The Panama Canal Expansion and the Future of the Supply Chain, Part 2

Stephen DeAngelis

December 30, 2011

In Part 1 of this two-part series, I discussed the views of five of the six experts interviewed by Bob Trebilcock, Executive Editor of Modern Materials Handling, regarding the impact that the expanded Panama Canal will have on supply chains. [“Big Picture: Voices of the Supply Chain,” 1 December 2011] Those experts were: Alberto Aleman Zubieta, CEO, Panama Canal Authority; Greg Buza, director of supply chain operations, BASF Corp.; John Carver, executive vice president of port, airport and global infrastructure, Jones Lang LaSalle; Page Siplon, executive director, Georgia Center of Innovation for Logistics; ­and Donald Ratliff, executive director, Georgia Tech Supply Chain & Logistics Institute. The sixth expert, Rick Blasgen, president and CEO, Council of Supply Chain Management Professionals (CSCMP), raised so many interesting issues, I felt his comments deserved a post of their own. The CSCMP is “designed for supply chain professionals passionate about their careers and the supply chain profession. Council of Supply Chain Management Professionals members receive practical, ‘how to’ solutions on the industry’s current hot topics from receiving member exclusives such as publications, professional education, online benefits, networking opportunities, and cutting-edge research.”

 

As noted above, the focus of Trebilcock’s interviews is the 2012 opening of the expanded Panama Canal, which he believes is going to be a catalyst for changes in supply chains. On that topic, “the biggest impact of the expansion of the canal, Blasgen believes, will be the opportunity for companies to assess the state of their logistics.” Blasgen then takes the opportunity to expound on “several trends” he believes will affect “the very physical business of moving goods through the supply chain.” His list of things that are going to affect the future of supply chains would be a good one to add to the lists provided by Bob Ferrari and Lora Cecere (see my post entitled Supply Chain 2012: What Lies Ahead?) Trebilcock’s interview with Blasgen begins:

“Plan for supply chain disruptions: Over the first six or seven years of the new millennium, low energy prices, steady growth and stable governments led to migratory supply chains. Manufacturers chased the lowest wage areas to produce their products. The wheels came off that train in 2008. Oil spiked to $140 a barrel in the spring and the economy crashed in September. Since then, supply chains have been disrupted by the Arab spring and a volcano in Iceland. Interest rates may be at zero now, but they could shoot back up. All of these events have turned risk into a four letter word. …”

I couldn’t agree more. One of the reasons that I write so many posts about supply chain risk management is that global supply chains have exposed companies to increased risks of disruptions. Curt Barry, president of F. Curtis Barry & Co., a multichannel operations and fulfillment consultancy, claims that many businesses believe they have a business continuity/disaster recovery (BC/DR) plan in place, “but it’s often not the case.” [“Develop a master disaster plan,” Multichannel Merchant, 1 February 2011]. He writes:

“Natural or man-made, disruptions and disasters that could pose threats to the well-being of our employees, physical plants and business viability are more common than we think — and it’s human nature to be overconfident about our preparedness. … Concerns about costs, as well as the ‘it can’t happen to us’ mindset, prevent many companies from addressing these crucial issues.”

Barry is correct that overconfidence and denial can prove disastrous for a company. For all of the reasons mentioned by Blasgen, a Supply Chain Digest article in 2010 indicated that, when CEOs think about supply chains, “cost cutting and risk management are at top of the agenda” [“How CEOs are Thinking about Supply Chain,” 9 March 2010]. Blasgen, however, believes it is a serious mistake for CEOs to look at supply chain management merely as an operational cost of doing business that needs to be cut as much as possible. He believes that companies should view “supply chain management as a revenue generator.” Trebilcock continues:

“For years, manufacturing, distribution and transportation were thought of as costs of doing business. Increasingly, they are the competitive differentiator. ‘The best companies realize they can generate revenue if they can manage their supply chains better than the competition,’ Blasgen says, who points out that Wal-mart’s last two CEOs came out the retailer’s logistics operations. If you have any doubts, look at how free shipping from Amazon has upended the world of online retailing. The practice costs Amazon money, like everyone else. However, since Amazon does a better job at warehousing, distributing and shipping than the competition, it gives up less of its profit margin while taking market share. ‘We were once a necessary evil,’ Blasgen says. ‘Now we’re coming into our own.'”

Half a dozen years ago Lisa Harrington wrote, “Logistics and supply chain management continue to grow in stature within the corporate world. But merely gaining visibility in the boardroom doesn’t make logistics and supply chain equal players at the senior executive table.” [“Logistics at the C-Level. Are We There Yet?Inbound Logistics, June 2005] Despite the fact “that Wal-mart’s last two CEOs came out the retailer’s logistics operations,” and that Apple’s new CEO, Tim Cook, shares a similar background, there still aren’t enough supply chain management executives occupying seats in the boardroom. In a sidebar to Harrington’s article, Gene Tyndall, a partner at Supply Chain Executive Advisors, indicates that “some CEOs understand the value of the supply chain, [but], the majority do not.” While that may demonstrate a lack of interest on the part of some CEOs, it also represents a lack of good communication on the part of supply chain executives. The next topic raised by Blasgen in his interview with Trebilcock is infrastructure. He asks, “Who owns the infrastructure?”

“For all the talk of American competitiveness, one area where we are clearly lagging is in investing in the infrastructure that supports our supply chains. ‘We are not investing in an infrastructure that can support increases in population and demand,’ Blasgen says. ‘That’s because no one agency owns the problem. There is no central agency to address these issues.'”

The challenge of improving America’s infrastructure is not new. Two years ago op-ed columnist Bob Herbert wrote passionately about the need to upgrade the country’s infrastructure. [“What the Future May Hold,” New York Times, 17 November 2009]. He wrote:

“What will the United States be like in 20 years when today’s toddlers are in college or trying to land that first job or maybe thinking about starting a family? The answer will depend to a great extent on decisions we make now about the American infrastructure. … In 20 years, will today’s toddlers be traveling on bridges and roads that are in even worse shape than today’s? Will they endure mammoth traffic jams that start earlier and end later? Will their water supplies be clean and safe? Will the promise of clean energy visionaries be realized, or will we still be fouling the environment with carbon filth to the benefit of traditional energy conglomerates and foreign regimes that in many cases wish us anything but good? The answers to these and many other related questions will depend to a great extent on decisions we make now (even in the midst of very tough economic times) about the American infrastructure. We’re trundling along in the infrastructure equivalent of a jalopy, with bridges rotting and falling down, while other nations, our competitors in the global economy, are building efficient, high-speed, high-performance infrastructure platforms to power their 21st-century economies.”

Many people would argue that hard economic times are exactly when you need to invest in infrastructure. Unfortunately, with the current crop of politicians in Washington, DC, appear incapable of dealing with any major issue including decaying infrastructure. Trebilcock’s article concludes:

“Blasgen says the infrastructure isn’t just about roads, bridges, rail and ports. It’s also about talent. ‘In transportation, we have a driver shortage,’ he says. ‘Some of our universities are producing kids who are really well prepared for supply chain jobs, but they can’t get experience. We have to ask how we can secure and retain supply chain and logistics leaders.’ Right now, that isn’t clear.”

Blasgen makes a great point. Whenever you talk about a business, you need to discuss processes, technology, AND people. I was a little surprised by his comment that we “are producing kids who are really well prepared for supply chain jobs, but they can’t get experience.” According to Victoria Taylor, supply chain management could be “the next big thing.” [“Supply Chain Management: The Next Big Thing? Bloomberg BusinessWeek, 12 September 2011] She reports, “Hiring is strong for supply-chain managers and salaries are rising. No surprise that it’s an increasingly popular MBA option.” In fact, she goes to report, “Supply chain jobs are available out there.” And the jobs are not just for individuals with advanced degrees. She indicates that companies want employees with undergraduate degrees to get a little experience before they seek an advanced degree. Having some experience makes any graduate program more effective and meaningful. To learn more about supply chain management education, read my posts Supply Chain Management Education, Part 1 and Part 2.

 

As you can see, Blasgen covered a lot of territory in a very few paragraphs. He gives us a lot to think about as we move forward into a new year.