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outsourced-logistics.com
December 2008
Trade Routes: Carriers go east Do we need another supply chain application? Elections have consequences
HAS AGILITY.
Troy Hammond
agilitylogistics.com
Editorial
Reverse Thinking
heres a phrase making the rounds in conference presentations and the media which logistics professionals need to ban from their vocabulary. We must help the general business public understand reverse globalization is a faulty concept or, at least, a misnomer. If you must persist, you might substitute commercial agoraphobia (a little redundant since agoraphobia literally translates to fear of the marketplace). Or, try isolationism or protectionist. Or, just scrap the economic theories of the last 232 years. Thats when Adam Smith described the supply chain. Smiths global view was primarily geared to commodities that were not available locally and thus had to be transported great distances. He described, in An Inquiry Into the Nature and Causes of the Wealth of Nations, the role of the supply chain in producing the woolen coat on the back of a common day laborer as extending from the shepherd to the sorter of the wool, the wool comber or carder, dyer, scribbler,
spinner, weaver, fuller and dresser. Then he noted a number of merchants and carriers are involved in the transport of the goods between these functions. He posed the question, how much commerce and navigation and, by extension, ship builders, sailors, sail makers and rope makers were involved in bringing the materials to the dyer so he could complete his job? What about the tools and commodities used by the others? Smith described what we have retitled lean manufacturing. In large-scale production, Smith saw a division of labor necessary to complete the tasks that could not feasibly or economically be done by a single worker or a single set of skills or tools. In those great manufactures . . . which are destined to supply the great wants of the great body of the people, every different branch of the work employs so great a number of workmen, that it is impossible to collect them all into the same workhouse. His view of mass production describes multiple workshops and implies outsourcingbut a more narrow form than todays standard because the economics of producing manufactured goods did not support separating those different production and assembly steps by any great distance. Smith recognized a number of supply chains come together in the production of even a simple product like a woolen coat. He described a division of labor which, with fast, efficient and inexpensive transport does not require every task to be performed locally. He also knew that the total landed cost would determine the nature and structure of those various supply chains. This difficult economy certainly requires a reexamination of how we produce and distribute goods and it will lead to reengineering supply chains. But as we go through those network optimization exercises to bring source closer to production or production closer to market, call it that: supply chain reengineering, network optimization or even near sourcing. But dont call it reverse globalization unless you want to go back to the hunter-gatherer days of our distant ancestors.
Outsourced Logistics
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December 2008
Vo l u m e 1 , N u m b e r 7
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Global Markets
REACH, The EU's Chemical Reaction Community Voice It's back to the basics of fulfilling customer demand Operations The Post Office Looks for Better Returns Community Voice Achieving a Demand-Driven Supply Chain Logistics Services China Carries a Torch for Logistics Community Voice Elections Have Consequences
Global Markets The Changing Map of the World's Trade Routes As dynamics of global supply chains move to meet ever evolving economic currents, carriers reconfigure the places and ways in which they respond to their own and shipper needs.
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Field Report Does the World Need Another Supply Chain Application? AMR Research has stated the problem, "Brand owners need better visibility into and control of the outsourced supply networks, but current technology options are not up to the task."
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Features
Operations Look Out for 2009 Warnings abound concerning the near-term outlook for the global economy.
Departments
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customers with unparalleled logistics solutions. Responsive, on-time delivery at a fair price qualities that keep Pilot Freight Services counting on us as a trusted partner. And the same award
Editorial
Chief Editor Perry A. Trunick Senior Editor Roger Morton Professional Contributors James A. Calderwood
Design
Art Director Bill Szilagyi
Sales
EASTERN REGION Jim Oot, Phone: 973-335-8902, Fax: 973-335-8903, jim.oot@penton.com WESTERN REGION Keith Taunton, Phone: 334-514-8107, Fax: 334-514-9377, keith.taunton@penton.com FLORIDA Bob Eck, Phone: 352-391-5577, bob.eck@penton.com ENGLAND Paul Barrett, Mark Whiteacre, David Moore, Phone: 44-1268-711-560, Fax: 44-1268-711-567 FRANCE Fabio Lancellotti, Phone: 331-4294-0244, Fax: 331-4387-2729 ITALY Cesare Casiraghi, Phone: 39-31-261407, Fax: 39-31-261380 BELGIUM, HOLLAND Peter Sanders, Phone: 31-299-671303, Fax: 31-299-671500 TOKYO Yoshinori Ikeda, Phone: 813-3661-6138, Fax: 813-3661-6139 SEOUL, KOREA Young Sang Jo, Phone: 822-739-7840-2, Fax: 822-732-3662 TAIWAN Charles Liu, Phone: 886-2-707-5829, Fax: 886-2-707-5825 CHINA Ballycastle Trading, Inc. Ltd., Phone: 852-524-7256, Fax: 852-524-7027 INDIA Shivaji Bhattacharjee, Phone: 91-11-268-7005, Fax: 91-11-2652-6055 SINGAPORE Mike Seah, Phone: 65-299-0413, Fax: 65-758-7850 or 65-296-6629
Business
Publishing Director David H. Colby eMedia Market Development Manager Jason Washburn Circulation Manager Tyler Motsinger Production Coordinator Rachel Klika Custom Media Group Terrence Grogan
Bob MacArthur Senior VP Industrial Group
Chief Executive Officer Sharon Rowlands Sharon.Rowlands@penton.com Chief Financial Officer Jean B. Clifton Jean.Clifton@penton.com
Daily News Features on the industry White Papers Webcasts Current and Past Issues Forums/ Rateem & Rankem
Outsourced Logistics (ISSN 1547-1438) is published monthly by Penton Media, Inc., 9800 Metcalf Ave., Overland Park, KS 66212-2216. The magazine is sent to qualified management in the field of logistics. Periodicals postage paid at Shawnee Mission, KS and at additional mailing offices. Can. GST #R126431964. Publications Mail Agreement # 40026880. POSTMASTER: Send address changes to Outsourced Logistics, P.O. Box 2113, Skokie, IL 60076-7813. Printed in U.S.A. Copyright 2008 by Penton Media Inc. Send editorial correspondence to: Editor, Outsourced Logistics, 1300 E. 9th Street, Cleveland, OH 44114-1503, or editor@outsourcedlogistics.com For information on obtaining reprints: Contact Penton Reprints at 888.858.8851 reprints@pentonreprints.com List Rentals: Walter Karl Inc., Rosalie Garcia, (845) 732-7027, rosalie.garcia@walterkarl.infousa.com Copying: Permission is granted to users registered with the Copyright Clearance Center Inc. (CCC) to photocopy any article, with the exception of those for which separate ownership is indicated on the first page of the article, provided that a base fee of $1.25 per copy of the article plus 60 per page is paid directly to the CCC, 222 Rosewood Dr., Danvers, MA 01923. (Code No. 0895-8548/08 $1.25 + $.60)
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Global Markets
By Catherine Muldoon
Reaction
For exporters to Europe, REACH is a game-changer. If a company cannot comply, it wont be able to sell products in one of the worlds largest markets. With nearly 500 million citizens, the 27 member countries that comprise the EU generate about a fifth of global exports and imports, making their combined GDP of nearly 11 trillion greater than that of the United States. Yet compliance holds considerable risk as producers and importers face the possibility of having to share often proprietary information and even testing of their chemicals if the data is deemed incomplete. The potential for divulging trade secrets is very real, so it is critical that REACH compliance be handled extremely carefully. European chemical companies must cease producing and importers must stop importing listed chemicals until they have complied with the mandates. Even the deadlines pose a challenge. According to REACH, any company that did not pre-register by December 1, 2008, will have to stop producing or importing immediately. And restarting the process requires going through the full-registration procedure. (In some cases, it is possible for a company to preregister after this date, but the rules are complex.) There are two broad categories of chemicals that must be registered: those already being manufactured or imported into EU countries, called phase-in substances, and substances new to the EU, called nonphase-in substances. REACH requires manufacturers and importers of chemical substances in quantities of 1 tonne (1 metric ton, or 1,000 kilograms) per year to register. They must obtain information on the physicochemical, health, and environmental properties of their substances to determine how they can be used safely. Each manufacturer and importer must then submit to the ECHA a registration dossier documenting the data and assessments. Both phase-in and non-phase-in substances that have not been pre-registered must be registered before
they can be produced, sold or used in the EU. However, the two types of substances have different schedules for registration. Manufacturers and importers were required to pre-register their phase-in substances by December 1, 2008, if they wanted to benefit from extended deadlines registration. Otherwise, they were obligated to fully register by that date. The penalty for failing to register is that the chemicals/articles
Good Chemistry
In considering using an Only Representative to comply with the EUs REACH regulations, consider the following: Hire an expert with extensive experience in EU regulations for chemical safety, chemistry and toxicology, environmental risk management, legal issues and information technology for seamless REACH implementation. Know the data compiled for REACH compliance and insist that it be transparent so you are aware of all status filings, information requests, decisions and actions. Find an advocate who possesses excellent communication skills to advocate on your behalf. Consider the total cost of satisfying the logistics requirements of REACH and ensure your internal team is up to the task. The cost of outsourcing may be competitive in light of the complexity of compliance. Ensure confidentiality and control through an Only Representative that can fulfill the REACH registration requirements and safeguard proprietary information. Get it in writing by naming your Only Representative in a letter to protect against an importer changing its position concerning its role. Plan for transition by building an internal project management team and empower it with oversight and decisionmaking authority. Negotiate the contract, spelling out expectations, terms and responsibilities including scope of work, pricing, milestones, incentives and penalties. Mandate that your Only Representative maintain the information in the strictest of confidence and use it for the sole purpose of REACH compliance. Keep an open channel by passing information down the supply chain and responding to information on substances passed from further down the supply chain (for example, requests for new identified uses of substances from downstream users). Retain documents.
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Global Markets
will not be permitted into EU commerce. Depending on tonnage band and the hazardous properties of the substance, the staggered deadlines are November 30, 2010; May 31, 2013, and May 31, 2018. Under REACH, only a natural or legal person established in the EU can be a registrant. Foreign nationals cannot self-register their chemicals. Exporters that do not have a subsidiary in the EU have three basic routes to compliance. They can establish a subsidiary in the EU; allow the importer to register their products; or they can outsource the process to a legal representative familiar with the chemical industry, REACH, and the EU regulatory climate. Establishing a subsidiary can be costly and onerous in terms of maintenance and management. Abdicating the process to an importer runs the risk that confidential information could be compromised by disclosure or reverse engineering. If the registrant is an importer or distributor, that entity technically owns the registration and is responsible for communicating with ECHA, which will require detailed disclosure of the composition of chemicals and other products. In addition, working through an importer or distributor may make it difficult to alter future distribution channels in the EU. In fact, changing partners in Europe may cost an exporter access to the EU market. The process of establishing an internal team to gather data, test substances, file reports and interface with the EU can tax the resources of even the largest companies. The REACH deadlines point up the need to act quickly to ensure uninterrupted access to the EU market. Within this context, outsourcing REACH compliance may prove to be a viable business strategy. Under REACH, an exporter has the option of working through an Only Representative, an agent that can register the substances of non-EU members. An Only Representative must be both a legal entity established in the EU and have sufficient background in the practical handling of substances and the information related to them to be able to fulfill the obligations of importers. As such, it can serve as a valuable adviser for developing a global REACH strategy to complement internal compliance programs through transaction auditing, training, and formulation of appropriate policies for present and future filings. An Only Representative can provide an exporter greater control over the entire registration process including critical aspects of its substances, thereby minimizing the potential for disclosure of proprietary information. The key challenge to compliance with REACH is remaining competitive while protecting trade secrets and your place in the market. Outsourcing this process can provide a logical solution for exporters looking to maintain their competitive edge by retaining ownership of the registration data and control over the entire process. Catherine Muldoon joined BDP International in 2002 and was named chief global counsel in January 2004. She heads BDPs legal department with direct responsibility for all legal and contractual considerations associated with all mergers and acquisitions, joint ventures and business partners, tax planning, corporate structuring and strategy, business services, personnel, banking relations, and real estate. She is also responsible for managing litigation and takes a lead role in corporate governance and risk management programs.
Registration Deadlines
The following deadlines have been established for REACH compliance: Nov. 30, 2010 P h a s e - i n s u b s ta n c e s t h a t we re manufactured or imported into the EU at least once after June 1, 2007, in quantities of 1,000 tonnes (metric tons) or more per year per manufacturer or importer. May 31, 2013 P h a s e - i n s u b s ta n c e s t h a t we re manufactured or imported into the EU at least once after June 1, 2007 in quantities of 100 tonnes or more per year per manufacturer or importer. May 31, 2018 P h a s e - i n s u b s ta n c e s t h a t we re manufactured or imported into the EU at least once after June 1, 2007 in quantities of 1 tonne or more per year per manufacturer or importer. Substances not pre-registered but which are imported for the first time into the EU after December 1, 2008, may benefit from the staggered deadlines if the information requested for pre-registration is provided within six months of the first import into the EU and no later than 12 months before the relevant registration deadline. For more detailed information on practical pre-registration issues, use of IT tools, IUCLID 5 pre-registration tool, and REACH IT, visit http:// echa.europa.eu/pre-registration_en.asp.
OVER EASY
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Global Markets
Global Markets
Community Voice
Its back to the basics of fulfilling customer demand
By Chris Coppersmith
n hard economic times, it is remarkable how management at companies of every size, type and description declare their businesses are getting back to basics. Not only do they assert their people are concentrating on the nuts and bolts of running a business, they are demanding vendors follow their example. As the smooth, efficient transportation of their product lines is a key ingredient in the success or failure of their selling efforts, with resultant profit or loss on their balance sheets, logistics providers are caught right in their crosshairs. What are the basics of transportation today, whether by air, ocean, truck or rail? What do customers want from their vendors? The principal items on customers wish lists include competitive pricing; delivery of goods on time and when promised; rapid, accurate transmission of information from vendor to customer and hassle-free transshipment of merchandise from pick-up on the loading dock to delivery at final destination. The mark of a successful forwarder remains the same in good times and bad: it is to offer the shipper a compelling blend of personal service combined with high technology. As economic conditions change, however, priorities must be modified to reflect these changes. Of course, it is the successful freight forwarder who responds to the current needs of the shipper. To offer the customer the kinds of services required. In todays economic climate, however, technological hijinx become less important than the primary purpose of moving goods in a swift, expeditious manner. In a softer economic climate, no one is safe. The very large international forwarders, who disdained small shippers business in the past, now compete vigorously for it. National trucking firms who traditionally have emphasized full load shipments now fight for less than truckload (LTL) business against smaller, regional carriers. The package express companies, who once scorned any shipments less profitable than overnight deliveries of high value packages and documents by air, now eagerly accept low value, slower ground freight of any weight and type. In a harsher economic climate, we forwarders require a change in mindset. We need more shoe leather and less preoccupation with the Internet. More sales calls and less time looking at computer screens. Our business is people, not computers. Never has there been a better time than today to emphasize that truism to our customers. In these currently tough times, despite our best efforts, some attrition in business among existing customers will occur. Success or failure in capturing new business may well mean the difference between a viable company and a barely breathing one. Even in good times, our industry has not been particularly successful in attracting customers who either dont use air at all or use it sparingly. We have been too preoccupied with soliciting business from each other rather than attracting new shippers to air. We seem content to generate only a 2% share of all domestic freight and 4% of international cargo. These percentages have not changed in thirty years. As an industry, we must do nothing less than create a sales and marketing environment that will cause shippers to think of air not primarily as a premium method of moving goods but as a powerful sales and marketing tool. In these troubled times, we require a persuasive and compelling rationalization for the use of air. The last genuine effort to provide an economic underpinning for the utilization of air was the Total Cost Concept. That was almost forty years ago. We require persuasive reasons for the 21st Century, not the 20th. In a fiercely competitive environment, the first instinct is to cut rates. Suppress that instinct. Bargain basement rates, often below the cost of doing business, are at best a temporary fix and at worst the start of a slide down a slippery slope to bankruptcy. Rather than cutting rates to the bone, become a partner to your customers profit-making process. Dont be just another anonymous vendor. Show your concern for his bottom line and how you can help in making it stronger. That may call for knowing his business as well as your own. Never take his business for granted. When he calls or e-mails with a particular problem, answer the request promptly. Forwarders must respond to the economic realities of today. Those companies who do so will remain successful. Those who do not, whether in business ten months or ten decades, will not survive. Coppersmith is president of the US division of Mainfreight, formerly Target Logistic Services, and a 36-year veteran of the logistics and freight forwarding industry.
Outsourced Logistics
| December 2008 | 11
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Operations
By Roger Morton
he deteriorating economy played havoc with the US Postal Service (USPS) as it has with a galaxy of other businesses. As it ended its Fiscal 2008, it found itself losing $2.8 billion. For the year, USPS saw its volumes at 202.7 billion pieces, which is a decline of 4.5% year over year with 9.5 billion fewer pieces handled. Income for the year was $75 billion. Expenses totaled $77.8 billion, of which $5.6 billion was a payment required by the Postal Act of 2006 to prefund retiree health benefits. The Postal Service had undertaken some $2 billion in cost-cutting actions that included using 50 million fewer work hours than in Fiscal 2007. As we continue to reduce work hours and other costs, our top priority remains providing excellent service to our customers. The combination of excellent service and affordable prices makes Postal products a great value, says Postmaster General John Potter. Among other guiding principals of the Postal Act of 2006 is, the adoption of corporate best practices, such as rational investments in the infrastructure, and the realignment of resources to match the changing needs of customers and mailers, in order to respond to the systems incentives. This has led the Post Office to reach outside its walls to find and incorporate leading edge technology and services to enhance its offerings. A case in point has been the use of its Highway Corridor Analytic Program (HCAP) developed by the USPS in conjunction with IBM Corp., with the use of ILOGs CPLEX mathemati-
cal optimization technology. HCAP is used to examine routing and scheduling options with the aim of minimizing USPS costs while meeting business goals. Among other challenges for the USPS network is consideration of many levels of service for customers including a variety of classes, types, sizes and weights. Added to these issues is the need to best allocate mail among available transportation resources. The USPS operates in a very unique business environment, says E.J. Matto, Associate Partner, IBM. The overall size of operations and the inherent logistical complexities create significant challenges in managing the transportation network. Using optimization technology for the transportation model helps the USPS uncover opportunities to streamline areas of long-haul transportation through consolidation. HCAP has provided USPS with optimized plans for the use of its existing assets including routes, delivery
time, truck capacity restrictions and class of mail. Though he wont quote specific dolThe result has been savings of more than $10 millar figures, Scheer says that the USPS lion in the two years since HCAP was deployed. has received benefits in the millions of In moving to improve freight traffic managedollars within the course of a single fisment, the decision was to select a third party supcal year. Savings have come in rate replier (3PL) to manage that portion of its activities, ductions or avoidance of paying some according to Franck Scheer, purchasing manager freight charges. Some of it has also come for the USPS. We actually spent about a year and in the ability of Ryder to leverage vola half working developing a statement of objecumes and negotiate better rates with tives to use as criteria for selecting a business part- Mike Twomey of Newgistics individual carriers. But he feels greatest ner, he says. The Department of Defense (DoD) value has been through load consolidahad experienced a failed attempt with outsourcing to a 3PL. They tion and tradeoffs within the USPS supply chain between learned a lot out of that and went out with another solicitation I packaging, inventory management, and warehousing with think is proving to be a little bit more successful, he continues. transportation. The USPS sat down with DoD staffers who had worked on the iniIn addition to using third party providers the USPS tiative, learned from them, benefiting from their experiences. has made changes in services it is offering to its customScheer recalls that, We were looking for a company to come ers. For example, Express Mail packages may be held at in and bring best business practices, best information systems the local Post Office for pickup at times convenient to the technology to us as solutions. The choice was Ryder Systems for customer. Customers can choose Express Mail Hold for handling cradle to grave transportation processing for USPS freight Pickup through Click-N-Ship at www.usps.com. Hold for shipments. Within its service offering the 3PL handles back end Pickuppreviously available for Express Mail purchased operations including invoice validation and preparation for payat Post Offices or Automated Postal Centers (APC)is now ment processing in addition to processing loss and damage claims. available for online shippers. Craig Clark, Ryder distribution traffic manager, explains, the Hold For Pickup provides additional security for shipPostal Service had many entities needing to request transportation pers who may not want expensive products or heavythat were completely disconnected from each other. They were opweight goods left at home addresses, says USPS expedited erating in a vacuum. We provide a web-enabled platform allowing shipping vice president, Gary Reblin. One example of use entry of orders for transportation. We then are able to consolidate of the service, he notes, is for businesses sending critical orders and optimally execute them. repair parts for field technicians to pick up. Ryder reports on-time pickup and delivery, consolidation opAn additional service now being offered is free Carrier portunities and freight volume procurement it leverages along with Pickup for any Parcel Return Service (PRS) package. a fuel surcharge program that has brought significant savings to the Its an outstanding offering that makes an awful lot of USPS. But Clark feels Ryders true value is in its ability to capture sense, claims Michael Twomey, chief financial officer of and analyze data to demonstrate how the Postal Service business is Newgistics. The company is a USPS approved third party operating and point out opportunities for greater economies. reverse logistics provider for PRS. Now a customer can The whole idea about tightening your supply chain is not that arrange for a pickup, provide special instructions such as you try to optimize each of the components, such as transportathe package will be by the side porch door, and those are tion, warehousing or packaging, claims Scheer, but that you try printed every morning and handed to the carriers before to come up with integrated solutions and ones that look at a much they go out on their routes. The use of web service is very broader picture and try to get better performance at a lower price efficient. overall rather than each of the individual components. So thats As far as costs to the consumer, Newgistics offers its what I think Ryders forte is. Certainly thats worked to the ben- SmartLabel, a pre-paid, pre-addressed return label on the efit of the Postal Service by taking that more mature look and also order summary to be used to return products to retailers. working on a lot of continuous improvement projects. Because Newgistics has PRS rates it is able to provide com-
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Operations
Ryder helps move the mail petitive pricing to its customers who, in turn, pass them on to their consumers. One of our advantages as a business and a provider, says Twomey, is that we have very advanced technology both on the return and delivery side. For carrier pick up, because weve got web services and are integrated with our customers, we are able to easily provide a link. Our application programming interface capability provides the link back to the USPS site for the pickup. We are making it very easy for our retailers to provide that capability to their customers. Looking at the delivery side, Twomey says the Postal Service is moving forward very quickly with technology improvements, one of which is the electronic verification system (EVS) that significantly speeds manifesting. It reduces costs for the USPS and shipper because there is much less manual auditing of packages. It is accomplished statistically, which significantly reduces the number of packages to be audited. We are 100% EVS compliant, claims Twomey, and are actually working on a schedule with the Postal Service to use EVS on the return side. So well have electronic manifesting on both ends. Our error rates on the front end are zero, which is great for customers, the Postal Service and us. We are really looking forward to bringing EVS to the return side. Another way the USPS is increasing revenues is through a rate increase that will go into effect on January 18, 2009 for Express Mail, Priority Mail, Parcel Select, Parcel Return Service and some international shipping products. Overall the increases are an average of 5%. The USPS will be offering Commercial Plus pricing it claims is a great value for high volume Express Mail and Priority Mail users. On average when compared to retail pricing, the USPS says Commercial Plus for Express mail is 14.5% less and 7% less for Priority Mail. Commercial Plus is a very competitive offering for commercial customers, sys Reblin. It offers lower prices that will reward them for shipping higher volumes with the Postal Service.
Productive.
Versatile.
Dependable.
The American Transportation Research Institutes (ATRI) report, Critical Issues in the Trucking Industry2008, points to fuel costs and the economy as the major headaches. But, there are eight more. ATRI, part of the American Trucking Associations Federation, is a not-for-profit research trust headquartered in Arlington, VA. Its mission is to conduct research in the field of transportation, with an emphasis on the trucking industrys essential role in a safe, efficient, and viable transportation system. In reflecting on ATRIs work, Bill Graves, ATA president and CEO notes that, On every legislative and regulatory topic, issues come and go so quickly today. If were not at the table with sound, science-based information and a common sense plan of action, then were going to get left behind, and saddled with solutions that have no bearing on moving Americas freight safely and efficiently. Here is the Top Ten list with observations on each quoted directly from the report. 1. Fuel Costs. After ranking 1st in 2005, 2nd in 2006 and 3rd in 2007, fuel once again attained the top ranking. Though motor carriers in 2008 aggressively sought to recoup fuel cost increases with fuel surcharges, the industry simply could not keep pace with the unprecedented rise in diesel fuel costs. 2. Economy. As high fuel prices, a deepening credit crisis and rising inflationary pressures take a greater toll on the US economy, the industry is pressed by increasing regulations, slumping demand, excess capacity and increases in both fixed and marginal key cost centers. 3. Driver Shortage/Retention. Although the persistent sluggishness of the economy relieves some pressure, respondents clearly remain concerned. 4. Government Regulation. Though primary safety regulation is the mandate of Federal Motor Carrier Safety Administration, carriers face other significant regulations imposed by federal, state and local authorities. 5. Hours-of-Service. Hours-of-Service (HOS), was the top ranked issue in 2007. It slipped four places in 2008. In 2008 however, concern over potential changes in HOS regulations has been supplanted by issues that are having a more direct impact on carrier operations and profitability. 6. Congestion. Though the issue has seen a steady increase in rankings since 2005, its drop from 4th place in 2007 to 6th may be explained by recent declines in vehicle trips and vehicle miles traveled resulting from fuel price increases for all road users. 7. Tolls/Highway Funding. These issues have gained prominence from several events, including the US Department of Transportation announcement that the Highway Trust Fund was running out of money and the rejection of a congestion-pricing program in New York City. 8. Environmental Issues. The proliferation of anti-idling regulations and other emission reduction initiatives sought by more state and local governments has created concern that the compliance costs may exceed benefits. 9. Tort Reform. It seeks to minimize industry harm caused by inequitable and excessive civil judgments against trucking firms. The trucking industry, reflective of many other industries, seeks to clarify the distinction between civil tort liability and punitive damage awards. 10. Onboard Truck Technology. The industry understands and supports many of the potential benefits of these technologies, even though many questions remain. The most prolific technology topic is Electronic Onboard Recorders (EOBRs), most often cited as a potentially effective tool for monitoring HOS compliance.
Operations
Community Voice
Achieving a Demand-Driven Supply Chain
By Ashok Santhanam
usinesses today are challenged by globalization, price wars and volatile economic conditions as well as the need to accelerate time to market and meet service levels required by their customers. Addressing these challenges puts immense pressure on supply chains to deliver products and services at the right time, in the right quantity, with the right quality, at the right place and the right cost. Managing these five Rs effectively is the primary task of enterprise supply chains. To maintain profitability, or even to survive, businesses and their supplier partners must be able to predict demand and be prepared to react quickly to change. Failure to do so results in costly inventory write-offs, stock outs, and loss of market share.
Variability
Demand and supply variability is a common supply chain problem. A small variation in demand at the point where the
demand is created (e.g., retailers and customers) can cause significant variability in orders placed upstream. The reason is that any uncertainty in demand causes every supply chain partner to factor in a margin of safetyleading to a situation commonly known as the Bullwhip Effectwhich creates excess inventory within the entire supply chain. Here are the causes of the Bullwhip effect: Multiple node forecastsRetailers, suppliers and every organization that stands between them creates independent, uncoordinated forecasts. Long lead timesRetailers and distributors, fearing stockouts from unplanned higher demand, add a small safety buffer in their orders. Shortage gamingFear of product or component shortage or allocations forces supply chain partners to inflate their forecasts to their suppliers. Price fluctuationsSpeculation over future pricing and their ability to survive a price war cause retailers and distributors to artificially adjust orders. Order inflationRetailers and distributors increase order size, motivated by volatile market conditions and economic news. Promotions and competitionSupply chain participants may significantly change their orders to take advantage of trade promotions or a competitors promotion, causing perceived changes in demand downstream. Poor communication and visibilityLoose coupling of dependent and independent demand as well as a dearth of realtime, actionable information contributes to inaccurate forecasting and poor purchasing patterns. The Bullwhip effect impacts businesses in two significant ways. First, supply chain operation is less than optimal. Frequent ad hoc order and schedule changes add to the atmosphere of anxiety. One location may have excess inventory, while at another, customer demand is unsatisfied. Inventory carrying costs mount, and supply chain resources are not well utilizedultimately leading to a loss of trust among supply chain partners. Second, disconnects between supply and demand affects delivery performance, negatively impacting sales, customer loyalty, revenue and market position. Addressing variability, cracking the code of demandsupply imbalance, requires focused activity around implementing
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the right processes, gathering the right information and facilitating partner collaboration: Implementing S&OP Careful planning is vital to a demand-driven supply chain. S&OP requires capturing demand across various channels, analyzing it and creating feasible supply plans. S&OP requires top-down management support within an organization as well as buy-in across the entire supply chain. Without them, organizations will not be able to meet their financial commitments or end the perpetual tug of war between demand and supply. Capturing real-time dataTo minimize demand variability, businesses are moving toward collaborative planning. That is, they are involving retailers and distributors in the demand planning process and capturing point of sales (POS) dataoften through the use of radio frequency identification (RFID) solutions. As a result, the entire supply chain has the accurate demand information on hand that is necessary to meet financial and order level commitments. Statistics-based forecastingThe ability to analyze historical data for the presence of trends, seasonal fluctuations and causal relationships enables organizations to create more accurate forecasts. Inventory policiesCompanies can control supply variability by adjusting inventory stock norms and implementing push/pull strategies. Calculating inventory norms across the supply chain is critical, as is inventory positioning. Distributed vs. centralized inventory is a perennial issue, and strategy tends to be influenced by the nature of products or services and the supply chain network design. One way to address this is by pushing larger amount of inventory to the central distribution point where it can be pulled based on actual POS demand. This strategy facilitates overall lower inventory within the supply chain, reduces lost sales and increases inventory turns. Balancing push and pullThere is no such thing as a one size fits all push/
Achieving a demand-driven supply chain organization requires managing variability, visibility and velocity.
pull strategy for all products and services. In the case of commodity products, the focus should be on reducing supply chain inventory costs as much as possible. With innovative or much-demanded products, the right approach is to pick a model that accelerated availability. Encouraging supplier collaboration Creating long-term contracts with trusted suppliers strengthens the business relationship and makes the flow of products and services smoother, leading to lower supply variability.
and proactively react to them. Suddenly everyone within the supply chain is on the same page.
Velocity
Visibility
Visibility across a supply chain into data such as demand, inventory levels and order/shipment status increases the agility and responsiveness to any changes in demand and supply. Identifying appropriate performance metrics and visibility into the metrics at various levels of detail using supply chain analytics ensures that the supply chain is functioning properly and enables continuous improvement. Supply Chain Event Management solutions play a big role in improving supply chain visibility by enabling an organization to easily map, control, and check all key events for a business process that they want to monitor and share within the supply chain. Such a system continuously monitors the process for any events that need to be triggered based on the business rules and event triggers defined within the process. Once an event is triggered, the system identifies the various subscribers to that event, including supply chain partners and notifies them using various mechanisms such as email, phone call or a system alert. The triggered events serve as a collaboration mechanism between various stakeholders, as well as allow them to identify any exceptions in a timely manner
Both IT and business strategy play a pivotal role in ensuring smooth and quick flow of information within the supply chain, leading to increased velocity. It can be a challenge to smoothly integrate an enterprises legacy systems with new supply chain solutions, while preserving historical data and continuing to capture real-time supply and demand information. New planning systems on the market have enabled companies to easily integrate planning and execution domains, prevent delay in deploying new planning models and processes due to their flexibility and ability to reconfigure and easily propagate relevant information to customers and suppliers. As a result, organizations are better prepared to meet this challenge while maintaining or improving speed to market.
Conclusion
Achieving a demand-driven supply chain organization requires managing variability, visibility and velocity. Each of these tasks is considerable, and fortunately, successful efforts in one area should feed into the others. Companies that set themselves on the path to an optimally functioning supply chain will need to undertake initiatives that range from changing the mind sets of their supply chain partner, streamlining their various supply chain processes to implementing technology that makes the information flow between supply chain partners smooth, fast and accurate. The winners will be those who team with IT to get the job done. Ashok Santhanam is CEO of Bristlecone (www.bcone.com), a supply chain consulting firm. Bristlecone brings expertise across the entire spectrum of supply chain including demand planning, supply planning, network collaboration, sourcing and analytics.
Cover Feature
hen Richard Kaglic stood before the Cleveland Roundtable of the Council of Supply Chain Management Professionals (CSCMP) to offer his views, the senior economist for Eaton Corp. started with the only good news he had. A snow storm was rolling in. From there, it was downhill. Quips about the weather aside, Kaglic and other watchers and forecasters are unanimous in the view that, if the third quarter looked bad, the fourth will be worse. And dont look for any real relief in the first quarter of 2009. From there, the prognosticators vary somewhat on how much and how fast well start to see any improvement. In the US, talk of another economic stimulus in the new presidential term rises and falls with the economic tide. As Kaglic points out, the first half of 2008 gave the appearance the US might avoid much of the downturn. The Federal Reserve had lowered interest rates and Congress passed a stimulus package. But, the stimulus failed to achieve its goal in large part because the positive effects of putting more cash in the hands of consumers was swamped by a surge in oil prices. The US economy is in a recession, said Kaglic. Its going to be, by recent historical standards of 1991 and 2001, a fairly prolonged recession and its going to be a fairly deep recession. Unfortunately, he continues, other global economies are following the US down that road. Even as he was speaking, media reports were carrying admissions by Japan and some Western European officials that their countries were now officially in a recession. Even emerging economies which had exhibited booming growthnotably Chinaare seeing that growth slow or stall. Volatility in the markets is important, continues Kaglic. That volatility can lead to uncertainty, and uncertainty in and of itself can be a paralyzing factor. It can paralyze financial markets, it can paralyze credit markets, it can paralyze the economy. Looking at the global purchasing managers index, Kaglic notes in the first half of the year, the index was bouncing around at the 50 level, indicating neither growth nor contraction. But in
Warnings abound concerning the near-term outlook for the global economy.
September and October the index fell well below 50, into the area indicating contraction. The good news is that we are probably in the midst of the worst of it right now, observed Kaglic. We think that were going to see the biggest contraction in total output in the fourth quarter. Its going to be ugly again in the first quarter. Its not going to be as ugly, but its going to be ugly. We see a little bit of stabilization in the second quarter, and we see a slow climb out in the second half of the year. Exports had shown some promise in moderating the impact of the US slowdown, but that could be cut short by the fact the economic slowdown is global. Construction equipment, for example, had benefited from global expansion and a weak US dollar. But the economic slowdown has reached those nations where construction was on the rise, curtailing some of that growth. And the instability in financial markets had fueled a flight to quality investments which has boosted the value of the US dollar, leading to a two-pronged hit on the promising construction equipment export market, according to Kaglic. Inventories typically account for a small proportion of gross domestic product, he continues. But changes in inventories can wreak havoc on GDP estimates. Looking back at the recession of 2001, Kaglic notes, a lot of people said it was because the tech bubble burst. But, people forget there was a big inventory liquidation as well. And that inventory liquidation at times subtracted 3% off the top line gross domestic product. So it was in large part an inventory led contraction in 2001 in addition to those other factors. The inventory to sales ratio has been rising lately. But the anec-
2009
dotal information were getting is, its manageable. Its not so much an inventory problem as it is a sales problem. Sales are declining, thus the inventory to sales ratio looks bad. But when you dig into the numbers, this is durable goods inventories and durable goods sales. What you see [with transportation equipment removed] is a disconcerting trend, says Kaglic. Manufactured durable goods sales have been flat or only slightly ahead for the last year and a half. Durable inventories are rising. This does not bode well for production as we move through the fourth quarter and the first quarter of next year. Firms with bloated inventories wont have to boost production to meet demand, they will simply take it out of those inventories. That, says Kaglic, will weigh on GDP growth in the fourth quarter and in the first quarter of 2009. Aerospace has been another bright spot in an otherwise gloomy outlook, but the situation there is also changing. The first nine months of 2008 saw freight volumes decline as well as passenger traffic. Boeing, which had remained optimistic because it had backlogs to 2012 (and it pointed out, only 10% of those were in North America) is feeling the global effect and may only have backlogs through 2009. Follow industrial production, agrees Thomas Albrecht, managing director, Stephens Inc. Speaking before the combined National Industrial Transportation League (NITL), Transportation Intermediaries Association (TIA) and Intermodal Association of North America (IANA), he pointed out that industrial production is down 3.5% and could be off by as much as 10%, which will drive freight volumes. Joining him on a panel at the combined session, John Larkin, managing director, Stifel Nicolaus, described the US economy as unsettled and pointed to a 26-year low in the Institute for Supply Managements (ISM) purchasing index, saying it was clearly apparent in the decelerating freight volumes. Those numbers were weaker from July to August and then again from August to September 2008, he said. Companies are in a cash preservation mode, drawing down inventories rather than investing in new production or purchasing. October took a big drop, he said, and November would not look better when numbers are released. But, on a slight note of optimism, he pointed out credit markets appeared to be starting to operate again [as of mid November 2008]. Urs Durs, vice president of Lazard Capital Markets, added on a global scale that the difficulty in finding or acquiring letters of credit (or the high cost) contributed to the economic malaise resulting from the lack of credit. Many companies have good balance sheets and business plans, he noted, the economy is the issue. The logistics industry is in the third year of a freight recession, added Larkin, pointing to the third quarter of 2006 when both auto sales and housing dropped. The situation worsened in the weeks before the panel discussion as rail car loadings fell and the dollar gained strength, slowing exports. The Morgan Stanley Truckload Index continued to indicate low volumes, said Larkin. The recovery wont look like previous recoveries, said Albrecht. The prolonged downturn will continue to flush out capacity, he says. Lengths of haul are getting shorter. One-way truckload is going away. And the types of loads are changing. Larkin agrees that smaller and fewer shipments are resulting from packaging changes that increase the number of items in a shipment (conversely reducing the number of shipments). Supply chain owners are looking for ways to take product and weight out of their shipments and they are reexamining their network design. You cant build your supply chain around $1 per mile transportation, he observes. The three panelists said forecasts on oil prices are impossible. At best, the price per barrel of crude should stabilize around $60 or within the $50 to $100 range in 2009. They appeared to agree that the $45 level at the time they were speaking was the bottom of the market and was unsustainable. The price is likely to approach $100 in 2009 and again in 2010 and beyond. A contributing factor in the difficulty forecasting is the role of speculators. They were not a factor in the past when forecasts could be based strictly on supply and demand, noted Larkin. High oil prices with low freight volumes could accelerate capacity exiting the field, he continued. Smaller companies got a respite from the drop in prices, but as they edge back up, fuel cost will be a factor for those carriers. There is a natural process of eliminating excess, says Larkin.
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Cover Feature
But there are less-than-natural drivers as well. Lazards Durs pointed to the death of trade credit causing steel making to grind to a halt. Its not a function of demand. If credit can return, well get back to business, albeit in a recession, said Durs. Other cost factors that are not market driven include a complex series of developments at the ports of Los Angeles and Long Beach. Importers like the ports because they are located in a large consuming market, says Larkin, but there is a limit to the amount of accessorials and fees the freight can tolerate, and it will shift to other gateways. He notes Vancouver and Prince Rupert in Canada, Lzaro Crdenas in Mexico and the expanding Global Purchasing Panama Canal open alternatives New Orders (>50 = Growth) to LA/Long Beach. Another factor is mode shifting, but it has its limits. Container ships can slow to save fuel, but bulk ships such as tankers cannot, points out Durs. In addition, containers are easy to build, and more containers mean lower rates. Similarly, bulk commodities are largely captive to rail in domestic transport, says Albrecht. Railroads can be more aggressive on rates and service for freight that cant convert to truckload. And more intermodal freight could start to go back to the highways in 2009, he adds. There are limits to how much freight can move via domestic intermodal continues Larkin. This is due in part to the fact railroads have created long-haul, high-density lanes with efficient ramps on either end. Some cities wont be as competitive on intermodal, he adds.
Still, railroads will invest in corridors where they can develop shorter to medium-haul intermodal lanes, but a railroads definition of a short haul lane does not necessarily match that of a truckload carrier. Trucks can reach 500 to 600 miles where a short haul for a railroad is 900 to 1,200 miles. In addition, the proximity of the shipper or consignee to an intermodal ramp drives the economics, says Larkin, and if the move to or from a ramp is too complex or too far, the economics break down. Perhaps the toughest segment is lessthan-truckload (LTL) where carriers have high fixed costs and shippers have a strong incentive to reduce costs by shifting away from the mode. The foManager Index cus on shorter, more regional distribution puts national networks under pressure as well. Region Aug 08 Sept 08 Oct 08 DHLs exit from the domestic Eurozone 44.6 41.7 36.2 US express market will push its Germany 46.8 44.9 39.2 volumes to other carriers, but likely very little will find its way to France 41.3 37.5 34.9 LTL carriers. Italy 43.6 40.4 32.0 So, from a rate and cost perspective, bulk commodities shipSpain 40.3 35.4 29.5 pers and parcel shippers could Netherlands 47.8 46.3 41.8 have the least leverage given the United Kingdom 41.6 36.3 37.8 fact they have fewer options. Anecdotal evidence from shipRussia 49.7 51.9 n/a pers, carriers and third party loPoland 44.3 43.0 40.3 gistics providers also indicates an Czech Republic 45.0 42.8 36.1 attitude that hammering carriers on price is a short term tactic Japan 44.1 39.6 34.5 with longer term negative conseChina 49.4 45.8 43.8 quences everyone wants to avoid. India 65.8 62.6 54.4 With markets across the globe contracting and a strong focus Australia 43.2 44.3 38.9 on domestic networks, the mood Brazil 50.5 49.6 42.0 seems to be that everyone is being South Africa 43.9 46.5 42.8 soaked by the same storm, and Source: JP Morgan/Reuters perhaps some cooperation is in Eurozone = Austria, Belgium, Cyprus, Finland, France, Germany, Greece, order to ensure the greatest numIreland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain. ber survive.
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December 2008
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and 34 cities worldwide with 139 air lanes. Originally scheduled for opening by the end of this month, the start of operations at its new Asia-Pacific Hub at Chinas Guangzhou Baiyun International Airport has been moved to the first half of next year. The new hub will replace the carriers present hub in Subic Bay. The slight delay is to provide FedEx with the necessary time to fully test all systems and processes at the facility, as well as to work closely with the Guangzhou authorities to ensure all necessary approvals are in place. Air carriers are adapting their schedules and routes to take advantage of now emerging freight opportunities even as they pull back from some destinations that dont offer as much business. For example Delta Air Lines will begin new international routes beginning next summer that add cargo capacity for the carrier. Among the destinations are a number in Africa, greater Europe, the Middle East and Asia. American Airlines has expanded its eastern coverage with the addition of daily Boeing 767-300 service from New York to Barcelona and another to Milan. The airline also has a new cargo service to Moscow from Chicagos OHare International Airport Withdrawing from the domestic US air freight market and maintaining its status as a major international carrier, DHL is partnering with Polar Air Cargo on flights from the US to Asian destinations to upgrade its Time Definite product. DHL Express has a Block Space Agreement with Polar that guarantees access to six Polar Air Cargo Boeing 747-400Fs that serve key destinations in both Asia and the US. As part of the partnership, DHL will use Polar Airs scheduled weekday flights from Los Angeles,
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ated the service in partnership; this with Pacific International Lines (PIL). Each company will deploy five Panamax-size vessels. A current partnership between PIL and Mitsui O.S.K. Lines offering service between Asia and South Americas East Coast will be dissolved in January 2009, with Mitsui then operating a new independent service in its place. Maintaining a focus on Asia, APL is making significant changes in its global services network in response to harsh economic realities. For example, the carrier has reduced capacity within its AsiaEurope trade lanes by nearly 25%. As part of the reshuffling, APL is also reducing capacity in its transpacific routing by 20%. At the same time, the carrier is adjusting its intra-Asian coverage to be more in tune with shipping customer demands. Asian trade with the US and Latin America are not the only regions experiencing service adjustments. In mid-October, the CKYH Alliance Coscon, K-Line, Yang Ming and Hanjin Shippingsuspended its All Water East Coast Central Loop and reduced overall capacity in the route by 18.5%. Among other moves, those in the alliance suspended service in Asia-East Mediterranean service. Capacity between the US and Europe has been reduced by 18%. Early next year CKYH will terminate service connecting the Mediterranean, Asia and the US. While this will cut some 13-15% of its total capacity in the lanes, the carriers will substitute already existing service for those being ended. Shifts in the movement of freight from one point on the globe to another are not limited to air and ocean. Operating to meet changing shipper requirements while preserving and maximizing assets touches all modes. As conditions dictate they all shift with the currents.
CORPORATE PROFILE
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Field Report
AMR
In this model, the brand rules, requiring a new set of defining traits required for success. A virtual manufacturing company must be: Market-centric Brand and product driven Relationship-dependent Market-opportunistic Nimble to change Agile to disruptions. The bottom line in this brand- and product-driven environment is product velocity. Its all about how fast you can move your product from suppliers to end customers and how nimbly you can respond to change in the face of evolving customer requirements and market conditions. To remain competitive, todays "virtual manufacturers" must deliver product velocity across often-complex global supply chainsand, at the same time, deliver ever higher service levels and lower costs for demanding customers.
ment requires a new management modelCommunity Supply Chain Management (C-SCM). In the C-SCM model, the brand owner must lead collaboration in community with suppliers and customers to optimize brand performance.
| 31
Field Report
ing and nurturing relationships with customers and suppliers and incenting them with common community goals and rewards. Aligning trading partners around common goals, measuring performance, and rewarding success provides a firm foundation for a collaborative, sustainable supply chain community. Single Technology Platform: To facilitate C-BPM and have real-time visibility, communication and transactions are best managed on a common, web-native platform, allowing the integration of the variety of ways through which partners communicate with other trading partners. This platform, or transaction hub, is the system of record for cross-community processes and operational data for the supply chain owner, integrating with the Enterprise Resource Planning (ERP) system which remains the financial system of record. This single data repository provides a single source of truth for real-time business intelligence. business processes. To drive product velocity, lower costs, and high customer service levels, there must be real-time supply chain intelligence accessible and visible to all for timely decisions that benefit the entire community. Management by Influence: By outsourcing manufacturing, virtual manufacturers have given up direct control of product supply. The successful supply chain owner must conduct the supply chain community as one would an orchestra. The owner must be expert at managing many contributors by influence rather than directly. While good contracts certainly help in making for good suppliers and customers, the brand owner will be far more successful now and in the future by build-
No matter how much twisting and stretching have been attempted, existing SCM software simply cannot support community supply chain management.
around a factory. Factory planning, shop floor management, inventory management, and order fulfillment form the core of traditional SCM. Manufacturing companies had an inside-out view of operations focused on maximizing asset utilization and lowering cost in the supply chain. The scope of SCM functionality grew by adding warehouse management, supplier collaboration, and so on. The result of this broader footprint for managing the business was that literally hundreds of variablesthousands in larger, more complex businesseshad to be accounted for in planning and execution. While the software industry created very powerful and equally complex algorithms to address the problem, it took an Operations Research PhD to implement and run it. Because these supply chains were so broad and complex, they became a planet of their own, with so much inertia from the resulting complexity that software vendors eventually decided to simplify management by separating inbound, manufacturing and outbound processes into separate modules, applications, etc. Attempting to further address this complexity, they often held variables such as supplier lead times static, and limited planning by performing it periodically with time fences to minimize the bullwhip effect it often caused. The oft-attempted, yet inability to truly incorporate dynamic planning made it difficult to keep up with the natural and disruptive fluidity of changes in the business. Asset utilization was optimized, but customer responsiveness and product velocity were relatively constrained. on older releases. Both approaches are suboptimal. As an increasing number of companies move to virtual manufacturing, they require a move away from managing from inside-out, focused on asset utilization, to managing from a new point of view: outside-in, and thus, the concept of community supply chain management. Brand owners need to manage community forecasts, planning, purchasing, fulfillment and logistics among a team of players. Remember the BASF advertisements where they said they dont make the Jet Ski, but they make the plastic to make it lighter and faster? Well, software to manage the supply chain community doesnt create forecasts for the individual customers, but it needs to gather those forecasts, de-aggregate, assess and scrub them, then send them to suppliers in anticipation of orders. This community focus on collaboration is similarly carried to purchasing, inventory management and fulfillment. This all makes perfect business sense, but the problem lies with supporting technology. No matter how much twisting and stretching have been attempted, existing SCM software simply cannot support community supply chain management. Cross-community collaboration today is by phone, fax, email, and by the most popular supply chain management software in the world: spreadsheets. This business process environment is duct-taped together with manual workarounds: workarounds managed by a bevy of expeditors who neither add value nor enhance product velocity. Because of this incremental burden, the advantages planned and anticipated by moving to virtual manufacturing may be zapped by the lack of community supply chain management. In order to realize the anticipated benefits of virtual manufacturing, of being brand and product centric, virtual manufacturers have to close the technology gap. So, yes, the world does need another supply chain software application. That solution needs to provide end-to-end supply chain visibility and the scalability and agility to support the dynamic nature of todays supply chain communities. Sean Rollings is VP Marketing, Amitive, Inc., which developed , a class of software purpose-built to provide supply chain management for virtual manufacturers, which it defines as brand owners that manage products, but outsource their manufacturing to third parties. www.amitive.com Outsourced Logistics | December 2008
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Logistics Services
hinas recent commitment to improve investment in infrastructure furthers the cause of logistics. And both infrastructure development and logistics got a positive bump from the Beijing Olympics. Operating in China is complex and much of logistics continues to be subject to regulation on many levels. Foreign entities have only had full ownership rights in China logistics companies since late 2004 or early 2005, when China began allowing 100% ownership as a condition of acceptance into the World Trade Organization (WTO). Prior to that, a company operating in China needed a Chinese partner that held a majority stake in the business. Even major players like UPS didnt own their express, air and warehouse businesses fully until 2005 and others have followed in recent years. Each different service requires a license. A logistics provider cant have a freight forwarding license and operate trucks and warehouses, it must have the appropriate trucking licenses and warehouse permits to expand its logistics functionality. In addition, it must register and obtain licenses from provincial and local authorities wherever it operates. Although Chinese authorities are trying to streamline the process, it is unlikely there will be a single license any time soon. It is, therefore,
a Torch
incumbent on companies operating in China to be aware of the requirements and to comply. Adding to the complexity of the requirement that each branch and operations center needs to be registered, sometimes provincial authorities have different implementation methods or application processes. Despite the complexity of documentation requirements, there has been better cooperation among provinces on the flow of goods. This includes better cooperation among the customs bureaus in the different provinces. Some shift in focus is helping to drive change. When China was opening up to outside markets in the 1980s and 1990s, it was heavily export oriented. This placed emphasis on development along the coastal regions near ports. But as people become more prosperous, a stronger consumer market has developed and spread inland. In parallel, infrastructure has improved and as the coastal area becomes more expensive, factories are moving deeper into the inner parts of China. This has helped fuel a need for further expansion by logistics providers, including extending their reach beyond coastal areas that had been the center of their export-oriented business. The standard approach to China has been to open in Shenzhen, Shanghai and Beijing, but now it is increasingly important for logistics services to cover other areas like Chengdu, Xian and Wuhan to reach new manufacturing centers and expanding consumer markets. There, the focus is not only on export but also domestic transport. Intercity trucking is on the rise. And this is one area where the Olympics served as a catalyst. The Olympics, though primarily held in Beijing, actually involved a number of other venues. Those sites were as far away as Shanghai and Hong Kong and included Qinhuangdao, Shenyang, Tianjin and Qingdao. The Chinese government focused resources on infrastructure development around Beijing to facilitate logistics support for the Olympics. Upgrades were made to the airport as well as roads and facilities. Perhaps less visible but equally important were improved measures for clearances and security control. The net effect was an upgrade for the whole logistics community. Much of the effect stuck after the games ended in terms of
improved documentation and better delivery. The games also helped improve awareness of logistics. And if service and security improved as a result of the developments surrounding the Olympics, the added awareness of what is possible has also lingered. Another side of logistics development in China is the raw talentpeople to do the work and manage the supply chain function. Given that China only began to open up about 20 to 30 years ago, the people with international exposure are roughly 25 years old and older. They are the most skilled in English and international business and trade practices. Companies have also experienced a parallel rapid growth and learning curve. UPS, for instance, started with a representative office in 1998 and became a wholly owned company in China in 2005. From 2004 to the present, the company has grown its workforce by 30 times to 5,400 people. That has meant thousands of hours of training. The logistics market in general still has a shortage of middle and senior managers. But as logistics continues to develop as a recognized industry with growth potential, the plentiful supply of entry-level workers and graduates of logistics programs will begin to address that talent shortage. Information technology is also a challenge on two fronts. On one side, information flows to support supply chain flows present some challenges. Synchronizing information with the supply chain will begin with making the right decisions on platforms. The tools exist and are being applied to supply chain management, driven in part by security and visibility requirements being established on the export side. On the flip side of the issue is the consumer market in both the business to business and business to consumer segments that is very comfortable with e-commerce. That will shape the way domestic logistics evolves. And as Chinas economy continues to grow and develop, the government is increasingly interested in the higher value-add industries. Incentives to invest in those industries dont exactly push out the more labor-intensive, lower value-add industries, but wage inflation, exchange rates and other economic factors actually have some Chinese businesses looking at doing some of their own near sourcing into interior regions of China itself and to nearby countries like Vietnam. One fact is clear, the evolution of Chinas logistics capabilities will continue as its export markets change and its domestic markets grow and mature.
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Logistics Services
CORPORATE PROFILE
here are constant pressures facing the transportation industry. With increasing demand to transport products in a cost-effective, environmentally friendly manner, Transplace commits to its customers success with a broad range of services built from its successful on-demand TMS, allowing them to utilize a variety of transportation modes. Were all well aware that a reduction in empty miles saves millions of dollars in freight costs annually. Transplace has proprietary technology that allows customers to analyze service requirements for moving freight, and recommends the optimal mode for the best possible performance. Transplace combines an enormous critical mass of freight and carrier capacity the amount is larger than any single shipper in the marketplace. This collaborative transportation management is not only economically bene cial throughout the supply chain, but it also yields environmental bene ts. Since its founding in 2000 from a merger of logistics units that represent the nations six largest publicly held truckload carriers, Transplace, a non-asset based transportation management third-party logistics provider, has grown to become an industry-leading global transportation management services provider. Transplace International opened its doors in 2006, offering import/export services between North America, Asia Paci c, Europe and Latin America. The company is also a licensed air/ocean freight forwarder and NVOCC (non-vessel operating common carrier) and received its C-TPAT (Customs-Trade Partnership Against Terrorism) certi cation in March 2008. Once again, weve leveraged our rich technology to provide visibility throughout the world. In 2007, Transplace Mexico launched as a subsidiary of Transplace. The company is focused on customers needs for timely and seamless visibility across their supply chains, and tightly integrated transitions between service providers when crossing the Mexico/U.S. border. Looking to the future, Transplace continues to dedicate signi cant efforts toward expanding its solution portfolio to match customer demands, proactively identify opportunities across the network, and serve as a strategic partner for advanced, comprehensive transportation management solutions that positively impact the bottom line.
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clearance systems to electronically capture necessary international shipping data. This service distributes customs documents to assigned brokers to facilitate more efficient customs clearance and more rapid response for shippers and their end customers. The FedEx brand is synonymous with speed, reliability and superior customer service, says Doug Duncan, president and CEO, FedEx Freight. By making these improvements in the FedEx Freight network, we are delivering those same attributes to LTL customers whose shipping needs include Canada. With the combined services offered by FedEx Freight in the US, nextbusiness-day and second-business-day regional LTL market, FedEx National LTL in the US long-haul LTL arena and FedEx Freight Canada, we offer a full range of complementary, industry-leading LTL solutions throughout North America.
pay for a 2% fee. There is no charge for the standard 30-day pay schedule. To participate in the program, carriers must complete and submit a registration form indicating their payment preference. Payments will be processed upon load delivery and receipt of required paperwork.
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| December 2008 | 39
3PL File
Company Name: Ryder Ownership: Public Stock Symbol: R (New York Stock Exchange) US Headquarters: 11690 NW 105th Street Miami, FL 33178 Website URL: www.ryder.com Foreign Locations/ Markets Served: Ryder Supply Chain Solutions operates more than 800 locations throughout North America, Latin America, Europe and Asia. Key Personnel: Greg Swienton, Chairman and CEO; John Williford, President, Global Supply Chain Solutions; Dave Bouchard, Senior Vice President & Managing Director, International; Tom Jones, Senior Vice President & General Manager, US Supply Chain Solutions Year Founded: 1933 Number of Employees: 28,000
Mission Statement: Ryder delivers exceptional value by providing innovative, efficient, and safe transportation and supply chain solutions around the world. With the best people in the industry, it enables its customers to deliver on their promises. Capabilities: Ryders portfolio of global supply chain solutions includes:
Supply chain optimization and distribution network design Consulting, engineering and lead logistics management Warehouse operations management Reverse logistics Inventory management Inbound manufacturing product flow Transportation management Finished goods delivery.
Financial Rating/Stability: $6.6 Billion with net earnings of $254 million Technology Advantages: Ryders technology infrastructure provides a highly stable, reliable information backbone to support its capabilities. The company has invested millions in developing integrated, state-of-the-art supply chain systems that include best of breed and proprietary applications. Ryders order management, transportation management, warehouse management and visibility systems integrate with its clients ERP systems for seamless, accurate and real-time flow of critical customer, business and financial data.
Modes of Transportation Utilized: Ryders Transportation Solutions cover the planning, management and execution of all transportation movements across all modes ground, air, rail and ocean.
How It Differentiates ltself: Companies choose Ryder because of its
proven success as a supply chain partner. Time and again, Ryder accelerates client profitability and productivitydelivering results faster than traditional approaches. Ryder executes this mission using its proprietary methodology that employs Lean principles, the Six Sigma methodology and intensive modeling for business process improvement and supply chain optimization. Delivering on its customer promises and controlling customer costs are minimum requirements today for third-party logistics providers. Ryder is committed to providing its customers a competitive advantage and a significant return on investment through better supply chain management.
MORE SPEED
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MORE SMARTS
MORE CONNECTIVITY
Our logo says it all. About our commitment to deliver supply chain excellence through an optimal and flexible combination of industry-leading logistics services and technology. Tap into our dense network of shippers and providers, on demand transportation management and a suite of professional services tailored to your organization's needs. www.transplace.com
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