Many chief executives still view the supply chain as a cost center. To change their minds, you need to link supply chain initiatives to financial performance, says OfficeMax executive Reuben Slone.
Most supply chain professionals recognize that their work is crucial to their companies' ability to not just survive but also to prosper in the current sluggish economy. Their CEOs, however, may take a little more convincing. That's just one of the many reasons why it's important to link supply chain operations to corporate financial performance, says Reuben Slone. Slone has spent a good part of his career working toward this goal at leading companies such as General Motors, Whirlpool, and now as executive vice president of supply chain for OfficeMax.
To share his ideas with supply chain professionals at other companies, Slone teamed up with University of Tennessee professors J. Paul Dittmann and the late John T. Mentzer to write the book, The New Supply Chain Agenda: The 5 Steps That Drive Real Value. Published by Harvard Business Press, the book outlines the tenets of a successful supply chain strategy and describes how the supply chain can drive shareholder value.
In a recent interview with Editor James Cooke, Slone discussed some of the book's key ideas.
Given your experience as a supply chain executive for a number of leading companies, what do you believe is the biggest misconception that top management has about the role of supply chains?
Senior executives don't always see the relationship between supply chain effectiveness and the overarching goal of driving shareholder value. They instead simply see their supply chain as a transactional operation and a cost center. It is our responsibility as supply chain managers to show the connection between our work and the overall financial health of the firm.
Why do some CEOs understand supply chains while others do not?
Some CEOs rise through operations and have a more intuitive understanding of the supply chain. Some have been forced to learn about it by outside stock analysts who bombard them with questions about their supply chain. And some have been trained by internal supply chain executives who are clever enough to translate their work into the language of the executive suite.
Bachelor of science in engineering, University of Michigan
Graduate fellowship in mechanical engineering, University of Michigan
Senior manager, Ernst & Young
Principal, A.T. Kearney's automotive practice
Vice president of process development and change management, Federal-Mogul
General director, global supply chain, General Motors
Vice president, global supply chain, Whirlpool Corp.
In your book, you talk about the need to show the relationship between supply chain practices and shareholder return. Can you briefly describe how OfficeMax links economic profit to supply chain initiatives?
Our focus is availability, inventory reduction, and cost reduction, in that order. When we do that, we help the company not only drive revenue but also shore up the balance sheet and the income statement. That supports the overall economic health of the firm and drives economic profit—and ultimately shareholder value—over time.
Your book also discusses the importance of hiring the right talent. You mention that companies need supply chain leaders who are "system thinkers." Can you elaborate on what you mean by that and why it's important?
When we use the term "systems," we are not referring to information technology. Instead, we mean the need to understand all of the interconnections among the links in the supply chain. Comprehending the supply chain as a system means that we can have a way of determining the impact on one link in the chain when we make changes in another area. For example, when we drive shorter response times from our suppliers, we will see both lower inventory and higher availability for our customers.
The book has a chapter on selecting appropriate technology for the supply chain. Is there any particular technology that supply chain managers should be considering for adoption?
We break technology into four buckets: software, e-business tools, visibility and productivity tools, and process advances. Of those, we believe that process advances should be prominent in any technology strategy, and they should be applied first. In particular, the application of process tools such as Lean and Six Sigma to the extended supply chain can lead to breakthrough results.
What has been your most important career accomplishment to date as a supply chain executive?
We have made major supply chain improvements at OfficeMax that have been critical to completing the company's turnaround. For example, over the past five years, we improved store out-of-stocks from more than 200 "outs" per store to less than 85, and we maintained a next-day delivery [rate] to our contract customers of over 99 percent on all items while taking out over $250 million in inventory and $118 million in operating expense. This work in improving availability while optimizing inventory levels and cost has resulted in a major contribution to economic profit and helped OfficeMax survive the Great Recession.
I must also add the three-year achievement of writing The New Supply Chain Agenda with my co-authors Paul Dittmann and Tom Mentzer. Sadly, Tom lost his three-year battle with melanoma in March just as the book was being printed.
In a tough economy, what's the one thing supply chain leaders must do to help their companies survive and prosper?
To do their job, they need to develop and implement a disciplined strategy to aggressively drive economic profit for their firms. Further, to be relevant, they need to be able to communicate that strategy in the language of the boardroom and investor.
Beyond that, they have a window of opportunity to foster better collaboration with customers and suppliers and to make tough decisions that would be much more difficult in easier times, like closing a favorite distribution center or reducing stock-keeping units.
Ron Marotta of Yusen Logistics listens to Rick DiMaio of Ace Hardware talk about the steps Ace is taking to keep its store stocked after Hurricane Helene and during the East and Gulf Coast Port Strike.
The East and Gulf Coast port strike was the top discussion point during a panel discussion of shippers and logistics providers at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference this morning. The session, which was supposed to be focused on providing an update to CSCMP’s “2024 State of Logistics Report,” quickly shifted to addressing the effect that the strike by nearly 50,000 dockworker at 36 ports in the Eastern half of the U.S. could have on supply chains.
“The seriousness of this action cannot to be taken lightly,” said Ron Marotta, vice president of the freight forwarder and supply chain service provider Yusen Logistics (America). “It has not happened since 1977. Our lives depend on sustaining a smooth global supply chain.”
Marotta warned that for every day that the ports were not open, it would take four to five days to recover from the impact. One added concern is how the port closures would affect recovery efforts for Hurricane Helene. “There’s a huge amount of item that would normally be replenished by importers and retailers,” Marotta said.
Rick DiMaio, executive vice president and chief supply chain officer, for Ace Hardware Corp., commented that the hardware retail cooperative was doing okay for now keeping stores in stock, although he did expect the company would be “chasing generators for awhile.” “But in this recovery phase [from the hurricane], we certainly don’t need a strike right now,” he said.
The port closure will also have a knock-on effect on other transportation modes. For example, Andy Moses, senior vice president of sales and solutions for logistics services provider Penske Logistics, expects to see some companies turn to air freight as a result of the strike. This will, in turn, cause air freight capacity to tighten up and rates to rise. Furthermore, the longer the ports are closed, the more likely inflation is to rise again, according to Moses.
Nor will the effects of the strike stop at the U.S. border, according to Marotta. Many Caribbean Island nations depend on food import from the U.S. that move through East Coast ports. Additionally, some medical supplies typically are exported through the ports to Europe.
On a positive note, however, many companies took actions earlier in the year to prepare themselves for a potential strike. Ammie McAsey, senior vice president of customer distribution experience for the pharmaceutical distributor McKesson, said the pharmaceutical industry has brought in enough extra inventory that there will not be a short-term impact on the U.S. health care system due to the strike.
Government intervention?
Marotta hopes that the U.S. government takes the step of invoking the Taft-Hartley Act to stop the strike and send the International Longshoremen’s Association (ILA) and the port management group, United States Maritime Alliance (USMX) back to the negotiation table. In 2002, for example, President George W. Bush used the Taft-Hartley Act to end an 11-day lockout of union workers at West Coast ports. President Joe Biden, however, told reporters on Sunday that he would not do this.
“I hope that cooler heads prevail and that the executive branch realizes that it’s not just a labor issue, it’s also a humanitarian issue,” Marotta said.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.