I recently finished H. Edwards Deming last book, The New Economics. I thought of particular interest to Logistics / Supply Chain Managers was the discuss of common versus special variance. Two particularly interesting examples of each.
Common variance: A salesman comes into the office every day from 10 to 24 minutes late. Always a new excuse. To correct this type of variance problem a process change is necessary. The correction is rather simple, leave home earlier.That moves the center of the variance line on the graft to the left, and outcomes start moving to the on time area.
Special variance: A school child did a chart on how often the bus arrives at his home on time. Twenty points are all within 5 minutes of each other. Three points are beyond the 5 minute line caused by a bus breakdown, extreme weather, and a discipline problem. None of these problems can be handled by improving the bus schedule process, they need to be addressed individually.
Logistics / Supply Chain / Transportation managers are constantly facing difficulties and challenges in their operation. What these two variance types say that the solution to common variance issues is a process change, but some problems should be recognized as not being part of the process.
On July 1 of this year a revision of the Hours of Service (HOS) regulations will occur. The inspiration for this blog post is an article in the February 2013 DC Velocity magazine found here; http://www.dcvelocity.com/articles/20130219-bearing-down/
I have been through a number of regulatory changes. Probably none were bigger than the deregulation of trucking and rail services. The trucking regulations caused a almost wholesale change in company’s in business, with many older companies dying and new ones coming to take their place. The rail regulation change caused railroads to completely change the way they operate with many becoming much more entrepreneurial. The key though here is the ones that survived and even thrived managed their way through the changes.
The new Hours of Service changes the so called “34 Hour Restart rule” requiring at least two 1 AM to 5AM periods be covered effectively in practice extending the restart of hours by several hours. Also after 8 hours driving, the driver needs to take a 30 minute rest. These changes will decrease productivity in some studies by up to 12%. Not really, because people will manager around the changes. Drivers usage will be planned differently. Some shippers or receivers of goods will need to change dock hours to efficiently use the resource. That has been my experience.
Two factors at work is people dislike change and dislike even more one government makes a rule. But they do adjust. If the regulations go through and not stopped by a court lawsuit, two years from now the rules will be defact0 standard. And people would get up in arms if that is changed.
Last week a Bloomburg News story came out about Wal-Mart shelves not being stocked. The story can be found here: http://bloom.bg/13s6n3v
The article contends that the are many reports of shelves of Wal-Mart being empty, primarily because there was not enough labor in the store to stock the shelves. Responded Wal-Mart spokesperson Brooke Buchanan in the article: “Our in stock levels are up significantly in the last few years, so the premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country.”
Let me do some speculation here. Despite contrary opinions from the reporter reporting the stores are reporting out of stocks and the Wal-Mart spokesperson saying stocking levels I think they both right, but statistics Wal-Mart uses lead to conclusions which is beyond the scope of the data.
I remember Wal-Mart in the 1970’s and 1980’s almost literately laughing at its major competitor, K-Mart, as it improved its logistics processes and kept in shelves fill while K-Mart did not. The supply chain processes got the product into the store. With a management who understood how to staff a store the products made the leap from the back room to the shelves. However there was no real to measure getting product from the backroom of the store to the shelf. Today, RFID could do that, but it is expensive and used only on limited items by Wal-Mart. My guess the current statistics only show that the product has reached the store, not that it is on the shelf for the customer to buy. So with all the wonderful supply chain talent they have, they can argue that their stock levels are up significantly but that does not mean they are at a place the customer can buy them. You measure business by numbers, but they all have limitations and you must manage around those limitations.
I do have some knowledge how Big Box stores work. In many cases the amount of labor budgeted is based on the store sales forecast. If they are not reached, the store manager is compelled to reduce the labor budget. It can reach a point were labor is cost so much there is not enough personnel to man the cash registers, keep the store orderly, put out displays, and keep the shelves filled. If H. Edward Deming was still around, he would call sub-optimizing the system. It makes the profits look good in the short term while hurting long term sales and profits. Home Depot experienced this last decade. It allowed its competitor, Lowe’s, to experience high growth as customers switched due to poor service and missing products on the shelves of Home Depot . Once a new management came in, labor policies changed, and Home Depot resumed its growth.
The Supply Chain Quarterly features an article by MIT’s Chris Caplice on the future of transportation. It can be found here: http://bit.ly/15n91D8. The four main points of the article are:
Natural Gas will slow fuel inflation. My research based on publications I have read is that fuel cost savings on large tractor trailer, class 8 trucks is about 20%. with payback for extra cost of natural gas engines being covered in two years. As these engines become more common they will undoubtedly command less of a premium over diesel engines. Many truck lines are hesitate to spend the capital costs for natural gas engines but I believe the market will force changes particularly for local delivering sooner rather than later. Mr. Caplice wonders if this will slow to switch from truck to intermodal. I suspect that if the cost savings are there for rail, they would switch to natural gas also, than it will be slower than trucks whose capital costs are spread over many owners.
The Panama Canal expansion will not affect containers anywhere near as much as bulk sourcing. Larger bulk vessels going through the canal may create new markets for products, particularly those bulk products originating in South America
The growth of rail movements from interior China to Europe. Mr Capline points to growth of manufacturing in western China. There is infrastructure in place to ship rail from these areas, almost better than shipping within China to the congested East. This coordinator which goes through Russia will be of increasing importance.
Lastly the changes in software. Cloud computing will open new data analysis and operational functions to smaller shippers. One area of future growth will be in data visibility not so much in being able to see the data, but in making sense of the massive amount of numbers.
When one reads the logistics and supply chain magazines, blogs or social media comments, one sees many thoughts. Words like “the end of warehouses”, “preemptive distribution”, and “3D Printers” causing the demise the supply chain, keep flashing at you. By being dramatic the creators of this information hope to catch your attention. What does all this mean to the organization and its success? In supply chain, after “change” is what we do.
Supply Chain and Logistics has the word “change” imbedded in its existence. Markets change. Suppliers change. Production changes occur. There is both small change and big change. In the course of my career, industrial transportation has changed from a regulated industry to deregulated one, for cost center to a business optimization strategy, from a stand alone silo to an integral part of the supplier chain. To deal with this level of change, a solely internal focus to the organization will not work. The world of ideas can provide an approach and a context to deal with a changing world.
As managers we know that any change requires energy, time, money and commitment.There is cost efficiency one there is not constant change in the organization. So it is important to spend the time educating one self about what is going on. Yes, healthy skepticism is good. With that there is a context so you can understand the changes in the marketplace and the world. Then you will have information to determine is change is worthwhile.
PS: Will 3D printers end the supply chain? 3D printers make plastics articles from software. Jay Leno uses a 3D printer to make car parts for his extensive personal car fleet. If the technology becomes cost effective it will have its effect on simple product lines. Really, this not want supply chains in modern companies do most often anyway. The trend in products is for them to become more complex because that is what the market place is demanding. Supply chain is really part of how an organization deals with that complexity, so it is not likely to disappear any time to soon.
Paperwork, regulatory bureaucracy, freight bills, claims, accessorial charges., reports, data entry, emails and calls. For many of us that is really our day at work. If you are in the logistics field, you know inaccurate details can stop a freight shipment in its tracks like a brick wall. But more importantly, that error will take time and energy for the organization to correct. When you budget your logistics costs, many times there is an assumption in those numbers, that a certainly number of things will go wrong. That takes labor time and usually extra transportation costs to resolve.
I am a big picture type of person, but it just as important to look art the small picture. What is using your time. Is it adding value to the firm and is it just keeping things humming?
Lets take a look at one example. Is somebody spending hours reviewing every freight bill that comes your way. One tends to happen is the small errors tend to grab attention and the large cost errors are not handled. Would not you learn more, by looking at the cost totals various the anticipated costs totals on set period of time, like a week? If transportation costs are not what is expected, there is an issue worthy of your time. The individual daily reviews probably is not. Give your accounts some rules on payments, and pay the bills. Mine the data and learn.
In large the operational excellence of your organization will be based on the ability to hand the mundane in a way that adds value to your business.
Watching the damage to the national infrastructure and the transportation of Sandy, maybe a once in a decade monster storm, it is easy to focus your supply chain risk strategy to Mother Nature events. A more happy blog post from Greg Reimer of C H Robinson, http://bit.ly/TsKQka, discusses significant sudden demand changes social media may have on the supply chain. Here things that a very large number of people might think as fun or funny, generally something we think as a positive can swamp the supply chain.
In the blog post, Mr. Reimer mentions Psy’s Utube video has 595 million views. With Halloween coming, all of sudden Psy’s trademark Tuxes became Halloween costumes. When Big Bird after one of the debates was mentioned, Big Bird costumes for Halloween shot way up. Can your product have spikes in demand? Is planning done in advance to address those demand spikes?
The article listed above shows Psy on the Ellen show and you can see why he is a such a popular entertainer. One can pretty safely predict sometime in the future that something like this will happen future, maybe to the business that employs you!
Between September 23 and 25 up in Winnipeg, the North American Corridor Coalition (NASCO) will be meeting. One of the major topics of the convention is developing a midwest freight corridor from Texas ports to the Midwest.
What is driving this is the expansion of the Panama Canal in 2015. Lots has been written about how the Panama Canal expansion will affect East Coast ports. But there is an opportunity to significantly increase ocean freight from Panama to the Port of Houston and other Texas ports. By doing so, inland transportation distances can be cut substantially. With fuel costs rising and trucks being scarce, shippers may find a low cost opportunity through Texas and Panama to ship from or to Asia and western Central and South America. Today the inland freight corridors from Texas to the Midwest are not fully developed and circuitous.
The Midwest Freight Corridor provides a chance for grain and heavy machinery users in the Midwest to increase their competitiveness. Walmart choose to bring some product from Asia into Midwest through the Port of Houston a few years back to gain alternatives to the west coast ports. Today, in all probability Walmart is paying a small premium on this freight rather than come through the West Coast, but has instead a more reliable supply chain, which is crucial to their operation.
The standard these days is to work for joint public-private partnerships on the infrastructure of this nature. Likely to potential to increase employment and growth in an area needing it, will propel this process along. See the process develop will be of great interest. How new is this? There is not a website established for it yet.
South Loop Logistics helps new businesses find help in the world of supply chain, logistics and transportation. Shipping into or out of the United States takes expertise. I will help your firm find that expertise in a cost efficient matter.