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Letters to the Editor
The real issue: stock ranging is out of control
I read the article "A little of everything goes a long way" (Quarter 2/2010) with interest and think it misleads the reader in the management of slow-moving items in retail. In my experience, adding range and complexity adds cost and reduces the GMROI (gross margin return on investment). The example given of an electrical category is recognizable from my experience as having a "flat" Pareto curve. However, this shape does not apply in other market segments, where the last 50 percent of the range drives less than 5 percent of sales. The reality is that the example was of a business where the stock plan was excessive and ranging was out of control. In those circumstances it would not be difficult to make the improvements offered. In my opinion, it is unsound to make the generalization that adding range is a "good thing," as the case example is not representative.
Prof. Alan Braithwaite
Chairman, LCP Consulting Ltd.
Berkhamsted, Hertfordshire, U.K.
Contingency planning costs may outweigh the benefits
Your commentary "Supply Chain vs. the Volcano" (Quarter 2/2010) refers to contingency planning for what we can agree would be the most extreme of situations. My reply assumes the same context and doesn't address typical contingency planning efforts.
I found your article "cute" and "interesting" but not grounded in reality. The reality is that no company will pay what it costs to have the type of contingency planning you hint at in your article. The quarter-byquarter, short-term financial performance required by analysts, boards, and shareholders of public companies certainly won't allow it.
Dual sourcing a piece part from Ireland (like the one that shuttered the Nissan plant in Japan) might cost a company an additional 5 to 11 percent more per unit. Then you double your costs of customs brokerage for entries coming from two different countries. Now add costs for local [shipping and handling], administration, and dual accounts payable, throw in the inability to leverage incremental volume, and this probably adds another 40 percent to your transport costs.
Every Fortune 100 company with which I've previously discussed this hypothesis at the executive level had the same reply: "It doesn't make sense." You can't run your supply chain at a 5-percent (or greater) premium for years and years waiting for the unpredictable to happen. And what is the potential payoff? Someone can say, "See, all this extra money we spent saved us during the two- to three-week global crisis." I believe it's been 92 years since the now-famous Eyjafjallajökull last erupted, and the ROI doesn't seem to be close, although I admit that I haven't done the calculations.
My suggestion is, have the best damn supply chain "partner" you can, and you will suffer less of an impact than anyone else during the same crisis. This approach delivers a competitive supply chain advantage for your company every day.
Global Vice President, Client Solutions
Grapevine, Texas, USA
Underwriters set insurance prices
"Danger on the High Seas" (Quarter 4/2009) was an excellent and timely article. The discussion brings the story out of the hypothetical and into real terms to which shippers will be able to relate.
But as an insurance professional, I have one point of editorial criticism: the article states in the section headed "Price of Piracy," "In response, some marine insurance brokers have added US $20,000 per voyage..." Just a fine point, but insurance brokers act as the policyholders' advocates in dealing with the marketplace. It is the underwriters who set pricing, not the brokers.
Vice President Marine
Vista Insurance Partners of Illinois Inc.
Chicago, Illinois, USA
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