Ford to recall 20,000 vehicles on supply error

on Friday, December 31, 2010

Ford to recall 20,000 vehicles on supply error A manufacturing error will disrupt Ford Motor Co's supply chain: The American car giant is recalling nearly 20,000 vehicles after reports surfaced that an electrical short could cause fires in some of its models.

The recall affects Ford's F-series heavy duty pickup trucks and its small utility vehicles Edge and Lincoln MKX. Ford is currently notifying owners of the vehicles, according to a company filing with the National Highway Traffic Safety Administration. Roughly 15,000 of the recalled vehicles were sold in the U.S., with the remainder in Canada, according to a Ford spokesman.

Ford has, so far, not identified the supplier responsible for the body control modules that may produce an electrical short. The supply chain disruption is a headache for Ford as it emerges from near-insolvency just 17 months ago.

Ford announced that it will pay for all the repairs performed at Ford dealerships. Wes Sherwood, a Ford spokesman, affirms that the repair time is relatively short, but he declined to comment on the amount of money the company stands to lose on the repairs or exactly how long each repair will take.
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Hungry for Change? Digest This.

on Thursday, December 30, 2010

Seventy-two years have passed since the last comprehensive overhaul of our nation’s food safety system. On December 19th, the FDA Food Safety Modernization Act was finally passed by the Senate in a 73 - 25 vote. Final approval from the House came two days later in a 215 - 144 vote and the bill now sits on President Obama’s desk. To much surprise, the lame-duck Congress was productive and bipartisanship proved to exist as the food safety bill was just one of the pieces of legislation passed over the short work period.

The need to revamp our current food safety system has escalated over the past few years as the number of outbreaks of food-borne illnesses continues to climb. Check out a breakdown the Wall Street Journal provides of some of the major outbreaks and the impact each one had on consumers. The supply chains of common foods like peanut butter, cookie dough, spinach, and eggs have been significantly impacted by massive recalls.

This bill is long overdue and was placed on the backburner as the healthcare legislation remained the focal point for the Senate for quite some time. The House passed their version of the food safety bill back in July and was awaiting the Senate to pass their version soon after. The delay was also caused by deep concerns that small farmers had regarding the legislation. In response to these concerns, an amendment to the bill was added and championed by Jon Tester, a Democratic Senator from Montana who is an organic farmer himself. The Wall Street Journal detailed the amendment reporting that it exempts “small farms and food processors with annual sales under $500,000 from the new FDA regulations if they sell their goods directly to consumers or restaurants no more than 275 miles away.”

Critics of the bill do not think it will reap any improvements. Senator Tom Coburn, as Bloomberg BusinessWeek reports, argues that “the Senate legislation ‘doesn’t fix the problem’ with the food safety system and may drive up food prices by $300 million to $400 million as companies pass compliance costs onto consumers.” Part of this argument holds true, but I would rather pay more for food than risk my health.

Russell Libby, the executive director of the Maine Organic Farmers and Gardeners Association expressed his opinion during a “Food Fight” forum on Grist and makes a solid point. He states that “the public will have to make real decisions about what kind of food system we want.” If you know who your farmer is, all this talk about food safety is most likely not a huge concern for you. However, the majority of Americans “do not know who produces their food, and therefore, a lot of reasons exist for why we would want a strong FDA to act as an intermediary.”

The main objective of this bill is to enable the FDA to prevent contamination instead of react to contamination. This necessary shift will, of course, not be overnight. Many steps will need to take place in order for the FDA to inch their way towards this stance. The bill will give the FDA authority to mandate food recalls and will also provide resources needed to improve tracking of shipments and create a program that effectively traces an outbreak back to its source. More importantly, the FDA will also have the funds to perform inspections more frequently. It has also been granted the ability to set new standards for food manufacturers, which includes requiring all to develop a food-safety plan. The FDA will also oversee imported foods more closely. The New York Times points out that the FDA currently only “inspects less than one pound in a million of imported foods. The legislation gives the agency more control over food imports, including increased inspection of foreign processing plants and the ability to set standards for how fruits and vegetables are grown abroad.” One aspect of the bill that did not pass was the consolidation of other agencies that oversee aspects of food safety. The Department of Agriculture will remain a separate entity from the FDA. The bill is expected to cost about $1.4 billion over the next four or five years according to the Congressional Budget Office.

Overall, we need some sort of response to the recent outbreaks of food-borne illnesses. Improvement is needed and this legislation is a step in the right direction. Our nation’s food system needs to regain consumer trust and remain among the top food systems in the world. Let’s hope this bill only strengthens our system and delivers some progress. Here’s to a New Year of less recalls.
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Toshiba and Samsung ink supply chain agreement

on Wednesday, December 29, 2010

Toshiba and Samsung ink supply chain agreement In an effort to shore up its supply chain, electronics maker Toshiba Inc. recently announced that it will outsource its semiconductor business to rival Samsung Electronics in 2011.

Based in Japan, Toshiba is working to restructure its chip-related operations and made the decision to switch production to South Korea's Samsung at the beginning of this week. While Toshiba plans to continue to design large-scale integration chips, the company affirms it will focus its manufacturing capabilities in other areas instead of semiconductors. Moreover, Toshiba plans to sell its system chip production line in Nagasaki to Sony, freeing up additional resources.

Sensing an opportunity to profit from the burgeoning smart phone market, Toshiba will continue to manufacture memory chips as demand for the devices has rocketed higher in recent years as smart phones have become more ubiquitous. According to the Nikkei business daily, Toshiba chose Samsung because of the company's advanced technologies and its manufacturing capacity that allow for the production of high-performance chips at low cost in volume.

Toshiba asserts that the changes to its supply chain will ensure that the company frees up available resources, expanding manufacturing in more profitable sectors.
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China to cut rare earth exports, disrupting supply chains

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China to cut rare earth exports, disrupting supply chains China accounts for roughly 95 percent of the global production of rare earth metals, the substances that are instrumental in producing, among other goods, automobiles and electronics. Recently, China's commerce ministry announced that it would cut its export quota of the metals, potentially causing supply chain disruptions around the world.

China has flexed its dominance in the production of rare earth metals before, cutting off supply to Japan following a naval dispute in September. In the first half of next year, China plans to cut its exports by 35 percent from 2009 levels, effectively limiting the global supply of the goods. Earlier this year, China raised export taxes on some of the most crucial rare earths to 25 percent from 15 percent.

In a statement on its website that announced the export reductions, China's commerce ministry gave no reason for the drop, but speculation persists that the country could be using its monopoly power in the field to hurt foreign competition in industries where the metals are used.

To combat the fall in Chinese exports and ensure that supply chains run efficiently, other countries are opening and reopening mines that produce the rare earth metals. Dudley Kingsnorth, a rare earth industry executive in Perth, Australia, affirms that such moves are becoming increasingly popular: "It’s only a matter of time before China is not the major supplier to the rest of the world."
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Supply chains need to adjust to global economy in 2011

on Tuesday, December 28, 2010

Supply chains need to adjust to global economy in 2011 As more companies compete for a slice of earnings in the global economy, it becomes harder for companies to maintain an edge. Consumers are becoming increasingly sophisticated and demand that their goods are delivered in a timely and efficient manner, driving the need for companies to increase their supply chain efficiency in innovative ways next year.

To adjust to the global competition they face, businesses are streamlining their supply chains to ensure that goods are delivered as promptly as possible. According to Industry Week, the Single value chain planning will be adopted by many businesses next year as it makes a company's entire supply chain more responsive to disruptions, permitting a company to shift distribution through multiple channels if necessary.

In 2011, there will also be more innovation in supply chain management. Emerging economies want the same products as Western countries, but demand them at a lower price point. As a result of their demand, there should be continued innovation to deliver those goods at a discounted rate. As companies move toward satiating the demands of emerging economies, they will inevitably have to increase their manufacturing specialization.

Consumers are increasingly demanding services as opposed to products and businesses will have to shift as well, working to build integrated services to meet their demands. If companies wish to remain competitive, they must adapt and improve efficiency in the new year.
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With supply chain management, businesses most concerned with cost, KPMG survey says

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With supply chain management, businesses most concerned with cost, KPMG survey says Accounting giant KPMG recently released a survey it conducted of 200 senior-level executives from North American, West Europe and Asia-Pacific on supply chain dynamics resulting from economic uncertainty and while the results are varied, they show that business costs most often drive their supply chain decisions.

According to the survey, 66 percent of respondents affirm that cost most guides their supply chain decisions. However, 63 percent also assert that more attention should be given to the non-financial facets of the supply chain, and 38 percent say that a focus on costs has actually hurt their relationships with suppliers.

The survey found that 35 percent cite China as the most common sourcing location, followed closely by India at 26 percent. Nonetheless, many businesses are looking to streamline their supply chains in the coming years, taking into account geographical locations and market dynamics in their future supply chain decisions.

In the report, KPMG says that businesses are also beginning to collaborate more willingly with suppliers as they move to bring down costs while simultaneously improving efficiency: Nearly 50 percent of respondents aver that they will work more closely with their suppliers to bring about more product innovations, research and development and business cost reductions.

While the report says that the financial collapse of the past three years brought headaches to supply chain management, those same conditions have helped businesses to develop more efficient supply chain practices. Andrew Williams, the Asia-Pacific Head of Diversified Industrials for KPMR, affirms: "The financial crisis dealt a blow that sent shockwaves through the industry, but those same forces are the catalysts that are helping organisations create more dynamic, resilient and responsive supply chains."
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Master of business efficiency, Disney aims to reduce wait times at its theme parks

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Master of business efficiency, Disney aims to reduce wait times at its theme parks For most families, a trip to Disney World in Orlando, Florida is a right of passage. However, many also complain about the long lines that they have to endure at their theme parks. To improve the efficiency of its theme parks, Disney not only employs people to expedite waiting times, but also constantly works to improve those systems.

Disney World handles 30 million people every year and the holiday season marks the busiest time of the year for the park. Located under Cinderella's castle, a team is assembled that endeavors to cut wait times for the increasingly impatient visitors to its iconic parks. Using advancements in technology, Disney's workers aim to spot gridlock even before it forms and fix any fledgling jams.

Using a color-coded system, engineers are privy to wait times at various attractions and swiftly adjust to ever-changing wait times. Say, for example, a ride goes from flashing green to yellow, engineers might respond by alerting managers to launch more ride carts, according to the New York Times. Moreover, the command center has an eye on restaurants and all areas of the park and can easily inform managers to open another cashier or start a parade that guides visitors to a less-crowded space. Phil Holmes, vice president for the Magic Kingdom, asserts that these sorts of "moments add up until they collectively help the entire park."

Disney affirms that in the past, visitors were able to ride an average of nine rides a day at the Magic Kingdom because of wait times, but because of its efficiency measures, that number has risen to 10, a victory for the company. According to Holmes, with the greater efficiency, Disney hopes those same customers spend more money and drive up revenue: "If we can also increase the average number of shop or restaurant visits, that’s a huge win for us."
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Google tries to acquire travel company, but not without controversy

on Monday, December 27, 2010

Google tries to acquire travel company, but not without controversy Google is a company run by engineers. Its approach to mergers and acquisitions is fitting given its origins: The company prefers to gain a foothold in industries it thinks are run inefficiently by buying companies that already have a market share in that field. Recently, and not without controversy, Google moved to buy ITA Software, a company that makes it easier for customers to compare airfares.

The move would position Google as an industry player in online travel deals, something that other companies are increasingly concerned about. Tim Wu, a law professor at Columbia, tells the New York Times that Google likes to "enter markets where it thinks the existing approaches are broken, and try to do a much better job." If approved, Google would utilize ITA to become the premier provider of flight data to airlines, travel agents, global distribution systems and technology companies.

According to Wu, in the short-term, the deal would give consumers a better travel search experience as it is integrated into the company's search platform, but in the long-term, it could stifle competition, giving Google such "an advantage that travel search becomes like other forms of search, dominated by one engine." Those currently in the industry are split on the move: While Orbitz and Priceline support Google, others, including Microsoft-owned Kayak and Expedia, have come out against the deal.

While it awaits approval, Google says that the deal will give consumers a more-streamlined search engine for airfare deals, eliminating red tape and increasing efficiency. If approved, however, Wu contends that Google will most likely have to work through conditions imposed by the Justice Department. Either way, it is a move that could shake up the way travelers buy airline tickets, even if they are unaware of it.
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In 2011, businesses looking to expand supply chain management services

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In 2011, businesses looking to expand supply chain management services The U.S. job market has suffered through an undeniable lull since the financial meltdown that struck three years ago this month. However, according to Fortune, one job field that will experience job growth next year is supply chain management.

Supply chain management is an essential part of every business as it orchestrates the behind-the-scenes legwork that helps companies reduce business costs and achieve greater efficiency. Currently, there is a real shortage of qualified candidates in the field, fueling the demand among businesses for workers skilled in the esoteric field.

There are two factors influencing the shortage: First, there is a stereotype of supply chain management that paints it as boring and low paid, and secondly, the field is demanding, requiring multitasking and clear thinking skills. According to an MIT white paper recently released on the field, businesses are looking for supply chain managers who are skilled at "high-order diplomacy" and can "thrive in ambiguity."

There are many universities - like Penn State - that offer courses in supply chain management to better prepare candidates. For those looking for a new job next year, consider a poll conducted by the National Association of Colleges and Employers: Nearly 48 percent of U.S. companies plan to hire logistics college graduates at some point next year.
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Here’s To a New Year of Common Sense

on Thursday, December 23, 2010

If you opposed having a nuclear treaty with Russia….

If you don’t want to ensure 9/11 first responders have access to good medical care…

If you think gays in the military should “just keep quiet about it”….

If you want to give tax cuts to millionaires by borrowing money from China….

If you think children that lived their whole life in this country but weren’t born here should be sent back to where they came from….

You might be enjoying a little too much eggnog. You are also most assuredly a Republican.

The media has decided that this lame duck session of Congress was a huge win for President Obama. This is true; he won some hard fought victories and passed some great legislation. But the problem is it shouldn’t have been so difficult. All the legislation that passed was common sense stuff that has little reason for partisanship. The fact that it was so difficult shows that something is off, way off, in Washington. We should be spending our time on complex issues, like financial regulation, energy, and our crumbling infrastructure. Instead, time, effort, and attention is spent on the little stuff, and getting it passed equates to “huge wins”.

In reality, the only reason anything got passed is because the Democrats found a small bit of leverage - Republicans wanted to go home for the holidays, and the only way they could stop the legislation was through the filibuster. Choosing between their ideologies and going home, they chose to go home. But they did pout about it.

The Republicans will start the New Year in a leadership position in the House of Representatives. With great power comes great responsibility. So in the New Year let’s hope our leaders lead, and if they can’t find common ground, maybe they could just use common sense.

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Walgreen surpasses quarterly expectations on reduced business costs, inventory control

on Wednesday, December 22, 2010

Walgreen surpasses quarterly expectations on reduced business costs, inventory controlWalgreen Co, the largest drugstore in the U.S., recently announced that it achieved a 19 percent increase in profits during the first quarter. The company's earnings handily beat the estimates of economists and were fueled by better inventory control and efficiency gains to its supply chain.

For the quarter, Walgreen said that net income rose to 62 cents a share, surpassing the expectations of economists who had predicted a 54-cent gain. Shares for the drugstore giant rose $3.10 to $39.92 today in trading on the news, their highest showing in more than three months.

Walgreen affirms that the upbeat earnings are a result of its efforts to remodel its stores to shore up its inventory, eliminating items that were slower selling. Because of its efforts to more effectively manage its supply chain, Walgreen's chief financial officer, Wade Miquelon, asserts that the company is on track to meet its goal of lowering business costs by $1 billion this year. Moreover, through its acquisitions of smaller chains, like Duane Reade Holdings Inc. in New York City, Walgreen is expanding to cities it had a smaller presence in before.

Miquelon told reporters in a conference call that Walgreen also benefited from fewer inventory writedowns than a year ago as it increased its inventory efficiency.
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What can Brown do for you? Deliver your packages on time

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What can Brown do for you? Deliver your packages on timeUPS, the U.S. logistics giant, is gearing up for a big day today: December 22 marks the busiest day of deliveries for the company every year.

United Parcel Service Inc. has hired nearly 37,500 temporary employees this holiday season as it handles the onslaught of packages that come during the busiest delivery time of the year. "Jumpers," as UPS calls them, help full-time drivers deliver packages, riding shotgun in the company's trucks. The added muscle power is necessary, especially today when the company will deliver millions of packages to businesses and homes across the globe.

Today alone, UPS will deliver 24 million packages, a 60 percent increase from its normal daily delivery numbers. UPS pays its jumpers a fair wage - around $10 an hour - but the work is not easy: some of the hazards of the job are heavy packages and chatty homeowners who can slow down the pace. The risks to supply chain efficiency are great and varied, UPS employees assert, as even a toy that turns on while still boxed up can slow down the delivery process.

This coming Friday, Christmas Eve, will be the last day for the jumpers. In an annual ritual, the temporary employees will hand in their uniforms...until next year.
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United Continental to increase business efficiency

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United Continental to increase business efficiency After their merger this year, United and Continental Airlines created the largest carrier in the world. Now, the newly formed United Continental Holdings Inc. will likely cut capacity in cities across the U.S. as it adjusts to its new network and increases its business efficiency.

United Continental will cut its available seats in the U.S. by 1.9 percent as the rest of the nation's airlines increase their capacity by 2 percent, according to Daniel McKenzie, an analyst at Hudson Securities. The cut in seat traffic will boost the airline's quarterly profit and will likely benefit other airlines, like Southwest and Alaska Air, carriers that operate hubs in areas the cuts are set to affect.

In a report, McKenzie affirms that this realignment of business operations will enable the airline to increase its business efficiency and reduce business costs. "United Continental management appears serious about continuing to cut unprofitable, domestic flying," he avers. United Continental's executives hope the airline will achieve its a profit in the first quarter for the first time since 2000.

Some of the cities that will experience cuts are Chicago at a 1.8 percent reduction, Denver at a 5.6 percent cut and Los Angeles at a 2.8 percent decrease. By effectively monitoring its flight schedule, the company hopes to trim loses and increase its efficiency.
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Supply chain mishaps cost Toyota nearly $50 million in fines

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Supply chain mishaps cost Toyota nearly $50 million in fines This year, the automaker Toyota was embroiled in multiple product recalls over its braking and accelerator systems on a handful of its models. Now, as a result of the company's supply chain blunders, Toyota will pay a hefty fine for failing to more swiftly recall the vehicles.

In total, Toyota will pay two fines of $32.4 million over its failure to more quickly recall the defective vehicles, according to the U.S. Transportation Department. This newest batch of fines brings the total yearly total of fines for the world's largest automaker to $48.8 million; at the beginning of the year, Toyota paid $16.4 million in fines for a related matter.

The fines result from two separate investigations into accelerator pedal recalls this year and a 2005 recall to fix steering relay rods that were prone to breaking and cracking. Toyota's supply chain inefficiencies and mishaps ultimately cost the company $30 per vehicle recalled.

Since November of 2009, Toyota has recalled more than 11 million vehicles globally. As a result of the supply chain errors, consumers have gravitated toward other makers as its U.S. sales have been flat, while the industry as a whole has experienced a 13 percent growth rate this year. The latest fines are the maximum allowed by law.
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Boeing and Fujitsu enter into supply chain agreement

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Boeing and Fujitsu enter into supply chain agreementBoeing and Fujitsu have teamed together to form a new supply chain deal that will bring greater efficiency to aircraft maintenance operations, Boeing said in a statement last week.

The deal will employ Radio Frequency Identification Devices (RFID) and Contact Memory Buttons (CMB) to permit customers to utilize these important technologies without having to retrofit their own fleets. Fujitsu has been working with Boeing "for more than five years to promote RFID implementation in the aviation industry," Mitsutoshi Hirono, a corporate vice president for the electronics maker said.

Ultimately, airlines hope to reduce business costs by decreasing inventory and manual data entry errors without having to initiate new processes. Under terms of the new deal, Fujitsu will provide Boeing with a platform that the aircraft maker will use to tailor solutions directly to its customers' needs, improving their business efficiency.

Boeing will start the service in the first quarter of 2012 and affirms that the service will be rapidly adaptable to all of its clients. Per Noren, vice president for Commercial Aviation Services at Boeing, asserts: "Our customers have told us they need these types of innovative solutions to improve operational efficiency." The partnership with Fujitsu will ensure they can help them deliver those results.
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Solar power company to beef up its supply chain

on Friday, December 17, 2010

Solar power company to beef up its supply chain Abound Solar is a Colorado-based company that produces high efficiency solar panels that are markedly less expensive than other models on the market. The company just received $110 million in a round of equity funding and it plans to use the money to augment its manufacturing capacity, effectively increasing the efficiency of its supply chain.

Abound Solar specializes in the production of cadmium telluride thin-film solar modules that are designed specifically for use in large-scale solar panel installations that tie directly into the electric grid. The panels have a lower cost structure than other models on the market and can cut business costs in the growing solar technology field.

The company asserts that it hopes to lower the costs associated with generating solar power and that it will use the funding to "expand manufacturing capacity at both its existing facility in Colorado and later at a second site in Indiana, which when completed will create 1,200 new manufacturing jobs."

Abound Solar has already started construction on a second manufacturing line at its current facility in Colorado and hopes to increase its manufacturing efficiency next year.
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Newly formed group to advocate for tech supply chain security

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The Open Group, a vendor- and technology-neutral standards syndicate, recently announced the formation of the Trusted Technology Forum (TTF), a group that endeavors to improve supply chain risk management, security and efficiency. Through thorough analysis, the group will help businesses determine where their hardware and software were sourced from and whether their suppliers are secure.

TTF counts the Department of Defense and myriad private companies as founding members and aims to address the supply chain risks associated with computer parts and security measures. Mary Ann Davidson, the chief security officer for Oracle, said there was a real need for the group: "Better industry practices related to supply chain risks with more transparency to buyers are both, in general, good things."

The group will advise businesses on how to ensure their supply chains remain efficient and stable: TTF will promulgate supply chain best practices for reducing supply chain risks through extensive research. Its first release is scheduled to be the Trusted Technology Provider Framework, which will build on existing standards and guide companies toward ensuring that their supply chains face minimal security risks.

Cisco's senior director of customer value chain management, Edna Conway, praised the group's work, declaring that it will create a "meaningful indicator of product assurance."
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Reverse Logistics: Making Sure the Steady Stream Doesn’t Become a Washout

on Thursday, December 16, 2010

It’s beginning to look a lot like a black Christmas. And that’s a good thing.

According to the Wall Street Journal, the latest Commerce Department report finds that retail sales rose 0.8% in November over the previous month, with overall sales for September through November up 7.8% from a year ago.

With the Christmas shopping season in full swing, most retailers are clearly focused on the steadily growing stream of shoppers moving past their cash registers on the way out of their stores.

But when the stream starts flowing back in the form of returned gifts and other items, will the normal processing channels be sufficient? Anyone who has driven on Admiral Wilson Boulevard in Camden, NJ, after a heavy rain will be able to appreciate the danger. Flooded highways cause traffic tie-ups. The same phenomenon can have a similar impact on supply chains.

Over at softwareadvice.com, ERP Market Analyst Derek Singleton makes the point that “managing returns is just as important as managing sales.” He identifies five best practices that companies should consider in developing a forward-looking reverse logistics strategy:

• Investing in reverse logistics systems;
• Outsourcing logistics operations;
• Accessing secondary markets;
• Offering recycling services; and,
• Preventing returns in the first place.

Implemented properly, reverse logistics can help companies increase customer satisfaction, reduce waste and recover revenue that otherwise would be lost. And it’s no small potatoes.

Singleton reports that retailers and manufacturers typically lose between 7% and 13% in sales revenues annually because of returns – that amounts to more than $40 billion each year. By handling returns efficiently, safely and with an eye toward maximizing potential profit, companies can add as much as 5% to their bottom line, he says. Read more at softwareadvice.com.

Click here to learn more about SoftwareAdvice.com's supply chain management coverage.
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Report affirms U.S. reliance on China for rare earth metals could lead to supply chain disruptions

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Report affirms U.S. reliance on China for rare earth metals could lead to supply chain disruptions In September, China initiated an unofficial embargo of rare earth metals to Japan after a naval dispute in international waters. Now, a newly released report from the U.S. Energy Department affirms that the U.S. must find alternative sources of rare earth metals to ensure its supply chain continues to run smoothly.

Critical to the production of green products, electronics and cars, rare earth metals are an integral piece of the supply chain for myriad businesses in the U.S. The report predicts that it could take the U.S. upwards of 15 years to wean itself off of its dependence on rare earth metals from the Chinese, who account for more than 90 percent of the global supply.

Lately, China has favored its own companies over that of foreign competitors and is supplying them with the valuable minerals. The report avers that the U.S. reliance on China's supply is vulnerable to "supply disruptions and lack of suitable substitutes." Rare earth metals are critical to the production of green technologies like energy-efficienct lightbulbs and electric motors, and if China withholds them, the supply chain breakdown could result in a virtual stoppage of domestic production of those goods.

Aside from stopping production of current products, a halt in rare earth shipments from China could derail the adoption of new rare earth technologies by the clean energy industry, according to Dudley Kingsnorth, a rare earth mining consultant. Ultimately, the U.S. must find alternative sources of the precious materials to ensure that the supply chains of its businesses are not disrupted.
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Headed in the Right Supply Chain Direction

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I received an article the other day that talked about negotiating and how the prices of raw materials affect your overall costs as a company. Basically the author summarized a quick story about how he negotiated with his sales rep to get a lower price based on market information he had collected about the material he was using, in this case steel cans. Steel prices had fallen in the market so he approached the rep about lowering his costs. The rep ended lowering his costs but not as much as the author requested due to a difference in the type of materials in the market. What the article goes on to explain is that the author might never have gotten the costs lowered had he not asked. Of course following the market didn’t hurt him either.

What I found to be interesting was his explanation of why he benefited from the situation. Understanding the supplier’s costs can be difficult and determining their true costs, nearly impossible. This is very true with most suppliers, and the deeper they are in the supply chain the more complex the pricing can become. “In fact, actual prices are often deliberately obscured by volume rebates, secret discounts, scrap allowances, etc, many of which don't even show up on invoices”. So instead of focusing on that bottom line and actual costs of raw materials, the article suggests being aware of what direction the industry is headed in. Are you selling clothes in a retail environment? You should consider researching textile material costs. What about installing alarm systems? Follow the prices of copper in the market. Sometimes it’s not all about raw materials, it may just be about knowing what your leverage is and how to use it in negotiations. Besides, what’s the worst that can happen if you ask for a lower price? They say no. (And then you ask again!)
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U.S. industrial production grows at its fastest rate since July

on Wednesday, December 15, 2010

U.S. industrial production grows at its fastest rate since JulyIn positive news for the U.S. economy, a Federal Reserve report issued today asserts that domestic industrial production increased in November more than originally forecast and consumer prices remained low, indications that the economic recovery is stable and not speeding up the inflation rate.

Output at factories, mines and utilities registered their largest monthly gain since July, rising 0.4 percent, while the consumer-price index only mounted a 0.1 percent rise. The Fed affirmed that assembly lines at factories are seeing increased activity as business investment, exports and consumer spending all clock gains.

John Herrmann, a fixed-income strategist at State Street, told Bloomberg that "the manufacturing sector continues to heal itself," predicting that the "outlook for business spending on equipment and software remains very positive." U.S. businesses have seen increased demand for their goods as the global economy continues to pick up steam.

A poll of economists had predicted a 0.3 percent increase in production. The surge in factory output was led by a 0.9 percent rise in business equipment, a segment of manufacturing that includes computers, communications equipment and semiconductors. U.S. exports hit a two-year high in October amid the increased factory production and surging global demand for U.S. goods.
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FedEx is a model of supply chain efficiency

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FedEx is a model of supply chain efficiencyThe holiday season, from Thanksgiving Day until Christmas, is the busiest time for logistics carriers like DHL, UPS and FedEx. While the number of packages the companies must transport shoots up over that time, the companies prepare all year long to ensure prompt service.

FedEx pulls off the seemingly impossible task of delivering its packages on time through the locations of its shipping centers and the company's commitment to technological proficiency. FedEx has a sorting center located in Alaska that is strategically placed in close proximity to North America, Asia and Europe; during the holiday season, the distribution center regularly sorts through more than 120,000 packages.

Moreover, FedEx employs the latest technologies to ensure timely delivery: this year, the company unveiled a Boeing 777F that is capable of flying to and from the company's world hub in Memphis, Tennessee to locations throughout Asia on a single tank of gas. Compared to the airplanes it is replacing, the 777F flies further on less fuel and can carry 14,000 more pounds.

The new 777Fs enable the company to cut its carbon emissions as the planes were designed to be more environmentally friendly than earlier models. With the strategic locations of its shipping centers and a fleet of more efficient airplanes, FedEx keeps it supply chain streamlined even during the hectic holiday season.
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Macy's to increase manufacturing capacity with new West Virginia plant

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Macy's to increase manufacturing capacity with new West Virginia plantMacy's, the iconic American department store, will build a new distribution center in West Virginia. The facility will employ 1,900 full- and part-time employees and will cost the company $150 million.

Amid rising revenues following the recession, Macy's will use the 1.3 million-square-foot facility to fill Internet orders destined for the eastern part of the U.S. Macy's chief executive, Terry Lundgren, affirmed that the retailer needs the increased manufacturing capacity to fulfill the rising sales from its website.

"In the first 10 months of fiscal 2010, our online sales were up by about 29 percent compared with the same period last year," Lundgren said in a statement. The new West Virginia factory will "represent a significant expansion of our online capacity." Macy's also has plans to open distribution centers for online orders in both Tennessee and Arizona.

The new facility will have an annual payroll of $30 million and will be a boon to a West Virginia economy that is reeling from the economic downturn. Currently, the state has an 8.8 percent unemployment rate. Acting West Virginia Governor Early Ray Tomblin told reporters at a news conference that he is "proud to welcome Macy's new fulfillment center to our state."
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Chrysler to recall 76,000 vehicles over brake issue

on Tuesday, December 14, 2010

Chrysler to recall 76,000 vehicles over brake issue One of the "Big Three" U.S. car makers, Chrysler endeavors to make a profit this year after it required government assistance less than two years ago amid its insolvency. However, that will prove increasingly difficult: the company now faces a supply chain headache as it must recall thousands of its vehicles.

The automaker announced that it will recall 76,000 diesel Dodge Ram pickups after reports surfaced of defective braking systems. In a notice it filed with the National Highway Traffic Safety Administration, Chrysler affirmed that it will recall the 2010-2011 model trucks because of concerns over a hydroboost brake system that is outfitted with a faulty power steering reservoir cap.

The supply chain error could cause an accumulation of vent pressure in the brake pedals, making them slow to return. The risk of a crash can be raised by brake lights that are slow to extinguish, according to Chrysler. The automaker has received 175 reports of such problems and believes the issues are limited to 1 percent of the vehicles.

This newest supply chain inefficiency will take a toll on the company as it battles back from the brink of failure. Chrysler was told of the issue at the beginning of the year, but - and it is unclear why - waited until today to issue the recall.
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Businesses adjust supply chains as inventories grow at tepid rate

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Businesses adjust supply chains as inventories grow at tepid rateThe U.S. Commerce Department released its assessment of business inventories in the month of October and inventories rose less than forecast, brought down by plunging retail stockpiles as merchants had trouble satisfying burgeoning consumer demand.

October sales mounted a 1.4 percent climb that registered as the biggest gain in seven months. The decline in inventories was led by retailers, who reported a 0.6 percent fall in October while their sales rose 1.8 percent. In November, the Commerce Department reports that retail purchases shot up 0.8 percent; however, prices paid to producers also grew by the same percentage as companies absorbed the higher costs of gasoline, heating oil and fruit.

In order to ensure that supply chains function as smoothly as possible, it is necessary for companies to scrupulously monitor their inventories. As the economy gathers steam, some companies, like Macy's, are beginning to add goods to their inventories as they expect consumer spending to continue throughout the holiday season.

Macy's chief executive officer, Terry Lundgren, affirmed to Bloomberg that the company "feels great about our inventory position," asserting that their supply chain is "really targeted in certain categories." While not all encouraging, the latest statistics indicate that the U.S. economy is growing and that companies are adjusting their supply chains to meet the shifting demand.
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Death by Downtime

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In today's “Everything must work all the time” type of business world, downtime can kill profits. Earlier this month, one of Toshiba’s NAND memory manufactures experienced a power outage that set production back by as much as 20%. I bet your wondering why the backup generators didn’t turn on and bring order to the chaos? Well that’s simple; the power outage only lasted 0.07 seconds.

Do you have a backup plan for all your mission critical processes? One of the most over looked and crippling systems to lose is communications. How much can you do in a day without sending an email or making a phone call?

Make sure you have a plan and as always, make sure you not paying too much for it.
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Rumors swirl that Toshiba to open new plant that will produce LCD screens for Apple iPhone

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Rumors swirl that Toshiba to open new plant that will produce LCD screens for Apple iPhoneRumors have been circulating that Apple Inc. ordered its Taiwan-based supplier of iPads, Foxconn, to deliver between 400,000 and 600,000 of its next-generation iPad within 100 days and now, a report in the Nikkei business daily contends that Toshiba will spend $1.19 billion to build a factory that will manufacture parts for Apple's iPhone.

According to Reuters, Toshiba will build the factory and is responsible for making small LCD panels that it will mostly supply to Apple for its iPhones. The facility will produce low-temperature polysilicon LCD panels that generate high-resolution images. With each new version of the iPhone, the resolution on the screen has exponentially increased.

The report affirmed that work on the plant will begin early next year and it will be operational by late next year. Currently, Toshiba manufactures the low-temperature polysilicon LCD panels, but with the increased manufacturing capacity of the new plant, it will double production from its present output of 8.55 million units.

Apple is expected to invest in a portion of the factory and with the increased manufacturing capacity, hopes to avoid the supply shortages that plagued the release of the iPhone4 when it launched this past summer.
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Through supply chain efficiency, hospital attains cost savings

on Monday, December 13, 2010

Through supply chain efficiency, hospital attains cost savings As the health care industry in the U.S. faces sweeping changes over the coming years, many hospitals are focusing on increasing their supply chain efficiency as a means of battling rising costs. Recently, a hospital in New York succeeded in doing just that.

In Valhalla, New York, Westchester Medical Center spends $125 million annually on medical and surgical supplies, but because of its increasing reliance on outside suppliers, the hospital was unable to accurately monitor spending trends, determine what products to purchase and establish how efficient its business operations were.

To correct those errors, the hospital partnered with MedAssets in July of 2009 to increase its supply chain efficiency and grow its revenue. Since the partnership, WMC has greatly cut its costs as MedAssets scrupulously monitored the hospital's supply chain, delivered actionable data and used advanced data analytics that enabled the hospital to achieve both short- and long-term cost savings.

Roger Weems, senior vice president of performance management at WMC, affirmed that before their partnership, the hospital had "no knowledge about the supply contracts that were in place," but that MedAssets allowed WMC to "be more strategic in our approach to supply chain management and has resulted in financial improvement." The hospital intends to continue with its supply chain management practices and expects even further savings in the future.
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Businesses face five sustainability risks to supply chains, according to new report

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Businesses face five sustainability risks to supply chains, according to new reportProper supply chain management is an essential part of any business plan and, according to a new report commissioned by Ernst & Young, there are a few key criteria that companies can focus on that could cut sustainability risks as they move to eliminate waste from their supply chains.

According to the report, the five greatest climate change risks that businesses face are in their strategic, compliance, financial, reputational and operational endeavors. Strategically, companies should see the link between cutting back on waste and reduced costs, while in compliance practices, businesses may need to track data on energy use and make that information available for audits.

In regards to financial issues, businesses may need to take into account the varying price of carbon in different jurisdictions and new due diligence requirements for acquisitions. A company's reputation can also be affected as they contract suppliers and must ensure that those companies are complying with emissions, waste and safety guidelines. Lastly, the report affirms that operationally, companies should focus on reducing waste in manufacturing and logistics in their suppliers' operations.

Ernst & Young's climate change and sustainability supply chain leader, Eric Olsen, asserted that as companies increasingly contract other firms to supply them with goods, they must ensure that those firms meet their sustainability goals as well and try to "improve the environmental impact of their products and services."
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Johnson & Johnson embroiled in further recalls amid manufacturing errors

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Johnson & Johnson embroiled in further recalls amid manufacturing errorsJohnson & Johnson, the consumer products giant, has yet another manufacturing headache on its hands. The company, besieged by product recalls this year, announced that it is recalling its stomach medicine Rolaids after reports surfaced that consumers found wood and metal in the product.

McNeil Consumer Healthcare, a subsidiary of J&J, issued the recall after consumers reported the objects in the over-the-counter medicine. In total, 13 million packages of Rolaids are being recalled over the manufacturing blunder which McNeil contends occurred at a third party, although it so far refused to name the supplier.

As a result of this latest supply chain mishap, Wells Fargo downgraded shares of J&J to market perform as it cited the burgeoning supply chain risks associated with McNeil's manufacturing capacity and practices. Earlier this year, McNeil affirmed that it would improve its manufacturing and quality control practices, but the latest recall is yet another instance of poor supply chain and manufacturing efficiency.

The federal government is also involved in the matter as it is investigating the company for the repeated recalls. According to analysts at Wells Fargo, there is a 25 to 50 percent chance that J&J will close the doors of the Puerto Rico facility that produced the Rolaids. So far this year, J&J estimates it has lost nearly $600 million on recalls resulting from supply chain inefficiencies and manufacturing errors.
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A Beautiful Day

on Friday, December 10, 2010

I was emailed the following story a few days ago that made me think about how Procurement Services Providers (PSP's) should be regarded:

" A blind boy sat on the steps of a building with a hat by his feet. He held up a sign which said: "I am blind, please help." There were only a few coins in the hat.

A man was walking by. He took a few coins from his pocket and dropped them into the hat. He then took the sign, turned it around, and wrote some words. He put the sign back so that everyone who walked by would see the new words.

Soon the hat began to fill up. A lot more people were giving money to the blind boy.

That afternoon the man who changed the sign came to see how things were going. The boy recognized his footsteps and asked, "Were you the one who changed my sign this morning? What did you write?"

The man said, "I only wrote the truth. I said what you said but in a different way. I wrote, Today is a beautiful day but I cannot see it."

The goal of a Procurement Service Provider is not to point out the mistakes of business owners, but to assist them in increasing productivity and profitability by exploring ways of doing it better, faster, and effectively.

PSP's should be considered an extension of one's internal procurement department bring to the table areas of expertise and innovative ideas to ensure best prices and high quality products & services are received. Business owners should feel like they are part of the process by being involved in decision making and by encouraging employees to be participate in any sourcing initiatives in place.

Moral of the Story: "When life gives you 100 reasons to cry, show life that you have 1000 reasons to smile."

Be creative. Be innovative. Think differently and positively.
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Smart Phones: Wanted in connection with Multiple Deaths

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As technology improves, it replaces older technology and devices. It’s the cycle of industrial life. This has been continuously apparent in the wonderful world of wireless phones. By the time cell phones became completely main stream, many models started including calculators. Handheld calculators began seeing a steady decrease in sales ever since, especially in conjunction with the rise of the PC.

Now with the rise of the smart phone, they have been on a continuous killing spree for many multi-million / billion dollar industries. One of the first industries to get hit was the “house phone.” Because everyone has a cell phone now, literally nobody I know still has a house phone (land line) that is under the age of 55. Cell phones have become so universal that house phones are now basically obsolete. Many people don’t see the need for both.

Next was the drastic improvement on the camera phone. More and more people are using their cell phones to take and share pictures rather than lugging around the traditional point and shoots. Like many people nowadays, my phone takes better pictures than my actual camera.

Another device I have not used since I got a smart phone – the GPS in my car. With the GPS in my smart phone having features like voice recognition, it’s just easier and faster to use my phone so I don’t ever need to bother with my car GPS.

Yet another device brutally murdered by the smart phone – the PDA. 10 years ago millions of business people relied on their PDA’s to keep their life organized. When was the last time you saw someone use a PDA?

With the entire World Wide Web at my fingertips, I take my laptop with me a lot less frequently. I use my laptop to surf the web, write e-mails, store pictures and music, shop on-line - I can do all that on my phone. As they get faster and more advanced, my phone can now do many of the functions my laptop can – plus more.

One of the most recent industries smart phones are going after is portable gaming. According to a new survey released by market research firm Interpret, one-time fans of portable gaming systems like the Nintendo DS and Sony’s PSP are using their smartphones instead and leaving their game units at home. "Gamers appear to be defecting from their handheld gaming devices to phones to get their gaming kicks," says Interpret's report, which polled 9,000 U.S. consumers. "A full 27% of consumers indicate that they play games on their phones only and actually own a DS or PSP, but do not actively use the device(s)." There are also current rumors that Sony is about to unveil an Android-based smartphone that will integrate PSP game functionality.

With smartphones now combining all those capabilities and convenience, carrying around those bulky devices seems absurd, unless of course you have a designer Mary Poppins bag. These devices, which at one point constituted billions of dollars, are now essentially obsolete.

So what industry will smart phones go after next? How long can this killing spree continue?
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Conflict Minerals are Conflicting Supply Chains

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Most of us have seen or heard of the movie Blood Diamond, where diamonds are mined in African war zones and sold to finance internal wars and conflicts. The movie brought awareness to a lot of businesses and consumers across the world and now other minerals such as, tin, tantalum, tungsten, and gold are being sold to finance the same destruction and violence in Africa. According to Fox Business, as part of the new Dodd- Frank financial law, the aim is to pressure companies to not purchase “conflict materials” from the eastern Congo where these materials are being used to fuel and support violence.

Stores such as Wal-Mart and Target are trying to battle the new law which will make public companies using the aforementioned materials report the steps they have taken in order to authenticate that the minerals weren’t controlled by the rebel groups. Verifying and tracing the source of the minerals is difficult and may be costly since there are many intermediaries between the mines and final products.

Although it’s great to see the government stepping in and forcing corporations to take responsibility for the effects of their supply chain decisions this law could also create an economic downturn for the African region. If companies become too apprehensive about the mineral requirements they may not purchase any of the minerals from the region, including ones that were not controlled by rebels. Rick Goss, vice president of the Information Technology Industry Council says in the article US Retailers Seek to Limit ‘Conflict Materials’ Disclosure found on www.foxbusiness.com, “This is the only form of economic activity and subsistence for hundreds of thousands. The challenge is to allow our supply chains to continue sourcing from the region but to do it properly.”

Another large issue with this law is how the government will define the level of due diligence that companies will need in order to verify the minerals are conflict free. As this law takes into effect over the next couple of years I think we will see even more push back from large US companies about the verification process and the amount of due diligence involved. Many large companies are unaware of where most of their raw materials are sourced from; Tiffany & Co. is reportedly seeking a waiver from the new law, claiming that it’s impossible for jewelers to know whether gold bars they purchase have been recycled with tainted gold from the conflict.

Even though the new law may impose a difficult requirement on companies I think it’s a step in the right direction for company supply chain responsibility and consumer awareness.
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Ford aims to improve supply chain efficiency with overhaul of manufacturing plant

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Ford aims to improve supply chain efficiency with overhaul of manufacturing plant Less than two years have passed since Ford Motor Co. almost shuttered its doors amidst lackluster sales and massive losses. This week, the car maker, the only member of the "Big Three" that did not receive government assistance, announced that it will invest $600 million to overhaul a factory in Louisville, Kentucky.

Currently, the plant is responsible for the production of the Ford Explorer, but after its extensive renovations, it will be used to build a newly redesigned version of the popular Escape compact SUV. Upon completion, the plant not only will operate two shifts instead of one, but also will employ 1,800 more workers - from 1,100 to 2,900. The factory will change into Ford's most versatile manufacturing outfit, producing small cars, SUVs and wagons in a move that mirrors the successful supply chain strategies of Japanese companies like Honda and Toyota.

As Ford has recovered to become the world's most profitable car maker, it has focused heavily on how it could improve its supply chain. Michael Robinet, an analyst at IHS Automotive, affirms that while the company used to "overbuild and then tape money to the hood" through its discounts, it now nimbly adjusts its manufacturing to increase efficiency and augment revenue.

Ford spokeswoman Marcey Evans declared that plant changes will represent a "pretty major overhaul." With the improved supply chain efficiency, Ford hopes to further the success it has seen this year: U.S. sales have risen 21 percent and it has earned $6.37 billion in the first nine months alone.
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Nestle to increase manufacturing capacity in Indonesia

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Nestle to increase manufacturing capacity in Indonesia Nestle SA, the food giant, plans to invest nearly $100 million in Indonesia to produce Milo chocolate-flavored products and Cerelax weaning formula on the island. The move comes as the company reports strong earnings in the Asian economy.

Nestle estimates that its factory in West Java will employ about 300 people and will be operational by the end of 2012. Its Indonesian president of operations, Arsha Chaudhry, affirmed that the company intends to purchase 10,000 tons of cocoa powder per year directly from local farmers in Milo, a move that will increase its supply chain efficiency as shipping costs are decreased.

The move is a strategic one and Nestle asserts that it will focus on selling to Indonesian households with a monthly income between 800,000 rupiah ($89) and 1.45 million rupiah, a segment of the population whose purchasing power is swiftly climbing. By expanding its operations on the island, Nestle ensures that its supply chain is diversified and can respond quickly to both supply and demand changes.

Between 2013 and 2015, Nestle plans to add capacity to its manufacturing facilities on the island. Currently, annual sales for Nestle Indonesia are about $1 billion, but the KitKat maker hopes that they will rocket up as its manufacturing processes are tweaked and it can stop importing products, eliminating extraneous shipping costs.
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Yes Virginia, There is a Such Thing as Savings!

on Thursday, December 9, 2010

With the holidays upon us I thought now would be a good time to make my nomination for the Grinch of Sourcing. This year my nominee is the doctor over at Sourcing Innovation. The good doctor has recently restated a rant that “savings is just money you shouldn't have spent in the first place”. His original blog on the subject can be found here.

It seems that the base of the argument is that good sourcing people get it right the first time. If you find savings after you have already sourced and contracted an agreement, it only means you have been spending too much all along, which isn’t really savings at all, is it?

The problem I have with this premise is that it ignores a simple fact - MARKETS ARE FLUID! They aren’t stagnant, and in my experience, there is always a better deal available. Even if you negotiate the best deal possible, it is only best deal FOR THAT MOMENT IN TIME. Once you set the bar to a new low you have effectively changed the playing field.

Markets (and pricing) change for a variety of reasons, including:

  • Supplier efficiencies and increased productivity
  • New technologies
  • Removal of perceived risks
  • New economies of scale
  • Additional volumes or new types of products purchased/scope enhancements
  • Enhanced customer or supplier processes
  • New Market Competition
  • My favorite - Timing in relation to the salespersons monthly/quarterly/annual quotas

Particularly in indirect spend and service categories, these types of market changes can’t always be tracked with an index, at least not with 100% accuracy. Yet all of the factors listed above are subject to change from time to time and those changes bring about lower costs that may not have been available in the past.

Here is a simple example. Let’s say there is a marketplace with two dominant suppliers. We’ll call them “FedEx” and “UPS” for illustrative purposes. Each has their own market share and understands their competition. A sourcing expert has negotiated a discount with for services with one of these vendors that is competitive based on the profile of their business.

Suddenly a new competitor, we’ll call them “DHL”, enters the marketplace and starts taking business from “FedEx” and “UPS” based on price. “FedEx” and “UPS” clearly feel threatened (although would never admit it), so when the contract comes up for renewal, the sourcing expert is suddenly receiving offers 10% lower than the past contract, and ends up negotiating further for an overall cost reduction of 20%.

Is this cost avoidance? NO! That 20% was not on the table before. It’s savings, pure and simple and beautiful. Hard dollars in the pocket, Christmas bonus check to pay for the new pool AND jelly of the month club membership combination savings.

The doctor also mentions that “That's why "saving" consultancies can come back and revisit a spend category every three to five years and find "savings" when, in reality, there shouldn't be any if they did the job right the first time and the category was properly monitored at contract renewal time.”

I can’t speak for other consultancies, but I can say that at Source One we often source and resource for customers. The difference is that we DO monitor the agreement to make sure prices don’t creep up and we DO monitor (and exploit) contract renewal timing. We have to - we only get compensated based on savings achieved (as opposed to savings projected). Still, I can say with confidence that we can get a lower price (almost) every time. Does that mean we left money on the table the first time? No, the price we get three years from now is not available today. Markets are constantly changing and savings are achieved by closely monitoring these changes and striking when the opportunity is available. Try getting long distance for $0.05 per minute in the nineties. It wouldn’t be possible. But today, we can get it for less than $0.03. We didn’t become better negotiators, the markets changed.

If a procurement/sourcing department is effective, will the savings become less and less substantial over time? Probably. Should there be better ways to track procurements effectiveness? Absolutely. But Yes Virginia, there is a such thing as savings, and there always will be!

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