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Transportation News Bulletins - Logistics

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USPS will not raise rates for market dominant products in 2010
Friday, 16 October 2009 00:00
Postmaster General stresses importance of businesses investing in mail to grow future business.

 WASHINGTON—At a time when it is facing significant cost pressures, the United States Postal Service will not raise rates in 2010 for market dominant products. This was made clear in a letter to USPS customers from Postmaster General John E. Potter.

USPS market dominant products include First-Class Mail, Standard Mail, periodicals, and single piece parcel post. These products, according to Potter, will not have an exigent price increase.

"This is the right decision at the right time for the right reason," said Potter. "Promoting the value of mail and encouraging its continued use is essential for jobs, the economy, and the future of both the Postal Service and the mailing industry.

Potter added that while increasing prices may have generated revenue for the USPS in the short term, the long term effect could drive additional mail out of the system. He also noted that the USPS wants mailers to continue to invest in mail to grow their business, communicate with valued customers, and maintain a strong presence in the marketplace.

Potter also explained that changes in pricing for its competitive products—Priority Mail, Express Mail, Parcel Select, and most international products—are under consideration, with a decision expected to be announced in November.

An industry analyst told LM that by law the USPS can only raise prices for Market Dominant—or non competitive—products, which are primarily transactions under 1 pound, by no greater than the Consumer Price Index (CPI) each May.

"Since the CPI for 2009 is going to be zero (or negative), there is only the option of going to the Postal Rate Commission and asking for exigent or emergency relief," said Jerry Hempstead, president of Orlando-based Hempstead Consulting.

This news comes at a time when the USPS is up against mounting fiscal issues, including a $2.4 billion net loss for the fiscal third quarter, as well as a significant drop off in volume due to a shift from traditional mail delivery to electronic communication alternatives, including e-mailing business documents and online purchase ordering, among other electronic mailing processes. This marked the 11th time in the last 12 fiscal quarters the USPS has had an operational net loss, with a fiscal year-to-date loss of $4.7 billion compared to $1.1 billion during the same timeframe last year.

In the fiscal third quarter, USPS mail volume totaled 41.6 billion pieces, marking a decrease of 7 billion pieces—or 14.3 percent year-over-year. This is its largest consecutive three quarter decline since 1971, with the USPS indicating it is likely to continue for the foreseeable future due to the ongoing electronic diversion of postal mail.

And in late August, the USPS offered thousands of employees a financial incentive—or early buyout before September 30. Hempstead said the USPS will know how many employees will accept the offer by November 1. Under the terms of the buyout, participating USPS employees would receive $10,000 over the first three months of Fiscal Year 2010 and a second payment of $5,000 in Fiscal Year 2011.

The USPS said the majority of employees eligible for the buyout work in mail processing facilities, whereas letter carriers are not eligible due to the fact that the number of addresses increases by about 1.5 million per year. This early retirement plan could save the USPS up to $500 million in labor-related costs next year, with up to 30,000 employees possibly accepting the buyout.

The USPS has taken additional steps to remedy its financial condition that are expected to save it more than $6 billion, including: cutting more than 100 million work hours—the equivalent of 57,000 positions— closing six district offices; a hiring freeze, including USPS officers and executives; potentially closing more than 3,200 of its 34,000 post offices and retail locations, and adjusting Post Office hours to "better reflect customer use," among others.

Even though the USPS says it is on track to hit its 2009 goal of $6 billion in total cost reductions, it is projecting a net loss of more than $7 billion by the end of the fiscal year.

Logistics Management, 10/16/2009

DOT Stimulus Payout Tops $3.65 Billion
Monday, 12 October 2009 00:00
Approvals of state project requests reach nearly $30 billion

Payments by the Department of Transportation to states for infrastructure stimulus projects reached $3.652 billion as of Sept. 30, the administration said.

Those disbursements—mainly in the form of federal funds going to states to cover their payments to construction vendors—grew from $3.14 billion on Sept. 18 and $2.88 billion a week earlier, according to the Web site that tracks spending and project commitment levels under February’s American Recovery and Reinvestment Act.

By far most of the DOT spending is through the Federal Highway Administration, which pushed out more than $2 billion in spending from February through Sept. 25.

Out of about $48 billion in all that DOT will spend under the two-year legislation, it had approved by Sept. 30 projects worth nearly $30 billion, of which $19 billion was through the highway agency. Its actual payouts for bills coming due have escalated sharply in recent months.

DOT has yet to announce grants under its $8 billion funding pool for passenger rail development, including high-speed train corridors, or out of a separate $1.5 billion fund for grants that the transportation secretary deems of national importance.

Journal of Commerce, 10/12/2009

Worldwide demand for microchip products ramps up
Friday, 09 October 2009 00:00

SAN FRANCISCO—Encouraging news on the global high-tech front surfaced late last week as sales of semiconductors surged at the end of the year’s third quarter.

According to the Semiconductor Industry Association (SIA), sales in August were $19.1 billion—an increase of 5 percent from July 2009 when sales were $18.2 billion.

“Continuing recovery of consumer spending led the sixth-consecutive month of sequential growth in semiconductor sales,” said SIA president George Scalise. “Various incentive programs for energy-efficient products, ranging from automobiles to home appliances, have bolstered demand for semiconductors, which deliver critical enabling technology for reducing energy consumption.

The news coincided with signs that air cargo demand is ramping up in the Asia Pacific—a major trade lane for chip commodities.

Sales declined 16.1 percent from August 2008, when sales were $22.7 billion. Sales were up sequentially in all geographic regions. Year-to-date sales through August are down 21.3 percent to $133.8 billion from $170.1 billion at this time last year. The rate of decline has slowed from the first six months of 2009 during which sales declined by 25 percent year-on-year. All monthly sales numbers represent a three-month moving average of global semiconductor sales.

“Growing sales of netbook personal computers, which now account for approximately 17 percent of notebook PC unit sales, have created an important new market segment, filling a gap between ‘smart cell phones’ and conventional laptop PCs,” Scalise continued. “Personal computers have become especially attractive to consumers as average selling prices for PCs have declined by around 14 percent while memory content has increased by 25 percent during the past year. This translates into significantly more computing power at a significantly lower price.” Scalise noted that consumers now account for approximately 50 percent of all PC unit sales.

“Notwithstanding the slow recovery of demand from the enterprise sector, we are encouraged that industry momentum has turned positive following the steepest downturn in more than a decade,” Scalise concluded.

Logistics Management, 10/2009

Logistics Technology: Inventory Optimization: Game of Strategy
Friday, 09 October 2009 00:00

IO technology provides significant ROI, and it isn't as complex as it once was. However, it's yet to gain significant traction among logistics professionals. Our tech correspondent sets the record straight on IO and explains how Dell made a strategic move to put it to good use.

In good times, it's simple enough for shippers to stock up on products that may or may not "fly off the shelves" in a timely fashion. When things get tight, however, inventory management becomes crucial as companies can't afford to tie up precious dollars in stagnant stock. In other words: today, the leaner the better.

Inventory management can be challenging for organizations of all sizes, especially for those with multiechelon distribution networks where inventory resides in multiple locations. Enter inventory optimization (IO), a supply chain software option that's come into its own by helping firms achieve optimal product deployment and improve operational performance by calculating more accurate inventory targets.

Marketed by vendors like Oracle, IBM, JDA, Optiant, SmartOps, SmartTurn, ToolsGroup, and i2 just to name a few, IO software has become an important tool to aid manufacturers and retailers in managing their overall supply chain inventories more efficiently or by helping companies better understand the impact that specific business decisions have on overall inventory investment.

"Inventory optimization technology has moved beyond its previous 'black box' perceptions and has increasingly been adopted and deployed by leading-edge companies," says Simon Ellis, practice director for supply chain strategies at the analyst firm IDC Manufacturing Insights. "Decision processes such as overall sales, inventory, and operations planning (SI&OP); profitable proximity sourcing; and new product innovation can all be aided by this technology as well," he adds.

Sure, this sounds great on paper; but how do logistics and supply chain professionals go about assessing whether now is the right time to make the investment in a tech-based inventory management system? Over the next few pages we'll examine the benefits and challenges that shippers can expect when investing in inventory optimization software. We'll also assess the technology's current status in the marketplace and then look behind the walls of a cutting edge supply chain operator that's currently reaping the rewards of its IO investment.

Gaining Traction?

Inventory optimization software is starting to gain some traction in the marketplace, especially now when more companies are racing to find ways to work smarter, better, and faster—but it's yet to catch fire.

In a recent survey of manufacturers using inventory optimization solutions, Ellis says Manufacturing Insights found that, depending on the specific inventory problem, return on investment for IO can be "significant and meaningful." Deployment typically takes four to six months, with key inventory and related benefits evident in less than 12 months.

Typical business questions that an inventory optimization application can address, according to Ellis, include:

  • How much inventory should I hold of each product?
  • Where is the most cost-efficient point to store that inventory?
  • My products are often seasonal or cyclical in terms of demand, so how do I most efficiently plan and deploy overall inventory?
  • What business policies are driving inventory investment across the entire supply chain?
  • If I must improve service, how much incremental inventory investment will I need?
  • Conversely, if I decrease service levels, how much inventory can I free up?

With the answers to these questions in hand, Noha Tohamy, vice president of research for AMR Research, says that companies will be better equipped to meet the challenges they're facing in today's business environment. "The economy has increased the focus on inventory optimization, as every shipper wants to minimize or optimize working capital," says Tohamy. And despite the rising interest in IO, Tohamy says "we have just scratched the surface from an adoption standpoint."

Ellis concurs, adding that while he expects investment in such applications to grow over the next three years, inventory optimization is "still a relatively small category."

Steve Banker, Boston-based ARC Advisory Group's director of supply chain management, says inventory optimization applications' lack of traction at this stage can be blamed on the fact that the category itself isn't very well understood. Plus, he states, existing demand management systems are constantly being upgraded and enhanced, which means it's only a matter of time before shippers gain inventory optimization capabilities from their existing vendors.

"Companies know that they can just wait around and eventually—the next time they upgrade their supply chain software—they'll get the optimization functionality with it," says Banker.

"Users are going to their vendors of conventional inventory optimization tools to see if there's a way to buy software services from them," says Tohamy, who adds that standalone inventory optimization systems from vendors like SmartOps or Optiant can require multimillion dollar investments to cover both the license and the consulting services.

To circumvent such a large investment, Tohamy says some companies are focusing on the tactical side of the inventory management issue by sourcing goods from low-cost countries, assessing supplier bases on a quarterly or biannual basis, and/or ensuring that organizational goals are properly aligned with inventory management goals across all networks, suppliers, DCs and customers.

"If you have regional DCs that are incentivized to keep inventory low, regardless of whether it's in the overall company's best interest...then you won't be able to optimize inventory levels across your entire multi-echelon network," says Tohamy.

Dell Puts IO to Use

Well known for its innovative manufacturing and distribution strategies, Dell is one shipper benefiting from a global inventory optimization implementation that took place in mid-2008. Based in Round Rock, Texas, and serving a worldwide customer base, the company designs, develops, manufactures, markets, and supports desktop PCs and workstations, notebook computers, servers, networking products, and storage solutions.

Always looking for ways to work smarter, better, and faster, Dell kicked off its inventory management improvement efforts in 2007 with two inventory optimization pilots, including one that spanned the firm's North American operations. "At the time, we were concerned less about the accuracy of the data and more about inventory management and setting policies across our various locations," says Ramesh Rajagopalan, enterprise architect for Dell's global supply chain.

A regionally-specific pilot followed that revealed various misaligned areas within Dell's inventory management system. "In some areas we had too much inventory, and in other parts we had too little," recalls Rajagopalan, adding that the exercise also revealed that replenishment cycles weren't always coordinated with consumption.

Armed with those conclusions—and the prediction that inventory could be reduced from $6 million to $3.5 million, and without affecting service levels—Rajagopalan approached senior management about investing in i2's inventory optimization, a software that was selected based on its "vigorous analytic capabilities," he says. After getting the go ahead, he and his team selected two of Dell's largest parts suppliers and rolled it out to those vendors in February 2008.

Implementation—which Dell refers to as a "process pilot"—took about 90 days, and was focused primarily on managing suppliers and replenishment processes via a constant inventory policy. Over time, that policy would allow Dell to set inventory policies by individual part numbers—and at specific locations across the globe—while managing supplier replenishment based on those target numbers.

By the end of 2008, Rajagopalan was able to show senior management a one-time reduction of inventory of 55 percent of parts from the two initial vendors. The solution was slowly rolled out to the remainder of Dell's supplier base, allowing the manufacturer to more closely integrate with its vendors via a collaborative platform that didn't previously exist.

More importantly, the manufacturer now has a tool that can analyze its supply chain activities and utilize the findings to ferret out root causes and identify potential problems. Having that information in hand helps Dell make good decisions regarding its inventory management, even if it simply means updating materials requirement planning (MRP) and notifying suppliers of those updates.

"There are many simple actions that you can take and that go a long way in effectively managing business processes," says Rajagopalan. "While the inventory optimization tool itself is the enabler, the real benefits for us have come from the simple, corrective actions that produce significant results across the supply chain."

Significant and Growing

In its recent inventory management survey, Aberdeen Group of Boston found that 91 percent of companies are currently reviewing opportunities for improving inventory performance through process changes. Sixty-one percent say they've made—or, have been asked to make—inventory-related technology recommendations within the previous six months.

Whether the need for improved inventory management techniques is being driven by the economy or by companies' growing awareness of the impact that inventory has on the bottom line, the need for solutions that address the issue continues.

Nari Viswanathan, vice president/principal analyst of supply chain with Aberdeen, says the technology vendors that focus less on the technology itself and more on the people and processes involved with inventory optimization are the ones that will gain traction in the marketplace over the next few years. "You can get some incremental benefit by maintaining customer service levels while reducing inventory," he says, "but the biggest advantages come from making structural changes within your supply chain."

While the inventory optimization market is relatively small compared to overall supply chain management (SCM) spending, IDC's Ellis says it's still a "significant and growing" segment. Based on Manufacturing Insights' IT spending taxonomy and vendor tracking, Ellis estimates the current global market for inventory optimization to be about $60 million.

"We believe that over the next five years the segment will experience healthy growth in the 10 percent per year range," says Ellis. "Inventory optimization technology provides significant value, and the technology itself isn't as complex as it once was. Any company that's not at least looking at these options right now is doing itself a disservice."

Logistics Management, 10/2009

Feds examine biodiesel usage
Friday, 09 October 2009 00:00

A federal report suggests Congress should consider requiring a strategy to measure all stages of biodiesel production and if a tax credit should be revised.

The investigative arm of Congress, the General Accountability Office, recently released a biodiesel report. In 2007, Congress expanded the Renewable Fuel Standard, requiring increasing use of ethanol and other biofuels, from 9 billion gallons in 2008 to 36 billion gallons in 2022.

The GAO indicated the U.S. Environmental Protection Agency should develop a strategy to assess lifecycle (cultivation, harvest, transport, conversion, storage, and use) environmental effects of increased biofuels production.

The agency reported that many experts said biofuels production has contributed to increases in crop prices, livestock and poultry feed and, to a lesser extent, food. This trend may continue as the RFS expands.

For the environment, many experts believe that increased biofuels production could impair water quality, reduce water availability, degrade air and soil quality, and hurt wildlife habitat. But the extent of these effects is uncertain and could be mitigated.

Federal agencies should make research a priority on future blend wall issues, experts said. U.S. ethanol use is nearing the blend wall, or the amount of ethanol most vehicles can use, given the EPA’s 10 percent limit on the ethanol gas content.

Ethanol is highly corrosive and can damage pipelines, tanker trucks, underground storage tanks and above-ground storage tanks, which could in turn lead to releases into the environment that may also contaminate groundwater, according to the report.

Biodiesel, like ethanol, cannot be blended at oil refineries and transported through product pipelines because of contamination concerns. Biodiesel is transported by railroad cars and tanker trucks to fueling stations, which are expensive and slower than using pipeline and add to product cost.

But further R&D on biorefinery processing technologies might lead to price-competitive biofuels compatible with the existing petroleum distribution and storage infrastructure and current U.S. vehicles.

The federal agencies involved in biodiesel oversight generally agreed with the recommendations.

The complete report is available here., 10/9/2009

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