Worley Warehousing https://www.worleywarehousing.com Mon, 20 May 2019 17:59:26 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.8 47273887 THE BATTLE OF THE TITANS https://www.worleywarehousing.com/2019/05/the-battle-of-the-titans/ Mon, 20 May 2019 17:59:26 +0000 https://www.worleywarehousing.com/?p=2672 There was some good news in the so-called trade war this week when President Trump said the U.S. would lift the steel and aluminum tariffs on Canada and Mexico imposed last year. This wasn’t so much a surrender as it was a move to encourage Congress to approve the USMCA (U.S. Mexico Canada Agreement), the successor to NAFTA. Whatever the reason, the step was welcomed by many U.S. manufacturers, particularly in the auto industry. Since the tariffs were imposed, the “Big 3”, Ford, GM, and Fiat Chrysler have seen their costs increase by tens of millions of dollars.

Presumably, this will lead to the elimination of the retaliatory tariffs imposed by Mexico and Canada. While this was good news, the elephant in the room is the ongoing battle between the U.S. and China, our largest trading partner. Last year, the U.S. levied a 25% tariff on $34 Billion of imports from China, with airplane parts and farm implements the hardest hit. China immediately imposed tariffs on soybeans and automobiles. The soybean levies have been particularly hard on Midwest farmers who sell large amounts of soybeans to China.

The U.S. came back with a 10% levy on $200 Billion in Chinese imports which was increased to 25% last week after a session of trade talks concluded with no agreement. Washington negotiators felt an agreement was close, but China backed out at the last minute. Trump has now threatened to put a tariff on the remaining $325 Billion of imports from China.

How did all this get started? It began in February, 2018, when the U.S. implemented “global safeguard tariffs” on solar panels and washing machines. Tariffs were seen to be a solution to an ongoing problem with China – the theft of U. S. intellectual property and the practice of making those wanting to operate in China relinquish their intellectual property. The U.S. also would like for China to discontinue the subsidization of Chinese manufacturers.

But will it work? That remains to be seen; and in the meantime, the battle seems to be escalating. President Trump, some time ago, tweeted, “Trade wars are good and easy to win.” Many economists disagree and often point to the failure of the Smoot – Harley Tariff Act of 1930. Seen as a protection for the U.S. its major contribution was an extension of the 1929 depression. The auto manufacturers mentioned earlier saw their costs rise dramatically, and the Trade Partnership estimates that the sanctions levied so far are costing a family of four about $750 annually.

So, the big question is, “Who will win?” Certainly, we should try to protect our intellectual property, but could it have been done through negotiation or some other less disruptive method? More often than not, no one really wins a trade war. Usually the parties penalize each other until one simply gives up. That might not be so busy in the current battle, however.  The U.S. has an aggressive, impulsive, protectionist president who will go to great lengths not to lose. In Xi Jinping however, he goes into the ring with who Time magazine says “has consolidated power in China on a scale not seen since Mao.”

In the meantime, what can a supply chain manager do? There are so many possible outcomes to this issue that it is difficult to know. The best course of action seems to be to remain as flexible as possible while making no sudden moves until either Trump or Jinping cries, “Uncle”. At the same time, we should develop possible scenarios for our companies that will enable us to move quickly and effectively when and if the right comes.

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INTRODUCING A NEW WORD INTO THE SUPPLY CHAIN https://www.worleywarehousing.com/2019/05/introducing-a-new-word-into-the-supply-chain/ Mon, 06 May 2019 15:23:00 +0000 https://www.worleywarehousing.com/?p=2669 It will come as no surprise that the major supply chain news last week concerned Amazon. First reported by FreightWaves, Amazon’s freight brokerage is now live. A visit to www.freight.amazon.com will show an offering of freight brokerage now available in Connecticut, New York, New Jersey, Maryland, and Pennsylvania. Freight will move in truckloads utilizing 53-foot dry vans. According to FreightWaves, but disputed by Amazon, market prices are being cut by as much as 26 to 33%. This of course, is no major surprise for the industry as Amazon continues to extend its tentacles into all segments of the supply chain.

This recent move does not bode well for the remainder of the brokerage industry; and as the Amazon offering expands, it will put pressure on the competition. Benjamin Hartford of Robert W. Baird & Company, stated on Aril 29, “Amazon’s launch of Full Truckload Services is a net-negative for investor sentiment on incumbent domestic U.S. truck brokers, and adds to what we expect to be gradual erosion in industry gross margins over time.” He further pointed out that since Amazon introduced Prime Member Two Day Shipping in 2005, UPS domestic margins fell from 15.7% in 2005 to 8.9% in 2018.

What does Amazon have to say? This is where I learned a new (to me) word – disintermediation. As defined by Webster, disintermediation is “the reduction in the use of intermediaries between producers and consumers”. And Amazon has a disintermediation strategy. Simply stated, its goal is to remove every company or function that stands between it and its customers. In doing so, it is expected to deploy massive amounts of capital at little or no margin until it captures the market.

Many industry watchers believe that the building of a logistics service provider network will not be far behind.

As if this were not enough, the company also announced it would spend $800 million in the current quarter to reduce Prime member delivery service from two days to one. During the last few years, two-day service has become an industry standard, with competitors following Amazon’s lead. This latest move however, is sure to produce some serious heartburn in the industry. For all competitors, it will be challenging. For some it could be disastrous.

The big question is, “WWWD?” (What Will Walmart Do?). Generally considered to be Amazon’s strongest competitor, Walmart is almost certain to react. They currently operate 156 distribution centers, primarily in urban areas, and are in the best position to be a major threat. According to Supply Chain 24/7, Walmart research indicated that only eight additional distribution facilities would be necessary to offer one-day shipping.

As is supply chain managers were not under enough pressure, it now appears we must be concerned about being disintermediated. If your supply chain role requires more than a passing interest in Amazon, I recommend a reading of “The Everything Store – Jeff Bezos and the Age of Amazon”, by Brad Stone. It gives some interesting insights into the Amazon mentality and is available at where else? or Barnes & Noble if you prefer.

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THE RULE OF 7 https://www.worleywarehousing.com/2019/04/the-rule-of-7/ Mon, 22 Apr 2019 15:29:39 +0000 https://www.worleywarehousing.com/?p=2667 Twenty-two years ago, Supply Chain Management Review published an article entitled, “The 7 Principles of Supply Chain Management.”. The authors’ insights then are remarkably relevant to the modern supply chain, and companies that have follower these guidelines, or variations thereof, continue to find them valid and timely.

In the event you have never read them, these principles were:

  1. Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
  2. Customize the logistics network to the service requirements and profitability of customer segments.
  3. Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
  4. Differentiate products closer to the customer and speed conversion across the supply chain.
  5. Manage sources of supply strategically to reduce the total costs of owning materials and services.
  6. Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.
  7. Adapt channel-spanning performance measures to gauge collective success in reaching the end-uses effectively and efficiently.

While the state of the supply chain concept has changed drastically since 1997, particularly in a technological sense, the guidelines are as appropriate today as they were then.

We have seen other rules of 7 since then. For example, the late Steve Jobs, formerly CEO of Apple and arguably one of the most brilliant management minds of recent years, said:

  1. Customer comes first. Cost cutting comes second.
  2. Set impossible targets.
  3. Prioritize actions based on importance.
  4. Adapt process view of organization.
  5. Simplify products and process’
  6. Make radical al changes when necessary.
  7. Enhance relationships via face to face meetings.

Naturally, in today’s environment, the usual question is, “What about Amazon?” For that answer, we turn to Jeff Bezos’ seven philosophies.

  1. Put yourself in customers’ shoes.
  2. Don’t be distracted by the competition.
  3. Keep an eye on the ball.
  4. Go the extra mile.
  5. Plant seeds and watch them grow.
  6. Learn to improvise.
  7. Build the dream team. **

While none of these principles are exactly the same, all three lists emphasize the importance of the customer above all else. While I won’t be presumptuous enough to add my own rules of 7 to this distinguished list, I do think there are several other things besides customer orientation we can learn from these experts. We should be technologically literate, process driven, collaborative, flexible, and risk takers – not afraid to make the hard choices.

** Bezos’ dream teams are small. He has said if it takes more than two pizzas to feed them, they are too big. Often there will be an empty chair at the table, representing the customer.

(Sources: Supply Chain Management Review; Supplychainopz.com.)

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THE ONGOING BATTLE FOR THE LAST MILE https://www.worleywarehousing.com/2019/04/the-ongoing-battle-for-the-last-mile/ Mon, 08 Apr 2019 16:14:26 +0000 https://www.worleywarehousing.com/?p=2664 In an earnings call on March 19, FedEx president and COO Raj Subramaniam, when asked about Amazon, said, “We have been clear this is not a threat to our business because Amazon represents less than 1.3 percent of our total revenue, which is substantially lower than what our largest competitor (UPS) carries, nor is Amazon a threat to our future growth.” In another related comment, Fred Smith, Chairman and CEO said., “Amazon is a retailer, we are a transportation company”. This delineation may have been true five years ago, but Amazon is beginning to look more and more like a third-party logistics service provider, with both a strong distribution center and transportation network. Amazon’s infrastructure is developing so rapidly it is difficult to define it accurately; but as of last fall, it consisted of 40 aircraft, several thousand truck trailers, 396 domestic distribution centers and 452 in other countries. As an added touch, they also have on order 20,000 Mercedes Benz delivery vans (many of which are already in service) and utilize 6000 storage lockers from which customers can retrieve their purchases.

In my wildest dreams, I cannot imagine that Amazon would put FedEx out of business, but do believe (along with others) that long-term, the E Commerce giant is more of a threat than FedEx would have us believe. The battle for the last mile can only get more heated. While Amazon represents only a small percentage of FedEx revenues, as Amazon refines its delivery network, it will not only be able to reduce that percentage; but their capability could be very attractive to other retailers that might want to outsource their own operations.

According to Transport Topics, the loss of Amazon business (which was insourced) played a role in the recent bankruptcy of New England Motor Freight, a regional LTL carrier. In another major move, the largest customer of XPO Logistics (reported to be Amazon) is curtailing two thirds of its business with the provider, resulting in an upcoming loss of $600 million in revenues.

Smith is correct when he says Amazon is a retailer, but what he fails to say it that it is also a third party provider of both warehousing and transportation services. Some analysts believe that it will continue to grow in this area, and in a few years will be a dominant third party. In order to provide same day or next day deliveries, Amazon has opened distribution facilities in most major U.S. markets. This reduces the cost of the smaller customer deliveries since the “last mile” is relatively short. By locating centers closer to the customer, much of the freight expenditures are for longer lower-cost inbound shipments. There is no question about their ability to compete effectively in the major population centers.

Notwithstanding this, UPS and FedEx are not sitting by watching, nor are competitors such as Walmart that is expanding its own distribution system. FedEx recently purchased GENCO, a major logistics service provider, enabling them to compete in the warehouse operations outsourcing market. FedEx has tried this before, with limited success. This time however, the purchase of an existing, well-respected LSP will give them a solid base on which to build. UPS is expanding its operations in this area, as well.

FedEx also is testing a last-mile robot which can make home deliveries. These battery powered messengers are equipped with software and cameras to aid in avoiding obstacles as they make their rounds.

Is the “Amazon Effect” going to permeate the entire industry? I do not think so, but it would be a serious mistake to underestimate Amazon’s logistics competency. Amazon is far more than just a retailer, and I believe is moving toward being a formidable third-party competitor. Jeff Bezos, CEO of Amazon has been quoted as saying, “If I can conceive it, Amazon can achieve it.” I guess time will tell.

One interesting footnote to this competition is the fact that FedEx has recently added Amazon to non-compete agreements for its employees.

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SITE SELECTION FROM A TO Z https://www.worleywarehousing.com/2019/03/site-selection-from-a-to-z/ Thu, 28 Mar 2019 15:15:08 +0000 https://www.worleycompanies.com/?p=2662 Fifty years ago, when you wanted to expand your distribution network and build a new distribution center, you didn’t call an industrial real estate broker; you called a railroad located in the area in which you wanted to expand.

Most large companies shipped their product – whether it was cases of consumer goods or rolls of carpet – by rail, which meant they needed access to a rail siding.  At that time the railroads owned a significant amount of raw land, much of it located along the rail rights of way, thanks to government land grants handed out in the mid-1800s to encourage development in the nation’s heartland.  And the railroads were only too eager to sell off plots for nominal amounts in exchange for a contractual promise of an agreed upon number of carloads of freight.  Depending on the level of potential traffic involved, they sometimes included other concessions such as extended rail sidings, rate discounts, and extra services.

But those days have gone the way of the steam locomotives and cabooses. Today’s selection teams want to know about a site’s access to highways, not railroads. In fact, very few distribution centers today even have rail sidings. While transportation availability should be at the top of everyone’s list, these teams must also be concerned about such things as labor supply, tax incentives, quality of life, and zoning.

Each firm’s requirements will be unique, but there are certain factors that should be considered for any project. Here are some factors to consider.

– Availability and cost of labor

-Availability of community services, i.e. commercial, churches, commercial

– Availability of extra land for expansion

– Availability of industrial support services

– Availability of special financing

– Building restrictions, if any; i.e., height, setbacks, landscape requirements

– Education facilities in the area

– Fire codes/protection

– Foreign Trade Zone availability

– Land or building availability and cost

– Location and volume of customers to be served

– Origin of products and materials flowing into warehouse

– Sustainability requirements; i.e. water retention

– Tax incentives

– Tax structures – property, income, inventory sales

– Telecommunications availability and cost

– Transportation access – rail intermodal yards, motor, package carriers

– Unemployment rate

– Union environment

-Unique Transportation Requirements

– Utilities, availability and cost

– Zoning regulations

While each of these is important and requires a critical review and close scrutiny, municipal and state incentives can be particularly important. Many areas have so-called PILOT (Payment in lieu of Taxes) programs which will provide tax reductions in exchange for new employment opportunities. Economic development incentives may also be available. The amount will depend on what benefit the new company might bring. Iowa and Mississippi in particular, have very attractive incentives for the right firms. For example, in several cases, firms interested in a Memphis location have been lured just across the state line by Mississippi incentives.

Be aware however, most of the incentive agreements will have “claw back” provisions whereby the incentives must be returned to the granting body if the recipient does not meet its contractual commitments.

Wherever you decide to locate, land and construction costs are such that the construction of a new distribution center or plant can be an expensive undertaking; and proper due diligence will be critical to its success.

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ABOVE ALL, STAY CURRENT https://www.worleywarehousing.com/2019/03/above-all-stay-current/ Mon, 11 Mar 2019 15:11:32 +0000 https://www.worleycompanies.com/?p=2660 As the supply chain and its management become more complex, it is becoming more difficult for supply chain practitioners to keep up with what is happening around them. Add to that the influx of technical, analytical types who have mastered the necessary technology but know very little about the basic supply chain; and you have a management group that often lacks either rudimentary knowledge or struggles to keep abreast of new developments. One tried and true method of obtaining such education is through professional certification.

Certification is not a new idea in our industry. During the regulatory years, the Interstate Commerce Commission granted to those non-attorneys who passed a rigorous exam a certification that gave them the right to practice before the ICC. The American Society of Traffic and Transportation (later to become American Society of Transportation and Logistics (AST&L) was founded in 1946 and began certification in 1948. This widely recognized certification also required the passing of a comprehensive group of exams. APICS was formed in 1957 and began to offer its well-known certification in production and inventory management.

In 2011, the Council of Supply Chain Management professionals announced its SCPro ™ certification. CSCMP describes it as “a rigorous three – level certification which offers supply chain professionals a concrete way to fully demonstrate a broad range of skills that command competitive salaries and titles while giving hiring managers an independent barometer of a candidate’s commitment to and success within the supply chain management profession.” The certification requires the passage through three levels, i.e. Cornerstones of Supply Chain Management, Analysis and Application of Supply Chain Challenges, and Initiation of Supply Chain Transformation.  Entrance to each level is contingent on satisfaction of the previous one. The last level is particularly interesting in that it requires a great deal of hands on, practical application, which should prove extremely valuable.

In 2015, the American Production and Inventory Control Society (APICS) announced a certification in logistics, transportation and distribution. This new designation or certification (CLTD) is earned by passing just one exam; but it contains 8 modules covering subjects from Order Management to Reverse Logistics. In July, APICS published 850 pages of study guides and materials, so this one will not be a cake walk, by any means. Along with the other APICS certifications, fulfillment of these requirements will yield an excellent supply chain education. According to APICS, the “CLTD designation will equip individuals with the essential knowledge they need to reduce costs, increase customer satisfaction, and achieve recognition.

Recently, APICS announced a name change to the Association for Supply Chain Management, possibly to “turn up the heat” a little on CSCMP.

For many of us the first question will be, “Do I really want to do any of this?”  I would say, “Probably so”, particularly if you are new to the industry, do not have a solid supply chain background, or simply want to stand out among your peers. The second question no doubt will be, which certification do I want to acquire? That is a tougher question and depends on both the specific needs of the individual and the precise content of the exams. For those of us who are strong in the basic supply chain functions, I suggest we choose the program that will give us the best technology information. If you are strong in technology, concentrate more on the more basic functions. I believe that to really succeed in the supply chain field as it has evolved, it will be necessary to be well qualified in both.

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THE LONG AND CRUMBLING ROAD https://www.worleywarehousing.com/2019/02/the-long-and-crumbling-road/ Wed, 27 Feb 2019 17:20:01 +0000 https://www.worleycompanies.com/?p=2657 When Donald Trump was running for president, one of the major concerns he identified was the horrible condition of the nation’s infrastructure. If elected, he said, he would deal with the problem swiftly and effectively. The condition of our roads and bridges was not a new subject. For several decades, there has been discussion of the country’s deteriorating infrastructure. There have been hundreds of articles (including several by me), discussions, and legislative actions, yet we seem to be no closer to a solution than we were fifteen years ago.

Prior to the president’s first State of the Union address to Congress, we were looking forward to learning about his plans for improving the infrastructure. Unfortunately, he simply restated what he had said before, “I will be asking Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States – financed through public and private capital – creating millions of new jobs. Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways gleaming across our beautiful land.” He devoted only 139 words out of a 5006-word address to this critical issue. As President Obama did before him, he was suggesting funding through public/private partnerships (referred to as P3s) That of course, translates to “tolling our interstates” which is illegal under the legislation that authorized the system in 1956. Concurrently with all this,   Congress has refused to raise the fuel tax, which has not changed in 24 years. Most industry organizations and experts such as the American Trucking Associations and U.S. Chamber of Commerce have advocated an increase, but Congressional leaders apparently would rather have a root canal than raise fuel taxes. This is in spite of the fact that recent surveys have shown that 79 percent of adult Americans approve of infrastructure spending.

For two years we have been waiting for something to happen, and excited rumors prior to the recent 2019 State of the Union address suggested that this time, a plan would be presented. What was presented was far from a plan. President Trump stated, “Both parties should be able to unite for a great rebuilding of America’s crumbling infrastructure. I know that Congress is eager to pass an infrastructure bill – and I am eager to work with you on legislation to deliver new and important infrastructure investment, including investments in the cutting-edge industries of the future.

This is not an option.

This is a necessity.”

This bland 69 words (out of 5540) was even less definitive than the 2018 verbiage.

In the meantime, states continue to increase their fuel taxes to pay for their own projects – 27 at last count. In short, the entire problem has gotten out of control. Many of our needs will not be attractive to investors, and there still is no sign of an overall plan for the necessary improvements. Where we might get private investment in roads and bridges, the financial returns for the investors will be passed on to the users. We could easily find ourselves paying tolls and user fees, plus increased state taxes, leaving us in a worse position than we would have been if Congress had taken the action that they should.

And, far as the “new roads, bridges, tunnels, airports and railways gleaming across our beautiful land” good luck on that one.

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WANTED: RISK TAKERS https://www.worleywarehousing.com/2019/02/wanted-risk-takers/ Mon, 11 Feb 2019 19:17:13 +0000 https://www.worleycompanies.com/?p=2654 Once again, there is a futures market in the works that the organizers believe will add some stability to the transportation market. The recently announced venture proposes the trading of transportation capacity futures to protect pricing and availability. Citing the capacity shortages that have often plagued shippers, advocates of the futures market are promoting the idea as a hedge against risk. Buy it now and use it later when you need it. If you don’t need it, sell it to someone who does.  I have written about similar ideas that have been advanced in the past when capacity was short in the industry, with the presumption that a firm could lock in future pricing and capacity. These efforts were unsuccessful; and while I am by no means an expert in the futures market, I am skeptical of the current plans, as well. I am concerned that we will get lured into the commodity trap. While the idea might sound good, we need to keep in mind that what works for soybeans and pork bellies might not work for transportation. Many would have us believe that transportation is simply a commodity, but I do not agree.

In its purest form, a commodity is an item that has value and is produced in large quantities with uniform quality. Whether it is something tangible like oil or intangible like electricity, a commodity is a homogeneous, undifferentiated product. When it is traded, it is solely on the basis of price. Some would argue that transportation service fits that category. As they see it, transport service is just a way of getting something from point A to point B. It doesn’t matter who provides the service, as long as the product gets there.

I am concerned that this kind of thinking can get shippers in trouble. As those in the business know, there is much more to transportation than simply hauling something between two points. It’s also about on-time pickup and delivery; it’s about planning and satisfying shippers’ needs in a mutually satisfactory way. Most important, it is about relationships.

Granted, there is a futures market for ocean capacity, but I believe that is quite different from domestic truck capacity. First of all, there is less variability in the product. In ocean service, standard sized containers move over standard routes on pre-determined schedules. Although there may be some serve variability due to weather or unforeseen circumstances at ports, most of the time container movements are fairly predictable. This is a far cry however, from the type of capacity needed to move a shipment of hair dryers to Wal-Mart and deliver it within a two -hour window.

If the periods of capacity shortage have taught us anything, it’s this. When he or she is between a rock and a hard place, the shipper who comes out on top – the one who manages to find a carrier when it needs one – is not the one who wins a bidding war, but the one with the best relations with the carrier. In study after study, it has been confirmed that during these trying periods, those shippers who had fared best were those who had developed collaborative relationships with their carriers. They were the ones who gave carriers timely projections of future shipments, who held regular meetings with their carriers, and who tried to be better customers in general.

It is important to remember that a shipper and a carrier have basically conflicting objectives. True, both want (or should want) their customers serviced well, yet they also want to maximize their own profits. Working through these conflicting objectives to everyone’s satisfaction requires some careful relationship building.

Managing today’s global supply chains is quite complicated. Managers are encountering new technology, new cultures, new currencies, and in some cases new modes of transportation. I have a great deal of respect for those who introduce new ideas into supply chain management, but I also firmly believe that transportation is, and will continue to be, a relationship business.

If you want to trade something, try pork bellies – that market looks a little less volatile than the one for feeder cattle.

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THE BLACK HOLE OF E COMMERCE https://www.worleywarehousing.com/2019/01/the-black-hole-of-e-commerce/ Mon, 28 Jan 2019 19:04:39 +0000 https://www.worleycompanies.com/?p=2649 Unless he or she has just returned from an extended visit to a deserted South Pacific island, every supply chain manager (and everyone else for that matter) realizes that consumer buying habits have changed dramatically over the past few years. Electronic commerce, or on-line buying has increased from problem ridden sales of $42 Billion in 2002 to a whopping $526 Billion (estimated) in 2018, and now represents about 10% of total retail sales. While total retail sales rose only 3.7% over last year, e commerce purchases increased 16%. By 2020, on-line buying is expected to exceed 12% of retail sales.

We have come a long way since bright, young, technology-driven entrepreneurs, with plentiful sources of capital, were designing attractive web sites touting a variety of products delivered right to your door. What they failed to understand was to meet the demand, responsive and efficient distribution systems had to be in place. In most cases they were not, and the next few years were conspicuous by their delivery failures. But as Little Orphan Annie sang in the musical “Annie”, “The sun will come out tomorrow”, and it did. Other bright technology savvy systems designers stepped in to develop the systems necessary to meet the demands. They planted the seeds for the technology that has improved our supply chains so dramatically.

Amazon, as we all know, has become the primary trend setter – a long way from their 1994 entry into on-line book sales. The phrase “Amazon Effect” has become a common term in the industry and describes the environment in which many of us are operating.

But what is the Amazon Effect? The Seattle Times described it as “huge company uses the internet to sell stuff cheap, wiping out the competition”. Amazon describes it as “a way of doing business with your customer that provides positive customer experience before and after the sale in order to drive repeat business, customer loyalty, and profits.” Other firms have tried to emulate this philosophy; but in doing so, along with Amazon, have encouraged a troublesome post sale activity – product returns. It is not uncommon to receive free shipping of the items you order, but also the items you return. Just paste the seller- provided label on the package and send it back. Today, about 30% of all items ordered on line are returned, compared to about 8-9% returned to brick and mortar stores. The reasons are not surprising. According to a recent report by Investcpr.com, 20% of last year’s returns were due to damage, 23% of the items were not what was ordered, 22% were not what the buyer expected, and 35% were for various other reasons.

In my opinion, the major reason for many of the returns likes in the fact that it is too easy to do. About 50% of retailers offer free returns, and 67% of buyers check the return provisions before placing an order. Many consumers, called “serial returners” in the industry, will order items in different colors or sizes, fully intending to send back what they do not like.

Distribution centers are customer focused and their primary reason for being is to ship orders to their customers. It is not difficult to imagine how products “swimming upstream” can be disruptive to the orderly flow of shipping activity. Pulling items back in, inspecting them, refurbishing, disposing, or restocking them is costly and adds an extra burden to both operations and costs. Many sellers have turned to third parties to handle returns, and this has proven to be a huge load off the shoulders of the sellers. Regardless of how they are handled however, internally or by logistics service providers, returns represent a major cost to the sellers and are disruptive to distribution operations. As long as buyers find it so easy to abuse the system, the situation is not likely to improve; and the cost must eventually find its way to the price of the products.

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IT’S NOT JUST ABOUT RETAIL https://www.worleywarehousing.com/2019/01/its-not-just-about-retail/ Mon, 14 Jan 2019 17:29:57 +0000 https://www.worleycompanies.com/?p=2647 If you are not a retail industry supply chain manager, you might not be paying much attention too the world of on-line orders, same day deliveries, or the Amazon Effect. In fact, all the developments in retail marketing and distribution might make you thankful you are in another business. If only that were true. The fact of the matter is that the pressure the retail industry is exerting on the entire supply chain is affecting us all.

One major impact, already being felt is the growing shortage of industrial space in the metropolitan areas. As we mentioned in our last blog, Amazon has established several hundred distribution centers around the country to deliver rapid service to its customers. In an effort to compete with that, competitors have rushed into the metro areas, attempting to establish their own last mile positions, driving costs up and placing pressure on space availability. This of course, affects all firms that might be trying to secure industrial property. Some retailers are turning to their stores as distribution points. Target, for example, is remodeling 1000 stores over a three-year period, according to the latest issue of Supply and Demand Chain Executive. The utilization of retail stores for last mile deliveries can be a good solution, but it is likely to present some inventory management challenges.

Not all retailers have stores than are suitable for shipping more than a few orders a day, and some of them are looking to logistics service providers (LSP) for a solution. The more progressive LSPs have established so called omnichannel operations and are servicing E Commerce customers, as well as their more traditional clients. The increased cost of doing so will no doubt be spread across their entire customer base, resulting in higher prices for all. I believe the use of reliable LSPs is the best answer to competing with Amazon and other large on-line sellers. According to the recent 2018 State of Retail Supply Chain report, 36% of the respondents plan to rely heavily on LSPs over the next three years. Here again, this will put pressure on the non-retail segments of the LSP users.

Keep in mind however, it is not always necessary to locate right on top of your customers unless you are trying to provide same day or same hour deliveries. Most non-retail customers seem to be satisfied with next morning delivery, and this can be accomplished by serving large cities from outside the metropolitan areas, where costs and congestion will be less. For example, delivery from Cedar Rapids to Chicago can comfortably meet next day requirements.

Another major issue is the effect on motor carrier service, rates, and capacity. Already a problem for some, as shipments get smaller, more trucks and drivers will be needed; and the problem will be exuberated. Up until now the driver shortage has been primarily a truckload, over the road problem. Recently however, with the ever-increasing number of small shipments, we have seen problems in the LTL sector, as well.

Finally, I believe we will see increasing pressure from non- retail sectors on LSPs, carriers, and suppliers. Even when product lines may differ, faster service is always good. It usually results in lower inventories, reduced warehouse costs, and other economic benefits. At some point, some progressive supply chain manager is going to stand up and say, “Hey, you did it for them. How about us?”

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NINE FOR NINETEEN https://www.worleywarehousing.com/2019/01/nine-for-nineteen/ Wed, 02 Jan 2019 19:40:58 +0000 https://www.worleycompanies.com/?p=2641 It is that time of year when pundits attempt to predict what will happen in the year ahead; and every year or so, I try it myself. Sometimes I have been right, and other predictions have fallen flat. For example, I really thought this would be the year for the Dallas Cowboys, but that no longer looks promising. Other predictions are starting to surface in blogs and postings, i.e. rates are going up, they are going down, capacity will Be an issue, then again, maybe not; but I believe there are several developments that will result in some fundamental changes in the way we currently, or will manage our supply chains. Some are new. Some are a continuation of those already begun.

  1. Tariffs and Trade Wars (?). We should be concerned about tariffs and possible trade wars, particularly with China. President Trump seems to be determined to impose tariffs on foreign goods which he believes will protect U.S. manufacturers. Most economist believe that no one ever “wins’ a trade war in the end. In 2017, the U.S. imported $505B worth of good from China. We exported to them only $130B. This does not seem like a war we can win, but one that could affect our supply chains – everything from facility locations, product origins, to rates.

 

  1. “Amazon Effect.” We have all heard of this one. I liked a Seattle Times definition, “Huge E Commerce company uses the internet to sell stuff cheap, wiping out the competition.” On a more serious note, driven by the aggressive customer techniques of Amazon, the term has come to stand for rapid and dependable service, often same day deliveries, free shipping, and instant visibility. To accomplish this, Amazon has established hundreds of distribution points in the country from which their shipments are made. So-called millennials are making 54% of their purchases on line, and Amazon provides over 50% of that. For a retail competitor, supply chain management will become even more challenging in 2019. (Amazon will also keep us on our toes with threats, or patents of squadrons of delivery drones, distribution centers in the sky, and skyscraper warehouses.)

 

  1. Industrial Property. To compete with Amazon, a mad dash to industrial property is creating a shortage of available sites, and when they are available, prices are significantly higher. According to CBRE, availability decreased over 7% in the second quarter of 2018. The age of many buildings is becoming a problem as well, since they are ill suited for modern distribution operations.

 

  1. Robotics can operate in small spaces more efficiently than humans, and we will see companies turning to smaller buildings to control real estate costs. This savings can be devoted to robotics. In larger buildings their use will be increased significantly to supplement manpower.

 

  1. Infrastructure, or the lack thereof, will continue to be an issue with little action expected from the Federal government. States are realizing that if they need infrastructure improvements, they must provide it themselves. Look for increased state fuel taxes and/or tolls to fund these.

 

  1. One of the interesting findings to come out of the “2019 Third Party Logistics Study” was that more shippers are realizing that they do not have the technology to reach their objectives, and are turning to their third-party partners to provide this. Already, 93% of shippers feel that technology capabilities are a necessary part of 3pl offerings. Technology is expensive, and as these offerings increase, expect rates to increase to cover the expense.

 

The last three actually began in 2018, or before, but will be with us for the foreseeable future unless we see a significant downturn in the economy.

  1. Driver Shortage. This condition has been with us so long, it seems like business as usual. However, as shipments get smaller, more trucks will be needed, as well as men and women to drive them. The shortage has existed primarily in the truckload sector, but it could spread to LTL in 2019.

 

  1. Capacity Issues will increase, not because of equipment shortages, but due to the lack of drivers. I do not see autonomous vehicles as a solution for several years.

 

  1. Transportation Prices will rise, and 2019 will demonstrate just how the economic principle of supply and demand works.

 

Notwithstanding some of our current management challenges, keep in mind that things could be worse. Stay calm, focused, keep an eye out for lost delivery drones and have a happy and blessed 2019.

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TIME FOR A SECOND LOOK https://www.worleywarehousing.com/2018/12/time-for-a-second-look/ Mon, 17 Dec 2018 16:22:01 +0000 https://www.worleycompanies.com/?p=2638 As 2018 draws to a close, it is clear that the country will not see the improvements in infrastructure we have been promised for several years. Most recently, President Trump decided infrastructure improvement was a high priority and one of the first problems he would address when he moved into the White House. In May of 2017, Secretary of Transportation Elaine Chao said “the infrastructure plan is coming soon.” For whatever reason – Congressional stagnation, lack of leadership, or both – nothing has been done at the Federal level. Some states, out of frustration and/or critical need have increased state fuel taxes and used the funds for their own infrastructure needs.

It also seems clear that the truck driver shortage persists and is expected to do so for the foreseeable future. While some improvements have been made by increasing salaries and bettering working conditions, the American Trucking Associations (ATA) projects the current shortage at 50,000, expected to increase to 175,000 by 2026.  The ATA says that these shortages and rising fuel costs are still the major concerns of motor carriers. A JLL report indicated that C.H. Robinson truckload rates were up 21.5% during the first quarter of 2018.Underscoring these issues are the continuing capacity shortages in the industry. In some cases, these result from increasing expense or lack of equipment, but many serviceable tractors have been parked due to the shortage of drivers.

Meanwhile, many of us have been faced with the most significant change in the supply chain since 1980, the year rail and motor carriage were deregulated. The popular term for the development is the “Amazon effect”. Others call it the “Now Economy” However you choose to refer to it, it represents a momentous change in consumer buying habits and the services necessary to accommodate them. Last year, E-Commerce sales totaled $447M, and are expected to exceed $500M this year. By 2022, the total is expected to surpass $700M. Not only are more consumers buying on line, they are demanding more rapid deliveries – sometimes same day – and Amazon not only is accommodating this, they are encouraging it. Competitors are struggling to keep up and maintain their share of this huge market. On the surface it would appear that the challenge is limited to the retail industry, but that is not the case. The increase in small shipments is straining an already declining LTL capacity, increasing prices.

Obviously, if sellers are going to provide same day deliveries, distribution centers must be closer to the markets. Already, this has driven up real estate prices in major markets. A considerable amount of time and effort is being devoted to strategizing about how to handle these “last mile” deliveries efficiently and economically, but we cannot ignore the inbound movements. The truckload industry is feeling the same pains. If you have not done so, it may be time to take another hard look at intermodal. Service is far better than it used to be – faster and more consistent. It is less expensive than truckload; and during the past four years, railroads have made $442M in capital improvements.

Secondly, be cautious about the rush to the increasingly expensive major markets. As long as you are close enough to provide the necessary customer service, your real estate and labor costs will be less. Whatever you do, do not get overwhelmed by a problem that may have an easier solution than you think.

Finally, as you reflect on 2018, and plan for 2019, take some time to enjoy the holidays and be thankful for what we have.

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WHAT GOES AROUND COMES AROUND BUT USUALLY FOR A DIFFERENT REASON https://www.worleywarehousing.com/2018/12/what-goes-around-comes-around-but-usually-for-a-different-reason/ Mon, 03 Dec 2018 17:11:17 +0000 https://www.worleycompanies.com/?p=2636 Recently, Prologis announced they would be building the first multi-story warehouse in the United States. Some of our more senior readers will realize that is not quite true. They may remember when it was not uncommon for warehouse operators to utilize multi-story buildings, usually no more than 3 or 4 stories high. Products and equipment were moved from and to loading and unloading docks at ground level by elevators large enough to hold a forklift and its load. To say they were inefficient would be an understatement but they were cheaper to build and did not require as much land as today’s single-story giants. In spite of their shortcomings, multi-story buildings were operated with a reasonable degree of efficiency for several decades.

Today, In Asia, multi-story buildings are much more common than they are in this country.  Several years ago, my company opened a distribution center located on the 6th floor of Asia Terminal located at the port of Hong Kong. Each floor in the terminal was accessed by a ramp that would allow trucks and containers to load and/or unload on the necessary floor. Although trucks were smaller and had a shorter turn radius than those we have in the U.S., there was no need for elevators and the operations in such facilities were fairly efficient. The major reason for building a large terminal that could not achieve maximum efficiency was to conserve capital. With the over the top land prices in a city such as Hong Kong, the decision to build up rather than out was not a difficult one. The multi-story distribution centers being planned today are to a certain extent, a product of high land costs, but this is exacerbated by the need for more E Commerce facilities. According to Supply Chain Brain, E Commerce distribution requires three times as much space than conventional operations.

The Prologis building will be located in Seattle, and will have three stories. The bottom two will have truck ramps on each floor, and the third floor will be accessible by elevator.  Obviously, the third floor will not be as productive as the other two but the planned use for that floor is “lighter scale warehouse operations”.  Other similar   buildings are being planned on the East Coast, as well.

Without knowing all the costs involved, i.e. land, robotics, and construction, the planned facilities seem to me to be somewhat of a compromise. With the robotic capability we have today, buildings can be almost as high as we want them to be. For example, Future Electronics in Memphis distributes its products from a 60-foot-high, fully automated warehouse. Amazon, the patent holder for “the warehouse in the sky”, now is considering a warehouse skyscraper. That is a bit of an overreach, but certainly possible.

One of the major issues with these small footprint buildings will be having the necessary truck docks. While products may fly around the vertical warehouses at will, at some point they must get in and out of the facility. The best design would seem to be a high-rise picking area, adjacent o a more conventional shipping and receiving space.

In any event, I believe we will see more innovation in warehouse design than we have seen in the past 20 years. If E Commerce continues to grow at the current rate and customer demands increase exponentially, the result will be more facilities in major markets where land costs will continue to increase, as well.

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2019 THIRD PARTY LOGISTICS STUDY https://www.worleywarehousing.com/2018/11/2019-third-party-logistics-study/ Mon, 26 Nov 2018 19:01:25 +0000 https://www.worleycompanies.com/?p=2633 Every fall, for 23 years, Dr. John Langley of Penn State, along with annual sponsors, has published what he has titled “Annual Third- Party Logistics Study”. It is a comprehensive report on current relationships and progress of logistics service providers and their customers. This year’s study was particularly interesting in that we are in a period of such rapid change in the industry. It shows, among other things, that shippers and their providers are developing increasingly meaningful relationships and working together toward the achievement of their goals. The majority of the respondents agreed that their third-party relationships have been successful.

One interesting development is that more shippers are realizing that they do not have the technology to reach their objectives and are turning to their third-party partners to provide it. This of course, places an often-expensive burden on the providers. Ninety three percent of the responding shippers felt that technology capabilities were a necessary part of 3pl offerings, but only 53% agreed that they were satisfied with their providers’ capabilities.

As has been the case with previous studies, there are continuing disconnects between shippers and their providers. Providers almost always believe that their relationships are more successful than does the shipper group. For example, 98% of the providers feel that outsourcing relationships have been successful. Only 91% of their customers agree. Ninety five percent of the providers believe they have contributed to a reduction in shippers’ overall logistics costs> Only 72% of the shippers support that notion.

The services outsourced are essentially the same as in previous years, with domestic transportation, international transportation, warehousing, freight forwarding, and customs brokerage the top five.

As always, there is a group of firms that does not outsource. The major fear is loss of control, followed by concerns about integrating IT systems, while others believe that they simply have more expertise than the providers and service commitments would not be realized.

Respondents were also asked how outsourced relationships might be improved. Forty three percent of the shippers felt that providers needed to improve the ways they shared data. Only 25% of the providers agreed. About 36% of both groups agreed there needed to be a smoother process of transitioning RFP data to actual design and performance.

This year’s report discussed a concept I have not seen mentioned before – the “last yard”. This “refers to what happens to a shipment once it is delivered to a customer or consumer and how it is routed to the specific location where it may be needed or used.” Most shippers and providers agreed there is a need for competent last yard logistics. Only 53% of the shippers however, believed they efficiently manage this final leg, and even fewer providers – 34% agreed.

I have just scratched the surface here. The report covered several other areas such as omni-channel, e-commerce, and reverse logistics, and it is worth reading in its entirety. It may be downloaded at www.3plstudy.com.

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STATE OF TRUCKING – 2018 https://www.worleywarehousing.com/2018/11/state-of-trucking-2018/ Tue, 06 Nov 2018 16:09:32 +0000 https://www.worleycompanies.com/?p=2629 Last week, the American Transportation Research Institute (ATRI) the research arm of the American Trucking Associations (ATA), released its annual Top Industry Issues report. This report identifies the top ten critical issues facing the trucking industry in North America. The analysis also includes the major strategies for addressing each. This year’s report was based on 1500 survey responses from both drivers and carriers.

 

  1. Issue number 1 this year has been in the top three for 12 of the 14 years this survey has been conducted – Driver Shortage. Currently, the driver shortage nationwide stands at about 50,000, according to the ATA. From a driver perspective, this has been beneficial since carriers have been forced to increase pay, benefits, and bonuses during the past year. Capacity is tight, not because of lack of equipment but due to the shortage of drivers. Right now, the major strategy for dealing with the shortage seems to be the development of programs and legislation that would facilitate the entry of 18-20-year-old drivers into interstate commerce. Since 48 states allow drivers in this age bracket to drive in intrastate commerce, there are experienced drivers in this category.

 

  1. Hours of Service, a top three issue for the past 8 consecutive years, is once again high on the list. After years of discussion and litigation, there still are two major concerns. Current rules require a long-haul driver to spend 8 consecutive hours in the sleeper berth. Drivers would prefer to rest when they are tired and flex their schedules so they can drive during the less congested hours. Customer detention is also still a problem since many shippers and/or receivers do not move trucks in and out as quickly as they should.

 

  1. Driver Retention moved up the list this year, and it appears the industry is trending toward the highest annual turnover since 2013. Carriers continue to try to find the right mix of salary, benefits, sign on bonuses and time off for their drivers. The costs of recruitment and training have increased significantly.

 

  1. ELDs are still high on the list, but since they have been mandated for several months, concern is dwindling. Carriers however, are starting to assess how ELDs are affecting productivity and safety, and drivers still are a little suspicious of how the data will be used.

 

  1. Truck Parking. Now that ELDs are the law, drivers must park wherever they happen to be when their HOS are up. This is becoming a major issue and drivers ranked it as their second most important concern. ATRI suggests that truck parking facilities be expanded and identified for drivers. 

 

  1. Compliance, Safety, Accountability (CSA). CSA has been with us since 2010, and continues to be problematic in many areas. The most viable solution seems to be working with the Federal Motor Carrier Safety Administration (FMCSA) to ensure that the recommendations of the National Academy of Sciences review of CSA are implemented. This study, mandated by Congress, made some excellent suggestions on improving the evaluation of carrier safety performance.

 

  1. Driver Distraction. With the expanded use of smart phones and other personal or on-board technologies, driver distraction has become a major concern. (This problem of course, is not unique to truck drivers.) The solutions to this problem are education, enforcement, and harsher penalties for all – not just truckers. Every year, distracted driving is the cause of a significant number of crashes.

 

  1. -10. Infrastructure, Driver Health/Welfare, and the Economy round out the list. All of us are awaiting some action in Washington on the infrastructure crisis. Carriers are working to develop and encourage better exercise and eating decisions for drivers, as well as provide facilities where exercise equipment and healthy food are available. Finally, while the economy has been growing rapidly, recent governmental actions such as tariffs and possible trade wars are making everyone a little uncomfortable.

 

While both carriers and drivers have issues, their opinions do not always coincide. Carriers listed Driver Shortages, Driver Retention, and Hours of Service as their top three issues, and drivers listed Hours of Service, Truck Parking, and ELDs as their top three.

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THE WORSENING TRADE SITUATION https://www.worleywarehousing.com/2018/10/the-worsening-trade-situation/ Tue, 23 Oct 2018 17:21:26 +0000 https://www.worleycompanies.com/?p=2619 The current growing concerns about the U.S. trade environment are focused on two fronts. One is the (hopefully completed) renegotiation of NAFTA, and the other is what some believe could explode into a major trade war with China. As we have written before, President Trump campaigned against what he called “the worst trade deal ever…the job-killing disaster known as NAFTA.” By most accounts, NAFTA (North American Free Trade Agreement) has been quite successful since it was signed into law in 1993. The trade among the three parties to the agreement, U.S., Mexico, and Canada has been in the trillions of dollars, but Mr. Trump Believed (or said he did) that the agreement had caused the loss of many U.S. jobs as industries moved into Mexico, took advantage of low-cost labor, and shipped their products duty-free back home. The concern was somewhat valid. The auto industry has significantly increased production in Mexico, and one in every five cars sold in the U.S. is manufactured in Mexico. Even so, most experts believe there has been more success than failure with NAFTA. The president was determined to revise the agreement however, and threatened to pull out altogether if the U.S. did not get the concessions it wanted. The result was what is now called the US-Mexico-Canada-Agreement (USMCA). While the president has said “it is the most important trade deal we’ve ever made”, that statement raised a lot of eyebrows, since it is difficult to find many major changes and certainly none that would significantly increase U.S. employment.

Under NAFTA, any vehicle could avoid tariffs it was at least 62.5% made in North America. USMCA increases that percentage to 75, which should help the auto workers some, but it is not a life changing increase.

Canada agreed to remove some of the protection they have maintained for their dairy industry. That will open that market for U.S. producers, but it doesn’t’ represent a significant portion of our economy.

There are other minor changes, but nothing that many of us will notice. The countries did agree to sunset the agreement in 16 years. The agreement still must be ratified by Congress which could be problematic, depending on the results of the mid-term elections.

A more serious potential problem is our relationship with China. Using the same logic with which he attacked NAFTA, the president decided to penalize imports from China and has placed a 25% tariff on $34 Billion worth of Chinese imports. This was followed by a 10% levy on $200 Billion of other items, including many consumer products.

China immediately retaliated with a 25% tariff on soybeans and automobiles. The soybean tariff in particular, is going to cause considerable damage to our soybean export market; and currently, Chinese soybean imports from the U. S. are expected to decline by 12%. Obviously, this will hurt Midwestern farmers.

The October 10 issue of USA Today included a story that provided some insights into the hardships that will be experienced by another section of the economy – the “dollar stores”. Many of the products they sell are faced with the 10% tariff, and it will force them to either raise prices or take hits to profitability. (On January 1, the tariff will increase to 25%.) According to the article, 60% of the customers of Dollar Tree and Family Dollar stores have less than $40,000 in annual income and will be negatively impacted by the increases.

Whatever the product, almost no one believes that either side wins a trade war, and this one will be no exception. First of all, we are heavily dependent on China, and in this kind of situation, countries just continue to retaliate until one calls it quits.

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AN ATTEMPT FOR SIMPLICITY IN A COMPLICATED WORLD https://www.worleywarehousing.com/2018/10/an-attempt-for-simplicity-in-a-complicated-world/ Thu, 11 Oct 2018 18:37:59 +0000 https://www.worleycompanies.com/?p=2613 Our industry, like so many others has long been blessed with a wretched excess of buzzwords and terms. We have spent so much time thinking out of the box about the paradigms of globalization in the new millennium that we have not had time to push the envelope in the development of our E-commerce business models.

Once, during a performance evaluation, when Dilbert was asked what he had accomplished, he responded, “Well, I have used my empowerment to create a new paradigm, and I teamed across financial boundaries to improve quality. I dare say I was customer focused and market driven. I proactively found excellence in the midst of chaos. I re-engineered my core processes and embraced change”. To the boss’ question, “Was that sarcasm?” Dilbert replied. “To be honest. I don’t know either.

Logistics and supply chain management have always been fairly straightforward disciplines, but for years, in my opinion, we have been plagued with the excessive, and arguably incorrect, use of the terms third party, third party logistics, and 3PL. One warehouse company even went so far as to advertise 3PL logistics services. Now, once again, the term 4PL has started to get more mention in white papers and opinion pieces. The definition of a 4PL is a little vague, but many refer to it as an enhanced 3PL, which really doesn’t help much.

Contrary to most popular opinions, the term third party was first used to describe shippers’ agents. The Hub Group, founded in 1971, was one of the early third parties, as were companies such as National Piggyback Corporation and Alliance Shippers. Usage of this term was logical since it properly described the interjection of a third party into the transportation contract. For example, if a company (Party Number 1) wished to ship a trailer in intermodal service over a rail carrier (Party Number 2) it could deal directly with the carrier or arrange for transportation through a shippers’ agent (Party Number 3). This was advantageous since because of the volume involved, the cost of the transportation utilizing the shippers’ agent usually was less than if the transaction had been handled directly with the carrier Motor carriers, warehouse companies, and railroads were known and referred to by their own competencies. To do otherwise, would have caused enormous confusion. Suppose that, using the above example. Party Number 1 had utilized a contract warehouse to distribute its products and a shippers’ agent (Party Number 3) to arrange for the transportation. Would the warehouse company be Party Number 4, or possibly Number 1 ½?

“To be honest, I don’t know either.”

In the 1980’s, the term third party became widely used to describe any provider of logistics services, and in many cases, was not a proper use of the term. The term fourth party has been around since the 90’s, but seems to be gaining renewed emphasis as a firm that assumes functional integration that has been atypical of a traditional third-party arrangement. Believe it or not, a fifth party also has been suggested to integrate the integrators. If one were more cynical, it might be suggested that the fourth and fifth layers are an unnecessary duplication of activity.

Before we all get buried in a morass of semantics, perhaps it would be helpful to return to clear and basic terms. When a firm outsources a logistics function, or group thereof, it simply is contracting with another firm that has the requisite service offerings and expertise. If we refer to that company as what it is – a logistics service provider – then the relationship would be much clearer. Whether the provider furnishes motor carriage, warehousing, order fulfillment, or freight bill payment, the term logistics service provider remains constant. If one prefers acronyms, LSP does not assault the senses or twist the tongue, and is easy to decipher.

As supply chain and logistics managers we should try to simplify where we can. In this new world of AI, AR, ML, and Blockchain, our jobs are tough enough without adding more vocabulary stress.

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HOW MUCH IS TOO MUCH? https://www.worleywarehousing.com/2018/09/how-much-is-too-much/ Mon, 24 Sep 2018 16:00:57 +0000 https://www.worleycompanies.com/?p=2609 Over the past few years, millions of words have been written about “big data” and how to manage it. It has often been considered as one of the major disruptions to supply change management. The fact of the matter is that big data is simply a new term for an old condition. Almost from the first day that technology became widely used in managing the supply chain, we’ve had more data than we could use. Rather than spending time and resources trying to manage what we don’t need, I think it might be interesting to try to reduce the amount of data to that which we really can use effectively. This could be particularly important in managing the performance of logistics service providers (LSPs), where in too many cases, outsourcers will become so enamored of data that they measure far more than they need to.

In 1610, Galileo Galilei said, “We must measure what can be measured, and make measurable what cannot be measured.” (Over the years, this statement has evolved into the more direct, oft-quoted axiom, “You cannot manage what you cannot measure.”) But today, some 400 years later, many supply chain managers still struggle with the application of that premise. Different companies will have different criteria for measuring their LSPs’ performance. For example, a pharmaceutical client would be much more concerned about batch controls and error rates than an appliance manufacturer would. But four basic rules should apply over all industries and providers:

The first axiom is the tried and true, “You can’t manage what you can’t measure.” This is particularly valid for outsourced operations. If you do not know how the provider is performing against agreed-upon standards and benchmarks, it will be impossible to evaluate not only its performance, but the client’s own customer service.

Make measurable what cannot be measured. The task here will be to identify activities in discrete segments against which you can establish measurable and achievable standards. A common mistake is to establish standards that are so vague they are absolutely meaningless. This creates additional work for both parties. Once the activities have been identified, then their importance can be determined.

Measure only what is important and actionable. This is the area where a lot of big data is generated. It also often leads to “report abuse.” Some managers will become so fascinated with the reports themselves that they will insist on measuring trivia. If it doesn’t have an impact on the operation or the operation’s cost, efficiency, or customer service, forget it. While every company has its unique needs, in a typical warehouse operation, the measurement of eight to 10 basic areas should be sufficient. Examples of these are productivity, order-fill rate, on-time performance, inventory variations, order cycle time, line-item accuracy, number of orders handled, and space utilization. You really don’t need to know how many orders were loaded at Door 5 by employees wearing blue shirts.

Measurement must be balanced. Too many measurements can bury the operation in details and lead to friction between the parties. Too few or too general evaluations make the performance difficult to manage. Timing should be balanced as well. There is no need to measure everything every day.

Certainly, as our technology continues to improve, we will learn more about our supply chains, i.e., generate more and “bigger” data, and the information no doubt will be helpful. The phrase “Information is power” probably has been quoted on millions of occasions; but in my mind, the real power lies in being able to take the information and use it effectively. This includes rejecting the information you don’t need to manage your activities.

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SOME PROGRESS WITH NAFTA NEGOTIATIONS https://www.worleywarehousing.com/2018/09/some-progress-with-nafta-negotiations/ Wed, 12 Sep 2018 15:22:37 +0000 https://www.worleycompanies.com/?p=2607 On August 27, President Trump announced that the U.S. and Mexico had reached a “preliminary agreement in principal subject to finalization and implementation” on new trade provisions. While those words seem to be the mother of all hedging, at least they represent some progress. While it has been a part of the NAFTA negotiations, Canada has been standing on the sidelines for five weeks while the U.S. and Mexico have worked toward a solution of their bilateral differences. Just this past week, Canada rejoined the talks.

The major provision of the U.S./Mexico revised agreement concerns the auto industry. Under the new pact, 75% of auto content must be made in the U.S. or Mexico. This is up from the current 62.5% in NAFTA. Also, 40-45% of the content of an auto must be the work of laborers making at least $16 per hour. Both countries believe that these provisions will support better jobs for employees, close some gaps in NAFTA, and give U.S manufacturers the incentive to expand their production. The new agreement also provides for stronger rules of origin and a streamlining of certification and verification of rules of origin.

Provisions were included that would incentivize more U.S. and Mexican production of textiles. These rules are stronger than the current regulations and hopefully would encourage more domestic and Mexican production.

Agriculture received a lot of attention in the negotiations, and several new rules regarding food sanitation, biotechnology, and tariffs were established. The two countries also agreed to remove all the barriers to marketing in Mexico certain kinds of cheeses made in the U.S., and will continue to recognize bourbon on and Tennessee whiskey as distinctive U.S. products, and Tequila and Mescal will be declared uniquely Mexican.

But what about Canada? The president has been emphatic about eliminating the NAFTA dispute mechanism, and Mexico has compromised with him on that. Chapter 19 of NAFTA allows members to challenge each other’s trade practices involving dumping and unfair subsidies; and the U.S. wants to eliminate it. Canada is very much opposed to dropping this from any agreement. Another sticking point will be the regulations regarding the shipment of dairy products from and to the U.S. and Canada.

On the surface, it appears that President Trump is quite willing to move ahead without Canada, even though Mexico disagrees. U.S. labor and other informed industry leaders feel strongly that the core of NAFTA, i.e. an agreement among all three countries must be maintained. Trump has indicated he would be quite happy with separate agreements with the two countries. That of course, would defeat the original purpose of NAFTA. Whatever happens, he wants to drop the name NAFTA. He maintains that it has too many negative connotations. He is in the minority on that one, but whatever we call it is not the big issue here. We need to find a way to get all three countries included in an agreement that each can live it. Certainly NAFTA can use some tweaking, but this pact has been too valuable to throw the baby out with the bath water. We need to be the leader in these negotiations – not the gadfly.

For complete details see the U.S. Trade Representative site at www.ustr.gov.

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A SUPPLY CHAIN GENERATION GAP? https://www.worleywarehousing.com/2018/08/a-supply-chain-generation-gap/ Tue, 28 Aug 2018 15:43:13 +0000 http://www.worleycompanies.com/?p=2605 As the so-called millennials are becoming the predominant members of the workforce, they are coming face to face with those baby boomers (51-70) who are continuing to work. An increasing percentage of the workforce is by-passing the traditional retirement age of 65, and working well into their seventies and beyond. The result is a generational void we should not ignore or criticize, but should understand and benefit from.

A few months ago, I was thumbing through a trade publication which featured a section on “pros to know”, or the magazine’s take on the current supply chain visionaries. Not surprisingly, while there were a few notable exceptions, the vast majority of the men and women listed were affiliated with a firm that offered some variation of supply chain technology. In another survey of chief financial officers, Duke University found that 70% of those surveyed felt that the advantage of hiring so-called millennials was their expertise in technology. So is there a gap between the older and younger supply chain generations? You bet there is. Obviously, there is no exact defining line between the two groups. Some younger practitioners may subscribe to the more traditional techniques; and I know several (OK, maybe a few) senior practitioners who have an excellent grasp of new supply chain technologies.

Regardless of our time in grade, most of us are familiar with such systems as those for warehouse and transportation management. They have been around for quite some time, although looking back, the early ones were fairly primitive. But today, the list of applications for supply chain is almost endless. There are sophisticated systems for managing labor, inventory, and the yard. There are voice order picking systems and speech recognition software. We have GPS, RFID, bar codes, clouds, wireless, Block chain, AI, digitalization, and 3D printers, not to mention our smart phones which give us almost instant connectivity. Obviously, with all this technology comes a new breed of supply chain practitioner. This vast reservoir of technology would be useless without those who understand it, relate to it, and can apply it effectively. This is where the gap exists – and a huge one it is.

As an adjunct supply chain instructor, I am constantly aware of what my students do not know and what they know that I don’t. They don’t believe me when I tell them that 25 years ago I paid a consulting firm several hundred thousand dollars to do a basic network analysis for my company. Most of them do not know that transportation was once regulated, but when we begin a discussion of some of the current technology, they quickly leave me behind.

So yes, there is a generation gap, and thank goodness there is. As the world becomes smaller, customers become more demanding, and channels of distribution change rapidly, without new techniques and technology, and the people who understand them, a supply chain manager’s task would be impossible.

As with every major change however, there is a risk; and the supply chain environment is no exception. Already, we have seen breakdowns in personal communication, sensitivity to our colleagues, fellow employees and subordinates, as well as other management skills that cannot be systematized. I see this as a huge risk for I believe strongly that the future belongs to the supply chain manager that can master the technology and at the same time maintain those attributes that are so necessary for effective human relations. For these, technology will never be a substitute, but perhaps the baby boomers can help smooth the edges a little.

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