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THE MAGAZINE FOR DEMAND DRIVEN LOGISTICS
September 2009 • Vol. 29 • No. 9
INPRACTICE READER PROFILE Leading from the Center
INSIGHT 4 CHECKING IN
Dialing into truck tone. 12 SC PERSPECTIVES
Packaging solutions manufacturer MeadWestvaco, the country’s 10th- largest container exporter, sources $450 million in transportation globally. Chris Osen, vice president of supply management, oversees most of those decisions.
Measuring the costs of tracking.
26 3PL LINE
Defining the ideal Pacific Rim warehouse.
28 GREEN LANDSCAPE
INDEPTH Celebrating 90 Years of Ship By Truck When Firestone Tire and Rubber Company launched a cross-country convoy in 1919 to promote its Ship By Truck advertising crusade, no one could have known it would set in motion a transportation revolution that rolls to this day. Inbound Logistics turns back the clock to celebrate our country’s most influential trucking legacies. EXCLUSIVE RESEARCH 2009 Trucking Perspectives
Ensuring your carrier promotes supply chain value through sustainability.
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Our annual Motor Carrier Survey provides an in-depth look at the trucking sector. Motor carriers and Inbound Logistics readers address growth areas and obstacles.
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Spotting best-of-breed trucking partners that can meet your unique challenges and take your business down new roads of innovation and efficiency requires a great deal of due diligence. Want a shortcut? Our directory helps put your cargo in the right hands and your company in the driver’s seat.
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THE MAGAZINE FOR DEMAND DRIVEN LOGISTICS
WMS DIRECTORY page 109
September 2009 • Vol. 29 • No. 9
INDEPTH SITE SELECTION SUPPLEMENT Missouri: The Perfect Center
INFOCUS 6 10 TIPS
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21 GLOBAL LOGISTICS
For many shippers, the U.S. Customs and Border Protection’s Importer Security Filing mandate, commonly referred to as 10+2, adds up to nothing less than a whole lot of confusion. This resource of 10+2 experts is a good place to find a partner that can facilitate compliance.
Demand and strategy drive India’s retail trade…Mexican Customs gets a makeover…Wind energy picks up…China’s economy hits new high.
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Vol. 29, No. 9 September 2009 THE MAGAZINE FOR DEMAND-DRIVEN LOGISTICS www.inboundlogistics.com
STAFF
Keith G. Biondo publisher@inboundlogistics.com Felecia J. Stratton editor@inboundlogistics.com Joseph O’Reilly joseph@inboundlogistics.com Catherine Harden charden@inboundlogistics.com
PUBLISHER
by Keith Biondo | Publisher
EDITOR
SENIOR ASSOCIATE EDITOR
ASSOCIATE MANAGING EDITOR
Dialing Into Truck Tone Y ou pick up the phone and get a dial tone. You move to a keyboard and you have Web tone. Many of us take these amazing enablements for granted, rarely considering how they work, just expecting that they will–all the time, every time. We only consider their absence when and if they fail. But what about truck tone? Our profession is aware of the intricacies of truck transportation, but we expect it to always be there, in one form or another, in many flavors and specialties–solutions when and where we need them. Yet, not too long ago, commerce was conducted without the nationwide arterial product flow that trucks so seamlessly and, seemingly effortlessly, now provide. Imagine for a moment what was missing: the thousands of different carriers, the multitudes of good drivers, the miles of road, the complexity and abundance of equipment, and the ubiquity of technology threaded throughout. Trucks rarely moved beyond local hauling. There were no coast-to-coast lanes, no truckload carriers, no advanced level of technology, expertise, reliability, or speed. Can you see the parched hard clay? The deep ruts and rocks in the way? There were no up-to-the-moment weather reports to warn of muddy washouts, the slippery precipices from which there was no recovery. No lights, or food, or water at every turn. Transportation was difficult. But don’t take my word for it. Set your GPS to page 30, then thumb your way to this month’s feature arti- cle, Celebrating 90 Years of Ship by Truck . These tales illustrate the tough reality of conducting commerce in a landscape without truck tone. Thanks to one man’s spin and another’s turn, motor freight began rolling over ruts, then steamrolling across interstates. Tire baron Harvey Firestone’s 1918 Ship by Truck advertising campaign, and a brief encounter with 29-year-old Dwight D. Eisenhower one year later, sparked a vision. In 1956, President Eisenhower brought that idea home by legislating the U.S. Interstate Highway System. But he had some roadside assistance along the way. With hard backs and minds to match, truckers won with blood, sweat, and axle grease. We won, too. Where trucks rolled, roads developed and linked together into highways. Commerce and jobs followed. Enterprises grew and created futures for the skilled and unskilled alike. A nation flourished and helped drive pros- perity across the world. Today we face not potholes, ruts, or washouts made by Mother Nature; not breakdowns or fatigue; but impediments of another kind. These new obstacles are crafted by powerful people in high places who have an imperfect compre- hension of what it is we do in this industry. They don’t understand how every action you take is also a small act of stewardship for our economy. In the end, these new impediments won’t matter. As history shows us, there are plenty of strong backs and minds in our industry. The road to greater progress lies ahead. ■
CONTRIBUTING EDITORS
Merrill Douglas • Cindy Dubin • Robert Malone Amy Roach Partridge • Deborah Ruriani
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CREATIVE DIRECTOR
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Inbound Logistics supports sustainable best practices. Our mission is rooted in helping companies match demand to supply, eliminating waste from the supply chain. This magazine is printed on paper sourced from fast growth renewable timber.
Inbound Logistics welcomes comments and submissions. Contact us at 5 Penn Plaza, NY, NY 10001, (212) 629-1560, Fax (212) 629- 1565, e-mail: editorial@inboundlogistics.com. For advertising, reprint, or subscription information, call (212) 629-1560, or e-mail publisher@inboundlogistics.com. Inbound Logistics is distributed without cost to those qualified in North America. Interested readers must complete and return the qualification card published in this issue, or may subscribe online at www.inboundlogistics. com/free. Subscription price to others: in North America: $95 per year. Foreign subscriptions: $129. Single copy price: No. Amer. $10, foreign $12, back issues $15. Periodicals postage paid at New York, NY, and additional mailing offices.
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STEP-BY-STEP SOLUTIONS
by Deborah Catalano Ruriani
Getting Lean to Boost Warehouse Labor Performance
I mplementing lean principles through all facets of a warehouse operation is an effective, economi- cal way to boost labor performance. The relentless pursuit of eliminating waste transforms corporate culture, and builds a foundation for optimal performance from the warehouse floor to the cor- ner office. Tim Sroka, senior manager, lean operations for Menlo Worldwide Logistics, a third-party logistics pro- vider based in San Mateo, Calif., suggests 10 ways to encourage a shift in culture, and spark improvements in warehouse employee performance, morale, and engagement through lean principles. 1 Frequently recognize a job well done. Recognition and teamwork are critical elements of boosting ware- house labor performance. Recognizing employee efforts doesn’t require tro- phies or bonus checks. Small tokens from peers can make a difference. Some companies use card systems to instantly recognize any employee–from entry- level to leadership. Implementing a solid recognition program with incentive plans boosts morale and performance. 2 Make teamwork the rule. Create a cultural shift from the old-school, autocratic, top-down style to one that increases employee engagement
and creativity. Involve the people who perform day-to-day tasks in improving every process they touch in their work. In an atmosphere of open communica- tion, their talents and experience will lead to the best improvement ideas and they’ll feel a sense of pride and owner- ship in the new processes implemented. 3 Focus on continuous improvement utilizing “A3” thinking. Create a solid plan in A3 format–a one-page summary on legal-size paper that tells the story of a proposal or progress review at a glance. The plan motivates employ- ees to continuously review and improve existing processes, and maintains a spirit of teamwork and engagement. When everyone works together to eliminate waste and improve flow throughout the facility, the group can agilely respond to business changes as they arise. 4 Use lean tools, such as value stream mapping, to create a blueprint for improvement. Value stream mapping is the process of establishing a clear pic- ture of product and information flow. It depicts both current state and desired future state, in ways all team members can understand. The value stream map provides employees an overall view of all warehouse activities, allowing them to suggest improvements in other areas,
as well as their own. Display the map in the warehouse so that employees are able to reference improvements and bring the next steps to life. 5 Establish a visual management system. Installing prominent sta- tus-at-a-glance boards is critical to success and optimum warehouse employee performance. Just as a fan should be able to look up and quickly see the score at a ball game, an asso- ciate should be able to do the same to find out what’s happening on the ware- house floor. Clear and consistent signage makes it easier for employees to do their jobs and function effectively in all areas of the operation. One best practice is to position the status boards so that they are viewed and used in specific locations, such as Inbound or Outbound, close to the dock. The intent is to regularly track how the warehouse is doing without looking on a computer, then display the progress in “real time.” 6 Take the 5S path to workplace orga- nization. Following the 5S’s – sort, set in order, shine, standardize, and self-discipline–minimizes waste in time, motion, and travel. It also allows for the best possible utilization of available space. The 5S system means efficiency, because an employee who doesn’t have
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to go hunting for a tool has a better chance of finishing a job and identi- fying potential process improvements. Periodic facility-wide assessments ensure that 5S remains in place over time and attrition. 7 Level the workload. The best-run warehouse operations balance workloads for the most efficient use of each associate’s time and abili- ties. Continuous cross-training yields a nimble, flexible staff with solid morale and the ability to quickly respond to changing business needs. Each manager should maintain an updated cross-train- ing matrix to monitor the progress of the team and their evolving skill sets. 8 Implement standardized work. Developing detailed and illustrated standard operating procedures
(SOPs) and standard work instructions (SWIs) for every job is a crucial step toward the quality goal of repeatable processes. With SOPs and SWIs in hand, new employees walk onto the floor with specific reference material to con- sult. This results in a shallower learning curve, and makes it easier for managers to monitor and assess performance. 9 Build quality into processes. Accurate quality measurement systems estab- lish quantitative baselines and enable the organization to monitor the current status at all times. When a vari- ance or mistake occurs, the team focuses on the process, not the person involved. Utilize a “Five Why’s” investigation, where team members ask “why?” not once, but at least five times. For example, if a forklift knocks off a sprinkler head, you don’t simply ask why it happened,
but why the forklift was so high, why it was in that location, why the sprin- kler head was placed there, and so on. Drilling down to root causes allows the team to collaboratively rebuild the pro- cess to prevent recurrence. 10 Aim for a just-in-time (JIT) strategy. Just-in-time warehouse management strives to eliminate the waiting, storing, and unnecessary movement of product, materials, or information. The goal is to establish as close to continuous flow as possible without constant movement and the need for intermediate steps. Stagnation in the movement of parts, people, process, or communication within the warehouse – for example, an e-mail that sits in someone’s in-box for three days–interrupts proper flow and can lead to process errors. ■
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R E A D E R PROFILE
by Merrill Douglas
Leading From the Center
P ick up a frozen pizza, moisturizer, or weekly planner, and you may well be holding a product from MeadWestvaco (MWV). Formed in 2002 by the merger of the Mead Company and Westvaco Corp., MWV provides packaging solutions for leading brands in health care, personal care, food and bever- age, media and entertainment, and many other industries. It also produces consumer and office products and specialty chemicals. Since the merger, this diverse, global com- pany has been centralizing its supply chain management. Chris Osen leads the team that
works from the center to create greater value for MWV’s business units and for customers around the world. As vice president of supply management, Osen is responsible for several broad areas. One team handles the company’s logistics execu- tion, moving an impressive volume of cargo. “MeadWestvaco is the 10th-largest container exporter in the United States,” says Osen. A second piece of Osen’s job involves crafting deals with the carriers moving that volume. “I source $450 million in transportation globally,” he says. Osen also oversees a strategic outsourcing team that decides which products MWV will manufacture itself and which it can source more effectively elsewhere. He runs Supply Chain Solutions, a consulting organization that helps MWV’s facilities around the globe improve their supply chain processes, and he manages
The Big Questions
What do you do when you’re not at work?
My twin boys are in their senior year of high school, so I try to devote as much time to them as I can. We especially like to play golf and travel. I recently took a “Diners, Drive- ins, and Dives” vacation with one son. Ideal dinner companion? My dad, who passed away 14 years ago. He’s the one who gave me my values. I’d want to have dinner with him and say thanks. Business philosophy? To surround myself with people who are smarter than I am. Then if we can’t add value, we need to quit. If you didn’t work in supply chain management, what would be your dream job? I would own a corner bar like “Cheers,” where I knew everybody in the place.
THE WHOLE PACKAGE
NAME: Chris Osen TITLE: Vice president of supply management, since 2002 COMPANY: MeadWestvaco, Glen Allen, Va.
PREVIOUS EXPERIENCE: Soil scientist, International Paper; regional MRO purchasing director, Scott Paper; purchasing manager, Simpson Paper; acquisition system manager, SAP implementation leader for logistics and procurement, vice president of logistics, MeadWestvaco. EDUCATION: BS, wildlife management, Southwest Missouri State University, 1983; MBA, University of West Florida, 1991.
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a supplier quality and development program. MWV’s roots reach back many years, and it inherited a traditional cul- ture from the pre-merger companies. “Introducing new and innovative ways to manage the supply chain is a chal- lenge,” Osen says. In particular, getting individual locations to cede control to a central supply organization has been difficult. But each time a successful initiative proves the value of an enter- prise-wide supply chain, more people sit up and listen. Case in point: In the past, different business units sourced and transported
products from Asia independently. Today, a third-party logistics provider in Asia consolidates some of those shipments, increasing transportation efficiency. “Without the visibility of a central orga- nization, we never would have seen that opportunity,” Osen says. The centralized approach also helped MWV last year, when a shortage of out- bound containers plagued the East Coast. Because of the volume that the corporation commands as a whole and the long-term relationships that MWV maintains with ocean carriers, the com- pany was able to get the containers it needed to satisfy customers.
Managing from the center is far from easy, given the diverse delivery demands that customers place on MWV, such as 15-minute delivery windows and 8,000- mile moves in one or two days. MWV seeks to combine shipments and processes, but only when that’s the best solution. “We commonize as much as we can,” Osen says. “We specialize where it’s needed.” Striking the balance between stan- dardized practices and unique services, the supply management group contin- ues to find ways to contribute to MWV’s success. “We’re all about bringing value to the company,” Osen says. ■
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SCPERSPECTIVES BY ROBERT A. MALONE Contributing Editor, Inbound Logistics RMalone@inboundlogistics.com
The Costly Art of Tracking The success of a supply chain can be measured by how its activities are monitored and tracked. But is all this data worth the cost?
O n Aug. 4, 2009, Astronaut Heidimarie Stefanyshyn-Piper’s $100,000 NASA tool bag dropped out of its heavenly orbit and into the Pacific Ocean. The 30-pound bag, filled with grease guns, trash bags, and a scraper tool, was detected not from a locating signal in the bag, but by sight. Clearly, Boeing’s contract with NASA does not provide for an RFID-based tracking system that helps locate tools in a work or liftoff area.
products it sells display their carbon content. More than 100,000 Walmart suppliers, most of whom are still play- ing catch-up on RFID, now have to start accounting for carbon. Such eco-labeling might well be a good thing. But the cost of creating and maintaining such a comprehen- sive system becomes an essential factor in its success. That cost also will vary depending on the type of product–a pair of jeans is nowhere as complex in carbon accounting as a high-defini- tion, wide-screen TV. It remains to be seen if there’s a synergy between RFID compliance and carbon compliance. THE PRICE OF VISIBILITY According to a recent survey by IBM, supply chain visibility was the top concern of 400 executives in 25 countries. Despite that concern, how- ever, the majority of executives said they would not make visibility high priority for one simple reason: the cost of the data. Having 300,000 facts or 30 mil- lion facts as part of a tracking process is almost like having no informa- tion at all. To process and understand volumes of data is not only time-con- suming, it demands highly intelligent analysis. Not to mention the cost, which will be like a deer fly persis- tently biting your neck. That bad? Probably worse. ■
once-dominant specters: The U.S. Department of Defense (DoD) and Walmart. Their mandates, we assume, have been efforts to better track and inventory a wealth of goods from a multitude of suppliers at a host of dis- tribution centers and warehouses. The DoD claims good results from its RFID mandates with large, “prime rib” contractors, all of whom are, for the most part, delivering expensive products or materials. These suppliers appear to be able to afford the cost. Walmart, on the other hand, appears to have succeeded with large customers such as Procter & Gamble, but failed with a large share of small suppliers who can’t cough up the nec- essary investment to provide both active and passive RFID tags, along with all the software, planning, exe- cution, and maintenance such an effort requires. To add confusion to mystifica- tion, Walmart has developed another mandate: the requirement that the
In another instance, the recently “lost” Arctic Sea – a merchant vessel cargo ship that was reported as miss- ing between late July and mid-August 2009– has been found, but details surrounding its two-week disappear- ance are sketchy. The ship, which was headed for Algeria, emitted its last automatic tracking system signal on July 30. But an automatic tracking system is only useful when operating. The Russian Navy searched for the ves- sel while reporting that it was attacked twice by pirates who may have been seeking ransom for the crew. Isn’t it odd that we can spot a two- foot by two-foot bag dropping from space, but take more than two weeks to find a ship hundreds of feet long in the Atlantic Ocean? Not all supply chain tracking is as esoteric as these two examples. But using RFID to track activity within the supply chain can be sticky. Any examination of the use of RFID in the supply chain reveals those two
12 Inbound Logistics • September 2009
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W ith the global economic downturn and plummeting volumes, all courier and package delivery organizations are under mounting pressure to ensure opera- tional efficiency and reduce costs. Reports of double digit percentage volume reductions year on year and job losses are becoming alarmingly commonplace. In these challenging economic times, Purolator Courier Ltd. (Purolator), Canada’s largest courier company is a beacon of hope and has attained impressive efficiency improve- ments and substantial cost savings through applied operations research. It has Canada’s most extensive national network and support- ing infrastructure, and employs more than 12,500 people. Purolator handles 275 million packages annually. After building a new state-of-the-art automated hub sorting facility in Montreal, Purolator focused on the inbound logistics as an area that could achieve efficiency improve- ments. With over 80,000 conveyable packages processed daily in the Montreal hub, it was important that the inbound volumes were planned at appropriate levels throughout the shift. The new automated Montreal Hub was the enabler that allowed the inbound and out- bound networks to be redesigned through added capacity and streamlining sorting. Purolator’s Network Design Team, with a network optimization tool from Jeppesen, were the enablers that allowed the operational stakeholders to fulfill an efficient new network design by providing alternatives based on cost, service and sustainability. Richard Weiner, Senior Manager of Network Engineering at Purolator, wanted a better match between route schedules and hub operations: “We needed to see the effects of optimizing vehicle routes and crew sched- ules in concert with providing a designed hub inward sorting profile. We weren’t just look- ing for cost savings in the inbound network;
we needed to ensure the new Montreal Hub received freight the way they could process it the best. To do this, we needed to approach the project with a comprehensive change man- agement and stakeholder engagement plan.” The Montreal project had a Lean Six Sigma business process goal to keep the sorting vol- umes steady throughout the hub to improve productivity and reduce the costs of the cus- tomer bulk pick up network. Purolator also wanted enhanced visibility of the network.
would accurately model our operations. We ultimately selected PlanOp–a cutting edge distribution and logistics modeling tool produced by Jeppesen. The software is com- prehensive and is backed up by a whole team of expert consultants who really understand freight pick up and delivery operations, and optimization”. Using PlanOp, Purolator created a baseline of the Montreal operations. Data collection for the creation of the baseline was one of the key
Using Jeppesen’s network optimization tool, Purolator optimized existing baseline routes and improved driver shift and vehicle schedules.
To enable Purolator to meet its project goals, they realized that they had to find a new net- work modeling software solution. Previous attempts to model and optimize vehicle routes, crew schedules and hub operations had deliv- ered unacceptable results that were not readily transferrable to operations. Richard Weiner describes the search: “We hunted extensively for a software solution that provided accurate modeling, scenario planning, and ‘what if’ analysis. As our dis- tribution network is large and complex, we needed to be certain that the solution selected
challenges and the most time and labour inten- sive aspect of the project. It involved gathering data from the existing Purolator Montreal routes and placing it into PlanOp to get a clear picture of the current costs. The Network Engineering team worked closely with their Operations colleagues and Jeppesen’s PlanOp consultants to refine and perfect the baseline. It was critical that the baseline was an accu- rate reflection of the Montreal bulk customer pick up operations for a number of reasons. The baseline enabled Purolator to measure savings and compare costs once the network
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Using Jeppesen’s network optimization tool, Purolator optimized existing baseline routes and improved driver shifts and vehicle schedules.
was optimized. Also, any error in the baseline data would more than likely have meant the solutions PlanOp obtained would have been useless because the vehicle tours could not have been run in real life. The challenging job of accurately representing current operations gave a solid foundation and enabled the team to confidently enter the optimization phase of the project. Purolator optimized their existing base- line routes and obtained new and improved driver shifts and vehicle schedules. The size of the problem space was large with over 700 shipments to be carried and over 500 loca- tions in the model. This, coupled with many other constraints on the network such as vari- able load and unload rules at locations and peak-hour travel time overrides, made the optimization problem very complex. Two of PlanOp’s optimization engines were used on the model. The Vehicle Routing Optimizer was used initially to create new lower-cost vehicle tours using its Metaheuristic opti- mization engine. The Metaheuristic engine proved very effective at eliminating inefficient vehicle tours in the model while minimiz- ing vehicle kilometers at the same time. The Vehicle Crew Schedule Optimizer was then used to create efficient driver shifts from the vehicle routes and minimize the number of vehicles necessary to run all the tours. At the end of the optimization process an efficient set of vehicle and crew schedules were ready to be tested in the real world. Purolator recognized that a strong net- work plan would not be enough to meet its goals and that carefully managed stakeholder engagement and change management needed to occur. The Network Engineering team fre- quently met with their Operations colleagues receiving feedback on the scenarios to model, measure and compare. Operations were initially skeptical of the new plan and concerned about the accuracy of the new vehicle routes, since the Network Engineering team had used PlanOp to do a clean slate route overhaul. Montreal Operations went out on-road and tested almost 80% of the new routes and all of them
passed with 100% accuracy. PlanOp had the detail to answer all questions with facts and allay any concerns. “This is an amazing case of theory meet- ing reality. Our team has earned total buy-in from our Operations colleagues and from other parts of the organization on our ideas to improve efficiency. PlanOp provides an unbiased analytical set of figures as our orga-
continuous shift with the labour force, achieve a steady package flow, and fully leverage the investment in the automated hub, which has fulfilled project goals. Purolator will achieve annual savings in excess of C$800,000/US$733,000 attrib- uted to the inbound network. It was also able to reduce its power equipment needs as PlanOp allowed Purolator to model situations where a tractor can swap trailers. Purolator’s product shipments are either in the form of an actual trailer with a partial or full load on or just the portion of product to be carried in skids or pieces. Through the use of a sophis- ticated cost function it is possible to model both these types of shipments in PlanOp. The Vehicle Routing Optimizer capitalized on this flexible modeling structure and was able to intelligently place trailer exchanges in tours to minimize non-productive time and distance during the trailer swaps. Purolator was able to remove power equipment assets from the oper- ation, redeploying to other operational areas. Jeppesen consultant Graham Prickett explains: “The Purolator Montreal project is an excellent example of the paradigm, ‘model conservatively but optimize aggressively’. Richard Weiner and his team modeled the Montreal network with its implementation in mind and were able to achieve accurate routes that are able to be run in real life”. Richard Weiner concludes, “We are immensely proud of our achievement with the recent optimization and remodeling of the Montreal inbound network. All of our project goals have been achieved or exceeded. Acceptance from our employees was attained, and the operation is running more effec- tively than ever, and we have reduced costs by over $800,000 while maintaining a qual- ity service.” For further information, please contact Richard Weiner at Purolator (rweiner@purolator.com).
nization considers the implications of different scenarios as opposed to intuition and gut feel- ing about what’s better”. Following the vehicle route testing, Operations accepted the new plan. The plan was then reviewed with the employee groups to gain support. Results were then shared with directors and senior management. RESULTS The scenario selected has changed the inward hub sorting profile of the Montreal hub operations. The new plan ensures that enough volume reaches the hub before 8pm for better productivity and capacity utiliza- tion. For many years there was a 30 minute break from 7.30pm–8pm. The break was not conducive to the new automated hub due to start up and shut down times. Filling the 30 minute void has helped Purolator work out a Purolator handles 275 million packages annually, serving 210 countries worldwide.
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H ormel Foods is adding a little zing to its U.S. product offering thanks to a joint venture with Herdez Del Fuerte, a Mexico City-based manufacturer and marketer of consumer-branded food and beverages. Together, they are launching a new brand, MegaMex Foods, to market Mexican foods in the United States. The Spicy Side of Supply Chain Integration
by Joseph O’Reilly
MegaMex Foods, which is expected to debut in the fall of 2009, combines the indigenous Mexican food products and brands of Herdez Del Fuerte with the man- ufacturing and distribution clout of Hormel, the Austin, Minn., manufacturer and mar- keter of high-quality, brand name food and meat products such as Spam.
In order to provide focus to the business, MegaMex Foods will be a free-standing entity with an independent management team based in Chino, Calif. The venture is looking to optimize efficiencies by aggregat- ing competencies such as manufacturing, research and development, and supply chain across both parent companies.
September 2009 • Inbound Logistics 15
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Mexico/U.S. Customs and Food and Drug Administration clearance. Putting together a plan that ensures both par- ties are familiar with proper procedures necessary to move a “clean” import is absolutely critical. The extremely punitive penalties resulting from non- compliance make this an area for zero tolerance when it comes to communi- cation issues. IL: What best practices is Hormel sharing? MARCONI: One example of a best prac- tice that Hormel and ASF will be sharing is working together to determine the best process for communicating a sales fore- cast and production plan to the Herdez Del Fuerte planners in Mexico. Prior to the merging of the supply chains, ASF communicated its needs to Herdez Del Fuerte differently than Hormel Foods communicated theirs. The integration is giving us the opportunity to review each compa- ny’s different processes and determine what worked and what didn’t work. We are using this knowledge to develop a new process for improving our communication.
To get a better feel for the behind-the- scenes supply chain integration, Inbound Logistics posed some questions about the new initiative to Luis G. Marconi, joint venture manager and senior prod- uct marketing manager, and Thomas A. Klein, manager of logistics and customer service, Hormel Foods. IL: Will you integrate the two companies’ supply chains? MARCONI: Yes, we will merge the supply chains previously operated by Herdez Del Fuerte and its subsidiary, Authentic Specialty Foods (ASF), with the supply chain operated by Hormel and Herdez Del Fuerte. Our objective is to integrate ASF’s distribution center into the Hormel supply chain. This DC will be supported by Hormel’s warehouse control system as well as its order, logistics, and trans- portation systems. An integration team comprised of members from ASF, Herdez Del Fuerte, and Hormel was assembled to ensure that supply chain integration occurs on time and with minimal disruption. This team is charged with developing best practices for all supply chain func- tions and determining which current
practices will work best to support the new organization. IL: What are the logistics hurdles in launching a new product line? KLEIN: We really aren’t launching a new product line; we are building a better international supply chain by merging the independent pipelines operated by ASF/Del Fuerte and Herdez/ Hormel. The new supply chain will be able to leverage the resulting MegaMex sales volumes with the national scale of the Hormel supply chain to provide cost efficiencies as well as increased service capabilities. IL: Does this cross-border alliance create any other special challenges? KLEIN: Good communication is key to ensuring that both companies are aware of each other’s business needs. You can never assume that the Mexican part- ner knows what the U.S. business needs. Good, open communication allows both companies to be alert to potential issues and work together to solve prob- lems and take advantage of new growth opportunities. One specific area that requires good communication is supporting proper
Sea Change in Florida Port Security
P iloting a new precedent for securing U.S. ports, Port Everglades, the Port of Miami, and the Port of Palm Beach recently signed a memorandum of understanding to begin sharing information and accepting one background check for entry into all three seaports. Under the agreement, port workers and truck drivers now need only one Florida criminal background check instead
has a different access system, we have agreed to share a database verifying that an individual has passed a state- mandated background check and is eligible for port access according to state security standards,” says Manuel Almira, port director for the Port of Palm Beach. While the Florida Legislature recently amended the state’s seaport security laws to establish a statewide
of multiple, duplicate checks to work at the three South Florida seaports—eliminating cost, time, and paperwork. Prior to this agreement, workers
port access eligibility reporting system that will allow for access to all Florida’s public seaports with a single background check, implementation of that system will take a few months. This reciprocity agreement will provide some relief to South Florida port workers until the system is in place.
had to pay for and complete a separate Florida criminal
background check to gain entry at each seaport. Now, those who have a current and valid credential from any of the three facilities can obtain an access card to each port with the same background check. “Even though each of our ports
Port Everglades is among three Florida seaports that will benefit from shared security and background checks.
16 Inbound Logistics • September 2009
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©2009 Ryder System, Inc. All rights reserved.
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T&L M&A Contraction M erger and acquisition move- ment in the transportation and logistics (T&L) sector has plunged with the economy, according to PricewaterhouseCoopers’ recent Q2 2009 M&A analysis. At the current rate, the 31 deals announced thus far in 2009 with a value of $4.5 billion, places M&A activ- ity 67 percent below 2008 figures–when 189 deals were announced with a total value of $96 billion. While global deal activity reflects the current state of the economy, the impor- tance of BRIC (Brazil, Russia, India and China) countries, particularly China and Russia, to the T&L deal market is increas- ing. During the first half of 2009, BRIC acquirers and targets accounted for 20 percent and 26 percent of the deals in the sector, respectively. This is up from 15 percent and 18 percent in 2008. Additionally, Asia and Oceania con- tributed to the majority of transactions greater than $50 million at 39 percent, and accounted for approximately one- third of deals greater than $50 million. “Given the current state of the econ- omy and difficult access to capital, it is not unexpected that the volume and value of deal activity in the transpor- tation and logistics sector has dropped in the first half of 2009 in compari- son to 2008,” says Kenneth Evans, U.S. transportation and logistics leader for PricewaterhouseCoopers. “The BRIC nations, however, continue to show promise and growth.” Interest in transportation and logistics targets has shifted among modes during 2009 compared with 2008. In particular, the relative interest in passenger air and trucking targets has increased signifi- cantly. Passenger air targets accounted for 30 percent of all deals in the first half of the year, up from 17 percent in 2008. Trucking targets also saw an increase, ris- ing to 12 percent in the first half of the year from only five percent in 2008. ■
F UP THE CHAIN PEOPLE ON THE MOVE
Innovation Fuels , a New York-based renewable energy company that manufactures, markets, and distributes second-generation biodiesel fuel, has named Paul Niznik as vice president of strategic opera- tions, managing its New England market. He will be responsible for spearheading the development of the company’s New Haven terminal,
which will feature barge, truck, vessel, and rail access to heated storage for 1.2 million gallons of biodiesel fuel. Niznik joins Innovation Fuels after leading a biofuels research and consulting company and developing new biofuels for heating applications. Q Justin Gilpin has been named chief executive officer of Kansas Wheat , a cooperative venture between the Kansas Wheat Commission and Kansas Association of Wheat Growers. A 10-year industry veteran, Gilpin served as the association’s marketing specialist from 2000 to 2006, then began working at General Mills, where he coordinated logistics for three flour mills. Q B&G Foods , a manu- facturer and distributor of high-quality, shelf-stable foods, has hired William F. Herbes as executive vice president of operations. He will assume responsibility for the company’s supply chain functions, including all logistics, purchasing, planning, and co-packer manufacturing. Herbes comes to B&G with 24 years of experience in operations and supply chain management at Warner Lambert and its successor companies, Pfizer and Cadbury Schweppes.
18 Inbound Logistics • September 2009
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GLOBAL LOGISTICS by Joseph O’Reilly
Demand and Strategy Drive India’s Retail Trade
I ndia’s retail industry is enjoying boom times as its economy continues to develop. As the country’s second-largest employer after agriculture, retail is estimated to reach US $590 billion in the next two years, growing at a 13-percent clip between 2007 and 2012. India’s consumer reckoning is largely a result of changing social behavior and market dynamics, as well as freer access to capital. This trend will sustain further growth in the retail and logistics sectors as overseas brands penetrate the country’s expanding middle class and domestic vendors ramp up their own efforts to capture demand.
and incursion, India’s domestic retailers are leveraging this competition and economic pressures to reduce costs and stir their own interests. Leading players such as the Future Group, Aditya Birla Retail, Spencer’s, and Reliance Retail are pooling supply chain resources to streamline back-end costs. The retail- ers have formed a coalition to align sourcing operations and rationalize private labels, logistics, warehouses, and hir- ing details on a transactional payment basis to share markets and cut costs.
Given the lingering impact of a global reces- sion, India’s retailers are hoping to improve operating margins by sharing back-end resources. One tactic is exploring opportunities where they can pig- gyback on peer assets while using their own for others; selling other retailers’ power brands, but not nec- essarily competing store brands; and using alternate sales channels to liq- uidate inventory. Such collaboration marks a watershed change in how Indian companies capitalize on supply chain management to empower the enter- prise. On average, supply chain costs account for 12 to 50 percent across product categories.
Already, the country has become fertile ground for both domestic and foreign business. The gov- ernment currently limits foreign direct investment in the retail trade to single-brand product retail- ers such as Nike, Sony, and Marks & Spencer–all of whom have made their presence felt. Multi-brand sellers, banned from direct investment but allowed to operate in a wholesale capac- ity, are also making an impression. Australia’s Woolworths, for exam- ple, has partnered with Infiniti Retail, owned by Indian industrial conglom- erate Tata Sons. Walmart, too, has had a successful entry with its wholesale cash-and-carry stores. Not to be outdone by foreign dollars
India’s retail environment is thriving as domestic consumerism attracts foreign direct investment and encourages home-grown businesses to embrace collaborative logistics strategies.
September 2009 • Inbound Logistics 21
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