November 2006 | News | Trends

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Despite the hot and humid San Antonio weather, last month's CSCMP annual conference served as a refreshing reminder of the breadth and depth of the modern supply chain industry.

More than 3,000 attendees assembled from October 15 to 18 to gather food for thought on global logistics, sourcing, supply chain technology, transportation, and warehousing best practices. The conference also explored niche subjects such as business continuity planning, inventory optimization, procurement metrics, and package design—further evidence that today's multifaceted supply chain impacts all areas of the corporate world.

Collaboration was one big buzzword at CSCMP. An entire track, Creating Collaborative Supply Chains, was devoted to the topic, and several sessions included collaboration in the scope of other logistics disciplines.

"Making Transportation Collaboration Work," for example, was one interesting session that examined how firms can leverage common transportation suppliers and processes to increase vehicle utilization and improve service. Other benefits of collaboration include improved profitability and more effective asset utilization, explained the presenters from Monsanto, the University of British Columbia, and Logistics Management Solutions.

"It is great that this conference highlights topics such as collaboration and partnership," noted Mike Entzminger, CEO, Mach 1 Air Services, a Phoenix-based airfreight forwarder. "Offering collaborative strategies is more important than being the lowest-cost provider."

In many cases, technology is what drives collaborative relationships and helps companies connect and share the data that is essential for collaboration.

"Connective technologies such as RFID provide the data to help foster collaborative relationships, which help companies gain a competitive advantage," explained Ronald Hasty, professor of marketing and logistics, University of North Texas, during his presentation on technology in the retail supply chain.

Examining the Global Buzz

Not surprisingly, CSCMP attendees were also talking a lot about global supply chains. Most attendees, it seemed, were either just back from, on their way to, or planning to visit China.

With both fuel costs and the number of companies importing goods from China increasing simultaneously, however, some supply chain managers question the wisdom of blindly embracing China as the be-all, end-all sourcing solution.

"It is a myth that it is always cheaper to manufacture in Asia than in the United States," said Dave Gleditsch, chief technology officer, Pelion Systems, Boulder, Colo.

"Manufacturers typically achieve total landed cost savings of between 33 percent and 38 percent by outsourcing to China. But if you look at the economics of currency valuation, many would argue that percentage is the same percent that the yuan is undervalued in comparison to the dollar."

Gleditsch pointed to companies such as Toyota, which has committed to reinvigorating its American manufacturing efforts, as possible evidence of a trend away from ubiquitous global sourcing.

"Toyota claims nearly 88 percent of its automobiles' content is U.S.-based, with a goal to increase that number to more than 95 percent by 2010," he said.

Whether or not we see a China sourcing backlash in the near future, supply chain globalization has undoubtedly created disruptive changes for U.S. companies. Managing these changes effectively is a key challenge for CSCMP attendees, explained Richard Sherman, worldwide industry solutions manager, supply chain, Microsoft, in his standing-room-only seminar, "Business as Usual Has Been Cancelled: Now What?"

Sherman explored globalization's effect on companies and its role in transforming organizations from forecast-driven operations to demand-driven, customer-responsive supply networks. Managing these changes means securing executive commitment, building team vision, and engineering processes to transform the supply chain, he said.

The China-Latin America Connection

Another interesting aspect of supply chain globalization is the unlikely alliances cropping up between disparate countries and regions. Take, for example, the interesting dynamics shaping up between China and Latin America.

Because Latin America has become a strategic source of raw materials for China's manufacturing process, the two regions have become financial partners, explained Marcio Stewart, director, InfoAmericas, who presented a session on 3PLs in Mexico and Brazil. The Chinese have invested hundreds of millions of dollars in gas exploration in Venezuela, copper mining in Chile, and in Brazil's steel industry, he noted.

In addition, China is lobbying for a new Pacific freight port in Baja California at Punta Colonet, as an alternative to congested U.S. West Coast ports.

"After all," Stewart asked, "what is the point of investing in raw materials if you cannot get them back to China quickly and profitably?"

Today, transforming supply chains to keep up with global change often means turning to third-party providers for help. As such, it makes sense that business is booming for companies serving the logistics field. The technology, warehousing, and logistics service providers we spoke with at CSCMP all report healthy margins and growing client rosters.

While this is positive news for service providers, it also bodes well for shippers—the more flush with cash the providers are, the more they can increase and improve their service offerings and ultimately make the supply chain more effective and efficient.

The rash of M&A activity that has occurred recently among technology and service providers of all stripes also had tongues wagging in San Antonio. While profit motives are definitely at play among service providers, ultimately these deals are aimed at helping to increase the diversity of services available to shippers.

Earlier this year, Ozburn-Hessey acquired three logistics companies—Barthco International, Freightek, and Turbo Logistics—sparked by customer demand, said Karen Hall, director, marketing and communications for the Brentwood, Tenn.-based 3PL.

"Our customers are looking for broad service offerings," she explained. "They told us, 'We need customs brokerage, we need freight forwarding, we need domestic and international transportation management.' That's where acquisitions come in."

Ultimately, the CSCMP conference aims to bring together all elements of the supply chain—shippers, service providers, consultants, and academics—in the name of improving supply chain efficiency and profitability. Applying the same collaborative philosophy to the everyday world of business logistics is a win-win idea.

Happy Holidays for UPS and FedEx

Thanks to a strong economy and the possibility of several must-have products, this year's holiday shopping numbers should be robust. The National Retail Federation predicts a solid season, citing projected holiday spending of $457.4 billion, an increase of 5 percent over last year.

This news is no surprise to UPS and FedEx, which have both released sky-high predictions of their own.

UPS total projected package volume will jump from roughly 15 million packages per day to more than 21 million on the busiest day this holiday season.

On its peak shipping day, Dec. 20, 2006, UPS will deliver 240 packages every second through its worldwide ground and air network. Two days later, on Dec. 22, the company expects to handle its largest volume of air shipments for the year—roughly 5.6 million packages, more than double the normal average for air volume.

To handle its holiday surge, UPS plans to add roughly 60,000 seasonal workers. In addition, its ground delivery fleet of 91,700 package cars, vans, and tractors will increase by more than 7,000 vehicles. UPS Airlines will add 31 large jets for the period.

FedEx, meanwhile, expects to move a record-breaking total of 9.8 million packages through its global FedEx Express and FedEx Ground networks on its peak shipping day, Dec. 18, 2006. This is projected to be the busiest night in FedEx's history, and would break the company's previous record of 8.9 million shipments on Dec. 19, 2005.

FedEx Ground projects it will handle its highest package volume on December 11, when it expects to move a record 4.9 million packages, a 12.5- percent increase over last year.

In addition, as the popularity of Internet shopping continues to grow, fedex.com expects new holiday records as well. The company predicts an average of almost six million online tracking requests per day during December, a 31-percent increase over 2005 numbers.

Lending weight to the increasing importance shippers place on Transportation Management Systems (TMS), the TMS market grew to more than $989 million in 2005, reports a new study from ARC Advisory Group, Dedham, Mass. Interestingly, TMS sales to third-party logistics providers (3PLs) grew by more than 11 percent last year, significantly outpacing sales growth to manufacturers and retailers.

The success of TMS in the 3PL sector last year was aided by vendors adding to their solutions 3PL-specific functionality, such as freight forwarding capabilities, according to Adrian Gonzalez, director of ARC's Logistics Executive Council and author of the study, Transportation Management Systems Worldwide Outlook.

Shipper companies that embrace TMS solutions have found that the systems' scope and value proposition is extending beyond the transportation department to other groups within the enterprise, and even to customers and partners, the study shows.

"In the past, access to a TMS was usually limited to a handful of people within a company, but now hundreds or even thousands of users can log in to a TMS to execute processes or access information," says Gonzalez.

ARC expects the TMS market to continue to increase, exceeding $1.3 billion by 2010, for a compounded annual growth rate of 6.9 percent.

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