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2012

 

Amid much discussion about rising labor costs in China, and debates about whether it’s now better to consider re-shoring or near-shoring to perhaps Mexico, it’s important to remember that China isn’t just a source of labor. Indeed, it’s also a quickly growing market.

So, for instance, Trevor Miles had an interesting post yesterday, in which he wrote that from a supply chain perspective, the question that needs to be discussed isn’t “How do we get goods to the West from China?” but instead, is “How do we design, market, and manufacture goods to satisfy demand in China and India?”

Just how large is this potential Chinese market? A Knowledge@Wharton article from the Wharton School of the University of Pennsylvania, explains that a quarter of a billion people have migrated from the countryside to the cities of China in the last 25 years, and rising incomes are now driving the expansion of the middle class. Thanks to SupplyChainBrain, by the way, for leading me to the article—which goes on to say that by 2025, China’s middle class is expected to number 612 million, or 76 percent of the population. That will be up from 43 percent in 2006, according to the McKinsey Global Institute. Eventually, that segment will be spending an ever greater portion of their annual income in stores, says McKinsey.

Many of the changes taking place in China are common results of rapid industrialization. For example, rising incomes, urban living, better education, postponed life stages, and greater mobility are exactly the types of changes that took place in Japan during the 1950s and 1960s, and in South Korea and Taiwan during the 1980s.

Interestingly, until now, multinational companies operating in China faced a choice: to target only mainstream and affluent consumers or to stretch the brand to serve the value segment of the population who have a lower amount of disposable income, says a CFO.com article that originally ran on McKinsey Quarterly. Those companies taking the first course could more or less maintain the same business model they applied in other parts of the world, without needing to de-engineer their products, according to McKinsey. But in taking that approach, they limited themselves to a target market of 18 million households. Companies that chose to serve the value category benefitted from a much bigger market--184 million households—but their products had to be cheaper, they were forced to adapt their business models, and profitability was lower, McKinsey also notes.

That’s all changing, however, due to the rapid growth of a middle class. Indeed, because the wealth of so many consumers is rising so quickly, many people in the value category will have joined the mainstream market by 2020, McKinsey forecasts. In fact, mainstream consumers will then account for 51 percent of the urban population, but their absolute level of wealth will remain quite low compared with that of consumers in developed countries. Even so, McKinsey estimates this group—approximately 167 million households, and close to 400 million people—will become the standard setters for consumption because they will be able to afford family cars and small luxury items.

So the question then becomes, how best to reach that rapidly expanding market? Obviously, there will be an impact on manufacturing, but also on the way regional divisions operate since China is such a large country with regions that are considerably different. So while an argument can be made for re-shoring or near-shoring some operations, this also may well be the time to expand operations in China.

A recent IndustryWeek article confirms what everybody knows: A significant amount of business work is conducted now on smartphones and tablets rather than on desktop PCs. Furthermore, the article explains that, citing the emergence of more sophisticated mobile devices and the growing business application opportunities they present as drivers, Global Industry Analysts’ report, “Enterprise Mobility: A Global Strategic Business Report” estimates that enterprise mobility will grow to be a $174 billion market by 2017.

What many don't know, however, is that, as the IndustryWeek article further notes, growing use of mobile devices such as smartphones and tablets means businesses are under increasing pressure to create new policies and procedures to keep the mobile enterprise accessible, available, and secure. These are already significant concerns, as CompTIA’s “Trends in Enterprise Mobility,” study points out. For example, 84 percent of workers use personal mobile devices for business, but only 22 percent of the surveyed companies have a mobile security policy in place. So as the information technology industry organization’s report explains, employees are accessing e-mail, downloading files and applications, browsing the Internet, and accessing the company intranet on almost totally unsecure devices.

Consequently, according to CompTIA’s research, more than 70 percent of surveyed IT staff cite mobile security considerations as the greatest risk to company information. Their concerns focus on six key areas: downloading unauthorized apps; lost or stolen devices; mobile-specific viruses and malware; open Wi-Fi networks; USB flash drives; and personal use of business devices.

That growing concern about lost or stolen devices reminds me of the interesting results of a recent experiment. Businessweek reported that security technology company Symantec purposefully “lost” 10 smartphones as part of a multi-city project to see what happens when digital devices are lost. The devices, loaded with fake data, were left in restaurants, elevators, convenience stores, and student unions. Symantec first equipped the phones with monitoring software that let its security team track where the devices were taken once found, as well as what type of information was accessed by the finders.

The good news is that roughly half of the phones were returned within a couple of weeks. The bad news, however, is that almost 90 percent of all finders looked through the phone’s apps and files. Fake corporate data was on the phones, and more than 80 percent of the finders looked at it, the article explains. Furthermore, about half of the finders tried to use an app that would let them remotely log into a corporate network.

Speaking at a recent CompTIA mobile security briefing, Todd Thibodeaux, president and chief executive officer, CompTIA, said that mobile technologies help to increase productivity and competitiveness so they are a terrific platform for innovation, but companies must also consider the vulnerabilities that mobility introduces—and be prepared to address them. With more companies adopting a “bring your own device” policy, it’s more critical than ever that companies and policy makers consider the security and privacy implications of these actions, he said.

The IndustryWeek article does note that work is being done to fill these security gaps. For instance, software firm Partnerpedia has developed some Enterprise App Store (EAS) solutions to help monitor and control the type of access users have with their devices. Additionally, mobile security control company Good Technology has created a Good Mobile Access (GMA) system to protect Android devices working in the enterprise system. This secure mobile browser will provide firewall protection for mobile access and allow users to securely access corporate Intranet resources to prevent data loss.

I think this type of app and system are one thing, but if companies do adopt—or continue—a bring-your-own-device policy, they should also ensure all access to corporate systems goes through a virtual private network. To go even one step further, many experts now caution that data with a high business impact shouldn’t even be accessible via smartphones.

I was interested to see the results of a recent study showing that regardless of where manufacturing CEOs are geographically located, innovation is a key concern. Thanks to IndustryWeek, by the way, for pointing me to The Conference Board study.

Nearly 800 top executives took part in The Conference Board’s CEO Challenge 2012 survey, which was conducted last fall. What I found intriguing was that despite differences among geographic regions, overall, CEOs cited innovation, human capital, global and economic risk, government regulation, and global expansion as the top five most critical challenges they face.

According to the report, the top ranking for innovation—of products, processes, organization designs, and business models—signals intense global competition and overcapacity in several commoditized sectors, and underscores the importance of process and product innovation to remain competitive. Manufacturing CEOs ranked human capital as the second-most pressing challenge in 2012. The two categories are closely linked as manufacturers continue to seek skilled individuals who can drive innovation, the report stated.

Interestingly enough, even as they continue to identify technology as the number-one driver of innovation, many leaders are exploring ways to leverage human capital to gain an innovation edge on competitors. Furthermore, one key finding of this year’s survey is a growing awareness that collaboration, with both traditional and non-traditional partners, is a requirement to achieve growth and remain competitive, said Jonathan Spector, president and CEO of The Conference Board. 

This focus on innovation has been seen in other studies as well. For example, according to research from IDC Manufacturing Insights, manufacturers are investing in product innovation and added-value services as a means to compete and drive growth. The report, In Pursuit of Operational Excellence: Accelerating Business Change Through Next Generation ERP, is based on surveyed responses from 378 manufacturers in the automotive, industrial machinery, high-tech electronics, and aerospace industries, across numerous countries. Its results show that manufacturers still consider products to be the key factor when it comes to driving growth. Indeed, innovation (cited by 63 percent of the respondents) and added-value services to products (cited by 58 percent of the respondents) ranked higher than expansion into emerging markets (cited by 42 percent of the participating companies). Tellingly, product innovation is valued even higher in some industries. For example, it was cited by 78 percent of the companies in the automotive industry, and also was cited by 75 percent of the respondents in the high-tech electronics industry.

Pierfrancesco Manenti, head of IDC Manufacturing Insights, Europe, Middle East & Africa, says that while active cost management remains crucial, companies can only truly differentiate themselves by offering innovative products and services. Smarter processes and IT systems represent a substantial source of savings, differentiation, and agility, which—in turn—help to allow informed decisions and establish a strong foundation to encourage innovation where the company meets the customer, he says.

Discussions about the supply chain often center on efforts to maximize profits, streamline operations, and improve responsiveness to volatile demand. However, innovation, as is seen in recent research, is critical for a company’s continued success. Is your company placing a renewed focus on innovation?

China’s rare earths continue to be in the news but there are other minerals that pose problems for the supply chain as well. So-called “conflict minerals” are those that are mined in conditions of armed conflict and human rights abuses--notably in the Democratic Republic of the Congo (DRC). The profits from the sale of these minerals is used to finance continued fighting.

So what are they used in? Quite a bit, actually. The most commonly mined minerals are: columbite-tantalite used in cellphones and giant turbines; cassiterite is a source of the tin used in coffee cans and circuit boards; wolframite is used to produce tungsten for light bulbs and machine tools; and gold is used for jewelry but also as an electronic conductor.

The situation, of course, is a significant concern. The New York Times now reports that a legion of lobbyists from electronics makers, mining companies, and international aid organizations have descended on the Securities and Exchange Commission (SEC) in recent months seeking to influence the drafting of a Dodd-Frank regulation that will require publicly traded companies whose products use the conflict minerals to report to shareholders and the SEC whether their mineral supply comes from the DRC.

As the article explains, given their broad application, the minerals have been a primary target of humanitarian groups concerned about genocide, sexual violence, child soldiers, and other issues that are common outgrowths of conflicts in Central Africa. Just about every company affected by the law says they support it, but as the article further explains, many business groups are pushing to put wiggle room in the restrictions, calling for lengthy phase-in periods, exemptions for minimal use of the minerals, and loose definitions of what types of uses are covered.

Two of the largest obstacles are the cost—the SEC estimates companies will have to spend $71 million to comply with its regulations—and the sheer scope of trying to track the minerals through the supply chain. Last fall, The Washington Post reported on an SEC roundtable discussion, and noted that a lawyer for Boeing said minerals are embedded in millions of parts from thousands of shifting suppliers, and no manufacturer can trace these all the way back to the mine. Unreasonable requirements could cost the aerospace industry hundreds of millions, if not billions, of dollars, which would be passed on to customers such as the Defense Department, Boeing’s Benedict S. Cohen said at the time.

Irma Villarreal, chief securities counsel for Kraft Foods, also said during the SEC roundtable last fall that Kraft would fall under the requirement because it packages biscuits in tin. However, since Kraft produces 40,000 distinct products and uses 100,000 suppliers, the task of auditing supply chains for conflict minerals obviously is monumental.

Even so, The New York Times explains that, according to the Enough Project, a nongovernmental organization that works against genocide and crimes against humanity, a growing number of companies such as Intel, Motorola, and Hewlett-Packard have already made significant steps to inspect and adjust their supply lines to avoid tainted sources of conflict minerals.

The group hopes that the rule will be strong enough that companies in industries that aren’t doing anything will start to feel the pressure in their supply chains, says Darren Fenwick, senior government affairs manager at the Enough Project.

To be fair, many companies already require their suppliers to certify they do not use conflict minerals. This often is a verbal certification, however, and a second problem is that some suppliers attempt to obscure the origin by claiming the minerals came from neighboring countries where there are no restrictions or they are loosely enforced. Another issue is that there really is no way to quantifiably determine where—exactly—the minerals were mined. So it will be interesting to watch how the whole situation plays out and what effect it has on the supply chain.

I’ve been thinking about supply chain resilience lately for several reasons. Namely because the ability to manage risk and be better prepared than competitors to deal with--and perhaps even take advantage of--supply chain disruptions is increasingly valued. But the topic has also popped up recently in several places.

Dow Chemical, for example, has taken significant steps to improve its supply chain resilience. According to supply chain analyst Shannon Hemmelgarn, the company needed to assess all vulnerabilities throughout the chain, while testing and implementing various solutions.

Working jointly with Ohio State University and the U.S. Air Force Institute of Technology, the company was able to uncover imbalances in its ability to cope with disruptions. It also defines a “zone of balanced resilience,” or a middle-ground between an erosion of profits caused by excessive capabilities, and the exposure to risk caused by vulnerabilities. Dow now plans to extend the use of the model throughout the company’s global operations as the means to buffer itself against transportation delays, material shortages, natural disasters, and other major supply-chain disruptions.

Secondly, as you would expect, the earthquakes and tsunami in Japan last year were a game changer. Recent research from Business Continuity Institute reports that one year after the earthquake and tsunami in Japan, 82 percent of the companies that reported supply chain disruption have confirmed changes to their supply chain strategy. For 70 percent of those companies, there will be some change, but 12 percent of them say the change will be significant.

These changes generally fall into two areas: preparedness and supply chain strategy. When it comes to preparedness and incident management, chief among the stated strategies are to recruit a supplier from another region; move some services from Japan to Hong Kong; review appropriate stock levels for some critical suppliers with unique products; and increase localization of manufacturing within Europe. On the other hand, supply chain strategy changes include identify and assess impacts; improve proactivity and robust “horizon scanning”: ensure supply chains have adequate recovery measures in place and include them in business continuity testing; improve planning and specific contingencies for earthquake events; and increase monitoring/follow up of impacted suppliers and their 2nd and 3rd tier suppliers.

However, conducting that type of exercise will become increasingly important for all companies since supply chain risks appear to be rising, driven especially by globalization which increases supply chain complexity and amplifies the impact of disruptions. Indeed, a recent IndustryWeek article explains that high impact, low probability “black swan” events now seem to be an almost regular occurrence because in a globally interconnected business environment, problems that used to remain isolated now have far-reaching impacts.

In that article, the authors Kelly Marchese, a principal, Siva Paramasivam, a senior manager, and Michael Held, a specialist leader, all in the Supply Chain and Manufacturing Operations practice in Deloitte Consulting LLP, write that past efforts to identify and mitigate supply chain risk have historically focused on financial and operational risks, and past disruptions. But today, what’s needed instead, is a holistic approach to managing supply chain risk.

The key, the authors believe, is to address critical vulnerabilities that expose the business to risks that may exceed its risk tolerance. To achieve that type of resilience, the authors explain that companies should focus on four key capabilities. They are:

Visibility: The ability to track and monitor supply chain events and patterns as they happen--or even before they happen.

Flexibility: The ability to promptly adapt to problems without significantly increasing operational costs.

Collaboration: The ability to work effectively with supply chain partners to avoid disruptions and achieve common goals.

Control: The ability to clearly define policies, and implement monitoring and control mechanisms to ensure proper procedures and processes are actually followed.

What do you think? Whether or not your supply chain was disrupted by events in Japan last spring or flooding in Thailand last fall, has your company been working to increase supply chain resiliency?

China’s near monopoly on rare earth metals continues to cause a ripple effect on supply chains around the world. IndustryWeek, for instance, ran an Agence-France Presse story today reporting that the European Union joined the U.S. and Japan in a new complaint against China over its restrictions on the export of rare earths used in high-tech products. They formally requested “dispute-settlement consultations” with China at the World Trade Organization, which is the first step in any bid to settle trade issues.

Rare earth metals are a group of 17 elements, with names such as yttrium and dysprosium, that are used in everything from cars and missiles to smart phones and green energy products. I’ve posted before that the problem is China mines more than 90 percent of the world’s rare earths, and also accounted for 60 percent of the world’s consumption by tonnage last year. At the same time, China imposed significant quotas last year to limit exports of rare earths. Finally, China also raised export taxes on rare earths to as much as 25 percent, on top of value-added taxes of 17 percent.

As the IndustryWeek article explains, critics say Beijing’s strategy is to drive up global prices of the metals and force foreign firms to relocate to China to access the metals. But as the article also notes, Beijing says the restrictions are necessary to conserve the highly sought-after natural resources, limit harm to the environment from excessive mining, and meet domestic demand.

With that situation mind, I was interested to run across a Supply Chain Management Review article about the impact limited natural resources—such as metals, petroleum, crops, and fresh water—have on the ability to maintain a balance between supply and demand in supply chains. The issue consequently becomes understanding “where,” “why,” and “when” natural resource scarcity will occur and “how” to manage it, will be critical for supply chain management in the future.

I’m particularly reminded of the “when?” aspect as I think about rare earths in China because scarcity has already occurred. Indeed, according to research from PricewaterhouseCoopers (PwC), companies in the auto, chemicals, and energy industries have already become concerned about the supplies of rare earth metals. For example, according to the research, 80 percent of automotive survey respondents are currently worried about reserves running out. Furthermore, companies in the renewable energy (78 percent), automotive (64 percent), and energy & utilities (57 percent) are all currently experiencing supply instability. Aviation, high-tech, and infrastructure sectors also expect to experience increasing supply disruption from now to 2016.

So what can supply chains do? Well, the SCMR article explains that building strategies that apply logistics, avoidance, allocation, and reclamation techniques are the focus of recent research at the University of Tennessee. Preliminary findings from this research have lead to a set of recommendations to help supply chain managers prepare for—and counter--natural resources scarcity. They include some key steps, which include recognize where and in what quantities scarce resources appear in product supply chains; collaborate with suppliers and customers to locate resource scarcity threats; and design and build closed-loop supply chains with partners to increase levels of recovery and promote smart use and allocation of scarce resources.

Some companies and supply chains are already doing that. For example, Japan and Vietnam are working to jointly develop rare earth reserves. What’s more, German officials previously said the country will work with Tokyo to stimulate rare earths production in other nations including Mongolia, Namibia, and the United States.

While it’s important to look for other sources, there also is a timeliness factor—because it takes time to dig mines, build processing facilities to separate materials, and implement and complete numerous other processes necessary to, for example, create high-powered magnets. Even so, considering the current situation with China, it certainly appears there will be supply chain disruptions in coming years for all industries making use of rare earth metals.

I’m guessing many—if not most—of you use a smartphone. If so, do you or your company’s IT team think it’s secure?

I’m curious, having just read a BusinessWeek article about an interesting experiment carried out by security technology company Symantec. Earlier this month, the company purposefully “lost” 10 smartphones as part of a multi-city project to see what happens when digital devices are lost. The devices, loaded with fake data, were left in restaurants, elevators, convenience stores, and student unions. Symantec first equipped the phones with monitoring software that let its security team track where the devices were taken once found, as well as what type of information was accessed by the finders.

The article explains that the smartphones were set up to make it easy for people to return them. They didn’t require a PIN, and the only contact listed in the address book was “Me,” which listed a number and e-mail address that reached Symantec’s researchers.

The good news is that roughly half of the phones were returned within a couple of weeks. Other than the fact that half of the phones weren’t returned, the bad news is that almost 90 percent of all finders looked through the phone’s apps and files. The home screen of each phone included a file promising salary information, a Bank of America app, a Facebook app, and apps for photos, e-mail, and a calendar. There also was corporate data on the phones, and more than 80 percent of the finders looked at it, the article explains. Furthermore, about half of the finders tried to use an app that would let them remotely log into a corporate network.

The experiment demonstrates what Francis deSouza, Symantec group president of corporate products and services, and others at Symantec already knew, which is the importance of requiring strong passwords to open certain apps, tools that block sensitive data from being pasted into e-mails, and services that can wipe data off a lost device from a distance. Many smartphone owners don’t take even simple steps, like requiring a PIN to unlock a phone, because they follow a home PC security model—where they don’t lock down the machines—and apply that strategy to a smartphone, says deSouza.

With all that in mind, I was interested then to see another article, which ran on ComputerWeekly.com, reporting that at a recent security conference, a panel of IT security experts told attendees that enterprises shouldn’t allow employees to use their own smartphones for work. That’s because the only way to ensure sensitive corporate data isn’t lost is to provide employees with devices owned and controlled by the enterprise, the panel explained.

Alex Stamos, founding partner, iSEC Partners, said that many companies look to BYOD (bring your own device) to cut costs, but the cost of providing smartphones employees want to use is nothing compared with the risk of losing sensitive company data. Jeff Moss, founder and director of Black Hat, went further, and said that a company that allows employees to go out and buy any smartphone and then put enterprise e-mail on that device—which will probably never be patched—is courting disaster, the article notes.

The panel agreed that data protection was the biggest issue with smartphones in the enterprise, the article notes. Companies should, according to the panel, select the most secure mobile operating system they can; ensure they are in control of the all devices used for business; and make all access to corporate systems go through a virtual private network (VPN). Most significantly, according to the panel, data with a high business impact shouldn’t be accessible via smartphones.

Does your company follow a similar practice? Can you access critical corporate or supply chain data using a smartphone?

Has your company’s approach to supply chain and supplier risk management changed as a result of events in recent years? Last year, of course, the earthquake and tsunami in Japan caused an impact on the supply chain that was felt around the world. Likewise, the flooding in Thailand last year also had a global impact. But the year before that, there was the volcanic eruption in Iceland, and other events, that disrupted supply chains.

As a recent IndustryWeek article points out, the result of events in Japan last year was that the global car industry slowed—and in some cases, came to a halt—when the small subcontractors that supply global automotive and electronics brands found themselves unable to operate.

For instance, Ford and Chrysler were forced to limit orders of vehicles with some black and red paint last year because the pigments used in the paint are made in Japan—and production of that pigment had been stopped. Other industries suffered as well, including the semiconductor industry. Production at some of the world’s largest makers of silicon wafers came to a halt in Japan last spring, which in turn, led to concerns about future semiconductor production.

Flooding in Thailand last fall led to similar problems. Not only did Mitsubishi, Nissan, Aisin Seiki, Toyota, Honda, Isuzu, and Hino all have to close automotive plants, but since Thailand is home to so many electronics factories, the electronics supply chain was effected as well. That’s because Thailand is the No. 2 maker of hard drives used in laptops, servers, and TV set-top boxes. Damage caused by flooding caused some short term shortages of hard drives used by computer manufacturers and companies in the high-tech market.

Consequently, many manufacturers in Japan have been rethinking their supply chain risk strategies. The IndustryWeek article explains that some manufacturing companies are now diversifying their suppliers and trying to determine just how far the supply tail stretches, so they can better mitigate future risk.

Before the disaster, Toyota knew about its first tier suppliers but didn’t know about 2nd, 3rd, or 4th tier suppliers, Masami Doi of Toyota, said in the article. Since the earthquake, the company has been working to gain visibility into everything, including these 3rd and 4th tiers, Doi says.

While securing multiple supply routes and spreading out operations so they may not be so closely located are obvious approaches, some experts argue that what’s really needed is a different approach to supply chain and supplier risk management.

For example, SupplyChainDigest reports on a recent ISM Inside Supply Management magazine article in which Jin Leong, chief procurement officer for the International Monetary Fund, writes that instead of relying on prequalification, risk classification, and periodic maintenance reviews that look at backward-facing indicators, companies must instead now use a risk management program that anticipates risk and potential supply disruptions in advance--so mitigating actions can be taken before the disruption occurs.

Leong says in the article that he and an IMF colleague (Caro Cook, deputy division chief of procurement) developed an approach to risk management to do just that. What makes the approach different, Leong says, is that it enables companies to augment traditional risk indicators such as Dun & Bradstreet ratings and historical financials with real-time supplier observations from the organization’s supply managers. When viewed over a quarter or six months, these real-time observations—ranging from financial releases to changes in risk ratings—can offer advanced insight that a given supplier may be having issues that could lead to problems or a true disruption to a company’s supply chain, Leong writes.

What do you think? Is your company already doing something like this to plan for possible risk? Has its strategy changed at all?

Despite a fall in gasoline demand in the U.S. and Europe, gas prices have climbed due to rising demand from countries like India and China, and the continued political unease in Iran and Syria. Indeed, The New York Times reports today that gas prices are already at record highs for the winter months—averaging $4.32 in California and $3.73 a gallon nationally on Wednesday.

As summer and vacation season approaches, demand for gasoline rises, typically pushing prices up at least 20 cents per gallon. Making matters worse, The Times also reports that gas prices could rise another 50 cents a gallon—or more—if the diplomatic and economic standoff over Iran’s nuclear ambitions escalates into military conflict or there is some other major supply disruption.

On Wednesday, the price of the benchmark American crude settled at $107.07 a barrel, which is about four dollars higher than on the same day in 2008. Later that year, oil and gasoline prices jumped to new records, including a record nominal high of $145.29 a barrel for oil and $4.11 a gallon for gasoline in July 2008. As The Times article notes, in today’s dollars, that would be $150.87 for oil and $4.27 for gasoline.

If gas prices rise as forecast, supply chains will feel the effects. First of all, it obviously will cost more to produce and ship products. But a 50-cent increase in the price of a gallon of gas means that a consumer who uses 60 gallons of gas per month, is facing an extra expense of $30 each month. That will have an impact on some consumers, and consequently, they may curb other spending habits.

That means this is the perfect time to plan ahead and even re-evaluate supply chain activities to determine where savings are possible. Something to think about is the way products are packaged. Is it possible, for instance, to make changes to the packaging material so there is more product and less packing material per carton? Optimizing carton sizes and utilization in pick-pack operations can also lead to savings because it allows placing more product in trucks.

There are also other improvements that may lead to more significant savings. For instance, as oil prices increase, companies may realize the need to reconsider where distribution centers are located in relation to areas of high demand. Conducting a network optimization analysis may show that a company needs to open or close distribution centers, and in some cases, it may make sense to move facilities to more optimal locations so they can better serve key markets or customers.

Improving shipping practices can also deliver notable savings. A company may consolidate shipments by establishing specific delivery dates with key customers. Additionally, sometimes consistently reducing their so-called “bad loads”—in other words, poor capacity—can have a significant impact over time. Waiting another day to improve consolidation can make a difference in the long run.

Many of these practices may not make much difference right away, but over the course of a summer—for example—the savings can add up. If the price of gas does start to climb, and appears to be within striking distance of $5 per gallon, I believe many companies will be taking similar actions.