We continue with Supply Chain Matters commentary relative to the current announcements of Q1 related revenues and earnings by reflecting on the page one headline article in last Thursday’s published Wall Street Journal, World Revs Up U.S. Profits. (paid subscription required) It again reinforces how the sustaining growth in the emerging economies has fueled a new boom in U.S. manufacturing output, and consequent revenues and profits. In the article, the chief U.S. economist for Deutsche Bank noted: “Manufacturing has been growing gangbusters.”

This new boom is being fueled by stronger sales related to the building of new infrastructure in emerging markets, which includes heavy duty trucks, building, farming and mining equipment. Also noted is a quote from an economist at PNC Financial Services Inc. stating: “The economy would be limping along, at best, without the strong manufacturing sector…”   Large global manufacturers such as Caterpillar, Eaton Corp., Honeywell International and United Technologies are each cited as example companies that are benefitting from booming sales outside of the U.S.

However, as in all aspects of this ‘new-normal’ of business recovery, there are many caution signs that could derail the current boom. Growing unrest in the Middle East, the rapid rise in energy and other key commodity products, the growing threat of inflation will all test the resiliency of this U.S. manufacturing boom. The recent earthquake that occurred in Japan has driven home the critical aspects of product sourcing risks. The crisis itself could provide either positive or negative consequences for U.S. manufacturers.

On Thursday and Friday of this week, this author is pleased to be designated as the master of ceremonies for the 2011 OpsInsight Leadership Forum being held at the Hyatt Harborside in Boston.  The conference program features a great line-up of speakers including eight different keynote speakers addressing many operations leadership topics.  Fourteen other speakers will address various topics related to product innovation, lean methods, business process best practices, management and operational leadership.

In the conference opening address, I will be touching upon where we are as operations  and supply chain executives in this ‘new normal’ of ups and downs and how important a role operations management will play in innovation and future growth for manufacturers.

I’m looking forward to the program and hope to run into some of our readers.

If you desire more information on the conference, you can click on the conference icon located on the right-hand panel of this blog.

U.S. manufacturing is on the rise but uncertainty and risk remain for the coming months.

Is your organization prepared?

Bob Ferrari

The latest quarterly earnings reports from the major U.S. railroads again reflect that shipment volumes and profits are on the rise, but behind the scenes, customer service and asset management remain a bit of challenge.

As an example, CSX posted a 13 percent gain in revenues and a 30 percent boost in Q1 profits.  CSX noted higher shipments in autos, auto parts and construction materials. Where the railroad once had 700 idle locomotives at the depths of the global recession, that number is down to 290.

Similarly, Union Pacific reported gains amounting to 13 percent in revenues and 24 percent in profits with a corresponding 5 percent gain in freight volumes.

Last week, an article published in the Wall Street Journal (paid subscription required) noted that U.S. auto makers are struggling to get finished automobiles and trucks to their respective dealers because of a shortage of railcars.  Chrysler, Ford and General Motors have been storing finished vehicles in temporary storage lots awaiting the scheduling and arrival of railcars for shipment.  This shortage of railcars has added days to expected dealer receipts and consequent sales. The article notes that now that U.S. manufacturing volumes are on the rise, the rail carriers do not seem to have enough active rolling stock in circulation to accommodate on-time deliveries.  Interesting enough, CSX acknowledged that the shortage of available railcars has had an impact on the carrier ability to transport finished vehicles from production sites to dealer locations.

We recently penned a guest commentary on the Infosys SCM blog noting how the past global recession has brought forward the critical importance of enterprise asset management (EAM) for asset-intensive industries such as railroads or utilities. As an example, U.S. industry shipments of railcars declined by 64% in 2009.  According to the Association of American Railroads, 2009 was the worst year for freight rail traffic, reaching its lowest levels since 1988.  In that same year, 28 percent of rail fleets were parked in storage, and one estimate noted that there were $43 billion in idle assets representing both leased and owned locomotives and railcars.  The BNSF railroad alone had rail cars that sat idle for up to three years on unused track stretching more than 30 miles in some places.  It seemed like every available rail spur was utilized as a storage location, a virtual real estate warehouse, as it were. As observers, we speculated on how railroads were able to track and account for all of these scattered idle assets.

Now that manufacturing is surging in the U.S. these same railroads are under pressure to accommodate increased service requirements, but that leads to challenges of locating idle assets, checking and inspecting equipment and sequencing locomotives and railcars into normalized train schedules.

While the financial numbers for U.S. railroads are steadily improving, the operational challenges of customer service as back once again.  In the backdrop lies the importance of integrated and timely inventory and scheduling of assets. That may well be the most important lesson for U.S. railroads and other asset-intensive industry.

Bob Ferrari