Roller Coasters And Conveyor Belts

The Economy Rides Forward on Supply Chain's Rails

23 July, 2019 // What drives an economic expansion? Low interest rates, maybe, tech innovation or pro-business government policies?

Think again, says author and former hedge fund manager Andy Kessler in a recent Wall Street Journal column (tiered subscription access). He argues that the long boom cycles of recent years are actually driven by logistics. 

In the past, Kessler says, inventory cycles defined the roller coaster ride of economic cycles: “The expansion starts, consumers buy, investment and hiring ramp up, wages and prices rise, inflation emerges, consumers buy ahead of price increases, investment peaks, inventories build, consumers are tapped out, recession starts, inventories are drawn down, and layoffs begin,” he writes.

Using that logic, expansion and recession are the result of poor synchronization between supply and demand. And, just-in-time supply chain planning has been the force that better aligns buying. Instead of huge pendulum swings in business, we all benefit from the real-time fine tuning that supply chain managers do every day.

At Morgan, we have seen the value that comes from better information and execution. But, we agree with Kessler that there’s still massive inefficiency—and opportunity for supply chain transformation.  He cites digital transactions, bar coding and supply chain management as important innovations that led to better execution. Yet, he writes, “Here’s the dirty little secret: Enterprise software from Oracle and SAP and just about everyone else is notoriously hard to use, nasty to implement and a royal pain to maintain.”

There’s an even bigger problem: Even when these systems are set up and used properly, they don’t come close to providing a full or accurate picture of what’s actually happening at all your warehouses, factories and carriers around the world. 

In our practice, we have seen otherwise world-class manufacturing clients mis-measure how long goods sit at a warehouse or overestimate the effectiveness of their transit procurement. They distort inventory flows at quarter end periods—drawing levels below sustainable levels before the reporting deadline and expediting shipments only to bloat goods on hand again at the beginning of the next quarter.

So, if supply chains have transformed economics over the past few decades, it’s time to redefine transformation and redesign supply chains so that they resemble conveyor belts more than roller coasters. 

Our practice is focused on that effort. Morgan has developed a technology platform to sniff out data and efficiency gaps. Our transformation team uses that information to redesigns supply chain processes from the ground up--with stronger transportation backbones. And, our first-of-its-kind Inventory On Demand service helps solve the push-pull of carrying inventory through outsourced ownership.

If you want to trade your supply chain roller coaster for the steady efficiency of a conveyor belt, let us know. Thrill rides can be a rush, but the biggest thrill of all is discovering the enterprise-transforming power of better supply chains.

 


 

While You Were Shipping…

More Recent Stories You May Have Missed That Caught Our Eye

It’s Tough To Keep Good Drivers (Commercial Carrier Journal). Despite a softening transportation market, driver turnover continues to rise at both large and small trucking companies. CCJ reports on American Trucking Association stats that show 83 percent turnover at employers with more than $30 million in annual revenue, up six points from the same period last year. Small truckers held steady at 73 percent turnover.

Drive-in Recruiting (Wall Street Journal; tiered subscription access). In a tight labor market, creative HR managers have begun looking in their parking lots for new drivers and warehouse workers. Using geo-location, the recruiters are micro-marketing online ads to the areas around their facilities. Money quote from Melissa Phillips of EmployBridge, a staffing company: “If somebody is going to sit in their car for 30 minutes before their shift…and watch YouTube, I want them to watch our ads in the preroll.”

Manufacturers ‘Rebalance’ Their China Strategies (Sourcing Journal; limited free access). As tariffs begin to bite, OEMs are building long-term strategies to spread production to more Asian countries. Yvonne Lau, Senior Vice President for Corporate Development at Hong Kong-based supply chain management company Li & Fung, says China won’t be as much of a mass production country in the future. “I think China will become a product development country,” she says.

Where, Oh Warehouse? (Journal of Commerce; limited free access) Torrid demand has driven warehouse rents  up at least 25 percent since 2010 according to the real estate firm Jones Lang Lasalle. Now, at least the rate of rent increases appears to be slowing. Warehouses near large seaport cities such as Long Beach, Oakland and New Jersey remain the tightest, along with facilities in the South.