Archive for August 2011

As August comes to an end, many of you are probably in the process of developing or finalizing your budget for 2012. There are the usual line items to complete: transportation costs, technology and capital investments, staffing levels and associated costs, and so on. But there is one line item that is likely missing from your budget: investment in leadership development and education.

Almost 52 percent of the supply chain executives I surveyed earlier this year do not include leadership development and education as a separate line item in their budgets; instead, it falls under discretionary spending or some other general category.

The survey also revealed a gap between the dollar amount supply chain executives would ideally allocate towards leadership development and education versus the amount their employers currently allocate or reimburse. Almost 78 percent of the executives surveyed would allocate more than $3,000 annually per executive, while only 37 percent of their employers currently allocate or reimburse that amount. More surprising, almost a quarter of the employers (23.7 percent) allocate or reimburse less than $500 annually per executive for leadership development and education.

To put this amount in perspective, the registration fee to attend the upcoming CSCMP Annual Global Conference is $1,645 for members and $2,240 for non-members, so $500 doesn’t get you very much these days.

What’s causing this “underfunding” and is it a problem?

There are many causes, but the most common one is that compared to other investments, quantifying the ROI of leadership development and education is not easy or straightforward. Therefore, when companies look to cut costs, especially during difficult economic times, training and education, across all levels of the organization, are among the first items to get the ax.

The challenge is to connect the dots between investments in leadership development and education (LD&E) to tangible outcomes the CFO and CEO can understand — i.e., items on your company’s P&L and balance sheet. One way to connect the dots is to align the focus of your LD&E investments with your strategic initiatives and projects for the coming year. For example, if your company plans to outsource part or all of its logistics operations for the first time next year, with the goal of reducing logistics costs and/or improving service levels, you can easily justify taking a course on “Vested Outsourcing” or attending a conference focused on outsourcing trends and leading practices.

And yes, this “underfunding” is a problem because, to quote leadership expert Kenneth Blanchard, “when you stop learning, you stop leading.” The link between learning and leadership is stronger today than it was 5 or 10 years ago because the process of continuous learning — of asking questions and seeking answers — sparks creativity and innovation, and it opens the door to finding new and better ways of solving problems and capturing opportunities.

And because we live in a rapidly changing world, this learning process is even more important today. New technologies, business models, competitors, legislation, economic issues, and so on are constantly emerging, which means yesterday’s leading practices might no longer apply and new ones have to be developed and implemented.

So, to paraphrase Blanchard’s quote, in order to remain effective leaders, supply chain and logistics professionals must continue to learn.

But although getting sufficient budget for leadership development and education is a hurdle, it’s not the only one, nor the biggest one. According to the survey respondents, lack of time is the biggest challenge executives face in this area. Who has the time to invest in learning when you already spend long days in planning meetings, addressing all sorts of operational issues, visiting suppliers and clients, responding to countless emails, and so on?

Here’s my observation: Those who invest in learning don’t find the time to do it — they make the time…by making it a priority and eliminating time-killing, non-value-added behavior and activities from their daily schedules.

I have more to say on this topic, but I’ll save it for future postings. In the meantime, what do you think? Is leadership development and education in your budget for next year? How much are you allocating and is it enough? Do you agree that lack of time is a bigger issue than budget constraints? If so, how do you make the time?

Post a comment and share your viewpoint!

Categories : Learning & Leadership
Comments (0)

Is it possible to create a fuel surcharge program that is consistently fair to shippers and carriers?

As we have seen over recent months, the cost of motor vehicle fuel is a national preoccupation. Perhaps this is one reason why rising prices at the pump, and mechanisms such as fuel surcharges that are designed to spread the pain between shippers and service providers equably, attract so much attention.

Another possible reason is that freight practitioners come under pressure to control fuel costs when prices are climbing. Corporate procurement departments are not always familiar with the intricacies of freight transportation. When fuel prices are rising, procurement has been known to increase scrutiny of transportation managers’ decision making and pricing practices.

Even though these competing interests are unlikely to disappear, creating an unbiased surcharge formula that works for all parties in the transaction does seem like a good idea. Such a solution would remove – or at least mitigate – a potential source of conflict between shippers and transportation providers.

One reason why this subject sparks lively debate is that some believe surcharges are not always used to fairly distribute the costs between shippers and providers. The challenges of such programs are highlighted in research carried out recently at the Massachusetts Institute of Technology (MIT)[i]. The graduate students in the MIT Supply Chain Management (SCM) program at the MIT Center for Transportation & Logistics point out that when a shipper modifies a fuel surcharge, “the carrier will counter with an adjustment to the line-haul bid. This means that ultimately line haul rates and FSC (fuel surcharge) schedules are compensating.” This “revenue neutrality” means that “it does not seem possible for a shipper or carrier to establish a new FSC or modify their existing FSC in order to significantly reduce costs (shipper) or increase revenue (carrier),” according to the researchers.

But even if a fair-minded fuel surcharge is desirable, is it possible? The answer is affirmative, providing more thought is given to how the formula is structured.

The number of miles that a truck covers does not necessarily correspond with the point-to-point distances between origins and destinations, for instance. Calculating mileage when driving a car is relatively straightforward: you simply record the odometer readings at the beginning and the end of a trip. In trucking industry parlance this is called hub miles (hub refers to a wheel hub or the actual miles traveled). However, carriers don’t get paid on the actual distance traveled but according to a set of theoretical miles derived from a mileage program.

Another complication is deadhead miles, which can significantly increase the distance covered to deliver a load and hence total fuel consumption. Short haul carriers tend to have higher deadhead mileage and probably worse fuel economy in terms of the number of loaded miles they travel.

The three scenarios below illustrate how these factors affect the miles per gallon (MPG) figure that is the basis of fuel surcharge programs. The calculations show what the real MPG should be in order to fully compensate the carrier for the distance it covers. The hub miles refer to the actual distances traveled by the carrier, and the paid miles are point-to-point map distances as measured by guides such as PC Miler or Rand McNally.

We compiled the figures for illustrative purposes only. Scenario 1 might be a long haul carrier being paid on short miles. The statistics in Scenario 2 fit the profile of a regional short haul carrier with higher dead head. Scenario 3 depicts a long haul carrier being paid on practical miles. The difference in effective MPG between the highest and lowest scenarios is 17%, a significant number.

SCENARIO 1

Assumed Fuel Surcharge  MPG 6
Adjustment for Paid Miles to Hub Miles 5%
Effective MPG for Hub Miles 6.3
Dead Head 12%
Effective total MPG 7.056

SCENARIO 2

Assumed Fuel Surcharge MPG 6
Adjustment for Paid Miles to Hub Miles 5%
Effective MPG for Hub Miles 6.3
Dead Head 25%
Effective total MPG 7.875

SCENARIO 3

Assumed Fuel Surcharge MPG 6
Adjustment for Paid Miles to Hub Miles 2%
Effective MPG for Hub Miles 6.12
Dead Head 10%
Effective total MPG 6.732

The MIT researchers maintain that the escalator — the factor that represents the fuel efficiency of the carrier’s fleet in the fuel surcharge equation — is the “most contentious issue of the FSC discussion.” The above three scenarios illustrate why. The escalator defines whether a fuel surcharge is perceived as “at-market” or “below-market” or “generous” by carriers. Even a generous surcharge is not necessarily well received by carriers because “it forces them to drop their line-haul rates, in effect, placing the cost of transportation into the FSC.”

So what is an equitable solution? I’m not sure there is a single answer. However, one way to minimize the variance in these scenarios is to set a fuel surcharge program base or trigger point as close as possible to your average fuel cost. This minimizes the amount of variance between your fuel escalator and the carrier’s actual needs. The approach is not without risk since a decline in fuel costs will require you to reduce the carrier’s rate, and as a manager you will have to explain why these costs have moved from the fuel surcharge expense bucket to the line haul bucket.

Do you agree, and what is your experience? We welcome your input.

Kevin McCarthy works for C.H. Robinson as a Director of Consulting Services. Kevin has over 25 years of experience in the logistics industry working for a service provider, a small food manufacturer, and a large retailer (Target Stores). Kevin has an MBA from the University of Minnesota Carlson School of Business with an emphasis in Management Information Systems and an undergraduate business degree with an emphasis in Marketing. Kevin speaks on a regular basis at industry events, has written numerous white papers, and is a frequent contributor to TMC’s Managed TMC Blog.

———–

[i] “Risk Sharing in Contracts: The Use of Fuel Surcharge Programs,” Madhavi Kanteti and Jordan Levine, MIT Supply Chain Management thesis, Class of 2011. To view the abstract and Executive Summary, click here. To request a copy of the full thesis, please contact Dr. Bruce Arntzen, Executive Director, MIT Supply Chain Management Program at: barntzen@mit.edu.

Categories : Guest Commentary, Transportation
Comments (0)

When it comes to following supply chain processes and technologies, the supply chain that extends from a food manufacturer’s factory to retail stores has always gotten a disproportionate share of attention. This is natural because large food & beverage and consumer goods companies were the first to use warehouse and transportation management systems, are heavy users of advanced supply chain planning applications, and are leading the way toward demand-driven supply chains based on the use of demand signal repositories.

I grew up in Indiana making summer money detasseling seed corn. Not surprisingly, I also find the farm supply chain interesting. But this supply chain gets far less attention. I was talking to a logistics manager for a feed supplier that delivers products right to the farm. His company needs to achieve flawless transportation execution, which involves more than just showing up on time. Their trucks drive right up a farmer’s driveway and they need to make sure they use the correct driveway – the one that leads to the barn, not the house. The farmer’s wife gets testy if a truck knocks down her shrubbery or flattens her flower beds. The truck drivers also need to know which bins to fill with feed, since there are apt to be several available. In short, fulfillment execution is about delivering the right product, using the correct process, in order to meet the farmer’s expectations, and each farmer has slightly different requirements.

And then there is Monsanto. It has been demonized as a company that produces genetically-modified soybean, corn and cotton seed products. But I consider Monsanto one of the best examples of a company using product development to differentiate its product. I put them right up there with Apple in the area of product differentiation. The company’s trick was to develop a herbicide, Round Up, that only works when used with its seed. In parts of the world where farmers use this combination of seed and herbicide, Monsanto is the clear winner in the marketplace because its products generate higher yields.

My complaint about Monsanto stems from its overzealous use of litigation. The company sues organic farmers or dealers if their organic seed becomes contaminated with Monsanto’s patented biotech seed germplasm based on the legal claim that these farmers or dealers are using its seed without paying required royalties.

Fonterra is also a very interesting company. Fonterra is a leading multinational dairy company owned by 13,000 New Zealand dairy farmers. It is also the world’s largest exporter of dairy products. Fonterra has an innovative supply/demand planning process. This process is complicated because as a cooperative Fonterra is contractually obligated to take all of the milk its farmers produce. The company cannot cut production to balance to demand. Fonterra forecasts how much milk it will produce based on where it rains, using GIS (global informaton systems) and satellite maps to determine the latter. The more it rains, the more grass will grow, the more milk cows will produce. Once it has forecast the supply, the company turns fresh milk into inventory by figuring out how much cheese and powdered milk it can profitably sell over a multi-year period. Having the supply/demand plans in place allows Fonterra to optimally move the milk to the correct production facilities.

Leading growers are using GIS and GPS to figure out which parts of their massive farms should be planted with which crops based on soil books, slopes, frost free zones, and other parameters. This improves yields while reducing fertilizer, fuel, and seed costs.

I had hoped, based on the passage of the Food Safety Act in the US this past January, that farm-to-fork traceability and food safety would make big advances in the near future. As I’ve written in the past, despite scientific and technological advancements in so many areas, such as plant safety, mine safety, driving safety, and disease control, we’re really not improving the safety of our food supply. But after reading the traceability portion of the Food Safety Act a while back, I was very disappointed.

It is technologically feasible to have end-to-end, farm-to-fork traceability using case-level barcode/RFID tracking with product and location codes developed by GS1. If products need to be recalled, then multiple companies could access a database “in the cloud” to quickly trace back to the source of the problem. And of course, when this end-to-end visibility exists, the supply chain can be optimized in new and exciting ways.

However, the corporate interests won. The food safety bill only includes one step up/one step back traceability by the different players in this supply chain. In short, timely recalls will be impossible. For a non-legalese based explanation of the statute, the consulting firm Leavitt Partners provides a good explanation in an article titled “Product Tracking: Impact of FSMA.”

But the farm supply chain will always interest me. You can take a Hoosier out of farm country, but you can’t take the farm out of a Hoosier.

Categories : Food & Beverage Industry
Comments (0)

The high-tech industry dominated the news the past two weeks. Google announced that it is acquiring Motorola Mobility for $12.5 billion; HP plans to sell its PC business, as well as stop making tablets and smartphones; and Steve Jobs is stepping down as Apple’s CEO.

The Google and HP news point to two high-level trends taking place in the computer industry: smartphones and tablets are disrupting the traditional PC market, especially in the consumer sector, which is forcing “old school” players to evaluate their strategies; and manufacturers are bringing software and hardware together to drive integrated innovation.

Of course, Apple was at the forefront of both these trends with its hardware-software ecosystem (iPod, iPhone, iPad, Mac OS, iTunes, and App Store), which is why Apple overtook (for a brief period) Exxon Mobil as the world’s most valuable public company earlier this month.

In my opinion, Google’s acquisition of Motorola Mobility is similar to Oracle’s acquisition of Sun last year. Here is what Oracle’s CEO, Larry Ellison, said at last year’s Oracle OpenWorld conference in reference to the Sun acquisition:

“Our strategy is to take a lot of separate pieces our customers used to buy as components and to deliver complete working systems. That will make our customers’ lives simpler. It is fast and cost effective.”

Ellison also referenced Apple’s success in designing software and hardware products together:

“Steve Jobs [Apple’s founder and CEO] is my best friend; I watch very closely what he does over at Apple. If you engineer the hardware and software, the overall product is better.”

At least in theory, by tightly integrating the innovation paths of Android with Motorola’s portfolio of hardware products, Google now has the same opportunity as Apple to create its own differentiated software-hardware ecosystem. Easier said than done, but it’s an opportunity I believe Google must pursue to fully realize the value of this acquisition.

Now, a few other news items from the past two weeks…

The Con-way news caught my attention because I wrote about a similar topic a couple of years ago (see “Healthcare and the Trucking Industry: Interview with JB Hunt”). As Bert Johnson, Con-way Truckload’s senior director of human resources notes in the press release, “owner-operators typically are not eligible for the same health care plans as those offered to company employees.” The press release goes on to say:

Under the TrueChoices program, owner-operators leasing with Con-way Truckload may select from an array of stand-alone insurance benefits. These products include four medical and two dental insurance options, as well as vision, short-term and long-term disability, life, accident and critical illness policies. The application process is paperless and completed during a recorded conversation that is voice stamped and stored for future reference, if needed.

In short, health care benefits for drivers, especially owner-operators, is a topic that doesn’t get much attention in the press, but it’s an important consideration for carriers, both in terms of cost and in attracting and retaining drivers. Now that the health care debate is heating up again, it’s important to keep in mind that health care costs impact transportation and logistics too.

Speaking of health care, earlier this month TECSYS announced its Supply Management System (SMS), a solution that “addresses the just-in-time needs of the clinical supply chain at point-of-use.” This video provides a very informative case study of the solution in use at Parkview Health, a hospital IDN in Fort Wayne, Indiana. Donna VanVlerah, Vice President of Supply Chain at Parkview, discusses the implementation in the video, including this comment:

“Inventory management at the warehouse is the easy part. There are many software solutions that can help you manage stock within a warehouse; the harder thing to manage is the point-of-use locations, when you have multiple locations where you are trying to manage inventory virtually…so you really need a system that is more robust than just a simple ‘what do I have on the shelf’ and ‘how do I pick, pack, and deliver’ system, and that’s what TECSYS brings to us with the SMS model.”

This is just another example of how hospitals are starting to focus more on their supply chain and logistics processes. For related commentary, see Steve Banker’s posting about “The Ottowa Hospital’s Supply Chain Transformation.”

Finally, social media has reached another milestone: Merriam-Webster announced yesterday that it is adding “tweet” and “crowdsourcing” to its 2011 Merriam-Webster’s Collegiate Dictionary, along with “bromance” and a new definition for “cougar.” If you’re looking for a Friday afternoon diversion, try coming up with a sentence that includes all of those words.

Have a great weekend!

(Note: Con-way and Oracle are ARC clients)

Okay, so the title is not true, but JB Hunt or any other large trucking company could make such an announcement in the not too distant future, just like Terry Gou, the CEO of Foxconn recently made. According to a Xinhua News Agency article, Gou said that “Foxconn will replace some of its workers with 1 million robots in three years to cut rising labor expenses and improve efficiency.”

Or as The Economist put it, “Robots don’t complain, or demand higher wages, or kill themselves”— the latter in reference to the more than a dozen Foxconn employees who have committed suicide over the past year.

Here is what the CEO of JB Hunt would say in my imaginary press release:

“The decision to deploy robot drivers was driven primarily by the severe driver shortage our industry faces, a problem that has only worsened since the new Hours of Service (HOS) and Comprehensive Safety Analysis (CSA) regulations took effect. Robots don’t need to rest, they don’t have families to get back to, they don’t quit to take better-paying jobs, and with today’s sophisticated software, we can program them with advanced safety skills that outperform even our best human drivers.”

That doesn’t sound too far-fetched, does it?

Marc Andreessen, co-founder of Netscape and general partner of the venture capital firm Andreessen-Horowitz, published a very interesting and thought-provoking essay in the Wall Street Journal last Saturday titled “Why Software is Eating the World.” I recommend that you read the essay to fully understand Andreessen’s viewpoint, but this excerpt from the essay underscores his main point:

More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

Andreessen goes on to highlight how software has already disrupted or transformed various industries, including media, entertainment, telecommunications, financial, automotive, oil and gas, and others. He highlights FedEx, “which is best thought of as a software network that happens to have trucks, planes and distribution hubs attached.” And he sees education and health care as the next frontiers for “fundamental software-based transformation.”

If software (or, in a broader context, technology) is truly eating the world, are we humans making ourselves irrelevant?

Technology has already displaced many jobs at the bottom of the work pyramid. Think bank tellers, toll collectors, grocery cashiers, travel agents, video store clerks (to name just a few). While some displaced workers can move up the work pyramid into more “value-added” positions, which are relatively few in number, many more will have to find something else to do. But what?

Sure, technology creates new industries and jobs too. But what happens when the number of jobs displaced by technology outpaces the number of jobs created by it? Will we ever get to that point? Are we there yet?

If software is truly eating the world (and jobs), what knowledge and skills should students acquire to make a decent living in the future? Can our education system adapt fast enough to this change?

And why stop at factory workers and truck drivers? Will the day come when robots and computers, thanks to advancements in software, hardware, artificial intelligence, and bioengineering will replace teachers, doctors, nurses, lawyers, engineers—even CEOs!—at the top of the work pyramid?

What will be left for us humans to do?

(I’m guessing robots will be smart enough to stay out of politics, so humans will continue to dominate that field).

Okay, maybe this all sounds like the beginning of a bad science fiction novel, maybe I’m taking things to the extreme, maybe it won’t be robots that will upend the transportation industry but something way cooler like teleportation.

But here’s my point: Don’t just blindly love technology, be afraid of it too, at least enough to draw a line in the sand, a boundary that it shouldn’t cross no matter how tempting. Just because you can simplify and automate a process with technology, doesn’t mean you always should. Faster and simpler isn’t always better, and “better” is relative and subjective.

Last week while on vacation, I noticed a family eating out at a restaurant. Two toddlers sat silently with large headphones on their tiny heads, each watching a video on their own portable DVD player. Their parents sat silently too, heads down and typing on their phones. The restaurant could have been burning down and they wouldn’t have noticed.

You see, robots don’t whine or throw a tantrum at a restaurant, they don’t need to take a break from work and go on vacation…

Categories : Just for Fun, Transportation
Comments (0)