Saturday, April 28, 2018
First, lets deal with commitments. This word really lacks meaning in this industry but I will try to define it. The definition is simply "Do what you say you are going to do" and regardless of tight capacity or not, this is something everyone should be able to do. Why is freight being left on docks after companies have made commitments (through tender acceptances) to pick up the freight? If there are no drivers to pick up the freight be up front and honest with the shipper. Tell them that. I fear too many companies are just "sweeping up" tenders then, over time, figuring out what they will do and what they won't do (sometimes by just not delivering at all). I cannot figure out if this is purposeful or if it is just horrible execution.
This also brings me to the idea that we are blaming ELDs for this crisis which seems ridiculous to me. Essentially, when someone says that, they are saying they used to operate illegally but now that there is an electronic device they can no longer be illegal. Oops.. that type of argument gets you in trouble.
So, this brings me to my second and final point: Don't listen to what the sales people tell you, listen to what the CEO's of the companies tell the investors. The key question you should be asking carriers when they say they need higher rates to offset the capacity crunch is what are they going to do with that money? If they are plowing back into driver investments then I am all in. If they are increasing dividends and or buying back stock then you have to wonder who is kidding who.
My fear is this issue is going to be a circular problem that will never be solved. Let's follow this logic:
1) How is leadership compensated? Increasing stock price.
2) How do you increase stock price in a tight market with raising rates? Buy back stock and raise dividends.
3) Will the stock price go up as much if you invest the money in driver pay versus doing #2 above? No.
This says we likely will not see driver investment or productivity investment. Rather, we likely will see shareholder investment which will make the problem much worse.
Please prove me wrong by doing the right thing.
Sunday, January 7, 2018
The question raised by the investigation was essentially whether these were statements to investors so they could make a good investment decision or where they "signals" to the competitors? For example, does the statement "disciplined capacity control" state a good business practice to the investors or does it state to the competition "If you don't add capacity I won't add capacity".
As part of the post, I posited this exact question could be applied to the trucking and freight transportation industry. Every conference I have been to and every investor deck I have seen usually has the freight transportation executive using these exact words.
The example used in the lawsuit is, according to the article:
"...airline officials repeatedly assured one another on earnings calls and at conferences that exercising "capacity discipline was good for the industry"Sound familiar?
It is a fascinating question and it really puts the companies in a pickle. If they do not disclose "material" items to the investors they can get sued for not disclosing but if they disclose too much they can (and are) get sued for collusion.
Well, there is an update to the story and I think it is a big deal. In today's NY Times it is reported: Southwest Airlines Settles Suit but Denies Colluding to Keep Ticket Prices High. Southwest has agreed to pay $15M in cash and "provide extensive cooperation" with the on-going investigation against American Airlines, Delta Airlines and United Airlines. "Extensive Cooperation is defined as:
"a full account of facts relevant to the plaintiff's case as well as a series of informational meetings and interviews with industry experts and Southwest employees facilitated by the company."How could this effect trucking:
- We all have been to the many conferences where this type of language has been used by top executives. Could the airline case be used as a precedent for a case against transportation?
- Does SWA have something and essentially became the first one to talk - get a lighter penalty for turning? $15M is a lot more than just "nuisance" money. Something is going on here.
- Will trucking companies start being a lot more careful at conferences and public statements as a result of this settlement?
Sunday, December 24, 2017
First, this is a very normal activity as companies go upstream and downstream in the value chain to try to capture as much as they can in that chain. Remember your business classes: The value chain starts essentially at the extraction of raw materials and ends with the consumer (some say it goes through post consumption disposal and return of unconsumed raw materials to Mother Earth. I agree with that however let's leave that alone for now.). In between extraction and consumer you have activities such as transport of raw materials, conversion of raw materials to something of value, transportation to distribution, merchandising (either on line or in store) and final mile delivery (whether completed by the consumer or completed by the seller) to the point of use (the home).
Three things you will notice in that scenario:
- Conversion is very specific to a good. Meaning, it is not fungible and if you wanted to capture that portion of the value chain you would have to buy a lot of companies. You may want to vertically integrate a very high margin company but not all of it.
- Transportation is pervasive across the value chain all the way back to the raw materials movements to the final mile.
- Delivery Final mile (v. customer pick up) is growing rapidly and it touches the consumer. This makes Final Mile transportation part of the merchandising and consumer touch point process - and this is why retailers want to vertically integrate. The impact of final mile on the consumer experience and consumer loyalty is huge.
- Buy technology to facilitate the final mile but not buy the assets. Think Target's acquisition of Grand Junction. Or their more recent acquisition of Shipt for grocery shipping. Even Wal-Mart's acquisition of Jet.com would be part of facilitating this process. (The biggest issue with the Wal-Mart acquisition was one of culture - Wal-Mart eliminated Jet's long standing practicing of having drinks and happy hours in the office. That since has been reinstated).
- Buy transportation assets and make them "in house" assets. This is where the discussion of buying XPO comes in.
- Build the transportation assets yourself - i.e., Amazon's acquisition of planes and doing "power only" where Amazon owns the trailers, are examples of this. Many retailers follow this power only model. The benefit of this is you can swap carriers pretty quickly and you can leverage small carriers since the retailer owns the trailer. The problem with this strategy is the "crunch" is with the power not with the trailer.
- Develop "Vested" relationships which give the specific retailer "most favored nation" status with one or more asset providers. While this idea is championed by Kate Vitasek at University of Tennessee (read about this concept at The Vested Way) it really was "founded" in the logistics industry by the infamous J.B. Hunt agreement with the BNSF. This gave J.B. Hunt a preferred status with BNSF which, to this day, makes it impossible for other carriers to really compete with JBH. For the most part, the rest of the industry fights over what JBH does not want. If JBH wants it, they win.
- Work within financial risk mitigation constructs. An interesting new development is to protect capacity (does not really help with final mile) by participating in the new futures exchange developed by Craig Fuller called TransRisk. This will definitely assist with the stabilization of rates and capacity however it is at least one year away from implementation and, while I absolutely think it will work, it is unproven.
- No one is buying XPO and if they did the Government would stop it. XPO, as it currently is constructed, is too big and would have too big of an impact on industry assets to allow one retailer or on-line provider to buy it.
- They could split XPO up and buy pieces of it. While this would probably make it easier to get through government regulators, I believe this action would be value destroying not value creating. For example, the final mile portion of XPO was created by XPO acquiring a company called 3PD. 3PD are executives who came out of retail and therefore just "putting it back" could be possible. Combine 3PD with the final mile technology of Optima (which is a final mile technology company XPO purchased back in 2013) and you may have a platform for a good final mile service.
However, don't forget, neither XPO, 3PD or Optima own the transportation assets. They merely find, qualify and route. The "work" is still outsourced to smaller delivery companies and therefore this would be more of an example of buy technology (along with getting very good people) versus buying transportation assets.
The big question this would leave is what happens to the rest of XPO? Is it just a carcass laying out there to be pecked at by private equity investors? Does Brad Jacobs still run it? Are the pieces as valuable as the whole? I think not. I think the value of each piece of XPO diminishes significantly as other pieces get sold off. This is why I believe splitting XPO up would be value destroying not value creating (unless, of course, the buyer of a piece is willing to either pay a huge premium for the portion they buy or be willing to immediately divest of certain portions of the "carcass")
Saturday, October 7, 2017
UPS chose to be in denial by having the CEO say:
"We don't believe that Amazon's strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we're investing in technology, we have a great mutual relationship with them,"I think most of the analysis, and the response from Fed-Ex and UPS miss three critical points:
- Drop Ship
Capacity: UPS and Fed-Ex have disappointed at the crunch seasons more than once and I believe Amazon is just sick of it. At some point you have to take destiny into your own hands and take control of it. Part of this is what stage the companies are at in their development. UPS and Fed-Ex are in the "protection of business" stage and Amazon is still in the "Grow.. grow.. grow " phase. What does this mean? It means UPS and Fed-Ex are big companies who only invest when they know 100% it is a "sure thing".
Amazon, on the other hand, is investing like mad. Therefore, UPS and Fed-Ex cannot keep up with the explosive growth and maintain all their other businesses. This shows itself in a lack of capacity at crunch times and so Amazon, as they always do, have taken their destiny into their own hands.
Drop Ship: In Amazon's statements what is also clear is they want to control the drop ship experience from vendor's warehouses. In this case the consumer orders from Amazon, the order is passed to a vendor, the vendor maintains the inventory and warehouses it but a Amazon truck picks it up and delivers to the customer. Think about this as the touch points the customer is directly involved in are:
- Order experience
- Delivery experience
- Payment experience
Friday, October 6, 2017
What makes a transformation action great and what can cause them to fail? Obviously, you have to get the "supply chain technicals" correct. If you are redesigning the network, redesigning the fulfillment methods or moving to modern leading edge technology you will need to get the technicals right. However, my thesis is this is less than 1/2 of the success criteria. Once you have this right, the biggest challenge is change management. You will need to lead an entire company and team into the new environment and if this is not done well, all the technical genius in the world will not make your supply chain transformation work.
I am going to address this in a series of posts and this first post is going to cover the definition of change management. Daryl Connor in his book "Managing At The Speed of Change" defined it this way:
"Change management is a set of principles, techniques, and prescriptions applied to the human aspects of executing major change initiatives in organizational settings."For me, the key words for this are the "human aspects" of change. While we tend to be deep into the technology, more and more supply chain managers are forgetting the human aspects of change. When you try to transform a supply chain (or dare I use the term "disrupt") every person around you is thinking:
- Why do we have to change? Everything is working fine now and I like what "is". Why the change?
- What is my new role in the new environment? What skills will I need in this new world?
- Do we have the fortitude to "stick with it" or is this just another "flavor of the day"?
- Will this really make us industry leading?
- Is the rest of the enterprise supporting this change?
Saturday, August 26, 2017
- The war between Amazon and Walmart heats up with the use of Google Home: In Kevin O'Marah's great piece in Forbes (Google/Walmart: The Brutal Future of Retail Supply Chains) he discusses the impact of voice assisted purchasing. While some thought Amazon had this locked up, Walmart joins forces with Google and given Google's penetration into the virtual personal assistance market this may give Walmart an edge over Amazon. Other implications of this:
- Data flows directly from consumer to the manufacturer and could be the device that moves power back to the manufacturer and away from the retailer.
- Price discovery by the consumer will be faster and will result in a brutal retail environment.
- As Kevin states, if you are on a calendar based S&OP process, you may be too slow to adjust for what will be a rapidly changing consumer.
This war shows retailing is really a war over efficient supply chains.
|CCJ Report on July Truck Tonnage|
|Inventory to Sales Raio - Updated August 15, 2017|
Friday, August 25, 2017
- Treat everyone with dignity and respect... always.
- Help people look to leaders to solve problems not just point them out.
- Lead from the front and on the floor. You cannot be a great leader sitting in an office. In fact, ditch the office as it is too tempting to hide out there.
- Be visible always. If you have 3 shifts then you have to work third shift as much as you work first. If you can't or are unwilling to do that then you cannot lead a 3 shift operation. That simple.
- Communicate, communicate, communicate... every day that goes by where you are not communicating, a gap is being created, a void appears and the associates fill the void with rumor and innuendo.
Thursday, August 10, 2017
You should read this article and understand the points of vulnerability in your supply chain for cyber attacks:
- Aggregators and Service Providers: You may have a process which you are not even aware of where data goes from you to a third party, it is manipulated, then sent back to you. Simple process. But if that third party is not certified and is rendered useless by an attack it can shut your processes down. Think about it this way:
- You are using a third party company to take demand information and create a production forecast and schedule.
- That schedule or forecast is then fed back to you and input into your MRP.
- The third party is attached by cyber criminals
- Your production shuts down.
- Tier II and Tier III Suppliers: There is a reason they are able to cut costs and sell to you cheaper. There is something they no longer are doing. Don't let them compromise on cyber security and you need to follow up and check and check. If their plant goes down, the JIT supply chain goes down with it.
- Think Global: Remember, your suppliers have suppliers in countries you may not be able to point out on a map. Make sure you can map out your supply chain then overlay a heat map of where cyber attacks come from. This will help you identify your vulnerabilities.
- Stop Talking About Cutting Costs and Start Talking About Increasing Revenue: The stereotypical supply chain manager prides themselves on cutting costs. They talk about taking inventory out, moving to cheaper modes of transportation, consolidating warehouses or, God forbid, outsourcing to get cheaper labor.
What they don't talk about is "How can I make the supply chain better to get products to the customer faster so we can drive sales". Yet, this is the question they should be asking and this is the question the Amazon supply chain managers think about every day. If you want to know what a "cost centric" supply chain looks like, look no further than Sears. They are cutting costs right out of business.
- Get Supply Chain Managers Closer to The Sales Force: If your supply chain managers are not on the road with sales people periodically, meeting with customers and listening to the nuances of what they want, you are not a customer centric supply chain. I have met a lot of supply chain leaders who say they are customer centric and then I ask them to name (by name, not company) 5 customers who are in a position to buy their product (not the logistics people of the customer company but the actual customer) and they almost never can do it.
Also, if you are selling to an intermediary (i.e., MFG selling to retailer) don't forget the ultimate customer is the consumer not the intermediary. The intermediary is only going to buy your product if the consumer is pulling it through the channel. Because of this, you have to understand the real needs of the consumer.
- Velocity is a Weapon: Customers and consumers want speed. When supply chain managers cut costs that is generally a euphemism for cutting speed. It generally means, buffering inventory, slower transportation modes, conducting mode shifts by "trapping freight" and building truckloads etc. Make no mistake, these are all revenue and sales killers. Speed wins!
- Look to the Future: Don't build your supply chain for today! Look to the future. What will customers and consumers want in the future and ensure your supply chain can flex to the future. This is one of Amazon's super secret sauces. 10 years ago who would have believed people would pay $100 per year to get access to 2 day or next day delivery? The only company that did was Amazon which left others far behind - in some cases so far behind they can never catch up.
- Listen to the Language Your Company Uses and Change it!: Here is what I mean: When Amazon discusses customer service they say, "2 day delivery". When others discuss it (and I have heard a lot of retailers say this) they say "next day shipping". Notice the nuance here? Amazon's statement is customer centric - when will the customer receive it. The other statement is internally focused - when will I ship it. This is a critical difference and it highlights the issue.
Monday, July 31, 2017
I am going to formulate a more detailed post on this tonight and I think this is a topic needing coverage. It is all about how Amazon got where they are.
The central point: Don't blame Amazon for killing retail. Amazon was and still is insanely focused on the customer which causes them to innovate around CUSTOMER needs and not internal politics.
While other companies are trying to figure out how to cut out value for the customer to improve costs, Amazon figured out what will "wow" the customer and then figured out how to do this at an acceptable cost.
If others would get maniacal about serving the customer, they could compete. The funny thing is most won't do it.
Saturday, July 29, 2017
- Foxconn - Beside being a great job growth engine what does this really mean for those in the supply chain? As you probably heard, Foxconn, the mammoth supplier for Apple and other electronics companies has decided to put a large plant in SE Wisconsin. This will clearly generate jobs, will bring sub suppliers to the region and will make the drive from Chicago to Milwaukee a nightmare given the number of trucks that will move from the Chicago intermodal yards North.
But, the real finding here is that the cost of production in the US is starting to come in balance with the equation of foreign manufacturing. The "equation of foreign manufacturing" includes the following components: Cost of MFG + Cost to move to port + cost of ocean / air + Cost to move from Port inland + GLOBAL GEOPOLITICAL RISK + SPEED + INVENTORY CARRYING COST. The last few I have capitalized because these are normally considered "soft costs" (and therefore get ignored by many at their own peril).
More will come and the "heartland" of America is where they will go due to transportation and now labor costs. If you are a cartage company and haul boxes out of the Chicago rail yards, this is a happy day for you!
- The Border Adjustment Tax is Dead - This was sold and designed to adjust the cost of goods coming over the borders to be roughly equal to the cost of manufacturing in the US. It was to penalize those companies who move out of the US for the purpose of evading items such as labor laws, environmental laws etc. When it was first proposed the stocks of those supply chain companies benefiting from cross border activity tanked. Well, as they say, if you wait long enough good things will come. The border adjustment tax is dead. If you make your money moving products across borders and from the ports your money is safe.
- ELDs are Dead, No They are Alive, No They Are Dead... This continues to be a back and forth. For the the life of me, I cannot understand why the industry is against this as it will level the playing field between those who cheat and break the law and those who try to run a lawful company. But, alas, it appears a lot of people are against it. Despite 21 Congressman co-sponsoring a bill to delay the mandate for one year, the prevailing wisdom this week is the delay is dead and ELDS will go in as mandated.
- Amazon Files Patent for Underwater Warehouses - I am going to leave this alone and just say nothing amazes me anymore. I will need to have a lot more thought about this and conversation before I fully understand why you would want to put stuff underwater. Is land that expensive? Are the rich going to start moving to offshore locations which will need to be serviced from the sea? Who knows.
- Drivers - Hire Felons? - My guess is when you first saw this you figured I had lost my mind and this is the craziest thing you have heard of. I now ask you to take your emotion hat off and put on your thinking cap. Forget the social arguments, the fact is we have millions of non violent felons in this country who are no longer incarcerated. There is a shortage of almost 200K drivers. The solution seems like a match made in heaven. That courier driver you had who just delivered a package to your door? Today, he could absolutely be a prior felon. Why not allow a non violent felon deliver to a warehouse dock?
Thursday, July 20, 2017
It is incredible it took this long for the marriage made in heaven to happen. Kenmore is the crown jewel of Sears and Amazon has always wanted to capture appliance sales. But how? The logistics are daunting.
Enter Kenmore and enter Sears Logistics (SLS). I have always said, the best logistics company in the country is "buried" inside Sears. This has been my contention for over 10 years. SLS had perfected final mile, especially final mile for big box items, long before "final mile" was fashionable or an industry.
Ask your parents if you don't believe me. A SLS person delivering to your home has been a staple for years.
Now, combine this with the Amazon order platform and the comfort and reliability of Kenmore and you have a powerhouse.
More to come on this but if Amazon uses SLS they have picked up an incredible scoop. And, soon, they will just buy the Kenmore brand, bring SLS with it and use the few Sears stores left as showrooms.
Sunday, July 9, 2017
Recently, a lot has been made about the current measurement decreasing (ever so slightly). As you can see below, they had been going down for most of 2016 and now have stayed steady in 2017:
|Inventory to Sales Ratio through June 14, 2017|
As a supply chain professional I also tend to cringe when I see the contents of this graph. To discuss this, let's ask ourselves why we have inventory in the first place. Two key tenets of supply chain management:
- Inventory at rest is a bad thing: Said a different way, bad things happen to inventory. It can become obsolete, spoil (in the case of food), get lost, stolen or damaged. When inventory rests, you should see opportunity.
- Inventory exists as a buffer for lack of information: In a world where you have perfect information (i.e, perfect forecast, perfect purchase signals, perfect transportation signals) you have little need for inventory. Given this, more inventory relative to your sales indicates your progress in S&OP (Sales and Operations Planning) information accuracy is stalling. You are not improving this information flow, rather, you are making it worse which drives inventory levels.
Friday, June 30, 2017
- YoY shipments are up 7.1%
- YoY expenditures are up 7.4%
Monday, June 26, 2017
But then I re-read an article I posted in March of 2013 titled, "The Battle for Retail is Really The Battle of Supply Chains". In this article I opined that the big retailers are all essentially selling the same products, many of which have been or very quickly are commoditized. This means the real value add of a retailer is in their supply chain.
I also concluded in this article that Wal-Mart should be able to kill Amazon as they already have the bricks and mortars along with the capability of great e-commerce. Finally, I concluded that due to the age old issue of The Innovators Dilemma which was created by Clayton Christensen in his seminal book of the same name. Unfortunately, for the last 4 years, and for Wal-Mart, my prediction came true.
The good news is Wal-Mart, like the sleeping giant, has now been awoken. With its purchase of Jet.com it admitted it needed great e-commerce and, in the same transaction, admitted it could not do this on its own. The big behemoth could not innovate so it had to buy. That is OK as it is at least now on the path to competing with Amazon.
But then a funny thing happened. Amazon admitted it could not grow bricks and mortars fast enough in the grocery space to compete so it made a bold purchase. In this purchase, Bezos is essentially admitting he wants to move a little more towards a Wal-Mart model and also showed, in this purchase, the only reason Wal-Mart has not crushed Amazon is due to lack of execution and lack of strategic foresight.
Well, no more. I believe Wal-Mart truly has awoke and they are starting to adjust their supply chain very quickly to mirror a "be where ever the customer is" retailer. This means if you are out and need something quickly, you can pull into your Wal-Mart and get it. If you want to order on line and have it shipped, you can do that. If you want to avoid shipping charges, you can buy on line and pick it up in the store. Basically, any configuration of how the consumer wants to interact to get the products she needs, Wal-Mart will be there. Wal-Mart can ship from DCs or from any of its 4,177 stores of which 3,275 are super centers. Wow! Wouldn't Amazon love to have that footprint.
If Wal-Mart executes they have a chance of beating Amazon. I recently used Wal-Mart on line to buy a UPS for my computer. It was a great experience, shipped fast and was less expensive than Amazon.
I do think the speciality retailer is dead. Consumers want the "endless aisle" that Amazon and Wal-Mart provide. They do not want to bounce around to 100 different websites to find what they want.
Wal-Mart can do everything Amazon can do (or they should be able to do it) yet Amazon cannot come close to all the capabilities of a Wal-Mart. If I were investing, the only stock I would buy in the retail space is Wal-Mart. I would then go to their shareholders meeting and scream two phrases: "Wake Up" and "Execute"!
Welcome back Wal-Mart - I missed you!
Monday, June 5, 2017
I am sitting on a plane right now, on the Tarmac, moving nowhere. This reminds me of another aspect of a truly customer centric supply chain: Define terms as your customer sees them and not for your own internal metrics.
So, the airline app says I have "departed" and in their mind, I am sure I have. But in my mind, I am sitting in a tube, on a tarmac, going nowhere. I, the customer, consider departed to mean I am up in the air and heading to my destination.
Lesson:. Define terms from a customer lens, not from an internal lens. When you do this, you will be on your path to customer centricity.
Friday, June 2, 2017
As I work with companies I continue to emphasize that it is important for our supply chain to drive revenue. Great supply chains (Read: Walmart and Amazon for example) are core to the company's revenue strategy and not just an evil cost to reduce.
But, there is this pesky thing called "profit" that also has to exist to make a world class supply chain complete. The question really is what do you do first? My view is you take care of the customer then figure out the cost. If you are designing supply chains you are in a war with your competitors and the weapons of that war are speed and availability. Customers, whether they be industrial, commercial or consumer are asking for the same thing: They want what they want, when they want it, in the right quantity at the right price. Those who figure all this out will win. Those who do not will perish. What are some things you should do now to get on the path to figure this out? A few ideas below:
- Start with the Customer: Don't lift a finger to design a supply chain until you have personally interviewed, visited with, surveyed and embedded yourself into the customer. This does not mean asking sales their opinion. Sales is a first derivative source. Go right to the customer.
- One Size Does Not Fit All: Design with the idea of multiple supply chains to service specific groups of customers.
- Use Pricing to Give The Customer Options: You need to probe what customers are willing to pay for and what they are not willing to pay for. Amazon is a master at this. Do you get next day delivery? Yes... Do you pay for it (through Prime)? Yes... Do most people spend more on Prime fees then they get back in avoidance of shipping costs? Most likely. The key here is to not say no to the customer, just provide options.
- When In Doubt, Provide The Service Then Figure Out The Cost: Many times there just is not enough time to ensure everything is perfect before you decide which direction to go. But, once you are confident you are "close enough" to figure out the cost, launch! There is no better way to ensure you have pressure to lower costs. This is not a "ready, shoot, aim" strategy but rather it is one that avoids a supply chain being stuck in a conference room for years.
- Constantly Reevaluate: The industry is moving too fast to design a supply chain every 10 years. You must constantly reevaluate where you stand relative to customer demands and competitive forces.
Tuesday, May 2, 2017
Then you need rail networks, highway networks (Jax joins I-10 and I-95 - two may corridors with 10 being East - West and 95 being North - South), good employment and space for warehousing. All of this has to be wrapped around a good business climate.
Jacksonville Florida has it all and more! What is the more? Jacksonville is the gateway to one of the most populous states and fastest growing states. What better place to be for logistics then to be where the people live.
It truly is a great logistics hub. Congratulations to all who have helped make it the true "Gateway to Florida".
Sunday, April 30, 2017
This feedback has been around for ages on 3PLs and I always wondered why it has not been addressed. In fact, I would say the industry has really run away from what was true 3PL work and the brokerage industry has co-opted the term 3PL for itself. 3PLs today are mostly just brokerage houses.
So, why all this talk of "partnerships" yet bidding still happens at a torrid pace to reduce costs. A consumer of 3PL services should ask themselves the following questions when looking for cost reduction:
- How will value truly be created? Remember, taking money out of one pocket and putting it in another does not add value to the extended supply chain. This activity will just merely reallocate the value which is already there.
- Is the value truly sustainable? For example, building cost reduction from paying below market wages is simply not sustainable. Something will give. Yet, I hear consumers of services say things such as " I don't care how they do it, just do it".
- Are the governance structures supporting the relationship aligned with the overall goals of the program? Too many times I hear the terms "partnership" and "vested relationships" yet when you look deeply at the contracts and the governance structure, it becomes clear the relationship does not support overall value creation.
- Make contracts long enough for the 3PL to recover investments. We ask the 3PL to invest in huge amounts of capital (technology, buildings, automation) yet we write the contract for 3 years. Imagine how expensive this is if the 3PL has to recover this investment in 3 years!
- Build a payment structure that allows the 3PL to gain from applying innovation. If the payments are fixed, why would the 3PL invest in innovation? They need to benefit from this and there are payment structures which allow that to happen.
- Build a management governance structure which ensures the 3PL can survive. For example, in fast growing wage environments, do you really want the 3PL to keep wages low and thus attract the not so best employees? That is what they will be forced to do if you do not have a structure which allows for real business decisions such as raising wages and everyone sharing in that cost.
Sunday, March 26, 2017
- The family remains firmly in control - in fact the company will still be considered a "closely held" company.
- Family will net about $230M
- $359M to the company of which roughly half is used to pay down debt and 1/2 to buy chassis.
While there is optimism, February retail sales at .1% definitely slowed this movement.
There is also the wild card of autos. Ford has already warned on inventory and slow sales which means a lot of capacity becomes available as the automotive industry adjusts (read: idles plants).
More to come but let's call this a "good sign" if you are on the capacity side and an "early warning" if you are on the shipper side.
|Inventories to Sales Ratio|
The Stay at Home Economy (SAHE for now on) is something that has huge impact on how our supply chains work. First, lets explore why this is growing:
- Technology: I have written a lot about how technology miniaturized or digitized just about everything and it continues at a rapid pace. My music, my video and my books are all digitized so I get them on demand and in digital devices. No need to shop or go to a central place to watch or listen. In fact, my home theater and home audio equipment rivals that of professional locations.
- Customization: Because virtually everything is available with the touch of a button, I essentially customize my experience to an audience of one - me. Before, I would have to compromise and listen, watch or do some activity that perhaps was not exactly what I wanted to do. Now, I do exactly what I want to do.
- Control of the Temporal Aspect of Activity: I do what I want (see #2 above) when I want. I no longer have to worry about "start" times or what day of week I am doing something. I do what I want and when I want to do it.
- Food Delivery: This is the last bastion of home delivery e-commerce and it is coming. It is far more complex but with companies building "Meals ready to eat" (No, not the MRE's from the Army days but companies such as Blueapron) and with your local supermarket delivering, the last "big" reason to go out is starting to go away.
- Security: This is an unfortunate part of life these days but it is a fact - the more the aggregation of people occur at events, the more risk there is. Why take that risk? When I am at home I feel far more secure.
"When Domino's Pizza (NYSE:DPZ) crushed earnings and Target (NYSE:TGT) got hammered, Cramer is convinced that the stay-at-home economy is getting strong.
The comparisons between these two stocks are perfect metaphors for the current environment. Stocks such as Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Domino's allow people to stay at home and save money as well. Domino's delivers pizzas to you at home while Target requires you to leave the house.
The bricks and mortars are losing in a world where consumers see stay-at-home as an advantage. This also means that companies like Home Depot (NYSE:HD) and TJX Companies (NYSE:TJX) are rallying as they make the home better.
Netflix, Amazon and the likes have made entertainment reach home, when you want, how you want it. Gaming companies create engaging video games which people play at home. With social media, consumers are aware what's going on and do not need to leave the house. It's just that things are different now compared to how they were 10 years ago. The stay-at-home economy is touching every aspect of people's lives and it's not going to change soon."I think it is clear the SAHE is here to stay and it is dramatically changing how people behave and shop. My next entry will be on the implications of your supply chain - Hint: If you are not working to support the SAHE you are quickly becoming obsolete.
Note: I am not making any value judgment pro or con on the SAHE - that is for social scientists and psychologists to develop. I am merely reporting what is clearly happening and the impact on supply chains.
Sunday, January 15, 2017
The proposals being made would fundamentally change the economics on a lot of business decisions relative to the development and build out of supply chains. One example is the proposed "Border Tax" which could be as much as 35% on imports. As the Wall Street Journal pointed out, President Elect Trump is even threatening a foreign company, BMW, with a "border tax" if they move production to Mexico. The Wall Street Journal reports toy manufacturers are struggling with what should they do in this age of the popular uprising against global supply chains. And, even Constellation Brands is "bracing themselves" for this tax.
For those deeply involved in global supply chains the question being asked is just exactly what should they do in 2017? Do they develop supply chains as if this is not happening? Do they retreat and prepare for this tax by re-shoring? Do they automate (keep plants in the US but eliminate people? All of these questions are up in the air and the uncertainty of whether the threats are real or just political positioning will cause supply chain investment to slow down.
Companies can do one of three things:
- Stop major investment and wait for more certainty.
- Continue to invest and "take a bet" where this will land
- Ignore it and fight it - risking one morning that the CEO wakes up one morning and finds their stock down 10% due to a pointed tweet.
- Global supply chains are here to stay and no one can stop them or revert them. How can toy manufacturers all of a sudden make affordable toys in the US? The infrastructure for the global supply chains have already been built. They are not changing.
- Any time you introduce economic distortion (i.e. a border tax or favoring one industry over another) you risk abnormal behavior in investment. Eventually this falls apart and a collapse occurs.
- When you threaten major disruption you force things to get put on hold until clarity emerges.