Logistically Speaking: Feds Tighten the Screws on the Supply Chain

March 7, 2014
“I wish I could pay more and get a worse product,” said no consumer ever.

Have you ever looked at the label on a package of prepared food and thought, “I would gladly pay more for this product if they would report the minimum daily value stats on the left side of the label rather than on the right side?” If so, you’re about to get your wish because the U.S. Food and Drug Administration—having apparently too much time on its hands—has decided that consumers aren’t getting the type of vital information they ought to be getting from the nutrition facts labels. So, the FDA is recommending new labels that, among other things, will increase the font size of how many calories each product contains, swap information on Vitamin D and potassium for Vitamins A and C, and eliminate the “calories from fat” information. These new labels will cost the food industry an estimated $2 billion, which will certainly get passed on to the consumer. And some observers are speculating that the ultimate result of these new regulations will be the usual industry practice of smaller package sizes sold at the same price.

As we reported in our recent 2014 Supply Chain Salary Survey, the number one challenge facing supply chain managers today is the government, especially when it comes to regulations. It doesn’t seem to matter what industry you’re in—some agency has its eye set on making it more difficult for you to do business. Some pointed comments from survey respondents include:

“Government—local and state and federal—does everything it can to get in the way of cost-effective business growth. If you look at the fees and restrictions on manufacturing 30 years ago compared to now, you see what the most difficult challenges are.” (metals producer)

“Local government is more interested in promoting sports and tourist venues than industrial needs. The federal government doesn’t have a clue.” (medical devices manufacturer)

“Manufacturing is coming back but two issues will slow or stop its growth: lack of literate career-ready citizens and the government’s lack of a pro-business policy or the understanding on how to help businesses grow.” (aerospace & defense industry)

“Trying to keep manufacturing in the U.S. with this current political group is hard.” (computers and electronic products manufacturer)

The poster child for unintended consequences from government regulations lately, of course, is the Affordable Care Act, aka ObamaCare, which not only boasts a website that apparently nobody thought to test pre-launch, but which has already had or soon will have a direct and negative effect on employees’ paychecks. According to a recent study of U.S. CFOs conducted by consulting firm Deloitte, nearly 60% of companies are passing along the increased costs of healthcare coverage to their employees, and 8% are reducing their hiring because of ObamaCare.

Medical device manufacturers in particular are feeling the impact of ObamaCare, in the form of an excise tax levied on every medical device sold. The impact of this tax, according to industry estimates, has led to the reduction of 14,000 jobs, as well as caused companies to forego the hiring of 19,000 new employees. Just as troubling, nearly a third of these manufacturers have reduced their R&D investment as a result of the tax, meaning fewer people and resources will be devoted to improving the quality of healthcare technology.

And then there are the latest round of hours of service regulations, which seems to be Washington’s pet strategy to keep as few transportation and distribution vehicles in play as possible. The Federal Motor Carrier Safety Administration’s latest HOS restrictions on truck drivers, for instance, have reduced roughly 3% of available truck capacity. Meanwhile, the Federal Aviation Administration’s new regulations for airline pilots could cost the airline industry at least $6 billion (FAA’s estimate) to implement. In fact, United Airlines cited the new FAA rules as a chief reason why it dropped 60% of its flights out of Cleveland, effectively dropping Cleveland as a hub city. The net effect will be fewer direct flights, longer travel times and higher ticket costs.

Is this any way to run a national supply chain? The constant drumbeat of regulations coming out of Washington, as well as state and local governments, indicates that those in power are confident that they can continue to push through pretty much anything they want, secure in the knowledge that they have the votes and the clout to make it happen. There’s always a reason why onerous regulations get approved, after all, but then again, there’s always a way to restore a sense of balance in the supply chain and that way is through the ballot box, which seems to be the only way to get anybody’s attention in Washington. After all, when it comes to politicians, we’re the buyers and if we don’t like what they’re selling, we can always switch brands.

Follow me on Twitter @supplychaindave.