tetrisI spent the last week and a half in Israel attending my wife’s cousin’s wedding. The trip was wonderful and the wedding was beautiful. However, traveling 12 hours with a 7 hour time change with 2 small children is no easy feat. We packed light in terms of clothes, but heavy in terms of books, snacks, and activities. From a logistical standpoint, it was no easy task. I felt like I was playing Tetris® with our carry-on bags to optimize our space without making the bags too bulky. In the end, it all worked out. We made it there and back, with minimal damage (other than a severe lack of sleep at both ends of the trip). Since I’m still in recovery mode, let’s jump right into this week’s news.

highjumpHighJump, a global provider of supply chain management solutions, announced that it has acquired Nexternal, a cloud-based e-commerce platform provider based in California. The acquisition is set to expand HighJump’s omni-channel strategy, specifically bolstering its order management capabilities. HighJump’s CEO Michael Cornell sees the acquisition as a way to add important commerce capabilities to deliver on the company’s omni-channel vision and provide new options for its customers. Alex Gile, founder and President of Nexternal, adds that this move puts HighJump in the position to be the first provider of a unified e-commerce platform and warehouse management system. The unification of these two will go a long way to establishing a true omni-channel offering.

amazon fulfillmentAmazon is at again, offering even more perks to Prime members. As a Prime member, I’m personally a fan of free two-day shipping, as well as access to Amazon’s streaming music and video services. Now, the online commerce giant is making Prime membership even more appealing…at least in 14 metro areas across the United States. Amazon announced free, same-day shipping, 7 days a week, on over 1 million items in 14 select metro areas: Atlanta, Baltimore, Boston, Dallas, Indianapolis, the Los Angeles metro area, New York, Philadelphia, Phoenix, the San Francisco Bay area, Seattle, Washington, DC, San Diego, and Tampa Bay. Orders must total more than $35 to qualify, and the purchase must also be made before noon, or it will arrive the next day. The move is made possible due to the investment the company has made in its network of warehouse-and-delivery hubs that it calls fulfillment centers.

DockworkersUnion dockworkers at all 29 U.S. West Coast ports have voted overwhelmingly to ratify a contract agreement reached in February with shipping companies and terminal operators to end months of labor strife that snarled trans-Pacific trade. Members of the International Longshore and Warehouse Union voted 82 percent in favor of the new five-year labor pact, which runs through June 2019. The final approval came three months after negotiators for the two sides reached a tentative settlement. Terms of the deal, which were not publicly disclosed, are retroactive to July 2014.

taco-bell-deliveryYum Brands is known for its delivery service, at least at one of its chains – Pizza Hut. But that could all be changing, as the company explores the possibility of implementing delivery for both Taco Bell and KFC. Yum CEO Greg Creed told analysts on Wednesday that there is potential for food delivery across all three of its chains, saying Taco Bell delivery in particular could be “a massive sales driver for the brand.” The beginning stages of any test will be conducted near college campuses. College customers want deliveries on Thursday, Friday and Saturday nights, according to Creed, so the company could see an incentive to meet that demand.

Kohl'sKohl’s is leaping into the BOPUS game. With the continued explosion of e-commerce, many retailers have begun to implement buy online, pick up in-store. Considering the cost associated with home delivery, it is not surprising to see Kohl’s make this move. Using the store as a fulfillment center allows the company to save money on shipping costs, while reducing markdown’s for leftover in-store stock. It also helps generate foot traffic in the store. While many retailers are implementing curbside pick-up, others are making the customer come into the store. This provides the opportunity for add-on sales. Kohl’s experience so far is that roughly 20% of the pickups also generate additional sales.

Diesel PriceDiesel prices are up…again. The average price for a gallon of on-highway diesel nationwide made a slight jump in the week ending May 25, increasing one cent over the previous week. The U.S.’ average price for a gallon of diesel is now $2.914, which is $1.011 lower than the same week in 2014. This is the sixth consecutive week diesel prices have risen. While California saw the least significant increase, with prices only going up one-tenth of a cent, it still has the most expensive cost at $3.269 per gallon. The cheapest diesel in the nation is in the Midwest region at $2.80 per gallon, followed by the Gulf Coast region at $2.803.

That’s it for the news this week. Enjoy the weekend and this week’s video, a cover of the Tetris theme on bass by Grzegorz Kosiński.

Categories This Week in News
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Conflict minerals – Tantalum, Tin, Tungsten and Gold (3TG) – and supply chain transparency will be in the news.  Monday, June 1, is the deadline for more than 6,000 Public U.S. companies to file reports with the SEC to disclose whether their products contain conflict minerals.   The US passed a legislation in 2010, called “Dodd Frank Act Section 1502“, which requires US-listed companies to carry out due diligence on minerals sourced from the Democratic Republic of Congo, and neighboring countries. This legislation requires manufacturing companies to identify and disclose the conflict mineral usage in their products, and the source of 3TG to the SEC. This legislation has prompted comparable initiatives by governments in other countries and multilateral institutions.

The goal of this legislation is to reduce violence by armed groups in central Africa.  Armed groups in the Democratic Republic of Congo (DRC) pursue illicit trading of conflict minerals to fund their activities.  These minerals are found in abundance in the DRC. According to the United States Geological Survey, DRC contributes around 15-20 percent of world’s Tantalum production, 5 percent of world’s Tin production, 0.6 percent of Tungsten, 0.5-2 percent of Gold production.

3TG minerals are used in a variety of products but are particularly critical in the information and communications technology (ICT) industry.  These minerals can be purchased from a variety of suppliers and it is very difficult for consumers to know if the product they are using has helped to fund violence.

Minerals Extracted Refined To Uses
Columbite-tantalite (coltan) Tantalum (Ta) Electronic components in mobile phones, computers, digital cameras, videogame consoles. It is also an alloy used for making carbide tools and jet engine components.
Cassiterite Tin (Sn) Alloys, tin plating and solders for joining pipes and electronic circuits
Wolframite Tungsten (W) Metal wires, electrodes, and contacts in lighting, electronic, electrical, heating and welding applications
Gold (Au) Making jewelry. Due to superior electric conductivity and corrosion resistance, gold is also used in electronic, communications and aerospace equipment.

The conflict mineral supply chain is long and complex. Minerals can change ownership many times before they reach ICT manufacturers. From the mines, the minerals get transported to trading towns. The 3Ts are brought by buyer-transporters. They smuggle the minerals by large trucks, or by planes in small garbage bag type sacks. The minerals are then sorted by trading houses. These traders are paid in advance by the exporters to whom they sell the minerals.

Gold trading is a different that the because by weight, it is much more valuable. Smuggling gold is easier.  It can be smuggled in backpacks or pockets whereas the  3T minerals are transported in sacks.

Since tin, tungsten, and tantalum are transported in larger volumes by trucks or planes, it is easier to register, document, and regulate the transport. But, the majority of transporters and trading houses violate of Congo’s mining laws and operate without proper licenses and registration. Partially this is because the government charges $500 for licenses, which can seem exorbitant in a poor nation. Further, traders may find it dangerous to be overly specific about the source of their minerals.

In the next part of the supply chain, export companies buy minerals from the trading houses and transporters, process the minerals using machinery, and then sell them to foreign buyers. These refining companies are mainly based in East Asia.  When it comes to tracing supply chains back to their sources, refiners are the critical link. After the mineral ore is refined into metal, it becomes impossible to  precisely define the source location.

Finally, the refiners sell Congo’s minerals to the electronics manufacturing companies.

There are a number of programs to help companies find conflict-free smelters. The Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative (GeSI) have launched a Conflict-Free Smelter Program to help companies source minerals responsibly. The organizations issue a list that includes the names, locations and links to conflict minerals policies of all smelters or refiners that are compliant with the Conflict-Free Smelter Program assessment protocols.

To become a compliant smelter or refiner, these companies must submit to audits. An audit is valid for one year. The audit process may take up to 6 weeks and costs about five to ten thousand US Dollars. The audit activities take place both on site and off site. At the site, the auditor takes a facility walkthrough to analyze the smelting processes, storage, receiving and shipping of minerals including a physical inventory check at their warehouses. The offsite audit mainly deals with validating of documents produced by the smelting company  such as country of origin of minerals, secondary material (or as recycled or scrap materials) documentations. After the proceedings the auditor creates an audit summary report for the auditee and the CFS Program Audit Review Committee (ARC). Smelters and refiners who pass are issued a compliance letter.

ConflictFree

Another program is run by the tin industry association, International Tin Research Institute (ITRI). This association runs a traceability initiative, ITRI Tin Supply Chain Initiative (iTSCi) that is used to monitor the origins of 3T minerals; the 3T minerals are labeled with the details of the mine they were dug from.

Some other industry specific initiatives include Tantalum-Niobium International Study Center (TIC), INTERNATIONAL TUNGSTEN INDUSTRY ASSOCIATION (ITIA), Tungsten Industry—Conflict Minerals Council (TI-CMC).

Insuring that minerals are “conflict-free” and “DRC-free” should not be confused.  Simply avoiding purchasing minerals from DRC would not be responsible sourcing.  DRC-free sourcing will impact poor miners adversely.

Categories Procurement/Sourcing, Regulations
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Last month I attended JDA Focus, the company’s annual user conference. My favorite presentation from the event was that by Tony Simmons, an Operations Analyst from Genco. The presentation discussed Genco’s application of JDA Warehouse Labor Management (JDA WLM) to manage and ultimately reengineer its business processes. I found it to be a great example of how perceptive individuals, when digging into a project, can yield insights and performance improvements beyond the original intent. This warehouse operations case would also be a good example of “real options” in the finance world.

JDA WLM

Genco manages a number of warehouses for a large US-based food producer. A few years ago, Genco ran a time study at a greenfield distribution center. The workers were not informed of the study taking place, assumedly to arrive at unbiased results. Subsequently, management informed the workers of the ongoing employee performance and reporting process. Thereafter, performance improved by 60 percent, likely due to the presence of the labor tracking and management. This alone is a notable efficiency improvement. However, the following results are what I found most interesting.

After a short time, performance improvements flat lined. Genco then decided to group data by operation (as opposed to grouping by worker) in JDA WLM to analyze the efficiency of the various tasks and jobs, including indirect labor time. This data was coupled with warehouse layout parameters such as travel distances. The analysis uncovered that workers were “performing inefficient work, efficiently.” Specifically, workers were traveling too far from pick-up to deposit, and deposit to next pick-up. They were also traveling excessively between areas. This information, along with further analysis regarding forklift mobility, led to a new travel sequence and warehouse layout that reduced pick-up to deposit travel times and downtime. To reduce time from deposit to the next pick-up (deadhead flow), Genco decreased the size of work zones within the facilities and prioritized job sequencing to those in the same work zone. This process change also decreased congestion and waiting during peak hours. Finally, Genco adjusted its product placement by placing greater emphasis on shipping tasks and more closely storing items that often ship together. This adjustment reduced travel for picking and put-away and enabled workers to turn staging lanes more quickly.

Tony wrapped up his presentation by categorizing the obtained insights into those expected at the project inception – employee accountability and performance visibility; and those that were discovered during the process –warehouse layout, operator flow, and product placement improvement options. However, I see the discoveries as an example of improvement options that come to light from a better understanding of one’s business processes and a motivation to improve.

The Descartes Systems Group had their user conference – Descartes Evolution 2015 – this week in Miami.  There were about 400 in attendance.

The best presentation I saw at the event was given by two executives from Sears.  Sears is a North American department store and general merchandise retailer with over $30 billion in revenues.  Joe Macro, Network Planning and Analysis, and Steve Rutkowski, Director of Logistics Services, spoke on the “Next Generation Home Delivery” Route Planner solution from Descartes they implemented.

The solution was implemented at their Innovel Solutions division, a third party logistics company owned by the Sears Holdings Corporation.  This 3PL is the supply chain arm for Sears Holding Company which includes Sears and Kmart. Innovel also does work for outside entities like the Air Force and Navy Exchanges and Lands’ End (which was spun off from Sears in April of 2014).

innovel

In this case, the new routing solution was implemented on behalf of Sear’s home delivery services.  Customers can buy appliances, consumer electronics, fitness equipment, indoor and outdoor furniture, heating/cooling equipment at Sears.  They may then elect to have these goods delivered to their home, installed, and have their old appliance hauled away.

To support these deliveries, Sears has a network of 11 Distribution Centers with 7.5 million square feet; 106 market delivery centers (MDOs) – midsized warehouses that support this business line; and in some areas they deliver directly from stores, there are 86 retail outlets they deliver from.

As Joe pointed out, many traditional retailers are involved in omni-channel initiatives.  This often involves the use of parcel shipments from warehouses or stores.  What Sear’s is doing is more complex.  Their home deliveries involve big box items.  It requires insuring that the technicians with the right skills are assigned to a particular job, and the use of third party carriers.

Routing is made even more difficult by: changing delivery slots, 10 percent of Sear’s customers change their delivery time when they get the reminder call about the next day’s delivery; By their cut off times, they take orders until 3 pm for goods that may be delivered the next day; And, by the volume of deliveries the company does, 4 million home annually.  This is clearly a hugely complex routing problem.

Finding the right routing supplier was clearly going to be critical.  Sears had three finalists.  Each finalist took a week’s worth of delivery data and showed the kind of savings their solution could provide.  Descartes won.

Once Descartes had the contract, they were faced with an aggressive timeline for implementation.  The project kicked off in September 2013, had several stages, and was completed in July of 2014.  To meet that deadline, Sears elected to have Descartes prescriptively tell them how they should configure the system to get the best results based on their network and requirements.  And because of the time crunch, Sears decided to postpone until later detailed truck capacity planning.

To transform their delivery operations Sears needed more than a robust routing solution.  Sears also needed efficient warehouses with accurate inventory information – warehouse management systems (WMSs) from HighJump Software are being rolled out across the network.  That inventory availability is being made available to their carrier partners.

Sears also needed better integration to in-store point of sale systems so that store associates fully understood all the services associated with different types of products, and so the associates could accurately enter the dates and delivery windows.

Sears decided to integrate the routing solution with a mobility solution so that the company understood exactly where delivery trucks were.  This visibility allows the retailer to improve the routing optimization; it provides customers with updated notifications by phone, text, or call, that the truck is on the way; and finally the GPS data gives them information that can improve their processes.  For example, this GPS data can be mined to show how much time should be allocated to the delivery team to put in a certain type of refrigerator.  Sears also chose Descartes for the mobility solution, in part because it was preintegrated to the routing solution.

So what were the results?  Sears increased truck productivity by 2.8 percent, decreased their miles per shipment by 5.4 percent, and cut the number of full time equivalents in the planning department by one third.  This resulted in annual savings of $3 million in the first year with ongoing anticipated savings of another $400,000.  Further, Sear’s carrier partners report being very happy with the ability to take pictures of the goods delivered using the mobility solution and prove that the goods were delivered on time and undamaged.

In conclusion, Joe said that the savings Descartes said they would deliver, based on one week’s worth of data and simulations, was “almost exactly” what they did deliver.  Because the IT team was a little conservative on the ROI they committed to for management, the team ended up exceeding their ROI projections.

Companies interested in exploring whether the Internet of Things (IoT) is a worthwhile investment have three different paths they can go down.

IIoT logo

The Internet of Things connects intelligent physical entities – such as sensors, devices, machines, assets, and products – to each other, to Internet services, and to applications.  IoT represents a stack of technologies that can be shaped into solutions.  At ARC, we refer to the Industrial Internet of Things (IIoT) because we are focused on how industry, rather than consumers, can use these technologies to improve their business.

IoT Component Description Functionality Examples
Intelligent sensors, machines, devices, assets Embedded intelligence, storage, and processing power Data producers and consumers; Local intelligence and data storage Containers/products with RFID tags; GPS; machine sensors; etc.
Communications Networks of all types Connectivity; Data delivery; Security Wired, Wireless, Cellular, Satellite, other Networks
Big Data Data repositories Data aggregation Hadoop, Azure
Analytics or Software Applications Data processing engines; software applications reliant on sensor data Data analysis; Insight; Planning & Optimized Execution Analytical engines, telematics, Cloud-based Warehouse Management System

IIoT Building Blocks

So how could companies approach the IIoT?  First of all they can wait for particular IIoT applications to “cross the chasm,” and invest in them only after many other companies have proven there is a good payback for a particular application.  While “Internet of Things” is a relatively new term, there are examples of IIoT applications that predate the use of this term.  A cloud based warehouse management system that makes use of RF scanners, or a telematics solution, are examples of preexisting, proven, IIoT, solutions.

A second way a company might address IIoT is to decide that this technology stack could well be strategic; that these technologies might be shaped into new applications that could provide competitive differentiation.   In this case, a company might start a technology incubation center to explore these technologies.

As one example of this, Dow Chemical started a RFID, GPS, AutoID, and the Telemetry Expertise Center in 2001, long before the term “Internet of Things” became prevalent.  If Dow was to rename that center based on current acronyms, it could well be call an Internet of Things Expertise Center.

When Dow began to explore RFID, an IIoT technology that was still maturing, it found the COE approach very useful. Fairly early in the program, the company decided that RFID and GPS would work well together for track and trace and it included GPS within the scope of its analysis.

Dow has a concept it calls “Most Effective Technology.” The idea is that certain technologies lend themselves only to certain sites or certain fairly small processes, while other technologies work so well, they should be used across the corporation. In order to determine which RFID projects to tackle in Generation 1, Dow COE representatives:

  • Listened to the “Voice of the Customer” by educating 100 leading business leaders within Dow about active and passive RFID and GPS and then listening to how these technologies might apply to their businesses.
  • Put together a list of 450 ideas, came up with a list 50 prioritized project areas, and then culled this down to the 10 projects that would be implemented in Generation 1.

Businesses within Dow were understandably not anxious to deploy new and possibly bleeding edge technologies. To overcome this resistance, the Expertise Center is used to fund the proof of concept, a pilot, and a first implementation. They may partially fund a certain number of implementations after that until they have matured their implementation processes for that technology.

Over time, Dow has harnessed these technologies to track shipments end to end.  Further, they have used IIoT to build one of the most advanced supply chain risk management programs in the world (Dow Chemical’s Distribution and Transportation Risk Management Program).

In the final path to IIoT adoption, a company may just decide that the Internet of Things is strategic and place a big bet on the technology.  In this instance, they could make it one of their key corporate wide strategic initiatives.

At JDA’s recent Focus event, Rich Beck, the Sr. Vice President of Global Operations at PepsiCo, gave the keynote on the second day of the conference where he described a key PepsiCo initiative called “The Digital Value Chain.” This strategic program incorporates the use of IIoT technologies to build new solutions in areas like smart production machinery and packaging; the use of automatic guided vehicles and robotics; and camera-based mobility solutions to be used in stores (presumably to better capture demand signals).

At PepsiCo, the digital value chain initiative, while including IIoT, certainly goes further than that.  The program also includes having a single data source that drives supply chain strategy, planning and execution based on SAP and Oracle at the ERP and database layers, and JDA as their core “performance system.”

In summary, companies interested in exploring whether IIoT is a worthwhile investment have three different paths they can go down:  wait for new IIoT applications to prove itself, build a technology incubation center to explore these technologies incrementally, or go all in and make IIoT a core strategic initiative.  The choice made will in large part reflect company’s size, appetite for risk, and technological prowess.

Categories Logistics Technologies
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