@ Supply Chain Management

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.

And,

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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The Defense Department is looking to outsource the management of its domestic freight-a contract that could run into the billions of dollars. The program is intended to cut costs and boost service; it could also shake up the industry.

DC Velocity has an article about the DTCI – Defense Transportation Coordinator Initiative that is finally getting some well needed publicity.
I’m pleased to see something that I was part off for more than a year finally seeing the light of day. And I choose the word “part off” very carefully because you can only be a “part off” something like this – the DTCI project was just huge. The dataset was huge. The dollar amounts were more than huge. The meetings lasted days. The computational times were spread over weeks. And so on…
So what is the DTCI all about?

Perhaps it’s no surprise that the people who brought us stealth technology have launched an all-out war on freight spending and nobody seems to have noticed. And the Department of Defense (DOD) surely is thinking big. In August of this year, DOD began reviewing proposals submitted under its Defense Transportation Coordination Initiative (DTCI)—a program through which it will outsource the management of all DOD freight moving commercially in the continental United States.
The goal of DTCI is to improve the speed, predictability and reliability of transportation while simultaneously reducing costs by as much as 20 percent. The rest of us call it third-party logistics (3PL), but hey, this is the government, which rarely misses an opportunity to make up its own acronym.

Nothing could be truer that governments make up acronyms on the fly. This is especially painful if you as an outsider have to sit through meetings where you get bombarded with acronymns every third or fourth sentence. I mean that they have a whole different language unto themselves.

Now, DTCI is no secret … the DOD has been working the circuit since early 2004, talking the vision and addressing concerns. It has even created a public Web site devoted to the initiative. But outside of the defense world, it hasn’t generated much buzz, and it should.
We’re talking billions of dollars in freight over the life of the contract. That’s not a typo. Billions of freight dollars. And when you start shifting that kind of money around in a market, changes happen. Not just for the players involved, but for everybody playing in the sandbox.

The last thing you want is for the government to make a move because when a governmental department the size and scope of the DOD shifts its way of doing things, its like an elephant in a china shop, more or less. With the DTCI, the government wanted to make a significant first step of bringing in private parties to manage the DOD’s domestic freight. The DOD in any case doesn’t use its own fleet for domestic freight shipments except in some special cases and contracts carriers to ship stuff already. However, in DTCI, its trying to bring in a 3PL for very much the same reasons that a firm would bring in a 3PL.

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Everything’s changed in 20 years; yet nothing’s changed in 20 years. Veteran DC consultant Ken Ackerman may rhapsodize about the potential of technology, but in the end, he says, the business is still all about the effective management of space and time.

And so begins a Q&A with Ken Ackerman by DC Velocity magazine (2003) that delves into Ken’s view of where warehousing has been and where it is headed. I have excerpted some of the views that I found illuminating below:

Q. If a stranger were to walk up to you and say, “Hey, what are the three or four most important elements in a good warehousing or distribution center operation?” how would you answer?
A. I would tell them they needed to be sure they were managing the space as well as it can be managed and managing time, which is the labor, as well as it can be managed. Is there some waste in the operation? Are there steps that shouldn’t be there?

I would agree but I think a larger point has been overlooked. Ken’s points are exclusively about what happens within a warehouse’s four walls. The first important element in a good warehousing operation is location, location, location. Today, these warehouses may even be located in a third country replicating inventories and buffers in different parts of the world. If you supply chain has some hard infrastructural decisions to be made, one of them is likely to be where the warehouse(s) are located.
The next set of Q&A has to do with the influence of technology and how it is spreading into the warehousing world:

Q. Let’s say you’re a logistics professional and your job is overseeing your company’s DC operations. What has made your job profoundly different today than it was,say, 15 years ago?
A. It is the information revolution.

Q. Are you talking about this parallel flow of goods and information and how they interrelate? How is that really changing the job? Are people more productive or are people able to make better decisions because they have more information? Or is there another side to this, with people becoming overwhelmed by information?
A. Both. I think if I look back at the last 20 – some years, the biggest thing to come along has been automatic identification, specifically bar coding and scanning. The next big thing, which I believe will supplant and possibly replace scanning, is voice recognition in the DC.

Q. What are some of the inherent advantages of voice? Are we talking about a technology that can really change the game?
A. Yes, and I’ll tell you why. Your hands are free with voice. You don’t have to hold a scanner. You don’t have to hold any papers . You run down the aisle we a ring your earphones, your microphone and a computer attached to your belt, and you pick orders. The machine says, ‘Go to X-70’; you say, ‘ I am at X-70 and I see queue #1234′; it says, Pick six pieces’; you say, ‘Six , five, four, three, two, one, check’; and it tells you to proceed to the next location. It’s programmed to check the count, too – which means better accuracy. The wholesale grocer that I saw doing it bought this system to improve accuracy; it did not buy it to boost productivity. Getting both was a pleasant surprise.

There are two aspects to Ken’s response – there is the informational aspect (typified by how IT is bringing information to those who need it) and then there is the intelligence aspect (typified by how new technology is developing “directional” capability when it sits on top of the information that has been generated by the IT systems). Now, the reason that IT systems were absolutely necessary (or even is absolutely necessary in different applications) is that while economics dictates the scale of an operation i.e. getting larger distributes marginally increasing costs on a larger volume of stuff, scale overwhelms the human being’s mind when it comes to deciding/choosing the best way of doing things leading to sub optimal decision making. IT systems collect information even from a very large scale operation and are able to aggregate them in a way conducive to establishing patterns that in turn lead to systematic processes. However, when systematic processes scale bigger than the human beings ability to execute, then intelligence of a rather low-level variety is required to sort out these choices. As you can see, there is a trend there – scale, metaprocess, scale, metaprocess where the metaprocess is what people develop to handle scale and the inherent complexity of scale.
Also, I’d like to think that the gap that opens up between scale and metaprocess is the entrepreneurial gap wherein new solutions are warranted and whole new ways of doing things open up.

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Fiscal Visibility In Supply Chain = Money Saved is the title of a new opinion piece by author Michael Stolarczyk who also blogs at BlogonLog.
Michael notes,

A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country.

The above is an example of how dramatically the options for manufacturing, coupled with logistics options and supply chain technology, for any firm anywhere has shifted in less than two decades. However, this shift has also laid the axe to traditional notions of ownership and control driving up risks across the supply chain and thus inventories (in part to cover the lead times and in part to act as a buffer to rising risk) as well. You might have been used to bull whip effects in a supply chain on a domestic scale. What about bull whip effects on an international scale and what effects will such phenonmenon have on local economies that form part of such global supply chains?
Also remember that a customer’s notion of product availability has not been downgraded as a result of the increased lead times and coordination that firms have taken upon themselves. Instead, if anything, a customer’s notion of product availability and customer service has migrated northwards fueled by better communication and awareness i.e. trends are communicated in real-time these days.
So how have companies executed upon their strategic decision to outsource or offshore or some combination of the two?

“Poorly,” notes Michael,

The need for advanced solutions may seem obvious, but a surprising number of companies still have a long way to go when it comes to global supply chain technology sophistication.

and,

On average, large companies report their global supply chains are only 50 percent as automated as their domestic supply chains.

and,

The interesting news continues — only six percent qualify their global supply chains as highly automated, and a full 90 percent of all enterprises report their global supply chain technology is inadequate to provide timely information required for budget and cash-flow planning!

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While surfing the web for logistics related software, I came across the site hosted by the International Centre for Innovation and Industrial Logistics (ICIIL).
ICIIL has some information about an open source logistics analysis software that is being developed University of Vaasa, Finland and ABB Corporate Research Center.

ASDN – “Agile Supply Demand Networks” is software for analyzing and developing logistics networks. This rapid modelling tool should help decision-making in network architecture design and performance management.

The project home page is located at http://asdn.sourceforge.net and the source codes (Java) are distributed via SourceForge: ASDN

Tags: ADSN, Logistics Analysis, ABB Corporate Research Center, University of Vassa, Finland, ICIIL, International Centre for Innovation and Industrial Logistics

In the continuing review of the report titled – Creating the Optimal Supply Chain published by experts from Wharton and BCG, I took a look at the section titled – Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption in this post. In earlier posts, I had reviewed the first two sections namely, You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value and Avoiding the Cost of Inefficiency: Coordination and Collaboration in Supply Chain Management. The report – Creating the Optimal Supply Chain is available online as well.
Supply Chain disruption is making headlines in recent times because of events that occurred in recent months past such as terrorist strikes, hurricane Katrina and the longshoremen strike at the US West coast ports. I must reiterate again, that the macro picture against which such supply chain disruptions might occur is the globalized, outsourcing/offshoring manufacturing/procurement business world. That implies that while the world’s resources and manpower is at a firm’s disposal, more or less, so also are the world’s problems – in a global supply chain, the disruptions even though occurring locally might have multiplied effects far beyond the locally known or observed effects. Also, those effects might not even be noticed by those decision makers who sit far removed from the means of procurement or production and the first intimation of the crisis might be at the supply level by which time it might be far too late.
The authors state,

Today’s leaner, just-in-time globalized supply chains are more vulnerable than ever before to natural and man-made disasters — a reality that creates greater demands on companies to keep supply chains flexible and integrate disruption risk management into every facet of supply chain operations.

That’s just way off-base. Today’s globalized supply chains, whether or not they are just in time, cannot be in any sense leaner than before. Given the fact that lead times have increased in a globalized world through outsourcing/offshoring, inventories have gone up in every stage of the supply chain – so how have globalized supply chains become leaner? But it is also true that exposing one’s lines of supply (just as in the case of war strategy) globally, the risks of disruptions have also increased. Now, the question has to be asked, was it worthwhile to have gone the route of globalization in procurement/manufacturing on the basis of per unit cost without taking into account the total costs of procurement that are involved for the supply chain?

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As reported previously here, the summarized results of the 11th Annual 3PL study 2006 are now available at the site – www.3plstudy.com. The authors and objectives of the study were:

The 2006 study is produced by C. John Langley Jr., Ph.D., of the Georgia Institute of Technology, with industry experts from Capgemini, DHL, and SAP, and is an extensive study about using 3PL services in North America, Western Europe, Asia-Pacific and Latin America to examine critical trends and issues among key markets and key customers in the 3PL industry.

Tags: 3PL, 3PL Study, 3PL, Capgemini, Georgia Tech, DHL, SAP, C. John Langley Jr.