Ideas for Leadership in Logistics LQ ™ LQ™ LogisticsQuarterly.com The Official Magazine of The Professional Logistics Institute Volume 8, Issue 4, Winter 2002 | 03 $2.75 (Canada $1.99) PLUS Supply Chain Eff iciency Through Collaboration page 19 Challenges Facing a Controlled Supply Chain page 23 Recruiting Tips to Build Your Business page 28 PLUS Supply Chain Eff iciency Through Collaboration page 19 Challenges Facing a Controlled Supply Chain page 23 Recruiting Tips to Build Your Business page 28 The Official Magazine of The Professional Logistics Institute Volume 8, Issue 4, Winter 2002 | 03 $2.75 (Canada $1.99) Ideas for Leadership in Logistics LogisticsQuarterly.com is warehousing A necessary evil? is warehousing A necessary evil? page 16 page 16
Transcript
Ideas for Leadership in Logistics
LQ™LQ™
LogisticsQuarterly.com
The Official Magazine of The Professional Logistics Institute
You could search the web for a week and get nowhere. Or pay one visit toour new Logistics Gateway at www.loginstitute.ca, and find everything you need to power up your logistics career or business.
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Or, you can register online for our full Certification Program, with its mixof sessional and virtual modules leading to your P.Log. (ProfessionalLogistician) designation.The sessional modules are held regularly in majorcities across Canada, so they’re easy to attend no matter where you live.
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5Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Contents
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19 Supply Chain Efficiency through CollaborationThe philosophy underlying collaborative planning, forecasting(CPFR) “is not rocket science,” notes Dale Ross, Vice President, EffemInc. But it is well worth the investment in order to eliminate supplychain waste and it may be a building block to change the future land-scape of the spply chain. Here’s a look at how CPFR practioners areleading the charge to add value and bolster corporate efficiency.
Challenges Facing a Pharmaceutical Supply ChainThis Roundtable provides a snapshot of trends in the pharmaceuticalindustry, including everything from distributions methods, to out-sourcing, logistics competencies – even the status of professionallogisticians on the corporate map. GCL’s Philippe Gautrin looks atthe challenges converging on the industry and the potential toleverage opportunities.
Is Warehousing a Necessary Evil?Traditionally, retailers have invested in warehouse technologiesand innovation. But manufacturers have had mixed feelings abouttheir distribution centres. Today conventional thinking about man-ufacturers’ warehousing and outsourcing is being challenged asevidenced by this case study written by BearingPoint’s SeniorManager Nicholas Seiersen.
Recruiting Tips to Build Your BusinessFinding the best people and promoting those people to pivotalpositions can clearly give companies a leg up on their competitors.Hiring the right people and growing your competitive edge is, how-ever, easier said than done. Ross Reimer and Dr. Linda Ferguson ofReimer Associates, Inc., provide an approach that’s practical andcertain to improve your odds.
Logistics Quarterly (LQ™) (ISSN 1488-3309)is published four times annually by ElefantEnterprise Communications Inc.™ (EECI) toan ABC audited readership and is the off icialpublication of The Professional LogisticsInstitute. LQ™ is written for professionals in logistics. Subscription Services at:www.LogisticsQuarterly.com Canada PostPublications Mail Sales Agreement Number:40032602. CANADIAN POSTMASTER: sendsubscription orders, address change noticesand undeliverable copies to LQ™, 2 Bloor St.W., Suite 100, Box 473, Toronto, ON,Canada M4W 3E2
STATEMENT OF OWNERSHIP, MANAGEMENT AND CIRCULATION
CIRCULATIONLogistics Quarterly (ISSN 1488-3309) is distributed to more than 9,300 logistics professionals.(Advertisers’ notice: an audited ciruclation byABC is available at www.LogisticsQuarterly.com.)
ADVERTISING Fred Moody, LQ™2 Bloor St. W.,Suite 100, Box 473, Toronto, ON, M4W 3E2,Tel: (416) 461-8355Toll Free: 1-800-843-1687Fax: (416) 465-7832 Email: [email protected]
Ideas for Leadership in Logistics
LQ™
LogisticsQuarterly.com
9 IndexCompany and Organization Listings
10 AnnouncementsOn the Move
11 CalendarUpcoming Events
27 New Professional LogisticiansWho Reads LQ?
12 President’s ViewpointThe Year in Reviewby Victor Deyglio
13 Leadership in Logistics, a Québec PerspectiveInfrastructures for Global Strategyby Pierre Massicotte
14 Logistics and BusinessStrategies CommentaryViews of the Logistics Integratorby David J. Closs
34 Editor’s ViewpointInnovationby Fred Moody
News
Columns
LogisticsQuarterly.com
m y y e l l o w . c o m • 1 . 8 0 0 . 6 1 0 . 6 5 0 0
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Accenture 16BearingPoint LP. 18Benjamin Gordon 15Berlex Canada 24, 25Bombardier Aerospace 26Bristol Myers Squibb 30Canadian Association for Pharmacy Distribution 24Canadian National 13Canadian Pacific 13Clairol 30CLM Québec Roundtable 26COSTCO 25Council of Logistics Management 14, 15, 26Danzas 15Effem Inc. 23Enron 12Excel 15Executive Centre for Logistics
& Supply Chain Management 12GCL Group 24, 25General Motors 14, 15, 26GMA 18Healthcare Supply Chain Network 26Inbound Logistics 16Institute of Industrial Engineers 12KPMG 14L’Oréal Canada Inc. 26
Medis and Kohl & Frisch 24Michigan State University 26Montreal Foreign Trade Zone 26, 13Montreal Port Authority 13Montreal-Mirabel International Airport 13Nortel 15, 26Pfizer Canada 24, 25Radiopharm 24, 25Reimer Associates, Inc. 29Schenker Stinnes Logistics 16, 18Schering 24, 25Schulich School of Business 26SoliNet WMS 16Technicolor 26The Institute 12, 26The Port of Montreal 13Transpace.com 14UPS Logistics 15Vector 15Warner-Lambert 30Wyeth 24, 25, 30York University 26
Page numbers listed indicate the first page of the article in which the company and organization appears— or where there is simply a notation or credit to a company.
Canadian Tire Corp.DNDDND CFSDEffem Inc.Exel Global LogisticsHudson's Bay CompanyInternational Truck & EngineIrving TissueLafarge North America Inc.LCBONestle Canada
Nestle Ice CreamNOVA ChemicalsOmron Dualtec Inc.Parmalat CanadaPBB Global LogisticsRomark Logistics Inc.SNC-Lavalin ATP Inc.Sobeys Inc.SYSCO SERCA Food Services, Inc.Tronicus Inc.Wrigley Canada
Connetix 4GCL Group 31Nadiscorp Logistics Group Inc. 33Norman G. Jensen Inc. 34Port of Montreal 32
Ryder 35Schenker 8, 36The Canadian Professional Logistics Institute 3TNT Logistics North America 2Yellow 7
Companies referred to in LQ™’s New Professional Logisticians Section (pages 25)
Companies listed in alphbetical order
9Ideas for Leadership in Logistics LQ™ winter 2002 | 03
CN’s New President
Canadian National’s board of directors recentlyannounced the appointment of E. Hunter Harrison asCN’s new president and chief executive officer, effectiveJan. 1, 2003.
Mr. Harrison, 58, has served as CN’s executivevice-president and chief operating officer since March1998 and joined the company’s board of directors onDec. 6, 1999. Between 1993 and 1998 Mr. Harrison waspresident and chief executive officer of Illinois CentralCorporation (IC) and the Illinois Central RailroadCompany (ICRR), and a director of both IC and ICRR.
Mr. Harrison replaces Paul Tellier as CN’s presi-dent and chief executive officer.
In a press release CN Chairman David McLeannotes: “CN’s board of directors is delighted to announceHunter Harrison’s appointment. Hunter is the bestoperating executive in the rail business, the man whodesigned and implemented the scheduled railroad atCN. Scheduled railroad practices – now being embracedby other major railroads – have made CN the service andefficiency leader of the North American rail industry andallowed it to grow its service-sensitive merchandise busi-nesses at a healthy pace. The industry recognizesHunter’s leadership and innovation – Railway Age mag-azine in January named him 2002 Railroader of TheYear.”
Bombardier Designates Paul TellierPresident and Chief Executive Officer
At a special meeting on Dec. 12, 2002, Mr. Paul Tellier,was named president and CEO of Bombardier Inc., andit was announced that he will assume his new responsi-blilities on Jan. 13, 2003. In the interim, Mr. LaurentBeaudoin, Chairman of the Board and of the ExecutiveCommittee of Bombardier, will assume the CEO’s func-tions with Mr. Robert E. Brown leaving the Corporation.
Mr. Tellier has held several top-level positions inthe Canadian public service, including Clerk of the PrivyCouncil. He has been president and CEO of the CN sinceOct. 6, 1992.
Bombardier Inc., a diversified manufacturing andservices company, is a world-leading manufacturer ofbusiness jets, regional aircraft, rail transportationequipment and motorized recreational products. It alsoprovides financial services and asset management inbusiness areas aligned with its core expertise.Headquartered in Montréal, Canada, the Corporationhas a workforce of some 80,000 people in 24 countries.
Ron Wallace to Retire; David Abneyto head UPS International
Ronald G. Wallace, a long-time executive of UPS who forthe past five years has driven the growth of UPS’s inter-national package operations, has recently announced hisretirement. He will be succeeded by David P. Abney, whohas helped guide the evolution of UPS’s global supplychain management business.
The 47-year-old Mr. Abney, who began his UPScareer in 1974 as a part-time employee loading andunloading packages in Mississippi, will assume his newposition on Jan. 1, 2003. In leading International packageoperations, he will join UPS’s Management Committee,which includes the company’s 11 most senior executives.
“Ron has devoted 37 years of his life to this com-pany and we are all the better for it,” said Mike Eskew,UPS’s chairman and CEO in a press release. “And withDavid Abney, we have the strategic thinking and deepknowledge of the company needed to guide our interna-tional operations on a continued strong course. David’sbackground in the package distribution business and hisrecent work in the supply chain arena offer a uniquecombination that will help sustain UPS’s global growth.”
Mr. Abney has helped implement new businesslines that UPS considers the foundation for its futuregrowth. In 1999, he assumed responsibility for UPSSonicAir®, the same-day delivery arm of UPS. Followingthat, Mr. Abney launched UPS’s Service Parts Logistics,the unit that designs and manages urgent parts net-works and return-and-repair operations for customersworldwide. In 2001, Mr. Abney oversaw the integration ofUPS’s largest acquisition of recent years, the FritzCompanies, which has extensive operations in Asia,Europe and Latin America. He since has played a majorrole in operating UPS Supply Chain Solutions.
Mr. Wallace, 58, began his UPS career in 1966 as adelivery driver in Idaho. He served as the head of UPS’sNorth German District for six years and then presidentof UPS Canada for three years. In addition to directingUPS’s international operations, Mr. Wallace participatesin several global trade organizations and also serves onthe National Board of Directors of the SpeedwayChildren’s Charity.
FedEx Freight Corporation NamesNew Presidents
FedEx Freight Corporation has named recently namednew presidents of its operating companies.
Patrick (Pat) L. Reed, corporate vice presidentand chief operating officer for FedEx Freight East, hasbeen named president and CEO of FedEx Freight East,effective December 1, 2002. He replaces Thomas (Tom)R. Garrison, who is retiring. Keith Lovetro, who cur-rently serves as senior vice president of FedEx FreightWest, has been named president and CEO of FedExFreight West, effective January 1, 2003. He replacesTilton G. Gore, who is also retiring. FedEx Freight is aleader in regional LTL (less-than-truckload) freight serv-ices and is a subsidiary of FedEx Corp.
“We are very appreciative of the many contribu-tions that both Tilton and Tom have made to theorganization. We wish them well in their retirement,”noted Douglas G. Duncan, president and CEO of FedExFreight Corp in a press release. “I am equally pleased tohave Keith and Pat as the new leaders of our operatingcompanies. Both have proven track records in ourorganization and in the industry. They have alreadybeen major architects for our regional service strategy,and I am confident that, going forward, they willenhance value for all of our stakeholders, including ourcustomers, our employees and our shareholders.”
Pat Reed Mr. Reed joined FedEx Freight East, formerly known asAmerican Freightways, in 1996 as a special projectsmanager and was promoted to regional vice president ofoperations the same year. In 1997, he was named divisionvice president of operations. He was promoted to exec-utive vice president of operations in 1999, and wasappointed as COO in January 2002.
Tom Garrison Mr. Garrison joined American Freightways in 1982 astreasurer, establishing the initial accounting and infor-mation technology functions. He was elected to thecompany’s board of directors in 1985, and during his20-year span with the company, Mr. Garrison led variousfunctions throughout the business. He was promoted topresident in June of 1998, and assumed the additionalposition of CEO in June 1999.
Working with a skilled and cohesive team of exec-utive management, FedEx Freight East has, as previouslyreported, consistently improved year-over-year earningsevery quarter since 1997. During that time, FedEx FreightEast was recognized as one of America’s Most AdmiredCompanies by FORTUNE magazine and as one ofAmerica’s Best Big Companies by Forbes magazine.In 2001, the American Trucking Associations (ATA)honored the company with its prestigious President’sTrophy for outstanding safety performance.
A graduate of the University of Arkansas, Mr.Garrison was named Accountant of the Year in Industryfor 2001 by the Sam M. Walton College of Business.Additionally, he serves on the Dean’s Executive AdvisoryBoard, the Supply Chain Management Research Center,and the board of directors of the Arkansas TruckingAssociation.
Keith Lovetro Mr. Lovetro joined FedEx Freight West, formerly knownas Viking Freight, in 1994 as director of marketing. In1996, he was named director of customer service and waspromoted to director of customer service and insidesales in 1997. He was promoted to vice president of mar-keting in 1998, and was named senior vice president ofthe company in 2001.
During his career in the transportation industry,he also held positions in sales, pricing and customerservice with Emery Worldwide and CF Airfreight. Mr.Lovetro holds an MBA from the University of Santa Claraand a BA from the University of California. He is amember of the American Marketing Association and theBusiness Marketing Association and has received numer-ous awards for marketing and advertising excellence.
Tilton Gore Mr. Gore began his career with Viking in 1986 as directorof operations for the southern region. He was promotedto vice president of service center operations in 1989,then was named senior vice president in 2000, and waspromoted to president and CEO in February 2001.
During his time with the company, Mr. Gore wasinstrumental in building its network of service centersthroughout the West and its unparalleled on-timeperformance record. FedEx Freight West has beenrecognized with numerous customer and industryawards for the quality of its service, including theQuest for Quality award and as the NASSTRAC(National Small Shipment Traff ic Conference)Western Regional Carrier of the Year. In 1999 thecompany received the prestigious President’s Trophyfrom the ATA for its outstanding safety program.
A veteran of the transportation industry, Mr. Gorepreviously served as vice president of operations and asa member of the board of directors and part owner ofSystem 99 Trucking. He started his career withThompson Truck Lines in 1963, which was acquired bySystem 99 in 1967. He went on to hold positions ofincreasing responsibility in operations, management andinformation systems and industrial relations.
10 LogisticsQuarterly.comLQ™ winter 2002 | 03
Announcements
on the move winter 2002|03
11Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Calendar
upcoming events winter 2002|03January 2003
January 19 – 22Global conference for e-business solutions. Updates and conversations on trends in business applications, from integration and web services, to business intelligence to the role of financial systemsin corporate governance. Sponsored by Oracle AppsWorld, San Diego. For more information: www.oracle.com/appsworld/sandiego/registration.
January 28CLM Toronto Roundtable: Leadership in Transportation - Managing Change in the 21st Century.Learn about leadership in transportation and discuss trends converging upon logisticians and transportation professionals in a global marketplace.Toronto Airport Marriott Hotel, 5:30 p.m. to 8:30 p.m., includes a buffet dinner. ($70 including tax.) For more information, contact Nina Trifan,Nadiscorp (905)-790-6404 x 220 or Fred Moody, CLM Toronto Roundtable president, (416) 461-8355 [email protected]
February
February 24 – 26Senior Supply-Chain Executive RetreatSponsored by The Supply-Chain Council (SCC). This SCC retreat will be at the Royal Palms Hotel and Casitas, Phoenix, AZ. For more information,contact Melinda Spring, 412-781-4101, ext. 107 or [email protected]; http://www.supply-chain.org.
April
April 4 – 6Professional Education Conference-Europe: “It’s All About You in Europe”Sponsored by Meeting Professionals International (MPI), to be held in Berlin, Germany, Hotel Inter-Continental Berlin. For more information contactMPI Canadian Office, (613) 271-8901
May
May 20 – 22Distribution/Computer ExpoAn exhibition and conference of information technology for logistics, distribution, transportation, warehousing, supply chain management, and e-business applications in all industries. Held at Chicago’s Navy Pier. For more information call: 800.338.4112; http://www.logistar2.com.
June
June 15 – 17TMCA 7th Annual Conference & Educational Forum, (Transportation Marketing Communications Association)The Crowne Plaza on Hilton Head Island, South Carolina, USA. For more information call: 952/442-5638
August
August 10 – 14The 38th Annual International Conference and Exhibition, Melding Defense and Commercial LogisticsSponsored by The International Society of Logistics (SOLE). Hilton Huntsville Hotel, and von Braun Conference Center, Huntsville, Alabama. For moreinformation call: 301-459-8446 or visit www.sole.org
September
Sept. 21 – 24The 2003 Annual Conference of the Council of Logistics Management (CLM)Chicago, Illinois at the McCormick Place-Lakeside Center. For more information call: (630)574.0985 or visit www.clm1.org
Sept. 29 – Oct. 3FIATA’s World Congress 2003Bali International Convention Centre, Nusa Dua -- Bali, Indonesia on Congress Organizer: Pacto Convex Ltd. For more information call (62-21) 570 5800 or E-mail: [email protected]
Survivor – CanadaThe past 15 months were difficult.The events of September 11, 2001threw the world into a maelstrom ofdeath and destruction. As we brokesurface for a gulp of air, we were dealtanother blow in the form of Enronand associated incidents of corporatemalfeasance. The market meltdowntouched everyone.
It would be gross misstatement if Isaid the Institute did not have a difficultyear: why would we be exempt fromworld events? Our market froze immedi-ately after 9/11. For security reasons, noone traveled. The market meltdownrestricted budgets. Fiscal Q1 (Nov/01 toDec/02) was a disaster. We couldn’t givemodule seats away.
To compound difficulties, this wasthe first full year of the new certificationprogram. The previous year saw a spurtin registrations at the end of 2000, ascandidates scrambled to finish beforethe new program was officially launchedin January 2001. From November 2001to October 2002, there was no “transi-tion period;” the new program was onits own in the market.
As everybody knows, new prod-uct entry has an initial negativeimpact on your market. We plannedfor a slow 18-month entry trajectory,with a downturn followed by a gradualupturn, as the market embraced thenew modules. By June 2002, that upturnshould have started.
That cycle, however, was delayedanother six months because of worldevents. As we enter Q1 of the currentfiscal year (Nov/02 to Jan/03), we arein a definite upturn in registrations.Modules are over-sold, as the commu-nity realizes distance learning in a webenvironment is fun. This should havehappened in June, leading up to fiscalyear end October 31, not in Novemberas the new fiscal year began.
Reviewing year-end statistics, how-ever, I was surprised to discover that weactually had a relatively successful year.Financially, pre-audit reports show anoperating break-even, with money inreserve. Not bad in a bad year for amillion dollar operation!
Given our preoccupation with thenew program and the impact of worldevents, we were not able to achieve anROI on the Logistics Gateway. TheGateway is our primary asset, valued onour balance sheet with the intention ofestablishing it as an “arms length” rev-enue centre. Plans are now afoot in thenew fiscal year to begin this process,but unfortunately we will face anaccounting penalty in the last fiscalyear’s audit because of this delay.
On a brighter side, registrationsexceeded 880 for 12 months, even withlow registrations in individual modules.This is compared to 990 registrations inthe previous year, with that registrationspurt. We should anticipate annual registrations to hover between 800 and900 from now on.
We continue to welcome between100 and 120 new P.Log.’s into the com-munity, which was our annual averageprior to that “spurt.” That spurt was atremendous boost, bringing us to the1,000 member mark by the 2001 AGM.We are now close to 1,300 professionals,with 1,500 projected by 2006.
The Institute is a mature organiza-tion. We have the resilience to recoverfrom external events that imposethemselves on us. We are able to alignour outcomes with our projections. Weare moving away from the fluctuationsof a new business into steady growthestablished on solid foundations.
The Institute continues to enjoythe loyalty of members and corporatesponsors. The members benefit from thecommitment of a strategically focusedboard. The program is strong, andcontinues to meet the demands of themarket. We anticipate a stronger futureas we develop new partnerships andventures.
New PartnersThis was the year of memoranda ofunderstanding. We officially signed anMOU on joint membership with theInstitute of Industrial Engineers, and willbegin to market the benefits of thatagreement to renewed professionalmembers.
We negotiated an agreement with theExecutive Centre for Logistics & Supply
12 LogisticsQuarterly.comLQ™ winter 2002 | 03
President’s Viewpointby Victor Deyglio
(President’s Viewpoint, continued on page 26)
The Yearin review
As companies implement their globalstrategy, they must count on infrastructuresand key service providers to support theiroperations. As an example, companieswith international operations and globalmarket require accessibility to ports andairports. It is a key enabler to strategyexecution. The services provided by portsand airports must be reliable, flexible, costefficient and of very high quality. More so,they should be surrounded by a variety ofservice providers and business partners,who can offer: transportation, customsbrokerage, subcontracting, third partylogistics and other services.
These logistics hubs benefit all part-ners. The service providers can count onvolume to develop operation synergy andcost efficiency, and the companies canfocus on their core competencies to compete.
These infrastructures require majorcapital investment. The government mustprovide orientation, funding and developprograms to attract entrepreneurs, compa-nies and service providers.
It sounds good! But… you will say.Well, the Port of Montreal and the
Montreal Foreign Trade Zone are pursuingthis model successfully. They already playa very important role in Canadian andNorth American East Coast logistics andtheir future is bright.
The Port of MontrealThe Port of Montreal is a bustling hubof international trade. A leader amongNorth Atlantic container ports, it handlesall types of cargo in all seasons –
approximately 20 million tonnes peryear. As the international port closestto North America’s industrial heartland,it offers the shortest route betweenNorth Europe and the Mediterranean,and the vast markets of North America.
A wide selection of respectedinternational shipping lines link theport to more than 100 countries aroundthe world and offer swift, reliable,door-to-door service at competitiveprices. The port offers frequentarrivals and departures, modern infra-structure and high-tech equipment, notto mention careful handling.
The Port of Montreal distinguishesitself from most other ports by its ownrail network on port territory, operatedby the Montreal Port Authority. Its sixlocomotives come and go on more than100 kilometres (60 miles) of track. Thisport railway network provides the twonational railway companies, CanadianNational and Canadian Pacific, withaccess to almost every berth. Everyday, trains connect the port to themajor metropolitan centres of Toronto,Detroit and Chicago. Trucks also linkthe port to markets in Central Canada,New England, New York State and allover North America.
The Port of Montreal also welcomesthousands of passengers every year toits Iberville cruise terminal, located inthe city’s historic district. A majorcruise destination, the City of Montrealoffers these passengers beautifulsights and – for many visitors – the
cachet of Europe without having tocross the ocean.
The Montreal ForeignTrade Zone at Mirabel
A program tailored for logisticsCreated by the Quebec government in1999, in order to enhance the industrialpotential and the high quality infra-structures of the Montreal-MirabelInternational Airport as well as to pro-mote new investments, the MontrealForeign Trade Zone at Mirabel has manycompetitive advantages for the devel-opment of logistics-related activities.
The Montreal Foreign Trade Zoneat Mirabel is strategically located at aninternational airport, in operation 24hours a day with no curfew, and itbenefits from the proximity of theNorth American East Coast market(130 million consumers within a 1,000km radius). The landing fees are 55percent to 80 percent lower than inToronto, Boston, Chicago, Detroit orNew York. The operating costs for adistribution centre are amongst thelowest in North America.
The fiscal and financial incentivesprovided by the Montreal ForeignTrade Zone, for a period of ten years,allows logistics businesses to reducetheir set-up costs by 25 percent, withrefundable tax credits on the construc-tion of plants or with the acquisition or
13Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Leadership in Logistics, a Québec Perspectiveby Pierre Massicotte
(Leadership in Logistics, continued on page 26)
INFRASTRUCTURESfor Global Strategy
Major topics at the recent Council ofLogistics Management (CLM) annualmeeting included the role, positioning,and trends within the logistics serviceprovider industry. While the sessionsused various terms, Third PartyProvider (3PL), Lead Logistics Provider(LLP), Fourth Party Provider (4PL), andLogistics Integrator, the question con-cerning the differences and similaritiesremains. The sessions of interest rangedfrom the keynote by Mike Eskew, CEO ofUnited Parcel Service to a number of ses-sions on tracks. The sessions describedthe types of business models beingused, industry trends, and an outlookfrom the financial markets as well. Thesesessions offered a number of perspec-tives regarding the future of the serviceproviders. This review attempts to syn-thesize observations from these ses-sions in terms of definitions, require-ments, trends, and ongoing issues.
DefinitionsIt continues to be apparent that there isno consistent definition regarding thecapabilities and services provided par-ticularly for LLP, 4PL, and logistics inte-grators. The presentation by BenjaminGordon segments the industry by: 1)Air/Ocean; 2) Asset-based transporta-tion; 3) Value-added Warehouse; 4) Non-asset-based surface transportation; and5) Software. While this perspectivedemonstrated some interesting owner-ship trends, it doesn’t offer much direc-tion in terms of service integration. A
more institutional perspective wasoffered by Peter Magill of KPMGTransportation & Distribution. He iden-tified three types of 4PL arrangements.The first arrangement is centered onsingle shipper with a strategic partner-ship between it and a logistics serviceprovider at the core. The initial concep-tualization of Vector SCM by GeneralMotors illustrates this model. The secondis a more expansive relationship as the4PL entity becomes an industry platformand competes for other supply chainmanagement business within a sector.The industry exchange portals created bythe automotive, chemical, and electronicindustries illustrate this concept. Thethird type involves a wider array ofservice providers establishing partner-ships such maintenance firms withtransport companies and finance insti-tutions that want to fund the industry.It appears that the Transplace.com col-laboration fits into this category.Another perspective evident at CLMwere the consulting and softwareproviders positioning themselves toanalyze and coordinate supply chaindesign and flow. While this capabilitywas often offered as a one-time service,supply chain refinements are dynamicso it requires an ongoing coordinatingrelationship. Such a service offering wouldprovide consulting and software providerswith an ongoing stream of revenue.
It remains clear that there is nocommon definition as many service andinformation providers are maneuvering
to make sure that they can be included.It is also clear that managers continueto be confused about the 4PL, LLP, andLogistics Integrator terminology as wellas the potential benefits from these rela-tionships. While the historical focus hasbeen on the management of assets suchas facilities, vehicles, and inventory, theshift for 4PL and Logistics Integrators isgradually toward the collection, coordi-nation, and management of informationleaving asset management for the 3PLs.
RequirementsJust as the definition is not clear, deter-mining the service requirements for a4PL or Logistics Integrator is not cleareither. A pattern is beginning to emerge,however, based on the Seventh Annual3PL Study provided by John Langley etal. They summarized the role of the3PL to include: 1) Resource provider;2) Resource manager; 3) Problemsolver; 4) Transportation Strategist;5) Distribution Strategist; 6) SupplyChain Strategist; and 7) Orchestrator.While the first two will likely remainthe role of 3PL and service providers,the later five will migrate somewhattoward the 4PL or Logistics Integrator.On a limited scale, the Problem Solverand Transportation Strategist roles willalso remain with the 3PL providers.
To operationalize these roles, 4PLand Logistics Integrators generally havefive characteristics. First, while the dif-ferentiation is not absolute, it appearsthat there is a preference for non-asset
14 LogisticsQuarterly.comLQ™ winter 2002 | 03
Logistics and Business Strategies Comentaryby David J Closs
Views of the
LogisticsIntegrator
based Logistics Integrators. This is a trendcontinued from the concern regardingthe independence of 3PLs controlled byasset-based providers. The desire of 4PLto coordinate a larger percentage of firmvolume makes asset independence moredesirable. Second, a pre-requisite capa-bility of the 4PL or Logistics Integrator isthe multi-firm data warehouse trackingorder and shipment history and antici-pating future requirements. The abilityto effectively collect and synthesize thedata from multiple shippers or clientsrepresents a critical asset for theLogistics Integrator. While this require-ment is not conceptually difficult toachieve, the practical issues of collect-ing, cleaning, and synthesizing require-ments and shipment data from multiplesources is substantial. Third, 4PL andLogistics Integrators must have accessto sophisticated analysis and decisionsupport tools. The focus in the past hasbeen toward logistics and supply chainnetwork analysis tools. This require-ment will continue but the new differen-tiator will be the capability for dynamicsupply chain analysis. Dynamic analysisconsiders the week-to-week or month-to-month changes in requirements andcapacity and suggests supply chainrefinements to efficiently respond to thechanges. Fourth, 4PL and LogisticsIntegrators must develop and maintainrelationships with logistics serviceproviders. This includes the ability toeffectively exchange data and developcommon consistent performance meas-ures across a wide range of servicesuppliers. Finally, a major differentiatorbetween 3PLs and Logistics Integratorswill be the nature of the expertise.Logistics Integrators will require individ-uals with expertise closer to consultantsthan operations managers and serviceproviders. Like consultants, Integratorsmust be able to complete thoroughanalyses and conceptualize new strategicalternatives. Unlike consultants, however,Integrators must be able to coordinatethe implementation and operationaliza-tion of the strategy. The developmentand maintenance of this unique combi-nation of skills with enough critical masswill continue to be one of the majorchallenges of Logistics Integrators.
TrendsThe CLM sessions suggested fourtrends that will direct and promote thegrowth of the 4PL and LogisticsIntegrator market. The first is a contin-
ued movement toward outsourcing non-core activities. Many firms, includingsome the Fortune 500, have determinedthat supply chain analysis and coordi-nation is outside their core competency.They do, however, maintain supplychain strategy expertise. Developingand maintaining the data warehouse,tools, and expertise is difficult for a firmwhen operational experience is criticalfor advancement. Obtaining the broadrange of operational experiencerequired for promotion means individu-als must move from analytical to opera-tional positions rapidly so it is difficultfor firms to maintain expertise in thesenon-core areas such as supply chaindesign and coordination.
The second is substantial consolida-tion in the logistics service providerindustry. The recent acquisitions acrossmodes and geographies by firms such as
Danzas, Exel, and UPS Logistics createslogistics service providers with broaderscope and capabilities. Benjamin Gordonreported that in the long-term, mostlogistics services providers will face thefollowing choices:
• Sell: Merge with a larger competitor; • Bulk up: Develop a highly-differ-
entiated unique value proposition, raisecapital, and grow through a mix ofacquisitions and organic growth;
• Consolidate: Team up with yourmost-respected peers and competitors; or
• Harvest: Milk the existing business,but recognize that they will harvest asmaller crop in the future.
While the consolidate trends areapparent, the plans for integration arenot. While consolidation brings the cor-porate and physical resources of the3PLs together, there is still much workto develop integrated information andanalysis systems. It is here that thefirms with comprehensive informationarchitectures or substantial informationresources will continue to have anadvantage. In an era of increasinglyconsolidated service suppliers, 4PLs orLogistics Integrators may provide an
effective means of service supplier man-agement and coordination.
The third is the trend by someFortune 50 organizations to not wait anddevelop their own 4PL or LogisticsIntegrator. The recent creation of VectorSCM by General Motors and a similarmove by Nortel establishes carrier and3PL independent 4PLs with substantialvolume and resulting clout. In the caseof Vector SCM, GM has delegated theresponsibility for the design, coordina-tion, and management for all inboundand outbound logistics. It is anticipatedthat Vector will control (U.S.) $6 billionof GM’s logistics spend which repre-sents 10 percent of the entire out-sourced logistics industry to date.While the arrangement has demonstrat-ed significant benefits, there are stillconcerns regarding the independenceand transferability of the concept.
However, since such arrangements withorganizations the size of GM and Nortelfacilitate a higher degree of collabora-tion and motivation, they will be inter-esting to watch to determine the poten-tial of the Logistics Integrator.
The fourth trend is in response toclient firm globalization. As firms extendto global marketing and operations,they are increasingly demanding serv-ice providers and coordinators whooperate globally as well. Shippers wantservice providers and coordinatorscapable of providing visibility and coor-dination for global movements. TheCLM presentations reviewed some ofthe recent acquisitions and suggestedthat there will be many more to providemodal and geographic scope.
The sessions continue to predictsubstantial growth in the 3PL andLogistics Integrator industry withincreasing consolidation by major players.
Ongoing IssuesWhile the trends are reasonably apparent,there were still two issues that meritadditional discussion and documentation.
15Ideas for Leadership in Logistics LQ™ winter 2002 | 03
(Integrator, continued on page 26)
The CLM sessions suggested four trends that
will direct and promote the growth of the 4PL
and Logistics Integrator market.
Bearingpoint
Customer requirements are driving warehouseoperations of all sizes to improve inventory accu-racy, quality and customer service. Manufacturershave mixed feelings about their distribution centers.They dislike these messy appendages to otherwiseclean productive operations. They cater to the wackyrequirements of crazy sales people, unreasonablecustomers and money-grabbing financiers anxiousto hit quarterly promises to Bay/Wall Street. Non-core to operations, uncertain internal capabilities,changing specifications, add up to uncertainty,and uncertainty precludes investment. Perhapsthis is why many manufacturers under-investfinancially, technologically, and even intellectuallyin their distribution centers. And as performancesuffers, executives distance themselves.
Sounds like a golden opportunity for out-sourcing? Yet many manufacturers cannot findanyone to do the job properly. According to anAccenture survey (quoted in Inbound Logistics),they are uncomfortable with:
• Losing control (nearly half);• Cultural barriers (19 percent);• Cost (14 percent);• Long-term dependency on an external organ-
ization (11 percent);• Diminished vendor relationships and collab-
oration (6 percent).For many, it is a zero-sum game. Value is cre-
ated by the 3PL by using lower wage and benefitpackages, and taking lower returns on capital.
Outsourcing warehousing may no longer be ano-win situation. I recently visited a third partyoperated warehouse operation that challengesconventional thinking about manufacturers’ ware-houses and outsourcing, the Schenker StinnesLogistics operated consumer package goods fulfill-ment center in Brampton, Ontario.
What is so special about what they have done?Their first step was to segment product flows byhandling characteristics:
• Unit picks – for employee sales, through aweb-front end ordering system;
• Case picks – the bulk of volumes, includeslayer picks currently;
• Layer picks – a new process has beendefined, but is not yet in place;
• Full pallets; • Cool picks – products that require tempera-
ture control;• Exception or Z picks – products that are
beyond parameters of the system (e.g. oversizedboxes, unreadable SCC codes, etc.), where themanufacturer and the operator must work togetherto first accommodate, then bring into mainstreamprocesses;
LogisticsQuarterly.com
is warehousingA necessary evil?
V A L U E - B A S E D W A R E H O U S I N G
by Nicholas Seiersen
Ideas for Leadership in Logistics
• Individual picks are then merged back tocustomer orders for shipment.
The next step was to perform a root-causeanalysis of points of failure in each stream of thesewarehousing operations. They considered similartypes of operation across the Schenker world andacross the consumer goods industry. Among thefindings, the main points of failure are:
• 99 percent of order non-conformities are dueto conventional case-pick errors;
• 90 percent breakages due to forklifts/endriders driving into products in racks.
From the results of this analysis, they focusedon how to engineer the processes, with automa-tion and systems where appropriate, to providenew levels of productivity and quality and the trulyperfect customer order:
• Right product – over 99.95 percent;• On-Time – over 99.5 percent;• Damage-free – over 99.95 percent;• Configured to customer requirements (that
is your service promise);• Lowest possible cost;• Providing accurate information and docu-
mentation;The core mindset is not how to make the
systems work, but how to make the processeswork, engineering to six-sigma quality (less thanthree defects per million, or 99.9997 percent).
For case picking, the tasks are driven by mul-tiple-order waves of bar-coded labels that are“slapped” onto cases, as they are picked by orderof weight for pallet quality, and placed on a con-veyor. The sortation scanner reads two labels – thepick label and the factory placed SPC label thatincorporates lot and date information. If there is amatch, the cases are sent to the pallet buildingstations. In order to respect the optimal palletbuilding logic that will limit transportation break-age, the system recirculates cases until it is their
turn to be palletized, driven by algorithms writtenby the in-house operations research team. Thisprocess also allows full-lot traceability by customerand even delivery. And it is efficient. Grocerypicking rates will typically be between 150-225cases/hour; this system routinely provides pick-ing/palletizing rates well above 300 cases/hour(picked, palletized and staged).
Picking by layer. This process will use speciallydesigned hardware to enable full layers to bepicked and weighed. The weight parameters atthe level of a pallet are significant, so weight isan effective verification tool in this usage. Layerpallets are far more tidy and robust, which furtherreduces breakage. Finally, productivity that isthree to five times the rate of conventional pickingis expected. Given these advantages, the manufac-turer would be well advised to actively sell palletlayers to their retailer customers.
Warehouse damage is further reduced by theuse of flexible modular layouts with automatedshuttle high-density storage systems for bulk storage.With slots of up to 25 pallets each, the forklift oper-ator places palettes at the entrance. A self-guidedradio shuttle then repositions the palette behindthe last palette in the accumulation rack, while theforklift operator is free to work elsewhere. Theshuttles can be quickly and easily transferredbetween different storage racks, by a conventionalforklift truck. The system is set up as a FIFOfeed from one side, pick from the opposite side.This shuttle-rack system costs four times that ofconventional racking, or about twice that of drive-instorage systems. The payback comes from a highrate of capacity utilization and a high rate of acces-sibility of the goods because each level can takedifferent products. A 300,000 square-foot facilitystores the factory output and ships 26 millioncases a year. The bulk storage system providesadditional value in productivity and safety (thesystem is unattended and quiet), energy efficiency,and reduces breakage (no forklifts go near theproduct stored).
Assemble in Warehouse (AIW) or postpone-ment allows plants to manufacture efficiently whilespecial products and promotions can be customizedto order offline, in the DC, as and when they areneeded, without costly inventory commitment, orinterfering with the production dynamics: Costcospecial packs, pallets that go directly onto salesfloor.
On-time delivery is engineered in a traditionalroute-driven plan, aiming to get all orders picked,packed and staged for the deadline. A dash-board
shows when the wave must be complete, and thesupervisor can redeploy his crew as the shift pro-gresses. At the end of the picking wave, the teamhelps palletize, ship and then clean-up, before thenext wave is released.
Low cost is achieved through the low-costdesign of these high-productivity processes, thesustainability of the quality (no rework), the use ofsystems that assure sustainability and informationto focus improvements, a “cost-plus” financialarrangement that guarantees transparency and,finally, the use of targeted key performanceindicators that ensure the control and accountabil-ity of the operator to deliver on their service-levelpromise. Systems, such as the SoliNet WMS usedhere, also manage the fulfillment to each customer’srequirements, such as minimum shelf life remain-ing on all products shipped, or fulfillment rulessuch as fill and kill, hold backorders, hold ordersfor complete delivery. Some sophisticated ERPpackages used by manufacturers cannot managethese rules by customer, or pallet logic (e.g. oneproduct/pallet) to ensure each product’s charac-teristics (e.g. odor emission and absorption) aretaken account of. For example, this ensures thattea is not stored next to perfumed soap, slow-movingproducts are overridden for new products or pro-motions, fire-risk product (oil, aerosol) density istaken into consideration such that critical concen-trations are not reached that would require expen-sive in-rack sprinklers. These are the glue thatsynchronize the processes, and along with theinnovative algorithms, constitute the secret for-mula behind compelling success. Continued lowcost is also achieved through modular, easy-to-scale-up design. The warehouse racking andpicking can accept a new level that can doublethroughput with minimal additional capitalexpenditure, and the facility can be expanded tohandle twice that volume again (100 millioncases/year).
Trust is further built by managing the operationto an agreed upon service promise, measured jointlyby key performance indicators. Predictability of per-formance, quality and cost become a solid founda-tion to build a durable relationship. The significantinvestment made creates a very powerful incentivefor the operator to commit and perform.
Eric Dewey, the Vice President of Logistics atSchenker, to whom this operation reports, says,“We have an excellent employee proposition too:
• Very limited heavy lifting;• Fast training of new employees (15 are enough
to be effective on the pick line);
• Excellent retention of our employees (thepicking workload is visible. We can easily deploymore people to the line if there is a surge in vol-ume, plus the work is varied – the same teampicks, packs, stages and cleans-up the line for eachpicking wave);
• A quiet and safe environment (this was a keyfactor in our “hardware” selection decision);
This makes it easier to keep good people.”This value-based warehousing approach
addresses key concerns around outsourcing –control, predictability, cost visibility and control.Mutual dependability is achieved through long-term contracts and significant investments. Even ifyou do not want to outsource, there is plenty herefor you. Doing things right is not easy, but it can bevery worthwhile when you consider costs, waste,health and safety, noise, energy consumption andhappy customers. There is hidden value in ware-house operations.
There is also tangible value: A study by GMAestimated the supply chain cost/case shipped inerror to be US$27. At 26 million cases per year,moving from 98 percent to 99.5 percent accuracyis worth over $10 million. Engineering idiot-proofprocesses with adapted automation can providesignificant improvements to operations andprocesses, if a systemic approach such as the oneillustrated here, is taken.
Eric Dewey sums it up this way: “For some timewe have seen large retailers investing in warehousetechnology and automation to increase the speedand efficiency of their supply chains. For some ofthem this has provided a competitive advantage.”
What is stopping manufacturers from doingthe same?
Nicholas Seiersen is a Senior Manager, BearingPoint, Toronto.
LogisticsQuarterly.com
For Your Calendar:
CLM Toronto Roundtable is pleased to announceits sponsorship of a tour of Schenker of Canada’snew value-added warehouse facility. Don’t missthis exciting event – February 18, 5:30 p.m., 2003.
For more information, contact Nina Trifan, Nadiscorp(905)-790-6404 x 220 [email protected] Fred Moody, CLM Toronto Roundtable president,(416) 461-8355 [email protected]
Preregistration for this tour is obligatory and due to competitive issues the host reserves the right to screendelegates and may withdraw invitation(s) to this roundtable event in some instances.
There has been an evolution of initiatives over the
years to improve the efficiency of the supply chain.
It began with computerized software to help compa-
nies manage and control their internal data f lows
to support larger and more complex manufacturing
facilities. This included but was not limited to Material
Requirements Planning (MRP), Distribution Resource
Planning (DRP), statistical forecasting systems, etc.
The emphasis was on low-cost production through
economies of scale based on sales forecasts supported
by large inventories to ensure high service levels.
Integrated plans relied on a Sales and Operations
Planning process to ensure the specific goals of the
organization were in-sync across functional groups.
Over time companies developed “Best Practices”in which businesses operated in a total “ClosedLoop Supply Chain” where demand promptedsupply and supply satisfies demand. The goal wasto move from a make-to-stock towards a make-to-order environment in which the consumer’s purchasewould trigger the production of a replacement unitin the factory and ripple back through the supplychain to the raw material suppliers. The pipeline orsupply chain includes the production and move-ment of raw and packaging materials from vendorsto manufacturing sites, the conversion of raw and
packaging to finished goods, the movement offinished goods to distribution centers, and themonitoring of f inished goods to the ultimateconsumers.
Developments such as Electronic DataInterchange (EDI) allowed manufacturers to forgeinformation links with key customers, effectivelyexchanging information in a timely manner. Thiscustomer connectivity further improved the efficien-cy of the pipeline but in most cases still operated ina make-to-stock business model. Other enablerssuch as bar coding and Advance Shipping Notices(ASN’s), similarly improved the speed and accuracyof exchanging information and thereby increasedthe integrity of the data in the pipeline.
Seeking further improvements, end users intro-duced new business processes such as Just-in Time(JIT) in the automotive industry, Quick Response(QR) for general merchandise, and EfficientConsumer Response (ECR), for grocery distributorsand retailers. Continuous replenishment planssuch, as Vendor Managed Inventories (VMI) wereamong the results. The major benefits from all ofthese programs are reduced inventories, fresherproduct, reduced stock outs and a quicker, morenimble supply chain. This reduces many of the indirect
19Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Supply Chain Efficiencythrough Collaboration
By Dale Ross & Jerry Forsythe
costs such as damages, aged inventory, and obso-lescence, as well as the administration related toeach of these activities.
Typically, the process change initiatives havebeen driven by the end users, as it has been rela-tively easy for them to achieve immediate resultsthat benefited their bottom line. Suppliers andmanufacturers have had a more difficult timeobtaining tangible benefits. In many cases theresult has been a shift of costs from the end userfurther back in the supply chain.
Real benefits can be achieved by reducing cycletimes and by having a more accurate sales forecast.Many plants were built to support a make-to-stockstrategy and to achieve the lowest possible manu-facturing costs. They tend to be large inflexibleoperations that cannot respond quickly to changingdemand. Reducing their cycle times and improving
speed of throughput requires time and considerableresources to improve their response capabilities.
Even with a make-to-order strategy, consider-able reductions in finished goods inventories arepossible with accurate sales forecasts. Robust datawill allow the internal processes to be optimized,assuming that the organization has the systems andtools to support the use of this information. Thekey is the accuracy and quality of the forecast.This is the true benefit of Collaborative PlanningForecasting and Replenishment or CPFR. It assumesthat this process will result in a superior forecast;keeping supply and demand in greater balance.
Most assume that this requires elaboratesystems and technology but this is not always thecase. Some industries such as dairies and bakeriesthat produce products with a short shelf life alreadyhave informal collaborative systems in placebecause of necessity. They already support a make-to-order strategy with flexibility and surge capacitythat allows them to make variable productionrequirements. Some have standing orders by retaillocation that are modified daily, based on actualconsumer off-take. A more formal arrangementmay improve the results, but the good performersalready have a competitive edge.
Intuitively we all believe that collaboration willimprove the forecast. This requires that we are willingto share information, which is not always practised.Some end users, especially retailers, view this dataas proprietary. It provides them with a competitiveadvantage by having superior market intelligenceand consumer insight for category management,promotional programs and support for their ownprivate label programs. Another extreme is thelargest retailer in the world sharing daily point ofsale data by store location.
There is considerable debate over the pros andcons of both positions, but as logistics practition-ers we support the elimination of waste wherever itcan be achieved in the total pipeline. While it maynot be possible to share the potential benefitsbecause of unequal negotiating power, lower costsshould ultimately result in lower prices to the endconsumer. Staying competitive is the best methodof ensuring long term survival.
Collaborative Planning, Forecasting and Replenishment
CPFR is the next stage of supply chain initiatives that
has been developed in search of the goal for a seam-
less pipeline supply. Sharing of information such as
sales, inventory levels, promotions etc. allows for
co-managing the business processes and integration
of the distribution network to meet the shared goals of
superior service at the least total cost of operation.
The assumption is, like the ripples of the waves that
result from throwing a stone in a pond, the closer you
are to the center of action, the smaller the chance of
turbulence.
The primary benefit is the reduction of inven-tory levels and associated costs throughout thesystem releasing resources for other investments.Secondary benefits are also substantial and in thelong run may even be greater than the inventoryreduction, but are not possible without achievingthe first goal. Reduced complexity, administration,and improved speed to market are only a benefits.Accurate forecasts are the result of collaborationthat makes these benefits possible. Accurate fore-casting is the critical factor that is needed to obtainthe desired results. Technology is the enabler that hasallowed this to occur, by providing the capability tomanage the ever-increasing volumes of informationlinking the total supply chain.
Incentives for Change
To provide a means to express the CPFR opportunity
for the manufacturer, a hypothetical assumption has
20 LogisticsQuarterly.comLQ™ winter 2002 | 03
Real benef its can be achieved by reducing cycle times and by having
a more accurate sales forecast.
21Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Hypothetical Sample Size
Standard Deviation Calculation
Directional Relationship to Inventories
A) To ensure a 99% service level to the customer, a table is used to define the number of standard deviationsrequired to support the noted service. The service factor is 2.33 deviations from the MAD.
B) To relate this data to a degree of safety stock, the average demand (1640.5 / 12), 136.7 cases will be used todefine future forecast.
C) Therefore, if the standard deviation is 23.2 cases and the service factor is 2.33, this particular example wouldrequire 54 cases of safety stock to protect 99% customer service @ a 90% sales forecast accuracy.
D) To build on this point, if the 54 cases were reflected against average demand (136.7 cases), as a percentage,39% of the average demand would be tied up in safety stock.
E) Going one step further, assume the same distribution with different sales forecast accuray positions from 10 to100% return, the plotted data would equal:
Obviously, the less accurate the Sales ForecastAccuracy (SFA), the greater the multiplier-effecttoward safety stock. In the data shown, a weakperformance of 50 percent SFA would reflect in aprobable need for 49% of the average demand to beheld in safety stock.
Building on the noted wins through improvedforecast management, there are additional changeagents related to standardized data managementand an idealistic amendment in retailer attitude. Indata management, the standards for storage andconfiguration have become much more consistentand generic across varied industries. Today,theeases of data extraction and sharing have literallyexploded. With the web as the conduit, globaltransactions in 2002 could exceed $800 billion with2003 transactions exceeding one trillion. The influ-ence of reduced cash-to-cash cycles and paperlesstransactions has become very infectious.
Regarding the retailer, their perspectivetowards product supply has definitely changed.Carrying a manufacture’s product on shelf is moreabout selling privilege than selling obligation.Basically, store-shelf ownership lies more with theproducts’ manufacturer than with the products’retailer. The manufacturer must take a strongerinterest in the final sell-through or face the hard-ship of retail rationalization.
Clearly the risks and opportunities fuel thedecision to get aggressive with collaborative part-nering. With CPFR well defined in several channelstoday, logistics practitioners must take a strongerinterest in this methodology and design to remaincompetitive and efficient for the future. To support
this thought, a closer look at the actual process isneeded.
Beginning the Process
From the manufacturer’s point-of-view the process
begins at the end of the supply chain. It is the final
“store-consumer” relationship that the manufacturer
must focus on.
Having the point-of-sale (POS) data populatinga statistical base forecast, the collaborative elementbegins to synchronize manufacturers and retailersaround true replenishment timing and quantity.To build upon this activity, an event calendar is usu-ally maintained to further ensure maximum supplychain efficiency is exchanged between partners onpromotional and trade timings. Once the completedemand picture is defined, the manufacturerapplies this against the retailer’s on-hands, lead-times, safeties and potential intransits to net a finalreplenishment quantity for production.
To illustrate this point, a retailer may haveseveral regional distribution centers (RDCs) to fulfillto store (below). The manufacturer aggregatesstore level forecasts against store level availability asassociated with the supply RDC. This net demandbecomes the supplying RDCs forecast, which thenis applied against the RDC stock availability.Aggregating the RDCs net demands should providethe manufacturer a final replenishment positionand grant several opportunities to view, simulate,plan and grow the directional outcome of theirproducts within the retailers’ supply network.
Populating numbers to the illustration, thefinal replenishment plan to the manufacturer couldbe built upon several netting levels along the retailers’chain. As noted below, a certain item is followed
22 LogisticsQuarterly.comLQ™ winter 2002 | 03
Net RDC replenishmentAggregate RDC net requirementsback to plant
Directional Data Flow
Net Store Replenishment by RDC
Start at Store Level
from store level to RDC to manufacturer. Withoutovercomplicating the process with intransits, safetiesand firm production, the logistics practitioner (whohas the the correct data) could easily design andtrace the complete supply-chain all the way to thefinal consumer and create a much stronger forecastplan.
Building upon this structure, exception manage-ment must be designed to expose potential stock-outs or overages at store. In a stock-out situation thefocus likely would be on safety-stock managementrather than forecast-adjustment due to the lack ofbackorder data and risks in trying to compensate forthem.
With this general design and supply philosophy,what lies ahead for CPFR? Is this another logisticsacronym to gravitate to, or is it a major buildingblock to future development? As one contemplatesfuture supply technologies, CPFR may evolve fromdata partnering to physical operational-partnering.
A Physical CPFR Model
What are the limits, defined by the scope of direction?
CPFR could change the future landscape of supply by
actually drawing like businesses together to achieve
critical mass at every link.
Imagine the interpretation of forecasts, safetystocks, minimum runs and cycle times changing aslinks in the total supply chain are continuallyremoved through innovation gained by CPFR. Web-based systems that communicate consumer needs,from the number of eggs in the fridge to how muchoil and gas is in your automobile, would create anendless string of demand-feed to the supply hub ofyour choice.
A hub may be a group of manufacturers withsimilar trade and consolidation appeal which part-ner together to capitalize on operational, pack anddistribution synergies. As you can imagine, thestrengths of this coalition would be powerful.Areas such as mixed order, pallet and case wouldfollow a seamless assembly as consolidated orders
by business; brand and customer are all servicedthrough the same hub. Raw materials and ware-housing could all fall under the same synergistictheme where the strengths of the whole overwhelmthe sum of the pieces.
As illustrated below, the opportunities of thisdesign are definitely challenging. However, throughCPFR, customers, manufacturers and retailers maydevelop such trust and efficiency that this potentialdirection is inevitable.
The general philosophy of CPFR definitely is notrocket science. It is an obvious next step in the devel-opment of supply chain processes. Every link alongthe chain benefits from this collaboration and thecompetitive pressure to get connected is obviouslywell worth the investment. Failure to connect couldslowly cut off the critical data streams needed toconnect customers, suppliers, manufacturers andretailers. Success can no longer be measured onexclusivity and guarded data protection.
Supply chain waste and excess are well knownfacts, and the practitioners of CPFR are at the lead-ing edge to take full advantage of eliminating them.
Dale Ross is Vice President, Logistics/Commercial, Effem Inc.
Jerry Forsythe is Senior Logistics Manager, Effem Inc.
23Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Rail delivery to silo Micro manufacturing systems,consolidated business activities
Central stores area, slow moversand packaging material
DSD truck pick-up, corss-dockand raw material delivery
Packaging and film to line Finished goods (pallet) to storesor forward stage area
Conveyor systems for mixed floor loads
Raised conveyor allocationtable for sort to truck
Forward stage area for pallet
T he GCL Group recently invited several logistics experts active in thepharmaceutical industry to initiate discussions on trends, challenges
and concerns of this rapidly changing industry beset by strict regulations.The participants in this focus group were:• Sélim Toutounji, Wyeth, Distribution Director;• Marcel Brunet, Schering Canada, Logistics Director;• Luce Laporte, Ratiopharm, Logistics Director;• Marie Girard, Berlex Canada, Logistics Director;• Patrick Munro, Pfizer Canada, Logistics Director;• Oscar Mancini, Pfizer Canada, Supply Manager;• Representatives from the GCL Group.Philippe Gautrin, partner, the GCL Group, presented this distin-
guished panel with recent results from the Canadian Association forPharmacy Distribution Management (CAPDM) survey, and highlightedlogistics trends related to the pharmaceutical industry. In this presentationto the focus group comparative analysis was made between the pharma-ceutical industry and the overall industry regarding specific trends.
The Trends in the Pharmaceutical Industry
Here are some of the most salient trends that were presented tothe focus group. Generally, trends in pharmaceutical logisticshave remained consistent for several years. As such, third partydistribution methods (clients served by wholesalers such asMedis and Kohl & Frisch) varied from 56 percent (1999) to66 percent (2001) for prescribed medication (RX products) and63 percent (1999) to 75 percent (2001) for Over-The-Counterproducts (OTC products). During this period, direct salesto customers (pharmacies, hospitals, etc.) decreased from 27percent (1999) to 20 percent (2001). This is expected to reach 17percent by 2005.
Even though the industry leans increasingly towards anindirect distribution mode (wholesalers and chain distributioncentres), 13 percent of orders are shipped directly to chainstores. This can be explained by the fact that some large phar-macies meet the minimum purchase set by manufacturers aswell as by the fact that some products can no longer be includedon the insurance list (6-10 percent surcharge usually).
In 1999, 25 percent of organizations had no minimum-order standards and approximately 75 percent of them decidedto exclusively adopt an indirect distribution strategy, whereasothers have established a minimum order of $1,000 (withincremental potential).
On an international level (specifically in regard to UnitedStates, Europe and Japan), Canada distinguishes itself by thetype of distribution methods it uses. However, not withstandingthe fact that there is a trend towards indirect distribution, thefact remains that this type of indirect distribution only accountsfor 50 percent of overall distribution systems used in Canada,according to 1998 data. Whereas in Europe, an estimated 80percent of the distribution is indirect, compared to 60 percent inthe United States and 89 percent in Japan. Such a phenomenonis due to stiff competition and relates to the birth of genericbrands in Canada. Another explanation could be that certainmarkets in Canada are mature when it comes to outsourcing.
24 LogisticsQuarterly.comLQ™ winter 2002 | 03
By Philippe GautrinT H E P H A R M A C E U T I C A L I N D U S T R Y : A R O U N D TA B L E P E R S P E C T I V E
Challenges Facing aPharmaceutical Supply Chain
Changing the type of distribution method will force com-panies to re-think some of their processes such as ordering,storing and delivery methods. Such process overhauls will likelytrigger significant efficiency improvements. Also, the establish-ment of new information technologies is increasing, forcingmanufacturers to continue to be informed about logisticspractices in regard to major wholesaler as well as large pharma-ceutical chain stores (electronic catalogue, ASN, etc.)
In order to maintain strategic activities as their main focus(core competencies), companies are considering more out-sourcing of their logistics functions. Firstly, management,design, printing and distribution of literature will be outsourcedto specialized companies. This decision will allow organizationsto salvage major storage areas for finished products.
Round Table Discussions
Following the presentation of logistics trends in the pharma-ceutical industry, participants were encouraged to participate ina round-table discussion on pre-defined subjects. The results ofthese discussions are presented here in summary form:
Logistics Function RecognitionAll participants agreed that the biggest challenge is the recognitionof the logistics function within each company. This function isperceived as a necessary evil required to facilitate sales andmanagement is not paying much attention because logistics haslittle impact on sales costs (in this industry). Although mostguests mentioned the establishment of sales and operations(S&OP) meetings, a certain level of frustration was noted.Numerous speakers are booked one year in advance for thesetypes of meetings only to find themselves in front of an emptyroom. Product managers often claim that their schedules do notallow them time to attend. Ratiopharm’s Luce Laporte men-tioned that having a vice president of operations with a logisticsbackground contributed to the establishment of these types ofmeeting for Ratiopharm. The fact remains, however, that thesales force has to be constantly reminded that production andlogistics are two distinct functions, each with their own strengthsand weaknesses. But it was agreed, such meeting can certainlyimprove communication between various departments.
Pfizer’s Oscar Mancini and Marie Girard also promotedthe logistics function in their respective companies. Today, inupper-management meetings, the sales force and financedepartments learn more about the logistics function and howlogistics practices relate to their company’s success. Berlex’sMarie Girard explained that she has chosen a customerapproach to emphasize the logistics function. While employedat GlaxoWelcome, Marcel Brunet was fortunate enough to par-ticipate in highly constructive S&OP meetings. These meetingswere strongly encouraged by the Canadian division presidentwho not only attended these meetings but would sometimes goas far as to recruit a product manager from their offices to bepresent.
The lack of recognition surrounding the logistics function isoften due to a communication problem between the logisticsmanager and upper management, remarked GCL’s AlbertGoodhue. Logisticians, passionate about their work, are oftenunable to justify the capital costs required to improve a project.Marcel Brunet, Sélim Toutounji and Patrick Munro all agreedthat the recognition of the logistics function is greater in theUnited States, which translates into logisticians being involvedin key decision making processes. One other noteworthy remarkwas made concerning the logistics function; a greater recognitionis noticed in OTC divisions. Indeed, due to the lower marginsand competitive nature of their products, logistics and cus-tomer service plays a greater role than for Rx products.
Direct Versus Indirect Distribution Direct and indirect distribution is a subject that has been at theheart of numerous debates. A current trend towards indirectdistribution or by way of large chain distribution centres hasbecome quite obvious to all our guests. On several occasionsSélim Toutounji has had to justify Wyeth’s direct distributionnetwork in Canada. Through an extensive activity-based costing(cost-to-serve) analysis, he was able to demonstrate the disad-vantages behind changing such a distribution method. Severallogistics, finance, sales and upper management representativestook part in this study.
Schering’s recent decision to introduce a minimal-ordervalue, intended to steer the company towards an indirectdistribution method, was announced by Marcel Brunet. Suchchange could have a direct impact on the new distribution centre’sefficiency given the initial intention was to maintain a directdistribution system. A debate on whether to transfer packagingactivities or re-packing to distribution centres is currently takingplace.
Sélim Toutounji and Luce Laporte acknowledged that anindirect network did not completely eliminate unit picking.Indeed, when it comes to high value products, retailers such asCOSTCO and hospitals, as well as doctors, still demand toorder at the unit level regardless of the evolution behind indirectdistribution. According to Sélim Toutounji, the trend couldchange as high value products would be shipped directly frommanufacturers in order to insure that these products remaincovered by the Medicare system.
Outsourcing OperationsNone of the companies present at this meeting have elected tooutsource their logistics operations. Pfizer is the only companyresorting to a specialized firm to handle returns. Schering, Pfizer& Berlex are considering outsourcing management and storageof their printed material (literature).
Outsourcing should be the first choice when starting upoperations in a new country, according to Sélim Toutounji.However, today, companies have established infrastructures
25Ideas for Leadership in Logistics LQ™ winter 2002 | 03
(Pharmaceutical Supply Chain, continued on page 30)
26 LogisticsQuarterly.comLQ™ winter 2002 | 03
leasing of eligible capital assets. Theoperating costs can also be reducedby Quebec tax holidays on incometax and tax on capital, as well as withthe Quebec refundable tax credits(30 percent until January 1st 2005and 20 percent thereafter) on eligibleemployee salaries and customs brokerfees. Investors can also receive finan-cial assistance on manpower recruitingand training.
The investments, so far, in theMontreal Foreign Trade Zone, totalover $500 million dollars with the cre-ation of more than 3,000 jobs. Amongthe many companies that have chosento establish their businesses in the
Montreal Foreign Trade Zone, thereare, Bombardier Aerospace, a worldleader in the aerospace industry, andTechnicolor, a leader in motion picturefilm distribution.
The Port of Montreal and theMontreal Foreign Trade Zone alreadyoffer enhanced operation efficiency tomany key international companies. Asthese infrastructures develop, Montreal isbecoming one of the most cost efficientlogistics hubs in North America.
Chain Management, Schulich School ofBusiness, York University, wherebythose who complete their six dayEssentials Program receive advancedstanding towards the P.Log. We anticipateexpanding this partnership by integratingmore Executive Centre modules into thecertification process.
Our most exciting partnership iswith the new Healthcare Supply ChainNetwork. HSCN’s vision is to promotesafe and quality health care through theimplementation of optimal supply chainmanagement practices and systemsthat are characterized by having theright product, at the right place, at theright time in the most cost effectivemanner.
Our partnership will grow in stages:initially, the Institute is providing HSCNsecretariat support (access them on theGateway: www.loginstitute.ca). We willmentor them towards self-reliance.Together, we are developing projects tofund HSC training programs, best prac-tice research, and organizational devel-opment. Eventually, we will sponsorcertification for HSC professionals, leadingto the P.Log.
Strategic VisionIn September 2002, the board and staffmet in Toronto to develop a StrategicVision for the next five years. Three keyareas of growth were identified:
• Bring current products services,and programs to the next generation ina web environment on the LogisticsGateway
• Develop comprehensive logisticstraining programs (from entry to execu-tive), in partnership with other organi-zations and educational institutions
• Go global by transitioning stan-dards and programs worldwide, anddeveloping certification and member-ships internationally
At its November meeting, the boardaccepted a three-tier growth plan to berolled out from 2002 to 2007 in order torealize this Strategic Vision. Projects arenow being designed; proposals arebeing developed; partnerships arebeing negotiated. Having attained alevel of maturity, the Institute is nowpositioned to grow in Canada, theUnited States, and worldwide. We livein exciting times.
CodaI wish you a safe holiday season. I thankthe staff for their commitment. They arethe Institute’s bench strength: theyweathered crises, rose to challenges,and took the initiative to make us suc-ceed. Without them, the Institute couldnot grow.
Victor Deyglio is President of The ProfessionalLogistics Institute, based in Toronto, [email protected]
Specifically, there was limited materialdescribing the value propositionbehind 4PL or Logistics Integratorsand few examples of its effectiveapplication. The value proposition ofthe Logistics Integrator is difficult todescribe and communicate as thebenefits are typically longer termand difficult to document. While the3PL firms typically sell their benefitsin terms of expertise and economiesof scale and scope, the LogisticsIntegrator has to sell the benefitsof inter-firm information synthesisand coordination of operations. Thebenefits are typically achieved onlywhen looking at aggregate move-ment for a number of organizations.The actual benefits may even only beavailable through collaboration withother firms including competitors.While shipments of competitorsoften ride on the same equipment atrandom, there is still some concernwhen it is done by design. Individualorganizations can only see theirbenefits indirectly through rebatesor end-of-year dividends but is diffi-cult to observe or comprehend theextent in the short-term.
The second and related issue isthe relatively few examples of suc-cessful application of the LogisticsIntegrator concept. Since the conceptis not easy to communicate and sell,there are few firms that are willingto risk its application. The limitednumber of exceptions are theLogistics Integrators created byGeneral Motors and Nortel where thefirm is both large enough to benefitand can motivate its use. Theseapplications are beginning to demon-strate results but there has beenlimited documentation and presenta-tion. It is likely that the result willprovide the basis for future CLMpresentations.
The CLM Conference substan-tially broadened the exposure of the4PL and Logistics Integrator conceptthrough a wide variety of presenta-tions. While these presentationsprovide some foundation in terms ofdefinitions and requirements, a morethorough discussion of the successesare still needed.
David J. Closs is Eli Broad Professor ofLogistics, Michigan State University.
(Integrator, continued from page 15)(President’s Viewpoint, continued from page 12)
(Leadership in Logistics, continued from page 13)
27Ideas for Leadership in Logistics LQ™ winter 2002 | 03
Mr. Tajammul M. Hussan,P.Log., Supply ChainIntegration Specialist,Tronicus, Calgary, AB
Ms. Daisy Johnson, P.Log.,Supply Chain Manager,Effem Inc., Bolton, ON
Mr. Gareth Jones, P.Log.,Manager - CustomerService, Romark Logistics Inc.,Rexdale, ON
Mr. Kevin Karpovich,P.Log., ContractAdministrator, SNC-Lavalin ATP Inc., Calgary, AB
Don Kelly, P.Log., Change EnablementManager, Tronicus Inc.Calgary, AB
Mr. Mark Kirkpatrick,P.Log., SolutionsConsultant, Tronicus Inc.
Mr. Taras Korec, P.Log.,Warehouse OperationsManager, Effem Inc.,Bolton, ON
Mr. Colin C. Maxwell,P.Log., Parmalat Canada,Toronto, ON
Mr. Don J. Nancekivell,P.Log., Senior SupplyChain Process Analyst,Canadian Tire Corp.,Brampton, ON
Mr. K.B. Ng, P.Log.,Project Leader, ProcessEngineering Services,Hudson’s Bay Company,Toronto, ON
Mr. William Peterson,P.Log., Delta, BC
Mr. Peter Roden, P.Log.,Dewinton, AB
Mr. Greg Secord, P.Log.,Area Operations Manager,Lafarge North America Inc., Sherwood Park, AB
Mr. Joe Sultana, P.Log.,Senior Customer Planner &Logistics Supervisor,Omron Dualtec Inc.,Oakville, ON
Mr. Victor Tamm, P.Log.,National Food ServiceManager, Nestle Ice Cream, North York, ON
Mr. Shawn Tay, P.Log.,Logistics Analyst, Sobeys Inc., Toronto, ON
Mr. Gary Vince, P.Log.,Director InternationalFreight, PBB Global Logistics, Fort Erie, ON
Ms. Nicole Wright, P.Log.,Logistics Manager, Irving Tissue, Dieppe, NB
Mr. Mark Belisle, P.Log.,Manager DistributionServices, InternationalTruck & Engine,Burlington, ON
Mr. Larry Chevalier, P.Log.,Inventory Control Analyst,Nestle Canada, Edmonton, AB
Mr. Bruce Dunstan, P.Log.,Manager of Customs,Excise and FreightPayments, LCBO, Toronto, ON
Mr. Lionel Foote, P.Log.,CWO, DND CFSD,Edmonton, AB
Mr. Dwight Hamilton, P.Log.,Warehouse Manager, Omron Dualtec Inc.,Oakville, ON
Mr. Rob Heagle, P.Log.,Shipping Manager, SYSCOSERCA Food Services, Inc.,Mississauga, ON
Who Reads Logistics Quarterly?
New Professional Logisticians
New Professional Logisticianswhose photo was unavailable at press time
Mr. Sue Compisano, P.Log., Customs Consultant, Exel Global Logistics, Mississauga, ON
Mr. Jeff Lapradez, P.Log., , Wrigley Canada, Don Mills, ON
Mr. Jonathan Lewis, P.Log., Logistics Business Analyst, NOVA Chemicals
Capt. Justin Schmidt-Clever, P.Log., Logistics Officer, DND, Nepean, ON
Maj Antony Walsh, P.Log., DND, Borden, ON
To subscribe to Logistics Quarterly (LQ) visit our Web site at:
Are you looking for great people? Great companiesrequire regular infusions of great professionals tokeep them growing. In this ongoing competitionfor the best people, success requires 10 percentinspiration (or natural talent) and 90 percent per-spiration (following the discipline of the searchprocess). A great search process unfolds in foursteps:
1. defining what you want, 2. gathering good prospects, 3. evaluating candidates, and 4. testing the fit of your best candidates. Skipping steps because your gut tells you a
prospect is right for the job is a recipe for disaster.Only a rigourous process will make you a winner inthe great people search.
Professional search firms begin with anobjective evaluation of the way you do busi-
ness and the processes and people alreadyin place. If you choose to conduct yourown search, you should start the sameway. Ask yourself what characteristics areimportant to you in a co-worker, employeeor executive. Go beyond the job descrip-
tion to think about the qualities thatmake a person successful in working with
your customers, suppliers, and employees.The better you understand how your com-pany functions now, the better the chance
that you will hire someone who is a great fit.Your first problem, of course, is knowing how
to find your ideal candidates and how to reachthem with information about your opportunity.Top recruiters spend much of their time developinga deep, wide network of contacts throughouttransportation and logistics. They frequent indus-try events and talk to everyone they meet inenough detail to develop relationships. As a result,they have easier access to more people in thesupply chain. They may not already know the rightcandidate for your opening, but they probablyknow someone who knows him or her. They alsoknow how to work their networks to find thatsomeone.
The best recruiters work by referral; when arecruiter calls a potential candidate, he or she hasbeen referred by a mutual acquaintance. This givesthe recruiter a great opening to sell the companyand the job for which he or she is recruiting.People are much more likely to respond to a callfrom an acquaintance than they are to answer anadvertisement.
If you are fortunate, you have people in yourcompany with many years of industry experience.
28 LogisticsQuarterly.comLQ™ winter 2002 | 03
THE GREAT PEOPLE SEARCH
Recruiting Tips
to Build Your Businessby Ross Reimer and Dr. Linda Ferguson
Such people may be an invaluable resource whenyou are recruiting. They may know the people youneed to hire, or they may have contacts that willknow them. Make them aware that you appreciatethe value of their networks, and encourage them tohelp you fill positions.
Be aware, however, that “resident experts”may not have much time to dedicate to a search.Many companies expand their searches withadvertisements. Traditionally, job descriptions andadvertisements have been written to emphasizethe needs of the hiring company. It is importantto realize that the great candidates are not asinterested in meeting your needs as they are indeveloping their own careers. They already havejobs: your advertisement needs to catch theirattention and motivate them to apply to you.
Typically, advertisements produce either toomany candidates or too few. Either many unquali-fied people respond with applications that takehours to sort, or too few respond to fill the positionadequately. This is largely because traditional adver-tising reaches only the people who are currentlyunemployed and a small percentage of those whoare employed but unhappy. The best candidatesdo not normally have much time or incentive toread advertisements.
Eventually, however, most companies findcandidates to interview. At this point, three impor-tant skills make the difference between hiring greatpeople and hiring mistakes. These are: listening,questioning, connecting.
Whether you are hiring a receptionist or aC.E.O., these skills will define your ability to con-duct interviews and evaluate candidates.
Listening is the most under-rated skill inbusiness. Great listening means more than sittingquietly while someone else is talking. Listeninginvolves:
• understanding when to talk and when towait for someone else to fill the silence;
• understanding what you are feeling and howthose feelings are influencing an interview;
• thinking critically about what is being said,how it is being said, and how you are reacting towhat is being said.
For instance, during the first five minutes ofan interview you may find that you really like aparticular candidate. This may be because youare interviewing a great candidate; or it may bebecause you are eager to like someone enough sothat you can hire and get back to your real work.If you can make yourself aware of your feelings,you can change your questions to test both thecandidate and your own responses. At the sametime, you will be trying to notice a candidate’s toneand pace of speaking voice, body language, andmannerisms as you move from question to question.
Knowing what questions to ask, how to askthem and how to calibrate responses can takehundreds of interviews to master. In the meantime,you need to be aware that your job during the
interview is not to give a sales pitch on the job oryour business. Your job is to ask good, toughquestions, pacing them so that you allow thecandidate the best chance to show you his or herbest qualities. At the same time, you need to beasking questions of yourself: questions about thecandidate’s qualifications and responses; ques-tions about how this candidate will ‘fit’ in yourworkplace; questions about how your own state ofmind is influencing the interview.
In the end, you should hire the person whohas demonstrated the best connections: connec-tions to other people in the industry (you have tocheck references); connections to other peoplein your company (use a panel to interview, hiresomeone referred by a current employee, etc.);connections to the job description (how closely dothe candidate’s background and experience matchthe needs of the job?). When you look at theoverview of all these connections, you find thebest fit for your hiring needs.
Many companies feel that they should havethe staff and resources to make, understand, andevaluate connections throughout the supply chain.That’s not always a reasonable expectation. Goodrecruiters have great networks because develop-ing great networks is what they do, in the sameway that computer programmers write computerprograms or controllers manage finances. If you donot have a dedicated search professional on staff,then it is often helpful to work with a search firm.
You can use the same criteria to judge asearch firm that you use to judge your candidates:connections in the transport industry; connec-tions to people in your business (through pastexperience or current interviews) and connectionsto your criteria for success. A great recruiterwill meet with you, think about your corporate cul-ture, and carefully consider whether he or she canhelp you meet your objectives. By working withyou over a period of time (whether once a year oronce a month), a recruiter can become a trustedadvisor and an expert on finding the supply chainprofessionals who will drive your company to newsuccess.
Whether you choose to develop this kind ofrelationship with a recruiter or to develop in-houseexpertise in hiring, a successful search for greatpeople always begins with a great search process.Evaluate your needs, use personal networks toreach potential candidates, write great ads, conductinterviews, check connections and, above all,respect the time and discipline necessary to makinggreat hires. As cumbersome as it may seem to gothrough every step, you will be glad you did. Greatpeople are worth the effort.
Ross Reimer is President, Reimer Associates, Inc.
Dr. Linda Ferguson is Recruiting andCommunications Specialist, Reimer Associates, Inc.
29Ideas for Leadership in Logistics LQ™ winter 2002 | 03
30 LogisticsQuarterly.comLQ™ winter 2002 | 03
making it difficult at times to outsource some of their opera-tions. According to Luce Laporte, companies consider thisas an option when faced with the inability to invest in orderto maintain their logistics functions (new site, informationsystems, automation, etc.)
Also, companies that have performed an operationalbenchmarking exercise using a logistics provider have beendisappointed with installations and the competency of the out-sourcing company. Often a lack of confidence and knowledgeabout the complexity surrounding the pharmaceutical industrymakes it difficult for firms to continue this exercise.
Customer Logistics PracticesEveryone admitted to having access to their customers as wellas their logistics counterparts. Customers must still be remindedabout best practices regardless of their sourcing network.Indeed, although wholesalers and chain stores have agreed toweekly large orders, they continue placing small orders on adaily basis which automatically generate inefficiencies encoun-tered by distribution centres;
In 1999, Philippe Gautrin fulfilled a mandate for BristolMyers Squibb, which consisted of a cost-to-serve analysis foreach customer related to Clairol’s division. The results of theanalysis influenced logistics practices as they related to theirmost important customer. (In 1999 Warner-Lambert conductedsimilar studies in the United-States.) Philippe Gautrin’s analysissignaled the need for pharmaceutical companies to perform adetailed analysis of their current case formats in order toincrease full-case picking. Packaging cost increases could easilybe compensated by significant productivity gains.
Logistics CompetenciesA lack of qualified resources in logistics is certainly very
noticeable as far as everyone is concerned. Albert Goodhue isworking closely with governments and Canadian universitiesto develop training courses specializing in logistics. Findingqualified teachers is a challenge in itself. Marcel Brunet andSélim Toutounji are equally surprised by the lack of qualifiedresources in this field. In this context, companies are compelledto invest time and energy to train employees in their logisticspractices and are frequently disappointed to find theseemployees recruited elsewhere.
Sélim Toutounji mentioned that good manufacturingpractice guidelines for therapeutic goods (GMP) proceduresforce Wyeth to train its distribution centre employees fora period of 10 to 15 days before allowing them to handleproducts. Patrick Munro is concerned about the inevitableculture shock between logistics graduates and logisticsprofessionals whose knowledge is mostly derived from ahands-on learning environment.
2005 VisionAnother of Sélim Toutounji’s concerns is the future of thelogistics function in Canada, specifically for those pharmaceutical
companies with head quarters in United States. He fears thatsome companies may envision centralizing North Americandistribution in the United States to sell directly to Canadiandistributors. This would mean the closure of current Canadiandistribution structures.
Strict control of product volume sold to wholesalers andchain stores to ensure local sales can be achieved by usingVendor Managed Inventory (VMI) is essential. Wholesalersand chain stores, however, are not receptive to this approach,as they perceive it involves a loss of control of their logisticsflow. According to Sélim, the threat is real and he believes thatsome Canadian entities may be dismantled in the upcomingyears. He expects that by 2005, several organizations willadopt this type of strategy. Marcel Brunet suggested a way tocounter this effect by developing centres of excellence whetherit be for production or for logistics purposes to gain internalrecognition.
External ElementsMarcel Brunet and Sélim Toutounji agreed that the biggestexternal element influencing operations concerns all the issuessurrounding the validation process. In Wyeth’s case, there is noroom for change when it comes to its logistics process due to itsmanufacturing function and structure. Sélim pointed out thatin regard to the 2002 GMP version, pharmaceutical companiesmust now proceed to validate their supply chain as a whole.Therefore, transportation must be validated as well as thirdparty operations. Sélim expects, over the next few months,sporadic inspections, which could have a paralyzing effect forcompanies that have yet to validate their process.
Conclusion
The Canadian pharmaceutical industry faces major challengeswhen it comes to the logistics function. As a first concern, theindustry must secure itself in Canada especially in a NorthAmerican free trade market. Logisticians must keep trying toincrease their internal recognition through a communicationprocess highlighting the value of logistics for an organization.This recognition will be called upon when numerous companiesoutsource some, if not all their logistics functions.
Over the last few years, the noticeable trend towardsnetwork consolidation and indirect distribution stabilized, inother words it appears to have reached its limits. Focus willnow be on reducing inventory to lower operational costswhile tackling back-order inefficiencies. While doing so, thepharmaceutical industry, as any other industry, will struggle tokeep the best available logistics resources, which are hard tofind in today’s market.
The following chart compares Canada’s pharmaceuticalindustry position with the current logistic trend:
• Logistics function acknowledgment: The pharmaceuticalindustry has taken under its wing various functions such ascustomer service, production planning, stock management,
(Pharmaceutical Supply Chain, continued from page 25)
storing and transportation. This logistic integration is widelyused compared to various other industries in Canada;
• Operational consolidation: The current trend in Canadaand worldwide is to consolidate distribution network to benefitfrom scale economies without affecting service level thanks tothe reliability of various transportation methods. The pharma-ceutical industry is a pioneer in these initiatives as the majorityof manufacturing companies have consolidated their networkand now service Canada out of a single distribution centre;
• Key performance indicator: One of the industry’s currenttrends is the establishment of performance indicators. Theseindicators are managerial tools, which can provide guidelines toachieve pro-active skills. The pharmaceutical industry is certain-ly following but definitely not ahead in the game;
• Information systems: It has become increasingly obviousthat in order to counter logistic flow intricacies, informationsystems must provide proper product tracing as well as guaranteea strong service levels required by today’s customer. Faced withcomplex operations and product handling, the pharmaceuticalindustry is slightly ahead in the implementation of informationsystems (WMS, TMS, RF, etc.);
• Inventory turnover: Companies are functioning in ahighly competitive era in a slow economy, which forces themto reduce inventory levels by increasing their turnover. Eventhough the pharmaceutical industry faces various challengesregarding recipes, validation and replenishment time, subtleimprovements are noticed concerning inventory turnover. Fewcompanies have adopted a ‘just in time’ concept which meansmany of them find themselves with full capacity warehouse;
• Market globalization: Another strength associated withthe pharmaceutical industry concerns its market globalization.We have observed over the last 10 years several mega-mergers.Several pharmaceutical companies have opted for a GlobalManufacturing strategy, by awarding global manufacturingmandates to some of their plants;
• Outsourcing: The current trend is to focus on primaryskills, therefore several companies resort to outsourcing theirlogistics operations. Not yet accepted by the pharmaceuticalindustry as a strategic function, outsourcing has yet to gain therecognition currently achieved by the high tech industry, forexample;
• Productivity: Today’s organizations are concerned withthe need to improve productivity levels in order to reduceoperational cost to increase their profit margin. Due to theindustry’s high margins, the pressure is low as we notice lowerproductivity levels compared to other industries (for similarprocesses). Undeniably, the pharmaceutical industry hascharacteristics (lot control, narcotics, product value) that goagainst the drive to improve productivity;
• Perfect order: Considered a key performance indicator,the current level for pharmaceutical companies is low com-pared to the average. Such score can be explained by theamount of back-orders (sometimes up to 20 to 30 percent ofthe lines ordered). Such high back-order levels can only beobserved in a product specific industry (patent protection)without jeopardizing a company’s financial viability.
Mr. Gautrin P. Eng. Partner with the GCL Group, is a member of the CLM(Council of Logistics Management), the CALM (Canadian Association ofLogistics Management) the WERC (Warehouse Education Research Council) andthe CSIE (Canadian Society of Industrial Engineering).
31Ideas for Leadership in Logistics LQ™ winter 2002 | 03
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Certainly the story of our past can be told in terms of a seriesof daunting adventures, from Marco Polo, to Columbus,Darwin to the Galápagos, to Leif Ericsson and our explorationof Mars. Today, we’re building on this legacy and usingtechnology and innovation to grow and chart unmappedterritory. Despite the recent spate of challenges to peopleand business, including corporate malfeasance, innovativecompanies and organizations continue to succeed. By applying
sound strategies and taking systematic and innovativeapproaches, companies and organizations have demonstratedconsiderable resilience as they build on solid foundations.Clearly, Victor Deyglio’s article, “The Year in Review” evi-dences the value of innovation, integrity and purposefulness.
The importance of managerial and institutional innova-tion and fortitude is also woven into Pierre Massicotte’s article,“Infrastructures for Global Strategy,” which focuses on astrategy to create one of North America’s top logistics hubs.
One of the greatest calls for leadership this year camefrom the Council of Logistics Management’s (CLM) annualgeneral meeting and its outstanding program delivered underthe auspices of the theme, “The Rules Are Changing.” Thisprogram was designed to address the knowledge, skills andmindset required from all of us in this rapidly changing world.We’re honored this issue to publish Dr. David Closs’ article,“View of the Logistics Integrator.” In his inaugural column Dr.Closs provides an insightful overview of some of the mostsalient topics covered at this year’s CLM AGM.
We’re also pleased to have Ross Reimer and Dr. LindaFerguson begin their first of many columns in this issue,which affords a clear and reasoned strategy to find the finestpeople for a logistics practice.
These are only a few of the exceptional articles andauthors published in this winter edition. It’s these profes-sionals who truly define LQ and enable it to fulfill its distinctivemandate. I would also be remiss if I did not convey my deepestappreciation to all the members of LQ’s Advisory Board (page9), and the direction they’ve provided through two roundtable meetings this year. I am thankful for their encourage-ment of innovation and best practices in this magazines aswell as in our exciting field.
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