Supply chain economic recovery

“I am sorry, we do not  have that item on our menu tonight.  The  truck did not show up….” I heard this statement twice this week while on vacation. Are you also hearing it?

I believe logistics matters.  In my opinion, it matters now more than ever.  The logistics community is insular, the ecosystem is fragile, and I believe that the health of the system is at a tipping point that requires a community effort. Here I share some thoughts….

Background

It is a topic that is interwoven through history.  Whether it was war, famine or disease, supply chain management drove improvements. The answer was more than guns, wheat and roses.  Logistics determined who won or lost a war.  Improved productivity eradicated famine. Triage, monitoring and continuous improvement programs improved health and wellness. It is a nameless thread through history.

The 1980’s, it got a name.  Better math combined with computing power shifted the term “logistics” from the “dark halls of the Pentagon” to be a recognized requirement for distribution-centric industries.  Manufacturing industries also took first steps on the road to becoming demand driven and the process training that was so prevalent in manufacturing environments drove improvements, not only in manufacturing, but across the supply chain. It became recognized as supply chain management.

Thirty years later, the processes and technologies are still evolving.  The growth and development of SCM was driven through vertical, often isolated, silos.   Logistics was one of the most isolated.  It was also one of the slowest to mature.  In fact, it moved so slowly, that I often find it useful to look back and see how far we have come.  I find that only by looking back, can I see that we are moving forward at all.  It helps me to gain a better perspective.

Over the past month, I had the chance reflect through three logistics experiences.  I attended SMC3’s conference in Idaho last week, the Association of Distribution Management in Orlando at the end of May, and tuned in to the Council of Supply Chain Management Professionals (CSCMP) 22nd Annual Report on Logistics (http://cscmp.org/memberonly/state.asp) last week.

Birds of a Feather Flock Together

When I open the doors, at a logistics conference, I feel sucked into an “Old boys Club”. The carrier community is close knit.  (There is a definite line of demarcation between a “shipper” and a “carrier.” In the “carrier world”, I am definitely an outsider.) The attendees are primarily male, have been in the trucking industry most of their lives; and like me, see the gray roots of their hair in the mirror in the mornings.  This characterizes the SMC3 audience.  (SMC3 is a logistics consortium that has branched out into content/pricing services for the carrier industry.)  The central themes of the conference were government regulation, rising energy prices and declining infrastructure.  Many in the room were from small businesses.  These impacts are hitting hard:  definitely below the belt.

I navigate easier in the “shipper world”.  I feel more affinity; because, for many years, I was a shipper.  At the Distribution Business Management Association conference, I reflected on what had changed over the past 15 years since I was a “shipper”.  Surprising, I found logistics taking-on new level of significance.  Like carriers, shippers were also talking about governmental regulation, rising energy prices and declining infrastructure, but they were interested in being part of the solution.  They were aware of the issues and their role in them and actively discussing how to redefine relationships to stabilize logistics.

The CSCMP report continues the tradition of reporting on industry health.  It is one of the barometers that I use to look at industry trends.

<A Word about Logistics>

When it comes to supply chain management, not all companies are equal.  The drivers and barriers are different by industry.  The degree of logistics excellence required is a gradient. It is the most important the process-based companies of chemicals and pharmaceuticals, in consumer-driven companies like apparel, food/beverage, consumer packaged goods and retail, and fast moving goods like high tech and electronics.  It is not as significant of a driver for industrial conglomerates or discrete manufacturers. This blog post is written to “speak” to the distribution-centric industries.

Birds of a Feather Flock Together:  But, should They?

While the community is tight knit and the themes are consistent, I feel that gravity of the situation is not well understood by the broader supply chain community.  I see three scenarios happening.

Will the Nightingale Sing?

The nightingale is one of the few birds that sings at night. In parallel, the area of logistics is becoming one of the major parts of the supply chain that is being forced to hum at night.  From the CSCMP report, “…volumes are about ½ of pre-recovery levels, but capacity especially in air and truck are almost fully engaged. The recession had a devastating impact on capacity.”  The report goes on to say that “16% of truckload capacity has been removed since 2006.”

Fewer assets, growing issues with infrastructure, and a shortage of drivers will force more logistics operations to what manufacturers fondly term the “third shift”.  I believe that it will definitely sing with the nightingale.

What does this mean for shippers?  Increasingly, shippers need to work on improving operations to “be easier to do business with…” This includes better staffing of the third shift, seven-day operations, ease of dock loading and effectiveness in drop yard management.  The early bird will definitely get the worm….

A Canary in the Coal Mine?

I grew up in West Virginia.  In a coal mine, methane is a silent killer.  No smell. Serious business. Before there were electronic sensors in the mines, the workers used canaries as sentinels.  When there were high levels of methane, it would kill the bird before affecting the health of the miners allowing the workers to escape.

I believe that logistics is supply chain’s canary in the coal mine. I believe that the current slowdown in logistics volume is an indicator of economic softening. 2010 was not what we hoped it would be. Volume was up slightly. Gas prices skyrocketed. We are close to a breaking point in capacity in truck and air. The industry has not recovered from the Great Recession.  I love the wording in the CSCMP report, “Volumes grew slowly and fitfully with truck tonnage rising 5.7% not even close to reversing the losses of the past two years.”

We have a slow down in industrial manufacturing.  The last four months of unemployment in the United States economy has been disappointing. We only have a ¼ off the jobs back from the beginning of the recession.  We are seeing a structural change in who we are hiring.

This canary is a sentinel for the supply chain.  It is time to focus on demand sensing to reduce demand latency and better orchestrate the demand signal.  Inventory configuration planning is paramount, and increasing capabilities to do better network design is growing in importance.  The key is better sensing and a more intelligent response.

A Do-Do Bird?

This bird is extinct. It is most talked about case of extinction driven by humans. The loss of ecosystem and the introduction of new species killed this species.  The health of logistics is dependent on ecosystem that is fragmented.  It is a village of government, shippers, carriers and logistics providers. Shippers need to be more active to be sure that we do not see the extinction of best in class processes.  The increasing governmental regulation needs to be on the lobbying agenda for the shippers as well as the carriers.  Likewise, the shortage of drivers may increase the need for private fleet.  As they say in wrestling, “logistics is on the mat in a stronghold.” We need to be careful that we don’t kill the good things that have been built into the system over the last thirty years.

For example, logistics needs to be viewed in aggregate– air, rail, barge, truckload, and less than truckload – with a focus on multi-mode and relationships. The ability to effectively work with carriers on multiple-mode capabilities with improved lane visibility can greatly improve the ability to get loads.

Go fast. No, go Slow. Be reliable?  Logistics variability has increased for multiple reasons.  The issues include road congestion, governmental regulations, slow steaming of ocean fleet, and the shortage of capacity.  The introduction of corporate sustainability scorecards for efficiency, the increase in compliance fees and the tightening of definition for the perfect order is putting a stronghold on logistics.  While each may seem OK in isolation, it is the combination that worries me.  We need to look holistically at how we move freight (modes) and how we manage freight (scorecards, penalties, expectations) to be sure that we are not killing the ecosystem (especially as we enter the back-to-school and the holiday shopping periods).

Birds of a Feather can Flock Together, but we need to Protect the Flock

In short, US logistics costs for 2010 were on par with the costs for 2005, but we have some issues. The US economy is uncertain, and the logistics ecosystem is fragile.  While birds of a feather may gather at logistics events and carefully detail the issues, they gravity of the issues are not well-recognized by the greater supply chain community.  Each of these three scenarios are today’s reality.

What are your thoughts?  Do you agree that it is fragile?  Got any insights for the greater community to share?