dangerAs a concerned parent, I certainly pay more attention to product recalls now than, say, six years ago. But it also seems like product recalls are making the headlines a lot more often these days. This is due in large part to contamination outbreaks in the food and beverage industry. These recalls are often voluntary, as the producer discovers E. coli or other food-borne illnesses in their products. However, if the company refuses to recall these foods, the FDA and FSIS have the authority to detain and seize those foods in commerce. The FDA has three classifications of recalls for all food products (except meat, poultry, and eggs). Due to the backlash of recent outbreaks, however, the majority of recalls are voluntary.

There have also been a number of recalls due to child safety concerns, most notably with toys and child safety seats. Again, the majority of these recalls are also voluntary. And quite often, there have been no reported injuries or deaths resulting in the recall. While consumers head to stores in droves to return these products, one thing probably doesn’t cross the mind of most people in the process – the ridiculous hassle of managing all of these returns.

performanceAs I’ve mentioned numerous times before, at the end of last year, Clint Reiser and I worked on an extensive survey examining the omni-channel commerce landscape. As part of the survey, we asked participants a series of questions about a few key performance metrics. These metrics looked at both financial and operational performance. We decided to separate out the respondents into two groups: top performers and bottom performers based on their performance. The top performers were defined as those organizations with 10+% year-over-year revenue growth as well as 95+% on-time order fulfillment rates. One of the differentiating technologies that top performers used was reverse logistics. . We consider reverse logistics to be a robust returns processing system.

listeriaReverse logistics plays a huge role in product recalls. And the type of role it plays is based largely on the type of product recall. For contaminated food, for instance, it could be as simple as a straight return and credit processing project. Here, the store needs to track the returned item and credit the customer’s account, whether that is a cash return or the amount is credited back to a payment card. For other types of recalls, such as child safety seats, the return is also pretty straight forward. The customer returns the product, whether that is to a store or they ship it back to the manufacturer. The manufacturer processes the return and swaps out the defective product for either a new version or a comparable version. This is also on the easier side of product returns, except for the large volume of returns and the processes required to track all of the returns.

Consumer electronics can pose a more complex return process. This is especially true if the product is going to be refurbished and then shipped back out to the customer, or made available to another customer. These product returns still need to be tracked and processed. After that process, the refurbished product can be made commercially available again. A reverse logistics engine allows companies to achieve this. By efficiently re-entering returned and refurbished merchandise into the inventory stream, the company can recoup some of the losses of the initial return.

salmonellaThe key to minimizing damage, both in the form of bad publicity and lost profits, is effectively managing product recalls. In order to do this, companies need to plan for the unfortunate event. First, they need a process to determine if a recall is needed. Second, they need to determine the best way to communicate the recall. Getting ahead of bad publicity is huge. Third, they need to determine where items can be returned. This can be to stores, warehouses, or having the product shipped back to a variety of locations. Finally, they need to know what to do with the item. If it is a perishable item with food-borne illnesses, the product will need to be disposed of properly. For other products, such as child safety seats and consumer electronics, the product may simply need a minor repair. Having these plans in place ahead of time saves time and money. By having a reverse logistics application in place, companies can streamline and automate the majority of this process. And in the process, they can alleviate some of the headaches that go along with product recalls.

Categories Reverse Logistics
Comments (0)

Bill Mathews ORTECIt doesn’t matter if the cost of supply is at an all-time high or fluctuating wildly, the impact of excess inventory and inefficient operations can be crippling to cash flow. While it is obvious that inventory costs money, most companies are not aggressively seeking to exert control and carry fewer overall gallons. The same holds true for operational efficiency. There are transportation savings to be had from the company fleet or from outsourced carriers. These savings will flow directly to the bottom line, enhancing positive cash flow. In order to achieve the desired results we must provide the proper tools to operations and stop asking them to try and keep up with an increasingly complex operating environment.

Inventory Management
Many companies have invested heavily in tank monitors and telemetry in order to track inventory levels for their customers. As an unanticipated consequence, these companies can actually become less efficient because they either can’t keep up with the information overload from so many data points, or they effectively become slaves to the low stock alarm. In either case, effectiveness suffers and costs rise. More than simple visibility is needed for effective inventory management. Companies need to be thinking in terms of carrying the least amount of inventory possible while still being able to serve the customer. Doing this requires more than aggregating data from telemetry readings. It requires a robust system able to track inventory levels over time and predict usage rates into the future. It is this demand forecasting capability that allows financially savvy companies to drive down their stock levels, thereby increasing cash flow, in both bulk plant and retail operations.

tank

Combining demand forecasting with integrated order generation can further enhance the bottom line by freeing up resources and eliminating a source of data input errors. At this level, operations personnel can now start managing by exception when it comes to determining who gets serviced each day. When you consider everything that we ask dispatchers and operations managers to maintain, this is no small thing. Every minute that we relieve from operations management in the form of task work is a minute that can be used to make operations more efficient. We can extend this theme even further when we add route planning and dispatch to the discussion.

Delivery Management
We’ve spoken to hundreds of companies across the country. Nearly every one of them had been taking a “seat of the pants” approach to some of their most critical daily decisions. There is very little in the way of decision support for processes ranging from supply point selection, compartment utilization, or delivery planning. (We have seen companies knock ten percent off their delivery miles through better compartment utilization alone.) As in the inventory example, we are asking our operations personnel to keep track of too many things, and we are not supporting them with systems designed to automate these tasks. Something as seemingly mundane as building routes each day actually requires a high degree of sophistication to even get close to a good plan. There are simply more possible combinations than a human mind can handle. Even a fleet of less than ten trucks can have more than ten trillion possible combination choices every day. Most companies would like their dispatchers to consider those trillions of possibilities while simultaneously trying to determine which supply points make the most sense when considering available inventory, allocations, and pricing. No one is that good, and even the best dispatcher has to limit the scope of what he or she will consider for a given day.

Just moving from a paper based process to manipulating orders and trucks on a screen will not improve operations in any appreciable way. In order to truly impact cash flow a system is needed that can automate the planning process and optimize the delivery plan to achieve the lowest total operating cost. Factors that need to be included are driver pay, asset costs, compartment utilization, delivery windows, and supply sourcing. With this system in place your operations staff will be freed up to actually manage people, resulting in a further increase in productivity.

Leveraging optimization experts that specialize in enabling operational effectiveness can jump start the improvements and provide guidance to assure optimal returns on your improvement efforts. Keep in mind what you are asking from operations, and look for ways to streamline their workflow. It will pay dividends every time.

 

Bill Mathews has more than 25 years of logistics optimization experience in in the Oil, Gas, and Chemical distribution markets as well as inbound and line haul planning for LTL trucking. In his current role as ORTEC Senior Director, Bill oversees a team of professionals focused on providing best-of-breed solutions into the Oil, Gas and Chemical market as well as transport logistics. Bill was instrumental in innovating ORTEC Inventory Routing which delivers a distinct competitive advantage combining order forecasting, routing and transportation management in one solution. Personal achievements account for the routing of over 10,000 vehicles each day and the load planning of over 300,000 trailers annually. Prior to joining ORTEC Bill held a variety of roles at Descartes and GEOCOMtms.

 

When a company is looking to reduce their freight spend, while maintaining or improving service levels, there are two main paths they can take.  They can buy and implement a transportation management system (TMS).  Or they can outsource transportation planning and execution to a 3PL that provides managed transportation services (MTS).

I talked to Wietse Cornelissen, who works in the Global Customer Service and Logistics department, at Heineken, on August 28th.  Then the very next day, I talked to Jordan Kass, the President of Managed Services at C.H. Robinson’s TMC division.  TMC provides managed transportation services.  The reason these conversations are linked in my memory, is that both Wietse and Jordan talked about achieving better savings by more tightly integrating transportation and inventory optimization.

Wietse is an internal consultant in the Global Customer Service and Logistics department. This department develops logistics capabilities which can be rolled out to the various operating companies within the Heineken organization. An operating company is essentially a country operation, which can have one or more breweries, depots and warehouses. Wietse is the Program Manager for the Global Freight Management Capability Program which was initiated and formalized in 2014. The vision of the program is to develop and implement advanced freight management capabilities, focused on improvements of the process, organization, and systems.

Heineken began a pilot implementation of an advanced freight management capability, using Eyefreight as the preferred TMS, in 2012 at their operating company in Romania.  The drivers for this project were a desire to reduce their freight spend, improve customer order fulfilment, reduce CO2 emissions, and generate reliable logistics data that could be used to drive a more robust continuous improvement program.

In many ways, this was a fairly typical TMS project.  The implementation took 9 months, with the strategic decision to have the Go-live after the busy summer period.  The solution helped them reduce the distance trucks travelled by 15 percent, increase truck utilization (up 5 percent), reduce maverick spend by insuring the preferred carriers on a lane got the first opportunity to respond to tenders, and helped insure they were not overpaying carriers for their work by monitoring and approving route deviations (freight audit).  In consequence, their freight spend went down 7 percent in the first year. Further, having a TMS in place has greatly helped improve visibility in key performance indicators, such as Perfect Customer Order and carrier performance.

But what was not typical about this implementation was the integration of dynamic order allocation into the transportation planning process. The dynamic order allocation functionality “is closely integrated with automated shipment planning.  Eyefreight gives us the ability to dynamically allocate customers to breweries or to create stock transfer orders based on customer sales order mix and available stock levels at the various locations. This allows us to make strategic decisions about optimizing costs whilst maximizing customer order fulfilment.”

Because of Heineken’s success with this project, they are in the process of rolling this solution out to other operating companies while using greatly improved transportation data to continuously enhance their freight management capabilities.

The TMC solution set is on a similar journey. TMC offers a global TMS platform called Navisphere. Over the past year, Navisphere has been enhanced so that their platform can also offer order and inventory management managed services.

A few other 3PLs offer similar services. This is often an inbound freight management solution that is particularly popular in the Auto industry. In automotive, it is common that Tier 1 suppliers will have a Kanban warehouse in close proximity to an OEM warehouse so that the Tier 1 supplier can make just in time deliveries to the factory. The warehouse is tasked with keeping a specified amount of days inventory coverage in storage. 3PLs, in addition to doing the route planning, order the inventory when the warehouse inventory runs low.

But according to Jordan, what TMC is doing is more complex. “In automotive, the plan for every part (PFEP) process is kind of a holy grail. This is something that is more discussed than achieved.” To introduce a PFEP system, a company needs to understand everything about every part: How each part is purchased, received, packaged, stored, and delivered to its point of use. “PFIP is not easy. The demand for parts is cyclical. Materials replenishment sits separate and upstream from transportation in many companies. It is siloed. Transportation seeks to maximize the cube. To do that you have to look at the available inventory, customer demand, and transportation.” To achieve the lowest landed cost, at inventory days of supply needs at the warehouse to be adjusted regularly and transportation strategies – milk runs versus multi-stop deliveries – also need to be adjusted.

In conclusion companies, can lower their freight spend by working with a TMS supplier or a managed services provider. There is evidence that both types of companies are improving the transportation solve by jointly optimizing across inventory and transportation.

backtoschool-2015-cheat-sheet-2-1024Where has the summer gone? I am having a very difficult time wrapping my head around the fact that summer is basically over. And my oldest child, now 5, will be starting kindergarten in just over two weeks. And I also can’t believe that I haven’t given a single thought to back to school shopping. Sure, my wife and I decided he probably needs a new backpack, but neither one of us has gotten around to looking for one, let alone buying one. And he probably needs some new shoes, and maybe some new clothes, but it is still summer. My mind will not let me believe that fall is just around the corner.

So while I may be behind the eight ball, many consumers are not. The National Retail Federation (NRF) has released its annual back to school survey, and US consumers are expected to spend $68 billion on back-to-school and back-to-college items this year, down 9.3% from $75 billion last year. This reduction in spending is most likely a result of a dramatic drop in electronics sales, which according to NRF President and CEO Matthew Shay, is not surprising. “As seen over the last 13 years, spending on ‘back to school’ has consistently fluctuated based on children’s needs each year, and it’s unlikely most families would need to restock and replenish apparel, electronics and supplies every year.” So cue the buses (and the tears) for most people, but I’m not going to think about this until Labor Day. Then I’ll let summer be over.

And now, on to the news.

amazonpublictransit2Amazon is always looking for new ways to deliver products to its customers. In a patent application made public this week, Amazon describes a plan for delivering packages via public transportation. The company will turn trains, buses, subways, and other vehicles into roaming pickup locations. One scenario described in the patent is essentially an Amazon Locker on wheels. The locker would be installed inside or attached to the outside of a bus, train or other form of transit. Customers who ride a particular route regularly could opt to have a package delivered to their preferred bus, to retrieve while they’re riding. Or those in a specific area could choose to pick up their package at a bus stop, receiving a text message when their item is approaching. While Amazon has experimented with subways as part of Prime deliveries, this would be a whole new method for all customers. Combined with drones, bicycles, and private fleet, Amazon is looking to use every possible means of transportation to deliver packages.

late mailThe USPS is making direct mailers and catalogers worried about their business operations. That’s because in the first half of 2015, late mail has increased by 494 million pieces of mail, or a 48% rise over the same time period in 2014, according to a management alert from Office of the Inspector General (OIG) of the U.S. Postal Service. Due to changes in service standards implemented in January, a rise in delays was expected. But the volume of late mail has been alarming, to say the least. Winter weather conditions played a role in the delays early in the year, but the last three months still have an average of over 50 million more packages delayed this year than last. This is certainly not going to raise consumer confidence.

At the same time, the USPS is ramping up new services as it tries to compete with FedEx, UPS, and Amazon. In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. The new postmaster general, Megan Brennan, is pushing same-day delivery as well. She cites consumer demand for this service as a prime motivator. To keep the postal service more competitive, she is also pushing Congress to green light the shipping of alcoholic beverages, expanding grocery delivery, and wants to offer more Sunday delivery.

methane burnMethane leaks in the natural-gas supply chain are far exceeding estimates, according to a new study. Natural-gas gathering facilities, which collect from multiple wells, lose about 100 billion cubic feet of natural gas a year. That’s about eight times as much as estimates used by the Environmental Protection Agency (EPA), according to the study, which appeared in the journal Environmental Science and Technology. The newly discovered leaks, if counted by the EPA, would increase its entire system-wide estimate by about 25 percent. According to the Environmental Defense Fund, methane is the main component of natural gas and has a more potent short-term effect on climate change than carbon dioxide. The effect that the newfound emissions would have on climate change over 20 years, the Environmental Defense Fund said, would be similar to that of 37 coal-fired power plants.

BK IndiaBurger King is rolling out delivery service in India. This marks the fifth country that the fast food chain has rolled out the service, joining the US, Spain, Korea, and China. The move was prompted by the changing habits of Indian consumers, specifically the use of mobile apps for ordering food. Burger King had initially launched a program that allowed customers to order food through an e-commerce engine driven by eBay, which essentially put a Whopper on hold for them. Now, by partnering with three tech firms (LimeTray, FastOx and Grab in India), the company is ready to start its home delivery business.

East Coast portsThe growth in shipping volumes at some East Coast ports appears to be slowing as West Coast ports continue to rebound. Growth in shipping container volumes at the Port of Savannah, for example, slowed to 10.3% year-over-year in July, compared with 23.2% in June, according the Georgia Ports Authority. This is mainly due to the increase in imports that began with the port delays on the West Coast. Now that import and export traffic is normalizing out West, ports of the East Coast can expect shipping volumes to continue to decrease.

WalmartWal-Mart is holding inventory longer at distribution centers to increase flexibility. This is mainly a response to meet e-commerce demands and expanded competition. Wal-Mart reported that inventory grew 2.2% from a year earlier, slower than its sales, which grew 4.8%, or by $3.4 billion, in line with its goal of shedding excess inventory. The company is keeping smaller amounts of a wider variety of items at distribution centers, allowing it to make more products available to consumers without having to stock them in stores. Less physical inventory in stores can be a growth driver for e-commerce business, as customers will need to have items shipped, rather than purchased in stores.

And finally, while spot load availability increases, rates fall. Van and reefer load availability increased for the third consecutive week but so did the availability of equipment, contributing to lower national average spot market rates for van, refrigerated, and flatbed loads, reported DAT Solutions. The total number of loads posted on DAT load boards rose 2.5% during the week, nearly matching the increase in the number of equipment posts (2.6%).

That’s all for this week. Enjoy the weekend, and the song of the week, Cruel Summer by Bananarama.

Categories This Week in News
Comments (0)
Global WMS Market

Global WMS Market

Earlier this month, I published a Logistics Viewpoints article discussing the prevalent factors affecting the global WMS market. I mentioned that the research process leading to the publication of ARC’s WMS Global Market Research Study includes interviews with executives from numerous WMS software companies. However, the interviews are only one part of the data gathering process. We also utilize trends from our many years conducting this research and complementary ARC research such as our Warehouse Automation & Control study. Finally, there is much third-party research that provides valuable context for our analysis. This includes macroeconomic data and research on complementary markets. Warehouse and logistics property investment is among the most complementary to the WMS and warehouse automation markets.  CBRE and Prologis are global organizations that publish insightful logistics property research for regions across the globe. I find trends in this market to be especially effective at providing color to the developments in warehouse technology markets.

Globalization and International Trade
Prologis recently published a paper on logistics property obsolescence, the causes, and the implications of the process. This report provides useful Globe-trottinginsight into property dynamics and points out structural shifts in the global demand for warehouse capacity. For example, Japan’s economic transition from manufacturer to large importer of goods has led to insufficient quantities of institutional distribution warehousing to support imports. Prologis quotes CBRE research that estimates the Japanese institutional logistics market grew almost 200 percent, or an annual rate of over 10 percent, from 2006 through 2014. So, although the Japanese economy is growing slowly, this shift in supply chain networks and distribution patterns is supportive for warehouse and distribution investments and I believe it will likely spur investment in warehouse automation as well. Similarly, European trade growth has been substantially higher than the region’s GDP growth. This growth has led to warehouse property development in northern European port areas and inland hubs such as Lyon France and areas of Poland.

The E-Commerce Impact
CBRE has identified “technology” as one of three long-term structural shifts affecting industrial property markets (the others are globalization and WMS Todaydemographics). The firm published a report discussing results from polls and discussions about technology’s impact on industrial property.  The results, obtained from its Power of Three conference in Paris, show that e-commerce and online retailing is the factor expected to have the greatest impact on logistics occupancy decisions in the near future (50% choosing it as the technology likely to have the greatest impact). This is consistent with ARC’s research on the WMS and Warehouse Automation markets, showing that investments to support e-commerce and omni-channel fulfillment is still the predominant dynamic stimulating growth of these markets as well.

CBRE also publishes quarterly Marketview reports that provide updates on the regional industrial real estate markets. In its US Industrial Q2 2015 report, CBRE further notes that the structural changes of omni-channel retail and e-commerce will drive logistics US Canadafacilities investment in markets of all sizes to enable quick delivery access to as many customers as possible. The growing demand for warehouse space in secondary markets in the US is partially driven by this e-commerce competition to deliver orders same day or next day. Amazon’s fulfillment center expansion into smaller facilities closer to population centers is probably the most frequently noted example.

The strength of the US dollar was noted a transitional factor. I agree, as exchange rates typically adjust over time unless they’re constantly pegged in a similar manner to China’s policies in the past.  In contrast to US logistics property demands, Canada is coming off a situation-specific downturn in logistics property demand resulting from Target’s former facilities coming onto the market after the company’s retreat from Canada.  Target Canada’s warehouse automation stock is likely to affect the warehouse automation market in Canada and the US as well.

APACCBRE’s recently published Asia Pacific Market Outlook noted much of the same factors impacting that region, stating that demand for logistics warehousing space will remain strong due to organized retail in emerging markets and strong growth of e-commerce. Similar to the US, e-commerce providers in China, India, and Japan are also locating fulfillment properties closer to population centers to reduce delivery times. Other factors positively impacting the region include increased use of 3PLs to achieve efficiency improvements and China’s gradual transition to increased consumption. Notable exceptions to the region’s growth include Thailand, due to political instability, and Singapore, due to labor shortages.

Conclusion
ARC’s ongoing research on the global WMS market recorded a post-recession uptick in WMS revenue growth. Although signs of this rebound appear to be moderating, numerous secular changes are contributing to ongoing investment in WMS and warehouse automation. Since the warehouse technology markets are clearly complementary to warehouse property, it is useful to monitor developments in this segment of real estate. The structural changes impacting the global industrial real estate market are consistent with the major contributors to growth in warehouse technology adoption. These changes, notably globalization and e-commerce, are contributing to warehouse space and technology growth rates above those of global GDP.

Global currency fluctuations have impacted trade and financial markets significantly over the last year. However, these foreign exchange rate effects typically have only temporary impacts on global imports and exports. Regardless, the logistics sector is likely to obtain a net benefit from increased outsourcing and trade. Meanwhile, investments in logistics technologies are also likely to increase as planning tools will be required for distribution network planning and facility reconfiguration will stimulate additional investment in WMS software and warehouse automation.