@ Supply Chain Management

SC Digest has a recent article: A decade in Supply Chain Timeline illustrating a decade in the supply chain timeline. What astonishes me about the decade is how quickly the mighty have fallen. Or rather how quickly some of the no-brainer trends seem to go quite limp.

The stars from the report in my opinion are:

1. Blue jeans icon Levi’s announces it is shuttering all its US production and moving to Asia – as do others throughout the decade.

If anything this move has probably been one of the most important signals of the decade.

2. Yellow Freight announces plans to buy Roadway express, its larger LTL rival. That plus other acquisitions soon bring financial trouble to new YRC Worldwide.

A telling example of how the golden boys gamble and fail.

3. Walmart announces plans for RFID tag mandate, later says it expects all vendor pallets and cases will be tagged within a few years

and later towards the end of 2009

Walmart’s RFID program seems to go into total limbo.

Now, that’s an example of how the go it alone mandate may not be the best way to introduce far reaching changes in the supply chain. Is that also a signal that the supply chain has exhausted ways of making things cheaper and in the next decade of inflation and rising commodity prices, these costs are going to find their way through the supply chain directly to the consumer.

4. Mattel becomes poster child for concerns about offshoring generally and product safety for goods made in China specifically as it has to recall millions of toys due to lead in paint and other issues.

An idea of the true costs of offshoring begins to emerge as unit cost is balanced by risk related costs and soaring transportation costs. No free lunch indeed.

5. Independent truckers going out of businesses by the thousands as slowing freight volumes and soaring fuel prices take their toll.

The driver shortage reported by American Trucking Association earlier in 2005 was most likely filled by independent truckers capitalizing on the shortfall. But the onset of the recession rearranges the marketplace again.

And the cake on the icing:

6. Dell pulls big surprise by announcing in April (2007) quarterly earnings call presentation that it is entering the retail market and largely abandoning its legendary build-to-order supply chain model, saying it is too costly.

If you survey the history of manufacturing management, you’d obtain a sort of cycle that comes and goes. The form of the cycle is centralization and de-centralization of the operations ostensibly for cost savings and better efficiencies and what not. Ergo, it behooves me to make the obvious prediction that Dell would go back to the make to order business before the end of this decade. But that is predicated on a recovery in the general economy.

7. Factory utilization reaches post-Depression low of 65% in the US.

After a decade of outsourcing and offshoring and, thus climbing up the value chain, we begin to appreciate that the perch up the value chain can only accommodate a few and the rest have to be paid for my debasing the medium of value i..e money. Fortunately and unfortunately, this game can only go so far.

And finally,

8. Everyone looks forward to 2010 – perhaps most difficult year to forecast in decades.

Au contraire mes amis, this is the easiest decade to forecast let alone year. This decade is going to be the lost decade – perhaps, I should wait at least until the first year is out. Maybe not.

This is a story coming out of India – out of US Sec of State Hillary Clinton’s visit to India : India to Resist U.S. Pressure on Carbon Emission Caps.

India will resist pressure from the Obama administration to accept legally binding caps on its carbon emissions, the South Asian nation’s environment minister told visiting Secretary of State Hillary Clinton.

“There is simply no case for the pressure that we, who have been among the lowest emissions per capita, face to actually reduce emissions,” Jairam Ramesh said at a meeting today with Clinton in Gurgaon near New Delhi, according to a statement he issued to reporters. “And as if this pressure was not enough, we also face the threat of carbon tariffs on our exports to countries such as yours.”

Clinton is on a state visit to India meant to showcase trade and security ties and seek common ground on climate change and arms control. India has said it will reject any new treaty to limit global warming that makes it reduce emissions because that will undermine the country’s energy consumption, transportation and food security.

The climate-change bill that passed the U.S. House on June 26 calls for carbon-based tariffs if countries like China and India don’t adopt their own greenhouse gas controls by 2020. The U.S. said its push for higher environmental standards is not aimed at limiting the economic progress of nations, including India.

And,

“Legally binding” emissions targets won’t be acceptable for India, Ramesh said. “It’s going to be impossible to sell in our democratic system.”

Clinton said she is confident that the U.S. and India can devise a plan that changes the way energy is produced, consumed and conserved, helping to create additional investments and jobs. The two countries must also expand the use of renewable energy in India, especially for rural electrification.

Well, that’s one down. And the remaining player for large scale emissions out of a developing country is China – one country that has significant leverage over the US by way of financing its debt. I’d think that the only thing that one would hear out of the US Sec of State along this line in China is a short peep.

Now, harken back to the expectation set by the retail consultant in the earlier post:

"Suppliers are going to have to absorb the cost increases," retail industry consultant Burt P Flickinger III said Wednesday.

Just what is this expectation based on?

Mentioned in the above news item is a provision in the climate-change bill that calls for carbon-based tariffs on countries like China and India that don’t adopt greenhouse gas controls by 2020. Well, we’ve got till about 2020 to return to growth over here or junk the over-the-top sanctimoniousness of the climate-change bill because the last time that tariffs were raised during a sustained contraction, the resultant was not a pretty sight.

Besides, destroying the planet is an equal opportunity thing – destroying one’s economy is a national choice.

Just who is buying this bullshit is another story. I am not one to use profanity lightly but the profane doesn’t do this latest piece of ludicrousness any justice. What drove me batty is this news item from Walmart: Wal-Mart exec foresees eco-ratings for all.

Among the many firms of this world, Walmart is perhaps one of the few who can really drive such a program and we all know that.

"We see this as a universal-this is not a U.S. standard," Wal-Mart Stores Inc. President and CEO Mike Duke told a gathering of more than 1,500 suppliers, nonprofit groups and company staffers at the giant retailer’s headquarters .

"Across the world, this standard would work across all retailers, all suppliers."

Some time ago, I had blogged on this very topic in Wal-Mart Boss says he will press suppliers in race to go green.

Fortunately for us, some research from AMR places an upper bound on the marginal cost we’re willing to pay for an eco-friendly product vs. a non eco-friendly product.

C. Britt Beemer, chairman of America’s Research Group, which surveys shoppers across the country, said shoppers won’t be willing to pay any more than 10 percent more for something that is eco-friendly.

One eye-brow raised so far. That was so last year dude. Here I’m paring my grocery bill down to the last penny. 10% – fat chance?

"Suppliers are going to have to absorb the cost increases," retail industry consultant Burt P Flickinger III said Wednesday.

Two eye-brow raised now. But not batty yet.

What drove me positively batty was this piece at the very end which was supposed to be an illustration of how a focus on the development of a sustainability program would ultimately result in greater production efficiency, actually lowering costs.

However, Wal-Mart focused Thursday on the possibility that development of the sustainability program would ultimately result in greater production efficiency, actually lowering costs.

One example provided was a private-label sour cream sold only at Wal-Mart. A video told of how electricity generated by burning methane from the manure of cows at a dairy farm in upstate New York was being used to reduce energy costs at the farm.

What an excellent idea – I mean who can find fault with reusing manure. Well, anyone thinking green might for one. For example,

Rearing cattle produces more greenhouse gases than driving cars, UN report warns

Some highlights from the report,

Cattle-rearing generates more global warming greenhouse gases, as measured in CO2 equivalent, than transportation

“The environmental costs per unit of livestock production must be cut by one half, just to avoid the level of damage worsening beyond its present level,” it warns.

When emissions from land use and land use change are included, the livestock sector accounts for 9 per cent of CO2 deriving from human-related activities, but produces a much larger share of even more harmful greenhouse gases. It generates 65 per cent of human-related nitrous oxide, which has 296 times the Global Warming Potential (GWP) of CO2. Most of this comes from manure.

Apparently, among the many ways a cow contributes to global warming – belching and not flatulence is the more important one.

Now, please calculate the marginal increase/decrease in cost of the end product (sour cream) given:

1. The number of cows on the dairy farm and carbon costs of the feed

2. Belching and flatulence (in litres) per cow per day converted into greenhouse gases emissions

3. Manure recycling that reduces electricity consumption

Is the savings from (3)*number of cows/day +(1)*consumption/per cow even remotely close to that from (2) recovered per cow? Does this even compute? This kind of hand waving is precisely what gets me batty. If you’re serious about solving a problem – full credit to you. It’s the “I’m also solving the problem in however miniscule a way” that gets my goat.

And to pick an example where in, the principal player i.e. a cow innocently belches to the low stratosphere greenhouse gases, the amount of which is comparable to our own transportation emissions and publicize the miniscule change denoted by a gain in self sufficiency at the production farm as proof of some concerted shift to sustainability is just downright goofy.

I suspect the green supply chain has entered the faltering stage. And I think that I know just know the stab in the back that will consign it into its casket – that’s yet another green thing – the greenback. As long as the dollar remained the undisputed reserve currency, Walmart (and likewise many firms here) possessed the leverage to force this on offshore suppliers. The dollar is in the process of being killed by the US government itself and with it will go much of the implicit leverage.

I find it all very ironic that on the one hand the government kills the greenback (this has been quite a consistent policy over the past few administrations) and on the other hand thinks that it can legislate sustainability dogma into practice.

I was just re-reading my earlier post on What is Credit? when this piece of managerial brilliance crossed my desk – GMAC Adds Loans as U.S. Injects $6 Billion to Aid GM. Who else but GM could one depend on to provide a consistent farce?

There is little doubt in my mind that this company ought to go bankrupt (or be forced into bankruptcy – the management needs to be replaced. And the unions – well, forcing this company into bankruptcy might very well mean the loss of a great deal of jobs and the brinkmanship that they have played in this farce wouldn’t be more well recompensed) because it doesn’t seem that its management has a clue about what brought them to the brink in the first place or maybe even left them dangling over a precipice. What brought them to the brink in the first place is the dearth of, nay, absence of profit that the firm chalked up these past years – prudent firms grow profit and trim costs. GM on the other hand does the reverse. What pushed them over the edge is the fact that the a great number of that elusive group called the US consumer is strapped for cash, not credit worthy by reason of being neck deep in debt.

Therefore, GM has decided that its flagging fortunes will be rescued thus:

GMAC will now lend to vehicle buyers with credit scores of 621 or higher, compared with a previous standard of at least 700, according to a company statement. The higher threshold had excluded about 42 percent of U.S. consumers.
The company said it won’t finance

JDA is all set to acquire i2 Technologies for approximately USD $346 million – the huger for scale is relentless, it seems but whether or not it succeeds is a different matter altogether.

The news of my morning is …

IBM and ILOG today announced they have signed an agreement regarding a proposed acquisition by IBM of ILOG to be implemented by way of concurrent cash public tender offers in both France and the United States. Through this proposed transaction, IBM will combine its business process management (BPM), business optimization, and service oriented architecture (SOA) technologies with ILOG

Kate Marston sent me an email about an event that she’s doing some research about/helping organize. I think that the event would be a good one to attend for SCM professionals. From the SCRM 2008 website:

The Supply Chain Risk Management Summit 2008 (SCRM 2008) is the conference and networking event that will highlight once again the key issues in supply chain risk management and offer the latest strategies for maximising supply chain excellence and minimising vulnerability and exposure to risk.

The topics include:

• Identifying and recognising risk as a key business opportunity in the supply chain
• The weakened economy: driving your supply chain to remain competitive in the credit crunch
• China’s relationship with the rest of the world
• Maximising end-to-end visibility to eliminate risk in the supply chain
• Supplier Relationship Management: auditing supplier performance to measure up to your standards
• Speeding up crisis response time: dealing with supply chain disruption

Tags: Supply Chain Event, SCMR 2008, Risk Management for Supply Chains