If Your Supply Chain is Not Customer Centric - You Are Dead

My previous post discussed why Amazon is killing the retail market.  My thesis is simple and it has nothing to do with Amazon being a financial juggernaut.  It was not always that way so we have to ask ourselves how they arrived where they are today.  The reason: Customer Centricity.  Amazon bills themselves as ..."The Earth's Most Customer Centric Company".  They are passionate about the customer.  So, what are the supply chain implications:

1. Stop Talking About Cutting Costs and Start Talking About Increasing Revenue: The stereotypical supply chain manager prides themselves on cutting costs.  They talk about taking inventory out, moving to cheaper modes of transportation, consolidating warehouses or, God forbid, outsourcing to get cheaper labor.
   
   What they don't talk about is "How can I make the supply chain better to get products to the customer faster so we can drive sales".  Yet, this is the question they should be asking and this is the question the Amazon supply chain managers think about every day.  If you want to know what a "cost centric" supply chain looks like, look no further than Sears.  They are cutting costs right out of business.
   
2. Get Supply Chain Managers Closer to The Sales Force:  If your supply chain managers are not on the road with sales people periodically, meeting with customers and listening to the nuances of what they want, you are not a customer centric supply chain.  I have met a lot of supply chain leaders who say they are customer centric and then I ask them to name (by name, not company) 5 customers who are in a position to buy their product (not the logistics people of the customer company but the actual customer) and they almost never can do it.
   
   Also, if you are selling to an intermediary (i.e., MFG selling to retailer) don't forget the ultimate customer is the consumer not the intermediary.  The intermediary is only going to buy your product if the consumer is pulling it through the channel.  Because of this, you have to understand the real needs of the consumer.
   
3. Velocity is a Weapon:  Customers and consumers want speed.  When supply chain managers cut costs that is generally a euphemism for cutting speed.  It generally means, buffering inventory, slower transportation modes, conducting mode shifts by "trapping freight" and building truckloads etc.  Make no mistake, these are all revenue and sales killers.  Speed wins!
   
4. Look to the Future:  Don't build your supply chain for today!  Look to the future.  What will customers and consumers want in the future and ensure your supply chain can flex to the future.  This is one of Amazon's super secret sauces.  10 years ago who would have believed people would pay $100 per year to get access to 2 day or next day delivery?  The only company that did was Amazon which left others far behind - in some cases so far behind they can never catch up.
   
5. Listen to the Language Your Company Uses and Change it!:  Here is what I mean:  When Amazon discusses customer service they say, "2 day delivery".  When others discuss it (and I have heard a lot of retailers say this) they say "next day shipping".  Notice the nuance here? Amazon's statement is customer centric - when will the customer receive it.  The other statement is internally focused - when will I ship it.  This is a critical difference and it highlights the issue. 

Of course costs cannot be ignored and you have to do this in the most efficient manner possible but my point is that a growing company, with great customer centricity, can drive more revenue.  You cannot cut costs fast enough to overcome lower and lower sales (see Sears for a case study).  

Bottom line:  BE CUSTOMER - CENTRIC!

Amazon Mission Statement:  "Our vision is to be earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online."

Amazon Doesn't Kill Businesses - Ignoring Customer Needs Does

I am going to formulate a more detailed post on this tonight and I think this is a topic needing coverage. It is all about how Amazon got where they are.

The central point: Don't blame Amazon for killing retail.  Amazon was and still is insanely focused on the customer which causes them to innovate around CUSTOMER needs and not internal politics.

While other companies are trying to figure out how to cut out value for the customer to improve costs, Amazon figured out what will "wow" the customer and then figured out how to do this at an acceptable cost.

If others would get maniacal about serving the customer, they could compete. The funny thing is most won't do it.

The Week in Review - ELDs, Amazon (again), Foxconn, Border Adjustment Tax - Dead, and Drivers

Another week down in 2017 and amazingly just a few more weeks before those in the retail supply chain will be going crazy getting ready for black Friday.  A lot of topics to discuss from this week so let's get going:

1. Foxconn - Beside being a great job growth engine what does this really mean for those in the supply chain?  As you probably heard, Foxconn, the mammoth supplier for Apple and other electronics companies has decided to put a large plant in SE Wisconsin.  This will clearly generate jobs, will bring sub suppliers to the region and will make the drive from Chicago to Milwaukee a nightmare given the number of trucks that will move from the Chicago intermodal yards North.
   
   But, the real finding here is that the cost of production in the US is starting to come in balance with the equation of foreign manufacturing.  The "equation of foreign manufacturing" includes the following components:  Cost of MFG + Cost to move to port + cost of ocean / air + Cost to move from Port inland + GLOBAL GEOPOLITICAL RISK + SPEED + INVENTORY CARRYING COST.  The last few I have capitalized because these are normally considered "soft costs" (and therefore get ignored by many at their own peril).
   
   More will come and the "heartland" of America is where they will go due to transportation and now labor costs.  If you are a cartage company and haul boxes out of the Chicago rail yards, this is a happy day for you!
   
2. The Border Adjustment Tax is Dead - This was sold and designed to adjust the cost of goods coming over the borders to be roughly equal to the cost of manufacturing in the US.  It was to penalize those companies who move out of the US for the purpose of evading items such as labor laws, environmental laws etc.  When it was first proposed the stocks of those supply chain companies benefiting from cross border activity tanked.  Well, as they say, if you wait long enough good things will come.  The border adjustment tax is dead.  If you make your money moving products across borders and from the ports your money is safe.
   
3. ELDs are Dead, No They are Alive, No They Are Dead...    This continues to be a back and forth.  For the the life of me, I cannot understand why the industry is against this as it will level the playing field between those who cheat and break the law and those who try to run a lawful company.  But, alas, it appears a lot of people are against it.  Despite 21 Congressman co-sponsoring a bill to delay the mandate for one year,  the prevailing wisdom this week is the delay is dead and ELDS will go in as mandated.  
   
4. Amazon Files Patent for Underwater Warehouses -   I am going to leave this alone and just say nothing amazes me anymore.  I will need to have a lot more thought about this and conversation before I fully understand why you would want to put stuff underwater.  Is land that expensive?  Are the rich going to start moving to offshore locations which will need to be serviced from the sea?  Who knows.
   
5. Drivers - Hire Felons?  -  My guess is when you first saw this you figured I had lost my mind and this is the craziest thing you have heard of.  I now ask you to take your emotion hat off and put on your thinking cap.  Forget the social arguments, the fact is we have millions of non violent felons in this country who are no longer incarcerated.  There is a shortage of almost 200K drivers.  The solution seems like a match made in heaven.  That courier driver you had who just delivered a package to your door?  Today, he could absolutely be a prior felon.  Why not allow a non violent felon deliver to a warehouse dock?

A lot going on in logistics and I will be writing shortly about the growth of silicon valley's influence in the logistics and supply chain world.  Just as Detroit has learned their "center of gravity" is moving West, so too is the supply chain industry.  

Amazon and Kenmore - A Match Made in Heaven

It is incredible it took this long for the marriage made in heaven to happen. Kenmore is the crown jewel of Sears and Amazon has always wanted to capture appliance sales.  But how?  The logistics are daunting.

Enter Kenmore and enter Sears Logistics (SLS). I have always said, the best logistics company in the country is "buried" inside Sears. This has been my contention for over 10 years. SLS had perfected final mile, especially final mile for big box items, long before "final mile" was fashionable or an industry. 

Ask your parents if you don't believe me. A SLS person delivering to your home has been a staple for years.

Now, combine this with the Amazon order platform and the comfort and reliability of Kenmore and you have a powerhouse.

More to come on this but if Amazon uses SLS they have picked up an incredible scoop. And, soon, they will just buy the Kenmore brand, bring SLS with it and use the few Sears stores left as showrooms.

Inventories Are Heading in The Right Direction

Anyone who follows me knows I feel very strongly about the Total Inventory to Sales Ratio and how it forecasts the future for transportation (in the near term).  If inventories rise over a period of time then it only stands to reason companies will start cutting them back.  When they do that, freight slows to a crawl.

Recently, a lot has been made about the current measurement decreasing (ever so slightly).  As you can see below, they had been going down for most of 2016 and now have stayed steady in 2017:

Inventory to Sales Ratio through June 14, 2017

If you look at this in isolation - i.e., just the last year - you would say it is going in the right direction - which it is.  However, by looking at the full measure over a longer period of time you will see the "recovery" from 2012 to 2016 included a substantial inventory build.  We have just recently moved it down and it is a very slight move.   This tells me there is still substantial room for inventories to be depleted which also means transportation capacity still has a way to go before it becomes a "scarce" commodity.  Yes, there are blips but the longer term trend tells me the curve has room to decrease.

As a supply chain professional I also tend to cringe when I see the contents of this graph. To discuss this, let's ask ourselves why we have inventory in the first place.  Two key tenets of supply chain management:

1. Inventory at rest is a bad thing:   Said a different way, bad things happen to inventory.  It can become obsolete, spoil (in the case of food), get lost, stolen or damaged. When inventory rests, you should see opportunity.
   
2. Inventory exists as a buffer for lack of information:  In a world where you have perfect information (i.e, perfect forecast, perfect purchase signals, perfect transportation signals) you have little need for inventory. Given this, more inventory relative to your sales indicates your progress in S&OP (Sales and Operations Planning) information accuracy is stalling.  You are not improving this information flow, rather, you are making it worse which drives inventory levels. 

Put these two together and you have to ask yourselves if we, as supply chain professionals and as a supply chain industry, have made global supply chains worse or better since 2012?  With all the investment in software, data and analytics, you would think we would have at least stayed even.  But, we have not.  

What we have done as an industry is cut costs.  As reported in CSCMP's State of Logistics Report, we have decreased overall logistics' costs as a % of GDP for the first time since 2009.   But, to what end has this occurred?  The 5 year CAGR for storage costs for inventory is now at 3.6% - far higher than inflation.  While the financial cost of inventory has actually decreased, a lot of this is attributed to lower financing costs (i.e., interest rates) rather than great inventory management. 

The bottom line:  Inventory has been somewhat ignored during this time of incredibly favorable financing.  I do not expect this to continue and as this turns, it is going to turn quickly.  Expect a renewed focus on inventory and expect inventories to be managed a lot tighter in the future.  

And when that happens, expect any sign of a "transportation recovery" to stall (as it has in many years prior).  

What A Month May Was For Transportation

CASS Freight Systems is out with their monthly Freight Index Report and it shows some very good news for transportation providers (not so good for the shippers).  Some key facts and figures:

• YoY shipments are up 7.1% 
• YoY expenditures are up 7.4%

But before all the full truckload providers get too excited it is important to call out the role of parcel in this number.  E-Commerce is driving the "train" (sorry for the pun) and a lot of this is essentially Fedex, UPS and other small parcel shippers.  The trend below shows it is really not very exciting for truck load carriers:

But, the good news is it appears freight is moving which ultimately is very good fro the economy.  I do think it is too early to call an end to the recession the way Cass did but certainly "green shoots" are starting to form.  

Welcome Back Wal-Mart - We Missed You Over the Last 5 Years.

I hesitated writing about the Amazon purchase of Whole Foods as many have written about it already and much is not yet known about how Jeff Bezos is going to use Whole Foods in the continued growth of his retail empire.  One thing for sure is whatever he does with it will be completely different than most people think.  That is what makes Bezos so brilliant and why no one has been able to beat him.  In some ways, only he knows what he really is doing.

But then I re-read an article I posted in March of 2013 titled, "The Battle for Retail is Really The Battle of Supply Chains".  In this article I opined that the big retailers are all essentially selling the same products, many of which have been or very quickly are commoditized.  This means the real value add of a retailer is in their supply chain.

I also concluded in this article that Wal-Mart should be able to kill Amazon as they already have the bricks and mortars along with the capability of great e-commerce.  Finally, I concluded that due to the age old issue of The Innovators Dilemma which was created by Clayton Christensen in his seminal book of the same name.  Unfortunately, for the last 4 years, and for Wal-Mart,  my prediction came true.

The good news is Wal-Mart, like the sleeping giant, has now been awoken.  With its purchase of Jet.com it admitted it needed great e-commerce and, in the same transaction, admitted it could not do this on its own.  The big behemoth could not innovate so it had to buy.  That is OK as it is at least now on the path to competing with Amazon.

But then a funny thing happened.  Amazon admitted it could not grow bricks and mortars fast enough in the grocery space to compete so it made a bold purchase.  In this purchase, Bezos is essentially admitting he wants to move a little more towards a Wal-Mart model and also showed, in this purchase, the only reason Wal-Mart has not crushed Amazon is due to lack of execution and lack of strategic foresight.

Well, no more.  I believe Wal-Mart truly has awoke and they are starting to adjust their supply chain very quickly to mirror a "be where ever the customer is" retailer.  This means if you are out and need something quickly, you can pull into your Wal-Mart and get it.  If you want to order on line and have it shipped, you can do that.  If you want to avoid shipping charges, you can buy on line and pick it up in the store.  Basically, any configuration of how the consumer wants to interact to get the products she needs, Wal-Mart will be there.  Wal-Mart can ship from DCs or from any of its 4,177 stores of which 3,275 are super centers.  Wow!  Wouldn't Amazon love to have that footprint.

If Wal-Mart executes they have a chance of beating Amazon.  I recently used Wal-Mart on line to buy a UPS for my computer.  It was a great experience, shipped fast and was less expensive than Amazon.

I do think the speciality retailer is dead.  Consumers want the "endless aisle" that Amazon and Wal-Mart provide. They do not want to bounce around to 100 different websites to find what they want.

Wal-Mart can do everything Amazon can do (or they should be able to do it) yet Amazon cannot come close to all the capabilities of a Wal-Mart.  If I were investing, the only stock I would buy in the retail space is Wal-Mart.  I would then go to their shareholders meeting and scream two phrases:  "Wake Up" and "Execute"!

Welcome back Wal-Mart - I missed you!

Definitions of Terms Must be as Your Customer Sees It

I am sitting on a plane right now, on the Tarmac, moving nowhere.  This reminds me of another aspect of a truly customer centric supply chain: Define terms as your customer sees them and not for your own internal metrics.

So, the airline app says I have "departed" and in their mind, I am sure I have. But in my mind, I am sitting in a tube, on a tarmac, going nowhere. I, the customer, consider departed to mean I am up in the air and heading to my destination. 

Lesson:. Define terms from a customer lens, not from an internal lens. When you do this, you will be on your path to customer centricity. 

Start with The Customer - Ensure Profitability

Supply chain design is all about two things:  Provide extraordinary customer service through fast and full fulfillment AND do this profitably.  As a company, you will not survive if you cannot do both of these things simultaneously.  Sound simple?  Sure, but then why do so many supply chain professionals only do the back half?

As I work with companies I continue to emphasize that it is important for our supply chain to drive revenue.   Great supply chains (Read: Walmart and Amazon for example) are core to the company's revenue strategy and not just an evil cost to reduce.

But, there is this pesky thing called "profit" that also has to exist to make a world class supply chain complete.  The question really is what do you do first?  My view is you take care of the customer then figure out the cost.  If you are designing supply chains you are in a war with your competitors and the weapons of that war are speed and availability.  Customers, whether they be industrial, commercial or consumer are asking for the same thing:  They want what they want, when they want it, in the right quantity at the right price.  Those who figure all this out will win.  Those who do not will perish.  What are some things you should do now to get on the path to figure this out?  A few ideas below:

1. Start with the Customer:  Don't lift a finger to design a supply chain until you have personally interviewed, visited with, surveyed and embedded yourself into the customer.  This does not mean asking sales their opinion.  Sales is a first derivative source.   Go right to the customer.
   
2. One Size Does Not Fit All:  Design with the idea of multiple supply chains to service specific groups of customers.
   
3. Use Pricing to Give The Customer Options: You need to probe what customers are willing to pay for and what they are not willing to pay for.  Amazon is a master at this.  Do you get next day delivery?  Yes... Do you pay for it (through Prime)?  Yes...   Do most people spend more on Prime fees then they get back in avoidance of shipping costs?  Most likely.  The key here is to not say no to the customer, just provide options.
   
4. When In Doubt, Provide The Service Then Figure Out The Cost:  Many times there just is not enough time to ensure everything is perfect before you decide which direction to go.  But, once you are confident you are "close enough" to figure out the cost, launch!  There is no better way to ensure you have pressure to lower costs.  This is not a "ready, shoot, aim" strategy but rather it is one that avoids a supply chain being stuck in a conference room for years.
   
5. Constantly Reevaluate:  The industry is moving too fast to design a supply chain every 10 years.  You must constantly reevaluate where you stand relative to customer demands and competitive forces.  

This all sounds simple but I can assure you that if you really do this at your company you will be in the top 5%. Most try this but then just revert to the cost equation. The good news is you can win with this model.  In the words of Nike - Just Do It!

Jacksonville Florida is a True Logistics Hub

This is a bit of a plug for my hometown but I felt it necessary.  This article titled Work Wanted: Good Jobs in Logistics are Abundant in Jacksonville tells the story.  To be a true logistics hub every location needs to have natural infrastructure and Jacksonville has this with JaxPort.

Then you need rail networks, highway networks (Jax joins I-10 and I-95 - two may corridors with 10 being East - West and 95 being North - South), good employment and space for warehousing. All of this has to be wrapped around a good business climate.

Jacksonville Florida has it all and more!  What is the more?  Jacksonville is the gateway to one of the most populous states and fastest growing states.  What better place to be for logistics then to be where the people live.

It truly is a great logistics hub.  Congratulations to all who have helped make it the true "Gateway to Florida".

If You Expect Your 3PL to Invest, You Have to Commit

I have been doing a lot of thinking lately on the state of the 3PL industry.  I have not worked in the industry for a number of years but I have been a consumer of it and I have stayed very close to those in the industry.  What always amazes me is the turnover in 3PLs.  They are used, bid out, then discarded at a moment's notice.  I also hear over and over again from customers of 3PLs that the 3PLs they use do not invest in technology and people as much as they should. This caused me to ask why?

This feedback has been around for ages on 3PLs and I always wondered why it has not been addressed.  In fact, I would say the industry has really run away from what was true 3PL work and the brokerage industry has co-opted the term 3PL for itself.  3PLs today are mostly just brokerage houses.

So, why all this talk of "partnerships" yet bidding still happens at a torrid pace to reduce costs. A consumer of 3PL services should ask themselves the following questions when looking for cost reduction:

1. How will value truly be created?  Remember, taking money out of one pocket and putting it in another does not add value to the extended supply chain.  This activity will just merely reallocate the value which is already there.
   
2. Is the value truly sustainable?  For example, building cost reduction from paying below market wages is simply not sustainable.  Something will give.  Yet, I hear consumers of services say things such as " I don't care how they do it, just do it".
   
3. Are the governance structures supporting the relationship aligned with the overall goals of the program?  Too many times I hear the terms "partnership" and "vested relationships" yet when you look deeply at the contracts and the governance structure, it becomes clear the relationship does not support overall value creation.  

I am sure most reading this will say "not me..." but reality is that this covers 99% of the relationships which exist out in the industry.  How do we know?  Just look at portfolio turnover of the 3PL and look at duration of contracts.  Both suggest that what I am stating above is true.  

So, what can a consumer of 3PL services (warehousing, transportation brokerage etc.) do to ensure the 3PL you are working with is going to be a true value added partner?  Here are a few ideas:

1. Make contracts long enough for the 3PL to recover investments.  We ask the 3PL to invest in huge amounts of capital (technology, buildings, automation) yet we write the contract for 3 years. Imagine how expensive this is if the 3PL has to recover this investment in 3 years!
   
2. Build a payment structure that allows the 3PL to gain from applying innovation.  If the payments are fixed, why would the 3PL invest in innovation?  They need to benefit from this and there are payment structures which allow that to happen.
   
3. Build a management governance structure which ensures the 3PL can survive.  For example, in fast growing wage environments, do you really want the 3PL to keep wages low and thus attract the not so best employees?  That is what they will be forced to do if you do not have a structure which allows for real business decisions such as raising wages and everyone sharing in that cost.  

The bottom line is apply all the same values and principles you have in running your company to the 3PL.  I think you will find the 3PL will invest, will apply innovation and will, in the long run, add huge value.  If you bid every few years you are not partnering and not adding value, you are just shifting money from pocket to pocket.  

Schneider IPO Price Set Between $18 and $20. Big Pay Day for Family

Three things to know about the Schneider (SNDR) IPO (JSonline):

1. The family remains firmly in control - in fact the company will still be considered a "closely held" company. 
2. Family will net about $230M
3. $359M to the company of which roughly half is used to pay down debt and 1/2 to buy chassis.

Macroeconomic Monday® - Inventory to Sales Ratio

Goes to show, I should never take a break from blogging.  "While I was out", the inventory to sales ratio in the economy has made a very nice move.  While not even close to the post recession area it is starting to move down which indicates the bleeding off of inventory has begun.  Of course, for transportation to tighten, and rates to go up, this will need to tighten some more.

While there is optimism, February retail sales at .1% definitely slowed this movement.

There is also the wild card of autos.  Ford has already warned on inventory and slow sales which means a lot of capacity becomes available as the automotive industry adjusts (read: idles plants).

More to come but let's call this a "good sign" if you are on the capacity side and an "early warning" if you are on the shipper side.

 

Inventories to Sales Ratio

The Stay at Home Economy and Its Supply Chain Impacts - Part 1: Definition

I have noticed a bit about my own behavior and started looking to see if it was just me or was it a "trend" (I am not usually "trendy").  The behavior is simple:  I just stay at home more and I have made my home a bit of a "Disneyland".  Rather than go out for entertainment, I have it brought to me. Instead of going out to buy things, I had them brought to me.  To listen to music, for example,  I merely plug into an amp and headphones and through the power of Amazon, Spotify or Pandora I have just about every song ever recorded at my fingertips.  This is The Stay at Home Economy.

The Stay at Home Economy (SAHE for now on) is something that has huge impact on how our supply chains work.  First, lets explore why this is growing:

1. Technology: I have written a lot about how technology miniaturized or digitized just about everything and it continues at a rapid pace.  My music, my video and my books are all digitized so I get them on demand and in digital devices.  No need to shop or go to a central place to watch or listen.  In fact, my home theater and home audio equipment rivals that of professional locations.
2. Customization: Because virtually everything is available with the touch of a button, I essentially customize my experience to an audience of one - me.  Before, I would have to compromise and listen, watch or do some activity that perhaps was not exactly what I wanted to do.  Now, I do exactly what I want to do. 
3. Control of the Temporal Aspect of Activity: I do what I want (see #2 above) when I want. I no longer have to worry about "start" times or what day of week I am doing something.  I do what I want and when I want to do it. 
4. Food Delivery: This is the last bastion of home delivery e-commerce and it is coming. It is far more complex but with companies building "Meals ready to eat" (No, not the MRE's from the Army days but companies such as Blueapron) and with your local supermarket delivering, the last "big" reason to go out is starting to go away.  
5. Security: This is an unfortunate part of life these days but it is a fact - the more the aggregation of people occur at events, the more risk there is.  Why take that risk?  When I am at home I feel far more secure. 

All of these reasons lead to the idea of "Mass Customization" which has been a dream for a long time.  No longer do you have to produce a product, service or experience for the "masses" but rather you can offer a large amount of individual items and let the customer aggregate these things into the experience they want - when they want it.  

This is the SAHE and you can already imagine the impacts of this on your supply chain.  If you are not letting people customize experiences or products or you are not building a really compelling reason why someone should leave their home to go to your location, you are going to lose.  

This is also the much bigger reason why Amazon is winning - they have built out an experience, a catalog and customization capabilities for the SAHE.  One might even say they are the store for the SAHE.  It is not just a fancy website and big warehouses.  They are actually building out an ecosystem which supports the SAHE. 

Jim Cramer reported on this on his Mad Money Show and said (from Seeking Alpha):

"When Domino's Pizza (NYSE:DPZ) crushed earnings and Target (NYSE:TGT) got hammered, Cramer is convinced that the stay-at-home economy is getting strong. 

The comparisons between these two stocks are perfect metaphors for the current environment. Stocks such as Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Domino's allow people to stay at home and save money as well. Domino's delivers pizzas to you at home while Target requires you to leave the house. 

The bricks and mortars are losing in a world where consumers see stay-at-home as an advantage. This also means that companies like Home Depot (NYSE:HD) and TJX Companies (NYSE:TJX) are rallying as they make the home better. 

Netflix, Amazon and the likes have made entertainment reach home, when you want, how you want it. Gaming companies create engaging video games which people play at home. With social media, consumers are aware what's going on and do not need to leave the house. It's just that things are different now compared to how they were 10 years ago. The stay-at-home economy is touching every aspect of people's lives and it's not going to change soon."

I think it is clear the SAHE is here to stay and it is dramatically changing how people behave and shop.  My next entry will be on the implications of your supply chain - Hint:  If you are not working to support the SAHE you are quickly becoming obsolete.


  Note:  I am not making any value judgment pro or con on the SAHE - that is for social scientists and psychologists to develop.  I am merely reporting what is clearly happening and the impact on supply chains.  

What is a Supply Chain To Do In Age of Global Disruption?

I have been following the election and subsequent transition for a long time now and of course have opinions on a lot of items.  However, as I keep seeing the "Tweet" storms relative to imports, global supply chains, and re-shoring I keep thinking about the supply chain implications.  So, I ask the question, "What is a Supply Chain To Do"?

The proposals being made would fundamentally change the economics on a lot of business decisions relative to the development and build out of supply chains.  One example is the proposed "Border Tax" which could be as much as 35% on imports.  As the Wall Street Journal pointed out, President Elect Trump is even threatening a foreign company, BMW, with a "border tax" if they move production to Mexico.   The Wall Street Journal reports toy manufacturers are struggling with what should they do in this age of the popular uprising against global supply chains.  And, even Constellation Brands is "bracing themselves" for this tax.

For those deeply involved in global supply chains the question being asked is just exactly what should they do in 2017?  Do they develop supply chains as if this is not happening? Do they retreat and prepare for this tax by re-shoring? Do they automate (keep plants in the US but eliminate people?  All of these questions are up in the air and the uncertainty of whether the threats are real or just political positioning will cause supply chain investment to slow down.

Companies can do one of three things:

1. Stop major investment and wait for more certainty.
2. Continue to invest and "take a bet" where this will land
3. Ignore it and fight it - risking one morning that the CEO wakes up one morning and finds their stock down 10% due to a pointed tweet. 

So far what I think we are seeing is number 1 in action.  When Ford decided to not move production to Mexico it really was not about moving jobs back to the US but rather about stopping production, leaving the investment half done and just using the current facilities they have. 

When Carrier said they would not move production they did say they would automate.  This has the same effect as moving. 

In conclusion, I think a couple of things (non political, just economics):

1. Global supply chains are here to stay and no one can stop them or revert them.  How can toy manufacturers all of a sudden make affordable toys in the US?  The infrastructure for the global supply chains have already been built.  They are not changing. 
2. Any time you introduce economic distortion (i.e. a border tax or favoring one industry over another) you risk abnormal behavior in investment.  Eventually this falls apart and a collapse occurs. 
3. When you threaten major disruption you force things to get put on hold until clarity emerges. 

So, I believe 2017 could be a year of a standstill in terms of capital investment.  Far more clarity is needed before major investments can be made.  The job of the new administration will be to give that clarity sooner rather than later and this will allow supply chain experts to move on and continue to develop sophisticated and global supply chains.