This posting is our first day commentary regarding the Council of Supply Chain Management Professionals (CSCMP) 2011 Annual Conference being held this week in Philadelphia. According to CSCMP, this year’s conference has attracted over 2000 attendees, good for a supply chain educational conference in these times of budget austerity but down from previous years attendance levels.

We arrived mid-morning from an early morning flight and thus we missed this morning’s opening keynote featuring Stuart Varney, FOX Business Network Anchor.  We did manage to sit-in, albeit a bit late, in the mid-morning educational sessions as well as the rest of today’s sessions. One rather unusual aspect to today’s program was a two hour mid-afternoon break in educational sessions. We speculate that this was done to appease sponsoring vendors, with a suggestion that attendees tour the Supply Chain of the Future vendor showcase. Our observation was that most attendees found other interests.

After some hit and miss attempts to find some interesting sessions, we did attend the session- New Models for Supply Chain Collaboration: What we can Learn from Facebook and Wikipedia?  This session was facilitated by Mike Murphy, Assistant Director Global Logistics Procurement for Kraft Foods, and Sivana Narayanan of Rhodia Inc., a specialty chemicals provider which is part of Solvey Group. The session drew a full room and the speakers spoke of the enormous potential that social media tools can have in supply chain management, logistics visibility and collaboration among suppliers.  Rhodia is a provider of flavors, fragrances and coloring to Kraft and is very comfortable about making its supply chain logistics dashboard visible on social networks for customers to view.  The speakers also spoke to discovering the power of information sharing in times of supply chain disruption that occurred in 2009-2010, where information and insights were much easier to obtain within social networks.  The speakers also cited a recent example where the CEO of global ocean transportation provider Maersk Lines called for improvements across the shipping industry and certain shippers engaged that challenge via social network interactions.  While the speakers readily admit that their knowledge of social network tools is still a work-in-progress, they have come to understand the enormous impact that social media can have on improving global wide supply chain information sharing and knowledge. They went so far as to implore third-party logistics vendors to make their logistics transactional information visible on social networks.  Supply Chain Matters has written and spoke on the potential benefits of social media networks for supply chain business processes and it was an important milestone to now hear these concepts being addressed at the CSCMP Annual Conference.

One other highlight from today was launch announcement of the SCPro certification program being made available by CSCMP in 2012.  Readers may be aware of the APICS Certified Supply Chain Professional (CSCP) certification program.  This author served a number of years as an APICS volunteer on the original CSCP Exam Review Committee, tasked with overseeing the certification exam content. After viewing an overview of SCPro, I can report that this new certification program is much deeper, involving three separate levels of certification that tests demonstrated problem-solving and proven industry experience.  The learning and reference materials are being made totally online allowing candidates virtual access from any location, work or home.  According to CSCMP, this program will also be made available globally upon launch. The levels of certification include:

Level One- Base foundational knowledge that is tested in a four hour, multiple-choice question exam. Level One equates to the current CSCP exam format.

Level Two- Requires Level One certification coupled with demonstration of analysis and application of addressing and solving supply chain challenges. Candidates are evaluated on their ability to successfully problem-solve challenges in supply chain risk, external process integration, supply chain network design, strategy or sustainability challenges.

Level Three- Requires Level One and Level Two certification with hands-on analysis of a working organization, development of a detailed project plan, which is monitored and evaluated by a panel of supply chain experts.

While members of the supply chain community may well be confused as to which certification program is which, SCPro on paper, has the potential to be a much broader certification of skill level.  Realistically however, it may take a candidate two or more years of dedicated effort to master all three levels.

That’s it for our day one summary. There are some rather interesting sessions scheduled tomorrow.

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

If your email address is listed on supply chain media distribution, your inbox is probably loaded with headline stories outlining the highlights of the 20th Annual State of Logistics Report, which was just released by the Council of Supply Chain Management Professionals (CSCMP).  This report is issued annually in June with much anticipation among the logistics and transportation communities. The main headline for this year’s report was that U.S. logistics costs dropped for the first time in over six years, reflecting a decrease of $49 billion from 2007.  There were however more important data points that our community should reflect upon.

If you are a member of CSCMP, you have free access to the report.  When I viewed the report, I noticed that this year, there seems to be no means to download the entire report.  Instead, you have to read it in an Adobe viewer, or print individual pages. No doubt this must have been an attempt to exhibit a green strategy with the opposite effect. But I digress.

The purpose of blogs such as Supply Chain Matters is not to re-hash news stories but to provide commentary, insight and discussion.  In this first post, I’m going to focus on the overall takeaways that I garnered after a summary reading.  In Part Two, I’ll focus some comments of specific data points of significance.

When I commented on last year’s 19^th Annual Report, I summarized my three key takeaways within the 2007 report as:

• Increased globalization led to quantified evidence of increased logistics and inventory costs.
• As a result of unprecedented rises in the cost of energy and other factors, the U.S. logistics system was beginning to experience structural changes.
• Despite a ten year record of significant progress, there were clear signs that more difficult challenges lie ahead for the supply chain community.

What a difference a year can make, a year that brought continuous turbulence and challenge on all fronts. To recall just a few, there were a couple of major hurricanes, oil peaking near $150 and the global financial crisis that evaporated product demand in key industries and resulted in what I termed the “great 2009 inventory backflush.” Within the latest 2009 report, I found another three takeaways:

1. Inventory management will remain a significant challenge for months to come.  While 2007 provided evidence of noteworthy increased logistics and inventory costs driven by globalization and outsourcing, 2008 presented significant industry challenges in dramatically decreased purchasing activity, higher inventories, and lower volumes shipped.  On the surface the various metrics of flat transportation and significantly reduced inventory carrying costs are noteworthy, but not in any way a motivation to feel confident.  I believe the biggest challenges are yet to come. The inventory-to-sales ratio skyrocketed in late 2008 to levels of eight years ago, which should be a cause for additional concern. While inventory carrying costs significantly fell by 13 percent, primarily as a result of far lower interest rates, the unprecedented low interest rates we have experienced through the first part of 2009 will only last so long.  The effects of massive governmental stimulus plans are bound to take their toll on interest rates and taxes, and again drive-up inventory costs.
2. The beginnings of structural change that was noted in 2007, accelerated in 2008. The report author, Rosalyn Wilson noted that “she had seen an estimate that shippers are moving 25 percent to 30 percent less freight nationwide, and there is no incentive to keep fleet capacity.” Idled ships and barges are being utilized to store idle inventory instead of transport. Overall air freight volumes were significantly down by 9.8 percent.  In ocean containers, the report notes: “The west coast ports, and particularly LA/Long-Beach, are seeing what may actually be a permanent reduction in traffic levels.”  In the midst of these imbalances, the U.S. railroad sector garnered a 10.5 percent increase in revenues despite volumes being down 3 percent.  An article featured in Logistics Management best describes the pending challenge.  While shippers may be in the catbird seat for transportation services this year, you had best nurture a closer relationship with your preferred carriers, because that will change dramatically when the recovery takes hold.  As the saying goes, when times are tough, you always remember those who provided the helping hand vs. those take took maximum advantage.
3. Regardless of your company size, the need for having contingency plans addressing the potential for disruption in your network of suppliers, carriers, and partners is even more critical than it was a mere year ago.  The report wisely recommends that organizations take the time now to review existing agreements and plans, as well as lock in carrier needs. As I stated many times before, every organization will need some basis of a supply chain risk strategy.

Ms. Wilson noted that the most important advice she can give is to be proactive in areas of supply chain partnerships, increased productivity, and new technology.  Wise words indeed!

One final thought for readers to ponder.  The past era of global outsourcing of suppliers and production among U.S. based organizations was primarily motivated by a compelling lower cost dynamic. The 2009 version of the state of logistics provides more compelling evidence that conditions are changing for cost.  Do your homework and seek advice.

Bob Ferrari