Monday, August 29, 2005

Spend Money to Save Money!

Short-Term Perception: Today's lean manufacturing environment, shaped by just-in-time stocking and razor-thin margins, has made the use of premium freight a daily reality for manufacturers.

Though once used only on occasion to protect plants, shipping goods via premium freight is now a regular occurrence. While this shipping method can be expensive, manufacturers that incorporate premium freight as part of their overall logistics plan are able to create new efficiencies and cut costs.

For years, the use of premium freight was viewed as a "the last resort" of the supply chain. Even today, many manufacturers see utilizing premium freight as an admission of inefficiencies.

As efforts to eliminate the practice have revealed, premium freight is not always a by-product of poor manufacturing processes or inefficient supply chains. Logistics challenges currently facing manufacturers -- including rapid product launches, an ever-increasing focus on lean inventories to reduce warehousing costs, and the need to develop efficient global supply chains -- confirm premium freight's position as a necessary business practice.

Companies that include premium freight as part of their overall logistics strategy develop solutions that enable the supply chain to function seamlessly without forcing significant spending on a small amount of premium shipments. Using premium freight in this way gives companies a unique competitive advantage because it helps cut costs and ensure projects are completed near -- or under -- budget, and on time.

Long-Term Strategy: Using premium freight should be viewed not as a day-to-day tactical decision, but as part of a long-term transportation strategy. Decisions regarding premium shipments that were made on the plant floor now garner the attention of top executives, who look closely at expenses and strategize with plant-level decision-makers on cost-cutting methods.

In addition, the impact of premium freight has significantly changed these executives' views on whether or not to keep their plants running at all times. In the past, the mantra was: whatever the cost, keep the plant running. With a strategic focus on premium freight as part of the long-term logistics strategy, executives are on top of issues that previously may have forced a plant to shut down to preserve cost efficiency.

Premium freight expenses are often contained within general inbound or outbound freight budgets, and are not singled out as separate line items. Looking at these budgets in a holistic fashion, however, reduces manufacturers' ability to identify fixes that ultimately reduce costs and create efficiencies.

By investigating premium freight occurrences, and taking the time to break out the causes and expenses associated with these shipments, companies often find an untapped area for cost savings. Because a premium freight strategy enables transportation flexibility, manufacturers increasingly view their outsourced logistics providers as partners. Openly sharing information and examining ways to eliminate inefficiencies within an ubiquitous supply chain has become commonplace.

This heightened level of trust has brought about a strategic and collaborative efforts among manufacturers, suppliers, 3PLs, 4PLs, and service providers.

The result? More effective process planning, system design, and integration, which culminates in uninterrupted supply chains and hard cost savings.

Friday, August 26, 2005

Rate Negotiation Headaches Averted

Ocean carrier mergers and acquisitions have shaken up the industry, leaving behind a tangled web for consignees and shippers to navigate. So how do you avoid getting snagged in the web of management hierarchy and get the best bang for your buck when negotiating a shipping deal?

1. Use the "big picture" approach to create leverage.

2. Be creative; offer the package deal.

3. Control the negotiations.

4. Let them know what you spend.

5. Do your homework.

6. Know the hierarchy in their marketing and sales departments (past & present)

7. Attend industry conferences and build your personal network.

8. Know where your freight is at all times, demand to keep the visibility.

9. Keep trying to negotiate service agreements/levels/kpi's into your contracts.

10. Get to know the local operating personnel in your shipping areas (origins and destinations)

Wednesday, August 24, 2005

Container Industry Evolution - Its gonna happen!

A new report by IBM Business Consulting Services says container shipping lines must offer more time-definite services to respond to customer demand and potential and potential competition from package supply companies.

The report said that as customers demand more cargo visibility and reliability similar to levels provided by package-delivery companies such as UPS, DHL and TNT, container lines will have to respond.

"Package delivery providers...have deep pockets and are quickly acquiring capabilities to become integrated supply chain providers," the report said. "They can offer existing land-based transport networks and end-to-end shipment visibility. Most are deepening their logistics capabilities, with more extensive integration with customers."

The report said the package-delivery companies success "could leave door-to-door shipping lines adrift -- stuck between the integrated supply chain providers, which deliver overall value, and the focused port-to-port service providers that offer low costs. These latter players are natural allies or acquisition targets for package delivery providers."

Container lines that change to meet this challenge must adopt a culture that embraces a business model which more evenly balances traditional asset optimization with product reliability and visibility. This will require support from the different business processes, organizational design, and base-line business software applications.

The industry continues to evolve, with companies like IBM, Accenture, Cap Gemini, etc leading the way...

Monday, August 22, 2005

CP Ships to be purchased by Hapag Lloyd/TUI (Ich glaube, mich laust der Affe)

TUI, the parent of Hapag-Lloyd Container Line, Germany's biggest container shipping line, has agreed to a $2.1 billion cash bid for rival CP Ships in a deal that will create the world's fifth-largest container carrier.

The merger of Hapag-Lloyd, the world's 12th-largest carrier , and 16th-ranked CP Ships, will crea te the world's number five container line, just behind France's CMA CGM, with a fleet of 135 ships with capacity of 406, 000 TEUs operating on over 100 routes. The two carriers had a further 26 ships of nearly 110,000 TEUs on order as of May 1.

This still leaves Hamburg Sud on the market, which was trying to convince TUI/Hapag-Lloyd to merge their operations earlier this year. Could this be the next step for further consolidation? What of CMA-CGM? Chine Shipping? If you hear any good rumors, let me klnow!

Friday, August 19, 2005

Contingency Plans - Hope for the Best, Prepare for the Worst

Can your company weather a logistics disaster, such as a terrorist attack, airport closure, or worker strike? Sudden disruptions will create possible long-term disconnects with your customer -- along with your customers' freight. Here are some common sense tips on planning for a crisis, and handling emergency transport changes when a major disruption happens:

1. Designate business continuity (Crisis) managers. Because any disruption to your business can be extremely costly, it is imperative to make managers within your organization responsible for your continuity planning. Give your point people the authority to carry out the job and make them responsible for all actions and outcomes, including emergency shipments.

2. Define all possible disruptions to your business. Business disruptions come in all shapes and sizes -- from natural disasters, fires, and chemical spills, to system failures and call center outages, work stoppages and unforeseen airport closures. Think through the gamut of scenarios that could present a shipping emergency for your company.

3. Hope for the best but plan for the worst. Outline the steps that need to be taken to remedy each disruption scenario. This includes making sure that everyone involved -- technology, operations, purchasing, transportation -- knows their role, as well as who is responsible for what actions.

4. Know where to get help. Because it's almost a sure bet that you'll need to expedite shipments in an emergency, talk to carriers about their capabilities before a crisis arises. While all expedited carriers are in business to speed shipments, they offer different types of services and have different service records. As with any purchase, you need to select carefully. Do your shopping in advance so that you've already identified your mission-critical carriers and will know who to contact immediately during a crisis.

5. Understand all your transportation options. There are numerous cost- and time-related issues to consider in choosing how you want to expedite your emergency shipments, including exclusive use of vehicle, two-way tracking ability, 24/ 7/365 availability, special handling requirements, and domestic vs. international capabilities. Your final carrier choice will depend a great deal on the nature of the emergency and your recovery needs.

6. Test your plan and get professional training. It helps if you test your recovery plan with your carriers up front to uncover any problems with the process. The cost of a test run will likely be minimal compared to the effect on your bottom line if your expedited transportation plans fail in a real emergency. Solicit training from professional risk assessment/training organizations.

7. When an emergency strikes, stick to your plan that was tested. Keep a cool head and follow the actions you've already outlined. Make sure everyone involved in the recovery effort maintains constant communication with each other to help ensure that your efforts run as smoothly as possible.

8. Even the best-laid plans can go be ready to improvise. Unfortunately, Murphy's Law has a way of creeping into emergencies. Be prepared for last-minute glitches that may cause you to alter your plan. For instance, if you planned to use a ground expedited carrier to transport a new generator for your facility but a flood has washed out the main road, you'll need to go to Plan B. The best advice: be flexible with your contingency planning. You might need to explore more than one option to resolve the crisis.

9. Stay current on factors that could change your plan. Contingency planning is an ongoing process because many factors can change your requirements. For instance, since the Sept. 11 attacks, security measures for cargo tendered to commercial aircraft have not increased, but the scrutiny has. According to FAA regulations, only "known" shippers who have customer records with the broker and either an established shipping contract or an established business history can tender packages or freight to commercial airlines. The ocean industry is another matter, with C-TPAT, etc.

10. Believe in your plan, and believe in the people that will facilitate the steps.

If you don't have a contingency plan, call Exel! Even if you don't have a formal business continuity plan, you can still help resolve your transportation emergencies by getting help from a quality organization that can handle multiple modes of transport.

Tuesday, August 16, 2005

Are You Managing Reverse Logistics or Reversing Logistics Management?

If Europe is any harbinger of things to come, U.S. businesses are only on the periphery of properly addressing and reaping the true value of reverse logistics. Europe's ratification of the Waste Electrical and Electronic Equipment Directive, expected to be enforced by year's end, legislates that electronic equipment and appliance manufacturers are accountable for end-of-life disposal of their products -- including refrigerators, computers, TVs, and cell phones.

This will give product lifecycle management a whole new spin and greatly shift the way global manufacturers approach concepts and designs, even to the point of specifically manufacturing products with recycling in mind.

It's no longer simply a matter of pushing product to the consumer, then managing returns; it's a matter of managing a product's entire lifecycle. As such, corporate strategies must support this holistic vision.

This trend is a pivotal watershed in how enterprises embrace reverse logistics. By placing the twin imperatives of reverse logistics and recycling targets together, and it doesn't take much to imagine the challenges involved. This is evident for both manufacturers and retailers, reverse logistics and recycling are outside of what might realistically be considered their core areas of competence. Even if the skills could be recruited or acquired, challenges remain to initiate, manage, and measure success.

Materials handling, just as an example, where supply chains are used to managing brand-new, neatly packaged goods through highly automated distributions centers -- not rusting washing machines or old refrigerators.

Retailers do not have (and will not have) the space to store end-of-life goods. Retail space is expensive, and consequently devoted to goods for sale rather than goods for recycling, but also significant image and safety problems exist in mixing the two flows of goods -- one heading forward to consumers, and one heading to the trash heap.

The unique challenges will be here soon, but companies will continue to focus attention on their core strengths and outsource reverse logistics management to a growing cadre of service companies dedicated to the task. The advantages of rethinking reverse logistics will extend well beyond corporate citizenship and responsibility as retailers and manufacturers build a more dynamic and fluid supply chain.

While fiscal pressures may ultimately compel some to seek cost-cutting measures, paying attention to returns management makes good business sense regardless of the economy.
The reverse logistics business is really not cyclical or based on good or bad economic times. In lean times, companies have a need to take surplus product and convert those assets into cash as quickly as possible. In good times, these same companies will manufacture more product. The rate of returns rises as volume grows, hence the same value applies.

Companies may still be conflicted by the complexity of returns management, but where there is pain there is also opportunity for gain. In the broader scope of global supply chain management, reverse logistics is starting to make more sense. Its just a matter of time before more organizations will take advantage of this opportunity.

Friday, August 12, 2005

Idea Practitioners Get Results

As important as the continual search for new concepts is to a company, the task of helping those ideas gain traction is just as critical. Everyone who has seen a corporate change initiative wither on the vine knows that there is often a yawning gap between brilliant new ideas and concrete business results.

Bridging that gap are people sometimes referred to as idea practitioners (IPs). Such managers make it their job to identify business ideas that can make a difference for their companies and make them happen. IPs are not ordained to this work, and they rarely have a formal mandate for what they do.

What idea practitioners share is more than the ability to get excited by an idea's potential. As they scan the horizon for new ideas to bring back to their companies, their finely honed sensibility for what it will take for an idea to overcome internal resistance serves as a filter. Only those ideas that pass this workability test get brought forward. At that point, the IP's skills as cheerleader, viral marketer, ambassador, battlefield tactician, and savvy political insider come to the fore.

The true bench mark of success—for an IP, the real reward lies in seeing that the idea made a difference in the life of the organization. Do you know any IP's? Are you one yourself?

Wednesday, August 10, 2005

The Long Tail - Can we find a place for it in the logsitics world?

The Long Tail in probability theory
The long tail is the colloquial name given to a long-known feature of statistical distributions (Zipf, Power-laws, Pareto distributions and/or Levy distributions ). They are also known as "heavy tails", "power-law tails" or "Pareto tails". Such distributions can be visualized by the image of the graph on this page. In these distributions a vast population of events occur very rarely in the yellow (or more generally have low amplitude on some scale, e.g., popularity or sales) while a small population of events occur very often in the red (or have high amplitude). The huge population of rare (or low amplitude) events is referred to as the long tail. In many cases the rare events—the ones on the long tail—are so much greater in number than the common events that in aggregate they comprise the majority. My question is this, can we find (or take advantage) of this concept within the transport and logistics world?

The Long Tail by Chris Anderson
The phrase "The Long Tail," as a proper noun, was first coined by Chris Anderson. Beginning in a series of speeches in early 2004 and culminating with the publication of a Wired Magazine article in October 2004, Anderson described the effects of the long tail on current and future business models. Anderson observed that products that are in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few current bestsellers and blockbusters, if the store or distribution channel is large enough. Examples of such mega-stores include, Netflix and even Rhapsody. The Long Tail is a potential market and, as the examples illustrate, successfully tapping in to that long tail market is often enabled by the distribution and sales channel opportunities the Internet creates. Do these opportunities exist for other retailers, of the bricks & mortar type, and can 3PL organizations provide services to support this pursuit of the Long Tail?

A former Amazon employee described the Long Tail as follows: "We sold more books today, that didn't sell at all yesterday, than we sold today of all the books that did sell yesterday." Yeah I know, it sounds crazy...but read the sentence again...and its not a Yogi Bera quote...

"We sold more books today, that didn't sell at all yesterday, than we sold today of all the books that did sell yesterday."

Can we aggregate market opportunities via reverse logistics service offerings, that span multiple markets and multiple customers?

Relationship between the Long Tail and storage and distribution costs
The key factor that determines whether a sales distribution has a Long Tail is the cost of inventory storage and distribution. Where inventory storage and distribution costs are insignificant, it becomes economically viable to sell relatively unpopular products; however when storage and distribution costs are high only the most popular products can be sold. Take movie rentals as an example: A traditional movie rental store has limited shelf space, which it pays for in the form of monthly rent; to maximize its profits it must stock only the most popular movies to ensure that no shelf space is wasted. Because Netflix stocks movies in centralized warehouses, its storage costs are far lower and its distribution costs are the same for a popular or unpopular movie. Netflix is therefore able to build a viable business stocking a far wider range of movies than a traditional movie rental store. Those economics of storage and distribution then enable the Long Tail to kick in: Netflix finds that in aggregate "unpopular" movies are rented more than popular movies.

More Questions:
Again, what are the most unpopular aspects of the supply chain? Returns? Slow moving items? Seasonal items? My thoughts are spinning, but a real answer (opportunity) has not become crystal clear!

Competition and the Long Tail
The Long Tail is not just a positive economic effect; it can also threaten established businesses. Before a Long Tail kicks in the only products on offer are the most popular, but when the costs of inventory storage and distribution fall then a wide range of products suddenly becomes available; that can in turn have the effect of reducing demand for the most popular products.

We need to assess the ideas that this blog creates...and formalize a game plan. Does your orgnaization have a "Long Tail Game Plan?" Should it? What do you think? Sooner or later, one of the many logistics organizations is going to grab onto the long tail...maybe a carrier related company (MLOG, asset based), a 3PL (Exel, non-asset based), or even a 4PL (Accenture, solutions and integrater). The ultimate question is when will the industry catch up with the wired crowd by chasing that Long Tail?

Sunday, August 07, 2005

Carrier Consolidation on the High C's

CMA CGM and China Shipping Container Lines are teaming up to jointly bid for ownership of CP Ships, Ltd. CMA CGM of France confirmed last week that it is in discussions with CP Ships about the acquisition, but declined further comment. China Shipping has declined comment on reports, but is reported to be teaming up with CMA CGM for the acquisition, according to Xinhua, the Chinese state news agency. CP Ships confirmed last week that "it is in discussions with other companies regarding a possible transaction." A joint bid by state-owned China Shipping and CMA CGM would enable both companies to expand services, Xinhua reported. Both companies are larger than Toronto-listed CP Ships, which operates about 80 ships worldwide.

So what will the new name be? 10CC's? 7 C's Shipping? C-Line?

Friday, August 05, 2005

What is your EQ?

Emotional Intelligence is a way of recognizing, understanding, and choosing how we think, feel, and act. It shapes our interactions with others and our understanding of ourselves. It defines how and what we learn; it allows us to set priorities; it determines the majority of our daily actions. Research suggests it is responsible for as much as 80% of the "success" in our lives.

Emotional intelligence is the ability to sense, understand, and effectively apply the power and acumen of emotions as a source of human energy, information, connection, and influence.

In the last decade or so, science has discovered a tremendous amount about the role emotions play in our lives. Researchers have found that even more than IQ, your emotional awareness and abilities to handle feelings will determine your success and happiness in all walks of life, including family relationships.

If we lack emotional intelligence, whenever stress rises the human brain switches to autopilot and has an inherent tendency to do more of the same, only harder. Which, more often than not, is precisely the wrong approach in today’s world.

What is your EQ?

Wednesday, August 03, 2005

If you knew Suez, like I know Suez!

The federal transportation bill that passed last week has $90 million earmarked for use in developing an intermodal rail route linking the Port of Virginia with distribution markets in the Midwest.

The Heartland Corridor will allow double-stack trains to move from the Port of Virginia, across West Virginia and terminate in Columbus, Ohio. From Columbus, trains will be able to link up with western rail networks and/or the existing Norfolk Southern network that is double-stack cleared to Chicago.

The federal money will be used to link existing rail systems, build new rail lines where needed and raise tunnel and bridge heights to allow for passage of Norfolk Southern's stacktrains.
Lawmakers from Ohio, Virginia and West Virginia worked with state and regional economic development bodies, transportation planners, officials from the Virginia Port Authority and leaders at the Norfolk Southern Corp. to develop the Heartland Corridor project. It is estimated that the project will take five years to complete and cost $266 million.

The Heartland Corridor project will increase the competitive position of the Port of Virginia by cutting the present route to the Midwest by 250 miles. Currently, double-stack trains traveling west must first go north to Harrisburg, Pa., to avoid tunnels that are too low. Eliminating the northbound leg to Harrisburg means cutting a day off the transit time to Chicago.

The Heartland Corridor will provide significant portions of all three states to more international trade. In Virginia, intermodal ramps will be built in the Roanoke Valley region.

In addition, $15 million was appropriated in the transportation bill for the Western Freeway Rail Corridor at the eastern end of the Heartland Corridor, another line to serve the proposed Craney Island Marine Terminal and the new Maersk marine terminal, now under construction.
Other appropriations in the federal transportation bill that will be used in development of the Heartland Corridor include $5 million to enlarge tunnel clearances and $33 million for intermodal ramps in Virginia, West Virginia and Ohio.

With more ocean carriers using Suez size ships, this intermodal link is a well timed, tactical move to enhance opportunities to by-pass the WC congestion and labor issues. It will also continue to erode the NJ/NY Port Authority's ability to secure long-term investment for infrastructure improvements and dredging of the Kill van Kull channel.

Where does your company stand with regard to East Coast versus West Coast transhipments, or Panama Transit versus Suez Transit long term?

Monday, August 01, 2005

Blame Canada - Those Bastards!

As the illegal blockade at the Port of Vancouver is almost in its sixth week, over $1 billion dollars worth of goods sits on the docks. Many distributors, importers, and consumers are asking how big an economic impact is required before government takes the lead in resolving the issue.

The labor dispute between the independent truckers, and their shipper clients, at the Port of Vancouver has left many businesses' cash flow and inventory tied up on the docks. More importantly, consumers will soon face stock-outs on all items locked in containers.

$30 million dollars of goods a day are piling up. While the federal government claims it does not have jurisdiction to act in what it claims is a dispute between independent contractors and their clients within the Province of British Columbia), the Municipality of Vancouver and the Province of British Columbia both indicate that Ports are a federal jurisdiction.

The Retail Council of Canada (RCC) has issued an urgent warning that the livelihood of many of Canada's 155,000 small and medium-size retailers is now on the line, along with smaller retailers, who don't have the financial resources to make temporary alternative arrangements.

According to the RCC, more than three-quarters of its members in BC and Alberta, where the effects appear to be the greatest, say they are or will be hurt by the ongoing disruption, since containers stuck at the port are resulting in lost sales through an inability to deliver product.

According to a coalition of British Columbia businesses leaders, the dispute is costing the economy $75 million a week. The coalition says that Ottawa should rethink its decision not to invoke a clause in the Canada Transportation Act that would force the truckers to return to work.

No matter the outcome now, this has tainted the possibilities of major companies investing in the port networks of Canada. This is a warning to potential investors, and a sobering fact to already committed companies, like Maher Terminals in Prince Rupert, B.C., that investing in an alternative to the US gateways in Washington and California may eventually be more costly than initially anticipated. Queue the strings...Hit it Kyle!