WERC Fed Ex tour – a Learning Opportunity

 The Warehouse Education and Research Council (WERC) arranged a tour of the Fed Ex hub facility in Chicago on January 18^th for its members and interested parties.  I thought that the tour would be informative for some of the students from the Industrial Technology and Management program at the Illinois Institute of Technology where I am adjunct faculty.  The Chicago Hub is one of 500 facilities in the FedEx Ground network.  Bill Burgoon, Senior Manager, led about 30 people, including four INTM students, on the tour.

Here are some of the students’ reactions and observations:

"The visit to the Chicago Hub of FedEx Ground was a great opportunity to directly observe a huge facility with the ultimate technology, like scan tunnels which capture bar codes labels information for accurate sortation. It's very interesting to attend to visits like this and see what's in the industry related to what we are studying.”  Fernando Gimenez Garcia

 “I am a shopper…many times of my orders are shipped by FedEx, but I didn't know how were they shipped. I know only, if it was shipped by FedEx, it would come very fast. Today was a good chance for me to see how it works. I was impressed when I saw one box was opened, the people didn't let it go through to shipping, they stopped the conveyor to take it for repair. Thus I can make sure that all of my orders which are shipped by FedEx will not only be shipped quickly, can be tracked, and will be safe.”  Sukanya Meebangkoed

 “Visiting the Chicago Hub of FedEx has been a great experience. With its almost 400,000 square feet, and with more than 890 employees working in it, this facility processes about 30,000 packages per hour. This fact it is not surprising if we consider the amazing technology which the facilities are provided, such as the use of bar codes and the devices that workers use to scan them; the use of scan tunnels that scan the six sides of the package and the sortation of…packages to the loading area, all of these based on the bar code label information. All of these let me think about how amazing and fast the technology evolution is being, and the need of investing in new and innovative technology, like FedEx does. Therefore, building a company upon innovation, where the pursuit and development of new technologies are an integral part of the company culture and business strategy, is crucial in my opinion. FedEx has achieved it, thus it is considered as one of the most admired companies in the world.”  Teresa Martinez Silva

One of the challenges in teaching topics related to supply chain processes is that it is hard to describe with words, diagrams, or even videos, the scale of many of the facilities that are critical to the timely movement of goods on a global basis. Our thanks to WERC and FedEX for providing an opportunity for students to see a great example of a real world supply chain company in action. 

Are You Ready for a Busy 2012

When I read or listen to the news, I am often reminded of the old adage:  “Bad News Sells.”  This “good news” post suggests that the challenge for supply chain professionals in 2012 will be based more on upside risk than downside.  I had the good fortune recently to attend an economic forecast presentation by Brian Beaulieu of the Institute for Trend Research.  Brian’s firm does economic research and he and his brother Alan are frequent speakers to many business groups.  Here’s the 20,000 foot view of 2012 from Brian’s perspective:

• In spite of the news as reported by the media, the data is positive, both GDP and Industrial Production indices are up in 2011 versus the same periods in 2010.
• Employment is rising, (many mid-size companies that I talk to are hiring)
• The Purchasing Manager’s index published by the Institute of Supply Management continues to show that the economy is growing.
• There is a stimulative monetary policy and companies have liquidity.
• Exports are increasing.

From a supply chain perspective, Brian made these recommendations:

• Check your distribution system for readiness to handle increased activity.
• Build inventory where appropriate considering lead time and turnover
• Introduce new product lines
• Implement more training for employees.

More positive news:  Material Handling and Logistics News just published some very encouraging transportation numbers based on a summary from the Georgia Center of Innovation for Logistics.  Here are just a few:

The Dow Jones Transportation index was up 6.9% during the month of October and the NASDAQ Transportation Index was up 2.3% for the same period. The USDOT's freight transportation services index increased 0.9% in September 2011 from the previous month. The index’s reading of 109.6 was the highest reading since July 2008. The index is up 4.4% year-over-year.

In September, the U.S. exported more than $180.4 billion of cargo (the highest on record). September U.S. exports have increased 1.4% in terms of value over the previous month and grew 15.9% year-over-year.

I don’t mean to discount the challenges that many companies still face.  Some specific industries  are recovering more slowly – i.e. housing and construction, but consumer products should continue to produce positive growth through 2012.  I would add one suggestion to Brian’s list – focus on building collaborative relationships with suppliers and customers in 2012.

Happy Thanksgiving.

Sustainability and Supply Chain Cost Savings

The headline in the Sunday Review section of The New York Times on October 16^th read – “Where did Global Warming Go?”  According to the article, both the public and the politicians in Washington have lost interest.  While that may be true, from a business and supply chain perspective, sustainability continues to be a priority.  In consumer products, major retailers such as Wal Mart and marketers such as Proctor & Gamble and Unilever continue their emphasis on sustainable products and practices.

 I had the opportunity during September to do two presentations on the subject of sustainability focused on the idea that not only is it the “right” thing to do from an environmental perspective, it can reduce costs as well.  The audiences were very different, one was a group of business owners in the construction industry, the second was the Northern Indiana chapter of the National Association of Purchasing Managers.  Both groups included companies who have already developed some activity aimed at sustainable products or operations.

 The key opportunities for mid-sized companies to save money by becoming more sustainable are usually in these areas:

•  Energy reduction – implementing changes in process or equipment that result in less energy consumption
• Energy cost savings – purchasing natural gas and/or electricity from non-regulated suppliers
• Supply chain efficiencies – improving transportation practices to reduce fuel consumption, reducing the amount of packaging, using products that are greener in content, and reducing waste.

 I am not suggesting that these are the only possibilities, they are just examples.  If you want to know more, there are many industry resources that can help with each and every one.  DC Velocity has been publishing articles on the subject of sustainability regularly.  I do hope that, at some time in the future, both the public and public officials will realize that this is not a topic that can be ignored.  The preponderance of scientific data shows that global warming is real.  What business people recognize is that we can address the issue and save money at the same time.

Interesting Developments in the Food Sector

 Several recent news articles signal some interesting changes in both food products themselves and in the food supply chain.

 Wal Mart opened the first of 5 Express stores in Chicago.  These stores will be located in areas that have for years been termed “food deserts” due to the lack of traditional grocery chain stores.  Recently both Walgreens and some dollar stores had entered some of these markets with fresh food offerings added to their more traditional lines of consumer products.  The new Wal Mart stores are one-tenth the size of a standard Wal Mart Supercenter. Given the scale of these stores it will be interesting to follow what adjustments, if any, Wal Mart has to make to provide the right mix and quantity of products.  An article in the Chicago Tribune mentioned that “Wal Mart is counting on shoppers to tell them what they want.”  Even before the first store opened, Wal Mart had changed the product mix in the hair care category to emphasize more ethnic products.

 McDonald’s announced a change in the product mix for the Happy Meals which are targeted at young children.  The changes include apples or other fruit as standard instead of an option, making milk the beverage unless a customer asks for soda and reducing the size of the fries portion from 2.4 ounces to 1.1 ounces. All told, the changes are expected to cut the calorie count of a Happy Meal by about 20%.

 The third news item this week discussed a proposed tax on soft drinks to reduce their consumption among young people. According to the Wall Street Journal, “The Center for Science in the Public Interest, a Washington-based watchdog group that pressures food companies to make healthier products, plans to propose a federal excise tax on soda, certain fruit drinks, energy drinks, sports drinks and ready-to-drink teas. It would not include most diet beverages.”  This is clearly not a done deal, but it would potentially change the demand for some products if a law is finally passed.

 The food industry, both the marketers and the retailers, are always making changes to products and store offerings designed to get the consumer to try new products, stick with old products, etc.  It will be interesting to track some of these events to determine what, if any, changes result in the supply chain process for food products.

How Important are Knowledge Workers to a Supply Chain?

Several weeks ago I participated in an interesting discussion with a group of middle managers who work in supply chain roles here in Chicago.  Most are APICS certified practitioners who deal with supply chain issues every day.  Several people had lost jobs and found jobs during the last three years.  We all agreed that most companies have eliminated a significant number of middle managers and knowledge workers.  Several of the participants are carrying a broader responsibility because the next few cubicle or offices that used to house other people are vacant.

 Two recent reports helped me decide to address this question in my blog.  Thompkins Associates issued a new report on the top priorities for consumer products supply chains.  The list includes many important topics – i.e. outsourcing, globalization, China, inventory/SIOP, etc.  It is a good list but what is not mentioned is any priority having to do with people in an organization. 

 Wharton management professor Ethan Mollick recently published a paper that addresses the issue of knowledge workers in what he calls “knowledge based companies” in industries such as high tech, gaming, and biotech.  His advice: “Pay closer attention to your middle managers. They may have a greater impact on company performance than almost any other part of the organization.”  While Professor Mollick does not include consumer products, some of us would agree that knowledge workers are essential for the success of that industry and supply chain processes in general.  Having managed a very effective supply chain organization myself, I credit my managers for most of our success.

 I spent the last few years of my corporate career with Unilever and observed the following: as Unilever consolidated three separate companies into a North American consumer products business, many knowledge workers ended up leaving the company.  Those leaving included many scientists, process engineers, and supply chain professionals who had spent their careers in specific disciplines of value to consumer products companies. The majority of those people are now applying their knowledge elsewhere.

 In the years prior to the recession of 2008/9, there were numerous articles and internet commentary on the coming shortage of trained professionals to replace the baby-boomers as they retired.  With unemployment still in the range of 9%, and the significant consolidation that has occurred in many verticals, that topic is now passe’.  Most economists continue to project recovery through 2012.  As the economy continues to improve, I think that Professor Mollick’s position on knowledge workers will become an important priority for consumer products and supply chain organizations.

 What do you think?

Positive News for Manufacturing in the U.S.A.

 

My last post commented on the upbeat atmosphere at a Chicago based event for manufacturers.  A number of speakers talked optimistically about the outlook for manufacturing in the Chicago area.

More good news is contained in a paper that The Boston Consulting Group released this month that examines the prospects for U.S. manufacturers over the next 5 years.  BCG is predicting a “manufacturing renaissance” in the U.S. based on rising wage rates in China and a willingness by U.S. workers and labor unions to accept concessions in order to bring jobs back to the U.S.

At the same time, there have been significant increases in the prices of raw materials and components in both China and, to a lesser extent, in the U.S.  How this will all play out over the next few months and years is an important question for all manufacturers wherever they are located.

The major producers of consumer products in some categories – personal care products and food products – for the most part never found it cost effective to produce those products off shore.  Instead their products are manufactured regionally for markets around the world.

 General trends are important and I agree with the points made by BCG in this paper.  However, I believe that each company has to carefully analyze their own supply chain process starting with their suppliers (or their suppliers’ suppliers) all the way through to their customers.  The large multi-national companies have a deep understanding of every element of the total cost in their supply chain process.  The challenge for the mid-sized and small manufacturers in the U.S. is to develop their total cost equation so that the decisions are made with the best possible information.

 Total cost should include the following:

•  Purchase price including materials, labor, and overhead
• Transportation costs including duties, tariffs, etc.
• Quality cost including inspections, rework, etc.
• Inventory cost including cost of extra inventory due to longer lead times when sourcing globally.

 Even then, the recent volatility in commodity prices is just one example of why a company has to re-evaluate those costs frequently.  The best strategy may include local, regional, and global suppliers based on the characteristics of the items that you are purchasing and/or manufacturing.  Sourcing strategies are typically based on a 3 – 5 year projection of requirements and new product plans.  However, with the volatility we have experienced in recent years – natural disasters, spikes in various raw material prices, etc., it is important for a supply chain organization to have a risk management plan in place.  An annual review of the changes that have occurred may lead to adjustments in sourcing, whether the cause is cost or risk.

 You can find the paper at www.bcg.com.

U.S. Manufacturing – The View from Chicago

I had the pleasure of attending the Alliance for Illinois Manufacturing program honoring retiring Mayor Richard M. Daley of Chicago yesterday.  It was a big day in Chicago yesterday with President Obama arriving later in the day to attend several functions himself.

 The audience for the Alliance program included state and city politicians of course, but also many representatives from local manufacturing and service companies.  The atmosphere was very upbeat with respect to the business outlook for most of the attendees. (This was echoed today by strong manufacturing numbers reported for the entire U.S.)  Pam McDonough, President of the Alliance, mentioned several important statistics during her opening remarks:

•  Chicagoland has the 2^nd most manufacturing companies in the U.S.
• Manufacturing is the 5^th largest employer in the Illinois, 12% of the total economic activity.
• The Chicagoland manufacturers profile – 50+ years in business, less than 100 employees, average sales of $10 Million

 The Mayor focused his comments on the importance of Chicago as a major city and force in the global economy.  He spoke at length about the efforts he has led to build relationships with China and the importance of trade between companies in China and those in this area.  He mentioned the importance of working with individual city states in China and, I believe, sees the greater Chicagoland area in somewhat the same light.

 While he did not use the term global supply chain, it was clear that he sees a company’s supply chain as a factor in allowing even the small manufacturer to compete and prosper in the global marketplace.  In terms of global transportation, Mayor Daley has always been a strong advocate for O’Hare International here in Chicago.  He spoke yesterday of the concept of building a high speed rail link between O’Hare and downtown Chicago, and suggested that it be financed privately rather than with public money.  One other comment that I found interesting was his mentioning the possibility of 100 million visitors from China to the U.S. over the next 10 years.  I am not sure how to validate the number, but, even if it turns out to be too high, it has big implications for U.S. businesses, that is a lot of potential consumers – even temporarily!

 My thanks to Jim Taylor from Taylor Group Insurance Agency for inviting me to the event.

Japan’s earthquake and Supply Chain Risk Management

 

I delivered a lecture this week to a Risk Management class at the Illinois Institute of Technology on supply chain risk management. (Full disclosure, I teach 2 courses at IIT myself.)  When we set the date up several months ago, I had no idea how timely the subject would be.  The earthquakes and tsunami that hit Japan have not only wreaked havoc on the Japanese people and their economy, but it has far-reaching implications for much of the world.  If your company uses automotive parts, electronics, or lithium ion batteries, you may already have lost some sleep in the last few days.  But even if you are in an industry segment without obvious ties to factories in Japan, you need to be thinking harder about managing risk in your supply chain.

 

This is not our first wake-up call, earlier this year, an earthquake in New Zealand and storms-of-the-century in the mid-west and eastern U.S.  Last year the Gulf oil spill, earthquake in Chile, the list goes on.  Globalization of supply chains only escalates the problem and how many manufacturers or distributors today do not have at least some globalization in their supply chain?  Not many.

 

What are some of the supply chain risk categories that need to be considered?

 

• Natural disasters
• Supplier issues such as labor contracts, quality problems, etc.
• Global shortages of key materials or components
• Product contamination
• Transportation disruption
• Transportation capacity
• Suppliers going out of business

 

You cannot afford to have contingencies for anything that might happen, but the challenge for the Supply Chain organization is to balance probability against cost.  If you expect tight supply of your products in the future, more inventory might be the answer, but at what cost? 

 

A long term multi-year approach is helpful.  If you are in a tight supply situation temporarily, inventory may be the answer.  But if this happens every few years, have you looked for and evaluated alternate sources?  Have you looked at other countries or regions, not just for today but for the future?

 

Here are some steps that you can take quickly to improve the risk management readiness of your business:

 

• Model your supply chain to identify potential risks
• Develop contingency plans
• Document your processes
• Align supply chain and logistics partners
• Collect and analyze information that is available from suppliers, customers, and logistics partners

 

Any comments or questions are always appreciated.

Four Supply Chain Strategies for 2011

 

We are just two months into the year and oil has hit $100/barrel, inflation has become an issue, and people are still trying to understand how the recovery is impacting their plans for 2011.  A colleague of mine, Ara Surenian of Cadent Resources, published what I thought is some very good advice for companies as they contemplate the emerging issues.

 "Here are four improvement strategies for the remainder of 2011:

1. Collaborate! Now more than ever is the time to actively communicate with your customers and suppliers. Where possible use technology to share data and demand plans. Extend your planning process to include your suppliers. Imagine if you and your suppliers were tied together with a taught string. You pulling on supply prompts your vendors to react immediately to your needs. Collaboration via data sharing and active communication eliminates the natural slack in manual processes that introduce delays and demand and supply volatility and inaccuracies.
2. Become faster. Implement lean manufacturing methods to reduce waste and become more nimble. You want to be in a position to respond quickly. Reducing lead times both internally and externally is critical.
3. Measure. We are big proponents of data based decision making.  As the economy is slowly picking up, you need to evaluate the following to get peak performance from your ERP.
   1. Are your lead times and run times all up to date?
   2. When was the last time you did an ABC reclassification of finished goods and purchased materials?
   3. Take a hard look at your customer service measures. Are there holes in your performance? Often if there are issues inventory is to blame which could mean you have capacity issues or do not have appropriate inventory policies. The new normal dictates a continual review and adjustment of these levels.
4. Refocus. It is a great time to revitalize your continuous improvement efforts.
   1. Assess your top issues, concerns, priorities?  What improvement in these areas would provide the biggest P&L dividend to your business?
   2. Regarding collaboration, put a CI team in place with your major customer or supplier to improve or implement a Collaborative Planning Process.”

 

Cadent Resources offers an excellent “front end” for demand planning and inventory optimization that companies are using today to improve the performance of their ERP system.  If you want to check that out, go to www.demandcaster.com

And if you have any feedback on these suggestions, I would like to hear from you.

The Quiet Office

 

            My work as a supply chain consultant causes me to spend a lot of time in client and prospect offices.  One of the interesting things that I have noticed in the last few years is how quiet the typical office is today versus 10 or more years ago.  We all know the reasons for this – e-mail has replaced phone calls, thus less phones ring.  Many people have their phone automatically programmed to voice mail, so no ringing there either.  In many companies, fewer people have more to do, less time for “casual” conversation.  E-mail also generates a record of the exchange, whereas phone calls or face –to-face conversation, unless recorded, are undocumented.  In several instances, I have seen people at adjacent work stations sending e-mails back and forth, rather than turning around to talk directly to their neighbor.  People now go immediately to the internet to find answers to many of their questions, the idea of asking a person has become passé, or does not even occur to the latest generation of students.

 

By now you are probably asking, “What does this have to do with Supply Chain Management or Consumer goods?”  Part of the reason supply chain management developed into an important business process was to improve visibility from the supplier at one end of the process to customers at the other end.  Visibility allows us to “see” what is happening through the process.  But the supply chain also relies on communication flowing seamlessly from end-to-end and, in this writer’s opinion, e-mail is not always the best way to accomplish this.  My contention is that we have lost something in the process.  Today’s most successful supply chains are based in part on collaborative relationships, partnerships, etc.  Does an e-mail sent to 10 different people in two different companies support a collaborative effort?  Would a live discussion add more value?  Part of our rationale is that the global nature of many supply chains makes face-to-face communication impractical, but I think we would all benefit from more dialogue with each other and fewer e-mails in our respective in-boxes.

 

A former colleague of mine, Carole Veronesi of SGC Consulting works with companies in the change management area when a company is undergoing organizational or systems changes.  Carole did some research on e-mails and has this to say about them:

“A few years ago I created an electronic survey on e-communication. An organization I know agreed to distribute it to their employees. Most agreed that it is critical to form strong relationships at work for decision making, problem solving, collaboration and good team relations. Most agreed that the best way to form relationships, either with internal or external customers was through face-to-face communication. And, most agreed that they were not using face-to-face communication, even when they could, and it was limiting their effectiveness.

I also asked about Blackberries and other 24/7 devices. Most admitted they were expected to be on call 24/7 and they did not like it, yet were unwilling to speak up. No one was talking about the electronic communication issues.  When I tried to get members of the organization to look at the results, I was not able to generate enough energy from the manager to set a date, even though I disclosed some of what I thought were disturbing findings.

Bottom line - Electronic communication certainly serves a purpose in our organizational life. And yet, we have accepted the fact that there are limits, and that we would be more effective without the overuse of these electronic devices. But we are unwilling, uninterested, or unable to break the cycle of our dependence.

New research show the increase of stress and anxiety from always being “plugged in” and waiting for the next message, so we can respond immediately (even though an immediate response may not be necessary). There are lots of questions, lots of thoughts on why. But for now, our offices are too QUIET to talk about it!

 

Are we too enamored with this new technology to care whether it really benefits us? Is this another addiction? Are we just not ready to make choices about how we want to live with each other and the quality of these relationships? Are we concerned about the quality of our work?”

Now you have heard two opinions.  I hope to hear from some readers on this subject.