The World Trade Magazine Fabulous Fifty Plus One - Article Rotation

Warren Buffet

Recognized as this era’s greatest investor (and ranked by Forbes this year as the world’s richest individual), the ‘Oracle of Omaha’ has reaped the benefits of taking the long view in deciding where to put his money. He’s less a financial magician (read: hedge fund) than a gifted student of value; this long-term approach has led him to back trade in general and reap the benefits of the businesses that facilitate it.

Of late, for example, while lesser visionaries lament the state of U.S. railroads, Buffett is taking the plunge big-time (encouraged, no doubt, by their crucial role in moving products to and from ports). Berkshire Hathaway has assumed big positions in BNSF, Union Pacific and the Norfolk Southern railroads. All are major players in the movement of coal, biofuel and other energy products, which are expected to drive capacity and pricing for years to come. Then, to show its seriousness, Berkshire secured 60% ownership of Union Tank Car Company, one of the primary constructors and repair facilities of tank rail cars.

He’s also a concerned public citizen and, as such, Buffett worries about the corrosive danger posed by the U.S. balance of trade shortfalls. “In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm,” he explains in the homey terms of his native Nebraska. “In order to consume 4 percent more than we produce—that’s the trade deficit—we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.”

His answer? “Issue what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties—either exporters abroad or importers here—wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.”

Henry Paulson, Secretary of the Treasury

For better or worse, the Feds are critical players in the global supply chain right now and nobody is more important than Secretary of the Treasury Henry Paulson. With capital markets seized and credit hard to come by, Paulson (along with Federal Reserve Chairman Ben Bernancke) are managing in an economic ‘no man’s land’ with few historical precedents to rely on. “The world has changed as has the role of non-bank financial institutions, and the interconnectedness among all financial institutions,” Paulson recently told a Washington audience. The near-term commercial health of the world depends in no small part on how effectively Paulson et al can balance increased regulatory supervision with shrewdly deployed economic stimulus.

Japan

A resilient global marketplace needs a strong Japan, the world’s number two economy. The past ten years have been economically difficult, “the lost decade” is how the Japanese refer to their largely unsuccessful efforts to bail out of a real estate bubble and deflationary spiral. Just when it looked like the corner had been turned, global finances went kaput. A strong yen (appreciating 30% against the dollar in a year) doesn’t help, hurting exports to the U.S. Despite profits being made by large corporations, wages remain stagnant and consumer spending sluggish. Sustained momentum requires rising prices. The OECD projects 1.6% growth this year—leaving considerable incentive for improvement.

Standards of Living

Recent evidence published in The Review of International Economics suggests that trade, besides being good economics, is also good public health. The authors (Ann Owen and Stephen Wu) found that a country’s openness to trade “is associated with lower rates of infant mortality and higher life expectancies, especially in developing countries.” Why? Their paper presents preliminary evidence suggesting that part of the explanation for the positive relationship emanates from the knowledge spillovers facilitated by increased trade. Openness provides developing economies the opportunity to ‘piggy-back’ off of technologies and ‘leap-frog’ up the developmental ladder. With regard to health outcomes, the poorest countries have the most to gain from trading with those that are more technically advanced, whereas developed countries gain little or nothing from trading with other advanced nations.

Gregg Bostick, Vice President, Transportation, Pinnacle

Anyone who’s ever entered a supermarket knows Pinnacle Food’s products: Duncan Hines baking mixes, Vlasic pickles, Armour canned meats, Mrs. Butterworth’s syrup, and Swanson frozen dinners. After primary manufacturing takes place, Pinnacle turns to transportation vice president Gregg Bostick to fill shopping lists. Among his achievements has been implementing a closed-loop spend management program, wherein transportation procurement is connected with freight bill payment in a continuous loop process. The enviable result: double-digit freight bill savings.

Carbon Tariffs

While the OECD has mandated its members to start the process of de-carbonizing the economy by taxing themselves with fees on carbon dioxide emissions, emerging countries are not subject to the tariffs. Which, given the fact that non-OECD countries were responsible for 90% of the total increase in global emissions since 2000, could mean trouble on the horizon. China stands out as the prime carbon polluter (in 2006 it replaced the United States as the world’s single largest emitter). The reasons aren’t hard to identify: the sheer pace of economic growth, reliance on coal generated energy, and the absence of enforceable environment regulations. If countries like the U.S. and Canada impose carbon tariffs on emerging market trading partners like China and India (as expected), the resulting tension could put pressure on established supply chain relationships.

Bolero

While considerable effort has been spent on optimizing the physical supply chain, it’s only been in recent years that much attention was paid to creating efficiencies in the financial supply chain. Not surprisingly, the financial supply chain offers significant potential for generating bottom-line improvements and creating competitive advantage. According to Killen Associates, “a typical billion-dollar company spends approximately $27 million annually for unnecessary working capital and inefficient processing functions because they lack visibility into the Financial Supply Chain and receivables.”

Bolero is a neutral, third-party facilitator of paperless trading between buyers, sellers, logistics players, banks, agencies, and regulatory authorities anywhere in the world. Some of its users include ABN AMRO, Bank of America, HSBC, ING, and the Royal Bank of Scotland.

Dr. Geraldine Knatz, Executive Director, Port of Los Angeles

Geraldine Knatz is the first woman to serve as executive director of the Port of Los Angeles, the nation’s largest container port. She’s also been at the forefront for pushing more stringent environmental standards, and has even staked her job on success in this endeavor. “I guess we’re sticking our neck out and we’re trying to do some things that people will question whether we as ports have the regulatory authority and they may question it through litigation. You know, as far as I’m concerned, if people want to sue us for trying to clean up the air, that’s not a bad position to be in because that means we’re trying to do something,” she says.

Cummins Power Generation

Cummins used its experience in developing nations to improve its manufacturing logistics throughout the company. As its generators gained market share in rural India, the company realized that it required small production runs for many different models. Cummins brought efficiency to production by redesigning its generators so that one engine served much of the market, with add-on modules, called gensets, providing the necessary customization—noise dampeners for hospitals, for example, and dust covers for farms. That change let Cummins have longer, more efficient production runs and pass on savings to the customer, further aiding market penetration.

Hardi-Graham, Inc.

Flexibility isn’t something normally associated with wood pallets and crates, but Hardi-Graham has developed a system that locks together wooden panels to create custom-sized crates that can be easily knocked down for return shipping. The Hardy-Built Fastening System joins wooden panels using metal-to-metal fasteners that are bolted—not nailed or screwed—into place to better protect the crate’s contents. The system provides great flexibility in crate configuration. And, rather than return expensive crates empty, the fastener system lets them snap apart and be returned cost effectively. An optional locking device enhances security. Another innovation snaps together to turn pallets into stackable containers. The pallet rings surround pallets, providing the rigidity that is necessary for safe stacking and, when not in use, can be stored flat.

The MIT Global Scale Network

MIT’s Center for Transportation and Logistics has long been one of the key academic sites for high-level think-tanking about the supply chain. Recognizing the extent to which supply chains have gone global, the Center has created an international alliance of leading research centers dedicated to the development of supply chain and logistics excellence through innovation. Launching with centers at MIT in Cambridge, Massachusetts, the Zaragoza Logistics Center in Spain and the Center for Latin-American Logistics Innovation in Colombia, plans are to expand into Africa and Asia. The raison d’etre for the network: to allow faculty, researchers, students and affiliated companies to pool their expertise and collaborate on projects with global applications.

Google

When it comes to global branding, no one does it better than Google. The company is one of the most recognizable in the world (and the brand name is now a verb in the Oxford English Dictionary) with overall market share and expansion showing no signs of slowing down. Although CEO Eric Schmidt admitted that the company is still trying to figure out how to make money with YouTube, there are plans for new products this year, he said in a recent interview with CNBC. “We believe the best products are coming out this year. And they’re new products. They’re not announced.” Google is also planning to launch new ad campaigns in 2008 that go beyond basic in-line ads.

Hungary

In 2007, Hungary recorded the biggest rise in gross wages in the manufacturing industries since 2000 of all the 30 OECD countries. As of August last year, Hungarian gross wages in this sector had soared 96.3% in only seven years, while inflation rose by a cumulative total of 56.1% during the same period. This compares to an average OECD rise of 23.2% in gross wages combined with cumulative inflation of 19.8%, bringing average real wage growth in OECD countries to 3.4% versus 50.1% in Hungary. The second biggest rise was registered in South Korea with 78.6%. In the Central Eastern European region, Poland saw a wage increase of 41.8%, the Czech Republic 56.8%, Slovakia 68.6% and Austria 21.2%.

Deere & Company

When Moline, Illinois-based Deere & Company, also known as John Deere, set about to restructure its supply chain and trim freight costs six and a half years ago, management was optimistic about the results. Their expectations have been realized with inventory from its Commercial and Consumer Equipment (C&CE) division cut in half—previously, Deere held 170 days’ worth of inventory at dealer locations and another 70 days’ worth in its warehouses. The division has also improved customer service. Instead of taking 10 days to get orders into a dealer’s hands, it now takes five days on average. Furthermore, C&CE is working to get 80 percent of its high-volume SKUs to dealers in three days during the peak season.

Meanwhile, Deere continues to expand in foreign markets, announcing in April that it would make an $80 million investment in a central operations center 38 miles southwest of Moscow. The Russian expansion will give the company a sizeable presence in one of the most important markets for the agriculture and forestry sectors.

VF Corp.

Kudos to VF Corp. and its management team for not only surviving, but thriving in the highly competitive apparel market. One of its key strategies is to build brands based on lifestyles—North Face and Vans are two examples. The second key: build a superior supply chain. When VF bought North Face in 2000, the supply chain was a mess and only about half of the orders were shipped on time. By tapping into VF’s network of factories in Asia and applying the talent of a 1,100-person procurement office in Hong Kong to the operations, the timeliness of shipping orders jumped to 90 percent.

While competitors are scaling back earnings estimates and employees, VF saw earnings grow 14 percent in 2007, and revenues 16 percent, to more than $7 billion.

Hau Lee, Stanford University

The work of Stanford Global Supply Chain Management Forum director Hau Lee addresses all matters logistics, be it delivering specific goods across the globe or general strategizing for optimal order fulfillment. Ideally, he says, suppliers, distributors and customers cooperate to succeed. But how to motivate them? Among other prods, Lee uses sophisticated computer models to show the supply chain shortages and overstocks that result from poor group decisions. He calls it “bullwhip effect.” Work together or be stung.

Chinese Managers

What’s the number one business challenge facing U.S. companies in China? According to a survey conducted by the Shanghai Chamber of Commerce, the answer is attracting and retaining white collar managers as the service sector grows to rival manufacturing. With supply below demand, qualified candidates jump from job to job often for just a few hundred dollars more. The answer isn’t better pay, says one expert, but convincing locals they have a future with a company that cares about them and is willing to balance work with life style considerations.

GE Transportation

GE Rails, the company’s train unit, has launched its new Evolution Series hybrid locomotive. Called ‘an energy efficient monster,’ it weighs in at over 450,000 pounds and is 73 feet long. What makes this diesel-electric power train unique is that the new locomotive captures the energy dissipated by braking, then stores it for later use in batteries; which translates into a lot of energy (the annual dissipated braking power necessary to stop the locomotive could power 160 households for a year). Fuel consumption will be reduced as much as 15% and emissions as much as 50% compared to most of today’s freight locomotives.

The U.S. Marines

Combat Logistics Regiment 3 in Okinawa, Japan is testing logistics equipment, which could drastically improve the way Marine logistics units operate. The Autonomic Ready Logistics system, developed by Applied Research Labs at Penn State University, is a new system capable of collecting and forwarding critical logistical data, such as equipment health, identification, location, fuel levels, ammunition levels and mobile loads. The satellite-linked ARL system, mounted on 12 vehicles, uses onboard sensors, processors and transmitters to retrieve real-time logistical data and send it via a unit’s command and control systems. The system ensures commanders have real-time data to make timely, informed decisions.

“This technology is absolutely phenomenal,” says CLR-3’s commanding officer Col. Charles Chiarotti. “What it can and hopefully will do for the Marine Corps is going to be incredible. It will help us save lives, decrease operational down time of equipment and reduce potential operational pauses.”

Open Skies

After extensive negotiations, the European Union and United States initiated an Open Skies agreement that went into effect this March, authorizing European and American air carriers to fly anywhere they want between European Union countries as well as Switzerland, and the United States. Phase Two talks now begin, which could end up allowing cargo carriers and forwarders broad access to each other’s air space. This could mean that some forwarders and European carriers might operate their own airlines in the domestic U.S. market, a most attractive option given the favorable euro-U.S. dollar trading environment.

Aid to Africa

At meetings in Tokyo this spring, the Group of Eight industrialized nations agreed to step up assistance to Africa. The world’s poorest region has been locked into a vicious cycle of under-investment that has resulted in economic underdevelopment and deteriorating standards of living. On the eve of the G-8 meeting, the OECD released data that underscored how national donors have failed to deliver on previous pledges with collective aid to the world’s poorest having fallen off in 2007 by nearly 10% to some $100 billion.

Dell

The only thing that stays the same is change. Dell has acknowledged that its fabled ‘build on demand’ supply chain isn’t necessarily the right approach in every case. Having lost its title as the world’s number one PC builder in 2007 to Hewlett-Packard, Dell announced that it would now offer generic base configurations (while still permitting customers the option to customize) and expand beyond its direct sales model, particularly in emerging markets like Brazil and India. “We can fulfill that demand with a different supply chain and lower cost geographies,” says Michael Cannon, Dell’s President of Global Operations.

Transportation Worker Identification Credential (TWIC)

The TWIC is changing the face of port security in a substantial way. TWICs are tamper-resistant biometric credentials that will be issued to workers who require unescorted access to secure areas of ports, vessels, outer continental shelf facilities and all credentialed merchant mariners. It is anticipated that more than 750,000 workers including longshoremen, truckers, port employees and others will be required to obtain a TWIC, which will become mandatory in April 2009.

e-Auctions

The spread of e-auctions as a primary tool in establishing contracts all along the supply chain is increasing. The technology is getting better and more user-friendly, buyers’ frustration with the current system, and the predominance of e-sourcing in so many facets of the logistics universe make it a no-brainer. Particularly at a global level, this could mean drastic changes in the way the industries do business. Just like Priceline for fliers and hotel guests, e-auctions give buyers the ability to easily locate the lowest bids—a potential boon for smaller vendors that might not have as much access to big clients.

NanoInk

Counterfeiters can duplicate a label, but they can’t replicate labeling at the nano-scale. NanoInk’s NanoEncryption™ technology places nano-scale codes on virtually any material, including pharmaceutical capsules and tablets, to protect brands with covert, conclusive authentication. Up to 350 NanoCodes™ can be placed within the width of one human hair, offering the ability to include unlimited quantities of identifying data on the product. NanoInk’s authentication center uses a proprietary multilayer mapping system and a scanning electron microscope to find and authenticate the codes, which as another layer of security, are then translated to specific product information. Nanoscale encryption and deposition are used for deeply covert, non-destructive supply chain forensics, including pharmaceuticals and other highly counterfeited markets.

David Simchi-Levi, Massachusetts Institute of Technology (MIT)

To MIT inventory optimization expert David Simchi-Levi, every topic touches on logistics. Recent research efforts range from analyses of the space shuttle supply chain to better methods of manufacturing and distributing crucial vaccines to new means of measuring a company’s sub-contractor’s carbon footprint. But Simchi-Levi’s students are also learning that a robust and efficient supply chain can be serious fun. Among his innovative teaching tools is the Web-based “MIT Beer Game” (http://beergame.mit.edu/), a role-playing simulation where participants connect a fictional beer retailer, wholesaler, distributor, and factory. The lesson: minimizing total costs for the system means sharing information among individuals.

Humanitarian Logistics

Governments and non-governmental organizations are looking to improve their supply chains by applying private-sector insights. The movement got a big push in 2001, when Lynn Fritz, the former CEO and chair of a logistics firm, founded the Fritz Institute as a base from which to study and promote the adoption of cutting-edge logistics techniques and technologies by the humanitarian sector. Now everyone’s getting in on the act, with research projects underway at various business schools; there is even a Humanitarian Logistics Association for supply chain personnel.

Standardized Navigation Equipment

In November, a container ship ran into the San Francisco-Oakland Bay Bridge, dumping 58,000 gallons of bunker fuel into the water. One reason: The boat was stuck in a thick fog, and the harbor pilot wasn’t familiar with all the symbols on the electronic charting equipment. It’s a surprisingly common problem, and one that the shipping industry, the International Maritime Organization, and the U.S. government are increasingly worried about. Both the IMO and the National Transportation Safety Board are studying the problem, and could issue recommendations for international standards soon.

The Supply Chain and Logistics Institute, Georgia Tech

The world’s largest academic center for studying supply chain issues, the 15-year-old SCL is a core part of Georgia Tech’s Stewart School of Industrial and Systems Engineering. Under executive director Don Ratliff, it focuses particularly on international logistics issues, with an entire sub-center dedicated just to China. It has also pioneered work on health-industry logistics—just this year it released a set of strategies for managing hospital-acquired infections.

Cloud Computing

Turn on the computer and access as much computing power—or as little—as you need, as well as powerful applications that run complex models that otherwise could be run only by the largest companies. That’s the reality of cloud computing, and it means that even small suppliers in developing nations can use the collaborative planning, forecasting and replenishment systems they too often lack to make supply chains run smoothly, and can take advantage of opportunities to expand their own design capabilities as well. Cloud computing is like grid computing, except that the computing resources are managed as one entity. Therefore, clouds operate rather like the Internet, providing a globally accessible network of computing resources.

Carbon-Neutral Shipping

It takes a lot of energy to move goods from Guangzhou to London. Several transportation providers have recently announced that they will offer “carbon neutral” shipping options, in which, for an additional fee, they will calculate the amount of carbon expended to ship a customer’s goods, then offset those emissions with investments in reforestation projects and other environmentally friendly efforts. While this may sound like a gimmick to some, others say it is a valuable way to familiarize customers with the fact that the industry can no longer externalize the environmental costs of shipping.

Mobile Security

E-sourcing, networking, and Internet-enabled just-in-time management present enormous security risks. RFID, for example, if left unsecured is essentially an open door allowing competitors, hackers, and even terrorists to steal information or even sabotage operations. Suppliers are developing supply chain solutions that put a premium on security, as well as stand-alone packages like Cisco’s Secure IDS and eTrust’s Intrusion Detection. Experts say that any solution should provide coverage for three central issues: network encryption, data protection, and identity validation.

The Port of Prince Rupert

The Prince Rupert Fairview terminal is the first new gateway for Asia-North America trade in the last 100 years. Its three biggest advantages? Location, location, location. Siting on the great circle route from Asia cuts ocean shipping distance by over 1,000 nautical miles, for a total sailing time at least 50 hours shorter than current routing to and through congested U.S. ports to the south. Last year, the West Coast of Canada handled approximately 2.2 million TEUs. By 2020, estimates put that number at 7 million TEUs. All hands to Prince Rupert.

e-Supply Chain Managememt Laboratory, Carnegie-Mellon

The combined forces of network connectivity and electronic engineering continue to revolutionize the supply chain, and the folks at Carnegie-Mellon are working hard to develop tools to maximize the field’s potential. It’s not alone: the SCML regularly partners with Raytheon, SAP, even the U.S. Army, the National Science Foundation, and DARPA. It’s involved in some pretty high-end stuff: Who’d have thought that artificial intelligence could play a role in supply chain management? And yet that’s precisely what we’ll see in the next generation of e-auction programs, warehouse visibility capabilities, and workflow management technologies.

Response Management Technology

Knowing where everything is in the supply chain isn’t good enough anymore. With volatility the new buzzword in everything from fuel supplies to trade-route security, successful firms have to know where everything will be. As Stephen Hochman of AMR Research wrote in a 2007 white paper, “In high-volatility, supply-constrained businesses, the new basis of competition is the ability to peer faster than your competitors into the black box of multiple planning and execution processes, running offline scenarios that give collective, rapid visibility to financial and service impact of a short list of viable decision alternatives.” In other words, a planning plan for the un-plannable.

Multi-modal Supply Chain Applications

With so many discrete inventory management solutions out there, many companies are finding it a struggle to oversee so many different ways of, well, overseeing things. Thus far there is no ‘best practices’ approach to get a holistic perspective, let alone communicate across platforms. That’s why the next generation of supply chain innovation is aimed at integration, linking advances like RFID and real-time inventory visibility with voice and Internet communication, so-called multimodal applications.

FIJI Water

Most of us have heard of carbon neutral by now, but what about carbon negative? That’s right, carbon negative is the net removal of greenhouse gas emissions from the atmosphere. FIJI Water has embarked on a goal to cut its emissions across its products’ entire life cycle and is going one step further by investing in forest carbon and renewable energy projects to become “carbon negative” by about 20 percent. By 2010, the company’s products will require 25 percent fewer emissions to produce and deliver and 50 percent of its energy use will come from renewable sources like wind to power its bottling facility in Fiji and bio-diesel to replace traditional fuels used in transportation.

International Paper

Wet corrugated cartons run the risk of damaging the contents. And, as they bulge, chemical cartons, which hold more than 1,500 pounds, don’t stack safely. International Paper overcame that problem for its bulk chemical containers by including an engineered barrier board placed between the two outer linerboard barriers in its moisture vapor protection bulk boxes. Cartons are more resistant to water damage during shipping and can be safely stacked four-high. The new, stronger cartons use less fiber, are more resistant to moisture and are completely recyclable. The product helps protect bulk chemicals from condensation inside ocean containers as well as protecting them from moisture seepage from wet pallets.

U.S. Maritime Administration

The U.S. Maritime Administration signed an agreement to place cadets from the U.S. Maritime Academies on vessels trading internationally. That change will help ease the global shortage of licensed mariners and will increase employment opportunities for U.S. cadets by increasing the numbers of vessels upon which they work and by helping them gain international experience, therefore making them more valuable to potential employers. In addition to exposing cadets to the nuances that can smooth operations in international ports, this change also increases the numbers of American eyes and ears throughout the world. That, in turn, subtly enhances carrier and port security by increasing the opportunities to spot irregularities or potentially dangerous crew chatter.

CARVER+Shock

Finding vulnerabilities in the food supply chain is the purpose of CARVER+Shock, a series of interactive questions designed by the FDA and Sandia National Laboratories. The exercise teaches users to think like an attacker and to use those insights to better protect their assets. The lengthy questionnaire delves into the details of a company’s own specific supply chain operations and processing systems, simulating a day-long on-site FDA inspection and conversations with FDA experts. Vulnerabilities are rated on a scale of 1 to 10 to help food processors proactively prioritize vulnerabilities that range from accidents and natural events to terrorism. The program is available for free downloading at http://www.cfsan.fda.gov/~dms/vltcarv.html.