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Logistics, Geography & Demographics for Californians and Other Foreigners

 by BILL WADDELL

It is easy to view a foreign place as one big homogeneous blob if you've never been there, but that is rarely accurate, and the USA is no exception.  For those folks from places like California and Germany, largely unfamiliar with the USA, you should know that almost 2/3 of the people live to the east, between the Mississippi River and the Atlantic Ocean.  In the middle are lots of farms, ranches and wide open spaces with not so many people.  In the west, in between the Rocky Mountains and the Pacific Ocean are a bunch more people (Dude: that's where Huntington Beach is).

So whether you are trying to sell shoes or ATM machines, most of the action is going to be in the east.  To get there from Germany you come in from the right, and to get there from China you come in from the left.

USA Basic 3 
When Warren Buffet bought the Burlington Northern Railroad he probably thought the big risk was on the Chinese economy.  The BN hauls a lot of Chinese stuff from the ports at Long Beach and LA to the big markets in the east.  Turns out the bigger risk might have been betting on the common sense of Californians.

Skechers is building the mother of all distribution centers in the LA area - bigger than 40 football fields, 17 Walmarts, 20% bigger than the Toyota assembly plant in Texas.  This $250 million behemoth is automated to the hilt, so "that human hands will hardly touch the cargo as it is unpacked, categorized, stacked and prepared for delivery."  Containers of shoes from China (where Skechers employs an army of 300 people to ride herd on Chinese contract manufacturers which they use because they want to avoid "the cost of managing a large manufacturing workforce" - go figure) will all be unloaded onto racks in Tyranawarehouse Rex, then the robots and computers will get the shoes back down off the racks and get them ready to load into trucks for shipment - 2,000+ miles east.

Geography, geometry and economics are apparently not part of the curriculum in Huntington Beach schools, so I offer the following for Sketchers management:

Logistics 1 
When they make a hundred long truck shipments from LA to the east, instead of one long rail shipment and a hundred short truck shipments, Warren doesn't make any money, Skechers doesn't make any money, the shoes cost too much ... it is just ugly all the way around.

Californians are the way they are so Skechers is par for the course, but the Germans from Wincor Nixdorf are harder to fathom.  They make high tech ATM machines in a German town called Paderborn - a fine place that happens to be the focal point for American sports in Germany - baseball, real football.  Then they ship them to Austin, Texas via the port of Houston, where they go into an inventory of thousands of machines to be customized, and then shipped - east.

Now Austin is also a fine place and a real techno-boom town.  You can't swing a dead cat in Austin without hitting a nerd, so basing their US operation there is a great idea.  The port of Houston is fine too.  The only negative thing to be said about it is that, well, it's in Houston.

 Logistics 2
As fine as the folks in Austin are, Paderborn is a pretty geeky place in its own right - home of the world's largest computer museum, in fact.  The folks there can customize the machines just fine before they ship them.  Then they wouldn't have to sail past equally fine ports in New York, New Jersey, Baltimore, Virginia, South Carolina and Georgia on their way to Houston,  only to turn around and head back east.  The shortest distance between two points is a straight line - so is the fastest and cheapest distance between two points.

I'm sure the leadership of both companies have reams of data and 'sound' strategic reasons for these convoluted  supply chains.  I'm sure they believe that the likes of me just don't understand the realities and complexities of their businesses and global scope.  Hogwash.

This is the essence of 'head, heart and gut management'.  Don't do anything that defies common sense - no matter what the data shows.  If it is patently illogical on its face, the numbers are clearly wrong, or you have collected the wrong numbers. All facetiousness aside, it is a good idea to chase all of the accountants out of the room from time to time and draw the lines of your logistics on a white board.  If the geometry and geography don't make sense, then any financial data saying it does is flat wrong (and it certainly wouldn't be the first time the accountants got it wrong).

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7 Responses to "Logistics, Geography & Demographics for Californians and Other Foreigners"

  • Robert Gillis
    17 July 2011 - 9:08 pm

    Skechers is mistakenly mentioned 5 times as “Sketchers”.

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    Thanks Robert – I fixed them. Spellcheck can be more of a curse than a blessing when I don’t keep an eye on it:)

    Bill

  • Rob Worth
    18 July 2011 - 2:41 am

    Love the blog, but my finger is poised over the delete key on the RSS feed and will fall very heavily unless you take back the utter rubbish about ‘real football’.

    You do know that we invented baseball here in England? We will not hesitate to take it back if you are not careful in future.

    ;-)

  • Bill Waddell
    18 July 2011 - 3:09 am

    Rob … I’ll give you baseball, but you gotta agree when you said a soccer player could pick up the ball if he wanted to, but the other guy could bash the bejeezus out of him when he did and rugby was created, the game went to another level all together. I have to believe that we Americans took it up even another notch when we said, ‘why stop at just bashing the guy with the ball?’ Let’s let everyone bash each other all the time.

    Regardless, we should all agree that football (either your brand or ours) and rugby (whether league or union) are performed on such a higher plane of human endeavor that ownership of cricket or baseball – or whether anyone bothers to play them at all – is insignificant. (and I say that with all of the respect in the world for my Indian friends).

  • Jeff
    18 July 2011 - 6:40 am

    I wonder if the decision is based on the cost of unloading and distribution on the East coast versus Houston… A little graft, “shrinkage” and union “efficiency” would easily make it a better decision to shift to Houston.

  • Jim Fernandez
    18 July 2011 - 7:44 am

    Jeff makes a good point. I wonder how the unions affect these supply chain decisions. Although, I think there are plenty of unions in California.

  • Jason Morin
    19 July 2011 - 2:15 pm

    Hi Bill,

    I read the article but I’m not clear on how you derived your map of Skechers. I would be shocked if Skechers were shipping everything via truck from LA to the East Coast rather than what you suggest…linehauling it to a main gateway (like Chicago) via rail and then draying or crossdocking it to the final destination via truck.

  • Bill Waddell
    19 July 2011 - 2:25 pm

    Jason,

    They may well be trucking cross country to a single point then cross docking from there. If so, why do you suppose they are unloading containers in Cali to go into a warehouse, then loading onto trucks for cross country shipment, then breaking up the loads in Chicago, then shipping to final destinations?

    It would make far more sense to offload the container onto a train and haul it to Chicago (Rochelle really because nobody wants to take freight into Chicago unless that is the final destination) and putting it into a DC there – or better yet shipping directly to end customers from there.

    The out of a container into a California warehouse then into a truck creates waste no matter what the do to get the freight to the east, when the same freight in the same container could simply go straight east without the stop in Cali. If the reason is because a fourth of the freight stays on the west coast so they have to unload it all to sort of the 25% that has to stay their supply chain is truly a mess.