Last year with the terrible economy, the retail sector offered a glimpse of where everyone and everything else was. While you may not have understood GDP or the manufacturing index, you could simply go to the deserted shopping mall to get a first-hand look of the economic pit that we had dug. For those in the logistics and transportation industries, the low inventory levels, empty warehouses and disappearing suppliers signaled tough times ahead.

2010 has been better than 2009 if ever so slightly. Even with unemployment still hovering around 10% nationwide, people are beginning to spend again. If you want further proof, look at the sales figures for February, and you’ll see what I mean. Companies such as Target, Nordstrom’s and McDonald’s all report rising sales, the best in two years. In the supply chain, that means inventory levels are poised to ratchet back up again. More consumer demand means the need to have more items on hand. And with the need to stock more items, this leads to more demand by companies to manage their inventories. You can see the impact as stock prices for logistics and transportation companies rise as well.

Having said that, consumers are still struggling with high unemployment, and purchasing decisions are increasingly being made based on price rather than service. To survive, businesses will need to deal with shrinking margins that will shrink even more. However, the harsh reality is that many businesses who have been running inefficient operations won’t survive on razor-thin margins. Struggling during a downturn is difficult, but it’s even more so emerging from a recession within a highly competitive landscape. While some stayed put, others were building up their arsenals. These arsenals not only positioned them to survive on low margins through better efficiencies, but potentially provided them with additional revenue streams.

Looking back at the Depression in the 1920s, examples abound of companies who took risk and succeeded. Most notable is consumer product company, Proctor & Gamble. Instead of throttling down its advertising efforts to cut costs, the company actively pursued new marketing avenues. Soap and candle maker Schaeffer Manufacturing expanded its product offerings to include industrial lubricants, while beer brewing company, Yuengling Brewery diversified by opening a dairy farm to manufacture ice cream.

While rising sales are great for some, others will certainly be lost along the way. Are you thinking ahead? Are you nimble enough to diversify your offerings or develop additional revenue streams? How your company answers those questions will speak volumes.

Vehicle recalls continue to litter the landscape, and you’ve either become desensitized to all the announcements or worried because the vehicle is sitting in your garage as we speak. While we’re well aware of Toyota’s problems, GM and Nissan have announced their own recalls over the past week covering everything from steering wheels to internal fuel sensors. This begs the question: Where does the blame lie?

The answer depends on who you ask and to no surprise, Toyota was quick to lay blame with suppliers. I would anticipate similar responses from the others as well because it is easier to lay blame on others than be fully accountable. The fact is that companies need to assess their own internal policies because the potential problem and the resulting blame tends to be relatively nearby. When it comes to a recall of any magnitude, blame is a two-way street. These companies especially Toyota have adopted manufacturing processes that relied heavily and place responsibility for major components and systems on single suppliers. While cost effective, the approach sacrifices the need for redundancies and quality control. Add to that the pressures for increasing margins and profitability, and you have a recipe for disaster.

The Japanese’s just in time approach has been discussed and emulated to varying degrees over the decades. But, a core component—collaboration—seems to have been overlooked or ignored. The reliance on regular communications and strong relationships with suppliers is particularly important because just in time is highly susceptible to disruptions whether internal or external. In Toyota’s situation, it’s clear that collaboration was minimal, and don’t be surprised if that’s also a weakness with GM, Nissan, and any other large company. No matter what you call your manufacturing process, be it lean, green or just in time, collaboration is essential.

And, regardless of where the blame lies, one thing is for certain: you live and die by the supply chain.

What sickens 76 million people, causes 5,000 deaths and costs $152 billion each year? According to a report by the The Pew Charitable Trusts at Georgetown University, food-borne illnesses such as E. coli and salmonella do, and outbreaks will only get worse over time. It’s a significant problem that can impact anyone and anything regardless of size or strength. Large companies and SMBs can face major setbacks running into the millions as a result of recalls and lawsuits.

The FDA and U.S. Department of Agriculture are the primary gatekeepers along with 15 other departments that ensure the safety of the food supply. As we’ve seen, however, things are falling are through the cracks, which is why the federal government is in the midst of considering legislation to provide these departments with more tools. Other legislation such as the U.S. Food Safety Enhancement Act of 2009 (HR 2749) in the House and a similar Senate version (S510) are making their way through as well.

While this is long overdue, businesses should be stepping up their own efforts to protect themselves and their customers. Government oversight is really only the first step if we’re to curb food-borne illnesses. The more significant part will need to come from businesses willing to adopt traceability measures. In the past, I’ve discussed the importance of supply chain visibility, and traceability is more or less no different.

We’re all familiar with food recalls over the past 12 months, from spinach and beef to baby formula and Girl Scout cookies. But because of the lack of traceability, locating the source of contamination can takes months if ever to identify. This is not only time consuming and resource intensive, but raises the possibility for future contamination and an ongoing circle of food-borne illness.

Developing a greener supply chain has been discussed for years, but it really didn’t gain much traction until the fuel crisis that started about 20 months ago. When fuel prices were through the roof, everyone from the supply chain to the soccer mom was in an uproar about the adverse effects on one’s well being. Rants focusing on the need for alternative fuel sources were common, and the overuse of the word “green” would’ve made any leprechaun happy.

Alas, we have short memories as the chaos gave way to a mild roar with the decline of fuel prices. Of course, we’ve used the recession as an excuse for not adopting green policies, which is why it’s noteworthy when a company such as Wal-Mart continues to expand its greenness. According to a recent article, Wal-Mart instituted a new program that would pressure its suppliers to adopt green measures within their manufacturing and packaging processes.

Is this a good thing? Long term, the benefits can be significant due to reduced energy and fuel usage, less waste, and more efficient transit times among others. Ultimately, this can be a boon to Wal-Mart customers as savings as passed along, making items more affordable.

Having said all that, managing manufacturing and inventory via green initiatives can have some repercussions. In the short term, some in Wal-Mart’s supply chain will suffer growing pains as they reevaluate and redo processes. Changing existing processes such as product design for example can be costly, made only more difficult with the shaky economy. While Wal-Mart is already known for providing low-cost items, this means that many within its supply chain already suffer from low margins. Forcing green initiatives on partners who barely make a profit may push some into further cutting corners, thus lowering product quality.

Wal-Mart’s green initiatives are admirable and necessary, but the company would also be wise to balance those initiatives and collaborate closely with suppliers to lessen the immediate impact. We’ve seen what cutting corners in the name of cost savings can do, and the last thing you want is to force suppliers into that situation. Who ultimately suffers? Once again, the consumer does with lower quality products that have shorter life spans.

For the longest time, Toyota’s lean supply chain approach served as the role model for other auto manufacturers. During congressional testimony this week, financial growth clouded its priorities replacing the customer satisfaction philosophy it had followed for decades. The Economist published an article today that provides an overview of the inner workings of Toyota and what went wrong. Two words sum up the rise and fall of Toyota: trust and visibility.

Back in business school, “just in time” was a concept that was drilled into me through case studies that exemplified the economic success of Japan during the 1980s. But Toyota’s current troubles highlight not the deficiencies of the concept, but weaknesses in business judgment. Western automakers tend to source in-house or follow the lowest bidder model. Toyota and many Japanese manufacturers, on the other hand, tend to work with a select group of suppliers and rely on them as a sole source of specific components. Conceptually, this promotes collaboration with an inherently stronger relationship.

The problem with Toyota isn’t the just in time concept—it’s the execution. The saying “A chain is only as strong as the weakest link” applies wholeheartedly in this case because it is the weakest parts of Toyota’s supply chain that have failed. Just in time only works when there is transparency and visibility with partners and customers. The breakdown in that chain is painfully obvious. The situation was further exacerbated by the company’s emphasis on strong growth because newer suppliers were added to the network that were either fragile or didn’t adhere to Toyota’s culture. That becomes a tremendous risk when you’re sole sourcing parts with no redundancies in place. Coupled with the lack of visibility, and Toyota’s troubles were only a matter of time.

Whether following the just in time model or using the lowest bidder approach, one thing is for certain, you better have an intimate knowledge of your suppliers’ activities. If not, you may become a case study for the next generation of business school candidates…and not in a good way.

Jason Busch of Spend Matters wrote an interesting post on his blog yesterday about Apple and its supply chain. More specifically, the story focuses on one of Apple’s manufacturing plants in Longhua, China where it’s not uncommon for security and even local police to mentally and physically intimidate reporters and anyone else who attempts to take pictures outside of the facilities entrance. Furthermore, there is an assumed special authority that the facility’s security team has to enforce laws any way they want.

Regardless of what is actually going on out there, these type of reports are somewhat disturbing and as Jason mentioned, highlight supply chain risk. I’m not sure you can assume that Apple actually knows what’s going on at its manufacturing facilities, and if they do, they don’t seem to care. Whatever the case, Apple automatically becomes accountable—guilty by association would be an understatement. Let’s assume Apple doesn’t know. They could be vilified based on the actions of a partner. That’s what most companies face if they don’t have a clear picture of whom and what is in their supply chain. You can be the most socially conscientious company in the world, and all it takes is some questionable activities by customers or partners along with a dose of ignorance or apathy to take you down a notch.

According to a recent story, truck cargo thefts were up significantly in 2009 and compounded by that fact that freight shipments were already low due to the recession. LoJack Supply Chain Integrity first released a report last August and now FreightWatch International reaffirms the growing number of thefts up 300% from the previous year. While 300% is an astounding number, consider all the thefts that weren’t reported since most companies tend to keep such incidents quiet.

It didn't matter if it was trucks or locked facilities. Thieves weren't exactly picky with electronics and food/beverage being primary targets. Think facilities with surveillance and trucks with tracking devices were any safer? Think again. Most thieves simply steal and hide trailers unattended to check for hidden tracking devices.

The importance of proper inventory management and knowledge about your supply chain from beginning to end is emphasized even more. Whether the inventory is sitting in a warehouse or in a trailer, your business is vulnerable especially if you’re not tracking it in a meaningful way. Outside of building your facility in the spirit of Fort Knox, there is no foolproof protection. But, you can make things more difficult for thieves through monitoring and accountability. If accuracy isn’t your strong point, then you’re already behind the curve.

What does taking a cruise have to do with the supply chain? More than you think especially if you get sick during a trip. Florida-based West International Medical Supplies is a leading medical supplies company for the cruise ship industry. The company is also a SmartTurn customer who has seen significant financial benefits which we announced in a press release today.

With the major cruise lines headquartered in Florida, locating there is a huge competitive advantage. From a practical standpoint, West International is only one of a few that can actually be located there. Why? Because of Florida’s strict compliance issues.

Florida has one of the strictest sets of compliance regulations in the U.S. when it comes to the transport of medical supplies. They are so restrictive that West International’s competitors locate operations outside of the state to skirt them.

Where does SmartTurn come in? West International uses SmartTurn to ensure compliance and traceability, allowing West International to be the only one that can deliver same day to its cruise line customers while its nearest competitors are 5,000 miles away.

Think that doesn’t make a difference? Ironically, just today there was news of an illness outbreak on a cruise ship which sickened more than 400 passengers. I’m sure those passengers were glad to know that their cruise ship had ample medical supplies with additional rations nearby.

Over the past few weeks, many people have become reacquainted with the term “recall”. From Toyotas and Tylenol to jewelry and ground beef, I don’t recall (no pun intended) a time where such a wide variety of items impacted so many. Consumers ultimately are the ones who face the most risk when it comes to health and safety, while companies risk damaged reputations and financial Armageddon.

While companies such as Toyota get hammered in the media, who do you think is facing the most scrutiny behind the scenes? You guessed it—the suppliers. Industry Week published an article by Dun & Bradstreet that highlights the minefield we face. While most probably still don’t treat collaboration and visibility with the urgency they deserve, recent events only further highlight that need. Considering that the Toyota supply chain network is among the best in the industry, it really paints trouble for the majority of today’s companies who are literally one misstep away from disaster.

Like it or not, the supply chain is a giant web where the impact reverberates throughout. But, the heart of the problem can be summed up this way—mistrust and indifference. While it can be swept under the rug in the short term, the lack of consistent communication in the supply chain eventually comes back to haunt you. Suppliers and manufacturers who fall into this trap are generally not on the same page when it comes to meeting goals and delivering value. Think about it, a typical supplier may focus on inventory management and provide the parts, but probably has no idea or even cares where the end product winds up.

One area I’ve discussed in the past is the importance of data. Do you have any idea how your business partners are faring in this economy? You may run a financially tight ship when it comes to warehouse management, but are your partners? Are they on the verge of failing? While supplier failures are bound to happen, the last thing any company can afford is to be impaired by the failure of suppliers, only made worse because of the lack of awareness.

I remember when business was done with a handshake. In today’s world of supply chain risks, protecting yourself wouldn’t be a bad thing either.

According to a study by CompTIA, a leading IT trade association, 30% of small businesses plan to implement SaaS solutions this year due to two main reasons: lower costs and competitive advantage. In addition, while buying hardware and software accounted the bulk of purchases in years past, many are turning their attention to better leverage their existing IT infrastructure to drive revenue generation.

More SMBs are focusing on technology that not only drives revenues, but produces immediate results and impacts the customer’s experience. In general, IT spending will still remain flat which makes SaaS a strategic investment because of its inherent low cost. Many are making to the move to enhance how they deal with customers.

Brand equity will be important to IT purchases with many limiting their purchases to brand names. In addition, they will focus on fewer vendors and partners with more than half (56%) stating that they will buy from a single vendor or partner.

Separately, Robert Half recently conducted a survey involving 1,400 CIOs that 43% of them believe there IT departments are severely understaffed based on their current workloads. Combine this with Gartner’s survey where 62% believe IT will be a "key element" in their companies' post-recession recovery, and IT could be in for some trouble.

All of these studies point to SaaS’ rise within the IT landscape. With limited budgets and understaffed IT departments, companies, especially SMBs, still need to continue to expand in an ever-competitive business environment while improving customer satisfaction. Any viable strategy needs to include SaaS and managed services to some degree.

Earlier this week, AP and the Wall Street Journal reported on tainted milk powder being sold in China. Sound like déjà vu? Tons of the milk powder was tainted with melamine in order to meet nutritional requirements and trick lab tests. The result was deadly and threatened the lives of hundreds of thousands of children. What makes this story particularly heinous is that while it was recalled and supposedly destroyed back in 2008, the powder was actually repackaged and sold in markets—in 2010.

This incident not only highlights the need for vigilance and tighter controls in food traceability, it emphasizes the human element. China has had quality assurance issues for years, and they’ve certainly been at the forefront the past few months with cadmium-laced jewelry and lead-based toys. But, the bigger picture is that we live in a global economy where incidents such as these have an exponential impact on lives where supply chain risk is greater now than it ever was. While the technology exists to increase visibility and mitigate threats, much of the risk comes not from nature but unfortunately from man-made causes.

Have we forgotten how to be competitive and innovative? There are times when I wonder about that whether it’s from speaking with customers or simply hearing about the state of business. From staffers all the way up the food chain to executives, everyone has the lingo down pat (“synergy”, “streamline”, “forward thinking”). But are we thinking successfully or are we really struggling behind a façade? Even government is struggling to come up with creative ways to address issues, and their actions often result in more long-term consequences.

The root of the problem is this: we are set in our ways becoming too comfortable with the “that’s the way it’s done” mindset. Sure, it’s relatively easier at least until you see the competition consistently beating you, and eventually, they’re so far ahead, you’re no longer is their rearview mirror.

The logistics industry has always been taken for granted in the business world. Managing inventory and distribution isn’t the most glamorous of jobs, and outside of our industry, most don't care until they face barren shelves or lost shipment. I've said this before: the supply chain is the lifeblood of the economy. And if you're not keeping it healthy, then a world of hurt awaits.

Fundamentally, we limit ourselves. We often don’t stop to consider how else can we do something which almost immediately ties our hands. Fast, good and cheap—if your business can do all three, the chance for success is high, but doesn’t make you invulnerable. And, if you can only do one or two of these things, then you’re already behind the 8-ball.

Another problem is single-mindedness or siloed thinking where you don’t evaluate the entire situation nor reach out to others for feedback--connect the dots if you will. In the logistics industry, if your distribution center isn’t in sync with your overall business objectives, then you're already at a disadvantage. For example, social networking and green thinking are being adopted within organizations. Are you still on the sidelines figuring out what your strategy will be? Or, have you implemented pieces here and there?

Peter Sheahan, author of Flip, sums this up nicely, “I think it is really important for people to ask themselves, if I were starting from scratch now—no legacy IT systems, no legacy capital investment—how would I design this? I would start there and move my way into what is appropriate, what is cost prohibitive, what is not—basically stepping back and saying, "Wait a second, how else could we do this? Is there another way?"

We may look up at companies such as Wal-Mart, Samsung and LG as success stories, but keep in mind, it wasn’t too long ago when Sony, GE and even Toyota were considered the cream of the crop. If you’re not constantly evolving or innovating to stay ahead of the competition, then you soon fall into another category: also-ran.

By now, the tech world has heard about the meanderings of SAP culminated this past weekend with the departure of CEO Leo Apotheker. Depending on what news outlet you follow, Apotheker was either the scapegoat for a company struggling to keep up or the root cause of an organization that has lost its vision. Regardless of what the opinion of SAP, it’s universal that the company is in panic mode, and whether two new co-CEOs will change that remains to be seen.

A huge part of the problem for SAP is related to its technology and the lack of any viable cloud computing/SaaS strategy for the SMB market. It’s Business ByDesign offerings have been uninspiring and even if they weren’t, are still 18-24 months behind those of its competitors in terms of development. My friend Dennis Howlett at ZDNet wrote a rather blunt article today critical of SAP’s indecisiveness while ReadWrite specifically cited the SaaS strategy. From its muddled messaging to a confusing online business strategy, these things have contributed to poor employee morale and demonstrating a lack of vision. The company has a war chest, and it needs to spend it wisely and decisively to build out its SaaS offerings with acquisitions looking to be the most viable route.

All in all, SAP needs to narrow its focus in all aspects of its business quickly if it’s to remain a competitive and credible player. And, it’s a lesson that companies would do well to heed in this quickly changing landscape.

Over the past 6 days, Toyota has been in the minds of the media and the consumer for the wrong reasons. When you buy a new car or truck, recalls tend to come with the package. In Toyota’s case, however, the recalls involving sticky accelerators have become a slowly tightening noose. Last year, Toyota was the #1 auto manufacturer in the world, and in this still very young 2010, its fortunes have turned as its market share and stock price have tanked.

Don’t get me wrong, I think Toyota has done everything possible to address the issue from closing assembly lines to getting parts out to plants and dealers. In fact, the Toyota lean manufacturing techniques are considered some of the best in supply chain management.

But one area that Toyota has struggled is in the area of communication. We know, or should at least, that perception plays a significant part in how we view a company’s reputation. That’s why the kid in class who constantly goes out of his way to ingratiate himself with the teacher often is viewed more positively than the other kid who simply does his school work and keeps to himself. Toyota has not done a mediocre job of communicating with its plants or those on the frontline, the dealerships. From news reports, it was clear that many were left out of the loop. You can imagine what consumers are feeling since they’re relying on sensationalist media stories as their information source.

Managing inventory is so much more than figuring out how many boxes are sitting in the warehouse or on a truck. It’s about collaborating with partners which include everyone from those driving forklifts to those forking over dollars at the cash register. Knowing where something is at, but being unable to share that information makes your supply chain vulnerable.

As someone who has dealt with crisis management, I can say that disseminating as much information as early as possible is key. The longer you wait, the less control you have over that information, and the more likely, it will be distorted. While this sounds obvious, too many examples exist where this just doesn’t happen. Whether or not Toyota had the information and simply didn’t get it out there to the masses remains to be seen. Either way, perception is shaping Toyota’s reputation as we speak. Do you know what your customers think about you?

A popular saying is “There is no such thing as bad publicity.” Ask Toyota if that’s true.

Industry Week today reported that almost one-third of SMBs plan to implement SaaS-based solutions this year, an increase from 22% in 2009. According to IT research firm CompTIA, this is due in large part to the fact that 42% of SMBs do not have an IT department, making managed services an ideal option. And, SaaS solutions that have a direct impact on the bottom line and improve customer satisfaction have the most likelihood for adoption.

Key Findings

• 30% of SMBs plan to invest in SaaS solutions in 2010
• 42% of SMBs do not have an IT department
• Most wanted SaaS solutions are those that improve revenues and customer experience
• About 80% of the SMBs consider the usage of ERP, CRM and online e-commerce capabilities as strategic to their business
  

Regardless of whether or not you're an SMB, it sounds like the maturity of SaaS combined with its cost-reducing benefits is gaining traction. And, it's your decision whether SaaS is right for your organization and whether the competition already has the advantage.