Jabba The Hutt In The Supply Chain?

Wal-Mart brecently announced an intiiative to take over the transport of products from its suppliers into its distribution network.  The move might be seen as a natural extension of its traditional practice of requiring suppliers to distribute to Wal-Mart network locations, rather than to the individual stores.  The ostensible objective?  To reduce costs (and perhaps roll back some more prices).

Benign on the surface; possibly even commendable.  But, what are the consequences, unintended or otherwise, on suppliers' relationships with their carriers and other logistics service providers?  They'll have less product to ship with their (often long-standing) transportation partners.  Those partners will have less business, overall.  Maybe, with capacity reductions made during the recession, that's manageable.  But the question is unavoidable.  With lower volumes, will supply chain costs for customers and channels other than Wal-Mart increase?  Will that make supply chains vying with Wal-Mart in the marketplace less cost-competitive?

Wal-Mart's prominence in the world of retail supply chains is enormous, and growing - and would be even bigger and more powerful with an inbound transportation takeover.  Some observers go so far as to maintain that Wal-Mart is really a supply chain operator, as much as, or even more so, than a retailer.

I surely don't attribute all of the ethical failings of George Lucas' master of the interplanetary deal to Wal-Mart.  But I am occasionally reminded of Budd Schulberg's anti-hero in A Face In The Crowd, who, in a memorable phrase, "brung happiness to millions."

Do Wal-Mart's increasingly dominant supply chain - and consumer pricing - positions contain the seeds of diminishing returns, or even backlash?  Are its customers really all that happy with the seductive allure of low prices?  According to the June issue of Consumer Reports, not so much.  Wal-Mart's ratings kept it barely (by a single point) ahead of last-place Kmart (and it was next-to-last in 2002, as well).

Wal-Mart was ranked "worse" or "much worse" in eleven of sixteen categories, and "better" in none.  Maybe that reflects the demographic skew of Consumer Reports' readers.  But it could mean trouble if the humongous enterprise's future growth is tied to targeting increased penetration with middle-class customers - no matter what the supply chain costs are, and no matter how the company controls its supply chain relationships.

Food For Thought

H. Donald Ratliff, PhD, heads Georgia Tech's SCLI Integrated Food Chain Center in Atlanta.  In a recent column, he discusses the increasing necessity of integrated food chains.  Not desirability, not advantage, not importance.  Necessity.

His thesis is that there's got to be supply chain integration among the several entities within the food chain, that the enterprises involved "must cooperate" to achieve results.  So far, so good.  He goes on to outline three trends that will force a greater level of integration.  They are: 1) impending food safety legislation; 2) technology for monitoring and control; and, 3) the need for better analytics in an increasingly complex environment.

Hey, Don's a cool guy (pun intended).  And brighter than a collector's set of mint condition state quarters.  But, I think there's an element of success that's missing in this analysis.

No quarrel with the trends and their importance, but the idea that this integration has to be forced doesn't bode well for sustainable collaboration among food chain partners - or for cheerful and whole-hearted cooperation.  Further, I'd submit that the real secret sauce in food chain integration is building the kinds of business relationships among key players that can take the core ingredients of regulation, technology, and analytics - and transform them into a dish that is not only good for you but that tastes really good, too.

What do you think?  Have I been spending too much time watching the Food Network?

BFF - Not!

The tragic and catastrophic Gulf oil spill has, regrettably, some vital lessons for the world of business relationships in supply chain management.  At the risk of trespassing on Chuck Taylor's turf, let me 'splain.

BP Plc, the well's majority owner, gets most of the ink.  They're on the hook for the entire cost of clean-up, plus $75 million in other damages.  Seems a paltry sum to compensate for the destruction of entire industries, ecosystems, and people's lives and livelihoods.  Under pressure, pun intended, BP has quickly pointed the fickle finger of blame at Transocean Ltd, the well's driller and operator, blaming "their systems, their people."

Transocean - no fools, they - quickly downloaded responsibility to its subcontractors, specifically naming Halliburton (the #2 oilfield services company) and its cement casing work.  They claimed that they had made no errors,  but the issue might be moot because BP had indemnified Transocean in their contract.  Halliburton counter-punched with an unequivocal statement that the cement work had been completed on time and had been tested, showing that the work had been "properly" done.

Meanwhile, the well's blowout preventer, which did not cause the spill, but failed to prevent the lethal blast, was found to be leaky and less-than-100% reliable.  It's manufacturer, Cameron International Corporation has seen a 25% drop in its stock value.  But, according to some, Transocean was responsible for the BOP's maintenance.

In a public move worthy of Pontius Pilate, Anadarko Petroleum, the well's 25% owner claims to have had nuthin' to do with nuthin' in that they merely approved a budget amount, relatively late in the process.  Btw, the Federal government's Minerals Management Services seems to have at least a finger in this dog's breakfast, as well.

Are these the kinds of moves made by genuine partners in open, collaborative supply chains, integrated and synchronized to work together in delivering product, quality, and value to ultimate customers?  Or, are these the behaviors of companies that don't know how to create and maintain sustainable business relationships for the greater good of both themselves and their customers?  No matter that the supply chains involved are focused on infrastructure build and maintenance, and not on the delivery of consumer goods.

I'm betting that what we are witnessing, in the midst of a disaster, is a chilling illustration of short-term, "git 'er done" transactional relationships that take the money now, and the devil take the hindmost.  I'm also betting that the sinister dance will become more complex, with more intensity, and with more entities involved as more commas work their way into the total price tag.

What do you think?

A Supply Chain Headache

McNeil, the respected Johnson & Johnson unit, has faced a product recall of stunning proportion over the past few weeks, with a wide range of liguid analgesics, notably Tylenol, involved.  This raises supply chain issues at a couple of levels.

One is how to handle products in the hands of consumers.  These, it should be obvious, can't be physically returned in a reverse logistics application at any reasonable level of cost or effort.  Accordingly, refunds are being issued, with instructions to get rid of any unused product, whether unopened or partially used.  Another is getting earlier shipments out of retail customers' stores and warehouses, where larger quantities might require physical movement.  I'm confident that J&J's supply chain partners value the speed and candor with which the situation has been handled, and would have expected nothing less.

There may be another level of interest, though, and I'm not quite sure how to approach it.  In supply chain education, we are fond of - in examining the linked components of integrated supply chains - distinguishing between the "old days" of a logistics perspective and a 21st-century view of supply chain management.  In the former, we were focused on what happened between the boxes in the diagram - physical movement and handling.  In the latter, we say we are vitally interested in what happens inside the boxes - how we plan and execute procurement or conversion (manufacturing), for example.

But, are we really?  Do we  - can we - have visibility and oversight when the preceding link in the supply chain is J&J?  Should we?  If the source were not a provider of the same scope and scale, would we insist on having that visibility?

Should we rely on the processes, controls, and track record of any manufacturer to detect and correct problems, and keep the entire supply chain out of trouble?  Or, do we not challenge behemoths, and hope for the best?

What are the ramifications of these questions on the quality of our business relationships?  Are the risks real?  Are they offset by longer-term benefits?

What do you think?

Smart Enough = Good Enough?

I'm grappling with a concept again, which is no surprise - nothing comes easy to someone with my limited candlepower.  Malcolm Gladwell devotes considerable space in Outliers to the premise that exceptional intelligence might be of little incremental value in the real world, that being "smart enough" is good enough to provide a foundation for success.

I've been trying to apply the principle to the world of supply chain management and how the players in a given supply chain relate to one another.  Apologies if I'm twisting the author's meaning and intent a bit.  I do agree that a level of intelligence that makes people - and organizations - capable of operating only in some bizarre parallel universe doesn't help make things go well in everyday life.

But, if I were constructing a supply chain designed for success, I'm inclined to think that I'd pick participants who were somewhat better than smart enough.  It's like choosing up sides for a schoolyard game - you want players who are better than good enough, but you might avoid the superstar divas (unless you, yourself, are the diva).

Then, I'd be looking for supply chain partners who were also creative and innovative.  Not simply creative enough, but better than creative enough, without being completely undisciplined and wildly impractical, or even irrelevant.

The importance of - and difference between honest enough and better than honest enough is a discussion for another day, but you get the idea.

Am I wrong?  Aren't we all striving to create solutions, organizations, and business relationships that are noticably better than good enough, without losing traction in a fruitless quest for the diminishing returns of absolute perfection?

Note: Achieving perfect order performance is not a fruitlesss quest; it is a byproduct of being noticably better than good enough.