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. 

Use of Lean Techniques in The D.C.

A great article over at Logisticsview Points concerning use of lean tools in the distribution center.  The article is written by Carl Fowler of Menlo Logistics.

I will not repeat it as you need to go there and read the entire piece.  I will say I agree 100% and it makes the simple yet effective case for everyone to implement lean in the D.C.

Why Sustainability?

Unfortunately, I think sustainability is starting to get a bad rap.  First, there are political overtones which people just can't seem to get over.  However, what is more troublesome is the "greenwashing" which is going on.  Many companies are now using it as a "marketing tool" and do not really believe in the idea of sustainability.  As if to show how prevalent this is in the industry, Greenpeace actually has a web site dedicated to stopping greenwashing.  The title is "Clean up your Act not your image".

I personally believe doing "good things" for the earth can be done while also being responsible to stake holders for a company.  You have to just believe that statement or you will go down the rat hole of "pay back" periods, EVA and the other tools accountants dream up to "engineer" their finances.  At the end of the day we either take sustainability seriously or we will have it imposed on us. What good is it to have an energy efficient product for example with "sustainable packaging" if the product arrived at the store on a truck spewing fumes into the air, idling and wasting fuel and using imported fuel?  Makes no sense to me.

John Pattullo, CEO of CEVA Logistics said in 2010, "In today's economy, many customers are unwilling to pay a premium for green transport [however] the logistics industry must support change towards sustainable services."  I could not agree with him more.  Sooner or later we have to make the change and I hope it is sooner. 

So, I implore all those in the logistics field:  Do not take such a serious topic as sustainability and turn it over to the marketeers.  Your customers and, most important, the public will see it for what it is, and ultimately, you will tarnish your brand.

The "Softer Side"...

Fitting on my first day back my thoughts went to leadership and the "softer side" of logistics.  An article written in December from Kate Vitasek talked about this issue directly.  As logistics leaders we are very good at measuring the performance of our networks but how are we at measuring the performance of our people in terms of leadership and engagement?  Do we believe these are important qualities?

What I am finding is the "technical" side of logistics and overall supply chain can be trained or, in most cases, the young and very good talent are coming to companies with the technical skills needed.  What the universities cannot train is the leadership aspect.  The more responsibility you have means you generally are going to spend more time on motivating, engaging and setting up people for success rather than on the technical details.  So, how does young talent get that type of experience so they are ready when they reach the higher levels?

You must find the opportunities and they are out there.  Even if they are leading a small team, get them into that leadership position early and often.  Further, if you are lucky enough to have large groups (i.e., shifts in a distribution center) make sure they get to lead those groups.  Reinforce the importance of doing this early and often in their career.  I know most college graduates do not aspire to lead the night shift but they have to have that experience early in their career.  

Also, ensure leadership is a fundamental skill one must acquire to get to higher levels.  Leadership can be "practiced", learned and improved upon.  Just like any other skill however, you must do it over and over again to get better at it.  Make sure your younger folks are given these opportunities. 

John Bogle, founder of Vanguard Mutual funds says, "not all things that count can be counted and not all things that can be counted, count".  Leadership is one of those things which cannot be counted very easily but probably "counts" more than anything in logistics. 

Thoughts on Economic Distortion

In transportation I have heard shippers say they do not want to negotiate too "hard" with carriers because they want to treat them as "partners".  I have always wondered what that meant.  What does "negotiating hard" mean and what does being a "partner" mean are key questions for both the buyer and seller of transportation services?

I submit they mean the same thing and tend to be emotional statements.  What I prefer is to work with transportation providers as an extended supply chain.  After all, unless one side is trying to get unfair or undo leverage on the other side we should be working together as a single entity for the common good of the ultimate customer.

What this means is there cannot be economic distortion in the discussions.  Economic distortion exists when one side has information pertinent to the discussion the other side does not have - some call this information asymmetry.  When economic distortion exists there is bound to be an outcome which is weighted to one side or the other in terms of value.  When that occurs the sub-optimum solution is obtained and it will ultimately lead to mistrust and a dissolution of the relationship.

I go from the premise that eventually all information will become known and will be available to both sides.  As soon as one side realizes they were disadvantaged by the other side not disclosing pertinent information the disadvantaged side tries to fight back and so begins the war of distrust and trying to "one up" the other side.

So my warning to the buyers is do not think you are somehow out maneuvering the transportation provider.  Ultimately, the real situation will be discovered and when it is you will be hit back and hard.  You may get a short term gain but at a long term price. To the suppliers / logistics providers: If you are thinking you have a long term sustainable business model by taking advantage of your customers by not disclosing proper information (costs, operational efficiencies etc) you are kidding yourself.  Sooner or later what you thought was secret will become known and when the customer realizes they have had the wool pulled over their eyes, they will dump you.

In the end, American business could save a lot of time, money and extraneous resources if this little dance did not need to be played out every time an arrangement needed to be made between buyer and seller.

This may not be a 10X idea but it certainly is a 10X program if properly implemented.  If a company and its suppliers really took this to heart I believe both sides would see dramatic improvement in productivity and efficiency thus driving the 10X change that we seek.  Lots of people talk about this, few if any actually do it.

Assume all relevant information will become available and save a lot of time by trying to take advantage of short term economic distortions.

Final HOS Rule Released and Sec. LaHood is on Santa’s Naughty List! - Article from Logistics Management

Final HOS Rule Released and Sec. LaHood is on Santa’s Naughty List! - Article from Logistics Management

Dodged a few bullets but the total work hours are down from 82 to 70. What is interesting, quite amazing and important is this gets phased in over 18 months. That is a lot of time for shippers and carriers to get ready and for lobbyists to get it overturned. Ok, I am a bit cynical but as the article points out, if there really was a "crisis" of safety on America's highways would we wait 18 months to implement a resolution?

Taking a Control Tower Approach - Article from Supply Chain Management Review

Taking a Control Tower Approach - Article from Supply Chain Management Review

I am a big fan of the "control tower" idea and think it is absolutely a necessity. Whether you outsource it or not is an entirely different question. Outsourcing is a decision concerning what the core competency of your company is and where you want to put your capital to work. A manufacturing company who has a core competency in manufacturing may choose to outsource logistics. A retailer who believes their competitive advantage is logistics may choose not to.

Either way, you should embrace this control tower concept. It is an idea which has seen many lives over my 20+ years of logistics experience and it keeps getting better with age and technology.

Learnings Through Logistics' Visits

I  had a great week visiting with many logistics providers and trying to get insight into just exactly what is going on in this business.  Some will tell you the business is collapsing due to low demand, some believe the transportation business is ripe for a great uptick in profitability due to constrained capacity (the jury is still out, in my mind, on whether this is artificial or not), some believe it is all just the same.. we are moving around the margins.

I get conflicting signals.  For example, everyone tells me the driver shortage is wildly acute and we run the risk of just not having enough capacity to service the industry because of a lack of drivers.  Many say if the GDP stays above 2.5% or greater then we will just not have enough capacity to service the shipper market.  However, using "Econ 101" this would tell me driver wages should be increasing.  That is not the case. Driver wages are flat.

The next question is whether the increase in intermodal actually is absorbing the otherwise demand for driver capacity?  This seems to be a plausible answer.  Container capacity is up 10% to 20% (depending on who you talk to) and this means those containers have to be filled.  They will not let them just pile up in a container yard.  Add to the fact that many shippers are lowering their point of indifference of choosing between trucks and IM (Indifference is the length of haul in miles where a shipper sees the two as interchangeable) and more shippers are choosing IM on more lanes.  Obviously, this reduces the need for drivers on long haul runs.

So, data is really mixed.  The analysts are all saying most of these companies (public) are "fairly valued" and the industry should not be overweighted in a stock portfolio.  Projections for pricing have been reduced (early this year most were claiming a 4% price increase but that does not seem to be happening) and capacity has freed up.

The one caveat?  Last year we were saying this same thing and the market for trucks and transportation went on fire in the first quarter.  So, this post did not give you an answer (sorry) but may have provided some things to think about.

Home Construction Will Be Muted - Bad News for Logistics Providers

I think we have all learned over the last few years why home construction is always looked at by economists.  It is probably the single biggest indicator of the health of the economy.  When people buy homes all sorts of things happen:

1. Construction materials are bought
2. People are employed en masse
3. Peripherals are purchased (appliances, lights, drapes etc.)
4. Landscaping is performed...

I do not know the exact number but my guess is after someone buys a $200K house they most likely, over the next year, spend another $20K at least on "stuff".

This drives all sorts of logistics activities - warehousing and most importantly, transportation volume.  Transportation is inbound into the manufacturing plants which gear up for the activity and outbound finished goods going to all those new homes.

OK, now we know why this is so important.  This is also why it is depressing to hear home construction will be muted for a while - most likely 5 -8 years. The inventory is just too high and there are still a lot of adjustable rate mortgages to reset in 2012.  Not a good sign.

For those of you who say, "Yes, but those staying in a home will remodel" I would say this "rule" (if it ever was one) does not hold up anymore.  The reason is most people, intuitively, know they are now living in a depreciating asset and not an appreciating asset.  Remodeling makes sense in the latter as it is much like a bank account.  However, in the former remodeling is like buying a consumable product which has no sustainable value.  People know this intuitively and will not, in total, increase dramatically their major remodeling (assuming they are sane and rational).

Sorry to be the bearer of bad news.

Hybrid Cars and Reverse Logistics

Took a ride in my new Hybrid Ford Fusion yesterday and as always, everything causes me to think about logistics.  First, I will have a "call out" to Ford Motor Company as this is an incredible car.  Write me if you would like more information but suffice to say, I am thrilled about the automobile (and the 39.5mpg I had driving to Chicago).

OK, but the one issue (if there is one) with Hybrids is there is a giant battery pack in the back of the car.  As others have asked (rightfully so), "what happens when that dies"?  Ah, this is where the reverse logistics industry comes in.  There will have to be a way to recover the batteries, ship to a central point and a way to disassemble and recycle the components.  A big business just waiting to be started.

A quick google shows Toyota (as you would expect) has started a service like this and I am sure others will follow.  Amazing how new needs are created, then people fill those needs and all of it requires logistics!

Logistics Report Out

I have read the new report on the "state of logistics and I have a few thoughts.  First, we have to figure out how to make the report more relevant.  The logistics' industry is under tremendous change right now and to have a report on 2010 come out in the summer of 2011 is tough.  All the verbiage around what is happening in the transportation industry is almost not worth reading beyond just good history.

Second, it does forecast for 2011 correctly but it probably is a bit late in its prediction.  The report says rates will change dramatically in late 2011.  Well, we have gone through a cycle already in 2011 where rates changed a lot in Q1 and now the economy has put the brakes on thereby changing the capacity / demand equation just in the last few months.  I think however capacity has finally come out faster than demand has slowed resulting in a still favorable environment for carriers.  Intermodal is still on fire.

Real estate is still very weak.  It is not hard to find great warehousing deals but, of course, who the hell wants a warehouse!

Overall, if there were a measurement of whether the "shipper" or the "carrier" are in control, I would say it definitely is favoring the carrier at this point.  Shippers will need to ensure they have a good strategy in place to manage carriers and also work with good regional carriers.  I have found a lot of value in the regional carriers and the value they can provide.  Do not always just default to the "big 5".  There are other great players out there and as the "big 5" regionalize their operations they lose the competitive advantage against the local players.

More to follow but it is very interesting times to say the least.

The Logistics Daily is Launched

Get a compilation of my twitter feeds (@logisticsexpert/logisticsindustry) in a newspaper form at the Logistics Daily.

Japanese Tragedy Brings Importance of Logistics to The Front

There has been a raging debate going on over at Linkedin about whether Logistics has lost its importance and luster in the corporation.  I think the devastating tragedy in Japan will put this to bed once and for all as it is clear logistics will drive the recovery in that Country.

For the GIS folks who believe logistics has been displaced with information flow, I would love to see you get water, food, fuel and recovery needs to people who need it with an iPad and some code.  What will solve Japan's crisis and help people in need are trucks, truck drivers, warehouseman and "boots on the ground" not computers.

This puts this debate to bed in my mind.  Computers are a tool for the people who will actually do the work recovering.

My heart and prayers are with the people of Japan AND with those courageous people who will risk their lives to get the food, fuel and medical supplies to those who desperately need it.

Very Interesting Article in NYT: Does Technology REDUCE The Need for Education?

This is really interesting and it may apply in the logistics' field.  Paul Krugman asks the question if technology reduces the need for an eduction ?  He also cites an article in today's NY Times about software which is making a lot of junior lawyers and paralegals' jobs obsolete (combing through documents during the discovery phase). This article is titled: Armies of Expensive Lawyers, Replaced by Cheaper Software.

So, the question this poses for all of us is as supply chain software gets ever so sophisticated will it reduce the need for much of the higher education currently being used in supply chain management (i.e., Masters in Supply Chain Management, Ops research, etc.).  This is also being debated right now over at Linkedin.  Logistics and supply chain will continue to be extremely important in the firm and the overall structure of a corporation, the question is will the people managing it be that important?

Thoughts on Cost....

All of us who have been in the industry for a while know the drill.  The expectation is logistics cost as a % of revenue will decrease year over year. This makes a lot of sense especially when you think of leveraging fixed assets.  Obviously, your costs for "back room" type activities should not go up in a linear relationship with your revenue.  If it did then what is the point?

But on the other hand we have to ask ourselves at what point can logistics' services add add to the revenue of the company?  And I do not mean just getting money from shared services (which is all the rage today) but I mean an equation which states that better service leads to higher customer satisfaction which leads to increased sales and higher revenue.  As products become commodities at faster rates than ever before perhaps leading companies should be thinking about the packaging of services around the product as a value add and revenue generator instead of a cost to be cut.

A quick example would be Amazon.com.  Why do you shop there? Do you shop there because they have better products or different products?  The answer is clearly no. They have what everyone else has.  What they have that virtually no one else has is a very convenient and easy order entry, an incredible delivery mechanism, easy returns and real time tracking.  The advantage of Amazon.com is not the products but the services around the products.

What is becoming clearer to me everyday is companies need to be looking at logistics and supply chain as THE competitive advantage.  Unless they have a product that is absolutely unique or not able to be copied due to patents or unique technology, a company needs to look at the services around the product for competitive advantage.

One way NOT to do this is to only ask those who manage those services to cut costs.