What Have The Tariffs Taught us About Supply Chain?

This is not a political or even an economic posting relative to the tariffs and the current "tariff war".  Rather, I have been doing a lot of thinking about what this teaches us about supply chain and specifically global supply chain design. 

First, this topic has been talked about for a long time and it goes under the banner of "supply chain disruption".  We have always thought of these disruptions as either "natural disasters" (think hurricanes and earthquakes) or "man-made" disasters such as wars.  In either case the recommendations have been for supply chain professionals to stay very close to the impact of these and how long a company could survive should one hit.  Perhaps this tariff war is a way for us to practice before something we really cannot control occurs.

In 2011 both the hard drive industry and the auto industry were hit hard and interrupted significantly by flooding in Thailand.  Closer in time, the graph below from EPS news shows the types and number of disruptions just in the 2017 / 2018 timeframe:

You can see this is not an uncommon occurrence so, while the cause of this particular disruption this year (tariffs) may be surprising, what should not be surprising for supply chain professionals is the fact their global supply chains are susceptible to disruption.  What should you do about it:

1. Plan, Plan, Plan - scenario planning and conducting FMEA's are a must in this environment.  You should not have to make it up as you go along when a disruption hits.
   
2. Think about your supply chain as a portfolio.  You likely would not invest your entire life savings in one stock would you?  Why would you do it with your company's supply chain?  Diversity is critical to mitigating risk
   
3. Develop early warning indicators - each with a plan of action if it appears it is happening.  As you develop your FMEA you will likely identify a bunch of interruption scenarios along with probability and severity ratings.  You will then want to work diligently on the scenarios with the highest likelihood with very severe outcomes.  But, it is not good enough to just know them.  You then have to determine what the indicators you will begin to look at to determine if something is going to happen.  How can you monitor the global situation and determine the likelihood of an event?
   
   For example, on tariffs, this was a topic of the election and the US is doing pretty much what it said it would do during the election.  This was a red flag.  While you would never have known for certain what you did know is the "likelihood" of supply chain disruptions due to tariffs increased dramatically on January 20, 2017.  Was it enough to change everything that day?  Probably not.  Was it a good time to pull out your disruption FMEA's off the shelf and update them?  Absolutely.  

In conclusion, I am not sure the tariff situation has taught us anything new but what it has done is reinforced what we already knew and brought it to reality.  This was not a "Blackswan" event.  This was all within the realm of probability knowing what was being discussed.  

Time to get back to the basics.  Conduct FMEA, execute scenario planning and manage your portfolio.  

How Can The Market Be at An All Time High and There Be A Freight Recession - Part II

In my previous post I outlined why I believe freight is slowing.  Certain signals in the marketplace are telling us employment adds are decreasing, inventories are increasing and the PMI is decreasing.  All of these are signs of a slowing economy.  (For the record, I do not believe by any stretch the economy will contract - it is just we should not get used to GDP growth rates of 3% into the future).  This slowing has resulted in less loads per truck and prices going down.

So, how can the stock market be hitting an all time high?  I believe it is due to 3 reasons (Warning, I know a lot more about freight than I do about investing but here goes):

1. The alternative investment (10yr as a proxy)
2. % of the economy which has nothing to do with goods
3. The Fed.

What is happening:

Let me start off by showing what is actually happening:

This chart compares the Dow Jones Transportation Index to the DJ30 and the S&P500.  This is a one year return graph and ends on June 21.  As of June 21, the DJ30 is up 6.66%, the SPX is up 7.1% and yet the DJT is DOWN 3.91% Bottom line is investors are shunning transports yet still embracing the overall economy.  Why?

The Alternative Investment:

Investors are going to invest.  That is what they do and they have two macro alternatives.  First, they can invest in the "risk" markets (i.e., stocks) or they can invest in what is generally considered the "risk free" or "near risk free" investment.  I will use the 10yr as a proxy for this second grouping.  What we have seen recently is not only a 10 year treasury at multi year lows but we are also hearing the Fed discussing lowering the rates even further.  This will drive investment dollars away from the "risk free" and into the markets. 

It is no coincidence towards the end of last year when the Fed was not only raising rates but also calling for 3 rate hikes in 2019 the stock market tanked.  Investors were deciding to move away from risk assets as the risk free was looking pretty good.  Not so much any more as the 10yr is now bouncing around the 2% level.

The graph to the left is the graph of the 10 year treasury rates as of Friday, June 21.  This movement of rates down has caused money to flow back into the risk asset markets and specifically look at the major move down since mid May.  This is when the Fed made it pretty clear the only action they likely will take is a move down in rates. 





% of The Economy Which Does Not Have Anything to Do with Shippable Goods:

This one is a bit nuanced.  Let's just look at 30 years ago and think about what it meant for the economy to be growing at 3%.  It was intuitive that the growth had to have much to do with autos, real hard electronics, housing etc. etc.  These are all very "hard" goods which drove the economy. 

Today, when we the economy grows at 3% more of it has to do with finance, services and the infamous FANG stocks (Facebook, Amazon, Netflix and Google - Alphabet).  Only one of these, Amazon, ships anything.  The rest make their money in the "virtual" world.  Very important to the economy but not so important to trucking.  The graph below illustrates this:

Non Shipment Economy

The inverse of this graph is to ask how much of GDP is due to MFG:

Both of these graphs tell the same story.  GDP can grow at a high rate and not have shippable product tendered to carriers.  - Economy grows yet a freight recession sets in. 

The Fed

What else can I say?  The Fed has made a huge 180 degree turn around in the last few months and whether that is due to political pressure or real economics I will leave it to the real economists to figure out. But, reality is, the Fed has signaled rates are going down and they have somewhat backed themselves into a corner as it would be outright lying if they did not do this.  This means more money will continue to go into inflating the asset bubble and less money will go into bonds. 

I hope I have now explained (sorry for the two part length) why the freight recession likely will continue however the economy, as measured by the markets and GDP, will continue to do quite well.  

Summary:

1. Economy is slowing
2. Investors have to invest in the market to get any kind of return due to the "risk free" paying so low.
3. Investors are shunning the transports
4. This drives the market to records
5. Less and less of the GDP has to do with "shippable goods"

This is a link to Part 1 of this posting (for those reading on a reader)

How Can The Market be at All time High and There Be a "Freight Recession"? - PART I

The question posed in the title can be a perplexing problem and I am sure is of interest to both those who make a living running trucking companies as well as those who invest in them.  If the market is a forward looking index (like they teach you on school) then the fact it has bid up stock prices would indicate it believes the economy is "booming" and if the economy is "booming" then there must be a lot of freight moving.  I will attempt to explain why this connection (Market to freight volumes) is no longer true. 

There will be two parts to this posting. The first will be to show the macroeconomic data I look at which tells me the freight market is slowing.  The second part will be to show how the stock market could hit an all time high while the freight market slows.

There are 3 real reasons why the market (i.e., the SP500 and the Dow) is disconnected from what we, the "transporters of freight" see in the market:

1. The alternative investment (i.e., 10yr).
2. The % of the economy which has nothing to do with "goods". 
3. The Fed

Before I address each one, let's look at the data which supports why there is a "freight recession".  For this I look at 3 different indices.  First, my favorite, the "Total Business: Inventory to Sales Ratio" (St. Louis Fed).  This measures how much activity is being used just to build inventories and the assumption is companies will not build inventories forever.  When they stop building, the freight stops.  Here is what the graph looks like back to 2015:

Inventory to Sales Ratio - St. Louis Fed

This graph clearly indicates (looking at the boom and bust cycles) inventories decrease then, in a recession, they increase.  The shaded areas above are key recessions.  You can see leading up to 2016 the economy was slow and it actually was close to the peak of the 2001 recession in 2016.  Then came the "sugar high" of expectations and tax cuts and the inventory was burning down until close to the end of last year.  Since then, the economy has been building inventory.  Not a good sign for the economy overall but more importantly, for this blog, not important for the freight industry.  I feel like I should not have to say this however just to be clear, companies do not build inventory forever.  So, even if freight does not slow immediately there would be a clear expectation from the rational investor that freight will slow.  Freight has slowed. 

Second, let's look at the PMI trends.  As a reminder, the PMI (Purchasing Manager's Index) generally gives you a look at whether the economy is expanding or not.  A reading of 50 or above is generally good and below that is contraction.  The index I like to look at is the MFG PMI:

MFG PMI - Tradingeconomics.com

I do not think I need to explain what is happening here suffice to say the decrease started around December of 2018 and has accelerated since then.  

Since so much of the freight indices are tied up in hauling manufactured goods it is no doubt looking at this chart that there would be far less freight to haul and far fewer loads per truck then we would like.  

The final piece of economic information is our labor force and the net change for employment.  For this, I like to use a 3 month net change from the bureau of labor statistics.  Why 3 months?  Because BLS adjusts the previous two months as they get better data so by going to a 3 month net change you take into account most of the adjustments. 

While employment is incredibly robust and generally "all is good" there are some signs of cracks:

3 Month Net Change in Employment - BLS

While there is still net positive adds what this is showing is the net positive is slowing quite a bit.  Could be we have just run out of workers or it could be, based on the data above, employers are starting to be very cautious about adding any more employees. 

To give you an example of this, the last three months (Mar, Apr, May 2019) readings were 521, 433(p), 452(p) (p - preliminary readings) respectively.  All three of those were below the lowest reading measured in 2018 which was 565 (January 2018).  Another indication of a slowing economy.  

Ok, so, the bottom line for this PART I is clearly the economy is starting to slow.  Not in a recession (yet) but clearly slowing.  I have opinions on why and I will leave those to myself but this is why you are seeing the FED not only not increasing rates but the conversation is now about lowering rates. 

Stay tuned for PART II which will discuss the 3 reasons why the market, even though all these indicators show a slowing, hit new highs. 

J.B. Hunt as NVOCC

I missed this one but I do think it is interesting the intermodal arm of J.B. Hunt is now a licensed NVOCC.  The article from the Journal of Commerce cites this as a decision more about how to get their Chinese 53' containers to the US at a lower cost (perhaps because they now are hit with tariffs). 

Not sure but it will be interesting as J.B. Hunt is a company to dabble, learn then exploit a good business opportunity.

Is "Freight-Tech" the future or Has Uber and Lyft Killed the Dream?

While I personally was unable to attend the annual Freightwaves Transparency19 conference this year I did watch a lot of the clips and I was fascinated by the shear volume of "Freight-tech"(I will abbreviate FT) companies coming out of the woodwork to help shippers ship product.  We are in the "golden age" of FT launches, venture capital money and potentially IPOs.

Or, as the title stated, has Uber and Lyft killed the dream?  More on that later but first, let's remind ourselves "how business works".

An entrepreneur comes up with a great idea and tries to get it to scale with a series of private fundings.  Venture capitalists get in early, generally get seats on the board and hope for an eventual big pay day when the company is either sold or goes public.  The company is built to scale (meaning it is generating cash - hopefully - or has a path to be cash flow positive.  Then, the early owners need to take money out of the company for a variety of reasons by going public or selling. Here are the reasons they may want to extract money:

1. Family wealth planning - they generally have a lot of their wealth in the company and they need some back.  
2. Pay Employees - Many early stage company employees are paid with options and they eventually want and need that money.  This is a warning to many employees who get in too late in the game.  If your options are valued right before the IPO then a lot of the time you are under water when it goes public (as are many Uber and Lyft employees).
3. All the juice is squeezed and the VC people want out. - Venture capitalists do not hold companies and eventually they want their money back.  Once they believe they have "squeezed all the juice out of they idea they will want to exit. 

Now, let's get back to Uber and Lyft and while I did not read the S-1 for the Lyft before it went public I did read the S-1 of Uber (skip the glitz slides and read the words) and it caused me to ask the question: "Who the hell would invest in this company"?  Let's look at what the S-1 (The S-1 is a required SEC filing before the company goes public and it generally is the first time you get to see their financials - it is required reading if you are going to invest in IPOs)  taught us:

1. Uber has lost over $3Bl in the last three years.  And that is if you count a gain on divestiture and "other investments".  If you look at just operations, in the last three years Uber has lost almost $10bl.  
2. They continually discuss incentives paid to the drivers and to the customers.  They are paying on both sides of the transaction.  
3. There is very little path to profitability.  They "sold" the IPO to the retail investor at exactly the right time (for them. 

Now, what are the learnings from e-commerce?  What we are starting to see is the "bricks and clicks" (Especially Wal-Mart) is the model to win.  Unfortunately, Wal-Mart took far too long to "get in the game" and it may be too late.  But, if Wal-Mart had responded back in 2013 as I had suggested when I wrote The Battle for Retail Sales is Really The Battle of Supply Chains, they would have killed it. Once Wal-Mart woke up I welcomed them back in 2017 in the article, "Welcome Back Wal-Mart. We Missed You Over the Last 5 Years". 

Which brings me to J.B. Hunt and their work with Box and J.B. HUNT360.  That is the winning formula!  It is the "Bricks and Clicks" of the freight world.  Like retail, eventually everything gets down to assets.  Someone needs to build stores and warehouses in retail and in freight someone needs to own the boxes, trucks and have drivers.  J.B. Hunt is showing they learned the lesson of Wal-Mart (Don't cede any ground to the tech guys), they jumped in early, they disrupted their own business and they are now the leader in this space for the asset players.  

What will come of all this?  I believe J.B. Hunt will continue to drive their leadership position further and the asset guys, to catch up, will have to buy a number of these FT companies.  Which means the VC population will get what they want but the asset guys will pay a huge premium for not getting in early.  

So, let me summarize:

1. Too much money chasing too few ideas... the "new" ideas are starting to be "me too's" (How many apps can have a competitive algorithm just to find an available truck)?
2. The FT VC population will want to sell.
3. The Asset guys will find out they are getting killed by the "trucks and clicks" model of J.B. Hunt and this will drive them to pay exorbitant prices to get the tech quick to catch up. 
4. JBHunt, by innovating early and fast will win this game big just like they did with intermodal. 

Finally, in the UBER S-1 we get our first public glance of UBER Freight and I am amazed at how small it is.  Now that UBER is public we will get to see more and more of their financials.  They believe the industry is moving to an "On-Demand" industry.  I find this hard to believe as big shippers need predictable freight and solutions like the J.B. HUNT 360Box where you get access to trailer pools.  I could be wrong, but I do not see a huge future for this.  

Provide Ritz-Carlton Service to Your Customers - It is Mostly Free

I had such a great experience this weekend I had to, as always, relate it back to customer value chain fulfillment.  We decided to spend the weekend at a beautiful resort owned by the Ritz-Carlton company and it was fabulous.  So, how does this relate to order fulfillment - the business all logisticians are truly engaged in?  It is called service.

Many of you may be saying "well of course it was a great time because it cost a lot and you were in a beautiful setting".  True and I will certainly say I am not naive of the fact the Ritz gets paid for all it does.  However, I do have to wonder which came first?  Are people willing to pay higher prices because the service is so incredibly better than the competitors or do they charge more because it costs more?  My hypothesis is it is the former rather than the latter.  Lesson 1:  People are willing to pay more if your service is significantly better than the competition.  Not just a little bit better and not just sometimes but consistently and significantly better than the competition. 

Now, the good news is most of what differentiated the company from the competition was free or very low cost!  I never walked by an associate at any level of the organization without them smiling and greeting me.  If they had a work cart in the aisle they immediately moved it so I did not have to muscle around things.  The place was spotless - every employee was part of the cleaning staff because everyone picked up even the slightest thing which may not belong where it was.  The bottled water was free!  Small bottles of water free!  It likely cost them almost nothing to provide that but rather than leave a bad taste in your mouth about the overall experience by ripping you off on $5 for water they just gave it to you!

My wife needed contact lens solution and the front desk offered to drive her to CVS to get it.  They did not say "I can call you a cab".  They just offered to fix that little problem for us.  Lesson 2: Don't make your customers feel they had a bad experience over some very small petty thing.  Just fix the problem and move on.

I could go on and on about the Ritz-Carlton and its great customer service but I think you get the idea.  So, here are a few lessons for supply chain / 3PL companies:

• Most actions which drive very high customer experience ratings are not very costly.  They are the basics.  Make your customer feel human again!
• Train everyone to be a customer experience evangelist.  The driver, the customer service agent, the building and grounds people.. everyone.  One thing you will find is not only will your customers be wildly excited and promote your company but it will also have the positive effect of making your workplace a desired location for recruits.  Want to recruit top talent and retain them?  Treat them as customers and not machines. 
• Fix the little stuff and move on. How many times do you find your company arguing with a customer over some petty thing (Think free bottled water).  At a company I worked we provided surveys on the delivery experience and I reviewed those surveys.  One customer had rated us all 10's (great) and put in the comment field "please bring donuts next time".  I went ahead and had the driver deliver donuts on the next delivery.  Nike had the right approach - Just Do It.
• Finally, when you do make a mistake, own up to it with your associates and your customers.  No one is perfect and no one expects you to be perfect.  They expect you to own up to it and solve it.  

Well, another great weekend in the books and wow did I learn and in a lot of cases re-learn a lot.  Your customer experience will definitely differentiate you and now, in the Nike fashion go JUST DO IT!.

Kraft, ZBB and the Art of Designing Supply Chains

A lot has been written this weekend about what is happening at Kraft Heinz (KHC) and why they suddenly had to write down a huge portion of their brand portfolio.  Many articles are calling out the zero based budgeting (ZBB) program 3G installed after buying Heinz.  I disagree.  I think it is something far more basic: They lost sight of their customers.

First, a quick definition of ZBB.  ZBB was the darling of the consultant community many years ago as a way to wring costs out of bloated companies. Consultants loved it because it allowed for a lot of business ("I am a ZBB certified...), companies loved it because it had the promise of driving out costs and Wall Street loved it because they generally love all things that are short term profit boosters.  And, in my opinion, it is a good program.  It forces you to reevaluate your costs every year.  Just because you did "x" last year does not mean you need to do it again next year yet the standard budget process assumes programs and positions continue forever.  ZBB does not.  ZBB picks the arbitrary time of one year and says every year every cost needs to be justified.

The reason for this however may be what KHC and 3G totally missed.  The reason you do this is so you can reinvest savings generated from non value added (non competitive) functions of the company to value added functions or better said, programs which make your company more competitive in the market place.  Pocketing the savings or paying it out in dividends is a short term strategy which ultimately ends.  And that is what happened to 3G.  They did not appear to invest the money but rather they pocketed it.

This is also why KHZ and the 3G model relied on acquisitions.  The only way this method of ZBB works is if you keep acquiring bloated companies and implement the program with them.  It is somewhat of a Ponzi scheme.

So, what should they have done differently?  Many of you have read my writings on the customer centered supply chain and outside-in thinking.  This is the fundamental miss of KHC.  They were inside-out in their thinking as they were so focused on the drug of cutting costs then keeping the money they forgot to invest in the future.  Perhaps they felt they would have an endless stream of acquisitions so the music would never stop (Remember, they tried to buy Unilever but were rebuffed and they tried to buy Campbell's but they claim the price was too high)? What they did not anticipate is many of the acquisition targets had implemented their own ZBB and thus the opportunity to wring costs out after acquisition diminished dramatically.

There are lessons for supply chain design and management:

1. Always work and design using outside-in thinking.  Start with the customer and work your way back in.  Never start in and work out. 
2. Not all costs are bad.  You can break costs into competitive and non-competitive costs.  Competitive costs are this which deliver competitive advantage in the market place.  Those are good and necessary.  Non-competitive are those which are either excess or just "cost of doing business" and those you want to minimize.  
3. Your mother taught you this lesson:  Anything taken to the extreme can, and likely will, be bad.   Just because you have a hammer does not mean everything is a nail.  
4. Don't lose sight of your business.  Sears did this and perhaps KHC is doing some of this.  They are in the business of lightening up people's day by selling great food products.  The business is not "how can I cut costs the fastest".  The ultimate tail wagging the dog.  

Lots of lessons here and I just hope a great budgeting tool is not thrown out due to very poor execution.  

The End of Sears Should Be Mourned by The Supply Chain Community

If I described to you a retail entity which did the following what would you say?

• Took orders nationwide over multiple channels (whatever technology was available) - phone, mail, store
• Delivered to your door most items
• You could buy anything - a belt for your suit or a complete home for your empty lot as you came back from fighting for America
• Had a complete after sales service network which reached just about every town in America
• Had brands which leveraged contract manufacturing so you always had the "store brand" but behind it were the best manufacturers available

You likely would say, "Wow, that must be Amazon".  Then if I added this:

• You could order any product at the store and when you ordered it you could immediately, at the cash register, set up a delivery appointment.
• They delivered everything, installed it and provided great after market service
• They did this anywhere there was a store.. which literally was everywhere.

Now you would say, "Wow, that is Amazon combined with XPO in one grouping.  The technology (inventory, scheduling final mile routing etc.) must be amazing!"

But, of course, what I am describing is what Sears was literally doing 25 years ago.  Sears Logistics Services was a pioneer in all things omnichannel and all things final mile delivery. I personally always shopped at Sears as I was in the military so I moved a lot.  However, every town I went to had a Sears, they all serviced you great, they would deliver where ever I lived and I could always count on them. 

Many stores today are just warehouses which are full of "stuff" to buy.  Sears sales people were experts at what they sold.  Ask a person in a "big box" today about an appliance they are selling on the floor and likely they will go over to it with you and read the sign (which I can do) and then start filling in gaps with what they "think".  They have no knowledge beyond what I have and in some cases, a lot less. 

When you went into a Sears store the appliance person (using appliances just as an example) had manufacturer training, likely had worked for an appliance company and were actually old enough to have owned a few themselves.  Pure expertise. 

So, while we all can sound smart about all the dumb things the modern leadership of Sears did we should not forget their logistics and supply chain expertise.  When I read what some of the retailers are doing today to make their delivery network more available and efficient for the consumer I can only think, "hmmm, that looks like Sears 25 years ago".

Reminds me of a great quote "Want a new idea, read an old book".

Capitalism without Capital and Why Amazon Was Able to Get To Scale

I am currently reading a fantastic book titled Capitalism without Capital:  The Rise of The Intangible Economy by Jonathan Haskel and Stian Westlake.  The essential message of the book is how the "new" economy allows companies to get to hyperscale size because they are built on intangibles (software and ideas).  These are infinitely scalable and have allowed the growth of FAANG (Facebook, Apple, Amazon, Netflix, Google ) to incredible levels.  Because this is a supply chain blog, I will focus on what this means for everyone else relative to Amazon. 

People constantly ask the question: How can Amazon keep growing if they do not make money?  There are two answers:  First, Amazon has proved that if they want to scale back investment they can make a lot of money almost at will.   Just in Q2 of this year they made over $2bl in profit in one quarter.  Not bad for a company that "does not make any money".  Second, and this is the most important point, they have built this profit machine on the value of intangibles.

Most companies value themselves based on what can physically be put on the balance sheet.  Something is an "asset" if it is physical in nature and can be valued in the marketplace, mostly by figuring out its resale value.  Further, accounting rules actually favor this as when you put this "asset" on the books you do not have to expense it all at once but rather depreciate it over time.  This makes a physical good more valuable than an intangible good. 

However in the intangible economy where it is intangibles which truly drive value this is a real problem.  Think of it this way:  What makes Amazon's supply chain so great?  It certainly is not the buildings, racks, trucks or even the Kiva robots.  All of those are easily replicable.  Rather, it is the intangible assets which make it great and where they have invested a lot.  It is the algorithms, the engineering solutions, the supply chain processes (inventory, order management and advanced delivery routing) which add all of the distinctive value of Amazon.  So now we can answer the question:  Why doesn't everyone just replicate Amazon?

Because their rigid and outdating accounting systems won't let them.

While others are looking to physical assets which can be depreciated and can easily be valued for ROI purposes Amazon looks to the intangibles.  By doing this Amazon has built a cash machine which now allows them to put up physical assets with ease. 

The basic tenet of the book is companies which value their intangible assets have infinite scale.  Once they get to this point it is tough for anyone to catch up. 

Heading to Edge 2018 - CSCMP

I hope to connect with a lot of colleagues and meet new ones as we head to Nashville for the CSCMP Edge 2018 meeting.  For those who are new in the industry, this is the premiere event and the "must go" event for the year.  As I reflect on why I try to go every year, I think about the following:

1. Thought Leadership:  The people who are setting the trends are here and they are happy to engage with you.  Just by attending sessions, listening deeply and interacting with the industry leaders I get to think about issues, how others have solved them, where the supply chain industry is going and, most importantly, what our customers (of our products) need from the supply chain.
2. Connection: The ability to connect with colleagues whom I have worked with or known for the better part of 30 years.  The supply chain industry is a community and you must engage in it.  One of my key recommendations to those who are starting out in the industry is the need to engage with colleagues.  Think of it as your own personal "crowd sourcing".  This is where you get this done in the span of 4 days.
3. Sharpen the Saw:   I really try to "get away", disconnect and that allows me to deeply engage in the conference.  I work hard not to jump on my cell phone, do email etc.  My feeling is if your organization cannot run for 4 days without your constant interaction then that is a signal there is a real problem with the organization.  So, I encourage everyone to engage.  

I was lucky enough to be the conference chair in Denver a few years ago and also serve on the board of this great institution.  

Look forward to seeing you all there!

Convinced Even More That Wal-Mart Should Be The Winner v. Amazon

I have written many times about the idea of Walmart v. Amazon in the battle of retailing and e-commerce.  My basic thesis has always been this:  Walmart can do everything Amazon can do but Amazon CANNOT do everything Walmart can do.  And, yes, it revolves around the stores.  

One of my first posts on this topic was back in March of 2013 when I posted "The Battle for Retail Sales is Really the Battle of Supply Chains".  In that article I concluded:

"In the end I believe Walmart and the other big retailers can and should be able to beat Amazon.  Just like Dell could have and should have beaten Asus and just like Sears could have and should have beaten Walmart."

I concluded because of the huge logistics and retail head start Walmart had they could beat Amazon at their own game.  I also, however, posited the problem Walmart would have - the ability to innovate and brand.  Here I said:

"The problem for companies like Wal-Mart and other retailers is they are losing the "branding" war.  The name "Amazon" is becoming synonymous with on line shopping.  People I talk to really do not "shop" on line they just go to Amazon to buy what they want.  It is becoming what Marissa Mayer (New CEO of Yahoo) calls a "daily habit".  As a consumer, you decide whether you are going to go to a store or buy on line.  If you decide to buy on line you go directly to Amazon.  I am sure Wal-Mart has all sorts of statistics that try to pat themselves on their backs but reality is Amazon is building a brand which equates to on line shopping - The Amazon brand is to on line shopping what the term "Xerox" is to copiers.  If this hole gets too deep, Wal-Mart may not be able to dig out. "

Then, it appeared Walmart "awakened" and I wrote a post titled: "Welcome Back Wal-Mart:  We Missed You Over The Last 5 Years".  In this article I discussed how I went to a Walmart and also used their on-line e-commerce system.  Both experiences were extraordinary and this posting was written about 1 year ago.

Today, I have seen the future and it is, in fact, in Walmart.  I am more convinced then ever they will win this as long as they stay hungry, scrappy and focused on the customer.  In my local Walmart they recently added the giant "Pick up Tower" which essentially is an automated way for you to buy products, have them brought to the store and have a very seamless and frictionless way of getting them.   A picture of this is to the left.  Because just about everyone in America goes past a Walmart just about every day, ordering on line and picking up in the store is essentially a no-brainer.  Can Amazon do that?  Sure in the few Whole Foods stores, maybe, but not at the scale a Walmart can do it in. 

So, think of this scenario.  You "shop" on line at night after work and in front of your T.V.  You set to pick it up tomorrow at the local Walmart.  On your way home from work you swing past, you pick it up and voila.. it is at home.  So, why is this so intriguing to me?  Well, it is because there are a few external events occurring in the retail / e-commerce space which are converging and making the pure e-commerce play more difficult.   They are:

1. Rising Cost of Transportation:  Who does not know about this topic?  The way to mitigate high costs of transportation is to keep trucks "fullest the furthest" and don't break them down until you absolutely have to.  This allows for far more efficiencies when delivering to stores than to people's homes.

2. The Rise of "Porch Pirates":  This is a very interesting phenomena where people just go around to houses and steal delivered goods.  If you live in an apartment complex, it is like the wild wild west.  Between people stealing and boxes being left at wrong buildings and doors, it is a true mess.  Many companies are trying to solve this with "lockers", ability to go into your home, delivery to trunks etc. but net net, it all adds cost and complexity to the delivery system. The simple solution already exists - deliver it to a store.

3. Infrastructure Costs: Without a store network, the cost of building out a really good e-commerce infrastructure are astronomical.  The Home Depot, which already has one of the best supply chains in retail and has 2200 stores is about to spend over $1bl to build out what they believe they need for same day / next day service.  Imagine if you are starting from scratch?

4. Inability of Small Package Carriers to Deal With "Surge" Periods:  Finally, we hear this every Christmas season - one of the two major players will have "guessed" wrong and either they lose their shirt in terms of cost or they have not nearly the capacity needed to service the boxes. 

In the end, this is Walmart's game to lose and it appears they have no intention of losing.  I personally use both and am a "Prime Member" however when that comes up for renewal I think I will be rethinking that automatic sign up.  From a supply chain perspective, I believe Walmart is better situated than any other retailer in the business for the following reasons:

1. A very mature small box, big box and cold chain distribution network already in place.  They have a huge head start.

2. The ability to service an "endless aisle".  With this mechanism you could buy anything from them even if they never stock in the store.

3. Prime real estate for retail.  Any chance you do not drive past one?

4. Walmart Pay:  I have not mentioned this but the ease of paying using Wal-Mart pay is truly incredible. Also, it does not use NFC but rather QR codes which means all phones essentially can use it (Google Pay and Apple Pay require NFC which is in higher end phones). 

The battle continues but right now, due to the maturity of the supply chain, I am leaning to Walmart.

 

Macroeconomics are Supporting The Tight Freight Market (Macroeconomic Monday)

I wanted to write a quick note about the tight freight market.  We all know it is tight and certainly there are no lack of free webinars telling us how to be a "shipper of choice" and make our freight easier to handle.  With this note, I wanted to outline a few key statistics which will help you quantify the issue. 

Macroeconomics:

PPI

There are three items I want to show.  First, the PPI for General Freight, Trucking, Long Distance Truckload.  This important statistic produced and updated by the government tells us what is going on at the wholesale level (which virtually all freight is).  As you can see, we are now much higher than we were at when we were "pre-recession.  While the last month appears to have stabilized I cannot believe this curve is going anywhere but in the upward bound direction.  Fiscal stimulus is very strong in our economy and unless there is an existential threat (War, trade war etc.) I think we have at least two years to run on this cycle.  Learn to work in an inflationary cycle.  

Second, the infamous Inventory to Sales Ratio.  This tells us how much "slack" is in the economy and the story supports the inflationary pressures cited above. 

Inventory v. sales

In this graph we see that in about 2017, the "worm turned" and inventories started being depleted.

This has two implications.  First, it means that at some point, if sales stay strong companies will feel a need to restock inventory.  When that occurs we will see even more pressure on the transportation infrastructure of the United States.  This is not just a rate issue but rather has to do with the overall infrastructure of the country.  Pressure on bridges, roads, capacity and congestion all will continue to drive a very inefficient transportation network (including rail). 

Finally, we see the end results in the CASS Freight Index and it is not pretty. 

We continue seeing costs increasing in this very important index and they are at the highest levels we have seen in a long time.

These three pieces of data make it very clear we are in an inflationary environment for freight and it is not just an isolated lane or area of the country.  It is a broad based inflation due to fiscal stimulus driving an incredible amount of business.

Like the "spiral downward" we experienced in 2007-2009, we are not seeing a "spiral upward" with the market driving a "wealth effect" and the wealth effect drives consumer spending which ultimately drives everything we are seeing in freight.

Having said all this, there are pressures on the macroeconomic horizon.  Specifically, there are 4 things I worry about:

1. Fuel Prices:  When fuel prices increase (both at the retail level which we buy at and the wholesale level the carriers buy at) it is just an implicit tax levied on people and businesses.  People have to drive for their work and their lives so it is really not a discretionary spend.  More money spent on fuel is less money spent on other things.
   
2. Interest Rates Rise Too Fast:  We did get some good news last week with the Fed saying they may let inflation run above 2% but if the interest rate hawks take over, this could brake the economy hard.
   
3. Student Loans:  There is an implicit brake on the economy with the large overhang of student loan debt.  If you think this is small, think again.  Here is some information from the website StudentLoanHero.com:
   
• Total student loan debt:  $1.48 Trillion 
• 44.2M Americans have some student debt
• Delinquency rate is 11.2% (people who are more than 90 days behind)
• Average Monthly Loan Payment: $351 
• Median Monthly loan payment:  $203
  
4. Existential Threat:  It seems we are just one "Tweet" away from global war or at least a trade war. 

Those 4 are the key ones which could put a stop to the party.  However, as a planner who manages probability, I would plan on the "party" continuing for the foreseeable future (But have your contingency plan B ready).  

Will Disruption in The Inefficient Transportation Market Come From Within

Many of you who have read my blog over the last many years know I am a bit critical of our industry.  Innovation has been very slow in coming (Thus resulting in a somewhat man made crisis), executives at major trucking companies treat their service as a commodity (Talk about pricing relative to supply and demand not relative to value) and when measured by performance, our industry has not performed well.

I have advocated for outsiders to come in and disrupt the industry which led to my excitement when Elon Musk put his crosshairs squarely on the industry.  Unfortunately, the "outsiders" have almost the reverse problem of the insiders - the outsiders just don't understand the industry.  They think a driver is going to be on his iPhone all day.  So, if the insiders are stodgy and not innovative and the outsiders are not knowledgeable enough to matter, where will the industry get the innovation it needs to defeat the current crisis and truly add value to consumer's lives?

Well, it appears the disruption is coming from within which is probably the best we could hope for.  Two companies, Lanehub and the BiTA alliance are really driving significant innovation and both are led by long term industry experts.  Even the major carriers are providing some innovative solutions such as JB Hunt's 360 solution for both carriers and shippers. 

Our industry is on the verge of a major crisis and while clearly there have been some externalities which have exacerbated the problem, most of the issue is within the industry.  A lack of looking forward, a lack of innovation in productivity and finally, even leaders of the industry, treating it like a commodity, have all contributed to this crisis.  Look to the innovators, some of whom I have mentioned above, for leadership. 

Why Are People Using The Driver "Crunch" as An Excuse for Poor Service?

Ok, no more webinars or explanations of how to be a "shipper of choice... please.  I think we all get it that there is a driver problem and there is a capacity problem.  However, as I think about this there are two real issues I just cannot reconcile with the problem.  The two are 1) Lack of delivering on commitments and 2) Lack of investment.

First, lets deal with commitments.  This word really lacks meaning in this industry but I will try to define it. The definition is simply "Do what you say you are going to do" and regardless of tight capacity or not, this is something everyone should be able to do.  Why is freight being left on docks after companies have made commitments (through tender acceptances) to pick up the freight?  If there are no drivers to pick up the freight be up front and honest with the shipper.  Tell them that.  I fear too many companies are just "sweeping up" tenders then, over time, figuring out what they will do and what they won't do (sometimes by just not delivering at all).  I cannot figure out if this is purposeful or if it is just horrible execution. 

This also brings me to the idea that we are blaming ELDs for this crisis which seems ridiculous to me.  Essentially, when someone says that, they are saying they used to operate illegally but now that there is an electronic device they can no longer be illegal. Oops.. that type of argument gets you in trouble.

So, this brings me to my second and final point:  Don't listen to what the sales people tell you, listen to what the CEO's of the companies tell the investors.  The key question you should be asking carriers when they say they need higher rates to offset the capacity crunch is what are they going to do with that money?  If they are plowing back into driver investments then I am all in.  If they are increasing dividends and or buying back stock then you have to wonder who is kidding who. 

My fear is this issue is going to be a circular problem that will never be solved.  Let's follow this logic:

1) How is leadership compensated?  Increasing stock price.

2) How do you increase stock price in a tight market with raising rates?  Buy back stock and raise dividends. 

3) Will the stock price go up as much if you invest the money in driver pay versus doing #2 above?  No. 

This says we likely will not see driver investment or productivity investment.  Rather, we likely will see shareholder investment which will make the problem much worse.

Please prove me wrong by doing the right thing. 

When Does a Comment to Investors Become an Illegal "Signal" to Competitors?

On July 18, 2015 I wrote a blog post entitled:  DOJ Investigates Airlines - Are the Trucking Companies Next?  At that time I had just read an article about the DOJ investigating the airlines concerning collusion on capacity and ticket pricing (The original article was on Bloomberg News and titled: What Does it Take to Prove Airline Collusion).  What I found interesting is they were investigating statements made during earnings calls and "investor" conferences where one airline executive might say they are going to practice things such as "disciplined capacity control" or have "expected price increases through disciplined revenue management".

The question raised by the investigation was essentially whether these were statements to investors so they could make a good investment decision or where they "signals" to the competitors?  For example, does the statement "disciplined capacity control" state a good business practice to the investors or does it state to the competition "If you don't add capacity I won't add capacity".

As part of the post, I posited this exact question could be applied to the trucking and freight transportation industry.  Every conference I have been to and every investor deck I have seen usually has the freight transportation executive using these exact words. 

The example used in the lawsuit is, according to the article:

"...airline officials repeatedly assured one another on earnings calls and at conferences that exercising "capacity discipline was good for the industry"

Sound familiar?

It is a fascinating question and it really puts the companies in a pickle.  If they do not disclose "material" items to the investors they can get sued for not disclosing but if they disclose too much they can (and are) get sued for collusion. 

Well, there is an update to the story and I think it is a big deal.  In today's NY Times it is reported: Southwest Airlines Settles Suit but Denies Colluding to Keep Ticket Prices High.  Southwest has agreed to pay $15M in cash and "provide extensive cooperation" with the on-going investigation against American Airlines, Delta Airlines and United Airlines. "Extensive Cooperation is defined as:

 "a full account of facts relevant to the plaintiff's case as well as a series of informational meetings and interviews with industry experts and Southwest employees facilitated by the company."

How could this effect trucking:

1. We all have been to the many conferences where this type of language has been used by top executives.  Could the airline case be used as a precedent for a case against transportation?
   
2.  Does SWA have something and essentially became the first one to talk - get a lighter penalty for turning?  $15M is a lot more than just "nuisance" money.  Something is going on here.
   
3. Will trucking companies start being a lot more careful at conferences and public statements as a result of this settlement?

As I said in 2015, this is definitely a case to keep an eye on and it could have broad and deep implications for the transportation industry as a whole.  

Thoughts on Retailers Buying XPO Logistics and What The Right Strategy Should Be

I generally do not like to comment on something so speculative however Friday ended with a huge bang in the supply chain industry with Amazon and a major retailer apparently thinking of buying XPO logistics.  I was asked by many what I thought of this so let me give you some pre-holiday thoughts:

First, this is a very normal activity as companies go upstream and downstream in the value chain to try to capture as much as they can in that chain.  Remember your business classes:  The value chain starts essentially at the extraction of raw materials and ends with the consumer (some say it goes through post consumption disposal and return of unconsumed raw materials to Mother Earth.  I agree with that however let's leave that alone for now.).  In between extraction and consumer you have activities such as transport of raw materials, conversion of raw materials to something of value, transportation to distribution, merchandising (either on line or in store) and final mile delivery (whether completed by the consumer or completed by the seller) to the point of use (the home).

Three things you will notice in that scenario:

1. Conversion is very specific to a good.  Meaning, it is not fungible and if you wanted to capture that portion of the value chain you would have to buy a lot of companies.  You may want to vertically integrate a very high margin company but not all of it.
2. Transportation is pervasive across the value chain all the way back to the raw materials movements to the final mile.
3. Delivery Final mile (v. customer pick up) is growing rapidly and it touches the consumer.  This makes Final Mile transportation part of the merchandising and consumer touch point process - and this is why retailers want to vertically integrate. The impact of final mile on the consumer experience and consumer loyalty is huge.  

There is one other dynamic happening right now and that is the current capacity crunch.  Rather than get into an "arms race" of ever increasing rates, the retailer may decide to just buy their own capacity and this is another reason to get the "Elephant Gun" out and look for carriers to buy.  

If the retailer is thinking they want to capture the final mile and protect themselves against the capacity crunch, they could do a number of things:

1. Buy technology to facilitate the final mile but not buy the assets.  Think Target's acquisition of Grand Junction.  Or their more recent acquisition of Shipt for grocery shipping.  Even Wal-Mart's acquisition of Jet.com would be part of facilitating this process.  (The biggest issue with the Wal-Mart acquisition was one of culture - Wal-Mart eliminated Jet's long standing practicing of having drinks and happy hours in the office.  That since has been reinstated).
2. Buy transportation assets and make them "in house" assets.  This is where the discussion of buying XPO comes in.
3. Build the transportation assets yourself - i.e., Amazon's acquisition of planes and doing "power only" where Amazon owns the trailers, are examples of this.  Many retailers follow this power only model.  The benefit of this is you can swap carriers pretty quickly and you can leverage small carriers since the retailer owns the trailer.  The problem with this strategy is the "crunch" is with the power not with the trailer.
4. Develop "Vested" relationships which give the specific retailer "most favored nation" status with one or more asset providers.  While this idea is championed by Kate Vitasek at University of Tennessee (read about this concept at The Vested Way) it really was "founded" in the logistics industry by the infamous J.B. Hunt agreement with the BNSF.  This gave J.B. Hunt a preferred status with BNSF which, to this day, makes it impossible for other carriers to really compete with JBH.  For the most part, the rest of the industry fights over what JBH does not want.  If JBH wants it, they win. 
5. Work within financial risk mitigation constructs. An interesting new development is to protect capacity (does not really help with final mile) by participating in the new futures exchange developed by Craig Fuller called TransRisk.  This will definitely assist with the stabilization of rates and capacity however it is at least one year away from implementation  and, while I absolutely think it will work, it is unproven.  

There are hybrids of all of these however these are the major actions a retailer could take to capture more of the value in the value chain and mitigate capacity risk.  Number 2 above, Buy Assets, has garnished all the excitement going into Christmas weekend.  My quick thoughts:

1. No one is buying XPO and if they did the Government would stop it.  XPO, as it currently is constructed, is too big and would have too big of an impact on industry assets to allow one retailer or on-line provider to buy it.
2. They could split XPO up and buy pieces of it.  While this would probably make it easier to get through government regulators, I believe this action would be value destroying not value creating.  For example, the final mile portion of XPO was created by XPO acquiring a company called 3PD.  3PD are executives who came out of retail and therefore just "putting it back" could be possible.  Combine 3PD with the final mile technology of Optima (which is a final mile technology company XPO purchased back in 2013) and you may have a platform for a good final mile service.
   
   However, don't forget, neither XPO, 3PD or Optima own the transportation assets. They merely find, qualify and route.  The "work" is still outsourced to smaller delivery companies and therefore this would be more of an example of buy technology  (along with getting very good people) versus buying transportation assets.
   
   The big question this would leave is what happens to the rest of XPO?  Is it just a carcass laying out there to be pecked at by private equity investors? Does Brad Jacobs still run it?  Are the pieces as valuable as the whole?  I think not.  I think the value of each piece of XPO diminishes significantly as other pieces get sold off. This is why I believe splitting XPO up would be value destroying not value creating (unless, of course, the buyer of a piece is willing to either pay a huge premium for the portion they buy or be willing to immediately divest of certain portions of the "carcass")

I think the logical action for retailers is to concentrate heavily on #1 (Buy Technology) along with #4

 (Develop Vested Relationships).  I would also heavily participate in #5 (Work within financial risk mitigation constructs) once it becomes available. 

Interestingly, and somewhat off the radar, this is what Target appears to be doing (after hiring Preston Mosier and Arthur Valdez from Amazon).  Perhaps everyone, including Amazon, should be focused more on what is happening in Minnesota.

Have a very happy holiday season!

Amazon Final Mile - It is All About The Brand

I keep being asked why in the world would Amazon start their own home delivery / final mile service (See Amazon Logistics)?  Everyone questions this as a stretch and even Fed-Ex could not help themselves when they stated Amazon (they did not specifically say Amazon but we all knew who they meant)  does not understand what it takes to have a dense delivery network like Fed-Ex or UPS. 

UPS chose to be in denial by having the CEO say:

"We don't believe that Amazon's strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we're investing in technology, we have a great mutual relationship with them," 

I think most of the analysis, and the response from Fed-Ex and UPS miss three critical points:

1. Branding
2. Capacity
3. Drop Ship
   

Branding:  When a final mile company delivers to the consumer's home the consumer sees it as an extension of the company the item is purchased from, the product and the purchase experience.   The consumer does not see "Fed-Ex", "UPS", "JB Hunt Final Mile" or "XPO" and certainly they do not separate the delivery from the entire purchase experience.  If the product is late, damaged, delivered in a truck that looks like a get away vehicle from a crime, is handed to you by a person who is a felon, etc. etc. the consumer will be very disappointed and will always relate this experience to the store (whether on line or physical).  If Amazon is to protect their brand they need to own more and more of the fulfillment chain  This allows them to do that. 

Capacity:  UPS and Fed-Ex have disappointed at the crunch seasons more than once and I believe Amazon is just sick of it.  At some point you have to take destiny into your own hands and take control of it.  Part of this is what stage the companies are at in their development.  UPS and Fed-Ex are in the "protection of business" stage and Amazon is still in the "Grow.. grow.. grow " phase.  What does this mean?  It means UPS and Fed-Ex are big companies who only invest when they know 100% it is a "sure thing". 

Amazon, on the other hand, is investing like mad.  Therefore, UPS and Fed-Ex cannot keep up with the explosive growth and maintain all their other businesses.  This shows itself in a lack of capacity at crunch times and so Amazon, as they always do, have taken their destiny into their own hands. 

Drop Ship: In Amazon's statements what is also clear is they want to control the drop ship experience from vendor's warehouses.  In this case the consumer orders from Amazon, the order is passed to a vendor, the vendor maintains the inventory and warehouses it but a Amazon truck picks it up and delivers to the customer.  Think about this as the touch points the customer is directly involved in are:

• Order experience
• Delivery experience
• Payment experience

In the case I outlined above, Amazon owns all three and the burden of back room logistics (versus front room logistics - I feel like I should trademark those two terms) is kept by the vendor.  This is brilliant and well outlined in this short article in Industrial Distribution Magazine.  

As logisticians and supply chain people we always look to the operational aspects of a strategic move.  In this case, it goes far beyond logistics operations.  

Read all my postings about Amazon as I have tracked this development for years:  Amazon Coverage on 10xLogistics

Why Do Supply Chain Transformations Fail - The Case for Change Management

I have been thinking and reading a lot lately about supply chain transformations.  I have also been involved in many of them throughout my career including the integration of a $5bl supply chain with a $10bl supply chain in the durable goods area and the complete redesign of a major automotive service parts supply chain.

What makes a transformation action great and what can cause them to fail?  Obviously, you have to get the "supply chain technicals" correct.  If you are redesigning the network, redesigning the fulfillment methods or moving to modern leading edge technology you will need to get the technicals right.  However, my thesis is this is less than 1/2 of the success criteria.  Once you have this right, the biggest challenge is change management.  You will need to lead an entire company and team into the new environment and if this is not done well, all the technical genius in the world will not make your supply chain transformation work.

I am going to address this in a series of posts and this first post is going to cover the definition of change management.  Daryl Connor in his book "Managing At The Speed of Change" defined it this way:

"Change management is a set of principles, techniques, and prescriptions applied to the human aspects of executing major change initiatives in organizational settings."

For me, the key words for this are the "human aspects" of change.  While we tend to be deep into the technology, more and more supply chain managers are forgetting the human aspects of change. When you try to transform a supply chain (or dare I use the term "disrupt") every person around you is thinking:

1. Why do we have to change?  Everything is working fine now and I like what "is".  Why the change?
2. What is my new role in the new environment?  What skills will I need in this new world?
3. Do we have the fortitude to "stick with it" or is this just another "flavor of the day"?
4. Will this really make us industry leading?
5. Is the rest of the enterprise supporting this change?

There are many methods which you can use to answer these fundamental questions (ADKAR, Kotter etc.) and it almost does not matter which method you use as long as you are honest with yourself and understand the questions above are being asked (whether spoken or unspoken).  I once saw a model for change which displayed the following equation:

E=T*A

Where E=Effectiveness (of the change), T=Technical Aspects and A = Acceptance.  The easiest way to understand this is if A = 0 and T = 100 (Meaning your change is perfectly designed and perfectly implemented however the human acceptance is non existent) the effectiveness of the change will equal 0.  Completely ineffective!

So, given this is there no wonder why most transformations are less than fully effective?  If you are a technical supply chain manager and you are thrilled you got the "technicals" right but you totally forgot about the "A" then your project will fail.  It is that simple. 

Here are some great resources to help with your change management portion of anything whether it be a small project, a larger program or a complete transformation:

The Kotter Change Model

ADKAR

HBR Change Management Resources

Interesting Supply Chain Events from Week of August 21, 2017

The week is over and some very interesting reads and developments.  Let me get right to them:

1. The war between Amazon and Walmart heats up with the use of Google Home:  In Kevin O'Marah's great piece in Forbes (Google/Walmart: The Brutal Future of Retail Supply Chains)   he discusses the impact of voice assisted purchasing.  While some thought Amazon had this locked up, Walmart joins forces with Google and given Google's penetration into the virtual personal assistance market this may give Walmart an edge over Amazon.  Other implications of this:
   
• Data flows directly from consumer to the manufacturer and could be the device that moves power back to the manufacturer and away from the retailer. 
• Price discovery by the consumer will be faster and will result in a brutal retail environment. 
• As Kevin states, if you are on a calendar based S&OP process, you may be too slow to adjust for what will be a rapidly changing consumer.
  
  This war shows retailing is really a war over efficient supply chains.
    
2. Lean is almost always in the news however when I see my good friend Robert Martichenko launching a new lean blog I jump up and notice.  It is called "Lessons in Lean: Lessons in Leadership" and I will not repeat everything he is writing here.  Suffice to say, everything Robert reads is worth reading, this blog is no exception and I encourage you to read it directly. Specifically, the post titled: Is Reflection a Lost Art was very impactful for me and I have taken actions in my own personal journey reflecting some of Robert's thoughts.  It is a must read.
   
3. More data supporting my previous post about leadership and being on the floor to lead and understand what is truly happening.  In "What CEO's can Learn From Their Frontline Workers", Mark Dohnalek does a nice job outlining why being on the floor and listening is an important trait of CEOS and all leaders.  It still is amazing to me how many CEOs spend more time in meetings than out in their facilities.
   
4. CASS reported continued upward pressure on rates for a YoY basis and a MoM basis although the pace is slowing.  I will write more about this however I will say we are still far below 2012 - 2015 and I personally think we are starting to get to a precarious position.  A lot of investments and purchases are being made in anticipation of macro economic activity by the Feds (i.e., tax cuts which they call tax reform).  If this does not happen (which I give about a 50/50 chance) we will find people have gone far in front of their skis.  CCJ reports tonnage leveling out and conditions deteriorating.
   
   
   

   

   CCJ Report on July Truck Tonnage

   Looking at the Net Income and EPS of the large publicly held carriers and you see that it has, so far, been a "ho hum" year as their income is struggling to keep up with expenses.  Landstar, once again is the outlier and doing a fantastic job.  (See transcript from conference call here: Landstar (LSTR) Q2 Conference Call.
   
5. The race for fast delivery of big box products is heating up with rumors of Overstock wanting to take advantage of XPO's incredible final mile delivery network.  While Overstock declined any agreement has been reached, I am just not sure how you execute fast delivery of things such as appliances and furniture without engaging XPO.  Bradley Jacobs, XPO CEO plans on being within 120 miles of 90% of the US population by the end of 2018.  Tough to find another competitor who can do that.
   
6. The Inventory to Sales Ratio in the economy was updated last week and while we had been enjoying some good news, you can see it has turned and started to rise again.  This could be due to the holiday inventory stock up, which is being reported as being very robust and then again, it may not be.  More to come on this.  

   

   Inventory to Sales Raio - Updated August 15, 2017

Well, that ends a pretty exciting week and hope it was profitable and engaging for all.