Earlier in the week this blog provided commentary and reaction to a recent financial news headline that the world’s largest shipping line, A.P. Moller Maersk, reported its first financial loss in the company’s history.  I noted that to anyone involved in supplier sourcing, procurement and logistics, the news is of little surprise given the massive after-effect on global trade as a result of the global recession.  I further concluded that a U.S. exporter should remain in the drivers seat for contracting so-called backhaul ocean transportation, freight moving from the U.S. to Asian or European ports.  Apparently, this does not turn out to be the case, and something is amiss in terms of customer and supplier relationships.

 Today’s Wall Street Journal features a well-written front page story, Export Revival Threatened By Shipping Bottlenecks (paid subscription required), that outlines a landscape of frustrated shippers attempting to ship bulk goods to Asian markets in a timely and cost efficient manner. According to the story: …”producers (U.S. based) of everything from hazelnuts to cardboard are complaining they can’t get their goods shipped in a timely manner.” Shipping delays of three to four weeks have been common, and shippers have become increasingly frustrated with ocean carrier service levels. The picture seems to be one where the ocean carriers want to defy the notion that the customer should be the focal point in determining acceptable service levels. Another concern brought in this article is that some U.S. ports lack the capacity to handle larger outbound shipping activity, having instead placed a primary focus on servicing large volumes of imported container laden volumes.

The picture is one where severe drops in global trade destined to U.S. and European ports has caused ocean carriers to not only severely idle fleet capacity, but also slow down the cruising speeds in existing ships in order to save on fuel.  That is like an international airline indicating to a prospective passenger that because the airline has severe financial difficulties the previous eight hour transpacific journey has been extended to 10 hours, so deal with it.  Air passengers have the option to select far more options in other air carriers, not so for ocean carriers.  We called attention in our previous commentary that the CEO of A.P. Moller Maersk indicated that carriers have too long neglected the less-profitable “backhaul” shipment of goods from U.S. ports, and that there would subsequently be a renewed focus on more customer service.  That seems to be the understatement of the year.

It seems to me that ocean carriers, as well as shippers, have lost fundamental perspectives regarding solid supplier and buyer relationship building, and it would be interesting to hear additional commentary from our readers.

Two questions come to mind that may provide more perspective to this ongoing problem.

In the end, do ocean carriers exist solely to serve their shareholders, or to serve shippers? Are cutbacks in service levels, fuel surcharges or fleet capacity impacting the cost and service level needs of shippers? Have these carriers become too arrogant in their view of shipper relationships?

Conversely, shippers have also been mandated to respond to the effects of severe recession. There has been resurgence in the application of reverse auctioning and other hard nose procurement negotiating practices directed toward services-related procurement, including transportation. Has this trend soured any notions of supplier collaboration and mutual trust-building?  Have procurement practices subsumed any notions of building long-term carrier relationships?

Share your views and let us collectively ascertain what the real problems may be.

 Bob Ferrari

It seems that there is no firm, whether big or small, that does not have a concern these days about its products being ripped-off by unscrupulous operators, or finding security concerns within an overseas supply chain. However, when you are a very large global OEM who happens to sell a very profitable product, the mechanisms to attack such activity are wide reaching.

A posting in SiliconValley.com notes that Hewlett Packard is accusing several Asian companies of selling inkjet cartridges that allegedly infringe on HP patents, and in some cases, include components stolen from HP’s contract manufacturing plants. A lawsuit alleges that Microjet Technology of Taiwan and PTC Holdings of Hong Kong sold cartridges that infringe on HP designs. It further accuses another firm, Mipo Technology of selling cartridges containing alleged stolen components. The article notes that from 2005 to 2008, HP has conducted 4620 investigations to seize nearly $800 million worth of counterfeit products within its supply chains.

Lawsuits are a familiar weapon utilized by high tech companies when profits are threatened. In the case of HP vs. Microjet Technology, lawsuits date back to 2001. It seems that in any given year, HP has some sort of lawsuit underway protecting its IP interests in inkjet cartridges. Apple Computer has also been in the headlines of late as it has also filed lawsuits with a major contract manufacturer to protect its intellectual property and patents.  Apple is another high tech company that does not shy from this policing activity.

Not every firm has the resources of an HP to police its supply chain for patent infringement, counterfeits or stolen materials. Constant diligence and supplier monitoring are an unfortunate necessity within today’s extended supply chains.

 Bob Ferrari

Note: This posting can also be viewed and commented upon within the Kinaxis Supply Chain Expert Community web site.

Over these past months I’ve penned a number of Supply Chain Matters commentaries concerning Sony Corporation‘s massive restructuring across its electronics related global supply chains. In the last commentary in early February, we noted how this company had cut costs by $3.63 billion USD in a relatively short period of time.  Sony closed 20% of its manufacturing plants, eliminated 20,000 jobs and targeted additional supply chain cost reductions.  The most interesting part of this story thus far has been that most of these radical cuts, by Sony management’s own admission, have been primarily driven from top-down management directives.  There was a further acknowledgement that no business processes or system changes have been involved to this point.

An article in yesterday’s Wall Street Journal (paid subscription may be required) reflects yet another supply chain challenge. Sony announced that its television business, which has lost money for six straight years, will shift to an aggressive attack mode in the coming fiscal year in order to recapture lost market share to Samsung and LG Electronics. How aggressive? The article notes about a 70% ramp-up in production, to exceed 25 million units in the upcoming fiscal year. Once more, the company wants to gain the upper hand in the emerging 3-D television segment, thus one can further speculate that the planned ramp-up will include a lot of new 3-D models to make their market introduction.

The WSJ article specifically cites Yoshihisa Ishida, the architect of Sony’s prior supply chain cost cutting efforts, as the person who will lead this new ramp-up challenge in the television business.  He is described in the article as a no-nonsense cost-cutter who ran Sony’s personal computer business.

In previous commentary, I noted that the real work of supply chain transformation still remains a work-in-process for Sony.  I must now admit, that might have been a heck of an understatement, given these new ramp-up challenges.

I once worked for a very talented CIO in charge of all U.S. IT operations who was challenged by the existing senior management to reduce overall IT costs by at least 25%, and at the same time insure that existing up-time KPI’s remained in the high nineties.  He communicated that challenge to his senior management peers as the following: What you are really asking us to do is the equivalent of attempting to change one of the engines of a 747 aircraft while it is still flying.  Somehow, that same phrase came back to me when I reflected on Sony’s new challenges.

Mr. Ishida and his supply chain team indeed have a significant challenge in light of the need to complete a supply chain restructuring while insuring that the television business meets very aggressive market ramp-up goals.  One would hope that this team can quickly address business process and system changes, particularly in the area of broad supply chain visibility and responsiveness. This is a story that the supply chain community as a whole should keep eyes upon.

If you were asked, what advice would you provide to Sony’s SCM management team?

Bob Ferrari