Inbound Logistics Discusses Cost

As if on queue, after I wrote my article about recasting your discussion from "cost" control to "revenue" generation, Inbound Logistics published an article titled:  "Keeping an Eye on Cost Management".  The article discussed the 80/20 rule where 80% of a network's cost is baked in to the network design and 20% is about execution.  I agree.

But, again, I must say the article totally misses the point of Customer Centric Supply Chains. You do not design your network to cut costs!  You design your network to provide incredible service to your customers.  Once that is done, you figure out how to do it at the most optimal cost.

Most of the work in network design is working cross functionally with sales and strategy to identify not only what customer needs are today but where will they be in 10 years.  Where is the ball going.. not where is it today.

This is why Amazon is so brilliant in their supply chain strategy - they focus solely on the customer needs, they design to those needs and then they drive out cost.  Further, they are not looking at the needs today but rather the needs 5 and 10 years from now.  How do I know this?  Easy:  Everything Amazon does is first met with disdain, "no one can make money doing that" type statements etc.  When I hear that, I know they are on to something.

Why Logistics' Leaders Need to Recast "Cost Control"

The best presentation I have seen in a long time was given last year at the CSCMP Annual Conference and it was given by Amazon.  The topic was a general update on their supply chain however a statement was made that has stuck with me.  The speaker was asked how they decide what service to provide given the costs.  His answer was clear:

" We don't trade off.  We provide the service then figure out the cost".

This is the definition of a true customer centric supply chain.  The customer decides the service level and Amazon provides it.  It is then up to the logisticians and engineers at Amazon to figure out how to do this profitably.  

When the cynics asked him how long he can go with losing money, his answer was "We make a lot of money, we just choose to reinvest in the business".  Another great answer and given the results of Amazon in the last few quarters, I think this issue of them making money has been put to bed.  

So what is a person to do who is stuck in an "old school" business where the executives believe the only thing a logistician should do is cut costs?  Here are a few ideas:

1. Recast it into growing revenue.  Logistics systems, when planned properly and executed at a high level do more to grow revenue than most parts of the business - including sales and marketing.  If you own the final mile of the delivery then you definitely have more impact.

2. Invest in quality.  Why do I do almost all my shopping at Amazon?  It is because the quality is near perfect and it is incredibly consistent.  This, again, will grow the business. 

3. Invest in final mile and own as much of it as you can.  Amazon is learning that now with the various ways they are investing in the final mile for Prime.  You can have partners but they have to execute your system.  For example, Amazon delivers on Sunday through the US Postal Service.  However, they use the exact same customer service alerts as any other part of Amazon.  It is seamless to me as a customer.  

I heard another person talk a while ago and it was about the two major touch points for a customer. These are the point of purchase and the first point of use.  Because so much is moving to an order and deliver method of buying, the point of purchase for delivered goods is now both the on-line experience and the final mile delivery.  Make the final mile great.  

Of course, there are other items but these are the big three in my book.  Do this and you will make your logistic's systems revenue generators and not costs to be cut.  If your leaders do not see this, then start planning an exit strategy because they will ultimately lose in the market place. 

Cass Indices for June Report Real Issues with Trucking and Intermodal

The Cass Indices for June reported what observers knew was to be the case:  Once again the trucking "recovery" has stalled and capacity exceeds demand.  Part of this is due to the elevated inventory levels with retailers and part just due to increased capacity.  Remember, items are much smaller today then ever and with advances in packaging, the trucking industry just has too many assets chasing too few loads to sustain a lot of pricing.

For the last three months, the truckload index has decreased 2.3%, 1.2% and 1.8% respectively and the graph shows how difficult this market has become.  We now are looking into 2017 before there is any tightening of capacity and pricing.  I believe capacity will need to exit the market as not only is there too much today but the economy will start slowing and that means just the normal cycle would require removal of capacity.

Interestingly, this comes at a time where trucking costs are rising and as we saw in the Swift 2Q reporting, OR rates are starting to increase (SWFT 2Q2016 OR rate was 92.7% - highest in the last three years). JB Hunt sees margin erosion in the latter half of the year for both trucking and intermodal.  Great if you are a shipper as soon trucking companies will start working to get any contribution to fix but bad if you are an investor or a trucking company itself.

Starting in late 2015 and through this year, the pricing index has gone down and continues to go that direction.

Suffice to say, Intermodal is following the same trends.

So, what is going on here?  Why do we continually get told that "this is the year" and yet for the last 3 years at least, the tightening has never arrived?  I attribute it to three main items:

1. The Economy is not nearly as robust as you may think watching the markets.  Remember, finance (which requires no trucking) has grown to be a substantial part of our economy.  In the past when you said GDP went up x% you could correlate that directly to an increase in the need for transportation of goods.  Today, that is untrue.

2.  Inventory levels remain elevated.  Think of it this way, when inventory levels are as high as they are this essentially means you shipped the product in previous quarters.  This is like "borrowing" against the future.  Made those quarters look good but because there was not enough sell through, the product just sat and now when sales tick up, the inventory has already been shipped.

3. Miniaturization, packaging and digitization of products.  I have always said the shippers would not sit idly by and just watch rates go up.  They have figured out ways to streamline packaging, digitize what they can (including the growth of 3d printing, and make things smaller.  This means less transportation capacity needed.  

Overall, given the way the economy is headed, I would be shocked if 2017 was anything different.  Hunker down, we are in for a bit of a ride here.

Supplier Compliance and Social Responsibility - Look Deep Into Your Supply Chain

The Guardian has run a great piece in their paper titled "Vauxhall and BMW among Car Firms Linked to Child Labour Over Glittery Mica Paint".  This article shows the results of the paper's investigation into illegal mica mines in India and the use of child labor.  Not the type of headline your company wants to have. I will summarize the impact on supply chains but you should read the full article at the Guardian website.  It is a bit troubling that major companies are still claiming ignorance on issues such as this.

Of course this has huge implications for supply chains.  How do you get the materials you need from thousands of suppliers and still maintain control over the way the materials are extracted and handled. This is especially important when it relates to raw materials mined from the earth.  So often, these materials are mined in 3d world counties with no standards on safety or child labor.  The cosmetics and car industries are learning a lot right now.

If you are responsible for any type of procurement in your supply chain and you are not actively and aggressively working with all your suppliers (Walk the "tiers" all the way back to the raw material extraction) then you are putting your company's brand and reputation in grave danger.  Remember, Brand Value is only made up in trust.  Trust can disappear over night.  When the first thing a company says to the press after a story like this comes out is "We don't discuss supplier relations with the press" (like PPG initially did), you know they have been caught off guard.  Either they had no program or it was woefully inadequate and now they are scrambling to find out what the heck is going on.

Picture from The Guardian

Some thoughts on what you should be doing:

1. Prioritize Social Responsibility and Responsible Sourcing Strategies by appointing a "C" level executive as the program sponsor.
   
2. If a price for an item or for materials is "too good to be true" then it probably is and you should investigate.
   
3. Have a no tolerance policy.  No "slaps on the wrist" but rather eradicate from your portfolio any supplier who is non compliant.
   
4. Have "boots on the ground" in all countries where you have significant presence.  If you know the "sparkle in the paint" comes from mica in India and you know it is mined - you need to be there.  Someone needs to go and inspect (It always amazes me how these newspapers can find it with no problem but the key executives will say 'I had no idea.. '.

Finally, as consumers, we need to continue to ask and probe before we buy.  Before you buy that sparkling new car with the beautiful metallic paint, do a little research.  You may find out your beautiful car is a product of a 7 year old with a pick axe breathing toxic materials and being sentenced to a life of what is essentially slavery.  

Help Adrian Gonzalez Raise $10K to Fight Type 1 Diabetes!

Anyone who has been in this industry for more than a day probably knows Adrian, has heard of Adrian or has watched his great videos on Talking Logistics.  He is working for a great cause and that is to stamp out Type 1 Diabetes and he is going to do a 100 mile bike ride in Death Valley to show his commitment.

Let's all rally around him and sponsor him.  You can submit your donation / sponsorship on JDRF Ride to Cure Diabetes Page.  Let's support him!

Macroeconomic Monday® Special Edition - Watch the Debt

I have read two major books recently on the economy - one old and one new. Both appear to be seminal books on what drives economic booms, busts and panics.  The two books are:  1) The Makers and The Takers: The Rise of Finance and The Fall of American Business by Rana Foroohar. 2) Manias, Panics and Crashes: A History of Financial Crises by Robert Z. Aliber.

The theme of both books is excess debt plays a huge role in the build up to any recession (or worse, depression).  The cycle goes something like this:

1. Recovery begins through stimulus or some other external event (think war spending).
2. The cycle takes off and should become self sustaining (Although we never saw that this cycle)
3. Eventually it starts losing steam. In order to keep it going, we need to incur higher and higher amounts of debt. 
4. In order to keep the higher debt going,  we have to allow sub-prime to participate. Not only does debt go up but debt quality goes down. 
5. Eventually, defaults begin.
6. People begin hoarding cash and spending less as they fear the economic downturn.  This causes  more defaults as layoffs begin. The downward spiral begins. 
7. Voila!  Recession or worse and then we start all over again. 

This has been the case for hundreds of years (despite people wanting to go back to the "good old days",  hard depressions are less harsh now and certainly less frequent).  As we see freight volumes going down and with that, freight rates going down, I have to ask, are we starting to see this cycle in its later stages?  Certainly, we are at the tail end of an expansion but what does the debt data tell us?  

In this and subsequent editions of Macroeconomic Monday® I am going to attempt to explain where I think we are.  Today, we will look at three topics:  The overall debt (Household) in the nation, the makeup of that debt and finally the quality of auto loans.

The graph the the left depicts the issue at hand.  As you can see from this chart our overall household debt is almost at pre-recession levels. Two other key points are clear from this chart:

1. The debt level relative to 2003 is incredibly high.
   
2. The amount of debt due to student loans has grown exponentially (yes, this is a big problem - student loans cannot be discharged in bankruptcy and do not have physical assets behind them).

Mortgage debt is still inflated and the very interesting part of this chart is the growth of auto loans. The key part to this, as explained in the graph below, is more and more auto loans are made to the sub-prime sector of the economy. 

This graph shows more detail on the auto sub-prime loans (When you see your friend get that new BMW, you have to wonder where the money came from).  You can see that auto sub-prime really telegraphed the previous recession and then people clamped down on their borrowing to right their personal balance sheets.

However, really since about 2011 this has changed and the sub-prime borrowing started taking off again. This was almost fully due to automobile companies needing to keep the "post recession party" going.  

So, our first lesson is pretty clear, and stark.  Personal debt is growing and total debt is almost at the pre-recession levels. For one of the biggest and riskiest categories (auto loans), sub-prime debt is increasing. Finally, student debt, which stops or delays household formation, is clearly at unsustainable levels.

Following our guidance in the two books I mentioned above, this is the "brake" on the economy which never lets the flywheel turn on its own.  It is also why markets go into turmoil every time Janet Yellen even remotely mentions increasing interest rates. This brake is why freight volumes are down, we have over capacity in transportation and rates are starting to plummet.  If people do not buy, companies do not make and therefore freight capacity exceeds volumes and rates go down. It is that simple. 

So, the next time someone says to you "things will get better next year", remember the debt story. They cannot get better when more and more money is going to pay interest on debt incurred for items already purchased.  And, of course, this is why you are seeing negative interest rates as central banks realize that is the only way to fight this.  But, more on that next time.  

Revisit "Favored Shipper" During Downturn in Rates

I have advocated over and over that the idea of getting better rates because you are a "favored" or "preferred" shipper is a red herring.  The idea that a trucking company will take less in profit because you are preferred just does not make sense.

In the environment of rate reductions and over capacity I am sure shippers are starting to hear the same old mantra from the trucking companies:  "Stick with us and pay higher than market rates.  Once the "worm turns" we will stick with you".  This is the logic. Yet by all accounts, even the transportation executives believe transportation is a commodity play.  Less capacity and more demand = prices go up.  More capacity and less demand = prices go down.  That simple.

I had been somewhat a lonesome person in this argument until C.H. Robinson, along with Iowa State University, attempted to quantify this with a white paper entitled:  Do "Favored Shippers" Really Receive Better Pricing and Service.  Let me cut to the chase and let you know the answer is NO.  Here is a quote:

"Carriers cite many attributes that may result in "shipper of choice" status.  Research shows that keeping the driver moving and generating income is more important to these carriers than keeping a shipper as a customer".

The bottom line is that dwell time of the driver is the overriding factor to determine if you will get best price or not.  And really, it is not even the driver rather it is the trucking company asset (Truck and trailer) they truly care about.

So, remember, no matter what you do in terms of "market rates" what really matters is dwell time. The research clearly suggests that regardless of what you do in terms of rates now, in the future, it is all about dwell time and if you do not have best dwell time, what you did when rates turned down will be meaning less.

My advice is the same now (and even strengthened) as it always has been.  Take what is yours in terms of rates because the trucking company will take what is theirs when the environment changes. Then, of course, do the right thing and keep the trucks moving.

Predictions Coming True - Inventory Adjustment Under Way and Rates are Down

A special edition of Marcoeconomic Monday today!  The results are in and they are really showing a slowing economy (GDP adjustments have been lowered), inventory adjustments being made and therefore truckload and intermodal rates going down.

I have shown throughout this year that the inventory to sales ratio was telling me that inventory was growing at an unsustainable rate and sooner or later a correction will come.  The Wall Street Journal recently acknowledged this with an article called: Inventory Pullback a Drag on Logistics Spending. As companies have realized the need to adjust inventory levels, the need for more product decreases and therefore the need for transportation goes down.  Result?  A capacity / demand imbalance that supports lower rates.

The newest CASS readings show this is coming out in the industry rate structure.  The truckload index fell 1.2% in May after reductions in April and March.  The intermodal index reduced by 2% and Cass has acknowledged this is 17 consecutive months of YoY declines.

Bottom line:  Rates are going down, the economy continues to sputter and another year of "this is the year" seems to be fading away.

Schneider Enters The Final Mile Battle - A Very Late Arrival

An interesting development over the last few weeks which I needed to digest was the entrance of Schneider National into the Final Mile foray.  My readers know I have followed the growth of final mile for many years (See where I showed XPO's acquisition in 2013 was "game over").  I was an "early adopter" of how important this segment was to the overall logistics network moving products to customers.  One thing we know is Schneider cannot be seen as an "early adopter" of anything - they are very disciplined and careful in investment.  So, this is why their entrance is so important.

The service is called Final Mile+ (JB Hunt has had Final Mile Services for many years - confusing branding by Schneider) and it appears to be a direct competitor to the XPO story of owning the supply chain from raw materials through manufacturing to retail then to the customer's home.  They acquired both an operating company, Watkins and Shepard, and a technology company, Lodeso.   The key will be whether Schneider is successful at stitching this together to give the customer a seamless view from the beginning to the end.  To this point, few companies have been able to do that and it has been tough for 3PLs to make the case that "one stop shopping" really adds value.

I personally believe the model is getting a bit crowded at the integrator level and very sparse at the operating level.  Remember, all these companies (XPO, Schneider etc.) are really just brokers to a final mile courier service.  It is at the bottom level where the problem exists.  We need more people actually doing the hard work of pick up, delivery and installation.  I don't believe we need more integrators.

JB Hunt Final Mile differentiates itself because, for the vast majority of what they do, they use their own trucks and drivers.  I think that ultimately will be the competitive advantage.  While today it may be cheaper to integrate many couriers, I think in the long run service will be the key element and the way to get that service is to own the assets.

How Lack of Same Day Delivery Saved Me

This is a logistics story in reverse.  Rather than discuss the benefits of same day delivery I am going to review with you how lack of same day helped this hapless consumer.

I was out wandering as I tend to do on Saturdays.  Usually I shop with my wife and while she looks for things I look at things and wonder how they got there and why someone would buy this stuff.  My eyes wandered to a "Big Green Egg" in Ace Hardware.  Ok, this may need some explaining.

A "Green Egg" is a ceramic outdoor cooker / smoker / grill.  A fascinating device which looks cool, people swear by the food it produces and costs a ton of money (Do I really need a $1000 grill)?  Of course, like all good products, once you buy the base produce there is a wall of "accessories" which can bring the full cost to $1300+.  They have learned well from the Iphone!

Ok, back to logistics.  I spent a lot of time looking at this device and two questions came to mind:  1) How would I get this home (I have cars not trucks) and 2) How would I get it to the back yard (it is very heavy)?  Those were the final two questions the sales person had to "sell" me on and I probably would have made this impulse buy.  Unfortunately, there were two answers he gave:

1) Earliest they could get it to me was next Wednesday (I live 5 miles from the store, he could have brought it in a pick up truck during his break).

2) They only do "curbside" delivery - I had to get it to my back yard and he agreed that was not easy.

I looked at him and said "let me think about that and I will get back to you".  Suffice to say, I never got back to him.   What happened?

Whatever the chemical is that causes a person to impulse buy started to go away and the "rational" chemical took over.  As my wife and I drove home we asked ourselves:  1) Do we really need a $1300 grill?  2) Who would move it if I had to move it again from the original location?  3) Wouldn't a $60 weber grill do a good enough job?

The answers came back:  1) NO,  2) Who knows and 3) Probably yes.  Therefore, no purchase and I went on my way (For the record, I did not even buy the Weber grill).  So, what are the lessons here:

1) If he had same day delivery I most likely would have bought it.
2) If he was willing to bring it around to my backyard (or even just help me) I definitely would have bought it.

The key lesson here is same day delivery makes a difference!  It is a differentiator and it drives sales.  Not only did I not buy this on this day, I most likely will never buy it.  Too hard.  Make it easy for the consumer and make it fast and you have a sale. Allow the consumer to think about it, and you could easily lose the sale.

This lesson is learned in reverse by the people who hawk timeshares in Vegas.  I once went to their pitch to get free show tickets (I had no intention of buying one of these).  I asked the sales person, trying to be polite, to let me look at the information over a few days and I would get back to him.  He said to me, "No one will buy these if we let them look at the information...".  Wildly honest but what he realized is the ability to deliver same day (in this case, same hour) took advantage of the adrenaline rush going on during the sale process - it assures a sale.  They delivered it same hour by having all the paper work ready, the financing there on site, the keys etc. etc.

You may ask, well does same day delivery really help since the person can just return the product once the urge is lost?  This question ignores both the normal inertia that exists in a consumer and the high desire to tell their friends, spouses, and themselves that they did not make a mistake and it was actually a brilliant purchase.

Ever hear someone defend buying a timeshare?  It is almost laughable listening to them try to explain it but, alas, they do.

Speed and ease of delivery drives sales - it is plain and simple.

As a consumer though, I was rescued by ACE not having same day delivery!

Inventories Continue to Grow

For those who read this blog regularly, you know a key metric I track regularly is the Inventory to Sales ratio.  The reasons I do this are threefold:

• As a supply chain professional and one who takes pride in our industry I feel this one measurement is a core metric to how the industry is doing.  Of course, inventory is built when information is less than optimal and therefore we miss forecasts or we feel the only solution to this problem of lacking information is to build inventory stocks. Finally, we all know inventory ties up working capital, has the problems of obsolescence, damage and shrinkage and consumes resources.  All of which is bad for business.
  
• It is an early warning indicator of economic issues.  As either consumers stop buying or business start overproducing (due to irrational exuberance to borrow a phrase) inventories build.  So, it is a signal that one of those two things are happening and sooner or later either the consumer has to come raging back (highly unlikely given the wage situation) or businesses will start cutting back.
  
• It is an indicator of pricing in transportation.  As inventories build, inbound will start slowing, transportation capacity will become in excess and ultimately prices fall for transportation.  It is, in fact, that simple.
  

As we look at the latest Inventory to sales ratio we see continuation of a troubling pattern:

Inventory to Sales Updated 4/2016 Data through February 2016

What we see is inventories have increased pretty dramatically since 2012 and do I dare say this - they are almost at recession levels.  

This is not a good indicator for the economy or for transportation in general.  Perhaps the wild bull is coming to an end. I guess we shall see but one of two things has to happen - consumers better start buying or businesses better slow down.  

Pricing Declines in Both Truckload and Intermodal

The promise of "pay me now so you don't have to pay me later" continues to be a mirage.  With the release of the March CASS reports we saw that pricing actually declined in the truckload sector YoY for the first time since 2010.  Intermodal continues to be a problem as well with significant price declines.  Intermodal declines were 3% YoY in March and 2.2% in January YoY and 3.8% in February YoY.

This all stems from the fact there is overcapacity.  Further, as shippers get far smarter in terms of network design, designing products for efficient shipping and inventory management, the problem of overcapacity is being exacerbated.  Avondale partners believes the "risk" is to the downside of 1% to 2%.  The overcapacity in rail can be attributed to the sharp decline in some commodity shipping such as oil.   The other part playing havoc on transportation is the Inventory to Sales ratio which I will discuss in my next posting.

At the end of the day, this continues to behave as a commodity market.  The idea that you should "pay up" during overcapacity months / years so you are protected when the market "turns" is a fools errand.  Of course, you should always be a good partner, you should always work to turn drivers fast, make their life easier and work with your carrier partners to balance demand.  But those are things a good business person does anyway.  Just makes sense.

But, to think you should "pay up" to be a "shipper of choice" is crazy and will only put you in a position of uncompetitiveness relative to your peer group.

Another Year of Dashed Hopes for Trucking

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.

Back to the future....

Class VIII Orders source:  FTR

Supply Chain Talent As Competitive Advantage - Traction

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".

Well, the good news is the Wall Street Journal has caught on to this and after my post, Loretta Chao wrote her own well written article titled: Supply-Chain Lawsuits Mount Amid Drive For Logistics Talent.  You should read it.

Leadership in Distribution Centers - Employer of Choice

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:

1. 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.
   
2. 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.
   
3. 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:

1. Recognition
2. Planning
3. Communication
4. 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.  

For some more ideas, read a great article over at Harvard Business Review How One Fast Food Chain Keeps Its turnover Rates Absurdly Low.  We in supply chain can borrow these ideas.  

The Ascendency of Supply Chain

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. 

Congratulations supply chain, you have made it!

Amazon as a 3PL

Back in October I asked the question:  What is Amazon? A 3PL, Retailer, IT Company, Delivery Company?  And, I answered the question by saying:  All of the Above.  Now it is February and with the advent of Amazon registering as a NVO and with their purchase of trailers it has become clear - they are a 3PL and most likely will quickly become the best there is.

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:

1. They have huge warehouse / order fulfillment centers
2. They take in product both from themselves but also from other retailers and e-tailers
3. They provide customized fulfillment
4. They now have trucks and do deliveries
5. 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.

More Tough News for the Rail Roads - Carloads Dropped 16.6%

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.

More to come... Buckle up for 2016.

Courier and Delivery Driver Employment Fall; Warehouse Employment Up

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.

Is Your 3PL Working for You The Shipper or For The Carrier

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:

1. 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.
   
2. 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.
   
3. 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:

1. Provide great value - service for price.  Overdue the service.
2. Understand your customer's business so you can understand why they are asking for what they are asking for. 
3. Do what you commit to do - don't over commit. 
4. 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?  
5. Communicate, communicate, communicate.
6. Use technology to everyone's benefit. 

The Transplace checklist for shipper of choice is one example where a 3PL is no longer working for their customer.  They are working for the carrier.