Joe’s Corner Blog

Wall Street Journal; March 10, 2008

Operations

Beyond Buying, by Larry C. Giunipero, Robert B. Handfield and Douglas Johansen

There are some aspects of this article that I agree with and other positioning of the supply chain executive with which I take exception.  The authors have painted the supply chain executive as one who has worked in a narrow, hardly recognized as a strategic company function, into one responsible for sourcing products.  In the companies I am familiar with, this was typically the procurement department that purchased raw material and packaging supplies.   While clearly critically important, it was largely an independent group that had little to do with the day to day business.

With the expansion of global sourcing and the importance of collaborating with suppliers around the world, the responsibilities of the procurement department have been substantially expanded.  However, I doubt that the decisions as to where to outsource manufacturing and with what companies would be left with procurement.

I should qualify my comments by saying that some companies have placed manufacturing, procurement, logistics, inventory management, customer service, et.al under one leader.  However, the top executive most likely focuses on what he or she knows best and leaves the other areas to their department heads.

There were several suggestions that are quite relevant, to include:

• Managing Technology; electronic procurement/reverse auctions, Integrating systems and collaboration and internal systems integration. (Note procurement and reverse auctions)
• Building Teams; Strategic relationship management; Cross-functional/virtual teams; Customer relationship building (internal and external).  This is more the traditional supply chain management executive)
• Finding Suppliers Globally; Outsourcing services; global sourcing strategies; Training approaches for global environment.
• Big Picture View; Strategic cost reductions; Greater focus on total cost in supplier selection; Strategic vs. tactical orientation; Broader general business skills; Supply chain business process skills.

I seriously doubt that most universities, based on my experience, are preparing students for these responsibly/leadership skills.  I doubt that there are few executives that have the bandwidth to take on the entire scope of supply chain management and include global sourcing and all of the complexity that comes with it, to include country laws, regulations, protecting intellectual property, etc.

What hasn’t been touched on to any degree are customs and the clearing product for shipment to a foreign land.  Information being required or in some stage of development by country or world body, is a major challenge in terms of implementation and the cost of developing the technology.  Effectively outsourcing to a low cost producer, only to have product hung up in customs awaiting clearance hardly achieves the goals set out for the global supply chain executive.

There are knowledge gaps that exist with regard to information standards and what is universally available.  GS1 standards are used by some 130 countries around the world, yet they are largely ignored by the academic community. Many involved in developing or recommending approaches to meeting information required by customs, are not aware of GS1 Standards, that in use by their companies.
Let me summarize by stating that it is incumbent upon each organization to embrace an education and orientation program that doesn’t strive to make experts out of all involved in supply chain management, but one that takes a holistic approach and ensures that silos of excellence are effective, but silos of information are non existent.  This will only happen with the full support and understanding of the senior leadership team and the board.  It most likely will require outsourcing the training of the entire team, to include suppliers of goods and services.

It comes down to basics; knowledge or knowing where to get it; sharing the knowledge; embracing change, measuring/ metrics and showing results.  Always remember, it is about the money!!

Over and over we read, and we are told, that one of the secrets to success is to obtain senior management support. So the tried and true method of getting this support is to walk up to a senior executive, preferably your CEO, and give her/him an elevator speech about your great idea.  Done deal, you have the support you need and you are off and running.

When you stop laughing, read on.

Maybe in an ideal world where you have won the confidence of the head office, an elevator speech will work, but for most part, it’s about EARNIING the TRUST and CONFIDENCE of the entire organization. That comes about only after proving that you and your organization can deliver on what is important to the company. Note, I didn’t say what is important to you as an individual or as a department leader, but it’s what impacts sales and profits that gets the attention of senior management.

If your leadership has experience in your functional area, you will get a lot of advice and guidance.  But if your senior leadership has little experience in your chosen field, it is up to you to be the thought leader for your discipline, understand the prime drivers in your industry, relating them to your business and serve as an educator within your company.

This knowledge, applied in a practical fashion, can then be built into a plan that delivers results.  Good start!  However, do you and  your organization have a reputation for delivering on promises made, projects completed on time and  within budget, that can stand up to the most stringent analysis?  Is your organization recognized as being buttoned up, paying attention to detail, never accepting defeat, but delivering on objectives regardless of the most trying circumstances?

Have you explained to your organization the value of demonstrating respect for everyone in the company, by being on time, each and every time, for every meeting and planned event.  Have you ingrained in your organization the concept that every colleague is to be treated like a valued customer and that your team is looking at business problems and opportunities from their perspective.

Getting senior management support for anything relevant is about gaining respect by pro active behavior, a positive attitude, team work and aligning  appropriate time, attention and resources to what is important. Don’t expect that this support will be earned overnight as it is a journey that can take a substantial amount of time. It will also depend on you ability to communicate and make effect presentations! Hone your presentation skills and be completely prepared for that rare opportunity to speak to senior management.

Always keep in mind that you are constantly building a constituency by your actions and reactions. Be willing to get a “bloody nose�, i.e. when rejected, keep going back to sell your ideas, learning from experience.  Don’t become discouraged because someone in another department, or perhaps within your team, has rejected your proposal and understand that making change happen is one of the most difficult challenges that you will encounter. Secure cross functional support for what you believe is important.
In summary, build a foundation based on personal and organizational behavior and business practices that can be relied upon and viewed as a strategic asset by the company. Be recognized for consistently overcoming adversity , rising to the occasion and delivering positive results. Establish metrics that are understood and accepted by the company and report results to internal and external customers.

The time to build your foundation is now. So plan your work, work your plan and success will follow.

Please don’t get comfortable and think that prices will continue to decline. Oil prices will continue to rise well into this century and alternative fuels are not the solution.

Edward Lazear, chairman of the White House Council or Economic Advisors says “Commodity prices are driven over time by changes in supply and demand�. Sustained demand growth for oil he says, “is here to stay and will be around for a very long time to come until we find significant ways to conserve.�  Department of Energy czar for renewable energy, Assistant Energy Secretary Alexander Karsner says, “The places where oil can be found and extracted and brought to bear in the world are decreasing� he says. “It will get harder and demand will outstrip supply for probably the rest of my lifetime�.

Bottom line, alternative fuels are not the answer. Consider the short term cost impact on commodities. Have you purchased a loaf of bread lately. Restaurants are seeing double digit price increases for supplies, which have to affect menu prices. Commodity markets are at all time highs.

The short term answer is conservation.  We continue to do business using the same logistics systems that were established years go, while at the same time global sourcing has expanded.  What will be the logistics cost for global outsourcing as the cost of oil continues to soar and US companies are forced to comply with new custom requirements?

It’s time to not only think out of the box, but to get out of the box.  Get Green! Get Creative! Get Going.

Cheers, Joe

Where is oil headed?  Will it reach $110 by the end of the week? The Dow is down another 100 plus points!

Multiple factors are in play, to include the exchange rate, the cost of logistics, softening of the economy, and overall inflation. 

The confluence of these economic factors will have major implications.  No easy answers, but there are actions that can be taken if the business community collaborates as never before.

Best wishes… joe

If you have continued to do business as usual expecting a reduction in the price of oil, “you lose�.

While the price of oil has increased, oil inventory has “declined�, which means that consumption is growing in spite of record high prices. Plans to reduce exhaust pollutants will reduce fuel efficiency, further increasing the cost of moving products, raw material, machinery, etc.

If you haven’t looked into the effort that VICS is placing on transportation efficiency, the time is now. If you haven’t considered the impact your company is having on polluting the environment, the time is now, and VICS can help.

The days of cheap transportation is over. Current business practices will not deliver desired results.  “Get the lead out�.

I promise, there will be far reaching consequences for every mode of transportation.  More to come…

Joe

Where will it be a month, year, two years from now is nothing more than a guess.  It could get to well over $100, which is a scary thought.

I thought this would be a great lead into this column. Oil exceeded $102 a barrel this past week! What was a WAG less than a year ago became reality. The energy crisis is upon the USA and the rest of the world. A combination of the growth of Asia Pacific economies, whose demand for oil is exceeding that of the US; and oil companies who have reported that their production/reserves are just meeting demand for the first time portray a sobering economic forecast. To be clear, oil companies have always been able to develop oil reserves that topped demand, but a combination of the confiscation of oil fields by several countries, and the dearth of new oil discoveries, has put oil companies in a very difficult position.

This scenario drives up the price oil, but where will it top out.  Some believe the world economy will become soft, which will bring the price of oil down to $80 a barrel. Others forecast the demand for oil and geo- political instability will dramatically drive up the price of oil to astronomical levels. Diesel fuel is now exceeds $3.60 a gallon, how long before it exceeds $4.00.  Fuel surcharges will rise to ???

I remember a presentation given back in the 70’s at the Council of Logistics Management, (now CSCMP). I do not remember who presented, but I vividly remember the message.  While gas prices had spiked to historic levels, there was more oil to be found and that the supply of oil would exceed demand, driving prices down. The forecast played out and the USA enjoyed the lowest price at the pump of any other country.

We got comfortable and initiatives to improve transportation effectiveness and efficiency met with resistance. It was resistance to change, the desire to continue conducting business as usual was too strong to over come new, practical ideas.

Now turn the page to sustainability and the efforts to find alternative fuels. Some countries have established goals of using alternative sources for 20 percent of their energy needs. Very ambitious and admirable, but what impact is having on commodity futures?  (Have you purchased a gallon of milk or a loaf of bread lately?  If not, check out the prices at your local grocery store and I think you will be shocked.) Answer, grain futures have hit all time highs and this is having a negative impact on world food supplies, causing some people of the very poor countries to fight for their very survival.  What is the game plan? Is there a game plan?

Let us start out by using less oil! Let’s send to the scrape heap those business practices that were established years ago and let’s become innovative.  Sharing accurate and timely information with all players in the supply chain can reduce the use of oil more dramatically then anyone can imagine.  We drive too many unnecessary miles! Trucks idle, keeping drivers warm in winter and cool in summer when they take well-deserved rest breaks.  How many gallons of fuel oil could be saved if we found another source of energy?  Just one of so many opportunities.

Why not move products shorter distances and handle them fewer number of times, the formula for effectiveness and efficiency.  Why not embrace VICS DC Bypass, moving product from the port of import directly to the retailers’ distribution center?  Imagine the miles less traveled, reduced wear and tear on the nation’s highway infrastructure, a smaller carbon footprint, and LESS OIL.

I do not have all the right questions and certainly do not have the answers, but smart people working for the right reasons will come up with viable solutions.  Who are they and when will they step up?
I know we can do it because I have experienced this country successfully step up to, and overcome,  challenges time and time again!! I have faith and confidence in our will to do what is right, for our families, our country and Mother Earth.  There is nothing that we cannot do if we have grass roots support and the understanding that it is resistance to change that is the main obstacle, and that can be overcome.

 

An article written by Joseph B. White appeared in the February 11th edition of the WSJ addressed “The Next Car Debate- Total Miles Driven�.  Mr. White shared some very interesting information and quoted the acronym CAFÉ or Corporate Average Fuel Economy. CAFE is last years energy/climate-change debate over cars that will have to meet a 35 mpg goal.  He says; “The next phase of the energy/climate change debate over cars will force us to learn another piece of technical jargon: VMT or Vehicles Miles Traveled�.

 

He goes on to say that passenger car miles traveled have increased by 151%, from 1977 to2001, 5 times as fast as  population growth. This growth has to do with the flight to the suburbs and a lack of investment in public transportation. Urban sprawl, folks willing to drive long distances to and from work to be able to buy an affordable house that their families can enjoy.

 

“The bulk of the money spent on transportation infrastructure has been directed to building more and bigger highways.� Bullet trains or other mass transit alternatives were not considered in the planning process (was there a long term planning process?}  Now there are government agencies are paying attention to miles driven. The Energy Department projects that miles driven will keep increasing, and by 2030 could grow by 59% from 2005 levels.

 

Next year Congress is scheduled to debate a massive bill to fund transportation projects using federal gasoline–tax revenue. The Natural Resources Defense Council and other environmental groups are tuning their attention to reforming land–use rules to promote denser development and concentrating more public spending on better mass transit systems.

 

In my opinion, this focus on passenger cars is will quickly zero in on motor and rail carriers. There are countless miles and gallons of fuel wasted each hour of every day as empty trailers and containers move to their final destinations. There are business practices that are built into the distribution of product that were put in place prior to the move to global sourcing. Consequently, these products move from manufacturing plants to supplier’s distribution centers, then on to the customers DC or store, crisscrossing the countryside.

 

Combining empty miles with varnished brain cells that insist on doing business as usual and as a result consuming fuel needlessly, will find that it is only a matter of time before he federal, state and local governments legislate ceilings on total miles driven. Once the ceiling is exceeded, ton-mile taxes will be applied. Add this cost to increased sales tax on diesel fuel and the cost of transportation as a percent of sales could exceed 15% for domestic business and 35% for product sourced overseas.

With the changes in Chinese labor laws, increased hourly wages and the beginning of social security, plus hefty increases in the cost of logistics, could change the present outsourcing model.  Hmmmm. Pause!

 

There are solutions that can definitely help and which will have an impact on sustainability. During the days of Efficient Consumer Response, the book on Third Party Consolidation was written, significantly benefiting from the experience and expertise of David Petri of Distribution Services of America.  Three PL Consolidation is a proven, highly effective business process, which delivers measureable results.  It was difficult to get companies to embrace 3PL Consolidation because the cost of transportation was relatively cheap, long before the price of oil hit $100 a barrel. It required change and the decision makers were loath to break out of doing business as usual.

 

There are compelling reasons to break out of the box, not the least of which is the fact at some point we will run out of oil and hopefully we will have an alternative.  In the meantime, we should manage this exhaustible resource, as it was gold.

 

I’ll expand on Third Party Consolidation and DC By Pass in my next column.

This was written in the 1930’s and the author is anonymous. However, it is as relevant today as it was then, if not more so.  Enjoy

Leadership is getting together with a person–as a person, free of the phony boss/subordinate pretense.

It is from out in front, never from behind, and rarely from the book.

It is sweating with your people, capturing the big one, making sure when they get it, that they also get the credit.

And it is suffering with them when the big one gets away or when things go awry and making sure that you share disproportionately in the loss.

Leadership is needling and joshing and being needled and joshed in return.

It is a lot of pats on the back and one in a while a kick in the pants.

It is giving and letting go–letting go–even when you have some doubts.

It is increasingly stepping into the background when everything in your being and experience drives you to step forward.

It is selling the worth and talents of others rather than touting your own.

It is being there for them early in the morning or late at night–with the feet on the desk–just to listen when you have heard it all 100 times before.

And when those you have led go on to greater things, surpassing even your heights, then truly you will know the secret of leadership–and with your quiet reflection of “I always knew he or she had it in him” will gain you the greatest satisfaction that any career can provide.

Sage advice to leaders throughout every level of every organization.  The subliminal message is to have fun at what you do and don’t take yourself too seriously. I’m sure you would be disappointed if I didn’t read collaboration into the message.

Best of luck to all of you who improve your leadership skills, just a bit, one day at a time.

The amount of information that we have access to today is mind numbing.  I am looking at a stack of magazines and periodicals that include articles that I feel compelled to read. Add this to 3 daily newsletters, a plethora of emails, newsletters and other information that is available on the web and I am constantly feeling overwhelmed.

Information overload? A compulsion for staying on top of what is new and relevant? Anxiety over not reading that magazine or particular article with a headline that screams for your attention. Missing a thought or concept that could help in solving a particular problem.  Perhaps this is my special personality disorder, but to put it in focus, it is one of many.

Add the above to the demand of staying on top of a constant stream of emails and making sure that everyone receives an immediate response (think compulsion). In addition, we cannot forget the countless jokes, prayers, admonitions that if you do not pass on a particular message you will be targeted for eternal damnation.  Some of the windows geeks establish files to maintain an uncluttered inbox, but that’s not me.

So what’s a person to do?  Here is my New Years Resolution.  Quickly scan the incoming and immediately choose what has relevance. Dispose of (recycle) the rest, the same day. Avoid clutter, period.

Use the PC to make summary notes of what is important and be vigilant in the use of the follow up capabilities.  Just learned that I can download my travel plans directly to my calendar, which will save so much time searching for itineraries. There is a lot more that can help me become more efficient in the use of the most valuable asset that I have, that is, time.  I’m going to make use of the time available to serve our business and academic communities.  Nobel, wouldn’t you say?

In my first English class, I remember the Latin phrase, Tempus Fugit.  That was many years ago and as I look back…..it was a precursor of things to come.

This column offers no advice. It’s just a bit of a catharsis that I felt compelled to share. Any suggestions to improve time management that you would like to share with our community of friends would be most appreciated.

Be sure to exercise your body and your mind and nurture your body with healthy food…

My wife got to a retail outlet a half hour before it opened, to find a long line of customers.  When she took her place in the queue, two of the customers told her that they had received tickets to purchase the limited number of items that were on sale.  She knew nothing about this service and when she asked store personnel, they didn’t either.

When she got to the department, the limited number of items had been sold and no one had any information as to the status of replenishment. There were a number of customers who were more than just a little irate, which seemed to have more to do with the lack of information that store personnel had, or that they were willing to share. Some were so incensed that they departed the store in a huff, vowing never to return.

While it was fresh in my mind, I called a friend who works in retail and asked him to explain the challenges that are faced by store management.  Information, or a lack there of, is at the top of the list.  Secondly, the number of store employees that call out sick on a given day can amount to a large percentage of the work force. For example an inbound truck could have been scheduled to be unloaded with product that was to be taken directly to the floor, only to have 11 out of 20 store employees not report for work. The end scenario is easy to picture, especially during the time when shoppers show up early and are met with empty shelves.

The other challenge is with employees who work one day and resign. Or they work a few weeks and just when they are at the point where they are trained and becoming productive, they leave without explanation.

I have a lot of empathy for store and department managers. It must be so easy to become discouraged when working so had to please customers, yet failing because of circumstances out of their control.

I don’t have any answers. I do know that retail out of stocks have plagued the industry for years and it doesn’t appear to be getting better. With the amount of product being sourced in foreign countries, I suspect that the problem will be compounded given the extended value chain, i.e. time, risk and forecasting.

Time to earnestly work on at least one aspect of improving the customer shopping experience?

Happy Holidays, Joe