Joe’s Corner Blog

Joe’s Corner Blog
August 9, 2008

It’s been a long time since I posted my last article and I do apologize to the almost 6,000 Joe’s Corner monthly. I am most gratified and thankful to all those that do find some value in what I’ve been able to deliver, and that it may be somewhat useful from professional and personal perspective.

Our daughter Laure is an RN and has worked in the spinal care injury department of Shriners Hospital, Philadelphia, for over 20 years. She will graduate, summa cum laude, with her BS in Nursing, later this summer. Laure is a very special person, one has to be, to care for paraplegics and quadriplegics, who need exceptional and specialized treatment. She began working on her BS after her children were in junior high and she attended night and weekend classes. We are so proud of her and hold her up as a model of what can be accomplished through perseverance and the willingness to sacrifice to achieve a goal. Laure is now in the Shriners spinal cord research department and planning on starting her Masters program.

A requirement of her last class was to write a spiritual legacy, i.e. what did she want to leave behind for her children and special people in her life that had nothing to do with anything material. Laure said that it was one of the most difficult assignments that she was ever asked to complete, in a class that had nothing to do with nursing! She thought long and hard about what was important to her and what of herself she wanted to leave behind that could make a difference in the life of someone she loved.

When Laure shared this with me, it was the inspiration I was looking to write this article. I’ve been contemplating what to share with you that was unique and what you all could use to shape your individual strategies, both personally and professionally. I put myself in Laure’s place and asked “what’s my professional legacy?” What do I want to be remembered for that might make some small difference? I remembered the story of
a couple walking in the sand and the man reached down and picked up a sea urchin that was stranded on the beach, throwing it back into the sea. His friend asked what was the point as there were hundreds that were in the same situation with only the tide to hope for, but that death was ultimately their fate. He responded that throwing one back made a difference, to that one in particular, and for that it was worth the effort.

So in our individual professional legacy, we don’t have to try to identify the problems and solutions that will have dramatic effects. We can leave behind a story of one relatively small solution that contributed to the success of a team that had been hit with a particularly difficult challenge. We can think about the kindness of contacting an old friend who had hit hard times and was without a job and helping that person network.

Our professional legacy could be that we listened and remained non judgmental. That we cared for others rather than having others care for us. That we negotiated fairly, looking for each side to come away with a win and could find satisfaction in knowing that fair play ruled the day.

There is no final summation of what your professional legacy should include as it is profoundly personal. It’s really about what example you will leave behind with those who love you, personally and professionally. Yep, love is a powerful expression and be sure to let those you love know your feelings as part of your contemporary legacy.

Till next time, and I promise it won’t take a month, joe

“Thinking about tomorrow” is an article that appeard in the WSJ on July 7th, 2008. It was written by Professor Chaman Jain of St. John’s U and Mark Covas, global innovations diamond manager at P&G.

They first make the case for improved forecasting by speaking to the current business challenges; “customers are less loyal, and global competition more fierce, making it difficult to predict where sales are going: Products, sales and distribution channels all have proliferated, and the life spans of products have gotten shorter.”

Let me try to summarize, however they can be reached at reports@wsj.com for the complete article.

The core message is that it takes a village, ( who said that?) or how about collaboration to be successful. Collaboration between buyers, sellers, suppliers, i.e. all the players in a business relationship. It also means collaboration among company functions/departments, to include sales, marketing, supply chain management, finance, manufacturing, etc. I would also add that the how a company is organized can contribute to or work against collaboration.

The authors also speak to the need for senior management support to provide the necessary resources and that mutual benefits have to be understood, with clearly defined goals and agreements. Of course, improved forecasting can’t be accomplished with out the best technology, and the great strides can be made by sharing benefits with trading partners.

Linking incentives to company wide goals is an experience I had with a company that tied annual increases bonuses to company EPS, Sales, etc. This certainly ensured that we all worked at making the company successful as it meant that we would be financially rewarded.

Well written and certainly the article makes cogent points and recommendations. What I would add is the importance of making collaborative business practices part of the company culture. Changes in managment result in a penchant for revamping business strategies. I have seen companies that embraced CPFR, realized success, then take their eye off the ball by hooking up with the hottest new business practice, consequently reorganizing, changing successful processes, etc.

I’d also add that training is critical to success. Developing a training program that includes the importance key crossfunctional practicses, e.g. sales and operations planning is essential to sustained success. Making training a management objective is absolutely essential if companies expect to sustain a collaborative, cross organizational program that delivers ongoing results. When times get tough, personnel changes are made and new incumbents are expected to hit the ground running. It just doesn’t work that way.

This is a well written article by Dr. Jain and Mr. Covas, which should be taken seriously by every business person and academic. Congratulations and thanks for your contribution to helping companies increase sales through an effective and efficient supply chain.

“China’s Export Machine Threatened by Rising Costs”

My how rapidly changes are taking place in China, especially with inexpensive goods, such as toys, household goods, shoes and clothes. The cost of oil certainly has had an impact on the cost of transportation and warehousing. The Chinese government has taken steps to protect workers and the environment. “This year the government implemented a labor law that capped factory overtime, limited temporary employment and raised the minimum working age two years, to 18. China has tightened its environmental oversight, which means dyeing companies must now pay to dispose of the chemicals they use, instead of dumping them into the creeks.

The exchange rate with the US dollar has contributed to the plunge in profits, e.g. items like wool cardigans where profit margins for Chinese manufacturers have collapsed to about $.30 from $2.00 a few years ago.

According to my sources, very similar conditions and consequences are playing out in other parts, to include India. It’s no longer about having the lowest labor costs, but in order to be competitive the entire value chain must be effective, i.e. from source to final destination.

While there are those companies that focus on supply chain efficiency and effectiveness by utilizing proven tools such as Electronic Data Interchange and solid communication and business practices, there are a myriad of those that do not. There are numerous opportunities for trading partners to work toward lowest landed costs, providing management with speed to market and visibility, but are mired in old ways of doing business.

Here are examples of just a couple of VICS initiatives that will contribute to improvements, keeping in mind that there are many more. The redesign of finished goods packaging and dunnage is underway with great opportunities to reduce the cost of logistics on one hand, while being more environmentally friendly on the other. Another is Distribution Center Bypass! One must question why products destined for retail must follow conventional distribution patterns and move from the port of entry to the supplier’s distribution center and then be ultimately shipped to the retailer’s distribution center. The potential to reduce miles traveled, fuel, wear and tear on a deteriorating national highway network, handling, etc, etc. is enormous.

Reasonable labor rates are but one part of the lowest landed cost equation. Putting together all of the pieces that place the product: right time, right place, right price, is doable, but first there must be a case for action. My friends, the time is ripe, the case for action is strong and the solutions are available. Let’s have at it as every dollar (or whatever domination) that is spent for inefficiency results in higher prices, which result in lower consumer spend, which impacts the economy. We can do it!!

Good morning;

This article was in the Wall Street Journal, June 27th, 2008.

Previously we have written about companies who are not cutting back during this difficult economic period, but who are moving forward with plans to take advantage of the rebound when it happens.

“Valentino, Gucci and Burberry have spent millions of euros to overhaul their supply chains in the last few years. Now they are banking on the unglamourous side of their business–logistics–to shore them up as the global economic slump threatens the luxury-goods industry”

They had relied on outdated technology systems, which caused them to regularly miss delivery deadlines, even to key customers.

Now these companies are investing in the technology that allows them to track sales at retail and respond accordingly. Valentino spent some 2.5% of the $805 million in sales of its Valentino and smaller brands last year on its new technologies; Burberry Group PLC has spent more that $100 million to over haul the back end of its business over the last three years. It saved $40m in costs last year.

Bulgari SpA says recent revamping of its point of sale data collection help it figure out faster how to restock jewelry cases as shoppers spend more cautiously.

The power is in the hands of the consumer! The VICS CPFR(R) model has had the customer as the center of focus for years and while these companies are successful at their efforts to coordinate their supply chain activities with retail sales, there are many opportunities to become much more efficient and effective by collaborating internally and externally. Sourcing of fabrics from around the globe and coordinating the manufacturing of products to meet seasonal demand is no small task.

Short term gains can be and are made, but are they sustainable? Will companies commit to on going system upgrades, training and collaborative practices that ensure the development and continuation of a culture of successsful business practices.

It’s about speed to market, visibility, effectiveness and efficiency, while at the same time being aware of corporate responsibility to protect the environment.

With the price of a barrel of oil at $140 today, with predictions of $200 in the not too distant future, there must be, and will be, dramatic changes in existing business practices that will offset some of these costs. VICS is addressing several, e.g Distribution Center By Pass, which will have a major impact on how products are sourced and imported into the the USA and other countries, taking out millions of unnecessary miles of transportation. The VICS Empty Miles program will also have a major influence on private and contracted fleet efficiency and effectiveness.

Now is not the time to get into line item budgeting and hunkering down! Now is the time to take action to overcome the obstacles being foisted upon all of industry and demonstrate the creativity that will make a difference. VICS is leading the way!!

Have a VICS Day!!

Joe’s comments

Just in case you missed this column, I thought I’d share some of the information that I found pertinent, especially since oil is now at $137 per barrel.

“The US remains one of the only countries in the world that chooses as a matter of policy to lock up it’s natural resources. The Chinese think that we are insane and self destructive, while the Saudis laugh all the way to the bank”

“The US has vast undeveloped fossil-fuel deposits. A tiny corner of the Arctic National Wildlife Refuge contains an estimated 10.4 billion barrels of oil and would be the largest producing oil field in the Northern Hemisphere. The outer Continental Shelf is estimated to contain some 86 billion barrels of oil, plus 420 trillion cubic feet of natural gas. Yet of the shelf’s 1;76 billion acres, 85% is off limits and 97 % underdeveloped.”

“Engineers recently perfected refining solid shale rock into diesel or gas, which may amount ot the largest oil supply in the world,-perhaps as much as 1.8 trillion barrels in the American West. That’s enough to meet the current US oil demand for more that 2 centuries”

“Many areas haven’t been examined since the 1960’s, when exploration technology was far more primitive.”

“Yes, we know, increased drilling is no energy cure-all; new projects take about a decade to come on line. Then again, more that a few experts say that new production could affect price as the market perceives a new US seriousness to increase supplies. Part of today’s futures speculation is based on the assumption that supplies will remain tight for years to come”.

What’s a country to do? Short term versus long term? Keep these resources in reserve for generations to come while we learn to be more conservative and less wasteful? Not a bad idea and maybe that is the strategy.

Let’ not mess up our environment with wells, wind mills, etc. But keep in mind that while Hurricanes Katrina and Rita flattened terminals across the Gulf of Mexico, there was not a single oil spill.

“As far as the anticarbon theology, oil will be indispensable over the next half century and probably longer”.

Finally, China will begin drilling for oil off the coast of Cuba. That’s just 90 miles from Florida. Hmmmm, what do they know that we don’t?

So in summary, I am comforted to know that the USA has vast natural energy resources and that oil rigs don’t necessarily mean oil spills. I also know that the Alaskan pipeline was poorly maintained and almost caused a disaster, which means that there has to be controls and oversight.

There are a lot of smart people in this wonderful country of ours. Let’s put them to work to come up with an energy policy that makes sense, for this generation and those to come.

Fill up before the price of oil goes to $150. 

I found a couple of May 3-4, 2008, Wall Street Journal articles that dealt with countries on opposite sides of the world.

The first article is “China Sweeps Factories for Underage Laborers.”

According to the article, Chinese authorities exposed a network that brought predominantly ethnic-minority children from western China to work in east-coast factories. The Chinese have been cracking down on unsafe labor practices and those that force employees to work long hours. It has been reported that the Chinese government is considering a social security program, which will add to the cost of labor.

It was cheap labor and the willingness of China to allow foreign companies to outsource manufacturing. At the time it began, the cost of a barrel of oil was as low as $20. Today with oil reaching $126.00 a barrel and labor costs increasing, the business case for manufacturing in China may come under scrutiny. Obviously change, if it takes place, will be in the distant future.

In contrast, The Weekend Review with Alan Garcia/ By Mary Anastasia O’Grady, “Peru’s Born-Again Free Marketer”, addressed the advent of an economic opening of trade without borders.I was fascinated by the interview, and I’d like to share excerpts with you.

Peru’s average growth rate over the past six years has been better that 6.2%. Peru has become competitive, going beyond mining.

Mr. Garcia led Peru from 1985-1990 and his presidency ended in disaster. Price controls resulted in long lines for food, the government had a fiscal deficit of 7.5% of GDP. The economy contracted by 8.8% in 1988 and 12% in `1989. Shining Path terrorists dominated the countryside, making life miserable for the peasants and impossible for tourism. He left office in shame and lived in Colombia in exile.

He returned in 2006 and was returned to the office of the President. He now speaks the language of a born-again capitalist and defends market forces as a way to reduce poverty. He says “the country has decided to insert itself in the global economy, open its borders to investment, lower tariffs (and) guarantee fiscal and monetary stability”.

Peruvians are discovering their comparative advantages in a host of other industries, including manufacturing, apparel and agriculture. A visitor to Lima immediately appreciates improvements in services compared to even a half –decade ago.

The country has had an important rate of growth in the past three years, from 6% annually to almost 8% and then 9%. It is expect to maintain the highest growth rate and the lowest level of inflation in South America.

President Garcia said “Twenty-five years ago the world was divided in two. What did not exist was the extraordinary revolution in communication and information, which is the basis of all the change in the world economy now and for the change in our ideas. The Internet, electronic money, the economic opening of trade with out borders are what ‘s driven the shift in thinking. This new reality demanded that we not oppose the wave of globalization , but take advantage of it in favor of society”.

“We are beginning a totally different chapter in economics. The world is linked and there is a growing democratization through participation by consumers and producers”.

“Government’s role is to be open to all the possibilities of…investment and, with this to decentralize economic activity and thereby create more employment”.

“We no longer live in a closed economy with protection. It is an economy of competition and speed. And therefore, businesses are destined to be born, live and die because any company can enter a market and displace others. In this sense, businesses are condemned to instability. As a consequence, we cannot continue with concepts that come from another time and another situation.”

President Garcia wants the world to know that is a born–again believer in the connection between liberty, education and human progress.

What’s the take away? I thought of Tom Friedman’s The World if Flat. Peru is entering the world market place. A recent article in Business Week identified Colombia as an emerging global player. Ireland has an amazingly low corporate tax, which is leading to growth in their economy and standard of living.

There’s a clear message. The global market place will demand that companies, individuals and universities develop the skills and processes to prepare for an ever-expanding, global business community. Among the most important developments will be improved opportunities and quality of life for people in less-developed countries that have leadership committed to capitalism-oriented economic principals.

The dire and ongoing negative news about the economy is creating a burden for so many Americans. Have you caught up with the fact that the United Kingdom, France and other countries are also suffering? Of course the cost of oil is a major factor impacting not only logistics, but the vast amount of products made from oil and the bio fuels that are raising the cost of basic foods.

My friends, a recent article in USA Today, scared the heck out of me. “Bill for Taxpayer swells by trillions, Deficit far bigger than government estimate”

Last year the long term federal government financial obligation grew by $2.5 trillion due to the mushrooming cost of Medicare and Social Security. That’s double the red ink of a year earlier. “Taxpayers are on the hook for $57 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare Social Security and other government programs” that’s $500,000 per household!!

Add state and local obligations and the total is $62 Trillion. Big new liabilities taken on in 2007.

Medicare $1.2 trillion

Social Security $900 billion

Civil servant retirement $106 billion

Veteran benefits $34 billion

Add to this the underfunding of the USA Highway infrastructure of some $50 billion and we are talking about some real money!

This has got to have an impact on the retail industry as money that is needed to service this debt, to pay social security benefits for the baby boomers, has to ultimately come from individuals and corporations. Oh, by the way, the USA 35% corporate tax rate is the second highest corporate tax rate in the world. So we get less competitive, etc.

What does this have to do with supply chain management? The pressure is on now and it will become more and more intense. I was just with a number of dot com retailers, whose major concern is the cost of logistics. Imagine what it will be in a couple of years from now.

Sorry for the gloom and doom. joe

I had the distinct pleasure of working with and knowing Peter Rogers during our time with Standard Brands and Nabisco. Peter is one of, if not “the” most unique senior executive that I have ever known. He’s an executive that understood how to motivate and provide leadership, clearly understanding the big picture while having the ability to absorb a vast amount of detail. He gave direction and then expected performance, which he rewarded.

Peter was always friendly and out going to everyone he touched, regardless of the position that person held. He cared about people and communicated his concern and interest in many ways.

This extemporaneous analysis is an example of the grasp of economics that Peter possess and is able to communicate clearly and concisely. I think you will find it interesting and useful. We have included Peter’s bio, which follows his analysis.

I am very proud to call Peter Friend!!

An Analysis of Discontinuities and Trends- the inflationary period of the 70’s as compared to today

Biographical Information- Peter N. Rogers

Two dozen Senators asked the EPA to ease requirements mandated by Congress in 2007 to blend more ethanol and other renewable fuels into the gasoline supply.

Joe’s comment; spiraling commodity costs are contributing to the escalating prices of basic foods. The number of spins that are being offered by politicians and other governmental officials are an insult to the American public. It doesn’t take an economist to understand that increased demand leads to higher prices.

And let us not forget the farm subsidies that the Bush administration passed just a few years ago to the tune of $90 B, give or take a few billion. Subsidies plus higher prices add up to, well you do the math.

Lobbyists are working hard for food manufacturers to influence congress. But let’s face it, bio fuels are not a short term fix for our problems. The underprivileged are hurting because no one was willing to take the necessary action to prepare us for the crisis that everyone knew was coming. Of course if we want to adjust our living standards and entire infrastructure to deal with $8.00 per gallon gas being paid by Norway, that’s an alternative. No, No, let’s build more SUV’s and get high on the fumes.

The head of the EPA’s Midwest office “resigned.” Mary Glade is the latest departure in a series of unusual public conflicts between EPA management.

She was pressing Dow Chemical to clean up a Michigan river system near a Dow plant that is contaminated with dioxin as a result of past waste-disposal and incineration practices at the plant. Ms Glade said, “Ordinary citizens should be concerned because this may be the worst dioxin contamination in the US.”

Joe’s comment:

The rest of the article goes into who shot John, finger pointing, etc. When pulling back the covers, it is amazing at the how the EPA, as well other agencies for that matter, are at opposite ends of the environmental spectrum. The EPA SmartWay program is about helping companies measure their carbon footprint for transportation and implement a program to reduce emissions that lead to “green house warming”. On one hand, the rivers can be polluted with the worst kinds of chemicals, but the clean air is a top objective.

Is this about leadership, politics or what?