THE ECONOMIC TURMOIL FOR GLOBAL LOGISTICS AND SUPPLY CHAIN MANAGEMENT - MORE THAN A TEMPEST IN A TEAPOT

There is turbulence and uncertainty throughout the global economic system. From High Point to Hong Kong, attendance and interest at trade fairs is down. Consumers are hunkering down with a bunker mentality. They are cutting back on what they buy. That ripples back throughout the global economy and impacts manufacturers, retailers and wholesalers who are contracting what they make, purchase and carry in inventory.

The cascading effect of the slowdown then affects logistics service providers—3PLs, forwarders, ocean carriers, NVOs, truckers, intermodal and warehouses/storage operators. They are between the proverbial rock and a hard place with higher costs, especially fuel, and softening revenues. This problem is compounded for asset-intensive logistics service providers who need large volumes to drive lower costs per unit.

Rates are softening as carriers and forwarders try to hold onto declining volumes. They are canceling new ship orders. Reducing rates cannot generate business and volumes that are not there. Lack of cargo does not fix overcapacity. Cutting rates can provide some cash flow to hopefully get through the slowdown. It can also create and compound hemorrhaging. The peak season is not strong. Ocean carriers are taking more capacity than usual out of trade lanes, which in turn impacts exports for lack of ships and space. These carriers are also dealing with having to lay up ships as additional tonnage continues to come into the market. Capacity management is an issue for carriers.

SHORT TERM. What can wholesalers, retailers and manufacturers do for the next twelve months or so to get through this? Ride it out? Scale back? Round up the usual suspects and push back at carriers and suppliers for lower prices? Given the severity of the situation and the problems confronting all businesses, these approaches may have limited potential.

More should be done as to remedies, not fixes. The difficulties create opportunities to implement needed changes in many supply chains. Some areas to address are:

• Manage inventory. Managing inventory does not mean managing what is on-hand. Often too much is paid to what to do with stock and not to do with better supply chain management. Good inventory management addresses directing what a firm should have as to the right quantities in the right quantities and at the right place.

  Two metrics to evaluate the condition of a supply chain and its inventory are turns and cycle time. Inventory turns should be a total of all inventories and should also be broken down for ABC items and/or by product categories. A similar analysis should be done for cycle time to measure how long it takes from issuing a purchase order or make order until the items are sold and payment is received. The total measure should be dissected to see the key time blocks that drive the total and where there are long inactivity for moving product, for moving information and even for getting paid.

  Successful management of what inventory is ordered or made and delivered emphasizes two elements—supplier performance and demand planning/sales & operations planning. Supplier performance, namely shipping or delivering on-time is critical to successful inventory management. To complement it, demand planning/sales & operations planning is important, especially for internationally sourced items that have long lead times that exceed confident demand planning horizons.

• Go Green. A key focus with the carbon footprint is energy usage which translates into energy costs. Change from truckload to intermodal; consolidate several smaller shipments into a truckload with stop-off; consolidate LCLs into full containers; zone-skip parcel size shipments or other ways to make maximum use more "energy-efficient" practices. Assess packaging, both for the consumer carton and the shipping, and revise both as to unnecessary cardboard or other materials and as to recycling waste. Analyze the company's warehouse network for possible location changes. Even if the company has only one facility; is it in the right location? The distribution network review is always a good practice every five years or so, and especially now with fuel costs and the green social and environmental issue. Better managing inventory—and not buying and making products that do not sell—is a good save resources and be green, especially with the reality of climate change.

• Be Lean. Taking waste, such as excess inventory and time, out of the supply chain has always been important. It is especially important now and going forward for both the international and domestic supply chains. Lean for international supply chain management has often been passed over in lean discussions with the emphasis placed on domestic. That shortcoming should be addressed to create real lean supply chains and companies.

  Tighter credit will force companies to be lean because they will not have access to easy credit as they once had. Credit will be a less readily-available resource that must be used wisely. Unnecessary expenditures for inventory and other items and services will be constrained as companies try to make judicious use of capital. Not purchasing, manufacturing and warehousing excess inventory is both lean and green.

LONG TERM. The U.S. and global economies may be going through more than just a slow, rough period. The case can be made that the effects precipitated by the financial meltdown will have a long-term effect on business. These would be more than paradigm shifts. There will be adjustments, perhaps significant ones, to the global economy.

Substantive changes for supply chain management, sourcing and manufacturing would occur. These would be driven by more than moves to low cost countries; they would be shifts that go beyond risk mitigation, or even retrenchment or realignment. There will be transformation of many businesses and business models. Companies will transform, by initiative or force, what they do and how they do it. The changes would apply to and impact manufacturers, retailers, wholesalers and logistics service providers.

Doing nothing or doing little or going through the motions or doing some business version of three-card monte is not a good approach to weather what is happening and what will happen. For example, ocean carriers can face bankruptcy or merger and acquisition, even though there is excess capacity.

Companies will have to develop new strategies. Being locked into the present position may not be a viable strategy or option. Market, operations competitors and other familiarities as are understood now may be gone. Multiple unknowns that can develop from the financial and economic challenges can create multiple strategies. The range of strategy possibilities may be more qualitative than quantitative. Unknowns by definition bring risk.

Future alternatives for manufacturers, wholesalers and retailers should recognize unknowns, such as supply chain viability. Supply chain management has, to a great extent, been taken for granted by top management. As a result, its complexities have often been reduced to matters of costs for freight and other functions.

Logistics service providers should recognize that business will change. The reduced financial value of companies can create an incentive to buy competitors to fill niches in geography or industries served. This excludes issues as to funding availability and the ability to debt leverage being down significantly at present. But if their customers transform their businesses, then any acquisitions may miss the shifts in geographies or industries.

CONCLUSION. The future that evolves from the present economic and financial problems can be significantly different that what has been going on. Businesses will change. Supply chain management will change. This challenge will create opportunities for visionaries and risk takers.

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