Lou Smyrlis

Mike Gray, who for 17 years played a central role in creating the behind the scenes magic that turned Dell into a poster child for supply chain management innovation, fashions himself a supply chain evangelist these days.

And like a true evangelist, his message at the recent SCL-CITA conference was simple but carried a great deal of meaning. His message to the impressive number of supply chain professionals who turned up for the two-day affair was that they should work to a simple rule: Always have enough and nothing left over.

Sounds simple but it’s a tall order for logistics managers in charge of globally extended supply chains answering to company executives seeking drastic cost cutting on the one hand and service performance that attracts new customers and retains existing ones on the other.

It’s often said that in business these days the only constant is change and the only certainty continued uncertainty. To that I would add my own observation that companies that fail to deal effectively with change and uncertainty are certain to fail, particularly during the difficult economic times we are facing.

Nowhere is this more true I believe than in the arena of global trade, the focus of our cover feature this month (see our four-feature coverage starting on p.16.) It seems like just days ago when we thought the expansion in global trade would go on for ever and was immune to the economic slowdown of any one region. Yet the World Trade Organization has forecast a 9% drop in export volumes for 2009, the largest such contraction since the Second World War (see our story on p. 12) and forcing a focus on cost control. It was as recent as the Fall of 2008 that high fuel and transportation costs were leading companies to reconsider their offshore sourcing strategies in favor of near sourcing distribution. Then the sudden drop in fuel costs combined with the drastic drop in business in the final quarter of 08 left many companies either uncertain about which direction to take or taking a wait and see approach.

I say the harsh economic climate presents Canadian companies with the perfect opportunity to deal with a glaring weakness in our approach to global trade: vulnerability to supply chain disruptions. The results of a recent study sponsored by UPS found that nearly half of companies with global supply chains lived in fear of major disruptions in their ability to source, produce and ship goods around the world. And there’s very good reason for such fear. An Aberdeen Group survey conducted a couple of years ago of more than 100 companies involved in global trade found that on average companies had 10 supply chain disruptions over the previous 5-year period. Such disruptions caused missed delivery dates, manufacturing line slow downs or shut downs and store shelves left empty. The UPS study found that the tighter and leaner the supply chain, the greater the risk. Half the companies took the opposite approach to such supply chain resilience problems by holding additional stock. Both approaches, of course, fall far short of meeting Gray’s rule of “always have enough and nothing left over.”
Most puzzling, however, is that many companies are doing very little or nothing to address this obvious shortcoming. The UPS study found that 1 in 10 companies did not monitor suppliers for anything. About half of the remainder looked only at immediate suppliers. And in nearly half of the companies surveyed, formal risk assessment took place only annually.

Yet this is one area where paranoia is a good thing. The Aberdeen Group study found that for a large number of Best-in-Class global traders “fear of supply chain disruptions” was a top pressure forcing them to initiate and implement global supply chain visibility and performance programs. These same “paranoid” Best-in-Class global traders were much better at meeting customer commitments (always having enough) while reducing inventory (and nothing left over). The Best-in-Class companies were able to meet customer-requested ship dates at a rate of 90% vs. 40% for companies whose practices represented the industry average or lagged behind it. And the Best-in-Class companies were able to reduce their inventory levels by 39% compared to 22% for the rest of their competitors.

Seems to me there’s no better time than now for global supply chain managers to figure out how to best follow Gray’s rule of “always have enough and nothing left over.” I don’t think you would want to go up against those that have figured it out in this economic climate or any other.

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For supply chain professionals interested in getting some first hand insights into global supply chain strategies, I highly recommend attending CITT’s session Near Shoring: The Next Wave or Just a Faze.

The session, which I will be moderating at the CITT’s annual conference in Niagara-on-the-Lake this November, will include a panel of experts will discuss the pros and cons of near shoring, including control issues, shorter lead time, potential loss of intellectual property and who is doing it, and how.

The panelists include:
•Garland Chow, Associate Professor, Sauder School of Business, Director, Bureau of Intelligent Transportation Systems & Freight Security The University of British Columbia
•John O’Reilly, Director, Customs & Traffic, EQL, Toshiba of Canada Limited.
•Jim Kilpatrick, Principal, Deloitte Supply Chain Management

For more information, contact: 416-363-5696 or go to www.citt.ca

The diesel engine is one of the most efficient energy converters we have available to us today, delivering an overall efficiency of about 35%. Compare that to energy sources such as hydrogen or biogas which deliver only about 17-19% of their energy to the vehicle’s driven wheels and you quickly see the advantages of trucking’s main energy source.

Where diesel fuel runs into considerable problems, however, is with its sizeable contribution to greenhouse gas. Yet, as was eloquently pointed out at a Volvo seminar on climate change policy I recently attended in Boston, that does not have to spell the end of the diesel engine. In fact, one of the major advantages of the diesel engine is that it does not have to use conventional diesel fuel or other fossil-based fuels. Through the introduction of some sophisticated technology and minor modifications the diesel engine we’ve come to rely on can be adapted to run on a wide range of renewable fuels that would give our industry a shiny new image because they emit no excess carbon dioxide in powering a vehicle.

Volvo believes that CO2 neutral transport is not a utopian dream but rather a realistic and achievable goal. In recent years Volvo has sought to examine the viability of 7 different alternative fuel sources – biodiesel, synthetic diesel, dimethylether(DME), methanol/ethanol, biogas, biogas-biodiesel and hydrogen-biogas. It has compared and contrasted the benefits and drawbacks of these seven alternative fuels in a variety of critical areas such as climate impact, energy efficiency, land use efficiency, fuel potential, vehicle adaptation, fuel cost and fuel infrastructure.

It has made for a great deal of ground breaking work from an industry supplier that has clearly chosen to neither deny the threat of global warming and our industry’s contribution to it (as some carriers and media personalities shamefully are doing) nor to ignore it or to simply pay lip service to the need for more sustainable energy alternatives. It has instead opted to roll up its sleeves and work to meet the challenge head on.

Sometimes very large companies with a specific and worthy goal in mind can change an industry, creating a market for new technologies. But the challenge of moving towards more sustainable fuel sources is not a challenge that any one company – even one the size of Volvo with its global connections – can successfully tackle on its own.

To make the switch to alternative fuels also requires a leap of faith from government, the transport industry, and the companies that serve transportation’s energy needs. Yet as Leif Johansson, the CEO of Volvo Group, acknowledged, the headway being made towards the production and distribution of renewable fuels on a major scale has so far proved disappointing. In his own words, there seems to be “lots of very good talk, very little investment.”

I think that’s a tragic reality that runs counter to our entrepreneurial business culture. To borrow from Johansson’s insight once again, when we consider the environment, and what we have to do to maintain it, we often get it wrong. We think it’s going to cost too much when, in fact, environmental initiatives such as seeking alternative fuel sources are about reducing long term costs, improving the sustainability of our practices and reaping the rewards.