Trends—February 2015

Trends—February 2015

The Jones Act: Time to Change Course?

Debate over the Keystone XL Pipeline Act has raised a new regulatory specter. The U.S. maritime industry fears that an amendment recently introduced by U.S. Senator John McCain (R-AZ) will counter the pro-jobs pipeline bill by gutting the Jones Act and existing cabotage regs.

The senator’s amendment seeks to repeal provisions set forth in the 1920 Jones Act, which requires vessels moving freight between U.S. ports be built in the United States. The measure was meant to protect domestic shipping interests and jobs from foreign encroachment.

"In Washington, sometimes up is down and offense is defense, but an amendment that seeks to eliminate highly skilled, steady middle-class jobs employing hundreds of thousands of our countrymen should never be called good for America," says Captain Don Marcus, president of the International Organization of Masters, Mates, and Pilots, a union representing sea captains and deck officers on U.S. flagged vessels.

The maritime industry argues that such a reversal would decimate the nation’s shipping industry, eliminating as many as 400,000 U.S. jobs across 26 states, contributing to the closing of shipyards and related industries.

Beyond threats to the domestic economy, there’s perceived risk that this amendment would also compromise national security by destabilizing the military’s strategic sealift needs. The Jones Act ensures that the U.S. has a reliable source of domestically built ships and skilled American crews available for its military and humanitarian aid operations.

"Without the sealift capability and American maritime jobs provided by the Jones Act and the Maritime Security Program, the U.S. Armed Forces would be forced to rely on foreign-flag ships and crews with unknown loyalties to transport critical military cargo and personnel to overseas operations," says Marcus.

Digital Technology: A Disruptive Force?

Companies are streamlining a broader range of business functions, including procurement and supply chain, according to Disrupt or Be Disrupted: The Impact of Digital Technologies on Global Business Services, a new study conducted by Accenture and HfS Research. The report examines where and how digital technologies—Software-as-a-Service (SaaS), big data and analytics, cloud and mobile—are being deployed to improve business operations and outcomes.

The key trends include:

  • Digital technologies will have the largest projected changes in procurement (45 percent of respondents expect the digital transformation to "extensively impact" advanced shared services models over the next two to three years, compared to 18 percent over the past two to three years) and supply chain management (49 percent vs. 20 percent). Significant increases are also expected in finance and accounting services (23 percent to 40 percent), human resources (23 percent to 31 percent), and engineering (13 percent to 27 percent).
  • Chief financial officers (CFOs), who have long assumed a leadership role with respect to prioritizing, deploying, and managing shared services, currently play a strong role determining what processes are best purposed for the digital transformation. Thirty-seven percent of CFOs make the final decision about implementation, and another 52 percent provide major input—second only to the chief information officer (40 percent and 47 percent, respectively).
  • While all respondents agree that digital technologies are fundamentally changing the industries in which they operate, 24 percent have no plans to appoint a dedicated senior executive to lead digital transformation strategy, guide investments, or measure success.

Procurement Pays Dividends

Best-in-class procurement organizations are expanding their purview to drive company-wide innovation and top-line growth, according to a recent IBM study. Findings in the Chief Procurement Officer Study run counter to traditional perceptions where procurement predominantly serves as the gatekeeper to corporate spending.

In fact, top organizations are nearly twice as likely to introduce new innovations into the company, and 1.5 times more likely to influence senior leadership to enter a new market than their lower-performing counterparts.

More than 1,000 senior procurement leaders from $1 billion-plus companies in 41 countries contributed to the research, which was conducted by the IBM Institute of Business Value.

Top chief procurement officers (CPOs) are driving enterprise agendas through three common initiatives:

  1. Focusing on the company’s broader goals, not just procurement. Top procurement organizations set their sights beyond mastering the procurement basics. For example, the study found that top CPOs are nearly twice as likely to focus on driving revenue growth and competitive advantage than their lower- performing counterparts.
  2. Serving as a conduit for innovation from strategic partners. When it comes to working with partners, customers, and suppliers, top procurement organizations go beyond the tactical aspects of transaction support. The study shows that 92 percent of high-performing procurement officers feel they can add value to external stakeholder relationships, as opposed to 68 percent of underperformers. To that end, 52 percent of high-performing CPOs leverage suppliers to co-develop new technologies, compared to 39 percent of lower performing CPOs. Top procurement organizations strive to engage with internal stakeholders, as well as understand the needs of end customers to gain a full picture of the business ecosystem. 

  3. Embracing advanced technology to drive higher value results. High-performing procurement organizations deploy advanced data-driven tools to make more informed procurement decisions. For example, 41 percent of top CPOs have integrated advanced analytics capabilities into their procurement organization, compared to just 16 percent of lower-performing CPOs. These CPOs are also more focused on social collaboration, talent development, and automating basic processes as a means to help advance the procurement function.

"True procurement leaders who see the bigger picture can use their unique vantage point to drive innovation, grow revenue, and expand competitive advantage," says Terrence Curley, director, strategic supply management, IBM.

Where to House Your Warehouse

Optimizing distribution networks has become a fluid process for many U.S. shippers. Shifting sourcing dynamics, migrating demand, omni-channel maturation, and logistics outsourcing are swiftly changing how companies align distribution nodes. Chicago Consulting’s 21st annual 10 Best Warehouse Networks assessment, which takes into account U.S. government census data and geographically based growth statistics, underscores these trends.

Chicago Consulting added two new criteria in 2015 that address the emergence of same-day delivery: first, the percentage of the population that is within 65 miles of the closest warehouse; and second, "the percentages of the population that are served in one, two, three, and four days by conventional carriers in which deliveries start the day after freight is picked up," explains Terry Harris, managing partner of the consulting firm.

The 10 Best Warehouse Networks were developed based on the lowest possible transit lead times to customers represented by the U.S. population (see chart below). For example, Vincenne, Ind., provides the lowest possible transit lead time for one warehouse. Any other location will increase transit time to the U.S. population. Similarly, putting three warehouses in any locations other than Boyertown, Pa., Jackson, Tenn., and Porterville, Calif., will cause the transit time to be longer than 1.29 days.

The 10 Best Warehouse Networks (2015)

Networks with the lowest time-to-market

trends inline

Source: Chicago Consulting

The percent throughput specifies the amount of material that would flow through these warehouses based on them serving the territories closest to them. The same-day statistic represents the population within 65 miles of any warehouse.

The transit time percentage statistics represent the amount of the population that is within one, two, three, or four days of the closest warehouse.

Time-to-market is not the only criterion for locating warehouses, according to Harris. Other factors include:

  • Costs
  • Inbound transportation
  • Labor
  • Ocean, rail, road, and air infrastructure
  • Local carrier market
  • Sustainability
  • Support from economic development organizations.

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