SUPPLY CHAIN RESOURCE COOPERATIVE

For analytics to become truly effective in global manufacturing settings, veracity and consistency are critical requirements. Based on a recent interview with an executive at a large global apparel company, several insights regarding improvements in global consistency of data became important. Too often, companies seek to collect data for analytics, but do not consider that the data will be used as a tool for investigation into root causes, or as a predictive tool, or as a tool to communicate improvements. Rather, data is collected and viewed as a means for simply capturing what happened, at a given moment in time, and hopefully glean insights into why an event happened. This will never work – particularly as we move into an era of global outsourcing and contract manufacturing in low cost countries such as Vietnam, India, Bangladesh, Malaysia, Indonesia, Cambodia, Sri Lanka, and others in Asia.

Low cost country factory problems should be taken seriously, as they create risk for the brand, impact regulatory changes, and impact union management.  Three key points stand out as consistent reasons for problems in most low wage factories.

  • Union management issues
  • Safety issues are not well understood.
  • Benefits, salaries, and regulatory changes around labor

Driving consistency in analytic meaning is at the forefront of building a more reliable and predictive approach to capture a defined set of factory incident indicators. For instance, a simple incident such as a “strike” has a number of various possible meanings. A strike means something different in China then it means in Vietnam, and the reasons behind the strike will also be different. But to understand this requires deep knowledge of the situation. To truly understanding what is triggering strikes and protests, and what differentiates a “protest” versus a few hours of discussion between management and workers, a higher level of context and understanding must be captured in the analytical data collection mechanisms. The same goes for fatalities and management allegations – it is often difficult to understand the context in these situations without being there. For example, fatalities may include individuals who were killed off-site in a traffic accident on their way to work, something that does not reflect the lack of compliance on the factory’s part. On the other hand, a majority of injuries in factories occur because of violations in Standard Operating Procedures, where a worker violated the SOP or management failed to properly educate workers on the SOP. People were not aware of safety issues, and often there was not a culture of safety in the factory. This is a common element, that needs to be more formally captured in the data.

In this respect, seeking a relationship between audit work violations as a predictor for work disruptions would be a productive avenue for global sourcing managers and analytic exploration. Further indicators of a “culture of safety” include regular safety training for new and existing employees, a general awareness of safety, available training and educational materials, workers all wearing safety equipment voluntarily (not because they are told to!) and an open environment where safety and problems are discussed openly. Emphasizing the basics of safety through simple observations such as whether people walking up and down stairs are holding the handrail is important. Such minor violations are called out by co-workers to remind them instills a culture of safety.

A good example occurred in a low cost country factory. The factory was seeing an increases in safety incidents, and a conversation with the factory management team quickly made it abundantly clear the reason for their struggles. Quite simply, safety was simply not a priority, and the statement made by management was that “injuries just happen, and are part of manufacturing” was used. If this attitude prevails within the management team, then injuries are going to happen! This attitude needs to be reverse:  the goal of factory safety is to NEVER have an injury (vs. injuries are “normal” in this industry).  This will lead to a different mindset, a different culture, and a different set of  approaches that will drive down and in the short term eliminate injuries altogether.

The final element in factory problems, changes in labor regulations, will often result in a disruption, particularly if there is a poor relationship between the union leader and the factory management. Moreover, management must react early to regulatory changes, and must anticipate that the situation will cause a problem. Putting up a poster on the wall, without properly explaining and communicating what the regulatory change means, is not sufficient. If workers are not informed properly, then misunderstanding of policy changes will occur, and if a union is involved, will quickly lead to rumors and a strike. Factory managers need to change with unions much earlier, and not wait for them to react. In other cases, a majority of strikes occurred simply because workers were asking for a wage increase or bonus increase, or there were misunderstandings about bonus policies. Management must have people who are willing to sit down, and spend the time to have a two-way communication channel with workers and unions. This entails answering questions workers may have about how policies will affect them. Simply putting a suggestion box on a wall doesn’t work! Having a two-way communication will reduce the number of most strikes and protests, and there is empirical evidence to support this. In addition, a human resources person who has expertise in industrial relations, who is dedicated to the role and knows how to negotiate with a union representative, is a critical component of factory management.

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At a recent meeting I attended, several members of a quality team noted that suppliers sharing process capability data from their line would provide enormous benefit. Emerging real-time quality data systems being deployed by companies will improve the exchange of information between suppliers and Quality personnel, especially around inspection reports.  One area that has not been bridged yet, is the implicit assumption that everyone will be willing to share quality data including process specifications, SPC data, and other information from machines, inspection, maintenance, R&R gage studies, etc.  In fact, suppliers may be very reluctant to share data from their equipment, and the entire issue of bridging the culture gap of information sharing with suppliers will be another important part of the equation. Connected supplier quality can eventually provide the foundational data that would lead to predictive machine quality, that would predict when maintenance issues should be required linked to Internet of Things sensors.  Lots of people seem to assume that all of this data will flow seamlessly between companies – but is this realistic?

Software as a Service systems will likely be able to have quality managers connect directly to the supplier and indirectly through a web portal to gain access to quality measurement data, capability data, and employee performance data. An important part of this will be institutionalizing the system of measurement, ensuring that the supplier also knows how to access the system and use it, and methods to proactively measure supplier capabilities and evaluate issues as they arise. This is the opposite of the typical quality assurance process which is reactive. Every non-conforming part would have real-time information on process capability and where it in the system, ideally before it leave the supplier’s facility and is shipped to  a customer.

What needs to be sorted out are a number of other questions:

  • Who owns the data?
  • How will it be used? As a penalty, an incentive, or linked directly to contract payment terms?
  • How will the veracity of the data be determined?
  • Who will be assigned to problem-solving and on-going quality assurance efforts?
  • How will such data be applied in new product development?

Total Cost is also related to supplier quality management, and is a big opportunity. Across industries, billions of dollars of warranty costs are related to supplier quality issues. One participant noted that he was most proud of the Bronze Award from a competitor rather then a Gold Award from the customer.  When queried, he noted that the competitor is measuring process capability at the level of the machine cell. This suggests that we need to  focus measurement at the specific machine level, not the supplier level, if we truly want to get to the right level of measurement and follow-up.

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In today’s blogpost, Gavin Parnell from Go Supply Chain shares his opinions on how blockchain could impact counterfeiting across the supply chain, and introduces some applications that are being used and explored today.

Blockchain is a relatively new technology that shows great promise for use across many industries, including logistics and supply chain. The same technology that powers the cryptocurrency BitCoin can be used to reduce the introduction of counterfeit goods across the supply chain. It’s time to explore the possibilities of using this technology in our industry; it is early days but but there are many interesting developments.

Below is a TED talk with a simple explanation of how blockchain based ledgers can be used to increase trust and reduce fraud. It’s just over 20 mins long, but worth watching if you are interested in finding out more about how blockchain could impact the logistics and supply chain industry.

In case you don’t have time to watch the video, the main message is that the modifying of blockchain based ledgers is close to impossible:

Blockchain ledgers are designed to be immutable. Each record in a blockchain ledger contains a cryptographic key. This key is created using each previous record (and its key). That makes it very easy to run an algorithm that detects if the ledger has been tampered with.

Because blockchain based ledgers tend to be distributed across multiple machines on top of this, the tampered ledger can easily be replaced with the correct version of the ledger.

The applications of blockchain across many businesses is very promising, but there are particularly promising applications across the logistics and supply chain industry that could decrease delays and reduce the impact of counterfeiting significantly.

IBM are currently working with Maersk on a cross-border supply chain solution using blockchain, aiming to reduce delays and fraud across the supply chain. They are working to create a global tamperproof system that digitizes trade workflow and tracks shipments end to end.

There are also various startups attempting to address the problem of counterfeitting across the supply chain.

BlockVerify employ a blockchain system utilising QR codes on product packaging to ensure that products are traceable across the blockchain. They started out focusing their efforts on the pharmaceutical industry because they believed this is the industry they could do the most good, and counterfeitting does the most harm. They make use of Bitcoin and their own private blockchain system to achieve this.

Shanghai based company BitSE have launched a cloud product management service called Vechain. Vechain focuses on anti-counterfeiting, supply chain management, asset management and client experiences. They use NFC, RFID or QR codes to verify products are genuine. Counterfeiting is a huge problem in china and BitSE hope to provide a solution to this problem through Vechain.

For other examples on how blockchain is being used today across the supply chain, check out the second article in Go Supply Chain’s series on blockchain.

Blockchain has huge potential when it comes to reducing counterfeiting across the supply chain by providing a transparent tamper-proof system that is accessible to all.  Interested parties should keep track of developments in this rapidly changing and evolving area…

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In my new book “The Living Supply Chain” co-written with Tom Linton, we reflect on the new capabilities required to be able to work with the evolving imperative of real-time data.  Two key concepts reflect the core elements of real-time supply chains. Velocity is the ability of an organization to flow working capital rapidly from suppliers through end customers. Working capital is generally in the form of inventory, which is an asset that doesn’t produce any revenue or cash. Thus, the object of the real-time supply chain is to achieve velocity in every aspect of how companies run their business. Real-time data in the supply chain provides support to managers who make a number of important decisions, including the following:

  • Tracking and monitoring inventory;
  • Determine the volume and mix of product to schedule for delivery;
  • Scheduling incoming material and communicating with suppliers;
  • Establishing the time and modes of efficient, responsive transportation providers,
  • Planning and scheduling personnel in distribution and warehouse operations,
  • Establishing how to move product through global logistics systems,
  • Communicating instantaneously with personnel in alll roles across the supply chain (suppliers, distributors, customers), who must and make decisions related to unexpected events and disruptions that impact material flow.

The ability to respond to real-time data and derive supply chain performance improvements is closely linked to prior work in organizational information processing theory (OIPT). According to OIPT, an organization’s information processing capabilities must be aligned with its information needs. That is, an organization must be able to gather, interpret, synthesize, and coordinate information across the organization (Burns and Wholey, 1993). Processing information in such a structured and logical way reduces uncertainty and helps various decision makers develop a shared interpretation of the information (Daft and Lengel, 1986).

The opposite of visibility is opaqueness, or the absence of visibility on what is happening in an organization’s upstream and downstream networks. When individuals have visibility to events that enable decision-making velocity, minor problems and disruptions are resolved more quickly and easily before they escalate into bigger problems (Craighead et al., 2007). Examples of visibility include demand visibility, market visibility, and supply visibility.  Speed of decision-making increases not just the flow of information, but also the flow of materials, shipments, production, and all activities in the chain. A metaphor is that of reducing friction, which increases flow, where friction includes all of the typical delays and problems that slow material flows and increase inventory. Examples include the multiple layers of approvals for purchase orders, delays in decisions when a forecast deviation occurs, or the lack of response when a major disruption shuts down shipments to customers. Friction can produce bottlenecks in production systems and shipments, which delays material and causes inventory to build up or shortages to occur. Examples include the Tianjin explosion, the tsunami in Japan, and the port closure in Los Angeles.

These principles are not new. Many of the concepts around “lean production systems” have emphasized flow and visibility. For instance, some professionals maintain that demand information sharing and visibility enable improved supply chain responsiveness, alerting executives to opportunities and challenges in the extended supply chain.   But the emergence of real-time information that enables the instantaneous visibility of assets across multiple tiers in supply chains has only been realized in the last two years. Real-time data is enabled by the emergence of cloud computing and mobile devices, which creates “big data” technology platforms that process higher volumes of internal and external data from multiple sources.

Some organizations have invested in very expensive systems called “control towers” to manage their “big” data. In a control tower, information from all of an organization’s logistics systems, production facilities, inbound shipments, outbound shipments, and inventory levels are dumped into a massive data warehouse (Brooks, 2014). The information is then centralized into a “control tower”, where individuals are scanning what is going on, and senior executives render decisions, sometimes using complicated algorithms and automated ordering systems. The fundamental assumption behind control towers is that senior executives removed from the day-to-day have the best knowledge of how to optimize the entire supply chain, because they are the only ones who have access to all of the data. Much of the data is “integrated” (e.g., lumped together) from ERP systems, transportation management systems (TMS’s), warehouse management systems (WMS’s), distribution requirement systems (DRP;s) and material requirement planning systems (MRP’s). Because many of these systems are in a “batch mode, meaning they are updated on a weekly, or perhaps daily basis, the information being viewed in the control tower is always lagging. As a result, decision-makers in the control tower are making decisions based on what happened a few days ago, and are determining what to do next based on what they think will happen next. This scenario embodies the “old” themes of “supply chain integration”: batch processing, information updates, “control-tower” thinking where only some people see the information, and decisions made by the “top brass”.

This model, in my opinion is turned around.  Because only when people on the ground can see the data, collaborate with one another, and resolve their issues through virtual, mobile data reviews, can problems be resolved in a timely manner before they spin out of control.  Our review of the research literature reveals a dearth of information that describes how organizations are combining mobile computing and system-wide supply chain analytics to derive new emerging capabilities.  This phenomenon is so new (e.g. Flex installed its real-time Pulse Center in 2016) that it is clear that current managerial ways of thinking about real-time data have not caught up with the technological capabilities descending upon us!

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In industries that are going through a lot of Capital Expenditure investments, including construction of pipelines, LNG facilities, and mining operations, the role of procurement on the success of the organization is somewhat different.  The supply chain function impacts a company’s financial performance through improved operations in several areas of the business. Here are some of the areas where procurement has the opportunity to make an impact.

Capital Overruns

When goods and services are not available on time in projects, technical personnel, contractors and employees are not working. Yet the purchasing company continues to pay the bill for these non-productive hours.   The key contributing factor to these delivery failures is the poor or inadequate communication, planning, coordination and synchronization of supply chain logistic activities related to project requirements.   Another major contributing factor is the lack of understanding of supply constraints early in the projects planning. These constraints drive late changes in the project plan and design that cause delay and inefficient use of project resources.   Most projects try to compensate by increasing the volume of goods ordered. This approach does smooth some of the bumps but also leaves a mountain of surplus material to be disposed of at the end of the project. Integration of key suppliers early in the project and through the project combined with a disciplined focus on logistics excellence eliminates these inefficiencies.   In one company, application of these strategies in the exploration drilling area cut planning time in half, execution time by 20%, reduced overall costs by over 15% and increased the groups overall success rate. Application of these strategies in the supply and erection of structural steel provided cost savings of over 30%.

Cost of Goods

Supply chain management has a significant impact on the Cost of Goods Sold spend. Integration of suppliers into planning and work practice development allows companies to change or reduce the demand for expensive goods. Being a “Customer of Choice”, leveraging corporate spend in combination with the development of the supply chains ensures that buyers are paying a competitive price for the goods and services we purchase. Development of supply chains will further allow buyers to share with our suppliers in the cost reductions associated with the elimination of inefficiencies.

Asset Utilization

Asset utilization is a measure of how effectively a company utilizes assets in the execution of the capital asset construction project and afterwards, impacting Operating Expense. Supply chain development, logistics excellence and standard processes will ensure that we utilize supply chain assets such as inventory more effectively. It is expected that these strategies sustain a reduction in inventory levels by over 25%.

Cash to Cash

This metric assesses the responsiveness of supply chains to convert purchases into paid for customer requirements. Clearly all the supply chain strategies will affect the responsiveness of supply chains. This responsiveness will allow companies to improve efficiencies in our inventory management, warehouses, procurement and accounts payable transactions.

Return on Capital Employed

This metric is associated with commanding premium prices in an open market through production of the optimal equipment efficiency. Integration of the supply chain plans with the business unit plans ensures a company’s supply community is aligned to effectively reduce capital requirements, reduce variability, improve inventory turns and improve scheduling efficiency. This will lead to improved asset utilization and greater production levels. This strategy of integrating supply chains is critical ensuring capital assets will transition into operational growth requirements for major projects.

An analysis of a large oil and gas company revealed that to improve ROI by 1%, several financial levers had to be concurrently applied: expenses should reduced by 7.5%, production increased by 3%, and capital deployed decreased by 5.5%. These savings are not only possible, but imminently realizable. Our analysis suggested that supply chain could generate $120 to $170 million against current spending managed by SCM groups of $2.3 billion. Further savings could be captured in reduced cost overruns on major projects. Improved supply chain planning and logistics will further reduce inventory and lower operating costs. These improvements translate into a change in COGS and ROCE of 2.5% and 2%. Additional benefits will include improved efficiencies and productivity in manufacturing that is not inclusive in these estimated benefits. The timing associated with complete realization of these benefits was estimated at six to eight years. The primary risk associated is a failure to act quickly to deploy the strategies and practices across business units.

Achieving improvement in capital expenditures will require a rapid execution of supply chain management process design changes for fulfillment  across all business units. Moreover, a strong corporate supply chain function is critical to deployment of supply chain strategies. SCM should be proactive in  setting annual goals and objectives, implementing supply chain improvement projects, monitoring performance, allocating resources, setting standards of performance, maintaining supply chain structures, driving logistics excellence and developing the skills of professionals working in the function.

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In today’s Guest Blog, Alexander Zeller from Migration Translators comments on the supply chain for translation projects, how they occur, and how they are used in projects such as those involving contract negotiation.

Increasingly, the translation of web pages is becoming rooted in the virtual world but translation of contracts is becoming a much more important factor in negotiations.  In fact, there exists a translation supply chain, defined as the communication methods used to access translation contract projects and deliver them.

Before the rise of the internet and emails, translations were of course still required for many supply chain contracts and negotiations. Business documents, like overseas contracts, invoices and orders for goods sent from one country to another had to be translated.  In addition, the translation of personal documents required for immigration or study purposes in an overseas country for ex-pats to go abroad was often required.

The main issues were more to do with security than anything else, as much of the sending and receiving of documents would have been through the use of state postal systems which in faraway places may be both slow and unreliable. The translation supply chain involves transferring the source text to the translators and sending the two documents back to the clients, in an iterative fashion.

Today corporations requiring translations use a ‛virtual supply chain’ that enables both the contracting company’s staff responsible for translations to communicate with the translator. Once a client has sent the requirements for a translation project, the contracting team gathers together the necessary resources and sets the project in motion. The first step is finding the translator with the right subject matter expertise who is available to take on the project.  Contracts include translating not only legal terms, but technical terms as well.  Each translation company will have a pool of the best translators they can find in different areas, who may be located in many parts of the world. Those involved in the supply chain have to ensure the translators are performing given translation tasks to the best of their ability.

After a translator begins a job he or she will be asked to provide a sample of the translation so far which is likely to be between 400 and 1,200 words. This is sent on to an independent reviewer who will assign a score based on the quality and accuracy of the translation.

Clients can choose their own reviewer and which might include a contractor in their supply chain. Software is not used but a human reviewer assesses the quality. Once the reviewer has completed the review comments they are sent to the person managing the project, who will pass them on to the translator responsible for the project.

The translator can dispute any comments made by the reviewer and an assurance is given to the client that the translation is of high quality. In the end a score is given which is kept in a confidential database which is continually updated. This ensures that translation companies are using the best translators to complete their client’s requirements.

Effective process quality management is required to achieve reliable translating outcomes in the translation industry is an integral and crucial part of the whole translation process. The project manager is the key person who manages the relationships that have to exist between contract managers, reviewers and translators. They ensure that the appropriate payments are made to all those working within the supply chain, and that translations occur according to plan.  As contracts are reviewed and modified, ongoing management has to occur.

Beyond electronic means like emails, there are emerging suites of software that help to ensure that document exchanges occur smoothly.  Translation will continue to be an important component of contract management in the supply chain.

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Xeneta just posted their list of the “Top 24 Best Supply Chain Blogs“, which provides some great resources available to readers.  These blogs span a wide variety of topics, and when combined, give you an idea of just how many different topics are comprised in the area of what professionals call “Supply Chain Management”.  Oddly enough, when I mention that I work in the supply chain area, the response I most often get from non-SCM’ers is something around “Doesn’t that have to do with shipping stuff?” or even better “What is that exactly”?

Based on these blogs, you can see that they tend to cluster around the following areas:

Technology  – Supply Chain Matters (impacts of technology), Supply Chain Shaman (enterprise applications), Next Gen Transportation (Transportation Innovation)

Freight & Transportation – Cerasis Blog (small package and LTL), Freightos Blog (Freight and Logistics), , Flexport (Global Shipping), GCaptain (Facebook for Logistics), GLogistics (shippers and carriers), Shipping and Freight Resources, Transport Topics, Transport Monthly, Kaneisable (Consumer Distribution blog).

Air Transportation – The Loadstar (Airfreight), Air Transportation World,

General Logistics – Talking Logistics, Logistics Matter, Logistics Viewpoint, Forbes Logistics, WSJ Logistics, Journal of Commerce, Logistics Management, Transport & Logistics Magazine,

Distribution  – DC Velocity, Xenata

Supply Chain Education and Procurement Capabilities – Supply Chain View from the Field.

I would also add to this list, Spend Matters, which focuses on procurement technology solutions, as a key blog.  It is interesting that there are so few blogs on the world of procurement – a topic which we cover a lot in my blog.

Lots to keep you busy!

 

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I have been having a lot of interesting discussions recently with both procurement and legal executives who are increasingly concerned with the state of their contract management processes.  This is occurring for several reasons.

  1.  The exposure of many companies to greater risk is heightening the focus on contracts.
  2. The need to write better statements of work (SOW’s) and Service Level Agreements (SLA’s) is recognized as key to improved outcomes.  You get what you ask for.  Don’t expect platinum service if you specified silver.
  3. As Tom Linton stated in a recent Procurement Leaders interviews, PRICE = SPECIFICATION.  You can directly throttle the price of a product or service by limiting it’s specification, or alternatively, prices can be allowed to escalate if proper specifications are not effectively collected and identified ahead of time.
  4. Managers recognize that contracts, once written, become literally filed away until something bad happens.  Contracts should instead be a living document, as things will change, and measurements need to be embedded in them that allow individuals to understand if the relationship is going on track or not.  Of course, if you aren’t measuring something, than you have no leg to stand on if things go wrong and there’s nothing in the contract that says anything about how to handle unexpected issues.  There should at least be an agreed on procedure to deal with unexpected surprises.
  5. Litigation is escalating.  More companies are seeing non-performance issues arise, and are going back to their contracts.  Intellectual property is at the top of the list.  It costs a lot more to get out of trouble once you’re in it, then to spend the time earlier and write a better contract.

To become better prepared to a) write better contracts, and b) manage them appropriately once they are written, Paul Humbert and Robert Mastice have developed a great list of simple rules to follow in preparing a SOW and a contract.  Here they are.  Additional insights can be gleaned in their book “Contract and Risk Management for Supply Chain Professionals”.

  • Define what is to be performed
  • Learn from and do not repeat mistakes
  • Link payents to performance or progress
  • Develop a well-organized table of contents
  • Clearly specify the objectives to be achieved
  • Anticipate changes in needs or circumstances and decide how these will be addressed.
  • Seek input from the right people at the right time
  • Specify the project plan, schedules and milestones
  • Specify where the deliverables will be performed
  • Avoid making any unintended (implied) warranties
  • Specify the standards of performance requirements
  • Specify the applicable testing or acceptance criteria
  • Avoid incorrect, inconsistent or contradictory statements
  • Develop an order of precedence for the contract documents
  • Anticipate the need for interpretation and who’s judgment will govern

That’s it!  If you follow these rules, you probably won’t get into TOO much trouble…

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Over the road (OTR) trucking involves the use of hauling 53’ trailers behind a truck. The American Transportation Research Institute estimates that of the total cost per mile of driving a rig that drives between 80,000 and 125,000 miles per year, the average cost (including drivers wages and benefits) is $1.593 per mile, or which tire cost are $ 0.043 a mile, and fuel costs are $.403 per mile.

Many of the largest fleets in the United States recognized the value of retreads back in 1970s. Many large fleets have over a million tires on the road at any point in time, and of their replacement tires, the ratio of new to retreaded tires is typically 4.5:1. The primary benefit of retreaded tires is the reduced tire cost, less than 1.5 cents per mile, versus the industry average of around 4.5 cents per mile. And a retread will work on almost any casing, provided it meets the strict inspection requirements for the casing.  With the exception of one type of tire:  ultra-low cost import tires.

An Effective Business Strategy

In North America, the trucking industry saves more than three billion dollars annually by using retreaded tires. Safety is a paramount factor for large fleets, and the use of retread tires reflects senior executives’ trust in the reliability of retreads for their drivers and other drivers on the highway. Retreads are a critical component of what is commonly known as “Good tire management practices”.  OTR fleet managers recognize that the real value provided by retreads is not the initial price savings, but in the overall fuel savings attributed to the improved Rolling Resistance of retreads over lower quality tires.

The maximum number of retreads per tire occur for high quality (Tier 1) casings, which are often retreaded 3 or 4 times. Some retreaded tires have been found to have lasted over a million miles! This is because the quality of the casing matters when it comes to a retread.   Retread providers, which are located in driving distance from just about anywhere in the United States, will often work with fleets to pick up their used tires, and provide service on installation of retreads wherever the truck may be.

IbisWorld’s Procurement Report on Commercial Tires supports retreading as a major method to reduce total cost of ownership, noting that:

The retreading process consists of repairing all existing damage, resurfacing the tire and applying a new layer of tread to the casing. This process results in a tire with almost identical performance as the brand new tire, essentially giving the tire a second
life. Retreading a tire costs significantly less than purchasing a new tire, with retreaded tires costing an average $100 less than a comparable new tire. Moreover, fleet owners can retread their tires multiple times, allowing buyers to stretch out the tire’s life far beyond the original limit. Another option available
to semi-truck operators is to switch the tire’s position. After reaching about 500,000 miles in the drive position (attached to the truck’s rear axle), the operator can choose to install their tire on their trailer, which imparts much less wear than the drive position. By doing
so, the truck operator can get another 150,000 miles of use out of the tire before needing to replace it. Best of all, buyers can still retread their tire after installing it on their trailer, leading to an even longer useful life. …Fortunately for buyers, retreading suppliers have hundreds of locations around the country, making it easy to purchase these services as needed.[1]

Using retreads can save money, regardless of the metric fleets are using to measure their business performance. Examples of metrics include the following:

  • Cost per driver hour
  • Cost per engine hour
  • Cost per vehicle
  • Cost per mile
  • Cost per load

Using any of these metrics, retreads provide significant savings. And yet, decision-makers will often only consider the cost of a new, low cost imported tire at $225 versus a retread, (around $125- $150), and decide to purchase a new tire. What they are missing in this decision is that most Tier 3 and Tier 4 (low cost import) tires cannot be retreaded, and often have lower gas mileage, may fail prematurely, and may not last as long (10-40% lower life). For this reason, it is imperative that drivers and fleet managers look at the Total Cost of Ownership of using a retread tire.

Good tire management practices in the fleet and trucking industry are highlighted by the following actions:

  • Fleets will use all new tires in the steer position (3) that will normally last a year.
  • The new tires are retreaded, and then moved to the “drive” position (1), which is the second position on the truck. (Although it is “legal” to have a retread in a “steer” position, this practice is not normally followed).
  • After two years, the tire is re-treaded and moved to the “trailer” position (9). The tire may then also be retreaded a third or fourth time in the “trailer” position, as they do not typically wear as fast. (Trailers often sit at warehouses or distribution centers for long periods of time without being moved.)
  • The number one issue associated with avoiding blowouts is to keep tires at proper inflation levels.

Retreads cost less than new tires over time

There is a good reason why the largest fleets in the world use retread tires: they make solid economic sense. But they also are much better for the environment, and reduce the volume of tires going to landfill by a factor of 3 or 4.  So re-think retreads!

[1] Buchanan, Ian, IbisWorld Procurement Report, “Commercial Truck Tires”, December 2016, pp. 12-13.

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IBM’s new white paper “Making Blockchain Ready for Business”, in which they conducted a roundtable with a number of executives provides some important clues as to how the technology will unfold in the next few years.   There is increasing evidence that blockchain (or Distributed Ledger Technology) is not a standalone solution, but will emerge more as an open source utility, much like the Internet.  In that regard, it is likely that industry-specific applications will begin to emerge, and many of them will be around linking the physical supply chain and the financial supply chain.

The latter element of course refers to the complex system of business to business transactions that exists today in most organizational supply chains.  A recent white paper put out by JP Morgan suggests that the current set of buying channels that exists in most organizational supply chains is a dinosaur – literally a mammoth in this case!  This study suggests that for business-to-business (B2B) transactions, despite the new developments in payments,  businesses in the United States still largely rely on checks for paying their suppliers. A commonly cited reason for this is that “checks work”.  This is based on a survey of 412 respondents from the Association for Financial Professionals (corporate practitioners).  Amazingly, although the percentage of payments  is going down (see trend line in Figure 1), over 50% of organizations still write checks for their B2B transactions!  Well, of course, most small companies and entrepreneurs are going to write checks, (I rationalized to myself).  Wrong again!  Organizations making 1000 or more B2B payments per month are making 54% of their payments by check (see Figure 2)!

Figure 1

Figure 2

Figure 3

The article goes on to share even more stunning news.  (Mind you – I’m a supply chain guy, so this news was stunning to me, but maybe not to the reader…) . Only 5%% of payments are made by procurement cards – and 34% are made by ACH Credits! This is pretty incredible – as I thought for sure that organizations are moving more towards electronic payments.  The news here, in my mind, is that there is a huge upside for blockchain to come in and disrupt the whole system – and perhaps banish paper checks forever!

IBM is certainly leading the pack in terms of getting traction, especially after the news this week that they were selected to build a new blockchain-based international trading system for a consortium of global banks, a major win for the tech giant in the race to sell blockchain to Wall Street.  The banks involved will include Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit.  But remember, this is primarily the B2B financial network only – that is, inter-bank transfers for major financial transactions.  This is a comparatively small piece of the total financial system pie.  In total, there are about eight different players competing to become the blockchain utility of choice, of which IBM is one.

Practitioners are IBM’s roundtable noted that one of the biggest ways that blockchain will emerge is in global trade.  A practitioner noted that “For domestic payments, by and large, DLT is not vital, but as you move cross-border and more players enter the chain, there could be more value. It’s also important to remember what we hear from blockchain initiatives already under way in payments, that the cost savings are not coming in the processing per se but in the back office operational costs, the reconciliations, the investigations et cetera.”

There is also a big impact for blockchain technology to mitigate risk in the supply chain, according to one participant, and impact counterfeiting.

“Obviously global trade has lots of physical documents, and wet signatures being couriered around the world, and this generates many inefficiencies from fraud to documents being directed to the wrong place or taking a long time to get there. In our pilot we were able to reduce from 10 days to four hours the time it took to move all of the trade documentation from one customer to the other. That’s definitely a huge saving of time – and avoids many of the risk.”

Blockchain is in my mind one of those areas that supply chain practitioners need to watch carefully.  This one is going to make a huge difference – more than IoT, serialization, sensors, or any other emerging technology.  Hold on tight!

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