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What Garlic Bubble in China tell us about Supply Chain Risk?

They seem to be totally two unrelated incidences.  First, there was a very interesting news story on Dec 5th, 2009 at NPR, What The ‘Garlic Bubble’ Means For China’s Economy. The news discussed a very interesting scenario of “garlic bubble” when “garlic prices in one Chinese province have shot up as much as 40 times the going rate”. China is the biggest producer of garlic so this bubble definitely shakes the food industry.  There were three reasons which caused the bubble:

  1. Due to the collapse of the global economy, there is less demand for garlic, so garlic farmers in China produced 50% less garlic.
  2. Due to the wide spread concern of swine flu, Chinese started to buy loads of garlic to keep them from getting sick.
  3. The Chinese government stimulus plan pumped its banks full of money and made lending very easy.

Therefore, limited supply ran into unforeseen high demand. “Smart” people saw this as a great opportunity thus “the garlic frenzy was turning into some kind of gold rush”. Many people borrowed easy money from banks, and started stocking tons of garlic in the warehouse and waiting for garlic prices to rise. The bubble hence created. Government stimulus plan caused an unintended result. I haven’t read follow-up story how this garlic bubble broke in the end.  I can only imagine how a purchasing agent from food industry jumped out of his/her office chair seeing the garlic price increased dramatically in short time. It’s also funny to think that every restaurant or food company has to reduce the portion of garlic ingredient and probably pray for the “garlic bubble” to burst.

Another story made me think about the impact of “uncertainty” to supply chain and related supply chain risk management. I was discussing supply chain in the horticulture industry with an industry expert. I was told that the demand for next year is almost out of question to forecast and that whole supply chain seasonality almost doesn’t exist. The big box retailers, such as Wal-Mart and Home Depot, keep pushing out their order forecast to growers since they couldn’t decide what to buy for next year from their weak 2009 point of sales (POS) data. This uncertainty put growers at a huge risk as they face the challenge of missing growing season. If I were a grower, I might be forced to hold up my purchasing decision to the very last minute, facing the risks of higher purchasing costs for rush orders or even not able to obtain the materials I need. If I went ahead to make my own “speculated” forecast, I would face an even bigger risk of ordering the wrong products and put the business in total loss.

In the blog of Supply Chain Risk Literature: a complete review, Jan Husdal summarized the typology of supply chain risks. Among them, “uncertainty” is the biggest cause of all risks. Every company is fully exposed to today’s global economy, consequently it’s even more difficult to predict or forecast with high level of “certainty”. Unfortunately, I don’t have a good solution to avoid such risks brought by “uncertainty”. All I can suggest is to realize those risks associated with supply chain, and increase communication with all trade partners. Communicate! Communicate! Communicate! Only doing so will break the organizational silo, minimize the exposure to supply chain risks, enable organizations to act quickly to unexpected incidences, and hence minimize the financial loss caused by supply chain uncertainty.

So, what can a garlic buyer in the food industry do to minimize the loss from this garlic bubble? Fly to China and buy a warehouse of garlic immediately! No, I’m kidding, although it can be one possible option.  First thing the buyer needs to do is to prevent the situation of out of garlic. Not only he/she need constantly communicate with the suppliers about pricing fluctuation, inform factories or restaurant to check current on hand and incoming inventory for allocation, but also need start searching for other supply sources. They might not able to get a lower price in short term, but, hey, our consumers can still have garlic in our tasty food, perhaps several cents more expensive than they used to be, but we don’t feel it.

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My sentimental feeling for Dell

A few weeks after Dell announced the sale of its Tennessee plant to Genco, Dell stated that it will close the facility and cut 900 workers in North Carolina. Dell describes its decision to close the facility as “part of an ongoing initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.”

As a former Dell employee, this news gave me a little feeling of nostalgia. I joined Dell China as their pioneer staff, with employee ID 49, when Dell just got their feet wet in the Chinese market. I experienced the most glorious time of Dell when their stock was traded more than $100 and split again and again. I witnessed the Dell China factory grew from a leased temporary factory to a campus of new factories with advanced technology.  I even had a hand-shaking photo with Michael Dell when he visited the China plant. Being a young professional out of college without a lot of experience, Dell gave me a great opportunity to learn the management of a western company and opened the door for me to supply chain management.  When I came to the States to pursue a degree in supply chain management, I read so many cases and articles about the innovated manufacturing and supply chain in Dell, and how their “U” shaped manufacture display was one of their core competencies to enable production flexibility for their made-to-order business model.

However, after a decade, the core competency is not core anymore. Dell sold its former world class manufacturing in order to create more value for the customers.  In a Harvard business blog article “Why the U.S. Tech Sector Doesn’t Need Domestic Manufacturing”, David B. Yoffie says

HP has become the world’s leading computer company by focusing on sales, marketing, and distribution of computers made at very low cost in Taiwan and China. In comparison, archrival Dell, which was widely celebrated 10 years ago as one of the world’s best manufacturers, is now saddled with high cost factories and is struggling to compete.

What has been changed in the past decade?

Technology advancements have made personal computers a commodity and changed consumer behavior significantly. In the past, customization and capability of “made-to-order” created huge value to computer users. Customers enjoyed selecting from the different capacity of parts to customize computers meeting their price and usage requirement. At that time, Dell’s flexible manufacturing had a huge advantage over its competitors, and their made-to-order and ship-direct business model were the most innovated and successful supply chain practices.

However, a few years ago, Dell started to sell their products through distributors such as Staples, Best Buy and even Wal-Mart. Their ship-direct strategy slowly started shifting to a traditional made-to-stock distribution channel.  Computers become such a commodity that consumers can pick up any model at different price levels in a store and be happy with the standardized capacity. There is no need for consumers to place customized order online and wait for delivery. So, the flexible manufacturing designed for made-to-order is fading away.

Time changes, consumer behaviors changes, and technology changes. In 2005 Dell was valued at $100 billion, or more than HP and Apple combined. Today, it’s worth $30 billion, less than a third of its rivals’ market values. (Businessweek, Dell’s Extreme Makeover) If Dell wants a makeover to catch up to its rivals in this rapidly changing business environment; if Dell doesn’t want to become an OEM of PC manufacturer; it’s the right move for Dell to get away from its traditional production efficiency and cost cutting modal and focus on marketing, customer service and innovation.

Even I am not using a Dell computer nowadays. However I wish my former employer, who taught me the best supply chain practice and changed my life and career direction, can achieve its makeover goals.

Me and Michael Dell in China, 1998
Me and Michael Dell in China, 1998

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Quantify Your Supply Chain Carbon Footprint

A carbon footprint is “the total set of GHG (greenhouse gas) emissions caused directly and indirectly by an individual, organization, event or product” (UK Carbon Trust 2008). Once the size of a carbon footprint is known, a strategy can be devised to reduce it. Recently there are a lot of discussions around measuring carbon footprint in supply chain. UPS announced that they plan to reduce their carbon emissions by 20%, with an ability to capture and report on the carbon footprint of each package shipped by each customer, based on distance and mode. Wal-Mart announced the “green label” program to label the sustainability index each of products it carries, so “the retailer’s 100,000 suppliers around the world will have to calculate and disclose the total ecological costs of their products” (Daniel Goleman, Wal-Mart Exposes the De-Value Chain). Software companies are catching up to develop programs for supply chain optimization around a lower carbon footprint (Roberto Michel , Supply chain network design: its Green powers not exactly new). With government commitment to reduce global carbon emissions by 50% by the year 2050, businesses are scrambling about the opportunities to reduce carbon emissions.  However, there is also a survey of company executives showing that it is “not the best time for launching big corporate initiatives” to calculate a company’s carbon footprint (Robert J. Bowman, Supply Chain Visibility: Lots of Talk, Little Action).

An end-to-end supply chain is a material flow from suppliers to manufacturers to distributors and ultimately to  consumers in the end.  So it can become a huge task to measure carbon footprint especially when many companies are also struggling with poor supply chain visibility. However, I believe that companies can take some easy steps to start quantifying their supply chain carbon footprint, and at the same time improve their supply chain efficiency and visibility.

From a supply chain management point of view, energy is used during transportation and manufacturing, and thus creates carbon emissions, also called greenhouse gases. The challenge for companies to reduce their carbon footprint is whether they have ability to quantity their current emission levels.

There are three key components in supply chain contributing to carbon emissions:

1. Movement

Any movement in supply chain, from inbound or outbound shipping to transferring products in the warehouse or on the factory floor, consumes energy and directly produces carbon emissions. Energy consumption is different based on different transportation modes, distances and weights. The calculation can be based on gallons of fuel consumed for transportation, and hence the footprint measurement can be calculated at the unit level during transportation.

2. Space

In supply chain, space such as office, factory and warehouse are used to support supply chain activities. However, space consumes energy, such as electricity or heating oil. Excess or unnecessary space caused by supply chain inefficiency, such as excess inventory or poor packaging design, not only increase supply chain costs, but also produces unnecessary carbon emissions.

3. Material

Material will be more difficult to be directly measured than movement and space, especially if the company is responsible for the end-of-life material management of toxics, hazardous materials, and waste. So a good way to capture the carbon footprint caused by different materiasl is to evaluate total energy consumed to process the material including its life cycle production and the end-of-life waste management. For example, a new material might take a longer time and more resources to produce from its raw components to finished goods, but it might require very little energy to process its waste.  Therefore the total size of the carbon footprint for the new material is smaller.

A very good information source to calculate CO2 emissions can be found at https://carbonfund.org/take-action/businesses/business-calculators/

For any company who is interested in taking actions to capture and quantify their carbon footprint, as an easy way to begin with, they can start from collecting data in their end to end supply chain, and convert those data into energy consumption and carbon emissions.  The below matrix represents the data collection plan for a traditional manufacturer through different supply chain phases:Carbon Emissions data collection

Absolutely data collection can be a big task, especially when a large amount of materials and products are involved. But once the database is established, the company can use those energy consumption formulas to quantify their carbon foot print of their supply chain, and thus implement sustainability KPI to measure their global citizenship accountability and environmental sustainability improvements. Once companies start to take action to measure their carbon footprint, they will not only see the reduction of their greenhouse gas emissions, but also the reduction of their supply chain costs, which I will discuss more in a  future article.

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U.S Pallet Industry美国托盘业现状

This article is written for Pallet Handbook, which is edited by Dr. Qingyi Wu and published in China. 此文为吴清一教授编辑出版的《托盘手册》所著

美国托盘应用的历史

自20世纪40年代以来，托盘就成为现代物资管理的一部分，人们在工厂、仓库或零售店里常常能见到各种材料和形状的托盘，为人所熟悉却不被重视，不起眼但又不可缺。人们将单件的产品堆放在托盘上，用叉车搬运或装卸整个托盘的产品。托盘就这样默默的负载着成千上万的物品在全世界各个角落周转。托盘单元化的使用在很大程度上方便了货运存储和转运，显著提高了物流效率，使托盘成为全球供应链管理中的必不可少重要部分。

在托盘货物单元化之前也有其他一体化运输方式，但托盘和叉车的配合使用却注定主导着现代物资管理方式的进程。今天，托盘被普遍应地应用在配送物流环境中，其发展是和始于19世纪末叉车的应用和发展相辅相成的。在20世纪初，托盘逐渐为人所知。木托盘的前身只是个可以固定在甲板上简单的木条板，当时木箱子，柳条箱，木桶和铁桶已被广泛地应用在规整零散货物，保护，存储和运输。而早期应用托盘是和超低叉车在美国工厂的现身是分不开的。叉车最初发明于1887，先有手动超低叉车，而后在1909年发展为全钢铁低叉车。在1915年，高位叉车首次现身。随着后来的不断改进，高位叉车可以将货品抬到好几尺高。而之后叉车继续发展可前后左右前后倾斜货物，因而带动了双向托盘在同时期问世。到1926年，现代化叉车终于成型，可以轻巧灵活的卸载放在任何高度的货品。此时，托盘就不仅仅只是用在工厂里搬运货物。使用托盘可以堆叠货物，因此大量地节约了仓库内的存储空间，戏剧化地大幅度提高了仓库和工厂装卸、仓储、运输的效率。

另外，托盘和叉车的使用同时方便了货物在火车、卡车和船运等其他运输模式中的周转。在1931年，装卸一辆装有13000箱罐头的卡车需要3天。但装卸有托盘单元化的同样货量却只要四个小时。

在1920-30期间，单元化科技萌芽浮现却生不逢时。由于正逢美国经济大萧条，高失业率、缺乏投资资本和其他一些因素，使托盘使用没有得到应有重视。但随着美国加入第二次世界大战，物资管理改革在一夜间成为最迫切的事。托盘单元化最有效的帮助美军的物流需要。托盘单元使用只需要少数人就能够实现大宗货物有效搬运，这样更多的劳力可用在军务上；托盘作业同时提高仓储使用效率和吞吐量，减少对仓储空间扩张的不必要需求。所以托盘被广泛使用在欧洲大陆和太平洋战场上。到二战结束时，托盘操作给物资管理带来的效率和收益已在全世界得到广泛认可。

当前美国托盘应用和流通的方式

随着战后美国物流业的发展，托盘更是广泛使用在各行各业供应链的所有环节中。从供应链上游原材料供应商的物资管理到供应链下游成品的配送，在生产、仓储和运输中，人们可以随时看到托盘的身影，托盘为降低生产成本和提高物流效率起着巨大的作用。据美国《托盘》杂志的最新报道，美国托盘需求量预计将于多于1%的增长率继续增长，到2012年需求量将达15亿个（总值168亿美金）。木质托盘将继续占美国托盘市场的主导，预计在2012年占总量的80%。但塑料托盘需求也开始以每年2.4%的增长速度速增，同年总量将达到1.13亿。

以下为《托盘》杂志所统计的美国不同种类托盘使用和需求量

（单位，百万)
%年增长率
种类 2002 2007 2012 2002-2007 2007-2012
总和 1360.0 1385.0 1460.0 0.4 1.1
木质 1108.0 1105.0 1160.0 -0.1 1.0
波状硬纸 139.2 152.5 157.3 1.8 0.6
塑料 103.4 117.0 113.5 2.5 2.4
金属 9.4 10.5 11.2 2.2 1.3

目前托盘流通的有两种主要方式：

1. 购买

购买托盘为流通中简单的单线模式。用户用较高的价格购买托盘使用。但在托盘破损后，用户需负责托盘销毁或请回收公司处理。以往用户可以将破损托盘在垃圾场销毁。随着各州加强环保措施时加强了垃圾场废物的管理，托盘垃圾场销毁变得越来越繁琐，给不少业主带来不必要的麻烦。

2. 租赁

租赁为后期发展起的托盘流通模式，也称为循环回收模式。用户可用较低的价格租赁托盘。托盘在送达最终用户下载货品后，托盘租赁公司负责将空托盘回收，在维修破损托盘后再次将托盘租赁。如托盘不能维修，租赁公司也负责将托盘磨碎进行科学合理废物处理。使用租赁运营方式采用较低租金付费方式不仅节约了用户在托盘使用上的物流费用，而且其回收循环利用的模式也成为持续再生能源的经典商务模式。

北美托盘标准化状况

在北美托盘市场中，同样也存在托盘不标准化的情况，尤其不同行业使用着多种规格的托盘。而国际贸易商品流通更让其它国家不同的规格托盘随着物品进出美国，给美国托盘标准化带来了一定困扰。但最普遍使用的是副食品生产联合会（Grocery Manufacturers’ Association – GMA）的托盘规格，目前占美国所有木托盘新产量的40% 。国际ISO标准也将GMA托盘规格划为其6个托盘标准尺寸之一。

以下为美国目前所有托盘规格及其使用行业

厘米尺寸(长×宽) 英寸尺寸 (长×宽)) 产量排序 使用行业
1219 × 1016 48 × 40 1 副食品, 大量其他行业
1067 ×1067 42 × 42 2 电信， 油漆
1219 × 1219 48 × 48 3 汽油桶制造
1016 × 1219 40 × 48 4 军方，水泥制造
1219 × 1067 48 × 42 5 化学，饮品
1016 × 1016 40 × 40 6 乳制品
1219 × 1143 48 × 45 7 汽车
1118 × 1118 44 × 44 8 汽油桶制造, 化学
914 × 914 36 × 36 9 饮品
1219 × 914 48 × 36 10 饮品，建筑瓦片, 纸品
889 × 1156 35 × 45.5 不详 军方
1219 × 508 48 × 20 不详 零售

美国木托盘回收产业

不但美国各州加强环保措施， 而且随着市场的发展，美国企业对环境保护和能源再生意识也不断加强。“绿色供应链”成为目前美国业界的一个热门话题。公司在寻求降低供应链成本的同时也努力降低温室效应和提高能源再生。不久前，美国沃尔玛公司就将“绿色供应链”作为其战略发展方针，要求其在中国和巴西的供应商通过提高工效来提高能源利用率。托盘，作为供应链中必不可少的一部分，其回收、维修、-再利用的租赁模式正好满足公司将低成本和实现环保的双重目标。由于进入市场的屏障较低，美国托盘回收产业在近十年内蓬勃发展。托盘回收成为托盘业中高利润部分，因而许多新托盘生产厂家也加入托盘回收业务。据统计，目前美国大大小小的木托盘回收公司有千余家。

以下为2000年美国木托盘行业统计，目前尚未有最新数据统计，但可以估计随着回收意识的加强和利润的吸引，必然有更多的托盘厂家加入回收业务。

全美木托盘生产厂家和回收公司总计 3031
新托盘厂家 44%
托盘和回收公司 47%
托盘回收公司 9%

木托盘占美国托盘市场的主导是有一定原因的：木托盘牢固耐用防滑，对冷冻食品产业自然是首选；木托盘生产和维修都较简单，所以耗能总量少；由于木材是自然资源，在回收时也很容易将木板打碎成为其他产品原料再次利用。托盘木原料多来自南美和美加东部，都来源于生长迅速的树木。伐木公司在一边砍伐的同时也一边种植，以确保森林资源的再生。所以木材在目前还是被公认为最为环保的托盘材料。于此同时，木托盘的循环使用模式更成为减少森林砍伐的最佳口号。

世界最大的托盘租赁公司—CHEP

企业简介及发展史

目前世界上最大的托盘租赁公司为CHEP（集保公司）。CHEP为澳大利亚公司Brambles所控股。由于美国托盘市场的重要性和战略意义，CHEP全球总部设在美国佛罗里达州奥兰多市。

CHEP的发展史和二战也是分不开的。在1941到1945年间。为了在二战间提供高效的国防供应，澳大利亚政府设立盟军物资管理协会(the Allied Materials Handling Standing Committee -AMHSC)。1945年二战结束后，美国人在他们的澳洲军事基地留下了大量物资管理器材，其中包括木托盘。有了这些先进资产管理为良好基础，再加上英联邦澳大利亚政府极大拥护商业管理机构来支持战后国家建设，我们所知的英联邦器材管理集资公司（the Commonwealth Handling Equipment Pool, or CHEP）就这样成立。1949年CHEP公司私有化，1958年Brambles买下CHEP，从此CHEP开始起飞速增长，继而发展成现今世界上最大的托盘租赁和共享系统公司，而CHEP的蓝色托盘也这样在负载着重要产品在全世界周转。目前其业务已达到46个国家，在２００８一年间配送、回收、回收托盘次数达3亿，成为行业内的领导者。而其蓝色也成为托盘行业的“绿色环保”代表色。

经营范围与规模

至1990年CHEP踏入美国后，其美州业务就成为Brambles的最大收入来源，占其全球总收入44亿美金的36%。CHEP目前大概占有美国主要副产品零售业50%的市场份额，大约占全美托盘市场的40%。在美国各处常不经意就看到蓝色托盘在商店里、在仓库边、或在高速公路上，可见其极大的市场份额。目前CHEP在北美网络拥有百余家庞大的托盘维修回收和配送中心，目前其北美共享网络内的托盘库存多达1亿，足以满足大顾客任何时候的紧急需求。

CHEP1992年在市场上推出四方位叉车48 × 40木托盘，掀起当时托盘市场上一场变革，也是目前CHEP在北美生产及回收的主要产品。其主要客户为各大零售商、各著名日用产品、农产品生产厂商等等。沃尔玛、宝洁、联合利华、可口可乐等国际知名公司都用着蓝色托盘运输人们生活中的熟悉并不可缺少食品和日常用品。人们常常不知CHEP其名，但一旦提到“蓝色托盘”都会恍然说：哦，我在COSTO店里看到。

图为在仓储式连锁店COSTO店内使用CHEP托盘摆放产品。可以想像，连锁店就是这样一托盘一托盘地将产品快捷地从配送中心运送到各个分店，托盘大大地提高整个供应链运作的效率。

Product displayed on pallets in Costco store
Product displayed on pallets in Costco store

经营方式

在北美，CHEP归属于物流服务公司，其公司宗旨是为用户的供应链产生价值。就像个传统的租车公司将车在原地出租后，却在其他地方将车回收。租赁和回收托盘也是同样道理。其租赁和回收托盘的方式不仅为其他公司节约大量在供应链上的费用，更免去用户处理托盘的烦恼。

CHEP的托盘共享可用以下图表简单表示：

CHEP model in Chinese

CHEP将托盘发送到生产商，生产商使用托盘将物品发送到零售商，零售商可将整托盘产品存贮，当最终托盘上的产品全部售出并堆积了一定量的托盘后，零售商即可通知CHEP的客服中心提取空托盘。CHEP收回空托盘后在维修中心分类检验。有些托盘可能只需要清洁一番即可再次使用，有些托盘需要一定维修换了某些部件后才能使用。而对那些破损严重不能再修的托盘，维修中心将托盘内的钉子取出后将托盘绞碎，而那些木碎片再一次成为有用产品，成为其他产品的原材料或者作为花园里的铺路材料回归自然。CHEP的托盘就这样完成一个生命周期。

CHEP成功占有市场的一个原因就是和沃尔玛的成功合作。沃尔玛作为全世界最大的零售商对其供应商有极大的影响力。沃尔玛要求其供应商尽量使用CHEP托盘来统一其供应链中的托盘运输。可以想象如果沃尔玛美国５６０００个供应商使用不同尺寸规格不同质量的托盘给４１００多家沃尔玛商店供货，必然会剧烈影响装卸、仓储、运输效率。供应商为降低费用使用低质托盘会在运输物品时给沃尔玛带来不必要的货品破损。而供应商在使用租赁托盘降低其货品成本的好处也使沃尔玛直接受益。在沃尔玛成为使用托盘共享的最大收益者时，CHEP也直接受益，渗入沃尔玛众多供应商的供应链。但也可以想像，如果一旦沃尔玛选择其他托盘将对CHEP将会是如何的打击。

领先秘诀：供应链增值

CHEP能成为业内领先的原因和其最先进入租赁回收模式分不开。但CHEP也善于在供应链中发现增值机会并最有效的利用这些机会来节约成本或增加收入。

CHEP庞大的维修中心网络遍及各地，选址宗旨是靠近其生产商或零售商客户来缩短不必要的交通费用。托盘在随着大量用户产品配送到各地的同时，也记录下许多宝贵的货品流通信息，更给CHEP一些有利的资讯可以和运输商和客户合作来最大的优化交通运输费用。以美国市场为例，美国生产基地多位北方而消费地在南方，运输商一辆车满载货物从北到南，而到南方后却少有产品送到北方，所以常常是空车返回。而CHEP正好大大利用这种回头车价位低的机会，将南方的空托盘便宜的送回到北方生产基地使用。CHEP享受到便宜的运输费，而运输商也不空车回头，将原本浪费的资源得到了最好的利用。

几年前，CHEP推出了一项服务叫着“全托盘管理 (Total Pallet Management –TPM)”。CHEP在生产商或供应商的配送中心设立服务点。在TPM直接分类检验所有空托盘。完好的空托盘可以直接发给本地或其它客户再次使用，而需要维修的托盘才送回服务中心维修。这样一来，CHEP免除了将好托盘送回服务中心检验的交通费。而更重要的益处是CHEP在服务时同时接收其他无主托盘（统称为白托盘）。以往客户只将蓝色托盘送回CHEP网点，而在TPM模式下，CHEP将白托盘也回收变卖，更进一步地扩大其收入渠道。不得不说是绝妙的一步好棋。

挑战和前景

12%的高额利润必然会吸引竞争对手使CHEP受到市场竞争的挑战。目前最凶猛的竞争对手为iGPS。iGPS为前CHEP元老所创立，所以其销售模式和方案和CHEP基本一样，只是托盘使用的是塑料托盘。CHEP目前在美国市场上出现一些质量问题，iGPS乘虚而入夺走几个CHEP的长久大客户。同时iGPS对他们的塑料托盘进行整个生命周期的环保分析，宣称其塑料托盘对能源再生的贡献高于木托盘。但由于目前iGPS托盘库存有限，没法像CHEP那样保证供货，所以在追赶CHEP的道路上还有一段距离。托盘租赁市场利润虽高，但初期建立库存的资产投资要求高，所以也阻碍许多竞争对手的市场进入。所以看来CHEP在全球托盘业，特别是在北美，必然还会长时间处在领跑地位。

Reference:

http://en.wikipedia.org/wiki/Pallet

Overview of the US Pallet Industry, Marshall S. White, PhD, Unit Load Design Virginia Polytechnic Institute & State University

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How Supply Chain Service Drives Customer’s Loyalty – My customer Experience with Zappos

Being a supply chain professional, the “sad” thing is that I always translate my real life experience into supply chain practices and theories. This time, I would like to tell a story of my Zappos ordering experience and how I see their supply chain service.

I was shopping for a pair of shoes for my wedding. I didn’t buy the shoes from a local store because I wanted to find something cheaper. The first thought coming to my mind for online shoes shopping is Zappos, which can explain the good reputation of Zappos being the leader of online shoes shopping.

The goal of supply chain management is to provide the right product at the right place with right price. Online shopping eliminates the barrier of place, but it requires an efficient delivery. On their easy to navigate website, I found the style of shoes I was looking for at a discounted price (supply chain theory: availability of right product at right price). It showed three pairs in stock for my size, so I placed my order online.  In 10 minutes after completing the entire transaction, I felt I should have waited to search more options, so I wanted to cancel the order. Then I realized Zappos didn’t provide me the option to cancel online. I had to call their 24 hours customer service hotline. With my professional habit, I also measured how long I was waiting while calling customer service, roughly 30 seconds. Since 24-hour service is provided, the waiting time of less than one minute is more than acceptable, although I wished they provided me the option of online cancellation to eliminate my call to their CS.

Shortly after I cancelled the order, I decided to order the shoes again. What an unpredictable customer behavior…However, when I tried to place a new order online, I noticed that their stock availability became two. My supply chain instinct told me that their stock availability was not updated simultaneously when my first order was cancelled. I decided to call CS and see if they could reactive my old order, instead of placing a new one.

Samantha in CS answered my call (now she @samiamquinn is my twitter follower @BettyFeng and following because of my tweet about Zappos CS). Over the phone, I could feel her warm personality and joyful smile, totally contradictory to the cold voice of a CS from CHASE credit card I recently experienced.  She placed a new order for me and upgraded my order to VIP for next business day delivery. Samantha explained that since my order was placed after cutoff time, I should receive my order on Monday morning. As someone working in logistics, I fully understood what cutoff time meant, so I didn’t expect my order to be batch processed until the next morning and picked up by their carrier UPS at the end of the next day.

To my surprise, I received shoes from Zappos the next morning! I have shopped online many times before but never experienced such quick delivery. As a regular customer with knowledge of supply chain management, Zappos order processing and fulfillment amazed me. The order was placed at 10:30pm in the night, shipped out of the Zappos warehouse in Shepherdsville, KY, and delivered to my home in Orlando, FL at 11:15am the next day.  The whole process can be illustrated as the following:

Zappo Order Flow

The email time stamp of order shipping confirmation was 2:30am, so it’s from a 24 hours operated warehouse. I looked up all of flights from Louisville to Orlando in the early morning for more insight. It seems only the flight was leaving at 5:46am and arriving at 10:03am could make the final delivery at 11:15am.

Needless to say, with my knowledge in order management, I understand how many activities and challenges are behind this 13-hour process from order to delivery.  The speed of order processing and delivery is something extraordinary. For regular order processing, it normally takes one or even two days lead-time to let the system batch process customer orders and check their credit,  then have the warehouse pack the product and ship it out by the end of the business day. Below are three key components to enable Zappos make a delivery at such speed:

  1. 24 hours customer service. I’m guessing Samantha in CS kindly manually processed my credit and dropped my order to a delivery request. Generally the late night order is after the cut-off time so it’s unlikely to have been processed by a system batch job.
  2. 24 hours warehouse operation. This is the most important factor for their incredible speed. Without 24 hours operation in the warehouse, the delivery request will not be picked, packed and shipped by early morning for a late night order.
  3. Close partner relationship with UPS for early morning pick-up, or multiple pick-ups in a day. This is most likely the reason why Zappos’ warehouse is located close to UPS’ main global hub in Louisville, KY.

Like Zappos’ logo indicated: powered by service. Zappos uses customer service as their brand to achieve customer loyalty, especially when customers have a lot of choices. Zappos demonstrated to me an exceptional example of customer service not only through their CS rep, but also through their supply chain. Their supply chain system and management for order fulfillment is overall robust and agile, except the fact that I can’t cancel an order online and their stock availability can’t be updated immediately after order cancelation. I mentioned in my earlier article that supply chain is a revenue driver, because supply chain services of order fulfillment and on-time delivery directly impact customer satisfaction and loyalty. I know the case I just experienced with Zappos was extraordinary, but you can expect that I will be their long term customer after such a great experience and will happily recommend Zappos to others. I also believe that a company willing to do extraordinary things for their customers with a higher standard of supply chain service will be competitive and successful for the long term.

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Key drivers of profitability and competitiveness in supply chain

Since the recession began, supply chain management has been back on the agenda of companies’ boardroom. There is no doubt that it’s the perfect time for company leaders to exam their supply chain model, supply chain network and identify the hidden costs in the chain. By reshaping the supply chain strategy of companies, the supply chain can become the “cash” chain.
The below chart represents key drivers of profitability and competitiveness in the supply chain. There are three aspects that supply chain can do to drive “cash”: reduce expense, increase revenue, and improve assets liquidity. Companies should look into all aspects, encourage innovation and risk taking. Companies can not only streamline the processes to achieve a lean and efficient organization, but also make their supply chain organization into a revenue stream.

Profibility
Supply chain as cost drivers

This is the first thing that every company will jump into. “Cutting costs” becomes the slogan of the company. Many companies assign certain dollar amount to each individual as performance objectives. There is nothing wrong with that, except company leaders need to be aware of the existence of functional silos, and commit to transparency communication within the organization. As we all know, there are many tradeoff decisions to be made within supply chain, such as the traditional tradeoff between warehouse and transportation. Remember, pressure can increase the political level inside the organization and sometimes force people to make a decision based on making their numbers. High level leaders are responsible for the big picture of the whole supply chain and support the least total cost decisions for the organization. Unreasonable measurements or targets can discourage employee morale, damage organizational heath and sometimes lose supply chain talents for future growth.

Below is analysis for key drivers for supply chain as expenses and opportunities for cost reduction:
a. Transportation
There are many areas to be looked at in transportation to achieve cost savings. It has been discussed in detail in my article “Five Ways to Achieve Cost Savings in Transportation”.

b. Inventory carrying costs
It’s an area that many companies overlook and don’t even calculate and understand their inventory carrying costs. As standard rule of thumb, inventory carrying cost is 25% of inventory value on hand. When high inventory level is unavoidable during a recession, it’s a great opportunity for the company to look into their inventory carrying costs to identify opportunities. Below charts present all components for inventory carrying costs. I will discuss more into details in a separate article.

Inventory carrying cost

c. Variable production and warehousing cost
Variable costs are cost of labor, material or overhead that changes according to the change in the volume of production units. I believe many companies conduct ABC (Activity Based Costing) analysis to find out standard variable cost. Variable cost reduction can be done through process improvements to reduce wastes in production and warehouses, such as waiting time, movements, etc.

d. Raw materials
Raw material is considered as part of inventory. It includes direct and indirect raw materials. Collaboration and partnering with suppliers can lead to total inventory reduction in the chain to achieve a win-win situation, such as VMI or ERP. Scrutinizing suppliers in a difficult time will jeopardize companies in the long term.

Supply chain as revenue driver

Many companies recognize their supply chain as cost driver, but fail to see the prospect of supply chain as a critical role to drive revenue.
a. Supply chain service
Supply chain service level directly impacts customer satisfaction. Order fulfillment and on-time delivery are two major service metrics to measure company supply chain efficiency and effectiveness. Higher service levels bring higher customer satisfaction which prevents loss of revenue and leads to future sales. It’s worth noting that there is an exponential relationship between service level and cost. However, there is normally a predefined service level agreement between companies and their customers or trade partners.

b. Supply chain solutions
When business development is trying to break into a new sales channel, supply chain supporting capacity can often be brought up as a question. Example: A company wants to enter into a new market which can only order small LTL orders, but at much higher frequency. If the company has become accustomed to TL orders all the time, those LTL orders will become a market entry barrier due to increased logistics cost. Under this kind of circumstance, supply chain, as its supporting role to revenue increase, needs to be flexible and innovative to provide a solution as an enabler for market expansion without hurting the company’s bottom line. In this case, working with 3PL for LTL consolidation can often be the solution for the challenge.

c. Recycling or reverse logistics.
It’s one area that is easily neglected by many companies. Recycling, picking up disposed goods from the customers and reselling, can not only improve customer satisfaction and lead to new purchase, but also bring the company a new channel of revenue by reselling disposable goods to a safe recycling channel. It also helps companies to fulfill their social commitment for environment sustainability.

Supply chain as assets management

Asset management can be the most challenging task for supply chain because it would take a much longer time to make changes in company assets, such as leasing contracts for warehouses. Better asset management in supply chain will require will require organization transparency and a communication from upstream to downstream to minimize functional silo.

a. Fixed cost of DCs and docks
For a company with excess inventory, it’s costly to acquire more space for storage. For companies with extra space due to less demand, it won’t be easy to close DC in the short term and there is also a risk for a higher acquiring cost when the market is back. So companies can seek partner opportunities with each other to overcome the difficult time together. A project I worked on in the past is to provide a customer storage solution. With certain incentives, the customers purchase several months of inventory shipped directly from the manufacturer. They utilize their empty spaces to make storage revenue and the products are used for their future demand. While the company with excess can avoid the cost of new warehouse space and one leg of transportation from storage to the customers. Certainly this kind of process needs to be carefully managed to avoid skewing demand and other possible negative impact.

b. Fixed cost of plant
This is the most difficult part of all costs reduction opportunities because it may lead to the close of a factory or downsizing the workforce. It’s the last thing I like to see and propose because I’m also one of the millions who lost their job during the recession. The company should try their best to use other methods such as work sharing or payroll reduction to work with employees to overcome the difficult time together. However, as a business person, I can also understand “competitive advantage”. If closing a plant is the best thing for long term growth and efficiency, we just need to face the reality and move on.

c. Cost of private fleet
It’s very similar to the fixed cost of DCs and docks. When it’s not possible to reduce the size of the private fleet in the short term, partner with suppliers or customers to share the capacity to reduce costs.

d. Inventory management
Inventory is the biggest issue to any company during a recession when consumption drops dramatically. It’s a big topic and there are many things that can be done in inventory management. It not only requires day-to-day tactical inventory management to minimize inventory DOS and maintain a targeted customer service level, but also requires some strategic decisions from higher levels to achieve inventory goals.
I. Use demand driven forecast, instead of sales & marketing driven. Many companies include their marketing goal in their demand forecast which produces an inflated the demand forecast. Inventory overflow is unavoidable when the market is down. Face the reality, and forecast based on customer demand.
II. Centralize inventory management, instead of decentralize. A decentralized ordering or inventory management can normally cause higher inventory in the entire supply chain. Centralized inventory management will lead to better forecasting at an aggregate level and hence result in a lower inventory.
III. Inventory optimization and classification. ABC classification can improve inventory turn while maintaining fulfillment service levels. Optimization will lead to SKU reduction so companies can focus on their critical products for better service and lower cost.

Established metrics leads to total supply chain excellence

Besides all of these actions and factors to enable supply chain to become the “cash” chain, leaders should not forget to establish well-designed metrics for the entire organization to achieve total supply chain profitability and competiveness. Company leaders need to be aware that high costs in some areas are normally the symptoms of root causes, and many times, those problems are caused by the wrong metrics in the organization. Requesting cost savings without removing the root causes and establishing accurate performance metrics, the cost savings initiatives can be a failure. For example, production cost per unit is a great measurement of manufacturing efficiency, but it can result in high inventory when manufacturing ignores other cost components in supply chain and over produces in order to reduce cost per unit to meet their metric. This kind of story actually happens every day, and it’s a daily battle for many supply chain professionals. The right metrics convey the right positive incentives and drive the right decisions. When overhauls in supply chain need to be done at a strategic level to achieve day-to-day tactical operational efficiency, company leaders have the obligation and responsibility to face reality and to make the right strategic decisions for the organization.

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