SUPPLY CHAIN RESOURCE COOPERATIVE

Bob Trebilock, editor of the Supply Chain Management Review, sent me an interesting email today that poses an interesting set of questions.  Bob writes:

“A friend sent me an email today with a link to a column by Peter Morici, a well-known conservative economist and writer (you see him on Xerox commercials wearing a bow tie) titled:  Lift Vocational Education, not Minimum Wage, to Fight Inequality.

Morici argues that we don’t need to raise the minimum wage for those jobs that pay minimum wage – that’ll only create more unemployment because companies with low wage jobs will just automate rather than pay the higher wage. He uses the example of McDonald’s investigating automation technologies to replace workers in its restaurants. Instead, he argues that we should encourage and support vocational education that will train workers for higher paying jobs. Not to step into the match, but I write about warehouse and factory automation. DCs and plants have been automating for years to eliminate the number of higher paying jobs on the shop floor, and that ain’t going to change. But, that’s not my question.

Today’s NYT has an article about how fast food restaurants like McDonald’s and Burger King pay $20 an hour – a living wage – in Denmark. .

Here’s the sentences that caught my eye in the NYT article:

“In interviews, Danish employees of McDonald’s, Burger King and Starbucks said that even though Denmark had one of the world’s highest costs of living — about 30 percent higher than in the United States — their $20 wage made life affordable.

True, a Big Mac here costs more — $5.60, compared with $4.80 in the United States. But that is a price Danes are willing to pay. “We Danes accept that a burger is expensive, but we also know that working conditions and wages are decent when we eat that burger,” said Soren Kaj Andersen, a University of Copenhagen professor who specializes in labor issues.”

Bob asks an interesting question:  Is the notion of paying a higher wage – whether it’s $10 an hour, $15 an hour, or $20 an hour – a potential competitive advantage by a company touting what it does to lift domestic workers out of poverty?  Many companies today  use certifications and labeling to argue that they’re charging a higher price for coffee or tee shirts to benefit workers in Ethiopia or Bangledesh.  But could that same argument be used as a basis for lifting American workers out of poverty?

This is a compelling argument.  But it boils down to whether the American public will pay more for their burger knowing that it is helping someone make a living wage.  Some of the research we have done through the Center for Environmental Farming suggests that consumers SAY they will pay more for a locally grown product – but the empirical evidence doesn’t always support that..

Andrew Pederson, a co-author on a joint article soon to be published in SCMR who has a great deal of experience working in the fair labor space, provided his input:

“My short answer is yes, though I wouldn’t accept a dogmatic view either way.  Income is absolutely the most important factor in reducing poverty and improving living conditions generally, and both vocational education and higher minimum wages would likely contribute to higher incomes.  It’s also very tricky to measure, and the corporate “economic impact” campaigns I’ve worked on previously have been highly politicized and deeply suspected by journalists and the general public. So far, most consumers haven’t shifted their buying criteria very far from price, either because they cannot afford to do so or because the “externalities” now being priced back into some products are not important to them.  I would like to believe that the former is true, and that as greater production efficiency from automation and other technological innovations eliminates jobs we are quite literally unwilling to pay humans enough to do, the labor market will shift to more valuable skills that will increase incomes. As incomes increase, perhaps then a majority of consumers will be more able and willing to pay the more expensive prices that will drive lasting changes in sourcing and production.” 

My colleague Andreas Wieland (who is German) actually lives in Copenhagen Denmark, and added his two cents:

“Denmark is really expensive compared to Germany, where people mainly look at the price of products. Unlike in Berlin, where I could afford going to a restaurant almost everyday, this wouldn’t be possible here. However, the quality is also very high, as Danes like high quality. Meat is usually organic here. When you look at wages you also have to see that 20 euros in Denmark cannot be compared to 20 euros in North America, as the social system in Europe has, of course, quite a high standard and the wages are especially high in Denmark. What you can see here, too, is that Danes tend to buy a lot of organic and social-friendly products. This is, because of the higher standard of living than in the U.S., which makes such products affordable for almost everyone, but also because being eco-friendly is part of the Scandinavian culture. I also see less Danes buying in chains like H&M than in Germany or especially in the U.S. This also indicates that Danes like high quality and are mostly rich enough to afford it. I think it is part of the culture and culture changes slowly.”

Should we let the free market decide this debate?  Or is legislation required?  What do you think?  Feel free to post your thoughts…

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More and more global luxury brands such as Gucci, Louis Vuitton, and others are promoting themselves as Lifestyle brands, spanning many products including fragrance, home collections, apparel, paint, wallpaper, foods, and many other products.  In this environment, the supply chain and logistics task becomes even more complex, as it involves delivering and fulfilling product and service support to deliver a lifestyle “vision” around the world. Many of the Lifestyle brands are licensed across multiple geographies. In this environment, supply chains are not “pull”, but rather “push” in nature.    Designers decide on a life style concept, and plan on what they are going to sell – which is a PUSH based supply chain.  Such brands may ship small runs of five bags, gowns, or shoes that cost thousands of dollars, whereas typical apparel products are produced in volumes of hundreds of thousands going to low cost retailers.   In this environment, global luxury brands have to design their supply chain based on who they are today, and who they are trying to be based on the projection of their image to the public.

A pull-based supply chain is different – the system recognizes the demand trigger and reacts to it.  But for luxury brands, designers are making decisions TODAY about what people might be wearing in 15 months. Luxury brands are also not like “fast fashion companies” like Gap, Zara, H&M, and others – they buy fabric, throw it out, find out what sells, and make more of it!  Global luxury brands may produce a single product one time, and never produce it again….ever.  These products are sold as a “look” – that is to say, they include several different products that will arrive at a merchandise location at the same time, that fit together for an overall lifestyle design feel and aesthetic.  Delivery reliability is much more important than speed in this environment.

The nature of pricing and timing is critical for this industry. Designers are by their very nature fickle creatures who change their mind frequently, choosing new fabrics, new designs, new colors, and often challenging materials –  and that is what makes our supply chain difficult.  Affluent consumers are willing to pay for higher-margin merchandise, but only for a very short time.  They will pay a price that yields 70% gross margins, which converts to negative margins in 12 weeks.    A  fashion item loses value very quickly, and if not sold during a very short season won’t be worth anything a week later. The supply chain design is very much focused on contract manufacturing to a network of factories.  This is a challenging sourcing base, and global luxury brands must also pay attention to general labor and supply chain compliance policies. Designers will specify fabrics to contract apparel cut and sew operations – which requires alignment of networks.

Most of the luxury brands’ global supply chain manufacturing networks are in Asia, with the biggest location being China – which is becoming too expensive.  There has been a strong push for more US manufacturing in recent years.  The problem, of course, is that companies struggles to find individuals who are willing to work in apparel manufacturing plants. Another interesting observation is that many luxury brands ship to retailers at the end of the month, because big retailers such as Saks, Macy’s, Penny’s, and others are measured on “open to buy dollars” and “investment productivity”.  These retailers will snapshot their inventory productivity at the end of every month for the financial analysts…which means the brands must ship to these retailers at the end of our month….which are then received into inventory the very next day at the beginning of the next month, to ensure the measures look good.! The entire apparel supply chain is driven by these financial metrics.  A lot of the supply chain behaviors are driven by these financial measures, compensation systems, and bonuses are based on that metric.

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A recent report by Software Advice - a supply chain execution software reviews siteprovides insights into what a group of executives surveyed is looking for from supply chain job listings.Software Advice analyzed 200 job listings to find out what it really takes to be a supply chain manager.  Some of the highlights included the following.

  • On average, employers want a supply chain manager with 7 years of experience.  However, 40% are willing to look at new entrants that have less than 5 years of experience.  This means that students who are graduating and looking for a job should try to get at least a couple of summer’s worth of job experience, even if it is not directly job related.  For MBA students, internships are critical to finding a job!
  • 72% of job listings included a Bachelor’s degree requirement. 17% preferred candidates with an MBA. My experience is that some employers would prefer to find undergraduates for their open roles, and do some training themselves.  Others just want MBA’s.  So you need to do your homework if you are looking for a job!
  • 37% of employers wanted a supply chain manager with a professional certification. One third of employers specified an APICS certification.  Bottom line:  APICS certification is good, but working towards CSCMP or ISM certification can’t hurt either.
  • 45% of employers want undergrads with a SCM concentration – but 45% will also look for a general business degree.  25% are looking for engineers to work in SCM, and another 5% want Finance or Scientific degrees.  For example, to work in pharmaceutical industries, some companies will only look at students with a chemical engineering degree..
  • ERP or MRP experience is a plus in 40% of cases.  SAP is preferred followed by Oracle experience..
  • Hopefully you like to travel – 33% of employers say some travel is required.

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Many companies are still proclaiming that they have  “collaborative relationships”, but nowhere is this less the case then in the construction industry in oil and gas. In this environment, traditional Design-Build relationships are more risk-prone and litigious then ever.

Recently I met with a group of companies in Niagara Falls, at a meeting hosted by Aecon, a large construction company, that hosted their customers in a number of industries. Aecon is seeking to build a new method for integrative partnership development. Their founder stood up at the end, and emphasized – “Partnerships have always been a part of Aecon – the company was indeed founded on partnerships.” Some of the discussions focused on performance-based contracts, and examples were discussed. In an example of such a contract, one of the clauses that really caught my attention was the following.

Relationship of the Parties. Although this Agreement establishes a relationship of mutual trust and good faith among the Parties, who recognize that their individual success is directly tied to the performance of other Project Participants, it does not create an agency relationship, fiduciary relationship, partnership, or joint venture among or between the Parties.

If you read this clause, what it means that the parties agree that both parties are mutually accountable and agree to work together!

The Architect and Contractor are each independent contractors solely responsible for directing and managing their own forces and services within their respective area of responsibility as described in a different section of the contract.  All responsibilities are clearly laid out, and agreed to, within the context of the agreement. The Parties acknowledge that this Agreement is not a design-build agreement and that each Party, and each individual entity that is a Party, is responsible for its own errors, omissions, or construction defects to the extent provided in this Agreement. Likewise, nothing contained in this Agreement makes any Party jointly and severally liable for the negligent acts or omissions of any other Party, except that (a) the Contractor is responsible for the acts, errors, and omissions of its subcontractors, and the Architect is responsible for the acts, errors, and omissions of its consultants; and (b) the Incentive Compensation Layer (“ICL”) may be eroded if errors or omissions of Architect, Contractor, or those for whom they are responsible increase the incurred Chargeable Costs.

What a simple and well-defined statement! The description provides very clear guidelines on how to handle issues as they arise. Responsibilities are clearly laid out, and impacts understood!  This is what contracts are supposed to do – lay out responsibilities, and drive appropriate channels for review of performance metrics, drive problems to their root cause, and establish the roles and responsibilities for all parties to resolve issues.  This not only prevents problems later in the contract, but ensures continuity of the relationship and drives both parties to continuously improve it.

As one representative from Union Gas noted: “The scorecard we built for this agreement has our mutual interests at stake, and we are both invested in this.  Things happen on a major project:  permits are late, materials are changing, but we are able to keep the commitments and continue to get better despite the problems that occur.  This is what we mean when we talk about trust.”

What was also apparent in this relationship is that when problems occur, trust combined with metrics is what drives the relationship to grow.  For example, one of the contractors noted the importance of project controls in managing issues. “Trust involves on-going work, transparency, open books and being results focused.  We think about project controls, and in 2013  we really missed the mark.  We were working through the jobs and didn’t have a handle on the costs and schedule and we failed in that aspect.  We admitted this upfront, and then worked to develop a tool that would allow us to monitor and review projects costs and workflow on a more regular basis, and be able to catch problems early on to resolve them.”

The conference was not only well-attended but brought forward a number of insights on how to mange long-term partnerships in the volatile project management environment of oil and gas.

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The proceedings of the 2014 Workshop on Human Centered Big Data Research was recently posted.  At this meeting, I was selected to make a presentation on the organizational structure and application of supply market intelligence.  (My presentation was also captured in a video that you can watch if so inclined!)

My presentation presented results of a recent study on key actions that organizations are taking to improve access to supply market intelligence.  The research shows that many organizations are using haphazard approaches to drive insights into supply markets, but that there is an increasing recognition of the value of market intelligence in many industries, particularly in manufacturing.

It was also clear that the field of Big Data is expanding rapidly, and that intelligence agencies are including many different approaches to collecting data from multiple sources to drive insights.  For instance, a study by Samantha Szymzcak, Dan Elk, and William Elk  identifying human attention as the limiting resource for employing Big Data for operational use. The framework leverages prior research in attention management, sensory perception, and joint cognitive systems to lay out a Human Centered Big Data Research agenda.

Another fascinating topic was that of human “sense-making”, which means that there is not always a need for perfect data.  Alex Endert and Bill Pike discussed how many phenomena we wish to understand do not always have a  defined start and end, data about these phenomena arrive in stream over time. The challenge is to characterize the phenomena from this stream, allowing models or hypotheses that explain the phenomena to evolve over time as data arrive. Their ultimate finding – perfect data is not needed to drive the right intuition and deductive decisons in many cases!  This is good news, as many of the datasets found  in supply chains are indeed imperfect…

There are many other great presentations and abstracts that occurred at this conference that anyone interested in Big Data and intelligence should browse!

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The USDA released a new study that I worked on with Jay Golden from Duke University this past summer.  We spent a good deal of time collecting research from a variety of different sources, to put together a picture of what the biobased economy looks like.

Agrilculture Secretary notes that “This new report presents the opportunities U.S. agriculture and forests have in the emerging bioeconomy,” said Vilsack. “The recent inclusion of mature market products into the BioPreferred program strengthens our commitment to the U.S. biobased economy and brings together two of the most important economic engines for rural America: agriculture and manufacturing.”

In the next phase of our study, we will be working on the next phase of the report:  An in-depth economic study of biobased products and economic impacts, including research on job creation and economic value. It will be the first federally sponsored economic report of its kind targeting the biobased products industry in the U.S. Congress mandated the upcoming study in the 2014 Farm Bill.

The objective of the Delivery Order is to produce a final report entitled, “The Economic Impact of the Biobased Products Industry.” This final report includes six major elements, including:

  •  the quantity of biobased products sold;
  • the value of biobased products;
  • the quantity of jobs created;
  •  the quantity of petroleum displaced;
  • other environmental benefits of biobased products; and
  • areas in which the use or manufacturing of biobased products could be more effectively
  • used, including identifying any technical and economic obstacles and recommending how those obstacles can be overcome.

As part of this study, we will be interviewing subject matter experts at a variety of enterprises, and conducting a major database construction and scenario modeling activity.  A lot of work – and it has to be done by March 2015 in time for the Farm Bill deadline!

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A new Gartner 2014 Top US Supply Chain MBA Program Rankings report of top graduate supply chain programs within the United States came out yesterday – with the NC State Jenkins MBA and the Supply Chain Resource Cooperative advancing seven spots to 15th place. This follows the college’s undergraduate supply chain ranking of 24 in August, its first time in the Gartner ranking process. This is great news, considering that NC State’s business college is just over 20 years old (the college was established in 1992), and its supply chain program even younger (the SCRC was founded in early 2000).

NC State’s graduate supply chain program was also among the “biggest upward movers” since Garner’s graduate report was last published, and among those scoring the highest for internships and work experience exposure. NC State’s undergraduate supply chain program was among those scoring highest for internships.

The report notes a number of major trends that they see in the winning schools:

The broadening of supply chain curricula to reflect the reality of today’s supply chain organizations.  This most certainly applies to NC State.  Our program engages our 20 top corporate partners to develop projects across a wide variety of different areas, including market intelligence, logistics, inventory, value stream mapping, cost management, supply management, transportation, performance metrics, and others (see Project Breakdown,)

The exposure of more students to internships and co-ops, and more applied project work —often for sponsoring companies — on-site and in the classroom.  Well – we certainly blew that criteria out of the water!  At the conclusion of the Spring 2014 semester, the SCRC will have sponsored 503 graduate and undergraduate project teams, involving 1797 students and 55 industry partners since being established in 2000.  During the 2013 – 2014 academic year, the SCRC deployed 56 graduate and undergraduate practicum teams working with business & industry partners (29 Fall 2013 / 27 Spring 2014).

Dramatic increases in enrollment across the board, and new supply chain degree programs being established.  We have seen an increasing number of top level students come into both our MBA and undergraduate programs.  We have more new scholars and partner companies than ever before, and the numbers are growing.

Top students from top programs can command a 50% premium over the average and, in many programs, new supply chain graduates handily out-earn finance and accounting-focused M.B.A.s.  Ditto for NC State….our MBA graduates from our SCM program had starting salaries this year of $82,300, topping marketing and finance starting salaries handily…40% of our MBA student body now are in the supply chain concentration.  90% had internships their second year.

I am very proud of our faculty and course instructors for the incredible job they have done – but watch out for next year….we’re going for the top 10!

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Had a great time today speaking at the ProcureCon conference in Phoenix today, and spent a good deal of time talking to a number of the different solutions providers in the vendor area. I was amazed at the speed and convenience of the technical solutions emerging in the procurement area, based on the discussions I had with the individuals present.

For example, a discussion with Anu Gardiner at Docusign opened up my eyes to the technology involved in signing contracts. Anu discussed how when she signed contracts for her house she bought in 2003, it involved 80 signatures. When she sold the house last year, it was done all electronically – and even changes could be done via email. Anu formerly worked in procurement at Kaiser Permanente, and also pointed out how increasingly young physicians want to do everything on iPads (including accessing patient records) – and this will be a problem as patient confidentiality regulations can inhibit the ability of physicians to be electronically productive.

Chris Hahn from Coupa did a demo for me, showing me the ease with which Coupa software allows Accounts Payable and Sourcing groups to access all of their data online. The software was founded in 2006, and is based on the Amazon model of being able to quickly access data…because of how new the platform was, it is better able to drive solutions that are truly mobile and accessible to sourcing and contract managers from their iPhones. The solution also drives individuals to better align early payment, by ensuring the AP capability is able to convert payments within the time in the contract to take advantage of early payment dynamic discounts.

I also met Mike Erickson, who recently started up a networking group called the “American Council of Sourcing and Procurement Executives”. They have a linked in group which would be a good one to join…

Several companies are working on data readiness issues that are driving new technologies. the challenges involve ensuring data is entered correctly and also can be used to drive insight through better spend analytics, contract accessibility, and supplier scorecards. Providers in this space are all moving to mobile SAAS solutions that enable greater accessibility, including Perfect Commerce and Xeeva. Others are focused more on managing temporary work programs, such as Pontoon. I also met with a firm that specializes in negotiating third party contracts with transportation providers, AFMS.

Lots of really interesting presentations as well. The current session is talking about the difference in hiring Generation X (1961-1981) vs. Millennials (1982-today)….one issue is around Gen Xers focusing on ethics and stability, and wanting flextime and telecommuting, and allowing them to question rules and authority. Millennials on the other hand are heavily tied to social media, and often have a redefined family structure, with high debt….but many have also gone through a period of recessionary economics, and are more tied to being highly multi-task oriented….Lots to think about here!

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One of the most important themes in our recent BVL study on global supply chain trends and issues was the emerging importance of transportation management. Transportation planning is often overlooked in enterprise and supply chain strategy, and viewed as a tactical planning activity. However, recent events and research point to the increasing importance of having transportation management become part of the strategic planning agenda. This event will explore many of the emerging transportation trends and issues on the horizon:

• Increasing challenges associated with infrastructure limitations and bottlenecks impacting working capital, supply chain disruptions, and longer planning leadtimes. The highway infrastructure is bloated, and will continue to grow. Even transportation with batteries and natural gas powered engines will still have queuing issues to deal with.
• Regulatory mandates are reducing the times when distribution and trucks can access major metropolitan centers. As a result, deliveries will need to be made during off peak hours, impacting the ability of organizations to deliver packages to consumers relying on e-commerce solutions.
• New technologies are re-shaping the transportation landscape. Some of these technologies include driverless vehicles, GPS analytics, track and trace, RFID, and others that will have a major impact on how transportation is carried out in the future.
• Concurrently, numerous challenges exist with respect to the shortage of drivers. The average driver age is 55…and some reports note that for every 10 drivers that leave the workforce, they are only being replaced at 20% of this rate. We may find that major truck rates may go up in the near future.
• The impact of transportation on CO2 emissions, and the role that better and more efficient transportation planning has on the overall carbon footprint of the enterprise.
• The role of packaging and transportation will become more important. This will require early intervention and discussions between transportation and design engineers to find ways to not only improve “cube” rates on trucks and trains, but to also find ways to improve sustainable packaging, pallet return, and network design that will minimize the carbon footprint.

In exploring these issues, I will be sharing with you insights I’ve derived through interviews with several transportation subject matter experts and SCRC student projects. Additionally, we will be joined by a number of supply chain executives from other industries who will also share their insights into these questions.

More insights to come!

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Supply management research has established the axiom that firms are no longer operating independently, but indeed are part of an extended global network that is subject to high degrees of volatility, increasing customer expectations, and is subject to major forms of disruption risk. However, what is not well understood is whether supply manager behaviors have shifted to reflect this broader paradigm shift. One of the major threats to the global supply network is supplier financial default. Financial theory has explored the impact of default in the context of investments, such as when a firm suddenly defaults, investors learn about the default threshold of closely associated business partner firms. This updating leads to “contagious” jumps in credit spreads of business partners, and can rapidly spread. An example is the default of Argentina and the associated immediate spread widening on debt of other South American countries (most notably Brazil), as well in the business context of buyer and supplier firms.

The issues around supplier financial health has generated increased traction at the federal government level. Apple and Coca Cola are two of the major companies who this summer signed on to a White House program called SupplierPay, a voluntary program in which companies commit either to pay small suppliers faster or help them get access to lower-cost capital.  SupplierPay is a voluntary program in which companies commit either to pay small suppliers faster or help them get access to lower-cost capital. SupplierPay builds on the federal government’s QuickPay program started in 2011. It sets a goal of having small-business contractors get paid within 15 days of delivering a product or service. Quicker payments can strengthen small companies’ cash flows and make them less likely to need to borrow.

This first became a major issue during the 2009 global downturn.  Across multiple industries, suppliers in North America, Europe, Asia, and Latin America all experienced a sudden drop in volume, leading to a uniform financial threat and risk of default. Suddenly, the risk of massive tiers of suppliers facing obliteration became a reality. Traditional methods of supplier risk mitigation involve diversifying risk, multiple sourcing, or switching suppliers, which are not effective in situations where entire regions, industry segments, or supply chains are experiencing financial distress. This is particularly of concern in emerging countries, where major shifts in economic conditions bank lending rates, or currency issues increase the likelihood of supplier bankruptcy. Supplier default risk exposes buying organizations to higher levels of supply chain disruption, as suppliers often cannot meet contractual obligations in a state of bankruptcy.

While Supplier Pay is certainly a step in the right direction, a recent research study I’ve conducted with Marcos Paolo, a colleague at a university in Brazil, has found that supply managers need to do more than this.  One of the major issues is that suppliers may not be willing to discuss their challenges for fear of losing business, so it is up to supplier relationship managers to instigate these discussions.  Perceived supplier financial health is a measure of a responding buyer’s perception of financial health; whereas supply disruption involves a major financial incident that is discovered “after the fact”. (The most common of these during the 2008 period included disruptions to operations, sudden price increases, erratic deliveries, or layoffs that result in capacity shortfalls. Our research finds that higher levels of information exchange through direct communication can have an immediate impact on buyer’s understanding that a supplier is or is not able to withstand a major economic downturn or financial rough patch.  Perceptions may also be a function of suppliers who request contractual modifications and shorter payment periods. In cases when perceptions are modified by direct supplier intelligence, buyers can take actions to ensure risk mitigation, flexibility, and redundancy through contract renegotiations. Through cognitive processes, Yates and Stone (1992) articulate a four stage sequential process in which the situation affects judgment of loss, which influence overall evaluations of risk, which drive risk mitigation action. The converse of this is a situation is when buyers are unaware of the extent of supplier distress in an equivocal environment that is unanalyzable. In the absence of meaning, this can lead to suppliers suddenly declaring bankruptcy with no prior warning.

Supply managers should also be aware of the telltale signs: requests for early payment, delivery problems, social media activity, or other factors that may indicate a supplier may be experiencing financial difficulties. In this case, don’t be afraid to ask for a “sit down”, and have an open and frank discussion about their financial challenges. This may be well worth the time, and avoid a lot of potential problems in the long run.

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