Archive for March 2012

Last night, I kept telling R (my four year-old daughter) that she had to go upstairs to take a bath, and she kept refusing, insisting that she didn’t have to because she’s taken “like 5 baths this week!” When she finally couldn’t take it any more of me saying “Come on, let’s go!” she storms out of the room and says, “Where’s Mommy?! I’m telling on Papi!”

I don’t know who’s in charge around here, but it’s definitely not me.

In other news…

Imagine watching a football game where the first nine possessions result in punts. That is essentially what has been happening with transportation funding since SAFETEA-LU expired back in September 2009. Although the Senate passed a $109 billion, 2-year bill earlier this month, the House failed to approve it, and with time running out, the best Congress could do was to punt this issue out for another three months. Do you think Congress will score a touchdown on its next possession or will they punt it again in June? Considering that this is an election year, my money is on the latter.

The freight forwarding industry received another black eye this week, as the EU Commission fined 14 air-shipping companies a combined €169 million ($225 million) for price fixing. Kuehne + Nagel and Panalpina received the largest fines, while UPS, Expeditors, and UTi Worldwide were among the other forwarders penalized. This investigation follows others conducted by regulators in Europe, the US, and Asia that have resulted in $1.5 billion in fines. According to a Wall Street Journal article, “The commission… said it found evidence of four separate cartels colluding on surcharges between 2002 and 2007 on some of the largest trade routes, particularly between Europe and the U.S. and China. Members used vegetables as code names when talking about fixing prices, the commission said.”

I wonder which vegetable was the most lucrative for these guys? But more importantly, I wonder what changes the freight forwarding industry will make in how its members collaborate and communicate with each other to prevent this issue from occurring again?

Trade between the United States and its NAFTA partners, Canada and Mexico, continues to grow (up 11.5 percent in January 2012 compared to January 2011), and truck tonnage, as measured by the ATA’s seasonally-adjusted index, increased 5.5 percent in February 2012 compared to February 2011. The bad news: diesel prices continue to rise too, starting the week at $4.147 per gallon, up $0.215 from a year ago — reaching the highest level since the week of August 25, 2008.

Increased trade activity + increased trucking activity + higher diesel prices = ?

SAP and CH Robinson made sustainability-related announcements this week. Here are some excerpts from the SAP press release:

In 2008, Danone set an ambitious goal of a 30 percent global carbon footprint reduction by 2012 across the entire supply chain, including plants and factories, packaging and end-of-cycle disposal, transportation and storage. To meet this challenge, Danone and SAP AG have brought together their expertise and know-how to build an innovative solution that measures the company’s environmental footprint.

 

The solution created by Danone and SAP is fully integrated with Danone’s SAP infrastructure: 80 percent of the detailed data pertaining to its whole product life cycle is automatically collected. The goal is to provide operations managers with actionable information so they can analyze strategic options and take the more environmentally sustainable action, whether it relates to product development, ingredient selection, sourcing and transportation options or even investments. The collected data can be audited and fully traced, and is updated monthly, providing real-time insight.

 

“This solution makes carbon footprint issues everyone’s business. Analyzing product life cycles is a good way to rally all of our employees to our carbon footprint reduction target,” said Myriam Cohen-Welgryn, vice president, Danone Nature. “By making this analysis part of our IT infrastructure, we gain valuable insights for decision-making; it becomes a catalyst for change in the company as a whole. Just as in the past, we made success in achieving carbon reduction targets an integral part of the system used to calculate executive bonuses [emphasis mine].”

Sounds like an interesting case study, and I hope to speak with someone at Danone down the road to learn more. The challenge with carbon footprinting the entire the supply chain is not gathering the 80 percent of the data that Danone claims to collect automatically, but getting the remaining 20 percent, which often has to come from suppliers and other external partners. And the breadth and depth of your carbon footprint definition also makes a difference, as I’ve written about in the past. Nonetheless, the fact that Danone has linked achieving sustainability targets with executive bonuses gives this initiative some teeth.

Meanwhile, CH Robinson Europe announced that it is a steering member of the Green Freight Europe initiative, which strives to become “the leading independent voluntary programme for improving the environmental performance of freight transport across Europe.” Think of it as the European equivalent of the EPA SmartWay Program. According to the press release, Green Freight Europe will provide:

  • A central, independently-hosted database to calculate, validate and benchmark the environmental performance of transportation companies based on their actual data.
  • A platform for shippers and carriers to collaborate and share best practices on eco-efficiency in transport.
  • Carriers of all sizes access to resources that allow them to improve – ranging from financial to technological support.

And just like that, the first quarter of 2012 comes to an end.

Have a great weekend!

(Note: CH Robinson and SAP are ARC clients)

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Many industries have complex supply chains, but the food and beverage industry has some of the most unique issues. A great example of sophisticated transportation execution is Topco Associates, one of the largest retail grocery cooperatives in the United States. Topco provides sourcing, innovation, packaging, label management, quality assurance and nutritional assistance through store brand and private label services. The true competitive advantage Topco provides to members is based on the sourcing and aggregation of its volume. In addition, Topco offers a number of logistic services to its members, including managed freight services, consolidation distribution centers, dairy perishable distribution centers, and rapid replenishment.

Because of the complexity of member labels – 74 brands, 44,000 different items, and more than 1,000 different supply points – as well as the transactional nature of the company, Topco needed a transportation management system (TMS) with robust visibility and reporting capabilities. Topco also wanted to maintain control of its freight, while not adding any headcount.

After reviewing several solutions and deployment options, Topco selected a software-as-a-service (SaaS) solution. Since the nature of the SaaS model allows for an ideal cost structure for many organizations, Topco found the return on investment was large and easy to prove.

To benchmark and gain visibility into the supply chain, Topco leverages a freight rate intelligence tool that is integrated with the TMS. The tool aggregates shipper and carrier market transactions for dry van and refrigerated shipments across North America, and it tracks contract as well as spot markets. This freight rate intelligence tool also helps Topco by serving as a basis for procurement planning while providing an accurate, real-world window into the transportation market.

“The benchmarking tool is fantastic. It allows us to put in any two points and quickly understand what the price we should be paying is against what we are actually paying,” said Michael Cavill, Corporate Logistics Manager at Topco. “By using this tool, we are able to see that we have a 12% opportunity on all our lanes; we can put in an RFP to improve our savings opportunities.”

Another opportunity for Topco was developing a regional carrier base. By leveraging a procurement technology platform, Topco sources more carriers to continually expand its base, which in turn provides far better pricing and bid optimization, as well as contracting rates, capacity and lanes. Topco continues to see the majority of its savings coming from this technology.

A number of Topco’s transportation pressures – reducing costs, increasing volume, keeping headcount constant, improving service levels, and improving metrics that are reported back to the business – were addressed by implementing the SaaS TMS. Topco is able to better manage its transportation process by utilizing reporting capabilities to:

  • Track by carrier real-time acceptance and identify carriers that are not approving or accepting tendered loads very often;
  • Identify paid versus tendered versus upcoming expectations;
  • Run one-time service reports by lane, by carrier or by warehouse.

Topco expects to double its activity volume in the next year, and by leveraging transportation management technology, there will be very little impact to human resources in logistics. Furthermore, the visibility and reporting capabilities of the TMS provides Topco with critical metrics that allow the company to be proactive in a number of situations and focus on root-cause issues and continue to expand its membership network.

Chris Timmer is Chief Operations Officer at LeanLogistics. Chris is responsible for overall strategy, positioning and growth of the LeanLogistics solutions, including SaaS platform development and deployment and the expansion of the company’s service footprint internationally. Chris has over 20 years of experience in transportation and logistics management and he regularly speaks at industry events and has been recognized as a leader in the SaaS solution space.

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Supply chain risk management is often synonymous with natural disasters like earthquakes and floods, and as we witnessed last year, those types of events can significantly disrupt supply chain operations. Economic conditions, political unrest, oil and commodity prices, quality issues, capacity constraints, and the financial stability of suppliers are also on the “risk radar” for most supply chain executives.

But what about social media? Can what people say on Facebook, Twitter, YouTube, and blogs bring your supply chain operations to a halt — or even put your company out of business?

You bet it can, as the recent outcry over “pink slime” in beef shows.

Last April, celebrity chef James Oliver aired a segment on his television show about pink slime (aka “lean, finely textured beef” or LFTB) that went viral on YouTube.

But that was just the smoke coming out of the volcano. The big eruption occurred earlier this month when ABC News published a blog posting titled “70 Percent of Ground Beef at Supermarkets Contains ‘Pink Slime’.” At the same time, blogger Bettina Siegel launched a petition on Change.org to “Tell USDA to STOP Using Pink Slime in School Food,” which received 200,000 signatures in nine days. A few days later, major grocery chains started announcing that they will stop selling ground beef with LFTB, and the USDA announced that it will give school districts a choice of offering beef with or without the filler starting in the fall.

Yesterday, the manufacturer of LFTB, Beef Products, Inc. (BPI), announced that it is shutting down three of its four plants in Texas, Kansas and Iowa. The company will continue to pay its workers for 60 days as it launches “a public relations program designed to restore confidence in its product,” as reported by ABC News. Here are some excerpts from the article:

“After that 60-day period is over, if we haven’t been able to resume operations again by then, we believe we won’t have a decision other than to formally terminate those employees’ employment,” said Rich Jochum, the company’s corporate administrator.

 

The company blamed social media and news organizations [emphasis mine], specifically ABC News, for what it called a gross misrepresentation of its product and process.

 

[Regina Roth, BPI’s executive vice president] said that the company would “attack” the misconceptions in consumers’ minds through social media. [For example, see the company’s video rebuttal to James Oliver’s television segment].

 

“What we’re going through is not something any other companies want to … have to endure,” Roth said.

And all of this happened in less than a month, triggered by a video, some blog postings, and thousands of angry comments on social media sites — the online equivalent of a major earthquake or flood.

Many supply chain executives don’t see the business value of social media beyond marketing and customer service. But as this “pink slime” incident shows, social media can cause demand for your product to disappear almost overnight, or seriously disrupt the operations of a key supplier or customer, and the effects will quickly ripple up and down your supply chain. And it doesn’t matter if the information being dispersed is true, false, or somewhere in between. When you’re caught in a social media storm, the tendency is to run for cover quickly, and decisions are made (and sometimes reversed) in haste.

The bottom line is that supply chain executives need to have social media on their risk radar, and they need to assess the potential consequences of a social media incident, just like they do for a natural disaster and other types of risks, and develop response plans to minimize the impact. The last thing you want, as Ms. Roth alluded to in her comment, is a pink slime incident on your hands with no idea of what to do.

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Future Electronics is a world leader and innovator in distributing and marketing semiconductors and passive, interconnect and electro-mechanical components. Future is a private company, headquartered in Montreal, Canada. The company differentiates itself by providing an exemplary standard of customer service through product marketing, technical solution support, in-depth inventory, professional selling procedures, and highly-reliable distribution systems.

For the company’s supply chain group, this means it must hold a relatively large available-to-sell inventory. Future supports this with a high-velocity supply chain and bonded inventory management and e-commerce programs. This allows customers to practice lean and just-in-time (JIT) manufacturing. According to Bernard Betts, Vice President of Worldwide Operations, “Being private is an advantage for us. For our main competitors, who are public, inventory is a liability; for us, it is an asset.”

Most of the company’s shipments go parcel, although it also does less-than-truckload shipments. Future offers customers a variety of transit times, including next-day deliveries using overnight air. To deliver efficiently to customers with JIT programs, the company has highly-automated distribution centers (DCs) near the leading air carrier hubs. It has a DC near Memphis, Tennessee in the US, so it can do next-day deliveries using FedEx. A second DC in Leipzig, Germany is close to DHL’s air hub. The company’s third DC is in Singapore.

To support the velocity, Future has negotiated late-as-possible airport delivery cutoff times with its air carriers. In North America, this means that even if orders come in at 11:45 pm, the company can still commit to next day delivery. To support this high-velocity supply chain, Future propagates orders backwards from these airport deliveries. If the airport delivery is at midnight, Future determines how long it takes the FedEx trucks to get from its Memphis DC to the airport, how long it takes to load the trucks, and what time the DC pick wave should start to support staging these orders on the dock to meet the truck’s arrival.

In any intelligent supply chain, buffers help ensure that even if something goes wrong, goods will still arrive when and where they’re supposed to. For Future, this means that the warehouse waves start a bit earlier than if everything ran smoothly. The company also provides more buffer at times of the day when multiple trucks are scheduled to arrive at its DC. However, Future Electronics’ extraordinary level of DC automation allows for much tighter buffers than you would see in a manual warehouse.

To support such tight buffers, the company’s new transportation management system (TMS) and global trade management (GTM) solutions had to be smoothly integrated with its Witron Warehouse Management System (WMS). The TMS would be integrated upstream to help with an efficient wave creation process. The GTM would perform denied party screenings and create the proper export documentation once goods were staged on the dock. These systems also needed to be scalable (to support very high volumes); bulletproof (system downtime would be totally unacceptable); and quick (parcel print labels had to print very quickly to support the company’s volumes and velocity).

This led to a rather unique business case. Usually companies implement a TMS to save money in transportation. In Future Electronics’ case, however, the business case was all about DC throughput. If its TMS and GTM solutions were not reliable, order fulfillment would be affected adversely. The two key metrics in the vendor contract were guarantees associated with label print speed and system uptime. Success in meeting those metrics would determine the ultimate success of the implementation. Future also wanted a global solution, a single system that it could use in Singapore, Leipzig, and Memphis, but host at its worldwide corporate headquarters in Montreal. If possible, the company also wanted to obtain both the TMS and GTM from the same vendor.

Future Electronics began the selection process in 2007 and completed it in 2008. The supply chain team spent six months looking at vendors followed by one month negotiating with the preferred supplier.

Future’s selection process included some interesting wrinkles. Once the team narrowed down the final four vendors, it took the obvious step of visiting all four vendors to see the product. But the team also took a very close look at the support capability of each of the shortlisted vendors. It looked at how many people were on the support teams, whether the vendors could provide global 24/7 support, and the support processes.

The selection team also visited two users of each finalist’s solution where team members were careful to speak with actual power users, as well as with the top supply chain executives.

And once again, the team focused on vendor support. Team members asked the users about any issues they may have had with the system and how well the vendor responded. Future expected problems. In fact, it would have been suspicious if users didn’t mention any problems. However, the team was more concerned with how the vendor responded to issues, the path forward, and if it provided a permanent or temporary solution.

So, what was the result of this process? Ultimately, Future Electronics selected Precision Software, a division of publicly-traded QAD, Inc. (and a Logistics Viewpoints sponsor). Precision offers best-of-breed transportation and global trade software, with proven ability to support the product globally. It also provided Future Electronics with an impressive industry reference: Apple.

To date, Future Electronics has expressed satisfaction with Precision. The implementation went fairly smoothly despite some unanticipated requirements for the Memphis DC. The Memphis implementation took longer because while the standard process is to clear customs in the air and then land at a particular airport, Future wanted to be able to clear customs in the air but then have that plane land at as many as eight different airports. While the other two sites were implemented in three or four weeks, Memphis took seven weeks because of these more complex workflows and configuration complexities.

Significantly, Precision was able to meet Future Electronics’ core metrics related to system uptime and speed of printing. This supports Future’s desire to create a high-velocity supply chain with minimal buffers.

Often, when implementing systems, the goal is to get to a standard operating procedure and then leave the system alone. In contrast, Future continues to improve its system. It has a process in which it gets its three DCs to agree on priorities. Then it asks Precision what the enhancements would cost. Some enhancements involve minimal cost, since Precision includes the new functionality in its next release. Some enhancements will cost more because they will not be applicable to the installed base. Mr. Betts told ARC that Precision has been very reasonable in this area. This continuous improvement process benefits not just Future, but also helps Precision improve its offering as well.

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Last October I bought three new shovels in anticipation of another cold, snowy winter. The snow and cold never came, and it was 81 degrees here in Boston yesterday. This coming October I will buy a snow blower.

Acquisitions and new software products headline this week’s news.

The bigget acquisition story of the week was not Amazon.com buying Kiva systems; it was UPS buying TNT Express for $6.77 billion, which strengthens the company’s presence in Europe and puts FedEx on the defensive. According to the press release, the combined company will have annual revenues of more than EUR 45 billion ($60 billion), with around 36 percent of the revenues coming from outside the United States, up from 26 percent today at UPS.

There are four main ways logistics service providers look to drive growth: expand globally; introduce new services; target new industries; and penetrate the small and midsize market. UPS’s deal clearly falls in the first category, while you can argue that Amazon’s deal strengthens the company’s fulfillment services to small and midsize businesses.

Wait, Amazon.com is a 3PL? You bet they are! (See “Amazon.com: A Customer-Centric 3PL” and “Amazon and the e-Fulfillement Journey”).

On the technology front, LeanLogistics announced the upcoming release of On-Demand TMS® version 12.1.0. Among the new features and improvements: enhanced multi-modal planning, embedded ocean sailing schedules, booking management as well as online storage of trade documentation, and tools to calculate and report greenhouse gas emissions. This is just another data point in a trend that I first wrote about in April 2009: the footprint of transportation management systems (TMS) continues to expand, with continued emphasis on adding ocean shipping, fleet management, and parcel shipping functionality…as well as vendors entering new geographies and expanding their global presence.

Not too long ago, the general consensus was that “WMS in the cloud” was a far-fetched idea due to concerns about response times and integration with other systems. Today, WMS has joined the ranks of other enterprise software solutions that are being offered in the cloud. The latest entrant is Accellos, which launched its AccellosOne Warehouse Management System (WMS) in a cloud deployment option. According to the press release, key benefits of AccellosOne Cloud WMS include: flexible subscription pricing; technical administration such as back-up, disaster recovery and system availability monitoring; software updates; and standard integration to many accounting and ERP packages including Microsoft Dynamics, Sage, and SAP BusinessOne.

FedEx reported revenue of $10.56 billion for Q3FY12, a 9 percent increase from the same period a year ago. However, the company reduced its forecast for global economic growth from 2.9 percent to 2.3 percent, and plans to idle some aircraft and reduce its workforce as a result.

Supporting FedEx’s forecast is news this week that China’s manufacturing activity shrank for the fifth straight month, while in Europe, “the purchasing managers’ survey, compiled by Markit Economics, slipped to a three-month low of 48.7 in March from 49.3 in February,” as reported in a New York Times article. “In that survey…a reading below 50 indicates a contraction in economic activity. The Markit survey also pointed to a decline in German manufacturing. That is particularly worrisome, because German exports have helped to compensate for sluggishness in Southern Europe as countries like Italy and Spain cut government spending to reduce debt.”

The roller coaster ride continues.

Have a great weekend!

(Note: LeanLogistics and Oracle are ARC clients)

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