Archive for Logistics Trends

mondelez logoOne of the key aspects of omni-channel retailing is merchandise availability. This pertains to the store, warehouse, and distribution center. With so much effort and focus being spent on building out omni-channel strategies starting at the store, merchandise availability within the store is of critical importance. Another company that presented at the CSCMP Annual Global Conference in San Antonio, TX was Mondelēz International. Headquartered in Deerfield, IL, Mondelēz International comprises the global snack and food brands of the former Kraft Foods. The company manages well known snack brands around the globe in different categories, including cookies and crackers (Oreo; Chips Ahoy!; and Triscuit), chocolate (Côte d’Or, Toblerone, and Cadbury Dairy Milk), and gum and candy (Trident, Chiclets, and Halls). The company’s presentation focused on a growing concern for many brands: Direct Store Delivery (DSD).

One of the major issues for a retailer is whether they have the merchandise in the store. Often, a retailer receives a truck with items and merchandise from multiple manufacturers and distributors. However, other brands choose to utilize the DSD model. The DSD model is mostly seen in the food and beverage industry, especially at smaller convenience and grocery stores. Direct Store Delivery gives the manufacturer more control over replenishment and merchandising within the store. However, one of the major problems is the case of late deliveries. If a retailer is waiting for a specific delivery to finalize merchandise assortments, and it is late, it can throw off the entire day’s plan.

DSDMondelēz International came up with a solution to this problem, and sees the solution as the future of their DSD operations: mobile logistics. The mobile logistics platform is used to manage alerts and deliveries, comply with safety and DOT requirements, track assets through GPS, and provide basic communication functions. The introduction of “late alerts” was groundbreaking for the company and its retail partners, as it allowed the merchandiser to re-prioritize their day. Rather than waiting and wondering what time the delivery would arrive, they had an updated delivery time-frame which allowed them to focus on other tasks.

According to Mondelēz International, the biggest challenge was linking the three main components to DSD: the driver, the retailer, and the customer care center. The company was able to synchronize sales and distribution communication to establish a single roadmap for all three parties. By connecting the driver with the retailer, it eliminated the need to rely on customer care to deliver the message. In the past, the driver would contact customer care to let them know they were running late. In turn, customer care would contact the retailer. This delayed the process and did not always guarantee the right information was shared. The new connection allows the driver to communicate directly with the retailer with real-time updates. The result was growth in sales and a higher percentage of on-time deliveries.

Looking forward. Mondelēz International plans to continue to build out their mobile capabilities. From driver tracking to insight into multi-day rates, enhancements are expected to be added through-out the remainder of 2014 and beyond. The overall capabilities will eventually be leveraged globally for all area that use DSD as part of their distribution model.

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The 3PL market – defined here as non-asset based transportation, warehousing, and integrated supply chain services, has shown healthy growth in the second quarter of 2014.  The growth increased due to strong performance in the Americas and increased volumes.

The scope of coverage includes non-asset based transportation and warehousing services (referred to as “contract logistics” in Europe):

  • Non-asset based domestic transportation services (brokerage and managed transportation services)
  • Non-asset based international transportation services (freight for-warding and customs services)
  • Warehousing services (warehousing and associated services such as packaging, light assembly, sequencing goods for a factory line)

The half year revenues across the public firms covered in this analysis has increased by 4.0 percent year over year, second quarter revenues are up by 6.4 percent.  High flyers, 3PLs with double digit growth year over year in half year revenues include:

  • DSV, up 11.1 percent
  • Hyandai GLOVIS, up 14.5 percent
  • JBHunt, up 20.3 percent
  • Norbert Dentressangle, up 26.5 percent
  • Sinotrans, up 11.2 percent

Remember, based on our definition of 3PL we are excluding asset-based transportation revenues from JBHunt and Norbert Dentressangle.

The warehousing services business did the best, up 8.9 percent in the quarter and 7.2 percent half year, YTD.  International transportation services did the worst, year over year half year revenues were up 1.9 percent and second quarter revenues increased by 4.8 percent.  Domestic transportation services were up in the second quarter by 7.5 percent and for the half year by 5.8 percent.

If you would like a complete copy of this analysis, including the results of the 19 3PLs covered, send me an email at nsingh@arcweb.com

Neelam Singh is an analyst working for ARC Advisory Group covering supply chain management from Asia.

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It’s been a crazy week here for me. I’ve been working on finishing up our omni-channel strategic report, scoping my soon-to-launch omni-channel market study, and took a quick two day trip to the Waldorf Astoria in New York City for SAP’s Retail Forum. It was a great conference with lots of great speakers and sessions (which you will most likely be reading about here in the coming weeks). So let’s get right to this week’s news.

On Thursday, October 9, the National Retail Federation (NRF) sent a letter to the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) urging the two parties to conclude their contract negotiations. I have written about the issues with the contract here before, as retailers have been rushing to get holiday inventory into the US before a strike occurs, halting all activities. NRF has cited the ongoing contract negotiations for impacting the retail supply chain, destroying contingency plans, and contributing to the ongoing port congestion. The letter states:

We urge the parties to quickly come to a conclusion on a new labor agreement as a means to resolve the ongoing congestion issues impacting the West Coast ports.  At a minimum, we ask that the parties extend the expired contract through November in order to reinstate arbitration agreements, which are preventing many issues at the ports from being addressed.
Retailers are now in the midst of their heaviest shipping season of the year preparing for the upcoming holidays, which are a ‘make it or break it’ time for retailers and merchants.  While we recognize that there are many reasons for the current port congestion, there is no doubt that the lack of a new labor contract between PMA and the ILWU is having a big impact on port productivity, particularly in Southern California.

UPS lockersE-commerce was a major boon to UPS. As retailers needed efficient ways to ship their goods, UPS was happy to answer the call. The only drawback has been actual deliveries. If the customer needed to sign for a package, they needed to stay home waiting for the doorbell to ring. If they missed the delivery, they might need to drive to a UPS location to pick up the package. Well, UPS is ready to change that. The company is running a test in the Chicago market where packages are left in lockers for customers to pick up at their convenience. The lockers allow the customer to pick up their package when they want it. And it also allows drivers to be more efficient. Rather than making hundreds of home deliveries, the driver can drop off a number of packages at a single locker location. It cuts down on total operating costs and allows the drivers to deliver more packages in a given day. The only real question is whether people will actually want to leave their house to get their packages.

Amazon is keeping busy. First, the company has announced plans to sell large appliances in India during the festive sales season leading up to Diwali. Most online retailers in India will not sell large appliances due to the difficult nature of delivering them. Amazon, however, is bucking the trend. With its’ new warehouses across India, it certainly has a leg up on the competition with the ability to stock the appliances in multiple locations.

Additionally, Amazon is looking to open its’ first ever brick and mortar location. According to reports from CNBC and the Wall Street Journal, the company is planning to open a brick and mortar location in midtown Manhattan in time for the holiday season. While this is not exactly what people think of when they think of Amazon, it could help alleviate some of the holiday headaches of years past (2013 was especially rough for Amazon).

Curbside-Shopping-Shoot-4Palo Alto, Calif.–based delivery service Curbside launched this week. The service operates through a free mobile app that allows shoppers to find products that are in stock at multiple local stores and check out through the app. Many store locations will feature designated curbside pickup locations where shoppers can pick up their without having to park or get out of their car. The Curbside app’s location technology notifies the staff that shoppers are approaching for a pickup. The push for click and collect is really shining through this week.

And finally, the Department of Transportation’s freight transportation services index rose to a record high in August. The index increased 3.8% to 120.9 in August, the highest level since records began in 2000. The previous record 120.3 was set in May. The freight TSI increased 0.6% from July, rising for the second consecutive month, DOT’s Bureau of Transportation Statistics said in its monthly report. DOT uses a baseline reading of 100 from the year 2000. Truck, water and pipeline freight increased, but rail and air declined, BTS said.

That’s all for this week. Enjoy the weekend and the song of the week, You Can Call Me Al, by Paul Simon.

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While “Big Data” has been getting all the attention, analysis of all that data can be improved if it is married with “Small Data.”

In the emerging world of an industrial Internet of Things (IoT) – IoT applications used by industry – more and more smart devices with sensors are using Internet protocols to transfer data to other software applications to improve operations. This has led to an explosive growth in data – the “Big Data” problem.

In an industrial setting, smart devices are often embedded in capital equipment:  trucks, assembly machines, conveyors, forklifts, etc.

Small data (a subset of big data) refers to the set of data coming from a specific device that retains the structure for assessing that unique piece of equipment.

Preventing credit card fraud, a commonly used example of a Big Data application, fits this “small data within Big Data” approach. The information for all credit card holders becomes Big Data. The transactions for a specific card holder represents small data. The company monitors the activity of a card number and compares each transaction in near real time with the owner’s purchase history. If an individual has a history of purchases originating in the US and the bank becomes aware of one made, a flag is raised and the account may be frozen (to avoid this, just call the credit card company before your trip). Analytics on the small data assesses the condition of the credit card and raises a flag when they detect an outlier.

The small data concept can be used in the supply chain realm to improve the performance of several types of logistic assets.  In other words, a firm’s trucks, warehouses, and factories can operate at a high level of performance without having to pay too much in maintenance.

As my colleague Steve Banker wrote, Shell, who runs one of the world’s most sophisticated production control towers, will tell you that when Big Data becomes truly massive, the small data format for alerting has to be built into an even larger analytical and business process format to become useful (Shell Oil Runs One of the World’s Most Advanced Control Towers).

ralph rio

Ralph Rio is ARC Advisory Group’s expert on Enterprise Asset Management and Field Service Management. 

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I’m an ex-academic, but I’m not a fan of most of the research produced by supply chain or industrial engineering departments.  Most of it is just not relevant to supply chain professionals.  But there is an article that MIT published called Analysis of Truckload Prices and Rejection Rates that was an exception.

MITCenter for Transp

The researcher, Yoo Jin Kim, partnered with the TMC division of C.H. Robinson.  TMC provides managed transportation services and transportation management systems for shippers.  The author was able to look at tender and acceptance rates, and rates paid, of the TMC managed service customer base for the previous five years.  The dataset covered 40 TMC customers, some of whom were very large shippers.

Here are some of the takeaways from the literature review section:

  • For most shippers, most of their load volume occurs on relatively few lanes, while the majority of lanes have little volume. For low volume lanes, canny shippers tend to use a loose definition of lanes, like state to state, in order to aggregate lane volume and make the volumes more attractive to carriers.
  • When shippers have a longer tender lead time, in other words when they give carriers more advance warning of a shipment, they can reduce both price and the number of tender rejections.

Here are some takeaways from the research:

  • Shippers made 1.4 tenders on average for every tender accepted.
  • Tender rejections are linked to the length of the line haul. They bump up considerably at the 100 mile mark. Presumably, this is because carriers are willing to have empty backhauls for routes of up to 100 miles. Beyond that distance, the carrier is looking for a backhaul load, which can’t always be found.
  • When tenders are rejected, they pay on average 15 percent more to cover that load! The deeper shippers have to go in their route guide, the more they have to pay. If you have to go down to the third alternative to the primary carrier, on average you pay about 25 percent more.

While this research was published last year, it is becomingly increasingly pertinent.  The North American transportation market is also going through some cataclysmic changes. What is keeping transportation professionals up at night are capacity issues, particularly in the long haul truckload market. These capacity issues will take two to three years to resolve – driver shortages, equipment sell offs, and tougher regulation make this the toughest market many shippers have seen in their lifetimes.

Because of this tight market, shippers should expect their tender rejection rate to go up.  Most managers of transportation departments should expect that they will go over budget this year.  It is never fun to explain that to your boss!

 

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Categories : Logistics Trends, Transportation
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