@ Supply Chain Management

SupplyChainStandard.com has an article about a PRTM study that highlights five key supply chain challenges: PRTM study highlights five key supply chain challenges.

PRTM’s study titled Lessons Learned from the Global Recession (you can download a free copy of the report by registering) outlines a very real expectation that a survey of 350 manufacturing and service companies have right now:

… believe there will be a significant upturn in demand from their customer base as well as a significant increase in company profitability over the next few years.

From the study, the population considered,

The survey population is composed of organizations from a diverse set of industries, including aerospace,  industrial and automotive equipment, consumer goods, retail, electronics and semiconductors,  telecommunications, and health care.The survey’s global nature is reflected in the response population. Nearly 40% of respondents are senior executives in supply chain management within their company, with 15% at the CXO-level. Three major geographic regions—the Americas, Europe, and Asia—are each well represented within the survey respondents. And, while nearly two-thirds of survey participants are companies with annual revenues
greater than $1 billion, more than 10% have revenues less than $100 million.

The real question is whether this expectation from the survey is from the usual appreciation of business cycles that have long been through expansions and contractions – why must this time be any different? Or is it from a collective impression that things are getting better – something rooted in empiricism or the like? Whatever, it is, it is a valuable data point. Of course, what remains to be done is to take these responses and map them against a sampling of 10-K reports of public listed companies and see whether these words are matched by their actions.

Nevertheless, the study highlights five key challenges. They are:

1. Supply chain volatility and uncertainty have permanently increased
2. Securing growth requires truly global customer and supplier networks
3. Market dynamics demand regional, cost-optimized supply chain configurations
4. Risk management involves the end-to-end supply chain
5. Existing supply chain organization are not truly integrated and empowered

I’ll address the meat of these challenges in the next post.

I’ve just managed to recover almost everything that was hacked by some pharma front that inserted unauthorized and irrelevant ads inside my blog.

Thankfully, I didn’t have to go through too much hassle to recover the site and the bonus is that I’ve managed to upgrade the site to WordPress 2.9.2.

Meanwhile, here’s a short video from Mario Vittone of the US Coast Guard that I found interesting.

Wrong About Everything (sample) from Mario Vittone on Vimeo.

What I found interesting was his effort to classify the types of mistakes that he found in his experience and organization. There’s a long video also available on Vimeo on the same topic and it will be worth your while to obtain the only free lunch in life i.e. learning from the mistakes of others.

No sooner than I had posted yesterday: ‘Scuse me but who sprung the volatility back?, than I saw this little tidbit:

Geithner plans trip to Britain and Germany

Treasury Secretary Timothy Geithner will confer with finance officials in Britain and Germany next week about ways to restore global confidence in the financial system on a trip.

The Treasury Department announced the trip Thursday after a rough day on global financial markets. The Dow Jones industrial average fell 376 points, its biggest point drop since February 2009.

Investors are concerned that the debt problems in Greece and Portugal will spill over to other countries in Europe and threaten to derail the economic recovery in the United States and elsewhere.

Investors are not concerned that the debt problems in Greece and Portugal will spill over to other countries in Europe as much as they’re aware that the debt problems in their own countries will be shoved into the spotlight sooner or later. Right now, sooner is pulling ahead of later and that is cause for panic. None of these administrations have the spine to deal with these debts. Why? Because these debts cannot be paid without causing a global disruption of some sort or worse a collective default.

So what now? The Euro zone is going to engage in quantitative easing aka debasing the euro – the time honored way of keeping up appearances.

Only pathos grows as small men squeeze farce out of tragedy. Remember, that the powers that be have managed to keep the sun shining for nearly a year and a half, they can and will keep the moon shining for at least half as much.

It’s time to save the moon.

I’m about as far as anyone can get from the professed purpose of this blog i.e. Supply Chain Management. However, there is a method to this peripatetic diversion that is biased to anything but Supply Chain Management. The truth, according to me, is that it really doesn’t matter whether you’re sourcing in China or India, or whether faulty gas pedals are being found in the Lunar Rover now or how Cadmium and Miley Cyrus’s jewelry came together and made their way hand in hand onto Walmart’s shelves.

What does matter though is the fire that is being stoked in the world’s markets? And the world of the supply chain is very tightly linked to this world market but one link removed.

Think for a minute in the sense that the world financial markets didn’t exist and we only had the physical market at hand. It would be an easy tell about the interconnectedness of the supply chain and the physical exchange and transfer of goods over the counter. But back to the real world, the financial markets act as an intermediary in the financing of production and transportation of goods (and of late services) all over the world and their direction to markets all around the world, valuing everything from the debt of governments as well as the stability of firms engaged in the very production of goods and so on. And right now, there is an epic battle being waged as to the control of these markets. And not for one minute are the powerful parties in this struggle disinterested parties to the outcome. The three parties to this struggle are the financial firms and banks that control (at the behest of their clients of course) huge amounts of capital, governments that supposedly represent their citizenry and control enormous tax receipts and perpetual debts or the general public that have their retirements and houses on the line here. The truth is that only the last party to this struggle has but a squeaky voice in all of this and is also the weakest link.

Yet, in all our theoretical supply chain hokum, it is the consumer that is the main driver of everything – and here in lies the troubling dislocation. The consumer is in dire straits and without a rebounding job market or ever rising asset class that can spring some liquidity, there’s just not enough juice to keep all of the supply chain links functioning.

I’m laughing right now (false bravado, really) but I posted the below graph to the day (See my blog post on April 27th: Two conflicting reports: Who decides?) of what must have been the sunniest day this side of the great recession. Compare the two charts of volatility, one from the last post and one from today.

April 27th, 2010	May 20th, 2010

And a close up of what has transpired in the last thirty days set against the recent past, below is the VIX from the beginning of the year:

That is nothing short of an explosion of fear in the financial markets. Do you feel the fear yet in the supply chains? It is coming.

And a quote from the previous post:

“I’m certainly interested in spending now that the stock market seems so relaxed,” said Dan Schrenk, an information technology consultant, as he stood outside a Best Buy store in the Portland suburb of Beaverton.

I wonder how Dan Schrenk is feeling today?

And how does my consequent statement look like:

As the left side of the above chart shows, complacency can last quite a long time and so cannot be read to indicate that something altogether violent and volatile is impending.

Well, I was wrong because something violent and volatile was brewing and it just made a first visitation. Now, we get to see how those Animal spirits will hold up. We also get to see, what this administration has in store for us and also what their allies in power all over the globe as well. I can hazard a guess, they will double down, even triple down their reckless attempts to save us (and their ill-gotten and ill-deserved gains). But given how far they’ve held up the sun, you can almost be sure that they can hold up the moon for at least half as long.

Now as for supply chains, you can be sure that if you’re not tabling business continuity plans that take into account financing, transportation and manufacturing disruptions, political games, street riots, tariffs, protectionism and the like, you’re about to get a rude awakening. I thought I’d never say this but Inventory is about to be king and the customer, well, he’s a serf now.

Supply chains, especially those that have become enormously complex over long distances don’t have to exist – it is not an iron clad feature of human experience. In fact, it might even be a bug – it hasn’t existed in human history but for the brief blip that has been this three decade or so experiment as well as the Silk Road but that had quite a different structure altogether.

Say it aloud, these supply chains don’t have to exist. And that’s the truth. Maybe, a different sort of supply chain will spring up – local and short instead of global and long. Or something else entirely.

So in the big picture, this sophistication in supply chain structure, technology and management is relevant because the scale and scope has been expanding these last thirty years and at a tremendous pace. As the need to understand, manage and control has grown, so has the need been met in this particular fashion. The promise of future continuing growth in both scale and scope is premised on reaching the unwashed masses – or those who are yet to attain to our supposed state of development. Yet, there is not any universal law of progress that dictates that it should be so – we could head in the other direction i.e. devolve to the state of underdevelopment of those we planned to grown to envelop.

So this is very much like a locomotive that is running at break neck speed on a track that is only being laid as the engine rolls forward with a lever attached to the locomotive itself. What’s more, we find that the need for speed has been met only by burning up the coaches that were once attached to the locomotive. Very soon, there will only be an engine running on inertia towards a track that is at an end.

The first report is from March 3rd of this year:

Panjiva cites decline in global shipments to U.S. from January to February. From the article,

There was a 3 percent decline in the number of global manufacturers shipping to the United States from January to February, according to data from Panjiva, an online search engine with detailed information on global suppliers and manufacturers.

This comes on the heels of a 3 percent decrease from December to January, a 3 percent gain from November to December, and a 1 percent decline from October to November. The 3 percent decrease from January to February is considerably better on a year-over-year basis, when there was a 10 percent decline.

and,

Panjiva also noted that there was a 4 percent decrease in the number of U.S. companies receiving waterborne shipments from global manufacturers. This follows a 7 percent decline from December to January and a 2 percent gain from November to December.

Panjiva CEO Josh Green commented in a blog posting that some caution needs to be exercised when viewing this data, as they are "somewhat misleading" due to global trade being in free fall last year at this time, coupled with the fact that "the absolute level of global trade activity remains well below where we were prior to the 2009 recession."
In an interview with LM, Green said that while it is a positive thing that global trade has emerged from the depths of the recession, Panjiva’s data suggests that global trade is following a seasonal path, although it is not returning to pre-recession levels. This, said Green, raises the question of whether or not what is currently happening is the new normal.

"We are moving sideways now and are not truly in a robust recovery," said Green. "The signs [of a true recovery] are not there yet. But we are not in panic mode anymore either."

Now, here is a report from yesterday from the New York Times: From the Mall to the Docks, Signs of Rebound

The docks are humming again at this sprawling Pacific port [Oregon], with clouds of golden dust billowing off the piles of grain spilling into the bellies of giant tankers.

In Portland, Ore., Kevin Weldon prepared soda ash for export. Exports rose in the first two months of the year by nearly 15 percent compared with a year earlier.

“Things are looking up,” said Dan Broadie, a longshoreman. No longer killing time at the union hall while waiting for work, instead he is guiding a mechanized spout pouring 44,000 tons of wheat into the Arion SB, bound for the Philippines.

and,

Exports swelled in the first two months of the year by nearly 15 percent compared with a year earlier, according to the Commerce Department.

Now, that’s two reports from two different sources that could be reconciled by some neat trick but what is that trick? Animal spirits? No, something more shocking – Imports are down and exports are up? Huh, what? Now, that’s a welcome change, one would think.

But Animal spirits are everywhere,

“I’m certainly interested in spending now that the stock market seems so relaxed,” said Dan Schrenk, an information technology consultant, as he stood outside a Best Buy store in the Portland suburb of Beaverton.

and,

On the other side of the country, at the Garden State Plaza mall in Paramus, N.J., Marie Bauer, who sells clothing for a living, was feeling similarly emboldened.

“I’m working more now,” she said. “I bought myself a watch.”

If that ain’t Animal Spirits, what is? One is boldly buying a watch. (a watch, mind you!!) while the other is calmed by the current state of the stock market. I suppose, I could be charitable and envision that it is not a Timex but a Rado but those are still imports in my book. As for the calm in the markets, that’s exactly how a sucking out of volatility from the market sounds and feels like. Look at the chart below:

When volatility is sucked out, there is much complacency in the market and the above quote is a good example of it. As the left side of the above chart shows, complacency can last quite a long time and so cannot be read to indicate that something altogether violent and volatile is impending.

At the cross-roads, which fork do you believe, let alone take?

The troubles continue despite the barrage of good news that is announced from any and every media outlet. The latest blow (or rather non-boost) to the story of good times are around the bend is: Consumer credit in US fell by most in three months.

From that article,

Consumer credit in the U.S. declined in February more than anticipated, indicating Americans are reluctant to take on more debt without further improvement in the labor market.

and,

The drop was the 12th in 13 months and shows consumer purchases, which account for about 70 percent of the economy, will be limited until households become more optimistic about the recovery. Confidence to finance spending may be restored if employment keeps rising after a March payroll gain that was the biggest in three years.

“I don’t think we’re going to have the credit-fueled spending we had in the past,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors LLC in St. Louis. “A lot of consumers are deleveraging. They see excess borrowing as threatening.”

and lastly,

In 2009, credit-card write-offs increased 59 percent to $89 billion from $56 billion in the previous year, according to R.K. Hammer Investment Bankers, in Thousand Oaks, California. Write- offs and delinquencies typically track the unemployment rate.

Remember that the biggest boost from the stimulus as far as job creation was concerned was slated to be towards the end of 2009 and then tapers off into the first quarter of 2010 (Romer: Impact of stimulus will wear off and The end of the Great Recession). That means that this is the best consumer related effect that we should see – at least from the point of view of job creation filtering back into consumer demand. After that, the expectation will be that the economy grinds on under its own powers.

The masters of our fates seem wedded lock, stock and smoking barrels to the idea that all that needs be done is to rouse the animal spirits (that’s us folk, never mind the implied condescension). And like a bunch of wildebeests, we shall run off to our jolly lives, never mind the fire on the savannah. But there’s nothing left to spend except what one possibly brings in every paycheck and that is key. You haven’t been hearing the term jobless recovery (for a time, that was being used) – but a jobless recovery is a failed stimulus and that will be the tell.

However, there is something poignant about the term animal spirits for our masters use the term to really mean : enslaved spirits, blinders on and doing whatever they command without actually commanding us. The few of us who might be familiar with animals know that an animal, even a domesticated one, can be quite an unpredictable beast and a herd of animals can summon quite an unpredictable spirit. Wildebeests are easily spooked and they can set off on a gallop thither but they can also turn and run straight back at you and trample you underfoot. That’s animal spirits for you.

I was forwarded a note about a series of short clips, the first of which has been posted online. The purported intent of these clips is to give voice to the small (or smaller) ERP/SCM players in the face of the mammoths. Or as some marketers might have it – the Davids vs. the Goliaths with a Web 2.0 twist.

It’s refreshing to see the battle spread to the Web 2.0 infrastructure and done in a clever way as well.

Here’s the link: Suitemates.com