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Report pegs supply chain challenges
Aurora, Colo.—Network re-designs are the number-one challenge faced by many supply chain executives, according to a new report by the University of Denver.
The report, based on interviews with executives from 31 major companies—was sponsored by ProLogis, a provider of distribution facilities and services in Aurora, Colo. All but one of the companies interviewed are on Business Week’s list of the Global 1,000 and recognized as supply chain innovators.
Network designs were top of mind among respondents, mainly because they’re costly and fraught with risk, according to the report, called the ProLogis Supply Chain Review. But executives are willing to undertake the projects as they realize their companies hinge on reliable distribution networks. The report pointed to other trends:
• Major companies now regard their supply chains as one of the central elements in their overall competitive strategies. Companies are re-designing and totally overhauling their supply chains.
• Manufacturers are continuing to outsource to offshore facilities in order to cut operating costs. The downside is they’ve also stretched their lead-times for delivery, leading to an increased focus on strategies such as vendor-managed inventory, hubs and merge-in-transit policies.
•Distribution centres are getting bigger, with the largest ones exceeding one million square feet. Mega-sized facilities are extremely efficient and contribute vitally to the success of network redesigns, according to respondents.
• Geographic-based manufacturing is becoming more popular. Companies are reconfiguring their manufacturing plants to produce their entire line of products, instead of assigning different products to each facility. The rationale is these multi-product plants can be located closer to the customer base, reducing supply chain costs.
• There’s a heightened emphasis on cash flow. Cash-to-cash cycle time has become a key metric in designing and managing supply chains, partly because profit margins are best calculated at the end of the cash-to-cash cycle.
ECCC changing its name
Toronto—The Electronic Commerce Council of Canada (ECCC) is changing its name to GS1 Canada, effective June 2005.
The name change was prompted by EAN International’s decision to change its name to GS1.
EAN International is a global not-for-profit organization that develops and manages information standards, mainly for electronic commerce. ECCC—being a member of EAN International—decided to change its name to harmonize with the global organization.
“The name change to GS1 represents the increased momentum toward worldwide identification standards for collaborative commerce,” said Joe Zenobio, president of ECCC.
GS1 is aiming to create seamless global supply chain integration, through advanced product identification and data systems.
Alberta school district signs energy deal
Calgary—Constellation NewEnergy has signed a five-year contract with Rocky View School Division No. 41.
The deal, which covers 40 facilities, is expected to produce “significant cost savings” compared to the Division’s current power agreement.
“When we entered into our initial power contract in December 2000, there were few choices for customers in Alberta,” said Darrell Couture, associate superintendent and secretary treasurer of Rocky View School District. “The latest round of purchasing has allowed us to review a wide variety of competitive offers…”
The deal with Constellation will allow Rocky View to manage the energy needs of its diverse sites, while hedging its energy requirements. The end result should be a low-cost fixed price and budget stability, according to Constellation.
Dell ramps up computer recycling
Toronto—Dell Canada has given two grants of US$10,000 each to support two Canadian companies’ efforts to recycle computers.
The Regional District of Okanagan-Similkameen and Cool to Be Canadian Corp. were awarded the grants under the “No Computer Should Go to Waste” program. The companies will use the money to organize a one-day event in their communities to collect and recycle computer equipment, at no charge.
Last year, Dell announced a goal to increase product recovery by 50 per cent in its fiscal year 2005, which ended January 31. It recently launched a program to allow consumers to recycle any used computer, monitor or printer through its web site at no charge.
Trucking leader concerned about borders
Washington—The next few months will be “critical” in determining what the borders between the US and Canada will look like for years to come, said David Bradley, CEO of the Canadian Trucking Alliance (Toronto), in a recent speech to the Border Trade Alliance in Washington.
“There can be no doubt that there has been a loss of productivity and efficiency in the movement of goods from Canada to the US,” Bradley said. “A host of new security measures have already been introduced, and several more are close to being implemented.”
Of particular concern is the Free & Secure Trade (FAST) program, which is supposed to facilitate the movement of low-risk people and goods. Bradley is concerned the burden of compliance is not being shared equally among all the players in the supply chain.
He cited the recent introduction of US$5,000 to US$10,000 fines for advanced cargo information violations, levied against carriers, even though other supply chain partners might be at fault.
“If North America wants to maintain its standing as the world’s powerhouse in the face of rapid economic growth in countries like China and India, it must ensure that the trade between NAFTA partners is more, not less, efficient,” Bradley said.
Lexmark toner recycling idea funds charity
Vancouver—Lexmark Canada Inc. has raised $10,000 for the Canadian Breast Cancer Foundation (CBCF) through its cartridge return program. Under the program, Lexmark donated money to the CBCF based on the number of used Lexmark laser printer toner cartridges returned by customers in BC and the Yukon.
“Thanks to the support and concern of our customers, a growing number of toner cartridges will be kept out of landfills and more progress will be made to help breast cancer,” said Jurgen Manal, national sales manager, business supplies, with Lexmark.
Hewlett-Packard stays the course
San Jose, Calif.—Hewlett-Packard Co. (HP) is in search of a new leader, after dismissing CEO Carly Fiorina in February.
The new CEO will have to face fallout from HP’s US$19 –billion acquisition of Compaq Computer, and its “unimpressive” stock price over the last several years,” according to a report from the Globe and Mail.
The new CEO will have to decide whether to stick with Fiorina’s two-pronged strategy of competing with IBM in premium computers and services, and Dell in business and consumer systems.
“The board is firmly committed to the business strategy that is in place,” said Patricia Dunn, HP’s new non-executive chairman, in a press release.
Toyota may tap former purchaser
Tokyo—Toyota Motor Corp. is preparing to shuffle its top managers, in a move that may see Katsuaki Watanabe, a production and procurement specialist, in the president’s seat, according to the Globe and Mail.
Watanabe, 62-years-old, will likely succeed Fujio Cho, 68, as president in June, the month when Toyota usually seeks shareholder approval for senior management changes.
Watanabe was highly effective at procuring the parts and materials Toyota uses the make cars in factories all over the world. The company’s procurement managers are well known for scrutinizing the company’s use of everything from finished engines to raw materials, to eliminate waste and cut supply chain costs.
World View
European auto industry cute deals
By Sam Tulip
The European automotive industry remains in its customary state of turmoil. GM has managed to buy itself out of a foolish commitment—a ‘put’ option on GM’s 20 per cent stake in Italian carmaker Fiat, which could have obligated GM to buy the rest of the company.
Since Fiat is hemorrhaging around US$1 billion a year, one can see why GM would pay almost any money to walk away (although interestingly, GM-Fiat joint purchasing operations will apparently continue). But of course, Fiat won’t collapse. As a national ‘champion’, no Italian government could allow that, whatever the Euro-rules on state aid may say.
The UK’s former national champion, now called MG-Rover is seeking salvation in another direction—a joint venture with Shanghai Automotive Industry Corp. Joint ventures with the Chinese are hardly new. Volkswagen, for example, has been in China for twenty-odd years, and Ford, GM and some of the Japanese have followed.
What’s slightly different here, if the deal goes through, is that the MG Rover-SAIC arrangement isn’t primarily about supplying the Chinese market, or about manufacturing economies. MG-Rover, at below 150,000 units a year, hardly even counts as a volume manufacturer any more, but it has engineers, technicians and designers.
Hitherto, Western companies have been very jealous in regard to giving the Chinese access to intellectual property. This deal, if it goes through, could herald a new age, although whether MG-Rover is hailed as a pioneer, or damned as a traitor, remains to be seen.
UK on the hook for emissions reduction
As the world knows, the Kyoto Protocol on climate change is now in effect.
Unhappily, the UK decided to posture, and encouraged a European Union scheme, which goes far beyond the Kyoto protocols. The UK seems to have committed itself to reductions without a true knowledge of what its industries actually emit.
The error is around 30 million tons of carbon dioxide over the next couple of years, which represents quite a lot of industrial activity. Now the EU says it is ‘too late’ to change the offer.
Some of the UK’s major industries are now saddled with a burden that doesn’t apply to their euro-competitors. What’s worse is to comply with the ‘carbon-trading’ scheme, relatively energy-efficient UK firms may have to buy ‘credits’ from continental competitors who have achieved their promised emission reductions, but may actually be far more polluting in the first place!
Strange results from EU freedom of labour
Freedom of labour movement within the expanded Europe is throwing up some oddities. In Merthyr Tydfil, South Wales, an old mining town fallen on hard times, there is unemployment of up to 30 per cent of the adult male population.
Yet a meat packer, set up there with government grants, is shipping in workers from Portugal, one of the poorest of the ‘Old Europe’ EU nations, because the working conditions don’t suit locals accustomed to a benefit culture.
There’s also a particular shortage of truck drivers in the UK. This used to be an all-hours but well-paid career, but health and safety rules on driving hours have slashed driver incomes. To combat the shortage, Tesco, the UK’s dominant supermarket chain, has brought in 140 Polish drivers to help deliver from distribution centres to retail outlets.
National Grid Transco, a privatized company, which cares for the UK’s gas and electricity infrastructure, was faced with a shortage of fork-truck drivers to move pipe work around. They approached the authorities responsible for young offenders, and hired some 1,300 of them.
Not only did many of these kids stay on after their ‘sentence’ was complete, but the re-offending rate in this group dropped from the expected 70 per cent to just seven per cent, and that figure would have been lower still if a couple of boys hadn’t hot-wired a car to ensure they got to work on time! Moments like that really help you believe in corporate social responsibility as a sound business practice.
Samuel Tulip is a UK-based freelance writer.
Business Front: The cockroach theory
By Michael Hlinka
Bad things tend to come in bunches. In the world of housing, there’s never “one cockroach.” By the same idea, in the world of economics, there’s very rarely one solitary piece of bad news.
Unemployment affects consumer spending which affects business profits, which affects investment in plant and equipment and so on. Therefore, when the Bank of Canada warns—as it did recently—that the economy is expected to operate a little further below its production capacity in 2005 than was anticipated at the time of the October Monetary Policy Report, I take notice. The trend isn’t always your friend!
The Canadian economy is slowing. There are a couple of good reasons why. The first is the Canadian dollar is starting to impact our exports. When a currency appreciates, what occurs is known as the “J-curve” effect. In the short run, the dollar value of exports actually increases.
But after foreigners have more time to seek out cheaper alternatives, both the quantity and worth of exports fall. When our dollar goes up, it becomes more expensive to purchase Canadian products. At the same time, the US is increasing interest rates. This is mostly to protect the value of its currency, but it will have the unfortunate effect of dampening American demand—another blow to Canadian companies.
The question, of course, is how sudden the deceleration will be. The Bank is far more sanguine that I am. We have seen a huge expansion in consumer borrowing over the past several years to finance current consumption. Consumer spending accounts for approximately two-thirds of the economy.
The best-case scenario is this will remain flat, as slowly but surely mortgages are paid down and credit card balances are eliminated. We know that countries like India and China will continue to expand and take jobs and wealth creation away from North America. In the short term, this may help corporate profits, but at the expense of long-term growth on this continent.
What does this mean for purchasing managers? There are any numbers of ways to model your demand for the products you need. Those who take a top-down approach might want to re-consider growth projections for 2005 and 2006. I don’t think most companies will be selling as much as they might think.
At the same time, however, India and China will continue to compete for the raw material inputs your businesses need. Expect commodity prices to continue to rise. I’m seeing a couple of cockroaches here: A stagnant economy and higher inflation.
Michael Hlinka provides daily business commentary to CBC Radio One and a bi-weekly column that is syndicated across the CBC network. He also conducts financial planning courses.
Tariffs levied on Chinese screws
By Ken Mark
Countervailing duties were levied in January against carbon steel screws imported from China. The Canadian International Trade Tribunal (CITT) ruled that China was subsidizing the production of the products by 32 per cent and causing injury to Canadian fastener producers.
The countervailing duty of up to 170 per cent amounts to 18 cents per kilo. It’s Canada’s first successful trade action against Chinese imported products, and the decision will likely prompt similar complaints targeting other items.
The duties, which are item and supplier specific, will initially reduce the entry of such fasteners into Canada’s $233 million annual market (of which China has an estimated 10 per cent share). The CITT also found that Taiwan was dumping fasteners but did not impose any countervailing duties. Together, the two countries enjoy a 55 per cent share of the Canadian fastener market.
In the short run, purchasing professionals will face increased confusion when sourcing such products. First, landed costs will rise. Second, they may find it more difficult to find alternative suppliers.
“Contracted prices with affected Chinese suppliers will not change,” said Cyndie Todgham-Cherniak, Toronto-based partner with law firm Heenan Blaikie LLP. “But landed prices will rise since the Canadian Border Protection Agency will collect the countervailing duties. Also, if the screws require complicated machining, finding other suppliers quickly may not be easy.”
Importers may also have trouble identifying which fasteners are subject to duties. “Based on this decision, it is not clear which machine screws, whether they are nuts or bolts are dutiable,” said Todgham-Cherniak. The decision will also open up new opportunities for Canadian producers. “It puts us on a more level playing field with imports,” said Byron Nelson, Toronto-based president of Leland Industries Inc. who initiated the complaint. “Recently we quoted on an order worth $350,000 for 30 million screws. This year, it looks like we will win the contract. Last year, our quote was more than twice that of the Chinese imports.”
Still, imported fasteners will not fade away. “Companies are looking at other sources in India and Indonesia,” said Nelson. “We will watch those deals very carefully to be sure they are trading fairly.” It’s up to purchasers to source locally to keep Canada’s industrial base strong, he added.
Ken Mark is a Toronto-based freelance business writer.
Energy News
Industrial prices lower than expected for Ontario
By Lisa Wichmann
Toronto—The Ontario government set new energy prices for industrial users in February. An average price of 4.5 cents per kilowatt hour was announced for electricity generated by nuclear plants and river dams owned by Ontario Power Generation (OPG).
The rates were lower than expected, according to a report from Canadian Press (CP). Industrial giants Inco Ltd. and Dofasco Inc. issued a joint statement in support of the move.
The new rates will take effect April 1, and stay in place until the Ontario Energy Board sets new prices, no later than March 31, 2008. The pricing will affect approximately 55,000 large industrial and commercial companies which use more than 250,000 kilowatt-hours per year. These companies will then purchase the rest of their electricity on the unregulated spot market.
The new rates will see large electricity consumers pay 1.5 cents more than prices in 2002/2003, the first year the market opened, according to an Ontario government press release.
The prices will be about five per cent higher than 2003, and between eight to 12 per cent higher than the unusually soft prices in 2004 (which resulted from mild weather).
The new scheme was intended to reduce price volatility and better reflect the true cost of producing electricity, according to the government. It also announced plans to appoint a facilitator to work with industrial companies to explore co-generation opportunities.
“Co-generation can significantly reduce costs for large industrial users and result in tremendous operational efficiencies, while at the same time, help Ontario meet our supply needs,” said Minister of Energy Dwight Duncan.
Though corporate Canada agrees the pricing should reflect the true cost of producing energy, many Ontario companies are still disappointed in the government’s track record.
“Business leaders in Ontario are worried that the government appears to be floundering on the energy file,” said Len Crispino, president and CEO of the Ontario Chamber of Commerce (OCC). “The business community must have confidence and understanding of this government’s policy for continued investment in Ontario.”
The OCC would like to see the government communicate better with the business community. It’s also asking it to maintain coal-fired plants until new energy supplies are available, and encourage new generation capacity from garbage incineration, etc.
“We need a long-term strategy for a secure and reasonable-priced energy supply,” Crispino added.
Reader Poll
Sourcing green
In Pb2b’s February e-newsletter, we asked if your company has a clear mandate to source more environmental products and services, even if they cost slightly more. Most voters (83 per cent) said “no.”
Of 24 total votes, four purchasers (17 per cent) said “yes.”
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