A 25 year veteran of the supply chain and logistics industry blogs on all things logistics. Experience in 3PL, automotive and consumer goods logistics help bring a unique insight to this topic
Well, another year starts off with the "this is the year for trucking" story and it is starting to look like it is another year where it is going to fizzle. I am traveling a lot this week so it will be tough to get into the details here.
Having said that there are clearly two big data points. As the Wall Street Journal pointed out in an article titled "Trucking Stocks Tumble on Downgrade, Pricing Outlook", the bid season has not gone well for truckers. This generally means there is excess capacity and that is driving lower prices. An interesting quote (which blows apart the "shipper of choice" boloney over the last few years) is the following from a Stifel report lead authored by John Larkin:
"Many shippers have effectively elected to toss to the wayside any talk of partnerships, relationships, cooperation, collaboration, etc.,” the report read. “Shippers are under enormous pressure to cut transportation costs and seem not to be satisfied with the massive fuel surcharge reductions racked up over the past year and a half.”
If you don't believe that then use the trucking companies' actions to tell you what they think. FTR reports Class 8 Orders at Lowest Level since 2012. Having worked in the trucking sector I know as soon as the trucking executives see a prolonged slowdown the first thing they do is cancel truck orders.
I recently published a posting about the Ascendency of Supply Chain and the proof point I used was Amazon suing Target over "poaching" of supply chain talent. 20 years ago no one cared about hiring someone from supply chain. Now it is seen as "stealing competitive secrets".
It is a fierce battle out there for great talent in warehousing. I mean for all talent - hourly and salary. This segment has really become the "manufacturing" of the 21st century. While everyone seems to talk about manufacturing, hoping for jobs, what they really find is manufacturing has come back to the US due to high levels of automation and robotics. It is warehousing and distribution, as E-Commerce grows, that will drive supply chain employment.
Back in September we were warned about the shortage of warehouse labor at both Marketwatch and in the JOC in an article titled: US Warehouse and Logistics Sector Warned of Labor Shortage. Both of these predictions have come true and they are even more pronounced during the "busy" season(s). So what is a leader to do?
One thing you do not want to do is get into a wage war. That does not solve any problems for anyone. The real activities which influence great employees to want to work in your warehouse v. the competitors are three-fold:
Treatment: It should go without saying if you do not treat people with dignity and respect, they will not want to work with you. This is true for managers and it is true for hourly associates. While this seems like a truism, in my travels and consulting, I find I almost always have to remind people of this. Activities like communication, sharing business results, and involving people in decisions all show people they are being treated as true partners in the organization.
Environment: Make the environment a place you would want to work. If you would not want to work in the location why would you expect others to want to work there? This does not have to mean you have a fancy place. But, it does mean, attention to cleanliness, a place for people to take breaks that you would be willing to take a break in, a safe environment and ergonomically friendly all will lead to people wanting to work in your location.
Ability to Advance: Nothing makes people more mad than when they see people coming "off the street" getting the benefit of the doubt over current employees. People want to work where they are respected and one sign of respect is to offer them training and opportunity for advancement.
Finally, yes, you do have to pay competitively (that goes without saying). However, if you do not do the three items I mention above, your chances of having a great workforce, with low turnover and high engagement, will be next to nil.
A great recent read is over at Forbes on Line and the article is titled: Employee Engagement is Not Just a State of Mind. I will not recite everything it says as you should go and read it however the author lists 4 key factors for engagement:
Recognition
Planning
Communication
Contribution
Every manager needs to have an employee engagement plan. It needs to be written, tracked, measured and adjusted as needed. You may find, if you are a center manager, this is the biggest leverage point you have to drive both quality and productivity.
I found the articles recently about Amazon suing a supply chain executive fascinating. To recap, a top executive (although not the very top) of Amazon was hired by Target to bring life into their supply chain - specifically e-commerce and the Omni-Channel portion. Amazon is suing saying he is violating a 18 month non compete clause and saying he will cause harm to Amazon by bringing supply chain "secrets" with him.
20 years ago no one would have thought anything about supply chain was so secret and provided so much competitive advantage that they would sue for hiring a single person. I believe this action really shows how high supply chain has risen as one of, if not the, competitive advantage of a company.
For those thinking of entering our field, be rest assured, you are no longer a "back office cost". You are now a front office, revenue generating portion of the business. You are providing the competitive advantage and differentiation for your company.
Amazon has such a unique ability to do things very quickly, apply incredible technology and put rock solid processes in place (supported by the incredible technology) that when they do this it seems like it comes out of no where. But, of course, it does not. I have written many times that Amazon could easily do this with their fulfillment capabilities.
In Supply Chain Quarterly, the magazine asks this question: Amazon a 3PL? The most interesting part of this article is the "head in the sand" responses from some of the major company CEOs. Only 6 of the CEOs considered Amazon to already be a 3PL. Let's look at the basics of what Amazon does:
They have huge warehouse / order fulfillment centers
They take in product both from themselves but also from other retailers and e-tailers
They provide customized fulfillment
They now have trucks and do deliveries
They are building out a courier service for final mile.
Looks like a duck, walks like a duck, acts like a duck - pretty sure it is a duck. Although, as was outlined in Richard Tedlow's seminal work "Denial: Why Business leaders Fail to Look Facts in the Face - and what to do about it" we know that history is full of companies who cannot see change even though it is staring them in the face. Think Sears ignoring Wal-Mart and then Wal-Mart ignoring Amazon.
Let's close this once and for all. Amazon is a 3PL. Amazon is a cloud computing company. Amazon is a retailer (Now including bricks and mortar). And, most importantly, if you are in those businesses, Amazon is coming after you.
Read this book and you will see how easy it is to ignore the facts - but you do that at your own peril.
The January AAR report has come out and it is not pretty for the railroads. Of course coal has been a big driver but it looks like all commodities are in a decline and that has really hurt the rail. Intermodal is up 3.4% which is "ok" but nothing spectacular.
Bottom line is the economy is just slow and not sure when it will come out of this. I have not written my "Macroeconomic Monday" report in a long time but I can tell you that the dynamics of this economy are very slow growth, tepid employment and lack of wage growth. All of this is driving the consumer to save more or pay down debt which limits macro demand. This is always first seen in the transportation of goods.
Post the holiday e-commerce surge, the inevitable arrived. According to the Wall Street Journal, courier and delivery jobs were shed quickly by companies with lower demand.
Warehouse employment continues to outpace the overall economy. Just go to towns like Lakeland, FL, Memphis, TN or Nashville and you can see that for mile upon miles.
What is fascinating about all this is this means buffer inventory is increasing. The graph below shows the incredible climb of inventory relative to sales in our economy. Wasn't this what all this fancy supply chain software was supposed to solve?
Inventory to Sales Ratio
We are back to roughly 2002 levels which, if you measure supply chain efficiency by inventory levels you could say that we are in a "lost decade" of supply chain improvement.
Anyone who reads my blog regularly knows I am not a fan of this carrier creation called "be a shipper of choice". To simplify my reasons I break my reasons down into three categories:
The carriers themselves speak as a commodity. They always talk about the fact that if demand is greater than supply - prices will go up. This is the text book description of a commodity. I have never met a carrier who, in a time of rate increases, tell you "We will take less price because you are some magical "shipper of choice.
It takes all the requirements for continuous improvement off of the carrier's shoulders and puts them on the customer. I have never seen an industry (except for maybe the airlines) where the supplier's strategy is to essentially go to war with their customer. This is the new trucking industry. The icons of the industry (Don Schneider, JB Hunt - the man) would never do this. They would compete for customers by providing a higher level of efficiency and better service. Not try to put fear in the customer.
This is a race to the bottom for shippers. Imagine if everyone followed the checklist of "Shipper of choice". Now, all shippers are equal and who is actually the shipper of choice? Well, what happens is the carriers ratchet up what they want out of you. This is a perverse way to run an industry.
To help with carrier management and to help shippers navigate this craziness some hire a 3PL. But, what happens when the 3PL is in the tank for the carrier? Well, we know what happens - the 3PL tells the customer they have to pay "higher rates" to ensure capacity (any third grader could have figured that out - no need to pay a 3PL). But, of course, the 3PL makes more money off of these higher rates so on and on it goes.
So, here is my checklist for how a CARRIER can be the CARRIER of choice:
Provide great value - service for price. Overdue the service.
Understand your customer's business so you can understand why they are asking for what they are asking for.
Do what you commit to do - don't over commit.
Don't complain about stupid stuff. I love it when a carrier complains that we should level load our freight volume. Great request. What is a person to do, tell the consumer (who is the only one in this entire chain who is actually injecting money into this supply chain) they can't buy more product on the weekends? They have to buy as much on Monday - Thursday?
"EPA Regional Administrator Jared Blumenfeld said Estes violated the California Truck and Bus Regulation dozens of times between 2012 and 2014.
The regulation, adopted in 2009, requires that all commercial heavy diesel trucks and buses operating in the state be equipped with diesel particulate filters (DPFs), which limit toxic emissions."
In light of the Volkswagen issues where the car company clearly violated environmental laws on purpose, I think we are going to see a lot more of this. As we all know, with regulations companies take "calculated risks" and one of them appears to be around meeting environmental regulations. My advice to compliance departments is they may want to tighten up what they are doing.
There were also two very important items embedded in the article and the first one has to do with sub-contractors to Estes:
"In reaching the settlement, Estes cooperated with federal investigators, admitting that the company or its subcontractors in California operated more than 80 trucks between 2012 and 2014 that were not equipped with diesel particulate filters"
What is fascinating in that statement is they are taking direct responsibility for their sub contractors. So, one way "around" the laws is not to just broker freight and say it is their fault. Looks like Estes will own that liability too.
Finally, the article states:
"Sax said this was “the first of many cases” the EPA and CARB will bring against trucking companies in order to enforce the California Truck and Bus Regulation.
Blumenfeld confirmed the EPA has been investigating out-of-state trucking companies operating in California since the spring of 2014."
If that is not a direct statement of intent, I do not know what is. Clearly, companies had better be careful with what they are doing in California and I would suspect you will see a lot of new trucks headed West soon.
If I were at a trucking company I would be less concerned about "more regulation" and far more concerned about whether my company was meeting requirements in the first place.
However, the one that really stuck out at me was the feedback on the use of crowdsourcing options. It would seem to me that forward looking executives, especially in the light of Amazon's Prime Flex announcement, would be more interested in this option. Only 27.7% have said they include this option in their future plans.
I then go back to think about the talk Dave Clark, SVP of Worldwide Operations and Customer Service at Amazon, gave at the recent CSCMP Annual Global Conference (AGC). One of the most intriguing parts of his discussion was the idea of innovation and the categories of "one way" and "two way" doors. Let me digress and describe this for you:
When innovating, ideas can be categorized into "one way" and "two way" doors depending on your ability to back out or recover from the idea. The brief definition:
One Way Door: This is when the idea, once launched, either cannot be taken out or would be too costly to change back. This type of innovation requires a lot of deep thought, analysis and modeling because once you go in, you are all the way in (See my posting on Cortes' boats).
Two Way Door: This type of innovation is one that you can experiment, pilot and then recover or back out if it does not work. Thing Google Labs on this one. How many things has Google launched, decided it does not work and just stop. No harm, no foul.
A two way door innovation is one you should develop quickly and try it out. Worst case you will learn something and best case is it will work. If it does work, because you moved so quickly, you will have incredible first mover advantage - something that is vitally important in the world of fast follower copy cats.
It strikes me that crowdsourced final mile delivery is something that falls into the Two Way Door category. It will cost some R&D dollars to develop but that is about it. You can launch, manage, learn, adapt then either pull the plug or make it part of your core processes.
Which is why I am so amazed only 27.7% said they are even thinking about it.
But then again, I once heard a trucking executive in the 90's say, "We will never do business with the railroad". Some companies innovate and some whither. Those are the only two choices. Not innovating is not an option.
If there ever was proof that the entire industry's structure of fuel surcharges is just a bunch of smoke and mirrors, this event proves it. Recently, both FEDEX and UPS announced they are raising the fuel surcharges even though their fuel costs are down by over 30%. They offer this absolutely absurd argument that it is this way because of the increase of heavier packages going to more retail locations. Both they claim increase fuel consumption.
Of course, they do not give you a reduction when the new engines provide better fuel consumption or they use CNG vehicles or any of the other many things that reduce fuel costs.
The bottom line is that the shipper should know that even in the truckload and intermodal space industry fuel surcharges in no way have anything to do with fuel. They are built on false indices, with bad data and the shipper has just had to accept it (unless you use Breakthrough Fuel in which case you are one of the leading shippers who are really taking ownership of your fuel costs).
The argument that FEDEX uses is really laughable. Watch out as these companies are going to continue to add charges, adjust tables and overall just obfuscate what you pay in packages to justify what appears to be a pretty bloated cost structure.
We will keep an eye on this and report as it continues to develop.
Full Disclosure: I was an employee and customer of Breakthrough Fuel. I bring them up because still to this day they are the only company (literally the only one) that appropriately deals with these ridiculous charges.
Just posting the August numbers as a reminder since we should have September shortly. However all indications are freight was soft as well as the economy in general. August showed a month over month decline in shipments of 1.2% and a decline in expenditures of 2%. The Year over Year (YoY) was even more pronounced with shipments decreasing 4.6% and expenditures down 8%.
Even with the rebound in stocks recently, the Dow transports are down 9.7% this year and the total market only down 2.36%. Bottom line, the freight transportation volumes continue to be softer than predicted and I am not sure there is any "push" for the retail season.
Looking forward to the September numbers and here is hoping I am wrong.
This is good news for Florida. TQL to open an office in Daytona and bringing over 100 jobs. If you look at the map, the area from Jacksonville to Daytona than over to Orlando is truly becoming a logistics hub. Not sure it is a "cluster" yet but really close.
Great trained workforce, access to good training (University of Northern Florida is truly an unsung gem), low cost, no income taxes and access to the beach - what else would a company want!
I am heading over to the USS Midway and just in awe at the sheer volume of logistics support needed to support such a huge floating city. See my tweets at https://twitter.com/Logisticsexpert and learn about this incredible engineering feat!
I have written about the growth of Amazon as a 3PL / Logistics company for a long time and yet even I, after following them very closely, did not fully understand their reach into all facets of the value chain until this week. This week I had the privileged of attending the Council of Supply Chain Management Professionals' (CSCMP) Annual Global Conference where I heard Dave Clark, SVP of Global Operations and Customer Service at Amazon speak about their plans.
Amazon Prime, Amazon Flex etc etc. were all discussed at this conference and I found it fascinating. A couple of key points:
They take care of back office technology to support the front end. Too many times companies will roll out slick apps or websites but do nothing different in the back room. This leads to sexy presentations but bad customer experiences.
Innovation is a way of life at Amazon. Amazing amount of innovation and amazing how much of it bubbles up from the working level. This, of course, does not happen by accident and the culture along with the infrastructure to support this environment has been nurtured over a long period of time.
The concept of one way and two way doors in innovation was critical. A two way door is where an innovation can easily be backed out of if it does not work. In this case, the innovation is moved along quickly, tried and adjusted if needed.
The one way door is an innovation where the ability to come back is severely limited (Think Hernan Cortes burning of the boats). This means there must be very careful thought, due diligence and research before going forward.
Hernan Cortes burns the boats
This structure allows for a lot faster innovation on a lot more products and services? He did not say this but I would think for every 1 "one way door" innovation there are at least 10 "two way door" innovations. Why make those 10 go through the grind necessary for the one way door innovation?
Speed is clearly their goal. They measure order to delivery time from the time the customer hits "buy" to the time the product is out the door.
When asked how they balance service and cost his answer was clear: They don't. They provide the service then figure out the cost. When asked about profitability he responds that Amazon is very profitable... they just choose to reinvest all the money back into the company.
If you are in any of the industries I mentioned above, don't think Amazon is not coming for your business ... they are.
I have been in this industry coming on 30 years now and being part of it has been core to my enjoyment of the work. I cannot think of anything more rewarding than being part of the logistics and supply chain industry.
And, the biggest portion of this enjoyment is developing and maintaining great relationships with the great people of this industry. Some are industry legends, some are people who grew up in the industry with me and are now in key leadership positions and some, probably most, are the people who day to day make the great things happen. They are responsible to ensure your groceries are at the store, your electronics are ready when you need them, your automobiles are where you need them and the many other 1,000's of items you use are ready, available, and built with quality.
Most recently those people I mention above are responsible to do this all in a very sustainable and environmentally friendly manner.
I look forward to seeing you all here and please do not hesitate to reach out and connect with me. You can connect with me at @logisticsexpert on twitter. I look forward to engaging.
Oh, and the location is not too shabby either....
The view from The CSCMP Annual Global Conference Location
I realized some may not know of my twitter feed which is now up to close to 8K VERIFIED followers (have to go through a verification process to prevent robots from following). I "micro blog" at that site a lot more frequently. The link is:
This week, after a few weeks of rumors, we learned that UPS Paid $1.8bl for Coyote Logistics. This was no surprise to any reader of this blog as back in January of 2012 I wrote a post titled "The New Face of Brokerage". In this post I opined that Coyote Logistics was something unique and new and was not the "old" brokerage company. Great technology, great leadership and a "kick ass" attitude makes it one of the best. This week UPS realized this.
I also questioned in July of 2013 whether XPO's purchase of 3PD was an "end around" and whether this would give XPO capabilities beyond what Coyote could provide. In the end, for years now, I have seen a battle set up between XPO and Coyote - two new, fresh and innovative companies in the logistics space. It is refreshing to see these companies grow and lead the industry and I think it is no accident they have taken the industry by storm and surpassed many long standing companies in size. XPO and Coyote are truly innovative and we are watching The Innovator's Dilemma play out in the logistics and supply chain industry - old "mainstream" companies cannot innovate at the pace of these two companies.
However, they now have gone two separate ways. Through the incredible leadership of Bradley Jacobs, XPO is growing through acquisition. They want to own and lead and they are the "hunter".
Coyote has decided (apparently) that the way to grow the company faster and gain more capabilities is to allow itself to get acquired by a much larger company in UPS.
Personally, I think XPO has the right model by keeping control of its fate. As long as the capital is there, I say grow and compete. Don't allow yourself to get swallowed up. Which, I fear, is precisely what will happen to Coyote.
Anyone who has been to Coyote's headquarters knows it is a unique place. As I said above it is all about innovation, working at an incredible pace, young, aggressive and brash. It is an edgy company.
UPS is anything but what I see in Coyote. UPS is deliberate, slow, and measured. It is more about protecting what is than innovating into tomorrow. Perhaps it is possible UPS will truly allow itself to learn from Coyote but business history would say otherwise. Business history would say that UPS will swallow up Coyote and in 5 years we will wonder where it went.
UPS has a big opportunity here and I hope they take advantage of it... Let Coyote be Coyote!
Ben is a very smart person and has been doing this a long time. However, this is another, yet again, "shipper of choice" interview. Some good points are made so I thought I would share it. Although, I must admit, I have no idea what a "fair" rate is especially as it relates to fuel surcharge. Shouldn't a fair fuel surcharge be to just pay what the fuel costs?
First, he is right, I read a recap and did not listen to the entire webinar so today I went back and listened to the entire replay. My opinion does not change and here is why.
The point I was making in my post is threefold:
FTR and the "industry" very frequently report "now it is soft" but they predict "sometime in the future" capacity will tighten up and rates will spiral up. (This was exactly the position taken in this webinar)
They talk about it as if it is very homogeneous when really it is a lane by lane, area by area phenomenon.
The carriers use this "in the future" research to spin their sales pitch. Any shipper knows the pitch goes something like this:
Shipper to carrier: "Wow, seems real soft now and rates have come down in the spot market (per FTR), what can you do to help lower my contract rates?"
Carrier to Shipper: "Well, yes, may be down now but look at the research (provided by FTR and others), capacity in 2016 is going to tighten dramatically and when that happens rates will spiral up. You, the shipper, need to stick with us now (maybe even give us a cost increase) and we will "stick with you" when spiraling rates occur.
Now, what comes of this:
Shipper gets scared (thus the fear trade).
Shipper pays more now as "insurance".
The "insurance" never pays off (either the spiraling rates never occur or if they do, the carrier is still back at the table asking for more money).
OK, so why am I so skeptical of this scenario? It is really all about who the clients are of any consulting organization. I do not believe you can serve two masters .. absolutely impossible. Yet, some consulting companies try to do this. Imagine this scenario:
Consulting company "A" gets 50% of their revenues from the carriers and is about to go to market with the following research:
Trucking capacity is loose and rates have softened dramatically
This is going to exist into the foreseeable future. We are "long" on the recovery and all indications are a recession is upon us (commodities are slowing, etc.).
Shippers should use this as an immediate opportunity to ask for rate reductions to stay competitive. Prices are about to fall.
What do you think would happen to the "50%" of the revenues that are paid by trucking companies? I will leave you to answer this question.
I want to be clear: I think FTR produces the best research in the industry and it is a "must" listen to and a "must read" for anyone dealing with the shipping industry.
I am merely saying you need to combine this with other research and, more importantly, what you are empirically seeing in the marketplace to determine your overall transportation procurement strategy.
NOTE: My comments about "serving two masters" are the whole idea of where the fiduciary responsibility lies. Think of your investments. If your investment advisor is paid for, in some part, by a specific mutual fund do you think that investment advisory can truly be "neutral" and "agnostic" in his or her advice? Again, I leave it to you to answer.
A while back I wrote about how I thought executives in the trucking industry were getting dangerously close to collusion as they discussed capacity in the industry. My comments were around a concept of "signaling".
I am not a lawyer and do not pretend to be one but "signaling" is when one company sends a signal to the other about its intents in terms of key actions effecting pricing. So, for example, an executive says in an interview in a prominent industry magazine something like, "Until we see better ROI we cannot and will not add capacity to our system".
Ok, what just happened? He essentially told his competitors two things which normally a company, especially a private one, would want to keep private. He (or She) said: "I am restricting capacity and raising rates". Now, the executive on the other end knows he or she can do exactly the same thing and voila! you know have thinly veiled collusion.
See the graph below, from the article cited below, which displays the profitability of the airline companies who publicly "restrict capacity":
I was thinking about this yesterday as I read in Bloomberg BusinessWeek an article about the FTC complaint against the airlines entitled "What Does it Take To Prove Airline Collusion"? The core of the matter is what they call "unlawful coordination". A line from that article:
"A trigger may have been the June meeting ... where airline executives talked openly about 'capacity discipline', a not so subtle code for limiting the number of seats available" [My comment: thus increasing prices] (Bloomberg Businessweek, July 20, 2015)
It went on to say the following:
"At a press conference, Delta President Ed Bastian said his company is "continuing with the discipline the marketplace is expecting". American Airlines CEO Doug Parker told Reuters it was important to avoid over capacity: "I think everybody in the industry knows that." (Bloomberg Businessweek, July 20, 2015)
Does any of this sound familiar to the shipping community out there? The DOJ has never really looked at the trucking industry because it was so fragmented. However, is is becoming very consolidated at the top with the top 5 or 10 carriers commanding a huge market share and, of course, if you are a very large shipper, about the only carriers you can use are the very large ones.
At least we have come a long way. Businessweek recounts the following from 1982:
"Robert Crandall of American Airlines told the CEO of Braniff Airlines, Howard Putnam, 'I have a suggestion for you. Raise your goddamn fares 20%. I'll raise mine the next morning. "
While doing what is right for drivers and treating people right is the right thing to do (the infamous "shipper of choice" debate), I really think shippers should be far more concerned about this.
MHI Annual Conference - October 4-6, 2015 (I will be part of a panel titled "The Impact of Automation on Global Supply Chains) http://www.mhi.org/fall2015/index.cshtml
First, full disclosure: I am a big fan of Lora Cecere so understand I almost always think what she says is big news - I have been following her since her AMR days. Now, having said that, she posted an extremely interesting blog post entitled "Don't Perpetuate The Hoax of The Gartner 25" that is well worth reading.
In fact, I will summarize but clearly you need to go to the post to read the entire entry.
Back when this started, I was actually on the board that voted (AMR days) and I always thought it was moving towards what Lora calls a "beauty" contest and now I believe it is fully just that. Most of it is about brand name recognition. After all, how could a company that so misses demand projections that their new products are unavailable be in the top 25 (Apple) unless it was just brand recognition.
I agree with Lora, to really rate supply chains you have to look at the detailed figures and facts and let the data speak. As she cites in the post, performance + real improvement (in a measurable way), is what should drive the top supply chains.
This, from BCG, is a much more thoughtful article on the true capacity issues in transportation. The issue is NOT trucking capacity as that can easily be solved with private fleets, some technology, moving DCs to more efficient locations etc.
The real issue is around port capacity, rail capacity, infrastructure and consumer demands. These cannot be moved around. And this is what companies have to be thinking about now assuming they want to stay around.
What the trucking companies ignore is the demands being put on transportation are due to rising consumer demands - the demands are not just created by the shipper for the heck of it. My advice is shippers really need to think more about private fleets. You can be very competitive, get higher loyalty from the employees and be far more nimble.
For those who read my last post and are not sure it is true, I refer you back to the post from November 7th, 2013 titled: "The Fear Trade Picks Up Steam... Don't Be Fooled". Same story from the carriers and the "analysts" (who mostly are just talking their book) just years ago.
And, since it is starting again, I think a great rendition of "Won't Get Fooled Again" is in order:
It is like clockwork. I can set my watch by the articles that will be printed by the logistics' press such as FTR. Here is the story of the "study" (it has been the same for 5 years):
We thought prices would be a lot higher than they are
Freight is softer than we thought
BUT.....
Watch out, it will tighten soon
Give in to the demands of your carriers as they try to get you to "pre-pay" for price increases.
Those who do this will be rewarded...
And of course my response continues to be the same: Prepaying for tight capacity is a waste of money. Those who followed this course 3 to 5 years ago have paid a lot of money for a day that still has not arrived.
Actually, you should follow the direction of the executives running these companies: They essentially say when capacity is tight, rates go up and when capacity is loose rates go down. That is the ultimate definition of a commodity. So, therefore, treat it that way.
I once again had to sit through a "shipper of choice" meeting with a carrier and I was as disappointed as I am with every one of these I attend. First, congratulations to the consultant who coined this phrase "shipper of choice" - you have done a great job peddling this idea and I hope you have made a lot of money with it. Every presentation I go to is the same so I have to believe they emanate from the same person.
For those who have not been "blessed" by one of these presentations, let me walk you through what they mean. In a nutshell it is: "If you (shipper) do everything in the way we want it done, regardless of what your customers want, then you will be a "shipper of choice". Things such as:
Pay your bills on time
Give the freight the carrier they are awarded
Perfectly forecast the freight
Pay above market (or what the carrier will call "fair") rates
No window times for deliver - let the carrier deliver and pick up at their leisure
Have a luxurious wait room for the driver
Don't have the driver do anything when he shows up
Well, you get the feeling.
What is missing from all of this is what does the CUSTOMER really want? I raised this question to the trucking company and, honestly, I am not sure they ever had thought about this. I mentioned to them that we (the shipper) are not the ultimate customer. We have customers (call them consumers) who are demanding certain things. We are looking for the freight provider to partner with us to fully understand and respond to what the consumer wants (which, as I pointed out to them, is what each of us wants as a consumer). So, what does the consumer want:
Short order to delivery times
Windows (anyone want to sit at home all day waiting for someone or do you want to know that they will come within a two hour window)
Be market competitive in pricing
Full delivery (White glove).
These are what the consumer wants and these are not things that are being put on the logistics network for any other reason then they are customer demands.
Of course, there are things that make sense and should be done: Pay bills on time, if you award the freight give them the freight etc.
But this idea that we can ignore what the end consumer wants is completely ridiculous. The challenge for us the shipper and the trucking company is how do we meet these complex and ever increasing demands AND be efficient.
Re-reading a great article from the Wall Street Journal called " Mobile Apps Get Picked Up By Independent Truckers for Better Routes" (Subscription May Be Required). While I am not sure this rises to the level of "Where is Elon Musk in Logistics" (which I asked in my last posting), I do think it is very instructive to see the growth of Mobile Apps in routing trucks. I can remember when people were wondering if they should write computer software for independent truckers because, after all, "how many truck drivers have a computer"?
As silly as that seemed, it is equally silly to believe that truckers will not use Mobile Apps. One of the quotes from the article is from Bryan Beshore, founder of Keychain Logistics:
"I really don’t think that the brokerages serve a huge purpose anymore,”
Using geotracking, the smart phone and some really good software it is becoming easier and easier for the independent trucker to cut the middleman (read broker) out of the equation. While this was doable on laptops and regular computers it was just too clunky and hard. With smartphones, and these types of services, an independent truck driver can get their next load in the time it takes to fuel up. This could be real disruptive technology.
Here we have "silicon valley" meets the old stodgy trucking industry. And just like every other industry it is the new upstarts who will "disrupt" the industry because the old guard (big brokers) will cater to the allusion of protecting their somewhat bloated bureaucracies and infrastructures.
Look out trucking executives... here come the whiz kids from Silicon Valley!
I am currently reading the book Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future I highly encourage everyone to read it. However the book gave me pause to think about our industry. An industry that at one time was filled with innovative giants such as Don Schneider and J.B. Hunt. Now, I have to ask, where have they all gone?
Where is the innovation in logistics and supply chain? Think of it... with all the technology, education and advanced degrees, we still shut down the West Coast ports. And when they shut down, supply chains came to a swift halt.
I consistently hear trucking and intermodal company executives talk about "supply and demand" as a driver of price. They say "Watch out, capacity is low.. prices are going up and you need to be a shipper of choice". Of course, this is nothing more than commodity pricing. They are admitting they are out of ideas and they are pricing their service as a commodity.
In my early days in the industry I was able to see huge risk takers and innovators develop the use of satellite tracking for better routing (Don Schneider) and the proper use of trains and the overall development of intermodal (J.B. Hunt). It was a thrilling time. Lots of change, lots of risk, great growth and huge innovation. Today, it appears innovation is either becoming a broker or buying a company. In some cases, financial engineering has become the innovation of logistics.
I ask, where is our Elon Musk? Where is our Steve Jobs? The industry is screaming for someone to innovate.
All the data I am seeing is indicating some real softness in the economy. At first, people thought it was the weather and then we went to the port strike. However, now we are starting to see some real convergence of data pointing to a slower economy:
Inventory to Sales Ratio:
As we can see by the FRED graph, this has been on a climb however the slope has increased. Essentially, this is indicating that inventory is building in the supply chain and there is not adequate sell through. Every time this indicator has turned this way, we have seen ultimate softness (as companies work to right size the inventory) and this means softness in the freight markets:
You can see that this is nothing like the spike during the "great recession" however you also clearly can see that when this goes up, recessions do follow (or this is just an indicator of the recession as it happens.
ATA Truck Tonnage Drops in April; Off 5.3% from High in January: The ATA freight tonnage index peaked in January and has been struggling ever since. While increasing 1% over prior year, it is down 5.9% against previous month, down 5.3% against high in January and indications are the freight index will stay soft. This will drive lower expectations for GDP and, once again, our dream of a year above 3% GDP is starting to fizzle.
While the CASS freight index is still showing some healthy gains in pricing, I really attribute that to the successful "fear mongering" of the carrier base. If buyers of freight truly were objective about the data, they would aggressively be seeking price decreases and not stand for any price increases. This will utimately turn down once the shippers realize what is happening and once the buyers start getting pressured by their managers to adjust the cost basis to reflect what is really happening.
Manufacturer's Alliance for Productivity and Innovation (MAPI) Adjusts Manufacturing Growth to 2.5% From Previous Estimate of 3.5%.
This is a big movement and they attribute this to four key areas from their report:
Oil and natural gas prices collapsed, causing a sudden contraction of the energy supply chain.
The strong U.S. dollar reduced growth, a result of cheaper imports to
the U.S. and U.S. exports becoming more expensive to foreign buyers, as
well as deflation pressure on exports.
Consumers spent some of their fuel savings in the fourth quarter of 2014.
The inventory-to-sales ratio rose sharply in the first quarter, while
the inventory runoff in the second quarter slowed production growth
The interesting item of all of this is in item #3 above. Where is all the money gone that the consumer is saving due to low fuel prices? I think it is has gone into the bank or the continued deleveraging of households - meaning people are still not buying.
Without some real big changes, I think we are in for another "sputter" and halt type economy - we are far to used to this now.
I have been covering XPO logistics for a very long time on this blog. In that coverage I have evolved my thought from thinking it was just another aggregator that will fail to it being just a big final mile player to finally saying, "watch out", Bradley Jacobs is coming after you.
Yesterday was the deal of the year (in an early year) showing that logistics companies should fear what is going on at XPO. Yesterday, XPO purchased the French company Dentressangle in a deal worth $3.56bl. Now, XPO is clearly a global powerhouse.
At first it looked like XPO was going to be just another big brokerage house. Then came the acquisition of 3PD and rebranding to XPO Final Mile which said they were going to own the delivery from the manufacturer (through brokerage) to your home (through final mile). The next big acquisition in my mind was that of Pacer which immediately made XPO a leader in intermodal.
Now, with the acquisition of Dentressangle they have become truly a global powerhouse. If you are a leader of a global supply chain you absolutely cannot ignore doing business with XPO. The holy grail has been to find a supplier who can do "end to end" supply chain management for your global supply chain and with XPO you most likely have that now.
In all my writings on XPO logistics (which go back to November 19, 2013) I have said they are a force to be reckoned with and now that is clearly come to life.
In full disclosure, I also do business with XPO and I will tell you that the hype is reality. This is a well run, disciplined and well led / well financed company. Trust me - you will do business with XPO at some point.
Well, it has been a long time and thank you for all the readers who stayed close to this. I have so many thoughts to write about and I realized when I am not writing I get a bit lazy in terms of researching what best in class people are doing. So, therefore, I need to write.
Today's posting is about "Seeking First to Understand". As Steven Covey told us, when you are engaging with either your team, customers or your spouse for that matter, you should always "seek first to understand". God gave us two ears and one month for a reason. Listen, think and then talk if you have something to say.
How does this relate to Supply Chain Design? Simple, when engaging with a customer or one of your team you should spend the vast majority of your time seeking to understand. Listen to what they have to say, ask probing questions (not yes / no questions but questions that are open ended such as "Tell me More... "Help me understand...") and then think.
If you are formulating a response in your head while someone is talking then I can assure you that you are not listening. Despite popular belief, most people and virtually all minds, cannot multitask while communicating. If you are thinking of your response while the person is talking then you are not listening ... it is that simple.
In Supply Chain design, listening means asking:
What are your pain points?
What are you trying to accomplish with the brand?
What does the client's or the user of the supply chain customers say and think?
What does your company want to be known for (for example.. is the competitive advantage being the low cost provider, is it being the high service..i.e. Zappos provider)?
When having one of these sessions you should not respond with immediate ideas but rather with a lot more probing questions. Then, you think.. and that may take days but you think hard. Only then will you be able to formulate a good strategy.
Thinking is hard work and it is tough because, in general, people like to see action (sometimes any action) and thinking is not an outward action. But, trust me, it is the right thing to do.
Last week XPO Logistics (See other entries about XPO here) made what I consider a ground breaking announcement and acquisition: They acquired Optima Service Solutions. If you remember, a few months ago XPO purchased 3PD which catapulted the company into the a leading position in big box (Think appliances, home exercise equipment, massive TVs etc.) home delivery. It was a big and bold move to complete the supply chain (They already had services for inbound, redistribution and this gave it "final mile" capability) for XPO.
However, those of us who have been working home delivery (This was a major focus of mine at a major appliance manufacturer) have known for years that the big struggle in this space is in installation and service along with returns. The biggest reason people shy away from internet purchasing of big items (for this example lets say a refrigerator) is because it is so hard to coordinate installation and, if something goes wrong, who do you call? The acquisition of Optima by XPO solves that problem for home deliveries made by XPO / 3PD.
XPO will now have the capability to provide a seamless solution. Before this acquisition the purchase of the refrigerator went something like this:
You buy from an internet retailer who may or may not coordinate the delivery (some just give you a phone number to a LTL carrier and basically you are on your own).
The refrigerator is delivered to your curb (many will only do curbside deliveries).
The driver may or may not help you unload (many LTL carriers will tell you that you have to unload the refrigerator yourself).
The driver leaves and now you and your wife stare at this new beautiful refrigerator sitting in your garage and your wife says to you, "What the hell are we going to do with that"?
Now think of the "new world" of big box deliveries (again, our fictional refrigerator) with the integrated and seamless solution XPO will offer:
You choose an internet retailer specifically because they have the XPO / 3PD / Optima team as their delivery agent (Same refrigerator but this retailer is preferred due to the delivery mechanism).
When you coordinate the delivery you tell them you want it fully installed and the installation is seamlessly scheduled for you.
When the driver shows up to deliver the refrigerator the installation technicians arrive at the same time and they take over.
Your refrigerator is installed, icemaker tested, etc. etc.
You and your wife look at the beautiful new refrigerator where it belongs - installed and ready to be used.
This is why this acquisition is so important. The complexities of buying a big box item over the internet are lifted from the consumer and put where they belong - on the delivery agent. No one has been able to do this better than Optima and now Optima is exclusively part of the XPO / 3PD network.
Bradley Jacobs has, in one masterful stroke, accomplished two great things for his company. First, he has given the company the ability to make a seamless end to end solution for home delivery all the way through delivery and service. Second, and probably as important, he took the leader of this service, Optima, off the market for other home delivery agents. Now, if you were a local home delivery agent and behind the scenes you were using Optima, you will no longer be able to do to that as Optima is exclusive to 3PD.
This is the equivalent of a "Pick 6" in football. Your great defense not only makes a great defensive play but it also scores a touchdown.
The last frontier for potentially preventing people from buying big box items over the internet is now just returns - and don't bet against XPO in this space - they will figure it out.
There are two sides of a continuum in procurement strategies for transportation. On one end is full "auction" type purchasing where you put everything out to bid, almost constantly, and let the market adjust the prices. On the other end is single sourcing where you don't bid anything and you partner with a core company.
Close to sole sourcing is a strategy called "core carrier". This strategy has you limit your carriers to a "vital few" and then you work with them. Sounds great however lately I have seen this degenerate to what is virtually a sole source strategy. So, what is wrong with this and is it time to rethink it? It appears Amazon thinks so.
As I wrote on Monday, Amazon is teaming up with the United States Postal Service (USPS) to execute Sunday deliveries. Sounds great and the possibility of this occurring I wrote about back in 2012 but there may be more to this. In The Wall Street Journal's "Heard on the Street" column (subscription required) they mention how this may actually be a strategic decision to ensure they have options beyond FEDEX and UPS.
In conjunction with their private fleet for grocery deliveries, Amazon appears to be diversifying and growing their options. A real strategic risk for Amazon is they become so beholden to Fedex and UPS that they are controlled by them. This strategy appears to be their attempt to counter that risk.
For the average shipper you should be thinking about this strategy as well. Initially the idea of sole sourcing or core carrier sounds great - low administrative costs, one point of contact, easy to do business with. Long term, however, you have to ask yourselves if you are turning the keys to the kingdom over to someone who many not have your best interest in mind. No fault of their own but their interest will always be in the profitability of their company. So, here are some actions you should be thinking about to protect the long term ability of your company to execute their strategy:
Be careful on too much concentration in one carrier - especially intermodal
Ensure suppliers know (and it is believable) that you have options in the market place.
Be careful of tying systems together which are core to your business. Beyond EDI, once their are unique systems integrations you are married (sometimes for life).
Think about strategically propping some carriers up to ensure they are competitive. Think about Amazon and the USPS. Why go with what is essentially a bankrupt carrier? Amazon wants to keep them in business and is going to help them. You may have to do that with some smaller carriers yourself.
Keep options open with private fleet. By running a private fleet you will know as much or more about running a fleet than your suppliers. Keep that as a competitive advantage.
The initial read on Q3 GDP seemed pretty impressive at 2.5%. That would indicate things are moving along and creeping up to the 3% "benchmark" everyone is waiting for. However, like all things, there are the numbers then there are the numbers.
I had heard on NPR that the inventory numbers seemed elevated so I did some quick research and sure enough it appears that at least .5% of the GDP number was due to the growth in inventory. Of course, making things and throwing them in warehouses is not a driver of growth. It is more like a ponzi scheme.
"When you remove inventory accumulation and external trade, explains Capital Economics’ Chief US Economist Paul Ashworth, you get a slowing 1.7% growth rate of final sales to domestic purchasers. Ashworth calls this less impressive metric “a better gauge of underlying economic strength.”
What are the implications for shippers and transporters:
The economy is not growing like the front page numbers may imply. Things are sluggish for the most part with some strength industries - although those are not big freight industries.
Due to the growth in inventory, there has been a "pre-positioning" that will have to bleed off. This means, at some point, inbound freight will slow down dramatically waiting for the inventory to be sold.
Nothing indicates freight will speed up. This slow freight environment which means demand is decreasing at least as fast as supply will be the "new normal" for at least one year.
Everything I read and see says this slow "new normal" freight environment will go through 2014 at a minimum.
Sunday delivery was inevitable (USPS and Amazon team up) and I have talked about this a few times. In an article titled "Home Delivery Lockers at Wal-Mart" I discussed how Amazon might be able to team up with UPS to fight the "Clicks and Mortars" advantage of Wal-Mart.
But buried in that article I said the following:
"Of course, there is still partnering with the Post Office (interestingly UPS has already started doing in the sustainability space) which I think makes a lot of sense."
I also said that the United States Post Office could be the big winner in the fight for immediate home delivery as they already have a 6 day per week infrastructure to make this happen. I wrote an article over a year ago titled: "Could the Post Office Be The Big Winner in Same Day Delivery?"
It appears they have, at least in NYC, started to win this battle.
I have reported on XPO logistics (Follow this link on XPO to see all my thoughts) a lot as it fascinates me how a company comes out of nowhere and becomes so large so fast. It also amazes me just how much money a company can lose and still be wildly successful (think Amazon.com). But, since I am not a financial person I trust Bradley Jacobs understands these financial rules and is using them to his advantage.
The real reason I listen to their calls every quarter is no CEO I know of is as honest, direct, and has as much just common sense as Brad Jacobs. I had the pleasure of meeting and talking with him a few weeks ago and for someone who has done as much as he has, he really is a down to earth person who knows this business well (especially for someone who is relatively new to the brokerage business) and, something that is refreshing, he is very upfront and honest. So, listening to what he has to say about the industry is very interesting.
On this quarter's conference call he said three things which really were insightful on the market and match what I have said relative to telling shippers not to engage in the fear trade. Here they are (Paraphrase):
This is a lousy business environment for brokerage companies due to the fact that shippers do not have much of a problem finding trucks. The reason for this is the market is balanced at best case (for transportation providers) and may even be edging to the shipper. The shipper has no problem finding trucks (except for unique and specific lanes).
XPO is able to find trucks and is able to "clear their board" relatively early in the day so it is pretty clear that trucks are available.
This is probably the most important: When he was asked if he is seeing any issues with Hours of Service or other regulatory issues he clearly said no. In fact, he said that the one thing which he hears most is just the transportation companies complaining about it.
My mind is not made up on brokerage in general or XPO for the long haul. I still wonder why good transportation departments need a "middle man" but I know there are reasons - I always think of them as back up capacity - but people do use them for their core transportation. The dream of the internet was to eliminate the "middle man" yet in this space the middle man seems to be growing.
Having said all that, I listen to the XPO call every quarter as you can learn a lot about what appears to be a strong emerging company and the industry in a very straightforward manner.
One of my favorite songs from childhood is "Won't Be Fooled Again" by The Who and this is my theme for what I have called the "fear trade" in transportation. This is the time of year when people put their freight out to bid and as expected, and right on queue, some of the major transportation providers are putting out press releases and other statements to start the fear trade - make shippers fearful that truck capacity is magically disappearing and that trucking companies are suffering.
As reported in LogisticsViewpoints, both Schneider and Werner have, on queue and somewhat coordinated, put out press releases and statements saying there is a big problem with capacity, productivity is down and the big bad regulations are making it hard to run their business. This will, I predict, be echoed by many others over the next few days. All while earnings at the best run trucking companies are better than they have ever been and OR rates are at record levels (the REAL data in their annual reports).
These statements, of course, are designed to create the fear trade and to get the shippers to buy into a "fear premium" as they go into bid season. Now, for the real data:
Using CASS data from the October report we see that both expenditures and shipments are down year over year. In fact in 7 months of 2013 we have seen shipments down year over year which indicates, as CASS rightfully points out, that the economy is slowing and the shippers are finding alternative ways to deal with transportation problems (i.e., network redesigns, packaging, better inventory management etc.). During these turbulent times it appears shippers have rolled up their sleeves to find innovative ways to solve transportation problems and it appears the transportation industry is issuing press releases. The graphs below tell the story:
As I reported recently, I told my readers not to overreact to the numbers from September. They were too strong to be sustained and if you see any other economic indicators you will know that strength was not supported by the underlying economy. And, this month we find that to be accurate. They were not supported.
Another interesting statement out of the CASS reporting was that for the first time since 2008 the National Retail Foundation is forecasting a decrease in holiday sales by 2.5% and this is supported by the less than robust holiday stocking.
For sure I am not saying to ignore capacity - if you claim the world is going to end and you live long enough, sooner or later you will be right. However what I am saying is three-fold:
1. Let the data speak. Don't get wrapped up in the fear trade. Watch this blog, watch the CASS information, watch macro economics and, of course, watch your own sales as a shipper. These are the most telling indicators.
2. Look at your network and understand your network relative to freight flows. I have said it many times that transportation is not a homogeneous network. There are specific lanes (Northbound out of Mexico as an example) that are always under stress. However, if you ship westbound you should be getting great deals almost always.
3. Understand that there is another side of the equation and that is demand. Shippers have done an incredible job of productivity enhancements through packaging, product design, loadability studies, and network design which has allowed them to service their customers with higher quality goods at lower costs and lower transportation requirements. There is no reason to think this will stop.
So, in conclusion, do not get caught up in the fear trade. Do not think you need to pay a premium now as an insurance policy against future capacity. One thing is for sure, capacity will flow to where the margins are and even if you pay more now it will not ensure future capacity. If you pay a premium now you will be in a "Pay me now AND Pay me later" scenario.
Stay calm, stay focused and keep reading the data.
And now, enjoy the Who and Won't Get Fooled Again:
I have not reviewed the CASS information for a while but have used other sources which have all told the same story. Intermodal freight is soft relative to capacity which is putting pressure on rates. However, the September truckload numbers show strong expenditure increases with shipments staying moderate. Translate this into higher rates.
To show the issue with the intermodal market right now look at the chart above. Clearly, going into Q2 in both 2012 and 2013 we see the price index decrease. However, in the latter half of 2012 it rebounded. In 2013 it tried but quickly was rebuked. IM rates are in check mostly due to the capacity situation.
The real question though is whether this is a short term bump (The Christmas "rush") or is this a long term trend. My belief is to watch it closely but be skeptical of anyone who says this is a long term trend. Hours of service or none I believe there is no evidence to show the economy picking up or shipments growing rapidly. Yes, there are bumps up and bumps down but the trend is pretty flat.
Don't get involved in what I call the fear trade. The fear trade is when your carrier base comes running to you as soon as some data supports higher prices and tells you to "pay up". Watch the data closely and I think you will find this to be a blip.
As my readers know I have been talking about 3D printing for a long time and have been theorizing and brainstorming how this will impact manufacturing, supply chain and the overall method of acquiring goods. From one of my first posts back in 2012 titled "Don't Reduce Costs - Eliminate Them" through the many others I really believe this is a major change in how goods will get to market.
And, of course, when we were first talking about this topic it appeared to many to be "Star Wars" type conversation but I will tell you it appears to be almost mainstream now. Many at the recent Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference in Denver were talking about it. There was even a display!
Now the question is not whether the technology will exist or even if it will be affordable but rather what are the innovative and exciting ways it can be applied. Unfortunately, the press is all over the fact that people are making gun parts with it. But here are some revolutionary ways this can be applied to the supply chain:
Development cycle times cut dramatically: Imagine when you can "print" prototype parts immediately and on demand as you build prototype products? The idea of rapid prototyping really becomes a reality and this technology drives this. So, supply chains have to be ready for rapid deployment of new products. Where supply chains might have had 3-5 years to plan and get ready for a new product to flow, they many now only have 6 months. The "bottleneck" in new product development may have just shifted.
Batch Sizes decrease to just about 1: The bane of supply chains is when you can get to 1x1 or batch sizes of one. By nature, supply chains like huge batch sizes as this helps:
Inventory
Procurement
Shipping (Full shipments)
Receiving
Change overs in plants
Tooling and machinery
Now the question is how will supply chains adapt to true batch sizes of one. "Make on demand" will be a reality and people need to be ready to deal with it.
Really small shipments: People have always talked about the "push - pull" between reducing logistics costs by increasing shipment size (full truckloads - fullest the furthest) and the flexibility and agility of small shipments. Most want both. 3D printing will bring a lot more demand on smaller shipments and even shipments of "one". This will really benefit companies such as UPS and FEDEX at the expense of truckload and intermodal.
So, the conversation has moved from "Can that really be done" to "Looks like it can be done" to "Yes, it absolutely can be done now how do we leverage and exploit the new technology.
There are a lot more and I look forward to engaging on the other ideas which will develop. I look forward to any comments you may have.
If I told you there was a portion of your bill of materials which could make up 20% -40% of a major component would you want to know what that was? I hope the answer would be yes and that element is energy. I heard a person talk this week (A VP of a car company) talk about the "energy it takes to make a car". The interesting part of his talk is he was not just talking about the plant where the car was assembled.
Rather, he walked all the way back to the extraction of raw materials, through the various "tiers" of suppliers, to manufacturing then to the final delivery of the finished product. He discussed energy as a component of the BOM and therefore it needed to be managed.
In transportation, people are just now starting to look at this way and the more enlightened managers see this clearly. If you look at the "bill of materials" for transportation, energy is about 40% of the cost. Who would ever not manage 40% of the cost of a BOM?
Between emissions and the actual cost of energy it is clear the time is now to manage energy. Those who say to not manage it or, worse yet, turn it over to the transportation companies just do not understand how important this element is to their costs and to the security of their supply chain. What element could disrupt the supply chain worse than the lack of energy?
It is time to step up and take control of this and think like that speaker... thing about transportation as you would manufacturing. Think about what the bill of materials is and what deserves your attention. 40% deserves your attention.
I highly encourage everyone to read it. However the book gave me pause to think about our industry. An industry that at one time was filled with innovative giants such as Don Schneider and J.B. Hunt. Now, I have to ask, where have they all gone?
