Nigel the Parrott

Nigel the Parrot

Imagine this – You move to California from Great Britain. You decide you’re a bit lonely, so you buy a parrot for good company. You name him Nigel. You teach Nigel to speak, and he learns the language with the British accent that reminds you of home. Unfortunately, one day your feathered buddy flies the coop, and doesn’t return. As the years pass, you resign to the fact that Nigel is gone for good. Four years after Nigel’s disappearance, you receive a random call from a woman saying she has found him. That couldn’t be correct… but the computer chip you placed on him has identified the bird as your buddy Nigel. The woman puts Nigel on the phone, but your long lost buddy doesn’t greet you with a “Cheers” or a “Hello”, but instead says “Hola! Buenos dias!”Que pasó? Little is know about the whereabouts of Nigel over the last four years, but he is now a bilingual parrot. True story…with a couple embellishments by me.

Now on to this week’s logistics news:

Wal-mart’s CEO spoke to investors this week and said that the company plans to spend more of its capital budget on building up its e-commerce presence (logstics vendors, take note). Wal-mart has reported six consecutive quarters without growth in comparable sales (same store) in the US, according to the article in Fortune. The company is also placing focus on expanding its omni-channel commerce capabilities to give consumers greater choice in placing and receiving orders.

Prologis, the large international industrial building owner, is increasing the construction of warehouses in Europe to meet increasing demand for addition e-commerce fulfillment centers, according to Bloomberg. The article mentions specific areas including Poland and  the English Midlands. The article references CBRE Group stating that tenants are signing the most leases for industrial space in Europe since 2008. Prologis is expected to start building out 5.4 million square feet of warehouse space in Europe this year.

As another example of e-commerce’s affect on fulfillment centers, Singapore Post is going to spend $145 million on a new e-commerce logistics center to support the anticpated increase of online retailing in Southeast Asia. The facility will be 553,000 square feet and capable of handling 100,000 packages daily. Alibaba announced in May it intention to invest $249 million in Singapore Post as a stake in the international logistics business.

According to the New York Times DealbookCanadian Pacific Railway recently approached CSX about a potential merger. CSX has rail lines in the eastern US, while Canadian Pacific is primarily in Canada. There is little overlap in geographies, but such a deal would require regulatory approval. As an aside, access to shale oil transportation routes is the motivation that initially popped into my mind. However, I am unsure about the degree to which CSX serves shale oil transport routes. The article does mention that North American railroads are considered to be poorly managed, and the possible efficiency gains from instituting proper management may be the primary merger motivation.

FedEx Freight drivers in Pennsylvania have voted to become represented by the Teamsters Union. This is the first time drivers of FedEx Freight have chosen to be unionized. This vote follows an earlier vote by New Jersey FedEx workers, in which they rejected an organization attempt by the Teamsters. There are five more votes currently scheduled at FedEx terminals across the US.

FoodLogica e-Trikes

Foodlogica e-Trikes

Progress or regress? I guess it depends on your perspective. Treehugger.com reports that Foodlogica has introduced an e-trike food delivery service that promises “no emissions, no congestion, no polution.” The solar-powered trikes have a custom cargo box to carry packages and cartons. The base price for delivery is 15 Euros.

Rianovski reports that Kiev and Brussels (EU) have stated intentions to launch a free trade zone if Russia violates the the prior agreement. The article quotes the Ukranian representative, Valery Pyatnitsky, as stating

“There is a certain probability – and I’m not implying that this probability is high – that the Russian Federation will withdraw from the agreements, reached in Brussels; in this case, of course, other parties will also be freed from the agreements achieved,”

It sounds to me like the EU and the Ukraine are hedging their bets, or attempting to reinforce the benefits of complying with the agreement. Russia also stated that it would introduce measures should Kiev and Brussels implement the economic actions that were agreed to be delayed.

Have a great weekend!!

 

 

 

 

 

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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.

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.

The health care industry in the US is undergoing transformation driven by the Affordable Care Act (Obamacare) and the increasing impact of consumerism. Healthcare providers historically have had prepaid plans where the cost of care was paid up front and the more procedures a hospital did, the more they got paid. Consequently providers felt little need to practice even the basic tenants of supply chain management or even understand the total cost of particular procedures.

Now reimbursements are not only going down, they are becoming incentive based. If a hospital does a procedure and the patient is released but then has to be readmitted, the provider takes a major hit on what they are paid. That means the industry needs a lower cost structure even as they improve the quality of patient outcomes.

Obama Signs Affordable Care Act
Obama Signs Affordable Care Act

Typically, if the network has more than four hospitals, savings in procurement become a major opportunity. Historically, many integrated delivery networks ordered from large medical supply distributors like Cardinal Health or Owens & Minor. Those distributors bought in quantity, broke the bulk, delivered smaller quantities to their clients, and earned a 3-6 percent markup for their efforts.

Now larger healthcare chains are building warehouses, automating them, ordering direct from the manufacturers, and eliminating the middle man markup. In one hospital’s case, University of Pittsburgh Medical Center (UPMC), they leased a 150,000 square foot warehouse, installed all the racking, hired new workers, installed a warehouse management system (WMS), and still were able to get a payback within six months based on moving the volume of approximately 10 vendors to self-distribution!

Kaiser Permanente, the US’s largest healthcare organization, recently spoke at Oracle OpenWorld about the supply chain transformation they are undergoing.  I’ll provide a few highlights of this transformation, but if you want the full story you can click here.

Historically, nurses spent time as hunters/gatherers, searching for needed products; this of course limited the amount of time that nurses spent with patients. Not surprisingly, just in case inventory existed in multiple storage locations across the system.  On most ordered items, Kaiser Permanente set inventory levels at individual storage locations (par levels) through committee decisions driven by nursing; there was no science involved in selecting a par level. The processes for discovering expired and recalled products – and there are thousands of recalls per year – were manual.

What Kaiser Permanente wants to move to is a focus on the patient at the point of care. The supply chain organization can help by implementing bar coding, and then removing nurses and other technicians from the need to select, cycle count, or reorder inventory. In addition to taking over reordering, the supply chain will also be responsible for maintaining procedure cards – the list by doctor of all materials that doctor uses for particular procedures. This information will allow them to see variation of product usage across procedures and surgeons.

But by far the most interesting initiative at Kaiser Permanente is integrating product scans to a patient’s electronic medical record. This allows Kaiser Permanente to do a comparative effectiveness analysis.

Successful change initiatives are usually a combination of people, process, and technology.  Getting the people issues right is often the highest hurdle. In a health care setting, buy in from doctors will be critical. The goal of linking of products used to patient records is to be able to show doctors data on the effectiveness of different drugs and procedures. Kaiser Permanente is so big, that they can benchmark a procedure’s performance based on the sheer number of times that the procedure is carried out in their own system.

The most forward looking healthcare systems will drive a lower cost supply chain while improving care, and this will allow them to grow substantially as the Affordable Care Act takes hold. In short, the supply chain organization will become a critical player in the best healthcare system’s competitiveness, not an afterthought.

 

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.