Steve Geary is adjunct faculty at the University of Tennessee's Haaslam College of Business and is a lecturer at The Gordon Institute at Tufts University. He is the President of the Supply Chain Visions family of companies, consultancies that work across the government sector. Steve is a contributing editor at DC Velocity, and editor-at-large for CSCMP's Supply Chain Quarterly.
A case in point is Afghanistan, a nation that's been living through some sort of civil strife continuously since the 1970s. As the current war winds down (U.S. and international troops are scheduled to depart by the end of 2014), Afghanistan is left contemplating an uncertain future. Years of conflict have taken their toll on the country, leaving much of its physical infrastructure damaged or destroyed. Before its citizens can get on with their lives, a lot of rebuilding will need to take place.
That may not be as simple as it might sound. There are no Home Depots or True Values—that is to say, retail operations with broad reach that stock the tools and supplies needed for building projects. In fact, it's not uncommon to hear stories about construction delays caused by shortages of basic supplies. When advised it would take weeks to get a required item, a building engineer at one project reportedly said, "What we really need is an Ace store around here."
He may soon get his wish. Earlier this year, the Afghanistan Investment and Reconstruction Task Force, an office in the U.S. Department of Commerce, announced that Ace Hardware had reached an agreement with an Afghan corporation to open a franchise in that country. The deal calls for the nation's first Ace Hardware store to open in Mazar-e Sharif, in the northern part of the country, in early 2014. Eventually, the companies expect to open 15 outlets across Afghanistan.
ALL IN THE FAMILY
Ace's partner in the endeavor is Safi & Safi Enterprises, the latest spin-off from the Safi Group, a conglomerate owned and operated by the Safi family. Long prominent in Afghanistan, the family has investments in oil, steel, real estate, and hotels, according to **ital{The Wall Street Journal.} The enterprise also owns an airline, Safi Airways, and is involved in construction businesses, the largest property development project in Afghanistan, and logistics-related ventures. Today, the Safi name is among the most widely recognized in the nation's private sector. According to officials at the U.S. Embassy in Kabul, "The Safis are one of the top families, for sure."
Partnering with local talent is nothing new for Ace Hardware. "We go in with local entrepreneurs who already know the landscape and are used to operating in the country," Bob Moschorak, president of Ace Hardware International, told CNBC. "You have to align yourself always with the right partners; otherwise you are always doomed [to] failure."
The Safis, too, are bullish on the new venture. "What better business than one that provides the tools to help rebuild a society in need of infrastructure?" said Najib Safi, the managing owner of Safi & Safi Enterprises, in an interview with NBC News.
SPOTLIGHT ON LOGISTICS
Press reports suggest that the Safis expect to invest $40 million to $50 million in the Ace Hardware expansion. A significant portion of that will go toward logistics—which will come as no surprise to anyone in the industry. While the business opportunity seems vibrant, the backbone of retail sales lies in logistics. If you can't put it on the shelf reliably, you can't sell it.
But getting it to the shelf won't be easy. Ace's closest distribution center is in Dubai, more than 1,000 miles from Mazar-e Sharif as the crow flies. And there's no easy way to move freight between the two locations. In theory, you could ship from Dubai via Iran, but for a variety of obvious reasons, that option is not available.
That leaves Pakistan as the best alternative. While it's a relatively easy 750-mile sea journey from Dubai to the Port of Karachi in Pakistan, from there, things get dicey. Points of entry into Afghanistan from Pakistan by ground are limited to a handful of mountain passes. The most direct route for intermodal cargo shipped via the Port of Karachi to northern Afghanistan is through the Khyber Pass. However, shippers who use this route have to accept both delay and risk, with attacks, hijackings, and pilferage commonplace. As for the timing, Ace sees a best-case transit time from Karachi to Kabul of about two weeks but is expecting four weeks to be more typical.
Yet it can be done. "Somehow, the successful Afghan businesspeople are able to move things around the country," says Thomas Muenzberg, a foreign commercial service officer at the U.S. Department of Commerce in Kabul. "There are logistics companies that know how to deal with that."
Ace has come to much the same conclusion. "The Safis know more about getting product into Afghanistan than we do," says Brian Cronenwett, vice president, international distribution and logistics at Ace Hardware International.
Ace is taking full advantage of that knowledge. While the company is working closely with its franchisee to manage the transportation network, the inbound shipments to Afghanistan are the responsibility of the Safis. Title transfers when the shipment launches. That takes much of the risk off Ace's shoulders and takes the issue of security out of its hands.
One thing that will work to the Safis' advantage here is the broad sourcing leeway Ace gives its franchisees. The company permits them to incorporate locally made products into their inventory, so long as they meet corporate quality standards—a freedom the Safis could leverage to reduce the amount of cargo they must import through Dubai.
"That got our attention because in that way we can support our local industry and sort of motivate them to bring in their products," Karim Safi, another member of the family, told CNBC. Left unsaid is the advantage of shorter supply lines and avoidance of international border crossings.
MANAGING RISK
All this goes a long way toward explaining why, unlike most retail startups, the Safis chose to begin by opening a distribution center, rather than a store. The distribution facility, which is located in Kabul, will hold buffer stock. For most of us, "just-in-case" inventory is evil, but most of us aren't trying to establish a pipeline with the logistics uncertainty associated with a war zone.
The Safis' grand plan calls for the buildout of its own local sourcing and distribution network, connected to the Ace global network. The Kabul facility, which began receiving shipments this summer, will serve as the anchor for that distribution network. As for how much inventory the site will house, Cronenwett expects the franchisees to adopt a conservative approach to stocking at the outset. "My hunch would be they will start with about 8,000 to 10,000 SKUs."
The next step will be the opening of the store in Mazar-e Sharif in 2014. The franchisee says it chose the location for reasons of both security and geography. "The right place for us was Mazar-e Sharif because it's a secure city and there are a lot of other regional places we can target from there," Najib Safi said in the NBC interview.
As for what's next, the Safis plan to open a second store in Kabul and perhaps Herat after that. And that may be just the start: While the franchise agreement only covers Afghanistan, future northward expansion into the central Asian nations of Uzbekistan, Turkmenistan, and Tajikistan is possible.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.