Trends-September 2006

Shippers today face a variety of concerns: high transportation costs; port, rail, and highway congestion; labor shortages; and complex security issues.

Despite these challenges, they are finding ways to develop strategies and tactics that improve supply chain efficiency, finds a new report by University of Denver logistics expert Paul Nuzum. Forward-thinking companies are overcoming transportation challenges by seeking solutions that address their immediate concerns and provide long-term benefits, he explains.

“Soaring fuel and freight prices in particular have prompted U.S. supply chain executives to scrutinize their logistics networks with a new level of urgency,” says Leonard Sahling, first vice president of research for ProLogis, the global logistics provider behind the new report, titled Moving Freight Today—How Shippers are Creating Greater Capacity, Reliability, and Rate Stability.

The report, which is based on in-depth interviews with supply chain executives at more than 30 major companies from a variety of industries, shows companies are enacting the following strategies to improve supply chain efficiency:

Adding consolidation and deconsolidation centers to their supply chain networks to ensure freight is transported in full containerloads and truckloads. These centers serve as “freight pooling hubs” and, under the right circumstances, can substantially increase logistics operations efficiency.

“De-coupling” freight costs from product costs. In the past, suppliers paid freight charges and simply added them to their materials invoices. Today, companies are adopting practices that ensure they consistently receive the best shipping rates available, through centralized command and control of freight movement.

Working to improve collaboration with carriers and other transportation providers through better forecasting, shorter payment cycles, and implementing two-way operational scorecards.

Creating new network capacity by eliminating sources of waste and inefficiency. Techniques include collaborating with other companies to reduce the number of empty trucks on the road, and establishing 24/7 work schedules at distribution centers.

Tricky Partners

Trick My Truck, the popular truck makeover show on the Country Music Network (CMT) was a hit with truckers during last year’s debut season.

Now beginning its second season, the show has partnered with transportation and supply chain management solutions provider Ryder System Inc. to provide replacement rigs to truckers on the show.

Ryder will offer replacement trucks to minimize downtime for the selected drivers while the show’s team of mechanics, known as the “Chrome Shop Mafia,” customize their ailing rigs.

Because the makeovers are extensive and take anywhere from three to six weeks, CMT needed a partner to offer the owner/operators a way to stay on the road and in business while their trucks are redone.

“The reliability and availability of Ryder’s extensive truck fleet made it an ideal fit for this show,” says Melanie Moreau, executive producer for CMT.

Logistics and Leadership: Perfect Together

What does your CEO think about the importance of your logistics job? Evidently a lot, according to a survey of top-level executives conducted by UPS and Harris Interactive at five global trade conferences.

The co-sponsors compared results from survey respondents attending the Paris, New York, and Chicago Longitudes conferences in the spring of 2005 and the Shanghai Longitudes conference in October 2005, with respondents at the 2006 Longitudes conference in Chicago.

Overall, survey respondents indicate that supply chain and logistics has become an imperative part of strategic growth and profitability plans. CEOs and other top leaders are more likely to name supply chain management as an integral component to business success than in the past. In addition, survey respondents discuss key supply chain challenges and future expectations.

Here are some highlights:

* Attendees of all five conferences agree that effective supply chain management has a “large or moderate impact” on their company’s ability to achieve its strategic objectives (96 percent of Chicago 2006 respondents and 95 percent of previous conference respondents).

* Attendees report “improving sales/market share” (34 percent) and “improving customer service levels” (31 percent) as two of their organizations’ most important supply chain objectives.

* Largely because of increasing transportation costs, Chicago 2006 conference attendees are significantly more likely than those who attended earlier conferences to rank “reduce operating costs” as their top supply chain objective (34 percent for Chicago 2006 vs. 17 percent for earlier conferences).

* Seventy-six percent of all attendees list “difficulty accurately forecasting demand” as one major supply chain challenge at their company, while 58 percent of Chicago 2006 attendees and 43 percent of earlier conference attendees indicate “collaboration with suppliers/partners” is their greatest supply chain challenge.

* Despite the seemingly ubiquitous presence of 3PLs, only 4 percent of those attending the Chicago 2006 conference say they “have completely outsourced supply chain activities,” and 58 percent of respondents overall say they “do not extensively outsource supply chain activities.”

* Less than one-fifth (17 percent) of attendees overall say they are “very” or “completely” prepared to handle a major supply chain disruption.

* Thinking about the future, “collaborative practices with vendors, customers, and suppliers” is mentioned by 40 percent of Chicago 2006 attendees and 54 percent of earlier respondents as the next frontier in supply chain management.

DCs Need Best Practices

Today’s complex, fluid distribution centers bear little resemblance to the basic warehouses of early retailers and distributors.

Although they have the same basic functions—receiving and storing products, picking and shipping customer orders—DCs have evolved along with customer demands, finds a new benchmarking and best practices survey of 100 top retail and related companies conducted by The Supply Chain Consortium, Raleigh, N.C.

“Every DC should have a best practices program,” says Brian Hudock, author of the report. “It is the path to reducing errors, labor, and cycle time while increasing accuracy and service.”

Overall, customer demand, technology leaps, product mix, transportation costs, and management styles drive changes in distribution centers, the Consortium finds.

The benchmarking report reveals some interesting facts about DC operations, configuration, and best practices:

• 63 percent of all product storage is still performed with floor bulk and single-deep pallet racks.
• 43 percent of retail operations have moved to highly automated operations; 14 percent remain highly manual.
• 46 percent of crossdock labeling is done by suppliers.
• A warehouse management system makes the put-away storage location selection for 60 percent of all operations.
• 55 percent of inbound orders are planned against advanced shipping notices.
• Value-added services account for 17 percent of total facility space utilization.
• 60 percent of all operations have a sorter to support either picking or shipping.

Surviving the Storm

Last year’s devastating hurricane season illustrated all too vividly the importance of planning ahead for supply chain disruptions.

As this year’s hurricane season begins, Jane Hoffer, CEO of West Chester, Pa.-based supply chain solutions provider Prescient, offers these six recommendations for shippers with operations or key customers in hurricane-prone areas:

1. Incorporate supply chain flexibility and replenishment alternatives in your overall disaster and crisis planning.

2. Using point-of-sale data, analyze which products will be most affected in an emergency, and separately plan for those products, including route optimization.

3. Conversely, if a specific product’s demand drops during crises, use point-of-sale data to reduce those pipelines.

4. Audit existing technology, including data vulnerability, for disaster preparedness. Examine whether or not you should relocate your servers.

5. At a minimum, create backup and alternative IT and data warehousing systems.

6. Test everything; test it again.

Security Spending Pays Off

Supply chain innovators’ security investments are paying off, with benefits such as reduced transit time, excess inventory, and theft; increased on-time shipping and asset visibility; and stronger customer relationships.

These are among the findings of a new study, Innovators in Supply Chain Security: Better Security Drives Business Value, conducted by Stanford University for The Manufacturing Institute, the research and education arm of the National Association of Manufacturers (NAM).

Inbound Logistics was on hand at NAM’s Washington, D.C., office when the results were presented during a supply chain security panel discussion.

“This study shows that investments in supply chain security help with other performance variables, such as efficiency, consumer response, and global flexibility,” said Jerry Jasinowski, president of The Manufacturing Institute, and facilitator of the panel discussion.

Shippers agreed. “Supply chain security is critical to maintaining and growing our business,” noted panelist Arnold Allemang, senior advisor, Dow Chemical Company, Midland, Mich.

As part of a supply chain security initiative, Dow has enacted a variety of security measures, including increased identification of truck drivers to ensure they have the proper authority to be on Dow sites; working with carriers to provide driver teams so cargo is not left unattended; and using RFID technology to enable real-time cargo tracking.

The company also carefully selects supply chain partners to ensure they meet its stringent security requirements, Allemang explained.

IBM has also made changes to its supply chain security regime, reported panelist Theo Fletcher, vice president, import compliance and supply chain security for IBM.

The company now inspects empty containers, including measuring containers inside and out to help detect hidden compartments. It has increased use of security guards, schedules multiple trailers on the road at the same time so they don’t travel alone, and uses tamper-proof seals to detect whether container doors have been opened.

And the company hasn’t stopped there—it also now requires its suppliers to implement certain supply chain security initiatives.

Study participants—including 11 major manufacturers and three logistics service providers—revealed a number of other supply chain initiatives that are helpful in combatting security threats.

Some of these initiatives include:

• Installing physical site security mechanisms, including fencing, ID badges, and access limitations.
• Implementing track-and-trace capability and visibility tools.
• Performing personnel background checks and security training for employees.
• Product packaging changes.
• Developing risk assessment models to select, qualify, and evaluate suppliers.
• Using improved container sealing procedures.
• Increased use of Advanced Shipment Notification.
• Posting security guards on ships, at terminals, in warehouses, and at warehouse gates.
• Implementing security evaluation and validation systems for subcontractors and vendors.
• Participating in programs such as Free and Secure Trade and Customs Trade Partnership Against Terrorism.

—Leslie Hansen Harps