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& LogisticsTransportation
CANADIANOCTOBER 2011
Published Since 1898
What 3PLs must commit to if they want to grow
TRANSPORTATION5 secrets tofreight tenders
FOOD LOGISTICSHarmonization andcontamination issues
OUTSOURCINGCan you go beyondthe shell game?
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Publications:Canadian Transportation and Logistics
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VOLUME 114 ISSUE NO. 10 OCTOBER 2011
Published Since 1898
In order to boost efficiency and create incremental value in their business, 3PLs will have to expand their existing practices be-yond lean supply chain, business process reengineering and quality management programs: they’ll have to innovate � � � 12
Features 16…BEYOND THE SHELL GAMEWhy it pays to focus on outcomes rather than transactions in procuring supply chain services�
20…RADICAL RECOVERYA behind the scenes look at the pivotal role that reengineered supply chain practices played in reviving R�G� Barry�
24…TOUGH TO CHEWAddressing harmonization and contamination issues is a complex but necessary undertaking for the food supply chain�
27…SUCCESS SECRETSWith everyone’s resources stretched to the max, freight tenders are often delayed, or not completed at all� We offer five key tactics to ensure your next carrier RFP is a success�
COVER
Departments
4 VIEWPOINTThe continuing focus on cost control is proving that smart supply chain decisions are no fad, but are instead rooted in environmental sustainability, says editorial director Lou Smyrlis.
6 IN THE NEWS Canadian ports, railways strongly resent FMC inquiry on cargo diversion; analyst warns freight volume growth will be slack, peak season muted; anemic economy points to slow growth for freight rates; and more. Plus: a look at the 25th annual Transportation Conference as part of this month’s News Focus.
28 INSIDE THE NUMBERSHow many Canadian private fleets have an anti-idling policy in place? Plus: a look at transportation’s role as a producer of greenhouse gas emissions and how important environmental concerns are to shippers.
29 DASHBOARDTransCore’s Canadian Freight Index sees double-digit increase for August; Canadian General Freight Index rises 1.2% in July; and RBC’s Canadian Manufacturing Purchasing Managers’ Index finds stronger production, order growth in September.
30 THE BIGGER PICTUREInnovation in supply chain practices is disappearing due to rising fuel prices, rigid networks and a myopic internal focus, says Dan Goodwill of Dan Goodwill and Associates.
VOLUME 111 ISSUE NO. 9 SEPTEMBER 2008
www.ctl.ca
Published Since 1898
Departments
3CT&L SEPTEMBER 2008
After a period of positive growth, the US airlines’ situation has
turned desperate. The weak economy and the high price of
aviation fuel are setting the stage for cutbacks rather than
expansion. There’s really no gentle way to describe what’s
happening to plans for increasing air freight capacity:
they’re grounded. . . . . . . . . . . . . . . . . . . . . . . . . . . . page 16
cover
Features22 . . . CANADA’S TRADE CROSSROADSThe logistics infrastructure for Canada’s Pacific Gateway is expanding to bridge the massive engine of the United States and the burgeoning economies of Asia.
28 . . . LOGISTICS HIGHHow school boards across the country are working withgroups like the Canadian Supply Chain Sector Council toprovide career-oriented training at the high school level.
32 . . . ALL CHECKED OUTBalancing a secure supply chain and a happy workforce is more than a question of trust in today’s global arena.
4 VIEWPOINTAre cuts in airfreight capacity temporary or a sign of things to come?
6 IN THE NEWSLufthansa picks up orphaned freighter route after Air Canada backs out; Oceanex increases capacity to St. John’s; rail and trucktonnage drop over summer months; CN to upgrade intermodal facility in Prince George; and more.
12 THE LEADING EDGEWhy companies with global supply chains require a global Enterprise Resource Planning platform.
38 THE BIGGER PICTUREStrategies and tactics for reshaping North America’s supply chain.
Are you prepared for your next round of carrier negotiations?
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What 3PLs must commit to if they want to grow
44 ct&l october 2011
For five years now, we have been arguing that sustainable transportation and logis-tics practices had to become the new
way forward. We believed that with the trans-portation sector being the second largest source of greenhouse gas emissions in Canada,
it was prudent for supply chain professionals to become actively involved in driving this new way forward rather than to be left re-acting to eventual government edicts. During the past five years, we also witnessed increasing awareness of sustainable transpor-tation and logistics practices as they became a topic of discussion in the boardrooms of many major shippers and carriers.
Supply chains today are in the spotlight. With more than 50% of the average corpora-tion’s CO2 emissions occurring within the com-pany supply chain, companies are beginning to scrutinize their logistics and transportation ac-tivities for ways to “decarbonize” and reduce risks. In addition, the supply chain will become one of the first places informed consumers will look to see what sustainable practices are associ-ated with a given product or service, as Andrea Bolger, head of business financial services at Royal Bank of Canada (RBC) points out. Consumers now better understand and take into account the environmental impact of the transportation of the goods they buy.
Naysayers choosing to ignore the trend to-wards sustainable transportation and logistics practices believed it was a fad that would grow out of fashion with time or a recession that fo-cused the attention of carriers and shippers on cost control.
Well, we have been through the worst reces-sion since the 1920s, yet we continue to write about sustainable practices in this magazine, we have just published our fifth annual green trans-portation supplement in our motor carrier fo-cused sister publication Fleet Executive, as well as dedicating several of our award-winning Web TV (TMTV) episodes to the subject.
Why? Because the interest in sustainable transportation practices is justified and it is growing.
Further evidence of this interest in sustain-able transportation and logistics practices, and the informational tools being made available to supply chain professionals in this regard, is the report “Focus forward: Enhancing supply chain value with green logistics and transportation,”
The continuing focus on cost control is proving that smart supply chain decisions are rooted in environmental sustainability
published by SCL and RBC. The report (the highlights of which are being presented across Canada this fall) is aimed at deepening execu-tive understanding of the top five environmen-tal issues relevant to the logistics sector, with a focus on the business risks and opportunities currently associated with each issue.
Of course, not all opposition to adoption of sustainable transportation practices has to do with a refusal to look forward. As Bob Armstrong, head of SCL, attests: “Every day, I interact with dozens of members from all corners of logistics and have been greatly impressed by the industry’s resilience and ca-pacity to innovate. Having said that, I still find myself bumping up against a common barrier when it comes to managers taking action to reduce their company’s environmental im-pacts; ‘I can’t afford it,’ they tell me. Or, ‘I need to focus on my bottom line.’”
Which is exactly what I find so helpful about this new report. It provides many exam-ples of companies that have gone beyond the misperception that sustainability is too expen-sive to implement and actually saved money – in some cases lots of money – in doing so.
Consider the example of footwear giant R.G. Barry Corporation whose story is includ-ed in the report and also in greater detail in this issue of CT&L. The company saved more than $2.5 million just by thinking inside and outside the box, so to speak.
R.G. Barry engaged Jack Ampuja, president and CEO of Supply Chain Optimizers SCO, to help optimize its packaging as part of a larg-er turnaround effort. Ampuja discovered that while the recycled corrugate cardboard boxes produced by R.G. Barry’s manufacturers ap-peared stronger, they were actually heavier and weaker than they could be. Optimizing the cartons through a packing redesign resulted in $200,000 savings on R.G. Barry’s total corru-gate spend. Cutting the total corrugate spend also drove additional savings throughout the supply chain because of reduced costs related to handling and transporting of the optimized packaged goods, which cascaded into even big-ger savings: $1.6 million from lower inbound freight costs and $1 million from less ocean container freight and storage space.
It’s one of several examples of how smart business goes hand-in-hand with environmen-tal sustainability, or as we like to say, how you can turn green into gold.
The report is available at www.sclcanada.org. It’s worth reading. CT&L
Lou Smyrlis, MCILT
the view with Lou
Audit Bureau of Circulations
We acknowledge the financial support of the Government of Canada through the Canada Periodical
Fund (CPF) for our publishing activities.
MEMBER CANADIAN BUSINESS PRESSCANADIAN CIRCULATIONS AUDIT BOARD
Volume 114 Issue No. 10 October 2011
EDITORIAL DIRECTORLou Smyrlis (416) 510-6881
MANAGING EDITORAdam Ledlow (416) 510-6890 [email protected]
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PUBLISHERNick Krukowski (416) 510-5108
ACCOUNT MANAGERJoelle Glasroth (416) 510-5104
ART DIRECTORMary Peligra
CONTRIBUTING EDITORSCarroll McCormick, Leo Ryan, James Menzies,
John G. Smith, Ian Putzger, Ken Mark
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PRESIDENTBruce Creighton
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CANADIAN TRANSPORTATION & LOGISTICS is written for Canadian transportation and logistics
professionals who manage product flow from manufacturer to point-of- sale. Edit orial is focused
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it’s no fad
Blogs
• With tight capacity and rising freight rates making it difficult to reduce transportation costs, Dan Goodwill of Dan Goodwill and Associates points to Schneider’s shared LTL service as a popular model in the months ahead.
• It may be fall before the economy is strong enough to place up-ward pressure on rates, says editorial director, Lou Smyrlis.
• Is Maersk Line CEO Elvind Kolding’s recent call for change in the ocean carrier industry enough to make it happen? Cole Group’s Laurie Turnbull discusses the fate and future of the industry in his latest blog.
• With 2010 now behind us, what new trends will lead us into 2020 and what new technologies will emerge that will change the way we do business? IT expert Gagan Goraya offers his predictions.
You Said It . . .
“I concur with your predictions, and I would like to see computer-aided driving installed in Brampton as soon as possible. As for the quality of life, this is something that requires IT focus; it must be improved or the life expectancy will actually go down. Some may say that's a good thing so we can avoid overcrowding our world, so perhaps the answer is more space travel, new worlds inhabited, and a Star Trek lifestyle that will keep everyone balanced.”
Steve Valentine responding to Gagan Goraya’s blog: Computing in 2010.
We now TWEET!
Follow us on Twitter
Twitter.com/AdamLedlow
Twitter.com/JamesMenzies
Twitter.com/LouSmyrlis
Web TV: Transportation Matters
• REPOSITION 2011: The must-attend supply chain conference of the year is returning to Montreal. Hear from some of the industry’s finest on why Reposition 2011 should be on your calendar.
• UPS’S BURLINGTON CAMPUS: TMTV gets an exclusive tour of UPS’s facilities in Burlington, Ont., and learns how the campus fits into the company’s worldwide supply chain strategy.
• STOP BEING AN 18-WHEEL ATM MACHINE: Expert advice on how to successfully fight legal challenges.
• TRUCKS FOR CHANGE: President and founder of the Trucks For Change Network Pete Dalmazzi dishes how the trucking industry and various charities are working together to make a difference in their communities.
5ct&l october 2011
ONLINE
What’s on CTL.ca?
6 ct&l october 2011 www.ctl.ca
in thenews
Canadian ports and railways stronglyresent FMC inquiry on cargo diversionBy Leo Ryan
Canadian port and railway circles have ex-pressed strong objections to a planned in-quiry by Washington’s Federal Maritime Commission into alleged diversion of US import containers from Asia through Port Metro Vancouver and Prince Rupert in British Columbia. At a maritime confer-ence in Montreal, FMC chairman Richard Lidinsky confirmed on Sept. 21 that he will propose this fall that the Commission begin a study requested by Washington State sen-ators Patty Murray and Maria Cantwell.
While the senators, in a letter dated Aug. 29, urged the FMC to focus mainly on the impact that the federal Harbor Mainte-nance Tax (HMT) may have on cargo diver-sion to Mexican as well as Canadian ports, they also asked the FMC to look into un-specified “other factors” and to consider leg-islative and regulatory changes.
The senators pointed out that a growing number of containerized US imports from Asia have been moving through the ports of Vancouver and Prince Rupert en route to the US Midwest through cross-border rail.
They affirm that the HMT, a levy im-posed since 1986 on shippers based on val-ue of goods to help finance maintenance dredging, “may be a key factor causing US ports to lose a growing share of imported
container cargo from Asia.”They further argue that “non-US ports
are able to claim a substantial per-container cost advantage over US seaports based on the HMT alone” and that this amounts to “unfair disparity,” provoking lost US jobs.
Over the past five years, the share of Port Metro Vancouver and Prince Rupert in total North American West Coast box car-go has risen from 9% to about 13%, and both ports have announced capacity expan-sion plans. Last year, Vancouver’s box throughput rose 17% to 2.5 million TEUs whereas Prince Rupert saw its box cargo surge by 30% to 344,000 TEUs.
This past summer, Lidinsky was quoted in US media reports as referring, among other things, to the “possible subsidy of cargo rail moves through Canada” and to “weaker container inspections” – singling out Prince Rupert.
CN operates a rapid, double-stack ser-vice between Prince Rupert, Chicago, Memphis and the Gulf of Mexico.
Asked to respond, Jean-Jacques Ruest, executive vice-president and chief market-ing officer of CN, spoke bluntly, rejecting as unfounded any suggestion that the com-pany is subsidizing rates for ocean carriers and their customers using the Prince Ru-pert gateway in order to establish that port as a competitor North American gateway.
“CN is a market-driven company that operates in highly-competitive commercial markets, and customers are making choices in those markets. Sometimes they choose Canadian gateways for US customers and sometimes the reverse.
“Prince Rupert is up to 58 hours closer to Asia than other West Coast ports. This saves the ocean liners time and money each way, not to mention the benefits derived by cargo owners through reduced inventory carrying costs.”
For his part, Don Krusel, president and CEO of the Prince Rupert Port Authority, stressed: “The advantages shippers are real-izing through utilizing the Port of Prince Rupert and the Northern Trade Corridor (in British Columbia) are not the result of subsidy or lax security, but rather the speed and reliability in service attributed to effi-cient operations.”
Gary LeRoux, executive director of the Association of Canadian Port Author-
ities, questioned the justification of an inquiry exercise “when free trade is the very foundation of the Canada-US com-mercial relationship.”
John Higginbotham, a former Canadian diplomat now heading transportation stud-ies at Carleton University, suggests that any study of what he called “a relatively minor issue” will not be worth the FMC’s time, es-pecially in the broader context of economic recovery challenges facing two countries which, moreover, have a long tradition of co-operation in cross-border trade, foreign poli-cy and security. He also felt that Prince Rupert was being “picked on unfairly” and categorized the inquiry request as “a reflection of internal problems in the United States.”
Freight volume growth will be slack; peak season will be muted, analyst warnsBy Lou Smyrlis
Expect slackening to flat freight volumes for the remainder of 2011, warned Cor-mark Securities’ David Newman at the SCL-Nulogx breakfast conference in Sep-tember, aptly entitled “Transportation Strat-egy: Planning for 2012 in Uncertain Times.”
Cormark’s Freight Monitor, which is an average of four key North American trans-portation market indices, declined to 3.6% in July after peaking at 12.4% in June 2010. It has been on a fairly steady decline since the start of the year. The monitor includes the ATA Truck Tonnage Index, the Cass Freight Shipment Index, the Big 3 West Coast Port Volume Index and the US Trail-ers on Rail Car Index.
While pointing out the index is still in positive territory, conditions have become more difficult in the face of anemic de-mand versus a supply chain inventory build last year, said Newman, an institutional eq-uity research analyst for transportation and industrial products.
“It looks like the peak season will be somewhat muted…We are in a period of tepid growth, but we are not going into a full-blown, ugly recession,” Newman told the capacity crowd gathered at the Missis-sauga Convention Centre.
The Truck Tonnage Index, published by the American Trucking Associations, is high-ly correlated to the inverse of the inventory-
Let’s Talk LeanThe Canadian supply chain has changed and we’ve changed with it. We’ve found ways to trim the fat and still deliver the goods... today’s economy demands lean!
We are more optimized in our thinking and our operations. We’ve brought the entrepreneurial spirit that built this company to the forefront and have strengthened and empowered our team to better serve you.
What does this mean to you? We can take what we’ve learned to further streamline your supply chain. Our focus is executing the cost effective movement of your LTL shipments and specialized needs throughout Canada.
Let’s talk lean!
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BORDER CLASH: Federal Maritime Commission chairman Richard Lidinsky makes accusations of “possible subsidy of cargo rail moves through Canada” and “weaker container inspections.”
Let’s Talk LeanThe Canadian supply chain has changed and we’ve changed with it. We’ve found ways to trim the fat and still deliver the goods... today’s economy demands lean!
We are more optimized in our thinking and our operations. We’ve brought the entrepreneurial spirit that built this company to the forefront and have strengthened and empowered our team to better serve you.
What does this mean to you? We can take what we’ve learned to further streamline your supply chain. Our focus is executing the cost effective movement of your LTL shipments and specialized needs throughout Canada.
Let’s talk lean!
fastfrate.com800.268.1564 fastfrate.com800 268 1564
8 ct&l october 2011 www.ctl.ca
in thenews
to-sales ratio. A high inventory-to-sales ratio implies sales need to recover and inventories decline before freight picks up. After reach-ing an all-time high in January 2009, the Canadian inventory to sales ratio declined substantially through January 2011. By June of this year, however, it had peaked again before dropping back down.
“Inventory levels edged down for the first time in July since September 2010, while sales increased after three consecu-tive monthly declines. We do not expect inventory restocking practices to remain strong in the second half of 2011 and early 2012 as a more modest peak season is ex-pected this year,” Newman said.
The loss in momentum is reflected in the stock market. The TSX Transportation sub index is down 6.7% YTD while the Dow Jones Transportation Index is down 17.4% YTD.
What’s causing the weakness? The Ca-nadian economy is expected to be amongst the top performers among the G-7, which may not be saying a lot at this point. New-man points to the weakness in the US economy as the main culprit. About 70% of the US economy is driven by the con-sumer, but continuing high unemployment rates and weak housing practices are mak-ing the US consumer reluctant to spend. The unemployment rate in the US held steady at 9.1% in August as US employers created net zero jobs that month. Things do look better on our side of the border with the Canadian unemployment rate at 7.3%. However, employment has been stagnant for two consecutive months.
On the positive side, employment in the Canadian transportation and warehousing industry posted the highest growth rate of all industries at 6.3% over the past 12 months, Newman noted.
US housing starts dropped to a three-month low in August at 571,000 as foreclo-sures, declining prices and unemployment held back construction. Canadian housing starts declined to a bit less than 185,000 in August from about 205,000 in July.
The various consumer confidence indi-ces are trending downward. The Confer-ence Board’s Consumer Confidence Index declined to 44.5 in August, its lowest level since April 2009. OECD’s Consumer Con-fidence Index for Canada declined to 76.9
in August, the lowest level since July 2009. And the percentage of Canadian compa-nies expecting better performance next year dropped to 61.7% in August from 68.3% in July.
Still, Newman figures we should be able to “spin out of this within a short period of time.” He figures the indicators will start looking positive again mid-next year.
He reminded the transportation profes-sionals in attendance that Asian trade is continuing to drive global demand for com-modities, Canadian businesses have strong cash flows and the debt reduction they un-derwent through the recession has left them in a better position to weather an-other storm. In addition, transportation companies have reduced their costs and reigned in capacity.
In addition, the Bank of Canada is keep-ing short-term interest rates unchanged and signalling that rates will remain low for many more months, while the US Federal Reserve has pledged to keep the bench-mark interest rate at a record low at least through mid-2013.
“Although we are witnessing early signs of a slowdown, economists are forecasting growth for the third and fourth quarter,” Newman said.
The Wall Street Journal’s consensus for US GDP growth is 2.0% for the third quar-ter and 2.1% for the fourth quarter. The Bloomberg consensus for Canadian GDP growth is 2.0% for the third quarter and 2.2% for the fourth quarter.
Anemic economy points to slow growth for freight rates: Dr. Saipe By Lou Smyrlis
“General truck freight rates should grow at an average annual rate of 1-2% through 2012,” Dr. Alan Saipe told transportation professionals attending the SCL-Nulogx breakfast conference entitled, “Transporta-tion Strategy: Planning for 2012 in Uncer-tain Times” on Sept. 27.
Fuel surcharges should stay in the 15%-18% of the base rate range, unless crude costs rise sharply because of supply issues, Dr. Saipe added.
Dr. Saipe, president of Supply Chain Surveys, is the architect behind the Cana-dian General Freight Index (CGFI), pub-
lished by Nulogx since September 2009 with data going back to January 2008. The index tracks changes in over-the-road freight costs month by month and is de-rived from a large database of freight trans-actions. Costs include base freight charges, fuel surcharges and other accessorial charg-es. It includes domestic and cross-border truckload and LTL transactions.
The index has shown generally declin-ing trucks rates to June of this year. While domestic LTL rates have increased 0.3% compared to 2010, domestic TL rates are down 3.4%. Cross-border LTL rates are down 1.3% and cross-border TL rates are down 1.7%. Overall, truck rates are down 2.4% to June of this year compared to the previous year.
(It’s important to note the CGFI is re-stricted to general over-the-road freight and does not include liquid bulk, dry bulk, for-est products or other specialized freight. It also does not separate contract versus spot market pricing.)
Fuel surcharges meanwhile have aver-aged 16.5% of the freight rate YTD to June for domestic LTL and 23.2% for domestic TL, according to the CGFI. The average fuel surcharge YTD to June for cross-bor-der LTL has been 19.6% while cross-border TL has been 18.3%. Overall, the average fuel surcharge to June has been 18.7%.
Dr. Saipe noted that diesel fuel costs tend to mirror the price of West Texas Crude, adding that while most industry ob-servers think there will be a steady upward trend in crude costs over the long term, “No one is really good at predicting these things over the short term.” His own pre-diction was for crude to come down to about $80 a barrel and to hover between $70 and $90 for the near future.
Barring any surprises, Dr. Saipe said, cur-rent economic realities will keep both fuel and transportation costs in check.
“A second recession is still possible, and slow GDP growth is expected for the next two years in the US, Europe and Canada. European sovereign debt problems have not been fully resolved and continue to threaten the global recovery….The con-sensus is that weak demand will affect pricing in the next six to 12 months. Even-tually, Asian growth will drive prices up-wards,” Dr. Saipe said.
9ct&l october 2011www.ctl.caCITT11E-PA02-profitability-OUTLI1 1 2/9/2011 3:07:22 PM
Ryder System to provide data toCanadian General Freight IndexTransportation Management solutions provider Nulogx has announced that Ryder System, a provider of supply chain, warehousing and transportation management solutions, has become a Ca-nadian General Freight Index (CGFI) “Data Partner.”
Under the terms of this agreement, Ry-der will be providing data to be used in the compilation of the monthly index.
The CGFI is published monthly and is used by shippers, carriers and other inter-ested parties to benchmark costs, develop business plans and structure beneficial agreements. These insights are developed using the data generated by its sponsor, Nulogx, Canada’s largest processor of freight invoices. As a Data Partner, Ryder will benefit from receiving the same de-tailed reports on freight cost behaviour currently provided to Nulogx customers.
Safmarine to integrate corporate functions into Maersk LineSafmarine is planning to integrate its inter-nal support and management functions into those of its sister company Maersk Line.
While Safmarine’s headquarters is in-tended to close, the brand will be kept in the Maersk Liner Business portfolio, officials an-nounced. Maersk Liner Business CEO Ei-vind Kolding says Safmarine is an important component in the Liner Business strategy, but “the need to ensure management effi-ciencies and control cost has led to the deci-sion to propose merging Safmarine’s man-agement into that of Maersk Line.”
Merging such internal support functions and central management involves the clo-sure of Safmarine’s Antwerp head office and regional offices in Antwerp, Shanghai, Dubai, Cape Town, and Mumbai, along with centre support functions currently carried out in Singapore and Cape Town. The closures will potentially affect 240
people in those locations, the company said.The changing role of Safmarine’s man-
agement also brings a shift in responsibili-ties for the company’s leadership. Current CEO, Tomas Dyrbye, will be leaving his po-sition. His successor will be announced in the near future, the company said.
Kolding adds that Safmarine will contin-ue to be an important part of the business. “It has proven that a close focus on a particular approach can deliver stronger customer ser-vice and lasting relationships – this is core to our mission of redefining shipping.”
Safmarine currently operates alongside Maersk Line as a fully independent ship-owner and shipping line serving Africa, the Middle East and India. Officials said the move will reduce core costs of running both two businesses.
The multi-purpose vessel business of Safmarine will be unaffected by the integra-tion and continue to be developed from its base in Antwerp, the company said.
10 ct&l october 2011 www.ctl.ca
transportation conference25th annual
North American shippers have en-joyed a 30-year run of declining logistics costs, but that is about
to change, according to George Stalk, senior advisor with Boston Consulting Group, and lingering unwillingness to deal with a crumbling infrastructure is to blame.
While higher oil prices is a clearly visible factor creating upward pressure on logistics costs, less obvious, but critically important nonetheless, is the effect of congestion on extended supply chains, Stalk told the 25th annual Transportation Conference, held at the Woodbine Racetrack in Rexdale, Ont.
“It will bring into question supply chain models that have essentially been handed down from the ’60s and ’70s. Change is happening underneath the eyes of our clients,” Stalk warned.
He painted a future scenario where grid-lock rules everywhere. North American ports, many of which flirted with capacity prior to the recession, will once again be pushing the limits of their capabilities. And they will have a tough time growing beyond their current footprint due to public oppo-sition to further industrial growth on water-fronts. Yet containerlines such as Maersk are placing 15,000 and even 18,000 TEU ships into their rotations, which could actually result in greater congestion.
“One could argue, the bigger the ship, the greater the congestion,” Stalk said. “There could be a flotilla of ships waiting to be unloaded. It could become the second Wall of China.”
Containers coming off the dock need an efficient infrastructure to quickly move them inland, but Stalk pointed out there is little appetite to grow rail lines. And de-mand for trucking capacity is growing four times faster than it is being created.
Don’t count on more expensive air freight either, according to Stalk. He be-lieves airport capacity in the US will be grid-locked by 2015 unless planned improve-ments are actually made. Over the past 40 years, only three major airports have
been built in North America – two were replacements and one was a failure (Mira-bel). Since 1975, there have been 16 run-way projects cancelled. Key airports such as Boston have been working for three decades to add capacity due to public opposition.
“By 2020, it will be crazy…Don’t expect to get anywhere near a city,” Stalk said, add-ing that to fight back, new relationships are required among transportation stakehold-ers. He advised that the focus should be on faster and better service that is appropri-ately compensated.
Expect slower growth but no recession, BMO economist tells ConferenceBy Lou Smyrlis
Canadians worried about the darkening clouds on the economic horizon will have to live with modest growth of just 2% for 2011 and 2012, but we are not heading to-wards recession, Kenrick Jordan, senior economist with BMO Capital Markets, told the 25th annual Transportation Conference in Rexdale, Ont.
“The global economy is still growing, but much slower than anticipated even just a few months ago. The emerging markets are experiencing the most growth, but in North America, the economy has lost mo-mentum,” Jordan said.
Whereas the forecast is for 3.7% growth in global GDP in 2011 and 3.9% in 2012, the forecast for North America is just 1.9% this year and 2.6% next year.
The US remains the drag on the North American economy because what precipi-tated the recession – a slumping US hous-ing market – is still recovering slowly. The high unemployment rate in the US is also hurting its recovery and consumer confi-dence has fallen with the deterioration in the global economic outlook. Jordan fore-cast just 1.6% GDP growth for the US this year and 2.5% next year.
But for those looking to invest in their business, there are positives. Jordan said the
tepid recovery means the central banks on both sides of the border will not likely move to raise interest rates. Jordan said the Bank of Canada will probably wait till mid next year to raise its rate while the central bank rate in the US may not be raised till 2013. There is also good news regarding input costs with most industrial prices for key items such as metals and oil declining. Nor will there likely be the upward push on wages there has been during past eco-nomic recoveries.
“With so much slack in the economy, it’s hard for inflation to take off and wages to grow,” he said.
Canada is also well positioned to ride out any economic turbulence. The coun-try’s fiscal condition is strong, its banks are well positioned and highly regarded world-wide, corporate balance sheets are in good shape, our resource sectors benefit from growth in the emerging markets and our labour market remains relatively healthy.
The growing indebtedness of Canadian households (we have actually surpassed the high-spending Americans who have moder-ated their habits over the past couple of years) is a bit of a concern. But with interest and mortgage rates as low as they are, that is not causing as huge an issue as it could if interest rates were higher. And the Canadi-an government is in a much better situation than most western nations. For example, Canada’s government debt amounts to about 30% of GDP compared to 67% for the US and 116% for Greece.
“Canadian economic fundamentals are pretty solid, but Canada is not an island unto itself,” Jordan said. “We are susceptible to the faltering of US demand and a strong Canadian dollar,” Jordan said.
Speaking of the dollar, which had dropped below parity recently, Jordan ex-pects it to regain its strength through 2012 and be trading above parity, continuing to present competitive issues for Canadian manufacturers and transportation service providers selling into the US market. CT&L
‘By 2020, it will be crazy. Don’t expect to get anywhere near a city’
By Lou Smyrlis
A survey conducted this summer by Breininger & Associates, in cooperation with Canadian Transportation & Logistics magazine and five major transportation and logistics non-profit business associations, has revealed the critically important role the web plays in the daily lives of Canadian supply chain practitioners.Through this extensive, highly graphical report, transportation and logistics professionals will gain valuable insights into the critical roles the internet is filling in effective supply chain management.
Key topics include:l how much time is spent on the internet doing job related tasks l the general aspects of job performance the internet helps with the most l specific tasks the internet is being used to perform within each general area of job performance l which forms of access to the web are the most important, including past and future trends l the amount of time being invested in social media for job and career related purposes, and which platforms are the most valuable l the role of blogs, and which types of blogs are the most helpful l the growing impact of mobile
How is the Internet driving Supply Chain success in Canada?
VISIt CtL.Ca to downLoad your Copy of tHe web ImpaCt report.
find out by reading the web Impact report, available for download at
CtL.ca
A survey conducted this summer by Breininger & Associates, in cooperation with Canadian Transportation & Logistics magazine and five major transportation and logistics non-profit business associations, has revealed the critically important role the web plays in the daily lives of Canadian supply chain practitioners.Through this extensive, highly graphical report, transportation and logistics professionals will gain valuable insights into the critical roles the internet is filling in effective supply chain management.
Key topics include:l how much time is spent on the internet doing job related tasks l the general aspects of job performance the internet helps with the most l specific tasks the internet is being used to perform within each general area of job performance l which forms of access to the web are the most important, including past and future trends l the amount of time being invested in social media for job and career related purposes, and which platforms are the most valuable l the role of blogs, and which types of blogs are the most helpful l the growing impact of mobile
How is the Internet driving Supply Chain success in Canada?
VISIt CtL.Ca to downLoad your Copy of tHe web ImpaCt report.
find out by reading the web Impact report, available for download at
CtL.ca
eport
1212 ct&l october 2011
What 3PLs must commit to
in future dealings with customers
if they want to grow
B y K e n M a r k
storycover
Jim Eckler has thrown down a challenge to his 3PL colleagues: innovate or face sluggish growth rates.
“By innovation, I mean transformational change and implementation that fundamentally change the cost curve,” says the veteran logistics professional and president of Toronto-based Eckler Associates.
In his mind, true changes will require new processes that boost efficiency and create incremental value. But they are not limited to existing practices such as lean sup-ply chain, business process reengineering and quality man-agement programs.
At the top of Eckler’s list is revising the relationship between clients and LSPs (logistics service providers). That starts with changing the compensation structure. Before, external contractors were paid for how well they met contract terms. In its place, Eckler proposes com-
13ct&l october 2011
storycover
pensating them for their contributions to client’s over-all corporate performance.
But achieving that goal is no slam dunk. “Many LSPs are uncomfortable with that because they say they can-not control what happens within the company itself,” he says. “However, in many corporate compensation plans, senior executives’ bonuses are tied to the organi-zation’s overall performance that involves many factors beyond their control.”
LSPs prefer narrowing the focus of client services rather than seeking to become a true partner. However, clients are not blameless in all this. They rely on pro-curement managers issuing tenders and then accept the lowest acceptable bid. In response, Eckler proposes that they bring in executives from finance, supply chain management and lines of business to help broaden con-tract terms and conditions.
Ultimately, market expansion rather than mere cost cutting is the real path to long-term growth.
In Eckler’s mind, LSPs can position themselves bet-ter to deliver future prosperity to clients by expanding their services to include one-stop-shop, end-to-end, supply chain support. According to Brad Mitchell, Atlanta-based president of UPS Global Logistics and Distribution, the recession has forced many companies to look at their supply chains differently. More and more, they realize it is a key enabler of corporate growth. At the same time, some are starting to con-sider outsourcing more seriously as an alternative to tying up internal resources.
Large pharmaceutical producers are eager to bring in outside experts to make their supply chains more flexible and efficient. “They are under pressure to save money,” says Mitchell. “Blockbuster products are coming off pat-ent and it is becoming harder to replace them with new ones. They are looking more closely at production and supply chain management outsourcing to reduce costs and reallocate the savings to R & D.”
As global players, major drug firms seek LSPs with a worldwide reach to provide services to meet their far-flung supply chain needs. Mitchell cites the example of a German pharmaceutical firm that produces drugs re-quiring temperature control throughout a supply chain that involves multiple handoffs. Besides taking care of all of the moves, UPS can also certify that throughout the trip the products have been kept within the proper temperature range.
In addition, large LSPs such as UPS Innovations have the staff and resources to sit down with clients in front of a white board, map out their current supply chain, pose “what if” questions and propose innovative approaches.
Mitchell points out that European pharmaceutical producers typically have DCs in the major continental countries. But it may make more sense to rationalize distribution by setting up one facility in the Netherlands to serve Western Europe and another one in Poland for the east. With only two DCs, they would enjoy lower inventory levels, transportation costs and higher cus-tomer service levels. More important, reinvesting such
savings in new business opportunities would boost over-all corporate performance.
In any discussions about innovation, the role of tech-nology pops up very quickly. Generally speaking, LSPs have been reluctant investors in the latest logistics hard-ware and software. “It is a low-margin business so there is not much cash available for major capital investment in such systems,” says Marvin Logan, Indianapolis, Ind.-based systems consultant for warehouse systems integra-tor Bastian Material Handling.
To change that mindset, LSPs can learn from the experience of more traditional, external IT services pro-viders. “Their success comes from leveraging technology investments to provide scale, scope and replicability of value-added services for multiple clients,” says Michael Hart, Richmond Hill, Ont.-based managing partner with Merit Outsourcing Advisors.
Hart further suggests that midsize Canadian LSPs could strengthen that advantage through enhancing the delivery of outsourcing services from overseas locations where labour and real estate costs are lower. “Savings can be as much as 30%,” he says. “It’s not just about call cen-tres, but also other business processes as well.”
Recent breakthroughs in automated storage/auto-mated retrieval (AS/AR) and robotic systems could give LSPs greater flexibility to meet changing client needs. That’s because updated networks can now seamlessly link application software from various application ven-dors to the central ERP platform. Consequently, LSPs can reprogram software over a weekend instead of hav-ing to reconfigure hardware – conveyor belts, shelving, etc. – which can take months.
Such a game changer would enable early adopters to differentiate their services from the competition by offer-ing greater agility, increased productivity and higher throughput. “If a customer has a choice between two 3PLs, Company A with a 500,000-sq. ft. facility with 40 employees [without an AS/AR system] or Company B with a 300,000-sq. ft. building and zero employees using our system, choosing Company B will provide clients with a differentiated service at an acceptable cost,” says Peter McCarthy, Oakville, Ont.-based president and CEO of PAS-Americas. His company focuses on cart-based, full-pallet AS/AR systems.
Such technology also solves the financial puzzle. “If the 3PL can sign clients to long-term contracts that ex-ceeds the payback period of our equipment, despite higher start-up costs, it will enjoy a positive cash flow after the system pays for itself,” says McCarthy.
In 2009, Quiet Logistics took that bold step by imple-menting Kiva Systems’ robots in its Andover, Mass., dis-tribution centre. According to Al Dekin, the firm’s senior vice-president of sales, company founders believed that the robots’ ability to bring pallets and totes to pickers in the centre of the DC would revolutionize warehousing. That was especially relevant for fulfilling e-commerce-driven consumer orders for individual items or “eaches” – the new firm’s target market.
A separate group of Kiva robots transports the filled cartons to the shipping dock for courier pick-up.
14 www.ctl.ca14 ct&l october 2011
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Overall, the system provides high-throughput, low-cost picking operations with exceptionally high order and inven-tory accuracy.
It also greatly increased the capacity of Quality Logistics’ distribution facility. Storage pods are squeezed into a much smaller area because there is no need for walk space – and pods can move around at will along the warehouse grid. Con-sequently, DCs can hold three times more inventory than a traditional warehouse.
The firm chose the name Quiet Logistics since without conveyor belts and forklift trucks, there is not much noise in the facility. “We also wanted to become a quiet, high-per-forming partner for our clients,” says Dekin.
Its first client was Music Parts Plus, a Massapequa, N.Y., Internet retailer with a catalogue containing more than 5,000 SKUs. As a rapidly growing business, it was difficult to keep track of its inventory and to ensure that the right items were in the right box.
Dekin explains that Quiet Logistics’ large in-house IT de-partment sets its operations apart from other 3PLs. By devel-oping, maintaining and operating its own inventory manage-ment system and order processing platform, the firm enjoys in-house control over the software capable of scaling rapidly to meet changing demand from numerous clients in a multi-ple-tenant building.
But innovation goes beyond simply deploying the latest lo-gistics technology. “Our supply chain practices are leading, but not revolutionary,” says David Yundt, Toronto-based president and CEO of Plexxus. “The innovation has not been on the tech-nical side, but more on governance and managing the relation-ships of the member hospitals.”
Plexxus is a shared services organization involving 12 Great-er Toronto Area hospitals including all the major teaching hos-pitals. Although accounting for less than 10% of the total hos-pitals in Ontario, Plexxus members make up almost 25% of the total annual sector spend.
Since its founding in April 2006, it has successfully ful-filled its mandate to streamline procurement and purchas-ing, simplify supply chain practices and standardize business processes while managing change and stakeholder relations. To do so, it initiated policy improvements to improve pro-curement practices that included consolidated purchasing based on standard contract terms and conditions.
On the logistics side, Plexxus uses a mixed model for dis-tribution. Despite having a central DC, some members still operate their own facilities.
Over the past four-plus years, Plexxus has saved its mem-bers about $45 million. Since it is owned by the members, they can use those savings to improve patient care. The
group’s annual spend totals about $550 million. Consumables and services account for $250-$300 million. The remainder is for capital equipment.
The services it manages extend beyond the physical move-ment and handling of goods to include acquiring external ser-vices such as elevator maintenance as well as providing cen-tralized services for human resources and accounts payable. Next on the list is setting up a common members’ IT platform based on SAP ERP technology.
Plexxus has its counterparts in B.C. and Alberta. The rise of such public-sector units opens up opportunities for private-sector partners. “In Eastern Ontario, the 3SO, which does what we do for hospitals in its region, outsources its central DC operations to a private-sector contractor,” says Youndt.
In the private sector, the role LSPs play in governance often extends beyond periodic reviews of service-level agree-ment (SLA) metrics. It can rise to the level of an executive peer. “Our executives such as the CFO or CIO also serve as an external ‘sounding board’ when they meet with client counterparts to discuss more wide-ranging issues,” says Brad Mitchell of UPS. “These include the potential impact on cor-porate performance of new products, new markets, global trade patterns and sustainability.
“And once a year, C-level executives from both sides meet to exchange confidential information or plans regarding pos-sible acquisitions or entry into new geographic markets.”
Finally, LSPs need to consider themselves as outsourcing service providers. According to Eckler, most LSPs still think of themselves as a separate entity despite numerous similari-ties to more mature outsourcing firms handling IT, building maintenance, as well as finance and accounting services
Greater collaboration between the two groups would ben-efit both sides. “It would open up new business opportuni-ties,” says Michael Hart. “About 10 years ago, the CBC de-cided to outsource its non-core activities including building maintenance, shipping and courier as well as mailroom and printing services. The original contract was worth about $20 million per year.
“Bidders needed to set up a consortium of suppliers to cover off many of the un-related services they could not han-dle on their own. Leveraging their links to the outsourcing community could help LSPs participate in more such con-tracts by highlighting to lead contractors how they could in-crease the synergies within the basket of services.”
That kind of innovation leads to future growth. CT&L
Veteran technology expert Ken Mark has covered supply chain management since it was called distribution and has documented its legitimization as a critical business function. He holds an MBA from York University.
Leading global provider of innovative total cold chain logistic solutions for the safe transport of:n pharmaceuticalsn tissuen biologicsn blood
We are committed to providing our clients:• Innovative thermal technology
• Significant return on investment
• Reusable, environmentally- friendly solutions
(877) 537.9800www.mnthermalscience.com
PROVEN. PRECISE. RELIABLE.
Now Available in Canada throughCanada through
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16 www.ctl.ca16 ct&l october 2011
Vested outsourcing (VO) will be ready for prime time when the pur-chasing mindset switches to achiev-
ing mutually desired outcomes from simply buying the right things. Kate Vitasek, au-thor, consultant and University of Tennessee professor, shares that prediction with supply chain professionals at every opportunity.
Procurement and outsourcing practitio-ners’ top priority has always been to get a better price, whatever it takes. That ap-proach leads to a shell game in which buyers hide their real revenues and suppliers rarely expose their real costs.
But such a power and information imbal-ance results in a tense zero-sum game in which buyers invariably win and sellers lose. Vitasek explains that there is a cost to such “muscularity” because the buyers cannot win all the time and since suppliers never forget, they constantly look for ways to get even.
Buyers conduct tough negotiations to score short-term savings at the expense of sellers. In its place, she proposes finding in-novative ways of creating and sharing great-er value for both sides by collaborating to solve real problems. “Try to make the pie bigger not just reduce the cost of each slice,” she says.
Such a mind-changing approach opens the door to win-win opportunities. That
was the result of the 2007, US$185 million outsourcing deal between Microsoft and Accenture One. The software giant’s goal was to modernize its global back office – procure-to-pay – operations involving the 92 countries where it did business.
Ultimately, Microsoft reaped US$30 million in savings thanks to reducing the number of business application systems to 40 from 140, administration hours by 23% and contract costs by an initial 20% rising to 35% by the end of contract.
Accenture came out ahead as well. Al-though contract revenue fell, its profit mar-gin more than doubled. In other words, de-spite taking in less money, it kept more of it. Most important, after two years, the origi-nal seven-year contract was extended for a further five years indicating both sides were happy with the deal.
Logistics consultant Jim Eckler, claims to see similar deals starting to emerge in Canada’s 3PL market space. They contain two common qualifications. “One is a sig-nificant portion of the contract is at risk,” he says. “Second, the performance outcomes are based on achieving specific business re-sults including reducing inventory levels and related costs.
“Few existing 3PL contracts include such terms, let alone performance metrics.”
From her research, Vitasek concludes that buyers must make the first move and leave money on the table. Their first im-pulse should be to hold out an olive branch not a baseball bat during negotiations. That helps build trust with sellers while increasing transparency and focusing more attention on solving real problems. In her view, where there is no trust or transpar-ency, there is no cooperation or collabora-tion. The last two traits are crucial for win-win negotiations.
Such an approach helps unbundle price and value. That will happen when buyers adopt a long-term strategy of encouraging suppliers to become value-added partners and abandon the short-term tactic of driving down prices. In Eckler’s mind, the separa-tion of outsourcing from the procurement function will speed up that change. For ex-ample, Eckler points to Procter & Gamble’s (P&G’s) outsourcing centre of excellence.
As a result, it will be easier for buyers and sellers to sit down on “the same side of the table” to establish mutual-advantage or shared-value objectives and work together rather than argue over prices.
Buyers must also understand sellers’ key financial concern. “It’s not about increasing revenue,” says Vitasek, “It’s about preserving margin.” In many outsourcing contracts, it’s
Why it pays to focus on outcomes rather than transactions in procuring supply chain services
B y K e n M a r k
sourcingout
Why it pays to focus on outcomes rather than
beyond the shell game
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Custom tailored to our customers’ requirementsWith close to 500,000 square feet of modern and secure warehouse space on both sides of the border, Cavalier manages customers’ inventories and distribution requirements for North American markets. Features include:nTailor made, complete logistics packagesnSecure, modern facilitiesnInnovative fulfillment and co-packing solutionsnConsolidation and deconsolidation services
nFull integration with our asset based transport
services, featuring overnight delivery within
500 miles of the Greater Toronto AreanFlexible long term and short term contracts
For warehousing quotes please send an email with your requirements to [email protected] or call 1-800-263-2394 and speak to a Cavalier representative.
18 www.ctl.ca18 ct&l october 2011
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all about cost per transaction in which sup-pliers must fulfill work outlines in the con-tract – so much for each pick or pack, etc.
Such a check-list approach leads to per-verse incentives. She cites the example of a 3PL storing a client’s huge supply of five-year old calendars for which it earned a monthly fee. There were no incentives for it to develop innovative, value-added options. That requires developing process improve-
ments, not just blindly carrying out contract terms. Vitasek states that according to lean principles, 90% of business activities do not add value.
“Sellers should be asking clients ‘Why?’ not ‘How?’” she says.
Problem-solving requires time, resources and smarts. To get suppliers onside and fa-cilitate the shift in risk taking, Vitasek sug-gests introducing 90-day payment terms.
Developing innovations create working cap-ital concerns. Longer periods give service providers more time to develop and test new ways of doing things. Such extensions also enable both sides to understand the rhythm of each other’s businesses.
Shorter timeslots such as 30 days result in only pure commodity service changes. “Extending the contract period helps drive innovation by encouraging service providers to invest in your business,” she says.
In fact, Vitasek believes that the logical result of such partnership deals is to make them permanent. “Both sides need to re-structure agreements and increase incen-tives and sign larger deals to include transi-tion costs to becoming life-time suppliers,” she says.
Such arrangements ease pressures on suppliers and increase trust since they be-come less concerned about getting paid. As well, they do not have to worry about busi-ness development and marketing costs or the hassles and risks related to attracting new clients.
And if buyers can find suppliers that can do the job, why do they need to change?
Sharing greater risks in outsourcing con-tracts tends to attract larger, often global buyers. Another case study that Vitasek cites is the 2003 contract between Procter and Gamble and Jones Lang LaSalle. It involves 14 million sq. ft of real estate at 165 sites in 60 countries, including 50 North America non-manufacturing locations.
The agreement covers three distinct ar-eas: facility management, project manage-ment and strategic occupancy services. Facil-ity management services include such things as building operation, security, mail delivery, and dining and car fleet operations. Jones Lang LaSalle also oversees a US$70 million annual capital project budget. In the con-tract’s first year, real estate operations spend-ing came in $1 million under budget.
However, Eckler contends that small- and medium-sized firms are better suited for VO-type contracts. “Large organizations take time to make up their minds because they must get support from more execu-tives and departments,” he says. “But small-er organizations can make decisions faster because they are more entrepreneurial and have fewer people involved.”
For smaller 3PLs to grab the initiative, Eckler suggests they need to find out poten-tial clients’ major priorities. A good start is looking up recent statements from the buy-er’s board chair and CEO in annual financial reports as well as comments from industry analysts. “In today’s world of corporate gov-
sourcingout
19ct&l october 2011www.ctl.ca
Veteran technology expert Ken Mark has covered supply chain management since it was called distribution and has documented its legitimization as
a critical business function. He holds an MBA from York University.
ernance, it is the duty of corporate officers to outline to shareholders and others the future direction of the organization,” he says.
To make the switch, it is necessary to fo-cus on business outcomes not individual contract performance levels. According to Eckler, since most existing outsourcing con-tracts are transaction-based, they are super-ficial and do not address such issues.
Buyers also need to decide how much innovation they require from service suppli-ers. That is because contract value expecta-tions depend on the level of innovation. “Value must be measured in ways other than cost reduction,” says Eckler. “That re-quires a more sophisticated business model that involves changing the governance and pricing models.”
He cites an outsourcing contract in which the service provider would be re-warded for reducing the client’s utilities us-age level, not their cost. In this way, if the service provider found ways for the client to use less energy, power and water, etc., such expenses would automatically fall. In other words, the supplier would be rewarded for its process reengineering prowess, not for its ability to negotiate better utility rates.
Consequently, both sides benefit from the increased efficiency and productivity of the client’s operations resulting from inno-vations that improve processes, change be-haviour and upgrade equipment.
In contrast, in traditional fleet-manage-ment and call-centre outsourcing agree-ments, suppliers have no incentive to re-
duce “empty” miles or the number of calls because the contract bases compensation on the number of miles driven and transac-tions handled.
Eckler contends that lawyers on both sides have worked hard to eliminate risk in such contracts. Without proper incentives, suppliers have no “skin in the game.” They prefer collect payments for providing basic services rather than having to worry about earning uncertain rewards for developing innovations. For their part, buyers are reluc-tant to try more open-ended contracts over which they have less control.
But under the new paradigm, they must be prepared to work together and accept greater but more controlled risks.
“In today’s competitive world, buyers and sellers will both benefit from developing clos-er relationships to increase innovation,” says Eckler. “That is the key to future success.” CT&L
Successful vested outsourcing focuses on:• Outcomes, not transactions;
• What, not how;
• Defining and measuring desired outcomes by establishing pricing models/incentive options for cost/service trade-offs;
• Lowering costs to buyers while optimizing mutual desired outcomes;
• Insight vs. oversight, i.e., governance structure not micro-managing.
sourcingout
A behind the scenes look at the pivotal role that reengineered supply chain practices played in reviving R.G. Barry B y K e n M a r k
A behind the scenes look at
radical recovery
20 www.ctl.ca20 ct&l october 2011
The 2005 corporate turnaround at R.G. Barry Corp. was nothing short of a miracle. A 2007 Time magazine article reported that the Pickerington, Ohio-based slipper and foot-
wear giant had hit the wall in 2003, losing $20 million (all figures in US dollars) and faced defaulting on a $10 million bank loan.
“We were having trouble making payroll,” says Matt Sullivan, the firm’s then vice-president supply chain and currently Dublin, Ohio-based president of Sullivan Consulting Services. “We all sat around the table trying to figure out how to save the company.”
Like many CPG (consumer product goods) manufacturers, R.G. Barry faced a deluge of insurmountable market pressures. These included being squeezed between falling retail prices as cheaper im-ports flooded the market and rising costs for materials, labour and energy. Retailers were also undercutting branded items with their own cheaper house brands.
When manufacturers locked into last-century legacy technology, business processes and unresponsive supply chains could not adapt quickly to such fast-moving trends, their very survival was at stake.
To save the day, R.G. Barry brought in an outside turnaround consulting firm to help develop and implement a radical recovery strategy that would restore profitability within a year. “At first, we thought we could we grow our way out of the problem,” says Sul-livan. “Then we realized that we could no longer afford to manufac-ture our own products. The only solution was to become a sourcing rather than a manufacturing company, so we shut down all our own existing manufacturing facilities and DCs.”
According to the Time article, operations had become so disorga-nized that when the consultants and bankers travelled to Mexico to tour the company’s factories and warehouses, they saw three plants running flat-out while the warehouses were bursting with 12 million pairs of unsold slippers. When they asked the operations manager to explain, he replied that inventory was not his responsibility.
The bold recovery plan called for shutting down the Mexican facilities and handing over production to overseas contract producers in southern China. In addition, the company tightened operations by slashing the number of product styles and customers it carried, dumped old inventory, introduced new items as well as cutting pro-duction and executive staff, including the firm’s existing CEO.
By 2005, operational pain turned into financial gain. The company paid off the bank loan and chalked up an $8 million annual profit.
However, lost in the headlines was the pivotal role that reengi-neered supply chain practices played in reviving the company. “We moved from a push to a pull system that relied on a longer, more
complex supply chain,” says Sullivan. “As a result, our production costs went down while our transportation costs went up. In addi-tion, transportation expenses became a variable not a fixed cost.”
To regain its competitive edge, R.G. Barry also updated its cor-porate item master file data to ensure that it matched its packaging specifications. However, within 18 months that initial attempt to trim S&GA (sales and general administration) costs by reducing its shipping carton choices delivered more than $2.5 million in savings.
More specifically, the major sources of optimized packaging sav-ings resulted from reducing corrugate spend by 15% ($200,000), lowering inbound freight costs by 20% ($1.6 million) by deploying 600 fewer ocean containers, and trimming storage expense by 25% ($1 million).
According to Jack Ampuja, president and CEO of Supply Chain Optimizers (SCO) in Getzville, N.Y., such savings became a per-manent cost reduction benchmark for future projects. “In fact, the nominal value of future savings rises because energy, container, handling and other expenses go up,” he says.
“Cutting corrugate cost was the game breaker. It’s not just the direct cost of the corrugate. It’s the additional supply chain costs from handling, transporting and storing the goods. An inch here and a dollar there – it all starts to add up very quickly.”
Before, R.G. Barry’s supply chain reach was regional. Originally, all slippers were made in North Carolina and Texas and shipped from there to retailers’ DCs. The pattern did not change much in the late ’90s after production shifted to Mexico. But now, the sup-ply chain became global as products crossed the Pacific Ocean in containers which were unloaded at Long Beach, Calif. and then trucked to its national DC in nearby Ontario, Calif. From that loca-tion, the firm supplied its retail customers, although some like Walmart send their own trucks pick up the orders.
Basically, by going global, R.G. Barry shifted its centre of opera-tions from the US east coast to the west coast. Although distances were longer, the supply chain actually turned out to be shorter. It also became simpler to manage because it turned into a dedicated trans-Pacific product pipeline. Since its contract producers’ raw ma-terial suppliers were all based in China, those inbound links were in fact shorter and simpler.
Sullivan expected that the revised supply chain plan would con-tinue to yield annual savings of 3-5% for at least five years. Such cost reductions go straight to the bottom line.
Still, managing an extended supply chain posed new and differ-ent challenges. Sullivan stresses changes in planning, people and technology. “Before, the planning process was fundamentally based
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Getting a new job is life-affirming! Are you stuck in a job, and looking for something new? Well, you too can find a job in 201 on www.HireLogistics.ca, a new jobs website
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22 www.ctl.ca22 ct&l october 2011
on guesswork,” he says. “We followed a tra-ditional, push-mode manufacturing culture – ‘build it and they will come.’”
After introducing new management tools and implementing modern logistics software such as Logility, the firm based its planning on best practices, not gut feel and guess-work. The new applications enabled to con-vert retailers’ point-of-sale (POS) data into better demand forecasts so the company could make more flexible deliveries to meet
constantly changing market conditions.To make that happen, the firm had to
upgrade its IT backbone, which included cleaning up its corporate database to avoid GIGO (garbage in, garbage out) problems.
In addition, the company began to work more collaboratively with customers to in-troduce more responsive service levels, which helped the company slash annual in-ventory levels by $25 million.
Such improvements also helped the
company garner customer awards such as being named Walmart’s principal US sup-plier of replenishment slippers. In 2008, it also received further service accolades from other major retailers including Target, Kohl’s, and Sears.
Along the way, the firm had to hire new executives and others with relevant skills sets as well as boost training for other em-ployees. For example, when companies switch to outsourcing, it requires a differ-ent approach to deal with external contract manufacturers from those used to produce goods in-house. The latter is easier because it is closer and more familiar. But monitor-ing contractors half a world away requires constant attention to ensure that they are making the products as specified and the extended supply chain can deliver ship-ment on time.
Fortunately, as a result of its ill-fated Mexican experiences, the company had al-ready progressed along that learning curve. “In the late ’90s, Mexico accounted for only 80% of our total production,” says Sullivan. “Since the other 20% came from overseas suppliers, we had already dipped our toe in the foreign outsourcing pool.” For example, in 2004, the firm opened an outsourcing office in Hong Kong to pro-vide a window on the China manufactur-ing scene.
Although China may have become the “factory for the world,” its use of packaging lags behind its production prowess. After examining shipping cartons used by R.G. Barry’s Chinese contract manufacturers, Ampuja realized that although they were heavier, they were also weaker. That’s be-cause Chinese cartons consist of five sheets of largely recycled paper glued together compared with the North American stan-dard of two sheets of paper surrounding a corrugated core. That format results in a stronger, but thinner carton.
When Chinese producers claimed that such cartons were not locally available, SCO dug down into its industry contacts list to find a Chinese supplier capable of making North-American-industry-stan-dard cartons. More important, R.G. Barry sent over instructions to its contract pro-ducers on how to properly pack boxes of slippers into a carton and configure the boxes on pallets before they were loaded onto ocean containers.
Those marching orders resulted from an-other SCO breakthrough – changing the standard box arrangement per carton to four by three from R.G. Barry’s half-century
it all starts with building a great relationship.
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23ct&l october 2011www.ctl.ca
template of six by two. Invoking his “deeper is cheaper” mantra, Ampuja explains that shallow cartons require more material for flaps than taller ones. However, flaps add cost but not strength to cartons.
Ampuja also stresses the importance of using the entire 122 cm by 102 cm (48 in. by 40 in.) pallet footprint. He tells all cli-ents that when cartons do not reach right to the edge of pallet, it wastes space. But if they extend beyond the edge, it can lead to damage.
“Logistics is all about looking closely at small details,” he says. “Dealing with them properly can add up to large savings. Packag-ing optimization projects can often result in 100% ROI after the very first year.” (For the record, according to Ampuja, the payback period for R.G. Barry was about six months.)
Still, he often encounters executive re-sistance when approaching potential clients. Package design is a sensitive business issue that can lead to endless debate which often results in no decision or bad ones. Ampuja says that happens because each division has different packaging concerns. For manufac-turing, it’s the fear that adjustments will
slow down the production line. Quality control is concerned about preventing dam-age, so they opt for bigger, heavier cartons. For sales and marketing, it’s all about the visual impact which requires snappy design work. However, supply chain which has budgetary responsibility for handling, trans-portation and storage costs is often left out of the picture.
Companies do not always choose the lowest cost packaging solution. But they should at least analyze the costs of available choices and decide accordingly. Ampuja cites the example of a company that had two packaging solutions on the table that
were $1 million apart. “It needed to know the financial impact of its choices,” he says.
Many companies find it hard to decide to handle packaging differently because they realize it will require them to manage change. For R.G. Barry, it was simple: it had to change or face bankruptcy.
Ampuja believes that larger companies are more likely to embrace packaging opti-mization enthusiastically because they tend to have better data. “They are also more willing to bring in outside help because they are able to see such projects as an in-vestment, not just an expense.”
According to Sullivan, the younger lo-gistics professionals tend to have a better appreciation of its benefits. “In my experi-ence, they ‘get it’ more quickly,” he says. “That maybe because the younger ones do not have to ‘unlearn’ earlier practices.” CT&L
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Food supply chain must address harmonization and
contamination issues B y J u l i a K u z e l j e v i c h
tough to chew
24 www.ctl.ca24 ct&l october 2011
Food safety has become a huge issue, going be-yond the boundaries of the “traditional” supply chain to encompass all potential points and sce-
narios along the way.According to Gary Fread, president and CEO,
Fread and Associates Ltd., there are some 11-13 mil-lion food safety occurrences per year in Canada but most are not of a serious nature.
“Over 80% of these happen in the home, for ex-ample with something past its shelf life, or that has not been stored properly,” he says.
Poor food safety is usually the result of hazards in food, which can be biological, chemical, or physical agents. Biological agents, or microorganisms, are the most common hazard, with chemical agents such as residues and toxins being the second most prevalent.
These agents could come from farming uses, or packaging (i.e. melamine use causing residue, bisphe-nol A in plastics packaging), noted Fread, who spoke at this summer’s Supply Chain Canada – CITA con-ference. Physical agents, meanwhile, include things such as broken glass or metal shavings. These occur least often.
But controlling for these potential hazards at all points along the chain has become a serious under-taking for all those who handle food and related products. (The recent incidence of E. Coli bacteria in Germany, which was found in fresh produce and led to several deaths, very nearly caused a diplomatic disturbance between Germany and Spain, which was thought to be the source of the produce.)
Food safety issues which occur on ‘company watch’ can pose a huge financial liability risk manage-ment issue.
“It’s also very much a sustainability issue,” added Fread.
Hazard analysis and critical control points (or HACCP-based food safety programs) are addressing these issues at all levels of the supply chain.
“This is a spinoff from the total quality continuous process improvements originally developed by the UN Codex Alimentarius Commission, part of the Food and Agriculture Organization (FAO),” said Fread.
In Canada, this takes the form of the Food Safety Enhancement program, which is developed and ad-ministered by the Canadian Food Inspection Agency for plants shipping interprovincially or exporting.
Conducting a hazard analysis involves determining critical control points, establishing critical limits, and a system to monitor the control points. Setting up cor-rective action to be taken, and procedures for verifica-tion is also part of the equation, said Fread.
As a guideline, he advises assembling a HACCP team, describing the product to be protected, identify-ing its uses and risks, and constructing a flow diagram for the process, identifying the hazards of each step.
“Consider measures to control identified hazards. In a complex processing plant with many ingredients coming in, this can really get complex and involve a lot of ongoing maintenance,” said Fread.
Some problems arise that are difficult to address from a preventative perspective.
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26 www.ctl.ca26 ct&l october 2011
For example, a food processor may be accurately and diligently following cleaning procedures, devel-oped by the equipment manufacturer, but the equipment itself may be falling short in terms of safety controls.
“It comes back to, can we get the equipment man-ufacturer, in the product design phases, to implement a HACCP-type program?” said Fread.
“I would say to anyone in the business to make sure that somehow their goods are covered by a HACCP program. Transport and warehouse professionals should get certified to a HACCP program, and to GFSI if possible. It’s eventually going to become a re-quirement to be certified,” he said.
Canada’s Food Safety Enhancement Program, (FSEP), is supplemented by provincial programs (such as HACCP Advantage in Ontario) for plants shipping only intra-provincially. In addition, other organiza-tions in the supply chain have created their own pro-grams (such as the Canadian Trucking Alliance, food retailers, and agricultural producers.)
“The downside of this has been a lack of harmoni-zation, with international trade making things more complex. The development of HACCP programs has expanded so that processors shipping to the US, certi-fied in Canada to FSEP, had to be certified to the Safe Quality Foods program created by the food marketing group,” said Fread.
Finally, said Fread, along came the Global Food Safety initiative (GFSI), which was coordinated by the Consumer Goods Forum, and launched in May 2000. It is a global industry network involving over 650 retailers, and its objective is to create conver-gence between food safety standards through main-taining a benchmarking process for food safety man-agement scheme.
GFSI recognizes the equivalence of many food standards, including the Canada GAP (from the Cana-dian Horticulture council), the FSSC 22000 (Food Safety System Certification) for food manufacturers (ISO 22000 plus prerequisites) and the IFS (Interna-tional Food Standard, Europe).
“The federal registration carries all the weight it needs to in Canada, but if you are shipping to customers in the US who have specific needs beyond that, GFSI would be wise to have. If you are shipping more broad-ly, GFSI is advised as well,” said Fread.
The aim is to improve cost efficiency through the food supply chain by acceptance of GFSI recognized standards. This also provides a unique international stakeholder platform for networking, knowledge ex-change and sharing of best food safety practices and information, said Fread.
“The vision is to create a link of HACCP-based food safety, from farm operations to retail, and a level of value chain collaboration to make it the most effec-tive in the world,” he added.
According to Fread, most farm commodities have
OFFS (on-farm food safety) programs, and the Pack-aging Association of Canada adheres to a PACsecure program for food grade packaging.
“Chicken and eggs are almost at 100% participa-tion in the programs,” said Fread.
The Canadian Trucking Alliance developed its Trucking Food Safety Program in partnership with the Canadian Food Inspection Agency, covering the whole chain from live animals to delivery vans.
He said there are no numbers on uptake from the trucking program.
Fread said there is nothing official from the ware-house associations, but some of the GFSI standards include warehousing modules (such as Safe Quality Foods, British Retail Consortium, ISO, etc.)
Potential gaps in the value chain, he said, could in-clude the restaurant food service industry, which has some food handling training, but nothing official; im-ports, which are likely not certified to any kind of stan-dard; and bulk commodities that aren’t packaged.
“It brings up the issue of traceability,” said Fread.“Many traceability programs are being put in place,
but not all are compatible and require fast tracing of the origins of a product, often back to the grower. Or-ganizations like GS1 (which traces from the retail level), iCIX (a database you can subscribe to), trace tracker (you can enter data and give rights to access to certain people) and others are trying to address this. But it will be a few more years before traceability gets sorted out,” he said.
In April, industry, government and academia met in Cambridge, Ont., at the ONTrace Agri-food Trace-ability conference, to discuss getting traceability back to the farm level.
According to a white paper summarizing key findings during the event, “Management of recalls and animal health emergencies were considered key motivations for traceability, but market drivers were viewed as just as important, particularly among farm-ers and processors.”
There was “overwhelming agreement” that full agri-food traceability “needs to be a shared initiative between industry and government.” And it was felt that industry should operate any national traceabil-ity system.
What does all this mean to logistics organizations?“I think it will go beyond this, when traceability
takes us to new areas,” said Fread.In the not so distant future, for example, choco-
late candy manufacturers could find themselves re-quired to certify their goods back to the plantation level, to guarantee that they’ve covered social re-sponsibility issues.
“The logistics industry is probably the last industry this will hit. Most of the time you might be looking at shelf life or product damage. You’re looking at whole other variables when it comes to temperature control. But don’t overlook it,” Fread says. CT&L
& safetyhealth
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27ct&l october 2011www.ctl.ca
The Five Secrets of Successful Freight TendersBy Scott I rv ineAlmost all transportation managers will agree that a well executed Freight RFP is both time consuming and analytically challenging. With everyone’s resources stretched to the max, freight tenders are often delayed, or not completed at all. So when you do bite the bullet and invest in an RFP project, it pays to make sure you are getting the best result possible.
Based on our experience with conducting numerous carrier sourcing engagements, we have discovered five key tactics that will ensure your next carrier RFP generates the best results possible.
Sell Your FreightIt is often difficult for new carriers to compete with incumbents. Your current carrier understands your freight well, and what it costs them to move it. Without this information, new carriers will often include a “risk premium” in their price to ensure that they do not end up with “bad freight.”
Your objective is to reduce the risk premium by providing as much information as possible about your requirements, your op-erations and the products you are shipping. In essence you are “selling” your freight to the carriers. Of course, this information needs to be accurate and complete. Misleading carriers only ends up in bad outcomes for everyone involved.
A comprehensive, accurate and informative bid-package, combined with carrier information sessions, will work well to reduce the “risk premium.”
TimeGive your carriers the right amount of time to respond. Without enough time to analyze your requirements and consider the fit with their network, you will get a response – but it won’t be their best response. We recommend three to four weeks depending on the time of year. The reality is that your bid-package will stay on someone’s desk for the first week. Pricing will likely have it in their queue for another week, so you won’t really get any mind-share until week three to four.
If a carrier feels pressured to respond, you likely won’t get their best proposal.
Standardize Your Accessorial ProgramThe variety and complexity of accessorial programs make evaluating bid responses complex, not to mention the difficulty you will have auditing the invoices when they come. A common way to address this is to create a standardized accessorial program with one uniform set of charges that will apply to all carriers. If you develop and present a fair program to carriers, there may be no ad-justment needed in their base rates, and you will have greatly simplified your evaluation and auditing processes.
A standardized accessorial program will make it much easier to compare carrier rates, and audit invoices once you implement any new contracts.
Fully Analyze Your Rate ProposalsDue to the difficultly in aggregating and analyzing multiple carrier proposals, many shippers will just look at the key lanes and weight breaks that generate the bulk of their business. The problem is that carriers know this. As a result, a common strategy is to offer ag-gressive discounts on major lanes, while keeping rates to less common destinations, or in less frequently used weight breaks higher. Depending on your shipping profile, you may end up paying a lot more, even though you have lowered rates in your major lanes.
Re-rate a large sample of historical shipments against each carrier proposal to fully understand which carrier is the most cost-competitive on an overall basis.
Benchmark Your ResultsThe funny thing about RFPs is that six months after they have been completed, it is hard to know if you actually saved any money! Freight patterns change from period to period, so just looking at the expense line in your P&L can be very misleading. If shipping volumes go up, well, so will your freight costs – which doesn’t mean that you didn’t save money (even though you spent more).
Further, volumes could stay the same, but shipping mix may change. Smaller orders to destinations further away will increase costs on a $/lb basis. Again, it is possible that you saved money, even though your freight spend is increasing.
It is also possible that your new carrier that offered great rates is also assessing every accessorial charge possible, while your old carrier often let these slide.
The only way to really assess your results is to “shadow rate” your current shipments using your old rates. This will tell you with certainty what you would have paid before and accurately quantify the savings you have generated. CT&L
Scott Irvine is vice-president of business development for Nulogx Inc, a provider of transportation Management Solutions and the publisher of the Canadian General Freight Index. In his current position, Irvine is responsible for all sales and marketing activities within Nulogx. In addition, he has more than 20 years of management experience in a variety of transportation and logistics companies. Irvine graduated with a MBA from The Ivey Business School at the University of Western Ontario and a BComm from the University of Calgary.
The Five Secrets of
38
%
28 ct&l october 201128
inside the numbers
38%That’s the percentage
of Canadian private
fleets who have an
anti-idling policy in place,
according to our newly
published Canadian
Private Fleet Practices
Benchmark Study.
GREENING UP TRANSPORTATIONThe transportation sector is the second largest source of greenhouse gas (GHG) emissions in Canada, trailing only stationary sources, with a share of 23% of total emissions in 2008. From 2000 to 2008, transportation emissions grew at an average rate of 1.9% per year, while total GHG emis-sions grew by 0.3% per year, according to the Transportation in Canada 2010 report produced annually by Transport Canada. Transportation-relat-ed GHG emissions continue to increase, but air pollution emissions, such as particulate matter, sulfur oxides, nitrogen oxides and volatile organic compounds, have shown a steady decline due to regulatory initiatives and vehicle fleet renewal. While Ottawa looks to introduce stricter emissions regulations for all transport modes, there is also indication that Canadian shippers are becoming more interested in green transportation practices. Environmental considerations are growing in importance when shippers look for carriers to haul their freight, the Canadian Industrial Transportation Association has found through its annual survey of members. For example, 40% of CITA members now say they consider environmental factors that reduce GHG emissions when selecting a service provider, compared to just 20% who said likewise just five years ago. And 60% are aware if their carrier uses hybrid or alternative fuel vehicles in its fleet and 47% take into consideration the age of the engines in their carrier’s fleet.
Transportation share of GHG and CAC Emissions
Total energy use 2000 – 2009 (petajules)
Year Total Transportation Road Transportation
2000 2,263 1,838
2001 2,257 1,846
2002 2,290 1,899
2003 2,343 1,948
2004 2,443 2,016
2005 2,477 2,040
2006 2,469 2,044
2007 2,585 2,137
2008 2,585 2,146
2009 2,563 2,151
1,8462,2572001
1,8992,2902002
1,9482,3432003
2,0162,4432004
2,0402,4772005
2,0442,4692006
2,1372,5852007
2,1462,5852008
2,1512,5632009
23%
55%75%
5%
30% 23%
Particulate matter Nitrogen oxides Carbon monoxide
Sulfur oxides Volatile organic compounds Greenhouse gas
Transportation Other
D A S H B O A R D
29ct&l october 2011www.ctl.ca
TransCore’s Canadian Freight Index sees double-digit increase for AugustTransCore’s Canadian Freight Index for the nation’s spot market in August was up 10% from July and had a 12% increase year-over-year. August freight volumes were the highest for same month over the last five years.
Equipment postings in August reached the highest levels for 2011, with capacity up over 11% from last month’s total. Capacity was 3% above recorded levels for August 2010.
The equipment-to-loads ratio remained virtually unchanged from the level established in July.
TransCore’s Loadlink freight matching database constitutes the largest Canadian network of carriers, owner/operators, freight bro-kers and intermediaries and has been available to Canadian sub-scribers since its inception in 1990. More than 13 million full loads, LTL (less-than-truckload) shipments and trucks are posted to the Loadlink network annually. As a result of this high volume, TransCore believes its Canadian Freight Index is representative of the ups and downs in spot market freight movement and provides a historical account of the domestic and cross-border spot market freight movement.
The first five columns include monthly index values for years 2007 through 2011. The fourth column indicates the percentage change from 2010 to 2011. The last column indicates the percent-age change from the previous month to the current month. For the purpose of establishing a baseline for the index, January 2002 (index value of 100) has been used.
Canadian General Freight Index rises 1.2% in JulyThe cost of ground transportation for Canadian shippers in-creased 1.2% in July when compared to June, according to results published by the Canadian General Freight Index (CGFI).
The Base Rate Index, which excludes the impact of fuel sur-charges assessed by carriers, has increased for four consecutive months, including a 1.4% increase in July. However, base rates remain 3.6% below the same period in July 2010.
Average fuel surcharges assessed by carriers declined from 19.3% of base rates in June to 19.0% in July.
“It appears there is a trend toward marginal increases in base rates,” said Doug Payne, president and chief operating officer of Nulogx. “If carriers continue to manage their capacity and price rationally we may see this trend continue, however that could be offset if there is a slowing economy.”
The CGFI is sponsored by Nulogx, a transportation manage-ment solutions provider, and is used by shippers and carriers to benchmark performance, develop business plans, and secure competitive agreements. It was developed with the assistance of Dr. Alan Saipe. The most recent results are available at the CGFI Web site: www.cgfi.ca.
Manufacturing Purchasing Managers’ Index finds stronger production, order growth in SeptemberRBC’s Canadian Manufacturing Purchasing Managers Index pro-vided a ray of hope in September to the otherwise gloomy eco-nomic forecasts dominating the news and may point to a late-year rally for the country’s economy. The volume of new work received by Canadian manufacturers continued to increase in September,
according to the monthly index, which offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.
The RBC PMI found that business conditions in Canada’s manu-facturing sector improved further in September. Both output and new order growth quickened since August, with panellists commenting on greater demand and new client wins. Meanwhile, the rate of job creation was strong and the fastest since March. However, supply-side pressures continued to build during the latest survey period, as firms reported further vendor delivery delays and a strong (albeit slower) rate of input price inflation.
The headline RBC PMI – a composite indicator designed to pro-vide a single-figure snapshot of the health of the manufacturing sector – registered 55.0 in September, up fractionally from 54.9 in August, and signalled a solid improvement in Canadian manufactur-ing sector business conditions. The latest RBC PMI reading was the highest since April, and reflected further expansions of both output and new orders.
The index is produced in association with Markit, a global finan-cial information services company, and the Purchasing Management Association of Canada (PMAC).
“[September’s] RBC PMI figures bode well for a rebound in the Canadian manufacturing sector in the third quarter, consistent with a rebound in the Canadian economy and in line with our latest forecast for real GDP growth in Canada of 2.4% this year,” said Craig Wright, senior vice-president and chief economist, RBC.
In addition to the headline RBC PMI, the survey also tracks chang-es in output, new orders, employment, inventories, prices and supplier delivery times. Index readings above 50.0 signal expansion from the previous month, readings below 50.0 indicate contraction. The lat-est expansion in the Canadian manufacturing sector partly reflected firms receiving a larger volume of new work in September. CT&L
2007 2008 2009 2010 2011 % % Change Change
Y-O-Y M-O-M
Jan 173 214 140 171 222 30% -2%
Feb 174 217 117 182 248 36% 12%
Mar 228 264 131 249 337 35% 36%
Apr 212 296 142 261 300 15% -11%
May 280 316 164 283 307 8% 2%
Jun 288 307 185 294 315 7% 3%
Jul 219 264 156 238 245 3% -22%
Aug 235 219 160 240 270 12% 10%
Sep 206 203 180 234
Oct 238 186 168 211
Nov 227 143 157 215
Dec 214 139 168 225
TransCoreCanadianSpotMarketFreightIndex2007-2011
2007 2008 2009 2010 2011 % % 2007 2008 2009 2010 2011 % % 2007 2008 2009 2010 2011 % % 2007 2008 2009 2010 2011 % % 2007 2008 2009 2010 2011 % % 2007 2008 2009 2010 2011 % % 2007 2008 2009 2010 2011 % %
30% -2% 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222 173 214 140 171 222Jan 173 214 140 171 222
36% 12% 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248 174 217 117 182 248Feb 174 217 117 182 248
35% 36% 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337 228 264 131 249 337Mar 228 264 131 249 337Mar 228 264 131 249 337Mar
15% -11% 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300 212 296 142 261 300Apr 212 296 142 261 300Apr 212 296 142 261 300Apr
8% 2% 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307 280 316 164 283 307May 280 316 164 283 307May 280 316 164 283 307May
7% 3% 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315 288 307 185 294 315Jun 288 307 185 294 315
3% -22% 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245 219 264 156 238 245Jul 219 264 156 238 245
12% 10% 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270 235 219 160 240 270Aug 235 219 160 240 270
206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 206 203 180 234 Sep 206 203 180 234
238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 238 186 168 211 Oct 238 186 168 211 Oct 238 186 168 211 Oct
227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 227 143 157 215 Nov 227 143 157 215 Nov 227 143 157 215 Nov
214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 214 139 168 225 Dec 214 139 168 225
TransCore Canadian Spot Market Freight Index 2007-2011
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
TransCore
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Canadian
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Market
Change Y-O-Y
2007 2008 2009 2010 2011 % %
173 214 140 171 222
174 217 117 182 248
228 264 131 249 337
212 296 142 261 300
280 316 164 283 307
288 307 185 294 315
219 264 156 238 245
235 219 160 240 270
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Change Y-O-Y
2007 2008 2009 2010 2011 % %
30%
36% 12%
35% 36%
15% -11%
12%
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
Freight
Change Y-O-Y
2007 2008 2009 2010 2011 % %
206 203 180 234
238 186 168 211
227 143 157 215
214 139 168 225
TransCoreCanadianSpotMarketFreightIndex2007-2011
ChangeM-O-M
2007 2008 2009 2010 2011 % %
-2%
36% 12%
35% 36%
15% -11%
-22%
10%
2007-2011
Change 2007 2008 2009 2010 2011 % %
36% 12%
35% 36%
15% -11%
30 ct&l october 2011 www.ctl.ca
the bigger picture
Logisticians are facing the freight transportation version of the Bermuda Triangle, one which, if left unattended, has the potential to create
disastrous and inexplicable outcomes. That conclusion is from the authors of the latest Annual Study of Logistics and Transportation Trends.
“For the past two and a half years, companies have been simply reacting to what some economists and fi-nancial experts are calling the ‘new normal.’ The hall-mark of this new business environment is a sluggish economy that is forecasted to grow at an annual rate of just under 2%. To exacerbate matters, the new normal also has unpredictable and volatile change at both the demand and supply ends of the supply chain,” the re-port states.
The report also points out that after a dip in freight costs as a percent of revenue in 2008 and 2009, this percentage is on the rise. Shippers are being squeezed by sluggish growth and rising freight costs. The authors characterize a confluence of three factors facing ship-pers as a form of “Bermuda Triangle.” The Triangle “consists of (1) a lack of planning for the impact of rising fuel prices; (2) a rigid network that is incapable of flex-ing when uncertainty occurs; and (3) a myopic internal focus that limits the enterprises’ ability to achieve the desired performance results.”
The study asked respondents about the level of ma-turity for a variety of actions and initiatives aimed at improving operating efficiency. The top five most ma-ture actions are: (1) the use of core carriers, (2) the use of dedicated transportation, (3) carrier tracking, (4) load planning, and (5) shipment consolidation.
Perhaps even more revealing is that more than half of the 22 actions and initiatives presented to partici-pants had been completed for several years. The analy-sis showed that there is no predominant action or proj-ect that is being used or planned to improve transporta-tion efficiency.
When asked what primary action the company (or business unit) would take to offset the accompanying rise in transportation costs, the leading response was “no actions are currently planned.” This was followed – in rank order – by “increases will be passed along to the customer,” “improved load planning,” and “improved route planning.” The first two options will be unaccept-able to management at the “C” level who will expect a response that will deliver results.
The latter two actions, improved load and route planning, are execution oriented. While this level of ac-tion will produce results, it can be a short-term, sub-optimal approach. Improved route planning tied with network optimization/redesign is a way to offset a rise in transportation costs. It’s at this strategic level that a long-term, “best line of attack” can be formulated to avoid what appears to be unexplained mishaps in the Triangle.
At an operational level, cost-to-serve and energy (fuel) prices affect transportation choices. It’s not sur-prising, therefore, that supply chains use truckload (TL) as the principal mode for moving freight. The data for 2011 indicate that TL’s share of the transportation bud-get increased to 32.1% as compared to 27.2% for 2010.
The study indicates the top initiatives completed to date to improve supply chain flexibility include the use of multiple transportation modes to meet delivery schedules, the use of freight brokers for shipping needs, and the increased use of multiple transportation modes to meet delivery schedules. “These actions are tactical and operational. While they can be part of a larger plan to improve supply chain flexibility, they are not suffi-cient in and of themselves to achieve this goal,” says Con-way’s Tom Nightingale, vice-president of com-munications and chief marketing officer.
The study results indicate that there remains a meaningful planning gap between the firm and its key customers and suppliers. This gap results in a myopic, internal focus that limits the degree to which the firm engages its key supply chain partners in strategic initia-tives such as sales and operations planning (S&OP) and company-wide inventory reduction initiatives.
The authors conclude their study by saying that “avoiding the logistics and transportation Bermuda Triangle isn’t that difficult – it means separating folklore from reality. Successful navigation requires planning in advance of potential hazards and working with partners to maximize current efforts. Last, but not least, it in-volves future thinking in order to plot a course toward innovation. Those who accept the status quo may not be heard from in the years to come.”
The annual report is published by Mary C. Holcomb, associate professor at the University of Tennessee and Karl B. Manrodt, professor at Georgia Southern University, in partnership with Con-way, Ernst and Young, and Logistics Management. CT&L
Transportation’s Bermuda TriangleInnovation in supply chain practices disappearing due to
rising fuel prices, rigid networks and a myopic internal focus
Dan Goodwill, president of Dan Goodwill and Associateshas more than 20 years
of experience in
the logistics and
transportation industries in
both Canada and the US.
He has held executive
level positions in the
industry, including
president of Yellow
Transportation’s Canada
division, president of
Clarke Logistics, general
manager of the Railfast
division of TNT, and
vice-president of sales
and marketing at TNT
Overland Express.
Goodwill is currently
a consultant to
manufacturers and
distributors, helping
them improve their
transportation processes
and save millions of
dollars in freight spend.
He can be reached at
Running Canada to the USA...If you have LTL freight being shipped to the USA, it’s a great time to benefit from our excellent coverage, pricing and personalized service.
Our extensive terminal network, on both sides of the border is unique for a Canadian carrier. It puts us in direct control from pick-up to delivery, to over 20,000 cities and towns throughout the USA.
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