Turning Over Procurement of Carriers to a 3PL?

I have met many companies recently who not only have outsourced their operations to a 3PL but they have also turned over the procurement and carrier relations functions as well.  I think this is a bad idea.

I believe this for at least three reasons.  First, and the most obvious, is you have turned over the entire budget to a company which, most likely, has conflicting interests to your own.  At some level, the 3PL is interested in making money for their company and many times actions which accomplish this do not also help the client company.  Can you develop complex gainshare algorithms which limit this problem?  Yes, but it is very unlikely you will get them to work.

Second, you limit your ability to exit the 3PL relationship if needed.  Everyone goes into 3PL relationships thinking they will never end and this makes sense.  You do not get married and immediately plan on getting a divorce.  However, in business, ensuring you have an exit strategy is a good and prudent thing to do.  When you turn over the procurement portion to the 3PL you have complicated any exit if needed.

Finally, you will lose critical intellectual capital.  When dealing with a 3PL it is important the shipper maintain the intellectual capital needed to fully understand the areas of warehousing and transportation management.

For all these reasons I would highly recommend shippers retain the procurement function.  Just seems to make sense to me.

Are You Truly Dedicated to Sustainability?

This is a question I ponder all the time. While I am thrilled when people do anything to help the planet, regardless of motives, I do wonder what would happen if people really were dedicated to this important initiative.  While we all know the "big things" to do (i.e., alternative fuels, recycle, etc.) I wonder how much impact we could make if we all just did some of the small things.  So here are just a few things you can do starting TODAY to make the planet a better place:

1.  Regardless of the type of vehicle you own, drive the speed limit.  Reduces emissions and saves gas.  Nothing infuriates me more than to see a hybrid drive driving 80 - 90 miles an hour.

2. Recycle, recycle, recycle.. Including composting

3. Buy less stuff.. Everything you buy comes to you on a truck, using fuel and will eventually have to be disposed of.  Less stuff means less of all that.

4.  Go on a diet and eat locally grown items.  This is an amazing task which is great for everyone.  You will be healthier (I know, I am one to talk but I have lost a lot of weight and will continue!), less food will need to be grown, and less trucks needed to drive all that food around if you buy locally.

Here is a small example:  We are spreading mulch to make our garden better and hopefully return oxygen to the environment.  We needed to put down weed blocker and rather than go buy it, we used old newspaper to do this.  It got rid of waste, we saved money and it eliminated the need for the weed blocker which means one less roll needed to be shipped.  If everyone did this and we reduced the need by thousands (Sorry if you are in the weed blocker industry) then we could actually take trucks off the road, reduce emissions and reduce the need for diesel fuel.

Here are some other ideas from The Wall Street Journal.

This is the way we can all contribute on a small level as we all work hard to make big changes as well.

Just a thought...

Happy Earth Day!!

Sustainability - It is About A Complete and Holistic Strategy

I am somewhat fascinated when I discuss sustainable supply chains with people.  I usually either get an "all or nothing" answer, an answer which is tied to a pet project, or the occasional "sustainability does not matter" answer (thankfully those people now are few and far between).

The clear proposal is good sustainable supply chain programs have to encompass a holistic view involving everything from how products are designed and packaged, how they are shipped, the type of fuel used when shipped and how the product is recovered at the end of life.  You cannot have a true sustainability program without looking at at least all the attributes listed above (they are not all inclusive).

So, the next time you address this topic make sure the "all or nothing" group does not rule the conversation.  Break the problem down into small pieces and attack each one.  This is your best solution.

Ryder Launches Military Veteran Site

Great progress from Ryder Corporation.  I guest blogged on Logistics Viewpoints recently about how great companies will leverage the returning veterans as a great base of fantastic employees.  This week Ryder announced (as reported on Logistics Viewpoints) a new employment website targeted at military veterans. Apparently you can put in your MOS (Military Occupational Specialty) and it will filter to the jobs available for your skill.

Congratulations to Ryder for "getting it" and leveraging the skills of our returning veterans.

Driver Wages - Really Going Up or "Signaling"?

An interesting article trying to quantify what driver wages would have to hit to be at the equilibrium point.  However, this data is meaningless unless you determine what the target price is for transportation services?  At what point to shippers move to substitutes to offset transportation increases?

Some may think substitutes are only in the mode of transportation however that is the least efficient way to substitute.  Shippers are always tweaking around the edges with mode transfers etc. however the most efficient and biggest impact areas for shippers to evaluate are activities such as mfg site selection, load ability, inventory trade offs etc.

At what point do transportation rates get so high that the shipper changes their operational methodologies?  Until you know the answer to this question it is hard to determine what wage rate will be the equilibrium / market clearing wage rate.

Is The Trucking Industry Rebounding?

There is anecdotal evidence based on an informal count of trucks on the NJ turnpike showing an increase in truck traffic.   I warn you, this informal study reported on CNBC is about as informal and non scientific as you can get however when you tie it to other evidence (i.e, FEDEX financial results - profit doubles) you see some coalescing evidence that the economy is picking up and trucks are moving.

However, if you take the comments by FEDEX CFO Alan Graf at his word, evidence is the economies of the world are not growing fast enough to offset things such as high unemployment

There is a mixed bag I guess.  I chose to believe the former rather than the later.

Diesel to $4.14.. Highest since the record setting 2008

Yikes!  Perhaps we will now get serious about alternative energies.  As a reminder, this is not a supply problem.  It is a world market and the price is going up.

Penn Wells Considered Safe by EPA - Fracking Politics

The politics around fracking, the way we are getting natural gas out of the ground, has been somewhat unbearable.  Here is the first time I have read good "science" behind the argument and it looks like the politics were much ado about hype than anything.

Keep an eye on this.  Natural Gas is the way our Country will get off our addiction to foreign oil.  I fully support a strict and detailed EPA enforcement to ensure we do not fix one problem and cause another.  However, I want to also ensure we use science and not politics to solve the problem.

Apple and iPad 3 Put Strain on Airfreight Rates and Capacity

As is being reported by multiple sources, airfreight rates are going up if you can find the capacity at all.  This, mostly, is due to Apple and the launch of the iPad 3. 

Amazing that one company and just one product can do this but when it is Apple anything is possible.  My sources tell me this could continue for 3 - 12 weeks depending on sales.  Given that sales are already being pushed out if you order on line (indicating they are already in a backorder situation) my guess and money is on the bigger number.

UPS In Tentative Deal to Buy TNT Express

As reported on CNBC, looks like UPS will buy TNT Express after all.  My guess is this is all about taking on DHL in Europe however I do not know for sure.  I have never been a big fan of logistics companies purchasing others unless there is underlying technology you need.

My guess is UPS does not need any technology TNT has.  It is dangerous to buy just for a "customer list".  Acquisitions are generally not a "10X idea".  They usually occur when management is out of ideas.

The Case for Sustainable and Ethical Supply Chains

For most of my readers it will not come as a surprise I am a bit of liberal when it comes to ownership for the sustainability of your supply chain.  It is just a fact that companies must take ownership of this and your customers, more and more, are becoming "sustainable aware" of what it takes to get them your product.  Further, they are going to punish you for not caring for the environment.

But, what about ethics?  This is the next area and it is more difficult as it is harder to measure.  We know slavery is wrong and we know if we see great working conditions that is good.  However, what about in between?  Does $2 per day seem unethical even though when you account for purchase power parity it may not be too bad?  This is the dangerous area and precisely why companies have to take control of their entire supply chain and ensure there is nothing which can even be perceived as being unethical or immoral in how things are made, how people are treated and how the Earth is treated.

This article in Forbes on Sustainable and Ethical Supply Chains sums it up well.  Two big examples of problems and then fixes.  Nike in the '90s had real issues with this and Apple does today.  Both moved and are moving aggressively to tray to stop the unethical behavior and both have brand names that allow them a bit of latitude.  Bottom line:  They have provided so much value to the customer that the customer will forgive a transgression as long as they actively fix it and fix it fast.

The key question for you is whether your brand is that strong?  Most are not.  Most will be dead on arrival if they are seen to be exploiting people or the environment for financial gain.

The bottom line:  Take control of your supply chain, have a good code of conduct, demand compliance and put in strict audit systems to ensure compliance is occurring.  Trust but verify is the name of the game.

Don't let your zeal to jump on the outsourcing bandwagon cause you to put your brand and your entire company's future in jeopardy.

CASS Freight Indices

I should have remarked on this earlier although I have been busy, busy, busy!  Looks like freight rates have leveled off from the somewhat aggressive increases over the last few months.  Intermodal seems flat while truck rates are up a bit.  This is what the CASS data would suggest although I personally think generalizing about this is a very dangerous game.

Depending on your freight flows and freight characteristics you may or may not see this trend.  If you are a "mega shipper" then perhaps the averages apply however most have specific and unique freight patterns.  My advice is to dive deep into those patterns and understand, in depth, regional movements along with nuances in the areas you operate.

What Makes Tomorrow's Leaders

I am reading a lot about this subject and I suppose the driving force is I now have a son in college.  I wonder what he will want to do ultimately with his life.  As I read I see some common threads in tomorrow's leaders no matter what discipline they are in (so, these apply to supply chain people).

First, learn languages!  This is an absolute must and one which is tough for Americans to get their arms around.  If you cannot speak at least one other language other than English you are essentially toast.  Two or three are even better.  The best people I see in business today are very comfortable moving between languages.

Second, be prepared, willing and excited about moving globally.  I met a person the other day who had run an operation in Russia, is now in China, travels frequently to the US and is a German national.  OK, you may not be able to do all that but understand that is who you are competing with.  Unfortunately, most people elsewhere in the world are far more comfortable doing this than Americans are.

Third, be a leader.  It just does not matter what you do (unless you are going to be a highly skilled technocrat / individual contributor your entire life. No matter what you do in life, you will need to be a leader.

Fourth, never stop learning!  When I interview people I ask what book they most recently read and you would be amazed how many really cannot remember one or if they did read it, it is clear they just skimmed it.  Reading things such as the Harvard Business Review, The Economist, The NY Times and The Wall Street Journal are a must.  Put down the remote, turn off the T.V. and read!

These are just a few of my thoughts on this topic.  There are a lot more I know.  I wanted to get these out fast.

Welcome to SupplyChainBrain: Who’s to Blame for Ocean Carriers’ Losses?

Welcome to SupplyChainBrain: <font size=2>Who’s to Blame for Ocean Carriers’ Losses?</font>

Incredible that this group has allowed this to continue.  However they continue to miss the "boat" per se.  They talk about exchanging rates for service however most do not provide service levels needed.  No value exchange there. 

Overall, good article about the state of the container shipping industry.

Fuel Prices

The idea of limited oil is an idea which needs to be reevaluated.  As drilling technology gets more advanced it appears oil and natural gas reserves will continue to grow. 

So, why the fuel price increase?  It does not appear to be a result of what normal economics would drive.  It is far more about speculation and fear which is the reason fuel must be managed.  If you are unwilling to take an active role in managing fuel you will generally be subject to the "whipsaw" effect of the marketplace. 

Keep an eye on fuel drilling capacity, production capacity and the import/export imbalances to decide if there truly is a fuel shortage.  Right now the United States is exporting a lot of refined petroleum products.  I am sure this increase will cause the continued move to intermodal and rail movements.  It should not be an all or nothing move however.  A good "multi modal" strategy is one which protects capacity and allows for adaptations to the current economics. 

T. Boone Pickens Responds to President Obama's Natural Gas Plan. A "Victory Lap"

POTUS Pushes for Natural Gas Trucks

For those looking for a single solution to solve the world's problems, this will disappoint.  However, for those who understand it is the proper mix and application of multiple sources of fuel which will solve our need for energy, this will really excite you.

President Obama has made it a centerpiece of his work to incent the movement of Class VIII trucks to natural gas.  This is absolutely the right call.  It is abundant and clean.  Further, the technology is much further along than people realize.  With the announcement of multiple distribution agreements and the build out of NG fueling stations, this is an idea whose time has come.

The question of CNG (Compressed Natural Gas) or LNG (Liquified Natural Gas) is one of application.  Both have a role.  Generally speaking CNG is easier to distribute and does not require the cryogenic freezing of LNG (It is liquified by freezing the NG to -260 degrees F - Read more about LNG here).  However, LNG does allow your truck to go further.  Read:  One is probably great for short haul, out and back type of applications (CNG).  One is better for over the road (LNG).

One drawback to LNG for those who look at the entire distribution supply chain:  LNG has to get to the station via truck.  A lot of trucks on the road to distribute LNG.  So, while the end truck may be powered by clean LNG you have to ask yourself how it go to your distribution point.

CNG moves in pipelines and is compressed at point of use so this issue above does not apply.

I am personally very excited about these opportunities.  We are heading in the right direction for sure thanks to some very daring and exciting people such as T. Boone Pickens and Aubrey Mclendon. 

Predictions on Fuel

Predicting fuel prices is a tough game and one where the house almost always wins.  However, predicting the macro trends with good data and facts just requires hard work.  Derik Andreoli in this article on oil and fuel trends hits it on the mark.  This is a "must read" and a "must keep" as you plan how you will navigate your way through these dangerous and unstable waters in 2012.

2012 Rate Outlook: Flat…for now - Article from Logistics Management

2012 Rate Outlook: Flat…for now - Article from Logistics Management

General outlook in this article is freight rates are stable, economy is going to grow slower than expected (what else is new.. people's appetites are always bigger than they can consume), and low inventory levels are here to stay. The article also says ocean freight lines are looking to increase rates. My belief is with all the new capacity coming on that will be unlikely. They still discuss "driver wages" however I have not seen one carrier who is increasing driver wages so it is hard to claim costs are going up when the carriers apparently refuse to raise that particular cost.

While I agree fuel prices are going up that is not a hard prediction to make. Summary:

1) Rates relatively flat

2) Inventories stay low (don't bet on a massive restocking)

3) Driver wages remain stagnant - carriers appear to support lowering capacity versus refilling at higher cost

4) Fuel prices continue their macro trend up.

That is it for now!

Should a 3PL Understand the "end" Customer

This is a key question I think all 3PLs should ask themselves.  Their customer (the person who pays the bill) may be a big manufacturer or retailer.  This manufacturer or retailer may have a set of needs they articulate to the 3PL but the real need they have is to add value, through their supply chain, to the customer of their customer - usually the consumer.   If a 3PL can add value to that supply chain, in the eyes of the consumer (The person who pays the ultimate bill) then I am sure the customer (the manufacturer or retailer) will be happy with the 3PL.  Given this statement, why do so few 3PLs really know the consumer's needs, wants and desires?

If you are a 3PL you can do two things:  1) You can require a detailed statement of work, hundreds of pages including convoluted metrics and then you execute against this document.  Does the consumer (again, your customer's customer) see value in what you are doing?  Does that value accrue to the manufacturer or retailer and add real value?  In this situation, the one most 3PLs play in, the 3PL does not care.  They are executing "to the contract".

In the second and preferred situation the 3PL really takes it upon themselves to fully understand the needs of the consumer.  From this they formulate a plan in conjunction with the manufacturer or retailer which outlines what services are needed to add value and have that value accrue back to the manufacturer or retailer.  This is the preferred method.  This is the method some sub-assembly providers give to auto companies;  they help shape the business and not just do what they are told.

The analogy to this situation is what your mother most likely told you when you were young:  If so and so told you to jump off a bridge would you?  Unfortunately, a lot of 3Pls will jump off the bridge if they are told to.

I submit 3PLs need to spend time doing market research and living with the consumer of the products of the companies they are servicing.  Once they do that they will truly not what is needed and not just wanted.