Why The Chief Supply Chain Officer Needs to Understand Customer Experience in Detail

 Thesis:  The Chief Supply Chain Officer (CSCO) needs to be very close to the Chief Customer Officer or whoever in the enterprise is responsible for the customer experience. 

Discussion: 

This article is for those who are working supply chain within a company that makes or sells things.  We know the 3PL world needs to have a customer experience strategy but what about the CSCO within a manufacturer or retailer?  Isn't their job to just reduce costs and become "efficient"?  NO!  For those who have read my writings over the last 5 years you know I believe the single biggest job of the CSCO is to drive revenue.  In this day and age you drive it through customer experience (CX) even more than through product.  

Let's look at the big advancements which have propelled massive sales growth for key players during the pandemic.  A few examples:

1. Buy on line and pick up in store
2. Buy on line and have curbside pick-up
3. Use your smartphone to activate and pay for fuel at key gas stations (I do this a lot at Shell).
4. Use of stores as micro fulfillment centers

I could go on and on but all of these are supply chain solutions, empowered by technology to drive customer experience.  Notice nothing in that list had anything to do with product but rather had to do with how a customer or consumer acquires the product.  If you are back in the supply chain don't think you are immune from this trend because your customer has the same needs as a consumer.  They want a frictionless experience to make their business more impactful to the consumer.  You can help them with that and that will endear you more to your customer, they will buy more and they will be more loyal.   So, a quick conclusion for CSCO's to take action in this space:

1. Get to know and partner with the person in your company who is in charge of the customer experience.  A lot of times this is in the sales or marketing area.}
   
2. If your company does not have a person who owns this then take extreme ownership and take charge of it. 
3. Ensure your supply chain strategy supports everything your company is promising in their go to market and customer experience plans.  Nothing is worse than a supply chain strategy which is different than the go to market strategy. 
4. Consistently come back to the customer experience and use data such as net promoter scores (NPS) to determine if your supply chain is meeting the customer expectations.  

The customer and the consumer have the power.  You will differentiate yourself and your company if your supply chain focuses on the customer experience and "wow'ing" them each and every day. 

Post Script:  I think of this today and had to write about it industry lost a legend this week:  Tony Hsieh.  Tony founded Zappos and with it founded a company which was legendary for differentiating itself through customer experience.  How do you differentiate the selling of shoes?  Through Customer Experience! He built the company from nothing and sold it to Amazon for over $1bl.  We should all focus on CX like Tony did. 

 Rest in Peace, Tony Hsieh.  

By Charlie Llewellin from Austin, USA - tony hsieh, ceo, zappos.comUploaded by Edward, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=97091081

There is No "Fast Following" in Today's Technology

There have been a lot of supply chain learnings as a result of the COVID-19 environment and there is nothing more important than the lesson of technology.  Technology has separated the haves and have nots in just about every industry.  Those companies which have been able to adapt are thriving even in this stressful time.  Those who did not have the core technology available, or have been unwilling to invest in the technology, have suffered and many have filed bankruptcy. 

As if to prove this case, look at a 4  industries and you will see they have come down to duopolies or maybe three to 5 companies which own the industry.  Think of this:

1. Home Improvement - Two huge players in Home Depot and Lowes
2. General Store Retail - Target and Walmart
3. E-Commerce - Amazon and Wayfair
4. Pure Technology - Apple, Google (Alphabet), Facebook (Advertising). 

You can go on with this but the point I am making is the companies which invested in technology early have thrived and are so far ahead of most of their competitors it is very likely those competitors cannot catch up.  Technology does a few things for these companies:

1. It makes them infinitely scalable.  Meaning they can scale to huge sizes and add little to no cost to the company.  Their cost per unit decreases dramatically as they grow.  
2. It allows them to be incredibly flexible and resilient.  Think of Walmart and their now infamous scale with pick up grocery business.  Walmart e-commerce business is up 97% YoY.  This would not even be possible without the underlying technology already in place. There are very few companies in the world which could handle a 97% increase YoY and have any reasonable chance of still functioning.  
3. It makes the customer experience far better because the technology allows you to customize the experience to the person.  You don't need to "group" people but rather, through the technology, you can customize the experience.  Someone wants to come into the store, you have a solution for that.  Someone wants curbside pickup, you have a solution for that. Someone wants it brought to their home, you have a solution for that.  Someone wants the products delivered to the trunk of their car (specific models allow Amazon to open the trunk of your car and put product in it), you have a solution for that.  
4. Because the technology is cloud based and built on the cloud it allows for the ability to grow dramatically very quickly.  Think about this:  In December of 2019, Zoom hosted 10 million daily meeting calls.  By April, they were up to 300 million per day.  

Virtually all of this are supply chain solutions which have made these companies leaders in their industry.  So, what lessons have we learned?

1. Technology allows companies to become dominant in their industry. 
2. Technology allows scale
3. Technology allows companies to be resilient in the face of adversity;  It actually allows those companies to thrive. 

And finally, there is no "fast following".  Walmart, because of its resources, has been able to catch up to Amazon but this is a rare example - in fact it may be the only example.  Those who get behind, will be behind forever and, ultimately, will be left behind.

The Final 3 Feet Have Become The Most Important in The Supply Chain

We have talked about "the final 3 feet" before which is defined as the leg of the supply chain where product is brought from the back room to the shelves.  However, in this COVID-19 world, the final 3 feet have really become the final 5 feet as there is a building expectation that the store will bring the product to the car and put it in the trunk for your.  People do not necessarily want to go in the store.  My thesis is the stores which do this really well will win and they will beat Amazon.

So, I have done some of my own research as I have not been in a store for at least 1 month yet I have bought many things.  I have used either Amazon or I have used the buy on-line / curbside pick-up process and I can emphatically say that when the latter is done right, it is by far the best experience. The inverse is true however.  When it is done wrong it is such a pain and so frustrating I just will never go back.  Here are the elements of a great curbside pick-up process (This is NOT buy on line, pick up in store - BOPIS as I do not go into the store.  This is Buy On-Line, Deliver to my Car).  

1. A seamless web presence which allows me to buy what is in inventory at the local store.  Take payment so there is a complete touchless process when I arrive at the store. 
2. An alert process which tells me when the order is ready. 
3. A tracking method, using my cell phone, which tells you when I am at the store and in the parking spot. 
4. A well established location to park - good signage - easy to find. 
5. A numbering system on the parking location to make it easy to find me. 
6. A "through the window" confirmation process (Show ID, Scan email etc.)
7. Associates put in the trunk. 
8. Associates need to be the best customer service people and need to be in full PPE (Mask and gloves).  

While many stores have done a good job at this, I have yet to be in one which does it all extremely well.  Even the big box home stores have yet to tie all the inventory into the order system (if the store buys locally it is not in the web site) meaning I have to order some on line and some I call in. 

They almost all fail at the last two which is great customer service at the car.  Many stores (including the big ones) have sent people to my car without any PPE and they have leaned over to ask me a question.  The entire purpose of this drill is lost when that happens. 

Surprisingly, the most sophisticated has been Shell gas station.  Here, of course, the issue is not going into a store but it is the extensive interaction you have to have with a dirty pump and they have eliminated virtually all of it.  Using the Shell app on my phone I follow the process below. 

1. Open the Shell app and it knows I am at the station.  It asks me what pump number I am at. 
2. It then asks me how much gas I want (From a fixed dollar amount to a "fill up). 
3. I use Apple Pay on my phone to pay (Completely eliminates the "skimming" threat which is where a lot of credit card fraud occurs).
4. The app activates the pump and all I have to do is put the nozzle in the car and select gas type.  

They have solved a lot of issues by doing this and one at least (the skimming) was a pre-COVID 19 issue. 

The lesson here is for all retailers:

1. Invest heavily in the final 3-5 feet of your supply / value chain.  The rule used to be your mission was to get people through the threshold of the store.  But now a huge amount of customers will not want to cross the threshold no matter what.
   
   
2. Technology is your friend - Use it aggressively and substitute in-store upgrades with technology upgrades. 
   
   
3. Always think seamless.  If there is a spot the consumer is interrupted in this process fix it with technology. 
   
   
4. Train your associates to forget their political views.  Give the customers what they want and they want to feel safe.  Masks, gloves and touchless processes do this. 
   
   
5. Take mobile payments.  It is almost silly in this day and age that we, as a society,  are not close to 100% pay by smart phone / mobile payment.  Everything should be paid this way.  

Technology is the "great equalizer" for the locally owned and operated stores.  If they embrace it and invest in it, the will beat Amazon.  Remember, Amazon can replicate just about everything except the things I described above.  GO AFTER WHAT THEY CANNOT DO!

Have Clicks and Bricks Won The Game over Pure E-Commerce

First, I will give you my hypothesis answer which is "Yes" it has.  Of course, I have been wrong before and will be wrong again but this would be my position going into the discussion.  Because of COVID19 we have learned the proper mix of "I need go to the store" with "I can wait to get it delivered". So, yes, my answer is an resounding "Yes".

I see this for three main reasons and in this posting I am going use Amazon as the proxy for e-commerce since it is so dominant in that space.  A little background on how this idea started developing.  I tweeted the following:

"A casualty of #Covid19 in the Supply chain is going to be #Amazon. With elongated delivery times, missed deliveries and massive counterfeiting, @amazon has become useless. #Bricksandclicks with in-store pick up, curbside car loading and local delivery has won the day.

— 10xLogisticsExperts (@Logisticsexpert) April 11, 2020"

The next morning I opened the Wall Street Journal to an article (Posted at midnight and my tweet was at 10:40pm) titled  "Will We Forgive Amazon When This is Over"  by Christopher Mims (@Mims, Christopher.mims@wsj.com) (May be Paywall).  The theme is the same:  At precisely the moment we needed Amazon the most, the model failed and it failed big.  There are a couple of key areas where it failed and only one could really have been an "unknown unknown":

1. Merchandising and Inventory:  This is the big "unknown unknown" and we cannot hold Amazon or anyone fully responsible for this as no one could have seen the massive whipsaw / bullwhip which occurred with certain products.  We essentially had a "run on the bank" and ran out.
   
   However, the "bricks" portion was able to respond much faster through limiting amount someone can buy, "senior hours" and other tactics (Not the least of which is just public shame if you are walking out with cases of toilet paper).  Amazon just could not get ahead of this and still to this day are not ahead.  They essentially have shut down all other "non essential" product lines yet I can still get all that stuff through either BOPIS (Buy on line pick up in store) or just in store at the bricks.
   
2. No Customer Loyalty:  The big question for the e-commerce providers such as Amazon will be whether they invest a lot into their networks to support a crisis like this or do they chalk it up to a "once in a lifetime" crisis and assume everything goes back to normal.  I think it will not go back to normal and the pure e-commerce players will lose customers and not gain them. 
   
   Take the Amazon Prime program for example.  Many hundreds of thousands have paid for years into that program.  Yes, you get free delivery but it also is somewhat of a loyalty program as well.  As soon as the crisis hit, prime customers were thrown to the curb.  By doing that, many prime customers are asking themselves "What am I paying for" and now that they have had the experience of "bricks and clicks", these customers may never come back.  I would imagine Amazon will see a decrease in both Prime customers and customers overall.
   
3. The Technology Just Did Not Work:  This led to a massively poor customer experience that did not have to be.  In fact, prior to COVID19 most discussions I have been in have always started with, "If Amazon can do... (Kind of like, "If they can put a man on the moon why can't....)".  This will no longer be the case.  No one will want to replicate this.  I think most give them a pass on the inventory issues but why is their website so screwed up?  Why do I have to click 4 times before I find out either the product is out of stock, it is reserved for first responders or the delivery will be two months from now (Why would they even allow it to be displayed)?
   
   The purchase experience has been awful.  The great technology has gone haywire and their "hands off the steering wheel" AI systems failed at precisely the time they were needed.  I found websites of other "off line" stores to be far more helpful, far more accurate and far more useful.  Amazon is going to have reevaluate this entire problem.  Their technology just does not appear to be much better.
   
4. Counterfeiting:  One item the "bricks" stores have is brand reputation.  Nothing makes it into a Home Depot, Lowes, Target, or Wal-Mart store without it being properly vetted to safety, service and functionality.  The item has to perform as specified.  Yes, there will be some warranty claims but not complete failure.  The "E-Commerce" world, led by Amazon, has had this "endless aisle" approach and they purposefully do very little vetting.  They claim they are a "platform" not a store (Although I think this is mostly "lawyer speak" so they can defend in lawsuits).  This has led to massive counterfeits, items which are displayed but never fulfilled, , items which say they will be fulfilled but it may be 2 months from now etc. 
   
   What is worse is the e-commerce players want the "wisdom of the crowd" to sort through it all, figure it out with "star ratings" (Which are easily manipulated by the very people doing the counterfeiting) and then report them.  The e-commerce people want the buyer to be their merchandiser as well and not pay us.  Bad form.  

For all these reasons, I believe pure e-commerce will lose business and it will take them a long time to get it back.  The "old guard" businesses with store fronts, reputations and really good technology have won this round and a big round it was (and still is)!

Long term readers of mine will not be surprised by this as I wrote two posts a while ago about how the bricks and mortar should win because they can do everything Amazon can do and Amazon cannot do everything they do.  I welcomed WalMart up from their long slumber (June 26, 2017) when they finally committed heavily to e-commerce.  I then wrote a post on June 3, 2018 titled: Convinced Even More That Wal-Mart Should Be The Winner Against Amazon.  

The Final Three Feet is Really Really Important (As We Are Re-Learning)

Back in April 2, 2013 I wrote a blog post entitled, "Is the 'Final Three Feet' The Most Important Logistics Leg" and it was created after I saw so many empty shelves at a Wal-Mart and I saw how they were restocking in an almost haphazard and unplanned way.  Of course anyone in retail knows an empty shelf facing translates into a lost sale.  It is very simple.  Keep the shelves stocked.

A simple idea but not quite as simple in practice.  You still see empty shelves in the day, you see aisles blocked because people are restocking during peak shopping times and you see trash (Broken down boxes) etc. cluttering the store.  All of these are signs the store has put no planning into how to stock shelves.

Store Shelves Being Stocked
During Prime Shopping Time

 

 

Now with the COVID-19 issues we are finding stores are relearning these lessons all over again.  It took weeks for stores to figure out how to adjust hours to ensure shelves were stocked.  What difference does it make that you are open 24 hours if by the 8th hour of being open your shelves are bare?  Too much time was lost in this and they should have read my posting.  The final three feet needs to be engineered just like the final mile and just like the DC to Store network. 

I will say one of the most sophisticated processes I have seen is at Home Depot.  At Home Depot, carts are built at the RDC (Large cross dock) which tell the store exactly what aisle and location on the planograph those products go. Yes, it takes more at the RDC but it makes stocking shelves in the store much simpler.  This ensures a few things:

1. The store associates can help customers and not stock shelves.
2. The cart is there, shelves are stocked and it is gone.  Out of the way of the customers. 
3. Minimizes complex training on the store floor.

The basic theory is push the work and the complexity back to the DC so the store is able to sell.  Which, after all, is what it is there for.  

Time for a Supply Chain Reserve Corps

As I am sure every supply chain professional and logistician is doing now, I am spending quite a bit of time thinking about the overall supply chain in the United States and wondering if it is truly set up to service the Country in a time of national emergency.  We heard the Governor of NY today in his press conference say that the states are basically bidding against each other to get needed (and scarce) health care supplies.  Rather than going where they are most needed they appear to be going to the highest bidder.

We have also heard the President tell the states this is substantially a state problem and the feds are there to help and backstop.  Finally, we are hearing about the shear lack of ventilators and hospital beds when (just a few weeks ago it was "should") a pandemic hit the United States.  All of this makes me wonder if this is truly the best way to deal with a national emergency.


By now many of you have also seen the incredible Ted talk Bill Gates gave back in 2015 where he essentially predicted this COVID-19 outbreak.  While not predicting this one in particular, Mr. Gates did say something like this would happen.  I highly encourage you to watch this:

Here are some key points from the talk (March of 2015):

1. The next big crisis will be from "microbes" not "missiles".
    
2. We have insulated ourselves from huge war catastrophes (i.e. a nuclear war or another world war) because we have spent a trillion dollars plus on national defense and the infrastructure required to defend the United States.
3. We have a military which can scale up dramatically in a short time to fight or deter a war.
4. We should model our fight against microbes after the structure of the military.  You have a permanent "active" force and you have a large "reserve" force which can be called up and which actively practices, trains. and stays functional. 

When I saw him say this I was absolutely floored.  When I was in the Army in Germany we used to practice going to our "General Defensive Position (GDP)" and we would periodically go visit the warehouses set up all over Europe with stockpiles of tanks, trucks etc.  We would start them up, move them, practice deploying them etc. and we would do that in conjunction with our reserve forces.  We called it "REFORGER" which stood for "Return of Forces to Germany".  It was all a preparation for scaling up the military in Germany to over 1 million soldiers if the war started.  Similiar exercises were done in Korea and other places.

So, the question I am thinking about now is if it is time to have a "Reserve Supply Chain Force"?  This would be something you would sign up for just like the military reserves.  You would have a role / rank, you would go and practice once a month on the weekend, you would do a 2 week summer training and you would be available to be called up if the government activated the reserves.  We would have needs for coordination with civilian industry, you would run a huge reserve of trucks, trailers and drivers and you would work for a leader of this organization.

If your civilian job was in an "Essential industry or company" you may get activated but stay embedded in that company to coordinate all the work.

There are a lot of details to work out but perhaps we need this force that can work in the complex civilian world of supply chain and tie it to the needs of a pandemic so we can scale up the supply chain and distribution / logistics network very quickly.  What would this accomplish:

1. It would allow us to scale up almost instantaneously.  Get the expertise in place, get the trucks / trailers along with drivers and immediately establish the infrastructure for leadership.
2. It would prioritize the loading of the nation's supply chain after huge "air in the pipe" is created (Think the run on TP).  This could be done in conjunction with FEMA.
3. It would allow us to train so we are ready right away.  By being trained we don't take months to just figure out "how things work".
4. Finally, it would establish a professional "corps" which is qualified, ready and willing to get called up as needed. 

In the end, we have the model on how to build an infrastructure to fight a huge event which comes up on us like a black swan.  The model is the military and the reserves.  We should follow it.  Perhaps CSCMP can help with this and build out the model.  

Extreme Ownership in Supply Chain Management

I think it is well known that the supply chain area becomes somewhat of a hub for the corporation.  Just about every activity either flows into or flows out of the supply chain area.  Great ideas turn into products through the supply chain; Great sales of products cause great products to flow out of the supply chain and into the customer's hands.  Through the S&OP (Sales and operations planning) process, just about all planning activities move through the supply chain. 

This is why Extreme Ownership is so critical for the supply chain manager.  There is a saying in the safety world:  "You see it, you own it" and that is true for the supply chain manager.  You see the issue, you own the issue and since you are going to see just about all the issues you have to take ownership to get those issues solved.  Product defects?  You will see it in inflated returns - You see it, you own it!  Inventory problems (Too little, not enough) the distribution center manager will see that in his/her distribution center - You see it, you own it!

These ideas are built from a fantastic book called: "Extreme Ownership: How US Navy Seals LEAD and WIN by Jocko Willink and Leif Babin.  This book is written for all leaders but especially for the supply chain leader.  We see it all and therefore we have to own it.

While there are many types of leaders I think one large macro category could be that there are two types:  Victim and Owner.  The victim is the one who lists off all the things that have happened to him or her and therefore that is whey they cannot get their job done.  If only forecasts were better!!  If only we made products which cubed better... If only.... .Well, you get the picture.  This person sits back and plays the "if only" game as a complainer, not a participant.

The Owner (in the way of Extreme Ownership) sees the issues and regardless of origin takes ownership.  Rather than play the "if only" game as a spectator the Extreme Owner takes action to solve the issue(s).  If only forecasts were better! - Action: I am going to meet with the head of planning to discuss how I can give an early warning indicator to things which are not selling (Planning is in supply chain but the early warning indicator may come from outside the planning department).  If only products cubed better! - Action: I am going to participate further upstream in product development to educate others on the costs of not cubing properly and how we may be able to meet all the customer needs and ensure a cost efficient way to cube transportation conveyances (Design for Logistics).

My advice here is to take ownership and move out of of your "sphere of influence" and into your "sphere of concern" (Covey).  Take action, own the issue and work with your other partners across the company to bring to a resolution. 

After reading this book and contemplating for over 1 year (Read it last year), I really have concluded this separates out the great from the good.  The great take extreme ownership, the others observe and say "If only...".

What do FOMO and Linkedin Have to Do with Supply Chain Management

Has anyone noticed recently that your linkedin feed is just full of a bunch of technology looking for a reason to exist and all sorts of conventions and other events people are attending?  When I first got into Linkedin (Yes, I am an earlier adopter) it was a community of practitioners who would exchange ideas and thoughts on real issues, mega-trends and other more practical items of supply chain.  Then the "Facebook" world invaded.  And FOMO began.

First, if you do not know what FOMO is it is the "Fear of Missing Out" and I think it has become the most dangerous marketing tool technology and others have used in a long time.  People are not even sure sometimes why they need or want something but what they do know (Thanks to "social media") is everyone else is doing it so I better jump on board before I miss out.  Harvard MBA Peter McGinnis coined this phrase and also warned us about the problems it will create for business.  In an INC article, it is defined as:

"He used FOMO to describe managers who execute on too many initiatives or follow too many potential paths, out of fear of missing some positive trend or opportunity"

The weapon the purveyors of FOMO use in business is LinkedIn.  It is here everyone posts about some fancy technology or some convention that you just "must be at" or "must have".  Mind you, most of these posts are not practitioners rather they are just advertising.  Rather than buying advertising they just create an environment where you feel like if you do not engage you will "miss out".  

There is a corollary to this phenomena and it is called FOBO - Fear of a Better Option.  This is the other side of the coin which is when managers are inundated with so much information they are behave like a deer in headlights.  They freeze.  They are waiting and assuming there must be something better out there and so they stop awaiting a "better option".

According the article cited above, FOBO can be a direct result of our "big data" world.  We have so much data and so many ways to display it, slide and dice it, and analyze it that we continue to do that figuring if I "slice it one more way maybe the answer will come out".  In other words, we keep looking at the data hoping a "better option" will come out.  

Both of these are problems.  If you are infected with FOMO you will go down every path known and you will end up with too many disjointed initiatives with no clear direction.  If you are infected with FOBO you will stop everything. You will not innovate.  You will be like your father at Christmas who says "Don't buy that T.V., next year there will be something better".  Of course, this is true every year and it leads to inaction and lack of innovation.

My advice is to be careful on your LinkedIn feed and be very careful who you accept invites from.  It is full of "advertisers".  Stay focused by reading about topics in depth and stick more to the academic world for studies and thoughts about the future.  Don't get sucked into these diseases. 

If you want to learn more about it, Peter has a Podcast called FOMO Sapiens and you can listen to it on your favorite podcast player. 

Another Tough Report from A Carrier - Schneider Has Tough Q32019

The freight recession is real and the carriers are feeling the pain.  We know the smaller carriers are truly suffering however today Schneider (SNDR) reported and it does not appear to be pretty.  First, relative to expectations it was a tough quarter.  From Seeking Alpha:

1. EPS missed by .02 on Non GAAP and by .11 on a GAAP basis
2. Revenue was down 7.7% YoY and missed expectations by $40mm

A couple of key points from their press release:

1. Volumes and price were "compressed" and while they stated there was a "moderate" uplift in the seasonal volume the tone of the message was it was virtually meaningless.  We have learned this from other carriers:  There has been no meaningful "surge" period.
    
2. We knew there were shutdown costs due to the closing of the First to Final Mile business (Which opened to a lot of fanfare about 2 years ago) but I found it surprising they had to impair the value of trucks they are selling.  This tells me they are shrinking the fleet and are actually taking losses on the equipment to dispose of them.
   
3. While their truckload numbers are tough to decipher due to impacts of the FTFM closure and the impairment of tractors, both intermodal and logistics (think brokerage) suffered as well.  Intermodal was down 2% due to volumes and Logistics was down 13% (Blamed on a major customer insourcing). 
   
4. They lowered their guidance from what was $1.30 per share to $1.38 and it is now $1.24 to $1.30.  Again, this appears to be due to the tractor impairment charge.  Interestingly they lowered their CAPEX for the year which again, indicates to me they are shrinking the asset base.  

My opinion is the freight recession is even tougher than originally stated for all carriers.  While I do think there is some "kitchen sink" activity going on here (So many losses due to shutting down the FTFM that they are adding in other stuff to clean up) I think the recession is real.  

Mike Welch - A Legend Passes On

It took me a few days to even think about a world without Mike Welch.  Mike was truly a special man.  He was special not in a flashy way but special in a very specific way; he made everyone's life a little bit better.  He was a friend to me, a business mentor to me, a supplier in some instances and he was a model of community involvement for the community my family lived in for so many years.  He made our life better.

I feel a need to tell the story of how Mike and I met and started working together.  In 2004 I was the General Manager of a the Ford Service Parts Business working for Schneider Logistics (SLI).  Ford was building out their Daily Parts Advantage service model and asked SLI to somewhat replicate what we were already doing for GMSPO.  As the GM I had to find dedicated carriers to make all the deliveries nationwide to almost 5K dealers and we were having trouble finding a carrier in Evansville, Indiana.

Luckily, I had an acquaintance who used to sell truck parts but now owned a company called Segmentz.  They were a very small LTL company and at the time Ford wanted to really look at costs and so we took a chance on this small, unknown and very inexperienced company.  Right after we contracted with them they purchased Express-1 from Mike Welch.  This acquisition is what made Express-1 a public company and it turns out the only real profitable part of the merger / acquisition was the part we contracted with for the Ford Service Parts. 

This caused Mike to become President of the combined company and they shed just about everything that was Segmentz.  This is how I met Mike.  I was living in Novi, MI and Green Bay, WI at the time.

Fast forward to 2005 and I had decided to leave SLI and went to Whirlpool in St. Joe Michigan.  One morning I went to get my haircut and who was in the barber chair but Mike Welch!  I was shocked as I really had no idea they were based in Buchanan.  We talked a lot and it turns out Mike was deeply involved in my son's school and he was a great expedite provider to Whirlpool.  This meant I was able to rekindle both our professional work and our personal relationship.   So, what did I learn from Mike:

1. He was a humble man and he taught me the art of humility.  While being wildly successful in the logistics business he never sought the spotlight.  He made his business better, he took care of his associates and he made his customer's businesses better. 
   
2. He taught me about giving back.  While he clearly made a lot of money when he sold to XPO he always took care of the community.  He always was there when we needed him for the boys and girls clubs, the Lakeshore Foundation and anything else which would make the community better.  He was always there.
   
3. He never forgot his friends.  While I considered him a friend I would not say we were super close however every time I saw him you would think we had been friends since grade school.  He always had time and he always engaged.
   
4. Finally, he was a great businessman.  He was an entrepreneur, he served his customers, he was proud of what he built and he always was innovating.  I learned a lot about just down to earth business concepts from him.

So, we in the logistics and supply chain world lost a great one.  While the company (Express-1) was not as big, I would put Mike up with Don Schneider, J.B. Hunt and all the greats of our industry.  

Mike, you will be missed by all... God Bless you and your family and I hope to see you again...

Read about the history in Mike's own words at this Interview by the Wall Street Journal.

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!