If you have been a regular visitor to Supply Chain Matters, you may have already read my previous four posts providing live commentary from the Council Of Supply Chain Management Professionals 2009 Annual Conference.  In case you had not, here are the links to Post One, Post Two, Post Three, and Post Four.

I’ve been attending this particular conference for many years, as an attendee, presenter, and sponsoring information technology marketing executive. In that context, I will complete my commentary with some overall impressions and thoughts concerning this year’s conference. 

In my opinion, the overall quality of this year’s conference was excellent.  Attendance was lower than in past year’s, but as I pointed out to fellow attendees, most companies seem to be continuing to cut back on attendance. Supply chain innovators and conference supporters, such as Procter and Gamble, having only three attendees, or Hewlett Packard having but two attendees, are clear signs that companies are still restricting conference and educational-related travel. Many attendees I spoke with indicated that they had driven to the conference.

I found most of the presentations to be high quality, and I especially liked the lengthening of presentation sessions to 90 minutes, rather than the previous 60 minutes.  In my particular roundtable session on supply chain risk management, it afforded ample time for peer exchange and interchange on various aspects of the topic. Dan Gilmore noted on his summary on Supply Chain Digest that these 90 minute sessions seemed to drag.   I observed that a small number of sessions I attended did drag in the last few minutes, but I believe it has more to do with making efficient and lively use of the time, so attendees are given time to discuss and inteact on the topic.

Many attendees spoke highly of the first day keynote. Gary Maxwell, Senior Vice President of International Supply Chain for Wal-Mart, spoke to the notion that you don’t have to be “world-class” in different markets, but rather “best-in-market”. The implication was that too often, companies tend to invest too much in automation and process. The overall message has merit and resonates.  But the question left in my mind is whether Wal-Mart has learned from its previous efforts to mandate change among its supplier base. Recall the previous mandates for supplier RFID adoption because of Wal-Mart’s needs in item-level tracking and store efficiency, which have now been set aside  The most recent mandate outlines sustainability tracking, and a recent Newsweek article ranks Wal-Mart as the 39^th greenest company. Do mandates help the other 38 companies, such as Nike, Procter and Gamble and others ahead of Wal-Mart to be “best-in-market”?

 I was pleased to see more presentations focused on holistic supply chain process capabilities, touching themes related to managing risk, adaptive analytics, and mapping supply chain goals to the “C-suite” or Wall Street.  CSCMP should continue to emphasize these topics. In both circulating with and hearing presentations from existing senior supply chain managers, I still get a sense that managers are too heads-down in the operations to be able to do “big-picture” thinking.  As companies begin to enter the new and quite different recovery phrase, having a broader strategic sense of direction will become even more imperative. Remaining competitive is not just about distribution center automation or long-term transportation contracting.

Congratulations go out to Intel’s supply chain team for winning the 2009 Supply Chain Innovation Award.  It was well deserved.  Intel early discovered that incremental process improvements were not going to get their supply chain capabilities to competitive standards.  Instead they embarked on a different transformational path, investing in advanced analytical inventory management and other transformational capabilities.  Kudos also go out to runners-up Dresser Rand, Telllabs, and Kraft Foods.

As mentioned in my Part Four commentary, the most pertinent session of the entire conference, at least for me, was the session titled Wall Street’s Perspective on Supply Chain.  If you or your management teams had any doubts as to the critical importance of supply chain in overall business strategy, it was addressed in this session.  It validated that Wall Street does indeed recognize the value of supply chains, either as a generator of cash or value, or as a means of competitive differentiation in specific markets.  How that perception is going to be made and executed is a function of how supply chain managers position their strategies and initiatives.

Hopefully, the 2010 conference will present a better economic climate and will continue to provide opportunities for broader attendance and quality education.

 Bob Ferrari

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

When I performed my pre-planning prior to the conference, one of the sessions that had been on my “must attend” list was the session titled Wall Street’s Perspective on Supply Chain. This session did not disappoint.

It consisted of a panel of four senior investment professionals experienced in private equity and investment banking, with first-hand knowledge of how the Wall Street community looks to supply chain as a measure of value.  The firms represented included Frontenac, Jeffries and Company, Inc., MERK Capital Corporation and NKF Consulting. Each panelist began by providing an overview of their firm activities as well as a perspective on how they view supply chain.  The session then turned to an open Q&A exchange among the panelists and the audience.

Some of the summary messages from the consensus of the panelists follow.

The focus of mining supply chain for continued cost savings must continue over the coming months.  A statement by William Hunter, Managing Partner at Jeffries was that companies have done a great job of rationalizing costs and shedding excess people. Even though most feel we have begun to turn the corner, recovery across broader industry sectors will take more time.  The perspective echoed by many CEO’s / CFO’s is that top-line revenue growth will not begin to occur until mid-2010.  This implies that profitability will continue to come from reductions in cost as well as increased efficiencies. Cash is still king, and Wall Street will punish unexpected surprises.

CFO’s must respond to Wall Street, and the panelist consensus was that many CFO’s will continue to not only have a keen eye toward continued profitability, but will also look to:

• Top line innovation
• Capacity rationalization
• Specifics of risk management

I was especially tuned to the validation that supply chain risk sensitivity has now become a top item of interest within the C-suite.

A slide shared by Hess addressed his view of Wall Street’s expectation as we transition to the next phase of the business recovery.  Whereas the current phase has had a primary focus on optimizing business liquidity, the next will focus toward optimizing performance management and operations execution.  One other noteworthy quote from Robert Hess, Managing partner of NKF Consulting specifically addressed supply chain equilibrium.  Going forward, Wall Street will look negatively on companies that attempt to plan demand based on forecast history.  “Forecasting on the past is dead wrong” noted Hess.  Forward-looking demand planning and operational excellence, especially process-related excellence, will continue to make positive impressions on the value of a company.  “It’s all about “doing fewer things better, and proving it.”

An observation by two of the panelists relates to the ability to get money for transformation and/or rationalization initiatives related to supply chain.  According to the panelists, credit markets remain very tight, and access to additional money will remain a challenge. ROI and hurdle rates need to be very strong, and eliminating a couple of distribution centers may not necessarily be a positively received investment by private equity investors.  Reduction in inventory turns or bottom-line inventory, on the other hand is looked on as positive.

Let’s end on a positive note.  The panelists did indicate that experienced supply chain talent will continue to be in demand across multiple industry sectors, which was phrased as good news for the audience.  My reaction was simply, who else in the organization has the scope and knowledge to deliver continued process excellence- supply chain, of course.  But don’t ask for that raise just in salary, at least not for a few more months.

Bob Ferrari

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

This morning’s keynote was fascinating as well as uplifting.  It was sponsored by the MIT Global SCALE Network, and outlined ongoing research efforts of logistics and supply chain researchers from Zaragoza University addressing the current challenges related to the healthcare delivery needs of the developing world.  Doctor Prashant Yadav, Professor of Supply Chain Management addressed the efforts of this ongoing four year project.  The project is attempting to identify how modern supply chain tenets can be applied to the delivery of health and medicines in the developing world.

Dr. Yadav noted in his address that the world is not flat in terms of infant mortality and health outcomes in underdeveloped regions of the world such as east/central/western Africa.  Every year, over 1.2 million people die from the effects of malaria, yet the disease is readily treatable by relatively inexpensive drugs. Infant mortality rates are staggering.  Every 30 seconds, a child under the age of five, dies from the effects of malaria. The problems stem from classic supply vs. demand delivery mechanisms. A lack of even rudimentary procurement and inventory management practices.

Through the funding of the Gates and Clinton Foundations, as well as other charitable agencies, these efforts to identify and address efficient procurement, inventory and distribution methods will no doubt have a longer-term positive impact for what the supply chain profession can contribute to health and happiness.  The Zaragoza team has outlined various testing of more efficient and responsive distribution methods in Africa. Dr. Yadav further asked supply chain specialists to consider volunteering some time and functional expertise to help in these efforts.

Bob Ferrari

Perhaps your company or organization is currently attempting to deal with the challenges of addressing an overall supply chain risk management plan.  You may also be seeking an opportunity to understand how other organizations or how of your peer professionals are addressing supply chain risk management.

At the upcoming Council of Supply Chain Management Professionals 2009 Annual Conference in Chicago, which is supply chain’s premier event, I will be facilitating the session in the Ask the Expert Track, Successfully Dealing with Supply Chain Risk. This session will be held on Monday September 21, from 1:45pm to 3;15pm in Room W-186a .  My goal for this session is to have an overall discussion for managing and planning for uncertainties and supply chain risk. I will share how industry leaders are identifying and addressing these areas, how quickly risk events can escalate, and what steps can be taken to address a risk management plan.  If you are planning on attending this year’s conference, please sign-up for this session since space will be limited to insure an interactive discussion.  Please let me know if you do sign-up so I can insure that I have some content material pertinent to your industry.  You can email me at bferrari at blog1 dot com.

I’m also planning on taking the opportunity for meeting and catching-up with friends, colleagues, and industry professionals at the conference, so if you are planning on attending, do let me know, or seek me out.

 Bob Ferrari

In my Part One posting, I provided commentary relative to the recently released 20^th Annual State of U.S. Logistics Report.  I shared what I believed were the three important takeaways from this year’s report, over and above the usual media headlines.

With two non-stop days of rain over the weekend, it was a great opportunity to dive more into the details of the report for more information nuggets.  In this posting, I’m going to comment on additional trends that I found to be noteworthy for further discussion and thought.

One area that really caught my eye was the increasing rise in warehousing costs.  The report indicates that warehouse costs rose 9.5 percent in 2008.  This was incremental to the 9.9 percent increase reported in the 2007 report, and amounts to a cumulative 19.4 percent increase over the past two years.   That is significant.  The report cites the cause of these increases as additional value-added services such as kitting, assembly, label printing and other services.  While I can understand and acknowledge fulfillment process postponement needs in shifting more services to warehouses, this level of increase doesn’t seem to make sense unless it is significantly offsetting other production related costs.  I would like to call on my distribution and operations management readers to share their impressions of what’s really happening with this trend. Should this be an area of ongoing concern?  I myself suspect that it may be, since so many of these services are provided by third-party logistics entities under the guise of cost savings.

One cannot comment on warehousing without also mentioning inventory.  As mentioned in Part One, in spite of dramatic and swift actions to decrease inventory, the inventory to sales ratio remains high.  The increases have occurred across all channels, wholesale, manufacturing and retail.  This needs to be an area of continued concentration by Sales and Operations Planning (S&OP) and supply chain planning teams in the coming months.  Technology will no doubt play a continued role in facilitating more advanced analysis and management techniques.

Another noteworthy trend was in the area of ocean container movement, and specifically two trends. The first is a continued existence of over capacity, and the second is the fact that there was a noted reduction in market share traffic to the west coast ports of Long Beach and Los Angeles.    The report bluntly states that: “the ports of LA/Long Beach are experiencing what may actually be a permanent reduction in traffic levels.”  The loss is attributed to other west coast ports making significant improvements in their infrastructure, but more troubling, the higher costs being imposed to shippers for environmental programs at these specific ports. I shared some commentary in March about the Clean Trucks Program and attempts by the ports of LA/Long Beach to shift fees to truckers as an incentive for cleaner trucks.  There is obviously some factors of economics that must still be played out in the quest for sustainability strategies.  The report also acknowledges the state of overall overcapacity, and predicts that the industry will probably not right itself until 2014 or 2015. That implies that we may continue to see different means for managing or dealing with idle ships, and further reinforces the reality that ocean container shippers will continue to have a bargaining advantage.

Looking ahead, report author and economist Rosalyn Wilson predicts an upcoming period of stabilization rather than recovery.  She describes a U shaped cycle where the bottoms currently being experienced may linger for some time. Her prediction is that U.S. logistics activity will not returning to pre-recession volumes until late 2010.  She also points to permanent structural change in consumer buying behaviors, brought on by continued declines in U.S. household wealth.  As I stated in my posting on pending structural change in supply chain, recovery in supply chain activity will occur quicker in the developing regions of the BRIC countries, as opposed to any U.S. led recovery.

Finally, regarding action planning over the coming months, Ms. Wilson cites the most important advice as staying proactive vs. reactive.  “Analyze your supply chains, re-examine your supply chain partners and the risks associated with them, increase productivity, and add new technology…. Re-evaluate your relationships with your supply chain partners and strengthen them.”

Very good advice for all.

What’s your reaction?  Have you briefed your senior management regarding  the implications of current state of U.S. Logistics/

Bob Ferrari