In-Depth Look at Supply Chain Trends

Today’s post is the first part of a 4-part article found on the Supply Chain 24/7 website.  The article takes an in-depth look at supply chain trends, including forces that affect these trends that are not typically discussed in such studies.

10 Supply Chain Trends for the Next 10 Years

July 09, 2013

Recently, I happened to be perusing the aisle of a bookstore (there are still a few of them left) and found a book by Pavan Sukhdev titled Corporation 2020. The title was intriguing and the contents were illuminating.

Basically, the author argued for a new formula for business success going forward—one that looked at all aspects of doing business and emphasized the corporation’s responsibility to society and to sustainability.

The forward-looking nature of Sukhdev’s book set the wheels in motion for this article. Quite a bit has been written over the years about the future of supply chains. MIT’s SCM 2020 project, for example, brought together leading thinkers and practitioners to address the subject.

However, this research and most articles I have read on the topic have focused on supply chain operations and not on the points of “intersection”—that is, the related activities that are outside of the supply chain’s direct control such as R&D, information technology, and post-sales service. In my list of the top trends, I have incorporated a number of these intersection points.

As we think about the major trends that will affect the next generation of supply chains, we need to consider certain macroeconomic factors. Prominent among these is the changing global economic demographics.

Walk into any multinational consumer goods or manufacturing company today and you’re sure to hear a lot of discussion about the BRIC (Brazil, Russia, India, and China) markets.

The GDP growth in those countries far exceeds the growth in more fully developed economies. Further, the sheer number of consumers in these countries already accounts for about 40 percent of the world’s population.

And by 2050, their combined economies are expected to eclipse that of the world’s richest countries—including the U.S. and European Union.

Another macro-economic reality to consider is the shortage of knowledge workers to satisfy the needs of the expanding markets. Studies show that these shortages are beginning to be felt in the immediate term.

Some of this shortage will be offset by the Baby Boomers wanting (or needing) to work longer to overcome lingering effects of the latest recession. In any case, the shortage of skilled workers overall underpins several of the specific trends we present below.

In earlier articles in Supply Chain Management Review, I discussed the “Top 10 Supply Chain Mistakes” (July/August 2004) and “10 New Ideas for Generating Value” (May/June 2009). With that same “top 10” approach in mind, I embarked on this article.

The 10 trends identified are listed in Exhibit 1 and discussed in turn below. The list was based on my research and on consulting engagements with companies in a range of industries.

Importantly, the trends were reviewed by a group of senior executives, both in supply chain and in other corporate functions, representing a cross section of industry. The intent was to capture empirical data around the relevance and ability to execute against each of the trends for their particular company and industry.

Read the 2nd part of the article on our 7/26/2013 post.

Study Shows Growth in Number of Companies Utilizing 3PLs

A recent study of client/3PL relationships offers some interesting insights about how customers are utilizing 3PLs.  Most customers use 3PLs for their Transportation Management Systems and more retailing and industrial businesses are turning to 3PLs than ever before.  You can find this article on the Logistics Management website.

New research on 3PLs reveals more diversification

The average customer is utilizing each 3PL for just under three different logistics services with Transportation Management being the most frequent service utilized.

By Patrick Burnson, Executive Editor
July 12, 2013

Eighty-six percent of Domestic Fortune 500 companies use 3PLs for logistics and supply chain functions according to a new report just issued by Armstrong & Associates.

The report “Trends in 3PL/Customer Relationships – 2013” leverages Armstrong & Associates’ proprietary database of 6,398 3PL customer relationships to provide detailed information on the top outsourcers to 3PLs, trends in service demand, and 3PL market size by vertical industry segment from 2005 through 2013.

According to the report, General Motors, Procter & Gamble, and Wal-Mart each use 50 or more 3PLs.  The report also quantifies the Global Fortune 500 3PL market at $250.2 billion, a 67% increase since 2005.  Within the Global 500, “Technological” industry 3PL customers spent $66.8 billion with 3PLs in 2012 and are on track to spend $71.1 billion in 2013.  The compound annual growth rate for Technological 3PL revenues was 9.3% from 2005 to 2012.  “Electronics, Electrical Equipment” companies led all Technological industry sub segments with over $25.7 billion in 2012 3PL spend.

Ed Kitt, Area Vice President, Central Region, Penske Logistics, told LM in an interview that the “cold chain” is also generating new demands from 3PLs.

“We regard compliance, training and adherence to food and product safety requirements as among the most pressing issues in cold chain logistics,” he said.

The average customer is utilizing each 3PL for just under three different logistics services with Transportation Management being the most frequent service utilized.  Of the total 6,398 3PL/Customer relationships, 1,184 or 18.5% are strategic with the 3PLs performing supply chain management and/or lead logistics provider services.  While these strategic relationships were dominated by Automotive and Technological industries in the past, there are increasing numbers of strategic relationships within the Retailing and Industrial industries.

“This year’s analysis of 3PL customer relationships is our best to date and builds upon our previous reports,” said Commenting on the report, Evan Armstrong, president of Armstrong & Associates said.

He also noted that the report provides insights into customer outsourcing trends and which services are in demand.

“Our analysis includes industry 3PL spend and growth estimates for years 2005 through 2013E for the Fortune 1000 Domestic and 500 Global,” he said.  “We have also expanded our vertical industry sub segment analysis and 3PL services segmentations and analysis.”

The complete report is available from Armstrong & Associates online at:  http://www.3PLogistics.com.

A New Use for Shipping Containers

I found an article in Upstart Business Journal about Brad McNamara and Jon Friedman who were noted as Entrepreneurs of the Week.  They started a company, Freight Farms, which re-purposes shipping containers.  They have developed a system to grow crops in the containers so that the food is local, but grown on a commercial scale.  The Boston Business Journal article below gives more information about the company.  Also visit Freight Farms‘ website for more information.

Freight Farms aims for rollout this year of new veggie growing system

Kyle Alspach
VC Editor- Boston Business Journal

Freight Farms, a startup taking part in the upcoming MassChallenge accelerator, expects to be providing its novel shipping container farming systems to food distributor customers by the end of the year, co-founder Brad McNamara said.

The company said it’s also in talks with Sedexo about providing the food service firm with crops grown in the company’s prototype unit in Worcester, with the potential to eventually bring growing units to universities that Sedexo serves, said McNamara, who is also an MBA candidate at Clark University.

Freight Farms is developing a shipping container that can be used to grow veggies year-round in virtually any location, using hydroponics, vertical growing systems, LED lighting and software monitoring to produce the crops. The system can grow leaf crops, vine crops and herbs at 65 times the yield of traditional agriculture on a per-acre basis, McNamara said.

The efficiency improvement, along with the advantage of not having to pay for thousands of miles of transportation and shipping for the food, should prove to be appealing to urban food distributors that are looking to gain control of some of their supply, McNamara said.

Ultimately, Freight Farms — funded so far with $31,000 raised in December on Kickstarter — aims to make the jump to the international stage once the startup completes MassChallenge, McNamara said. The company is among the 26 “social impact” startups taking part in the South Boston accelerator this year.

HOS Changes will Raise Rates across Supply Chain

The following editorial appeared in Transport Topics this month.  It contends that the latest changes to the Hours of Service rules will increase freight rates and cost drivers pay.  Like most opponents to these changes, the writer argues that the FMCSA’s claims of increased safety and improved driver health are not true.

This Editorial appears in the July 8 print edition of Transport Topics. Click here to subscribe today.

So the latest chapter in the seemingly never-ending saga of the government’s road to a new hours-of-service rule for the nation’s truck drivers has begun, and we can all expect at least a 2% to 3% decline in productivity as a result.

The Federal Motor Carrier Safety Administration’s newest “improvements” are another misguided attempt to increase highway safety while, in fact, cutting productivity with no improvement in safety.

And unless a federal appeals court agrees with us to stop these changes, or unless Congress decides to turn its rhetoric of opposition to the changes into action, we can all expect to pay more for the goods we buy.

And, of course, that’s because when trucking’s costs go up, trucking’s freight rates follow. And that means that consumers will end up eventually paying the bill for FMCSA’s folly in modifying the 34-hour restart provision of the rule in such a way as to guarantee a drop in driver productivity.

As we reported earlier, the American Transportation Research Institute has estimated that the restart changes will cost the nation’s fleets $189 million a year.

While FMCSA has stated that there will be a significant gain in driver health as a result of its changes, we don’t believe it, and agency officials can’t prove it. In fact, some of the loudest voices in opposition to the changes are drivers, who see the rules as costing them pay with no offsetting benefit.

No one is more concerned about highway safety than the companies that use the roadways to deliver our freight. But we continue to seek changes that actually will improve safety and reduce fatigue and to oppose well-intentioned but off-the-mark solutions that end up decreasing productivity and driver satisfaction.

It’s no secret that trucking suffers from a chronic shortage of qualified drivers. And misguided rules such as the newly amended HOS provisions only exacerbate the situation because they make it harder for drivers to earn a good living.

Unfortunately, the appeals court hasn’t seen fit to issue a timely ruling on our challenge to FMCSA’s changes, and Congress hasn’t yet turned its talk into action.

But we remain optimistic that relief will come, and soon. And until it does, the nation’s motor carriers will continue to go about the herculean task of making sure our shelves are stocked and our factories are humming along. And we’ll do it as efficiently and dependably as we always have.

By Transport Topics

3PLs and the Global Marketplace

As the world’s economy changes, so must 3PLs.  According to the following Logistics Management article, 95% of the world’s consumers are now outside the U.S.  This fact alone should prompt many 3PLs to re-evaluate their long-term strategies.  While many 3PLs will choose to remain focused on domestic business only, the opportunities available in the global market might make some want to think twice about that decision.

Shippers and 3PLs face greater pressure in “going global”

Not only do some global 3PLs – like UPS – have existing infrastructure in global markets, they also have the in-country expertise to help companies navigate trade regulations, get products to end customers and provide post-sales services

By Patrick Burnson, Executive Editor
July 03, 2013

Supply chains start when someone, somewhere reaches for their wallet. Increasingly, this will happen outside the U.S. in “mega cities,” observes Alan Amling, UPS global director contract logistics marketing.

“Today, China has about 90 cities with more than 250,000 middle class consumers,” he says “By 2020, China will have more than 400 cities with a quarter million middle class residents – 50 will have more than a million!”

He notes that as companies position to capitalize on this demand, their 3PL partners need to ensure they have the right infrastructure and expertise in place to facilitate these business strategies.

“A key value that 3PLs can provide shippers is market knowledge across multiple regions and industries,” says Amling. “Another value is to help companies take advantage of the growth opportunities they decide to pursue.”

Not only do some global 3PLs – like UPS – have existing infrastructure in global markets, they also have the in-country expertise to help companies navigate trade regulations, get products to end customers and provide post-sales services.

Should that keep domestic 3PLs from “going global”? Amling doesn’t think so.

InMotion Global is a Top Green Provider

We are proud to announce that Food Logistics named InMotion Global a “Top Green Provider” for 2013.   The award recognizes companies that exemplify best practices in sustainability in the food and beverage supply chain.

This is an award that truly has meaning to our company. The industry is moving to more green ways of operating which is good for all companies involved in the supply chain, and the country, as a whole.  We are very honored to be recognized by Food Logistics and we see this award as a symbol of our commitment to best practices that promote awareness throughout the industry.

InMotion Global, Inc. is the creator of InMotion Global TMS^® and offers two versions of the transportation management system – an Enterprise system for large shippers and a ‘Lite’ version for smaller shippers.  InMotion Global has also released an online, instant quoting system, QuoteMyTruckload.com that offers instant truckload quotes with no user-account needed.

Check out the full article on FoodLogistics.com.

New HOS Rules in Effect

The following Transport Topics article highlights the Hours of Service Rules which took effect July 1, 2013.

New Hours-of-Service Rules Take Effect

New federal hours-of-service rules for truck drivers take full effect Monday, the Federal Motor Carrier Safety Administration announced.

“Safety is our highest priority,” outgoing Transportation Secretary Ray LaHood said in a statement. “These rules make common sense, data-driven changes to reduce truck driver fatigue and improve safety for every traveler on our highways and roads.”

First announced in December 2011 by FMCSA, the rules limit the average work week for truck drivers to 70 hours to ensure that all truck operators have adequate rest.

Only the most extreme schedules will be affected, the agency said, adding that “more than 85% of the truck driving workforce will see no changes.”

FMCSA estimated that these new safety regulations will save 19 lives and prevent about 1,400 crashes and 560 injuries each year. 

“These fatigue-fighting rules for truck drivers were carefully crafted based on years of scientific research and unprecedented stakeholder outreach,” said FMCSA Administrator Anne Ferro said.

“The result is a fair and balanced approach that will result in an estimated $280 million in savings from fewer large truck crashes and $470 million in savings from improved driver health.  Most importantly, it will save lives.”

The final HOS rule:

• Limits the maximum average work week for truck drivers to 70 hours, a decrease from the current maximum of 82 hours;

• Allows truck drivers who reach the maximum 70 hours of driving within a week to resume if they rest for 34 consecutive hours, including at least two nights when their body clock demands sleep the most – from 1 a.m. -5 a.m.

• Requires truck drivers to take a 30-minute break during the first eight hours of a shift.

The final rule retains the current 11-hour daily driving limit and 14-hour work day.

Trucking companies and passenger carriers that allow drivers to exceed driving limits by more than three hours could be fined $11,000 per offense, and the drivers themselves could face civil penalties of up to $2,750 for each offense.

National Freight Plan May Require Hike in Fuel Tax

The following Transport Topics article discusses the DOT’s progress in creating a National Freight Plan.  The plan must be completed by September 2015, with a report on the existing infrastructure’s condition due by September 2014.

DOT Making Progress on National Freight Plan

Funding Remains a Hurdle, Official Says

By Timothy Cama, Staff Reporter

This story appears in the June 24 print edition of Transport Topics.

UNCASVILLE, Conn. — A U.S. Department of Transportation official said although progress has been made toward developing a national freight plan, finding funding remains a hurdle.

Congress required DOT to complete a national freight strategic plan by September 2015 as part of last year’s highway-funding law known as MAP-21.

Jack Wells, DOT’s senior economist, said the agency has kicked off many of the steps it will take to complete that task.

Speaking at a conference organized by transportation data firm SMC3, Wells said a first major step is preparing a report on the existing infrastructure system’s condition. That must be completed by September 2014.

“We’re working on that intensively right now because that has a tighter deadline than the national freight strategic plan,” Wells said. “The idea is that if you have a goal, you need to have a measure that corresponds to the goal, so that you know how much progress you’re making in working toward that goal.”

Wells said DOT recognizes that infrastructure investment requires funding, and that might mean raising the federal fuel tax, the main engine for highway funding. However, gaining support for a tax increase is difficult, he said.

“It’s remarkable, in a way, how much [opposition] there is whenever the possibility of an increase in the fuel tax is proposed,” Wells said. “It’s a very difficult political sell.”

Wells also said the bulk of the work in writing the report on current conditions revolves around finding measures for each mode of freight transportation. DOT will reach out to representatives of those modes for help, Wells said.

DOT recently named 47 members to a new advisory committee, which consists of outside stakeholders to help with the freight plan.

“We plan to use that committee fairly intensively as a source of outreach,” Wells said. DOT also will designate subcommittees to work on specific parts of the plan.

In October, the agency released guidelines to help states develop their freight plans. MAP-21 allows states to dedicate more federal funding to freight projects if they write such plans.

DOT also has launched some specific studies for the national freight plan, including ones on the effects the expanded Panama Canal will have on U.S. port activity, the role of freight infrastructure on exports and the demand for freight-specific infrastructure by carriers.

Jim Newsome, CEO of the South Carolina Ports Authority, told attendees at the conference the United States needs a freight plan so projects such as harbor deepening can be prioritized for federal funding.

“We have to make a strategic plan, with some priorities, and it’s very difficult to realize that not everybody’s going to be happy with that plan,” Newsome said.

Notes from the Momentum 2013 Conference

I found the following Logistics Viewpoints piece to be an interesting look inside the recent Momentum 2013 conference.

Takeaways from Shipper-Carrier Roundtable at Momentum 2013

by Adrian Gonzalez

June 12th, 2013

What happens when you bring together a large group of shippers and carriers and put them in a conference room? At the Manhattan Associates Momentum 2013 conference last month, the answer was a great conversation about transportation trends, challenges, and opportunities.

I had the privilege of moderating this year’s Shipper-Carrier Roundtable, which included the following executives from the industry:

• Joshua Dolan, Senior Director, Transportation at Dick’s Sporting Goods
• Arne Gonzales, Director, Supply Chain at C&S Wholesale Grocer
• Brett Suma, Vice President of Operations at Knight Transportation
• Dan Strong, CEO and President at Super Service LLC
• Ron Lazo, Vice President of Transportation Practice at Manhattan Associates

Although I had prepared many questions to drive the conversation, we only got through about half of them because we received a lot of great questions and comments from the 100+ people in the audience. Summarizing a 75-minute conversation into a few words is impossible, but here are some of my key takeaways from the session:

• You can’t have a shipper-carrier panel discussion without talking about rates, fuel, and capacity. Although these three factors are interrelated, the one that concerns shippers and carriers the most today is capacity — specifically, what will happen to capacity and carrier productivity when the new Hours of Service rules go into effect July 1, 2013 (barring any legal maneuvers), coupled with the impact CSA is having on driver hiring and retention? The big test will come in Q4 when shipping volumes increase for the holidays. Of course, a lot also depends on what happens with the economy in the months ahead too.

• The ability for carriers to provide shippers with timely and accurate information is becoming a critical success factor. Simply put, a carrier’s IT capabilities matter. This is a key reason why non-asset based providers are attracting so much attention these days, especially from investors. As one panelist put it, many of these non-asset based providers are first and foremost technology companies, and they are outperforming asset-based carriers in this area. But as I wrote about in a recent blog posting, somebody has to own the trucks and other assets that make logistics — and the whole non-asset 3PL industry — possible. The bottom line to shippers: you need to partner with asset-based providers too, especially those that continue to invest in new equipment and technology.

• A growing number of carriers are starting to scorecard their shipper clients, using solutions such as Manhattan Associates’ Profit Analyzer. Not all freight or shippers are created equal. Scorecarding helps carriers quantify the value of lanes and shippers, allowing them to make smarter business decisions about pricing and which lanes and shippers to keep and which ones to get rid of. Most carriers use scorecards for internal purposes only, but a few are starting to share their scorecards with shippers as a way to talk more openly about how they can work together more collaboratively.

My advice to shippers is the same as it’s been the past few years: stay focused on the long-term trends, which point to tighter trucking capacity and higher fuel costs, and look for cost-saving opportunities that make sense to implement regardless of market conditions.

While at the conference, I also attended a session about Manhattan’s Transportation Management solution and its new features and functions. Here are some of the highlights:

• Manhattan redesigned the user interface to make the app more elegant and easier to use. The “Webtop” user interface uses tiles and portlets, and it has a similar “look and feel” to Windows 8. This is yet another example of how software vendors are starting to compete on design.

• The solution can communicate short-term, lane-level forecasts to carriers. The idea is to give carriers a “heads up” about significant changes expected in shipment volumes on specific lanes, which would allow carriers to reposition equipment to support surges (or maximize their load acceptance rate) or seek alternative freight if volumes are expected to decrease. At the moment, the solution doesn’t generate the transportation forecast, it just communicates it to carriers in a template format, but Manhattan is looking to add this capability in the future. For additional insights on this topic, watch the recent episode of Talking Logistics, “Revisiting Transportation Forecasting.”

• The solution supports the new Hours of Service rules that are expected to go into effect on July 1, including support for the newly mandated break and changes to the 34-hour reset rules. It also enables shippers to use Compliance, Safety and Accountability (CSA) scores to influence load assignments.

I also had a chance to sit down with Eddie Capel, Manhattan Associates’ President and CEO, to discuss a variety of topics, including the meaning and importance of Supply Chain Commerce; the roles social, mobile, cloud computing, and BI/analytics are playing in Manhattan’s strategy and product roadmap; Manhattan’s brand perception as a WMS company; his thoughts on business networks and trading partner connectivity; and the importance of talent acquisition and retention at the company.

Freight Rates Rise as Capacity Tightens – Part 2

The following is a continuation of our June 18, 2013 post.  The article is found in Transport Topics.

Tight Capacity, Govt. Actions Push Produce Freight Rates Up

Mark Montague, an analyst for load board operator TransCore, said rates should top last year, based on fast-growing late May and early June demand.

Some crops in California — such as grapes — have started to move, up to two weeks earlier than usual, adding to demand, Montague said. Nationwide refrigerated freight rates rose 14 cents a mile, or about 10%, in May from April and are 3% higher year-to-year.

The Nogales, Ariz., border crossing is a hot spot, with 60% more loads on a year-over-year basis, Montague said.

Rates at Nogales to ship grapes to Chicago were about $5,050 per truck on June 4, 11% above year-ago levels, according to U.S. Department of Agriculture statistics.

Gary York, general manager for C.H. Robinson Worldwide in Salinas, Calif., said a shortage of inspectors at border crossings, particularly Nogales, “is causing some challenges that we haven’t seen in other years.”

“At these types of rates, getting delayed and having a day taken out of the [driving] rotation causes concerns for carriers that are trying to improve utilization,” York said.

Vache said delays result when trucks load in Mexico in the morning, reach the border in the afternoon and can’t cross it before a driver’s hours run out.

However, Teresa Small, a spokeswoman for U.S. Customs and Border Protection, disputed the delays, saying truck wait times were 15 minutes shorter than in April and May last year.

“This is a very interesting . . . period,” York said. “It’s pretty much a traditional season overall. This time of year is always going to be a challenge.”

Currently, USDA’s weekly truck freight rate report shows year-over-year prices increasing in many markets. For example, California carrots cost about $7,100 to ship to Atlanta on June 4, USDA said, compared with $6,600 a year ago.

York said last week’s Roadcheck enforcement blitz was a disruption, because it’s just after Memorial Day.

“Trucks can’t make their normal rotation,” York said, because the holiday idles trucking for a day. That forces fleets and customers to catch up during Roadcheck, when the added inspections slow carriers.

Bauer said Roadcheck causes complications because some owner-operators park their trucks.

A lack of weather issues also has helped to increase the overall produce crop in 2013.

“This year is getting back to a more normal weather pattern,” Vache said, compared with 2012, when cold weather ravaged Midwest apple crops. “There is not one commodity that has really been smacked by Mother Nature this year,” he said. “That is not typical.”