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2014

 

Most of the discussion this week about air travel seems to center on the United flight that was forced to divert its flight path so two unruly passengers could be escorted off the plane. Apparently a passenger was unable to recline their seat because the passenger behind them had attached a so-called “Knee Defender” to the seatback table. A flight attendant was called, voices were raised, and a passenger threw a cup of water in the other passenger’s face. After that, the pilot decided to divert the flight to Chicago, where authorities met the aircraft.

 

You can’t make this stuff up.

 

However, there were two important stories about air transport and cold-chain pharmaceuticals this week. The first was that the International Air Transport Association (IATA) welcomes the decision of Brussels Airport management to become the first European hub for pharmaceutical freight using IATA’s global certification program for shipping cold-chain pharmaceuticals. The IATA Center of Excellence for Independent Validators (CEIV Pharma) is a standardized global certification program that trains and conducts onsite assessments to provide the expertise needed to adequately transport cold-chain pharmaceutical products around the world, according to IATA.

 

Brussels Airport management now will invite a group of ten local stakeholders (ground handlers, freight forwarders, truckers and airlines) to undergo the CEIV Pharma training to bring the cargo community together with a common goal of becoming certified. This will allow those Brussels-based stakeholders to offer pharmaceutical companies the competitive advantage of assuring cold-chain integrity to their clients. Since the program goes beyond the Good Distribution Practices (GDP) covering air transport requirements, it’s particularly attractive to forward-looking stakeholders who value the extra confidence this certification brings their pharmaceutical clients, says IATA.

 

The second news item is that American Airlines Cargo started construction of a dedicated pharmaceutical handling facility in Philadelphia. The 25,000-sq. ft. facility will cater to a range of temperature-sensitive products being shipped in and out of the Northeast pharmaceutical corridor of the U.S., Air Cargo World reports.

 

The new building will accommodate passive shipments stored at 15-25 degrees Celsius (59-77 degrees Fahrenheit). In addition, a refrigerated area will be available for shipments that need to be maintained in a 2-8 degree Celsius (35.6-46.4 degree Fahrenheit) environment. A deep frozen area will accommodate shipments that need to be kept at -20 to -10 degrees Celsius (-4 to 14 degrees Fahrenheit). Finally, a zoned active container area with powered charging stations will have space for up to 30 electronically-controlled units. The facility will include full back-up power generation to protect products in the event of a power failure.

 

The reason for locating the facility near Philadelphia is that the region is home to many pharmaceutical companies, and finished medicines and raw pharmaceutical ingredients constitute a major part of the airport’s freight, explains an article in the Philadelphia Inquirer. American’s cargo customers include Teva Pharmaceutical Industries, Pfizer, Merck, AstraZeneca, Novartis, Bayer, GlaxoSmithKline and Ivax, according to the airline. These companies work with freight forwarders to manage their cold-chain logistics serving markets around the world, the Inquirer article notes.

 

“A lot of the products coming to Philadelphia today come through John F. Kennedy and Newark airports because they have the capacity and types of cold-storage facilities that can support those goods,” says Rhett Workman, American’s managing director of government and airport affairs, in the Inquirer article. “With this facility, we will be able to bring the goods directly into Philadelphia, and accommodate a lot more of them than we could.”

 

What do you think of the news about the Brussels airport’s future capabilities and the plans for a new facility in Philadelphia? How will they have an impact on the cold-chain pharmaceutical supply chain?

 

 

It sometimes seems news of cyber-attacks is an ordinary occurrence. For example, Sony’s PlayStation Network and Sony Entertainment Network were taken offline last Sunday due to a distributed denial of service attack, which was an attempt to overwhelm the network with artificially high traffic. The networks were back online Monday, and Sony announced it has seen no evidence of any intrusion to the network and no evidence of any unauthorized access to users’ personal information.

 

Also this week, it has been widely reported that Russian hackers attacked the U.S. financial system in mid-August, and infiltrated and stole data from JPMorgan Chase and as many as four other banks. The sophistication of the attack and technical indicators extracted from the banks’ computers provide some evidence of a Russian government link, reports a story on Bloomberg. Security experts and government officials have not yet reached that conclusion, however, and investigators are considering the possibility that the attacks are the work of cyber criminals from Russia or somewhere in Eastern Europe.

 

So if it seems cyber-attacks are commonplace, does that mean maritime shipping and supply chain systems may be the next targets? Leaders at the International Maritime Bureau (IMB) think so. In fact, IMB has released a statement calling for vigilance in the maritime sector because shipping and the supply chain is the “next playground for hackers.”

 

IMB leaders believe recent events show that systems managing the movement of goods need to be strengthened against the threat of cyber-attacks.

 

“It’s vital that lessons learnt from other industrial sectors are applied quickly to close down cyber vulnerabilities in shipping and the supply chain,” says IMB.

 

The problem is that while IT systems have become more sophisticated and enable companies to better protect themselves against fraud and theft, the systems also may leave companies more vulnerable to “cyber criminals,” explains IMB. At the same time, criminals increasingly target carriers, ports, terminals and other transport operators.

 

“We see incidents which at first appear to be a petty break-in at office facilities,” says TT Club’s insurance claims expert Mike Yarwood in the IMB statement. “The damage appears minimal and nothing is physically removed. More thorough post-incident investigations, however, reveal that the ‘thieves’ were actually installing spyware within the operator’s IT network.”

 

The larger industry challenge is that the cyber security of maritime control systems is controlled by engineers and not chief information security officers (CISOs) or chief information officers (CIOs), says Wil Rockall, a director in KPMG’s cyber security team, in the IMB release. Most ports and terminals are managed by industrial control systems which have, until very recently, been left out of the CIO’s scope. Historically, this security has not been managed by company CISOs and maritime control systems are very similar, Rockall says.

 

“As a consequence, the improvements that many companies have made to their corporate cyber security to address the change in the threat landscape over the past three to five years has not been replicated in these environments,” Rockall says. “Instead engineers—people who focus normally on optimizing processes efficiency and safety, not cyber and security risks—have often been left to implement and manage these systems. That means many companies and their clients are sailing into uncharted waters when they come to try and manage these risks.”

 

What are your thoughts on the security of maritime shipping and supply chain? Is their vulnerability a concern for your company or partners?

 

 

The subject of a possible skills gap continues to be a relevant topic given that many companies note they have difficulty hiring skilled workers. For example, more than 65 percent of the respondents to a survey conducted by MHI—an international trade association that represents the material handling, logistics and supply chain industry—and Deloitte Consulting LLP indicated that process, technology and skillset gaps exist within their company.

 

However, as Matthew Philips recently noted in an article on BusinessWeek, there are now 4.7 million job openings in the U.S., and some 9.7 million people looking for work. That leads to the question: How can there be so many unemployed people in the face of so many job openings?

 

Something is clearly broken in the labor market, and it may not be that workers lack skills, but that employers’ expectations are out of whack, Philips writes. As he explains, that is the premise of a paper by Peter Cappelli, a management professor at the Wharton School, titled “Skill Gaps, Skill Shortages and Skill Mismatches: Evidence for the U.S.”

 

Part of the problem is that over the course of the past 20 to 30 years, on-the-job training has declined—if not been eliminated. Companies instead, expect new hires to begin working immediately.

 

At the same time though, the changing nature of work itself has also encouraged more frequent job changes. When jobs required unique and specific skills, it was more difficult for a worker to translate their experience into a new environment. The growing use of technology has, consequently, made some skills far less specific, which in turn, makes it easier to switch jobs.

 

So given that employees may switch jobs frequently, it’s understandable that some companies may reduce workforce training because they figure it will be difficult to see returns on that training investment. The end result is that a growing number of companies place an emphasis on hiring skilled workers—who have been trained somewhere else and already know how to do a particular job.

 

In the meantime, companies continue to have difficulty locating workers with those specific skillsets, unemployment seems stuck at just under 10 million, and the U.S. economy suffers. In his paper, Cappelli writes that to make a difference in the broader economy, businesses need to bear more of the burden in training workers and give them the valued experience, Philips explains in BusinessWeek.

 

“If employers would only do what they did 30 years ago, we wouldn’t have this problem,” Cappelli says.

 

That’s not to say all companies have given up on training. Hypertherm, a manufacturer of plasma, laser, and waterjet cutting systems, struggled for years to find the skilled workers it needed to operate the advanced CNC machines used in its plants. To address this need for skilled employees, the company opened its own training center. The immersion-styled education program teaches people who have a good attitude and an aptitude to learn to be skilled machinists in just nine weeks. What I find most intriguing is that students accepted into the program are guaranteed jobs at Hypertherm and paid full wages during training. This allows people who may not have otherwise been able to go through such a program because they couldn’t afford to go nine weeks without a paycheck, to participate.

 

What are your thoughts on skillsets and workforce training? Do you think there really is a skills gap, are manufacturers’ expectations too high or, perhaps, both?

 

 

Is it time to relocate—or perhaps simply consider relocating—some operations? That depends on where those operations take place, according to a new report. Indeed, dramatic shifts in cost competitiveness around the world over the past decade have prompted some companies to change their global sourcing and manufacturing investment strategies, Boston Consulting Group (BCG) analysts write in “The Shifting Economics of Global Manufacturing: How Cost Competitiveness Is Changing Worldwide.”

 

“Many companies are beginning to see the world in a new light,” says Harold L. Sirkin, a BCG senior partner and coauthor of the report. “They are finding that many old perceptions of low-cost and high-cost countries are out of date, and are starting to realign their global sourcing and production networks accordingly.”

 

The BCG research compares changes in direct costs between 2004 and 2014 in the world’s 25 leading export economies by evaluating four factors: manufacturing wages, productivity, energy costs, and currency exchange rates. The report analyzes the impact of those factors in several economies, such as Australia, India, Mexico and the UK, as well as the impact of changing costs on those nations’ manufacturing competitiveness.

 

Several countries that have most improved their competitiveness over the past decade are already attracting new manufacturing investment and jobs, while investment is declining in some of those that have lost ground. For example, global automakers are expanding production in the UK, which has emerged as one of Western Europe’s lowest-cost manufacturing locations, BCG found. Conversely, automakers are reducing capacity in Australia, which is now one of the most expensive countries for manufacturing. As has been noted before, Mexico’s manufacturing costs are now estimated to be cheaper than those of China, so it’s no wonder Asian electronics manufacturers such as Foxconn and Sharp are expanding production in Mexico, BCG reports.

 

The potential for some of those operations to return to the U.S. has not gone unnoticed. House Democratic Whip Steny H. Hoyer points out that the “Make It in America” plan focuses on creating the best conditions for American businesses to manufacture their products, innovate and create jobs in the U.S. Doing so will set the country on “a solid path forward to a future of greater competitiveness, more jobs and long-term economic success,” he explains.

 

The Make It in America plan for the 113th Congress is focused on four key priorities, says Hoyer. Two of those priorities are to promote the export of U.S. goods, and encourage businesses to bring jobs and innovation back to the U.S.

 

I was interested to see another priority is to adopt and pursue a national manufacturing strategy. American manufacturers face international competitors that benefit from other nations’ carefully crafted manufacturing strategies, Hoyer says. Such comprehensive strategies include tax incentives, investments in research, skills development initiatives and support for infrastructure projects to help their manufacturers get ahead. A sustained national focus is necessary to ensure U.S. policies are appropriately targeted and flexible to help U.S. manufacturers compete. To do so, the U.S. must create a well-developed national strategy of its own, Hoyer explains.

 

The final Make It in America priority is to train and secure a twenty-first century workforce, but I’ll leave that topic for tomorrow.

 

In the meantime, what are your thoughts on relocating—or potentially relocating—operations due to rising costs in other countries? Secondly, what are your thoughts on a formal national strategy focused on supporting manufacturing in the U.S.?

 

 

It’s interesting to see news of Interbuild Africa 2014—Africa’s largest construction exhibition—because it follows so closely after the U.S.-Africa Leaders Summit, recently held in Washington. One topic, as would be expected, is demand for energy-efficient construction materials since South Africa’s increasing demand for energy faces limited capacity and roughly 40 percent of total energy consumption is spent in buildings.

 

One exhibitor is The Dow Chemical Company, which is showing its various solutions to enhance the energy efficiency of buildings. All of these technologies provide insulation performance and also meet the need for better productivity and processing targets at competitive levels, according to the company.

 

“Energy efficiency is a key focus for us among a broad portfolio of solutions that help make buildings and homes more comfortable, efficient and sustainable,” says Mohammed Sami, Commercial Leader for Sub-Saharan Africa in the Dow Polyurethanes business, and a speaker at the event.

 

Secondly, while it isn’t recent news, I’ve also been thinking about FedEx Express’ acquisition of Supaswift in South Africa, Botswana, Malawi, Mozambique, Namibia, Swaziland and Zambia. The acquisition gives FedEx Express, a FedEx Corp. subsidiary, direct access across the seven countries to 40 facilities and more than 1,000 team members. Consequently, the company is able to connect the region to more than 220 countries and territories worldwide, which according to FedEx Express, enhances customers’ business flexibility and speed to market.

 

David Binks, president for Europe, Middle East, Indian Subcontinent and Africa with FedEx Express, notes that physical infrastructure in Africa is improving and increased connectivity is helping domestic businesses flourish. South Africa is a hub for the pharmaceutical, information technology, publishing and manufacturing industries, and provides a springboard into the rest of the southern African region, he says in a recent eyefortransport article. There are many local businesses ready to partner with European companies and reach new customers, he says, and the growth potential in this region is enormous.

 

Perhaps the more pressing topic, is the trade relationship between the U.S. and Africa in general, and, specifically, the African Growth and Opportunity Act (AGOA). The Act, which provides exporters duty-free access to the U.S. market, expires next year.

 

Charles Brewer, managing director of DHL Express Sub Saharan Africa, says in a recent SupplyChainBrain article that the company has seen significant volume growth in the region since the introduction of AGOA in 2000. More importantly, he says DHL and others support renewal of the Act by congress when it expires next year.

 

“Trade lanes in Africa have increased significantly as a result of relieved trade barriers, which have had a positive impact on many local businesses,” Brewer says. “A key driver of this growth has been the African Growth and Opportunity Act, which has stimulated trade and investment between Africa and the U.S.”

 

In fact, since the introduction of AGOA, DHL Africa has seen an increase in primary trading sectors such as manufacturing, apparel and footwear, Brewer says in the article. The company has also seen an increase in secondary sectors dependent on agriculture, petroleum and natural gases, he notes.

 

Considering the changing demographics in many African countries that show not only a growing population, but also a growing middle class, I believe we will see an increasing number of news reports about Africa as companies not only target consumers, but also contemplate sourcing some operations there.

 

What are your thoughts on Africa? What are your company’s plans for operations in African countries?

 

 

I wouldn’t say I have the future of supply chain management on my mind, but I’m certainly thinking about future supply chain management talent.

 

Let’s face it: many companies struggle to find suitable candidates for supply chain management positions. The field of candidates is, as Adrianne Court puts it, “alarmingly sparse.”

 

Court, chief human resources officer at 3PL Transplace, explains in a recent video on SupplyChainBrain how the company developed its New Grad Professional Development Program. Creating the program gives Transplace the ability to develop supply chain talent in-house because it offers recently graduated candidates “front-line experience” serving key accounts, Court says.

 

New hires are followed closely by the executive team, says Court in the video. Within their first six to eight months on the job, they give a presentation to upper management about their experience to date and their work on special projects. Those presentations help management understand how the program is going, and they also help new hires feel they are valued.

 

I think a second piece of the puzzle is to promote supply chain management at colleges and universities by offering an undergraduate program. Substantial work continues to be done on that front as well.

 

Gartner recently released the results of its ranking of top undergraduate programs in supply chain management. Michigan State and Penn State tied for first place in the ranking, followed by the University of Tennessee. Next is the University of Texas, Western Michigan and another tie: Brigham Young and North Texas universities.

 

Chief among the findings are that university supply chain programs are increasingly relevant because their curriculums combine applied course work with more frequent and applied work experience. The result is that supply chain undergraduate placement rates are between 85 percent and 100 percent. Furthermore, in many cases, graduates are able to accept higher starting salaries than finance and accounting majors.

 

That’s possible because graduates are better prepared. For example, according to the University of North Texas, students enrolled in the UNT program get practical experience in logistics and learn how products and materials are created, packaged, stored and shipped along a supply chain to businesses and consumers. Additionally, to graduate, all program enrollees are required to complete an internship and take courses that provide a broad understanding of how goods are moved from a beginning point to an end point.

 

I was also interested to see recent news that MIT will introduce SCx, an on-line educational program developed by the MIT Center for Transportation & Logistics (MIT CTL), this fall. More than 9,000 individuals have already signed up for the first course, CTL.SC1x Supply Chain and Logistics Fundamentals.

 

“For some fifteen years we have been teaching the hard and soft skills that supply chain professionals need to succeed, and more than 800 professionals have graduated from our SCALE courses during that time,” says Dr. Chris Caplice, Executive Director, MIT CTL. “SCx will teach the same concepts but to thousands—not dozens—of students at a time worldwide.”

 

Most of the material will be taught through videos intermingled with small practice problems to reinforce the teachings. The problems are automated, and will provide instant feedback to the students. There are additional practice problems at the basic, intermediate and advanced levels each week as well. Then, each week will be capped off with graded assignments.

 

What are your thoughts on new-hire training, college programs or both? Are you seeing more candidates with what you consider the “right” education? Does your company supplement that with in-house training?

 

 

The government in Egypt has announced plans to add an extra lane to the Suez Canal in an attempt to increase the number of ships using the canal each day.

 

The canal opened 145 years ago, and allows shippers to cut weeks—if not months—from the time to ship goods between Europe and Asia because the canal links the Mediterranean Sea with the Red Sea, which eliminates the need for a trip around Africa. The modern problem for the Suez Canal is that there is only one shipping lane, although there are occasional passing lanes where ships can pass each other.

 

A new 45-mile lane, plans for which were announced last week by Egypt’s president, Abdel Fatah al-Sisi, would allow ships to travel in both directions for just under half of the canal’s 101-mile length. The project also includes tunnels for motor vehicles and trains.

 

“This giant project will be the creation of a new Suez Canal parallel to the current channel,” said Mohab Mamish, the chairman of the Suez Canal Authority, in a televised speech.

 

Construction of the new passage is scheduled to take three years, though President Abdel-Fattah El-Sisi has ordered it to be completed in a year, Mamish said. The project will reduce maximum waiting hours for ships to three hours from 11 hours, he said.

 

“As global trade grows and the Egyptian economy needs to develop its sources of hard currency, we had to think about the project of digging a new Suez Canal,” Mamish said. Work will be done by 37 Egyptian companies and the Egyptian army.

 

Once its cost is recouped, President Sisi hopes the project will boost Egypt’s economy. Revenues from the canal, which total about $5bn every year, are a crucial source of foreign currency for the Egyptian economy, which has suffered after three years of political instability. An official in the Suez Canal Authority told Reuters the new canal was set to boost annual revenues to $13.5 billion by 2023.

 

The new channel, part of a larger project to expand port and shipping facilities around the Suez Canal, is the latest move in Egypt’s strategy to increase its international profile and establish Egypt as a major trade hub. Indeed, earlier this year, Egyptian leaders announced plans to develop a logistics hub. Those plans call for the development of approximately 76,000 square kilometres around the Suez Canal to create an international industrial and logistics hub which, Egypt’s leaders believe, will further boost the country’s economic development.

 

News about expansion of the Suez Canal isn’t surprising. The expansion project underway at the Panama Canal includes a third set of locks to allow larger ships to pass through the waterway. Even after the expansion, the Panama Canal may still be too small to accommodate the world’s largest container ships, which helps explain the reasoning for a proposed Nicaragua Canal, announced by Nicaragua’s government this summer. The proposed passage through Nicaragua would be wider, which consequently would leave the country well placed to capitalize on a predicted rise in global shipping over the next twenty to thirty years.

 

All of these plans point out the growing number of—and size of—container vessels. These plans also cast a light on the role these passageways and logistics hubs may play in a country’s economic growth.

 

 

It has been interesting to watch the U.S.-Africa Leaders Summit in Washington this week. As a White House statement notes, the event builds on President Obama’s trip to Africa last summer, and will strengthen ties between the U.S. and one of the world’s most dynamic and fastest growing regions. Indeed, representatives from nearly 100 American and African companies have gathered at the meeting to discuss ways to boost economic partnerships.

 

The Obama administration announced $14 billion in commitments from U.S. businesses to invest in Africa yesterday. That comes after GE announced Monday it will invest $2 billion in Africa by 2018, according to an Agence France-Presse story I saw on IndustryWeek. The money will be used to build infrastructure, deliver localized solutions to customers, and build capacity by providing skills training and growing supply chain development in local communities.

 

“Over the last few years, we have expanded in growth markets by 15 percent each year,” says GE CEO Jeff Immelt in the article. “Our capability and culture give us great momentum in Africa and other developing regions around the world. We’re solving problems for our customers and countries where we invest.”

 

The U.S., of course, isn’t the only country to take note of Africa’s population and economic growth. Africa is home to six of the world’s fastest-growing economies, and a decade of solid growth has created a middle class with increasing spending power.

 

China has already been spending aggressively in Africa, for three main reasons. The first is because Africa has considerable resource wealth, a recent article in BusinessWeek notes. Secondly, Chinese executives figure that the wealth their companies accumulate in Africa—along with the lessons they learn—will help the companies expand into bigger and tougher markets, the article notes. For instance, the article continues, companies such as Tecno (cell phones) and ZTE (mobile phone infrastructure) have relied on Africa in part to launch themselves globally.

 

A third factor in Chinese companies’ strategy is perhaps most significant. At a casual glance, Africa may still look like a poor continent. However, it has become the fastest-growing region of the world—Africa already has a middle class larger than India’s. What’s more, it now appears that the majority of global population growth will take place in Africa, the World Population Review notes.

 

Population growth is one thing, but perhaps most important is Africa’s so-called demographic dividend, which over the next few decades will place most of the population in the most productive, youthful, and heavily consuming phase of life, the BusinessWeek article explains. Young people in Africa increasingly are urban and highly globalized in terms of culture, the article explains.

 

Consider, for example, the explosive growth of the mobile phone market in Africa. In “Rich Expectations, Poor Allocations,” a Citi Private Bank outlook, Philip Watson, Global Investment Lab Head, writes that according to a survey by the International Telecoms Union, Africa recently became the world’s fastest-growing mobile phone market. Mobile phone usage in the continent has increased at an annual rate of 65 percent over the past five years, which is twice the global average. Additionally, Nigeria has become one of the fastest growing markets in the world for mobile communications—driven by a young population, market liberalization and telecom-sector reforms—and has an estimated 88 million mobile phones in use compared to a population size of 170 million, Watson writes.

 

The challenge for companies then will be to familiarize Africans with their products. Building brand equity in those budding markets will take time, and of course, considerable investment.

 

What do you think of Africa’s changing demographics? Does your company have plans for expansion in some of those countries?