Happy_ThanksgivingTomorrow is Thanksgiving, a time for family, friends, and turkey. Lots of turkey. Just how much turkey? According to the National Turkey Federation, over 730 million pounds of turkey will be consumed in the United States during Thanksgiving. Given that the average weight of a Thanksgiving turkey is 16 pounds, that is about 45 million turkeys, or about 17% of all turkeys raised in the United States. So how do all these turkeys make it to market on time? With lots of planning.

The Thanksgiving turkey supply chain is intricate. Retailers plan up to 6 months in advance to ensure they have all the birds they need in stock come turkey time. This means establishing contracts, transportation, and deliveries from both large scale turkey producers (Butterball, Jennie-O, Perdue, etc.) as well as local turkey farms. And there are two varieties of birds that retailers need to stock. The most common is the frozen turkey, which accounts for approximately 90% of Thanksgiving sales. Turkeys that are destined to be frozen are bred, slaughtered, and frozen year round. Year round production means producers do not necessarily need to ramp up production as much coming into the holidays. Instead, frozen turkeys may be as much as three years old when they are finally sold through retailers. This makes keeping a safety stock level easily attainable for producers, as they ship them off to retailers. Fresh turkeys make up the remaining 10% of turkeys. These turkeys take more planning, on the part of producers and retailers. Producers need to ensure that eggs laid in the spring are incubated properly, and the turkeys are given anywhere from 10 to 18 weeks’ time on the farm before being sent to slaughter. This way, producers can deliver fresh turkeys to retailers just in time for Thanksgiving sales.

This is where retailers need to delicately balance supply and demand. Overstocking frozen turkeys is not too big a deal. The remaining birds can be saved for the Christmas holiday season, which is the second leading time for turkey consumption. Or, they can be sold below market value after Thanksgiving. Many grocers will actually sell their frozen turkeys below cost anyways, using the frozen bird as a loss leader just to get the customer in the door. In fact, unlike most other meats, turkey prices per pound are actually down year over year. This makes the Thanksgiving bird that much more enticing to most consumers. Fresh turkeys, on the other hand, pose a different problem. These turkeys need to be delivered, stocked, and sold quickly to ensure freshness. This is even more important considering that fresh turkeys are more expensive and actually profitable.

So the supply chain is just as busy as the rest of us planning for Thanksgiving. Due to the holiday, Logistics Viewpoints will not be publishing articles tomorrow or Friday. Happy Thanksgiving, and since there will not be a song of the week in the Friday edition, enjoy Adam Sandler’s Thanksgiving Song.

Scott Vanselous croppedAs shippers and service providers move beyond the now outmoded concept of the “supply chain” (which never really matched the complex realities of surface transportation within North America), they are finding that traditional boundaries between asset and non-asset-based providers are quickly disappearing. Next generation technology solutions are enabling virtually every supply network participant to broaden operational capabilities, all to the ultimate benefit of the customer who seeks the most efficient, reliable and cost effective means of moving their goods.

What might come as a surprise to some is the speed with which even small- to mid-size carriers are emerging as comprehensive logistics service providers, augmenting their proven ability to drive efficiency within their own fleet operations with newly acquired tools to manage and optimally consolidate shipments across multiple modes of transport. Their rationale is spot-on: although capacity is almost historically tight at present, they recognize the need to run their businesses more holistically to better address an ever broadening range of customer needs. This, in turn, will enable them to avoid the commoditization of their services and foster more profitable and enduring business relationships. It’s no longer simply about operating trucks – it’s about the ability to master the complete transportation lifecycle, from order to delivery.

These same next generation transportation management systems are also available to empower shippers and 3PLs that want to better manage the transportation process – perhaps even blending their own private or dedicated fleets with third-party assets – to reduce costs and gain significantly greater supply chain visibility. Given that a majority of these companies still use Microsoft Excel as their de-facto TMS solution, the ceiling for cost and efficiency gains seems remarkably high.

Streamlining the Convergence Process
While the operational convergence of carriers and intermediaries isn’t new, each party’s ability to more efficiently and completely leverage its extended enterprise has been challenged by the limitations of yesterday’s technology. As a result, many of these businesses have been forced into technology silos that separately manage their asset and non-asset-based operations. Even some comparatively new TMS solutions fall short of the needs of these users in several respects, including:

Ease of use. Many 3PLs or logistics service providers have tried to address their operational convergence through the use of three or four separate applications cobbled together under a TMS umbrella. Beyond the obvious implementation, reliability and scalability concerns, these solutions are flat-out too hard and time consuming to use. Load planning and execution in today’s harried business environment should be a matter of a few simple clicks, without the need to manually transfer data between multiple applications, some in the cloud and some not. When these applications are not designed and supported for seamless integration, they are not a true next generation solution for effectively managing the countless exceptions and constraints involved in the transportation process.

Lack of embedded optimization. When a solution’s data resides in more than one application, as in the cases cited above, there’s an unavoidable loss of responsiveness and control. Today’s complex supply networks and compressed delivery cycles require that you and/or your service provider be able to optimize every load in real time, as many times as necessary throughout the day. The optimization engine should be a core interactive piece of the TMS for increased speed and to permit a broad range of advanced planning capabilities.

Cloud bias. Many carriers and shippers are understandably ambivalent about SaaS solutions, and the perceived lack of control and potential security and reliability issues associated with the cloud are indeed important considerations. Companies will often need direct access to the TMS database for more advanced systems integration, business intelligence and other purposes, which can be challenging when data resides in the cloud. Still, in many situations the speedy deployment made possible by a SaaS platform is worth some tradeoffs. Don’t be swayed by the hype around SaaS, but take time to understand the real needs of your business when it comes to transportation planning and execution capabilities. Ultimately, you need to be comfortable with your application delivery options, which means having options.

Inadequate rating capabilities. Supply networks are becoming more, not less, complex each day and shippers and logistics service providers are using more types of rates, for direct, multi-stop, TL, LTL, parcel, pooling and other strategies. Managing this complexity to achieve optimal cost efficiency requires a comprehensive, easy-to-use rating tool.

Shippers and transportation service providers have an impressive record of partnership in reducing overall logistics costs over the past quarter century. The drive to find new opportunities for savings and the need to build stronger, more total-value-based business relationships is leading a growing number of industry participants – including shippers, carriers, 3PLs and brokers – to expand their operational capabilities beyond traditional boundaries. This convergence is quickly gaining momentum thanks to the arrival of a new generation of transportation management solutions.

 

Scott Vanselous is Executive Vice President of Marketing for TMW Systems, overseeing marketing communications, product marketing, partner relations and business development. He joined TMW as Senior VP and General Manager of Asset Maintenance in 2007. Previously he worked with Oracle where he was Director, Travel and Transportation Industry Business Unit, with expertise in the logistics, trucking, rail and maritime industries. Prior to that, he spent nearly three years with DHL – first as Vice President, Marketing and Strategic Alliances, and then as VP of Americas Global Supply Chain Outsourcing

When companies make the decision to outsource warehousing to a third party logistics company (3PL) because they are not happy with their own capabilities, they tend to demand more of the 3PL then they would demand of themselves.  I talked to an IT executive at a well-known 3PL active in providing warehousing services about this.

This executive made the point that one reason to outsource for many companies, is that the distribution arm of the company does not have the same priority as manufacturing.  Where the manufacturing group would be able to invest in an upgraded manufacturing execution system, the same is very often not true for the warehousing department.  The ability to move off a legacy warehouse management system (WMS) onto the latest version of a high end WMS, or the ability to invest in voice recognition or a labor management system, is made possible by the decision to outsource.  Whereas the department would never get the budget to make these moves internally, it becomes part of what they demand of their 3PL partner.

When it comes to WMS implementations, customers have a right to expect faster and lower cost implementations than they could achieve for themselves.  This 3PL has standardized on Manhattan Associates’ WMS for more complex warehouse environments.  They have their own proprietary WMS that can be used in simpler environments.  Because they have implemented these solutions over and over, they know where the mine fields are.

The one thing the 3PL does try to convince potential customers to do is to let them implement a vanilla version of the software, with customizations so minor that the upgrade path will not be affected.  They try to convince the customer that is their right to set service level requirements and have other key metrics, but that it does not make sense to tell a 3PL HOW to achieve those goals. If the 3PL is allowed to achieve the goal through a non-custom implementation of the software, both sides benefit.

This 3PL has standardized on a labor management system from Spalding Software. Over the last two years, almost all request for proposals (RFPs) from companies of any “reasonable level” of supply chain maturity have included labor management as a requirement.  For large 3PLs, the ability to provide labor management has become table stakes, they can’t get into the game without this.

Here again, a company might not be able to realistically think they come up to speed on a labor management program based on their internal capabilities.  Achieving a good labor program requires more than a software implementation.  Hiring industrial engineers and getting them up to speed, determining what type of labor standards to use, and developing granular standards are all nontrivial tasks.  By hiring a large 3PL, you can also hire an experienced labor engineering team.  At this 3PL these engineers are highly valued.  The engineering team has a seat at the executive staff level of the organization.

There is a trend in the industry for 3PLs to provide “non-asset based” warehousing services.  In other words, 3PLs do not own the warehouses.  This was driven, in part, by the economic downturn of 2008-2009 when several 3PLs got trapped with warehousing space they couldn’t monetize.  So today, if there is a three year contract for warehousing services, the 3PL has a three year lease on that warehouse.  From a technology perspective, this is also how much modern material handling equipment is acquired.  For example, a three year services contract means a three year lease for fork lifts.

In conclusion, it sounds almost glib when 3PLs say if “warehousing is not a core competence you should outsource it.”  But when you look at what customer’s demand of a 3PL technologically, that they would never demand of themselves, it does not sound quite so trite.

Black-Friday-LineThanksgiving is just a week away, which means the countdown is on for Black Friday (and pre-Black Friday deals). Just how big will this year’s turnout be? The National Retail Federation (NRF) expects 140 million holiday shoppers to take advantage of Thanksgiving weekend deals in stores and online. To put that in perspective, that represents about 44% of the population of the United States. That means that for every 20 people you know, 9 of them will be partaking in the madness of Black Friday and / or Cyber Monday.

NRF will release the results of its Thanksgiving weekend survey by 1:30 p.m. ET on Sunday, November 30 and will hold a special media briefing with President and CEO Matthew Shay the same day at 2 p.m. ET. Information will include what time people started shopping on Thanksgiving Day and Black Friday, how much they spent, how many people say they shopped for Small Business Saturday and the percentage spent online in total over the weekend. NRF will also release information about the number of people who plan to shop online on Cyber Monday.

And with that, on to this week’s news.

On November 20, Descartes Systems Group, global provider of federated network and global logistics technology solutions, announced its acquisition of Airclic, a web-based software and mobile information services company. In today’s increasingly mobile-driven world, Airclic’s Perform platform is a nice addition for Descartes considering its configurable, feature-rich mobile technology and advanced electronic proof of delivery (POD) solutions that operate on a hand-held device carried by the driver. The acquisition should work nicely considering the two companies have common customers, and it will bring about robust mobile resource management (MRM) capabilities to strengthen Descartes’ fleet management platform.

Kiva RobotWe’ve written about Amazon’s acquisition of Kiva Systems many times before. But now, Amazon CEO Jeff Bezos is ramping things up. In May, Amazon had 1,400 robots working at various fulfillment centers. Bezos has set a goal of having 10,000 robots working by the end of the year. This could have a big impact on the holiday season. The robots bring shelving units to human pickers, who identify the specific item stored in the unit needing to be packed and shipped to a customer. This means Amazon’s pickers need only stand in place as robots line up to bring them the appropriate items. As of now, it generally costs Amazon between $3.50 and $3.75 to fulfill an order. Estimates put the savings of these additional robots in the 20% – 40% of fulfillment costs. For a company expecting to ship millions of holiday packages, the savings could be more than significant.

More than 100 independent clothing boutiques from New York to Stockholm are teaming up to offer click-and-collect services for the first time. Farfetch.com is an internet portal which is introducing a service that allows shoppers to place an order for apparel and accessories with one of its retailers and collect it from another potentially thousands of miles away. Farfetch gives shoppers access to apparel and accessories from in excess of 2,500 brands in more than 300 stores in 26 countries.

trucker strikeAs if the situation at the Los Angeles and Long Beach ports couldn’t get worse, we can now add trucker’s pickets to the list. The Los Angeles and Long Beach port truck drivers’ fight over fair wages and better working conditions has expanded to five more trucking firms, officials said Monday. Drivers and their supporters, who began their fourth day of strikes at port terminals Monday, said they began striking trucks that belong from QTS Inc., LACA Express and WinWin Logistics Inc. They also plan to strike trucks that belong to Pacer and Harbor Rail Transport today. At the heart of the issue is the drivers’ belief that they are being misclassified as independent contractors, which allows trucking companies to skirt labor laws and avoid paying fair wages. Many drivers have reported receiving small or in some cases negative paychecks after fuel, maintenance and other deductions are taken, despite working long hours delivering goods from the ports of Los Angeles and Long Beach. If the potential dock workers strike doesn’t cripple the flow of inventory into the ports, the ongoing trucker strike might do it instead.

Earlier this week, my colleague Clint Resier wrote a guide to logistics industry economic indicators. One of the indicators he mentioned was the Cass Truckload Linehaul Index. The latest index has been released. In October, the Cass Truckload Linehaul Index rose 7.3% year over year as rates continue on their upward trajectory. The combination of increasing demand and capacity shortages will continue to push the index higher as effects from this year’s new contract pricing are filtering into the market.

In a bit of sad news, Mike Nichols, director of the award-winning move The Graduate, has passed away at the age of 83. In honor of the late director, please enjoy this week’s song of the week, Mrs. Robinson by Simon and Garfunkel.

Bobby Miller Ortec

This past June, the largest overnight delivery carriers (FedEx and UPS) announced that they would apply dimensional weight pricing to all shipments, effective January 2015. It is expected that shipping costs will increase 20 to 30 percent and affect over 70 percent of all shipments. What shippers are truly affected by the new pricing model? What can be done to avoid the cost increase? Read on.

What is Dimensional Weight Pricing?
Dimensional weight pricing is an industry practice that sets the shipping price based on package volume which equates to the amount of space a package occupies in relation to its actual weight. This pricing method takes into account the exterior package size, which is the amount of space a package occupies when in the cargo area of the transport vehicle, in relation to its actual weight to determine the appropriate price. The dimensional weight calculation will apply if it is greater than the actual weight.

Why the Switch?
The largest delivery companies have claimed that this method is required due to industry trends, packaging efficiencies, and sustainability opportunities. Let’s take a look at the industry trends. The number one reason for the change is consumer behavior. End consumers are now making more purchases via alternative buying channels.

Ortec Box

The e-Commerce Impact
A UPS e-commerce study revealed that more than half of online shoppers have abandoned an online shopping cart due to the estimated delivery date and 61 percent cited shipping costs as the top reason for cart abandonment. E-commerce providers are trying to address this dilemma by turning to more economical packaging. Three trends are contributing to increased demand for parcel delivery:

  • Popularity of online shopping is increasingly replacing traditional brick-and-mortar
  • Manufacturers are developing their own e-commerce strategies
  • Increasing gas prices

There are two challenges that e-commerce companies have to continuously address.  The first is that a large percentage of orders received require the warehouse pickers to determine which box size to use. The picker has to decide the optimal box size, manually. They may have to choose from 200 to 300 pre-fabricated boxes, consuming a great deal of time. Second, and just as important, the cost associated with shipping air in a carton, now that cube affects the delivery price, is enormous. Material handling systems are optimized to handle medium and large box sizes efficiently. There will be a decrease in package dimensions to accommodate the switch to dimensional weight pricing and an increase in smaller box sizes with more products placed in a given box.

The Impact on Consumer Goods and Life Sciences Manufacturers
Consumer goods companies that manufacture items such as cosmetics, fragrance, and body care products are high volume users of parcel delivery carriers.  Getting more goods into the same box will save a significant amount of parcel freight cost. Life science manufacturers, such as medical device and secondary pharmaceutical providers, will also see a substantial rise in parcel delivery costs.  Today, these manufacturers ship thousands of parcels on a daily basis in many different size boxes. One such shipper uses FedEx and UPS and has 200 plus prefabricated boxes. The complexity becomes overwhelming for the pickers given the choices and the various sizes of the products placed in the boxes.

How to Avoid Cost Increases & Improve Labor Efficiencies
Identifying the optimal box size reduces the number of parcel deliveries, increases picker thru-put and minimizes the use of larger boxes. The use of cartonization optimization technology to evaluate the contents of an order, to determine the number and size of each shipping carton required for the order, minimizes cost and increases efficiency. Shippers are asking themselves:

  1. How do I estimate the actual delivery cost for my customer?
  2. What is the exact dimensional weight price?
  3. What box do I use?
  4. Should we use prefabricated, on demand corrugate, or carrier provided boxes?
  5. How many pieces can I fit in this box?

Answering these questions is the game changer for warehouse and transportation operations.  Companies like L’Oreal in Europe are using parcel box optimization technology to ensure as many items are placed in a box as possible and that the optimal box size is selected.  Advanced and executional cartonizing results in quantifiable reduction in parcel delivery cost, increased labor efficiencies and precise dimensional pricing.

Right Product.  Right Box.  Right Price.
Obtaining the ability to identify the right products for the right box at the right price provides an intelligent way to avoid the dimensional weight price increase start January 1, 2015.  Using box optimization technology has demonstrated up to 15 percent improvement in box utilization, 40 percent cost avoidance, 20-30 percent improvement in pick/pack labor efficiencies and a reduction in carbon footprint by using less corrugate.

 

Bobby Miller is currently responsible for global consumer good product innovation and direction at ORTEC. Bobby pioneered the ORTEC solution ‘Perfect Shipment’ which utilizes demand forecasting to generate optimal shipments, enabling organizations to plan and reduce freight cost in advance of execution. He has over 25 years of expertise working in the Consumer Goods Industry and developing supply chain software solutions that help companies globally such as P&G, General Mills, Coca-Cola and Clorox. Prior to ORTEC, Bobby was Sr. Manager of Supply Chain Excellence for Georgia-Pacific, where he pioneered the concept of sales order load optimization. He has also held various positions with Kraft, Coopers Lighting, Information Resources, IRI Logistics and Manugistics. Bobby received a B.S. degree in Information Systems from Chicago State University.  He is past chairman of the Technology Association of Georgia Supply Chain Society.