The next time you go to a concert try to appreciate the artistry that went into developing the talents and sounds coming from the stage. The talents can be traced to a combination of family backgrounds and genetics. The sounds are attributable to good musicianship and a global supply chain of the best materials that, when assembled by artisans and delivered into the right hands, produce tones that can’t be found anywhere else.

Add politics to this delicate recipe and the whole thing can collapse like a bad souffle.

That’s what’s happening in this Gibson Guitar debacle I wrote about in my last blog. Gibson imports wood from other countries and assembles their instruments in its Tennessee factories. Last August, Federal agents raided these facilities because of a suspected breach of the Lacey Act. This piece of legislation, originally introduced in 1900 to stop the trade of illegal wild game, was expanded to cover a range of endangered species, both plant and animal. That includes trees—the wood from which goes into thousands of products and byproducts that travel countless global supply chains. It was this complex lineage that made Congress think long and hard before passing this amended legislation.

Over the weekend, the Wall Street Journal reported that other companies like Ikea struggle with this legislation as well, noting that even if the company could comply with Lacey, “the administrative costs and record-keeping requirements would cause its furniture prices to skyrocket,” thanks to the need to trace the origins of every piece of wood that goes into its particle-board.

Ordinarily I would say, that’s tough, Ikea, but if you have endangered—and therefore illegal—trees in that mix of wood chips, policing your product sourcing is the cost of supply chain management. But in Gibson’s case, they’re not even being accused of dealing in banned wood. In fact they’ve proven they sourced the Indian ebony legally. As I mentioned in my last blog, the issue is how “finished” the wood was, according to Indian law.

With plant products being added to the Lacey Act’s scope, supply chain policing has become so complex that it’s not only keeping federal agents busy, but green special interest groups and corporate attorneys are lumbering over Lacey as well. My blog even inspired some heartfelt debate from MH&L’s audience. One reader responded that Gibson’s getting permits and following foreign laws isn’t enough.

“Foreign laws govern other countries and U.S. law governs the U.S., where Gibson brought the wood,” he wrote. “It is entirely possible that U.S. importing regulations were violated and that appropriate taxes were not paid as a result. … It is too easy to point at an enforcement action and say the infraction is not significant enough to pursue. But a law is a law and there are penalties for breaking them.”

So, did Gibson adhere to U.S. law when importing the wood? The fact that the company hasn’t even been charged yet leads to the conclusion that it’s inconclusive. The sticking point seems to be over how “finished” the wood was before leaving India. And according to WSJ, the prime mover behind the Lacey expansion was a British special interest group called the Environmental Investigation Agency, an organization whose apparent goal is to make global sourcing of these plant and animal materials less attractive and to convince manufacturers to deal more locally—in regions over which this organization has more influence on green practices.

In the meantime, Gibson is paying for this lesson in supply chain law via attorney fees and production stoppage—and it won’t be lost on other U.S. importers in other industries, either. And that’s probably the best thing that could come of all this. The lesson is, it’s every supply chain manager’s job to stay on top of the politics and rationale behind international trade laws. Sure, follow the raw materials in your products to their source and make sure no compromises to human dignity or environmental integrity were made. But equally important, follow the special interests to their sources. In short, follow the money.

Gibson Guitar and the Federal Government have something in common. Both of their supply chains are plagued by counterfeits flowing through them. Obviously, the ramifications of phony electronic components in strategic weapons systems are a lot more serious to this country’s population than a shipment of phony electric guitars, but the consequences are just as dire to Gibson’s existence.

During a recent session of the Senate Armed Services Committee hearings, Senator John McCain noted that the committee uncovered over 1,800 incidents of counterfeiting, totaling over 1 million counterfeit electronic parts in the defense supply chain. “It begs the question: if one million counterfeit parts were caught in the supply chain, how many were not?” the Senator asked.

So it amazes me that with so much more iceberg to go after deep in the Defense Dept.’s supply stream that federal authorities, accompanied by armored SWAT teams with automatic weapons, recently invaded three Gibson factories and its Nashville corporate headquarters, terrorizing employees, to issue a warrant under a conservation law called the Lacey Act and strip Gibson of almost all of its imported Indian rosewood and some of the other materials that establish the authenticity of a Gibson guitar.

The issue for the Feds is not phony Gibsons, but how those materials were exported to this country. The Wall Street Journal reported that Gibson insists it got permits and followed foreign laws on exports of finished products, such as the prepared slats of Indian rosewood used on guitar fingerboards. The U.S. government claims the products weren’t finished enough. Does that mean our own government would rather the guitars be “finished” overseas and imported for U.S. consumption rather than have Gibson make their products in America?

Now Gibson has millions of dollars either tied up in seized products or committed to legal fees. “The travesty is that we have not been charged, so there’s no due process here,” said Gibson’s CEO, Henry Juszkiewicz.

It seems that we have warring priorities in our government. Al Will, a retired Marine Colonel and logistics specialist who also happens to be on MH&L’s editorial advisory board, wrote me an angry e-mail about this, likening it to the government’s efforts to thwart Boeing from locating a new production facility in South Carolina because of opposition from the National Labor Relations Board. He called these incidents “outlandish examples of government intrusion into business.”

The Feds are taking action to root out counterfeit electronic components in the DoD chain. For example, one of the Department’s agencies is working with Applied DNA Sciences on an 18 month, million dollar pilot using DNA marking and authentication technology. We’ve reported on this technology and it has great potential for authentication in the private sector as well.

Being authentic is among a company’s best competitive advantages. Phoniness is often the competitive advantage of politicians. U.S. citizens should take up a common cause: accentuate the former, eliminate the latter.

Ever since the economy had its coronary a couple years ago, one line of business has gotten particularly healthy: Turnaround Specialists. These are consultants called in to unclog the arteries of failing companies. This has become such a big business there’s even an association associated with them: The Turnaround Management Association.

Business owners are seeking these professionals out to find ways to salvage their companies. That might involve leaning out the organization—meaning staff cuts. That’s why labor tends to look at turnaround specialists with fear, as “grim reapers,” looking to cut as many heads as possible while still keeping the business alive.

Sometimes a turnaround isn’t the answer—particularly in the material handling and logistics world. An exit is what’s needed. But that’s not a grim reaper’s job. It calls for more of a match maker. John Sidell matches that job description. Many of you may recognize Sidell’s name. He was founder and principal at ESYNC | Transystems—now TranSystems—a material handling systems consulting firm that has some expertise dealing with clients facing fear of the unknown. As such he got to know many of the players in the material handling world—their strengths and weaknesses.

A few years ago he made his own exit from that business and tried retirement. But with the growing demand for business turnaround specialists, Sidell saw promise in becoming a specialized specialist and started New Course, LLC. He sees the material handling industry as one filled with ripe pickings for private equity firms. And he says now is the time for them to do their harvesting (notice I didn’t say reaping).

“Long term, depending on what happens in November 2012, there could be some delay in the convergence between material handling and technology,” he told me. “Right now capital gains are still at 15%. Part of our counsel to business owners with a $20 million business, if there’s an opportunity for us to help them find an exit strategy in the next 12 months, then depending on the structure of the deal they can take advantage of a known low capital gains arrangement. But if they wait, depending on what happens in November, the capital gains tax can go from 15% to 30% and suddenly it just cost them a bunch of money. So for the right people that can be good motivation to sell their business.”

Sidell’s goal long term is to build out a database of the 1000 CEOs/business owners of the companies that are worth up to $100 million on the vendor side in material handling. He wants to be their voice, explaining to potential buyers “here’s what I’m doing and how,” and then help private equity firms find what they’re looking for. If they’re interested in a $25 million company that understand integration and software development, he wants to have a list ready to hand them.

“We can introduce them to the leadership of those firms,” Sidell says. “I’ve built up a network over 20 plus years, and now I want to leverage the hard work we’ve done and help business owners who are looking to exit get teamed up with entities that are looking to make an investment in this space.”

Sidell sees material handling as an underserved market when it comes to arranging business turnarounds. Actually, it seems like he’s more in the business of transitions. Those looking to exit are hoping to make it to the other side with enough money to find a more promising onramp. Whether it leads them to retirement or to another enterprise will depend on infrastructure health—theirs and this country’s. Both will be high on the agenda of whoever voters choose next November.

There’s a big dumpster in my driveway filled with scraps of my past lives. Long story short, my wife and I now live in my childhood home (my folks have long since passed away) and we’re slowly bringing it up to this century’s building codes—one of those being the installation of non-asbestos insulation.

Embarking on this re-insulation project meant emptying our attic and crawl spaces of 50 years’ accumulation of dusty artifacts. Remember the old Boris Karloff version of “The Mummy?” I feel like Imhoptep supervising the excavation of his ancient tomb.

As my sons and I formed a kind of human conveyor between our attic and the dumpster, I noticed items long forgotten—like an old slide projector that once belonged to my grandfather.

I’m sure many of you in charge of large warehouses and distribution centers can relate—you embark on a site improvement project and dig up things that once belonged to someone else? Like maybe U.S. Postal Service pallets and containers?

I’m pretty sure my grandfather isn’t going to come back from the dead demanding the return of his slide projector, but the USPS, although very old, is still very much alive and wants its stuff back.

I didn’t find any old USPS pallets or containers amidst any of my junk, but now would be a good time for you to look through yours. Clyde Witt, the former editor of Material Handling Management (this magazine’s identity in a past life), did a story in the August 2006 issue about how much money the USPS was losing to pilferage and carelessness among shippers. He reported that by March of any year most of the pallets used during the holiday shipping season have returned to USPS warehouses and they can assess their needs for the next heavy mailing season.

Clyde reported at the time that its national “comfort level” was around 500,000 to 700,000 pallets. What it actually ended up with that year was around 100,000 pallets, with 60,000 typical on any day.

It’s 2011 and that problem is still alive and kicking the USPS where it hurts most—in its pocket book. And ultimately, as taxpayers and USPS customers, you and I share in that pain.

Here’s what David Williams, vice president of network operations for the USPS, said about this situation recently:

“The Postal Service spent nearly $50 million this past fiscal year to replace equipment that was never returned. This is a serious issue. We are in a financial crisis and simply cannot afford this type of unnecessary expense. The equipment is federal property and we want it back.”

The USPS is playing good-cop/bad-cop in this situation. Bad-cop reminds equipment pirates and hoarders that the maximum penalty for theft or misuse of its property is a $1,000 fine and three years imprisonment (Title 18 USC 1707). But Good-cop is offering an amnesty period for anyone suddenly realizing they have USPS property and want to do the right thing. They have until Nov. 26 to return it, no questions asked.

Just drop it off at your local Post Office or nearby mail processing and distribution center. You can even arrange to have the USPS pick up large amounts of equipment and/or pallets by sending an email to hqmte@usps.gov, and including “Equipment Pickup Request” in the subject line. Also include your company name, address where the equipment is located, type of mail transport equipment and quantity in the message.

The holidays are coming, and now’s your chance to be the Good-Grinch and return those long lost USPS goodies.

Return their snoofs and their tringlers and fuzzles,

Bring back their pantookas, their dafflers and wuzzles.

Bring everything back by Thanksgiving, and enjoy the food for your feast!

You’ll feel early Christmas cheer as you carve the roast beast!

I think I breathed in too much asbestos this weekend.

Sometimes people come to the blog area of MH&L to read hard-hitting commentaries on various political and workforce issues affecting those who work in material handling and logistics. And then sometimes they come because where else can you go to see a video of live hippopotamuses (hippopatami?) being moved via forklift from one end of a zoo to another?

Here are the details, courtesy of Toyota Material Handling U.S.A.:

Two hippos at the Philadelphia Zoo — Cindy and Unna — were transported in a large crate: 15′ long x 5′ wide x 7″ high. After getting the hippos into the crate, some of which you’ll see in the video, they were moved via a large capacity Toyota lift truck, supplied by United Rentals.

So now that you’ve got the basic setup, here’s the video payoff of “Hippos on the Move”:

Last month we ran a news item saying that businesses’ strategy to keep inventories lean was delaying the start of this year’s peak shipping season. Today the Wall Street Journal reported that we may now see a ramp-up in production to make up for this conservative approach. The real validation for these trends will be how consumers respond to retailers opening their doors at midnight on Black Friday, the official opening of the Christmas shopping season. Will shoppers be stripping the shelves of the latest electronic gadgets?

I’m sure manufacturers in the high-tech/electronics industry are asking themselves the same thing. The logistics strategies they develop in the near term will tell us how they answered that question. Interestingly, the strategies of U.S. manufacturers may be quite different from those of the leading counterparts in Asia. According to an annual survey of this sector sponsored by UPS, senior-level decision makers at high-tech companies in the Asia Pacific region see sustainability initiatives as a key long-term business driver while U.S. companies put it way down on their list.

Sustainability was cited by 24 percent of the respondents and ranked above well-known issues such as cost and responsiveness.

“Sustainability-related findings indicate that companies in Asia are making an investment in corporate social responsibility,” said a UPS analysis released with the study results. “Survey results reveal that projecting a better corporate image is the top driver for companies to engage in sustainable practices. Interestingly, while sustainability is a growing priority in Asia, U.S. companies ranked it as their lowest priority in 2010 with only 19 percent of survey respondents identifying it as a top issue driving change.”

One caveat: while sustainability seems to be the top supply chain driver of change, cost reduction is the No. 1 business priority for companies in Asia, especially as costs increase within the region. The majority (63 percent) of survey respondents identified cost reduction as the top business priority for the next 18 months, and logistics will be the preferred tool for bringing it about.

“Shifts in sourcing strategies will impact high-tech supply chains throughout the Asia Pacific region as well as those in North America, creating long-term implications for the industry on a global level,” said Carla Huang, UPS director of marketing, high-tech/electronics segment. “In an industry where having a flexible and efficient supply chain is essential for meeting rapidly changing customer demands, high-tech companies will need to plan ahead to ensure they have logistics strategies in place that will give them a competitive advantage in a fast-evolving global market.”

That means that while these companies focus on reducing costs, they’d better not sacrifice customer service. In fact, service levels accounted for the most frequent change made over the last two years (63 percent) and the change that most companies plan to make in the next two years (67 percent), according to UPS. Balancing cost reduction against higher service levels is the big logistics challenge. Seventy-one percent of the companies responding ranked “better balance of cost and efficiencies with customer service” as a top supply chain priority over the next three to five years.

One of the biggest costs for any company is transportation. It’s not going down any time soon, so can these companies—at least the ones that identified sustainability as a key business driver—combine their efforts to be green with their efforts to reduce costs? That remains to be seen. However, I saw a recent NPR report that proved this isn’t just a concern of corporate America. Thieves have taken note of these big-business concerns. And what precious commodity are entrepreneurial criminals trying to leverage as a result?

Restaurant grease. Recyclers are finding ways to process the liquid leftovers from our high-fat diets into fuel for vehicles. This has created a market demand that low-rent criminals are trying to supply by ripping off barrels of the stuff that restaurants leave in their back alleys for collection. These thieves then sell it to a renderer or recycler for processing. After the grease has been processed, brokers buy it from renderers and sell it on the commodities market, where it can eventually end up in the transportation sector.

I’m not applauding this trafficking in trans-fats, but it does prove how the desires for profit and a clean environment can coexist.

Bob McIntyre thinks American companies are way overdue for tax reform—and not in a way many of them would like. He thinks many companies have been getting away with murder by finding creative ways out of paying federal taxes. As co-author of a study on this topic and director for the Center for Tax Justice, he cited 30 of the 280 companies studied that paid less than zero in taxes from 2008 through 2010. The most creative tax evader of all was Pepco Holdings, a utility serving the Washington, DC area, which made $229 million in profits last year and claimed $270 million in tax credits. That’s a -118% tax rate. I think even I could afford that.

Apparently Pepco achieved much of its savings through accelerated depreciation, a tax rule that allows companies to write off the equipment they purchase faster than those purchases can wear out. Companies can then deduct from their taxable income the falling value of these investments.

That sounds pretty slick. But for every example of creative accounting on the corporate side, I bet I could find an equally creative example of wordplay on the taxman’s side of the table. There was a good one from the world of material handling recently involving Procter & Gamble. Mind you, this is tax law at the state level, but the taxman’s the taxman, no matter where he resides. It seems Pennsylvania has a sales tax exemption for wrapping supplies purchased or used by a seller of goods.

This exemption specifically excluded returnable containers. The law defines returnable containers as “items designed to deliver property to customers more than one time.” In arguing against this definition, Procter & Gamble threw a number of definitions and industry standards back at the Pennsylvania taxman, and cited 58 years of regulatory history, during which time the Pennsylvania Department of Revenue only described items as “containers” if they had volume, like barrels, boxes and bottles.

The Pennsylvania Commonwealth court agreed with Procter & Gamble that a pallet is not a container. If you stretch the definition, maybe it’s part of a container, but it’s actually more like a floor.

Corporate attorneys from Reed Smith say the court confirmed Procter & Gamble’s assertion, and added that the Department could not choose to read the term “container” out of the statute—in which case any “returnable” wrapping supply would be taxable. Therefore, the attorneys recommend that “any taxpayers who have paid tax based on the Department’s letter ruling should file refund claims.”

Too bad Pepco’s not a Pennsylvania company. If they were they’d probably find a way to deliver their energy on pallets.

Exports seem to be the silver lining in the dark cloud that is the U.S. economy. According to the U.S. Dept. of Commerce Bureau of Economic Analysis, the U.S. exported a record $178 billion in goods and services in July. Over the last 12 months to the beginning of September exports totaled just over $2 trillion. That’s 27.3% higher than the number for 2009.

An article in the Wall Street Journal commented that at this pace the U.S. is set to meet its goal to double exports by 2014 as established by President Obama in his 2010 State of the Union address.

That article appeared the same day I read a white paper from Kewill Inc. on Global Trade Management Best Practices which presented results of a survey the company did. It introduces a few stray clouds into this sunny picture.

While the vast majority of respondents to Kewill’s survey export products internationally, more than half (58%) do zero to 1,000 export shipments per year, which is less than an average of 100 shipments per month. Twenty percent of the respondents do between 1001-5000 exports shipments annually. The study’s authors think this is still a small number and that if companies start living up to President Obama’s goals they may be in for a rude awakening.

One reason the respondents exports are so low could be that many companies are shipping their products directly from contract manufacturing operations. That raises a challenge if they do increase exports because chances are they don’t have sufficient visibility of those shipments—which they’ll need if they are to comply with requirements for maintaining the quality of trade data provided to government authorities for shipments from their contract manufacturers.

“While the exporter of record is likely to be the contract manufacturer, the brand name of the products is quite evident and inaccurate declarations should pose a concern for the companies who own the brand,” the white paper states. “Companies are still not making changes in business processes despite increases in penalties or fines for non-compliance.”

That might be because they know compliance enforcement is understaffed and under-funded by the agencies responsible for export controls and these shippers are trying to fly under that radar screen. That complacency is dangerous, considering that in November 2010, the President signed an executive order to increase coordination among export control enforcement agencies. The order mandates the participation of BIS, the Federal Bureau of Investigation, military security agencies, Immigration and Customs Enforcement, and the Intelligence Community in an Export Enforcement Coordination Center to share information and leverage resources. This will enable these agencies to increase enforcement.

So, if your company is looking to diversify its revenue streams by growing its global business, now would be a good time to look at how well you are helping it comply with those regulations. The white paper warns that BIS is adjusting how it penalizes those who violate U.S. export controls. If it determines that a violation is deliberate, penalties are more likely. That could mean heavy fines, imprisonment, and/or the denial of export privileges—as well as actions against the company.

The enhanced visibility of the role of material handling and logistics professionals can be a mixed blessing. Yes, you’re getting more strategically important to your company, but with that importance comes more responsibility. Increasingly, the public image of your company is in your hands. As your company goes global, so does that image. For your career’s sake, make it look good.