In November of 2009, Supply Chain posted a commentary in the wake of Warren Buffet’s Berkshire Hathaway $26 billion acquisition of the Burlington Northern Santa Fe (BNSF) railroad. At the time, Wall Street was really puzzled why Buffet would invest so much money in a railroad.
In our commentary, Supply Chain Matters viewed the supply chain headline of this acquisition as Buffet’s huge bet on the economic future of the United States and consequent needs for more efficient transportation infrastructure. In the case of a major U.S. railroad, it was the reality that the compelling forces leading to the eventual return of high fossil-fuel prices, coupled with alternative energy realities, will make rail the most efficient alternative for moving goods across the country, and that BNSF is in a great position to leverage these economic forces. BNSF was also strategically positioned to leverage west to east transportation needs in inter-modal ocean containers as well as other commodities.
Over three years later, the motivations and business results from that acquisition are becoming ever more visible. This week, an article published by Bloomberg News indicates that the BNSF will boost crude-oil shipments by 40 percent in 2013, by investing “a couple hundred million dollars” on capital improvements. The BNSF is positioning to take advantage of the booming new reserves of crude oil being harvested from the Bakken formation in North Dakota and Montana. That formation along with other newly discovered sources are positioning the U.S. to be the biggest global producer of crude by 2020. In the Bloomberg article, BNSF CEO Matt Rose is quoted: “We’re the 1,000-pound gorilla in the oil markets”. From a business perspective, taking maximum advantage of the void in moving crude by rail from the Bakken to Gulf coast refineries also offsets BNSF business decline in previously moving coal, which fell 6.2 percent in 2012. BNSF has also experienced a 26 percent increase in moving chemical carloads, which is another byproduct of the new crude oil discoveries. According to Bloomberg, the railroad is in talks with other railroads Norfolk Southern and CSX to move crude to east coast customers, including the Trainer Pennsylvania oil refinery owned by Delta Airlines.
Once more, there is more unfolding regarding Buffet’s investment strategies in U.S. transportation infrastructure. Union Tank Car Co. is Another Berkshire investment and that firm is operating at full capacity to produce the needed tank cars to transport this crude. We read recently that the tank car industry in the U.S. has order backlog in the thousands.
This author does not own Berkshire Hathaway stock but we sure do wish we could have afforded to do so back in 2009. A strategic investment in the U.S. transportation infrastructure is paying enormous business dividends for years to come.
Need for Innovating Supply Chain
The following guest posting is Part One of a two part guest commentary contributed by Infosys Limited, one of other named sponsors of the Supply Chain Matters Blog. It is authored by Rakhi Makad, Industry Principal and head of consulting for Information Transformation in the Manufacturing industry practice at Infosys.
In today’s rapidly changing world, even the world’s best companies are susceptible to disruptions in supply chain and the only possibility of being ahead and avoiding or tacking these issues is to continuously innovate the supply chain. As time has progressed, supply chain needs have also changed and the industry today faces a whole new set of interrelated challenges and opportunities:
The pressure on companies, especially global companies, to reach out in developing markets is tremendous. This brings in the need for new supplier networks in local markets. They have to continuously maintain their global standard while bringing in enough local flavors. The best example I can think of is McDonald’s which has established its presence at farthest corners of the globe, but customizes its menu to suit the local palate, using local supplier networks and yet maintaining its brand standards.
A slight change in the globalization context that is taking shape lately is multi-local operations. This is mostly due to increasing labor wages in low cost countries, oil prices, taxation policies, need for local responsiveness and political demands. Organizations are moving towards regional or local operations across geographies rather than a central manufacturing hub in places that were deemed as low cost countries a few years ago. An example of this could be Ford Motors, which is bringing back its manufacturing to North America.
Think of personalization for 500 million customers! Gone are the days of “you can have the car in any color till its black”. That cookie cutter approach was once a hit with most of the products, but today’s consumer demands a personalized service. They want to co-create and buy only those things which reflect their individuality. This brings in the concept of mass customization – products that are created for a large market, yet satisfy specific individual needs of every user. Customers are now a much more market aware and demanding group. Manufacturing processes are moving away from the once popular make to stock models to be able to cater to individual needs. Look at Apple, their innovation cycle is actually based on the consumer, creating new needs and creating breath taking user experiences – right from the product, to packaging, to stores.
So much has been talked about competition. New players are entering the industry every day with a promise of better quality, shorter time or lower costs. This leads to reduced margins and cost optimization techniques that often increase the supply chain risks further. On the other side, some innovations have helped organizations come up with new business models that have resulted in changes in customer preferences and a new market altogether. Look at what Amazon did to books with Kindle. Technology advances are changing the game on incumbents.
Competition is good but it also creates a lot of stress in the environment. While you adopt new technologies and methods to bring in small revolutions time and again, it leads to more stress on the natural resources of the world. With the rapidly evolving, connected and aware world, a lot of emphasis is laid on sustainability. This includes managing the social, environmental and economic impacts of supply chains. Luckily, we have a much more aware society that cares for these parameters and is willing to say no to products that are coming from enterprises that do not comply. Several compliance requirements need to be met and supply chains also need to move towards being sustainable and greener. This helps build a better world, a better brand and better business.
Technology plays multiple roles in making this happen. In one role, technology itself drives the demand for new products using social media and information available on the internet for example. In another role, technology enables companies to design, source, manufacture, and distribute these incredibly complex devices at a blistering pace. Enterprises that can bring in technology based innovations to their products and processes will lead the way. What used to be phones some years ago have now become – phones + music players + cameras + commerce platforms – whether it is to buy you a movie ticket, or operate your bank account or pay for your groceries, nowadays there is an app for everything, yes even for star gazing!
The biggest change that can be attributed directly to technology is the velocity of business and the incredible rate of change we are seeing around us; new products come and go in the blink of an eye. If we look at the kind of inefficiencies that get built into the Supply Chain due to these opportunities, challenges and trends, they can be quickly summarized as:
- Accuracy: The accuracy in planning and forecasting of sales, demand, manufacturing, inventory i.e. basically all elements of the supply chain
- Visibility: The ability to have an end-to-end view across the supply chain – right from the supplier to the customer
- Speed: The speed at which products move through the supply chain and reach their markets – right from design, new product introduction/development (NPI/D), testing and onwards
- Risk Management: The ability to mitigate external and internal risks and keep up with and even exceed commitments made to the customer
- Waste: Managing waste at every step of the supply chain – be it scrap reduction or optimizing use of assets
- Compliance: Being able to quickly comply with new regulatory requirements as they come up
- Collaboration: Sharing of supply, demand, risk information across partners to enable smarter business decisions
- And last but not the least and possibly the area that can be leveraged across all of these inefficiencies, Information Efficiency: using information to drive efficiencies based on the financial benefits or business value it could achieve
Everyone probably agrees to these inefficiencies but may not always understand that the world wide impact may be in billions of dollars.
From a technology perspective, we surely need solutions to be able to manage these areas of inefficiencies – while some solutions do exist but they may not be optimal or efficient as they have a lot of constraints acting on them in terms of what the need is versus what the application can do for the same given the data volumes, frequency at which the data hits the application, amount of processing involved, how the user expects to interact with this data and so on. This leads to applications built around technology constraints rather than business needs and value.
This concludes Part One of this two part series.
About the Author:
Rakhi Makad, Industry Principal, Information Transformation, Manufacturing Consulting & System Integration, Infosys Limited
Rakhi heads consulting for Information Transformation in the Manufacturing vertical at Infosys, this includes Business Intelligence & Analytics, Enterprise Performance Management, Enterprise Data Warehouse, Information Management and Big Data. In her current role, she leverages her extensive BI experience in giving directional guidance across BI strategy, performance management, BICC set-up, architectural framework, governance, business blueprinting, implementation and program management and delivery excellence across multiple clients. Rakhi represents Infosys in most external forums like MIT Supply Chain Innovation, SAPPHIRE, SAP Insider, ASUG etc on topics of thought leadership and innovation in the Information space, she regularly interacts with client IT and Business leadership and with analysts and industry experts.
She can be reached at firstname.lastname@example.org”