The following posting can also be viewed and commented upon on the Kinaxis Supply Chain Expert Community web site.

A recent article featured on the ASQ (American Society for Quality) web site and originating from the Arkansas Democrat-Gazette notes that Wal-Mart has tightened its delivery windows for suppliers. Wal-Mart will impose a 3% penalty, based on cost of goods,  if a supplier shipment arrives at a regional distribution center outside of a prescribed four day delivery window, either early or late.

The notion of delivery penalties is not new in retail but the fact that Wal-Mart has now tightened the window has a lot of connotation for many suppliers to retail.  As Wal-Mart goes, so does the rest of the industry. This strategy is driven by Wal-Mart’s desire to continue to decrease its own inventory levels, transferring that burden to suppliers.

The article rightfully points out that Wal-Mart usually does not tighten-up policies without the input of suppliers.  However, as we all know, big business and large volume suppliers tend to have much more influence than smaller suppliers.  Large global CP firms  such as Colgate Palmolive, Kimberly Clark, Procter and Gamble and others have dedicated supply chain planners who can tap into Wal-Mart’s Retail Link information system, as well as various sophisticated supply chain planning, replenishment and logistics systems to coordinate and track shipments.  Small and medium business oriented suppliers often do not have such resources. That thought caused me to ponder that the supply chain stakes for these SMB suppliers continues to escalate, while these same smaller firms stand to lose the most financially with any late delivery penalty as high as 3%.

The Gazette article notes that truckers try to avoid loads that come with built-in penalty fees related to early or late delivery. And why not, since shippers can often tender a shipment at the last moment expecting or even demanding that a carrier expedite a shipment, irregardless of weather or other unplanned conditions along the route.  The notion of the “last mile” is often interpreted with that game of musical chairs, when the music stops, the entity holding possession is the one out of the game.

As carrier Transplace has done, more and more transportation and logistics providers will need to continue to reach out to shippers and suppliers in providing more “predictive” reporting relative to exception events.  But all of this information needs to be captured in a supply chain information repository.  With these higher stakes, SMB’s themselves will need to focus more on “predictive’ rather backward looking planning processes.  Today it could be Wal-Mart’s delivery window, tomorrow it could be a major customer in a foreign market.

The use of MRP or MPS planning logic which attempts to satisfy a customer delivery date without factoring all sorts of dynamic and often changing constraints across the entire supply chain can often fail to adopt to strict delivery window needs.  Small suppliers can no longer use “rules of thumb” planning, such as it usually takes n days of ship time, or production has always required two weeks or order lead time. A more predictive planning tool is often a better alternative, one that allows rapid re-planning based on near real-time events, or that can allow for what-if analysis, when the planning system is alerted to a delay in production or shipment activity.  If a supplier stands to lose 3% by being early or late, the planning system needs to be able to factor that logic against all other alternatives.

Before, SMB’s had little choice but to try and swallow a very expensive ERP focused supply chain planning system that was originally designed with classic MPS/MRPlogic, and additionally offered lots of overhead IT infrastructure to maintain. Today, the situation is far different and the good news is that there are more software-as-a-service (Saas) or hosted planning applications available that not only are tailored for SMB needs, but also offer more forward-looking predictive analysis capabilities.

The key takeaway for SMB firms is to get serious about predictive vs. reactive supply chain management and fulfillment capabilities.

Bob Ferrari

Disclosure: Kinaxis is one of other paid sponsors for the Supply Chain Matters web site.

Scanning my Wall Street Journal yesterday morning, I came across an article, CEO’s Call Credit Crucial to Jobs. (subscription may be rquired)

The article summarizes statements from a group of executives attending this paper’s annual CEO Council.  The essence of the headline is that executives feel that the key to recovery in the U.S. is predicated in growth of jobs, and job growth has to be fueled primarily by small and medium sized businesses.  These same executives however, point out that these businesses are restricted by a lack of credit to be able to invest in hiring and their value-chain resources.

This argument, for me makes lots of business sense.  Ever since this global credit crisis transpired in mid to late 2008, there has been a constant cry for banks to begin more lending, albeit with more prudent risk factors.  U.S. legislative leaders are constantly lambasting banks and financial institutions for paying more attention to their own recovery vs., that of the economy as a whole.

But then I began to ponder on other events that have occurred, particularly these past few months.  Have you noticed that the financial headlines these past few months have been filled with announcements of acquisitions? 

Just for curiosity, I performed an Internet search of announced acquisitions over the past three months.  I’ve screened the announcements to reflect those that would have supply-chain implications.

•  Coca Cola and China Huiyan Juice       Value: $2.5 billion
•  BASF and Ciba            Value: $5.4 billion
• Eli Lilly and Imclone    Value: $6.1 billion
• Stanley Works and Black and Decker      Value: $4.5 billion
• Berkshire Hathaway and BNSF     Value: $34 billion
• Kraft and Cadbury PLC       Value: $16.4 billion
• JDA Software and i2 Technologies      Value: $396 million
• Hewlett Packard and 3Com         Value: $2.7 billion

My very unofficial tally indicates over $38 billion in acquisition volume if you do not choose to include Berkshire’s acquisition of the BNSF railroad, $72 billion if you do.  That’s just a representative sample of these past three months.

With this evidence, the question I would pose is simply the following. Are CEO’s more concerned right now on positioning for market dominance or market share, vs. investing money in ramping-up job growth and value-chain resources to prepare for the pending recovery?  More than not, acquisitions tend to lead to the shedding of more jobs, and the consolidation and elimination of more suppliers.

I’m sure that there will be many on either side of this debate.  The strategists will argue that acquisitions are a more expedient means to seize opportunities in emerging markets, specific industry sectors,  or drive more productivity and faster sales growth.  Detractors may well argue that the history for successful acquisitions among companies is not stellar, except for the bonus payouts to the executives in the companies involved.

But back to the key point that started this thinking.  Is credit really not readily available to finance expansion and jobs?  The numbers above indicate that at least larger companies are finding a treasure trove of credit, to the tune of $72 billion in the last three months.  Are these same credit resources available to small and mid-sized businesses?  Perhaps not, at least according to the attendees of the Wall Street Journal CEO Conference.

The sum conclusion of this posting is for all to reflect on the fundamental question which I chose for the title of this posting- In preparing for the upcoming post-recession recovery, are CEO’s really positioning for market dominance, job growth, or both?  The informal evidence that I’ve uncovered concludes market dominance.

That stated, perhaps these same CEO’s would refrain from talking about the lack of job growth, at least until they are willing to invest the same level of financial resources on job growth in their own companies.  Perhaps they could convince their bankers that investing in jobs is just as productive.

To the same U.S. legislative leaders who rant about Wall Street and the banking industry, perhaps its time to stop the sound bites and wake-up to what’s really occurring in the economy. Business news network CNBC reported that U-3, the U.S. government’s broadest indicator of employment now stands at a whopping 17.5% of the workforce. One in five Americans are either out of work or under-employed.

What’s happening on Wall Street and Main Street are dramatically at odds, and sound bites from either side are not addressing the magnitude of the problem.  Small businesses can’t hire anywhere close to the 17.5% number, and large enterprises it seems have other priorities of investment.

Perhaps some readers can either clarify or chime in?

 Bob Ferrari