The Week That Was - Wow!!.. But Will It Translate into Physical Goods?

Well, this was the week we have all been waiting for if you are one of those who did not abandon the market after the last downturn, stayed the course (Borrowed from Vanguard®), and rode the wave to new heights.  If you are one who did abandon the market, well, I guess this was not such a good week.

The scorecard:  Dow up 307.41 points and up 9.87% for the year. 

As always however I like to look at things through the eyes of logistics.  What does this mean for logistics (i.e., freight movement and storage) in this country?  When I look at it through that lens I see a lot of other data which continues to support the idea that the production and movement of goods is still very lackluster. Let's look at a few:

Monthly Wholesale Inventories Relative to Sales:

This number (Unlike the Total number reported on earlier) climbed 1.2% which tells us that inventory is beginning to back up at the wholesale level and will ultimately either need to be sold or production will have to slow down.  Most of this increase is in the durables number and represents an increase from a revised December number and a significant increase over January 2012.  Interesting that sales of durables are up however the inventory has grown faster than sales.

McDonald's Same Store Sales were Down:  Of course the company blames this on the lack of the extra leap day and that could be true but, I generally dismiss these types of excuses.  At the end of the day if they are that close then they are flat at best.  I use McDonalds as a barometer for world spending because it is just about everywhere and almost everyone goes there.  If you are out shopping, you probably will stop at a McDonalds sometime so it is a good measuring stick.  I know, not very scientific but these types of indicators generally work.

Personal Income and Outlays:  This was down 3.6% in January (released March 1) which again is an early indicator of not much activity in the economy which will be good.

Countering this type of news was the great news on the unemployment rate going down to 7.7%.  This is fantastic however I report it with one caution and that caution deals with the sequestration.  Most government agencies will be dealing with budget cuts via furloughs and not lay offs.  This means while the unemployment number may appear relatively unscathed during this time people's spending will decrease as they have less disposable income and are less secure.

Of course, these statistics reported in March for January are all at least 1 month old and it is theoretically possible the market is acting as a leading indicator on the physical economy rather than the financial economy.  But I doubt it.

While my meter is up and I am hoping this is the beginning of a massive boom in the physical economy I think the data says this is a financial economy activity.  Companies, while selling the same or less, are making a lot more money, have a lot of cash and the alternative investment, treasuries, barely keep up with inflation.  For these reasons I believe the market is skyrocketing and may well continue.

The question is will it translate into physical goods.  Right now the data says... Maybe.... .(OK, my meter may have moved just a bit to the right from absolutely no to .. Maybe)

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February Cass Freight Index Supports 10xLE® Predictions

The February Cass Freight Index has been released and it continues to support and is right in line with what we have been predicting here at 10x Logistics Experts.  The market is soft and continues to bounce around the bottom which is holding rates flat for the data bases procurement experts.  The market continues to predict a 2% price increase at recent investor conferences this is what the transportation companies are planning for.

There are two interesting developments which are mentioned in the press release for this data which I believe should be mentioned (and which we have discussed for months here at 10xLE®).

First, we are seeing a bit of a divergence in truck ton miles versus expenditures which, as is stated by Ms. Wilson is due to "...Most likely...the average weight of a shipment rose during the period".  One of our counter balances we have discussed to the driver shortage is the "miniaturization" of goods which includes packaging.  You can move the same freight in smaller packs and thereby reduce the need for trucks.

Second, the increase in the type of activity in the economy which is driving what appears to be a rather robust economy is not the type of activity which translates to freight and transportation.  As I have said for many months, the magical "3%" GDP number is not the same 3% number from 20 years ago.  It does not translate into a lot of freight.  Google and Facebook don't move a lot of goods (physically that is).

Finally, in the report it is discussed the GDP prediction is still for a "Low, probably less than 3%" GDP number.  I am far more in the camp of a 2% GDP number with 2.5% being on the high side.

The bottom line for transportation procurement professionals:  If you had followed the 10xLE® procurement model and held your position you would not have paid "insurance" against capacity shortfall premiums last year as it has yet to materialize.

If you did buy into the hype and pay the premiums my recommendation is you try to identify the amount and get it stripped from your rates.  We still hold, despite promises, you will not get "benefit" later in the cycle for paying premiums now.

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Inventory to Sales Ratio - Will March Change the Curve?

One of my favorite measurements of business activity which actually relates to transportation volume is the Inventory to Sales Ratio.  As I get ready for January's numbers to be released I remembered I did not comment on December's numbers.  And, they tended to move as I would expect:

What we saw in December was that there was barely a move down which indicated the sales season for Christmas was not very good - which I had predicted since around September.  This, as is known for those procuring transportation services, led to excess capacity and very favorable procurement activities.

The key question is what will January show us.  My guess is not much and while we may get down to the 2010 / 2011 levels we will, most likely, not see enough of a change to effect the dynamics of the transportation capacity equation.  Companies continue to favor strict inventory management and good cash flow management over just about every other aspect of the balance sheet and income statement.  In the end, companies have learned it is better to miss a few sales than to be stuck with inventory.

The real interesting number will be released in April then May when February / March numbers are released.  Right now there is a lot of excitement in the economy and whether this will translate into a lot of buying activity is yet to be seen.

Right now all the data continues to hold that the transportation network is in balance at best and probably favors the shipper community.

The Value of S&OP in Logistics

I have been talking a lot at various events recently on the value of Sales and Operations Planning to the logistician and specifically to those managing transportation.  I have found many so called "great" S&OP processes stop at the end of the factory and just assume unlimited capacity and capability from the distribution arm of the supply chain.  Very few look holistically at the entire chain from raw materials to the consumer and most just look at their particular part of it with some input from upstream and downstream suppliers.

This should and must change. The S&OP process is critical to the proper execution of the logistics' plans of a company.  It is also vital to give your carriers a decent forecast on the capacity needed at a time in the future.  I will remark more on this later in a post soon however I do want to remark on Kevin O'Marah's comments relative to the core aspect of S&OP - Trust.

Even the core of Vested Outsourcing  is built on trust.  In S&OP Gotcha: Bad Collaboration, Kevin discusses how egos and the desire to "win" ultimately can kill a good S&OP process.  Before entering into a true S&OP collaborative process across the virtual enterprise (this includes all participants in the supply chain) you have to agree on core principles and on trust.  If one is trying to get "leverage" over another then I truly believe it is a waste of time to enter into a S&OP process.  Just understand the situation you are in and make the best of it.  The core ideas to S&OP are:

1. Each trusts each other's data.  If you feel data is manipulated or hidden, you are starting at a weak point right from the beginning. 
2. Each agrees the "solution" is what is right for the ultimate end user - the consumer. 
3. Each agrees the "solution" has to be profitable for all.  No one will stay entered in a relationship if it is not profitable.  There is nothing wrong with this.  Where it goes wrong is where one side withholds information or changes information to gain profits at the expense of the other. 
4. Each agrees to open book sharing.  If key data is withheld then it just will not be possible, long term, to maintain a solid S&OP process. 

For the logistician, the output of this has to then tie to capacity requirements, possibilities and constraints of the logistics network.  One cannot assume whatever the outcome of the core S&OP process can be executed without constraint.  That is a recipe for failure. 

Logisticians need to force their way into the S&OP process of a company and make their voice known.  

BNSF to Test Natural Gas

Just received a number of alerts about the BNSF testing natural gas. Seems they believe this will be a large opportunity to switch which I fully support.

However, if fuel costs are not adjusted to the shipper then the economics of selecting intermodal over truck will not change. There has to be transparency to this decision and the current dominant fuel cost adjustment mechanism does not do the task well.

Mapping The Carbon Use Chain to The Value Chain

I am starting to do a lot of work and study on the impact of the complete value chain on the environment.  I think the argument over whether there is climate change occurring is absolutely over.  It is clear our environment is changing and changing rapidly.  The only question left is how much of this change is due to human interaction and how much is just natural cycles.  The answer, of course, is that it is due to both.

Given that I believe it is due to both I have to ask why would we ignore the portion we can impact just because there is a potion of it we cannot impact?  Further, if we know an activity is causing environmental issues why continue that activity?  Why not try to mitigate the impact of the activity or moderate our engagement in that activity?

A simple example is in fuel mileage of automobiles.  If we can get automobiles to 50mpg or higher (whether by better engineering of the internal combustion engine or moving to another energy source like electric) why not do it? The obvious answer is if there were some functionality we absolutely needed that the 50mpg car could not provide but I find that is few and far between.  Most users of large trucks (i.e.., Pick up trucks and SUVs) are using them because they "like big" more than any real functional use.  Some will say it is for better use in bad weather but as someone who drives a hybrid in Wisconsin during severe weather I can tell you I see as many big trucks / 4wd's in the ditch as I do anything.

So, the answer is we should do whatever we can to effect positively our impact on the environment.  In order to do this we first have to map out our impact (end to end) on the environment.  The best model I have seen (adapted from the Greenhouse Gas Protocol)  breaks it into the following segments:

1. Extraction of raw materials
2. Production of product
3. Transportation and distribution of product
4. Use of product 
5. Disposal of product

It is important that the entity which conducts the "pull" in this value chain be the one to impact the actual conduct of the entire chain.  We know the consumer is essentially the entity which pulls all the way through however the consumer is too fragmented to be able to make a consolidated impact.  This must be at the producer of the product level.  This leads us to the 3 Scopes which product producers need to measure if they are truly going to understand the environmental footprint of their product and their company.  

Some may ask why this "burden" should be put on the producer of the product and I think the answer is threefold.  First, virtually all the activities upstream would not occur if they were not "pulled" by the producer.  No one would mine for coal if there were not users who wanted to buy the coal to use.  It is really that simple. 

Second, the user of the product (downstream) does not have enough information to know the art of the possible.  They can conduct good comparisons of products which exist but it is hard for them to know what could exist and therefore they are working with imperfect and incomplete information.  The producer has that information. 

Third, the consumer of the product cannot impact end of life disposal beyond doing the right thing based on societal infrastructure.  For example, I can send my products to a recycle center but I do not actually recycle the product.  Knowing whether the product packaging and end of life product "carcass" is capable of being recycled is beyond the consumer's capability.  This must be put on the producer to execute. 

Ultimately, the cost will be put on the consumer and products will compete within a "sustainable" sandbox.  The choice to operate outside of the sustainable sandbox will very quickly disappear.  

In looking at the totality of the business case we see there are clear cost reducing and brand enhancing reasons to look at your entire value chain, map it it to the environmental / energy supply chain and make impact in each area. 

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Why I am Not Concerned About The "Driver Shortage"

The myth that has existed in trucking for over 15 years is some year we will get into such an acute driver shortage that freight will be at a standstill and you will be lucky if a truck shows up to pick up anything you have to ship.  In fact, many trucking company executives have parlayed that story into a reason why shippers should pay higher than market prices today for freight for fear that when that day comes only those who over paid in the past will be serviced.

That was 15 years ago and the time has yet to come and if you bought into the story you have "overpaid" for 15 years and the crunch (and your perceived promised reward) has yet to come.   Of course, as always, the story has other aspects to it.  I do not doubt that the driver pool is shrinking and people do not want to drive long haul trucks.  However, the good news is the market is taking care of this problem in 4 ways:

Miniaturization:  This phenomenon is everywhere whether it be in packaging, the product itself or the actual and complete disappearance of the the physical product.  I bought a stereo for a new place I have and it consisted of a Jabra® Soulmate and my iphone.  The entire thing can fit in the palm of my hand and it gives off as much sound as a stereo that came in 3 boxes 10 years ago.  This would not be seen if you looked at GDP numbers or sales numbers of companies because from a revenue and profit standpoint, the company did as well as when they were selling massive boxes.  However, from a freight standpoint, they can fit a months sales into 3 trucks. Or, better yet, it is all sent via UPS.

Of course, we all know this is happening in packaging and other aspects of the freight.  And, the disappearance of freight is becoming very real with iPods, Kindles and now 3D printing.

Focus on Profit v. Revenue Growth of Shippers:   I keep hearing that once the GDP gets to 3% we will have a massive shortage and I am not convinced.  If you look at the financials of the major shippers you will find they are doing very well (as are the transportation companies).  Why are they doing well? It is generally not a growth in product sales / revenue story but more of a growth in profit story. They are managing costs and increasing prices (despite the Government telling us there is no inflation).  This means you cannot equate a great quarter to increased freight.  It is not as connected as it was at one time.

Intermodal:  This, of course, is the grandaddy of them all.  The movement to intermodal continues and seems to be picking up speed.  Shippers who were afraid of it just two years ago have capitulated and even segments of supply chains (i.e. inbound) which historically shunned this mode are now buying into it.  Bottom line:  This is the major counterweight to any type of driver shortage.  This is gone beyond a nice "substitute" for truck freight and has now become the "category killer" for truck freight.  Acceptable length of hauls (LOH) are decreasing (one bid wanted intermodal rates on lanes 400 miles or greater), service is increasing and overall people are moving so much freight over to intermodal that truck is really just catching the local P&D and interplant moves.  P&D and interplant moves are nicely served by local niche players and the need for a nationwide network for a truckload carrier diminishes dramatically.

Economics 101: This is the final reason I am not worried.  If the driver shortage becomes very acute and the demand exists driver wages will increase bringing more drivers into the market.  I am a firm believer in market equilibrium and market clearing prices.  Yes, driving is a hard job.  However, as we have seen in the oil fields in North Dakota, people will do hard jobs if the pay is right.  So, bottom line is, no need to pay "extra" today because if needed, you will absolutely have to pay extra tomorrow.  And any sales person who tells you that because you paid extra now you won't have to pay extra later is either lying to you or just does not understand economics.

My conclusion:  Watch the economy, watch the market, and watch your freight but do not buy into the scare of "pay up now" to be serviced later.  It makes no economic sense and it makes no sense given the current situation of transportation companies.

The Logistics of Defending Against Asteroids

A respite from working on how to get a package from point A to point B is to think about the meteor which hit Russia a few weeks ago.  Then think whether it was just pure dumb luck that it did not hit Chicago or are we really safe from this?

Unfortunately, it turns out, it is just pure dumb luck.

Which makes the fact that my fraternity brother from college, Dr. Ed Lu (and space shuttle astronaut),
is working on how to defend the earth from asteroids with his non profit B612 a good thing.  It makes me sleep better at night.

So, for a break, watch this quick Tedx video... You will enjoy it and be fascinated.

Should Cost Modeling Comes to Logistics

I wrote back in January, embedded in another article about why people should do "should cost" modeling prior to negotiating rates.  This has caused me to do a lot more thinking about this topic and after doing some analysis I have come to the realization this is the best way to get to what the true cost of freight should be.

It also eliminates all the emotion, speculation and hype of the industry when you read about capacity constraints, driver shortages and other macro economic issues.  Here are the basics:

1. Break down your suppliers costs into the big driving buckets.  For transportation it is clearly fuel, driver wages and equipment.
2. Make sure you have calculated in offsets to costs.  For example, the industry is very prone to discuss how much more the acquisition cost  of equipment is with new emissions requirements and other adds.  However, they very rarely (unless you conduct deep research) discuss the vast reduction in operating costs due to better maintenance and fuel consumption.  Each element has to be accounted for. 
3. Ask what is really going on with driver wages (not what "could" happen).  Many will say the driver shortages will lead to higher driver wages however this has not really panned out.  So, find out what is really going on with the driver wages. 

This does not mean you are trying to ensure the supplier does not make a profit. What it does ensure is you fully understand the true costs driving the pricing, it ensures you understand what the reasonable profit margin is and it ensures you understand what the market is for the products you are buying. 

This process has been used by direct procurement people for years.  Also, I can assure you this is the process your transportation suppliers are using to decide how much to pay for a truck, trailer or container.  There are different components to measure but the process of "should cost" modeling is exactly the process they follow.  You should not be afraid of it nor should you be ashamed of using it. 

J.C. Penny Slows RFID Rollout

I will not go into the details here except to say that an "all or nothing" strategy on almost anything does not usually work and this is no exception.  What J.C. Penny is finding is there are some  applications which make sense and some which do not.

The other big learning is technology is moving fast and for some reason this RFID technology has never been able to deliver on its promise.  What people may find is by the time they figure it out, we will be on to the next bigger, more promising and less costly technology.

Robots and Other Supply Chain Trends - Kevin O'Marah

Believe it or not there is a Kevin O'Marah out there (yes, he spells his name differently than I do) and he is in the supply chain field.  Actually, a very accomplished person in this field.  I have been in a few meetings with him and it is fun to see who the moderator really means to call on (hint: it is usually him).

I write this because I wrote a piece over the weekend entitled "A Drone Delivers Your Package". The article discusses how the use of drones may come to package delivery.  Kevin retweeted this and made a reference to an article he wrote just last week about 5 big supply chain trends.  One of these trends was "Robotics takes off".  While he does not reference drones he clearly articulates, rightfully so, that robotics will take off in the logistics field and the trade off of capital versus labor is starting to favor capital in a big way.

Robots, like the drones I mentioned, are becoming incredibly cheaper at the same time they are also becoming more dexterous and mobile.  Here are the 5 predictions:

1. Amazon stumbles - A bold but insightful prediction and one which is not so much predicated on them failing but on the brick and mortar guys learning to compete very quickly. 
2. Africa Becomes Your Most Important Growth Partner -  It is essentially the "final frontier".
3. The Carbon Tax Happens -  I could not agree more.  A tax, cap and trade or whatever form it takes, we will soon pay for destroying the environment. 
4. Robotics Takes Off - Enough said.
5. CSCO becomes the CEO - While this has already happened the rise of logistics and supply chain as the core differentiator makes those who hold this important position more likely to take over the company (see my article: Logistics Eats Strategy for Lunch).

So, we agree... Great predictions here and they are refreshing because they are bold and not the same old thing just warmed over.  Kevin is someone I have followed from back in his AMR days and I highly encourage you all to do the same.  You can read his writings at his blog: Beyond Supply Chain. 

Kevin's tweet is below:

"RT @logisticsexpert drones and robots in supply chain!!: dld.bz/cd2hg -see 5 predicts tinyurl.com/b2ld7z3
— Kevin O'Marah (@komarah) February 4, 2013"

As a side note this is also why people are guarded about all the optimism on the return of manufacturing to the United States.  One has to ask if it is because labor is getting expensive in China relative to labor in the US (when accounting for transportation costs) or is it because robotics have become so good and cheap that you reshore manufacturing in the US to save logistics costs AND you do not employ many people due to automation.

Paul Krugman is even weighing in on this. 

Does Logistics Eat Strategy for Lunch?

An interesting review of two books about World War II entitled: "When Logistics Beats Strategy". The review states:

"Disciples and devotees of "strategic thinking" might find both books humbling. They should. In wartime, logistics eats strategy for lunch"

Given how many companies develop "War rooms" and discuss business using "going to war" metaphors it is fascinating how many of them refuse to learn the importance of logistics and the role logistics has played in the big battles of our time.

I wrote about this in previous installments about the Israeli Defense Forces (IDF).

Macroeconomic Monday® - Data Mixed, Market Up, Consumers Feel Worse

What a combination of data!  We knew last week was going to be a "big data" week and it sure did not surprise however it certainly was mixed.  It required a view one level down to even try to make sense of what was going on.

First, the market closed over 14,000 for the first time in a long time and for those of you who mistook the economic data over the last 3 years you have really missed a hell of a ride in the stock market.  There are all sorts of reasons why this has happenned and the only thing that matters really is that it did happen and it is now at a frothy level. So, here are the highlights:

1. GDP - Shrunk by .1%: This is one which requires you to dig down a bit.  The core reason for this is the massive decrease in defense spending in anticipation of the sequester cost reductions.  Yes, government spending does matter and if this does not get resolved we will take 2% - 3% out of GDP.  This was a small glimpse.
2. Durable Goods Orders - Increased by 4.6%:  Great news showing investment by businesses which generally implies they see a good 2013 coming.  Some of this may have been due to trying to second guess any changes in depreciation rules but overall, it is a good sign.
3. Consumer Confidence - 58.6 v expectations of 64: The consumer continues to feel the blues and is just not feeling good.  We will need to watch this closely because if this translates to lower spending and the sequester cuts cause the government spending to continue to decrease at the rate it is going, the likelihood of recession will increase dramatically. I am not going so far as to blame the expiration of the payroll tax holiday as I do not think people can even calculate that for the most part.  The bottom line is while the market is growing dramatically people still feel they are one hiccup away from losing their job, losing their house and general economic problems. This causes them to feel bad and hoard cash.  This caused personal spending to miss expectations by .1%. 
4. Unemployment - 7.9%: While this ticked back up by .2% the number of jobs available has increased and a general feeling is we are rebounding in jobs.  
5. ISM Index - 53.1:  This was the big news.  Manufacturing clearly continues an increase and had a robust January.  That was really good news. Now if we can get this to improve the employment numbers we may have a real economy going here.  However, the data as one economist sees it says we could get this rebound without a big move in jobs numbers because companies have figured out how to have machines do more and more of the highly skilled work. The old argument in economics always is the trade off of capital and labor and it appears capital may be winning in "The Rise of The Robots". (note: Ignore the politics in the linked post: Just read the facts on labor v. capital)

Overall, I would say it was a great start to 2013 and the data appears like a fairly decent economy.  The risks which are very clear are:

1. Government pulls back on defense spending for real and takes with it almost the entire GDP.
2. Employment numbers truly do start decreasing and unemployment never decreases.
3. Consumer confidence never comes back. A danger to all types of recessions is you never get to "take off" speed because of hoarding and hoarding occurs when people just feel bad about the future.  

That is it for now.. Happy February!!

A Drone Delivers Your Package?

Missy Cummings
Boston Globe

Recently, I watched a fascinating show on Nova entitled:  "Rise of the Drones" and as usual, I never expected to get a logistics thought out of the show however, as usual, one develops.  A key scientist (Missy Cummings, former F/18 fighter pilot and now MIT Scientist) being interviewed for the show had actually said "imagine a drone delivering your FEDEX package...".  Now that got me thinking.

First, I had no idea how far the technology for drones has developed in the last 10 years. What they can do and what they are doing is absolutely amazing.  A scary item is they are readily available with a quick search on Amazon you can find many "drones" for less than $1,000 which can do a lot of things (not the least of which from a privacy concern standpoint is take pictures). Here is one I found which I found especially intriguing for less than $750 and it advertises itself as having everything you need to "start aerial filming".  It is called the DJI Phantom Aerial UAV Drone.

So, what is the implication for logistics?  Well, just like what I have been discussion relative to 3D Printing, there is a chance this could revolutionize air freight delivery in the package space.  Think of these key items:

• It is easy and cost effective for the package delivery companies to continue doing what they do today for big population centers.
• The costs increase tremendously for servicing small, less densely populated areas. 
• They cannot afford the pilots and complex planes just to service a town of 10K and the drivers and trucks are very expensive as well. 

Now, imagine the following scenario:

• A major population hub is where the large plane from a central sorting site lands. This plane has packages for both truck delivery at the major population center and also packages for all the small little towns that are within a 150 mile radius. 
• Rather than send linehaul trucks to these small towns (which many have some kind of air strip - there are over 5100 paved runways in the United States), the package company launches 20 drones with packages on board - unmanned and controlled via GPS (One learning from the NOVA show was they are starting to eliminate even the pilot on the ground and go 100% automated GPS flying)
• A person in the town, local person with a local delivery truck, takes the packages off the drone and sends it back on its way to the central location (perhaps even with returns).
• This local person does simple pick up and delivery.

While I would have said this is far in the future 2 days ago, now that I have watched this show I am not sure how far it is.  Once again, another technology which not only reduces miles driven, reduces demand for drivers and reduces costs but it actually eliminates many of them completely.  

2012 Was A Good Year for Shippers Who Used Analysis Over Emotion

Despite all the noise about how CSA, regulations and a surging economy would create a massive deficit in capacity, what we saw in 2012 was a very shipper friendly environment for those shippers who did not let their emotions runaway with them.  If you stood fast, watched the data and understood the market you were able to reap some pretty good rewards in 2012.  The ATA truck tonnage report even showed a reduction year over year in December.

Bob Costello, economist for the ATA was even quoted as saying in 2013 the outlook is for a sluggish truckload environment.  My personal believe is the rules of good transportation management and procurement management don't change much.  Some highlights are:

• Always conduct should costing before talking rates.  Understand the costs of every component (Equipment, driver wages, fuel etc.) and the best in class purchasers will know those costs as well as the person across the table. 
• Don't let emotions and the industry hype sway you.  Stay focused with the data.
• Understand your personal procurement situation.  Even if the market is "on fire" if you have counter freight to the prevailing freight flows you are in the driver's seat. 

I had one person tell me a long time ago that transparency and accuracy will always prevail in costing and I believe them to be right. 

Why I Thought FEDEX Was Best For My 3D Printing Model

I received a lot of comments about my post yesterday concerning 3D printing and how I think FEDEX is really set up to exploit this opportunity.  Many of the comments pointed out there are other similar companies to FEDEX (such as DHL) who could do the final mile delivery.  However, I have not found the discussion compelling as none of them possess the extensive storefronts which are set up as printers already.

Yes, UPS purchased Mailboxes etc. to try to do something similar however there is a big difference.  The FEDEX Office (formerly Kinkos) locations are set up to print and produce where the UPS offices are essentially private post offices.  The keys to being able to exploit the advent of 3D printing are:

1. Locations which are local and already established to do the printing.
2. A brand which is already very trusted.
3. A process which people are already familiar with such as sending your documents for printing. 
4. An integrated final mile delivery network to do the final delivery of the "printed" material. 

Think of the FEDEX office location as the "transporter room" in the enterprise for Star Trek.  In the United States, no one has such an extensive and integrated network.

I have no idea if FEDEX is thinking of this however my speculation is they are keeping a good eye on the developments. 

Big Economic Week Ahead

Macroeconomics drives everything.  I am reading Warren Buffett's new book "Tap Dancing to Work" and he is fond of saying a fantastic manager cannot do much with a lousy business.  That is true, I believe, of the macro economy as well.  It sets the field of play and in that business, this week is a big one.  Watch out for:

Monday:  Durable Goods Reporting
Tuesday:  Consumer confidence
Wednesday:  First estimate of Q42012 GDP and statement by the FOMC
Thursday:  Wages and Personal Income
Friday: Construction Spending, Employment and Manufacturing activity.

Let's hope for a great week!  Good luck.

More Impact of 3D Printing - Nokia Gets in The Game

I have written about 3D printing many times and its impact on the transportation industry (read:  Soon a lot less will need to be transported).  Of course, this is a way away and most people I talk to aren't overly worried about it.  "Not in my lifetime" is what I hear most.  This reminds me of the discussions people had in the '80s when we said email will take over communications.  And, we all know what happened there.

Now we see Nokia is issuing standards so people can print their own covers using 3D printers.  This has massive implications.  First, a lot less product will need to be shipped.  Yes, I know these are small but soon it will be bigger and bigger product.  "Designed in California" will be printed and the item will be made on the spot and on demand. Transportation demand will decrease dramatically.

Second, it truly will mean "mass customization".  Mass customization has been a dream for a long time where people have predicted the benefits of large scale batch production coming to products which are made for a consumer of one.  In effect, this will be what 3D printing does.

Finally, it will put a lot of manufacturers out of business in total.  I essentially will make the product myself and will have no need of a "conversion" partner - i.e., the manufacturer.

The big winner in all this could be FEDEX and their acquisition of Kinkos many years ago could be a fantastic application for this.  Imagine the following the next time I want a case for my iPhone:

1. I download plans for the case I want.  I customize logos, words etc. on the case.  Perhaps I pay $1.99 for the plans for "one time use" and I get them right off the Apple store. 
2. Once completed I send them to FEDEX (like I do a document today) who routes it to the local FEDEX store (formerly Kinkos). 
3. The local FEDEX store "prints" the case for $5.00. 
4. I choose at this point whether to have FEDEX deliver it to my house through their "final mile" network or I pick it up.  

Voila!  No (or very limited raw material) inventory; customization for me specifically, made locally and ready to pick up in 1 hour.  Soon, just like we are used to "1 hour photographs" at Walgreens, we will have "1 hour manufacturing" and FEDEX may be in the best spot for this.  

(Note:  I have never seen anything saying FEDEX is planning this but I just think it makes sense.  In this very in depth and good article from 2011 entitled "3D Printing: The Future is Here" the author says "imagine a time when 3D manufacturers are as common as Kinkos offices completely ignoring the idea that for a lot of items Kinkos / Fedex office could be the manufacturer. ). 

Cost Control Gone Bad..Subway Agrees to Make all "Footlongs" well.. A Foot Long

We have all seen it in just about everything you buy; packaging is thinner (resulting in more damaged product), metal is replaced with plastic, minor features just no longer exist, what was 4oz is now 3.8oz (same price)... well, you get the picture.  To "manage costs" just about every company eventually goes too far.  What is that limit you ask?  It is when the brand promise is violated to save a few cents.

This is the case of the "Footlong" sandwich which it turns out was not a footlong.  At first the company declared that the word "footlong" was more of a trade name and not intended to imply the sandwich was actually a foot long.  Yea right.  And now the company finally comes out and agrees they will make all future sandwiches a foot long.  

I bring this up because all who run companies have to realize there is an unwritten brand promise to customers which cannot be violated or you risk huge backlash.  Virtually every company's single largest asset is its brand and the brand is based solely on trust.  The only reason any brand would command any premium over a commodity price is that the consumer believes somehow the people behind that brand name are doing something no one else is.  So, without knowing what that is (i.e, they trust) people will pay a premium.

When the consumer realizes the trust has been violated they turn on the brand fast and furiously.

This is the reason why there is virtually no intrinsic brand loyalty in air travel.  Most (not all with Southwest being a notable exception) have decided the best way to make money from customers is to declare war on them.  Every consumer of air travel knows it does not cost the company $150 to change a flight.  Yet, the airlines charge it because they are exerting quasi-monopoly power.  Because of this there is no trust and therefore the brand is essentially meaningless.

So, don't forget:  The brand is built on trust and as we see here when the trust is violated, the wrath will come down.

The Data Behind The Data on The Housing Market

A lot has been mentioned recently about the housing market and how quickly it appears to be rebounding.  It feels as if the entire country woke up in unison and decided to all go buy a house.  Feels like 2006 all over again right?

Well, not so fast.  It is important to understand where we are coming from and what the possibilities really are.  The graphs below from Northern Trust tell an interesting story:

Home sales, while increasing are still very anemic as compared to the "go-go" days of 2006.  I would never expect it to get back to that level so those who are saying, "when will housing come back" should be asking themselves, "back to what".  Further, you can see existing sales are increasing faster which generally does not have the same multiplier effect on the economy as new construction.

Behind the numbers of the existing sales also includes investors buying homes or blocks of homes to rent.  That element further reduces the multiplier effect.  And, finally, the drag on the economy of incredibly tight lending criteria means it will be a long time, if at all, that we get back to even 75% of the growth days.

Watch this closely, it is good to finally feel good, but don't get burned with unreal expectations.

A Fascinating Discussion of "Vehicle Miles Traveled" (VMT), Implications for the Auto Industry and Implications for Automotive Logistics

It is so interesting that the human mind almost always takes previous history and subconsciously projects it out into the future.  It is a real danger when conducting business analysis.  For example, I have always said to those who say GDP is the best indicator concerning transportation volumes that they should not assume a 1% move in GDP 20 years ago is the same as today.  Why? It is because the make up of GDP is not nearly as "freight intensive" now as it was 20 years ago.  Finance, services, health care etc make up a lot more of the GDP now than does industrial production which is the real mover of freight volumes. 

In reading this article concerning Vehicle Miles Traveled - VMT (for automobiles) I am fascinated by the same type of scenario.  We all think that auto sales will move in roughly the same proportions as it has in the past with GDP.  However, what we really need to be looking at is whether driving behaviors are remaining constant.  Once could easily envision an economy growing dramatically yet VMT actually going down which would put a damper or even downward pressure on automobile sales relative to the economy in general.  Here are some key factors:

• Movement to cities - Less number of miles traveled as people walk and/or use public transportation.
• Smaller households - As families shrink the need for the infamous "third and fourth car" shrinks as well. 
• Move to "shared" transportation  - A fascinating development is the growth of people "crowdsourcing" and borrowing each other's items.  A car stays still for a vast majority of the time it is owned and as people share their assets more, less cars get purchased. 

And, the chart below shows some of this happening:

In the end, it is very possible we could have a growing and robust economy yet have far fewer automobiles on the road.  This, of course, has big implications for transportation in the long run because automotive manufacturing consumes a lot of truck and intermodal transportation miles. 

This will clearly not happen overnight and you may say it won't happen in your working lifetime however there is a good chance it will happen and is already started to happen. One thing I have learned about these types of trends (call them "Mega-trends") is they aren't noticed until it is too late and they generally go a lot faster than you expect. 

Clay Christensen: How Will You Measure Your Life

I am going to use today's posting to refer you to one of the most brilliant people I have ever met and had the pleasure to listen to: Clay Christensen.  When I attended the General Management Program at the Harvard Business School he taught two class sessions for us and was mesmerizing.  Many of you have probably (hopefully) read his various classic books on innovation starting with "The Innovators Dilemma"  (note: if you are in a leadership position in a company and have not read this book, you do so at your own peril).

He has now written a business / life book entitled "How Will You Measure Your Life".  I am attaching two videos here.  The first is him speaking about this book and the innovation topics in a detailed, entertaining and profound talked at the Linkedin Headquarters.

The second video is his much shorter but also impactful "Tedx Talk" in Boston on this topic.

I will be back to logistics later and I wanted to ensure I did my part to share the wealth of this brilliant man.

Blue and Brown Make Green... Sustainability for The Final Mile

I have written before about the complexity of the final mile in the logistics network.  This includes both the final mile of the delivery and also the first mile of the reverse logistics networks created by final mile deliveries (i.e., Customers tend to order one size too big, one too small knowing they can return.. for example).   What I had not thought about was the unique nature of the sustainability challenges of the final mile network.

Thank goodness there are a lot smarter people than me in this world!

The Post Office (USPS) and United Parcel Service (UPS) have partnered together to share information and build out this carbon information for the final mile in the United States.  This is good news and I look forward to seeing more about this in the coming years.  The sheer volume of vehicles possessed by both of these entities and the fact they are working to reduce carbon gives me hope for continued sustainability initiatives.

Wholesale Inventories Climb More Than Expected

I will have more on this later tonight however my fear about inventories seems to be coming true.  Inventory appears to be building in the supply chain which means the "great restocking" transportation companies tend to expect after the holidays may very well not happen.  

Wholesale Inventories Jump 0.6%, Top Estimates

Buyer Beware... of Anchoring!

Sitting tonight watching the news and the topic was the "after Christmas sales".  The story, of course, made me think of transportation but let me digress and tell you what I saw.

The reporter interviewed a young lady at a Chicago mall who was just thrilled with her new purchase.  I paraphrase and here is how the conversation went:

Girl: "I went into a store and the boots were 'regular $900'. I got 50% off, then I got xx% for something I did, then another xx% for opening a credit card... " (you get the idea) "I got a $900 pair of boots for $125!"

Reporter:  "Wow, you did great.  You must be real happy"

Girl: {giggling}: "Yes, I am a very happy girl"

Of course, somewhere there is a merchandiser who popped the champagne bottle and wasn't just giggling but was laughing out loud.  They had anchored the girl and anchored her good.

What never crossed the girl's mind, nor the reporter's mind apparently, is the fact that the boots may have only been worth $5.00.  How do they know?  Why was $125 a "deal?  The answer is simply that they have no idea whether it was a deal or not except in the relative terms to the "retail" price of $900.  The retailer and their all powerful merchandisers had anchored the discussion.  The consumer, the girl in this case, was set up by the merchandiser because they were able to get her to reference her thoughts around the $900.  Anything less than that was a "deal" and certainly $125 was a "steal".

It never occurred to her that the boots were probably made in a factory in Vietnam and cost the company selling them about $5.00 to make.

How does this relate to transportation you ask?  I say: beware of industry "anchoring".   It is that time of year now when the transportation industry executives and the so called "independent" analysts will come out with predictions on what will happen with rates for next year.  They will say "be ready for capacity crunches" and "be ready for at least 5% increases" and they are doing nothing more than, as an industry, anchoring, as a group,  the entire transportation buying community.  By establishing these expectations as "the truth" and giving buyers reasonable cover with what appears to be scholarly articles to reference, the industry establishes "greater than 5%" as the anchor.  Anything less than that appears to be a "deal" and occurs due to the great procurement skill of a buyer somewhere.

I can see the conversations in board rooms now:

Executive: "Mrs. Logistician,  how did you do this year"?

Mrs. Logistician: "Great!  The industry was going to go up over 5% and we were able to hold the increases at our company to 3%"

Executive: " That is great Mrs. Logistician.  You beat the market!  Fantastic!

Mrs. Logistician gets a great bonus and off she goes to Maui for vacation..

Or.. the conversation could end with the Executive asking this:

Executive: "Mrs. Logistician.  How do you know 5% is the right expectation?  The macro economic conditions don't seem to warrant it and with the changes in freight, the lower freight demand, and the fact that we are a very large shipper lead me to believe that you should have actually experienced a rate decrease this year. Shouldn't you have?"

Mrs. Logistician: Gulp!  She wonders if she will ever get to go to Maui!

What the executive did not do is she did not fall for the industry anchoring.  The executive built her expectations from the ground up.  She ignored the arbitrary industry expectation of 5% and started at 0 and then applied good macro and micro economic analysis to build her own expectation.  And, her own was far lower than where the industry tried to anchor her.

The critical lesson here for both the girl buying the boots and the transportation procurement professional is do not fall for anchoring.  Do not allow the industry to set the expectation.  Ignore these predictions and build, from the ground up, what the status and situation is for your own company, your own freight with its own characteristics  what your current pricing situation is etc. etc.  From that you should be able to develop what a very good expectation is for this year, for your situation and many of you will find it is dramatically below what where the industry will try to anchor you.

Holiday Sales Disappoint - Leading to Inventory Issues?

First, Merry Christmas and my wishes for a very happy holiday season.  Regardless of what you celebrate at this time of the year the messages all are the same: Happiness to all of you and your families!

Unfortunately, it was not a happy retailing holiday season.  As ABC and others are reporting, holiday sales have disappointed and have actually had the lowest year over year increase since 2008.  That is a haunting statistic yet not one my readers would be surprised about.  The impact on transportation can be summed up in two words: Excess Inventory.

Normally, after the holiday season the transportation industry prays for an "inventory restocking" cycle. However given the dismal sales, and the fact inventories were already elevated (as measured by the inventory to sales ratio), my estimation is the restocking cycle will not even be noticeable.   Transportation rates will remain somewhat depressed and my predictions of the transportation industry continue to hold:  

1. Rates are somewhat elevated (relative to the true capacity and demand picture) and the buyer who holds their ground should be able to negotiate good contracted rates.
2. The buyer needs not "fear" the capacity issue (which has been discussed since about 1980) until deep into 2013 at the earliest. 
3. Great rates favor those who do their homework, understand these macro trends, and are prepared to discuss them at "the table".

Going into last year, FTR predicted a potential for a 10% increase in rates which was very far off the mark.  I saw some "panic buying" (i.e, shippers accepting large increases using this prediction as justification). Going into this year we continue to hear "this is the year of the capacity crunch" and while shipping conditions are "benign", "shippers can expect to see increases in 2013" (again, have heard that since 1980).  However, the macro economic data, along with the data around the digitization and miniaturization of products, leads me to believe demand is being pulled faster than capacity and shipping conditions will favor the shipper for the vast majority of 2013.

Update 12/26/2012 10:15AM: More reports of slow holiday sales: "This Was Definitely Not A Merry Christmas for Retail" - Business Insider

And A Third Set of Predictions....

I bring you yet another set of predictions concerning supply chain for 2013.  Adrian has a fantastic track record for seeing into the future so I would pay attention to this.  I will not give the excruciating details as you really should go over to the posting "Supply Chain and Logistics Predictions for 2013" at Logistics Viewpoints.  Here is the summary:

1. Big Data, Social Media, Cloud Computing, and Mobile Technologies will continue to dominate the headlines
2. User Interfaces for Supply Chain Apps Will Get a Social Makeover.
3. “Siri” Comes to Enterprise Apps.
4. The Robots Keep Coming.
5. Continued Focus by Retailers and Service Providers on Innovating the Final Mile.
6. Further Blurring of the Lines Between 3PLs, Tech Providers, and Consultants. 
7.  Increased Adoption of Alternative Fuel Vehicles.
8. More Programs and Partnerships to Address the Talent Shortage Problem. 

The themes continue to remain similar except Adrian clearly has a social bent to his ideas which I highlighted in an earlier post.  I can't imagine any of these predictions being too far off the mark. 

Yet, Even More Supply Chain Predictions

It is that time of year again when the supply chain (and other) predictions come out.  The really smart people keep them broad enough so, like a fortune teller, they cannot possibly be wrong which is why I do not necessarily believe in this type of crystal ball.  However, as I said in my previous post on the IDC predictions, it is good to get all this into one area so as you build your 3-5 year strategies, you can incorporate these broad directional ideas.

Today, we get a guest column on Forbes.com from Mark Woodward who is the CEO of E2Open, entitled: 5 Supply Chain Predictions for 2013, The Year of The Network. Given he is a CEO of supply chain technology firm, you can expect his predictions to be both centered around technology and offering up technology as solutions to problems.  Nevertheless, this is a very good list and I reprint it here with some of my thoughts:

1. Fast Data Will Become The New Big Data -   I know I promised not to use the term "Big Data" anymore as it has become the most overused term in the fastest amount of time of any business buzzword I know.  However this is an interesting twist which is big and fast are critical elements of a successful data management plan.  The speed with which you share and collaborate using accurate data is at least as important (and maybe more) as just the shear volume of data.
   
2. The "Social Supply Chain" Will Transform How We Work - Don't confuse your view of "social media" (i.e., your experience with your kids on Facebook) with the social supply chain.  The social supply chain, as written about extensively by Adrian Gonzales (Quickly becoming "the" expert on this topic and wrote this great blog post about why companies were not using social media in their supply chain) is about open collaboration, problem solving and open source dialogue about issues relating to supply chains.  As stated in this article, demand sensing is really part of the idea of the social supply chain.
   
   The one concern here is if companies really do compete on supply chain efficiency as much as they do on the product then we have to ask ourselves how far collaboration will really go in the open social world.  Some firms, like Apple, which consistently get high remarks for their supply chain efficiency are notorious for being closed up like a vault when it comes to collaboration and sharing outside of their own supply chain ecosystem.  A quick posting on this idea of companies competing on supply chains can be found here at: Businesses Don't Compete: Supply Chains Compete.
   
3. Supply Chain Control Towers Will Transition from Concept to Adoption - This I completely agree with and the time is now for this type of operation.  Control towers are a requirement for really dynamic supply chains to adjust to ever changing market and environmental conditions.
   
   This does not have to be a complicated IT solution either.  A great control tower, using lean methods and the idea of visual management can consist of white boards, manual tracking and the use of forward indicators of data.
   
4. Dynamic Cost Will Transform Decision Making - The idea of a static standard cost which gets adjusted once per year is dead.  It is a relic of times gone past when that was all our systems could handle.  Costs and the macro economic environment change far to frequently and quickly to allow you to not have accurate, fast and transparent costs into your supply chain. Transparency of costs is critical to accurate decision making.  The next time a supply chain partner tells you that you do not have to worry about this I suggest you hold on to your wallet.  A true partner would want accurate and transparent cost data so you can make the right decisions quickly and accurately (notice the them on costing:  Fast, Transparent and Accurate).
   
5. Risk Management Will Move From Static to Dynamic - I have written about risk and resiliency a lot recently so I will not rehash it here however suffice it to say the same theme applies in terms of dynamic, fast and transparent.  

As with other predictions, I am not sure if "this is the year for... " or not, however the ideas set forth by Mr. Woodward are fantastic and clearly the ideas all supply chain executives should be thinking about and balancing as they work towards transforming their supply chains to meet 21st century challenges. 

The Math Behind Tracking Packages - Marketplace, NPR

NPR does a very good podcast on the "math behind the packages".  A very fascinating quick story on how the "quants" are taking over logistics as well as finance.  Being able to develop mathematical algorithms is critical to UPS' mapping success.  Their mapping success is critical to the efficient routing of drivers.

Have a listen and enjoy:

Lessons From Kozmo.com for Same Day Delivery

Yes, it is true if you live long enough what is old will be new again.  This, of course, is the situation as it relates to the so called same day delivery wars.  I have mentioned over and over again that I am very skeptical of this beyond being a marketing hype ploy as the density needed (low miles per stop and high number of packages per stop) is virtually unachievable except in very dense cities.  And, of course, in those cities "couriers" have been around a long time so same day delivery is not new.

Now even our friends at the Wharton School of Business have weighed in on this by analyzing what went wrong in the late '90s with Kozmo in a posting entitled " Same Day Delivery: This Time it May Actually Work" - an organization dedicated to same day delivery which went out in a flash of glory - and why this time it may be different.  The basis of this argument?  It is all about density.

The issues remain and the questions continue to go unanswered in my humble opinion.  Some of them are:

1. How will you get the density?
2. How will you overcome the high costs of fuel?
3. Will this really generate incremental sales?
4. What happens when this becomes "an expectation"?  
5. Will this be given away for free and ultimately put pressure on margins?
6. Do people even want it (beyond the procrastinators who are probably not your best customers)?

The answer to number 6 equates to the idea of sticking a knife in a horse to get one last gallop out of it before you run it to death (i.e., What Kris Kristofferson does in True Grit).  Every retailer is fighting over that last incremental dollar as if it will make or break them.  My analysis suggests the amount of money spent to get that very last dollar of revenue probably is not worth it however that is what they are doing as a crowd.  They want that last dollar and appear to be ready to spend a fortune to get it.  

In my next posting on Same Day Delivery, I will propose a solution to this issue and we shall see what they think. 

IDC 2013 Supply Chain Predictions

Last night I sat through the archived broadcast of the 2013 supply chain predictions for manufacturers from IDC.  While it is a little bit of "mom, Country and apple pie" I do think it was a very good presentation as it summarized almost all the key supply chain challenges in one spot.  I would not say this was a "2013" prediction but rather a good primer on what supply chains always have to deal with and what should be in your playbook.  Some years one will be prioritized over another (for example they believe responsiveness and service will override cost in the year ahead) but overall these are the items you are always reviewing as you develop both tactical and strategic plans.

Here are the top 10 as they see it:

1. Resiliency becomes a priority for end users looking to master massive multidimensionality. 
• Prioritize flexibility, visibility and agility
• Mastering this will require you to deal with massive amounts of data. 
2. On the supply side of your supply chain, recognizing inherent cost of long lead times, end users will look at global networks through the lens of both regional and country level sourcing. 
• Finally companies will quantify the effect of long lead times. 
• Trade offs will be made - Most effective sourcing will take over from "low cost" sourcing as companies build tools to quantify the true costs of these activities [ this bullet is my commentary].
3. On the demand side of supply chain, recognizing the need for better service levels and mass customization, end users look again to postponement techniques and data analytics to drive more effective customer insights and smarter fulfillment. 
4. End user IT organizations must support a more productive supply chain ecosystem.
5. Service excellence becomes a strategic priority. 
6. Supply chains optimize omnichannel customer service and cost by enabling trustworthy, efficient and effective supply chains (TEE). 
• The consumer will demand value and trustworthiness (right product, right time, right place, right value).
7. End user supply chains focus efforts to improve collaboration both upstream with suppliers and downstream with customers to better compete in a faster world. 
• Sales and operations planning (S&OP) collaboration will be critical [ my commentary]
• Technology to bind business partners together and to facilitate the flow of information [ my commentary] will also be critical.
8. The modern supply chain gets smarter
• Integration
• Optimization
• Embedded analytics
9. Supply chains invest in technologies that enable visibility, virtualization, and visualization
10. The 'Big Data' era draws dawns for supply chain organizations (what prediction would be complete without mentioning "big data" - my comment)

Those are the 10 and most will say this is what I do all the time as we always are trying to figure out the perfect mix of all of these things.  I would agree.  However, it was very helpful to get it all in one spot and perhaps use a maturity model to rate your supply chain - where are you on each of these dimensions and how important is that dimension to your organization.  

Once you draw that out graphically you can then socialize it in your company and begin drawing out what your 3 - 5 year strategy will look like along with what tactics you may use next year.  

Do You Have a Supply Chain or a Spiderweb?

This question was recently asked by Zurich's "Risk Engineers" and I think it is a fascinating question.  The metaphor we are all familiar with, the "supply chain" connotes a nice set of interlocking rings, probably made of steel, and that are perfectly aligned.  It brings to mind a very planned and organized way to get from point "a" (raw materials) to point "b" (finished goods) to point "z" (The consumer).  We all know the problems recently experienced from hurricane Sandy however this study clearly indicates the issue is deeper and more broader than just a freak storm.

Reality is, unfortunately, many are spiderwebs.  Not made in any particular order, overlapping and easily disrupted with the swat of a hand.  Zurich believes 2013 is the year companies better take managing, or at least mapping, this web a bit more seriously.  A few key statistics:

• 73% of respondents to a survey in 2011 reported at least one supply disruption; 50% reported two. 
• 40% of those who experience extended disruptions eventually go out of business.
• The leading cause of disruptions is IT or telecommunications. 52% saw some or a high level of disruption from these issues. 
• One in five companies said they had one instance where they incurred at least $161M in damages

I had an opportunity many years ago to meet with the people of Zurich about this topic in New York City.  At that time it was an "interesting"topic but not much more.  Today, it is critical.  Terrorism, global warming, reliance on sophisticated telecommunications networks, "just in time" (i.e., lack of buffer stocks) and the web of globalization has not only made the likelihood of a disruption more probable but the consequences of it far more severe. 

Their solution is at least to start mapping out your supply chain through tier 2 and rate it based on likelihood of disruption, financial stability and physical stability.  From there I imagine you can create significant contingency plans to at least have a fighting chance at keeping your business running.  

CNN Story on Natural Gas

An interesting story on the heavy duty trucking industry and natural gas:

Inventory to Sales Ratio Tells a Grim Story

As my readers know I follow this very closely as this ratio tells us whether product is "backing up" in the supply chain or flowing as it should from manufacturer to consumer.  We are already hearing anecdotes of sales not being where they should be for the holidays, slow movements of imports, extended automotive shutdowns and now this... the inventories in the pipeline relative to sales are growing:

Inventory to Sales - Published 12/11/2012

The slope of the line looks very ominous and it certainly looks like it did back in the 2006 time frame.  Of course, we came out of that but only for a short period before we had a collapse.  This clearly leads us to believe freight will be very soft for Q1 and perhaps into Q2 as companies execute the "final mile" by selling what is inventory but not restocking until these inventories get back to normal. 

Some may look back into the '90's and say "we have a long way to go before we get to those levels". To this I say retailers and manufacturers learned their lesson during the "great recession" and I would not anticipate ever going back to those levels of inventory (At least until those who lived through the great recession die off then the new younger hip crowd says "this time is different" and go back to it - it is a generational cycle).

This data, along with the idea that we will have extended automotive shutdowns (at least with GM on the Cruze line) leads me to believe my prediction for soft freight in the first half of the year is very reasonable.  

As always, I hope I am wrong however I truly just let the data speak.  

Where Reverse Logistics and Sustainability Meet

We all know the technical reasons for reverse logistics and at this point in the season many retailers loathe it.  Product is returned, packaging is just thrown into landfills and old product is thrown in the garbage in favor of the new and fancier version.  This is both a reverse logistics and a sustainability nightmare.

What is worse is a lot of the garbage created ends up in the ocean.  There are floating patches of man made waste all over the ocean and it just sits out there generally making a mess of things.

Well, fret no more as one of the most forward thinking and sustainable companies on the planet, Method, has come to the rescue.  According to both their website and this article in the Mother Nature Network Method has devised a way to take that post consumer use ocean garbage and re-purpose it to make the bottles for their 2 in 1 hand soap / dish wash soap.  What a great idea.  by using this product you will accomplish three things:

• Get a great soap (Yes, I use Method and love it)
• Help to clean the oceans
• Eliminate waste in the creation of new plastic bottles which are unneeded since we as humans have provided patches of the old stuff ready for use. 

It is very rare you can accomplish all of this in one purchase. Yes, recycling what we throw away is part of reverse logistics. 

What are you doing for your personal sustainability initiative today?

Exporting Natural Gas - No Cheap gas Part deux

I wrote back in the beginning of November that we can expect an abundance of domestic oil and gas but not low price oil and gas.  I said this because what the candidates refused to say was that while it is abundant the fact it all can be exported means it will almost always stay around the world price for oil and gas.  My thesis was if the price in the US just became too cheap all of it would be exported.

I hate it when the facts prove this out.

Today in the Wall Street Journal there is an article titled "US Gas Exports Clear Hurdle" and it is  talking about a Government study which said was good for the economy if we "liquefied and exported" natural gas.  Voila.. your "cheap domestic source of energy" has just evaporated into a world price domestic source of energy.  So, those expecting a great amount of domestic energy and all the good things that come with this should be happy.

Those who expected "cheap" energy will be disappointed.

McDonalds - No Product Out of Stock - Ever!

I like it when a company knows and understands its core principles relative to the supply chain.  I see so many companies make the mistake of trying to develop a culture where everyone can suggest trade-offs.  When that happens then everyone has a great idea on what should come first, second and third in terms of priority.

In this article titled, McDonalds Wants to Be Assured of Delivery, the McDonalds Director of Global Supply Chain Integration and Logistics, Alex Bahr makes it pretty clear that first and foremost nothing can be out of stock - ever.  And, it is for a very simple reason: efficiency of the restaurants. He states:

"A typical McDrive needs to be able to handle 120 cars per hour in Europe, and as many as 150 to 160 cars per hour in the US. That leaves us no time to suggest alternatives if a product is out of stock."

I believe more supply chains need to be just this blunt on what the priorities are.  I once worked in automotive service parts where the objective was 80% of last nights orders are delivered by 10:00am the next day and the remaining 20% were delivered by the end of the day.  This was a "non-negotiable" standard and any cost cutting project had to be done in the context of this objective.  An idea which said we could save $xx dollars if we pushed delivery out a day was rejected immediately.

Clarity brings simplicity and unity of purpose for a team.  Are your supply chain objectives this clear?