Forecast 2008 : Logistics

One doesn't need a Wharton MBA to predict that supplying a growing nation of ravenous consumers is an increasingly good business in which to be.

Luckily for Tennessee, location is an essential ingredient is making a good supply chain hub. Looking at the top-10 metropolitan statistical areas on the annual list of "America's Most Logistics-Friendly Cities," as ranked by Expansion Management and Logistics Today, nearly all, including Nashville, are centrally located.

"From a logistics executive's point of view, this is a great location," says John Mentzer, the nationally fêted leader (2007 International Society of Logistics Armitage Medal) of logistics education at UT-Knoxville, who explains that 65% of the country's population is within a few hours' drive of the state's four MSAs.

Tennessee tied for second in Expansion Management's "Logistics Quotient" rankings with four "5-Star" MSAs: Nashville, Memphis, Knoxville and Chattanooga. Though none were among the elite 99th percentile, they all did improve from last year, a trend Mentzer expects will continue, given Tennessee's predilection for what Mentzer calls clean industries and a stout workforce. Another encouraging factor is the state's top land-grant universities' commitment to logistics education. (UT's is the biggest doctoral program in logistics in the country.)

Indeed, when it comes to logistics, each MSA contributes substantially to the growth of the state's supply-chain reputation. Knoxville has the geographical edge going east, Nashville has the workforce and Memphis has its growing aerotropolis, and of course, FedEx. "Memphis has always been a very strong piece of company's supply chains," says Ernest Nichols, director of supply chain management at the FedEx Institute of Technology at the University of Memphis. "If you need to get product anywhere in the world overnight," Nichols adds, almost quoting FedEx's famed motto. Most major cities have FedEx facilities, but the difference, he says, is that those facilities in Memphis are better, cheaper and more accommodating.

All four cities' lowest ranking on Expansion Management's Logistics Quotient was the same: road infrastructure.

"None of them have an effective beltway system," says Mentzer, warning that until the Tennessee cities get them, truckers will loathe using the routes. "Eventually," he continues, "we'll hit a capacity issue where traffic in Memphis, Nashville, Knoxville and Chattanooga gets so bad it causes logistics executives to decide they won't put a facility there because they can't get their trucks in and out."

Mentzer believes it will take the kind of funding only the federal government has to unclog the congested interstates, and that kind of funding has usually required a state to have its own man either residing at 1600 Pennsylvania Avenue or presiding over one of the houses of Congress.

There is alternative to alternate routes: alternate modes. But that option is just as politically problematic. "In the last 50 years, the lobbying industry in Congress has been much more successful for trucking than water and rail," Mentzer says.

Bright spots, like CN's intermodal project in Memphis need to encourage the state to pursue more of the same, along with more effectively utilizing available waterways, because experts agree that waterways—the Mississippi River in particular—are exponentially better for transport than trucking. Railroads are better still.

To help understand the sizable upsides to phasing-out trucking, consider these figures from Mentzer: Rail moves 400 times the amount of freight a truck can transport for the same gallon of gas. And a truck causes the same road wear as 9,600 cars. That's more freight moved, cheaper and at less cost to public roadways. All things considered, and despite their deserved reputation for being logistics all-stars, breaking into the 99th percentile should remain a challenge for Tennessee's metropolitan Big Four.

Alternate Routes

On the western edge of Tennessee, the innovative, often groundbreaking, research coming from the FedEx Institute of Technology at the University of Memphis continues to pull national headlines as well as investment from both the private and public sector.

Researchers trying unconventional approaches in supply-chain theory could draw national attention unseen since FIT's research in RFID impacted the hospital industry.

"A lot of supply chain is moving products," says Ernest Nichols, director of supply chain management at the FedEx Institute, highlighting recent projects. "We're using the same approaches but in nontraditional applications—namely, moving people."

The work is similar to the groundbreaking concepts pioneered by IBM a couple years ago when the company sold off its PC division and moved more into service and realized supply-chain management working with HR executives could create a more efficient labor management system.

Nichols says the Institute completed a supply-chain study for the Memphis/Shelby County criminal justice system to more efficiently track inventory, which in this case is incarcerated individuals, "from point of arrest to judgment of a case," he says.

Currently his team is working on a project partially sponsored by the U.S. Navy to streamline the supply chain of sailors: from potential recruits, through training processes, to assignment of sailors into the fleet.

"The tools and approaches that companies use to manage their supply chains work very well in this area, too," Nichols explains.

"If, at the end of the chain, you needed 100 people with a specific skill set, but you only have 75, what are you going to do?

"At that point, you can't just put an ad in [the daily newspaper] and hope to find 25 people with the necessary skills."

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