IT’S NOT JUST ABOUT RETAIL

If you are not a retail industry supply chain manager, you might not be paying much attention too the world of on-line orders, same day deliveries, or the Amazon Effect. In fact, all the developments in retail marketing and distribution might make you thankful you are in another business. If only that were true. The fact of the matter is that the pressure the retail industry is exerting on the entire supply chain is affecting us all.

One major impact, already being felt is the growing shortage of industrial space in the metropolitan areas. As we mentioned in our last blog, Amazon has established several hundred distribution centers around the country to deliver rapid service to its customers. In an effort to compete with that, competitors have rushed into the metro areas, attempting to establish their own last mile positions, driving costs up and placing pressure on space availability. This of course, affects all firms that might be trying to secure industrial property. Some retailers are turning to their stores as distribution points. Target, for example, is remodeling 1000 stores over a three-year period, according to the latest issue of Supply and Demand Chain Executive. The utilization of retail stores for last mile deliveries can be a good solution, but it is likely to present some inventory management challenges.

Not all retailers have stores than are suitable for shipping more than a few orders a day, and some of them are looking to logistics service providers (LSP) for a solution. The more progressive LSPs have established so called omnichannel operations and are servicing E Commerce customers, as well as their more traditional clients. The increased cost of doing so will no doubt be spread across their entire customer base, resulting in higher prices for all. I believe the use of reliable LSPs is the best answer to competing with Amazon and other large on-line sellers. According to the recent 2018 State of Retail Supply Chain report, 36% of the respondents plan to rely heavily on LSPs over the next three years. Here again, this will put pressure on the non-retail segments of the LSP users.

Keep in mind however, it is not always necessary to locate right on top of your customers unless you are trying to provide same day or same hour deliveries. Most non-retail customers seem to be satisfied with next morning delivery, and this can be accomplished by serving large cities from outside the metropolitan areas, where costs and congestion will be less. For example, delivery from Cedar Rapids to Chicago can comfortably meet next day requirements.

Another major issue is the effect on motor carrier service, rates, and capacity. Already a problem for some, as shipments get smaller, more trucks and drivers will be needed; and the problem will be exuberated. Up until now the driver shortage has been primarily a truckload, over the road problem. Recently however, with the ever-increasing number of small shipments, we have seen problems in the LTL sector, as well.

Finally, I believe we will see increasing pressure from non- retail sectors on LSPs, carriers, and suppliers. Even when product lines may differ, faster service is always good. It usually results in lower inventories, reduced warehouse costs, and other economic benefits. At some point, some progressive supply chain manager is going to stand up and say, “Hey, you did it for them. How about us?”

Written By: Clifford F. Lynch

NINE FOR NINETEEN

It is that time of year when pundits attempt to predict what will happen in the year ahead; and every year or so, I try it myself. Sometimes I have been right, and other predictions have fallen flat. For example, I really thought this would be the year for the Dallas Cowboys, but that no longer looks promising. Other predictions are starting to surface in blogs and postings, i.e. rates are going up, they are going down, capacity will Be an issue, then again, maybe not; but I believe there are several developments that will result in some fundamental changes in the way we currently, or will manage our supply chains. Some are new. Some are a continuation of those already begun.

  1. Tariffs and Trade Wars (?). We should be concerned about tariffs and possible trade wars, particularly with China. President Trump seems to be determined to impose tariffs on foreign goods which he believes will protect U.S. manufacturers. Most economist believe that no one ever “wins’ a trade war in the end. In 2017, the U.S. imported $505B worth of good from China. We exported to them only $130B. This does not seem like a war we can win, but one that could affect our supply chains – everything from facility locations, product origins, to rates.

 

  1. “Amazon Effect.” We have all heard of this one. I liked a Seattle Times definition, “Huge E Commerce company uses the internet to sell stuff cheap, wiping out the competition.” On a more serious note, driven by the aggressive customer techniques of Amazon, the term has come to stand for rapid and dependable service, often same day deliveries, free shipping, and instant visibility. To accomplish this, Amazon has established hundreds of distribution points in the country from which their shipments are made. So-called millennials are making 54% of their purchases on line, and Amazon provides over 50% of that. For a retail competitor, supply chain management will become even more challenging in 2019. (Amazon will also keep us on our toes with threats, or patents of squadrons of delivery drones, distribution centers in the sky, and skyscraper warehouses.)

 

  1. Industrial Property. To compete with Amazon, a mad dash to industrial property is creating a shortage of available sites, and when they are available, prices are significantly higher. According to CBRE, availability decreased over 7% in the second quarter of 2018. The age of many buildings is becoming a problem as well, since they are ill suited for modern distribution operations.

 

  1. Robotics can operate in small spaces more efficiently than humans, and we will see companies turning to smaller buildings to control real estate costs. This savings can be devoted to robotics. In larger buildings their use will be increased significantly to supplement manpower.

 

  1. Infrastructure, or the lack thereof, will continue to be an issue with little action expected from the Federal government. States are realizing that if they need infrastructure improvements, they must provide it themselves. Look for increased state fuel taxes and/or tolls to fund these.

 

  1. One of the interesting findings to come out of the “2019 Third Party Logistics Study” was that more shippers are realizing that they do not have the technology to reach their objectives, and are turning to their third-party partners to provide this. Already, 93% of shippers feel that technology capabilities are a necessary part of 3pl offerings. Technology is expensive, and as these offerings increase, expect rates to increase to cover the expense.

 

The last three actually began in 2018, or before, but will be with us for the foreseeable future unless we see a significant downturn in the economy.

  1. Driver Shortage. This condition has been with us so long, it seems like business as usual. However, as shipments get smaller, more trucks will be needed, as well as men and women to drive them. The shortage has existed primarily in the truckload sector, but it could spread to LTL in 2019.

 

  1. Capacity Issues will increase, not because of equipment shortages, but due to the lack of drivers. I do not see autonomous vehicles as a solution for several years.

 

  1. Transportation Prices will rise, and 2019 will demonstrate just how the economic principle of supply and demand works.

 

Notwithstanding some of our current management challenges, keep in mind that things could be worse. Stay calm, focused, keep an eye out for lost delivery drones and have a happy and blessed 2019.

Written By: Clifford F. Lynch

TIME FOR A SECOND LOOK

As 2018 draws to a close, it is clear that the country will not see the improvements in infrastructure we have been promised for several years. Most recently, President Trump decided infrastructure improvement was a high priority and one of the first problems he would address when he moved into the White House. In May of 2017, Secretary of Transportation Elaine Chao said “the infrastructure plan is coming soon.” For whatever reason – Congressional stagnation, lack of leadership, or both – nothing has been done at the Federal level. Some states, out of frustration and/or critical need have increased state fuel taxes and used the funds for their own infrastructure needs.

It also seems clear that the truck driver shortage persists and is expected to do so for the foreseeable future. While some improvements have been made by increasing salaries and bettering working conditions, the American Trucking Associations (ATA) projects the current shortage at 50,000, expected to increase to 175,000 by 2026.  The ATA says that these shortages and rising fuel costs are still the major concerns of motor carriers. A JLL report indicated that C.H. Robinson truckload rates were up 21.5% during the first quarter of 2018.Underscoring these issues are the continuing capacity shortages in the industry. In some cases, these result from increasing expense or lack of equipment, but many serviceable tractors have been parked due to the shortage of drivers.

Meanwhile, many of us have been faced with the most significant change in the supply chain since 1980, the year rail and motor carriage were deregulated. The popular term for the development is the “Amazon effect”. Others call it the “Now Economy” However you choose to refer to it, it represents a momentous change in consumer buying habits and the services necessary to accommodate them. Last year, E-Commerce sales totaled $447M, and are expected to exceed $500M this year. By 2022, the total is expected to surpass $700M. Not only are more consumers buying on line, they are demanding more rapid deliveries – sometimes same day – and Amazon not only is accommodating this, they are encouraging it. Competitors are struggling to keep up and maintain their share of this huge market. On the surface it would appear that the challenge is limited to the retail industry, but that is not the case. The increase in small shipments is straining an already declining LTL capacity, increasing prices.

Obviously, if sellers are going to provide same day deliveries, distribution centers must be closer to the markets. Already, this has driven up real estate prices in major markets. A considerable amount of time and effort is being devoted to strategizing about how to handle these “last mile” deliveries efficiently and economically, but we cannot ignore the inbound movements. The truckload industry is feeling the same pains. If you have not done so, it may be time to take another hard look at intermodal. Service is far better than it used to be – faster and more consistent. It is less expensive than truckload; and during the past four years, railroads have made $442M in capital improvements.

Secondly, be cautious about the rush to the increasingly expensive major markets. As long as you are close enough to provide the necessary customer service, your real estate and labor costs will be less. Whatever you do, do not get overwhelmed by a problem that may have an easier solution than you think.

Finally, as you reflect on 2018, and plan for 2019, take some time to enjoy the holidays and be thankful for what we have.

Written By: Clifford F. Lynch

WHAT GOES AROUND COMES AROUND BUT USUALLY FOR A DIFFERENT REASON

Recently, Prologis announced they would be building the first multi-story warehouse in the United States. Some of our more senior readers will realize that is not quite true. They may remember when it was not uncommon for warehouse operators to utilize multi-story buildings, usually no more than 3 or 4 stories high. Products and equipment were moved from and to loading and unloading docks at ground level by elevators large enough to hold a forklift and its load. To say they were inefficient would be an understatement but they were cheaper to build and did not require as much land as today’s single-story giants. In spite of their shortcomings, multi-story buildings were operated with a reasonable degree of efficiency for several decades.

Today, In Asia, multi-story buildings are much more common than they are in this country.  Several years ago, my company opened a distribution center located on the 6th floor of Asia Terminal located at the port of Hong Kong. Each floor in the terminal was accessed by a ramp that would allow trucks and containers to load and/or unload on the necessary floor. Although trucks were smaller and had a shorter turn radius than those we have in the U.S., there was no need for elevators and the operations in such facilities were fairly efficient. The major reason for building a large terminal that could not achieve maximum efficiency was to conserve capital. With the over the top land prices in a city such as Hong Kong, the decision to build up rather than out was not a difficult one. The multi-story distribution centers being planned today are to a certain extent, a product of high land costs, but this is exacerbated by the need for more E Commerce facilities. According to Supply Chain Brain, E Commerce distribution requires three times as much space than conventional operations.

The Prologis building will be located in Seattle, and will have three stories. The bottom two will have truck ramps on each floor, and the third floor will be accessible by elevator.  Obviously, the third floor will not be as productive as the other two but the planned use for that floor is “lighter scale warehouse operations”.  Other similar   buildings are being planned on the East Coast, as well.

Without knowing all the costs involved, i.e. land, robotics, and construction, the planned facilities seem to me to be somewhat of a compromise. With the robotic capability we have today, buildings can be almost as high as we want them to be. For example, Future Electronics in Memphis distributes its products from a 60-foot-high, fully automated warehouse. Amazon, the patent holder for “the warehouse in the sky”, now is considering a warehouse skyscraper. That is a bit of an overreach, but certainly possible.

One of the major issues with these small footprint buildings will be having the necessary truck docks. While products may fly around the vertical warehouses at will, at some point they must get in and out of the facility. The best design would seem to be a high-rise picking area, adjacent o a more conventional shipping and receiving space.

In any event, I believe we will see more innovation in warehouse design than we have seen in the past 20 years. If E Commerce continues to grow at the current rate and customer demands increase exponentially, the result will be more facilities in major markets where land costs will continue to increase, as well.

Written By: Clifford F. Lynch

2019 THIRD PARTY LOGISTICS STUDY

Every fall, for 23 years, Dr. John Langley of Penn State, along with annual sponsors, has published what he has titled “Annual Third- Party Logistics Study”. It is a comprehensive report on current relationships and progress of logistics service providers and their customers. This year’s study was particularly interesting in that we are in a period of such rapid change in the industry. It shows, among other things, that shippers and their providers are developing increasingly meaningful relationships and working together toward the achievement of their goals. The majority of the respondents agreed that their third-party relationships have been successful.

One interesting development is that more shippers are realizing that they do not have the technology to reach their objectives and are turning to their third-party partners to provide it. This of course, places an often-expensive burden on the providers. Ninety three percent of the responding shippers felt that technology capabilities were a necessary part of 3pl offerings, but only 53% agreed that they were satisfied with their providers’ capabilities.

As has been the case with previous studies, there are continuing disconnects between shippers and their providers. Providers almost always believe that their relationships are more successful than does the shipper group. For example, 98% of the providers feel that outsourcing relationships have been successful. Only 91% of their customers agree. Ninety five percent of the providers believe they have contributed to a reduction in shippers’ overall logistics costs> Only 72% of the shippers support that notion.

The services outsourced are essentially the same as in previous years, with domestic transportation, international transportation, warehousing, freight forwarding, and customs brokerage the top five.

As always, there is a group of firms that does not outsource. The major fear is loss of control, followed by concerns about integrating IT systems, while others believe that they simply have more expertise than the providers and service commitments would not be realized.

Respondents were also asked how outsourced relationships might be improved. Forty three percent of the shippers felt that providers needed to improve the ways they shared data. Only 25% of the providers agreed. About 36% of both groups agreed there needed to be a smoother process of transitioning RFP data to actual design and performance.

This year’s report discussed a concept I have not seen mentioned before – the “last yard”. This “refers to what happens to a shipment once it is delivered to a customer or consumer and how it is routed to the specific location where it may be needed or used.” Most shippers and providers agreed there is a need for competent last yard logistics. Only 53% of the shippers however, believed they efficiently manage this final leg, and even fewer providers – 34% agreed.

I have just scratched the surface here. The report covered several other areas such as omni-channel, e-commerce, and reverse logistics, and it is worth reading in its entirety. It may be downloaded at www.3plstudy.com.

Written By: Clifford F. Lynch

STATE OF TRUCKING – 2018

Last week, the American Transportation Research Institute (ATRI) the research arm of the American Trucking Associations (ATA), released its annual Top Industry Issues report. This report identifies the top ten critical issues facing the trucking industry in North America. The analysis also includes the major strategies for addressing each. This year’s report was based on 1500 survey responses from both drivers and carriers.

 

  1. Issue number 1 this year has been in the top three for 12 of the 14 years this survey has been conducted – Driver Shortage. Currently, the driver shortage nationwide stands at about 50,000, according to the ATA. From a driver perspective, this has been beneficial since carriers have been forced to increase pay, benefits, and bonuses during the past year. Capacity is tight, not because of lack of equipment but due to the shortage of drivers. Right now, the major strategy for dealing with the shortage seems to be the development of programs and legislation that would facilitate the entry of 18-20-year-old drivers into interstate commerce. Since 48 states allow drivers in this age bracket to drive in intrastate commerce, there are experienced drivers in this category.

 

  1. Hours of Service, a top three issue for the past 8 consecutive years, is once again high on the list. After years of discussion and litigation, there still are two major concerns. Current rules require a long-haul driver to spend 8 consecutive hours in the sleeper berth. Drivers would prefer to rest when they are tired and flex their schedules so they can drive during the less congested hours. Customer detention is also still a problem since many shippers and/or receivers do not move trucks in and out as quickly as they should.

 

  1. Driver Retention moved up the list this year, and it appears the industry is trending toward the highest annual turnover since 2013. Carriers continue to try to find the right mix of salary, benefits, sign on bonuses and time off for their drivers. The costs of recruitment and training have increased significantly.

 

  1. ELDs are still high on the list, but since they have been mandated for several months, concern is dwindling. Carriers however, are starting to assess how ELDs are affecting productivity and safety, and drivers still are a little suspicious of how the data will be used.

 

  1. Truck Parking. Now that ELDs are the law, drivers must park wherever they happen to be when their HOS are up. This is becoming a major issue and drivers ranked it as their second most important concern. ATRI suggests that truck parking facilities be expanded and identified for drivers. 

 

  1. Compliance, Safety, Accountability (CSA). CSA has been with us since 2010, and continues to be problematic in many areas. The most viable solution seems to be working with the Federal Motor Carrier Safety Administration (FMCSA) to ensure that the recommendations of the National Academy of Sciences review of CSA are implemented. This study, mandated by Congress, made some excellent suggestions on improving the evaluation of carrier safety performance.

 

  1. Driver Distraction. With the expanded use of smart phones and other personal or on-board technologies, driver distraction has become a major concern. (This problem of course, is not unique to truck drivers.) The solutions to this problem are education, enforcement, and harsher penalties for all – not just truckers. Every year, distracted driving is the cause of a significant number of crashes.

 

  1. -10. Infrastructure, Driver Health/Welfare, and the Economy round out the list. All of us are awaiting some action in Washington on the infrastructure crisis. Carriers are working to develop and encourage better exercise and eating decisions for drivers, as well as provide facilities where exercise equipment and healthy food are available. Finally, while the economy has been growing rapidly, recent governmental actions such as tariffs and possible trade wars are making everyone a little uncomfortable.

 

While both carriers and drivers have issues, their opinions do not always coincide. Carriers listed Driver Shortages, Driver Retention, and Hours of Service as their top three issues, and drivers listed Hours of Service, Truck Parking, and ELDs as their top three.

Written By: Clifford F. Lynch

THE WORSENING TRADE SITUATION

The current growing concerns about the U.S. trade environment are focused on two fronts. One is the (hopefully completed) renegotiation of NAFTA, and the other is what some believe could explode into a major trade war with China. As we have written before, President Trump campaigned against what he called “the worst trade deal ever…the job-killing disaster known as NAFTA.” By most accounts, NAFTA (North American Free Trade Agreement) has been quite successful since it was signed into law in 1993. The trade among the three parties to the agreement, U.S., Mexico, and Canada has been in the trillions of dollars, but Mr. Trump Believed (or said he did) that the agreement had caused the loss of many U.S. jobs as industries moved into Mexico, took advantage of low-cost labor, and shipped their products duty-free back home. The concern was somewhat valid. The auto industry has significantly increased production in Mexico, and one in every five cars sold in the U.S. is manufactured in Mexico. Even so, most experts believe there has been more success than failure with NAFTA. The president was determined to revise the agreement however, and threatened to pull out altogether if the U.S. did not get the concessions it wanted. The result was what is now called the US-Mexico-Canada-Agreement (USMCA). While the president has said “it is the most important trade deal we’ve ever made”, that statement raised a lot of eyebrows, since it is difficult to find many major changes and certainly none that would significantly increase U.S. employment.

Under NAFTA, any vehicle could avoid tariffs it was at least 62.5% made in North America. USMCA increases that percentage to 75, which should help the auto workers some, but it is not a life changing increase.

Canada agreed to remove some of the protection they have maintained for their dairy industry. That will open that market for U.S. producers, but it doesn’t’ represent a significant portion of our economy.

There are other minor changes, but nothing that many of us will notice. The countries did agree to sunset the agreement in 16 years. The agreement still must be ratified by Congress which could be problematic, depending on the results of the mid-term elections.

A more serious potential problem is our relationship with China. Using the same logic with which he attacked NAFTA, the president decided to penalize imports from China and has placed a 25% tariff on $34 Billion worth of Chinese imports. This was followed by a 10% levy on $200 Billion of other items, including many consumer products.

China immediately retaliated with a 25% tariff on soybeans and automobiles. The soybean tariff in particular, is going to cause considerable damage to our soybean export market; and currently, Chinese soybean imports from the U. S. are expected to decline by 12%. Obviously, this will hurt Midwestern farmers.

The October 10 issue of USA Today included a story that provided some insights into the hardships that will be experienced by another section of the economy – the “dollar stores”. Many of the products they sell are faced with the 10% tariff, and it will force them to either raise prices or take hits to profitability. (On January 1, the tariff will increase to 25%.) According to the article, 60% of the customers of Dollar Tree and Family Dollar stores have less than $40,000 in annual income and will be negatively impacted by the increases.

Whatever the product, almost no one believes that either side wins a trade war, and this one will be no exception. First of all, we are heavily dependent on China, and in this kind of situation, countries just continue to retaliate until one calls it quits.

Written By: Clifford F. Lynch

AN ATTEMPT FOR SIMPLICITY IN A COMPLICATED WORLD

Our industry, like so many others has long been blessed with a wretched excess of buzzwords and terms. We have spent so much time thinking out of the box about the paradigms of globalization in the new millennium that we have not had time to push the envelope in the development of our E-commerce business models.

Once, during a performance evaluation, when Dilbert was asked what he had accomplished, he responded, “Well, I have used my empowerment to create a new paradigm, and I teamed across financial boundaries to improve quality. I dare say I was customer focused and market driven. I proactively found excellence in the midst of chaos. I re-engineered my core processes and embraced change”. To the boss’ question, “Was that sarcasm?” Dilbert replied. “To be honest. I don’t know either.

Logistics and supply chain management have always been fairly straightforward disciplines, but for years, in my opinion, we have been plagued with the excessive, and arguably incorrect, use of the terms third party, third party logistics, and 3PL. One warehouse company even went so far as to advertise 3PL logistics services. Now, once again, the term 4PL has started to get more mention in white papers and opinion pieces. The definition of a 4PL is a little vague, but many refer to it as an enhanced 3PL, which really doesn’t help much.

Contrary to most popular opinions, the term third party was first used to describe shippers’ agents. The Hub Group, founded in 1971, was one of the early third parties, as were companies such as National Piggyback Corporation and Alliance Shippers. Usage of this term was logical since it properly described the interjection of a third party into the transportation contract. For example, if a company (Party Number 1) wished to ship a trailer in intermodal service over a rail carrier (Party Number 2) it could deal directly with the carrier or arrange for transportation through a shippers’ agent (Party Number 3). This was advantageous since because of the volume involved, the cost of the transportation utilizing the shippers’ agent usually was less than if the transaction had been handled directly with the carrier Motor carriers, warehouse companies, and railroads were known and referred to by their own competencies. To do otherwise, would have caused enormous confusion. Suppose that, using the above example. Party Number 1 had utilized a contract warehouse to distribute its products and a shippers’ agent (Party Number 3) to arrange for the transportation. Would the warehouse company be Party Number 4, or possibly Number 1 ½?

“To be honest, I don’t know either.”

In the 1980’s, the term third party became widely used to describe any provider of logistics services, and in many cases, was not a proper use of the term. The term fourth party has been around since the 90’s, but seems to be gaining renewed emphasis as a firm that assumes functional integration that has been atypical of a traditional third-party arrangement. Believe it or not, a fifth party also has been suggested to integrate the integrators. If one were more cynical, it might be suggested that the fourth and fifth layers are an unnecessary duplication of activity.

Before we all get buried in a morass of semantics, perhaps it would be helpful to return to clear and basic terms. When a firm outsources a logistics function, or group thereof, it simply is contracting with another firm that has the requisite service offerings and expertise. If we refer to that company as what it is – a logistics service provider – then the relationship would be much clearer. Whether the provider furnishes motor carriage, warehousing, order fulfillment, or freight bill payment, the term logistics service provider remains constant. If one prefers acronyms, LSP does not assault the senses or twist the tongue, and is easy to decipher.

As supply chain and logistics managers we should try to simplify where we can. In this new world of AI, AR, ML, and Blockchain, our jobs are tough enough without adding more vocabulary stress.

Written By: Clifford F. Lynch

HOW MUCH IS TOO MUCH?

Over the past few years, millions of words have been written about “big data” and how to manage it. It has often been considered as one of the major disruptions to supply change management. The fact of the matter is that big data is simply a new term for an old condition. Almost from the first day that technology became widely used in managing the supply chain, we’ve had more data than we could use. Rather than spending time and resources trying to manage what we don’t need, I think it might be interesting to try to reduce the amount of data to that which we really can use effectively. This could be particularly important in managing the performance of logistics service providers (LSPs), where in too many cases, outsourcers will become so enamored of data that they measure far more than they need to.

In 1610, Galileo Galilei said, “We must measure what can be measured, and make measurable what cannot be measured.” (Over the years, this statement has evolved into the more direct, oft-quoted axiom, “You cannot manage what you cannot measure.”) But today, some 400 years later, many supply chain managers still struggle with the application of that premise. Different companies will have different criteria for measuring their LSPs’ performance. For example, a pharmaceutical client would be much more concerned about batch controls and error rates than an appliance manufacturer would. But four basic rules should apply over all industries and providers:

The first axiom is the tried and true, “You can’t manage what you can’t measure.” This is particularly valid for outsourced operations. If you do not know how the provider is performing against agreed-upon standards and benchmarks, it will be impossible to evaluate not only its performance, but the client’s own customer service.

Make measurable what cannot be measured. The task here will be to identify activities in discrete segments against which you can establish measurable and achievable standards. A common mistake is to establish standards that are so vague they are absolutely meaningless. This creates additional work for both parties. Once the activities have been identified, then their importance can be determined.

Measure only what is important and actionable. This is the area where a lot of big data is generated. It also often leads to “report abuse.” Some managers will become so fascinated with the reports themselves that they will insist on measuring trivia. If it doesn’t have an impact on the operation or the operation’s cost, efficiency, or customer service, forget it. While every company has its unique needs, in a typical warehouse operation, the measurement of eight to 10 basic areas should be sufficient. Examples of these are productivity, order-fill rate, on-time performance, inventory variations, order cycle time, line-item accuracy, number of orders handled, and space utilization. You really don’t need to know how many orders were loaded at Door 5 by employees wearing blue shirts.

Measurement must be balanced. Too many measurements can bury the operation in details and lead to friction between the parties. Too few or too general evaluations make the performance difficult to manage. Timing should be balanced as well. There is no need to measure everything every day.

Certainly, as our technology continues to improve, we will learn more about our supply chains, i.e., generate more and “bigger” data, and the information no doubt will be helpful. The phrase “Information is power” probably has been quoted on millions of occasions; but in my mind, the real power lies in being able to take the information and use it effectively. This includes rejecting the information you don’t need to manage your activities.

Written By: Clifford F. Lynch

SOME PROGRESS WITH NAFTA NEGOTIATIONS

On August 27, President Trump announced that the U.S. and Mexico had reached a “preliminary agreement in principal subject to finalization and implementation” on new trade provisions. While those words seem to be the mother of all hedging, at least they represent some progress. While it has been a part of the NAFTA negotiations, Canada has been standing on the sidelines for five weeks while the U.S. and Mexico have worked toward a solution of their bilateral differences. Just this past week, Canada rejoined the talks.

The major provision of the U.S./Mexico revised agreement concerns the auto industry. Under the new pact, 75% of auto content must be made in the U.S. or Mexico. This is up from the current 62.5% in NAFTA. Also, 40-45% of the content of an auto must be the work of laborers making at least $16 per hour. Both countries believe that these provisions will support better jobs for employees, close some gaps in NAFTA, and give U.S manufacturers the incentive to expand their production. The new agreement also provides for stronger rules of origin and a streamlining of certification and verification of rules of origin.

Provisions were included that would incentivize more U.S. and Mexican production of textiles. These rules are stronger than the current regulations and hopefully would encourage more domestic and Mexican production.

Agriculture received a lot of attention in the negotiations, and several new rules regarding food sanitation, biotechnology, and tariffs were established. The two countries also agreed to remove all the barriers to marketing in Mexico certain kinds of cheeses made in the U.S., and will continue to recognize bourbon on and Tennessee whiskey as distinctive U.S. products, and Tequila and Mescal will be declared uniquely Mexican.

But what about Canada? The president has been emphatic about eliminating the NAFTA dispute mechanism, and Mexico has compromised with him on that. Chapter 19 of NAFTA allows members to challenge each other’s trade practices involving dumping and unfair subsidies; and the U.S. wants to eliminate it. Canada is very much opposed to dropping this from any agreement. Another sticking point will be the regulations regarding the shipment of dairy products from and to the U.S. and Canada.

On the surface, it appears that President Trump is quite willing to move ahead without Canada, even though Mexico disagrees. U.S. labor and other informed industry leaders feel strongly that the core of NAFTA, i.e. an agreement among all three countries must be maintained. Trump has indicated he would be quite happy with separate agreements with the two countries. That of course, would defeat the original purpose of NAFTA. Whatever happens, he wants to drop the name NAFTA. He maintains that it has too many negative connotations. He is in the minority on that one, but whatever we call it is not the big issue here. We need to find a way to get all three countries included in an agreement that each can live it. Certainly NAFTA can use some tweaking, but this pact has been too valuable to throw the baby out with the bath water. We need to be the leader in these negotiations – not the gadfly.

For complete details see the U.S. Trade Representative site at www.ustr.gov.

Written By: Clifford F. Lynch