Bob_Dylan_-_The_Times_They_Are_a-Changin'The times they are a-changing. This week’s news reflects some major changes, especially in the retail world. The West Coast port work stoppage has come to an end with a formal agreement in place after 9+ months of discussions. Major retailers are branching into new, and often unlikely spaces, as the global e-commerce market soars. The commercial drone industry finally has an initial set of regulations in place, which now opens a 60 day comment period. Amazon, for one, is none too happy with the proposal. And finally, this weekend marks the end of February. For those of us in the frozen landscape of New England, it means that the end is in sight. Spring will be here soon, and we can finally move on from a record-setting winter. Yes, the times they are a-changing.

And now, on to the news.

wcpAt least for now, the West Coast port labor fight has come to end. The owners of the 29 West Coast ports and the dockworkers union have reached a tentative deal for a new contract. As a result, the port can begin to work through the backlog of stalled goods waiting on the docks and out at sea to get operations back to normal. While this is good news for retailers, manufacturers, and agricultural exporters, the road to recovery will not be quick. Analysts predict it will take months for operations to normalize, and the flow of goods through the ports will be slow going for the foreseeable future. All parties involved in the deal know that this is certainly not the end of worry over future confrontations.

remote droneThe FAA revealed a proposal over the regulation of commercial drones in the US. The proposal would allow commercial drones up to 55 pounds to fly within sight of their pilots up to 500 feet high at speeds as fast as 100 mph. The remote pilots must be at least 17 years old and would have to get certificates by passing a test of aeronautic knowledge and a vetting by the Transportation Security Administration. Many people are happy with the proposal. Brian Wynne, CEO of the trade group Association for Unmanned Vehicle Systems International, called the proposal a milestone toward remote-controlled aircraft sharing the skies with passenger planes. Amazon and Google however, are not so happy.

“That means we really are not talking about unmanned aerial vehicles. We are talking about something that has to have a person. It defeats the whole purpose,” said Michael E. Drobac, executive director of the Small Unmanned Aerial Vehicle Coalition, of which Amazon, Google and GoPro are members.

In Hyderabad, India, the logistics side of e-commerce has been a challenge. Local convenience stores and gas stations are stepping in to try to save the day. Third party logistics providers are working with local shops to establish e-commerce hubs in neighborhoods in smaller cities. Rather than developing complicated supply chains to ensure home delivery across the region, retailers can now deliver goods to small local stores for convenient pick-up by the customer. This plan allows the local business to serve a major role in the last mile of delivery while enabling retailers and logistics players to save money on their supply chain operations.

FarmersMarketOnline food shopping has been growing at a rapid pace in the last few years. And now, an unlikely retailer is entering the space: Overstock. Known for selling surplus and returned items through its e-commerce site, Overstock.com is now a player in the online grocery space. But instead of working with traditional supermarkets like other retailers, Overstock is taking a different approach. Overstock is working directly with farmer’s markets to deliver “locally grown, farm fresh food.” The program works with local farmers to deliver food directly to customers. Overstock handles the delivery of the order to customers and uses a profit-sharing program to compensate farmers. With an increasing focus on local and sustainable food sources, Overstock has put itself in a great place for growth in the grocery space.

waffleTwo more retailers are entering new business ventures as well: Waffle House and Woolworths. Waffle House, a breakfast restaurant based in the US, is entering a new business – delivering mail. The restaurant chain is attempting to compete with the USPS, FedEx, and UPS. The plan is take a page from Uber’s playbook and use its restaurants as drop-off locations. Using an app developed by Roadie Inc., customers can find drivers already heading towards their package’s destination. The drivers will then deliver the package to Waffle House locations, where customers will retrieve it. Rather than getting paid, drivers receive a free waffle when they download the app and free drink when they make a delivery.

At the same time, Australia based retailer Woolworth’s has inked a deal with eBay to serve as pick-up locations for orders. The service will initially be available to eBay buyers living in Sydney and Tasmania. They will have the choice to collect their orders from more than 90 Woolworths and Big W stores located across both cities. eBay and Woolworths predict that up to 12,000 sellers will be involved in the new click-and-collect service, based on Woolworths’ claim that 91 percent of Australians currently live within 10 kilometers of one of its stores. These two agreements show the changing nature of supply chain logistics. Click-and-collect is becoming a larger portion of businesses for retailers, and will only continue to grow as the global e-commerce market does as well.

That’s all for this week. Enjoy the weekend and the song of the, The Times They Are A-Changing by Bob Dylan.

I attended my first ARC forum a few weeks ago.  Having been immersed in presentations and panels for three days though, there was something almost Schrödinger’s cat-like in the air about the Industrial Internet of Things (IIoT).  The two apparently contradictory states are:

  1. IIoT is real!!!
  2. Oh. I thought there was more to IIoT than that…?

So I definitely get the sense that people are less skeptical than last year about the Industrial Internet of Things.  And yet simultaneously, some people seem disappointed by the progress so far.

Let me suggest an answer to this conundrum:  While the Industrial Internet of Things is a revolutionary concept, it will be incremental in execution.  Or, as I often advise clients about big data:  Big data isn’t a thing, it’s a journey.

The session I hosted, New Analytics Approaches for the Industrial Internet of Things provides a prime example.  Three strong case studies – all with solid business benefits – taking those early steps analyzing data from the Industrial Internet of Things:

Hedi Ago from the Orlando Utilities Commission presented on the OUC’s smart meter project.  With 190,000 electricity customers and 110,000 water customers, smart meters are bringing a number of benefits – to both OUC and its customers.  Consumer benefits include rapid re-connection of service – so rapid that if a customer uses a payment station to settle a bill, the power is often back on before they get home (7-12 minutes).  Customers can also monitor their usage via dashboards and visualizations accessible from mobile devices (although not in real-time).  For OUC, the most obvious benefit is avoiding the cost of reading meters, ad infinitum.  However, analysis can also reveal which customers are watering the yard on days that they shouldn’t be (during a shortage), and also detect and eliminate fraud.  You can see full details of the cost and time savings in the slide below.

OUC

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Adam South spoke about Kennametal’s use of machine tool data and complex event processing to increase productivity in discrete manufacturing.  Kennametal was faced with talent erosion, as well as the increased complexity of both tools and manufacturing processes.  And, the expectations of the Facebook generation – that is, data at their fingertips.  The overall goal though was to reduce the time from art-to-part.  Adam noted that the traditional approach to increasing productivity is to reduce downtime.  The new approach was focused on wringing out more productivity by reducing cycle time.  The solution uses complex event processing software to gather and analyze production data in real-time (see diagram below).

Kennametal

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This helps Kennametal to understand which operators are out-performing the production plan – and crucially, to guide less experienced operators to improve.  For example, in one machining operation, it was discovered that taking a faster, shallower cut reduced cycle time by 16%, compared to the slower deeper cut that the production plan called for.  Overall, best practices have been shown to reduce cycle time by 20-40%.

Scott Abramson presented Duke Energy‘s use of analytics with their wind genera​​tion project.  The wind power generation business is centered on long term contracts to sell power to the grid.  With that in mind, Duke Energy purchases wind turbines and expects to amortize them over more than 20 years of productive life.  Ensuring that turbines live a long and productive life is therefore critical to the financial performance of the business.  A significant event in the life of the turbines is when their warranty period expires.  Since the original equipment manufacturer covered the warranty, Duke had no visibility into the part of a turbines history.  However, Duke did have strong data from assets in the field and instigated an analytics program to reduce unplanned downtime and optimize asset productivity.  This involved integrating structured and unstructured data and matching data from an historian to work orders.

Three different use cases, all aggregating detailed, low-level data – Industrial Internet data.  So, yes the Industrial Internet of Things is kicking into life.  And nobody should be disappointed by the scale of these projects.  The arrival of the Industrial Internet was always going to be incremental.

However, it’s clear from several conversation with clients that more details on how IIoT analytics projects actually work are desired.  Presently, it’s a bit of a mystery how sensor data is collected, managed and turned into information.  And that’s no criticism of the three case studies presented – each presenter only had 20 minutes and were instructed to focus on business challenges and benefits, not technology or implementation.

So upcoming research from ARC will take a deeper look at how Industrial Internet analytics projects are implemented, from raw data through to insight.  I expect to highlight many challenges that are similar to those that have bedeviled business intelligence and analytics projects for decades:

  • How to decide which metrics and key performance indicators to present to management;
  • How to build-in the flexibility and agility necessary to deal with future changes – and unexpected questions;
  • How to deal with dirty and incomplete data;
  • How to integrate and aggregate data from a large number – and wide range – of data sources

Other challenges – such as how to manage large data volumes and high velocity data – are big data problems, but we’ll cover those over the course of 2015 too.​

David White is ARC’s expert on Big Data, analytics, and Business Intelligence.

Categories Business Intelligence, Production
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On Friday, the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) announced a tentative agreement on a new five-year contract covering workers at all 29 West Coast ports. This announcement comes after months of labor negotiations and West Coast port congestion that has caused widespread shipment delays felt across the nation and across industries.

Courtesy of Michael Kelley http://www.mpkelley.com/

Courtesy of Michael Kelley http://www.mpkelley.com/

My colleague Chris and I have included ongoing updates on the gridlock in our Friday news posts. This past Friday I referenced a Gizmodo article that included some truly remarkable photos of the congestion at the Ports of LA and Long Beach. This got me thinking about the longer-term prospects for the stakeholders of the West Coast ports.  I have a personal interest in economics and business strategy; so I almost automatically look at the dynamics of these situations from the perspective of Porter’s Five Competitive Forces.

Michael Porter -  The Five Forces That Shape Industry Strategy

Michael Porter – The Five Forces That Shape Industry Strategy

Existing Competition Among Ports
I consider the West Coast ports to be one entity in this situation, since the ILWU is established along the entire coast. Therefore, other ports outside of ILWU territory can be considered alternatives, or “competitors.” I found it interesting that the ILWU chose to disaffiliate itself from the AFL-CIO (since the International Longshoremen’s Association is affiliated) back in 2013, as I always thought that “strength in numbers” was a key tenet to collective bargaining. Anyway, it is clear from the press and from statistics that a notable amount of shipments are being diverted away from the West Coast ports to more reliable alternatives such as Gulf and East Coast ports. (In fact, The Panama Canal has been another beneficiary of these ship diversions because the ships coming through have a greater number of loaded containers, generating greater fees for the canal operators.) There is evidence that discretionary West Coast cargo has been getting diverted for some time. A PMA annual report states that East Coast and Gulf ports have gained market share at the expense of the West Coast. And they point to reliability concerns after the 2002 coast-wide port shutdown as the likely cause. With the Panama Canal expansion, the Gulf and East Coast ports will become an increasingly viable alternative for the West Coast going forward.

The diversion of shipments to alternative ports is driven by the importers’ desire to receive the goods in a timely manner and on a reliable basis. Diversion causes an increase in shipping distance and cost. But at this time diversion is providing time and reliability advantages. Importers are likely to continue to shy away from the West Coast until they obtain sufficient confidence in the reliability of the ports.

Threat of Substitutes to Labor
Aside from the reduction in work caused by diverted shipments, the ports are becoming increasingly automated due to general modernization, capacity constraints, and the increased use of containers that lend themselves to standardized processes. In 2013, when the ILWU disassociated with the AFL-CIO, the Seattle Times referenced  a letter from the ILWU president stating that they faced the “challenge of the ports soon being run by robotics and computer-operated machinery over the next five to ten years.” This is likely to be true, as the ports need to stay competitive and increase throughput. But I also think that while some jobs will be replaced by automation, others will be created to support the new technology and processes in use.

Technology is currently being deployed across the West Coast ports. The recent TracPac container terminal at the Port of LA is the West Coast’s first to be completed terminal automation project, according to PMA. It is a $510 million upgrade that is composed of 10 projects and includes the construction of an automated intermodal container transfer facility and equips each terminal with on-dock rail. West Coast terminals are reportedly also considering the deployment of additional automation including automated guided vehicles and automated stacking cranes. An example of the use of AGVs in terminals is APM Terminals new facility in Rotterdam that will use battery-driven lift AGVs for container transport within the yard and eight STS cranes that will be controlled remotely.

So the shipping lines are being pressured by volumes and economies of scale; the West Coast port operators are being pressured by the alternatives being created by the Panama Canal and alternative ports; and the ILWU is being pressured by the port operators. It sounds to me like competitive forces are alive and well on the Pacific.

Monica TruelschAsset-based transportation firms continue to aggressively diversify their businesses, according to the recently completed 2014 TMW Transportation and Logistics Study. Not surprisingly, many view the brokerage/non-asset category as a promising new growth opportunity.

The results of our latest survey also highlight the improved financial performance enjoyed by many transportation service businesses over the preceding year. Analyzing responses has produced a number of interesting insights into strategies that have been most successful for brokerages and 3PLs as well as blended asset and non-asset business types.

As for businesses that have traditionally employed asset-based operating models, convergence appears to be the operative word. In fact, more than 37 percent of survey respondents already operate multiple business lines and one-third plan to expand into at least one additional category in the next three years. These results reflect the rapidly changing dynamics of the North American transportation market.

The diversification/convergence trend has broad implications for the broker/non-asset sector, both near- and long-term. How will these “new” diversified competitors differentiate themselves from traditional non-asset service providers? How will established brokers and 3PLs adapt to the continued blurring of competitive boundaries with carriers?

Diversification, Profit Potential Align
Our latest study is based on the results of an online survey conducted between July 15 and August 25.  Asset-based organizations that participated operate about 87,000 total tractors, more than 173,000 trailers and included 21 of the Transport Topics “Top 100 Carriers.” Non-asset participants included 10 of the Inbound Logistics “Top 50 Third Party Logistics Providers.” Combined revenue for all entities that took part in the study exceeded $24 billion over the preceding 12 months.

In comparison with results reported in our 2013 survey, participants indicated across-the-board gains in key performance indicators across all three sectors covered in the 2014 study—truckload irregular, truckload dedicated and brokerage/non-asset businesses.

For example, respondents to our 2013 survey reported severe margin pressure, with average operating ratio in the mid-90s and just 3.2 percent of participants achieving ORs below 90 percent. Our 2014 results show significant improvement – more than half of respondents achieved an OR of 94 percent or lower and 16.7 percent came in below 90 percent.

Improvement was far from universal, however: While more than half of Truckload Irregular respondents achieved an OR of 94 percent or better, another 39 percent were at 96 or higher, and 5.6 percent of respondents lost money.

Meanwhile, brokers and 3PLs outperformed their asset-based peers in gross margin at 18.5 and 9.7 percent, respectively, indicating a clear advantage for those non-asset providers that had developed their own carrier networks.

TMW Gross Margin

The Loadboard Factor
The use of internet-based loadboards is ubiquitous in the transportation industry, but our study reveals a diminishing role for them in the non-asset space. This is clearly a result of service providers leveraging their TMS solutions to develop and maintain comprehensive carrier networks. For example, 44 percent of responding non-asset firms posted between one-quarter and three-quarters of their freight to loadboards, yet nearly 70 percent of participants actually serviced 25 percent or less of their orders in this manner. Moreover, businesses that relied more heavily on loadboards generally realized lower gross margins than those that depended more heavily on their own carrier networks.

Interestingly, blended broker-carrier organizations accepted much lower percentages of loads offered to them than did pure non-asset providers, yet they earned lower margins overall. 3PLs are therefore leveraging a greater pool of freight opportunities to maximize yield with fewer constraints.

While not altogether surprising, this does point to the need for those entering the non-asset space to invest in technologies that enable them to build and leverage carrier networks as part of their operational strategies. The ability to quickly and efficiently tender loads to network partners requires close monitoring of multiple factors, including insurance expiration dates, safety ratings, capabilities and credentials, lanes, locations, equipment and more. They also will need to develop expanded rating and advanced load planning and execution capabilities that are likely not part of their existing TMS.

Technology, Technology, Technology
The TMW study underscores the fact that the most active participants in the ongoing convergence trend are smaller to mid-size carriers seeking to become comprehensive logistics service providers. As capacity remains tight and competition strong, they recognize the need to address a broadening range of customer needs in order to pursue growth. Key to their success will likely be their willingness and ability to invest in TMS platforms that allow them to operate their diversified businesses more holistically.

Looking ahead to 2015, study participants were prioritizing greater speed and efficiency in processes such as onboarding customers and carriers. Technology is a key enabler here and selecting the right solutions to fit the business is critical.

For logistics business leaders, the findings of the 2014 TMW Transportation and Logistics Study highlight the importance of successful diversification as a near- and long-term growth strategy. As always, thoughtful planning and smart investment in supporting business technology can sharply increase the likelihood of success.

 

Monica Truelsch is director of marketing for TMW Systems. Monica has contributed to growing market share for advanced technology in diverse sectors, including engineered materials, artificial intelligence and laboratory management. She joined TMW Systems in 2004 as part of the company’s R&D group.

I’ve recently completed a survey titled Warehouse Performance Improvement.  I had two key partners, DC Velocity and eft (eyefortransport).

An executive summary of the overall results will be published in DC Velocity in May.  DC Velocity’s summary will mostly focus on what shippers can do to improve performance.

I’ve just started the analysis, but in today’s post I will provide some high level results for the 3PL sector. There were 150 respondents overall, 49 from the 3PL industry.  We asked 3PL respondents, which location, people, process, or technology practices most improved cost performance (as measured by distribution costs per unit shipped)?  Location refers to a change in warehouse location in order to reduce labors costs, taxes, or transportation costs.

 

Chart1

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When taking into account all their attempts to improve cost performance over the past five years, our 3PL respondents most frequently reported that process changes were the best driver of cost improvement.

When it comes to process changes, there are a variety of tactics available.  Most frequently the process change reported is the implementation of a continuous improvement program.

All respondents that implemented a continuous improvement, also known as operational excellence (OpX), reported driving down their distribution costs per unit shipped.  Over 20 percent OpX respondents reported driving costs down by more than 10 percent in the first year after the program was implemented.  And almost 90 percent of respondents said that this was not a one time gain, by using OpX processes they were able to drive down costs year after year.

The payback period our 3PL respondents got on their continuous improvement programs were excellent.  Nearly 78 percent reporting a payback of less than one year.  In contrast, the aveage payback period for supply chain software technologies is about two years.

 

Chart2Payback

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Further, these cost improvements did not come at the expense of service performance.  85 percent reported that continuous improvement programs allowed them to improve their service.  Only 15 percent said service remained the same after putting OpX into effect.

This survey has a lot of data.  I’ve just begun the analysis.  I will speak at eft’s 3PL Summit & Chief Supply Chain Officer Forum, which takes place from June 16th through the 18th, where I will present more detailed results relating to the tactics that have been most successful for 3PLs in improving warehouse performance.

 

3PL Brochure

Finally, it is also worth mentioning, I’ll be participating in a webinar this Thursday hosted by eft titled Airbnb for Warehousing? – New Business Models, Innovation, and ROI.  The webinar starts at 12:30 PM EST and is scheduled to last 45 minutes.