I came across a great supply chain related article for this holiday season.  Mike Cassidy on SiliconValley.com notes UPS’s two-wheeled delivery secret.

As Cassidy notes in his opening sentence: UPS, the mammoth delivery company, tackles it with hundreds of cargo jets, thousands of big rigs, tens of thousands of those familiar delivery vans- and Justin Hurst’s bike.” Hurst is one of about two dozen UPS workers who is peddling a $700 bike to deliver holiday packages to Silicon Valley area homes. You can actually view the video of Justin’s activities embedded in the article.

It seems that UPS has discovered that it is far cheaper to provide a bike than to have to rent additional trucks to augment peak holiday delivery needs in Northern California.  This effort is of course a wonderful statement toward green and sustainability commitment, since a certain amount of carbon emitting delivery vans have been replaced by good old fashioned pedal power.

Two thoughts come to mind.  First, what kind of shape are Justin and his fellow bikers in to be able to make all those round trips.  Second, does this mean that UPS won’t add a fuel surcharge to the shipping rate?

Attention all transportation managers- UPS has found the new secret of green.  Now if they could figure out how to utilize a high speed electric bike, the world would be a better place.

 Bob Ferrari

This is my third posting of observations and commentary related to events at this year’s Annual Conference of Supply Chain Management Professionals (CSCMP).

In this posting, I will share some of my initial reactions to some of the interesting sessions that I attended today.  When I get back to the office and have additional time, I will dive a bit deeper into the learning from these presentations.

New Paradigms in Reverse Logistics

A quite interesting session featured a panel discussion focused on the new paradigms in reverse logistics.  The session moderator noted that this was one of those rare times where major competitors in their industry settings can be recruited to speak at the same table regarding a subject of common interest. Panelists represented senior managers from Dell and Hewlett Packard, as well as Wal-Mart and Target.  Each panelist provided an informative summary of their current business strategies directed at reverse logistics and sustainability., and responded to specific audience questions regarding current strategies and programs.

The takeaways that I came away with from this session were:

• There was a common trend toward more centralization of reverse logistics strategy, along with an increased global focus on strategies. It was interesting to observe how Dell, with its new shift toward more retail channels of distribution has re-thought its reverse logistics strategy.  HP continues to have supply chain focused at the business unit level, but global-wide focus of strategy.

• Manufacturers shifting their focus toward making the business case for reverse logistics more focused on the actual retailer or channel partner vs. movement of returned material back to the manufacturing source.  The two manufacturers both highlighted their efforts to include more financial incentives for retailers to recycle material and products.

• An increased focus on the part of Wal-Mart, and some extent Target, on reduction of waste, and creation of new sustainable value networks or alternative channels for material recovery centers to recycle waste and encourage recycling. It is unfortunate, in my view that Wal-Mart continues to edict mandates on suppliers as the hammer for conformance.

Supply Chain Metrics Used in Network Modeling

A second rather interesting session for me was supply chain metrics used in network modeling.  With the recent coming together of confectionary manufacturers MARS and William Wrigley Jr. Company to identify potential overlaps in their combined supply chain networks as well as identify integration or synergy opportunities.  Since both companies were existing customers of the former Logic-Tools, (acquired by ILOG, and then acquired by IBM) the use of this supply chain network modeling tool was facilitation for identification of opportunities.  What I especially liked was an emphasis on more interaction with the audience in a panel-type of format.  The presenters focused on the overall process of modeling, what was required, and what was learned by the combined teams.

Important takeaways from this session included:

• Quick wins were found before any actual modeling was done, as a result of the needs to consolidate data among both companies.

• When modeling scenarios were completed, combined management was in a better position to make more informed  decisions regarding warehouse synergies, potential common systems, or customer shipment consolidation.  Additional insights were also gained regarding potential impacts of an increased cost of energy, or reduction of overall carbon footprint.

• The combined project team performed this task over three months on a virtual basis, without the need to meet face-to-face until just before final recommendations.  This was an important reinforcement that a virtual team process can work, with selection of both the right players, and a single point-of-contact for each constituency.

All things considered, I found most of today’s sessions rather informative and educational.   Conference participants seemed to feel the same way.

Bob Ferrari

Today, the United States announced a collection of significant stimulus investments in the next generation of supply chains for electric and hybrid vehicles.  The U.S. Department of Energy announced a total of $2.4 billion in grants that will fund 48 advanced battery and electric drive vehicle deployment projects to accelerate the development of U.S. manufacturing capacity for batteries and electric drive components .  This overall announcement represents the single largest investment in advanced battery technology for hybrid and electric-drive vehicles.

Among the noted supplier recipients are A123 Systems, who was awarded a $249 million matching grant to construct world class lithium-ion battery manufacturing facilities in the U.S., and Johnson Controls which was awarded a similar amount to deploy advanced battery supply capabilities. A123 has been previously designated by Chrysler as its prime battery supplier, while Johnson Controls, who has a joint venture with France’s SaftGroupe, was previously chosen to be a primary battery supplier to Ford Motor Company.

Other highlighted announcements included Compact Power and Dow Kokam, who are slated to receive over $300 million for manufacturing battery cells and materials. Celgard in Charlotte North Carolina is slated to receive $49 million to expand its separator production capacity to supply lithium-ion battery manufacturers.   All three of the U.S. automotive OEM’s, Chrysler, Ford, and General Motors will receive a total of $400 million to manufacture advanced hybrid and electric vehicles and electronic drive components.

This announcement comes none too soon as countries such as China, Japan and Korea are also deploying high volume, globally competitive advanced battery and high volume manufacturing capabilities.  China is also is vying to be a world leader in electric cars,  placing advanced battery technology and manufacturing capability as a high priority and establishing a goal to support capacity to produce 500,000 hybrid or all-electric vehicles by the end of 2011. That represents nearly twice expected U.S. capacity plans.  In a recent op-ed editorial for the Washington Post, (free sign-up account required) noted venture capitalist John Doerr and General Electric Chairmen and CEO Jeff Immelt declared that the U.S. is clearly not in the lead in green technology development, with that position being held by China.

In essence, the U.S. government has now become a significant venture capitalist in the future supply chain of alternative energy vehicle production.  The challenge and the work among the recipient companies must now accelerate in earnest in the race for innovation and global supply chain competitiveness. 

Supply Chain Matters will continue to focus coverage on the worldwide deployment of advanced battery and electric vehicle supply chains.

 Bob Ferrari

Have you begun to notice how quickly the price of oil has been rising of late?  Here in the U.S., the price of gasoline and diesel has been on a rapid climb for the past four to six weeks.

Do you think it’s a positive sign of pending recovery in the global economy?  Not so fast!

An article penned by Time and featured in Yahoo News (Oil Is Plentiful, Demand Weak: Why are Gas prices Going Up?) leads us to the potential root cause- speculation.  Yes, OPEC and those gosh darn investment speculators are at it again.

This article points out that demand for oil in the so-called rich countries is at its lowest level since 1981, and interesting enough, U.S. oil inventories (stored surplus) has also reached its highest level since the 1980′s.  But alas, 2.6 million barrels of this surplus is being stored in idle floating tankers around the world.  In the classic supply and demand equation, supply is inaccessible, so price goes up. And then we have the statistic that financial investors have once again plowed billions into oil futures, betting on the timing of a world recovery.

The overall message is clear.  Oil markets are not driven by normal demand and supply forces.  We should all take note.  We cannot waiver from collective commitments toward alternative energy and sustainability initiatives. The U.S. Energy Information Administration predicts that oil prices will rise to $110 a barrel by 2015.  That’s about double of what it is today in the U.S.

The world economy has been fortunate to have a hiatus in cheaper oil during this damaging recession. Unless someone brings those ships ashore, our respite of cheap energy is a past memory.

 Bob Ferrari

Accenture released results of a research study focused on sustainability and supply chain strategy. This survey concludes that leading-edge companies recognize not only recognize the business imperative of incorporating sustainability activities in both product and supply chain  practices, but make extra strides in linking the objectives of sustainability with cost effectiveness, customer service, and other objectives. The emphasis of the designated leading-edge companies is focused on pragmatic strategies vs. those that are unproven or bring higher risk.

This survey polled 245 cross-industry logistics, warehousing and transportation executives to identify the fulfillment capabilities that were most highly correlated with superior performance in both customer service and cost responsiveness.  A number of questions surveyed supply chain sustainability and carbon footprint management. This study segmented the companies surveyed into three categories: masters, average performers and laggards.  Masters were those organizations who achieved top-quartile performance on both cost effectiveness and customer service.

 The study conclusions indicate that masters are:

• Designing products with sustainability in mind
• Actively managing their supply chain carbon footprint
• Choosing processes and systems that offer the best return
• Benefitting from an integrated view of sustainability across the supply chain

Masters are also twice as likely to model and actively manage their carbon footprint across all areas of their businesses. In addition to overall reduction in energy consumption, other pragmatic mitigation strategies cited by masters include introduction of energy-efficient lighting, material recycling, and proactive preventative maintenance. 

Yet, this Accenture survey reveals that among the overall surveyed population, 37 percent of supply chain executives have no awareness of the level of supply chain emissions in their supply chain network, and only one in ten companies actively manage their supply chain carbon footprint.  Obviously, there is a need for progress.

In a Supply Chain Matters posting in April of last year, I noted that green supply chain strategy makes sense from an overall business perspective, but data indicated that the vast majority of companies were in early stages of strategy development. European based companies had more momentum because of the financial and legislative environmental policies directed at carbon and waste reduction. This latest Accenture study seems to reinforce these observations.

Implementing an end-to-end green supply chain is an immensely complex problem and will require multi-year initiatives as well as technology-enabled analytical analysis and tracking tools. But that is no excuse to not to get started. The Obama administration is now strongly hinting that the U.S. needs to adopt stronger sustainability policies, including a potential carbon cap and trade policy similar to other countries.

Leading-edge companies are establishing their sustainability strategies, and are making progress with integrated and complimentary pragmatic approaches, even in the midst of severe economic recession.  If as Accenture indicates, only one in ten companies actually take the time to  measure their supply chain carbon footprint, than that would imply that that should be a first step in your own company’s supply chain sustainability strategy.

Do you agree? What about your company’s strategies in this area?

 Bob Ferrari

In catching-up on newsletter and blog reading this week, I ran across an interactive poll being conducted by Industry Week Magazine which poses the question: What will the election of Barack Obama mean for U.S. Manufacturers?  I don’t know about you, but I noted a slant of cynicism in the layout of the potential responses. 

In full disclosure, I was a supporter of President-elect Obama, and took great joy in observing the positive and supportive reactions of both U.S. and global citizenry to the final results of the U.S. presidential election.  I also take some comfort and trust in reading that President-elect Obama will seek out the smartest people vs. the most politically connected to makeup the leadership team that must address the most challenging global economy experienced in many years. So let’s accept this at face value, at least for now, and put our collective heads together in constructive descourse towards a bold direction.

In an unbiased way, let us reflect upon a required agenda for U.S. manufacturing and supply chain needs for the next decade.  I will pose three key questions to Supply Chain Matters readers, provide some of my initial thoughts, and encourage comment and opinion from our community of blog readers.

1. Will the Obama administration provide active leadership and commitment in insuring that the United States is a global leader in product innovation and manufacturing capability in the next ten years?

My view is yes on leadership, but time and money will tell the story on execution and commitment.  For me, Barack Obama clearly articulated an understanding that in order to grow the economy, the U.S. must be prepared to assume a leadership role in the technologies and products of the next decade.  This would include areas such as alternative energy, green and sustainability technology, nanotechnology, and others related to computing, electronic content, and electronic infrastructure.  As pointed out in Thomas L. Friedman’s latest book, Hot, Flat, and Crowded, the potential rebuilding of the U.S. energy, utility, and information infrastructure are all possibilities that must be realistically considered.

Execution and commitment, on the other hand, relies on the ability of industry leaders and politicians coming together in a joint understanding that solving the U.S. financial crisis and investing for the future will require tough and informed decisions as part of a strategic plan based on prioritization. Not all technologies and products can be realistically funded and supported without an abundance of private equity or corporate funding. 

2. Will the Obama administration understand the strategic importance of manufacturing in spurring the growth of the U.S. economy?

My view is yes, but again, setting realistic goals and moving beyond just politics as usual will be the challenge.  President-elect Obama’s campaign efforts were directed at building the basis of an economy that could lead the U.S. beyond its current recession.  This was especially a driving concern for those regions of the U.S., such as Illinois, Michigan, Pennsylvania and Ohio where manufacturing and supply chain jobs were once a mainstay of the economic well-being of those residing in those regions.  This new administration will have no choice but to address the question of re-invigoration of manufacturing in the U.S.

Reality is grounded in the fact that a lot of the existing U.S. manufacturing jobs have moved to other global manufacturing regions such as China, Eastern Europe and other key regions. They moved for two fundamental reasons, economics related to lower-cost manufacturing, and more importantly, access to more growth-related markets.  Global manufacturers cannot turn their backs to these new growth markets, and thus manufacturing will remain in these high growth regions.  The real issue, therefore, is the long-term growth of the U.S. related market, and insuring the U.S. manufacturing capability is able to compete in supporting this geographic market.

The first real test is already underway, reflected in the current posturing for continued financial assistance of certain of the big three U.S. auto manufacturers.  This will most likely spread to concerns and calls for help among the other industries related to autos and other capital-related goods.  These are the industries that are first to suffer the consequences of a severe recession, and usually the first to see daylight on the recovery.

In my opinion, what really should matter is whether these hat-in-hand U.S. based companies that make up a substantial amount of manufacturing and supply chain employment can finally be motivated toward an objective for compelling products and world-class global manufacturing capability to lead in the green revolution.

3. Will the Obama administration provide active leadership and commitment to renewing U.S. supply chain infrastructure?

I have often commented that the U.S. logistics and transportation infrastructure is long overdue for investment.  Bridges, rails, ports and highways are deteriorating. Countries such as China, Singapore, and Europe continue to invest in assuring their countries have the most modern and efficient infrastructure for the 21^st century. India may join this list in the near future. 

A lesson we have collectively learned in my home town of Boston is that “big-dig” projects are not necessarily the answer, since they tend to gravitate quickly to money sink-holes and serve only one geographic area. Broader vision as to what is required for a 21^st century transportation network for the entire U.S. that meets the commitment to global competitiveness, low carbon emission and sustainability must be outlined and evaluated.  I believe that such a network must include more leveraged use of railways in connecting port facilities, natural resource regions, as well as major population areas, and should include supporting the movement of larger volumes of goods and people.  Americans need a serious option of high and normal speed rail networks connecting coast-to-coast supply chains and business center needs. One example, California voters just approved the funding of a high-speed rail network connecting San Francisco and Los Angeles.

A suggestion I would offer is to “draft” knowledgeable and visionary executives of experienced global-based transportation carriers, rail companies, and consulting agencies to layout the vision and long-term strategic plan for investment, and insures that when this plan reaches Congress, it transcends earmarks, political favors and ‘bridges to nowhere”.

Now it is your turn to share a comment.  What are your expectations regarding these three questions? You can provide your input in the Comments section directly below this post.

Bob Ferrari