In recent weeks, I’ve come across several news articles highlighting a few supply chain and logistics trends that I’ve written about over the past couple of years — namely, companies bringing logistics operations back in-house; suppliers getting “bullied” by large customers; and why learning to perform tasks manually, without software or technology, is an important learning exercise.
In today’s “Ripped from the Headlines” segment, I revisit these trends through the lens of recent news articles.
Ralph Lauren to Bring Management of Distribution Site In-House (WSJ- sub. req’d)
As reported last week in the Wall Street Journal, “Ralph Lauren Corp. is bringing a piece of its supply-chain operations in-house as the company reviews broader operations and management of its distribution.” The article goes on to say [emphasis mine]:
The shift, part of what Ralph Lauren says is a long-planned action, will move warehousing and inventory management service from a North Carolina distribution center run by XPO Logistics Supply Chain Inc.—an arm of XPO Logistics Inc.—into a new, far larger distribution center that the fashion retailer will operate.
“As part of a long-term strategy, Ralph Lauren entered into a short-term contract with XPO Logistics to assist in transitioning the operations of a formerly-licensed brand while completing a new larger facility,” [Ryan Lally, a spokesman for Ralph Lauren] said. “Ralph Lauren continues to engage 3PL operators in specific markets that have local market expertise, knowledge of employment laws, and the ability to increase scale in market.”
As I’ve said before, outsourcing used to be a one-way street: one you outsourced your logistics operations, especially warehousing and distribution, you rarely brought it back in-house. But the nature of logistics outsourcing is changing. Companies may decide to outsource an operation today because they lack the infrastructure, resources, and experience to go live quickly (which seems to be the case here with Ralph Lauren), but then decide to bring the operations in-house once everything is running smoothly to gain more direct control.
In the past, companies outsourced their logistics operations to reduce costs and/or improve service. Today, however, companies are bringing those operations back in house, not because of cost or service issues, but because they want more control.
I wrote about this emerging trend in Keeping Control: What 3PLs Must Convince Their Customers (March 2014). Here’s an excerpt:
My hypothesis is that as manufacturers and retailers start to view logistics as a core strategic function, their desire to take more control will increase, and so their desire to outsource will diminish.
It means that outsourcing relationships are becoming more dynamic. The services 3PLs provide to customers today will be different than what they will provide to customers in five years. Customers might bring some functions back in house because they now view them as core competencies, but they will likely outsource other functions that they’re currently managing in-house today. This implies 3PLs must innovate their business models, and the nature of how 3PLs and customers manage their relationships must also change.
This all relates to one of my supply chain and logistics predictions for 2016: the 3PL value proposition is getting flipped — instead of logistics services enabled by technology, it’s becoming outsourced IT and business intelligence services powered by logistics.
In other words, while cost and service improvements were the main driving forces to outsourcing in the past, access to technology and business intelligence are now equally (if not more) important. As I wrote back in December:
Generally speaking, it’s still difficult for supply chain and logistics executives to obtain IT support and funding for technology (in many cases, money and resources are tied up with other initiatives, such as multi-year ERP rollouts), so executives are looking to their 3PL partners to meet their technology needs, whether it’s software like a transportation management system, automation technology in the warehouse, or a business intelligence and analytics platform (e.g., a “Control Tower” solution).
The bottom line is that companies are approaching logistics outsourcing very differently today than in the past, and so 3PLs need to innovate their business models and value proposition to remain relevant and grow.
[Woolworths] in court over $18 million ‘shakedown’ (news.com.au) and Carrefour offices searched in French agriculture pricing investigation (Reuters)
Last year, I wrote several posts about how companies were bullying their suppliers, either by extending payment terms or taking a strong “What’s In It for Me?” approach to negotiations (see Talk to the Hand: Walmart’s Message to Suppliers, The High Cost of Poor Supplier Relationships and Nothing Easy About Supplier Relationship Management). Based on recent news articles, it seems like the practice of squeezing suppliers continues.
First up is Woolworths, which under a program called “Mind the Gap” sought to collect almost $60 million in payments from suppliers to plug a $50 million hole in profits. As reported in news.com.au:
In total, the Australian Competition and Consumer Commission (ACCC) alleges Woolworths secured $18.1 million in payments from around 200 suppliers who were told in a script “prepared and approved” by senior managers, that if the supplier made the payments it would be “supporting” Woolworths, and if it did not make the payments, it “would not be supporting Woolworths”.
“Woolworths intentionally applied pressure to the Tier B suppliers to make the Mind the Gap payments by communicating to them that if they did not make the payment it would or might jeopardise their ability to access customers through Woolworths customers,” the ACCC states.
In a related article published by abc.net.au, the former head of Kellogg Australia Jean-Yves Heude comments on how retailer-supplier relationships have changed since 2008:
“The way the industry was working was based on what I call the win-win model, where good relationships with people, long term relationships, not aggressive negotiation, was really the golden rule,” Mr Heude said. “Pretty much now today 100 per cent of the discount is paid by the manufacturer, but in 2008 and before, it was more split and shared.”
Meanwhile, as reported by Reuters, “French retailer Carrefour has had its offices searched [a couple of weeks ago] as part of an investigation into its commercial practices.” The article goes on to say:
The website of French newspaper Le Figaro reported that Carrefour was asking suppliers to agree to lower prices as a precondition for starting talks and said that the economy ministry had warned this could lead to legal action.
It also said that agro-food association ANIA had complained that Carrefour had asked regional suppliers close to its warehouses to grant discounts of between 4 percent and 6 percent of turnover, refusing even to meet sellers unless they agreed.
I’ll just repeat what I’ve said many times before: The end result is often the same for companies that bully their suppliers: short term gains that are ultimately negated by increased costs, quality problems, supplier bankruptcies, and other issues further down the road.
Why Naval Academy students are learning to sail by the stars for the first time in a decade (The Washington Post)
In one of our most popular posts so far this year — Are You Smarter than a TMS? — I reiterated a point I had first made in a December 2014 post (Is Software Making Us Dumb?):
Should we turn off the software every once in a while, as a training exercise, and force ourselves to solve a problem manually? I believe so. It would force us to revisit and reinforce (or even learn for the first time) the fundamental concepts, logic, and math embedded in the software. We often treat software as a black box, where we enter data and out comes an answer, but if we don’t understand how the answer is derived, do we really know what we’re doing? And if we don’t truly understand how a process works, are we limiting our ability to drive continuous improvement and innovation?
That’s why, according to an article in The Washington Post, the U.S. Navy is teaching sailors to use a sextant and navigate by the stars. According to the article:
Even though GPS can pinpoint [ship locations] on the most remote oceans on the planet, the Navy is once again teaching [sailors] the ancient art of celestial navigation.
That’s because batteries run out, systems get hacked, and even advanced technology can be balky. In a pinch — or in a war — sailors need something to fall back on. And stars and sextants have been working pretty well for hundreds of years.
“The big concern the Navy has is that some sort of event takes out the GPS system — that somehow a nefarious group or nation is able to disrupt it — and all of the sudden you have no means to cross the Atlantic or the Pacific because the system that you’ve come to rely on doesn’t work anymore,” [Salvatore Mercogliano, an assistant professor focused on naval history at Campbell University and a former merchant mariner] said.
Check out this video for some additional perspective:
