June 2006 | News | Trends

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Collaboration isn't just a supply chain buzzword, it's fast becoming an essential tool for logistics success, according to new research from Boston-based Aberdeen Group.

With ever-increasing logistics complexity and global supply chains becoming the norm, it's more important than ever for supply chain professionals to share information and best practices across their networks, finds the study, The Supply Chain Integration Benchmark Report: Warehouse Without Walls.

While supply chain collaboration used to mean simply having the ability to pass business transactions back and forth efficiently, it now encompasses a whole series of value-adds, both within an organization and throughout external partner networks.

Creating a collaborative environment today means integrating processes, technology, and information, says John Fontanella, senior vice president of research for Aberdeen, and author of the report.

"Best-in-class" companies engage in high-end collaboration by sharing knowledge across their operations. These companies reap tangible results such as cash-to-cycle times that are 25 percent shorter than companies with average or lagging collaborative networks.

They also boast superior on-time delivery performance and order fill rates, and commit fewer assets to the fulfillment process, which reduces expenses and boosts the bottom line, the study finds.

The top-performing collaborative companies surveyed also share the following characteristics:

  • They can rapidly assemble or reassemble supply chain services to meet specific needs by using insourced or outsourced logistics and manufacturing services.
  • They evaluate logistics service providers on both operational and technical excellence.
  • They include supply chain performance metrics as part of their supplier agreements.

Rosy Outlook for Rail

Though demand for rail services has crept up as shippers seek to avoid highway congestion and increased fuel costs, rail performance hasn't always matched shipper expectations. The upswing in rail shipping has led to rail congestion, reduced train speeds, a drop in on-time departures and arrivals, and higher rates—not the prettiest picture.

But rail shippers may be in for a more pleasant future, according to international ratings agency Fitch Ratings, which outlines several positive rail trends in its latest report, Railroad Resurgence Fueling Rise in Capital Spending.

The U.S. railroad industry is addressing shipper requests to improve capacity and customer service by increasing capital expenditures. Collectively, the four largest U.S. railroad companies are projected to spend $7.3 billion in capital investments in 2006, an increase of 20 percent over 2005 spending, and a 34-percent increase over 2004, finds the Fitch report.

A large portion of the planned expenditures will go toward laying new track, improving signal systems, adding locomotives, and upgrading IT systems.

In addition, rail carriers are implementing plans to use information technology to better utilize existing track, locomotives, and rolling stock, according to Fitch.

As the U.S. economy continues to grow and capacity remains tight, the railroads expect enhanced efficiency and customer service levels will help better serve existing customers and lure more shippers to rail.

A $100-Billion Fuel Bill

The trucking industry's 2006 fuel costs will top out at nearly $100 billion, according to the American Trucking Associations (ATA), which recently upped its predicted total yearly fuel spend to $98.3 billion. The forecast represents a $10.6-billion increase over the industry's $87.7-billion bill for diesel fuel in 2005.

The news from ATA follows an update from the Energy Information Administration, which adjusted its 2006 forecast of the national annual average price of diesel from $2.59 per gallon to $2.70.

The increases spell trouble for shippers, as carriers will undoubtedly continue to add fuel surcharges to their services in an attempt to make up for skyrocketing diesel costs. For many motor carriers, fuel represents the second-highest operating expense, accounting for as much as 25 percent of total operating costs, reports ATA President Bill Graves.

Part of the increase may come from the introduction of ultra-low sulfur diesel, which is scheduled to hit the market mid-year. Ultra-low costs more to refine and distribute than today's diesel fuel, which could place additional upward pressure on the price, notes the ATA.

We're in the Money

Supply management can be a lucrative career, according to the Institute for Supply Management's first comprehensive salary survey, which puts average pay for 2005 at $78,470.

While obvious factors such as seniority help bump up pay rates (chief purchasing officers, for example, made an average $161,082 in 2005, versus $57,081 for purchasing agents/buyers/planners), other interesting variables come into play.

Salaries increase as the number of employees in an organization increases, finds the survey, which polled 1,223 supply professionals from a variety of industries. The 2005 average salary at organizations with more than 5,000 total employees was $87,313, while $64,484 was the average for organizations with fewer than 100 total employees.

Average salary is also higher for those with professional certifications—$80,758 average salary for supply professionals holding one or more certifications, versus $76,411 for non-certified respondents. Supply professionals with the Certified Purchasing Manager designation command some of the highest salaries—$83,172 average—among those holding certification.

Additional highlights from the survey include:

  • Fifty-eight percent of respondents earned bonuses, which averaged $12,483.
  • Average salary varies by industry, with the mining sector posting a high average of $94,227, accommodation and food service coming in at $89,350, and the manufacturing sector earning $78,277. The lowest annual average salary, $61,587, was reported by supply managers in the educational services sector.
  • Women lag behind their male counterparts. The average salary for women was $66,032, while the average for men was $86,662.

Legislators Send Out SOS

Recent debate on Capitol Hill left U.S. legislators unanimously agreed that maritime security must become a priority, yet divided on the best course of action to drive better compliance.

The House of Representative's approval in May of H.R. 4954, the SAFE Ports Act, designed to ensure U.S. seaports are safe and secure without compromising oceanborne commerce, passed by an overwhelming majority. Several attempts to amend the bill, however, suggest government is still fomenting ideas and not yet ready to settle on a definitive plan for future security provisions.

Presently, the Department of Homeland Security inspects six percent of the 11 million cargo containers entering U.S. seaports annually, according to department spokeswoman Leah Yoon. Containers flagged for examination are considered high-risk for reasons such as the security of the originating port or a shipper's history.

Maritime security, a latent concern since Sept. 11, came under even greater scrutiny late last year when Dubai company DP World attempted to buy six American ports. Legislators, perhaps mindful of their failure to address port security issues prior to the Dubai debacle, have been quick to offer up new solutions. But to date, there has been more conjecture than consequence.

The "Sail Only If Scanned" (SOS) amendment to the SAFE Ports Act, for example, was panned by the House Homeland Security Committee for failing to address the broader impact increased restrictions might have on U.S. trade. However, the proposal is still up for debate in the Senate and the House, and some constituents are concerned.

The Coalition for Secure Ports, a collective of private sector stakeholders that shares responsibility for port, vessel, and cargo trade security, has asked members of the U.S. Senate and House to reject maritime and supply chain security proposals that would damage the U.S. economy and disrupt existing security strategies—proposals that might suspend trade with countries whose ports do not comprehensively inspect containers before loading.

"The 'Sail Only If Scanned' proposals risk severely disrupting U.S. commerce and creating disputes with America's trading partners while failing to address their far-reaching implications for our maritime security strategy," notes Christopher Koch, president of the World Shipping Council, a member of the Coalition for Secure Ports.

Perhaps the greatest criticism of proposed SOS provisions is the fact that there has been very little discourse about their objectives and potential ramifications, argues Koch.

"Congress has held no hearings on these proposals, which would have a major impact on trade and security strategy," he says. "The legislation fails to address fundamental security strategy questions raised by the proposals, such as privatizing the performance of container screening in foreign ports.

"It also fails to address the fact that present technology does not allow for 100-percent container inspection without bringing commerce to a halt. This is no way to legislate on an important issue."

The Senate has faced parallel concerns with its "GreenLane Maritime Cargo Security Act," which the Homeland Security and Governmental Affairs Committee recently approved by a margin of 14-2. Similar efforts to include a mandatory "scan-all-containers" provision were rejected in favor of a compromise that would eliminate hard deadlines for cargo screenings and instead offer more flexible requirements.

Some legislators have raised concerns that new requirements for screening shipments might overlap existing protocol or undermine current programs such as the C-TPAT initiative. To this end, the Bush Administration has argued that high-tech X-ray technology necessary to implement new screening requirements is still not widely available and the timeframe for such a rollout is unrealistic.

Ultimately, the SAFE Ports Act is a step in the right direction as the U.S government looks to protect ocean commerce from potential terrorist threats without further compromising U.S. trade.

The bill "will improve the safety of the American people and the security of our global supply chain," says Rep. Dan Lungren, R-Calif. "It ensures our shores are our last line of defense, not our first."

But given these circumstances, the challenge for Capitol Hill is to make sure security legislation has similarly run its course and had a chance to mature and evolve before it becomes industry's best line of defense.

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