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Category Archives: Ocean Freight

C.H. Robinson CEO John Wiehoff Talks Transportation Trends

April 27, 2018 · By 24/7 Staff ·
John Wiehoff, CEO of C.H. Robinson, is one of the keynote speakers for the Connections 2018 supply chain conference, which will take place June 25-27 at the Greenbrier Resort in West Virginia.

He recently spoke with SMC³, which has served as one of the 3PL’s long-time partners, about emerging technologies in the industry, unique supply chain opportunities, and how C.H. Robinson uses technology to optimize its business.

What are some of the major trends you’re currently seeing in the LTL marketplace?
Demand for LTL is higher than we’ve seen it in nearly 10 years. This shift is an especially significant change when paired with supply changes. Both manufacturing and e-commerce are extremely strong right now, and both have close ties to LTL.

Online orders are driving smaller shipments to the LTL space, not just in the final-mile area. Smaller orders are becoming more common for the middle mile – from one distribution center to another.

LTL capacity is tight because carriers have not added a significant amount of equipment to their fleets in recent years. But even if there was an influx of tractors, there aren’t enough drivers available.

Historically, the driver shortages that affected the truckload market remained mostly out of the LTL space, but even that is changing. Growth in other sectors that have a shared labor force with truck drivers means more LTL drivers are leaving for options that are more lucrative.

As LTL carriers look to be more productive, we are seeing them place a large emphasis on optimizing their networks. With the data, analytics, and tools like dimensionalizers available to them, LTL carriers are paying more attention to accepting the right freight in the right lanes at the right time. More isn’t absolutely better anymore.

How has the ELD mandate impacted the domestic transportation market?
Drivers are reaching their hours of service in shorter timeframes, especially given the tight capacity. Organized and efficient loading/unloading times will become even more important. Reducing driver wait time at either the origin or destination can have a significant impact in a driver’s hours of service.

Both carriers and shippers may rely more heavily on 3PLs. A 3PL can help identify and solve capacity shortages, handle potential rate increases and address other issues from the mandate.

John Wiehoff, CEO of C.H. Robinson

How does C.H. Robinson use new technology to optimize its business, and are there any emerging technologies that will be game changers for the supply chain industry?
We are using technology to reinvent what it means to be a leading 3PL for this industry, our customers, and carriers.

Our technology offering is at the center of what we do and is embedded in our services and solutions every day.

You can see the importance technology has within C.H. Robinson by the number of IT staff and investments we have made and continue to make – we’ve added more than 800 IT staff and invested over $1B in the last decade.

As our business grows – now to more than 120,000 customers who worked with us on more than 19 million global shipments last year – we increasingly rely on technology.

Technology backed by data is critical to the success of our business. As one of the largest 3PLs, we have arguably more first-party data than anyone else in the industry. But, that data doesn’t matter if we don’t use it to our and our customers’ (shippers and carriers) advantage.

That’s why we are continuing to invest in and build tools that leverage the amount of data we have available to us.

The Connections 2018 supply chain conference is perfectly positioned at the midpoint of the year, giving speakers a chance, to sum up, the first half of 2018. What themes have defined the first half of the year, and what will define the transportation market during the second half?
For the first half of the year, we saw efficiencies in utilizing capacity, as truckload utilization climbed to more than 95 percent, according to FTR Transportation Intelligence. At the same time, new trucks increasingly entered the market to replace retiring trucks.

For the second half, these factors will combine for a focus on hyper-efficiency and the most effective use of capacity. We’ll be able to see if the strong truck sales of the first half of the year will add capacity or primarily serve as replacement capacity. We’ll also be able to put our finger on the real effects of ELD.

How can shippers and 3PLs better position themselves to take advantage of supply chain opportunities in the marketplace?
As supply chains grow in both size and complexity, transportation management technology will be an important way for 3PLs to help shippers gain a competitive advantage and exceed their customers’ expectations. That’s why we are invested in delivering and implementing flexible, efficient and integrated technology solutions that connect all aspects of the supply chain.

Read: Transportation Management Systems Market 2018

It is not so much what changes are coming to the industry; it’s more important to focus on what the innovative supply chain of the future will look like and recognize that it will take people, processes, and technology to bring positive change.

Digitalization of supply chains is our opportunity to continue bringing technology to our customers and their supply chains that make them smarter and more efficient. The technology we are able to bring today and into the future has to go beyond freight matching to encompass the complexities of today’s and tomorrow’s supply chains.

An algorithm can do amazing things, but when a truck gets delayed or a delivery window changes, people are still able to provide the most effective solution.

To hear more from John Wiehoff and other industry experts, sign up today for the three-day supply chain conference Connections 2018 to learn about emerging trends, current challenges and new innovations in the supply chain.

Register here by April 30 to take advantage of early-bird pricing.

Raise Your Supply Chain IQ
Connections 2018 | June 25 – 27 | The Greenbrier, WV

Why Attend Connections 2018

To REGISTER for SMC³’s Connections 2018, visit www.smc3connections.com

Related Article: SMC³ Announces Connections 2018 Speaker Lineup

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How to Build a Supply Chain Champion Following Chicago Cubs Theo Epstein’s 5R Strategy

On November 2, 2016, the Chicago Cubs did the unthinkable:

They won the World Series after coming back from a 1-3 deficit to the Cleveland Indians.

For Cubs fans, the victory marked the end of a 108-year streak of competitive futility.

Although the Cubs game seven, extra-inning victory is inspirational, you may be wondering: “As a supply chain professional, why should I care?”

Answer: Because of Theo Epstein, the Cubs President of Baseball Operations, knows how to build a championship team, a task that is likely high on your to-do list.

Vitally, Epstein’s role in the Cubs turnaround wasn’t a fluke.

In 2004, Epstein, as Red Sox General Manager, helped Boston vanquish the Curse of the Bambino and end an 86-year title drought.

Deciphering how Theo Epstein took the Cubs, a perennial loser, to a World Series championship has been a hot topic in the sports world.

Based on our 20-plus years working with supply chain leaders, we argue that Theo Epstein’s job assembling a champion on the field is a model for the supply chain leader’s quest to build a winning supply chain.

Let’s take a closer look at how Epstein transformed the Cubs into champions.

His approach highlights five principles of supply chain design that we call the 5Rs (Figure 1). The 5Rs have enabled companies from Amazon to Zara to win on the world’s toughest playing field – today’s global marketplace.

Figure 1
The 5Rs of Supply Chain Excellence

Strategic Supply Chain Management: The Five Disciplines for Top Performance

Know the Rules and Break Them When Necessary

If you want to win on the baseball field – or in the marketplace – you need to know the rules of the game. The rules define not just your strategy and value-added capabilities, but also your team’s composition.

Rules, however, change and disrupt industries and dethrone champions. For proof, look no further than A&P, Compaq, and Pan Am. Thus, it’s not enough to know the rules; you also need to pay attention to how they are changing. Spotting inflection points before rivals – and responding effectively – can give you a competitive edge.

Andy Grove modeled this reality when he made the case for Intel to make the leap from RAM/DRAM to CPUs before the memory market crashed. Grove’s anticipation of a threat before it was widely discerned is a big reason you know the phrase “Intel Inside.”

Of course, sometimes the rules aren’t fair, which is a plus if they favor you and a travesty if they don’t. When you find your team disadvantaged, your job is to change the rules.

This is the scenario Billy Bean, general manager of the Oakland Athletics, faced in 2001. The A’s $40 million payroll couldn’t compete with the New York Yankees $115 million player budget. Not only did the Yankees beat the A’s in the divisional championship series but they signed the A’s Jason Giambi to a big-budget free agent contract.

To compete, Bean needed to build a different type of team. He stepped away from traditional approaches to player evaluation and embraced sabermetrics, a novel statistical approach that became known as “Moneyball.” His goal: Identify players undervalued by other teams. Bill Henry, the new owner of the Boston Red Sox, saw value in Bean’s approach and offered him the Sox’ GM job.

When Bean declined, Theo Epstein stepped in. He levered Boston’s big payroll with sabermetrics to assemble a team that won the World Series in 2004, followed by two more championships in 2007 and 2013.

Great companies do the same thing. They execute within the rules better than rivals, or they exploit opportunities to change the rules.

Search Amazon

Consider Amazon, the poster child for e-commerce. Launched in 1995 as the “Earth’s largest bookstore,” Amazon began life as a pure-play e-tailer, with no inventory or brick and mortar presence.

It acted as a broker, linking customers to publishers. Amazon went public in 1997 and immediately began to rewrite the rules of online retailing and expand its product line. At a time when other organizations were outsourcing fulfillment operations, Amazon invested in its own distribution network.

By 2016, Amazon operated 383 fulfillment centers worldwide, supporting sales of $136 billion. Amazon even began to build out an in-house network of trucks and planes to “own” the delivery experience all the way to the customer door.

Today, Amazon sports a market capitalization of $400 billion. Its allure is a willingness to push boundaries and redefines rules. Amazon made two-day “Prime” delivery an industry standard that customers were willing to subscribe to. Amazon also enabled eager consumers and intrigued investors to envision the day when drones, predictive shipping, and check-out free shopping will be common.

The result: Amazon is forecast to reach half a trillion in sales over the next decade. More amazing, Amazon achieved this unparalleled success without ever making a meaningful profit on operations. According to The Economist, 92% of Amazon’s value is due to profits that won’t be earned until after 2020. Amazon’s story stresses a point that you need to remember.

To build a winning team, you must change the competitive rules even as you execute the daylights out of existing rules. The remaining four Rs of supply chain design can help.

Assess Readiness; Your Own and That of Potential Partners

By winning the World Series, the Cubs proved their greatness. Nonetheless, you wouldn’t bet on the Cubs to win the Rugby World Cup. After all, the Cubs weren’t built to play rugby. Yet, many companies try to do the equivalent every day. They come to market with the wrong supply chain. How do smart managers get stuck in such a predicament? Two explanations persist.

Wrong focus. Great ideas spawn companies. But, source, make and deliver decisions are often an afterthought, following marketing, engineering or finance. No one asks whether, or how, SCM can confer a competitive edge. Market mediocrity is the result.

Poor scanning. Even cutting-edge supply chains can fall behind the obsolescence curve. You’ve read, for instance, about the woes of some high-profile brick-and-mortar retailers. As the Internet changed the rules of retail, they didn’t adapt. Now, they are dying. The readiness assessment is a key weapon in Theo Epstein’s arsenal. By conducting a two-step readiness assessment – the second R – you can avoid these losing outcomes.

Step 1 is an honest self-appraisal of the team’s current competencies. Simply put, ask: “Do we have the skills we need to play, and win, our industry’s competitive game?” If not, ask two questions:

1. Which skills are you missing?

2. What do the gaps look like?

By making capability gaps visible, you can prioritize your skill-acquisition efforts.

Step 2 is to assess potential partner competencies. Your job, like Epstein’s, is to close the gaps by building or buying the right capabilities.

Now, let’s take a peek into how Epstein leveraged the second R to turn the Cubs into champions.

The key to winning a baseball game is to score more runs than the other team. The emphasis on runs scored has always placed a premium on two player-evaluation metrics: Batting average and RBIs (runs batted in).

Sabermetrics argues you should set these metrics aside in favor of on-base percentage. After all, you can’t score unless you get on base, and it doesn’t matter whether you get on base via a hit or a walk. The logic of sabermetrics is simple: By using more-valid-but-less-used metrics, you can acquire the right skills at a lower price.

Of course, winning attracts benchmarking, and rivals quickly copied Epstein’s approach. Epstein’s response: Keep refining the readiness-assessment process.

Neuroscouting. Neuroscouting uses a computer simulation to make the connection between a player’s cognitive function (recognizing a pitch) and motor skills (swinging a bat). A player who picks up a pitch five feet out of the pitcher’s hand will get on base more frequently than a player who doesn’t read the pitch until 20 feet or 30 feet out. Neuroscouting helped Epstein identify Mookie Betts as a top prospect in the 2011 draft. Betts is now a rising star.

Wins above replacement (WAR). Epstein has grown fond of WAR, a metric that estimates how many wins a player contributes to above a replacement player at the same position. Going into the 2016 season, WAR indicated that the Cubs excelled in starting pitching, first base, and third base. But, right field was identified as a liability. To fill the gap, Epstein acquired Jason Heyward in free agency.

Predictive analytics. Epstein is now experimenting with simulations to predict how a given team composition will fare in each game throughout the season. Inputs can be quite detailed and include things like ballpark where the game is played, time of day and pitcher-versus-batter matchups.

Beyond closing capability gaps, readiness assessment serves another purpose. In 2011, as Epstein’s tenure with the team began, Cubs owner Tom Ricketts asked when the Cubs would be ready to compete for a championship.

Epstein’s response: The Cubs would get worse before things could get better. Building a strong farm system and young talent meant that the Cub faithful would need to be patient. Epstein’s plan, however, leveraged the “rules” of the collective bargaining agreement, one that allocated larger draft budgets to losing teams. Losing early to win later enabled the Cubs to acquire players like Kris Bryant and Kyle Schwarber, who were key contributors to the 2016 championship run.

The readiness assessment is a pivotal part of Zara’s story. Zara, like Amazon, is a rule breaker; its fast-fashion business model is truly game-changing. So too are the supply chain capabilities needed to make fast-fashion work. Compare the Zara way to Gap’s approach (see Table 1).

Table 1
Zara Has Built Unique Capabilities to Change the Rules

The backstory: Amancio Ortega, Zara’s founder, got his start in the apparel industry as a 14-year old errand boy. A decade later, Ortega began developing his own designs, reproducing popular styles, but with his own twists. He soon realized that if he could bring trendy designs to market quickly and inexpensively he could wow consumers. Ortega simply needed to convert the concept into capabilities. Readiness assessment provided Ortega the insight needed to build the capabilities that would fuel Zara’s fast-fashion strategy. Let’s highlight two points here.

Infrastructure. Capabilities derive from infrastructure. For instance, Zara brings its 30,000 distinct designs from concept to rack in only 14-24 days (a 10X advantage over rivals). To reliably hit this target, Zara sources over 50% of all items from local subcontractors in Spain (over 75% in Europe) and preps all product to be rack ready in its 400,000 square meter DC called the Cube. Zara’s infrastructure links supply to demand.

Decision processes. At Zara, decision makers evaluate every investment based on how it will enhance Zara’s capabilities. For instance, Xan Salgado Badas, Zara’s head of IT, stuck with an outdated, DOS-based point of sales system (POS) for years because newer systems didn’t offer any strategic capability upgrade. Yet, when Zara figured out how to use RFID to gain insight into fashion trends and hasten replenishment, it rolled out the technology at a scale and speed that startled rivals (in 2016, Zara bought 500 million RFID chips, 16% of that year’s total RFID sales).

Being fast and driving trends pays serious dividends. Customers visit Zara stores 17 times a year, compared to three times to five times for rivals. That’s because they know if a trendy new outfit sells out, it may not be back. In effect, Zara has turned customers into treasure hunters, transforming stockouts into a sales pitch.

Along the way, Zara became the world’s largest fashion retailer and Amancio Ortega the world’s second richest person. But, Zara’s team also knows that readiness assessment and capability development must be a lifestyle, not an event. If Zara isn’t always getting better, a rival like BooHoo or ASOS might make Zara’s version of fast-fashion obsolete. Just like the Cubs and Zara, you are only as good as you are ready.

Assemble the Right Players; Build or Buy Needed Competencies

Redefining rules and assessing readiness are tough tasks. But, the outputs – a capability-development matrix and a talent-acquisition map – are critical to devising a winning game plan.

Bringing all of the right pieces together and molding them into a champion is equally daunting. Emotional fortitude is needed. Executives like Theo Epstein, however, embrace the team-building challenge. Team ego results when you holistically progress through the remaining 3Rs – right players, right roles and right relationships. Let’s explore how Epstein brings these Rs together.

Through experience or intuition, Epstein knows the best players aren’t always the right players. Many so-called super teams never hoist the Commissioner’s Trophy at season’s end. So, what type of player does Epstein look for?

Talent is critical, but even more so, Epstein seeks a mix of athleticism and positional skill backed up by EQ and a team-first mindset. After all, when a crisis arises – and it will during the course of a 162-game regular season – team ego decides whether the team steps up or collapses.

The better question is, perhaps, how does Epstein put the right mix of skills on the field? Like you, Epstein has two options. He can build competencies or he can buy them. To field a consistent contender, he must do both exceptionally well. Figure 2 depicts Epstein’s method.

Figure 2
Assembling the Right Players

Phase 1: Long game. The core of an Epstein team emerges from the draft. Young talent like Javier Baez (2011) and Kris Bryant (2013) is identified and developed. The process takes time, but it provides a big bang for the buck. Baez and Bryant both made pivotal contributions to the Cubs’ World Series run. Of note, when Epstein arrived in 2011, he began to trade valuable players that didn’t fit his vision and culture, giving the Cubs more draft picks.

Phase 2: Close key gaps. Epstein opportunistically closes key skill gaps by acquiring proven talent via free agency or a well-timed trade. Consider Jake Arrieta, a starting pitcher acquired from the Baltimore Orioles just before the 2013 trading deadline. Arrieta won the 2015 NL Cy Young Award and was the ace of the Cubs’ 2016 pitching staff.

Phase 3: Win now. By July 25, 2016, the Cubs had the best record in MLB. But, by Epstein’s estimation, the Cubs still lacked a critical piece: a hard-throwing lefty closer. To bring Aroldis Chapman, the hardest thrower in baseball (105-MPH fastball), to Chicago, Epstein traded four up-and-coming prospects – a steep price Epstein was willing to pay to win it all in 2016.

One more point: Epstein knows that the concept of right “players” extends beyond the playing field. To help make things click, Epstein brought on Joe Maddon, former manager of the Tampa Bay Rays. Maddon’s keen sense of strategy and a sabermetrics-driven willingness to tweak the batting order and defensive alignment helped position the Cubs to win a league-leading 103 games.

Simply summarized, getting ready to compete means bringing the right players on board, whether drafting undervalued prospects, signing free agents, making pivotal trades or signing a manager whose true talents are being underutilized.

Apple has shown an uncanny ability to bring the right players together to develop and deliver hit products and services. Figure 3 shows how Apple uses Epstein’s playbook.

Figure3
Apple’s Path to Developing the HomePod

Phase 1 – Long Game: At the turn of the millennium, Apple began to invest in what has become the source of its success – software. The iTunes Music Store, paired with iOS, set in place the foundation for Apple’s ecosystem, which consists of over one billion active devices worldwide and includes services such as App Store, Apple Pay, Apple Music and iCloud. Apple touches its owners’ lives every day – and in an increasing variety of ways.

Phase 2 – Close key gaps: By buying Siri in 2010, Apple forged into both the search and mobile “assistant” markets. More recently, in 2014, Apple acquired Beats Electronics, quickly integrating Beats Music into its own streaming service, Apple Music. Pundits, nevertheless, questioned Beat’s $3 billion price tag. But, Apple appeared to have a compelling goal: To close gaps that powered Google Android’s foray into Apple’s turf.

Phase 3 – Win now: In August 2016, Apple quietly acquired Turi, an artificial intelligence startup, for $200 million. Less than a year later, on June 5, 2017, Apple introduced HomePod, a device designed to “reinvent music in our homes.” The Beats acquisition now made sense. But, that’s not all. HomePod is a home assistant – Apple’s answer to Amazon’s Echo and Google Home. Turi’s machine learning makes Siri smarter, giving Apple the win-now capability needed for HomePod to become the central nervous system for the IoT-enabled home, a nascent market with fantastic growth potential.

Apple is seldom first to market, but the design, user-friendly interface and massive ecosystem that support Apple products and services make it a game changer. The result: Apple’s market capitalization hit $800 billion in 2017 – 2X Amazon’s. Consider two facts: Despite owning only 30% of the mobile operating system market, Apple earned 90% of the industry’s 2015 profits. And Apple earns developer loyalty by delivering 75% more revenue vis-à-vis Google Play, making App Store the go-to place for the latest and greatest apps. Bringing the right players to the game has made Apple a perennial industry champion.

Put Players in the Right Roles; Shift As Needed

Getting the right players is just one step in the team-building process. Jim Collins described what comes next: “Get the right people on the bus, the wrong people off the bus, and the right people in the right seats.” Matching players to roles is critical. Yet, the way most companies do this won’t deliver a true – i.e., inimitable – competitive edge.

To be a supply chain champion, you have to think differently about how to mix and match key capabilities. With Epstein at the helm, the Cubs tinker incessantly with player roles. That’s one reason Epstein hired Maddon: His teams led the league in distinct batting lineups and in-game positional shifts every year from 2006 to 2014.

The goal: Tweak the lineup to improve the Cubs’ chance to win any given game. Imagine sending your catcher out to pitch. Maddon did just that, inserting David Ross to pitch against the Milwaukee Brewers. Ross had never pitched in the MLB, but he recorded a perfect inning. Maddon’s penchant for moving players around led the Cubs to acquire Ben Zobrist. Maddon called Zobrist a “super-U,” someone who can play multiple positions.

In fact, during his career, Zobrist has played every position except pitcher and catcher. Proactive role shifting made the Cubs improbable season possible.

Best Buy

In 2015, many pundits had already written Best Buy’s obituary, claiming the electronics retailer couldn’t survive Amazon’s assault and consumers’ affinity for “showrooming.”

Yet, Best Buy did survive, showing how role shifting can create a competitive edge even against Amazon.

How did Best Buy do it? Consider three pivot points that enabled Best Buy to become an experienced retailer.

Reduced costs. To contest showrooming, Best Buy began matching prices. To reduce costs and make price matching economically viable, Best Buy deepened collaborative relationships with suppliers, especially in the areas of merchandising, forecasting and replenishment.

Repurposed bricks. For brick-and-mortar retailers, Amazon’s onslaught turned what once was an asset into a liability. Yet by shipping online orders direct from local stores and encouraging in-store pickup of online orders, Best Buy can deliver with Amazon-like speed, turning its 1,600 physical stores back into an asset.

Reimagined roles. Clicks and mortar wasn’t Best Buy’s only proactive role shift. Best Buy invited top suppliers like Samsung, Apple, LG, Microsoft, Sony and Google to set up shops within its cavernous stores. Best Buy charges rent and benefits from high-margin sales of high-end appliances and electronics.

What’s in it for suppliers? The opportunity to create immersive customer experiences without the cost of owning stores. Google Guides, full-time Google staff, offer tutorials and tech classes, helping customers discover, play and have fun. Samsung Experience shops are located in every Best Buy store.

The result of role shifting: In 2017, Best Buy shares surged to an all-time high. However, as the Cubs know from first-hand experience, some role shifts backfire. Boeing discovered this the hard way with the launch of its vaunted 787 Dreamliner. Poorly conceived and managed shifts cost Boeing five years in first-mover advantage and, by some estimates, $20 billion in design, production and launch costs.

To avoid such misfires, you really do need to do the work entailed by all five Rs. Despite the risks, as Table 2 highlights, game changers from rivals’ strategic moves to disruptive technologies dictate that you begin to experiment with proactive role shifting.

Table 2
Forces Driving Role Shifting

The Future of the Supply Chain Workforce Will Be Determined By Technology Talent

Cultivate the Right Relationships; Build Identity and Trust

Having the right players in the right roles does guarantee that your team looks good on paper. Sadly, looking good on paper is no guarantee your team will win once the game begins. What separates paper tigers from competitive champions, both on the sporting field and in the boardroom? Champions possess chemistry; that is, a common vision backed by a willingness to work together to achieve strategic goals – even if someone has to play a less visible role.

Critically, chemistry derives from trust. To fully sense the value of trust, consider this key fact from the auto industry: The most trusted automakers are also the most profitable. Your takeaway: Ultimate success requires that you invest in a culture of trust.

Theo Epstein is a culture guy. Organizational culture, after all, endures beyond the departure of talent. So, what are the core tenets of an Epstein-inspired culture? For starters, Epstein believes people perform best, especially under pressure, when they are part of something bigger than themselves. He also believes that environment matters. That’s why the Cubs’ new $300 million stadium renovation included a round clubhouse – 60 feet, 6 inches in diameter (the exact distance from the pitcher’s mound to home plate). Epstein wanted to promote collaboration by putting everyone within eyesight of each other and encouraging serendipitous conversations. The space eliminated hierarchy, engendering camaraderie and team identity. David Ross, the Cubs catcher, described the design as, “a subliminal message they’re sending.”

Beyond facilities, Epstein cultivates “lever points”other people who help drive the culture. Epstein then steps back and lets them do some heavy lifting. Joe Maddon, the Cubs manager, is an ideal lever for an Epstein-built team. “Try not to suck,” a key Maddonism, communicates big-time expectations without big-time pressure. Madden helped nurture the Cubs culture: Trust each other; do the right things consistently, including stretching for better results; have fun, but hold each other accountable; expect greatness. Epstein and Maddon know that if you build the right culture, that comes crunch time, someone will step up.

And that’s exactly what happened in game seven of the World Series. After digging out of a 1-3 deficit and building a commanding three-run lead going into the bottom of the 8th inning, the Cubs did the unimaginable – they gave up the lead and gave away the momentum. The 103 wins didn’t matter anymore; the dream was slipping away. Then, it began to rain – and culture took over. As the grounds crew came on the field, the Cubs exited toward the locker room.

Jason Heyward impulsively called his teammates into a weight room for a player’s only meeting. Never the outspoken leader, and struggling at the plate throughout the playoffs, Heyward reminded his teammates just who the Cubs were. David Ross recounted Heyward’s message: “He just said: ‘We’re the best team in baseball for a reason. Continue to play our game, support one another. These are your brothers here, fight for your brothers, lift them up, continue to stay positive. We’ve been doing this all year so continue to be us.’”

What would’ve happened if Heyward hadn’t spoken up? The Cubs may still have won. But, Epstein knows that you leave less to chance when you invest in the right culture.

Honda

Honda is a Cubs type of culture warrior.

More reliant on suppliers than rival carmakers, Honda’s buyer-supplier culture is truly unique, even a little quirky. Honda treats strategic suppliers as an extension of Honda itself.

Simply put, Honda invests in supply partners as if it is buying their capacity and capabilities, not just their parts. By the way, 90% of Honda’s spend is with strategic partners.

To help these partners succeed, Honda sends engineering teams to work on-site at suppliers for three months – and as long as 24 months – at no cost to the supplier.

The goal: Help suppliers optimize manufacturing and business processes. A typical best practices (BP) improvement initiative improves quality by 30% and labor productivity by 50%. More importantly, under Honda’s coaching, suppliers develop critical skills. Honda, in turn, gains stronger supply partners. Cost savings are shared 50/50 with the supplier.

Honda’s investments aren’t limited to BP projects. Honda expects supply partners to participate in corporate training, senior-leader business reviews and new product and target costing programs.

You may be wondering why Honda invests so much in its suppliers instead of switching to more capable suppliers. Honda’s response: Other suppliers would have similar problems. The nuanced answer, however, runs deeper.

Like Epstein, Honda is playing the long game, building a trusted team that can compete the “Honda Way.” Identity is critical.

One result: Honda is the most trusted carmaker among suppliers. Almost 40 years after launching U.S. operations, nearly all of Honda’s original supply team remains intact. The trust also shows up in Honda’s profitability.

Despite Toyota’s superior scale – producing twice as many cars per year – Honda has consistently delivered higher profit margins.

General Motors

Now, let’s go back to the early 1990s. J. Ignacio Lopez, General Motor’s purchasing czar, tore up supplier contracts, putting everything out to bid.

By saving $4 billion dollars, Lopez saved GM from bankruptcy. But, Lopez alienated suppliers, solidifying a culture of mistrust.

Over a decade later, supplier resentment still ran hot. Suppliers scored GM a 114 on the 2005 Supplier Working Relations Index(the lowest score ever – 300 points behind Toyota’s 415).

The real cost: Suppliers were holding back on GM, dedicating their best engineers and sharing their latest technology with more trusted partners like Honda and Toyota.

The rise of autonomous vehicles, however, forced GM in 2015 to acknowledge an existential threat, that its future depended on supplier innovation.

Compelled to change, GM began offering longer-term contracts to urge suppliers to more openly share their best ideas. Two years later, GM’s 2017 WRI score reached its all-time high of 290, lagging behind only Toyota and Honda.

The Journey Continues

The Cubs faithful view Epstein as a miracle worker. In truth, Epstein simply embraced core tenets supply chain champions put to work every day as they design and manage world-class value-creation teams. What then is your key takeaway?

Epstein succeeded by executing each R as part of an integrated 5Rs strategy.

In Epstein’s words:

“Acquiring the talent is only half the battle. The other half of the Cubs’ rebuilding required the organization to establish a winning culture. This meant devising a ‘Cubs Way.’”

In our experience, putting all five pieces of a 5Rs strategy together is quite a feat. Even supply chain champions struggle to implement all five Rs.

But, Maddon offers a word of advice: “The process is fearless.”

If you continue to work the process, the 5Rs will help you break whatever supply chain curse you’re facing.

About the Authors
Stanley E. Fawcett, Ph.D., is the Goddard Professor of global supply chain management at the Goddard School of Business at Weber State University. He can be reached at stan.e.fawcett@gmail.com.

A. Michael Knemeyer, Ph.D., is a professor of logistics at Fisher College of Business at The Ohio State University. He can be reached at knemeyer.4@osu.edu.

Amydee M. Fawcett, Ph.D., is an assistant professor of supply chain management at the Goddard School of Business and Weber State University. She can be reached at amydeefawcett@weber.edu.

Sebastian Brockhaus, Ph.D., is an assistant professor of supply chain management at the Boler School of Business at John Carroll University. He can be reached at sbrockhaus@jcu.edu.

Image Credit: Dan Vasconcellos

Related: How The Chicago Cubs Baseball Team Brought Data-Driven Decision Making to Wrigley Field

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Today’s Millennial Supply Chain Professionals

APICS, the professional association for supply chain management, has published the results of its Millennials in Supply Chain research report, conducted by Peerless Research Group in conjunction with Supply Chain Management Review(SCMR) and the American Productivity & Quality Center (APQC).

A survey carried out in April 2017 was designed to gain insight into millennials as a critical segment of the supply chain workforce.

The report finds that millennials are focused, engaged, enthused and committed to working in supply chain management, and reveals that supply chain represents a sought-after, dynamic and rewarding long-term career choice for professionals in their 20s and 30s.

“The results of the report are eye-opening, especially when compared to the more senior supply chain professionals in leadership positions, who were part of a previous study from APICS and SCMR in 2016,” said APICS CEO, Abe Eshkenazi, CSCP, CAE, CPA.

“We see that more millennials started their career in supply chain, are moving around less, are highly satisfied with their jobs and see more opportunities for advancement in the field.”

APICS CEO Abe Eshkenazi

“Despite some noted frustrations, millennials are continuous learners and fast movers who are eager to advance”APICS CEO Abe Eshkenazi

The report shows millennials have a diverse interest in activities that span the end-to-end supply chain. Notably, the area that holds most appeal, supply chain design, and planning, is a role that touches all areas of supply chain.

The millennials surveyed also said they find their careers personally rewarding. Eighty-one percent feel they can make a difference in the supply chain field, 87 percent believe working in the field will help with their personal growth and development, and 88 percent agree that there are opportunities for advancement within the field.

Diversity topped the list of what millennials consider most important about the field and the companies for which they work. Eighty-five percent noted that supply chain involves a diverse workforce and encompasses people of all types, which additional findings that more women are now entering the field also reflect.

Respondents were roughly two-thirds male (61 percent) and one-third female (39 percent), compared to the 2016 survey of senior supply chain leaders, in which 76 percent of respondents were men while only 24 percent were women.

However, just as earlier research of senior managers in 2016 showed a pay gap between males and females, there is a gender wage gap among millennials. Men and women start at roughly the same salary, but the disparity grows larger as they move up the career ladder.

This disparity is chief among complaints from millennials surveyed, along with frustration around the attitude towards millennials by older generations in their organizations and a disconnected feeling from the big picture or a lack of purpose in the workplace.

“Despite some noted frustrations, millennials are continuous learners and fast movers who are eager to advance,” Eshkenazi concluded.

“To address the ongoing skills gap, industry expectations, priorities and communication styles must adapt to and embrace the different needs of this younger generation. Millennials are growing and learning on the job in an era of lean, optimized, end-to-end supply chains and are critical to the ongoing transformation of the industry.”

SC24/7 Search Term: Millennials

Millennials Don’t Just “Fall Into” Supply Chain

This generation comes to the field with early and prolonged commitment

A generation ago – or even a decade or two ago – if you asked a group of students about their career goals, the field of supply chain management probably wouldn’t rank highly, if at all, among their responses. Most Gen X and baby boomer supply chain professionals didn’t plan for, prepare for, and intend to work in supply chain. It was a field they found themselves in, having landed there as they evolved from previous roles in engineering, finance, planning or management.

Millennials in Supply Chain research report

Download the Research Report: Millennials in Supply Chain

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Ocean Cargo Carriers Must Optimize Networks

Owing to the structural overcapacity in the container industry, shippers have essentially had most of the pricing power since the financial crisis, says industry consultant Lars Jensen, CEO and partner of SeaIntelligence Consulting in Denmark.

As a consequence, this has enabled shippers to benefit financially from the cost saving measures brought about by slow steaming, mega-vessels, vessel sharing and “skipped sailings.”

In his new book titled “Liner Shipping 2025,” Jensen observes that vessels ordered in 2014 and 2015 will continue to be delivered over the next two years, meaning high levels of scrapping are likely to continue.

However, Jensen also notes that in 2019 and beyond, a disproportionate share of feeder-sized vessels will be reaching the end of their lifespan, and orders for their replacements are likely to surge.

“The good news is that their relatively small size means the impact on the overall global market will be limited,” adds Jensen.

In the meantime, carriers will still have to make some hard decisions for the remainder of 2017, says Esben Christensen, managing director of the international consultancy AlixPartners.

“They’ve already taken steps to relieve their financial woes, including slashing expenditures,” he says.

“They must continue to drive down costs through effective post-merger integration and fleet rationalization to bring supply and demand into balance.”

Fortunately, spot rates have improved in the wake of last year’s Hanjin bankruptcy, and carriers seem to realize that they must do everything they can to maintain that trend, adds Christensen.

“The carrier community’s ability to drive rate levels higher into future contract negotiations will likely decide whether 2017 will be the turning point the industry desperately needs – or just another bad year in a growing string of losses.”

Ritzau Finans, an analyst with the Paris-based consultancy Alphaliner, maintains that the reduction in idling container ships has been driven by the rollout of new alliance networks, adding that with reduced availability of spot tonnage, the charter market is kept upbeat.

“The container shipping industry is expected to continuously optimize networks and make them more efficient,” he adds.

Analysts for the Baltic and International Maritime Council (BIMCO) in Copenhagen, agree, noting in their “Shipping Market Outlook” that cutting costs where it’s still possible and making the most of the fleet available remains essential to reaping the benefit of the individual alliance members.

Above all, add BIMCO analysts, the implementation of new alliances remains the one thing to watch carefully in 2017. The three ocean shipping alliances – which replaced the previous four – now control 77% of global container ship capacity and as much as 96% of all east-west trades.

“Before getting carried away, we should remember that 57% of all demand, as measured by twenty-foot equivalent unit [TEU] miles, is generated by non-east-west trades that are particularly impacted by the recent years’ cascading of tonnage,” says BIMCO President Anastasios Papagiannopoulos. “Another two-tier market is in the making.”

BIMCO expects the container ship fleet to grow by 2.9% in 2017, under the assumptions that 450,000 TEU will be demolished and 1 million TEU will be delivered. For that to happen, the current demolition interest must cool somewhat and the delivery pace must pick up, analysts conclude.

Russ Romine, Vice President of International Transportation at LEGACY Supply Chain Services in his article “Keeping Ocean Freight Moving This Peak Season,” states that ocean transportation is becoming more of a transaction-driven business, but it should never be done transactionally.

Romine further states that by sacrificing service for the lowest price, a shipper runs the risk of reducing visibility and predictability in their supply chain, increases supply chain risk, limits the ability to come up with proactive solutions to problems that occur during transit, and decreases the efficiency and productivity of their internal operations and customer service teams and, it actually increases their true logistics costs.

“Filling this service gap is something importers and shippers must face the reality of as carriers and low-price forwarders continue to absolve themselves of responsibility for service-based activities”

Read the Article: Keeping Ocean Freight Moving This Peak Season

Article Image: Speed Trans Logistics

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Keeping Ocean Freight Moving This Peak Season

We all watched it happen… It started with the global trade boom of the 1990’s and early 2000’s; trailed by significant investment from steamship lines in an effort to ramp up capacity in the late 2000’s – only to be met fiercely by the Great Recession, and a flattening of demand.

Today, e-commerce pulls heavily on transportation networks while the fickle consumer demands faster and faster and cheaper and cheaper.

The signs were there that the ocean logistics industry was going through a “sea change” (pun intended) and would look much different today than it did even 10 years ago.

And here we are – an ocean logistics industry once driven by carrier investment chasing fast growth in demand has now reached a mature stage where carrier differentiation is elusive, and vessel oversupply structurally limits their ability to profit.

Ocean carrier efforts to manage vessel oversupply have led to a variety of shifts in partnerships and alliances.

While the latest carrier alliances may have proven beneficial to bottom lines, it has not been without disruption to downstream suppliers and customers.

Carriers have shed ancillary service offerings previously bundled with ocean container movement, opting to focus on lower cost port-to-port and port-to-container yard moves.

“Without the customer service, interface shippers lose visibility, increase risk, and increase costs – mitigating all front end savings from choosing the low-cost provider”

As carriers pump higher capacity vessels into ports, terminal operations, challenged with their own inefficiency and lack of infrastructure find it difficult to keep up with waves of volume.

Read: Volatility Continues to Define International Logistics

Less sophisticated truck networks that lack automation and technology struggle to provide true last mile delivery visibility. Most carriers have offloaded functions such as chassis services onto other providers – further elongating the supply chain with more disparate providers involved in each segment.

In fact, most service-based activities required during the international ocean logistics process have been pushed off to downstream parties in the transaction. The trailing effect of steamship carriers continuing to push out cost – the customer service interface has become lost in the shuffle.

As Shippers and Service Providers look ahead to peak season 2017 and beyond – How Can Customer Service get Shuffled Back to the Top of the Deck?

Today’s technology-first service providers have created a marketplace for shippers to competitively procure ocean container bookings – self-service choice has become a powerful tool for shippers ultimately focused squarely on cost.

Technology has also given shippers better visibility to ocean-laden cargo and allowed for more predictability in-transit.

Recently in June of 2017, steamship carrier Maersk was hit by a cyber-attack that crippled their systems and operations for several days. Whether it be cyber-attacks, capacity challenges, financial risk, labor unrest, regulatory change, politics, or Mother Nature – supply chain disruption is costly.

The high-touch, responsive service required to dig in and investigate the true location of in-transit cargo, as well as proactively provide a solution to correct the problem has been foregone in the name of choosing the lowest price option.

To help shippers navigate this year’s shipping season, we developed this Peak Season 2017 Ocean Transportation Infographic.

Understanding the TRUE Cost of International Logistics
(Hint: the lowest price is often not the lowest cost)

How do you determine the actual cost, meaning the complete financial impact, of an international ocean transaction?

Oftentimes, the front end benefits of choosing the low-price provider – be it through direct contracting with the carrier or secured through a forwarder, do not represent the full cost incurred by a shipper’s operation.

Download the Paper International Transportation: Price Matters, But At What Cost?

Sure, a hundred or few hundred dollars saved per container can paint a nice picture on the top half of a transportation manager’s monthly P&L. To quantify the TRUE cost we must look at the full scope of the logistics transaction:

  • Additional occurrences of downstream supply chain costs: caused by having more disconnected parties involved in the transaction, including port and terminal charges, per diem and breakbulk charges, chassis service fees, increased drayage, etc.
  • Cost of cargo delays: created by rolled bookings, port congestion, and other ocean logistics inefficiencies.
  • Cost of insufficient visibility across the supply chain: starting from not knowing who is handling cargo at the origin, disconnected service providers handling last mile delivery.

And the True Unknown – the Overhead cost impact on a shipper’s team. As carriers and low-price forwarders continue to shift service responsibility onto the shipper, the true financial impact begins to outweigh the front-end container price savings.

Stripping a shipper of the customer service interface creates a new set of responsibilities that must be absorbed by the shipper’s internal teams, including shipment tracking, managing transitions between multiple providers from ocean vessel to port to final delivery, as well as working to solve problems that inherently come up as cargo moves around the world.

Not to mention the opportunity cost created by operations and customer service teams as they shift their focus away from servicing their own customers or supporting sales, and onto administrative ocean logistics activities.

Ocean Logistics Visibility – More than just Track & Trace
Rapid enhancements in technology have given shippers new levels of visibility into the activities within their supply chain. Real-time data integration connects parties from origin to destination, data visualization and business intelligence provides insight and planning capability, while mobile devices provide anytime-anyplace accessibility.

However, true visibility lies in the ability not only to see and understand, but also to react, solve problems, and execute a solution.

When technology fails or provides an inaccurate depiction of the true narrative of a shipment, shippers are often left to identify the root cause of a transportation delay, and then develop a creative solution on their own. Quickly finding the actual location of delayed freight, and being able to immediately divert or redeploy cargo can reduce or completely mitigate supply chain impact.

Technology is a powerful tool, however, it must be combined with human proactivity, responsiveness, market knowledge and a solution mindset to create true visibility.

Although carriers and many low-price tech-only forwarders have dramatically enhanced technological capabilities – without the service component it becomes much less powerful and useful to the shipper.

Customer Service – The Forwarder’s Ace in the Hole
Ocean transportation is becoming more of a transaction-driven business – however it should never be done transactionally.

By sacrificing service for the lowest price, a shipper runs the risk of:

  • Reducing visibility and predictability in their supply chain
  • Increasing supply chain risk
  • Limiting the ability to come up with proactive solutions to problems that occur during transit
  • Decreasing the efficiency and productivity of their internal operations and customer service teams
  • and…it actually Increases their true logistics costs

Filling this service gap is something importers and shippers must face the reality of as carriers and low-price forwarders continue to absolve themselves of responsibility for service-based activities.

As the ocean logistics industry continues to evolve from today’s mature, ultra-price competitive state – the importance of relationships within the supply chain, and true partnerships between shippers and service providers (both forwarders and transportation providers) become the last true differentiator, especially in the eyes of small and mid-sized importers.

Author
Russ Romine, VP International Transportation, LEGACY Supply Chain Services

Source: LEGACY Supply Chain Services

How Does Your Supply Chain Measure Up?

Use the LEGACY Supply Chain Services Supply Chain Performance Grader to evaluate your supply chain.

The Supply Chain Performance Grader™ provides businesses with a free report that evaluates your supply chain across 6 critical supply chain disciplines. Each discipline contains a set of questions to measure your own supply chain competencies.

You’ll receive an instant report containing opportunities for improvement, recommendations, and best practices.


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MIT Supply Chain Management Master’s Program Ranked No. 1 in the World


The MIT masters program in supply chain management has been ranked as the world’s No. 1 graduate business program in supply chain and logistics by Eduniversal, the Paris-based global rating agency for higher education.

This is the second time the MIT master’s program has been ranked No. 1 by Eduniversal.

The 10-month master’s in supply chain management program at MIT has been educating supply chain professionals for almost 20 years, and is the model for graduate programs in centers across MIT’s Global Supply Chain and Logistics Excellence (SCALE) Network.

The program is currently offered at the MIT Center for Transportation and Logistics in the United States, the Zaragoza Logistics Centerin Spain, and the Malaysia Institute for Supply Chain Innovation in Malaysia.

“Our MIT master’s in supply chain management program is providing the supply chain talent that companies need to thrive in today’s highly demanding commercial environment”Yossi Sheffi, the Elisha Gray II Professor of Engineering Systems at MIT and director of the MIT Global SCALE Network

A variant certification, the graduate certificate in logistics and supply chain management, is offered in Latin America.

Graduate programs in the newest SCALE centers – Luxembourg Center for Logistics and Ningbo Supply Chain Institute in China – will commence this fall.

Business professionals from around the globe enroll in the top-ranked program to hone their supply chain expertise and advance their careers.

They learn the latest supply chain management methods, engage in cutting-edge research, and interact with industry through site visits, lectures from C-level executive speakers, and dozens of recruiting opportunities.

MIT SCALE graduates are in high demand in a wide range of industries.

This year’s graduates have already accepted positions with leading firms such as AppleAmazonGeneral MillsGeneral MotorsThe Boston Consulting GroupMcKinsey and CompanyConverseDeloitte, and more.

Yossi Sheffi, the Elisha Gray II Professor of Engineering Systems at MIT and director of the MIT Global SCALE Network, stated;

“A company’s ability to efficiently manage its supply chain has become a key competitive differentiator across the globe. Our MIT master’s in supply chain management program, which is consistently ranked as a world leader, is providing the supply chain talent that companies need to thrive in today’s highly demanding commercial environment”

In addition to this 10-month program, MIT Center for Transportation and Logistics also offers a MicroMasters credential in supply chain management (watch video above).

Through five online courses and a capstone exam learners get access to an advanced, professional, graduate-level foundation in supply chain management comparable to one semester’s worth of coursework at MIT with the same faculty members.

Related: Are You and Your Company Prepared For a Supply Chain Talent Crisis?

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U.S. Roadmap for Material Handling & Logistics Version 2.0 Released at ProMat

On Tuesday, April 4, 2017, the U.S. Roadmap for Material Handling & Logistics: Version 2.0 was released at ProMat 2017, held at McCormick Place in Chicago.

Published on www.MHLroadmap.org, the Roadmap 2.0’s report and action plan is the next generation of the original Roadmap, published in January 2014.

As an update of the preceding document, the Roadmap 2.0 will help the industry determine how logistics and supply chain trends and challenges can be turned into action plans to develop needed capabilities in the U.S. between now and 2030.

“The first Roadmap was called by some ‘the most important document to be published by the industry in more than 20 years,’” recalls Gary Forger, who spearheaded the effort to develop the original document during his tenure at MHI.

Gary Forger, Managing Director of Professional Development at MHI

“While the first Roadmap was comprehensive for the time, the staggering rate of change in the field during the past three years prompted the creation of this second edition”Gary Forger, Managing Director, Professional Development, MHI

“While it was comprehensive for the time, the staggering rate of change in the field during the past three years prompted the creation of this second edition.”

“The ultimate outcome is to grow jobs, increase America’s global competitiveness and advance our standard of living.”

The Roadmap 2.0 was developed in a 7-month-long process. Its content is based on input from nearly 200 strategic thinkers thought leaders – 70 percent of whom did not participate in the development of the first Roadmap – including material handling and logistics practitioners, suppliers, academia, associations and government.

Attendees contributed their thoughts during five separate roundtable events, held August through November in Atlanta, Georgia; Trenton, New Jersey; Ontario, California; Tucson, Arizona; and Chicago, Illinois.

In addition to Forger, who served as editor of Roadmap 2.0, a five-person writing team developed the report. They include:

As part of the document’s release, its five authors joined Forger today during “Get Ready for the Next 10 Years in Material Handling and Logistics,” a ProMat on-floor education session to discuss Roadmap 2.0’s content, and share insights into ways the industry can use the document to refine their own strategic planning initiatives.

The Roadmap 2.0 is a collaborative industry effort, involving five association partners and seven publication partners.

Association Partners:

Publication Partners:

MHI is providing administrative and financial support for the development of the Roadmap 2.0.

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Keeping Your Cargo & Freight Business Moving With Price Optimization

February 28, 2017

Top-5 For-Hire Carrier Focuses on Price Strategy to Return to Profitability
Executives’ focus on improving margins and managing freight mix through the prioritization of price strategy has enabled this for-hire carrier to turn around their business and return to profitability.

This top-five U.S. for-hire carrier has provided less-than-truckload (LTL) freight services across North America since 1924.

Challenges
In the cut-throat world of LTL trucking, this transportation service provider needed pricing tools to return their business to profitability.

In a business notorious for competitive price pressure and rampant discounting, the absence of a science-based pricing strategy led to inconsistent and reactive pricing practices.

This, combined with an inability to understand profitability without time-consuming analysis, rapidly led to a significant set of opportunistic customers contributing to substantial revenue leakage for this service provider. Price pressure and thin operating margins translated into a deteriorated stock performance from 2011 through 2014.

Solutions
Every engagement is unique and deserving of targeted, data-driven guidance.

Pricing decisions can be nuanced because certain customers have access to more highly discounted pricing because of the volumes that they purchase or the highly competitive market in which they purchase.

PROS Holdings, Inc., a big data software company that helps customers outperform in their markets by using big data to sell more effectively, helped this LTL trucking carrier to sift through these special cases and recognize that, while every case is deserving of targeted segmentation price guidance, it does not necessarily mean deeply discounted prices for every case.

Read: Price Optimization Finally Becomes A Supply Chain Tool

With scientifically generated segmentation, this for-hire carrier can now run analysis on comparable customers to identify those that are underperforming and require targeted price improvements.

Further utilizing this segmentation, data-driven price guidance based upon customer and transaction attributes is provided at the time of quote for every inquiry.

Results
With tools for monitoring sales effectiveness, measured return is the real reward.

Utilizing PROS tools to monitor their pricing team’s adherence to price guidance is providing immediate performance feedback and further incentivizes this trucking company’s team members to proactively seek opportunities for price improvement.

By identifying and reversing underperforming accounts, this LTL provider is converting revenue leakage to immediate margin uplifts without impact to operational processes.

Finally, consistent pricing is generating renewed customer confidence and satisfaction that is accelerating the speed of business.

Related: Inventory Optimization Needs the Right Processes to Make a Difference

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Amazon Enters Trillion Dollar Ocean Freight Business

Amazon doesn’t want to have to rely on (and pay) third-party delivery companies. It’s already taken control of lorries and planes and now it’s taking control of ships, The Wall Street Journal reports.

Specifically, the Seattle-headquartered ecommerce giant has started handling the shipment of goods from Chinese retailers that sell on its platform to its vast US warehouses.

Previously it left this to global freight-transportation companies.

Since October, Amazon has helped to ship some 150 containers of goods from China to the US, according to The Wall Street Journal, which cites shipping documents collected at ports of entry.

“Amazon has integrated all those services into one basket,” said Steve Ferreira, chief executive of Ocean Audit, in the report.

He noted that, for Amazon, creating this type of shipping service will give it “a lot of strategic value.”

Shipping is a trillion dollar industry, according to MIT Technology Review.

Amazon Expands Into Ocean Freight
Move marks online retail giant’s latest step in effort to build out its delivery business

The online retail giant has begun handling shipment of goods by ocean to its U.S. warehouses from Chinese merchants selling on its site – taking on a role it previously left to global freight-transportation companies.

The move marks Amazon’s latest step in a multiyear effort to build out its delivery business. The company doesn’t own or operate ships, but is openly acting as a global freight forwarder and third-party logistics provider, categories of companies that book space on ocean vessels and truck goods between ports and warehouses.

Amazon has helped ship at least 150 containers of goods from China since October, according to shipping documents collected at ports of entry that were compiled by Ocean Audit, a company specializing in ocean-freight refund recovery for shippers.

This month, Amazon started posting rates for new services such as sorting, labeling, and trucking shipments that traditionally are handled by global freight companies. The services and rates were posted under the name of its Chinese subsidiary, Beijing Century Joyo Courier Service Co., with Distribution-Publications Inc., a widely used platform for such information.

Full story The Wall Street Journal

 

While Amazon doesn’t actually own any ships itself, it has started reserving space on ocean vessels and acting as a global freight operator and logistics organizer.

Other freight operators include, DHLFedEx and UPS.

Last August, Amazon unveiled its first branded cargo plane, one of 40 jetliners that will make up the company’s own air-transportation network. Amazon also has its own fleet of branded delivery trucks and it is testing delivery drones in a field just outside Cambridge, U.K.

Amazon shipped over a billion items over the 2016 holiday season alone.

Amazon’s China rival Alibaba recently tied up with Maersk Line, offering customers dedicated space and prices on the Danish carrier’s ships.

Related: Fighting Amazon’s Supply Chain Takeover

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New U.S. Importer and Exporter Strategies for 2017

With the Trans-Pacific Partnership (TPP) now a distant memory, and prospects of the Transatlantic Trade and Investment Partnership (T-TIP) fading fast, shippers face new challenges when considering doing business in Asia and what remains of the EU.

Still, free trade agreements (FTAs) have proven to be one of the best ways to open up foreign markets to U.S. importers and exporters, as they continue to reduce barriers to entry, protect U.S. interests and enhance the rule of law in the FTA partner country.

According to the Office of the United States Trade Representative (USTR), the reduction of trade barriers and the creation of a more stable and transparent trading and investment environment make it easier and cheaper for U.S. companies to import and export their products and services to trading partner markets.

According to USTR analyst Lamont DeChance;

“47% of U.S. goods went to FTA partner countries last year, while U.S. merchandise exports to the 20 FTA partners with agreements in force totaled $710 billion, with the United States enjoying a trade surplus in manufactured goods with our FTA partners totaling $12 billion in 2016”

However, with some policy analysts suggesting that the U.S. may be entering a new “cold war” with former trading partners, it might be best to remember the words President Reagan when he was dealing with belligerents in the 1980s: “trust but verify.”

To that end, the Broker Known Importer Program (BKIP) establishes a process for licensed, permitted U.S. customs brokers to identify importers in connection with their import related activities.

Two years ago, The National Customs Brokers and Forwarders Association of America, Inc. (NCBFAA) has developed this Customs and Border Protection (CBP)-approved review list that the customs broker can use to identify eligible clients.

“The review list enables the customs broker to verify the importer’s identity and confirm the importer’s understanding of its compliance obligations in areas such as entry declarations, valuation and preference programs,” explains Alan Klestadt, NCBFAA’s customs counsel. “The review also addresses documentation and information requirements for customs clearance, record keeping and drawback.”

Alan Klestadt, NCBFAA’s customs counsel

“This voluntary program, both for brokers and importers, is targeted for the shipper who is a regular importer into the United States”Alan Klestadt, NCBFAA’s customs counsel

According to Klestadt, CBP wants to use the relationship between brokers and their importer customers to assist with its current mission. “The NCBFAA has developed this BKIP program to provide a way for CBP to benefit from this relationship,” he says “The thought behind this program is that there are a limited number of importers who will avail themselves of the Importer Self-Assessment (ISA) and Trusted Trader Programs.”

That being said, the customs brokerage community can augment existing relationships to become a “force multiplier” for CBP. According to the NCBFAA, customs brokers can leverage their relationships with the importing community to identify those importers who are reputable but may or may not qualify for or otherwise elect to participate in the ISA or Trusted Trader programs.

“This voluntary program, both for brokers and importers, is targeted for the shipper who is a regular importer into the United States,” says Klestadt. “The program is an opportunity to identify and address compliance issues with the importer prior to entry, alerts CBP to the fact that the broker has performed a review and provides the importer with some benefit for having engaged in the process.”

NCBFAA notes that the participating broker can use the CBP-approved template to conduct the review with an importer. The broker alerts CBP to the fact that this activity had occurred through an electronic flagging at the time of entry. CBP may offer benefits to the importer that might impact the importer’s risk profile in CBP’s targeting system. Additional benefits may also be extended to importers under this program.

Finally, the benefits extended to an importer under this program are unique to a specific importer-broker relationship – that is, each broker has to independently review the importer, and the broker may not rely upon a review performed by another broker.

“Brokers have to periodically re-confirm the importer’s compliance and, upon request, have to demonstrate to CBP that the review was conducted according to established guidelines,” says Edward Greenberg, NCBFAA’s transportation and general counsel. “This review is considered ‘customs business’ as it is an activity that relates to the preparation of documents/data that is transmitted to CBP in furtherance of the clearance process.”

Remain Ever Vigilant
Taking extreme precautions sounds like good advice to Karen Quintana, Customs compliance director for Yusen Logistics (Americas) Inc. Quintana notes that The Trade Facilitation and Trade Enforcement Act, which was signed into law by President Obama last year, has since renewed enforcement focus and given CBP “some teeth” in certain areas such as intellectual property rights, post-release, revenue, health and safety, agriculture, forced labor and most importantly antidumping and countervailing dumping evasion.

Karen Quintana, Customs compliance director for Yusen Logistics (Americas)

“Some challenges CBP will face are the larger vessels and aircraft bringing in bigger volumes”Karen Quintana, Customs compliance director for Yusen Logistics (Americas)

“CBP will hammer in those areas in 2017 and will also remain on task with its ‘primary mission set’ that aims to protect against terrorism and enforcement and facilitation,” Quintana says. “This includes the enforcement of immigration laws, narcotics smuggling and agriculture enforcement.”

Quintana concludes that some challenges CBP will face are the larger vessels and aircraft bringing in bigger volumes. Last fiscal year, CBP processed 12 million containers and volumes are expected to rise.

Meanwhile, CBP will continue to strengthen its Centers of Excellence and Expertise (CEE) through January, 2017, say Customs officials. Full implementation of Automation Commercial Environment (ACE) is on track with outstanding deployments, post release capabilities, reconciliation, collection statements, drawback, and duty deferral expected to fold in by the end of the first quarter of this year.

Compliance as an Advantage
For Beth Pride, president of the global trade consultancy BPE, worldwide political upheaval has “profound implications” for today’s logistics managers. These include new trade agreements; tariffs on offshoring; currency manipulation; U.S. sanctions programs; and export controls.

“We’re advising shippers to adapt best practices and take an active role in quantifying the risks and the cost of mitigation strategies,” says Pride. “If they automate and continuously measure high-risk operations, shippers can turn trade compliance into a strategic advantage.”

For Pride, the most urgent concern U.S. exporters should address this year is related to initiatives mandated by the Bureau of Industry and Security (BIS). Managed by the U.S. Department of Commerce, the BIS mission is to advance U.S. national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership.

According to Pride, the BIS conducts two types of outreach. “One is by the Office of Export Enforcement [OEE] and the other is a compliance outreach event by the Export Management Compliance Division, Office of Exporter Services [OExS]. “The OEE outreach events are driven by a variety of reasons. This Hot Topic will focus on the latter type of outreach event.”

Beth Pride, president of the global trade consultancy BPE

“Worldwide political upheaval has ‘profound implications’ for today’s logistics managers”Beth Pride, president of the global trade consultancy BPE

BIS’ OExS has been doing these compliance outreach events since 2015. The intent is to discuss export compliance procedures generally and get an understanding of how different organizations handle export control compliance.

“This helps BIS OExS better appreciate the different approaches employed by companies and assists BIS in conducting compliance training for the public,” says Pride. “It has also been extremely beneficial for BIS to learn firsthand what areas of the Export Administration Regulations are not well understood to help in their other OExS outreach seminars.”

As logistics managers prepare for the compliance outreach visit, the first thing they should do is run their ACE export report and look for any inconsistencies or errors, advises Pride.

“Shippers should research every anomaly, and if they do find errors, correct the Automated Export System Electronic Export Information filings as soon as possible. The next preparation task is to review their Export Management and Compliance Program and make sure it is accurate and up to date.”

Pride also advises shippers to be prepared to share their “product matrix” and provide information on their classification process.

“Shippers should be ready to share examples of training materials such as their new hire training, trade compliance training and job specific trade compliance training for engineering, product management and logistics,” she adds. “It’s even better to share your training logs to show that you provide training on a regular basis.”

Be Not Afraid
While caution and risk aversion should remain top of mind with U.S. importers and exporters, prominent industry analysts contend that the global commercial outlook remains fairly positive.

Read: Analysts Are Telling Shippers to Expect Less Rate Volatility in 2017

Michael Gravier, an associate professor of supply chain management at Bryant University, says that there’s been only a “temporary stall” in trade since the U.S. Presidential elections. However, some analysts contend that world trade has reached its limits, he says, noting that evidence from the International Monetary Fund indicates that whereas trade from 1985 to 2007 grew at twice the rate of GDP, it has barely kept pace over the past four years.

Michael Gravier, an associate professor of supply chain management at Bryant University

“Companies that continuously innovate their organizations and invest in talent and knowledge management will be best positioned to benefit from the future world of integrated data flows”Michael Gravier, associate professor of supply chain management, Bryant University

“But there’s another way to look at the data,” counters Gravier. “Trade grew more rapidly than GDP for many decades because of the initial boost from the implementation of the infrastructure, agreements, and other enabling elements of free trade since the Bretton Woods conference in 1944.”

According to Gravier, there is ample room for trade agreements in the future. Indeed, with 164 countries part of the General Agreement on Tariffs and Trade, most countries have already made at least some basic move to join the global economy. In the meantime, commodity prices have dropped; and once corrected for the change in pricing, volume for many commodities such as oil has actually gone up.

“Most importantly,” adds Gravier, “many have overlooked that there’s one form of global trade that continues to boom: the digital flows of data and information, this has been growing volume by 45 times since 2005, and may already contribute more value than the flows of goods.”

Gravier adds that data from a variety of sources indicate that these digital flows likely contribute to a “harder-to-measure,” but continued integration of the global economy.

“Companies that continuously innovate their organizations and invest in talent and knowledge management will be best positioned to benefit from the future world of integrated data flows,” adds Gravier.

“This is especially true in an era that may see marked increase in protectionist policies. No amount of protectionism will stop the sharing of ideas and knowledge, making them good investments.”

Related Article: Creating a Synchronized Global Trade Supply Chain

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