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2012

 

I’ve seen some interesting news lately about the use of ID codes in the pharmaceutical supply chain. As expected, they are being used to fight counterfeiting. However, the codes also are being used to improve supply chain performance.

First, SecuringPharma reports that a task force set up to recommend strategies to the Indian government to protect the public from exposure to counterfeit medicines has recommended the adoption of unique identification codes on drug packs, coupled with authentication via a short message service. Use of unique IDs in a human-readable format will allow consumers to self-authenticate their medicines by sending the code via text message to a central phone number.

Another story, also running on Securing Pharma, reports that the participants in the German medicines traceability pilot SecurPharm recently decided to use GS1-compliant codes when the project gets underway next year, according to the European Compliance Academy (ECA). The pilot will involve placing unique, serialized codes on medicines at the point of manufacture so they may be scanned and authenticated by pharmacists when they are dispensing medicine, creating what ECA calls an “end-to-end” system.

But the story I was most interested in recently ran on RFIDjournal, and explains how Hanmi Pharmaceutical, Korea’s largest pharmaceutical company, is using a radio frequency identification system at five of its wholesalers, as well as at five retailer locations throughout the nation. Since the company’s Hanmi IT division installed the technology two years ago at two factories, the drug manufacturer has tracked 60 million product units annually within 500 different product categories. Essentially, it creates an automated process from an order’s receipt to the shipment of a packed carton to a wholesaler.

This year, however, the system provided an additional benefit, Hanmi reports. When the Korean government identified several products requiring a mandatory 30 percent price reduction, Hanmi was able to resolve the situation quickly, the RFID Journal story explains.

For most companies, this is a significant challenge, RFID Journal explains, because it requires immediately changing the pricing for any unsold goods that are anywhere within the supply chain, or at retail locations, and then requires adjusting invoicing accordingly. So, without an RFID system in place, a drug supplier must manually locate and count each item at thousands of pharmacies and wholesale locations. For Hanmi, however, this process was made much simpler due to the use of RFID. The company assigned approximately 400 staff members throughout the pharmacies, as well as to any wholesale locations not equipped with RFID readers. The Hanmi team used handheld readers to perform an inventory count to determine how many of each specific product facing price reduction were on the shelves. The company then used that data to adjust invoicing for those particular goods. I was surprised to see that it took Hanmi less than five days to get a total count at more than 20,000 pharmacies.

I started the story expecting one thing, but was surprised to see how RFID technology is being leveraged. I look forward to other stories—across other industries—explaining similar applications that have an impact on performance as well as the bottom line.

It sometimes seems like it, but China isn’t the only source for rare earth metals. For that matter, Earth itself isn’t the sole source of rare earth metals. Indeed, I am quite interested in some recent news about future out-of-this-world efforts to discover some of the materials, which are used in the manufacturing, chemicals, automotive, energy/renewable energy, aviation, metals, infrastructure, and high-tech hardware industries.

A Businessweek article yesterday reported that a group of adventure capitalists and space entrepreneurs—film director James Cameron, Peter Diamandis and a team of others including Google executives Larry Page and Eric Schmidt—have formed Planetary Resources, an asteroid-mining company. (Yes, you read that right.) The first step, they say, will be to launch a telescope into space to search for asteroids suitable for mining. They plan to do that within the next two years, and Planetary Resources will follow-up by sending robot miners into space to prospect resource-rich asteroids.

An Agence France-Presse story running on IndustryWeek yesterday reports that, according to Planetary Resources, a single 500-meter platinum-rich asteroid contains the equivalent of all the platinum group metals mined in history. More than 1,500 of the approximately 9,000 known near-Earth asteroids are as reachable as the moon in terms of how much energy it would take for a trip to an asteroid.

The downside, according to outside experts, is that the project obviously is extremely complex and expensive. There also are legal issues to sort out, such as whether or not anyone can actually "own" an asteroid.

Even so, Jeffrey Kargel of the University of Arizona, explains in the IndustryWeek article that the long-term benefits could be enormous. Bringing larger quantities of minerals back to Earth could completely transform the global economy, he says.

“It would be what economists call a disruptive technology; suddenly some metals could become very cheap, meaning people could consider using them in ways they never would have before due to the cost,” Kargel says in the article.

While asteroid-mining may be the most exciting prospect, another recent announcement may prove to be beneficial in the immediate future. There are some technological implications that are equally interesting.

Honda Motor Co. and the Japan Metals & Chemicals Co. announced last week they jointly established a process to extract rare earth metals from various used parts in Honda products—and that’s in an actual mass-production process at a recycling plant. As part of this effort, before the end of this month, the two companies will begin extracting rare earth metals from used nickel-metal hydride batteries collected from Honda hybrid vehicles at Honda dealers inside and outside of Japan. The new operation will be the first in the world to extract rare earth metals as part of a mass-production process at a recycling plant—and according to Honda, the process produces purity levels as high as those of newly mined and refined metals.

The newly established process enables the extraction of as much as above 80 percent of the rare earth metals contained in used nickel-metal hydride batteries, according to Honda. What’s more, Honda will strive to reuse extracted rare earth metals not only for nickel-metal hydride batteries, but also for a wide range of Honda products. Honda says the company additionally will further expand the recycling of rare earth metals in the future as the newly established process enables the extraction of rare earth metals from a variety of used parts in addition to nickel-metal hydride batteries.

That sounds promising to me. At the same time, there are other interesting developments as well. For instance, Quest Rare Minerals Ltd. continues to work on several high-potential rare earth projects in northeastern Québec, and Molycorp, Inc. recently announced that reserves of rare earth minerals at its Mountain Pass, CA facility have increased by 36 percent. With all that in mind, it certainly sounds like supplies of rare earths may be increasing soon.

I’ve been thinking about supply chain collaboration since the topic came up in the “If you could re-name SCM today, would you? If so, what would it be?” discussion from the Supply Chain Expert Community’s SCM30 Discussion Series. Collaboration, of course, is difficult—otherwise everybody would already be best-in-class performers. But one of the biggest challenges seems to stem from an overall lack of visibility.

I’m reminded of an interview that was conducted in San Francisco at the “Best Practices” Conference of the Institute of Business Forecasting and Planning, and subsequently ran on SupplyChainBrain. In that interview, Jay Hollenbeck said the biggest challenge facing supply-chain collaboration is to follow decision-making and information across supply chains. As director of business solutions at electronics manufacturing service (EMS) provider Flextronics, he knows what he’s talking about. Hollenbeck goes on to say that companies need to be able to view information outside their four walls because information that formerly was part of their infrastructure can now only be seen from a distance.

I think Hollenbeck makes a good point in saying that rather than view supply-chain collaboration as micro-managing the execution of purchase orders and production schedules, people need to measure what’s going on at a macro level. That means they need to understand how their decision making influences the supply chain, and then make strategic decisions that impact it, rather than relying on their contract manufacturing partners to make those strategic decisions for them, he says.

To really gain the type of visibility that’s increasingly necessary, companies need to break down barriers between trading partners and collaborate on processes, which will allow them to see how the information can flow through the supply chain on a real-time basis, rather than waiting on quarterly forecast updates, Hollenbeck says. That way, real-time data throughout the supply chain can be used to make decisions--from the component manufacturers all the way up to the manufacturing of product and order fulfillment.

One common mistake is an over-reliance on metrics. After the entire supply chain is working toward a common set of metrics that truly measures performance, a company needs an organizational structure that allows those metrics to be tied back to the decision-makers, says Hollenbeck in the SupplyChainBrain article. The impacts of the downstream supply chain need to be driven back up to decision-makers at the OEM, contract-manufacturer level, or whoever within the supply chain makes those decisions. It’s a mistake, Hollenbeck says, to rely on a monthly or quarterly forecast or cycle process to drive change. What’s really needed is a process that’s collaborative, which then enables users to make decisions based on real-time data.

Having access to real-time data to improve decision making will likely become more important given the demand volatility companies see today. Consumers are less loyal and more demanding, and the reality is that with volatility, simply having a good plan or forecast isn’t sufficient. That truly collaborative environment, driven by visibility, will become increasingly important as companies strive to improve responsiveness in the years to come.

What do you think of collaboration and the use of real-time data from throughout the supply chain? Let me know or post in the discussion “If you could re-name SCM today, would you? If so, what would it be?”

 

Japan, it seems, is in the midst of a manufacturing transition of sorts. Not, as would be expected, as a result of manufacturing or supply chain changes stemming from last year’s earthquake and tsunami, but instead, from other Asian competition.

As an article that ran recently in The New York Times explains, many electronics plants in Japan have been closed or partially sold off as competition from China and South Korea heats up. In fact, many Japanese now fear a “hollowing out” of their heavily industrialized economy. The decline is largely a result of growing competition from Asian rivals, an aging work force, and significant gains by the yen. But The Times article does note that some officials and business leaders now fear that the trend has accelerated since last year’s nuclear accident in Fukushima after the tsunami and earthquake, which raised the prospect of higher energy prices and even power failures—and officials fear, may therefore give manufacturers the excuse they need to move offshore.

Part of the problem in regard to competition is the loss of aging engineers. According to a Reuters report, thousands of ageing Japanese engineers are moving to China. That’s because, as the article explains, the choice for a growing number of Japanese engineers nearing the national retirement age of 60 is simple: face a few years without an income as Japan raises the age at which employees get their pension or work for mainland Chinese and Hong Kong companies.

This loss of engineers isn’t quite new. Japan’s loss of engineers actually goes back about 20 years ago when South Korean firms such as Samsung Electronics and LG Electronics lured scores of front-line semiconductor and white goods engineers away from big Japanese electronics firms, the Reuters story notes. Since then South Korean electronics manufacturers have moved into the global top ranks, in part by leveraging this knowledge and expertise.

At the same time, while China pushes its own companies to innovate, the country’s educational system, which prizes rote learning, is cited as an obstacle by some experts. The result, for many firms—both large and small—is that buying talent is the quickest fix. So as the Reuters story further notes, an influx of Japanese engineers going to work in China could potentially lead to Chinese companies making higher quality products.

Interestingly, The New York Times also notes that situation in Japan now has economists divided over how much the nation will actually deindustrialize—and whether a shift away from factories actually is detrimental. Most economists agree that Japan, which rose to economic superpower status in the 1980s by building compact sedans and color televisions, has outgrown the so-called “Asian Miracle” template and needs a new economic strategy, according to The Times. Naturally, all this is subject to debate.

For example, Yukio Noguchi, an economist at Waseda University in Tokyo, believes last year’s disaster is a chance for Japan to transition to a more supple, service-oriented economy such as that in the U.S. He says in The Times article that clinging to an outdated manufacturing model also hurt Japan by forcing it to cut wages and prices to compete with lower-cost Asian competitors, which contributed to the deflation that has burdened Japan’s domestic economy for nearly two decades.

“Manufacturing is destroying the Japanese economy,” Noguchi says in The Times article.

On the other hand, other economists believe differently. Takao Nakazawa, a professor of economics at Fukui Prefectural University, says in the same New York Times article that the decline in factory jobs is actually due to the introduction of new labor-saving technologies. So what’s actually happening is Japanese production is shifting away from televisions and other commodity products that can be churned out more cheaply by assembly lines elsewhere in Asia. He says the surviving Japanese companies are moving to more quality-sensitive products, such as industrial robots and high-end bicycle gears.

Either way, changes are afoot for Japanese companies, as well as consumers of all types, purchasing products made in Japan. The same goes for products formerly made in Japan. Whether Japan transitions to a service-oriented economy or focuses on high-end manufacturing, it will be interesting to watch.

 

 

I’ve been thinking about Cuba lately, not because of Ozzie Guillen’s remarks, but instead about how the country could become a supply chain hub. In case you missed it, Guillen, manager of the Miami Marlins baseball team, had made some comments expressing admiration for Cuban leader Fidel Castro. After an immediate, and expected, public uproar, the Marlins suspended Guillen for five games.

One of the stories that really caught my attention, however, is one that ran on MarketWatch. It notes that with the Panama Canal expansion progressing, some supply chain specialists anticipate a logistical hub will surface in the Caribbean Basin.

The Panama Canal expansion project is building new locks and wider and deeper channels that are expected to double the canal’s capacity. This will allow the so-called megaships to take an “all-water” route from Asia to the U.S. East Coast—bypassing West coast ports and the roads and railways now used to transport goods across the U.S.

Actually, as a story I saw on JOC Sailings reports, the latest news is that the Panama Canal’s new locks will probably not be ready for their scheduled opening in October 2014, but they should be ready for a trial run before that—and should be completed six months behind the target date. The setback stems from an inability of the consortium building the new locks, Grupo Unidos por el Canal, to meet its contractual requirements for the concrete mix for the locks, which delayed the laying of the concrete from January until July of last year. The concrete has to last at least 100 years, but GUPC could not make concrete that met that standard until the canal authority brought in an outside expert to show them how to make it, JOC Sailings reports.

Regardless of the timing, as the MarketWatch story notes, for those investors and traders eyeing opportunities in Cuba, the timing couldn’t be better. It explains that, as was previously noted in The Wall Street Journal, money managers are “optimistic” when it comes to finally eliminating the 50-year-old trade embargo. And initial barriers to entry should not include logistics, say industry experts. While the long-term challenges around opening trade with Cuba would likely revolve around customs and export compliance, in particular the infrastructure to support the safe and fully documented movement of those goods, those challenges can be overcome, the MarketWatch story concludes.

The growth of ports in the Caribbean isn’t necessarily a foregone conclusion, however. That’s because a great deal of work is underway at Eastern and Gulf Coast ports to deepen their harbors to accommodate the larger ships expected to use the Panama Canal. Even so, Baltimore, New York, and Miami ports may be ready to accept increased shipping traffic in 2015, but those ports handle only a fraction of U.S. trade and aren’t on the Gulf Coast, which serves consumers and exporters in the middle of the U.S. Although the Port of New Orleans is on the gulf and is investing $650 million on new canal-linked projects, reports indicate that might not be sufficient. Finally, an Associated Press story yesterday reports that despite on-going work, the Port of Savannah may still be too shallow to accommodate the new, larger cargo ships.

Only time will tell if those Eastern U.S. ports and those on the Gulf Coast will be able to accommodate the larger ships. If they can’t, shippers may opt instead to use deeper ports in the Bahamas and Jamaica. If that happens, Cuba may indeed become a logistical hub.

 

I continue to be interested in the issue of re-shoring because there’s so much at stake, but also because there are so many variables that should factor in to the decision. The result is that there’s no easy decision, especially for companies considering simultaneously expanding into China or other countries and re-shoring some operations. In other words, the issue isn't as cut and dried as it may first appear.

The problem is that the economics favoring offshoring are murky at best, says Paul Martyn, a vice president at BravoSolution in an IndustryWeek article. Companies moved offshore due to the allure of the single metric of a 50 percent reduction in unit costs, he says. Unfortunately, one metric doesn’t tell the whole story because other factors such as lead times and risk can have a critical impact.

Labor, of course, is a considerable concern—not just that wages in many countries are rising, but also that difficult labor situations overseas can have negative effects, Martyn says. Ensuring high levels of quality also is costly, especially, he says, when teams must be sent overseas on a quarterly basis to ensure the proper quality levels are being met.

Another crucial change taking place in favor of re-shoring is the continued decreased cost of doing business in the U.S. stemming from transportation costs, Martyn says. One of the better kept secrets is that the shipping rate going from the U.S. to global locations is less than the rates for products entering the U.S., he says.

But while re-shoring remains a hot topic, that doesn’t mean it should be taken lightly or that the decisions should be made hastily. There are a number of factors that must be considered when deciding where to locate manufacturing—not only the cost of conducting business, but also other factors, such as labor availability, population, education, cost of living and opportunity for innovation.

Likewise, there are a number of factors to be considered when deciding to re-shore, as Steven Healings, Group Supply Chain Director, eXception Group, wrote in a recent SupplyChainDigital article, The first step when considering re-shoring should be to review the existing business model assumptions and the drivers that led to off-shoring in the first place, he wrote. After that, identify what now drives the need to consider re-shoring. Was the original business model simply labor-cost driven, and that logistics costs, inventory levels, cashflow, quality, responsiveness, exchange rates, and travel costs weren’t considered or were considered to be marginal factors?

Furthermore, in a follow-up article, Healings wrote that re-shoring needs strategic thought. It’s very easy to change tactic quickly in reaction to changing events, but the long term view needs to be considered if the move is to be successful, he says. So, for example, companies need to consider whether re-shoring might bring production close to the markets of today but be moving further away from the end markets of tomorrow. Furthermore, businesses should not under-estimate the time, effort, and resources that will be needed to successfully manage a major re-shoring operation because it will be a significant undertaking, Healings writes.

To me, that’s the crux of the situation. If the best decision is to re-shore or near-shore to perhaps Mexico, then those costs will be worthwhile. But the larger questions are where will the markets of tomorrow be located and how close will manufacturing operations be to those markets? Obviously there’s no crystal ball, but without due diligence and some serious deliberation, companies could be in the same situation in another 10 years.

Reshoring and determining where to locate manufacturing are critical decisions, and it’s important to evaluate non-business costs such as innovation, population, and quality of life—in addition to business costs such as labor wages, taxes, and real estate. That’s why I was interested to see the results of KPMG International’s Competitive Alternatives survey.

The study looks at a wide range of issues to consider when assessing competitiveness for business, with a primary focus on business costs, but also population and demographics, education and skilled labor, innovation, infrastructure, economic conditions, regulatory environment, cost of living, and personal quality of life. It also examines cost competitiveness of locations for different industry sectors such as manufacturing, digital, research & development, and corporate services. The 2012 edition is the first edition of KPMG’s Competitive Alternatives study to examine the major high-growth countries and compare cost competitiveness in Brazil, Russia, India, China, and Mexico.

There was some jostling about, but I expected to see that among the mature markets, the United Kingdom, the Netherlands, and Canada are the low-cost leaders, with business costs five percent or more lower than those in the United States. Favorable results for the UK and the Netherlands are due, in part, to devaluations of the euro and the pound resulting from the European debt crisis.

I also anticipated that China and India would be the low cost leaders among all countries studied, with overall business costs 25.8 and 25.3 percent (respectively) below the U.S. baseline. Low labor costs drive the advantage for China and India, with China offering the lowest costs in the manufacturing sector and India in the services sectors, according to the report.

But I was surprised to see that while labor costs vary greatly between the high-growth and mature markets, many other business costs in the high-growth countries are similar to, or higher than, those of mature countries. For example, Canada and the U.S. offer lower industrial facility leasing costs than China, Mexico, Russia, or Brazil—while India, the Netherlands, Mexico, and Germany are the lowest cost countries for office leasing. High tax burdens, particularly for indirect taxes, also offset labor cost savings in a number of the high-growth markets.

I also expected Brazil to come out more favorably, especially considering some news earlier this week. For instance, Boeing, the aerospace company and manufacturer of commercial jetliners and defense, space, and security systems, announced this week that it will establish Boeing Research & Technology-Brazil, a research and technology center in Sao Paulo to develop aerospace technologies.

Then as was reported by the Associated Press earlier this week, the Brazilian government introduced a new package of measures aimed at spurring economic growth and boosting its lagging industrial sector. The government also plans to improve the information technology and communications sectors by purchasing computers for schools and extending broadband service across the country.

But as the KPMG report further explains, despite a surge of interest from many companies to serve Brazil’s large and growing domestic market, costs in Brazil are higher than in the other high-growth countries. What’s more, they approach the cost levels of the leading mature countries. Brazil’s wage levels, including minimum wage standards, are significantly above those of the other high-growth countries studied, and a heavy tax burden also impacts Brazil’s total cost performance, the report explains.

Many companies look to the high-growth markets to support and enable an effective global supply chain, which certainly makes sense. However, as Mark A. Goodburn, Global Head of Advisory for KPMG International, says, local market complexities in these countries can be intricate, from labor supply to taxes, so taking the time to create a well thought-out business strategy will be vital to achieving success in these markets. In other words, it’s worth taking the time to thoroughly study the costs—both business and personal—of manufacturing in various countries.

Like Claude Rains in the movie Casablanca, I am shocked. Only in my case, I am shocked to learn (not that gambling is taking place in Rick's Cafe) but that young adults don’t think the supply chain is sexy. All kidding aside, I think this is an important issue. Andy Zeitz had a great post yesterday, in which he referenced a recent survey of high school students across Canada. Those students were asked to name a profession within the supply chain field, and only 14 percent of them were able to name one profession. Worse yet, of all the answers provided, only two professions were identified: dock worker and forklift driver.

Unfortunately, it isn’t just Canadian high school students who are unaware of the industry and career opportunities. According to a recent PwC report, the results of a recent survey show that the global transportation and logistics industry (T&L) is in “urgent need of a radical transformation by 2030 if it is to stay competitive.”

Klaus-Dieter Ruske, PwC’s global T&L leader, said the findings are significant for the T&L sector because they show what must be done before the industry falls into a critical state. Poor image, poor pay, and poor prospects are perceptions that are detrimental to the industry. The reality is that there are rewarding, multinational opportunities in the industry, he says.

I was also interested to see that of those surveyed, most respondents believe firms will need to seriously change the image or brand to stay competitive. What’s more, they believe there is a low probability of transportation and logistics being seen as a “hip” and attractive sector to work in by 2030.

As Zeitz wrote yesterday, it isn’t just the transportation and logistics side of the supply chain that suffers. I find all of this intriguing, because as Tony Pittman, director of global procurement at HP, explains in a SupplyChainBrain video that from sourcing to delivery, the supply chain is now the most horizontal function in the enterprise. Any role that has such wide-ranging impact, from how money is spent to affecting the customer’s experience, requires highly trained managers and workers, Pittman says.

The problem, to me, is really a lack of awareness. Most people have at least a general idea of what’s done in finance, accounting, sales and marketing, but it seems that isn’t the case with the supply chain. Pittman believes things are looking up, however. Whereas people may have thought of warehousing and transportation to some extent, now there is a better understanding of supply chain, if only because it touches so many areas of the enterprise, he says.

I agree with Pittman in that it does seem awareness about careers in the supply chain is growing—it just might not be growing as quickly as would be hoped because there is a pressing need for talented supply chain professionals. Fortunately, the message that supply chain management offers a wide range of employment possibilities, in companies of all sizes in all industries, does seem to be increasingly broadcast to young adults and even adults who are making career changes.

A quick search of “college major supply chain management” brought up a link to WorldWideLearn.com, which had this to say about supply chain management: “To succeed as a supply chain manager, you need strong verbal and written communication skills, an aptitude for technology, a talent for data analysis and finance, strategic skills, a global perspective, and the ability to maintain good professional relationships.”

That job description sounds pretty good to me. In fact, it sounds like a job that leads to a challenging—and rewarding—career path. Then again, that’s what I already tell people about the supply chain.

What about you? Do you think that’s an accurate job description?