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Finding Common Ground: bringing operations and accounting together

By Steve Geary | 02/06/2017 | 12:45 PM

Special thanks to Matt Hunt of Sehlke Consulting for assistance with this column.

Where is the common ground shared by operations and accounting professionals?  In fact, it often seems as if operations professionals and financial managers are pursuing conflicting goals.  Peel back the layers and get to the core, and you quickly discover that the two communities overlap with a vibrant and vital set of shared interest.  They just don’t speak the same language.

A military unit, in a galaxy far, far away, was working on a vehicle that wouldn’t start. The maintenance mechanics launched the same processes that they were taught, because “that’s how they’ve always done it”. 

Ah, the danger of standardization . . . sometimes, it helps to think.

Most back yard mechanics would immediately go for the battery. Alas, the vehicle would attempt to start, which meant it was getting power. Maybe it’s not getting enough power. Okay, order and replace the battery, but no luck. One day and a few hundred dollars down the drain.

We’ve all seen this movie.  In fact, we might have starred in it, going down the same path ourselves in the backyard with the family sedan.

If it isn’t the battery, it has to be the starter, right?  Fine, order and replace that. This field unit is not authorized or trained to repair starters, so the starter is pulled and sent to a maintenance center for an overhaul. Send it back, and trade it in for a rebuilt unit.  More time and more money invested into getting the vehicle up and running, and again no luck. Still the vehicle is “dead lined.”

Fast forward three months, the amount invested into finally bringing this vehicle back to life and over $13,000.  It turns out that the only part that needed to be replaced was a $1.38 fuse.  New fuse, and it fired right up.

Now, I’m a logistics knuckle dragger myself, so I completely understand the path this crew followed.  In fact, I could see myself doing the exact same thing, and once the vehicle was up and running I would be proud, and I’d let the budget guys worry about finding the $13,000 to pay for it.

Fortunately, there are useful accountants and auditors in the world, and they really can be a friend.  The starter scenario was uncovered by a team of auditors, and their discovery triggered a review and revision of training and maintenance protocols.  The accountants and operators worked together, added some brain cells, and came up with a better way.

Accountants and operators need to be on the same team.  Find the common ground, the shared issues, and the world becomes a different place.  One set of management controls – properly defined, integrated, and executed – advances the business along two fronts, financial oversight and operations.

Management controls in the broadest sense include organization plans, methods and procedures adopted by management to meet its missions, goals and objectives.  These management controls also serve as the first line of defense against fraud and violations of laws, regulatory violations, and compliance with provisions of contracts and business agreements.

While logistics and financial management share many of the same objectives, the two approach them from different perspectives using different language. Both aspects of business require clean and accurate data. Both utilize internal controls to ensure that business processes are working effectively and discourage fraud, waste, and abuse. Both business practitioners want the same thing; provide the best support possible to the government.

The National Defense Authorization Act of 2010’s mandate requires the Department of Defense (DoD) to have audit ready financial statements by 2017.  It’s time to break down the wall between auditors and operators.  Together, they can get the books cleaned up.

Dionna understands logistics, transportation, and markets. Why can’t the bureaucrats?

By Steve Geary | 01/25/2017 | 5:48 AM

I’m a fan of the ride service UBER, and my friends tell me that Lyft is just as impressive.  Whip out a smart phone, punch a couple of buttons, and pick a destination.  It’s actually faster than using your phone to call for a cab.  Usually in less than ten minutes you’re sitting in the back of a clean and well maintained vehicle, with a polite and well-dressed driver at the wheel, heading for your destination.  

This emergent transportation alternative to traditional taxis provides cleaner cars, more professional drivers, a faster response time, and in my experience it costs about half of what a traditional cab ride costs.  It is a demonstrably better product at a significantly lower price.  No wonder that traditional cabbies are feeling some heat. 

This morning my UBER driver was Dionna.  Dionna drives for Lyft, as well.  I was actually impressed with Dionna more than the UBER service, which says something, because I really like UBER.

Dionna understands logistics far better than your typical thirty-something, and more deeply than most government bureaucrats.  Each day she looks at the promotions that UBER has running for drivers, and what promotions that Lyft has running.  Somehow she also factors in an estimate of call volume on each of the services, and checks out the number of cars running.  Based on what she sees, she decides on which company she’ll drive for that day. 

I think they call that market research.  Dionna is doing real-time assessments of supply, demand and pricing.  I teach business at the collegiate and graduate school level, and I wish I had more like Dionna in my classes.  She gets it.

As for the customer experience, UBER costs about half of what a cab ride costs, the drivers like Dionna are more professional and the vehicles are cleaner.  It’s no wonder the market for taxi medallions is collapsing in places like New York City.

So why do we still have the antiquated infrastructure and regulations for cab licenses in our metropolitan areas?  Why are the regulators trying to impose restrictions and licensing requirements on UBER and Lyft, to make them more like cab companies?  Why aren’t the bureaucrats loosening restrictions on traditional cab companies to make them more competitive, rewarding innovation, not stifling it?  Instead, in many places government regulators are trying to add restrictions to UBER and Lyft to make them more like traditional cab companies.

Using UBER as a starting point, let your mind run free, and imagine rethinking transportation services – that is to say LTL trucking – or air transportation.  If it can work for taxis, why not rethink logistics infrastructure and capabilities on a broader scale?  If you think it is far-fetched, think again.  They already have test markets up and running.  And hey, are you ready for autonomous delivery vehicles – Amazon is talking about them. 

Internet-based logistics services are a shining example of how markets themselves can effectively self-regulate transportation and logistics value, and spur innovation more effectively than government bureaucrats.  Keep an eye on how things start shaping up with the new administration in Washington.  Experienced business leaders will be moving into senior roles.   And that means that innovative options in logistics markets might be coming from Washington for a change, and regulatory overkill that disrupts markets – like taxi medallions – will be on the chopping block.

Hedge your bets and watch for opportunity.

By Steve Geary | 01/08/2017 | 5:40 AM

Adapt, improvise, and overcome.

It has been interesting political theater, watching president elect Donald Trump at work during the run-up to taking office.  Is he a bull in the china shop, a fox in the hen house, or a creative opportunist trying to create negotiating space for innovation and transformation?

With the Department of Defense, he has taken shots at a Boeing development contract for preliminary designs on a preplacement for Air Force One.  Just after stirring things up over Air Force One, he lit a match under the Joint Strike Fighter (JSF) program at Lockheed Martin by asking Boeing to provide pricing for an updated F/A-18 as an alternative to the JSF.

Mr. Trump isn’t just taking aim at defense.  At various times he has threatened to eliminate entire federal cabinet level organizations, including both the Department of Education and the Environmental Protection Agency.  The New York Times published a nifty list of targets in Mr. Trump’s sight picture.

Negotiators love to introduce uncertainty.  Entrepreneurs try to leverage it.  Mr. Trump is both and he is doing both in ways we’ve never seen in our Government before.

Logisticians make a living understanding, managing and eliminating uncertainty.  From trade to borders to tariffs to defense to international trade agreements, Mr. Trump – the negotiator and the entrepreneur – is already bringing a truckload of uncertainty into our world.  From his perspective, it is the right thing to do but it looks very different from where we sit.

Much like a logistician introducing disruptive technology, Mr. Trump’s challenges to the status quo could be leveraged to advantage.

It’s time to hedge our bets.  Get nimble if you’re not already.  Re-establish parallel capability options in the United States, if you shipped it overseas.  If you have remained firmly entrenched in the US, relying on exports to reach overseas markets, it might be time to think about connecting with some partners offshore and establishing a ground game.

It looks like we’re in for an interesting four years.  Are you ready to improvise, adapt, and overcome?

Reading the tea leaves: What does the Trump presidency mean for logisticians?

By Steve Geary | 12/24/2016 | 7:55 AM

There are some very serious rumblings taking place at the federal level, in the wake of the election of Donald Trump, that should give us all pause. From what the President-elect is doing to the people he is nominating, we all need to figure out the implications.

As a logistician, there is reason to be optimistic about where the federal government is going.  We hear that there will be less regulation. We know there will be experienced business people—not bureaucrats and politicians—at the helm. It is reasonable to say that the federal government will have leadership that understands—I mean really understands—global business.

Just look no further than the nominee for Secretary of State. Rex Tillerson, the CEO of Exxon Mobil, knows a thing or two about global trade. Exxon Mobil is, after all, number 9 on the Forbes Global 2000 list. Whether you like him or not, and whether or not you like what what Exxon does, there is no doubt that the man understands trade and the players in the global markets.

Global trade is a critical engine for driving business and logistics, and it would appear that Rex Tillerson is a friend of global trade.

Alas, there is also reason for logisticians to be worried. We’ve already heard saber rattling over tariffs and the erection of trade barriers, coming from the President-elect. The EU is smoldering as Brexit proceeds, and the President-elect has made some troubling speeches. And there is always the possibility that aggressive immigration enforcement can spill over into trade.

If things get hot with China, will it impact trade?  And if it impacts trade, how will that impact logistics as an industry vertical?  What will Long Beach look like if trade with China dries up?  Given the President-elect’s engagement with Taiwan, we can surely see some fireworks as a possibility.

Officially, China has said that they are “deeply concerned.”  And subsequently, China dropped arms on islands—whose ownership is in dispute—and dared the world to do something. To add insult to injury, China then seized an underwater drone in international waters being operated by the U.S. Navy.

That’s the sort of behavior on the high seas that brought us the first international landing by the Marines a couple of hundred years ago in Tripoli. And we have a nominee as Secretary of Defense who is a Marine. General Mattis once said, "Be polite, be professional, but have a plan to kill everybody you meet." 

And this no-holds-barred approach fits well with the President-elect’s approach. A popular Mattis quote, dating from early in Operation Iraqi Freedom, said during a meeting with Sheiks as General Mattis tried to stabilize the country, “I come in peace. I didn’t bring artillery. But I’m pleading with you, with tears in my eyes: If you f*!% with me, I’ll kill you all.”

Put it all together, and logisticians find themselves entering uncertain times. I learned a long time ago to both fear and embrace uncertainty. Limit downside risk, and look to find opportunity in turmoil.

As we all reflect on where the federal government may be heading, there is wisdom to be found by logisticians in nursery rhymes.

"Jack be nimble,

Jack be quick,

Jack jump over

The candlestick."

There are storms on the horizon, and logisticians may have to rethink some things to be ready if a storm hits. Across the spectrum of the Federal Government, we may be in for a tumultuous four years.

Government regulation is in the way. Again.

By Steve Geary | 11/24/2016 | 12:04 PM

When I was in college, the only home delivery was from the local pizza shops.  For anything else, you had do go to the store or use a quaint service called “mail order.”

Then things started to shift.  When the internet was young, sitting at your desk and getting things delivered within a few days seemed like magic.  Now, point and click on your phone, and if you do it before noon it will be delivered by 9 pm.  We don’t even need to go to a grocery store anymore.

It could be said that Amazon has spoiled us, but it isn’t just Amazon.  According to market research firm eMarketer, the second largest ecommerce company is now Wal-Mart, followed by Apple, Staples, Macy’s, The Home Depot, Best Buy, QVC, Costco Wholesale, and Nordstrom.  Other than Amazon, there isn’t a pure ecommerce place on the list.

A consumer can now buy just about anything over the net.  Cars.  Appliances.  Food.  Travel.  Mortgages.  Prescriptions.  Hand woven rugs from a village in Morocco – my wife has done it.  You can even arrange to order your prescriptions via the internet.

Retail has merged with what used to be called ecommerce, resulting in what supply chain folks call omni-channel.  The shopper has a seamless shopping experience, and the shopper gets to decide how they want to shopping experience to work.  Brink-and-mortar & ecommerce are just the poles on a single continuum.

Now try to do that with beer. 

A friend of mine came home from the hospital recently, and I’m Irish.  That means her homecoming calls for a pint and a toast.  Unfortunately, I live in Massachusetts, Glenda lives in rural Virginia, and our paths are not going to cross any time soon.

I hopped onto the internet, because the solution is obvious.  Order a couple of six packs of Geary’s Pale Ale – I’m not kidding, Geary’s Brewing Co. in Portland, Maine brews a nice pint  – and the internet delivers a physical beer and a virtual smile to my friend. 

Hopped on the phone, called the brewery, and they were apologetic, but it seems that it is against the law for them to accept orders over the phone, or over the internet.  I’d have to find the beer at a retail outlet near me, buy it, and ship it myself.  Except, it turns out that you can’t ship beer through the US Mail.  It too is illegal.

You can order prescription drugs over the internet and ship them in the US Mail, but you can’t legally do either with a six pack of ale.

I’m an old school logistician, so I sorted it out.  The two six packs were handed off to her son in Washington, DC on Tuesday, and when he picked her up at the hospital in Richmond on Wednesday the beer was sitting on the front seat.  We’re logisticians, and we learned a long time ago that often our job is to get things done despite the government's “help,” not because of it. 

Often, things really do work better when government and bureaucracy stay out of the way.

When government breaks down . . .

By Steve Geary | 10/08/2016 | 11:48 AM

Hanjin Shipping Co., the seventh largest container shipper in the world, filed for bankruptcy on August 31.  I’m a capitalist, you’re a capitalist, and sometimes bad things happen.  That’s the way the game is played.

Fast forward to October, and there are law suits in play all over the world.  Creditors are going after ships, cargo is being held hostage, and lawyers are doing what lawyers do.  While it plays out in courts around the world, many Hanjin ships remain stranded at sea, drifting in international waters for fear of being seized by creditors if they dock.

Lawsuits are ugly, particularly international lawsuits, and the complexity compounds the problem.  What few are talking about are the crews of these ships.  While the lawyers do their thing, according to IHS Maritime and Trace in early October there are still something like 20 Hanjin ships stranded at sea. 

That means the crews of more than 20 Hanjin ships are stranded at sea.

Do we really think international law should be constructed to hold people hostage as collateral damage?  I’m a rabid capitalist, but shouldn’t there be limits?

Do the right thing

By Steve Geary | 08/24/2016 | 10:45 AM

Figuring out logistics on the ground in a place like Afghanistan is not easy.  I’ve spent a lot of time working government issues in challenging places, and Kabul ranks near the top of the list of challenging logistics environments.  For one of those deployments, supporting the U.S. Department of Commerce in northern Afghanistan, an Afghani national named Ahmad Shams was our interpreter and all around fixer. 

Ahmad is a great guy, and for about a decade he has been doing the right thing for his homeland and for the United States.  This photo is the team on a rooftop in Kabul in 2014; Ahmad is on the left.  Ahmad worked with our security team, with the locals, and with people he knew to keep us safe and keep us moving.  We were able to move people and things all over the country, and we remain in Ahmad’s debt.

Ahmad is one of the lucky ones.  The U.S. Government honored their promise to him, and he is now a U.S. citizen, living in America with his wife and two kids.  They came here as an immigrant family from a shattered nation looking for a better future for their children, just like my grandparents did. They are now fighting to assimilate into a new culture and absorb a new language, while putting food on the table.

They haven’t left challenge behind.

Earlier this summer Ahmad sent me an email, inquiring if we had any work in Afghanistan, or could in some way help him network into a professional position supporting the U.S military.  To put it nicely, Ahmad was generally scrambling to put food on the table for his wife and kids.  Times were hard.

Fast forward to the end of August, 2016.  Ahmad received a plane ticket this morning.  Fluor, a USG contractor active in Afghanistan, has hired him as an interpreter.  He is on his way to orientation and training tomorrow. 

Honor still matters to many folks, and you can find them liberally scattered around the government contractor community.  Brigadier General Steve Anderson, USA (ret), now heading up Fluor operations in Afghanistan, you are an honorable man and a Patriot.  The message you are sending on behalf of all of us is heard, understood, and acknowledged. 

Thank you, Steve, and “Hooah!”

Supplier Mismanagement

By Steve Geary | 08/10/2016 | 10:22 AM

There are two sides to every story, as my good friend Earl Boyanton reminded me a few weeks back.  Earl is a retired Colonel from the United States Air Force, which he followed up with a later stint as a senior civilian official in the Department of Defense.  I, on the other hand, was raised by wolves, cutting my teeth on the factory floor of high tech manufacturing company several decades ago, back when we actually did high tech manufacturing in the United States.

What you see depends on where you step, and Earl and I followed different paths and climbed different ladders.

We separately read a news story about a small automotive parts manufacturer, Clark-Cutler-McDermott (CCM).  They’re over 100 years old, and according to their website, “Clark-Cutler-McDermott Company is a world-class Tier I and Tier II provider of acoustic insulation and interior trim products to the automotive industry.”  General Motors is a big customer, and once upon a time GM loved them.

Clark-Cutler-McDermott agreed to a series of contracts with General Motors in 2013 that have resulted in a loss of over $12 million dollars since 2013, according to the Detroit News. That’s a ton of money for a small company, and CCM landed in Chapter 11 earlier this year. 

Clark-Cutler-McDermott owns some unique tooling, used to produce components for a number of GM vehicles.  CCM is apparently sole source for some of these items.  I immediately assumed that GM had ground the folks at Clark-Cutler-McDermott to dust through pricing pressure.  Earl saw the other side of the coin, and had the thought that perhaps CCM was engaging in a round of extortionate brinksmanship.  CCM was, after all, the only game in town for GM’s sourcing of the parts in question.

Perspective is a wonderful thing.  The problem here isn’t a bad contract, it’s a bad relationship.  General Motors and Clark-Cutler-McDermott perpetuated and compounded an adversarial relationship and both ended up getting hurt.  The courts have ruled, and GM will get its hands on the tooling, but this has been an ugly divorce that is destroying one of the partners.

This couple should have been in counselling ages ago.  Any time a business relationship is set up as a zero sum game, an adversarial relationship has been established.  The trading partners no longer have a shared interest; they are opponents.

There is a lesson in here for the federal government.  I’ve worked with and around the feds for over a decade now, and I see the tide shifting.  Once upon a time the federal government liked to request proposals and made evaluations based on “best value” criteria.  If you offered the most compelling story, and were willing to sign up to deliver it, you won the business.

Best Value deals are getting harder and harder to find.

For many years now, the government has been shifting away from Best Value to Low Cost criteria.  Rather than best value, more and more frequently federal government contracts are relying on a “low cost technically acceptable” standard.  If you can check the qualification boxes and have the lowest price, you get the business.

Think of the dynamic that creates.  The federal government is emulating the relationship between General Motors and Clark-Cutler-McDermott.  Perhaps it is time to give up on seeing the federal government do the smart thing by developing partnerships with suppliers, and instead educate our government contracting officers in pre-nuptial agreements, to help them avoid some of the ugliness when the divorce inevitably happens.

There is a little dark humor of on the CCM website.  “Clark-Cutler-McDermott Company was founded in 1911 and has been keeping promises to its customers for over 95 years.”  Do the math.  Maybe that means CCM accepted reality, and changed their rules about keeping promises in 2007.

How can a govenment agency have a strategic focus without a strategy?

By Steve Geary | 07/29/2016 | 9:17 AM

I just read a report prepared by the GAO a few years ago, examining warehouse utilization by government agencies, excluding the Department of Defense.  In November of 2014, they published a report titled, “Strategic Focus Needed to Help Manage Vast and Diverse Warehouse Portfolio.”  Including appendices, it runs to fifty pages, and if you have insomnia go here to read it.

According to the report, “in fiscal year 2013, three agencies held or leased most of the civilian warehouse space either owned or leased by the federal government:  GSA, Interior, and DOE.  Of the approximate 90-million square feet of warehouse space occupied by civilian agencies, GSA accounted for about 29-million square feet, Interior for about 15-million square feet, and DOE for about 11-million square feet.”  It continue, “Cumulatively, these three agencies held or leased about 63 percent of total civilian warehouse space.”

The report then dives into an exploration of whether or not space is the right sort of space, leasing terms, and a variety of operational issues.  Did you see the shift GAO made, either intentional or unintentional?  The title of the report calls for “Strategic Focus,” yet the report never addresses the fundamental strategic question of why 90-million square feet of storage is required.

The writer Oscar Wilde said, "the Americans and the British are identical in all respects except, of course, their language.”  I’ve also seen it in a slightly different form attributed to George Bernard Shaw.  Flip a coin and go with the source that makes you feel happier. 

Shouldn’t government agencies be managing inventories, not warehouses?  The real challenge lies in figuring out how to make inventories move, how to manage the inventories, and once that is sorted out managing the warehouse is simply the implementation challenge.  It sure seems like the GAO looks at it backwards, and managing warehouses and figuring out how to lease and fill them as the implementation challenge 

Somewhere along the line the GAO missed some really important steps, validating the requirement, followed by an analysis of alternatives.  GAO jumped right into obtaining space.  How can the GAO have a strategic focus on warehouses – as they claim - without an inventory strategy?  Next time around, maybe the GAO should read a definition of strategy.  According to the Business Dictionary, strategy is a “method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.”

Warehouse managers fill space.  Logistics managers fill orders.  Supply chain managers fill the pipeline.

Word chiuce matters.

Surfin' USA

By Steve Geary | 07/05/2016 | 8:52 AM

If you are a logistician, it’s time to learn to surf.

For my entire career I’ve been involved in global trade.  One year out of college, over thirty years ago, I found myself working in Mexico. One thing led to another and the last time I checked I’ve done business in a couple of dozen countries.

For me, global trade and free markets long ago slipped into the category of “fact.”  That “fact” inevitably led to an expectation that over time trade would continue to become more integrated. According to the World Bank, in 1960 exports were 5% of the US GDP.  In every year since then, exports as a share of the US GDP has grown. In 2014, exports hit almost 13.5%.  The mirror image is similar.  For the US, the World Bank reports that over the same period US imports have grown from 4.2% of GDP to 16.5% of GDP.

Then the earth moved. Well, it hasn’t moved yet, but before an earthquake there are always tremors.

Brexit looms. Trump is promising tariffs, trade barriers, and a wall. Clinton turned against the transpacific partnership, after being for it.  Muslim extremists — slaughter in the streets of Paris, across Iraq, in the airport in Istanbul — will force the hand of politicians. In the latest installment of the soap opera that is playing out in the South China Sea, the president of Malaysia held a cabinet meeting on a warship in the Natuna archipelago, a piece of political theater that surely resonated in Beijing. 

One blip is an aberration, two are a concern, and three make a trend. Trends have been disrupted. We all operate and trade internationally. It is inevitable that global movement and global trade will face increased friction. If you are a logistics leader, it’s time to create contingency plans.

More potentially disruptive events are looming on the horizon. If the zika virus turns into a pandemic, will political leaders restrict international movement? What are Putin and a resurgent Russian bear going to threaten next? Will the “New Silk Road” across central and southern Asia turn international trade on its head? (See “The most important infrastructure initiative you’ve never heard of … ,” December 2015.)

We’re logisticians, and our companies rely on us to keep things moving. Where do you buy? Where do you sell? We know how to react if trade barriers come down, because we’ve been doing it for decades, but what are we going to do if trade barriers go up? What are your contingency plans? 

Have you even thought about it? If you don’t know how to surf, get a life raft.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Steve Geary

Steve Geary

Steve Geary is an adjunct faculty member at the University of Tennessee's College of Business Administration, and is on the faculty at The Gordon Institute at Tufts University, where he teaches supply chain management. He is the President of the Supply Chain Visions family of companies, and Chief Operating Officer at ROSE Solutions, consultancies that work across the government sector. Steve is a contributing editor at DC Velocity, and editor-at-large for CSCMP's Supply Chain Quarterly. He is listed in Who's Who in America, Who's Who in the World, Who's Who in Science and Engineering, and Who's Who in Executives and Professionals. In November of 2007, Steve was recognized for "Selfless Service to Our Nation and the People of Iraq" by the Deputy Secretary of Defense.



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