The Business of Investing

Ok, I know this is a logistics blog but I also have a passion for business in general so I thought I would write very quickly about investing.  Warning:  I am a Jack Bogle, index investor who believes there is absolutely no way to beat the market in the long run.  I am reading "Don't Count on It!" by Jack Bogle and he summarizes the simplicity of investing in this way:

A return on a stock / equity investment is simply the addition of:

1) The economics (i.e., growth rate plus dividend yield) and...

2) Speculation / Emotion - This is essentially the change in the P/E ratio over or under the long term averages.

For P/E, he basically says if P/E is under 10 then it is clearly likely to increase and if P/E is around 20 it will likely decrease (of course as all good indexers remind you, you just never know when!).

Applying this very simply, here is what I think of what your or my expectation of stock market returns should be right now:

1) Growth of the entire market is about 2 - 4% (i.e., the GDP0
2) Dividend yield is (Using the vanguard total market ETF as proxy): 1.76%

This means you can plan on "enterprise" returns of 3.76% to 5.76%.  However, the P/E is 8.04 which means you are likely to pick up an additional 2% or so in "emotional or speculative" returns as the P/E reverts to the mean.  So, you should plan on about 5-10% returns on stocks with the middle ground being most likely.  That is a normal expectation.

Impact of High Diesel prices.. Get Ready

Owner operators will exit the business, the "big 3" will get bigger, everything will cost a lot more. Get ready.

Impact of high Diesel prices.

Government to Buy EOBRs for Mexican Trucks

I saw this a few days ago when it was revealed but had not commented until now.  My first reaction was what a disgrace.  How can our tax dollars be used to fund Electronic On Board Recorders (EOBR) on Mexican trucks when US trucking companies are making the investment themselves?  Further, what is the point of this and how will it be managed?

I just read Brian Straight's article over at Fleet Owner titled Tax Dollars Wasted on Mexican Truck EOBRs and there was a bit of a different spin here.  Could this provision be a "poison pill" placed into the agreement by the US Government knowing it will cause huge outcry?  While that is possible, I do not give them that much credit.   I really believe someone in our Government thought this would help the cause by showing how we will be able to track these trucks.  The enforcement just seems massive and the costs outrageous.

In the end, I do not think we will see many of these trucks coming across the border as it is just too complicated.  But, time will tell and if the American trucking industry gets out of hand in terms of cost and low capacity, I suppose this will become our relief valve.

The Logistics Daily is Launched

Get a compilation of my twitter feeds (@logisticsexpert/logisticsindustry) in a newspaper form at the Logistics Daily.

Japanese Tragedy Brings Importance of Logistics to The Front

There has been a raging debate going on over at Linkedin about whether Logistics has lost its importance and luster in the corporation.  I think the devastating tragedy in Japan will put this to bed once and for all as it is clear logistics will drive the recovery in that Country.

For the GIS folks who believe logistics has been displaced with information flow, I would love to see you get water, food, fuel and recovery needs to people who need it with an iPad and some code.  What will solve Japan's crisis and help people in need are trucks, truck drivers, warehouseman and "boots on the ground" not computers.

This puts this debate to bed in my mind.  Computers are a tool for the people who will actually do the work recovering.

My heart and prayers are with the people of Japan AND with those courageous people who will risk their lives to get the food, fuel and medical supplies to those who desperately need it.

Back to Square One - Mexican Carriers in the US

Well, we are back to square one... what was the point of that?  Mexican Carriers Will Be allowed in US

Very Interesting Article in NYT: Does Technology REDUCE The Need for Education?

This is really interesting and it may apply in the logistics' field.  Paul Krugman asks the question if technology reduces the need for an eduction ?  He also cites an article in today's NY Times about software which is making a lot of junior lawyers and paralegals' jobs obsolete (combing through documents during the discovery phase). This article is titled: Armies of Expensive Lawyers, Replaced by Cheaper Software.

So, the question this poses for all of us is as supply chain software gets ever so sophisticated will it reduce the need for much of the higher education currently being used in supply chain management (i.e., Masters in Supply Chain Management, Ops research, etc.).  This is also being debated right now over at Linkedin.  Logistics and supply chain will continue to be extremely important in the firm and the overall structure of a corporation, the question is will the people managing it be that important?

Lack of Posting.. will "Step it up" in 2011

As many return readers have noticed, I have not posted much in a while.  Call it the "holday spirit" and understand I have been swamped both with work and with preparing for the holidays.  No excuse, it just is what it is.  I will be aggressively posting in 2011 with both longer "in depth" posts about subjects and also short "link" type posts as well.

My belief for 2011 for the logisitics' industry is that it will be a year of "blocking and tackling".  This means cost cutting will continue to be paramount along with using logistics as a "wrapper" around a product to become the competitive differentiator.  As I have said before, many products have worked their way to commodities and the way companies will truly differentiate themselves is through logistics.

But, this is not "fancy" logistics. It is the basic blocking and tackling.  Make the order management system very efficient, have availability (my belief is have high availability on a tighter number of SKUS v. having thousands of SKUS which all suffer in some availability), have a lightening fast delivery system, and have the billing and invoicing system be flawless. It is the things of Amazon.com and we all know how successful they have become. (although I will admit they have figured out how to have great availability on huge number of SKUs which really differentiates them).

As 2011 develops we will see if I have to move off my "playbook" but for now that is how I intend to work through the year.  Let's see how we do!!

Have a happy Holiday Season and a very happy New Year!!

Kevin

UPS: We ♥ Logistics Commercial

While a great ad for UPS it also says it all about why I love logistics!

Supply Chains Used As An Extension of The Brand - Part 1

This week I am going to put some thoughts down about whether companies use their supply chain as an extension of their brand or just as an evil necessity that they would rather do without.  I have personally been involved in many companies and I have seen it done many ways.

Here are some characteristics of supply chains when used in the following manner:

1) Used as an extension

• Company does not separate the product from the acquisition experience for the customer. They are intertwined.
• Company puts protection of brand above all else (including cost).
• Company probably does not do a lot of outsourcing in supply chain (Do you want your brand in another person's hands?).
• Company cross trains between marketing, sales, product development and supply chain.
• Company is most likely not "stovepiped". In other words they are not organized around functional silos but rather around products, categories of products or channels / customers.
  

2) Not used as an extension

• The reverse of everything above.
• The customer gets additional feeling of benefiting when dealing with the supply chain. 
• Service is matched to the brand experience the company is going after
• Supply Chain is seen as a cost to be cut. 
• The big one:  When people in the commercial side of the business refer to themselves uniquely as "the business" and the supply chain is just something to execute at the lowest cost imaginable. 

This is just a short list and as I develop my thoughts further I am sure this list will be adjusted and added to.

Can anyone think of a company that makes their supply chain experience part of the brand v other companies which make it just a back office function?

Supply Chain Teams Should Consider Hiring Industrial Engineers

The article below discusses why supply chain teams should consider hiring industrial engineers. I could not agree more. I have a number of them on my team and they are fantastic even beyond the "normal" IE work. Just really good thinkers. The article below describes why.

Supply Chain Teams Should Consider Hiring Industrial Engineers

Thoughts on Cost....

All of us who have been in the industry for a while know the drill.  The expectation is logistics cost as a % of revenue will decrease year over year. This makes a lot of sense especially when you think of leveraging fixed assets.  Obviously, your costs for "back room" type activities should not go up in a linear relationship with your revenue.  If it did then what is the point?

But on the other hand we have to ask ourselves at what point can logistics' services add add to the revenue of the company?  And I do not mean just getting money from shared services (which is all the rage today) but I mean an equation which states that better service leads to higher customer satisfaction which leads to increased sales and higher revenue.  As products become commodities at faster rates than ever before perhaps leading companies should be thinking about the packaging of services around the product as a value add and revenue generator instead of a cost to be cut.

A quick example would be Amazon.com.  Why do you shop there? Do you shop there because they have better products or different products?  The answer is clearly no. They have what everyone else has.  What they have that virtually no one else has is a very convenient and easy order entry, an incredible delivery mechanism, easy returns and real time tracking.  The advantage of Amazon.com is not the products but the services around the products.

What is becoming clearer to me everyday is companies need to be looking at logistics and supply chain as THE competitive advantage.  Unless they have a product that is absolutely unique or not able to be copied due to patents or unique technology, a company needs to look at the services around the product for competitive advantage.

One way NOT to do this is to only ask those who manage those services to cut costs.

Trucking Firms Have Value in Tow

A very good article on the financial situation in the trucking industry from Morningstar.

Trucking Firms Have Value in Tow

Trucking news: Ceridian-UCLA Pulse of Commerce Index down 0.5 percent in September - Article from Logistics Management

Trucking news: Ceridian-UCLA Pulse of Commerce Index down 0.5 percent in September - Article from Logistics Management

Unfortunately, it appears my predictions have been right. As the article states, it looks like inventory has "stalled" on the superhighways. Watching trucking is a great way to get to know what is happening in the economy and it clearly is a leading indicator of things to come. Trucking always picks up early and dies fast which tells you what end of the business cycle we are on.

Some of this cannot be just compared to historical norms as intermodal freight has taken market share from trucks. However, trucking still is the predominant way to move freight especially from DC to store; the true measure of what the customer is pulling through consumption.

Keep an eye on December to determine if the holiday sales take off as planned. If they do not, we are in for a long and cold winter.

Blackberry Storm 2, Motorola Cliq: The Critics Weigh In

For those of you who may be thinking about the Storm 2 blackberry for a business phone forget it. The phone is a disaster. Battery life is horrible and the touch screen is a disaster. Further, the system locks up and is very slow. I cannot believe that I can out type a touch screen phone. I have to wait for it to catch up to me.

Forget the phone... it appears it is a "toy" for those who cannot afford either a Droid X or an iPhone. Putting this phone on the market is an insult to all consumers.

Blackberry Storm 2, Motorola Cliq: The Critics Weigh In

Transportation Capacity is Loosening

Pretty clear from a variety of metrics the capacity crunch of the summer for transportation capacity is over.  I have said many times the inbound volumes for logistics in general have been far bigger than the outbound volumes. This translates into a building of inventory which ultimately ends in the problem we see today:  The transportation network will shutdown.

We are starting to see this slowdown and if the Christmas retail season is slow, we will see a full blown shutdown IMHO.