5. December 2013 13:18
As I have written before, I believe that for the next few years, Amazon.com will be the latest trendsetter in the supply chain, just as Wal-Mart was several years ago. With their large, private distribution networks, same day deliveries, utilizing the USPS on Sunday and other innovations there is no doubt they are changing the face of the retail supply chain. Some of these changes will spill over into other industries, as well. Thirty years ago, the food industry was the supply chain innovator, but many of the techniques developed there were adapted by others. I believe the same thing will happen here.
Last Sunday, when I saw the 60 Minutes segment featuring Amazon and its founder, Jeff Bezos, where he introduced the new Prime Air drone package delivery system. I couldn't help but ask myself, "What are they going to think of next?" These guys make Wal-Mart seem like amateurs. Since Sunday the business press has devoted thousands of words to the concept – many of them negative since there are numerous obstacles to overcome before Amazon drones can be launched into our neighborhood skies – but it shows a considerable amount of creative thinking on their part. FedEx stock even rose on Monday, nudged by analysts who speculated that FedEx might come up with a similar program.
Don't expect to see delivery drones winging their way through your neighborhood anytime soon; but don't be surprised when we see other exciting ideas influenced by Amazon and its supply chain aggressiveness. As for the rest of the retail industry, I suggest the advice from the late, baseball great, Satchel Paige who said "Don't look back. Something might be gaining on you."
27. November 2013 10:30
When the U.S. District Court of Appeals rather forcefully allowed the new trucker hours of service rules to go into effect on July 1 of this year, I thought it was finally over. The amended regulations reduced a driver's work week from 82 to 70 hours, limited on the road hours to 11 out of a 14 hour workday, mandated 10 consecutive off duty hours after the workday ended, and required a 30 minute break during the first 8 hours of a shift. The required 34 hour break between work weeks must extend over 2 nights and include the hours from 1:00 am – 5:00 am.
These new rules had been opposed by many, including the American Trucking Associations, motor carriers and drivers; but with the court's decision the matter appeared to be settled. Now I am not so sure. There has been so much pressure brought to bear recently, the entire issue could be attacked again. A bill called the TRUE Safety Act has been introduced in Congress and would roll back the 34 hour provision back to its pre-July 1 language until the Government Accountability office can review the data and rationale. This bill is strongly supported by the ATA, and the American Transportation Research Institute (the research arm of ATA) just released a report on the operational and economic impact of the new rules. Some of the key findings were:
- More than 80% of motor carriers have experienced a productivity loss. Schneider National has experienced a loss over 3% as have other carriers surveyed.
- More drivers have been added to carry the same amount of freight.
- 82.5% of the drivers reported a negative impact on their quality of life and increased fatigue.
- Lost wages have totaled $1.6 – 3.9 billion (on an annualized basis).
Even the Wall Street Journal has gotten into the act, with an article following a driver through a trip which is made more difficult by the new rules, while yielding less pay. Over the road drivers are paid by the mile, and in this case driving miles were reduced by about 1500 per week.
And of course, all this is going on while we already are experiencing a driver shortage which will surely increase as the economy improves. Something has to give. Either the rules should be changed so a driver can log more miles, or the pay per mile must increase. Both these options have significant downsides, however. More miles could mean increased fatigue and more accidents, and increased pay will lead to increased rates. The latter option seems to be the most reasonable, although it no doubt would meet with strenuous shipper resistence.
19. November 2013 12:21
A recent issue of Bloomberg Business Week featured an interesting article describing how the introduction of Apple's iPhone 5 jumpstarted their Asian supply chain. One of the Apple subcontractors in Malaysia immediately contacted job brokers in Nepal seeking 1500 men to assemble cameras for the iPhone. These brokers in effect "sell" the jobs for as much as a year's pay, which often has to be borrowed by the prospective worker, leaving him/her in debt before even starting to work. In this particular case, production was soon shut down due to quality problems, leaving workers stranded in Kuala Lumpur, far from home with no job, no money, and in debt.
In fairness, Apple has attempted to act responsibly and has been a leader in trying to control this abuse among its subcontractors, but it still persists in a number of industries. Not because of this article, but coincidentally, Apple recently announced a new plant in Mesa, Arizona, that will create more than 2000 jobs in the U.S. which now reside in Asia. In December, 2012, they announced a $100 million Texas plant, as well.
This seems to be a growing trend. Several firms are taking a hard look at moving product back to the U.S., or in an "intermediate move", back to Mexico. While wages are increasing in Asia, they still are far less than those in the United States, and Mexico seems to be a good compromise. By 2020, the hourly labor rate in China will be $7.60, compared to $30.00 in this country; but Mexico will be only $5.20. There are several good reasons to locate in Mexico other than the labor rate. The economic climate is improving, as is the transportation infrastructure; and it is close to home. Operations there are considerably easier to manage than those in Asia. The elephant in the room of course is security; but the country has taken major steps in improving both prevention and enforcement.
The entire issue is a "Catch 22" for the firms outsourcing to Asia. One of the major reasons for doing so has been the low cost of labor. The low cost of labor has resulted to a great extent from the abuse of workers. It is becoming increasingly difficult for firms in this country to stick their heads in the sand; but as responsible companies try to remedy the situation they will find themselves with higher costs. They will be forced to seek other alternatives.
I believe the moves back to the U.S., Mexico, and other countries will continue; but in many cases the large investments some firms have made in Asia will keep them there for the foreseeable future, even at higher costs.
7. November 2013 12:14
Twenty years ago, the iconic sportswriter, Dan Jenkins, wrote a great book entitled, You Gotta Play Hurt. Naturally it was about sports, in this case football, and humorously depicted how players couldn't quit every time they received an injury. Also, in their personal lives, they couldn't give up just because things didn't go their way. That is the way I am beginning to feel about the new driver hours of service rules.
On July 1, when the new rules became effective, many shippers and probably some carriers breathed a sigh of relief. After 14 years of negotiation and litigation, finally everyone should know what the rules will be and can plan accordingly. When the U.S. Court of Appeals refused to block the implementation they strongly implied that even they were getting a little tired of hearing about the subject. Certainly the new rules are not popular with everyone. FTA Associates believes they will increase annual trucking costs by about 3% annually, and Schneider National already has experienced a 3% loss in productivity. Even so, the current provisions are now the law of the land.
But wait. Recently three members of Congress decided to make an end run around the courts and have introduced the True Safety Act. This legislation would roll the 34 hour re-start provisions back to the pre-July 1 rules until the General Accountability Office can confirm the FMCSA's data and rationale. In fairness, the FMCSA is months overdue on a report on the issue which they promised. The American Trucking Associations supports the legislation since they have long believed there was insufficient information on which to base the changes.
I have the utmost respect for ATA, but believe it is time to accept the provisions for what they are and move ahead. Rather than searching for ways to change them, we should be concentrating on how to operate efficiently and economically within the new parameters. Certainly, they are not what everyone wanted, but we need to live with them. "You gotta play hurt."
22. October 2013 16:22
Today was another beautiful day in Denver, but inside the convention center, conference attendees were busy trying to decide which of the day's 26 tracks they wanted to attend. In addition to the educational tracks there were tours of King Soopers' fully automated distribution center and the state of the art BNSF yard.
Tuesday's keynote address was delivered by Peter Carlsson, Vice President of Supply Chain for Tesla Motors. He discussed the supply chain situations he has faced - how to rethink an extremely competitive logistics system, the challenges of building an electric car in a gasoline driven world, and creating, managing, and executing a supplier infrastructure of more than 200 relationships who are expected to meet very exacting criteria. As a visual bonus, there was a gleaming 2014 Tesla sedan on the exhibit floor - a beautiful car.
There were a number of interesting tracks available, but I selected one entitled "Right Sourcing - Why Mexico Makes Sense". It was a very informative discussion of Mexico's logistics assets. Some of the key points were:
- According to a recent survey, 84% of the companies surveyed were looking at re-shoring or near-shoring with Mexico and the U.S. the most attractive countries.
- Mexico has favorable wage rates. By 2020 the average hourly wage rate will be $5.20, compared to$7.60 in China and $30.00 in the U. S. The Mexican workforce is young, with a median age of 26.6 compared to 37.2 in the U.S.
- Mexico has a good infrastructure, and English is widely spoken.
The most publicized issue of course, is security; but the panelists felt that if businesses took the proper precautions, security should not be a major issue. Cargo thefts apparently are declining, as well.
For more on this subject, see the article entitled "Not Your Father's Mexico" in the October, 2013 issue of American Shipper.
The conference ends on Wednesday morning. It was well attended and well organized, and the Denver Convention Center was an excellent venue. The total program was heavily skewed toward technology; and for those interested in transportation, warehousing, and inventory management, there were fewer sessions. However, given the fact that we are certainly in a technological age, there were numerous opportunities to learn more about the application of technology to the supply chain.
P.S. The Tesla will cost you $70,000.