Bill Stankiewicz Copy Of 11 5 2010 Lq16 2 Final

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2IDEAS FOR LEADERSHIP IN LOGISTICS AND TRANSPORTATION©

Volume 16, Issue 2, 2010

LogisticsQuarterly.com LogisticsQuarterly.com

Geoffrey Bennett,President and Co-founder, Kelron LogisticsJim Butts, Senior Vice President, Transportation,C.H. Robinson Worldwide, Inc.Craig Callahan, Vice President, Logistics and Corporate Sales, Werner EnterprisesDavid J. Closs, PhD, LQ Executive Editor, and the John H. McConnell Chaired Professor of the Eli Broad College of Business, Department of Marketing and Supply Chain Management, Michigan State UniversityJohn Cutler, General Counsel, NASSTRACAlicia Duval, Vice President, Healthcare, GS1 CanadaJim Eckler, President, Eckler Associates and former President and CEO, SCI Group Inc. David Faoro, Director of Supply Chain, The International Group, Inc.Kevin Fletcher, Executive Vice President, Logistics Services,Landstar Transportation Logistics, Inc.Thomas Goldsby, PhD, Associate Professor, Supply Chain Management,University of KentuckyMelissa Gracey, President, DTA ServicesBill Graves, President and CEO,American Trucking AssociationsAjay Gupta, CITT, Director of International SupplyChain Logistics & Operations, Sterling AgilityJim Handoush, Co-Chief Operating Officer,Landstar System, Inc.Cameron Joyce, President, AccuristixJohn Langley, PhD, Professor of Supply Chain Management and Director of Supply Chain Executive Programs, Georgia TechMike Ledyard, Co-founder,Supply Chain Visions Clifford F. Lynch, President,C.F. Lynch & Associates Valerie McSween, CITT, Vice President, Eastern Region, Mactrans Logistics Inc.Chris Norek, PhD, Senior Partner, Chain Connectors, Inc.Andrew Paxton, CITT, Vice Chair, Development, CITT BoardNicholas Seiersen, B.Sc. (Hons.), MBA, P. Log.,LQ Executive EditorReuben Slone, Executive Vice President, Supply Chain, OfficeMaxGinnie Venslovaitis, CITT, Director, Transportation Operations, Hudson’s Bay CompanyKate Vitasek, Lead Researcher and FacultyMember, for the University of Tennessee’s Center for Executive Education and Founder, Supply Chain Visions

Geoffrey Bennett,President and Co-founder, Kelron LogisticsJim Butts, Senior Vice President, Transportation,C.H. Robinson Worldwide, Inc.Craig Callahan, Vice President, Logistics and Corporate Sales, Werner EnterprisesDavid J. Closs, PhD, LQ Executive Editor, and the John H. McConnell Chaired Professor of the Eli Broad College of Business, Department of Marketing and Supply Chain Management, Michigan State UniversityJohn Cutler, General Counsel, NASSTRACAlicia Duval, Vice President, Healthcare, GS1 CanadaJim Eckler, President, Eckler Associates and former President and CEO, SCI Group Inc. David Faoro, Director of Supply Chain, The International Group, Inc.Kevin Fletcher, Executive Vice President, Logistics Services,Landstar Transportation Logistics, Inc.Thomas Goldsby, PhD, Associate Professor, Supply Chain Management,University of KentuckyMelissa Gracey, President, DTA ServicesBill Graves, President and CEO,American Trucking AssociationsAjay Gupta, CITT, Director of International SupplyChain Logistics & Operations, Sterling AgilityJim Handoush, Co-Chief Operating Officer,Landstar System, Inc.Cameron Joyce, President, AccuristixJohn Langley, PhD, Professor of Supply Chain Management and Director of Supply Chain Executive Programs, Georgia TechMike Ledyard, Co-founder,Supply Chain Visions Clifford F. Lynch, President,C.F. Lynch & Associates Valerie McSween, CITT, Vice President, Eastern Region, Mactrans Logistics Inc.Chris Norek, PhD, Senior Partner, Chain Connectors, Inc.Andrew Paxton, CITT, Vice Chair, Development, CITT BoardNicholas Seiersen, B.Sc. (Hons.), MBA, P. Log.,LQ Executive EditorReuben Slone, Executive Vice President, Supply Chain, OfficeMaxGinnie Venslovaitis, CITT, Director, Transportation Operations, Hudson’s Bay CompanyKate Vitasek, Lead Researcher and FacultyMember, for the University of Tennessee’s Center for Executive Education and Founder, Supply Chain Visions

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3LQ™ Volume 16, Issue 2, 2010LogisticsQuarterly.com

6 Contributors

LQ’s Executive Interview Series: Insights fromleaders in logistics and supply chain management Today’s marketplace has made it more challenging than everbefore to implement breakthrough ideas. An unpredictableeconomic landscape has called on companies to find newways to create value, and not surprisingly many are looking attheir supply chain to create profit and ultimately, shareholdervalue. How can logisticians translate their efforts into mean-ingful and compelling cases to be included on the agenda inthe boardroom suite of an organization? This LQ executiveinterview series examines this question by focusing on newways to reinvent business.

8 Craig Callahan, Vice President, Logistics & CorporateSales, Werner Enterprises

10 Jim Butts, Senior Vice President, Transportation, C.H. Robinson Worldwide, Inc.

12 Geoff Bennett, President & Co-founder, Kelron Logistics

15 Jim Eckler, President, Eckler Associates and former President and CEO, SCI Group Inc.

16 Jim Handoush, Co-Chief Operating Officer, Landstar System, Inc. and Kevin Fletcher, Executive Vice President, Logistics Services, Landstar Transportation Logistics, Inc.

19 Reuben Slone, Executive Vice President,Supply Chain, OfficeMax

22 CITT Column: How Do You Mitigate Risk andInvest in Outsourcing YourTransportation Requirements?You’re meeting with the CEO of one of yourstellar carriers. The CEO has some troublingnews to share; it’s crunch time and they need to

renegotiate their contract with your firm. What’s your bestcourse of action?

24 NASSTRAC Column: Fall Elections Promise Worse Gridlock Virtually all U.S. elections in “off years” (i.e.,when votes are cast for Members of Congressbut not for president), lead to gains by theparty not in power. In 2010, several factors

appear likely to increase losses by Democrats. These factorsinclude a weak economic recovery, concerns about federaldeficits and the bank, auto industry and AIG bailouts thatcontributed to them, the rise of the Tea Party movement,dramatic increases in campaign ads supporting Republicancandidates, and gridlock in Congress.

25 LQ’s Recommended Reading: The New Supply Chain Agenda:The 5 Steps That Drive Real Value,by Reuben E. Slone, J. Paul Dittmann, and John T. Mentzer

27 ATA Column: Taking a Look at the Road AheadAs we race toward the mid-term elections, there are a plethora of issues at the forefront of voters’ minds — not the least of which is theeconomy. Everyone wants to know what will bedone about job creation and economic growth.

28 The Latest System for the ToolkitThe increasing volume of international supplychain transactions, along with a combination of agreements to both motivate trade and imposerestrictions on what can be traded, has height-ened the value of technology capability to

monitor and track these transactions. These regulations, restrictions and constraints have dramatically increased supply chain management opportunities and risks.

30 GS1 Column: Global Standards Proposed forCanada’s Healthcare Supply ChainThe Canadian Healthcare Supply ChainStandards Survey is a national poll conducted for GS1 Canada by the Innovative ResearchGroup Inc. (INNOVATIVE) as part of the

Canadian Healthcare Supply Chain Standards Project. The survey polled 294 Canadian healthcare sector stakeholders representing a blend of healthcare institutions, Shared Service Organizations and product suppliers. Here is anoverview of the results.

32 Technology Toolbox: The IT Gap Faced by Third-Party Logistics Providers There is a noticeable and significant gap between what shippers perceive 3PL providersneed to offer in the information technology arena and whether shippers are satisfied with

the IT capabilities offered by third-party logistics providers.

33 Playing to Win How do the best companies win at the game ofoutsourcing their supply chain? Here is anoverview of how to build stronger relationshipsand gain greater value from your outsourcingrelationships, based on the book Vested

Outsourcing: Five Rules that will Transform Outsourcing.

CONTENTSLQ™

LogisticsQuarterly.com4 LQ™ Volume 16, Issue 2, 2010

EDITOR & PUBLISHER Fred [email protected]

LQ EXECUTIVE EDITORSDavid Closs, PhDNicholas SeiersenThomas Goldsby, PhD

CREATIVE DIRECTORCraig [email protected]

ASSISTANT EDITORLisa [email protected]

COPY EDITORSMartha Uniacke [email protected]

Ramak [email protected]

CIRCULATION MANAGERBill [email protected]

ADVERTISING SALES

North American Sales, [email protected]

Fred MoodyEditor & Publisher, [email protected]

WHAT’S AHEAD:

LQ’s January 13, 2011 SymposiumTo register, visit: www.LQsummit.com Contact Fred [email protected] for more information.

LQ™ Inc.33 Hazelton Avenue, Suite 74,Toronto, Ontario M5R 2E3Phone: (416) 461-8355 Toll Free: 1-800-843-1687Fax: (416) 465-7832 Email: [email protected]

Logistics Quarterly (LQ™) (ISSN 1488-3309) is published sixtimes annually by LQ™ Inc. LQ™ iswritten for professionals in logistics.

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EDITORIAL POLICY

The opinions expressed in this publication do not necessarily reflect the policy of LQ™ Inc. The editorsreserve the right to select and edit material submitted for publicationand are not responsible for unsolicitedmaterial. LQ™ Inc. is a Toronto-based corporation and publisher. All rights reserved © by LQ™ Inc.2010. Reproduction without written permission of the publisher is forbidden. LQ™ welcomes your comments, letters to the editor, or written submissions for consideration.(LQ™ is available on-line at:

www.LogisticsQuarterly.com)

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For more information on LQ’sExecutive Exchange, held twice annually, we invite you to visit:www.LQSummit.com

For more information on LQ’s readership visit: www.LQreader.com

Volume 16 Issue 2

Graham Allen Senior Program Manager of BPS Supply Chain Secretariat, Ontario Ministry of FinanceChristopher BarrySenior Director, Infrastructure Planning, Research In Motion (RIM)Fred BerkheimerConsultant and Former Vice President, Logistics, Unilever (USA)Jim ButtsSenior Vice President, Transportation, C.H. Robinson Worldwide, Inc.David J. Closs, PhDDepartment of Marketing and Supply Chain Management,Michigan State UniversityExecutive Editor, LQJim DavidsonPresident,�Performance LogisticsRuss DixonDirector, Corporate Marketing and Communications,Sunteck Transport GroupRuss J. DoakDirector, Supply Chain Management,�Washington Marine Group (WMG)David FaoroDirector, Supply Chain, The International Group, Inc.Sarah FriesenPresident, Friesen Concepts Inc.Susan Gadsby, P.Log.Director, Procurement, Shared Services WestJoe GallickSenior Vice President, Sales, Penske LogisticsThomas J. Goldsby, PhDAssociate Professor, Supply ChainManagement,University of KentuckyMelissa GraceyPresident, DTA Services Ltd.Victor GrootSupply Chain Director, Day4EnergyScott HooperDirector, Supply ChainExcellence,�RyderEd KearnsPresident, Kearns Transportation ServicesContributing Maritime Editor, LQLucas KuehnerManaging Director, Panalpina USAArun KumarConsultantJohn C. Langley Jr., PhDDirector of Supply Chain Executive Programs,The Logistics Institute (TLI), Georgia Institute of Technology

Derek J. Leathers Chief Operating Officer, Werner Enterprisesand President,Werner Global LogisticsClifford F. LynchPresident,�C.F. Lynch & AssociatesJames MahoneyVice President, Global Accounts,AgilityRobert MartichenkoPresident, LeanCorBrian McDonaldPresident, Montship Inc.David MillsVice President of GlobalManufacturing and MCE,McCain FoodsDiane Mollenkopf, PhDAssistant Professor, University of TennesseeJeff MooreManaging Director,Lakeside Logistics Inc.Tom NightingaleVice President, Communications and Chief Marketing Officer,Con-way Inc.Christopher Norek, PhDSenior Partner, Chain Connectors, Inc.and Contributing Editor, LQRobert Novack, PhDAssociate Professor,Business Logistics,Penn StateSusan PromaneDirector, Supply Chain,Whirlpool CanadaPeruvemba S. Ravi, PhDAssociate Professor,Wilfrid Laurier UniversityKurt M. RitceyPartner, Deloitte Consulting Nicholas SeiersenSenior Manager, KPMG and Executive Editor, LQReuben SloneExecutive Vice President, Supply Chain, OfficeMaxAllan SmithPresident and CEO, BCG Logistics GroupDonald Tham, PhD, PEngProfessor & Industrial InternshipProgram Coordinator, Dept. ofMechanical & Industrial Engineering,Ryerson UniversityRay TribeDirector Operations,Lynden International Logistics Walter Zinn, PhDProfessor, Ohio State University

LQ™ ADVISORY BOARD

LQ: Ideas for Leadership in Logistics by American and Canadian Executives

To view LQ’s online freight index, which covers all modes of transportation each month, across 32 U.S. states, visit:www.LQindex.com.

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VOLUME 16, ISSUE 2, CONTRIBUTORS

LQ’s mandate to provide “Ideas for Leadership in Logistics” is clearly evidenced in thisissue, with articles written by professionals and logisticiansfrom America and Canada who are leading and transforming

business by creating new roadmaps and definitions for leadership in this exciting field.

OUR CONTRIBUTORS

GEOFFREY (GEOFF) BENNETT is President andco-founder of the Kelron Logistics family of com-panies, one of Canada’s largest third-partytransportation logistics companies, headquar-tered in Mississauga, Ont. Prior to foundingKelron, Bennett held senior level positions in var-ious major Canadian companies, includingDirector of Operations at Gelco Same Day (nowDynamex Express) and Sketchley Cleaners.

JIM BUTTS, Senior Vice President of Trans-portation for C.H. Robinson Worldwide, Inc.,has been with the company since 1978, andjoined the executive team in 2002. Butts isresponsible for the relationships with severalkey customers in the retail, consumer products,paper, manufacturing and agriculture indus-tries, aiding them in logistics and supply chainsystems design, including the use of third-partylogistics services in supply chain planning andexecution. He is also responsible for C.H.Robinson’s transportation corporate sales andmarketing activities.

CRAIG CALLAHAN, Vice President of Logisticsand Corporate Sales for Werner Enterprises,began his career at Werner in 1995 as a man-agement trainee. Callahan has held variousleadership positions in customer service, oper-ations, and sales. In his current role, he isresponsible for leading Werner’s businessdevelopment efforts with their strategicaccount base, which comprises a large portionof their domestic truckload business and rep-resents the foundation of the company.Callahan is also responsible for driving growthin the logistics area of Werner’s business inboth the United States and Mexico, a key cor-nerstone to Werner’s future.

Callahan serves on the board of directorsfor College World Series of Omaha, Inc. and onthe planning committee for the Food Shippersof America Association.

DAVID J. CLOSS, PhD, is an LQ executive editorand the John H. McConnell Chaired Professorof the Eli Broad College of Business,Department of Marketing and Supply ChainManagement, Michigan State University. Hehas consulted with more than 100 of theworld’s Fortune 500 corporations regardinglogistics strategies and systems. Closs is anactive member of the Council of Supply ChainManagement Professionals (CSCMP).

JOHN CUTLER, General Counsel ofNASSTRAC, has over 30 years of experienceas a transportation lawyer representing

shippers of freight. He is a principal with the Washington, D.C. law f irm McCarthy,Sweeney & Harkaway, P.C.

ALICIA DUVAL, Vice President of Healthcare atGS1 Canada, spearheads activities to introduceglobal standards and supply chain practices tothe Canadian healthcare and pharmacy sectors.She is also responsible for the development andimplementation of strategies to increase public,government and stakeholder awareness of GS1Canada’s mandate, and for advancing GS1Canada’s standing as an important supply chainpartner and stakeholder. Alicia is GS1 Canada’slead representative on the global GS1 healthcareinitiative, an effort to lead the healthcare indus-try to the effective utilization and developmentof global standards, with the primary focus onimproving patient safety.

JIM ECKLER is President of Eckler Associatesand former President and CEO of SCI GroupInc. SCI is the parent of three leading Canadiansupply chain management service providers:Progistix-Solutions Inc., SCI Logistics Ltd.(including Assured Logistics & AMG Logistics),and First Team Transport Inc. Eckler’s back-ground includes over 30 years of experience inthe supply chain management field. His busi-ness focuses on developing and operating highperforming supply chain outsourcing servicesfor companies that demand complex, highvalue services. Eckler is a past chairman of theSupply Chain and Logistics Association ofCanada and a frequent speaker on a wide rangeof supply chain topics. He is also a foundingmember and a director of the Centre forOutsourcing Research and Education (CORE).

DAVID FAORO is the Director of Supply Chainfor The International Group, Inc., a $400-mil-lion manufacturer of waxes and wax-basedindustrial products. He is responsible for cus-tomer service, purchasing, logistics and invento-ry management. Faoro has worked in the supplychain field for over 20 years in the chemical,food and beverage, office products and whole-sale distribution sectors in all aspects of supplychain management. He has his MBA from theIvey School of Business and his B.Comm.(Logistics) from the University of BritishColumbia. Faoro is a past president of theToronto chapter of CSCMP and is a member ofthe LQ Advisory Board.

KEVIN FLETCHER, Executive Vice President ofLogistics Services for Landstar TransportationLogistics, Inc., joined the company in 2005. His

focus is the development, implementation andongoing improvements of logistics solutionsthat deliver greater supply chain efficiency andcost-effectiveness to Landstar’s customer base.Fletcher is responsible for third-party trans-portation and warehousing services, freightunder management, logistics engineering, andlogistics technology services.

Prior to Landstar, Fletcher was Director ofTransportation for Menlo Worldwide Logisticswhere he was responsible for transportationprocurement and operations. He has also heldmanagement positions for carriers in the LTL,small package, and global air cargo arenas.

Fletcher earned his B.Sc. in Transportationand Physical Distribution from Auburn University.

THOMAS GOLDSBY, PhD, is Associate Profes-sor of Supply Chain Management at the Univer-sity of Kentucky. He has held previous facultyappointments at the Ohio State University andIowa State University. Goldsby holds a B.Sc. inBusiness Administration from the University ofEvansville, an MBA from the University ofKentucky, and a PhD in Marketing and Logisticsfrom Michigan State University. Prior to enteringacademe, Goldsby was a logistics analyst for theValvoline Company. He previously worked forthe Transportation Research Board of theNational Academy of Sciences in Washington,D.C. and as a research fellow at the University ofKentucky Transportation Research Center.

MELISSA GRACEY, President of DTA Services,learned about the logistics and transportationindustry from her father, who bought the com-pany after acting as general manager of theNational Traffic League and part founder ofCITT. She is now full owner. Melissa studied atMcGill before entering the investment businessand joining her family business.

BILL GRAVES is President and CEO of theAmerican Trucking Associations in Arlington,Va. Prior to joining ATA, Graves was a two-termgovernor of Kansas.

AJAY GUPTA, CITT, the Director of Interna-tional Supply Chain Logistics and Operationsfor Sterling Agility, is an international opera-tions and supply chain professional with over25 years of experience in marketing, sales,warehousing and inventory management,customer order processing and fulf illmentoperations, customer service, export controlsand compliance, and global logistics, inmulti-national and multi-cultural settings. Hehas worked in India, the United States, and


Canada, and handled short-term assign-ments in West Asia and Europe.

Gupta holds an MBA in Marketing andFinance, as well as IATA/UFTAA, CITT, andP.Log. designations. He is a member of SupplyChain & Logistics Association Canada (SCL),Electronic Commerce Council of Canada(ECCC, now GS1), the Council of IndustrialAdvisors (Gerson Lehrman Group), and anational director on the board of CITT,amongst other affiliations. In 2007 Gupta co-founded Sterling Agility, a boutique consultingfirm based in Toronto, Ont.

JIM HANDOUSH serves as Co-Chief Operat-ing Officer for Landstar System, Inc. He isresponsible for Landstar’s supply chain trans-portation integration companies — NationalLogistics Management (NLM) and A3Integration LLC (A3i) — Landstar’s warehous-ing, intermodal and international serviceofferings, as well as national and internation-al account development.

Handoush joined Landstar in 1996 withmore than 10 years of experience in the trans-portation and logistics industry in the areas off inance, administration and operations. Hehas held several positions at Landstar sincebeing named Landstar Logistics Vice Presidentof Finance in 1996, including Landstar GlobalLogistics Executive Vice President of Financeand Administration and President of LandstarGlobal Logistics. Handoush holds a B.Sc.degree in Accounting from San José StateUniversity in California.

CAMERON JOYCE, President of Accuristix (for-merly McKesson Logistics Solutions), leads thecompany at an exciting time as it begins oper-ating under its new name and with a renewedfocus on client-centric innovation. As presi-dent, Joyce and his team are dedicated toadvancing healthcare logistics.

Joyce is currently on the board of directorsof the International Warehouse Logistics Asso-ciation (IWLA) and is Co-chair of the CanadianCouncil of the IWLA.

JOHN LANGLEY, PhD, is the Supply Chain &Logistics Institute (SCL) Professor of SupplyChain Management and Director of SupplyChain Executive Programs. Langley serves asSCL’s principal liaison with the logistics andsupply chain business communities, teachesexecutive education programs, including theExecutive Masters in International Logisticsprogram, and serves as Faculty Director of theGeorgia Tech Supply Chain Executive Forum.

Langley received B.Sc., MBA, and PhDdegrees at Penn State University in mathemat-ics, f inance and business logistics. He joinedthe faculty at the University of Tennessee in1973 where he served for 28 years, most recent-ly as the John H. “Red” Dove DistinguishedProfessor of Logistics. Among his awards andhonors, Langley served as president of theCouncil of Logistics Management (CLM), andwas the recipient of the CLM DistinguishedService Award and the Outstanding AlumnusAward in Penn State's Business LogisticsProgram. He also co-founded the Center forLogistics Research, Supply Chain Forum, andOff ice of Corporate Partnerships at theUniversity of Tennessee.

He has co-authored three major texts in

the areas of business logistics and supplychain management and has authored numer-ous logistics-related articles, technical reportsand presentations. He is an active member ofseveral professional associations and serveson the boards of directors of Averitt Express,Inc., Forward Air Corporation, and UTiWorldwide, Inc., and participates as an advi-sory board member to numerous f irms in thesupply chain technology business. He is active-ly involved with business and executive devel-opment and has extensively consulted in boththe public and private sectors. Langley is rec-ognized world-wide for his expertise in logis-tics and has addressed countless conferences,forums, universities, groups, and industries.

MIKE LEDYARD is a veteran of internationalsourcing, manufacture and importation ofproduct and tooling, especially from China andEastern Asia. He is an author and frequentspeaker on process measurement andimprovement, and was selected as one of theTop 20 Logistics & Supply Chain Executives of2001–2002. Ledyard is also a co-founder ofSupply Chain Visions.

CLIFFORD F. LYNCH, President of C.F. Lynch& Associates, has provided management advi-sory services in logistics since 1993. During theprevious 35 years, he was Vice President ofLogistics for the Quaker Oats Company andPresident of Trammell Crow DistributionCorp. Lynch holds an undergraduate degreefrom the University of Tennessee and an MBAfrom the University of Chicago. He is a certi-f ied member of the American Society ofTransportation and Logistics and is a memberthe editorial review boards of the Journal ofBusiness Logistics, the International Journal ofPhysical Distribution and Logistics Management, andSupply Chain Management Review. He is also amember of the Warehousing Education andResearch Council and the Advisory Council tothe Dean, College of Business Administration,University of Tennessee. Lynch is a memberand past president of the Council of LogisticsManagement and has received numerousawards in the logistics field. He is an adjunctprofessor at the University of Memphis, a fre-quent lecturer at other colleges and universi-ties, an author of numerous articles on thesubject of logistics and has written two bookson logistics outsourcing.

VALERIE MCSWEEN is Vice President, EasternRegion, for Mactrans Logistics Inc., a third-partylogistics provider specialized in North Americanfreight transportation. She began her career 15years ago with Speedy Transport where she wasintroduced to all aspects of the LTL transporta-tion. She also worked at Day & Ross as anaccount manager. McSween earned her CITTcertification in 2004, and completed an MBA inTransportation and Logistics in 2008 at theUniversité du Québec. She has held her currentposition with Mactrans Logistics for the pastthree years and is the Montreal CITT CouncilChair and a Director-at-Large with the CITTNational Board of Directors.

CHRIS NOREK, PhD, Senior Partner withChain Connectors, Inc., has over 20 years ofexperience in supply chain and logistics in aunique combination of consulting, industry

and academia. He has consulted forAccenture and CSC and worked for AppleComputer, Kimberly-Clark and Office Depot.In addition, he has held tenure track facultypositions at both Auburn University and theUniversity of Tennessee.

ANDREW PAXTON, CITT, has over 20 years ofexperience in the transportation and logisticsindustry. He has worked for third-party logis-tics providers and transportation users withproduct ranging from consumer electronics toinsulation. He currently works in the foodindustry. Paxton has been involved with theCITT Toronto Area Council since he graduat-ed in 1994 and served as the Chair. He hasbeen on the CITT Board of Directors since2004 and currently holds the position of ViceChair of Development.

NICHOLAS SEIERSEN, B.Sc. (Hons.), MBA, P.Log., is an LQ Executive Editor who specializesin supply chain consulting, particularly strate-gic sourcing and supply chain planning andoperations, and teaches executive developmentat universities in Europe and North America.

REUBEN SLONE, Executive Vice President ofSupply Chain for OfficeMax, joined the com-pany in November 2004 as Executive VicePresident of Supply Chain. He is responsiblefor inventory management, supply chain oper-ations, real estate, store development, facili-ties, and indirect procurement for the compa-ny. Prior to joining OfficeMax, Slone held var-ious executive positions with Whirlpool,General Motors, Federal-Mogul, EDS, andErnst & Young. Harvard Business Review pub-lished two of his articles: “Leading a SupplyChain Turnaround” and “Are You the WeakestLink in Your Supply Chain?” Slone is co-authoring a book based on the latter articleentitled Driving Value through the Supply Chain:Shaping the Agenda, to be published by HarvardBusiness School Press.

GINNIE VENSLOVAITIS, Director, Transporta-tion Operations, Hudson’s Bay Company,started her career in the U.S. Customs Clear-ance industry. She holds her U.S. Customs bro-ker’s license and spent many years qualifyinggoods for free trade in private industry. Aftermoving to Canada, Venslovaitis worked in thefood industry managing the domestic and crossborder transactions for Borden Catelli. Sincethat time, she has had numerous opportunitiesand experiences on SAP project implementa-tions and gained a great understanding of thetotal business enterprise. In 2010 she joined theHudson’s Bay Company. Venslovaitis is ViceChair of Finance for the CITT, Chair of CITA,and a member of the SCL. She holds both CITTand P.Log. designations.

KATE VITASEK is a thought-leader in the areaof supply chain management and is a well-rec-ognized authority on performance manage-ment and performance-based approaches forbusiness. She is the lead researcher and facul-ty member for the University of Tennessee'sCenter for Executive Education, working in thearea of outsourcing and performance-basedapproaches. She is also the founder of SupplyChain Visions, a Top 10 supply chain manage-ment boutique consulting f irm.


Reinvention in Supply Chain PracticesLQ: Tell us what you’re most proud oflast year and what’s carrying you overfor 2010.Craig Callahan: In 2009, one of thesignificant accomplishments of ourorganization was to come out of therecession healthier than we went in.We are a company that is very proud ofthat, because there aren’t very manycompanies in this position. We wentinto the economic recession in a strongfinancial position with no debt; wecame out of the economic recessionwith a leaner, meaner organization anddebt-free with cash flow, putting us in aposition to expand where needed andnecessary in 2010.LQ: What’s your position on the cost of fuel? Is that worry-ing you?Craig Callahan: For a company like us, where over 80percent of our revenue is generated in the trucking busi-ness, the cost of fuel in the trucking business is thelargest operating cost. For us, both the price and thevolatility bring significant concerns. The volatility can beextremely difficult to manage. Our customers require us,to the extent that we can, to try to limit the volatility sothat they in turn can limit the volatility on the shelf price.Because we are a large company, we leverage our size andour procurement model to get the lowest per gallon costthat we can with our suppliers.

More importantly, there are the improvements we’vemade on the efficiencies that we have gained from milesper gallon. Everything we do with our equipment and withthe training of our drivers revolves around two importantitems: fuel consumption and safety. The advantages and theperformance that we’ve been able to achieve in the last twoyears have helped us save millions of dollars. We in turn,are able to put ourselves in a position to be more competi-tive in the market.LQ: Have you seen a change in the importance of the sup-ply chain in your organization in the current economiccontext?Craig Callahan: We make our living at solving problemsin supply chain. Supply chain has gained more importanceand more exposure in most companies around the world. As

you think of all the inputs associatedwith the supply chain, specifically, thecost associated with fuel, as well as theinventory and carrying costs, those haveleant more exposure to supply chain as awhole. This has helped our firm toexpand our horizons around the prob-lems we solve. It’s no longer just a pointA to point B solution our customers askfor. Our customers are asking us to helpthem provide visibility to their goodsfrom the factory in China to the store inthe U.S. You can only do that if an organ-ization commits itself to technology sys-tems and talent.LQ: Can you give us an example of anorganization you are doing that for andsome of the impact that’s had?Craig Callahan: I think one examplethat we can look to from an import solu-

tion environment, is a major big box retailer. This particu-lar retailer is importing thousands of containers a year fromAsia to the United States. Their current model calls for aconsolidation method to happen overseas in Asia (from afactory to a port in Asia where it is consolidated into con-tainers and shipped to the United States). It is then decon-solidated in the United States and rebundled into store-spe-cific containers or shipping boxes and shipped directly todistribution centers.

That’s a more traditional model. Our position on thatwas, rather than bring all of the goods into a deconsolida-tion model in the United States where all of your input costsare going to be higher, why not look at a deconsolidationmethod overseas? This particular big box retailer is buyingenough goods to have one or two or three containers builtspecifically for their store. Those containers leave Asiaalready designed and built to land at their store in theUnited States. It saves them the associated costs with hav-ing to reconsolidate and rebuild the containers in the U.S.LQ: What impact has that had for the customer?Craig Callahan: In this particular model, when you lookat it from that perspective, it actually saves both costs asso-ciated with labor and it actually saves costs associated withhow many containers that you need. In both cases, costssavings are in excess of 15 percent on one major project.LQ: In the drive to reduce assets that are committed to thesupply chain, more of the players are trying to push thewarehouses, the trucks, the ships, and even inventory and

A Conversation with Craig Callahan,Vice President Logistics & Corporate Sales, Werner Enterprises

Interviewed by LQ’s Executive Editor, Nicholas Seierson

L Q ’s E X E C U T I V E I N T E R V I E W S E R I E S

Continued on page 20

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Reinvention in Supply Chain PracticesLQ: How does your firm set about becom-ing the best customer for your clients?Jim Butts: We would look at it as anopportunity to be the best transportationprovider or supply chain partner, depend-ing on our role. There are a lot of thingsthat we have to take into considerationwhen we enter into any customer rela-tionship. One of the first things is thatC.H. Robinson is non-asset based. Whenyou don’t own the assets then everythinglooks like a resource. The questionbecomes: What is our value-add to anycustomer as we are doing business withthem? Frequently, it’s our people. If thestrength of our organization is our peo-ple, then the way that becomes real toour customers, who we define as both carriers and shippers,is through account management. That’s the daily care of thecustomers — finding out what their needs are, their expec-tations — and fulfilling them from an execution standpoint.LQ: Your assets are your relationships. How do you managethose relationships? Jim Butts: It is based on a combination of our people hav-ing a great understanding of the customer, their needs andexpectations, and the nuances of their business. They have agreat understanding of the customer’s industry, or some-times a competitive position within that industry. We takeour knowledge of what we assimilate through surveying35,000 shippers and 47,000 asset owners, in terms of carri-ers, whether they’re truckload carriers, LTL carriers,steamship lines, or airlines. We take that knowledge andblend it in such a way that we provide some pretty uniquesolutions for our customers.LQ: The new competitive arena is innovation. What are youdoing?Jim Butts: It’s a challenge, and we understand that all of ourcustomers have to have, in some way, a competitive advan-tage or seek to establish a competitive advantage throughsupply chain practices. We talked about our people being ourassets. The other asset that we bring to the table is our tech-nology. When you take the knowledge of our people, theirunderstanding of the customer through account manage-ment, and our special application of technology (dependingupon the customer situation), we feel that innovation is the

true value-add. As a service-based compa-ny, what we’re attempting to do within theindustry is develop intellectual property.What we bring to the table is not the phys-ical asset to move their equipment,although we do that through the relation-ships that we have. The actual value-addwe have is the knowledge of the customer,and what we understand of the industry,and applying practical ideas. It’s ideas andpractical input that we can give to a cus-tomer so that they can make meaningfulchanges within their supply chain, anddevelop a competitive advantage.

One of the things we’ve noticed is thata leader can continuously improve andremain competitive. But many of the cus-tomers out there don’t feel that they arein a leadership position; they either feelthat they are in the middle of the pack, or

some of them feel that they’re a laggard. If you are a laggardor if you are in the middle of the pack and you want to estab-lish a competitive advantage, you’ve got to do that throughinnovation. That takes sharing of information, and a truepartnership approach, and a situation where I, as a trans-portation service provider, need to have a good understand-ing that the ideas and the innovation that I collaborativelyproduce with you as a customer, is something that is goingto be valued by you, not only today, but tomorrow. My role isfairly secure going forward, based upon my own perform-ance. But I have to have an adequate reason to bring to youthe best practices that I have an understanding of.

As we talk about innovation and how we enter thatprocess with a customer, we must have a good understand-ing of where the customer is; are they seeking tactical orstrategic solutions? Innovation is a challenging responsi-bility. We’re asked frequently: “Come to us with your inno-vative ideas.” The best way we’ve been able to do that withcustomers is through a rhythm of review where perhapsevery quarter during a typical business review we’ll comeup with three or four ideas on things that we see wouldreally make improvements within their supply chain. If ourrole is just to be a plug and play transactional provider, it’sdifficult for us to do that. For one thing, we may not have agood understanding of the ins and outs, and the true oper-ational scope of their supply chain. Also we look at ourideas as something that we provide as great value to theindustry. To a certain degree we’ve got to be selective about

A Conversation with Jim Butts,Senior Vice President, Transportation, C.H. Robinson Worldwide, Inc.





Reinvention in Supply Chain PracticesLQ: Your firm provides a number ofdomestic and cross-border transporta-tion services from Canada. How haveyou had to reinvent your business in thelast year or so?Geoff Bennett: Like most Canadiancompanies, we’ve had to adapt to the dol-lar, which would certainly have been themajor change driver. From our perspec-tive, we’re a seller of services. We foundthe Canadian dollar has changed ourpricing model and our expectations interms of both the cost of buyingCanadian transportation in the U.S.market and, to a great extent, our busi-ness model, which at points in the past,was largely a labor play on selling servic-es to a significant percentage of our customers, who are U.S.customers, and selling them our labor from Canada. LQ: How have the recent changes with security and bordercrossings impacted you? How do you deal with them?Geoff Bennett: As a third party, we’re in a challenging posi-tion. The carriers have very challenging requirements inorder to comply with the border crossing requirements. We’reforced into managing remotely the type of provider we’regoing to bring to our customers, specifically customers whomight have signed on as North American or internationalbusinesses, to provide either C-TPAT or the Canadian version– the PIP Security system – and to become partners in thoseprograms. We, as a Canadian-based company and a non-asset-based company, aren’t yet eligible for participation in the C-TPAT program, though that will happen soon, but we aremembers of the PIP program, which is accepted by the U.S. asequivalent. For our customers, the requirement for them towork with Kelron involves having us check the carriers, makesure that they are appropriately secure and that their process-es and their people meet the required tests. In a lot of cases,where there might not be an absolute requirement to use acertified carrier, we’re still providing a level of assurance thatwe’ve done the required vetting and a contractualizationprocess with the carrier that most customers themselvesdon’t have the time or the people to conduct.LQ: You’re in a somewhat unique position as a non-asset-basedprovider. You still have to compete with a lot of the full-serviceproviders in several aspects. How do you accomplish that?

Geoff Bennett: We have three separatestreams of business that all run relative-ly seamlessly together. We have a verytransactional business that meets therequirement of somebody who’s gottencaught short. Potentially they had a reg-ular carrier on who can’t handle thesurge in volume, or it’s a sporadic movewhere a non-asset-carrier might viewthat as being a preferential lane wherethey’d want to commit to having avail-ability all the time.

We have a business where we act verymuch like a carrier to the customer — inmany cases these might be Fortune 1000organizations with a very predictablerequirement to move product betweenproduction and warehouse or warehouseand customer, on a very predictable time-line. We would provide the same or bet-

ter service and meet or beat the carrier cost in order to beawarded those lanes.

Then we have engagements where we’re a transportationmanagement organization where we handle all of the freightrequirements for that customer for a particular entity or forthe whole organization.LQ: How do you deal with capacity constraints? Obviously therehas been an ebb and flow of over and under capacity at varioustimes, depending on what the U.S. economy is doing.Geoff Bennett: Clearly, we need to understand what isactually driving the operator of the equipment. As the mar-ket is changing a lot right now, that’s much more of a real-time process. In the last five years, up until what we thoughtwas a capacity surge four years ago, generally I could get agood read on what the carrier was trying to accomplish.Generally that would be relatively consistent. It would last awhile — it wouldn’t be a month-to-month change. Rightnow, because of the draw down on inventory that we hadover the last year and a half, we’re seeing a big stretch interms of everybody building inventory back up. Nobodywants to get caught short when the customer goes to thestore and they don’t want to be caught without product.We’re getting surges that are very unpredictable. The carri-ers who haven’t really kept all of their equipment running,or let some of the older stuff go and haven’t replaced it yet,are finding that challenging. They’re adapting by decidingwhat lanes make the most sense for them — where can theyget the least amount of empty miles, where can they get the

A Conversation with Geoff Bennett,President, Co-Founder, Kelron Logistics

Interviewed by Cameron Joyce, President, Accuristix



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Reinvention in BusinessExecutive ExchangeLQ: Jim, you’ve been in the industryfor quite a long time. I hear there aresome changes for you. Could you tellme about them?Jim Eckler: It’s been just about 15years that I’ve been CEO of SCI Group.We’ve had a great track record and agreat run. But it’s also time for me topass the torch and to move on. So I’mshortly going to be moving from beingCEO to being non-executive vicechair. I’m looking forward to seeingsome fresh blood, but at the sametime for me, I’m going to be lookingback at my years as CEO of a logisticscompany and start to move into anadvisory role for other firms in thearea of logistics and outsourcing — which also gives mean opportunity to take a look at the industry and perhapscomment on it.LQ: We’ve been talking a lot about innovation. What is thestate of the logistics industry today?Jim Eckler: To begin with, I’m concerned about thelogistics services industry. If I take a close look at thepublished industry data in detail, I see a year-over-yeardecline in the annual growth rate for the industry, whichsays that the 3PL industry has reached a mature state.In the life cycle of an industry, when maturity occurs,you have to reinvent it. Otherwise the business will die.Without reinvention, this is a real possibility. We haveto take a look at why that’s happening. I think that oneof the big issues for the industry is insufficient innova-tion in the industry.LQ: What’s the state of innovation in the logistics servic-es today?Jim Eckler: Unfortunately, it’s not nearly as good as itcould be or should be. There’s a big gap here. There aresome challenges. If I take a look at true innovation in thelogistics industry, there haven’t been a lot of fundamentalinnovations that the 3PL organizations have created them-selves. While there have been many innovations in the sup-ply chain field and new IT, new capital equipment, continu-ous improvements in quality initiatives — these are initia-tives and innovations that the clients could create as well asthe 3PL. So you have to look at what the true value-add that

the 3PL will bring — what’s its uniquedifferentiator? I’m not seeing enough ofthat. It is concerning. There have been afew innovations, but not anywhere nearwhere it should be. When a companychooses to outsource its logistics activi-ties to a 3PL, what in fact they’re doing isasking that 3PL to take up the mandateof innovation on behalf of the clientorganization. If that’s the case, then theyneed to really be pushing and developinga lot of new and innovative things thatthe organization itself couldn’t havedone on its own.LQ: What, in your view, is restrictingthe innovation in these 3PLs?Jim Eckler: There are some realstructural constraints to that innova-tion, and that’s concerning. One of thebiggest structural constraints is the

conflicted motivation that exists in a typical logisticsservice relationship with its client. A logistics provider,if on its own, goes out and introduces an innovationthat’s going to improve productivity. If they’re successfulwith it, guess what’s going to happen? Their revenue isgoing to go down. As their revenues go down, their mar-gins go down. Shareholders of these logistics companiesdon’t want to see that. So the motivation of a logisticscompany to actually innovate, and thus reduce its rev-enue and reduce its margins, is not there. These arecalled perverse incentives and we need to find a way toovercome that.

Another constraint that we’ve seen is the fact that mostof these contracts are long-term. Sometimes the compla-cency factor sets in. It certainly shouldn’t, but it does.

There’s a third issue that comes in as well. It’s the lackof willingness to take risks. The logistics industry is not ahigh-margin business — it’s very low margin, and theindustry stats prove that. In a low-margin business, there’snot a lot of latitude to take risks because it means thatyou’re perhaps going to fail sometimes. You need to havethat ability to take risks. Most companies have not beenvery innovative because of an aversion to risks. We needto find a way to change that.

(This interview is an abridged and edited edition of LQ’sExecutive Insight Interview Series, held on June 10, 2010,at the Toronto Board of Trade’s Country Club.)

A Conversation with Jim Eckler,President, Eckler Associates and former President and CEO, SCI Group Inc.

Interviewed by Melissa Gracey, President, DTA Services, and LQ Board Member



LQ: What initiatives does your firm useto develop talent with a combination ofsupply chain management (SCM) andinformation technology (IT) knowledge?Do you expect the appropriate talent to bedeveloped through universities or is yourfirm using unique career paths to devel-op the appropriate combination of skills?(David Closs, PhD)Jim Handoush: Landstar has experi-enced positive results with recent grad-uates of logistics and supply chain man-agement programs. Due to the increas-ingly critical role that technology playsin SCM, universities recognized this gapand made changes to their core logis-tics/supply chain curriculum. Whilesome schools relied on more traditionalmethods of study, others employed vari-ous technology applications to providestudents with a hands-on approach tosupply chain design and optimization.Overall, I feel that students coming outof logistics/supply chain programs todayare much more proficient in supplychain technologies from a practical aswell technical standpoint than theirpredecessors. LQ: A combination of retiring babyboomers and recession‐induced layoffs hascaused the collective knowledge of theseemployees to escape from their respectiveorganizations. Is there a fear among ship-pers that outsourcing supply chain IT serv-ices will create a further loss of supplychain knowledge? (David Faoro)Kevin Fletcher: I don’t necessarily feelthere is a fear among shippers, but rather

a situation where shippers are ration-alizing what makes the most sense fortheir respective firms. Some may feelthat supply chain technology is a corecompetency and competitive advantagethey want to keep in-house. Others donot see this as a competency and insome cases even see it as a weakness.These firms recognize value in shed-ding the costs and responsibilitiesassociated with keeping it in-houseand outsourcing these services to a3PL such as Landstar or a technologyprovider that affords them attractiveand cost-effective solutions.LQ: Given the majority of shippersuse internal supply chain applica-tions, do you think one of the reasonscould be a perceived lack of flexibilityand customization in 3PL IT serviceofferings? If so, how do you changethis perception or is this perception areality? (David Faoro)Jim Handoush: While I think thisperception may have had more legiti-macy in years past, leading 3PLs haveacknowledged this gap and eitherhave or are in the process of develop-ing solutions that are more flexibleand scalable. Concerning the cus-tomization aspect, it typically comesdown to a cost-benefit decision on thepart of the shipper in evaluating the“nice to haves” versus the “musthaves” since extensive customizationcan quickly drive up cost. What maystart out as a very long list of desiredsystem functionality is sometimes

A Conversation with Jim Handoush, Co-Chief Operating Officer,

Landstar System, Inc. and Kevin Fletcher, Executive Vice President, Logistics Services,

Landstar Transportation Logistics, Inc.

LQ’s questions for its Executive Interview Series on 3PL Excellence in Supply Chain Technology have been prepared by members of LQ’s Board: David Closs, PhD, Michigan State University and LQ Executive Editor; David Faoro,

Director of Supply Chain, The International Group; Clifford F. Lynch, President, C. F. Lynch & Associates; John Langley, PhD, Professor of Supply Chain Management, Georgia Institute of Technology; Nicholas Seiersen, LQ Executive Editor.


Jim Handoush

Kevin Fletcher

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scaled down to essentials when the amount of time andmoney required for mass customization is determined. AtLandstar, we promote the flexibility and scalability of ourrobust transportation management system (TMS) solutionsas a market differentiator. LQ: How can a 3PL ensure that as customer needs change,their offerings change and adapt to meet customer require-ments? I can think of examples where shippers have askedfor enhancements and were rebuffed due to cost or a lack ofresources on the 3PL’s part. (David Faoro)Kevin Fletcher: One area to look at is what type of rela-tionship exists between the customer and the 3PL. Is the3PL viewed as a strategic partner and included in the cus-tomer’s business and logistics planning processes? If so,then the 3PL should be well aware of the customer’s chang-ing needs and would have had multiple opportunities to dis-cuss these requirements with them. If it is more of an arms-length transactional relationship, then the changing needis probably handed to the 3PL with little warning and insome cases almost as a directive. As long as the customerand 3PL organizations are aligned and lines of communica-tion kept open, then the changing needs should come as nosurprise and potential resource and cost requirements haveat least been initially discussed. When very little notice isgiven and a short timeline has been established by the cus-tomer, 3PLs sometimes have no choice but to weigh otherscheduled projects in the pipeline that can impact resourceavailability and cost.LQ: I can think of a situation where a shipper contractedwith a 3PL to provide IT tools to manage a part of its sup-ply chain. As the shipper grew through an acquisition, thesolution no longer met its needs. How would you handlethis type of situation? Would you ever tell a customer yourapplication can no longer meet their needs? (David Faoro)Jim Handoush: Landstar consistently solicits feedbackand evaluates ways to deliver greater value to our cus-tomers through enhanced technologies. It is for that exactreason we acquired two technology-based companies inmid-2009. These acquisitions allow us to now provide cus-tomers supply chain transportation integration solutions ina Software-as-a-Service (SaaS) environment. After evaluat-ing and exhausting all possible options to meet the technol-ogy needs of a customer, the 3PL should discuss the gaps intheir solution with the customer and determine the direc-tion moving forward. A “smoke and mirrors” approach willnot go unnoticed for long and do more damage to the 3PL’sreputation in the long run.LQ: Do you believe that state-of-the-art IT capabilityshould be simply a cost of doing business for a 3PL?(Clifford F. Lynch)Kevin Fletcher: I would not necessarily say it should besimply a cost of business for a 3PL, but rather a strategicbusiness decision. While there are some 3PLs that feeltheir business model and strategy demand significantinvestment in state-of-the-art IT capabilities, others donot place as great an emphasis and choose to rely on moremanual processes. In addition, a 3PL may hesitate to makea significant investment into the special technology needsof a customer without first getting a longer term commit-

ment to the relationship. Situations also arise where thereis a very visible disconnect between what a customerexpects to receive at no cost versus what the 3PL is willingto offer. Landstar strives to provide our customers withleading-edge technology solutions that are flexible andscalable, deliver improved visibility, offer greater efficien-cy through automation and drive supply chain savings, allin a cost-effective manner.LQ: What are some of the “keys” to successful relationshipsbetween 3PLs and their customers in relation to IT needs?What are some of the reasons that may be responsible forthe lack of success in some instances? (John Langley, PhD)Jim Handoush: As the key component to supply chainplanning and execution, IT can be viewed as the major con-tributor to the overall success or failure of the relationshipbetween a 3PL and a customer. Both organizations must beclosely aligned, share common goals, maintain an open flowof communication and be willing to collaborate. If there is alack of trust or flexibility on the part of either party,progress will be greatly diminished. Customers look to 3PLsas their “experts” in this field, and as such, expect 3PLs tobe forward thinkers and innovators when it comes to ITenhancements and value creation. Relationships becomestrained when a customer feels that their 3PL is not meet-ing their expectation as it relates to bringing forward newideas and solutions to drive supply chain efficiencies. Also,integration, access to data and the cleanliness of that datais paramount to develop meaningful and timely key per-formance indicators (KPIs) and performance reporting toeffectively manage the business. LQ: What steps are you taking as a 3PL to better respond toyour customers’ IT needs? (John Langley, PhD)Kevin Fletcher: First and foremost, we place greatemphasis on our customers’ input. Listening to and beingattentive to customer feedback gives us insight to not onlytheir short-term needs, but longer-term strategic direc-tion. Our 2009 acquisitions allow us to provide web-basedIT solutions that are highly configurable and easily imple-mented, from basic transportation to very complex enter-prise level supply chain order management. These solu-tions reduce total supply chain cost and improve businessprocesses through optimization and automation in a real-time operating environment for shippers while also afford-ing greater visibility, business intelligence, and KPI/per-formance reporting. Customers can choose to purchaseonly the technology on a subscription basis or elect to haveLandstar also perform the execution. Our customers havecome to expect us to bring new solutions and technologiesthat allow them to operate their supply chains more effi-ciently and cost-effectively which ultimately makes themmore competitive in their particular market.LQ: Looking ahead into the next three to five years,what do you feel will be your customers’ top priorities interms of IT needs where 3PL involvement will be helpful?(John Langley, PhD)Jim Handoush: In general, I would say that customerswill place greater emphasis on web-based technology thatallows them to reduce total supply chain costs and improveoverall business processes through optimization and



The New Supply ChainAgenda: The Five Steps that Drive Real Value

LQ: The recession has been a reallytough time. Tell us how you’re working to become the customer of choice for your suppliers.Reuben Slone: OfficeMax has been in aturn-around mode since April 2006. Wecompleted our turnaround in March 2010.We have been very reliant on our suppli-ers to help us fix our business. The reces-sion allowed us to put that cooperation on “steroids.” The economic pressuresbecame all that greater — our suppliersfelt those pressures, as did we. There wasa mutual understanding that if we workedtogether we would both survive the storm;if we worked in a confrontational way, we would both suffer, or perhaps one of us could disappear.LQ: This sounds like common sense. Why isn’t everybodylike that?Reuben Slone: I think it’s a problem of perspective. You haveto have a view of the longer term, and you have to have trust.If the trust hasn’t developed or doesn’t have reason to existbetween the customer and supplier, then it is impossible tocollaborate. When that trust is gone, the parties have to dis-solve the relationship. Or, if it’s been attacked, but not com-pletely gone, then you have to figure out how to rehabilitate it.LQ: Could you give us an example of what might have beena home run?Reuben Slone: Let me give you a customer example withBoeing. We are one of approximately 14,000 suppliers toBoeing. We won their Supplier of the Year Award in 2009 inin-direct. They spend billions on in-direct procurement and atiny fraction of that they spend with OfficeMax. OfficeMaxand our predecessor company, Boise Office Solutions, hasbeen a supplier to Boeing for over 45 years. We won thisaward because we collaborated with Boeing using lean toolsto both reduce costs and improve the sustainability profile ofBoeing. We implemented a returnable totes program as wellas a managed delivery program that reduces the number oftruck deliveries to Boeing, thereby reducing their carbonfootprint without deteriorating product availability.LQ: It sounds like you are putting a lot more into those relationships. How are you finding the resources to do that?Reuben Slone: From a business perspective, you need tofind out who are your best and less desirable customers.

Basically, the customers where the sup-plier creates the greatest value for bothparties are the supplier’s best cus-tomer. A good way to determine this isto calculate the economic profit of eachof your largest customers. Once youknow this, it is simple to determinewhere to invest the people into whichcustomer relationships.LQ: You mentioned a number of times thefinancial sustainability risk— it could alsobe commodity price risk, or supply risk oncommodities in short supply. How doesyour firm mitigate risk in the supply chain?Reuben Slone: Supply volatility is arisk that we must manage as a customer.We usually manage this through a form ofredundancy. For example, we have identi-fied critical SKUs to our business. Aplausible event that might occur is atyphoon that paralyzes the Pearl River

Basin. We have identified key SKUs where we have dualsourcing that spans different continents where those SKUsare primarily imported from China out of the Pearl RiverBasin. In the case of a tornado or a hurricane in the U.S., wehave redundancy between our customer fulfillment centers.With regard to Katrina and New Orleans, we were able toleverage our fulfillment centers in Atlanta and Orlando tosupport Louisianna. We have some of the largest propertyinsurance companies in the United States as customers. Wewere able to very effectively support them in the hurricane-ravaged areas so they could quickly set up claims locationsfor their customers.LQ: We have talked about work with the best customers,making room for innovation in the relationship, managingrisk and who owns what risk and how to deal with this. Whatare your final thoughts to share on value of the relationshipin businesses?Reuben Slone: I would say the most important thing tobuild a truly collaborative relationship is how you buildtrust and establish a system for managing the relationship.It goes back to understanding that relationships betweencompanies are relationships between people. The rulesabout how you build or destroy a relationship between oneperson and another are often similar to the relationshipsbetween companies.

(This interview is an abridged and edited edition of LQ’sExecutive Insight Interview Series, held on June 10, 2010, atthe Toronto Board of Trade’s Country Club.)

A Conversation with Reuben Slone,Executive Vice President, Supply Chain, OfficeMax




automation. These solutions will include multiple segmentsof the overall supply chain in a real-time operating environ-ment. Key facets of these solutions will include materialorder management, dynamically optimized network plans,execution of transportation orders, payment to serviceproviders, and reporting of critical business intelligence ina multi-lingual, multi-currency environment. I also antici-pate an increased dependence upon integration as integra-tion platforms become more and more flexible. I expect abroader acceptance of IT on a subscription or on-demandbasis for a number of reasons that are making it moreattractive and cost-effective. Customers will continue toplace significant value on a 3PL’s ability to provide real-timesupply chain visibility, deliver innovative and scalable solu-tions that are also flexible, and afford timely and accurateKPI/performance reporting to better manage the business.Ultimately, a 3PL’s involvement will only be helpful if thebusiness and IT communities of the customer and 3PL arestrongly aligned.LQ: In the future, do you see 3PLs developing more of theirown software and IT, or do you see them relying more so onthe commercial sector? (John Langley, PhD)Kevin Fletcher: I see it being a combination of both.Some 3PLs see this as a core competency and are very

comfortable developing their own IT solutions in-houseand keeping the resources needed to enhance and main-tain their systems. Others may not feel as strongly abouttheir internal capabilities and choose to rely more on thecommercial sector for their expertise. I’ve also seen somecases where the commercial sector was used instead ofthe 3PL’s existing in-house IT department specifically tosupport a speed-to-market strategy. In general, it boilsdown to a build versus buy decision based upon the 3PL’scost-benefit analysis. LQ: To what extent are contemporary technologies such as“cloud computing” relevant to your current and/or future ITplans? (John Langley, PhD)Jim Handoush: Contemporary technologies such as“cloud computing” are very relevant to Landstar’s currentand future IT plans as evidenced by our 2009 acquisitions.These solutions have a cost, speed, and ease of implemen-tation advantage over traditional software that must be pur-chased, installed and maintained. Contemporary technolo-gies must be viewed as viable solutions given the trends ofexpanded broadband capabilities, global IT hosting centers,new and more powerful server technology and software,worldwide acceptance and usage of the Internet, and theavailability of inexpensive PC hardware.

payment terms off to third parties. Is there anyone who isgoing to want to own those assets and how are they goingto make that work?Craig Callahan: We’re certainly a part of that strategy.When we look at our asset networks, our number of truckshas decreased from a high of 9,100 to a current number of7,300. So we’ve gone through a significant right-sizing ofour own fleet. From a capacity perspective, although wedon’t have that capacity to offer on our own assets, we cer-tainly try and gauge outside trucking companies throughour brokerage model to bring in that buffer capacity to offerto our customers. So to answer the question — we have7,300 of those assets and that’s because we want to. Wedon’t want to own any more than that. Recent history hasindicated that that’s a losing proposition because you findyourself oversized and underleveraged.LQ: Isn’t that just pushing the problem one arm away?Craig Callahan: I don’t think so. The way we see it,we’ve got very good relationships with many of our third-party carriers. We’re a big, well-known organization thatdoes business with many of the Fortune 100 companies.Some of the smaller carriers would never have that oppor-tunity to engage with customers of that size — they canthrough us. We are truly taking these Fortune 100 compa-nies’ capacity that they otherwise wouldn’t have exposureto or wouldn’t want to.LQ: Do you see the same thing happening with risk on thesupply chain, pushing it off to third parties?Craig Callahan: When we think about third party, wethink about the work we do in outsource contract logistics.In many cases, what our client may see as risk, we see asreward. That’s how we make our living. We would certainlywant to have a conversation with our customers on how

they would want to insulate themselves from that risk. Ifyou think about the business that we’re in, in transporta-tion, and if you think about the liability cost associated withrunning a large fleet, a fatal accident, for example, is a real-ity that we live in. Most of those events are going to comewith five-, six-, seven-million-dollar price tags. If you are aretailer or a manufacturer running a private fleet, do youreally want to expose yourself to that type of liability? If youare a carrier, and that’s how you make your living and youare the experts in that specific area, then you are best posi-tioned to insulate yourself from that risk and take thatresponsibility and risk away from your customer.LQ: We’ve just seen one of the worst years in the memoryof today’s leaders. Are there any lessons that we can take totry and bust the old business cycle and try and keep supplychain improvement on a path of continuous improvement?Craig Callahan: I think if there’s anything that can belearned, as a country in general, we’re guilty of overspend-ing. From Werner Enterprises’ perspective, it has certainlyhelped crystallize the business plan that we have alwaysheld. As I mentioned, we’re a debt-free organization. Beingfiscally responsible has been priority one in this organiza-tion since the founder started it back in 1956. We’ve alwaysheld the position that we will take calculated risk, but at thesame time, we don’t want to put ourselves in a situationwhere we no longer have leverage. In going forward, weplan to even use a more conservative strategy so that wecan remain financially sound and debt-free and to continueto be in existence for the next 50 years.

(This interview is an abridged and edited edition of LQ’sExecutive Insight Interview Series, held on June 10, 2010,at the Toronto Board of Trade’s Country Club.)

Continued from page 8



where we bring that information and how is it used withinour customer portfolio.LQ: Can you give us an example of something you’re reallyproud of?Jim Butts: There are numerous case examples, forinstance, a blending of transportation modes, expeditedstack train service, having steamships skip ports using fruitboats. It’s always a blend of what that customer is looking for,what the specific requirements are, and what the relation-ships are that we are able to plug into effectively to make animprovement within their supply chain.LQ: It has been suggested by one pundit at today’s sympo-sium that 3PLs are not always innovative leaders. Whatwould you say to that?Jim Butts: I think it depends on who you ask. If you askpeople who are looking at the industry as a whole, thenyou’re going to have trouble finding examples, because it isdifficult, based upon the differences within each customer’ssupply chain to have what you would call an aggregate inno-vative solution. However, if you look at specific industries,there are examples, particularly specific customers, which iswhat we focus upon. How can we help this customer throughinnovation, through creativity, through the application ofpractical ideas and our technology; how can we help that cus-tomer establish a competitive advantage? Frankly, it wouldn’tbe our role within the industry to take credit for an innova-tion solution, because we believe in a collaborative perspec-tive. You want the customer and the people within the organ-ization that had to take responsibility to usher the ideas inand to get all the credit for the results.

LQ: Have you succeeded at bringing external ideas in? Whatare the challenges and some successes you’ve had?Jim Butts: When we talk to customers about innovation andsetting the stage within their organization so that innovationis welcome, we often learn that there are only very specificareas where innovation is going to be welcome. Sometimes it’sa trust issue, sometimes it’s a pride issue, which reflects inthe “not invented here” perspective. What we find, in order tobe innovative, is you’ve got to have somebody within theirorganization that’s going to be responsible for the results —usually somebody from senior management that’s paving thepath for the innovation — and a process by which the innova-tion is implemented, tracked, and measured going forward. LQ: What are your closing thoughts?Jim Butts: I think innovation is going to be the key value-add of transportation providers going forward. I think, as noemployer can tell any one employee everything that needs tobe done, no organization can tell its transportation or supplychain partners everything that needs to be done in order toachieve their supply chain goals. So it’s the setting of expec-tations, clear communication, and empowering your supplychain partners to make decisions on your behalf, that leadsto a beneficial outcome for you. I like to compare it to aneighborhood watch program, where your supply chain part-ners work in such a way that they prevent bad things fromhappening in your neighborhood supply chain.


highest efficiency out of their equipment, or the greatestreturn on the miles that they run.

For us, we have a large carrier base that we must under-stand beyond the larger carriers. You’re often filling an orderwith somebody who’s got 20 trucks. I need to know what’sgoing to motivate him and be able to bring him to the tablequickly, in the case of a demand that might not have beenthere a month ago. An example for us of something that isongoing in terms of capacity is a club store that we do a lotof business for as a transportation capacity provider. We pickup all the lanes that aren’t regular and repetitive. When youwalk into that club store and you walk down the middleaisles, they always have a change in product line. They buywhatever they spot buy and that’s it. When that’s sold, theydon’t have any more of it. From a carrier point of view, I’mnot going to move my network around to go get that productfor two months, and then not have it again because you don’thave another vendor in that particular location that I couldcount on getting other freight from.

From my perspective, typically we know a year in advancewhat is going to happen. And then a month in advance, if wedon’t have a sufficient carrier base in that neighborhood, wewill work diligently to build up our knowledge of which car-riers are most likely, and then we dump that back into ourTMS and get ready to go.

In our world, there’s no shortage of solution providers. We’recompeting with the asset and the non-asset-based groups, from

the global 3PLs down to the 3PL on the corner. I think we’repositioning ourselves as a broad-based niche transportationprovider in that while we’re providing domestic transportationwithin North America, we’re doing it on three different levels.And, we’re technologically enabled beyond what most providersthat offer the whole gamut of services would be. The large guyswould all have some sort of transportation management offer-ing, and could potentially offer some solutions in a dedicatedcapacity. Most of those people have a hard time getting into thespot market. In most cases, whether it would be through myfirm or other competitor’s firm on the spot market side, theywould farm out their customer’s requirement for the spot mar-ket requirement.

A vital element in our world is agility in business. We havethe technology interface, the key performance Indicator (KPI)definition process, the requirements on less-than-truckload(LTL) capacity, to have a point of delivery 99 percent on time atretail locations within a half hour window. We’ve adapted veryeffectively in that environment and I think those are someunique attributes we provide. It is a challenge for any 3PL toconsider how to build a model that allows you to move seam-lessly between each one of those hats with agility to meet theneeds of each customer but I feel that we do a great job of it.





How Do You Mitigate Risk and Invest in Outsourcing Your TransportationRequirements?

Following one of the most challenging years in busi-ness, the CEO of a long-time carrier invites you to meetwith him. When the pleasantries are over, he gets down

to business.The last few months have been particularlytough on his company, and it’s possible the future of his firmis in peril if current business trends continue.You have been putting pressure on keeping his rates down,

as has everyone else, and it’s now known that the CEO’s trans-portation company has been compelled, in at least a fewcases, to take on business that does not cover their costs.Like thousands of other companies in the field, they require

a substantial rate increase across the board to keep their com-pany afloat. How do you respond? Do you quickly end themeeting and redirect your freight to other carriers, thereby pre-cipitating their failure, but ensuring none of your freight getssequestered in bankruptcy proceedings? Do you discuss whatit will take to keep them afloat, and compute what it will costor require your firm to invest in their services? What conces-sions will you try to get, and how will you sell the new deal toyour management? Do you refocus your freight with them onlanes that have excellent economics so that they can quicklypull out of their slump? How do you deal with the other lanes?Do you maintain the status quo but diversify and use moretransportation providers as a result, or do you invest more inthis carrier and develop a deeper business relationship to mit-igate risk and realize new value?

Advice from Practitioners in the FieldGinnie Venslovaitis, CITT, Director, Transportation Operations, Hudson’s Bay CompanyIf this carrier is a true partner, has been a stellar carrier for mybusiness and provides great service, the opportunity to keephis business afloat is definitely an important goal. Keeping car-riers in business is good for competition and providing serviceand alternatives to shippers.Depending on the size and scope of his volume and

lanes to my overall transportation budget I would considerthe following process. The initial discussion would likelyinvolve a review of how the carrier found himself in this sit-

uation; could it be attributed to the economy, union con-tracts, another customer’s bankruptcy, etc.? In other words, itwas not a result of the company’s mismanagement or poordecisions that led to this crisis. Once we have established a general cause, let’s look at the

CEO’s turn-around plan. I would want to see that there is morein the turn-around plan than just asking everyone for rateincreases. What has the company done to reduce their internaloperating costs? Is the fleet the right size, have assets been soldoff or leases terminated? Have all these issues been broughtforward to the managers and even the employees and driversto allow them an opportunity to understand and appreciatethe situation and examine ways to reduce operating costs? Ifthis has been done and there is an action plan in place, andrate increases are a part of the plan to close the gap, I feel thiscarrier is likely worth supporting.Next, I would look at what lanes can be supported with a

rate increase. Are these lanes undervalued and therefore arate increase is in order, or are the rates requested substantial-ly over market value, based on benchmarking? Is there anopportunity for me to change my business processes, delay inloading, or time-of-day shipping to be more efficient for thecarrier and thereby reduce additional costs for his opera-tions? What collaboration can we find to reduce his costswithout increasing mine?Once a rate increase is determined to be appropriate, I

would calculate the financial impact to my overall transporta-tion budget based on the proposed volume and the new rate.Could this increase be offset by other cost savings initiativesthat I have in place and is my total budget still intact? If so, Ihave no obligation to senior management to discuss a specificlane rate increase. Another avenue to explore is the aging of invoices. If my

payment terms were 30 days, would shortening paymentterms to 15 days change any cash flow or bank obligationsfor the carrier? I would expect to have monthly reviews withthe CEO via a quick phone call meeting to assess his currentsituation. I would ask my company’s receivables group tomonitor the Dun and Bradstreet reviews on a monthly basis.In the fullness of disclosure, I would also advise that this sit-uation is under high scrutiny and I will be looking for a

You’re meeting with the CEO of one of your stellar carriers. The CEO has some troubling news to share; it’s crunch time and they need to renegotiate their contract with your firm. What’s your best course of action?

CASE STUDY


back-up carrier to be in place in the event of a completefailure. Potentially, I am putting my company at risk and Iwant to be assured there is full visibility for both parties.

Andrew Paxton, CITT, Vice Chair, Development, CITT BoardI would want to begin by knowing what it would take to keepthem going and ask about the root of their financial problems.Why are they in financial trouble? Is it mainly due to cus-

tomers paying below market value or are there other factors? Iwould also ask the CEO where we rank as a customer and whohis key customers are. I would ask for a financial guarantee. Iwould then explain that I need to review with our manage-ment team and will set a future meeting date after our manage-ment team’s review of the circumstances.The CEO has likely been upfront with me in this situation,

but I need to verify the facts by talking to some of the other keycustomers and performing a credit check on the carrier. Iwould review my carrier base and verify if the carrier is beingpaid below market value. If this is true, then there is a strongcase to grant a rate increase. If I am a smaller client I need toknow if other clients are going to do the same, otherwise theimpact of my increase will be negligible.If I have established that we are a major client of the carrier,

we can likely grant an increase (but not overpay), and if theCEO will put up a bond I would probably present to the man-agement team — and make a compelling case as to why weshould continue to do business with this carrier and work toestablish a stronger business relationship.

Ajay Gupta, CITT, Director of International Supply Chain Logistics and Operations, Sterling AgilityThis is a tough business situation to be in. First, I would want todevelop a deeper understanding of where the carrier CEO iscoming from, including whether the situation is close to beingsalvageable or near bankruptcy. This is important in order toassess my business risks.My primary inclination is to assess what is needed to keep

them afloat and proceed to work with them as a true partner.So, I would consider a rate increase — a negotiated one —while being mindful of a pricing arrangement that is sustain-able in the market. If this carrier cannot make a living at the rateI pay them, chances are neither can any other carrier.Any rate increase agreed to would be time limited, with a

clear understanding of re-visiting the pricing to current and/ormore competitive levels.In return, I would ask as to what the carrier would do to

work with us in order to streamline processes and reduce costsand improve efficiencies for both of us, thereby lowering thecosts for both parties — in the short-to-medium term.Splitting the loads/lanes should be the last option; it is not an

optimal solution for either the carrier or our firm, in my opinion.In parallel, with these steps, I would likely create a mon-

itoring mechanism; a team consisting of Finance, Opera-tions, and Procurement (and, possibly, Customer Service)would be charged with keeping a close watch on the car-rier’s performance, reporting regularly and raising any red

flags in short order. Also, I would initiate, in parallel, theprocess of assessing alternatives and coming up with afocused risk-mitigation strategy.

Valerie McSween, CITT, Vice President, Eastern Region, Mactrans Logistics Inc.Every carrier has developed core lanes for which they seek tobalance the inbound and outbound flows with the objective toreduce empty mileage. With excess capacity consequent of therecent economic downturn, carriers may have been temptedto take on any business opportunity, outsourcing the volumesthat they could not handle to other carriers afterwards.As a first step, we should go through each lane with the car-

rier to determine which movements are profitable for them. Abenchmark comparison should be completed for the lanesrequiring a rate increase to determine if they are undervaluedor well above the market rates, which would initiate a diversifi-cation of our volumes amongst other transportation serviceproviders. In removing some of our volumes from their trucks,we should also consider our carrier’s key lanes to determine ifwe have other movements, currently handled by other trans-portation suppliers, that we could allocate to their operations.Measuring each carrier’s core competencies can be a diffi-

cult and tedious task. Before spending an important amount oftime meeting with several other transportation firms, we shouldconsider outsourcing the transportation selection function toan expert in the field. An experienced third-party logisticsprovider will know precisely the strengths and weaknesses oftransportation providers and have carrier profiles for thosewho specifically meet our needs. If we are dealing with LTL shipments, in addition to knowing

precisely which lanes each carrier seeks to increase freight vol-umes on, a third-party logistics provider will also have theknowledge and expertise required to determine which trans-portation firm specializes in smaller and/or larger LTL orders,for each of our lanes. For freight that cannot be cross-docked,they will also offer reduced pricing by combining with otherclients’ freight, thereby offering volume economies on directdrive services without the costly truckload pricing. Outsourcing our transportation function to a strong 3PL,

whose core business is transportation, will enable us to profitfrom the strength of each individual carrier. It will also allow usto benefit from a volume economy, a single invoicing process,superior customer service and the flexibility that comes withnot being restricted to a specific fleet of equipment. A professional 3PL will encourage us to pursue business

with our current carriers, if it makes business sense to do so.Our carriers will also profit from the third-party operations whowill work with them to increase freight volumes on lanesrequired to obtain a balance and reduce empty mileage.

This CITT column has been prepared with insights from members of CITT’sBoard: Ginnie Venslovaitis, Director, Transportation Operations,Hudson’s Bay Company; Andrew Paxton, Vice Chair Development,CITT Board, Ajay Gupta, Director of International Supply ChainLogistics and Operations, Sterling Agility; Valerie McSween, VicePresident, Eastern Region, Mactrans Logistics Inc., and LQ’s ExecutiveEditor, Nicholas Seiersen.


NASSTRAC CORNER

ADMITTEDLY, GOOD NEWS seems to bein short supply. Unfortunately, changefor the better seems unlikely even afterthe elections. If Republicans take con-trol of the House, the Senate, or both,they are unlikely to be more successfulwith their agenda than Democrats werewhen they were in the majority.The main problem lies with the

need, rarely seen in the past but com-mon today, for 60 votes to enact bills inthe Senate. This requirement, based onincreased threats of filibusters, is badenough, but the problem is compound-ed by the ability of a single senator toblock action through an anonymous“Hold.” Time after time, bills enacted inthe House have died in the Senate.If legislative gridlock operated only

to kill pet projects from the extreme leftand right, opening the way for centristlegislation with bipartisan support, thesituation might be tolerable. Unfortu-nately, centrist politicians are an endan-gered species. Too many Republicansrefuse to consider tax increases, even ifonly applied to millionaires. Too manyDemocrats refuse to consider cuts inservices or programs whose effective-ness is questionable, or which clearlydeserve elimination.What does all this mean for trans-

portation, logistics and supply chainprofessionals? Needed legislation islikely to be postponed indefinitely.Exhibit A is a new highway bill,

replacing SAFETEA-LU, which expiredSeptember 30, 2009. The need for infra-structure investment is undisputed, andthe pile of supporting studies continues

to grow. On September 23, 2010, the U.S.Chamber of Commerce issued itsTransportation Infrastructure Index,showing the lack of investment to be a“major drag on economic growth.” OnOctober 4, a report by the National Trans-portation Policy Conference, headed bytwo former DOT secretaries, called forincreased funding for the deterioratingtransportation infrastructure.However, Governor Bill Graves, presi-

dent of the American Trucking Associa-tions (ATA), and Senator Max Baucus,chairman of the Senate FinanceCommittee, have both predicted that weare likely to see extensions of SAFETEA-LU through 2013, and no new highwaybill till 2014 at the earliest. Highway billstraditionally enjoy bipartisan support,and economic conditions in three orfour years may (or may not) permit res-olution of funding issues that areintractable now.Federal Aviation Administration and

Surface Transportation Board reautho-rization are in limbo now, and willalmost certainly not be enacted prior tothe elections this November. After that,action during the “lame duck” session,when Members of Congress can votewithout the threat of imminent defeat at

the polls, may be possible. However,there is little reason to expect 2011 tobe better than 2010 on Capitol Hill.Neither party is likely to have the votesto impose its will on the other, and thereis no reason to expect the survivors of abruising, polarizing campaign to be in amood to reach across the aisle to com-promise with political foes. And ifRepublicans are able to pass legislation,presidential vetoes may prevent thebills from becoming laws.In 2011, the 111th Congress will begin

its first session. For reasons set forthabove, legislation that requires fundingmay face insurmountable hurdles. Thebest we can hope for may be bills thatstreamline and improve regulations andprograms affecting logistics and supplychains. If such bills do not cost anymore and do not undermine health,safety or the environment, but makepopular or accepted programs workbetter, they may be enacted. There aresome good bills pending which deservea fresh start in 2011, even if major legis-lation that is even a little controversialmust be placed on hold.Gridlock on Capitol Hill may leave

administrative agencies free to pursuetheir policy initiatives, and those of theWhite House. Changes in truck driverhours of service rules are expected,which carrier groups like ATA and ship-per groups like NASSTRAC are expect-ed to oppose. New regulations on secu-rity and safety are also likely. Membersof Congress may have problems withthese policies, but gridlock will reducethe likelihood of effective oversight.

By John Cutler Jr.

Fall Elections Promise Worse Gridlock Virtually all U.S. elections in “off years” (i.e., when votes are cast for Members of Congress but not for president), lead to gains by the party not in power. In 2010, several factors appear likely to increase losses by Democrats. These factors include a weak economic recovery, concerns about federal deficits andthe bank, auto industry and AIG bailouts that contributed to them, the rise of the Tea Party movement, dramatic increases in campaign ads supporting Republican candidates, and gridlock in Congress.


LQ’S RECOMMENDED READING

SLONE, DITTMANN, AND MENTZERembark on an ambitiousendeavor to distill the complex-ity of supply chain manage-ment (SCM) to its essencethrough five pillars: 1) hiringthe right talent; 2) selecting theappropriate technology; 3) col-laborating internally; 4) collab-orating externally; and 5) man-aging change. Each of these pil-lars calls for a book of its own,but the authors manage to con-vey the essentials, with amplediscussion and examples, injust under 200 pages. How is itpossible that such a complexdiscipline as SCM can beaddressed in so few words? To borrow aquip from one of my former professors:You only truly understand a complextopic if you can explain it to your grand-mother. Essentially, that’s what Slone,Dittman, and Mentzer accomplishthrough their synthesis. Fortunately, theauthors have a rich reserve of supplychain experience and expertise to drawupon which makes the read not onlysuccinct but enjoyable. The book pushes off with a focus on

supply chain as a primary driver ofshareholder value. The authors assertthat we, as supply chain professionals,must speak the language of the CEOand the business directors. These corpo-rate leaders understand economic prof-it and its connection to shareholdervalue. Supply chain professionals, how-ever, continue to be looked toward forcost savings only, as they allow others to

perceive the supply chain merely as acost center. The authors suggest that “themost neglected pathway to increasingshareholder value runs through the sup-ply chain.” As for which activities com-pose the supply chain, they note thatthe supply chain function includes “theactivity that manages the flow of infor-mation, money, and material across theextended enterprise, from supplierthrough the functional silos of the firmto customer,” noting that the book gen-erally does not cover manufacturingbut rather focuses on the “supply chainoutside the four walls of the plant.” Thisreader takes that to mean “logistics.”After coming to terms with this dispari-ty in terminology, one can appreciatethe message that improved manage-ment of product availability, delivery,inventory, employed assets, and theirassociated costs can render improve-

ments in economic profit thatdrives shareholder value. Theauthors provide anecdotal evi-dence and industry data that con-vincingly back up this assertion. Particularly valuable in this

opening stanza are the in-depthprimer on working capital andthe comparison between termi-nologies used by supply chainpersonnel and the CEO/board ofdirectors. For instance, whenCEOs speak of working capital,cash flow, and DSO (days salesoutstanding), those in supplychain conventionally speak ofinventory turnover. When CEOsspeak of NOPAT (net operating

profit after taxes) and ROIC (return oninvested capital), we tend to speak offill rate, shipments, and cost. Theauthors note that when it comes toeconomic profit, shareholder value,and price-equity ratio, these terms arerarely used or understood by those insupply chain roles — emphasizing thatthis must change. These observationsseem consistent with the findingsderived from the “Career Patterns inLogistics” studies conducted annuallyby professors LaLonde and Ginter atthe Ohio State University who, fordecades, have asked logistics profes-sionals what short courses they wouldtake if given an opportunity to study atopic for 90 days. Without fail, they findthat financial acumen is a weaknessthat logistics/supply chain profession-als would like to address. The book transitions from this rous-

A Book Review By Thomas J. Goldsby, PhD

The New Supply Chain Agenda: The 5 Steps That Drive Real ValueReuben E. Slone, J. Paul Dittmann, and John T. Mentzer


ing opening salvo on embracing eco-nomic profit to drive shareholder valueto implore supply chain executives todevise a supply chain strategy com-posed of the five pillar elements. Theauthors include a short assessment toolto help senior executives quickly identi-fy areas of deficiency. The tool, devisedin a supply chain forum at theUniversity of Tennessee, provides thereader with an immediate sense forareas in need of attention. Further, theauthors provide a synopsis of findingsfrom 35 companies that have complet-ed the assessment. The findings suggestthat a short-term focus on decision-making is “the greatest disease plaguingsupply chain effectiveness,” followed bycross-functional misalignment — whichI agree are two major barriers to achiev-ing the supply chain dream. The successive five chapters (chap-

ters three through seven) address thefive pillars toward supply chain excel-lence. Assembling the right talent isproposed as the first step. Assemblingsupply chain talent is not limited tonew hires coming in the door, but alsothe current personnel, including thesenior supply chain leaders. It isemphasized that supply chain execu-tives must possess expertise within theactivities they manage, and that theymust also have an ability to coordinateareas that they do not control in theend-to-end supply chain. This clearlyposes challenges for the supply chainleaders who must not only compre-hend the challenges faced by otherfunctional areas of the firm (e.g., newproduct development, sales, finance,and marketing, among others) but tohelp these “outside” areas to appreciatethe capabilities (and limitations) ofsupply chain operations. With this inmind, the supply chain executive mustbe held in the same esteem as theleaders of the interfacing functions.The ideal supply chain leader, then,embodies the following characteris-tics: global orientation, systems think-ing, inspiring and inspirational leader-ship, technical savvy, and businessskills. Perhaps most interesting in thisembodiment of the modern supplychain leader is the ability to appreciateand accommodate cultural differences

in a globally dispersed operation.Supply chain executives who haveworked in other countries and under-stand the global environment areextremely valuable. The discussion of supply chain tech-

nology offers a poignant considerationof various IT solutions, and theirprospective role in advancing the sup-ply chain agenda. While technology isposited as a critical contributor to theagenda, the authors assume a “pain ver-sus gain” perspective, recognizing that— for a variety of reasons — technolo-gies employed in supply chain opera-tions/planning often fall (far) short oftheir anticipated benefit. Three rules forsuccessful implementation are broughtforward: 1) use leading-edge (beta)technology appropriately; 2) realize thatpeople issues are tougher than techni-cal issues; and 3) ensure that the tech-nology project has a business case. Thetechnology chapter closes with anexcellent set of questions that supplychain executives should considerbefore acquiring or implementing anew piece of technology. I found the next two chapters focus-

ing on the collaboration — both inter-nal and external to the firm — to bethe richest of the five agenda steps.These chapters address the concept ofsystems thinking (mentioned previous-ly as an important attribute for the sup-ply chain leader) when applied acrossthe functions of the business and tothe larger supply chain beyond thecompany. It is here that the “team sport”that is supply chain management musttake root, and the authors providegood, practical advice for aligningdepartments and businesses for thegreater good of supply chain perform-ance that creates shareholder value forthe focal firm and its fellow supplychain members. The section on match-ing supply with demand through salesand operations planning (S&OP) offersreal contribution through rich exam-ples and supporting data. The experi-ence and research of the writing team(as well as colleague Dr. Mark Moon)are apparent in this section. The inclu-sion of an S&OP Assessment Test is aworthwhile bonus feature. Likewise, theexamples of successful external col-

laboration from OfficeMax (where Mr.Slone serves as EVP), Lowe’s, and WestMarine are especially interesting. The last of the five pillars (managing

change in the supply chain) is, in someways, a compilation of the previous foursteps. While this chapter offers severalfun and interesting observations, it lacksthe tangible tools for assessment andimplementation found in the previouschapters. The imperative of a plan for sus-taining change is made quite clear, yetprecisely what this plan should entailand what it should look like (in terms ofpositive examples) is not complete. The book closes on a strong note

with two detailed case studies chroni-cling the development and executionof supply chain strategy. The first casestudy depicts the setting of WhirlpoolNorth America, where authors Sloneand Dittmann were charged with lead-ing a transformation of a supply chainoperation paralyzed by a disastrousERP rollout in the year 2000. Theydescribe how they achieved buy-in to asupply chain strategy and how theyimplemented the five pillars to generatepayback on a $60-million investmentwithin two years. The second case studycaptures the experience at Stage StoresIncorporated (SSI), where the late Dr.Mentzer served as a director, during thecompany’s aggressive growth through-out the 2000s. This example is valuableas it portrays similarly positive results tothe Whirlpool example in a very differ-ent setting — that of a retailer operatingon a more regional basis within theUnited States. Both examples are com-pelling and represent a fitting way toclose the book. While not the final word on all

things supply chain, this book is a solidcontribution to any supply chain pro-fessional or business executive’s col-lection. The practical orientation of thebook will be appreciated by most read-ers. Not only is the book a quick read,but it contains helpful tools, rich exam-ples, supporting statistics (when need-ed), and chapters that close with a con-cise series of action steps. In sum, thebook hits a sweet spot by addressingcomplex issues in a straight-forwardfashion with a good dose of experi-ence-based advice.

LogisticsQuarterly.com

ATA CORNER

WE’RE KEEPING AN EYE on the econo-my in the trucking industry as well. Wethink the data shows this economic cycleis sustainable. It’s likely that growth willslow a bit during the remainder of thisyear and the beginning of 2011, but thatslow-and-steady pace means that thechances of a double-dip remain relative-ly small. Even small gains are translatinginto good news for the transportationsector. American Trucking Associations(ATA)’s truck tonnage index has seenconsistent year-over-year growth, and for-hire trucking employment is gaining.Aside from the economy, one of the

most pressing issues for ATA is Compre-hensive Safety Analysis (CSA) 2010. Safetyhas always been a top priority for ATA.We’ve embraced CSA 2010 and the oppor-tunity it offers for the industry to get badactors off the road and improve the safeimage of the industry; however, there arestill a number of aspects of the programthat need to be clarified. One of the stick-ing points for us is crash accountabilityand how at-fault and unpreventable crash-es are weighted. We’re also keeping an eyeon how warnings and citations will beregarded. The Federal Motor Carrier SafetyAdministration (FMCSA) has announceda handful of positive methodologychanges, and we will continue to monitorthe impact of CSA 2010 on our membersand the industry as a whole.We’re also prioritizing other safety

issues, including hours-of-service regula-tions and distracted driving.Currently, there is a new proposed

hours of service (HOS) rule at the Officeof Management and Budget that shouldbe revealed to the public around thebeginning of November. I’m concerned

that HOS regulations may change, eventhough crash statistics have dramaticallyimproved since the current rules wereimplemented. Even as the industry hasbecome safer, several citizen groups havebeen advocating for reduced workinghours and increased restart hours. Wemay also learn more about electroniclogging and when electronic loggingdevices will become mandated. I believeit will happen; it’s just a matter of when.On a similar note, distracted driving is

Secretary LaHood’s top priority. ATA alsosupports measures that will improve safe-ty on our highways, like a ban on texting.However, we worry that some distracteddriving initiatives may go too far. Oureconomy relies on the just-in-time deliver-ies made possible by the in-cab commu-nication that’s vital to the industry. Ourprogressive 18-point safety agenda focus-es on multiple measures that can reducedriver inattention, a leading cause ofcrashes, but the needs of the industry andthe benefits of responsible use of technol-ogy must be considered when distracteddriving regulations are developed.Of course, another top issue for the

trucking industry is highway reauthoriza-tion. Maintaining and improving ournation’s roads and bridges is a top priori-ty for the industry, and we’ve now beenwithout a highway bill for more than ayear. Funding is certainly a sticking pointand many ideas have been floated. ATAhas told Congress repeatedly that infra-structure funding must be prioritized andthat monies in the Highway Trust Fundshould be used for their intended pur-pose instead of being diverted to otherprojects. If the government fails to act,states may be compelled to step in, creat-

ing a patchwork of programs that couldcomplicate interstate operations.ATA is also monitoring some other

issues surrounding reauthorization,including legislation about more produc-tive vehicles. With safely increased truckweights and combination vehicles, wewould require fewer trucks on the roadand reduce both fuel consumption andgreenhouse gas emissions.The environment is another hot topic

for the industry. We support the U.S.Administration’s push for fuel economyand emissions standards for medium-and heavy-duty trucks and are excited toprovide input as the rulemaking processcontinues with the EPA and NHTSA.However, cap-and-trade legislation is stilla concern. Trucks are not discretionaryfuel consumers and we are concernedthat climate change legislation willincrease diesel prices and hurt con-sumers without significantly reducingemissions from the trucking industry.In the realm of labor reform, Card

Check is now familiar to many of us, andorganized labor’s efforts to push throughthat or similar legislation that will make iteasier for them to organize are not neces-sarily over. The Nadler Bill, which wouldpermit states and other local units of gov-ernment — such as ports — to influencelimits on commerce, could also adverse-ly impact the trucking industry by creat-ing union protections.There are many issues and priorities

to weigh as we look toward nextmonth’s elections. Races at all levels aresignificant and will likely impact theeconomy, jobs and businesses. The roadto recovery is still tough, but we willcontinue to travel it together.

By Bill Graves

Taking a Look at the Road AheadAs we race toward the mid-term elections, there are a plethora of issues at the forefront of voters’ minds — not the least of which is the economy. Everyone wants to know what will be done about job creation and economic growth.

27LQ™ Volume 16, Issue 2, 2010

DANGER

ELECTIONS

AHEAD


LQ EDITORIAL

OVER THE PAST DECADE, firms haveinvested substantial resources ininformation technology (IT) sys-tem acquisition and enhance-ment. During the late ninetiesand the early years of thisdecade, many firms replacedtheir legacy systems withenterprise resource planning(ERP) systems to more effi-ciently and effectively com-plete their physical and finan-cial transactions. The need forERP systems was driven by the fearof potential Y2K problems as well asrequirements for more system integra-tion and consistency both across firmdivisions as well as across the globe.More recently, firms have directed

their technology focus toward supplychain operations and advanced plan-ning and scheduling (APS) systems. Thesupply chain operations systemsinclude warehouse management andtransportation management systemsdesigned to guide, track, and measurethe performance of supply chain ware-house and transportation environ-ments. In this dimension, the recentfocus has been on offering such opera-tions systems with an Internet interfaceto provide regional flexibility and glob-al access. Simultaneously, APS systemshave come back into vogue to facilitatethe development and optimization ofintegrated business plans. Such systemshave begun to demonstrate their valuethrough improved demand/supply bal-ancing while simultaneously improvingservice and reducing inventory.

During the last few years of thedecade, there is increasing interest onanother IT application for supply chainprofessionals. Since most firms eithersource or market globally, if not both,there is increasing need to track trans-actions from a legal and security per-spective as well as to facilitate adequatereporting to relevant governmentalagencies. Supply chain compliance sys-tems provide these capabilities so thatfirms can meet the reporting require-ments of local governments and so thatthe firm doesn’t break any import orexport laws. In some cases, failure toprovide necessary information mayresult in civil or criminal chargesagainst the firm or its key executives.Supply chain compliance systems

include some combination of the follow-ing capabilities: 1) global classification;2) authorized economic operator

automation; 3) advance security filing;4) processing under customs con-trol; 5) C-TPAT (Customs-TradePartnership Against Terrorism)compliance; 6) free trade agree-ments; and 7) export compli-ance. Global classificationdefines the nature of the goodsfor global reporting. For moni-toring and reporting purposes,it ensures that the same oressentially similar item from twodifferent suppliers or countries is

classified the same for reporting andcustoms purposes. The global classifi-

cation system ensures that productssourced or produced by difference sup-pliers or in different countries will be cat-egorized as the same from the customs,duty, and regulatory perspective.The authorized economic operator

(AEO) automation capability ensuresthat the firms involved in a transactionare authorized to engage in commer-cial exchanges. The major objective ofAEO automation is to ensure that noneof the firms involved have a historywith illegal, black market, or gray mar-ket transactions.Advance security filing capability

provides the required shipment docu-mentation to the relevant customsorganization with the appropriate leadtime. For example, U.S. Customs requiresnotification regarding shipment arrivalat least two to 24 hours prior to arrival,depending on transit mode.Processing under customs control

provides the information support totrack and monitor goods when supply

By David J. Closs, PhD

The Latest System for the Toolkit The increasing volume of international supply chain transactions, along with a combination of agreements to both motivate trade and impose restrictions on what can be traded, has heightened the value of technology capability to monitor and track these transactions. These regulations, restrictions and constraints have dramatically increased supply chain management opportunities and risks.


chain value-added processes are com-pleted under customs control. Firmssometimes complete final manufactur-ing or packing under customs controlprior to formal arrival from an interna-tional source to reduce duty or to meetlocal content requirements.C-TPAT compliance tracks the secu-

rity authorizations of firms involved ina trade transaction. C-TPAT describesthe requirement for firms involved ininternational trade to implement qual-ity certification programs, audits, ormore vigilance in tracking and moni-toring of the manufacturing and/or dis-tribution of their products.Free trade agreement capability is to

track and monitor international transac-tions between countries that have freetrade agreements for the items involved.For example, for the North American FreeTrade Act (NAFTA) and the EuropeanUnion (EU) relationships, many transac-tions are treated as though they aredomestic even though the goods crossinternational borders. A key requirementis the capability to identify and trackwhere value-added activities occur in thesupply chain so that firms can takeadvantage of tax and duty benefits.

Finally, the export compliance capa-bility ensures that goods involved in atransaction can be traded between thecountries involved. For example, forsecurity reasons, there are many limita-tions on the trade of U.S. technologywith firms in foreign countries. Failureto follow these restrictions could beembarrassing for the firm involved andin some cases even criminal for thefirm’s officers.The increasing volume of interna-

tional supply chain transactions alongwith a combination of agreements tomotivate trade and restrictions on whatcan be traded results in an increasingneed for information technology capa-bility to monitor and track such trans-actions. The maze of regulations,restrictions, and constraints dramati-cally increase supply chain manage-ment opportunities and risk. On theopportunity side, a keen awareness ofcustoms and duty laws can allow afirm to take duty drawbacks and taxreductions for performing a specificsupply chain activity in select coun-tries or regions. On the risk side, eveninadvertent failure to follow trade com-pliance laws can cost the firm signifi-

cantly in civil or criminal penalties. Asan example, a former student of minewho also obtained a law degree, citedexamples of firms who had inadver-tently shipped product to an unautho-rized economic operator. For eachinstance, the firm was fined $250,000,resulting in severe financial hardship.Although trade compliance has

always been a consideration for supplychain executives, the increasing com-plexity and rate of change have sub-stantially increased the risk. As a result,trade compliance has become one ofthe major considerations in a firm’srisk management system. Just as forany other dimension of risk, firms mustdecide whether trade complianceneeds to be a core competency of thefirm or whether it can be outsourced.In many cases, the decision trades offthe perceived risk against the cost ofacquiring and maintaining a tradecompliance system. While supplychain compliance systems are evolv-ing to meet that requirement, there isstill not broad knowledge among sup-ply chain managers regarding the risksassociated with an incorrect tradecompliance decision.


LQ EDITORIAL

Why was the CanadianHealthcare Supply ChainStandards Survey conducted?The survey was conducted to gaugethe Canadian healthcare sector’sreadiness to adopt global GS1 supply chain standards in order tomodernize and advance Canada’shealthcare supply chain. The results of the survey illustrate

that a majority of Canadian health-care decision-makers in supplychain management support movingto a pan-Canadian approach to bar- coding healthcare products aswell as sharing administrative dataelectronically, based on the GS1system of standards. According tothe survey, the sector believes that sucha unified approach will improvepatient safety and generate significantsystem-wide cost savings.

What are the key findings of the Canadian HealthcareSupply Chain Standards Survey?•Eighty-nine percent of healthcare insti-tutions and 75 percent of healthcare sup-pliers believe that harmonizing health-care product identification practicesand inventory management processesusing globally-recognized GS1 standardswill generate substantial benefits for theCanadian healthcare system.•Eighty percent of healthcare institu-tions and 53 percent of product suppli-ers agree that standardized productcodes will increase patient safety.•Fifty-two percent of healthcare institu-tions and 72 percent of product suppli-

ers either currently use or plan to usebar codes in the next two years to cap-ture, store, retrieve and transmit informa-tion about medical-surgical products. •Forty-eight percent of healthcareproviders and 40 percent of product sup-pliers have implemented or are current-ly implementing a strategic initiative toincrease interoperability with supplychain partners.The leading standard for medical-sur-

gical product identification in theCanadian healthcare sector is the GS1Global Trade Item Number (commonlyrecognized as the bar code).

What are global supply chain standards?A standard is the common languageused between organizations. Global GS1supply chain standards provide a com-mon language that enables organiza-

tions throughout the world toexchange products, offer services,and communicate information aboutthem quickly, consistently, efficientlyand securely. In the healthcare sector,standards drive economic andpatient safety benefits by enablingautomatic product identification(matching the right drug with theright patient, for example), productand asset traceability, and electronicprocesses for sourcing, ordering,receiving and internal managementof products.Perhaps the best-known GS1 stan-

dard is the bar code — often seen oneveryday grocery and retail items.Over one million organizations in

more than 140 countries worldwide useGS1 standards to manage their supplychains more efficiently.

What is the GS1 System of Standards?The GS1 System of Standards includes:•GS1 Identification Keys: globallyunique numbering schemas for prod-ucts, locations, relationships and assets•GS1 Bar Codes: several types of barcodes, including linear and two-dimensional, for use depending on theapplication •GS1 EPCglobal: technology andnumbering standards for use of radiofrequency identification•GS1 Data Synchronization: stan-dards for accurate product data shar-ing between supply chain partners•GS1 eCom: supporting electronicdocument interchange

by Alicia Duval

Global Standards Proposed for Canada’s Healthcare Supply ChainThe Canadian Healthcare Supply Chain Standards Survey is a national poll conducted for GS1 Canada by the Innovative Research Group Inc. (INNOVATIVE) as part of the Canadian Healthcare Supply Chain Standards Project. The survey polled 294 Canadian healthcare sector stakeholders representing a blend of healthcare institutions, Shared Service Organizations (SSOs) and product suppliers. Results of the survey were released in July by standards body GS1 Canada.


What value do global supply chain standards have?Global supply chain standards enableproducts and information to moveaccurately, efficiently and quicklybetween organizations, across jurisdic-tions and borders, enabling traceabili-ty, administrative efficiency, and sys-tem-wide cost savings in variousindustries, including healthcare. Theuse of global standards in healthcarewill ultimately support healthcareproviders in their efforts to ensurepatient safety by ensuring the rightproduct reaches the right patient atthe right time and in the right dosage.

What do the findings of theCanadian Healthcare SupplyChain Standards Survey mean for Canada’s healthcare sector?Survey findings indicate that Canada’shealthcare sector is ready for a nation-al, standardized approach to productidentification practices and supplychain and logistics managementprocesses using globally recognizedGS1 standards.

How will this initiative impact the lives of ordinary Canadians? The sustainability of Canada’s health-care system is a concern for manyCanadians. Increasingly, the cost ofhealthcare in Canada is outpacing gov-ernment funding capacity. Innovationand sustainable solutions are imperativeto improving productivity, and reducingunnecessary waste in Canada’s health-care system. As well, use of global standards such

as the GS1 bar code have been provento reduce medication errors andimprove patient care, with earlyadopters around the world reducingmedical errors in staggering ranges of60 to 85 percent1 due to: • improved matching of product data topatient data (with the patient's consent);•ensuring a patient receives the rightdosage of the right medication at theright time; and•ensuring accurate product data iscontained in hospital item master

files, thereby reducing data errors thatcan be transferred into patient andinventory records.Various sectors, including grocery,

have realized a host of key benefitsthrough the use of global GS1 standards.The survey demonstrates that there istiming and opportunity now for thehealthcare sector to engage.

Why should hospitals implement global standards in their supply chains?A 2010 Ontario Hospital Association

study estimated potential savings of $54million annually — plus a one-time sav-ings of $1.8 million to $9 million —through continued supply chainimprovements in hospitals.Healthcare costs are increasing, and

innovative solutions are required toachieve a more sustainable system.Standards such as the bar code areproven to drive measurable cost savingsand efficiency gains, demonstrated byearly adopter sectors such as groceryand pharmacy. The Canadian healthcaresystem is ready for GS1 standards.

WAREHOUSING & FULFILLMENT INVENTORY MANAGEMENT PARTS PLANNING TRANSPORTATION MANAGEMENT

FIELD TECH FULFILLMENT SERVICE PARTS LOGISTICS E-COMMERCE REVERSE LOGISTICS KITTING & ASSEMBLY

Who makes your Short List?

Reducing your operating cost is a must. But does your selection criteriainclude the ability to invest in technology and innovation to keep your supplychain operating as a competitive advantage?

That’s where we come in. We’re the SCI Group and we have been helpingcompanies reduce cost and improve service since 1977 by implementingreliable and flexible supply chain solutions across Canada. While our brandmay not be a household name, the companies we serve are.

To check our credentials, call Chris Galindo, VP Business Development at 1-866-773-7735.

www.scigroup.com

1 Ontario Hospital Association, “Ideas and Oppor-tunities for Bending the Health Care Cost Curve:Advice for the Government of Ontario,” April, 2010.


TECHNOLOGY TOOLBOX

IN THE MOST RECENT THIRD-PARTYLogistics (3PL) Study completed bya consortium led by Dr. John Langleyat Georgia Tech, over 1,100 surveyresponses were received from globalshippers who are users or potentialusers of third-party services. Over400 of the responses were receivedfrom shippers in North America. Twoquestions that have been asked overthe last several years of the surveyare: “Are IT capabilities a necessaryelement of 3PL expertise?” and “Areyou satisfied with 3PL IT capabili-ties?” The results from nine years of

the survey responses to these ques-tions are shown in the following chart.As evidenced by these results,

there is a noticeable and significantgap between what shippers perceive3PL providers need to offer in theinformation technology arena andwhether shippers are satisfied withthe IT capabilities offered by third-party logistics providers.

Why the gap exists and why it has narrowedThere are several potential explana-tions for the perception gap between

the desired performance of 3PL ITcapability and current perceptions ofthe actual capability. These includeease of integration to 3PL systems,access to and pricing of external soft-ware solutions, and communication.I’ll discuss the issues and how they’vebeen addressed to reduce the IT per-ception gap.

Integration to 3PL SystemsIntegration is a key issue in terms of3PL IT use. Any time a company has tolink to a trading partner, whether it be a customer or supplier, the IT sys-

tems obviously need tobe connected to enableinformation sharing. Thistask is often tedious andtime consuming, particu-larly with legacy sys-tems of a 3PL. As aresult of the time need-ed to complete an inte-gration to a third-partyby a shipper, it is often adifficult task for thatshipper to considerusing another 3PL. Inessence, the difficultyand effort experiencedin the integration processcan keep a customer“tied to a 3PL” in goodtimes and in bad. Theswitching cost could beso significant that a 3PLcould conceivably keepthat shipper’s businesslonger than if integra-

By Chris Norek, PhD

The IT Gap Faced by Third-Party Logistics Providers There is a noticeable and significant gap between what shippers perceive 3PL providers need to offer in the information technology arena and whether shippers are satisfied with the IT capabilities offered by third-party logistics providers.

Source: 15th Annual Third-Party Logistics Study: The State of Logistics Outsourcing, Dr. John Langley, et al.



RECOMMENDED READING

PETER DRUCKER AND TOM PETERShave both been quoted as saying, “Dowhat you do best, and outsource therest.” Both are highly credible experts.But what they don’t say is how to goabout doing it the best way. Theresult? Today companies outsourcemore than $6-trillion worth of serv-ices; some are clear winners, someare clear losers, and most fallsomewhere in between.So how do the very best compa-

nies win at the game of outsourc-ing? That is the question that theUniversity of Tennessee has been study-ing as part of a research project fundedby the United States Air Force. The find-ings? Companies with the very best out-sourcing agreements all followed fiveunspoken rules for building strong rela-tionships and contracts with their serv-ice providers. We codified our learningsin our book Vested Outsourcing: FiveRules that will Transform Outsourcing.This book serves as a handbook forpractitioners to build stronger relation-ships and gain greatervalue through their out-sourcing agreements.

The Definition ofWinning – WIIFWeversus WIIFMeA key component to win-ning in the outsourcinggame is to change the defi-nition of winning. Whilemany organizations toutthey have “partnerships,” ourexperience and research

found that most organizations have aninternal desire to optimize their ownself-interests and this comes across loudand clear in the contract terms and lan-guage of today’s outsourcing agree-ments. Unfortunately, this self-interested,“what's in it for me” (WIIFMe) approachleads to sub optimization, higher trans-action costs, and what we identify as 10common ailments of outsourcing, whichwe outline in chapter three of our book.Our research revealed that the most

successful outsourcing agreements

changed the definition of winning— creating a true win-win relation-ship — with both the company andthe service provider each obtaininggreater value from the relationshipby working together. The best com-panies moved beyond WIIFMethinking to a “what’s in it for we”(WIIFWe) philosophy with the goalto strive to increase the size of theentire pie (unlock a greater opportu-nity than is currently realized byeither party) versus maximizing the

size for any one player (e.g., lower costsat the expense of the outsourceprovider's profits).

Rules of the Game The most successful companies notonly changed the definition of win-ning to win-win, they also adopted thefollowing five unspoken rules to helpthem craft solid contracts that sup-ported their relationships:•Outcome-based versus transaction-based business model

• Focuses on the “what,”not the “how”• Clearly defined andmeasurable desired out-comes • Pricing model incentivesoptimized for cost/servicetrade-offs• Insight, versus oversightgovernance structureIn Vested Outsourcing,

agreements are based onachieving results — noton the service provider

By Kate Vitasek and Mike Ledyard

Playing to Win How do the best companies win at the game of outsourcing their supply chain? Here is an overview of how to build stronger relationships and gain greater value from your outsourcing relationships, based on the book Vested Outsourcing: Five Rules that will Transform Outsourcing.



performing tasks and getting paid fortransactions. The organizations worktogether upon a foundation of trust,with mutual accountability for achiev-ing the outcomes. The emphasis movesfrom measuring detailed service levelagreements towards mutual accounta-bility for outcomes. The serviceprovider is challenged to put skin inthe game to bring innovative solutionsthat yield improved performance andlower total cost of ownership. Whenthe service provider achieves theresults they are rewarded with addi-tional profits. This is all managedunder a carefully thought out gover-nance structure based on insightrather than having a conventional ven-dor account management team micro-manage the service provider.

Investing in Vested OutsourcingFor the service providers, vested out-sourcing is an opportunity to exercisegreater flexibility in deciding how sup-port is provided, to ensure cash flowstability through long-term contracts,and to increase revenue by rewardingthe service provider’s investment inimproving processes. For the companythat is outsourcing, it is a chance toobtain improved performance whiledecreasing costs and assets by partner-ing with a highly competent and prop-erly motivated firm.For those wishing to explore vested

outsourcing further, we offer fourresources:• Our book, Vested Outsourcing: FiveRules that will Transform Outsourcing,has been published by PalgraveMacmillan and offers a comprehensiveguide for developing successful vestedoutsourcing partnerships. It is availableat Amazon.com. • The University of Tennessee offers athree-day open enrollment class at itsCenter for Executive Education, “VestedOutsourcing: Buying Results, NotActivities!”: http://VO.utk.edu. You cancontact Bric Wheeler at the Universityof Tennessee to learn more [email protected].• Visit our blog at http://www.vested-outsourcing.com and receive additionalresources, tools, and insights offered bythe authors.

tion to another possible supplierwould be made easier.Access to and Pricing of ExternalSoftware SolutionsTraditionally, pricing of software licensefees often prohibited the adoption ofnew technology. Most softwareproviders required the expensive pur-chase of the full license to allow use ofthe software. In addition, softwareproviders didn’t like usage of the soft-ware for many companies outside of thecompany actually using the license(e.g., 3PL customers). As a result, it wassometimes difficult for a 3PL to adoptand implement new functionality to beused across their customer bases.Recently, new pricing models,

including Software as a Service (SaaS)which allows paying based on amountof use, have made it easier for 3PLs andtheir customers to evaluate the valueof software solutions. There is alsomore flexibility in pricing and somesupply chain software providers areactually targeting 3PLs as their mainsales demographic.

CommunicationCommunication issues also con-tributed to the IT perception gap for3PLs. Being able to clearly show how3PL technology could benefit shipperswasn’t easy in the past, particularly iflegacy systems were used to link 3PLsand customers. Now, third-partyproviders have become better versed inproviding concise answers to questionson how they can create value for theircustomers. Having experienced andaddressed integration issues has made3PLs more conversant in showing valuefor the use of information technology.Overall, the level of IT knowledgeshared over time for both 3PLs andtheir customers has increased, therebyreducing the fear of IT issues. While there is still a sizable gap in

the perceptions of 3PL IT capabilities, ithas been reduced significantly over thelast several years. Since admitting aproblem is the first step in resolving it,the visibility of the 3PL perception gaphas brought attention and focus to thisimportant area. Based on progress inthe 3PL IT area, the gap should contin-ue to narrow.

Continued from page 33Continued from page 32

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1:37:41 PM

Bill Stankiewicz Copy Of 11 5 2010 Lq16 2 Final

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Transcript of Bill Stankiewicz Copy Of 11 5 2010 Lq16 2 Final