Hey Rubber Ducky (photo by Bob Chamberlin / Los Angeles Times)

Hey Rubber Ducky
(photo by Bob Chamberlin / Los Angeles Times)

For those of you reading this post on Friday, August 29, I just want to “rub it in” by letting you know that I just began my vacation! If you are reading this post while you are on vacation, it’s time to improve your social life (just kidding). Actually, I believe this Labor Day weekend is a good opportunity to reflect on the advances and technological improvements of society that have (hopefully for all) improved our working conditions and living standards from those of our ancestors.

Now on to this week’s logistics news:

Reversing a lower court’s earlier decision, A US Federal Appeals court ruled that FedEx Ground drivers in California and Oregon are employees, rather than independent contractors. There are differences in labor laws and requirements for independent contractors and direct employees in many states, and this ruling opens up the possibility for workers to pursue claims for wages and  benefits.

I may have fallen prey to the allure of a contentious article title, but the Journal of Commerce, referencing Alphaliner’s recent newsletter, contends that the bundling of ocean transportation with value added services is experiencing sluggish development. The article, noting recent financial losses at Damso and Yusen Logistics, a potential sale of APL Logistics, and sales of  Hanjin Logistics Korea and Cosco Logistics, stated the following:

“These disposals point to the reduced relevance of logistics capabilities for carriers, as the bundling of 3PL services with ocean transportation has not yielded significant synergies,” Alphaliner said. “The affiliated 3PLs are also increasingly competing against the carriers’ own customers, the traditional freight forwarders and independent 3PLs, with some carriers de-emphasizing their links with 3PL affiliates.”

National Retail Services (NRS) published some results of a survey they conducted, that polled thousands of truck drivers nationwide to determine the factors that influence truck drivers’ employment decisions. The survey found that 79 percent of drivers indicated that salary was most important, with home-time ranked second. I know that past surveys of employees (not specific to transportation careers) have found that job satisfaction is often ranked more important than salary. However, when I was in my twenties, an executive of the firm at which I worked stated to myself and a number of other employees that financial compensation isn’t typically seen as most important. I wish I had replied, “Ok, then just increase our salaries and we can move on to discussing the next topic.”

Alibaba, according to Reuters, reported $2.54 billion in revenue for the second quarter, a 46 percent year-over-year increase. Alibaba is often referred to as the Asian Amazon.com, but with a distinctly different business model (for comparison and contrast, see Amazon.com vs. Alibaba: Omni-channel Competitor and Collaborator). The following text from the article provides insight into why this company’s pending IPO is grabbing the headlines:

Alibaba accounts for about 80 percent of all online retail sales in China, where rising internet usage and an expanding middle-class helped the company generate gross merchandise volume of $296 billion in the 12 months ended June 30…..Alibaba’s initial public offering, which could top $16 billion to become the largest-ever technology IPO, is expected after the company starts an investor roadshow next week.

Finally, for those of you in the Los Angeles area that have a soft spot for inflatable ducks, the LA Times reports that you still have more time to view the 54 foot inflatable yellow duck, as its stay has been extended to September 6.   Have a great weekend everyone! Enjoy this week’s video, “Hey Rubber Ducky” by Ernie from Sesame Street.

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As businesses look to implement supply chain efficiencies, the ideal of what should be done often conflicts with the reality of what can be done. Nowhere is that conflict experienced more than when businesses attempt to master their inbound transportation. The promise of combining inbound and outbound freight to leverage volume for improved service and cost is often thwarted by the reality of operational differences between inbound and outbound transportation networks, varying degrees of leverage in supplier relationships, organizational structures that inhibit total cost decision making, disparate systems and platforms, and the lack of data and metrics to make informed decisions. For these reasons, the benefit of a synchronized inbound and outbound transportation network remains unrealized for many companies. Flexible technology and service solutions that connect supply chain partners, provide visibility to the process, and generate actionable data are foundational to a comprehensive approach to bridging the gap.

Shipping Terms Conversion vs. Cost and Service Improvements
Attempts to master inbound transportation often initially focus on the conversion of shipping terms based on the assumption that savings, service improvements, and control are directly related to the volume of freight that is directly contracted with carriers. While terms conversion can be an important component of the process, sustained improvements and control are driven by first determining the comparative strengths of the supply chain partners involved and the implementation of business processes that provide transactional visibility to inbound shipments. In the context of the overall supplier relationship, evaluating the competitiveness of the freight costs embedded in product cost using market data allows for a surgical approach to change based on comparative strength. Connecting suppliers, carriers, and warehouses with an embedded best practice technology platform that provides visibility to all inbound, regardless of shipping terms, allows the capture of activity, volume, cost and service information to drive ongoing analysis and discussion. This approach allows for a data driven engagement with internal and external partners and provides the platform to ensure negotiated cost and service expectations are delivered. The combination of actionable data and visibility is the real driver for sustained improvement and increased control over transportation networks on the path to inbound transportation mastery.

Leveraging Transparent Transportation Networks to Become a Supply Chain Partner of Choice
Once the opacity of the transportation network has been cleared with actionable data and operational visibility, the next foundational element is determining the approach to managing this newly transparent network.  Does the carrier network change? How are service and compliance issues handled when changes are implemented?  How are increased freight volumes managed with existing personnel?  How is information shared? Having the organizational resources to effectively manage a transparent transportation network increases the overall competitiveness of the supply chain and remits benefits to carriers, suppliers, warehouses, and internal customers – purchasing, operations, and finance.  Providing data that partners need to grow and a process that makes it easier to do business strengthens your position as a supply chain partner of choice.

Building the Bridge
Implementing supply chain change requires an engaged, cross functional team of internal and external partners with the right skills and time.  Selecting providers that have a flexible, comprehensive approach to technology, data, analysis, and execution services to support that team is critical to timely receipt of benefit. Working with providers that build transparent transportation networks ensures the benefit of change remits back to participants.  With actionable data, visibility, transparency, and the right partner engagement, companies can build and cross the bridge to inbound transportation mastery.

 

Eric Meister, Chief Operating Officer of LeanLogistics, is responsible for business growth and profitability for all aspects of customer technology implementation, post-implementation tactical customer support, strategic support services, and client services.

Prior to joining LeanLogistics, Eric drove operational excellence through the adoption of technology in supply chain leadership roles in best-in-class manufacturers and a third party logistics provider including the implementation of LeanLogistics’ solutions. His experience as a customer helps drive a practical approach in developing innovative supply chain solutions.

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Direct Revenue by Channel (Aggregated Average)

Direct Revenue by Channel (Aggregated Average)

By definition, omni-channel is a term that describes an intersection, or an interplay between commercial “pathways”, and it is also a term that describes a cross-section of business processes. There is the sales aspect of omni-channel as well as the fulfillment and customer service aspects. My colleague Chris Cunnane and I, in partnership with James Cooke of DC Velocity, are in the final stages of a comprehensive research project on omni-channel fulfillment.  We surveyed numerous pure-play retailers as well as brand manufacturers that sell directly and indirectly through retail partners. And we obtained feedback on a number of dimensions related to omni-channel fulfillment, including:

  • Sales channels, to obtain an understanding of the principal go to market profiles
  • Fulfillment resources deployed (corporate DCs, 3PL managed fulfillment, retail locations)
  • Business processes and technology utilized
  • The interplay or integration of these dimensions and categories (essentially what distinguishes “omni-channel” from “multi-channel”)
  • A time element: the current state, the past state, and the anticipated change in important aspects to the topic

We are just beginning to analyze the survey response data at this point. Chris, James, and I will be presenting our findings at CSCMP next month. There will also be a research summary published in DC Velocity this November. However, I reviewed the data briefly and I have already found some interesting insights. Some of the findings confirmed my existing perceptions, while others challenged them.

  • I found it a bit surprising that the use of paper-based WMS was still 70 percent as prevalent as the use of radio-frequency (real-time) WMS solutions in traditional DCs (of companies that sell through retail partners). Real-time WMS was shown to provide a compelling ROI years ago. I’m interested in obtaining a better understanding of the resistance to WMS upgrades in these finished goods warehouses.
  • For In-store fulfillment of e-commerce orders, more respondents indicated that order picking was done in the front of the store (store floor) than in the back rooms. I found this to be intuitive from a space utilization perspective, but less than ideal from an inventory accuracy or process efficiency perspective. Also, RF-based picking of e-commerce orders at the store was wide-spread, but still the exception rather than the rule.
  • The use of distributed order management (DOM) solutions is almost as prevalent as that of WMS by the response base. I presumed that DOM was widely implemented due to its critical role in omni-channel operations, but not to that degree. My colleague Chris Cunnane will be conducting a quantitative study on the omni-channel technology footprint later this year that will include an assessment of the annual revenues from global DOM sales.
  • Finally, as a benchmark of revenue generation by channel, on average, brick and mortar represented 70% of the respondents’ current revenue. But unsurprisingly, respondents expect that online revenue will increase more than brick and mortar revenue over the next five years.

If you are attending CSCMP next month, we will be presenting our results on Monday morning in the Omni-Channel track. If not, please keep an eye out for the summary article in DC Velocity this November.

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About 400,000 carloads of crude oil traveled by rail last year to the nation’s refineries, up from 9,500 in 2008, according to the Association of American Railroads. A series of recent accidents — including one in Quebec last July that killed 47 people and another in Alabama last November — has put pressure on regulators to look at the safety of crude oil shipments.

tanker derailment

Train Derailment and Fire in Lac-Megantic, Quebec

On July 23rd of this year the Department of Transportation (DOT) responded. The DOT released the details of proposed rules to improve the safe transportation of large quantities of flammable materials by rail – particularly crude oil and ethanol. The proposed rules cover seven different areas associated with crude-by-rail transport, but the area that has gotten the most coverage are new rules requiring thicker steel for cars – either by purchasing new cars or retrofitting existing cars. The Wall Street Journal (WSJ) published an article pointing out that there are real doubts about the capacity of rail car makers, who already have a substantial backlog for tanker cars, and the rail car retrofitting industry, to make enough new cars to replace over 90,000 cars that won’t meet the new requirements.

For shippers that rely on rail, this is not necessarily a bad thing. In March, the WSJ published Surge in Rail Shipments of Oil Sidetracks Other Industries describing how the increased number of oil-by-rail shipments combined with bad weather to adversely impact agricultural products, coal producers and the utilities they supply, fertilizer manufacturers, and other industries.

“Many of the problems stem from pileups at BNSF Railway Co. in a critical northern stretch of the country where it is shipping crude oil from North Dakota’s booming Bakken Shale region. The railroad, one of the biggest in North America, was already taxed by the heavy demand for oil transport. But its difficulties multiplied when it ran out of locomotives and crew, as a bitter winter forced it to use smaller trains.

“That has caused a ripple effect across the country as shipments have been delayed. Deliveries of empty grain cars to farmers and grain elevators in the Midwest and Great Plains are running about two to three weeks late, the railroad says. The chief of a major sugar producer said he likes to load 50 railcars a day this time of year, but BNSF sometimes brings more than 50 and sometimes 30.”

Shale rail shipments primarily originate out of the Bakken – which is in North Dakota, Montana and Saskatchewan. The President of PLG Consulting, Travis Robinson, explained to me that as the pipeline infrastructure from the Bakken to the Gulf States built out, and because pipeline are a more economical way to transport crude, most of the rail shipments now move by unit trains to East and West coast markets. Thus, decreased shipments of crude oil could improve throughput on east-west rail movements. PLG Consulting is a boutique supply chain consulting firm.

On the other hand, the DOT is also proposing speed restrictions for crude rail shipments. They asked for comments on one of three options:

  1. A 40-mph maximum speed restriction in all areas;
  2. A 40-mph speed restriction in high threat urban areas;
  3. A 40-mph speed restriction in areas with a 100K+ population.

If tank cars meet the steel thickness and related tank car safety requirements, they could go 50-mph in all areas. The agency is also asking for better train braking and is looking to impose a 30-mph speed restriction oil tankers that do not comply with enhanced braking requirements.

But the railroads operate as a network, any restrictions on one type of shipment impacts shipments of all goods that use the network. The average train speed, a measure of the line-haul movement between terminals, at Tier 1 railroads ranges from mediocre to woeful. A Website called Railroad Performance Measures published the latest figures for Class 1 US railways. CN, for example, was the best with a reported average train speed of 27.8 mph in the latest reporting period (July 2014). CSX, the worst, only averaged 23.3 mph for their fleet.

This is an expedited regulatory process, there is only a little more than a month left to comment on the proposed rules. Shippers who use rail should consider weighing in. You can comment by going to this link.

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ice-bucket-challenge-fb-user-profile-2I’m sure everyone’s Facebook feed has been jammed with friends and family members (and links to celebrities) taking the ice bucket challenge. For those of you who don’t know what the ice bucket challenge is, I’ll explain. If you are challenged, you have 24 hours to either dump a bucket of ice water on your head, film it, post it, and challenge some friends to do the same, or you are to donate $100 to the ALS Association. For those that complete the ice bucket challenge, a $10 – $25 donation to the ALS Association is recommended. To say that the challenge went viral is an understatement. It swept the social media landscape by storm. As of Thursday, August 21, The ALS Association has received $41.8 million in donations compared to $2.1 million during the same time period last year (July 29 to August 21). I applaud everyone who has accepted the challenge and donated for a great cause.

And now, on to the news.

TMW Systems announces a strategic partnership with 3Gtms.  This partnership includes a significant – but minority – equity investment by TMW Systems parent company, Trimble Navigation Limited.  They get a seat on the board based on this investment.  TMW, a market leader in the fleet management space, will sell the 3Gtms solution into their installed base of asset-based transportation providers.  3Gtms will continue to sell their planning and execution solution to shippers and non-asset based logistics providers.  This partnership was driven by increasing momentum of brokers and carriers seeking to move up the value chain and provide managed transportation services.  Integration between the products has begun and there is one customer with both solutions that will serve as a beta customer for the integration.

At last week’s Oracle Transportation Management Special Interest Group meeting, Oracle announced that beginning in September, customers can purchase a cloud-based offering of their TMS and GTM solutions. This move is in line with Oracle’s investment in cloud-based solutions, and will likely bolster their position in the market. The solutions are all pre-configured, including work flows, user roles, and reports. Oracle is claiming that they can achieve rapid, cost-effective implementations of core OTM / GTM functionality in 8 – 10 weeks with a private cloud solution. While Oracle will still offer its OTM and GTM as on premise, licensed solution, the cloud offering can open a new market of smaller companies for Oracle.

free tradeLast year’s development of a Free Trade Zone in Shanghai has opened the doors for Amazon to try to seize some market share away from local giants Alibaba and JD.com. Amazon will open a new logistics warehouse in the 11 square mile zone. It is a market worth going after; according to data from iresearchchina.com, Amazon has barely 2% of a B2C market that was worth some $75 billion in the first quarter of the year alone. According to Amazon’s senior vice president for International Consumer Business Diego Piacenti, “Amazon must seize this strategic development opportunity. We’re going to have lower shipping charges, faster delivery coming into the free-trade zone, so there are going to be many benefits.”

In other Amazon news, drones are back. After a lot of news coverage and debate, the use of drones for home delivery had slipped into the background for many people. But according to anonymous sources, drone deliveries are close to becoming a reality. However, India, not the United States, will be the launch pad for drones. Sources indicate that Amazon will debut its drone delivery service with trials in Mumbai and Bangalore, cities where it has warehouses. While Amazon itself would not comment, sources say that the drones could be deployed as early as Diwali, which is October 23.

According to latest CIPS Risk Index, global supply chain risk fell to an 18 month low. The Index, which tracks the effect of economic, political and social factors on the security of global supply chains, has fallen from an all-time high of 82.4 in Q3 2013 to 78.1 in Q2 2014.

“Nevertheless, global supply chains still face significant risks. The Ebola outbreak in West Africa, combined with, political unrest in the Ukraine, Iraq and Libya, have the potential to create significant risks to global supply chains. These risks must be monitored and managed and where necessary contingency plans must be developed.” – John Glen, CIPS economist and senior economics lecturer at the Cranfield School of Management.

corner storeTaxi and car service company Uber has launched a test of same-day grocery delivery in Washington, D.C. The service, named Corner Store, allows users to choose from more than 100 products, excluding fresh food, through the Uber app. The exclusion of fresh food is a departure from the norm for tech companies investing in last mile technology, such as Amazon Fresh and Google Express. The key question is how can Uber make this model profitable and sustainable.

That’s all for this week. Enjoy the weekend and the song of the week, The Smashing Pumpkin’s 1979.

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