THE AMAZON EFFECT: AN INFLUENCE, NOT A DEATH SENTENCE

In the several decades I have been in the supply chain industry, I have seen a number of changes in almost every aspect of the industry. Up until recently, I have suggested three that have been the most important – globalization, technology, and Wal-Mart. All three have influenced supply chain managers to adopt new mindsets and develop new skills and processes. Wal-Mart, in particular, has raised the level of warehousing and trucking operations to almost an art form, and has inspired innovation in a number of supply chain techniques and processes.

And then along came Amazon, and what is now being called the “Amazon Effect”. In a retail sense, this has been defined as “the ongoing evolution and disruption of the retail market, both online and in physical outlets, resulting from increased e-commerce. The name is an acknowledgement of Amazon’s early and continuing domination in online sales which has driven much of the disruption” (Whatis.com) It has gone far beyond that, however. From a supply chain perspective, Amazon is rapidly changing the way managers must look at their own systems. Offering 398 million products from well over 100 fulfillment centers, utilizing its 40 aircraft and fleet of trucks,  Amazon’s goal is to be in a position  to deliver most of its orders the same day they are received, or the day after.

This level of customer service, if widely adopted, while no doubt extremely pleasing to the consumer, could keep consumer goods manufacturer and retailer supply chain managers up at night. While the above improvements are primarily in the business to consumer sector, many similar business to business requirements are beginning to follow. But it is not going to put the rest of us out of business. To be sure, Amazon is having a dramatic impact on buying and shipping patterns; and prophets of doom have predicted all sorts of negative results. In November, 2016, the Institute for Local Self Reliance published a 79 – page report entitled, “Amazon’s Stranglehold: How the Company’s Tightening Grip is Stifling Competition, Eroding Jobs, and Threatening Communities”. Such discussions are not too unlike what critics published about Wal-Mart when it first began to invade small-town America. But we survived that and learned from it, and we will survive and learn from the “Amazon Effect”. Now is not the time for supply chain managers to throw themselves in front of an autonomous truck.

We simply must rethink our strategy, asking ourselves some difficult questions, such as

  1. How good does our service have to be? Is our business such that we really need to offer same day or early next morning delivery to compete effectively? On which products?

 

  1. Depending on the answer to question 1, how many distribution centers will we need to achieve our service targets? What items will we need to stock?

 

  1. Where should they be located? To achieve next day delivery they probably should be located in or relatively close to the major, more expensive markets.

 

  1. And finally, how will we deliver the products? Will we need a private fleet, contract carriers, or a combination of the two? Apparently, no idea is too bizarre. In March of this year, Reuters reported that Wal-Mart was exploring the feasibility of asking store shoppers to drop orders off to on-line customers on their way home. The legal obstacles to such a program are significant, but stranger things have happened in this business.

 

So what will the answers to these questions be?  I believe the best response to all can be summarized in one word– “Outsourcing”. For years, one of the major advantages to outsourcing distribution operations has been the flexibility it afforded the outsourcing firm. As market and product characteristics change, logistics processes must change as well; and the use of a logistics service provider greatly reduces the risk of misplaced company-owned distribution centers or obsolete techniques. The warehouse building boom generated by the internet hysteria of the late 1990’s is a classic example. Several privately owned and operated 500,000 plus square foot fully automated facilities were left empty after only a few months of operation because the predicted e-commerce volumes didn’t materialize.

Even more important are the density and shared networks that logistics service providers enjoy. Sophisticated consolidation programs can greatly reduce the cost of delivering what will be smaller shipments quickly.

For reasons of its own, Amazon is relying on company owned and operated distribution centers. While this can be a smart real estate play, such a network can have its own set of disadvantages. To survive in this environment, flexibility must be the bed rock of any supply chain operation.

Written By: Clifford F. Lynch

We continue to read and hear that this winter may be the most frustrating shippers have experienced in several years. Capacity issues and higher spot market rates are expected to continue into the new year. And with the higher spot markets, we can expect to see contract rates follow the same path. As might be expected, many of the capacity issues will revolve around driver shortages. According to a recent study by the American Trucking Associations (ATA) the driver shortage is increasing and is expected to exceed 50,000 by the end of the year. Most of us have read about the letter J. B. Hunt sent its customers, warning of increases of 10% or more as the Electronic Log Device (ELD) implementation adds more fuel to the existing driver shortage fire.

After several years of controversy and challenges, the effective date for ELDs is fast approaching (December 18) and most industry watchers are predicting productivity losses of 4 – 7%. This is a little hard to understand since most of the major truckload carriers have used ELDs for several years, and are well past the learning curve. The biggest impact apparently will be on the smaller carriers and thousands of owner – operators in the U.S. transportation network. The latter group is suspected of routinely fudging on their hours of service thereby driving longer than they should; and ELDs will make cheating almost impossible. (Ironically, the smaller carriers stand to benefit most from ELDs and the efficiencies they are expected to bring to their systems.)

Whatever the impact of the implementation, most agree that it will exacerbate the capacity problem. Some experts are predicting that older drivers may even quit driving rather than work with the new system. This would be especially true for the already financially stretched owner – operators who would have to dig into their own pockets for the recorders.

Industry analyst John Larkin of Stifel, warns, “Expect a three ring circus when the ELD mandate is implemented on December 18.”

ELDs aside, if the economy continues to grow and carriers are unable to attract new drivers, tight capacity will continue to drive rates up. This would be an excellent time for shippers their c contracts and cement relationships with their carriers. Most important, treat your drivers and carriers well. It goes without saying that shippers and receivers that do will experience fewer problems than those that don’t. Keep in mind that for the time being, it is going to be a carriers’ market.

Written By: Clifford F. Lynch

ANOTHER CONTENTIOUS NAFTA DEMAND

Last week, a confidential source leaked the fact that one of the latest U.S. demands in the North America Free Trade Agreement (NAFTA) negotiations was the prevention of long-haul Mexican truckers from operating in the United States. In early 2015, then Secretary of Transportation Anthony Foxx announced that after years of debate and controversy, Mexican drivers would be allowed to operate on U.S. highways. Up until then, most had been limited to the commercial zones along the U.S. – Mexican border. To understand the real significance of this, one must look back almost 25 years to when NAFTA was signed. Under the terms of the agreement, on January 1, 2000, both Canadian and Mexican truckers would be allowed on U.S. roads. In 1995 however, the Clinton administration put the trucking provisions of NAFTA on hold – but only for the Mexican truckers – citing concerns about the trucks’ ability to meet U.S. safety standards.

In 2001, Congress enacted legislation that required certification on 22 safety standards before Mexican trucks would be allowed to travel beyond the commercial zones. The following year, then Secretary of Transportation Norman Mineta confirmed that these requirements had been met. Legal challenges however, kept the initiative tied up in court until 2004, when the Supreme Court resolved the matter, ruling that Mexican truckers should be allowed into the United States

In February, 2007, DOT announced a one-year pilot program that would allow selected Mexican carriers to make deliveries beyond the border commercial zones. To participate, truckers were to pass a safety audit by U.S. inspectors, including a complete review of driver records, insurance policies, drug and alcohol testing programs, and vehicle inspection records. Congress however, not to be outdone by the Supreme Court, refused to allocate the funds for the program.

Finally, in 2011, another pilot program began with 15 participating Mexican carriers, and in October. 2014, DOT declared there was sufficient positive data to move forward. Secretary Foxx’s January decision was based on that data. The decision was no doubt also influenced by the fact that Mexico had placed $2 billion in retaliatory trade tariffs on U.S. goods.

The allowance was not without controversy, and was once attacked on the legal front. The DOT Inspector General has stated that there was insufficient test data on which to base a decision, and both the Teamsters and the Owner-Operators Independent Drivers Association (OOIDA) vehemently objected. There was no further legal remedy however, and we have moved ahead without incident until now. Long time opponents will be delighted of course. The Teamsters have said that such a prohibition would confirm their position that crow-border trucking takes away American jobs. This is hard to accept in view of the recent ATA reports on driver shortages.  Hopefully, the negotiations will end soon, with all three countries committed to playing nice.

Written By: Clifford F. Lynch

DRIVER SHORTAGE REDUX

Although we have heard and read about a shortage of over-the-road (OTR) drivers for several years, the recession and slow recovery have minimized the problem somewhat. The situation is changing quickly however, and at the recent management conference of the American Trucking Associations (ATA), the driver shortage was once again identified as the most critical issue facing the industry. According to the Wall Street Journal, the U.S. economy has just posted its best six-month stretch of growth in three years. The freight market is expected to grow; and according to ATA, the industry will need almost one million drivers and mechanics in the next ten years. By the end of this year, the shortage is expected to be the highest ever at 50,000.

ATA has just released a comprehensive analysis of the driver shortage, and identified four basic reasons for it. First of all, the average age of an OTR driver is 49, compared to 42 for all other workers; and they are not being replaced by younger workers as they retire. Since 21 is the minimum age for drivers in interstate commerce, the industry misses out on the 18-21 population, many of whom are in the process of selecting careers. Only 6% of all drivers are women, another untapped segment of the population.

Certainly the lifestyle leaves a lot to be desired and continues to be a major reason for lack of interest. Most Americans do not want a job that keeps them away from home for extended periods, provides a truck stop diet, and yields any number of other inconveniences. As the job market improves, there are other options for driver candidates. One popular alternative to driving has always been construction; and according to the U.S. Department of Labor, 1.3 million construction jobs have been added in the past five years.

Finally, increasing government regulations are reducing productivity. The new electronic log device requirement, due to be implemented next month, is expected to reduce productivity by 4-7%.

ATA suggests several courses of action to help alleviate the shortage. One, obviously, is to increase driver pay. Carriers are moving in this direction; but this doesn’t resolve the life style issue. Some carriers are finding ways to increase at home time, and the move toward shorter delivery distances in the retail sector will help some accomplish this.

ATA is attempting to get the interstate driver minimum wage reduced to 18. If successful, the industry might capture new drivers as they are making career decisions. They also are seeking ways to facilitate a smooth entrance of military personnel into driver positions.

For as long as we have heard about driver shortages, we have heard that shippers and receivers could treat drivers better and assist in improving their productivity. There is no question that the user industry could make significant improvements in this area. While some firms have done so, a surprising number have not.

To those who say autonomous vehicles will solve the problem, I say “maybe”. I believe we are several years away from widespread use; but down the road, as use expands, the technology could very well appeal to a broader base of younger workers. Certainly, the on-board supervisor of a driverless truck would be under less stress, and maybe even have a little more fun at work.

While hiring and retaining drivers is a carrier responsibility, shippers and receivers can help tremendously. Many of us can remember when a good economy resulted in capacity problems – not because of equipment but due to a shortage of qualified drivers. Hopefully, if this occurs again, those of us who depend on the carriers will try just a little bit harder.

Written By: Clifford F. Lynch

LET’S SETTLE THE BORDER WARS

As we reported here in March of this year, early in his campaign, President Trump advocated the renegotiation or complete dissolution of the North American Free Trade Agreement (NAFTA), and has continued to push that idea since the election. First conceived in 1987, NAFTA was finally signed into law in 1994, and has been very instrumental in increasing trade among the U.S., Mexico and Canada. This tri-lateral agreement has created the largest free trade zone in the world, and $3.5 billion worth of goods cross the borders every day.

The president’s objection to NAFTA is that it has cost the U.S. too many jobs as industries have moved across the borders, primarily to Mexico. On the surface, this appears to be true. For example, 20% of North American auto production takes place in Mexico. On the other hand, NAFTA has resulted in the creation of several million U.S. jobs, a fact that Trump tends to dismiss.

Even as the fourth round of negotiations among the countries is taking place, the president continues to talk about a total termination of the agreement. No doubt emboldened by the U.S. attitude, in late September, General Motors auto workers in Canada went on strike to protest over jobs lost to Mexico, the union’s president calling their experience, “the poster child for what’s wrong with NAFTA.” But it is beginning to look as if Mexico has had just about enough.

Since the presidential election, and even during the campaign, the U.S. seems to have done whatever it can to antagonize Mexico. There is the infamous border wall promise (at Mexican expense), threats of prohibitive duties and entry fees on Mexican made products, and immigration law changes, none of which have been designed to endear us to the Mexican government or citizens. Certainly, there are issues to be dealt with, but there are more diplomatic ways to resolve them. In any event, in a recent speech to a Senate committee, the Mexican prime minister warned that if NAFTA is terminated, it could bring U.S. – Mexican relations to a breaking point. This came after President Trump once again threatened to “tear up” the agreement. Up until now, Mexico has been more patient (publicly) since NAFTA is important to its economy, as well, with 80% of its exports moving to the U.S. However, the prime minister reminded his audience that Mexico was much bigger than NAFTA, and they were prepared to walk away, if necessary.

Last week, Tom Donohue, CEO of the U.S. Chamber of Commerce, told the U.S. – Mexico CEO Dialogue that U.S. exports to Mexico and Canada were worth four times more than shipments to China, and “We’re going to fight like hell to protect the agreement.” Donohue, arguably one of the most powerful lobbyists in Washington, wields a big stick, as does his organization’s membership. A letter signed by over 300 chamber of commerce executives from around the country, was sent to the president last week, insisting that the NAFTA negotiators “do no harm” to the economy. According to the letter, 14 million U.S. jobs are supported by trade among the three countries.

There is no question that NAFTA needs some revision and updating, but to suggest a total termination is a very short – sighted point of view.

Written By: Clifford F. Lynch

CSCMP EDGE – ATLANTA, GA

On September 24-27, the annual conference of the Council of Logistics Management Professionals (CSCMP) was held in Atlanta. The conference, now called CSCMP Edge, has grown from what was strictly an educational symposium to a much larger event, still heavy on education, but now including an exhibition of the products of equipment, software, solutions, and logistics service suppliers. This year, there were 135 exhibitors, as well as 30 hours of educational sessions covering the important supply chain subjects and developments. Whatever the interest of the attendees, there was plenty to learn and observe.

For the 22nd year, one of the highlights of the conference was the release of the annual Third-Party Logistics Study, presented by Infosys Consulting, Penske, Korn Ferry, and Penn State. The 2018 report indicated there is a continuing positive relationship between logistics service providers and their users. 73% of the responding users, and 92% of the providers felt that LSPs provide innovative ways to improve logistics effectiveness; and 81% of the users and 98% of the providers believe that the use of LSPs has contributed to improved customer service. The services outsourced were the same as last year, with domestic transportation, warehousing, international transportation, customs brokerage, and freight forwarding as the top five at 83,66,63,46, and 46% (of respondents), respectively.

As everyone in this industry is aware, technology is becoming increasingly important, and the percentage of respondents outsourcing technology was 27%, up from 17% last year. It is clear that users are turning more to their providers to furnish technology services. At the same time, the so-called “IT Gap” has widened. The percentage of respondents pleased with the IT outsourcing experience has dropped to 56%, down from 65% last year. This means that users are looking for more and improved technology services from their providers.

At every conference, there is one subject that seems to come up more often than others. This year it was “blockchain”. There has been a lot written on this subject during the past year, and it was covered in several educational tracks at the conference. The most often asked question was. “What is it?” The answer is somewhat complicated, but essentially, it can increase visibility in the supply chain (as well as other functions) by breaking each movement down into a block and documenting the transactions every time a shipment changes hands. Linking the blocks together creates a record of the details of each movement, and every party to the transaction has access to the information.

An independent third-party records and validates the information, and no party can amend anything without validation by the other members of the chain. As the third-party study indicated, “The goal is to create one version of the truth, link information, and create transparency. As far as respondents to the third-party study were concerned, 67% of the users and 62% of the providers said they did not know enough about it at the time. In my opinion, we will hear much more about blockchain and its adaptation to the supply chain.

I thought the conference was excellent, and this year’s third-party study was particularly good. For a copy contact Dr. John Langley at jlanfley@psu.edu; and for a good discussion of blockchain, see the September 1 issue of Fortune.

Written By: Clifford F. Lynch

IMPORTANT UPDATES

This week, there are two major transportation events that deserve mention. One involves the long road to ELD implementation, and the other a perceived serious breakdown in rail service on a major eastern railroad.

ELDs REDUX

In our last blog, we mentioned that Representative Brian Babin (R-Texas) was not giving up easily and had proposed legislation that would delay the ELD mandate for two years beyond its current effective date of December 18, 2017. He gained a fair amount of support, and a House committee voted to send the bill to the floor as an amendment to the must – pass funding bill. The full house however, rejected the proposed amendment; and it now appears that ELDs will be required on all vehicles model year 2000 or newer, that operate in interstate commerce.

The Federal Motor Carrier Safety Administration estimates that the ELD program will generate $2.4 billion in annual savings from reduced paperwork and increased efficiency. Some industry experts however, are predicting a short term negative effect. The general consensus is that we will experience about a 3.7% loss in trucking capacity as drivers are forced to be more honest about their on – duty time. Even Schneider National, one of the more efficient truckload carriers, switched to ELDs in 2010, and experienced a 4% loss in productivity. Lower capacity will no doubt lead to higher spot rates, and estimates on these increases run as high as 20%. Once the initial shock is over however, almost everyone but the Owner – Operator Independent Drivers Association (OOIDA) believes ELDs will result in significant savings.

PRECISION SCHEDULED RAILROADING

If you are a CSX rail shipper, you may have bigger worries than ELDs. As new CEO Hunter Harrison attempts to install his Precision Scheduled Railroading technique at this major eastern railroad, the road has been much rockier than when he implemented this unique (to the railroads) management style, first at the Canadian National, and later at the Canadian Pacific.

Exactly, what is precision scheduled railroading? According to a CP white paper it is a “philosophy of constant monitoring and optimization of every asset throughout the entire organization.” It is built on five foundations – “improving customer service, controlling costs, optimizing asset utilization, operating safely, and valuing and developing employees.” One of its hallmarks is scheduled train departures. In the past, railroads have held their trains until they are completely full. Under Harrison’s operating principles, trains leave at a scheduled time regardless. It is not unlike Amtrak or a scheduled airline. They leave whether they are full or not.

Both the CN and the CP saw train speed, fuel utilization, and earnings increase significantly; but at CSX, the implementation task has been difficult. The most serious issue there has been the deterioration in service for many CSX customers. A coalition of shippers has filed a complaint with the Surface Transportation Board (STB), as well as appropriate Congressional committee members.  STB has insisted on weekly conference calls with CSX and had docketed a public listening session to learn more about the complaints. Unfortunately, Hurricane Irma interfered with those plans, and the hearing has yet to be rescheduled. In the meantime, Mr. Harrison is adamant that he will succeed in bringing the same positive outcome to CSX as he did to CN and CP.

Written By: Clifford F. Lynch

ELDs ARE AROUND THE CORNER

After several years of debate and courtroom challenges, it appears that electronic logging devices (ELDs) will be standard trucking equipment by the end of the year. The final regulation, which was initiated by the Federal Motor Carrier Safety Administration (FMCSA) and mandated by Congress in the 2012 Map-21 highway funding bill, will become effective on December 18, 2017. ELDs have been strongly supported by the American Trucking Associations and just as vigorously opposed by the Owner – Operator Independent Drivers Association (OOIDA). OOIDA pursued their efforts all the way to the Supreme Court, which declined to hear their appeal.

Under the pending rule, every driver required to keep a Record of Duty Status must use an ELD to record his or her compliance with hours of service regulations. Currently, most use paper logs. ELDs are advocated to aid drivers and improve accuracy and efficiency. Many advocates have suggested they will improve safety as well, by forcing compliance with hours of service rules. In 2014, the FMCSA reported that carriers using ELDs had about 12% fewer crashes, and hours of service violations were reduced by 50%.

For drivers employed by regulated carriers, the major inconvenience will be learning to use a new system for recording their hours of service. (For that small percentage that may fudge a little on their logbooks, the ELDs will keep them on the “straight and narrow”) The monetary expense will be borne by the carriers. Critics of the rule see it as a violation of drivers’ privacy and do not believe that safety will be improved. Personally, I do not see how an accurate record of hours of service should be private unless the driver is guilty of some violation, but I know that some drivers and others for that matter, object to another “Big Brother is watching you” implication.

For the small carriers and particularly the owner operators, there will be a financial burden. ELDs will cost from $200 to $800 per truck which will be an issue for small carriers – even those with only a few trucks. For owner operators, it will be another expense for those who already are struggling to make a decent living.

Eventually, I believe everyone will benefit from the ELDs once the learning curve is completed, but some opponents are not giving up without a fight. Representative Brian Babin (R-Texas) has proposed legislation that would postpone the effective date of the ELD mandate by two years. So far, the bill has about 50 supporters in the House, but the Senate is not expected to take similar action.

Notwithstanding the continuing concern and efforts by opponents, I believe we will see the rule become effective as planned – on December 18, 2017.

Written By: Clifford F. Lynch

TIME FOR A NON-JONES GLOBAL ECONOMY

With the introduction of the megaships into international trade, it is often possible for a fully loaded container vessel to call at more than one U.S. port. When they do so (for example, offloading containers at Long Beach and sailing on to Oakland to offload others), ships create excess capacity between the two ports that can be utilized for reduced price carriage. In today’s global economy, we in this country can take advantage of foreign capacity………….. Wrong!

As logical as this may seem, and as economical as it would be, firms are precluded from doing that because of a cabotage* provision in the Merchant Marine Act of 1920. This section provides that goods transported by water between U.S. ports must be carried in U.S. registered ships, built in this country, and crewed by U.S. citizens. (This law is commonly referred to as the Jones Act, as it was originally introduced by Senator Wesley Jones.)  A case in point concerns outlying sections of the U.S. A foreign flagged ship cannot transport cargo between the U.S. mainland and Alaska, Hawaii, Puerto Rico, Guam, etc. The ship must proceed directly to the mainland where the cargo is trans loaded to a U.S. flagged vessel for final delivery, adding a significant increase to the cost of the goods.

The law was passed to protect the U.S. shipbuilding industry, and the country’s seamen. Critics question the need for that now and believe the law is protectionist (which it is) and drives up energy and shipping costs (which it does).  Proponents argue that the industry should be protected and that the Jones Act is in the best interests of national security.

Just before he became ill, Senator John McCain introduced legislation to repeal the Jones Act. (Open America’s Waters Act of 2017). He has been attempting to do for some time, introducing similar legislation in 2010 and 2015. Senator McCain referred to the law as archaic and burdensome, hindering free trade, stifling the economy, and ultimately harming consumers.

To me, this bill makes infinitely good sense, although if I were in the shipbuilding industry, I might feel differently. Considering however, the overall economy, any method by which we can reduce the cost of getting goods to market, particularly to those territories off the mainland, would be a desirable result.

With Senator McCain’s illness, the future of this bill is unclear. And of course, president Trump has made clear his protectionist bias. The repeal of the Jones Act has failed in the past, and it has strong opposition from organized labor. The AFL-CIO claims it would eliminate 400,000 shipbuilding, seafaring, and supply jobs. Notwithstanding this, supporters of the new legislation view the disadvantages as being more than offset by the economic benefits.

*Cabotage: This term is used primarily in international shipping and may not be familiar to all. It is the transportation of goods or passengers between two places in the same country by a transport operator from another country. Originally, it applied only to water transport but now may apply to air, rail, or motor.

Written By: Clifford F. Lynch

WAL MART DOES IT AGAIN

As Amazon continues to squeeze its competition, retailers such as Wal Mart are pulling out all the stops in an effort to maintain their position in the industry. The recent purchase of Whole Foods by Amazon will greatly strengthen its position in the grocery products market, an area to which Wal Mart has devoted considerable resources over the past few years.

As it has in the past, Wal Mart is looking to its suppliers to help reduce its costs and improve customer service. Next month the huge retailer will begin a program called “On-Time, In-Full” (OTIF) which will require truckload suppliers of fast moving items to deliver 100% of the product ordered on a specific delivery date 75% of the time. This delivery target will increase to 95% by February. Penalties for non-adherence will be 3% of the retail value of the goods arriving either early or late. (The Wal Mart theory on early arrivals is that they create expensive overstocks.) This will be a tough objective for many suppliers. According to Wal Mart, in a study of its top 75 suppliers, OTIF “scores” have been as low as 10%, and no one reached the 95% goal. Suppliers already are struggling with several issues. Developments such as omnichannel shipments and pressure for same or next-day deliveries, to name just two, already are making the logistics manager’s job very difficult. As is usually the case, smaller shippers will feel the pressure more than the larger ones that have the resources to invest in upgraded inventory management systems.

It appears that Wal Mart will be somewhat unforgiving in enforcement of the new rules. There are several things that can go wrong with arrangements such as this – weather, equipment, congestion, infrastructure. Sometimes Wal Mart itself will probably be at fault. The company has said that “disputes will not be tolerated.” Hopefully however, a more lenient policy will prevail. In another presentation, a Wal Mart executive said, “Variability is the Number 1 killer of the supply chain.”  That of course, gives us a blinding glimpse of the obvious. Variability was not invented by the suppliers. If we operated in a perfect world, there would be no need for most of us. While we constantly strive to reduce variability in the supply chain, we will never be able to eliminate it.

Why is Wal Mart doing this? They indicated they could add $1 billion in annual revenue; but basically, they are doing it because they can. Wal Mart is such a major factor in the business of so many suppliers they cannot be ignored. Other competitors have adopted on-time programs, but are not large enough to have the same impact.

In fairness to Wal Mart, over the years, it has dragged suppliers kicking and screaming into changes that have turned out to be beneficial for all. Ideally, this will be another one of those, but it will not be without considerable initial pain.

Written By: Clifford F. Lynch