Logistics customers and the companies that move their goods around the world need to do a better job of talking to each other.
And the more specific they are with each other the more confident they both can be as they seek to back firm judgments about the economy with inventory.
That’s the moral of the story from a 2010 business climate survey by Dunavant Global Distribution Freight Solutions, the logistics division of Memphis-based Dunavant Enterprises Inc.
The survey of logistics customers – either consumer or business – showed 28 percent disagreed with the statement that their supply chain expectations were being met by the outsourcing relationships they had. Another 16 percent said they didn’t know.
“When you dig down deep into this, it’s really about communication,” said Richard McDuffie, chief operating officer for Dunavant’s global logistics group. “It’s setting those expectation up front, having a clear set of measurements and deliverables and monitoring those and making sure you’re meeting those expectations.”
McDuffie said the survey also confirmed that companies have no problem grasping the global nature of what they do and that their supply chains must have a global reach.
In the survey, 68 percent said they already operate internationally.
“It just kind of reinforces we are in a global economy now. There’s no mistake about it,” McDuffie said of the percentage, which surprised him. “You’ve got to think and act globally from a supply chain perspective. It’s just a part of the business now.”
That certainty though, doesn’t make it any easier to increase inventory as a reaction to positive economic indicators including a 3 to 4 percent increase in the gross domestic product.
When the recession went from grim indicators to grim reality, companies quickly cut back inventory and as a result, capacity was lost.
What McDuffie termed a “small capacity constraint,” however, may have worked itself out this past fall and toward the end of 2010. There could be few signs of it left by the spring.
Half of those responding to the Dunavant survey agreed with the statement that they had experienced some resource constraints within their supply chain.
“Last year there was just this initial push to get ready for whatever the new normal was going to be. I think there were a lot of different companies speculating on what that new normal was,” McDuffie said. “Now that we’ve seen a trend for a little bit – the economy’s come back – you’ve seen the GDP be positive for the last two quarters. Now I think the next forecast is what type of growth are we going to see the rest of the year.”
In the survey, 77 percent agreed with the statement that their company has seen an improvement in overall economic conditions in the last year, sparking an “air of cautious confidence.”
McDuffie isn’t the only industry leader pointing to GDP growth as an indicator.
FedEx Freight chief financial officer Don Brown told the Traffic Club of Memphis earlier this month that a GDP increase will help confidence greatly.
“Is it going to have a three around it on the GDP side? Could it even be a four?” McDuffie speculated. “I think that’s going to drive a lot of decisions as far as how people react from an inventory level.”
As they react they will find different pricing pressures dependent on the market they are in.
“If you’re in a retail market right now, you’re getting a lot of pressure on the raw material side on purchases from vendors,” McDuffie said.
In the last year, for instance, cotton prices have more than doubled. Cotton futures were just a few pennies shy of $2 a pound Wednesday. And $3 a gallon gasoline is a fact of life.
“Commodities are just higher,” McDuffie added. “Because of that phenomenon … I think that the consumer and businesses are anticipating some of that inflationary pressure as they negotiate whether you’re buying product on a business-to-consumer basis or a business-to-business basis.”
Dunavant’s 2010 Business Climate Survey can be found at www.dunavant.com.