Chain of Thought

Material Handling Industry Must Take Bold Action

I'm in lovely Palm Springs, California this week attending the annual meeting of the Material Handling Industry of America. I know my surroundings are lovely because I take long glances out the conference hall's window's between the sessions I've been sitting in since Sunday morning. I'm in good company, though. The leaders of the material handling industry have been learning a lot at this year's conference because they've been listening to thought leaders address strategic business issues during the first ever Executive Conference held at the annual meeting.

During these sessions a collection of futurists, industrialists and management consultants have been talking about how the material handling industry and its customers must re-invent themselves as they come out of the world economic recession.

One of the speakers was the internationally-known supply chain consultant Jim Tompkins, president of Tompkins Associates. He's also famous for being blunt and honest, and he lived up to that reputation by telling his colleagues that the Material Handling Industry, although great, is not a leader when it comes to taking bold action. (he made an exception for Modex, the new logistics trade show that will take place in Atlanta in 2012). However, the core message he sent to his audience was not to fall prey to the protectionist movement. We are in a global economy and we need to embrace the concept of creative destruction—doing away with old business models that don't apply to our global economy.

“It's the cycle of life,” he said. “Low-skill, low paying jobs are being destroyed. We need to create smart jobs. Globalism results in huge advances if free markets are allowed to work. The fact that fewer people are working in agriculture and industry is good. It means we're being more productive. And the smaller the government, the greater rate of growth. We need to stoke innovation and creativity as we improve productivity.”

Tompkins' talk was actually the wrap-up of the Executive Conference. For the day and a half preceding it, other speakers offered insights into various modes of adaptation and survival.

Futurist Bob Treadway kicked things off, saying that we have such divisiveness in our government that it's an opportunity for the private sector to take initiative. You don't do this by trying to predict what will happen next, but to forecast based on what you know.

“Leave predictions to the economists,” he said. “Organize things into what you're relatively certain of, like global influences, cost controls, Asian and Latin growth, development of the Panama Canal, new regulations and talent needs.”

You can take action around those things. Things you can't affect, you hedge—have a plan B, C, and D. That's what he calls “Flexible foresight,” being prepared for developments, not surprised by them.

He used Columbia Forest Products as an example. It is one of the largest employee owned companies in the US and makes hardwood veneers. Five years ago it looked into new ways to boost profitability. It did so by taking the thickness of their veneers down as the economy was entering recession. This was a smart move but it saw another opportunity to be green at the same time—by replacing the formaldehyde glue they were using with an adhesive made from an amino acid found in mussels and combining it with soy beans. The result was something called Pure Bond. The company won the Presidential Green Chemistry prize in 2007.

Another example of flexible foresight came from Kathryn Zepaltas, of Jackson Family Wines. The company's Napa County, California distribution center is LEED certified at the gold level, which is a bold investment to make in any distribution facility. The site saves enough energy to power 1400 homes and is a great example of land, water, energy and waste management. The company worked with its utility company to develop water conservation measures. Today it recaptures all the water used to rinse out barrels and tanks. It also saves 9 million kW a year, equivalent to CO2 emissions of 750 million gallons of gas. The result is a $450,000 payback on its investment in 1.8 years.

Todd Buchholz, a former White House economic policy advisor and Wall Street executive, applied some lessons from the past to illustrate directions industry must take in the future. His example illustrates the need to see opportunity in every-day situations. A.P. Giannini was such a person. After the San Francisco earthquake in 1906, he saw opportunity on Fisherman's Wharf. The leading banks closed up for six months after the quake. He started the Bank of Italy by bringing cash out to the Wharf and doling out loans. One year later San Francisco was rebuilt. By contrast, New Orleans is still suffering from the effects of Hurricane Katrina after five years.

The lesson here is, the private sector can be a much more powerful and effective change agent than government. And supply chain managers can be leaders in the private sector, said Richard Thompson, ex vp Supply Chain and Logistics Solutions, during his talk. Today supply chain executives report directly to the C-level and their responsibilities can entail aspects of risk management, technology enablement, customer management, mergers and acquisitions and new product design and development. He noted that 75% of freight moves are still by truck, but that, according to Georgia Southern University, rail represents a great opportunity to fill in for the capacity shortage that's sure to arise when the economy comes back full force.

Rail not only has the capacity to fill transportation gaps, but it results in 40-60% lower greenhouse gas emissions than trucks, he said. And to battle the rising cost of transportation smart companies will go to more and smaller distribution facilities and look at packaging alternatives which will not only reduce costs but further contribute to a sustainability strategy by reducing corrugated, cutting product damage and making better use of trucks.

The message I'm taking away from MHIA's first Executive Conference is, you CAN make lemonade out of lemons. Smart supply chain and logistics managers should take advantage of downtimes and slowdowns by developing and investing in bold business strategies such as those discussed here. Calculated risks often yield the highest returns.

Now it's time for me to enjoy some lemonade under the hot California sun.

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