This month WORLD TRADE salutes supply chain technology innovation. There are interesting aspects of innovation apart from technology, although we would be remiss not to underscore the importance of technological innovation in virtually all aspects of the supply chain.

At the annual meeting of IMRA (the International Mass Retailers' Association) in Orlando, the members agreed that their most important element for supply chain success was collaboration with vendors, customers and other participants in the chain. The idea of using the collective knowledge of these companies in creating more accurate forecasts, preparing for exceptions, building flexibility and quantifying supply chain impacts, is itself an innovation compared to the way that business has been done for decades in the transportation and logistics fields.

Technology enables the collaboration process to take place, but the innovation lies in the communications process. Collaboration provides a visibility to supply chain elements and to decision making parameters that can improve significantly the odds of a successful decision. From a top down management viewpoint, what can be a better measure of innovation?

Evidence of the global supply chain as an innovation itself within industry is revealed in the number of companies and industries finding the best source of supply, even if it includes relocating their own factories from the U.S., Mexico and other locations, to Asia, particularly China.

Without the international supply chain as a tool, this restructuring of sourcing could not have taken place. Thus, we at Manalytics submit that the global supply chain is in innovation in itself. We do not see this trend slackening, despite the impact of war (at the time of this writing) or global recession.

We forecast China to surpass the 70 percent mark in this decade as the source of products purchased in Asia by America. Given the size of this trade, this amount is a huge share and would never have been possible without a robust Pacific logistics network. Collaboration between the providers allows shippers to have confidence that sourcing in China will work for their companies.

In fact, quantifying and stressing the importance of the supply chain are leading factors for companies making the decision to source or move production offshore. How much inventory is needed in a pipeline 7,000 miles long and with certain characteristics for uncertainty compared to the economic advantage of cheaper goods produced offshore? Modern economic and simulation tools enable management to evaluate various sourcing scenarios along with their supporting supply chains. Therefore, the advantages of one source strategy, and the associated sensitivities, can be assessed. This capability is innovation as well.

What is the outlook for trade in the Pacific this year, especially in the context of such a strong import market for 2002? Most economists predict a relatively firm import environment, consistent with the near 10 percent levels historically, and some slight strengthening of exports to Asia. With a leveling (in relative terms) of the inflow of new ship tonnage into the Pacific in 2003, the balance between supply and demand should come back toward the center, meaning support for increased ocean freight rates.

But, perhaps more significant to the calculations is the impact of the summation of the eastbound plus westbound trades to carriers, and the likelihood that the trade imbalance will continue near its record two-to-one ratio. Given their precarious financial performance of the last few years, the carriers have no place to go other than getting the import shipment to subsidize the empty repositioning and imbalance costs. And with supply and demand on the import side balancing out, the carriers will have support in closing the gap on their overall economics.

Sidebar
West Coast Shipping Intelligencer: The Cunningham Report is a must-read
By Patrick Burnson

Long Beach -- In the golden age of container shipping, circa 1970-95, scores of trade magazines competed with one another by publishing intelligence along with their fixed liner schedules. Here on the West Coast, anyone doing business in the transpacific lanes was compelled to subscribe to at least one weekly magazine or daily newspaper covering nothing but waterfront and regional trade issues.

With the consolidation of carriers, though, all that has changed. By the end of the last century, there remained only a handful of major container lines, and even those offering breakbulk service were teaming up on schedule advertising.

Concurrent with this trend came the decline in trade publishing. It soon became clear that importers and exporters could rely on the carriers and ports themselves for web-based schedule information and promotional notices. What these services lacked, however, was any objective perspective on the business of transpacific shipping.

Then along came The Cunningham Report. Originally conceived as a fax-blast medium, the weekly newsletter soon evolved towards a simple, yet elegant email instrument. It was the inspired creation of George and Carmela Cunningham, the husband/wife team, which anticipated the need for insightful (and often irreverent) news designed to engage and inform a Pacific Rim audience.

Tom Teofilo, a senior advisor and consultant, and former CEO of the World Trade Center Association in Los Angeles and Long Beach, told World Trade: "When The Cunningham Report replaced compendiums like the Daily Commercial News, it simultaneously adapted to the newest electronic form of communication." Furthermore, says Teofilo, The Cunningham Report is succinct and user-friendly. "Their writing style with short paragraphs, salient points and essentially a 'just the facts' format, makes the newsletter an informative must-read every Monday morning before tackling other inbox items. I have found this and their daily flash updates an invaluable resource."

George Cunningham keeps things light by introducing each week's report with a wry observation-usually completely unrelated to trade or transportation. "Did you ever notice how the names of things keep changing?" he asks recently. "Like when we were kids, all the cars, even the really mundane sedans, had macho names-the Plymouth Fury, the Ford Falcon, the Oldsmobile Cutlass, and the Mercury Cougar. Then women started buying cars on their own, and the names started changing."

He goes on to describe how the Honda Accord, Toyota Corolla, Nissan Altima, and Cadillac Escalade came into being, while non-macho commodities like vacuum cleaners acquired menacing monikers: the Scorpion, the Shark, the Whirlwind, and the Dirt Devil.

"You can tell a lot from a name," Cunningham says. "Madison Avenue understands this. Women may be willing to spend big bucks on Estee Lauder, but not too many would line up to buy Fran's Wrinkle Cream. Words reflect how you think about things. That's why the TV stations no longer have re-runs. They have encore presentations. Cars are not used, they are previously owned. We are no different. We have decided that being 'old' just doesn't sound right."

Instead, says Cunningham, he and his contemporaries are merely going to become "aged to perfection."

Sidebar: Research Firm Says Global IT Spending To Grow In 2003

Aberdeen expects 2003 to be a modest growth year for the IT industry, following several quarters of negative or anemic growth. The research firm's forecast is for IT spending worldwide to grow about 4% in 2003, up from less than 1% growth in 2002.

According to Aberdeen, "We've witnessed a positive trend in year-over-year quarterly spending growth since the third quarter of 2001. However, we do not see a return to double-digit annual growth rates that we witnessed in the late 1990s and in early 2000. Instead, we forecast a more sustainable growth rate of about 4% to 5% annually through 2006. We simply do not see the compelling reasons for user organizations to spend heavily on technology - whether on new hardware or software or on upgrades to existing technology - that had existed during the years of hyper growth."