Archive for Logistics Trends

ecommerceDuring the second half of 2014, Clint Reiser and I worked on an extensive survey examining the omni-channel commerce landscape. One of the key findings from that research was on the growth of e-commerce. According to our research, the lion’s share of revenue is still driven by the store. Brick and mortar locations accounted for approximately 67% of all revenue for our survey respondents. However, when looking at revenue growth, our research tells us a different story. Over the last five years, survey respondents indicated revenue growth of 6% from the brick and mortar channel compared to 47% for e-commerce. Looking ahead, respondents forecasted flat growth for their brick and mortar channel compared to 40% growth for e-commerce. This is a pretty dramatic shift in the retail landscape. It shows that the convergence of channels will be more important as omni-channel operations continue to evolve. It also poses a significant problem for retailers: how to deal with the last mile.

Fedex_ups_uspsLast mile delivery is the final leg of the supply chain. It is the moment the customer finally receives their order. And it is generally the most expensive, least efficient, and most problematic part of the overall delivery process. In the US, last mile deliveries have their own unique set of challenges. Mostly they come down to cost issues, and a retailer’s desire to control the final moment of the brand interaction. There are a few main categories for last mile deliveries. First, is parcel delivery. UPS, FedEx, and the Postal Service are the three main players in this area. These companies are delivering thousands and thousands of packages daily from retailers around the globe to customers front doors and offices. The shipping rates have gone up recently, and these companies provide very little control over the last mile for retailers.

Amazon FreshAn alternative to typical parcel deliveries is in use by Amazon. To control the last mile, and to utilize its massive distribution centers, Amazon has rolled out its own private fleet of trucks to make deliveries. For Amazon, it creates more flexibility in delivery timeframes and reduces overall shipping costs (as Amazon is no longer paying UPS, FedEx, or the Postal Service for deliveries). This is not the first time Amazon has looked for creative ways to complete deliveries. As recently noted in Logistics Viewpoints, Amazon is one of a few companies testing drones for deliveries. The company has also experimented with bike messengers in New York City for small deliveries as well as delivery lockers for customers to pick up items at their convenience.

Another alternative to using the big parcel companies that has taken off is the use of crowdsourced delivery services. Deliv, for example, is a crowd sourced delivery option that stretches across multiple retail segments. This company uses a smartphone app to alert pre-qualified drivers of a pending delivery. The driver picks up the merchandise from the retailer and delivers it to the customer. Instacart is another example of crowdsourced delivery. Based in San Francisco, this company connects personal shoppers with customers to deliver local groceries. Both of these companies are proving that the crowdsourced model is growing. And all of these models show that while they may be expensive, they are doing a good job of satisfying the customer during the last mile.

last mile indiaBut outside of the US, it is another story. The growth of the e-commerce economy is great for retailers, and allows more people to shop for the goods they want, but it poses significant challenges to the last mile. The world’s two most populated countries, which bring an awful lot of buying power, face significant challenges. In India, for example, Morgan Stanley estimates that Indian online sales will hit $100 billion a year by 2020, up from $3 billion in 2013. The difficult part is figuring out the infrastructure to make home deliveries viable. Trucks have a difficult time navigating the crowded streets and the postal service is notoriously slow. One new option in India is the use of couriers to deliver goods purchased from Flipkart, Snapdeal, and Amazon India. But, in order to actually deliver these products, couriers are turning to smaller modes of transportation. In many places, delivery trucks are simply too big to navigate. Instead, couriers are using motorcycles and scooters to carry giant backpacks filled with 100 pounds+ of merchandise. These drivers navigate narrow streets, potholes, and erratic drivers to deliver everything from soda to laser printers. Most people agree that without the use of couriers to deliver these goods, the e-commerce market as a whole would grind to a halt in India.

china last mileChina faces its own set of challenges. The e-commerce market is growing exponentially in China and vast improvements have been made to establish more operations centers across the country. These improvements have made it possible for residents in rural China to shop online and receive orders in a timely fashion. But the last mile still remains an issue. One of the biggest roadblocks for Chinese retailers is the government policy banning freight vehicles and gas-fueled and electric tricycles in downtown areas. This poses a number of problems. First, delivery people can be detained, have their vehicles seized, and receive fines for violating regulations due to the pressure of making a delivery timeframe. Secondly, to combat the costs of tickets and seized vehicles, many companies are simply driving up their delivery costs. These costs can certainly be burdensome to the customer, but at the same time, they are necessary if they wish to receive their package. And third, if the last mile problem is not solved, and vehicles are seized or delivery personnel are detained, the packages may never be delivered. According to the operator of one such delivery service, “if the last mile problem is not solved, up to 1 million packages awaiting delivery could be stockpiled in cities around the country.” This shows just how serious the last mile problem, and the associated challenges are in China.

In conclusion, the global e-commerce market is growing. In fact, according to eMarketer, global B2C e-commerce will reach $2.3 trillion by 2017. This explosive growth brings about new opportunities, new customers, and new challenges. One of the biggest challenges will be controlling the last mile. Logistics infrastructure, economic and political regulations, and competition have proven to be roadblocks for many companies. But as the market grows, the solutions will too.

Paul McDonald

Paul McDonald

Mexico has become the destination of choice for many companies looking to benefit from its vastly improved infrastructure; increasingly skilled labor force; its proximity to the United States, as well as all Central and South American countries; and rapidly improving economic growth. Coinciding with Mexico’s rise as an attractive target for industrial opportunity are the problematic issues of escalating manufacturing costs and lengthy shipping lead times facing businesses located in many Asian countries. Recognizing Mexico’s vast potential as an industrial market, and discouraged by the increasing barriers to productivity they are experiencing in Asia, more and more companies are looking to reduce production costs and increase supply chain efficiencies by nearshoring.

An Advantageous Environment
The benefits of moving a business to Mexico extend beyond its geographical location and improving economy. Vast tracts of developable and affordable land are available in prime locations. Building in these strategically advantageous areas will serve to further shorten shipping lead times.

The Mexican government has invested significant amounts of money in improving the country’s railroads, seaports, roads and bridges, and has expanded its efforts to decrease crime, especially in major urban areas. Additionally, Mexico boasts an increasingly skilled and educated workforce, while at the same time offering labor costs that are substantially lower than competing countries.

Mexico also has a liberal trade agreement policy, and in an effort to boost foreign investment, it has created programs designed to reduce or eliminate a variety of taxes, including import, value-added and customs operation taxes.

To further Mexico’s emergence as a major player in the world market, and to make certain it experiences this potential growth effectively, it needs to ensure that it can deliver a reliable, responsive and resilient supply chain. It’s vital that both the businesses considering relocation to Mexico and the Mexican government remain cognizant of the nearshoring trends and the challenges that are going to be placed on the Mexican infrastructure over the next decade.

An experienced third-party logistics (3PL) provider has the ability to recognize the trends around nearshoring, understand the significant pressure it’s going to put on the country and mitigate the risks involved by implementing a solid plan driven by Lean.

Visibility and Compliance Cautions
When considering the end-to-end supply chain components, visibility becomes the key issue. 3PLs have the regional knowledge and expertise to prevent “black holes” along the supply chain. Focusing on the mantra “You can’t manage what you can’t see,” a 3PL that drives true Lean value through a Lean core foundation creates a supply chain strategy that addresses all visibility issues.

Areas of emphasis in the supply chain would include in-transit visibility for all inventories, from point of origin to final destination, information concerning production status, including projected inventory at destination distribution centers as well as accurate ETAs and data that would allow for easy comparison of expected performance to actual performance.

This visibility results in the elimination of the “black holes” and “blind spots” along the end-to-end supply chain. It also helps identify and eliminate delays and wasteful processes before they become problems, thereby increasing profitability.

Another serious issue facing businesses in Mexico concerns workforce culture and experience. How can a business ensure that the workforce it hires in Mexico to support its network can apply its strategies and procedures, and that all elements of this local team — drivers, warehouse workers, etc. — can handle the particular demands required by the company? As with managing any local workforce, a 3PL with regional knowledge, experience and expertise can effectively partner with the manufacturer to provide a workforce possessing the skills that meet the specific and unique needs of each business. A 3PL with Lean as its core foundation ensures that employees are accountable for process compliance, and is a critical component in driving a continuous improvement roadmap for these companies.

Liability Awareness
In Mexico, liability is a challenge. It’s difficult or impossible for a customer to get adequate liability coverage for theft or any kind of loss. An experienced 3PL will offer a proven network that includes transportation and a variety of services that help a customer with the risks associated with liability. A company that sources to a 3PL that offers this complete network of services will greatly reduce its risk of loss exposure from lack of coverage.

Ultimately, there is more work to do to make sure that Mexico is in a position to satisfy the ultimate customer in the end-to-end supply chain. Businesses that relocate in Mexico must be able to satisfy their customers, and they can’t do that if Mexico is unable to service these businesses.

As Mexico continues to grow as an attractive and enthusiastic destination for companies seeking alternatives to overseas locations, partnering with a regionally savvy and experienced 3PL will become an even more desirable option. The output of a 3PL that can drive true Lean value is process, rigor, continuous improvement, technology enhancement, visibility and the ability to respond with resilience at all points along the supply chain, all necessary components in achieving nearshoring success in Mexico.

 

Paul McDonald is Director of Business Development at Menlo Logistics. Named to his current position in 2008, McDonald is responsible for sales and marketing activities in Menlo’s Automotive and Heavy Industrial Group.

Rafael Solis is the Senior Regional Business Director for Menlo Logistics, specializing in design, execution and delivery of integrated customs and trade solutions that enhance supply chain management programs

Things are certainly changing in the trucking industry. Even though demand is rising, the industry is facing a monumental challenge in its shortage of qualified and licensed drivers. The driver shortage has been at the forefront of trucking news for some time, and we have certainly covered it here at Logistics Viewpoints. With the ongoing investments in research and development for driverless vehicles, could this be the solution to the driver shortage?

driverless trucksDriverless cars have been receiving the lion’s share of buzz lately. But they are not the only vehicles out there. In fact, driverless trucks are already operating at iron ore mines in Pilbara, Western Australia. The trucks were brought in to alleviate safety concerns for drivers, while increasing efficiency. These trucks are mostly operating on deserted dirt roads, not driving through crowded cities. But that could all change soon.

DriverlessTruck2Pretty much every car and truck company out there is testing driverless trucks, and it is only a matter of time before they hit the road. Not only could driverless trucks combat the driver shortage, there a number of other tangible benefits that can be felt. First, current regulations dictate the number of hours a driver can be behind the wheel. These regulations vary by country, but the bottom line is that each driver can only log so many hours a day or week. With driverless trucks, the trucks could drive 24 hours a day, while only stopping to re-fuel. There would be no mandated work stoppages or rest times. There would be no time lost to meals and snacks. There would be no time lost to sleep. The trucks can just keep going. This will cut down on the transit time to deliver goods, which will reduce overall costs.

Second, safety concerns of fatigued drivers will no longer exist. Driver fatigue is a serious issue in the trucking industry. For that reason, regulations exist to limit driving times. With smart trucks, there is no chance of human error on the road. In fact, there is not even human interaction. The trucks will not need to rest or reset themselves. Instead, they can continue to drive through the night.

Third, resources can be dedicated to other tasks. Freight turnover will increase due to shorter transit times. As a result, money can be invested in other areas of labor to speed up the loading / unloading process. The quicker trucks can be loaded and unloaded, the quicker they are back on the road. However, the increased use of automation could eventually lead to driverless trucks delivering goods to staff-less warehouses, with conveyors and scanners for unloading the trucks.

The looming question, however, is whether or not a driver needs to be in the driverless truck “just in case.” As driverless trucks become a reality, this will be a key question. If human drivers are needed in the trucks, the driver shortage will still be felt. However, drivers could use the time in the truck to complete other tasks for the company. This essentially gives the “driver” double duty, which will also save the company time, money, and resources. For example, drivers could complete invoices and send them out while the truck drives itself. Conversely, if human drivers are not needed in the truck, it can be the solution to the driver shortage. Then the question becomes, what about the drivers?

Logistics Viewpoints’ owner is ARC Advisory Group. ARC’s 19th Annual Industry Forum ended last Thursday February 12th.

Key themes were the Industrial Internet of Things (IIoT) and cybersecurity.  These are interrelated themes because cybersecurity tops the list when it comes to challenges for IIoT. When one thinks of a hacker getting into a system and shutting down a utility, for example, it is obvious that the consequences of an Industrial Internet of Things security breach could be dire.  And the IIoT makes this problem so much greater.  Hackers need only a tiny tear in the security fabric and they can get in and cause harm.  And as those connected devices grow exponentially, so do the entry points.

MIT has active research in the area of cybersecurity.  Michael Siegel, a Principal Research Scientist at the MIT Sloan School of Management shared some alarming statistics:  Over 80 percent of breaches involved systems where security patches had been available for at least one year; 75 percent of breaches go undiscovered for weeks or months; 67 percent of breaches were aided by significant errors from employees of the victimized firm.

But Michael made the point that these statistics represent averages.  “Distributed” software – software that resides on site at a company – is far more vulnerable than “platform” software (public or private clouds).  That is because Cloud software providers can do security patching on an ongoing basis.  And yet, the perception is that Cloud software is less secure than traditional software.

There were several IT folks in charge of security at the conference.  They mostly felt they needed greater resources to improve cybersecurity.  But not all supply chain attendees agreed. One executive in this camp is in charge of implementing supply chain applications for a large company that wants to become demand driven.  At the same time this company is endeavoring to use consumption data to drive production that is better matched to the actual demand, they are asking their key partners to monitor their inventory levels and build and supply raw materials to them on a Just in Time basis.  They don’t want to pay for raw materials until they need them.  Some of the systems they want to use to facilitate this VMI collaboration are Cloud based.  This executive feels that his company’s cyber security team has put in place measures surrounding these Cloud applications that will make collaboration onerous for their key partners.

I ran a track on the Industrial Internet of Things in the Supply Chain.  One of my speakers was Jeff Tazelaar, the Global Leader for Auto ID, RFID, GPS and Telemetry, from Dow Chemical.  When it comes to end to end supply chain visibility built on an IIoT infrastructure, I have not across anything superior to what Dow is doing.  I’ve written about this in the past, so all I will say here is that the program continues to advance.

Jeff Tazelaar

Jeff Tazelaar

My other speaker was James Fairweather – VP of Architecture, Technology and Experience – from Pitney Bowes.  Here my speaker talked about how Pitney Bowes used sensor data, Big Data and analytics to build a cross-border e-commerce service offering.  But I found the what – the service that Pitney Bowes built – more interesting than the how – how this solution was built.
James Fairweather

James Fairweather

We’ve done a lot of writing about omni-channel in Logistics Viewpoints.  Omni-channel represents some novel ways of servicing customers via new delivery paths.  But one path to the customer we have not talked about is cross border e-commerce.  For example, a customer in Brazil buying a product online that is shipped from the U.S.  The Brazilian consumer may feel like they are getting a good price, until they pay the duties and shipping.  When the total landed costs are understood, the retailer may have abandoned shopping carts, or worse a disappointed customer that feels like they were deceived.

What Pitney Bowes is doing is providing an instant landed cost calculation for cross border customers inclusive of shipping costs, duties, taxes, customs, and brokerage fees. There is a lot of complexity here.  For example if shipping to Brazil you need to know what imports are prohibited – pre-owned merchandise, antiques and precious stones.  You need to know what import duties apply – the Industrialized Product Tax, the Merchandise and Service Circulation Tax and other tariffs.  And you need to know how to comply with country-specific forms, product coding, and shipping rules.

What Pitney Bowes does is use fancy machine learning algorithms to calculate the tariffs in real time and provide a quote.  They then later do a full classification to make sure their real time quote was accurate and that import rules will not be violated.  But the kicker is that they guaranty what they quote!

BTonn3I saw a news report the other day that said truck driving is the easiest, most available type of job you can get today—and the least attractive job there is. Detention is one big reason. Shippers and receivers know already that detention at their facilities impact a driver’s Hours of Service, but they may not know how to correct it. I’ve done more work recently with companies to assess dock congestion, obtain transportation tools to support a solution, and turn shippers into the kind that carriers want to work with. Here’s how we collaborated with one customer on a project like this.

A dock congestion assessment had been proposed for this particular shipper as part of an outsourcing engagement. The assessment answers questions like these:

  • How many carriers come to the dock every day?
  • What are the parameters and limitations of what is being done at the dock today?
  • How quickly are trucks loaded and unloaded?

The assessment showed challenges that were having a direct impact on the shipper’s total landed cost of product. It revealed that most of the company’s 6 dock doors were tied up with drop trailers, leaving only a few doors open for the 28 carriers that arrived every day. The company controls only 30 percent of the freight, with the rest being vendor-routed without standardized delivery practices. Carriers arrive on a first come, first served basis to be unloaded. Employees work overtime and on Saturdays to unload trucks. Some unlucky carriers wait for five hours before they are turned away and told to return the following day. Overtime and detention costs were significant.

We reduced the number of carriers from 28 to 7 to make the dock less congested. Then, we implemented our Yard and Dock Management tool. The tool gives carrier processes and technology to set their own delivery appointments during a specific window of time, eliminating most of the detention. Much of the product that formerly loaded into drop trailers was moved offsite to a crossdock to free up 2 to 3 dock doors, and freight is swept from the dock several times a day and staged for customer deliveries. Live loading and stronger dock management practices have reduced overtime for employees and overall dock management costs, and are more respectful of the carrier’s time, providing more efficient use of their Hours of Service.

This shipper is ahead of the curve in making its freight more attractive to carriers. This is a trend you can expect to continue for the foreseeable future as capacity shrinks. As more shippers vie for less equipment, carriers can be choosier about who they will work with. When carriers can choose between two shippers who pay the same rate—one who makes them wait for hours to unload and one who unloads them within 30 minutes of arrival—they will choose the more efficient shipper every time.

Brian Tonn is an Executive Director, Global Sales for C.H. Robinson where he is responsible for optimizing C.H. Robinson’s largest clients’ global supply chains and providing world-class business intelligence. He has been with C.H. Robinson for 13 years and primarily focusing on supporting consumer products, specialty retailers, utilities and the automotive industries — Brian brings best practices from around the globe and applies them to each client relationships.