JapanDuring my morning commute to work this past winter, I heard a story on news radio about a trial use of drones to deliver essential supplies to residents of a small island in Japan. I couldn’t find a written copy of the article at that time, but I stumbled upon the article yesterday. The small Japanese island that was the drone’s destination has a population of about 180 people, is located about 4 miles from the mainland,  and relies on a ferry as its main means of transportation. The delivery of small, essential supplies such as prescription drugs, appealed to me as a practical use for drones. I can see drones as being used for this application in certain locations in the US as well. While reading this story, another practical use of drones for delivery came to my mind. How about delivery of supplies to construction sites? Not distant and remote sites, but examples such as bridge construction (think top of Golden Gate towers), high floors in skyscraper construction, and other locations that may not be distant, but are difficult to reach by traditional means. I like to hike in the New England mountains, and I know there are numerous occasions each year when hikers in need would benefit from a quick shipment of an essential item.

Now on to this week’s logistics news:

Cass Freight Index Shipments

Cass Freight Index Shipments

The Cass Freight Index for April shows a 4.2% month-to-month increase in shipments and a 1.6% increase for expenditures. However, both shipments and expenditures were down when compared to April of last year. Railroad and truck reported increased activity, and the strong dollar is likely contributing to increased imports while hampering exports. Taking a look at the attached photo of the index, you can see that it follows a seasonal pattern, with activity high during the mid-year, and lower during the colder months. Activity in 2015 appears to be following this historical seasonal pattern, although at a slightly lower level than that of 2014.

Looking back at March, the DOT Freight Transportation Index rose 3.1% percent over the same period last year and 1.7% sequentially to the second highest level on record. Although March came in strong, the first quarter of 2015 experience a paltry 0.2% growth rate – the second slowest quarterly growth in the last two years. So the index is essentially mirroring the economy with high historical output but low to moderate growth rates.

Alibaba continued its foray into the logistics industry this week with its agreement to take a minority stake in Shanghai YTO Express. YTO Express is already an established partner of Cainiao, Alibaba’s logistics affiliate. This investment appears as an additional step in Alibaba’s participation in the development of China’s, and Asia’s, logistics network. In May, Alibaba announced its intent to invest $249 million in Singapore Post to obtain logistics control, capacity, and efficiency.

The Warehouse property construction industry is benefiting from the e-commerce boom and builders are adapting their properties to meet the high demand for e-commerce fulfillment centers. Prologis  is building a speculative property in   Tracy, California with 40 foot high ceilings to accommodate three level mezzanines, as e-commerce retailers look to utilize multiple levels to accommodate their high SKU counts and drive additional efficiency into their fulfillment processes. By the way, this building is being built in a master planned park that is expected at full build out to include 19 million square feet.

CoStar, a commercial real-estate information services provider,  highlighted the high investment demand for warehouse properties in today’s marketplace. Recent notable transactions include Blackstone’s sale of its $8.1 billion industrial real estate portfolio to Singapore’s sovereign wealth fund and Prologis/Norgis Bank’s $5.9 billion acquisition of KTR Capital. CoStar’s analysis of the market showed that warehouse and light industrial property sales increased 38% when compared to the same period last year. Foreign investors continue to invest in US properties for their steady returns, with rent growth and occupancy rates at highs. Clearly their is abundant capital to meet the investment needs of organizations looking to build out their fulfillment networks in the US, as well as abroad.

Have a great weekend!

 

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In North America, the Internet of Things (IoT) is getting a great deal of attention.  In one definition of the term “Internet of Things,” almost all objects have sensors, connectivity to a broader environment, and intelligence. Sometimes the object has just a sliver of intelligence; but it can be much more substantial. Objects can be products, production or material handling equipment, containers, or other things as well.

In Europe, Germany in particular, they speak of Industrie 4.0 much more frequently than IoT.  The concepts are related.  Industrie 4.0 relies on IoT and other technologies to drive towards a form of decentralized supply chain optimization in production environments (there are some other key concepts as well, but I won’t focus on them in this article).  Now “decentralization” and “supply chain optimization” are not terms that most supply chain practitioners expect to see in the same sentence.  A little explanation is warranted.

One of the stated objectives for implementation of Industrie 4.0 is “self-organizing and self-optimizing” production facilities.  Perhaps the best example of Industrie 4.0 in action takes place at Audi’s Ingolstadt factory in Germany.  This is a make to order assembly line, each car is unique.  However,  Audis are built on the same platform, so having a responsive assembly line is feasible. In practice, this means that each assembly station (often manned by robots), gets its marching orders via a black box attached to the base frame, and rearranges its clamping and adhering positions for every assembly.

AudiFactory-Painterbots

Painter Bots at Audi’s Ingolstadt Factory

In other value chains, Industrie 4.0 will involve flexibility around the flow path a product will take as it moves toward completion, rather than instructions from a WIP product to an automated station on what actions need to be performed at that station.  Supply chain planning is still required in longer time frames in this value chain.  The planning engine takes into account the capacity of a line and machines on that line, change over times, and other constraints, and creates an optimized plan for the coming days or weeks.  But that plan assumes everything will proceed without disruption.

But anyone who has worked in a factory know that stuff happens.  This is where the concept of Industrie 4.0 kicks in.  For example, a sensor on a machine may indicate that it is producing out of spec materials.  The smart factory is then capable of repairing the schedule in real time.

Perhaps the goods on the factory line have RFID tags attached.  The work in process product “knows” – based upon embedded intelligence in the RFID tag – what production or packaging activity next needs to be performed in its journey to become a finished good.  When the preferred path closes, the product raises its hand and says “I need to go to a Type 2 packaging machine.”

A smart material handling system then routes it to the appropriate equipment.  Other products with a higher priority get slotted in at the head of the line.  Meanwhile the factory scheduling system is working to understand what work can get done that day and repair the next few days schedule.  It is not, however, focused on repairing that day’s schedule.  The smart factory is already self-organizing itself to complete as much of that day’s priority tasks as will be possible.

Does the flow path version of Industrie 4.0 seem like science fiction?  Some companies are working to implement this vision right now.  But the task is difficult.

PackML

My colleague Valentijn de Leeuw wrote about Arla Foods journey toward Industrie 4.0.   Arla Foods is a farmer-owned global dairy company with headquarters in Denmark.  In the article, Valentijn describes how Arla Foods embraced the PackML standard to design a smart packaging line that would be capable of interfacing with self-organizing and self-optimizing products.  If you read the article, you will see this was not an easy project, although it did have several other benefits.

According to Arne Svendsen, the Head of MES & Automation Solutions at Arla Foods, as a result of this project “’Industrie 4.0’ is already taking off at Arla Foods.”  But implementations at the process level (products; material handling, production, and packaging equipment) need to be as complete as possible.  According to Mr. Svendsen, “If you only go 80 percent, you only get 20 percent of the benefits.”

As I’vejubilant retail noted in my two previous columns, last month I attended the Home Delivery World, Click & Collect Show USA, and ETail Show USA joint conference in Atlanta. It is always interesting to see presenters give differing viewpoints on a given subject. Today’s column is one example from the show. As I wrote about last month, Tom Barone, VP of North America Operations at eBay Enterprise, presented on the changing nature of commerce. Tom basically outlined three key strategies for omni-channel success: ship from store, in-store pickup, and in-store associate ordering. Tom’s advice was to prioritize, and start with ship from store.

Later on during the conference, I had the pleasure of watching a presentation by Raman Mangalorkar, CEO of Jubilant Retail (which was acquired by Aditya Birla Retail (ABRL) yesterday). Jubilant Retail is a traditional Indian brick and mortar hypermart. Raman noted that retail in India is fragmented – only 8 – 10% is organized modern retail. Typically, retailers in India face low margins and high capital costs. But the e-commerce market is gaining traction. According to estimates, over the next five years, the Indian e-commerce market is expected to grow close to 35%. That makes it nearly a $70 billion market.

Click and collectRaman pointed out that there are a few reasons why the e-commerce market is poised to grow. First, there is significant funding by large online players with significant funding. In the recent past, for example, Flipkart’s funding valued the firm at nearly $15 billion, Snapdeal looked at valuation of $5 billion, and Olacabs valuation was at $2 billion. That is a lot of clout pushing into the e-commerce market. Second, there is greater penetration of internet and mobile capabilities. As more consumers are able to connect via the internet, e-commerce is bound to grow. And third, the concept of cash on delivery (COD) is an enabling phenomenon. This clears the hurdles for people who do not possess credit cards.

india home deliveryDuring his presentation, Raman made note of the advice from Tom, but noted that the logistics behind home delivery in India present too big a challenge. Instead, Jubilant retail decided their first step towards an omni-channel experience would be click and collect. Raman made note that there were two main drivers (besides the logistical nightmares of ship from store) for click and collect. First, customers are demanding more options. This is true for consumers across the globe – there are higher expectations for commerce options (in-store pick-up, home delivery, curbside pick-up, etc.). As Indian consumers demand more options, retailers need to respond. Secondly, click and collect can generate incremental sales and improved profitability. Getting the customer in the store automatically increases the odds of additional sales. Also, by having the customer pick up the item, overall costs are decreased, as there is no shipping charge.

Looking at the other side of the coin, Raman did identify several key challenges with implementing click and collect. First, is pricing. Retailers need to identify if their in-store and online pricing will be the same. If it differs, this can cause problems for click and collect orders. Second is picking and packing capabilities. The store associates must be able to handle the influx of business, and preform these tasks while still addressing the needs of in-store customers. And third is marketing and branding. The online experience needs to be deeply rooted in the overall brand image and promise. If not, click and collect will never catch on.

At the end of his presentation, Raman laid out a roadmap for retailers to execute on a click and collect strategy, according to the planning that Jubilant Retail went through. The roadmap consists of seven key strategies that can guide retailers in launching a click and collect initiative.

  1. Gain organizational commitment about the opportunity. This needs to come from the top down. If senior management is not invested in the strategy, it is doomed from the beginning.
  2. Create a separate, but aligned, team to assess and pilot the program. By having a separate team that is solely dedicated to the task, they will not be bogged down in other details. The team must be aligned with the overall goals of the organization.
  3. Obtain the capabilities. This can be achieved either in-house or by outsourcing. This is where the pilot team needs to assess the internal capabilities, opportunities, and constraints, and decide whether it is something can be tackled in-house, or if it needs to be outsourced in order to be done effectively.
  4. Pilot the program and measure performance. Performance measurement is the key to the pilot. There has to be quantifiable results to see if the pilot is worth the investment across the company.
  5. Invest in branding and market the concept. Your customers have to know that you offer the capability. This goes beyond simply offering pick up from store at the check-out screen. Click and collect has to be engrained in your organization’s DNA as a core capability.
  6. Refine the model if required. This is one step in the omni-channel play. The pilot program and results should alert you to what is working and what is not. The company needs to use these results to implement change.
  7. Stay committed. Abandoning the program too early is a recipe for disaster. Click and collect is a viable business option, but only if your organization is committed to making it work. If you stay the course, you will reap the rewards.

Gamifying Logistics

Our supply chain applications have made giant strides forward in usability in the last several years. There are improved user interfaces, real time alerts and analytics, social media capabilities, and better supply chain visibility (with Google maps, telematics). But supply chain applications have not applied gamification principals.

Games are engaging, encouraging, rewarding, competitive and collaborative at the same time. They provide an inherent way to collaborate, make enthusiastic attempts after failures, innovate, and take up the challenge to solve the most difficult problems which is difficult in a real world. This is exactly what an employee is expected to deliver in a work environment.

Harnessing the power of a game in business context is not easy. It requires a lot of effort in the design process. All games are not engaging just because they are games. Similarly, games inspired for businesses can be boring if not designed well. Secondly, understanding the nuances of a business strategy and mapping it with the desired gaming outcome is a tough task.

Employee training may be the area where gamification offers the biggest opportunities.  Complex supply chain applications can be taught to new employees in small, engaging, digestible blocks of learning.  As they learn, users get points and get to move to higher levels.  A block they performed badly on, can be replayed.  It may be that companies don’t hire new employees until they have shown good progress on a learning program.  Duolingo, an online tool for learning languages, offers a good example of gamification design harnessed to learning.

02_fun_way_engage

Using gamification concepts where players are pitted against each other is more delicate, particularly if they are doing physical labor.  You don’t want employees being accused of being quota busters and making other employers look bad.  If gamification can be achieved in a fun and engaging way, if the business culture is not too overbearing, gamification can work.

In the warehouse, labor management systems based upon granular labor standards already have the mechanism in place to accurately and fairly calculate how pickers are doing against labor standards. If groups of pickers are made into a team and scores are posted on a public board; if there are fun beeps and graphics and the winning team gets to celebrate with a free Pizza lunch at week’s end; and if the same team does not win every week, then productivity and fun can go hand in hand. But ARC is also a proponent of paying bonuses based upon exceeding standards. And exceeding standards cannot be achieved at the sake of safety.

Among planners doing similar tasks, like fleet planners, gamification has fewer risks. But again, it must be kept fun.

In some regions of the world, an older generation is getting ready to retire, and there don’t appear to be enough young people with the right skills to replace that generation.  Gamification may be part of the answer.

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QAD is far better known for their manufacturing than supply chain solutions.  QAD provides full-featured manufacturing enterprise resource planning (ERP) software, on premise or via the cloud, with very deep functionality for the Automotive, Food & Beverage/Consumer Goods, High Tech, Industrial, and Life Sciences industries.

But when I attended QAD Explore last week (May 4th – 6th), I found they were doing more in the area of supply chain management than I knew about.

I knew that QAD had acquired Precision Software several years ago.  Precision provides transportation management system (TMS) and global trade management (GTM) software. In the past, when I talked to Precision customers, they were more likely to be using Precision to support parcel and GTM.  I wrote a case study on one such customer, Future Electronics, a few years ago.

At the conference, I had a chance to sit down with Ariel Weil, the Managing Director of DynaSys a division of QAD; QAD acquired DynaSys in 2012.  DynaSys offers an in-memory supply chain planning solution that offers demand planning, production planning, distribution planning, and procurement of BOM materials all built into one database.  Other SCP suppliers are now leveraging a new generation of more powerful in-memory technologies to offer broader solutions based on a common model, but DynaSys was ahead of the pack in this area.

Once a DynaSys planner has a collaborative demand plan agreed to, with one click that planner can generate a plan that ripples back to plan distribution, manufacturing, and strategic procurement.  DynaSys also offers an S&OP solution.  This architecture then lets them run demand scenarios in S&OP meetings and quickly blow back to see the consequences in manufacturing and distribution. DynaSys made further enhancements to its solution suite, DSCP (Demand and Supply Chain Planning) early this year.

But what was most enlightening to me was a presentation by Terry Onica, the Director of the Automotive vertical at QAD, and April Dines, a Corporate Quality Engineer at Cascade Engineering.  Cascade is using a quality management solution (QMS) from QAD to drive their supply chain risk management program.  This solution is based on QAD’s acquisition of CEBOS.  That acquisition also occurred in 2012.

Supply chain risk management has been getting more and more attention in our discipline over the last several years.  When I think of supply chain risk management, I think of a broad array of things that could go wrong and adversely affect a supply chain.  How could a quality management system play a leading role in mitigating and controlling risk?

Well for Cascade Engineering, a Tier 1 automotive supplier, it does.  When you consider supply chain risks, the risks can be put in a hierarchy from known risks that are controllable to unknown risks that are very difficult to control.

SCRM

In the automotive supply chain, many of the high impact, high probability risks involve better control of suppliers and the upstream supply chain; the financial viability of suppliers, the quality of the parts they deliver, and their delivery performance are all examples of such risks.

In the automotive supply chain, the OEMs (Toyota, GM, Ford, Fiat, etc.) have asked their Tier 1 suppliers to put in place robust risk management processes.  Now, the OEMs are going one step further, they are asking their preferred suppliers to make sure that their key suppliers have the same sort of robust risk management processes in place as they do.

One key certification manufacturers like GM are looking for is the Management Operations Guideline Logistics Evaluation (MMOG/LE). This supply chain assessment of a company’s supply chain capabilities also includes a look at a company’s supply chain risk management capabilities.  Has a firm defined a risk assessment process?  For prioritized risks – high probability/high impact risks – are contingency plans in place?  Has there been training for affected employees on the contingency plans?  As companies respond to risks, are they documenting the lessons they’ve learned?  Are they communicating their contingency plans and to their suppliers?

Cascade Engineering is using the QAD QMS and a QAD Supplier Portal to communicate their expectations to their suppliers, track and communicate concerns, communicate their rankings and the reasons for those ranking to their suppliers, escalate concerns, and to perform audit suppliers against their requirements.

I had never thought of a QMS as a supply chain solution.  But clearly in certain verticals, it is a critical solution for supply chain risk management.

Precision, DynaSys, and CEBOS are all sold both into the QAD installed base, as well as externally to companies looking for a best of breed solution.  All of these solutions are available by the cloud or on premise.  When sold into QAD installed base the products are referred to as QAD TMS or QAD Cloud TMS, QAD DSCP or QAD Cloud DSCP and QAD QMS or QAD Cloud QMS respectively.

 

 

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