@ Supply Chain Management


UPS seeking more job cuts

3PLWire alerted me to the news of more job cuts on the way at UPS Supply Chain Solutions. The report from the AP via Yahoo reads,

UPS Inc., the world’s largest shipping carrier, is seeking more job cuts on top of 1,200 positions in its logistics unit it previously said it would cut.
The Atlanta-based company has offered voluntary severance packages to roughly 650 employees at its headquarters and in its Supply Chain Solutions division in the United States.
Those receiving the offers are at least 50 years old and have at least 10 years of experience, spokesman Norman Black said Monday.

In other words, UPS is on a cost cutting spree and according to the report, it might not be done yet.

The cuts are in addition to the 1,200 jobs UPS announced in October that it would shed in its Supply Chain Solutions business, which handles air freight and logistics services.
At an investor conference last month, Chief Financial Officer Scott Davis told analysts there might be more cuts as the company evaluated the best way to deliver non-operating functions such as human resources, finance and accounting, engineering and network planning.

So I wanted to see what might be happening over at UPS and so I headed over to the public financial statements.
Year on Year & quarterly comparison of UPS results
From the Qtr over Qtr EPS Growth Rate, it looks like FY06 results might not be all that good and its certainly trending that way. Let’s see what UPS reports for the year.

On the Interim Income Statements, the only thing that I can see is that SG&A (Selling, General & Administrative Expenses) has been holding steady for 2 quarters at $222 million and reduced from Q1 of 2006 from $252 million. Perhaps, UPS is trying to hold down its operating costs as much as possible through these cost cutting measures which might mean that the top line might not be that great for Q4 and the whole year as well.

Finally comparing UPS with a select few competitors:
The positive side of things for UPS – Net profit margin at 8.8% and sales growth at an astounding 14% for a company of the size of UPS at $46.87 billion of revenue.
However, on the flip side – Income growth over the last year is sluggish at 9.0%. And lastly, if you look at the Relative strength of UPS, the market doesn’t exactly love the stock coming in at an RSI of 57 over the last 3 months.

I guess we have to wait for the 2006 EOY results from UPS to see what might be happening there.

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RFID and Logistics: Four Trends You Need to Know

Manufacturing.net has an article about RFID and logistics trends that the author: Tom Singer advises us to be aware about.
So here are the four trends,
Trend One: The High Cost of Fuel

Improving the efficiency and effectiveness of transportation spending is a hot topic for logistics operations. Approximately 80 percent of North American freight expenditures are on motor carriers. Other transportation modes also depend on petroleum-based fuels. Trying to figure out ways to save on transportation, since oil prices have risen to record levels, will become critical.

Transportation spend is on the rise especially when manufacturing has been outsourced or offshored but the effect has been offset by the advantage of lower costs of production elsewhere. So the essential question is how long is the rising oil price as a trend going to last? Tim notes the following as well,

Carriers and enterprises operating private fleets will redouble their efforts on route and scheduling optimization.


In the past few years, major supply chain software vendors have taken a new look at the Transportation Management System (TMS) marketplace. A new, web-based generation of TMS software is available…

Carriers have troubles, such as driver turnover, other than the high cost of fuel which they routinely pass through onto the shipper through the fuel surcharge. Private fleet owners have the option of hedging fuel contracts in the futures market for their operations and that would take care of that issue. The final point about TMS being available more widely than before misses the fact that TMS were in vogue long before oil began trending higher. From my personal experience, I see much about the way that TMS are used that leaves a lot to be desired. Nevertheless, the efficacy of a TMS is highly dependent on processes that precede it, in manufacturing, in scheduling etc. TMSs can only work within the constraints that has been decided long before the pallet becomes ready at the dock door and that is an illustration of local optimization against global optimization.

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SCM Newz roundup

1. Schneider Logistics Expands International Sales Team

Schneider Logistics, Inc., an international lead logistics provider and part of the Schneider National enterprise, today announced the appointment of Michael Squadrille as team vice president of international sales. The new addition to Schneider’s world-class sales team supports the company’s commitment to further develop and expand its global business initiatives.

And further highlighting their overseas connections,

As team vice president of international sales, Squadrille will focus on international development, working closely with the company’s wholly owned subsidiary, American Overseas Logistics, and with Schneider’s growing international freight forwarding networks in Europe and China. Schneider acquired American Overseas Logistics, an international freight forwarder and a licensed United States Customs Broker, in February 2006.

2. Dubai Ports Company Selling Off U.S. Operations
Earlier this year, this deal was the focus of major political brouhaha and it looks like the final dice has been cast in this case.

Dubai Ports World, the company whose planned takeover of major U.S. port operations ignited a political firestorm earlier this year, has agreed to sell those operations to AIG Global Investment Group.

The company announced the deal Monday. The operations at six major U.S. seaports in New York/New Jersey, Philadelphia, Baltimore, Miami, Tampa and New Orleans were valued at approximately $700 million, but DP World did not disclose the sales price.

3. First Major Storm Of The Season Slams Midwest, But Not The Supply Chain
The first major snowstorm of this season was during the beginning of December and among the publicized accidents,

The first major snowstorm of the season has forced the cancellation of hundreds of flights in the Midwest and caused a Fed Ex cargo plane to slide off the runway at Chicago’s O’Hare International Airport.

However, the article reports,

According to Cliff Waldman, Economist at the Manufacturers Alliance/MAPI, winter storms are just part of doing business.
“The weather can slow things down a bit, but manufacturers are better equipped to handle storms now than 10 years ago,” Waldman said. “The ‘have it when you need it’ mentality of lean manufacturing helps to minimize inventories and improve the technology of the supply chain system.”

This is wrong-headed to say the least. Unless, the firms that are likely to be affected by storms have not proactively changed their inventory target levels, routing guides or supplier collaboration to account for disruptions, the supply chains are going to take a hit when a storm intervenes. If anything, excess inventories provide a wasteful method of buffering a firm from uncertainties – so how does minimizing inventories help ride out a storm, Lean or No-lean?

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Review of Energy use in Manufacturing

Manufacturing.net has an article about the efforts of an MIT professor to study energy use in manufacturing which led me to further searches and discovery. The article titled – MIT Prof To Study Energy Use In Manufacturing by Amy Radishofski talks about Professor Timothy G. Gutowski and his efforts to

study energy use in manufacturing processes from machining and grinding to injection molding and microelectronics fabrication methods

The article is cross-referenced at MIT news office in this article.
Amy notes,

Gutowski wants to compare the environmental performance of traditional methods versus that of alternative processes and product designs and proposed new processes.

In an earlier life of being a mechanical engineering student studying product design as an activity, the customer figured as one of the most important players (if not the most important) as well as durability, configurability etc etc. Today, another player has entered the matrix of competing demands or needs – environmental factors that were in the past dismissed as an externality.
Here’s an important thing to note from the article:

According to Gutowski, efficiency and increased production go hand in hand, thus the increased production would offset gains in efficiency. “Hence, energy efficiency alone has not resulted in an absolute reduction in energy use,” he added.

That is quite true because the market (local or global) is not even close to be satisfied yet. However, when looking at a firm which has innovated efficiency gains in their production, increased production would be the resultant if customers seek to take advantage of efficiency gains. But other firms in the competitive space who have not been able to innovate similarily would lose market share and thus production through inefficient technology or of inefficient technology would tend to decrease as long as customers actually desire to take advantage of the efficiency gains. I accept that this is a simplistic scenario because customers (such as I) are looking not only for efficiency gains, say in MPG with respect to cars, but a total value proposition or to be more specific (thanks to marketing genuises) a percieved total value proposition. If you watch cable TV in the US, you have been bombarded with the advertisement of a VW Jetta in an accident over, over and over again. Notwithstanding my general reaction that when I buy a car, I’m not thinking of accidents that might happen, passenger safety is one of the criterion that one must take into account. That’s what I mean by total value proposition or percieved total value proposition.

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Podcast: Jim Womack, China – Part 1

Mark Graban of Lean Blog has put up podcasts with James P. Womack of the Lean Enterprise Institute.

Check it out here.

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Artificial Intelligence in Supply Chains – cont’d

In this addendum to the post – Artificial Intelligence in Supply Chains, I want to highlight a paper (part of a book on the subject) titled: Supply Chain Management and Multiagent Systems: An Overview published by Thierry Moyaux, Brahim Chaib-draa, and Sophie D’Amours available online here.

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Artificial Intelligence in Supply Chains

InformationWeek has a dated article about Artificial Intelligence making a foray into the Supply Chain Management space. The article by David M. Ewalt talks about how

Software makers such as IBM, i2 Technologies, Manugistics, and SAP are rushing to imbue supply-chain-management tools with artificial intelligence, allowing them to make better choices and even learn from mistakes.

Since the article is dated to April 2002, which is roughly 4.5 years ago, now would be an appropriate time to evaluate the progress made so far.
Have you heard anything remotely intelligent in Supply Chain Management from SCM software players? (Hah, haha!!)
On a more serious note,

Supply-chain-management programs are structured sort of like flow charts, following a make-and-sell model of supply and demand. Software that IBM Labs is building works more like bees in a hive, with lots of autonomous agents going out into the world collecting data. The result, says Grace Lin, a senior manager at IBM’s T.J. Watson Research Center, is a system that can more easily consider new sources of information. These “sense and respond” systems make their own decisions based upon the variables at hand and aren’t strictly confined to a set of rules.

Further as to what this AI would be doing,

IBM’s effort essentially gives the program artificial intelligence, so it compares current business conditions to historical ones and forecasts what’s likely to happen next. “It doesn’t just react, but anticipates,” Lin says. And based on what actually does occur, the program can compare its forecast against reality, learning if it made a mistake. Lin says she expects a finished prototype later this year and a commercial version within five years.

Its about 4.5 years since this article and so I went searching for an IBM AI based software that is either in its last developmental stages or commercially deployed for supply chain management.

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

@ SCM Clustrmap

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December 2006