DC Velocity - March 2011

newsworthy

Supply chain managers wary about the future

EVEN BEFORE THE UNREST IN NORTH AFRICA BEGAN TO SPREAD around the region, causing oil prices to spike, supply chain managers who took part in a survey on operating risks indicated they were uneasy at best about what lay in store for them.

More than 60 percent of the respondents to a survey conducted by the Tompkins Supply Chain Consortium said they felt more uncertain about future risk than they did one or two years ago, while another quarter said they viewed risk pretty much the same way they had in the past. The larger the company, the greater the level of doubt: 78 percent of those categorized by Tompkins as working for “mega-companies” said their level of uncertainty had risen. That compares to 54 percent of the respondents from small companies and 55 percent of those from medium-sized companies.

“Overall, the data suggest that the larger the company, the more complexity, which creates more areas for uncertainty,” wrote Bruce Tompkins and Chris Ferrell, the authors of the report, Uncertainty Is Certain: Perceptions of Future Risk on the Rise.

So what, exactly, are they uncertain about? Asked to rank the areas of highest concern, the survey participants put planning at the top of the list, followed by sourcing, sales and customer service, transportation, and manufacturing.

“With the last two years being uniquely difficult and impossible to pre-
dict, it is not surprising that planning and sales are high on the list,” the
authors commented. They added that the respondents’ concerns about
sourcing were also to be expected, given that “the economy has made sup-
plier relationships very difficult to maintain and a significant number of
companies have gone out of business.”
Uncertainty about what the future holds for supply chains appears to be
affecting businesses in ways that are all too concrete. When asked to evalu-
ate the impact of uncertainty on their supply chain operations, the majori-
ty of respondents said it was adding cost, increasing inventories, lengthen-
ing lead times, and reducing speed to market.

“Not understanding the past and present, which reduces
the ability to predict the future for supply chain practices,
The Tompkins Supply Chain Consortium is an arm of
the consulting firm Tompkins Associates. Its members,

400-plus companies from the retail, manufacturing, and wholesale/distribution sectors, participate in a range of benchmarking and other supply chain studies. ;

—Peter Bradley

Interested in opening a distribution center in Sioux Falls, S.D.? Expect to land a good deal. Looking to establish a DC presence in Sunnyvale/San Jose, Calif.? Bring a fat wallet.

According to a recent report on DC operating costs from consulting firm The Boyd Co., Sioux Falls had the lowest cost profile of the 50 North American cities surveyed. Boyd’s analysis showed that the annual cost of operating a hypothetical 175,000- square-foot warehouse employing 75 hourly workers in Sioux Falls would be $7.4 million. By contrast, the cost for a comparable operation in Sunnyvale/ San Jose would be $12.6 million.

The highest-cost markets behind Sunnyvale/San Jose were Orange County, Calif.; Toronto; Los Angeles/ Long Beach; and the New Jersey Meadowlands area. At the opposite end of the price spectrum, Louisville, Ky., was the second cheapest market behind Sioux Falls. It was followed by Omaha, Neb.; Greenville/Spartanburg, S.C.; and Shreveport, La.

Louisville is the prototype of an attractive U.S. industrial property market, said John Boyd, the firm’s principal. The area has relatively low operating expenses supported by close proximity to the nation’s interstate highway system, a temperate climate, and reasonable labor costs.

The report also showed that the effects of the real estate bust are still being felt in some regions of the country. Construction and land rates in markets in Nevada, Arizona, and Florida, states hit hard by the sharp downturn in real estate values, are down 40 to 60 percent from levels seen two or three years ago, according to Boyd. Recently, however, these cost declines have been partially offset by higher freight rates and fuel costs, he said.