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Ideas for Leadership in Logistics

LQ™LQ™

LogisticsQuarterly.com

The Official Magazine of The Logistics Institute

Volume 9, Issue 3/4, Winter 2003-04 $2.75

Creating Value Through

ReverseLogistics

page 20

INSIDE:

LQ’s New Team – 11What Doesn’t Kill You Makes You Stronger – 33Leadership in Logistics – 37What Every CFO Should Know About Logistics – 39Making an Investment in Learning – 43Perspectives and ideas for transforming business though logistics and supply chain management from American and Canadian leaders in the field:

Mike Bernos, Senior Manager,TNT Logistics North America;

Jim Ellis, Practice Director – Supply Chain Management,BearingPoint LP;

Matthew Meyers,Associate Professor,University of Tennessee;

Tom Nightingale, Vice President, Schneider National;

Dale Ross, Vice President, Effem Inc., a division of Mars Inc.

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Editorial 7

Contributors 9

Announcements 11

12 How Can You Reduce Costs and Grow Revenuein North America’s Utility Sector?The practice of supply chain management hasn’t beenembraced as a discipline in these capital intensive,serviced-based conglomerates. But here’s the secret

to more profitable and efficient utilities in North America.

17 Making Sense of the New Hours of ServiceRegulationsNearly every aspect of the supply chain is impactedby driver productivity and it’s about to be strainedlike never before. On January 4, 2004, the revised

Hours-of-Service (HOS) regulations go into effect in the UnitedStates. How will this step impact your business in America andCanada?

20 Creating Value Through Reverse LogisticsAre you interested in producing a better return onyour assets and creating share-holder value whilekeeping ahead of environmental legislation? Learnhow getting products back and pushing them up

through the supply chain to be reused, sold or properly disposed ofcreates value.

26 Customer Driven Global Supply Chain DesignsWithin supply chains, logistics services have becomea key source of competitive differentiation betweenfirms. Yet significant challenges exist relative todeveloping supply chain service offerings for global

business customers.

33 What Doesn’t Kill You Makes You StrongerThis account of an online auction involving one ofthe world’s largest manufacturers shows today’s ven-dors face inherent and unprecedented risks in thisnew way of conducting business. Even a momentary

lapse in judgment can significantly damage a company’s business.Here is a look at lessons learned from internet auctions.

36 Hiring TimeWhen it comes time to make the leap to a new job, will you and the company be ready? In this articlethe importance of timing is identified as one of thecritical components in the process.

37 Leadership in LogisticsHow does an organization respond to the speed of today’s ever changing market conditions and customer requirements? Here’s how leaders canmanage with the speed and agility required for an

organization to be successful.

39 What Every CFO Should KnowHere’s a fictional account of how the use of budgetsas the primary management tool for supply chainmanagement creates long term pitfalls for success atan automotive manufacturer. This article offers a

glimpse into new ways a CFO can help logisticians to get a leg upon the competition.

41 Supply Chain Analyses Versus SynthesisMany managers believe an integrated service offering exists only in utopia. But some companiesare distinguishing themselves by orchestrating anew vision for the future instead of adhering to

traditional roles as resource providers.

42 New Professional Logisticians

43 Making An Investment in LearningMore companies are looking to create value by their investments in the supply chain. Value and performance in a company should go beyond ananalysis and measure of elements such as cash flow

and take stock of one of its greatest resources, namely, its people.

45A Commentary: Changing the Landscape inEducation and Professional Development

The corporate integration of functions from production scheduling to inventory control, customerservice and distribution hasn’t been mirrored byCanada’s educational institutions – a situation that

could imperil Canada’s competitive position.

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7LQ™ winter 2003/2004

At the beginning of this year I began to meet with members ofLQ’s Advisory Board to talk about what was required to makean important move - to plan a promising transborder publish-ing venture. The result was an LQ business plan and this inau-gural International Edition of LQ, comprised of an equal mix ofeditorial written by U.S. and Canadian logistics practitioners.

This International edition LQ continues to build on its tradi-tion of professionals writing for professionals, but with anenhanced transborder and interdisciplinary focus to reflect ourBoard’s perspective and direction.

LQ’s Board, comprised of professionals from different sec-tors, organizations and regions, have worked together andhelped us to strike out in new directions to reap tremendousgains that are, ultimately, for our readership. I would like to takethis opportunity to extend my appreciation to LQ’s Board mem-bers who have helped us to grow. In addition, this year we arehonored to have several new members join LQ’s Board. (Page 11).

Clearly, there are unparalleled opportunities for businessleadership in today’s transborder and international trade envi-ronment. Global sourcing, procurement and manufacturing,the expansion of brands from country to regions, to honingglobal logistics practices, are only a few of these many oppor-tunities. LQ’s publishing and editorial strategies are designed tomirror these realities and provide you with the information yourequire, prepared by your peers in this exciting field.

The importance of such an international perspective wasalso evidenced and emphasized during the Council of LogisticsManagement’s (CLM) Annual Conference held in 2003 inChicago in several sessions that I attended. In particular, theimportance and call for the highest caliber of global logisticswas highlighted by Phillip Diniz, director of Export BusinessSupport and Demand Planning, Kraft Foods International.After all, Kraft has international sales to 150 countries, andglobal councils involving logistics and manufacturing executivesplay vital roles at the boardroom tables in the quest to contin-ue to build brand equity, globally.

We begin this special edition with a cover feature that shouldbe of particular interest to logistics practitioners and CFOsalike, irrespective of their place of domicile this holiday season,entitled: “Creating Value Through Reverse Logistics, written byAssociate Proffessor Diane Mollenkopf of Michigan StateUniversity and Howard Weathersby, Senior Vice President,Logistics Services for TrenStar, Inc.

We are pleased to have other senior level American contribu-tors, such as Mike Bernos, senior manager of corporate com-munications, TNT Logistics North America, whose article“Supply Chain Analyses Versus Synthesis,” offers an insightfulperspective and approach that is distinguishing practitioners

and companies in our global village. Rebecca Jasper, presidentof JASPERsolutions LLC, writes about a hypothetical dilemmainvolving an automotive company based in the United States.“What Every CFO Should Know,” reflects the interdisciplinarycharacter coloring the practice of supply chain managementand shows how conventional approaches to logistics can imper-il a company’s global position. We also welcome Dr. MatthewMyers, University of Tennessee, who takes stock of howLogistics Service Quality components can reduce costs and bol-ster revenues in a global logistics practice.

On the cusp of a new year of transborder trade, it’s timelyand helpful that Tom Nightingale, vice president, SchneiderNational, shows us the pros and cons of new hours of servicelegislation likely to be impactful to transportation practices onboth sides of the 49th parallel.

LQ has an equally impressive roster of Canadian executivescontributing to this edition. Heather Cartwright, CEO ofLogixsource Consulting Ltd., writes on behalf of the LogisticsInstitute, providing a personalized account of leadership inlogistics. Jim Davidson, president, iWheels Dedicated Logistics,has written an insightful review of online auctions in the auto-motive sector, with his aptly entitled article: “What Doesn’t KillYou Makes You Stronger.” Jim Ellis, practice director, SupplyChain Management, BearingPoint LP, takes stock of an industrythat has often been in the media spotlight across NorthAmerica and, in this case, is exemplary in its focus on a problemthat’s prevalent in other economic sectors. Jim’s article, enti-tled, “How Can You Reduce Costs and Grow Revenue in NorthAmerica’s Utility Sector?,” is the first of a five-part series. DaleRoss, vice president Logistics for Effem Inc., the Canadian divi-sion of Mars Inc., has written an editorial that focuses on theunderlying rationale for an exciting new initiative to develop aCanadian Ph.D. program in supply chain management.

In the future you can look forward to finding more stimulat-ing ideas in LQ, more often; LQ will be published with anincreased frequency in 2004 and, in tandem with this, LQ hasdramatically increased its transborder subscribers and reader-ship. In conclusion, I am particularly appreciative of the direc-tion and comments provided by Nicholas Seiersen, to ensurethe editorial quality of this special transborder edition, andMartin White for his insights and direction. Promoting innova-tion and growth also involves presentation and in this editionyou can see our new Creative Director, Allan Craig, has afford-ed our editorial environment with a richer and more sophisti-cated presentation.

Peace and Prosperity,Fred Moody, Editor and Co-Publisher

EDITORIAL

TEAMWORK


9LQ™ winter 2003/2004LogisticsQuarterly.com

JIM ELLIS B.Sc., P.Log., FCAM, CM is Practice DirectorSupply Chain Management, BearingPoint LP, Toronto. Mr.Ellis has been a participant and contributor within thecommunications, utilities and energy services industry forin excess of thirty years with specialization in supply chainmanagement. Prior to joining BearingPoint in 2001, Mr.Ellis was employed by a global manufacturer and distribu-tor of HVAC equipment as Vice President of NationalOperations. He was also employed by Canada's largest gasutility/energy services company in a number of senior posi-tions both within the utility as well as within the energyservices divisions of the enterprise throughout a 25 yeartenure.

He holds a Bachelors degree in Science from TrinityUniversity (B.Sc.), a Professional Logisticians (P.Log) desig-nation from the Canadian Professional Logistics Instituteand holds other designations within administrative man-agement including a fellowship with the Canadian Instituteof Certified Administrative Managers (FCAM), a CertifiedAdministative Management (CAM) designation from theAssociation of Certified Professional Managers as well asCertified Manager appelation (CM) from the Institute ofCertified Administrative Management. He has also com-pleted the Executive Management program at Queen'sUniversity in Kingston, Ontario and numerous executiveprograms within the field of supply chain and logisticsmanagement.

TOM NIGHTINGALE is the Vice President, CorporateMarketing at Schneider National, Inc. In this capacity, heleads enterprise-wide, global branding and marketing ofNorth America’s leading provider of premium truckload,intermodal, and logistics solutions. Schneider Nationalserves more than two-thirds of the Fortune 500 companies,offering the broadest portfolio of services in the industry.

Mr. Nightingale and his team manage the strategyprocess, market research, marketing communications,employment marketing, internal communications, andevent marketing at Schneider.

DR. DIANE MOLLENKOPF is an Assistant Professor ofLogistics at Michigan State University, in the Department ofMarketing and Supply Chain Management. Her interest in

reverse logistics developed while living in New Zealand,where "reduce, reuse, recycle" is a part of everyday life forindividuals and organizations alike. Her research interestsfocus on logistics integration and environmentally respon-sible logistics practices; she has published in several leadingacademic journals.

MATTHEW B. MYERS is an Assistant Professor in theDepartment of Marketing, Logistics, and Transportation,University of Tennessee, where he teaches global marketingand business strategy at the undergraduate, MBA,Executive, and doctoral levels.

Dr. Myers earned his Ph.D. in business from the EliBroad Graduate School of Management, Michigan StateUniversity. His primary areas of research are in global dis-tribution networks, foreign market entry strategies, andcomparative marketing systems. His research has been pub-lished or is forthcoming in a number of academic outletsincluding the Journal of Marketing, Journal of Retailing, theJournal of International Business Studies, the Journal ofInternational Marketing, the Journal of Business Logistics,the Journal of World Business, the Journal of BusinessResearch, the International Journal of Physical Distributionand Logistics Management, Business Horizons andInternationales Preismanagement. He is also a member ofthe editorial review boards of the Journal of InternationalBusiness Studies, the Journal of World Business, and theJournal of International Management.

MR. HOWARD WEATHERSBY is Senior Vice President,Logistics Services for TrenStar, Inc. of Englewood,Colorado. He has worked in reverse logistics for most of his18-year career with companies such as Frito Lay, Chep andHoover Materials Handling Group in applications rangingfrom direct store and consumer delivery to wholesale chem-ical. In recent years, his focus has been on non-traditionaluses of technology and decision support tools to enablerapid operational responses to market dynamics.

JIM DAVIDSON, President, iWheels Dedicated Logistics,began his career in logistics at The Ford Motor Companyin 1963 working in all aspects of logistics for 17 years. Mr.Davidson joined TNT in 1983 and held various management

WINTER CONTRIBUTORS

As LQ approaches its tenth anniversary, we are dedicating this newly redesigned issue toencompass the many facets of leadership in logistics from an international perspective. LQ's ongoing mandate to provide

“Ideas for Leadership in Logistics,” is clearly evidenced this issue with articles written by professionals and logisticians from America and Canada who are leading and transformingbusiness by creating new roadmaps and definitions for leadership in this exciting field.

OUR CONTRIBUTORS

10 LQ™ winter 2003/2004

rolls including roles in operations,staff, administration and generalmanagement for a number of differ-ent divisions. He also served as theTNT board member representingNorth America at their European-based board meetings. He has servedon the executive of the CanadianGeneral Motors Supplier Council aswell as Executive Vice President of theATA Council of Logistics located inAlexandria, Va.

ROSS REIMER, founder of ReimerAssociates Inc., a firm that providesservices in management consulting,mergers and acquisitions, and execu-tive search and recruiting, has exten-sive experience in all areas of opera-tions and supply chain management.Mr. Reimer founded ReimerAssociates, Inc., after more than 20years of senior-level experience inlogistics.

DR. LYNN FERGUSON is a recruit-ing and communications specialistwith Reimer Associates, Inc. She hasspent more than 15 years helpingclients to clarify their corporate mes-sage and communicate it effectivelyto their customers. Dr. Fergusonholds a Ph.D. from the University ofToronto.

HEATHER CARTWRIGHT is theCEO of Logixsource Consulting Ltd.Founded in 2001, Logixsource workswith clients to plan, implement andsupport value chain strategies andsolutions to create competitive advan-tage and increase shareholder value.

REBECCA S. JASPER, CPIM, MBA, iscurrently President of JASPERsolutionsLLC, a supply chain consultancy firm.She has 13 years of management, con-sulting and supply chain experienceworking in the steel, ferrous products,aluminum, health, chemical, oil &gas, e-commerce, linen supply, enter-tainment, fast food and utilitiesindustries. She has consulted in theUSA as well as in Japan, France and inthe Congo.

Rebecca Jasper is f luent inJapanese and French. She has a BBAin International Business from St.Mary's College and a second major inJapanese from the University of NotreDame. She received her MBA inSupply Chain Management at theUniversity of Tennessee, Knoxville.

MIKE BERNOS is senior managerof corporate communications forTNT Logistics North America. Hehas written for Gannett News Serviceand USA TODAY, as well as served aseditor for several leading trade pub-lications. Mr. Bernos is a member ofthe Transportation Marketing andCommunications Association and isa graduate of Springhill College.

DALE ROSS is the Vice PresidentLogistics for Effem Inc. theCanadian division of Mars Inc. Dalehas over 25 years experience as apractitioner in distribution, pur-chasing, inventory control, ware-housing, transportation, forecastingand customer service. He has heldsenior positions in major interna-tional corporations.

Mr. Ross has an Honors degree inEconomics and an M.B.A. fromWilfrid Laurier University and hastaught material management coursesat local community colleges. He is amember of Supply Chain & LogisticsCanada and the Council of LogisticsManagement.

PAUL RAGAN has been involved inthe North American logistics industryfor over 25 years. From his roots inWestern Canada to responsibility fordistribution and transportation forone of Canada's leading retailers. Healso held executive positions in the3PL sector withLivingston and as thePresident of Burnham and NadiscorpLogistics. In 2002 Mr. Ragan foundedRagan Enterprises Inc. a consultingf irm specializing in mergers andacquisitions in the logistics and trans-portation marketplace.

LQ™ ADVISORY BOARD

Mike BernosSenior Manager, Corporate Communications, TNT Logistics North America

David J. ClossDepartment of Marketing and Supply Chain Management,Michigan State University

Jim DavidsonVice President,iWheels Logistics

Russ J. DoakDirector of Global Warehousing, CREO

Jim EllisSenior Manager, BearingPoint LP.

David FaoroDirector Transportation, Unisource Canada Inc.

John FergusonVice President, Sales and Marketing, PBB

Sarah FriesenDirector, Supply Chain Services and Biomedical Engineering, Sunnybrook & Women’s College Health Sciences Centre

Benjamin GordonManaging Director, BG Strategic Advisors

Joe GrubicSenior Manager, Alliance/Network Management, Nortel Networks Global Logistics

Rob HamiltonPlanning, Timing & Control Manager,DaimlerChrysler

George KuhnExecutive Director,CIFFA

Pierre MassicotteVice President Supply Chain,L’Oréal

Mark Morrison, Senior Vice President of Business Development, TNT North America

Tom NightingaleVice President, Corporate Marketing, Schneider National, Inc.

Robert NovackAssociate Professor of Business Logistics, Department of Business Logistics, Penn State University

Stuart PenmanVice President of LogisticsAcklands-Grainger Inc.

Jason ReadPartner, 3PL Links Inc.

Eric DeweyVice PresidentSchenker of Canada Ltd.

Kurt M. RitceyPartner, Deloitte Consulting

Larry RodoSenior Vice President, Sales and Marketing, Nadiscorp Logistics Inc.

Nicholas SeiersenSenior Manager, BearingPoint LP.

Michael SneddenManager of Distribution Operations, IBM-Canada Ltd.

Volume 9 Issue 3/4

CO-PUBLISHER & EDITORFred [email protected]

PUBLISHERMartin [email protected]

CPLI PRESIDENT & EDITORIAL DIRECTORVictor [email protected]

CREATIVE DIRECTORCraig [email protected]

SALES & MARKETINGChris KasteinSales [email protected](416) 407-3856

CIRCULATIONLogistics Quarterly (ISSN 1488-3309)

ADVERTISING Fred Moody, LQ™2 Bloor Street W., Suite 100, Box 473, Toronto, Ontario, M4W 3E2,Telephone: (416) 461-8355Toll Free: 1-800-843-1687Fax: (416) 465-7832 Email: [email protected]

THE LOGISTICS INSTITUTE

160 John Street, Suite 200 Toronto, Ontario M5E 2E5Logistics Quarterly (LQ™) (ISSN 1488-3309) is published six times annually by Elefant Enterprise Communications Inc.™ (EECI) LQ™ is written for professionals in logistics. Subscription Services at: www.LogisticsQuarterly.comCanada Post Publications Mail Sales Agreement Number: 40032602. CANADIAN POSTMASTER: send subscription orders, address change notices and undeliverable copies to LQ™, 2 Bloor Street West, Suite 100, Box 473, Toronto, Ontario, Canada M4W 3E2

STATEMENT OF OWNERSHIP, MANAGEMENT AND CIRCULATION

EDITORIAL POLICYThe opinions expressed in this publication do not necessarily reflect the policy of The Logistics Institute or Elefant Enterprise Communications Inc.™ (EECI). The editors reserve the right to select and edit material submitted for publication. Not responsible for unsolicited material. EECI is a Toronto-based corporation and publisher. LQ™ is wholly owned and operated by EECI. All rights reserved © by Elefant Enterprise Communications Inc.™ 2003. Reproduction without written permission of the publisher is forbidden. LQ™ welcomes your comments, letters to the editor, or written submissions for consideration. (LQ™ is available on-line at: www.LogisticsQuarterly.com)

Ideas for Leadership in Logistics

LQ™



2004 Executive EditorsMIKE BERNOS, Executive Editor, is senior manager ofcorporate communications for TNT Logistics NorthAmerica based in Jacksonville, FL. Before working in thelogistics industry, he served as a media relations con-

sultant to Sears and Sprint. Mr. Bernos was also journalist forGannett News Service and USA Today. He is a member of theTransportation Marketing and Communications Association andis a graduate of Springhill College.

DAVID J. CLOSS, Executive Editor: Dr. Closs is theJohn H. McConnell Chaired Professor of the Eli BroadCollege of Business, Depart. of Marketing and SupplyChain Management, Michigan State University. He has

consulted with more than 100 of the world’s Fortune 500 corpora-tions regarding logistics strategies and systems. He is an activemember of CLM.

NICHOLAS SEIERSEN Canadian Executive Editor:Mr. Seiersen is a Senior Manager at BearingPoint inToronto, ON. He has written numerous articles inEnglish and in French, and has taught several courses in

top European and Canadian Universities. He is Past President ofthe Toronto CLM Roundtable, Vice President of French LogisticsAssociation ASLOG.

Sales and MarketingCHRIS KASTEIN, Sales Manager: Mr. Kastein has 13years of sales experience and has a background instrategic consulting and research. Mr. Kastein has aBachelor of Commerce degree from McMaster

University in Hamilton, ON.

MARTIN WHITE, Publisher: Mr. White is a principal ofCanada’s first media consultancy, Asylum think groupInc. Mr. White was the Vice President and Publisher ofTime Canada Ltd. (1998-2002) and the former associate

publisher of Toronto Life Magazine (1994-1998). Mr. White’s MBA isfrom the Richard Ivey School of Business, based in London, ON.

LQ’s 2004 Advisory BoardWe are honored to announce the following new participants on haveaccepted LQ’s invitation to join its Editorial Advisory Board.

ERIC DEWEY, Vice President, Schenker. Mr. Dewey hasbeen with the Schenker of Canada since 1979. Throughthe 80s and early 90s, his positions in Schenker'sCanadian warehousing and distribution division have

included Administration Manager, Operations Manager, andGeneral Manager. In 1999, he joined Schenker of Canada's seniormanagement team first as Vice President, Logistics and subsequent-ly as Executive Vice President, Corporate Development in 2002.

JOHN FERGUSON, Vice President, Sales &Marketing, joined Fort Erie-based PBB in 1987 and hasheld several senior-level sales and marketing positionsthroughout his 15-year tenure. Mr. Ferguson most

recently held the position of Director, Sales & Marketing at PBB.His pivotal role in PBB’s sales and marketing strategies has result-ed in PBB receiving many marketing awards. He holds a degree inbusiness and economics and is a Certified Canadian CustomsSpecialist and is a graduate of the Waterloo, ON-based WilfridLaurier University’s Supply Chain Management Executive Program.

BENJAMIN GORDON is Managing Director of BGStrategic Advisors, Boston-based consulting firm pro-viding supply chain companies with CEO-level advisoryservices in the areas of strategy, technology and finance.

Benjamin is responsible for leading key client engagements andsetting the direction of the firm.

Prior to BG Strategic Advisors, Benjamin founded 3PLex, theInternet solution enabling third-party logistics companies to auto-mate their business. Mr. Gordon received a Masters in BusinessAdministration from Harvard Business School and a Bachelor ofArts degree from Yale College.

TOM NIGHTINGALE is the Vice President, CorporateMarketing at Schneider National, Inc. Mr. Nightingaleleads the enterprise-wide, global branding and marketingof North America’s leading provider of premium truck-

load, intermodal, and logistics solutions. Mr. Nightingale and histeam manage strategy process, market research, marketing commu-nications, employment marketing, internal communications, andevent marketing. He holds and MBA from Syracuse University with aconcentration in Organization and Management and a B.S. inInternational Marketing/Management from Siena College.

DR. THEODORE STANK is the John H. Dove Distin-guished Professor of Logistics at the University ofTennessee. Dr. Stank’s research interests focus on thestrategic implications associated with integrated logistics

and supply chain management concepts, specifically related to inte-gration, information exchange, and operational responsiveness. Heis a co-author of 21st Century Logistics: Making Supply ChainIntegration a Reality. He has worked for Abbott Laboratories, servedas an officer in the United States Navy, and performed consultingand executive education services for numerous firms.

LQ’s Advisory Board performs a pivotal role in directing LQ’s business andeditorial practices to ensure it remains a primary source of the best ideasfor logisticians who are leading and transforming business in the fields ofsupply chain management and logistics. The participation of LQ’s AdvisoryBoard members enables LQ to uphold its tradition of being a publicationwritten by professionals for professionals in the field of logistics and supplychain management.

ANNOUNCEMENTS

New Members of LQ’s 2004 Editorial and Publishing Team

LogisticsQuarterly.com12 LQ™ winter 2003/2004

INSIDE TRACK

By Jim Ellis B.Sc., P.Log., FCAM, CM

How Can You Reduce Costs and Grow Revenuein North America’s Utility Sector?The practice of supply chain management hasn’t been embraced as a discipline in these capital intensive, serviced-based conglomerates. But here’s the secret to more profitable and efficient utilities in North America.

Backgrounders to Supply ChainManagement in Utilities

Certainly in my thirty years in theutilities sector,which I’ll define as thosebusinesses that distribute electricity,natural gas and water to the residential,commercial and industrial stakehold-ers of our communities, I have beenexposed to a culture utilities hold dear.Ironically, but for a few exceptions,nothing is more puzzling to me thanhow this culture of utilities is oftencited as the one of the most salient ofthe myriad of reasons offered toexplain why supply chain managementhas not been embraced by this capitalintensive, service-based group.

This article examines why this is aprevalent condition in this sector and,more importantly, will provide thoseorganizations embarking on a supplychain initiative with the tools of under-standing required for success.

Utility industries are as capital inten-sive as one could imagine, with widegeographical investments in wire, tow-ers, pipe, control stations, constructiondepots, service depots, office buildings,vehicles and heavy duty equipment.Specific to supply chain management,however, these investments contain avery large component of inventory andwarehouses.

The amount of inventory capitaldedicated to supply chain manage-ment in the utility industry representsone-to-two percent of revenues, whichalone could justify a measured invest-ment in supply chain management.Butinterestingly, this has not occurred.

Certainly, the performance metricsassociated with asset performanceshould likely have been justification aswell,with a 3.0 turn average overall.Butagain, there is a reluctance and, per-haps, disinterest despite the opportuni-ties for growth and savings.

In summary, I believe the mostsalient reasons for maintaining the sta-tus quo are:1. “We’re Unique”2. Inventory has been a good thing3. The Materials Management Group

has not earned the confidence of the organization

4. Managing inventory means get lots…not just enough

5. Mobile or Field Inventory means “never having to say your sorry…or return”

6. Controls don’t apply to the Operations Group

7. Having lots of vendors has been a good thing

8. Warehouses and lots of storage locations have been a good thing

9. Supply Chain Management (SCM) isnot viewed as a strategic or a core-competencyNot surprisingly, supply chain profes-

sionals in utilities are often frustrateddue to their inability to gain traction intheir companies to create the resultsthat chain management achieves in vir-tually every other sector of the econo-my. In order to mitigate the hurdles totheir success it’s important to definethese nine key reasons to understandhow they act as the barriers to SCMsuccess in this sector.

We’re uniqueThis is a particularly paralyzing belief

system, as evidenced by utility execu-tives’comments,who traditionally wouldelaborate:“…due to our uniqueness as abusiness”and “our responsibilities to thepublic in terms of continuity of service,stakeholder safety and cost reasonability,some things just don’t work here.” (Wewill examine the reasonability of thisbelief in depth in second article of thisfive-part series.)

Inventory has been a good thingUp until the noises of deregulation

or re-regulation began in the 1990s, aformidable focus on Rate of Returnmade utilities view their assets as pre-mier revenue generators.Utility compa-nies earn their profits from operatingtheir extensive network of plant andequipment through a percentage rateof return that is applied to the valuesand assets on their balance sheets.Consequently, a utility, which iswrestling with cost containment andthe painful process of filing rateincreases, often looks to capital invest-ment to bolster revenues.

Accordingly, items on the balancesheet such as inventories and the ware-housing and storage buildings thathold those inventories became a wel-come boost for the cause. Coupledwith an internalized culture of continu-ity of service and stakeholder safety,field personnel has developed a justifi-cation for holding large inventorycaches throughout the organization,resulting in the perception that inven-


tory is a good thing. Not surprisingly, inthis environment, diligent materialsmanagers who have attempted to opti-mize inventory levels and attempted tointroduce service levels or implementreturns processes have traditionallyfound their efforts thwarted.

Over an extended period of time thisculture has engendered what could becharacterized as one of utilities “materi-als anarchy,” with the user-communitydictating the provision of unlimitedsupplies to meet whatever they per-ceive to be required, and a materialsmanagement group that has retreatedinto the safety of managing stationaryand other office supplies.

The Materials ManagementGroup has not earned the confidence of the organization

With this culture of materials anarchymatured by the 1990s, any incumbentpurchasing department, inventorydepartment or warehousing group wit-nessed a dramatic dilution in theircapacity to execute their mandates. Inthis culture, IT, construction and manyother departments and functions tookover the procurement for their own sep-arate activities to procure what theybelieved was required, at least withregard to expensive, big-ticket items.

Interestingly, while all functionswanted their own mandate to source,negotiate and purchase materials, theydid not want to provide the levels ofaccountability that are traditionallyupheld by professionals in the disci-pline of supply chain management.This was especially true when it cameto inventory management.

During this period of take-over,many utilities established what couldbe likened to an internal “peace-treaty” with the official MaterialsManagement, that enabled all func-tions and departments to buy the bigstuff (including items such as trans-formers, large project constructioncomponents) that were high-valueindividual purchases. The MaterialsManagement Group was relegated tobuying and managing those ongoingitems of MRO.

While internal clients who wereliaising directly with vendors on veryhigh-value purchases, they often devel-oped inappropriately close relation-ships with them and did not benefitfrom the techniques and rigour ofappropriate purchasing practices. Onthe other end of the chain, however,havoc was prevalent. Purchases werenot coordinated with the inventorymanagement group, or the warehous-ing group, which quickly became bydefault the most cited cause for deliv-ery failure and, as a result, these divi-sions played another role as the expe-diters and ongoing mediators orenvoys to apologize to both end-usersand vendors.

Finally, these failures essentially ren-dered the MRO chain ineffective. Theabsence of critical controls createdinventory inaccuracies and lost trans-actions that incapacitated any replen-ishment service levels.

Managing inventory means getlots…not just enough

Attempting to establish an invento-ry service level for this industry is dif-ficult due to its culture, expectationsand belief systems. I cannot remem-ber ever having a logical and maturediscussion with an internal user whenit came to establishing a service level,unless the value was 100 percent orhigher.While supply chain profession-als understand the staggering impactof investment cost to chase servicelevels beyond 98 percent, utility fieldpersonnel have been sensitized to“materials are just a cost of doingbusiness...just get it” and “don’t letthose guys in the warehouse give youany hassle either.”

It is not the field personnel thatshould be viewed as the source of thebarrier as it is truly the responsibilityof line leadership to ensure employeesare aware of company policy and stan-dards respecting materials in theorganization. However, one mustacknowledge the culture’s impact onfield leadership who may not consideroverall cost when making materialsrequests.

This article represents the first

of a five-part series of articles

on supply chain management,

specific to utility organiza-

tions. Part II of this series will

address what’s perceived to be

“unique” thing about Utilities,

focusing on the paralyzing

mystery about the utility

industry at large and why

supply chain management

has had such difficulty in

gaining a foothold. In Part III,

New and Present Realities, our

readers can look forward to a

review that shows why utilities

are now beginning to explore

and consider supply chain

management as a means

of dealing directly with the

realities of revenue, cost and

growth. Part IV - High Value

Solution Areas for Utilities,

will provide insights into those

proven supply chain solutions

that elicit high value benefit to

utilities. Part V – Unleashing

the Opportunity, will offer a

roadmap to show supply chain

professionals in this sector

how they can transform their

utility company’s performance

in supply chain management

and impact overall business

practices.


Mobile or Field Inventory “means never having to say you’re sorry…or return”

Once inventory leaves the warmcomfort of the warehouse or distribu-tion center, it is released to fieldemployees that use fleet vehicles and,in some cases, small holding depotsaround key geographic areas.Curiously, once field personnel obtaintheir inventory, there is another cultur-al phenomenon that occurs in the util-ity sector. I usually refer to it as “pos-session without accountability.” Someutilities have stepped up to this phe-nomenon with success, but for themajority of utilities, field staff tends toaccept inventory to their various loca-tions but without accepting accounta-bility for it. In many cases, this is due toan absence of control over these loca-tions as separate warehouse codes.

This absence of control tends toperpetuate the “materials are just acost of doing business” perspective aswell as poor inventory accuracy and,as one would expect, poor replenish-ment performance. This helps to culti-vate the perception that the MaterialsManagement Group “never has whatwe need.” Finally, within this paradigm,typically characterized by thisabsence of controls and a packrat cul-ture, there is usually a poor to non-existent returns process. In some casesthis absent process is due to a resist-ance to give anything back (especiallysince the Materials ManagementGroup never have what we need….).Or, in many cases, because the excessstock is used for personal use orreleased to the black market.

Controls don’t apply to the Field Operations Group

Herein lies the ultimate conundrum,with the absence of supply chain con-trols, the user community exercises anyand all liberties associated with materi-als available, resulting in supply chainanarchy. However, in the presence ofsupply chain controls, the user commu-nity will engage a number of tactics tojustify its need for “total flexibility”at allcost.

The call for total flexibility is largelypredicated on the “uniqueness” ele-ment noted earlier. But, by and large,our observations suggest that this “flexi-bility need” is not required to deal withemergency needs or customer-restora-tion type work. It pertains more to theneed to step up and manage fieldemployees effectively.

A lot of vendors has been a good thing

Long prior to utility companiesbecoming “investor-owned” or “rein-vented” in the new horizons of utilities,they were essentially a municipal serv-ice provider with responsibilities tocustomers, employees, and community.It was only recently that the word com-munity was replaced with shareholderas the industry redefined itself and itsowners.

Accordingly,“doing your thing for thecommunity” was being an active andgenerous participant in the local econ-omy you served. This responsibilityoften meant going out of one’s way todo business with the local economy asoften as you could. As a result, manyutilities have thousands of active ven-dors in their vendor databases and fre-quently engage them with purchaseorders of amounts that are trivial in dol-lar value.

Warehouses and a lot of storagelocations have been a good thing

This is directly related directly to theprior heading of “Inventory has been agood thing”and, like warehouses inven-tory, is an important part of utilities’Rate of Return on the balance sheet.

For the most part, leased facilitieswere somewhat of an unheard of con-cept at utilities until the 1990s.The cus-tomer perspective was, “why lease abuilding? We’re not moving anywheresoon, and if we own it, its in rate basefor return.”

Whether it involves a stand-alonedistribution facility or the justificationto build a larger regional office build-ing, warehouses became a very usefultool not only to house inventories, butalso as a means to contribute to earn-

ings. Service for the public and main-taining safety of the system, weremantras that easily justified multiplewarehouses.

On the surface, at some utilities,there has been progress. But at thoseutilities where they have reduced or“rationalized” their warehouse sites inthe past few years, a curious effect hasarisen. While inventory levels droppeddue to the site reductions,it was not thereduction anticipated. In fact, inventoryhas grown to reestablish itself to its pre-reduction levels. Analysis has shownthat when warehouse sites are elimi-nated, the culture of the organizationresponds first by field personnel draw-ing a lot of stock and stashing it in unof-ficial locations.

SCM is not viewed as strategic ora core competency

The bottom line to these observa-tions at utilities across the globe, is thatin the majority of cases, the supplychain organization within utilities arestill viewed as an “evil to contend with”instead of a “strategic peer” in theorganization. In fairness to the functionitself – what attention and support hasit received?

In many organizations, instead ofproviding the focus and resources on astrong supply chain managementorganization, we often see “multiplesupply chains” operating within theorganization at the cost and spite ofothers.

The encouraging news is, however,that utilities are now beginning to actdecisively in this area and they areobtaining the rich benefits of cost sav-ings, inventory reductions, freed-upcapital, productivity boosts and manymore. Even the executive chambersare beginning to acknowledge thevalue of supply chain managementwith dedicated executive positionsthat respond on behalf of the wholeorganization.

In the ensuing series of articles on“The Uniqueness of Utilities and theirSupply Chains,” you’ll learn how totransform this culture.

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Nearly every aspect of the supply chainis impacted by driver productivity. It is acritical link that is about to be strainedlike never before. On January 4, 2004,the revised Hours-of-Service (HOS) reg-ulations go into effect in the UnitedStates. Unfortunately, few carriers aretalking about it and fewer shippers areplanning to mitigate its impact.

Background:The revised HOS regulations affect

all commercial truck drivers and due tosound science will benefit all of us froma safety standpoint. Due to its safetybenefits most carriers, includingSchneider National, support thechanges.

While the changes may not initiallyastound you as revolutionary, a closerlook proves that we are heading intoone of the most troubling single-driverproductivity environments in decades.When drivers cross the border, they arerequired to observe the rules of thecountry in which they are driving andthe two sets of rules will be quite simi-lar. For the purpose of this discussion,the emphasis will be on the U.S. revisedHOS since nearly all of us have someelement of a supply chain that eitherbegins or ends in the United States andconnects to Canadian roadways.

Impact:As the table illustrates, the required

rest period was extended from eighthours to 10 hours and the daily limit ofwork hours was reduced from 15 to 14.On the positive side, the number of driv-ing hours allowed will be increased from


NEW FRONTIERS

By Tom Nightingale

Making Sense of the New Hours of Service RegulationsNearly every aspect of the supply chain is impacted by driver productivity and it’s about to be strained like never before. On January 4, 2004, the revised Hours-of-Service (HOS) regulations go into effect in theUnited States. How will this step impact your business in America and Canada?

Rules Prior to Jan 4, 2004

Can not exceed 10 hours of driving without an 8 consecutive hour break

15 hours on duty (but nomore than 10 hours driving) before an 8 hourbreak15 hours of on duty timecan be broken up with periods of off-duty time

Driver may not drive after60 hours on duty in 7 consecutive days or 70hours on duty in 8 consecutive daysDaily hours management isneeded to avoid exceedingthe 7/8 day rules. Driverscan only really “reset” aftera week vacation

As of Jan 4, 2004

Can not exceed 11 hours of driving without a 10 consecutive hour break

14 hours on duty (but no more than 11 hoursdriving) before an 10 consecutive hour breakOnce started, 14 hours ofon duty time must be consecutive

Driver may not drive after60 hours on duty in 7 consecutive days or 70hours on duty in 8 consecutive daysAny off duty period of atleast 34 hours restarts adriver 7 or 8 day week

What it means

Any gain from the additionalone-hour drive time is more thanoffset by the additional twohours of off-duty timeLess time available for non- driving work like waiting at shippers or consignees, bordercrossings etcOnce the 14-hour clock startsthe driver can not extend it with time for meals, rest stops,fueling etc. – this is lost flexibilityNo change – but other changes described above mean less flexibility in calculating these times

This changes little – most drivers want to be home on a regular basis and very fewwould break on the road


10 to 11 and the weekly rule was soft-ened by allowing a driver who had rest-ed a total of 34 hours straight a cleanslate. Many people thought the twopoints of increased restrictions and twoproviding more leniencies wouldnegate each other - but careful analysisand modeling are proving that it doesnot.

The increased break time requirestwo more hours before starting to driveagain, which means two more hoursbetween each work period.Using a cur-rent driver schedule and assuming thedriver works at optimum productivity, aMonday delivery would be on time, buta Tuesday delivery would be the equiv-alent of the driver oversleeping by twohours. Likewise, Wednesday is fourhours later and it continues to com-pound throughout the week. Of course,many challenges impede drivers fromworking at optimal productivity levels.

The reduction of total work timefrom 15 to 14 hours seems minor on thesurface,but in reality, it is the most prob-lematic. No longer is a driver’s day bro-ken up by work and off-duty time total-ing 15 hours. As of January 4, the rulestates that the 14 hours are consecutiveand begin when the driver starts towork and ends 14 hours later. Today, astop at a restaurant for lunch or at a restarea to stretch does not count as work-time and does not count against the

current 15-hour maximum. Under thenew HOS rules, the clock starts at thebeginning of the work period and doesnot stop - for anything. If a driver arrivesto pick up or drop off a load and thedock is not ready, the clock is runningbut the truck is not moving.

The total effect of the rule changes isestimated at between 4 percent and 19percent in driver productivity depend-ing on individual freight characteristics.

Preparation:A few shippers,consignees and carri-

ers have been preparing for the revisedHOS rules and are implementing aseries of best practices and measures tomitigate the potential financial impactof the rules.

In addition to best practices, manyshippers are seeking modal alterna-tives. There is an expected shift togreater intermodal transportation andan increase in short-haul intermodal inparticular because of the revised HOS.A recent Council of LogisticsManagement (CLM) panel featured oneof North America’s largest retailersopenly pushing railroads to develop aviable service offering in the less than800-mile range.

We are also in the early stages of anunprecedented wave of outsourcingprivate fleets. As private fleet ownersmodel their networks and face increas-

ing complexity and cost, they are shift-ing to a realization that it is best to focuson their core competency and out-source transportation to the commer-cial market.

Lastly, there is an upsurge in networkmodeling underway. Routes and desti-nations that were once tenable arebeing re-examined by logistics engi-neers across many 3PLs to determineways to revitalize the supply chain postJanuary 4.

Conclusion:The benefit of the revised HOS is

expected to be fewer collisions andfewer fatalities due to fatigue.Of course,it will be difficult to tell the actualresults, but the U.S. Department ofTransportation estimates a reduction ofat least 75 deaths per year. In Canada,although only 11 fatalities per year aredirectly attributed to fatigue, it is widelyfelt that these statistics are underreport-ed. Some sources suspect that fatiguecould be the cause of 15 percent ofannual road fatalities, while othersplace the number as high as 40 percent.Regardless where you place the num-ber, it’s too high and we are all hopefulthe revised HOS will reduce it to zero.

Driver productivity will become a pri-ority to minimize the impact of therevised HOS on shipping costs.Any losttime from driving that is under the con-trol of shippers and receivers must bescrutinized.Those who have been usingthe drivers’ time to offset internal ineffi-ciencies will see the largest impact andprice increases. Those who can makepick-ups and deliveries more driver-friendly will see the least.

We all share in the supply chain andwe are all impacted by trucking.Whether it’s the convenience store thatsupplies us with chips and soda, thepropane delivery, or a truckload of criti-cal parts to keep a production line run-ning – trucking touches each of us.As aresult, we all have an obligation to edu-cate ourselves on the impact of therevised HOS and prepare for its affectwhile finding ways to minimize it.

Further information is available atwww.schneider.com orhttp://www.fmcsa.dot.gov/hos/hos.htm.

Shipper Best Practices:

• Use non-driver labor tocount, load, and unload• Make appointments that are"by" instead of “at”• Ensure paperwork is readyand complete when driverarrives• Ensure paperwork is complete and accurate forcross-border shipments• Reduce live-load andunload through use of dropand hook• Use yard jockeys to handlenon-driving tasks performedby driver• Reduce number of multi-stop shipments• Provide adequate space fordrivers to park and sleep onshipper property

Consignee Best Practices:

• Use non-driver labor tocount, load, and unload• Make appointments that are “by” instead of “at”• Increase use of drop andhook• Use yard jockeys to handlenon-driving tasks performedby driver• Provide adequate space fordrivers to park and sleep onshipper property • Consider using inboundvisibility software and yardmanagement software• Communicate dock delaysand congestion to the arriving carriers• Increase the hours thatyour docks are available

Carrier Best Practices:

• Invest in and deploy com-munications technology • Communicate the impactsof HOS to individual shippers• Do not blind-side transportation purchaserswith a double digit rateincrease in January – anhonest dialogue now will goa long way in the new year • Encourage Shippers towork with their consignees • Train drivers to understandthe rules while on both sidesof the border• Do not cheat – penaltiesare stiff and lives are at risk• Prepare for additionaldemands on capacity – it willtake more drivers to movethe same amount of freight


It’s time for an attitude change.

Stop thinking of reverse logis-

tics as just a necessary evil, or

a cost of doing business, some-

thing that doesn’t really jibe with

your firm’s real logistics activities.

In light of increasingly strict regu-

latory measures (emanating par-

ticularly from Europe) that limit

landfill disposal and extend pro-

ducer responsibility into post-

consumption product life stages,

it’s time to start managing your

firm’s reverse logistics processes.

In doing so, you may find some

surprising benefits as well.Traditional supply chain manage-

ment focuses on delivering value to

end-customers through integrated

management of various processes such

as procurement, order fulfillment,

demand management and customer

relationship management, to name just

a few. Organizations are increasingly

including reverse logistics in their

process-management focus. As a

process, reverse logistics refers to the

set of activities related to getting goods

(products, materials, packaging) back

from point of use to points further up

the supply chain where they can be

reused, refurbished, resold, or disposed

of properly. These activities, as defined

by Rogers and Tibben-Lembke (1999)

include gatekeeping (managing the

insertion of goods into the reverse sup-

ply chain), collecting, sorting and grad-

ing returns, developing a network of

logistics providers to transport and

process returned goods, refurbishment

and/or remanufacturing of selected

goods, resale or reuse, and ultimately

proper disposal.

You could be missing a real oppor-

tunity if reverse logistics were only

viewed as a cost-minimization exercise.

Opportunities to recapture and create

value in the supply chain should also

be explored. Using a Return on Assets

(ROA) approach is one way to assess

value creation through the returns

process. ROA is a key indicator of a

Creating Value ThroughReverse

LogisticsAre you interested in producing a better return onyour assets and creating share-holder value whilekeeping ahead ofenvironmental legislation? Learn how gettingproducts back and pushing themup through thesupply chain to be reused, sold orproperly disposedof creates value.

By Diane A. Mollenkopf and Howard Weathersby


firm’s profitability, and also a key contributor to shareholder

value. Effective returns management can contribute to

improved ROA in several ways. First, reclaiming

products/parts that can be reutilized in the forward supply

chain can dramatically reduce a firm’s cost of goods sold.

Even if refurbishment or remanufacturing is required, rev-

enues can ultimately be gained from essentially ‘free’ inputs

where a refund is not required.The firm has already paid for

the raw materials once, and doesn’t have to re-procure or

totally transform them again in order to gain additional rev-

enue. Appliance and electronic goods manufacturers are

prime examples of organizations that are taking advantage

of this type of non-traditional supply. Firms that lease their

products, such as office equipment and computer manufac-

turers,also focus on asset recovery initiatives to reclaim their

end-of-lease products. Many of these products (or at least

their parts) still have useful life that can be offered to other

customers at very little up-front cost.

Second, operating expenses can be reduced through

effective and innovative returns management programs. In

addition to minimizing costs relative to returns processing,

customer service costs can be reduced if the return process

is streamlined from a customer’s perspective. Additionally,

capturing information about the reasons for returns being

made can be leveraged to further improve the product, thus

reducing future returns. Effective returns management and

processing can also reduce a firm’s environmental compli-

ance or waste disposal costs.

Third, assets in the form of obsolete inventories can be

reduced if returns are managed efficiently. This means get-

ting merchandise returns from dealers in a timely manner

so that alternative uses can be made of the inventory before

the only option is to write it off, and then dispose of the

product.Managing the timing of returns is especially critical

for seasonal or short life-cycle products. Merchandise

returned at the end of a season has little potential for alter-

native use. Making earlier decisions about stock disposition

in the field can provide many opportunities to reuse inven-

tory before it becomes obsolete.This means implementing

channel-cleaning policies with dealers and retailers to man-

age not only the quantity of returned products, but also the

timing.

$

$

$

$

x=

$

$

$

$

$

$–

$

$

$–

Logistics’ Impact

• Sales increase due to bettercustomer service

• Lower cost due to new or moreefficient manufacturing facilities• Lower cost of purchased materials

• Reduced order management costs• Fewer last minute production changes• Fewer LTL shipments• Fewer freight claims• Lower freight costs• Lower costs for:Insurance • TaxesVariable Storage costsInventory risk costs• Fewer employees required• Lower third-party warehousing

Reduced IS costs

Reduced cost of supervision

Reduced inventory investment

Reduced due to more promptlypaying customers (reduced errors)

Less warehouse space required

Increase investment in modernizedproduction facilities

Source: Lambert, Douglas M. and Renan Burduroglu (2000). “Measuring and Selling the Value of Logistics” The International Journal of Logistics Management, 11(1), 1-17.

Lot Quantity Costs

Transportation Costs

InventoryCarrying

CostsWarehousing

Costs

InformationSystems

General andAdministrative

Inventory

+Accounts

Receivable

+Other

Current Assets

Figure 1. The General Strategic Profit Model

ReturnNet

FinancialLeverage

Return onAssets

Net profitNet worth( ) Total assets

Net worth( ) Net profitTotal assets( )

Net ProfitMargin

Net profitNet sales( )

Net Profit

Sales

GrossMargin

TotalExpenses

Sales

Cost ofGodds Sold

VariableExpenses

AssetTurnover

Net salesTotal assets( )

Sales

Total Assets

CurrentAssets

FixedAssets


The ROA ApproachProfitability analysis is an important means of assessing logistics activities and proposed changes to a firm’s logisti-cal systems. Profitability analysis goes beyond total cost analysis by incorporating the revenue impact of logisticalactivities. For example, an improved level of service may bring about increased revenue as your customers respond toyour higher levels of service. Such changes must be built into logistical system analysis. Additionally, the impact ofassets such as inventory levels, accounts receivable and fixed logistical assets should be incorporated into a compre-hensive profitability analysis approach.

A critical measure of strategic success is Return on Investment, which can typically be measured by Return on NetWorth (RONW), or by Return on Assets (ROA). RONW measures the profitability of the funds that owners haveinvested in the business, and is most likely of interest to shareholders and investors. ROA provides a more operationalperspective by providing a view of how well managers utilize operational assets to generate profits. Thus, ROAbecomes a key managerial tool for logistics profitability analysis.

The Strategic Profit Model provides the framework for ROA analysis by incorporating revenues and expenses togenerate net profit margin, as well as an inclusion of assets to measure asset turnover. Net profit margin measuresthe proportion of each sales dollar that is kept as profit, while asset turnover measures the efficiency with whichassets are used to generate sales. Together, they form the basis for ROA. Figure 1 provides the general framework forunderstanding how logistical decisions can impact net profit margin, asset turnover, and ultimately, ROA.

In using the ROA approach to better understand the impact of reverse logistics decisions, Figure 2 illustrates thatthe impact of reverse logistics goes beyond cost reductions. In fact, the impact can be broadly described in terms of:• Cost reductions that come through reduced cost of goods sold and operating expenses;• Improved asset turnover through better inventory management; and• Increased revenues in both the short and long terms through additional sales and full-price maintenance due tonewer stock being offered.

$

$

$

$

%

$

$

$

$

$

$

$

$

$

$

$

6. Increase brand equitylong-term revenuesincreased customerbased on environmentallyresponsible logisticsactivities

4. Increase revenuesselling recoveredin existing or newchannels

1. Reduce COGS byreclaiming reusableproducts/parts thatre-inserted into theforward supply chain

2. Reduce operatingreturns management,disposal/complianceminimize future

5. Increase revenueschannel cleaning;inventories and eliminatesthe need for markdownsold stock

3. Reduce inventorieschannel cleaningalso reduces inventorycarrying costs

Figure 2. The Impact of Reverse Logistics Activities on ROA

SALES

COST OF GOODS SOLD

VARIABLE

FIXED EXPENSES

INVENTORY

ACCOUNTSRECEIVABLE

+ OTHER CURRENT ASSETS

GROSS

TOTAL

CURRENTASSETS

+FIXED ASSETS

÷TOTAL ASSETS

SALES

÷SALES

NET PROFIT

NET PROFITMARGIN

net profitnet sales( )

net profittotal( )

RETURN ONASSETS

ASSETTURNOVER

net profittotal assets( )

-


Fourth, return products are often an overlooked source of

additional revenue. Recovered product may be re-sold

through existing or new channels,depending on the charac-

teristics of the target markets. For example, remanufactured

computer products are often resold to consumers that rep-

resent a different target market than the OEM’s primary cus-

tomers.Original customers might include large corporations

purchasing computer equipment in large volume. Second-

time-around customers may be small businesses or con-

sumers who wish to purchase a certain computing power,

but are unwilling or unable to pay premium prices for new

equipment. In the case of multi-use packaging such as 55-

gallon drums or intermediate bulk containers (IBCs), the

cost of goods sold is essentially the collection freight and

the reconditioning cost.Those reconditioned products often

sell at a price point approaching new containers, and actu-

ally have a higher gross margin. Not exploring these poten-

tial new markets can really shortchange a firm’s revenue

opportunities.

Fifth, another source of additional revenue comes

through better inventory management. Better inventory

management and channel cleaning initiatives can help pre-

vent markdowns, and thus help retain higher margins on

sold products.

Sixth,the market positioning power of effective returns man-

agement programs should be considered. As customers and

consumers become increasingly conscious of the environ-

mental impact of the corporations they deal with, being able

to honestly promote reverse logistics activities can help a firm

gain repeat business and increase customer loyalty. Many

firms are finding that significant brand equity can accrue by

being an environmentally responsible corporate citizen.

In the returnable packaging arena, opportunities to create

value can come about by switching from expendable to

returnable containers.This not only avoids the disposal cost

for expendable packaging,but returnable containers may be

able to provide additional protection to products,thus reduc-

ing product damage, along with the related lost sales and

expenses to correct the damaged product. Of course, return-

able packaging may not always be cost-justifiable, so a total

cost approach to analyzing the expendable versus returnable

container option should always be taken. This may also

involve reviewing and re-engineering packaging materials to

ensure recyclable material is being used.There can be signif-

icant value added in the form of market perception, particu-

larly in examples like the chemical industry’s “Responsible

Care” program where members have significant measurable

commitments to “Reduce, Reuse, Recycle”.

On a somewhat larger scale than switching a corrugate

box for a plastic tote, is the whole issue of mobile assets.

These are usually more expensive types of containers, such

as beer kegs that must be returned from a restaurant or pub

back to the brewery. Such containers represent a significant

investment for a firm, and the movement of these assets

should be carefully managed, so as to minimize shrinkage

and damage to the containers, as well as to minimize cycle

time as the containers rotate through the closed loop system.

Managing cycle time is especially important so as to maxi-

mize asset utilization,and minimize the total number of con-

tainers needed to keep the system running smoothly.A brew-

ery cannot afford to run out of kegs.But it’s equally important

that it should not underestimate the financial consequences

of having too many kegs in the system.The chemical railcar

industry provides another example of mobile asset manage-

ment. Somewhat unique in the rail industry, chemical com-

panies tend to own or lease their own railcars due to the spe-

cialized nature of the cars.Thus, railcars are essentially bulk

chemical product containers that rotate through a system

from factory to customer and back again. Poor management

of these assets has led chemical companies to invest in more

railcars than necessary,while the utilization rate on each rail-

car remains very low, because they sit idle on rail sidings or

at customer plants for far too long. At approximately

(US)$70,000 per car, the investment level is high, while the

returns on these investments remain unnecessarily low.Thus

effective asset utilization becomes an important means of

improving a firm’s ROA, and ultimately its value to share-

holders.

In summary, effective reverse logistics management can

add significantly to a firm’s profitability and ultimately, to

shareholder value.As environmental legislation continues to

become increasingly strict, firms can either take the mini-

malist approach by doing only what is legally necessary, or

they can seek out opportunities presented by the environ-

mental legislation. Contrary to conventional wisdom, envi-

ronmentally responsible logistics practices can be highly

profitable for firms.The key is to take a systems approach to

better understand the total costs and benefits of your reverse

logistics system. The ROA approach provides a systematic

means to understanding the cost/benefit tradeoffs.

Remember, however, that to capture potential benefits, your

firm must shift its focus from viewing returns as an unwant-

ed but necessary evil and instead look for opportunities to

transform returns into additional revenue,profit and market

“perception capital”.

ReferencesRogers, Dale S. and Ronald S.Tibben-Lembke (1999), Going

Backwards: Reverse Logistics Trends and Practices. Reno:

Reverse Logistics Executive Council.


Customer DrivenGLOBAL SUPPLY CHAIN

Designs Within supply chains, logistics services havebecome a key source of competitive differentia-tion between firms. Yet significant challengesexist relative to developing supply chain serviceofferings for global business customers. Diverseregulations across borders, longer lead times,and increased transportation costs all add tothe difficulty of managing logistics servicesinternationally. As a service offering, logistics isoften characterized by intensive customer con-tact, extensive customization requirements, anda reliance on extrinsic cues for service perform-ance. Because of these qualities, logistics servic-es are adaptable to specific customer segments,enhancing customer value and loyalty overtime. In this article, we describe how LogisticsService Quality (LSQ) components can be usedto identify global segments of logistics servicescustomers. By identifying specific customer segments, some which may transcend nationalborders, logistics managers can benefit fromreduced costs, enhanced revenue, and the ability to differentiate their offering from othersin the highly competitive marketplace.

By Matthew B. Myers, Ph.D.


IntroductionTraditionally, supply chain managers have been focused

on evolving their supply chain designs based on efficiencies

and cost reductions. Dozens, if not hundreds, of consulting

firms make their living by showing firms how to alleviate

waste, minimize inventory, and reduce variable costs. As a

result, many managers feel that by increasing operational

efficiencies, they have developed meaningful supply chain

and logistics strategies. Unfortunately, this is not the case, for

two key reasons.

First, while being operationally efficient is today’s man-

date for managers, operational efficiency (OE) should be

considered a necessary but not sufficient aspect of global

supply chain strategies. The reason for this is that OEs are

often easily duplicated by the competition, reducing their

value over time and forcing firms to constantly adapt new

processes in order to remain competitive.

Second,as products become more ‘commoditized,’ mean-

ing that competitive offerings are almost indistinguishable to

the customer,firms often fall back to competing on price,fur-

ther increasing the pressure to cut costs and find previously

untapped efficiencies. Unfortunately, OEs and cost reduc-

tions can only go so low before firms begin to discard key

resources, including human resources, in their competitive

portfolio.They continue to compete on price,a never-ending

downward spiral toward zero margins.

Luckily, an alternative exists to the OE dilemma. By effec-

tively understanding what our buyers value in our logistics

services, we may design our supply chains to enhance cus-

tomer satisfaction and loyalty, thus increasing their value to

our firm. In global supply chains, this is particularly impor-

tant, since customer values are often driven by macro-mar-

ket influences, transportation distances, and cultural dimen-

sions that demand customized services from our firms. By

increasing customer value, we are often able to charge pre-

mium prices and benefit from greater repeat purchases, thus

keeping our margins open by methods other than decreas-

ing operating costs.

How Global Clients See ValueGlobal customers have certain expectations relative to

logistics services.As we will see in this article, these expecta-

tions constitute several dimensions of service, including

order handling, order quality, information quality, and timeli-

ness. Together, these functions are called logistics service

‘bundles,’ and the emphasis that firms should place on spe-

cific logistics tasks depends on how customer segments

define value. Often, specific customer segments desire the

same service ‘bundles’, and these segments can represent

buyers groups located in multiple countries.Thus, we like to

design our global logistics offerings to meet customer seg-

ment expectations, increasing their overall satisfaction with

our offering, and making them more loyal longer our firm.

Recent research has found that two critical components

of our logistics services, namely customers’ perception of

order placement activities and perception of order receipt,

influence customer satisfaction. Each of these components

is broken down into several distinct dimensions. It is these

dimensions which comprise our logistics service “bundles”.

Furthermore, specific global customer segments can be

defined by what individual groups value in our bundled

offerings.

Perception of Order Placement ActivitiesCustomers of global logistics services often place a premi-

um on their ability to easily and effectively place orders for

products. Customer satisfaction can be directly influenced

by how ‘hassle free’ and smooth placing orders can be. Five

specific dimensions are valued by global customers,namely:

1.Ordering Procedures:These are how efficient and effective

the procedures followed by the supplier are when taking

orders.This includes automatic replenishment and other IT

capabilities.

2. Information Quality:This is the customers’ perception of the

information provided by the supplier regarding products.

3. Order Release Quantities: This represents product avail-

ability, including backorder and out-of-stock issues.

4.Personal Contact Quality:The firm’s personnel in charge of

distribution and ordering,and their ability to foster customer

relationships, are key.

5. Financial Procedures: In global supply chains, the ease of

financial transactions, foreign currency negotiation, and

credit terms are often critical to buyers.

Perception of Order Receipt Customer segments are also defined by the importance

they place on particular aspects of order shipment. Often,

the personalized aspects of physical distribution of prod-

ucts influence customers in different ways. For example,

when products arrive damaged or in the wrong quantity,

how responsive the supplying firm is in fixing the problem

is more important to some buyers than others. Sometimes

this is culturally driven, and other times it is a function of

the firm or market, but in any case it is important for the

logistics manager to understand the value placed on this

and other distribution service dimensions in order to keep

the customer satisfied. Five dimensions of order receipt are

seen as potentially critical to buyers.


These are:

1. Order Condition: Lack of damage to orders.

2. Product Quality: How well products work after they are

received.

3. Order Discrepancy Handling: How well the firm handles

problems in orders after they arrive.

4.Timeliness:Whether orders arrive at the customer location

when promised.

5. Order Accuracy: How closely shipments match the cus-

tomer’s order upon arrival.

6. Security Compliance: How well products flow through

security constraints, such as CSI and C-TPAT in the United

States.

Understanding Global Customer Segments for Logistics Services

Generally, supply chain and logistics managers design

their logistics efforts to meet transportation and regulation

requirements in different markets, standardizing their servic-

es as much as possible to be operationally efficient. While

this is fine,customers are often lost by not meeting their spe-

cific service bundle requirements. The good news is that

groups of customers often have identical or similar values

for logistics services, and thus our services can be standard-

ized for these segments to enhance value.Typically, business

buyers’ values are not defined by the market they are in, but

rather by needs influenced by competitors, capacities, and

customers.Thus,groups of buyers in different countries often

have more in common with one another than with other

consumers in the same country.As a result, we should tailor

logistics services to meet these needs

across borders.

An example of this tailoring can

be found in the industrial chemical

industry.One specific group of chem-

ical buyers values timeliness and

security compliance above all else,

these buyers may be located in the

U.S., Germany, and France, and as a

group care little about ordering pro-

cedures, order discrepancy han-

dling, or cross-currency financial

terms.Another group of buyers of the

same products will only buy from

those suppliers offering automatic

replenishment and long term financ-

ing, along with a specific account

representative with the supplier to

handle any unforeseen problems.

These buyers may be located in the

Venezuelan oil fields, in Indonesia, and Hong Kong. Clearly,

these cross-national buyer segments are satisfied by differ-

ent logistics service bundles, yet firms standardizing their

logistics services are not meeting specific needs which

keep customers, or, just as detrimental to the supplier’s bot-

tom line, are wasting key resources by offering services not

important to key segments in multiple markets.Thus, global

logistics managers need to answer to critical questions:

What factors account for differences in business customers’

satisfaction for these services across national borders?

And, how do these differences reflect distinct segments in

the global services market? By consistently contacting your

customers, managers can ‘benchmark’ their progress in pro-

viding logistics services that meet global segment demands.

Getting Acquainted with Your Global LogisticsCustomers

Determining which service bundles are important to spe-

cific customer groups means questioning your customers

(and potential customers) on a routine basis. Many gold-

standard providers of global logistics services do this annu-

ally. Each customer group will have three important percep-

tions: what service dimensions they value, how well your

firm provides those functions, and how well your industry

competitors provide these same services. The figure above

shows how critical gaps are identified.First,we question cus-

tomers on how important specific order placement and

order receipt activities are to their businesses (these repre-

sent their valued service bundles).This is important not only

for identifying where we must perform,but also acts as a cost

Understanding Global Logistics Service ‘Gaps’

How well do you perform relative to competitors?

(Your ‘competativegap’)

How well do youmeet customer

supply chain serviceneeds?

(Your ‘service gap’)

Customer expectations areoften driven by theirunderstanding of the standard set by the

industry at large

Your industry’s ‘standard’ on each

LSQ dimension

Customers’ importance level on each

LSQ dimension

Your firm’s logistics service offerings

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saving activity by avoiding efforts (in additional service per-

sonnel, for example) which do not add value to the cus-

tomer. Next, we determine how well those customers per-

ceive our service handles those critical elements.These two

tasks are accomplished using traditional survey methods,

where we can quantify the differences between what is

important to the customer and how well we provide that

service dimension. These differences represent our global

logistics service gap. Unfortunately, we often discover our

service shortcomings to be negative, meaning we are not

meeting customer needs for specific segments, leaving

openings for competitors to benefit from our service fail-

ures. We can also determine how well the market feels we

compare to our competitors on specific dimensions, this by

asking customers to rate the industry at large on logistics

service dimensions. While not compulsory, this extra infor-

mation allows firms to benchmark against other providers.

Options for Addressing Global Logistics Service Gaps

Once a firm’s logistics service quality gaps have been

identified, there are a number of options available for devel-

oping strategies that close these gaps and enhance customer

value. Several of these are offered in the accompanying

table. For example, some customer groups may place an

emphasis on the personal contact quality they receive from

suppliers: we see this often in cultures such as those in

Japan, southern Europe, and Latin America. Should a firm

find itself at a competitive disadvantage

in these markets, increased accessibility

to employees, more frequent sales calls,

and higher customer service quality

through better trained personnel may

increase customer value. Similarly, some

global customers are more focused on

global security issues than others, this

due to geographic location and govern-

mental constraints. A standardized logis-

tics service offering for all customers

often fails to take these discrepancies

into account, meaning supplying firms

can lose customers by not providing

security initiatives to those customer seg-

ments that need them to move products

quickly. U.S. firms, for example, are now

preferential to global suppliers in com-

pliance with CT-PAT and Container

Security Initiatives, whereas this has little

value to the average Argentine manufac-

turing importer. Modifying global supply

chains accordingly is critical for satisfying profitable seg-

ments with significantly different service bundle needs.

ConclusionsGlobal logistics managers should understand the value of

customizing their logistics services for specific buying seg-

ments across overseas markets.Too often, customers are lost

because we seek to standardize our global supply chains in

order to be operationally efficient, while failing to provide

the distribution services necessary to add value for the cus-

tomer. Different customer segments will demand different

logistics services, and only by understanding our shortcom-

ings in these service areas can we develop global logistics

strategies that increase customer value, increase customer

loyalty, and subsequently increase the profitability of our

relationships with our buyers. Customizing our supply

chains for specific customer groups is only possible by sur-

veying customers regarding what they value, and under-

standing how they feel our firm is performing in the service

areas they rate as important. Over time, strategies based on

closing our service gaps lead to greater customer satisfac-

tion, retention, and subsequently higher margins for global

supply chain managers.

NOTES:Mentzer, John T., Daniel J. Flint, and G. Tomas M. Hult

(2001), “Logistics Service Quality as aSegment Customized

Process,” Journal of Marketing, 65 (October), 82-104.

Perception of Order Placement Activities

Ordering Procedures: Effective and efficientweb-based procurement, modified andstraight re-buy alternatives, minimization ofordering time, accurate confirmations.

Information Quality: More detailed websiteinformation, better trained service personnel,better information of alternative products,product efficacy.

Order Release Quantities: Enhanced safetystock, more accurate forecasting, inventorymanagement initiatives.

Personal Contact Quality: Increased accessibility to employees, more frequentsales calls, higher customer service quality(training).

Financial Procedures: Willingness to takepayment in multiple currencies, ability tooffer flexible payment terms.

Perception of Order Receipt

Order Condition: Packaging modifications,alternative shippers, alternative transportation modes.

Product Quality: Conforming substituteitems, technical standards, procurementquality.

Order Discrepancy Handling: Uniform policy on replacements and investigations,service personnel quality, feedback channels(including web-based).

Timeliness: Alternative transportation, alternative packaging, compliance.

Order Accuracy: Effective info. exchangebetween order receiving and warehousing,uniformity of SKU codes, standardized procurement methods.

Security Compliance: Pre-clearance, certification drivers and system.

Options for Addressing Global Logistics Service Gaps

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What Doesn’t Kill You Makes You Stronger

By Jim Davidson, President, iWheels Dedicated Logistics


FASTER, BETTER, CHEAPER” has been the battle crysince the dawn of industry and commerce. However,after we have “maxed out” plain old blood, sweat and

tears as a means to setting a new pace for business, we onceagain turn to technology.

The fundamental principles of commerce really haven’tchanged over the centuries.After all,buying and selling prod-ucts and services and negotiating terms is a pretty simpleconcept to grasp. Marco Polo 800 years ago had a prettygood thing going when he was the only supplier of silk inVenice.However,when another clever ship captain added anextra sail for speed and “down-sized”his crew by a couple ofsailors to cut cost - the competition heated up. As a buyer,competitive pressure pushes your suppliers to sharpen theirpencils and dig a little deeper in the innovation basket.As asupplier, competition forces us to trim waste and think cre-atively. Healthy competition is good for everyone. However,when we reach that inevitable day of reckoning when we’vecollectively trimmed the process to the bone, then what? Youhave probably heard the story a few years ago about a farmerwho won $2 million in a lottery and was asked by the week-ly newspaper what he planned on doing with his newwealth. His response:“Oh, I guess we’ll just keep farming ‘tilit’s all gone.”

A new lexicon has added sophistication in defining trans-portation and distribution in recent years.A term like supplychain management hints at the hidden intricacies of ourindustry.However, there is still an underlying simplicity to themindset that continues to drive much of our business,partic-ularly when it comes to transportation. The question stillis:“when can you get it there and how much will it cost?”But,this question tends to belie the complexity of the supplychain in general and the value suppliers can bring to a busi-ness relationship based on service at a fair market price. It iswith that thought in mind that I’d like to make a few obser-vations about an intense,exciting and stressful phenomenonthat our company participated in this year … a multi-milliondollar, live Internet auction for transportation services con-ducted for a major global manufacturer.

From a buyers’ point of view, there are serious advantagesthat make the process extremely attractive. In fact, one U.S.analyst told a journalist the Internet made procurement“sexy.” And there is probably some truth to that notion. Thebusiness media will report on major sales but not a lot ofbuyers make the headlines of the Wall Street Journal for anastute purchase. However, Internet auctions have certainly

This account of an online auction involving oneof the world’s largest manufacturers showstoday’s vendors face inherent and unprecedentedrisks in this new way of conducting business.Even a momentary lapse in judgment can signifi-cantly damage a company’s business. Here is alook at lessons learned from internet auctions.

“


received their fair share of press recently.The proposition ofcutting time, labor and cost out of the conventional tender-ing process, attracting a wider range of suppliers to bid and,ultimately, the hope of reaping major savings on the pur-chase of goods, has earned on-line auctions significant pub-licity.

This past summer our company, iWheels DedicatedLogistics,participated in a two month,marathon,on-line,real

time auction with one of the world’s largest manufacturers.In retrospect, we learned some things about ourselves andabout the process.This is not a critique on the idea of on-lineauctions. The process has been touted as offering distinctadvantages for buyers and, in this case, there were undoubt-edly over-all cost savings for the buyer. For the vendors how-ever, it represented a significant risk. Over the long haul, itremains to be seen whether it is in the best interest of the sta-bility of the economic infrastructure of North America’stransportation industry. In this issue of LQ, I would like toshare the experience from a bidder’s perspective for the ben-efit of other service providers and buyers.

First of all, the process does not start on the first day ofthe auction. In the case of iWheels Dedicated Logistics itstarted weeks in advance. By the very nature of our man-agement style we are an information and process-drivencompany.We also had the advantage of being an incumbentsupplier, which gave us prior insight into the business prac-tices, expectations and the value the buyer placed on rela-tionships.Well in advance of the auction,we conducted duediligence on every piece of business that was to be offeredwhen the activities went live. We knew going in, what ourcosts were on every lane. We set rules and limits on everylane.We determined in advance which lanes made sense toour business; at what price we were going to jump in and,more importantly, at what price we were getting out. It’s afine line between confidence and arrogance, particularlywhen the adrenalin is pumping during the heat of the auc-tion. Setting those benchmarks are the only saving gracethat prevents ego from pushing you a few pennies past goodsense. Any lapse in judgment at the pivotal moment willhaunt any carrier all year, when he’s losing money on everytrip.

The auction process itself was intense. For two months,our lead staff members sat in a war room, glued to comput-er screens and participated in an endless game of on-linemonopoly. Armed with formidable ammunition in the formof research data on every lane, bidders exercised concen-trated discipline and extreme patience to determine whento enter and when to exit the process. On many occasions,sales staff would sit in on the scenario to monitor progress

and they inevitably would be drawn into the heat of themoment. Their taunts gave way to virtual intimidation inattempts to drive our bidders a few pennies past the strate-gic price point to win a piece of business,but discipline andpatience ruled our strategy. On the other hand, a few hoursinto the process it became apparent that many competitivebidders were not playing the game strategically. It appearedthat whether they were drawn into the intensity or simplydidn’t prepare diligently, many bid prices were simply unre-alistic by our calculations. The result is that a number oflanes that are being covered by carriers who are losingmoney on every mile they travel. And herein lies a criticalissue. Each participant in the auction is contracted to holdthe price for a year. Many, if not most of the bidders weresuccessful in winning multiple lanes; so bailing out on non-profitable lanes is not an option as carriers are forced tolose money on some lanes to protect their business onlanes that are profitable. So what does this mean over thelong haul?

There is a common theory that says,“What doesn’t kill youmakes you stronger.”Maybe there is some truth to the theory.Internet auctions ramp up the speed and intensity of thebuying/selling process.The first day of the grueling auctionwas scheduled to end at 6:00 p.m. and dragged on to 11:00p.m.When you add the intensity of the auction to the fatigueof a 14-hour day, it would be easy to place a bid that couldcost thousands of dollars over the length of the contract.And remember the auction went on for two months. Somecarriers were so successful in winning lanes in the auctionthat they may not survive their own good fortune.

In baseball’s culture,“a tie goes to the runner.” In Internetauctions there are no ties.This is definitively a process that isstacked in the favor of the buyer. For that reason alone, ourbest guess is that this process will grow in popularity.For buy-ers purchasing commodity products it’s tough to argueagainst the cost saving advantages for purchasers. For serv-ices, the clarity of advantage is a little more blurred. I’ll nodoubt show some bias here, but a spec chart cannot definethe concept and practical aspects of quality.What differenti-ates one transportation supplier from the next is not themileage on a tractor or the length of a trailer.Tangible char-acteristics like dedication, integrity,accountability and expe-rience can find cost savings and improve service whenbuyer and provider share a relationship focused on contin-uous improvement.

So here’s the challenge for those of us on the supply side.Get smart. Know your costs; know you limitations and playfrom your strengths. Internet auctions are a new reality.Understanding the process and the critical value of strategyand discipline can earn you some profitable business, butyou’re the driver. Run the high road; know your limits andavoid the siren’s call to bid a few pennies less.This processcan have some serious downside impact for unpreparedbidders.This idea “what doesn’t kill you makes you stronger”only works in your favor if you’ve done your homework andrespect the rules, including the stop signs, along the way.

The auction process itself was intense. For two months, our lead staff members sat

in a war room, glued to computer screens and participated in an endless game of on-line monopoly.

... definitelynot for thefeint of heart.

Third and Goal

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F


By Dr. Lynn Ferguson & Ross Reimer

DOES THIS SOUND FAMILIAR? You need to hire for akey position so you call your recruiter.Soon you haveresumes and profiles for several candidates.You set

up a few interviews then postpone them when the presidentcalls about another problem.You make an entry in your PDA,reminding you to reschedule the interviews.But you have sev-eral meetings scheduled already, so you put off the calls foranother week.

By the time you look at the resumes again, several of thecandidates have moved on to other things. Now you areforced to choose between working with what is left or start-ing all over.And you are still short on staff and shorter on timefor hiring. Do you hire the next person who walks into youroffice?

Everyone who hires has made a hiring mistake. Most man-agers responsible for hiring have at least one nightmare storyof the bad hire they made because they did not have, or didnot follow, a rigorous process. They know from experiencethat their ‘gut feeling’ cannot always be trusted.

Recruiters, on the other hand, often write articles sayingthat managers hire too slowly: the best candidates do nothave to wait because they have a number of opportunitiesfrom which to choose. It is genuinely frustrating to send acompany the perfect candidate,only to watch that candidatego elsewhere because the company would not make the timeto make a decision. Excellence always has other options.

Obviously, it is difficult enough to find one great candidatefor a position without having to find two or three morebecause you let the great one get away.The key to hiring suc-cess is not only to find the right candidate, but to recognizehim or her and make the hire at the right time. It is worth tak-ing the steps necessary to recognize a great candidate, andthen moving quickly to secure his or her place with yourcompany.

Sylvia Bordignon, Human Resources Manager atChallenger Motor Freight, knows that her company’s successdepends on the quality of their hiring process. “It’s a fastpaced environment and we are growing.We’re not just replac-ing people.We are hiring new people all the time.Everyone inthis company understands that our hiring process is impor-tant.” With the support of senior executives, Bordignon hasdeveloped a rigorous process that identifies technical skills

and cultural fit within a tight time frame.“Nobody can guar-antee success,” says Bordignon,“But we do not let great can-didates walk away because we did not identify them quicklyenough.”

The process at Challenger has three key components: inter-viewing, personality testing, and reference checking. Theeffectiveness of each component depends on how well it isdone and on how well it is integrated with the other two. Forinstance, interviewing is usually done by two interviewers(Bordignon and the manager hiring) using the same ques-tions for each candidate. Following each interview, the twointerviewers compare notes and rank the candidates.Bordignon then moves on to test the evaluation produced bythe interview. She explains, "From the interview process wehave a particular picture of the candidate. We realize thereare more aspects that we do not know and require moreinformation.The next step in the process is to give the candi-date a scientifically well-validated personality test(s) to com-plete.After reviewing the results and checking the referenceswe have a more complete picture of the candidate."

What if they do not have enough time for the wholeprocess? Bordignon explains that Challenger never compro-mises their process. She will speed things up a little if a can-didate has a competing offer on the table, but every stepneeds full attention.“I might push to get the psychologist’sreport more quickly, or clear time more quickly to checkresumes. But we always respect our process. That’s why itworks for us.”The normal time between the interview and adecision is only a week at Challenger; in special circum-stances, that can be reduced to several days.“We try to get allthe interviews for one position done within a few days.Thatway we can make good comparisons and get back to the can-didates quickly. Sometimes it’s hard, but it’s worth it.”

What if you do not have a staff that includes a humanresources specialist like Sylvia Bordignon? You can learnfrom Challenger’s process.Work with a recruiter to find goodcandidates and evaluate them for skills and behavior througha process that gives you a range of perspectives and feed-back.“Our managers are committed to the process becausethey have seen it work,”says Bordignon.“Once you know thatyou can identify great people (and avoid mistakes), it is easi-er to make the time to hire the right way.”

Hiring Time

When it comes time to make the leap to a new job, will you andthe company be ready? In this article the importance of timing isidentif ied as one of the critical components in the process.


INSTITUTE NOTEBOOK

By Heather Cartwright

Leadership in LogisticsHow does an organization respond to the speed of today’s ever changing market conditions and customer requirements? How does an effective leader manage with the speed and agility required for an organization to be successful? They say the speed of the leader determines thespeed of the pack, and here are some thoughts to help you stand out and compete.

A Personal ApproachLeadership is, by its very nature, a

personalized approach to an oncomingsituation or new opportunity.Leadership is both unique and individ-ual. No two leaders or situations are the same and consequently anapproach that may be effective for oneleader may not be for another.Leadership in logistics demands astrong vision and commitment, as wellas a strategy that can be effectively exe-cuted to achieve success.In many ways,as a consulting specialist in SupplyChain Logistics, providing leadership isa critical success factor while workingwith organizations to develop strate-gies, plan, implement solutions andsolve business problems. Leadership isalso required to identify and developthe strategies and skills required toundertake transformational organiza-tional change that is sustainable. As Ireflected upon leadership approachesthat have been both successful andunsuccessful during my career, I real-ized this article was a great opportunityto develop a personalized leadershipplan that I could use as a basis for con-tinuous improvement, as well as sharewith professional colleagues.

A Leadership PlanLeadership and logistics are both

such complex issues.What is the mostimportant aspect of leadership, andwhat core competencies do logisti-cians need to effectively and efficient-ly lead a team? Many skills are neededthat can be integrated and used in awide range of situations. How could Ishare my perspective on leadership ina way that would have an impact? The

answer lies in the same approachneeded to eat an ele-phant….one piece at atime, and to my mind,in a well-plannedand well-executedapproach. I also wantedto present my personal per-spective so it could be easilyremembered. Word rhymesworked when we were kids, andwere fun to do - if my twelve-year-old daughter can write songs, surelyI could put together a word rhyme.And this, fellow logisticians is howthe L-E-A-D-E-R-S-H-I-P in LogisticsPlan for this article was born.

Skills for SuccessL is for logical thinking. Effective

leaders in logistics must determineneeds of customers and suppliersquickly and effectively,assessing thecosts and benefits to determine thebest course of action to meet theseneeds.

E is for excellence. Customers willnot accept less than excellence in thequality of the products and servicesthey choose to select from the globalmarketplace. Leaders must strive forrelentless quality, while understandingthat continuous improvement is aprocess, and making wise decisionsabout the acceptable levels of qualitywhile managing cost effectively.

A is for anticipating change.Situations change, people change,everything changes. To be effectiveleaders, we must be proactive, antici-pating challenges, actively managingpeople and situations, and ultimatelystriving for win-win outcomes.

D is for decision-making. We haveto be able to make decisions, withoutcomplete information, perhaps with-out even desirable information.Empathy for, and confidence in, oth-ers, as well as experience and intu-ition, can help us with decisionswhich may impact people’s lives andlivelihood.

E is for ethics. We must have strongethics and values, lead with dignityand respect, gain and maintain confi-dence from our team. Without strongethics, leaders are ultimately replacedby those who are more worthy anddemocratic in the world we live intoday.


R is for rising to the occasion.Meetingopportunities and challenges directly,leading with courage and the humilityrequired to listen to others who mayhave more expertise or experience.

S is for sponsorship. Logistics initia-tives are multi-faceted and multi-disci-plined, with processes and functionscutting across business units andorganizations. Strong sponsorship isessential for implementing initiativesrequiring buy-in from stakeholderswith overlapping authority and respon-sibility.

H is for having fun. Successful lead-ers build successful teams. Teamworkis built through shared experience anda commitment to developing a rela-tionship. Humor is a powerful way tocreate an open and energetic atmos-phere for communicating, sharing andbuilding relationships.

I is for integrated thinking. We mustoutsmart competitors, solve complexproblems and connect the dots in newand innovative ways. Technology hasprovided us with powerful tools thatenable new opportunities for processimprovements and integrating infor-mation flows from your supplier’s sup-plier to your customer’s customer.

P is for planning. Because of thecomplexity of logistics, which requiresan integration of people, processesand technology, logistics initiativesdon’t get accomplished without wellthought out plans that are communi-cated to both the organization andteam in effective ways.

Navigating the Path ForwardLeadership in logistics used to be

more about the execution of plans thatother leaders had developed.Today, it’smore about leading the organizationforward down a new path, perhaps forthe first time, but with competenciesdeveloped, approaches and methodsto execution and communications thathave worked in other situations, andwith the required speed and agility.Wehave opportunities to be both entre-preneurial and innovative, the abilityto fundamentally transform systems,organizations and relationships, to beagile and passionately responsive tomarket demands, to define our ownpath forward,and ultimately create ourown success as leaders in logistics.THE LOGISTICS INSTITUTE

Logistics.The driving force of human achievement.

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P.Log. Certification ProgramThe P.Log. (Professional Logistician) designation provides you with an

independent confirmation of your high level of ability and experience in thelogistics field.This confirmation is increasingly important as companies lookto logistics professionals to provide new ways of responding to customerneeds, and increasing the bottom line.

Our six P.Log. designation modules offer a comprehensive program fordeveloping the key skills you need to meet the increasing challenges in logis-tics.You will develop skills and capabilities you can apply immediately in yourworkplace to begin making a difference.

Integrated Logistics Anytime OnlineNetworks

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The 80 year-old method of managingthrough budgets has finally taken its tollon the competitiveness of GlobalAutomotive Supply. The CFO has beenpushed into a corner as the budgetaryprocess pushes Global AutomotiveSupply downward. Is there a better way?

Jerry, the CFO of Global AutomotiveSupply has had a tough week. He metwith each one of his department direc-tors to ask them to reduce their budgetsanother 10 percent. He is confident thatthis will cure the cash flow problemGlobal Automotive Supply has beenexperiencing.

Michael, director of Logistics, sat star-ing at the numbers he had created afterseveral weekends working overtime atthe office. He had been proud of hisingenuity. But Jerry wants him to cutanother 10 percent, which he feels is animpossible hurdle to mitigate.

Abby,the director of Operations walksby.

“Abby, did you hear the news? Eachdepartment must find another 10 per-cent to reduce spending.You know theJust-in-time initiative that you wanted todeploy this year? There is no way I cando that! All the benefits in inventoryreduction are going to be enjoyed byOperations, and my costs are going toskyrocket! I will never be able to get thatpassed this year,”Michael says.

“Michael,that can’t happen again thisyear! We have been talking about thissince I joined the company.”Abby is frus-trated.She storms off to talk to Jerry.

Abby was plucked off the ladder from

their main competitor to teach her col-leagues about best practices. People atGlobal Automotive Supply have beenreally pleasant, seem to listen, but noth-ing ever improves. This company hasbeen running its business the same forthe last 100 years, with the viewpoint:“Why fix it if it ain’t broke?” Abby real-izes this perspective gives the competi-tion an important edge.

Jerry has plenty of experience. Heknows more about the industry and itsplayers than anyone in the company.Heis also well educated and has passedhis CFA. Jerry continues to pour overnumbers at his desk when Abby entershis office.

“Abby, I can tell by the look on yourface that you have heard about the addi-tional budget cuts.”Jerry says, “I plannedto tell you last as I knew this would beupsetting for you.” Jerry likes Abby; hewas one of the primary advocatesbehind Abby’s hire into Global.

“Jerry, doesn’t anything that I domean anything to this company?” Abbyasks.

“Sales are down sharply this year - wayunder budgets, even though we havegiven sizable quarterly incentives to oursales people. The decrease didn’tbecome evident until this past quarterwhen we didn’t allow forward booking,and we made the decision to requiresign-offs on canceled invoices and ship-ments. I am sorry.I know that the JIT cam-paign was very important to you.”

“Important to me? It will save thecompany millions in inventory reduc-

tion and our customer service levels willsignificantly improve,”Abby explains.

“Well, we can’t sell what we have ininventory; I just don’t know what else Ican do for you.The few customers we stillhave are way over their credit limits. I amsorry that our financial position just isn’tgong to allow for any new initiatives.”

This takes place not only at Globalbut also at companies throughout theworld. The practice of managing tobudgets has been around for 80 years,and has been a primary ‘performancemeasurement’ for 40 years.Budgets havebecome detailed and burdensome; onestudy revealed that on average man-agers spend 30 percent of their timebudgeting.1

Managers and executives generallyfeel secure in knowing that they havecontrol over the purse strings.Most con-tinue to manage using this annualreview of company costs despite theexponential increase in informationflow that facilitates equally rapidchanges in the business environment.There have been some new ideas, suchas Zero-Based Budgeting (ZBB) thatmay superficially appear to be a brandnew way of management.However,ZBBis just a slight alteration of the same oldbudgeting process by which managersfocus on costs rather than over all per-formance.

Primarily, managing through budgetsis dividing companies into smaller unitsthat lacks a view of the whole.This runscounter to the whole essence of a sup-ply chain is based upon strong relation-ships, clear communication and strongconsumer demand data. This approacheliminates the opportunity to achievesynergy by forcing each department tocompete for resources rather than

EXECUTIVE’S CORNER

By Rebecca Jasper

What Every CFO Should KnowHere’s a fictional account of how the use of budgets as the primary management tool for supply chain management creates long term pitfalls for success at an automotive manufacturer. This article offers a glimpse into new ways a CFO can help logisticians to get a leg up on the competition.

Note: This column is dedicated to providing fictional case studies to presentcommon managerial dilemmas and provide executives with solutions andinsight s to improve their business practices.


encouraging departments to work as ateam toward a common goal.

The existence of budgets as a com-mon management tool continues tolimit the visions of supply chain man-agers around the world.

Budgets As a Management Tool:• Place procurement into adversarialrelationships with suppliers over price.• Limit communications between sales,logistics,operations and the customer,asdepartments operate and act independ-ently of one another.• Allow management to lose sight of thecustomer’s true demand. Sound opera-tional data is never a part of a budgetbecause it focuses on traditional cost-accounting measures.Secondly,managers across the world arestifling innovation, as Abby witnessed.Here’s how:• New and more accurate methods of

accounting, such as activity- based cost-ing will never take-off as long as it mustcompete with the traditional budget.• Re-engineering to a process like order-to-cash or to a Just-in-Time productionsystem are centered on customers’needs. However, companies that solelyrely on traditional budgets to managetheir company’s health find it far moredifficult to be customer-centric.

Thirdly, the numbers within the budg-ets are built upon annual forecasts. Butthe economic environment is toovolatile to be able to plan one year inadvance. Imagine how the current jumpin economic growth is impacting budg-ets that were developed one year ago. Itcan be assumed that very few managersmay have anticipated this upswing.As aresult,departments will fight to meet thedemand that was not in the budget.

Perhaps you have been convinced ofthe inferiority of budgets as a manage-

ment tool. In this case, the next questionis how will CFOs like Jerry,manage cash,plan, forecast, and measure perform-ance without budgets? Global Automotive Supply needs to:• Throw out the annual budget processand replace it with one annual strategymeeting for the next rolling five years.• Add a monthly meeting of departmen-tal heads. A predetermined set of datawill be gathered to discuss the pastmonth’s sales, costs. Cash flow can bejustified, economic adjustments made.Decisions will be made as a groupabout how to plan for the next month.No more top down decision-making.• Require each department head to meetweekly. Issues that arise each week thatcannot be resolved at their level will bebrought forward at the monthly meeting.Severe departmental issues that affectother departments are openly discussedand small project teams are developed toattack the root cause of problems.• Require daily meetings with the opera-tional folks to plan each day and reviewprevious issues. Root-cause analysis, sta-tistical process control measures, andother data formulations will aid theteam to improve operations.• Replace the drudgery of an annualbudget review, with a simple analysis ofnumbers, developed for each meeting.Management by exception only; meas-urements that are within range will notbe discussed or reported.• Encourage cross training.Give selectedhigh performers a day to walk alongside an internal customer or supplier.• Develop a plan to control inventory.Quantify it, label it (ABCD analysis),andget rid of it (the excess).• Set goals for the entire company tointegrate the departments. For example,sales people and production will beresponsible for their inventory andpenalized for excesses.•Develop sound operational measure-ments with stretch goals, and let theemployees do what needs to be done toreach those goals.

For Jerry, there is a better way to man-age his company.The practice discussedin these pages will encourage innova-tion, synergistic teams, realistic cashmanagement,and real sales numbers!

Global Automotive Supply may stillhave a chance to unify before their com-petitors conquer the market.1 Harvard Business Review, Tool Kit Who NeedsBudgets? February 2003

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“You cut costs to survive, but inno-vate to prosper.” Nowhere is that adageproving truer than in the supply chain.The chorus of supply chain managersand executives who have said theycan whittle costs no more woulddrown out the Mormon TabernacleChoir.

What these managers are lookingfor are strategic partners who canbring creative solutions to the tablethat go beyond traditional serviceofferings. Automakers are searchingfor providers that have the depth andclout to meld cost-cutting sharedchannels, once considered taboo inautomotive logistics planning.Shippers in the electronic, fast-movingconsumer goods, and retail industriesthat operate inbound supply chainsare realizing increased costs reduc-tions by eliminating the lines betweenwarehousing and inbound transporta-tion functions.

Lisa Harrington, Senior Fellow withthe Supply Chain Management Centerat then University of Maryland’s R.H.Smith School of Business says thatenlightened logistics managers are infact taking a “broad picture” look atthe supply chain and are turning toThird Party Providers (3PLs) to helpthem address these extended chal-lenges. “One of the prerequisites forthese 3PLs is to have sophisticated ITwith ability to integrate with theirclient’s customers,” she says.“However,as much as they would like to have anintegrated service offering from their3PLs many managers believe it is but adream.”

Still, where do logistics planners aswell as the growing list of 3PLs find

these new solutions?It may be found in thedifference betweensynthesis and analysis.Henry Mitzberg, professorof management at McGillUniversity and an authority onstrategy, clarifies the differencesbetween analysis and synthesis bydistinguishing strategic planning fromstrategic thinking: “Planning hasalways been about analysis, aboutbreaking down a goal or set of inten-tions into steps, and articulating theanticipated consequences or resultsof each step. Strategic thinking, in con-trast, is about synthesis. It involves intu-ition and creativity. The outcome ofstrategic thinking is an integrated per-spective of the whole enterprise.”

More logistics managers are askingtheir logistics providers for an integrat-ed perspective of the whole enter-prise, and an increasing number of3PLs are recognizing this. Customerswho use professional advisors or con-sultants are clearly making the distinc-tion between analysis and synthesis.Their conclusion is: if you just wantinformation, you get an expert. Butthat’s not a real advisor. The advisor isa person who provides new perspec-tives and new ways of looking at thesame old issues, but more importantlyhelps you see the big picture.

This view is supported by the eighthannual study of third party logisticsprepared by Cap Gemini, Ernst &Young, Georgia Institute of Technologyand Federal Express which affirms thegrowing importance of a 3PL servingas a “strategist” and “orchestrator”rather than just a resource provider.

Insteadof beingasked to justsimply provide lowertransportation or ware-housing costs, 3PLs are beingchallenged to come up withmore creative ways to lower costsbased on reconceptualizing the prob-lem. For example, a top logistics exec-utive in an automotive OEM recentlyasked his newly matriculated staffmembers what was the most efficientmode of transportation. After many ofthem offered the traditional responsesof rail, LTL, and ocean, they were sur-prised to hear the executive answer,“None.”

In fact, the answer is not that farfetched. 3PLs are now designing trans-portation networks that optimizespace over time, reducing the numberof runs and increasing savings. Butsuch an optimized transportation net-work can produce further savings byintegrating it with warehouse func-tions. For example, while a decreasedshipment frequency reduces trans-portation costs and provides improvedutilization of trailer/container capaci-

OUTSOURCING TRENDS

BY Mike Bernos

Supply Chain Analyses Versus SynthesisMany managers believe an integrated service offering exists only in utopia. But some companies are distinguishing themselves by orchestrating a new vision for the future instead of adhering to traditionalroles as resource providers.


ty, warehousing costs will increasedue to an increase in space require-ments, material handlers, and equip-ment. Conversely, when warehousingcosts are minimized, transportationfrequency must increase whichheightens the burdened cost per part.In addition, both the transportationand warehouse solutions must consid-er the financial impact on inventoryand returnable containers. The opti-mal supply chain is synthesized from ablend of these individual solutions.According to Jenny Killingsworth,proj-ect manager for TNT Logistics NorthAmerica, these “synthesized” solutionsare proving so successful they arebeing branded and marketed.

Harrington says that 3PLs are doingmore of this as a form of up selling.“When a customer comes to a 3PLand says I have a regional supplychain issue, the better 3PLs respondby wanting to address the entire sup-ply chain.”

Synthesizing solutions can befound also in the amalgamation oftechnology. Instead of using one appli-cation for one vertical such as trans-portation or warehousing, the integra-tion or synthesis of the two lead togreater efficiencies as in the case ofthe manufacturer who discoveredgreater costs reductions when it inte-grated its previously single-silo opti-mization functions.

The synthesis provided by 3PLs isnothing new and follows the arc ofmany scientific discoveries. IsaacNewton performed what was consid-ered the greatest act of synthesiswhen he developed his laws ofmotion. He took the theories ofGilbert, Galileo and Descartes andothers and integrated them into histhinking to see the unifying principleand patterns.“I stood on the shouldersof giants,” he said.

3PLs are standing on the shouldersof an entire industry as they search forsolutions that are synthesized not onlyfrom research, but also from the trialand error gained from multiple imple-mentations throughout diverse indus-tries. Their success depends not onlyupon how well they innovate but alsoassimilate what is out there.

WHO READS LOGISTICS QUARTERLY?NEW PROFESSIONAL LOGISTICIANS

Mr. Howard Breslaw, P.LogGeneral ManagerKelron DistributionSurrey, BC

Mr. Fred Chan, P.LogSenior Logistics AnalystOverwaitea Food GroupLangley, BC

Ms. Laurie Cole, P.LogOperations ManagerVitran LogisticsBrampton, ON

Mr. Pablo Forno, P.LogTraffic CoordinatorSchenker of CanadaCalgary, AB

Mr. Rosario Giordanella, P.LogMaterials ManagementCoordinatorRobin Hood MultifoodsCorporationConcord, ON

Mr. Mark Jacobson, P.LogTraffic ManagerSysco Food ServicesCalgary, AB

Mr. Alan Blair Johnson, P.LogOperations ManagerInternational Truck & EngineCorporation CanadaEdmonton, AB

Mr. Angelo Nikolovski, P.LogFuji Photo Film Canada Inc.Mississauga, ON

Mr. Dave Robitaille, P.LogOperations ManagerIBM Canada Ltd.Markham, ON

Mr. Rishi Rooplal, P.LogLogistics Coordinator, ClientServicesNadiscorp LogisticsBrampton, ON

Mr. Jonathan Rowan, P.LogTeam LeaderIBM Canada Ltd.Markham, ON

Mr. Frank Sawinsky, P.LogDirector of MaterialsFleetwood Canada LimitedLindsey, ON

Mr. Rick Rundle, P.LogDirector, National Operations& TransportationCanada Colors & ChemicalsBrampton, ONv

Mr. David J. Smith, P.LogBusiness InformationExecutiveIBM Canada Ltd.Markham, ON

Mr. Andrew Stefansky, P.LogTeam Leader, Supply ChainManagenent.IBM Canada Ltd.Markham, ON

Mr. James Thomson, P.LogAccount ManagerKuehne & NagelMississauga, ON

Major. Edwin V. Cosstick,P.Log Department of NationalDefenceComox, BC

L.Col. Doug A. Forge, P.LogCO 7 CFSDDepartment of NationalDefenceEdmonton, AB

New Professional Logisticians whose photo was unavailable at press time

Mr. Forrest Zhe Wang, P.LogBusiness DevelopmentManagerMagnate Shipping Lines Ltd.Mississauga, ON


The ability to define and execute a strat-egy that will provide real value to yourclients is the key to success in logisticsand most businesses that we know.Thecompetitive nature of today’s businesswill not permit us to retain that advan-tage for long.The key to sustaining thatadvantage are highly trained and moti-vated people.

Logistics is a people business. Thereason this statement so frequentlyneeds repetition is that the state of prac-tice, web enabled, RF systems and shinynew satellite-tracked trucks and high-cube well-designed warehouses are thestrategic differentiators we always like totalk about to our clients and prospects.Unfortunately, these important assetsoperated by unqualified or untrainedpeople do not work effectively.

The logistics sector has been trans-formed during the past 15 years by tech-nology, yet we have not paid nearenough attention to what that hasmeant to the workforce.The early phaseof the technology revolution resulted insystem implementation failures onthree levels:• The software was oversold, by everyone – we thought we were getting StarTrek but it really was Bonanza

• The implementations were generally poorly managed and the link to business processes was not understood

• The impact on people was only given token attention. Front line people were told “don’t be afraid of the computer”and left to struggle with theproblems.

The advances made in softwaredevelopment and improved planningtools have made a material differenceto software implementations generally.

BEST PRACTICE

BY PAUL REGAN

Making An Investment in LearningMore companies are looking to create value by their investments in the supply chain. Value and performancein a company should go beyond an analysis and measure of elements such as cash flow and take stock of oneof its greatest resources, namely, its people.


I would argue that the difficult lessonslearned have made business peoplemore careful and, hence, more success-ful with these types of projects.

The one thing I continue to see isthat the people side of the equation hasnot moved along at the same pace.Westill underestimate the magnitude of theadjustments and frequently do not allo-cate sufficient time and resources tomaking people successful from thebeginning.When ranking the corporatepriorities and needs, time is often citedas the most important and typicallywhat we have the least to give.

There has been an entire sub-indus-try built around the word “change.” Likemany things in business, it is all aboutusing common sense to prepare fornew developments.

The need to compete by offering

superior products and services shouldlead us to the requirement for high lev-els of learning throughout the business.Resources devoted to learning need tobe made strategically and consistentlyand have to be monitored to realize theoptimum ROI.

How do we achieve the essentialorganizational goal of having well-trained and knowledgeable peoplethroughout our companies?

Recognize the value of learningAs managers and owners we need to

give our people the environment andthe motivation to consistently learn.

The business sage Tom Peters hassuggested that we should pay for anycourse that an employee wishes to take,work related or not, because it demon-strates that their mind is active andinquisitive, and they are thinking.This isthe kind of behavior that an employerwants to encourage.We need to exploitthe strengths of our employees.

The skills of our employees are fun-damental to creating the excellentorganization that we all aspire to leadand be part of. I once watched an inter-view with Mike Wallace of 60 Minutes

and when asked why he continues withhis role on that program well into his80s he replied “because I continue tolearn new things with each passing day,if I did not I would quit”.

Make individual learning a priority

Lifelong learning is the only way toremain competitive in the job market,whatever your level.Your future ‘employ-ability’ depends on you having a relent-less drive to acquire new skills and tostay current with what’s happening inyour field. Defend your career by devel-oping a better package of knowledgeand skills than the next person. Itanswers the ‘what’s in it for me’question.

The achievement of individual suc-cess, the pride in being a member of ateam recognized for their superior

results and the per-sonal satisfactiongained from acquir-ing and applyingnew knowledge arestrong motivationalfactors that res-

onate with the entire workforce.Whenthe leaders of the company make acommitment to a learning organiza-tion it is fair to say that almost every-one will buy in.

The workplace is the key educatorFor most adults the only contact they

have with formal learning, post theirschooling is sponsored or mandated bytheir employer.That learning,as we haveall observed, is frequently very task ori-ented and not presented with theemployee in mind.

The mantra of ‘cross-training’ used to be a hallowed phrase that meant aforward and enlightened organization.What it really meant was that you coulddo my job while I was on vacation.Thatremains the primary motivation byemployers today for teaching newskills.

What leaders need to provide is aworkplace that encourages employeesto learn many key roles throughout theenterprise and understand how theirrole impacts the key outputs of thecompany. They need to see the entirelandscape and where and how theybring value. That requires a time and

resource commitment by senior man-agement,and perseverance,particularlyaround budget time.

Hold employees accountable forwhat they learn

As every learning experienceevolves, have employees write down aplan of what they will do differentlywhen they return to the job. Part of thisshould be a discussion with their super-visor to enlist their support. The planshould include a commitment to atleast one action that will improve theteam or organization.

A popular way to evaluate learningexperiences is to ask the participants tocomplete a checklist given a five-pointscale. A better idea is to ask each per-son what they plan to do differently as aresult of what they have learned. Youcan follow up in the future with ques-tions on the success of these plans.

Perhaps the best technique is to takea before and after measure of the skillstaught.This can be achieved by employ-ing a survey to administer before andafter training, to determine the skillstransfer.

We often look at our businessesshort–term, to the next quarter or thenext month. The events of the past 15years have conditioned that viewpointfrom management.While it is importantto focus on achieving near term resultsand making it happen every day wemust invest in what makes our busi-nesses valuable for the long term.

I submit to you that deeply embed-ding the principles and behaviors of alearning environment in your companywill provide a continuing payback – atlevels you would not have achieved oth-erwise. Your employees are your com-petitive edge, particularly in the field oflogistics, and with the right skills theywill win the operational executionwars.

Providing and maintaining the fund-ing during those difficult budget cycles,even in tough times, is an essential ele-ment. Do not overlook leadership andthe need to demonstrate your commit-ment to learning. By continually chal-lenging everyone to improve their skillsand advance their personal value theentire enterprise will prosper and enjoymuch higher levels of success.

We still underestimate the magnitude of the adjustments and frequently do not

allocate sufficient time and resources to make people successful from the beginning.

SUPPLY CHAIN or logistics management hasgrown in importance since the early1990’s and along with it recogni-

tion of being a profession that can havea dramatic impact on a company’s bot-tom line. A recent article in LogisticsManagement (August 1, 2003) summarizeda study by Accenture and leading universi-ties, Stanford and INSEAD, that concluded,“WallStreet really does appreciate companies that aresupply chain leaders.” It stated that companies thatwere viewed as supply chain leaders had substantial-ly higher capitalization compound growth rates thantheir industry average.

Logistics management is big business. The 14th Annual“State Of Logistics Report”co-sponsored by Cass and ProLogiswas presented to the National Press Club in Washington D.C.on June 2,2003 estimated that “U.S.business logistics costs dur-ing 2002 were $910 billion. That is $47 billion less than esti-mated logistics cost during 2001 and $93 billion below logis-tics costs during 2000.” The reduction was due to a slowingeconomy, lower inventory carrying costs from lower interestrates, and competitive pressures either driving efficienciesand/or lower margins.This represented 8.7 percent of the nom-inal Gross Domestic Product (GDP) and has generally contin-ued to show annual reductions from a high of 16.2 percent in1981 with some variation between years.

By applying the general rule of thumb “10-to-1 ratio” theresult for Canada would indicate that the value of logistics issubstantial,and easily argued higher in relation to the US.It ismore important to Canada given the smaller population,larg-er geographical dispersion and higher percentage of theeconomy involved in international trade.Add to this the con-sequences of 9/11 and the threat of terrorism,BSE,SARS, rap-idly changing technology, globalization, etc., and the com-plexities of the environment are obvious.

Why then does Canada lag our major trading partners inproviding formal training on the Supply Chain given that thisis a critical segment of the economy? A possible answer isthat it involves many functional departments such as pro-duction scheduling, inventory control, customer service,demand planning, distribution, customs and others depend-

ing on the structure of your organiza-tion. Effective integration of the sup-

ply chain can often save a compa-ny millions by eliminating

waste while improving bothservices and asset utiliza-

tion. It is only inthe last ten

years that compa-nies have started

to appreciatethe value of a

fully integratedsupply chain and, even

now, in some organizations it is aconstant struggle to maintain the struc-

ture that supports this concept.Historically, training in the functional areas was handled

by on-the-job experience and later through associations thatrecognized the need for a more rigorous process and thatthere was a void in the academic world. Like-minded indi-viduals formed groups such as the Purchasing ManagementAssociation of Canada (PMAC), the Association forProduction and Inventory Control (APICS), the CanadianInstitute of Traffic and Transportation (CITT) and TheCanadian Professional Logistics Institute (Plog), to nameonly a few.

These associations pooled their resources and worked withlocal educational institutions to develop programs to enhancethe profession by providing standards that would be recog-nized by industry.They require several years of relevant experi-ence and completion of several management and functional-specific courses in their field.These are demanding programsrequiring completion over several years while maintaining fulltime employment.Annual conferences and monthly seminarshave also provided an opportunity for an exchange of ideasand experience and have been responsible for improving thestrengths and capabilities of these individuals.

This approach provided functional experts who improvedefficiencies and the cost effectiveness of their respectiveorganization. However, silo behavior is often the norm, due toorganizational structure and the reward mechanisms of many

A COMMENTARY: Changing the Landscape inEducation and Professional DevelopmentThe corporate integration of functions from production scheduling to inventory control, customerservice and distribution hasn’t been mirrored by Canada’s educational institutions – a situationthat could imperil Canada’s competitive position. By Dale Ross, Vice President, Effem



companies.The functional areas by themselves are unable toobtain cross-functional optimizations and leverage the valueof a fully integrated supply chain.The correction of this situa-tion requires the support of senior management to empower adepartment responsible for all areas of the supply chain.

Some groups such as the Canadian Association of SupplyChain & Logistics Management (SCL) have attempted tobridge the gap. They have formed a partnership with TheLaurier Institute (of the School of Business and Economicsat Wilfrid Laurier University) to provide an executive pro-gram to deliver the SCL-developed courses in strategies andpractical solutions for the logistics industry.The objective isto provide fundamental tools and concepts needed to inte-grate and streamline supply chain operations and managelogistics networks while increasing operating efficiency.

Similar programs have been established at McGill and YorkUniversities and likely others. They offer intense executiveprograms over several days that provide a high level intro-duction to the area and are geared to senior managementwho can influence the structure and resource allocation ofan organization. As valuable as they are, they still do notdevelop professionals in the logistics industry, but generallywet the appetite for more education.

Recognizing that there is still a gap in the industry fortrained logistics professionals, community colleges havestarted to develop programs that support supply chain man-agement.Toronto’s Humber College is an excellent exampleof a college that provides a comprehensive one-year post-sec-ondary degree in the area. George Brown College in Torontoand Durham College in Oshawa are two others that are pro-viding support in logistics training.

Contrast this to the Forum for International Trade Training(FITT) established in response to a Canada-wide shortage ofindividuals with international trade skills. Formed in 1992,FITT is government-funded and private sector-driven organi-zation that offers programs and workshops to its membersthrough the internet and universities, community colleges,CEGEPs and private institutions across Canada.An extensivelist of institutions and locations is listed on www.fitt.ca. Thelogistics field could learn from this example and perhaps useit as a model to develop the profession.

Some universities are starting to provide supply chainmanagement courses in their business programs and a selectfew, a business degree with logistics or supply chain as themajor area of concentration.The Sauder School of Businessat the University of British Columbia has a Master ofManagement program in Transportation & Logistics. TheUniversity of Calgary and University of Manitoba have similartransportation-focused programs. All are greatly needed todevelop professions in the field.Additional schools with pro-grams are the University of Montreal and one under devel-opment at Wilifrid Laurier University (WLU).WLU is interest-ing, not only because of their partnership with SCL, but alsobecause of their desire to have an MBA and Ph.D.distinction,a first in Canada.

Contrast this to our largest trading partner south of the bor-der.A quick search of the Internet revealed 36 major univer-sities all offering extensive programs with majors at both the

graduate and post gradate level in logistics,distribution,trans-portation and materials management. This included suchnotable institutions as Arizona State, Georgia Institute ofTechnology,Michigan State University,MIT,Ohio State and theUniversity of North Florida.The only Canadian university onthe list is the University of British Columbia.

Some believe that the Europeans are further advanced intheir logistics knowledge and capabilities than NorthAmericans. They receive extensive formal training at suchplaces as the Cranfield School of Management and haveexperience in driving efficiencies from having a commonmarket and currency with a large population base and manylanguages. Even Australia, a country with a smaller popula-tion than Canada, but with similar characteristics, offers uni-versity level programs in supply chain management andexports their expertise to other countries.

In a country heavily dependent on international trade,Canada could find itself at a competitive disadvantage if weare unable to leverage the efficiencies of managing the totalsupply chain.We need to develop our analytical skills to takefull advantage of the available technology to integrate allfunctions of the supply chain into a lean, flexible, efficient,and highly cost-effective operation to counter the USeconomies of scale.

There was a time when it was believed that bigger is bet-ter.The goal was to build large factories and run them sevendays a week, 24 hours a day, to obtain the lowest possiblemanufacturing costs.Volume was key and Canada with itssmall population base needed the volume from exports toobtain the critical mass necessary to support world-classmanufacturing facilities.This was true when we consideredonly manufacturing costs. However, with logistics and sup-ply chain costs representing almost ten percent of the GDP,and in some industries a value greater than the actual man-ufacturing costs, this old paradigm may no longer be valid.

The Japanese showed us how “batches of one” could bethe most efficient way to operate.Replacing make-to-forecastpush inventory strategies with make-to-order pull strategies,that consider the supply chain costs as part of the total busi-ness model, could result in the lowest total operating costs.While manufacturing costs could be higher; and they do notnecessarily have to be; they could be off set with logisticalsavings that result in a lower overall operational cost. Leanthinking, with its documentation, simplification and elimina-tion of waste, shifts the historical trade-off between servicelevels and inventories.This can result in different conclusionsin our action plans to compete in world markets.

Canada must develop the expertise that will allow us tomake informed decisions on our long-term strategic direc-tion and influence our policy makers by providing appropri-ate research in this critical area.As logistics professionals, it isup to us to take the lead and insist that our educational insti-tutions be provided the opportunity to develop their capa-bilities in this area.This will take a combined effort betweenthe government and the private sector. We can start by sup-porting the efforts of WLU in its partnership with other edu-cational institutions and organizations that show an interestin this field.

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