced over the past 13 weeks, and adjusts the inventory targets accordingly.

But optimization is not enough.  They have set up an analytics center of excellence staffed by two PhDs in operations research.  This team takes a data driven approach to looking at their network flows and supply chain policies.  As one example, this team looked at how many factories should be enabled to manufacture particular products.  Previously, they had assumed the more products that could be made at more factories, the better their service levels would be.  But they discovered that enabling just two factories to produce most products was sufficient from a service level perspective and also much less costly.  Optimization is great, but optimizing an inefficient network is itself not optimal.

To support customer segmentation, in the last one to two years SanDisk began pricing service levels and value added services into their customer contracts.  Their goal is to maximize the dollars per gigabyte.  Higher service levels typically means more inventory and thus higher costs.

In emerging markets, some customers buy high volumes of only a few key SKUs.  Despite fast turnaround requirements, this ordering pattern reduces forecast variability and the inventory they must hold.  For some customers they operate virtual hubs – manufacturing capacity that is allocated to the customer with their resulting inventory positioned in one central location; for some customers where they receive sufficient lead time, they will engage in build to order; for many customers it is a configure to order process.  Each of these processes has a different cost structure that must be priced into the customer contract.

Mr. Shahar had a few key pieces of advice for companies that might want to develop a segmented supply chain.  First, their SCP system is a key enabler of the segmented supply chain.  The software manages the eight different supply chains they run, but all of this is invisible to the factory.  The factories are just told what they need to produce and when.

Surprisingly, getting buy in for a cost to serve segmented supply chain model was not difficult.  Mr. Shahar did not explain why this was so, but in a different part of the speech he mentioned that SanDisk has also improved their sales and operations planning process by tightly integrating it with the financial planning process.  This could be part of the explanation for why what has been a very difficult cultural transformation at many other companies, was not so difficult for SanDisk.

Finally, SanDisk did not take a “big bang” approach.  As this narrative makes clear, these capabilities were built step by step.

Nevertheless, it is clear that since 2008 when SanDisk began this journey, they have made substantial progress. They have improved on-time deliveries from 50-60 percent to best in class.  And these service levels are achieved with less inventory.  Their key measure on inventory is inventory turns above die bank.  Based on this metric, they have reduced their inventory by almost half.

summerIt’s finally summer. Which means a mixed bag of good and bad. The good? Less traffic heading in to the office, warm weather, no snow, summer vacations, longer days, and the disappearance of the winter blues. The bad? Mosquitoes, humidity, another disappointing Red Sox season, and cargo theft (see below). One of my favorite parts of the summer is the 4th of July. The fireworks, the bbq’s, and this year, the long weekend. With the 4th falling on a Saturday, next Friday, July 3, will be a company holiday for most US employees. As a result, will not be publishing a news round-up next Friday. So, even though it’s a week in advance, Happy 4th from the Friday news round-up team.

And now, on to this week’s news.

Amazon Prime 2Amazon is rolling out a new program which could dramatically increase the number of items that qualify for free two-day shipping for Prime members. The company is now listing items which can be shipped directly from merchant’s warehouses direct to the customer. Previously, these items had to be shipped to an Amazon warehouse to be eligible for Prime. This meant that merchants would be less likely to expedite shipping on cheaper items, making them unavailable for Prime delivery. The addition of drop-shipments could dramatically increase the number of items that are Prime eligible, well beyond the 20 million items currently listed.

instacart logoAs Clint Reiser mentioned last week, news broke about the California Labor Commission ruling on an Uber driver being classified as an employee, rather than a contractor. As a result, Instacart, the online grocery delivery service, is converting a large part of its contractor workforce into part-time employees. Instacart says it will make the change starting June 22 for staff members in Boston and Chicago, with more cities coming later. The newly converted employees will work between 20 and 30 hours a week, and make above minimum wage (although the exact amount will vary by market).

ups capitalUPS Capital, a branch of UPS which specializes in financing and insurance, is announcing the acquisition of parcel Pro. Parcel Pro was formed to insure shipments in the jewelry and wristwatch industry. As the demand for luxury items has increased, businesses have been forced to rethink their shipping strategies. Formerly, business shipping insurance has been limited to $50,000 in the US and $500 internationally. This meant companies had to break up shipments for insurance purposes, significantly raising their shipping and packaging costs. The newly combined UPS Capital and Parcel Pro can increase business shipping insurance coverage to $150,000 in the US and $100,000 internationally. This allows companies to reduce the number of shipments made for the same amount of merchandise. The price and closing date have not been disclosed, and it remain business as usual for the time being.

Rollover avoidanceThe DOT mandate for rollover avoidance systems has published, making the rule a law. The National Highway Traffic Safety Administration published a Final Rule in the Federal Register Tuesday that will require all trucks made Aug. 1, 2017, and after to be equipped will electronic stability control systems to prevent vehicle rollovers. The mandate is aimed at truck manufacturers, not truck buyers and owners, and applies to “typical three-axle tractors.” The mandate only requires stability control systems and not broader active safety systems that brake autonomously. The NHTSA says the rule will prevent between 1,424 and 1,759 crashes a year and prevent between 40 and 49 deaths a year.

CurbsideCurbside, a Palo Alto-based company offering a mobile app that allows customers to execute curbside pick-up of orders, announced the closing of $25 million in Series B funding. The round was led by Sutter Hill Ventures, and includes participation from prior investors Index Ventures, Yahoo co-founder Jerry Yang’s AME Cloud Ventures, Qualcomm Ventures and others. The funds will be used to help Curbside expand to new markets and stores. Currently, the service is available at select Target and Best Buy locations the San Francisco Bay Area, as well as in the New York metro region. The service is geared towards customers who want items same day without paying excessive fees. Curbside works at 25 locations today, but with these forthcoming additions and other planned expansions, that number is expected to reach 40 by the end of July.

4th cargo theftAnd finally, the 4th of July holiday is fast approaching. And Cargo Net has issued a warning to truckers: Beware! July 4th week is ripe for cargo theft. In its warning to drivers and carriers, Cargo Net cited potential for increased activity by cargo thieves this week and next, with the July 1-7 week accounting for 76 cargo theft incidents and nearly $11 million in loss value in the last three years. The top targeted commodities over the last three years include food and beverage, electronics, and metal. The top states include California, Florida, Texas, Georgia, and Illinois.

That’s it for the news this week. Enjoy the weekend and the song of the week, The Star Spangled Banner, by Jimi Hendrix.

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