Snow ContrastSo…This morning Boston received its first snowfall of the season. The overzealous news reporters are already in action “traffic delays, polar vortex, stay tuned for (15 minute interval) updates!” The picture on the left is the snow on my property this morning. I had to rush outside to capture that little dusting of snow before it completely melted. In contrast, the picture on the right captures the snowfall in Wisconsin earlier this week. It looks like they’re going to give Rochester, NY a run for its money this season. My point, I’m admitting we are such wimps in Boston.

On to this week’s news… lots of shale oil supply chain stuff:

The Cass Freight Index for October was static month-to-month. Shipments were down about 1 percent, while expenditures were flat. The report attributes the reduction in shipments to port congestion, especially on the west coast, and a drop in new orders for manufactured goods in September. However, both shipments and expenditures shows healthy year-over-year growth, at 3.3 percent and 6.4 percent, respectively.

The Dakota shale boom has relied heavily on rail transport of its crude oil production. This has displaced capacity that has traditionally been available for commodities such as grains and other agricultural products. An article on Bakken.com reports that BNSF Railroad has told some of its oil transportation customers that they cannot add new oil tank cars to its system until next year. Here are a coupl brief excepts from the article:

The moratorium on new cars, which customers were informed of in recent weeks, is BNSF’s latest effort to avoid worsening congestion on its rail network amid record freight traffic….The efforts by BNSF come just as nation’s rail system faces what could be its biggest ever test as farmers start shipping a record harvest of corn and soybeans just as winter weather threatens to slow down operations.

I am interested in seeing what impact this decision will have on shale oil production from the region. Will the oil production increase as it would have with excess rail capacity, with trucks taking over the excess volumes? Or will trucking capacity constraints or the increased cost of truck transport, in conjunction with lower crude oil prices constrain production volumes until rail capacity is increased? I’m guessing the latter. Does anyone disagree?

An article on the Journal of Commerce reports that Sasol recently decided to build an $8.1 billion plant in Louisiana that will triple its chemical production capacity in the U.S. The article quotes Sasol president David Constable as stating, “The U.S. Gulf Coast’s robust infrastructure for transporting and storing abundant, low-cost ethane was a key driver in our decision to invest in America,” Chemical production is up nationally, and this is creating logistics demand and opportunities. Here is an excerpt from the article:

Those steady gains mean more chemical shipments on highway, rail and by water. That in turns means more interest and investment by third-party logistics companies and transport operators in the lucrative chemicals business.

The article goes on to mention recent chemical industry logistics activities including Transplace’s acquisitions of Logistics Management Solutions and SCO Logistics and Quality Distribution’s recent 10.9 percent increase in chemical logistics revenue.

Wall Street Journal (subscription may be required) published an article on Halliburton’s “war room” that tracks the sand shipments used for fracking operations. There are certain requirements for fracking sand and it is a critical ingredient in the fracking process. Here is a quote from the article:

More than a dozen employees hunker down daily on the first floor of Halliburton’s north Houston office in front of massive screens with real-time maps of railcars transporting sand, live camera feeds of sand mine loading and unloading operations, constantly updated weather conditions and data about sand levels in the company’s storage silos.

Who would’ve thought ten years ago that sand would’ve become such a critical commodity in US oil production..

Finally, Walmart recently reported an increased in same store sales. In previous posts I had mentioned that same store sales had been declining at Walmart, while e-commerce sales had been increasing at the retail giant. So it is only fair that I report Walmart’s same store sales rose 0.5% in the U.S over the most recent period. Meanwhile, e-commerce sales grew 21 percent worldwide on a constant currency basis.

 

Have a great weekend everybody. This weeks video is a short home video from Quebec City showing the results from 12 feet of snow.

 

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Chuck FuerstThe need for track and trace capabilities in industries such as food and beverage, manufacturing or automotive industries is obvious: the threat of contamination or recalls impacts public safety, and the responses to those events are highly regulated. Organizations need to know what goes into their products and their location at all times. But increasingly, companies in other industries are taking a fresh look at the need for advanced tracking and tracing capabilities that are critical throughout the order process and can drive efficiencies the entire way through, from picking to returns.  According to a report by Aberdeen Group and GS1, e-commerce and multi-channel demands on companies are increasing, with 65 percent of respondents bypassing their own DCs to ship directly to stores via suppliers or 3PLs, along with 63 percent stating that supply chain visibility is a “high priority for improvement.”

If you’re pushing track and trace enhancements to the bottom of your to-do list, reconsider. The changing supply chain and higher customer expectations will require that you know every detail about where your inventory has been, is going, and when and how it will arrive. With this information, you’ll have a more comprehensive understanding for better decision-making around order fulfillment and operations management, as well as transparency throughout the returns process.

Detailed inventory management
Tracking your inventory is important for staying afloat (let alone remaining profitable) in today’s omni-channel world. Operating in a multi-channel environment requires the tight synchronization of product, shipment, cost and financial data. This can’t be accomplished without granular track and trace technology.

For example, a warehouse management system (WMS) can provide date stamps and assign unique lot numbers to inbound and outbound products as it tracks existing numbers automatically (using radio frequency or RFID) as they enter and exit the facility. This can help catch problems earlier – such as an item that was loaded onto the wrong truck – and track inventory more accurately so you know earlier when to reorder. In the put-away phase, stock location and rotation should be based on established, system-directed rules that avoid mixing products in locations that could affect integrity. For example, a product that has been rinsed should not be put away in a manner that would allow this excess water to drip onto another product or packaging material.

Without accurate visibility into historical and real-time inventory intelligence, organizations cannot efficiently fulfill orders coming through multiple channels, and risk losing money by missing merchandise that could be moving from a shelf to a customer.

Better analytics and reporting
Enhanced track and trace capabilities support advanced analytics for reporting requirements, such as in the event of a recall, and provide the real-time intelligence that can drive better inventory forecasting and more strategic operational decisions.

Working with a tier 1 WMS, you are able to pull reports around granular, configurable lot/batch/expiration date management, global inventory to create easy collaboration with suppliers, co-packers and distributors, and respond to changing compliance requirements. For example, a morgue archive allows you to identify recalled or expired items no matter when or how they entered your warehouse. In addition, data gathered from RFID tags can be tracked with the WMS to help you better analyze inventory trends and movements.

Product recalls occur occasionally, but they typically result in substantial inventory loss.  Many companies have limited means to track and trace contaminated inventory, which means they often discard more inventory than necessary due to the inability to isolate and track a single product component.  A tier 1 WMS also allows you to track and trace by ingredient, not just at the SKU, UPC or lot level. This increased level of detail helps you identify only the inventory affected by specific ingredient components, limiting the scope of potential inventory loss.

Fair returns
Track and trace abilities are key to your bottom line when dealing with returns. With greater visibility into inventories to help speed recalls and support accurate return processing, companies can save money and get the returned product back to the manufacturer or back into the inventory pool as appropriate.

Accurately picking and tracking inventory during order fulfillment pays dividends when the item is returned – literally. For instance, I know of a manufacturer that donated products after a natural disaster. A few less honest recipients claimed they bought the merchandise and tried to return the product to get cash refunds or credit. Because of the merchandise’s RFID tags and the ability to closely track the inventory within its WMS, the retailer knew that the pieces were donations and could deny the returns.

A better customer experience
More than just responding to recalls, advanced track and trace capabilities can drive efficiencies throughout the entire order process, from picking to returns. This isn’t just helpful to your operations; it also supports a better customer experience. Whether you are a retailer managing fast-changing merchandise trends or a 3PL supporting a diverse customer base, you’re likely dealing with a complex number of SKUs, quick sell-through speed, seasonal buying patterns and perhaps a potential for theft. You only have one chance to get your inventory allocation right and to provide the best experience for your customer.

 

Chuck Fuerst is the director of product strategy at HighJump Software. He has more than 15 years of experience in the technology market, working for supply chain and ERP software companies to deliver innovative solutions. Chuck is responsible for monitoring supply chain industry and technology trends and identifying ways to enhance the value of products for HighJump’s customers. He holds a bachelor’s degree in marketing management and innovation from Concordia University.

rush-packageLast year’s holiday shopping season could be described as “rough.” An estimated two million packages were delivered late, which really doesn’t make for a happy customer. The reasons were two-fold. First, there was a huge jump in last minute orders that shippers were simply unprepared for, and therefore were unable to get out on time. Second, horrible weather. The weather made shipping even more difficult than normal, and pushed back delivery timeframes even for those packages that were ordered on time.

Shippers, and retailers, have vowed not to let 2014 fall victim to the same problems. There has been advanced planning going into this holiday season. The major shipping carriers (UPS, FedEx, and USPS) have announced plans for how they will combat the busy holiday season. Amazon, which has traditionally partnered with UPS, has made some announcements of their own to ensure that last year’s problems do not happen again.

UPS delivery storyUPS is spending a reported $500 million on improvements for the holiday season. UPS has announced that it will hire up to 95,000 seasonal workers to match the demand of delivering an estimated 585 million packages in December alone. The company has bolstered its capacity by preparing what it calls “mobile delivery villages,” which are modular facilities that can expand existing shipping centers. Additionally, the company is adding “Black Friday” as a full operating day, allowing for more efficient handling of deliveries.

Fmaster_az_6347_160-112edEx has also announced plans to invest in logistical improvement as part of the holiday rush. The company is looking to invest $1.2 billion in its ground-shipping network in its current fiscal year. The majority of this investment is geared towards increasing capacity and automation, including the use of “enhanced visibility technology” to improve tracking abilities of the packages. FedEx will also hire 50,000 seasonal workers for the upcoming holiday season. With so much of last year’s issues blamed on the weather, FedEx employs 15 full-time meteorologists in its global operations control center who help the company avoid weather-related delays.

usps holidayThe United States Postal Service (USPS) has introduced two components to its holiday plan. The first, is the announcement that it will deliver packages 7 days a week starting November 17, and continuing through Christmas. While Mondays have typically been the busiest day for package deliveries, adding Sunday deliveries will help to alleviate some of the congestion. While the USPS has tested Sunday delivery with Amazon, this move will also allow it to deliver packages shipped from individuals, not just from retailers. The second component to the USPS plan is to enable “click-n-ship.” This feature allows customers to ship packages when it is most convenient for them. The web link offers customers the ability to order boxes, get price quotes, print postage, and schedule pick-ups through the USPS. Combined with Sunday deliveries, this feature can be a major factor in ensuring on-time deliveries around the holidays.

Amazon has also made some plans to combat last season’s difficulties. First, the company is hiring an additional 80,000 season workers, which is a 14% increase over last year’s figures. Amazon has also opened additional sortation centers for direct shipping. These centers collect parcels from the fulfillment centers and sort them by ZIP codes for delivery to local post offices. The sortation centers help to eliminate the company’s dependence on UPS and can help the flow of packages. Add this to the company’s private fleet and new taxi delivery service, and Amazon has many methods for holiday deliveries.

While the shipping battle has begun, and retailers try to entice customers to their e-commerce stores, there is one potential looming problem for the holiday season: port congestion in Los Angeles and Long Beach. There still is not an agreement between the unions, and both sides are calling foul. The stalemate has reached a critical point with accusations of work slowdowns contributing to the congestion. Some container ships have been anchored since late October. While these goods should be on trucks rolling out to retailers now, they are stuck on the boat with nowhere to go. Luckily there has not been a full work stoppage, which the National Retail Federation (NRF) estimates would cost the US economy $2 billion a day. But if things are not resolved soon, many customers will not be complaining about delayed packages. They will be complaining about a lack of goods.

Google’s Robot Strategy

Google was in the news today.  Google has signed a 60-year lease for part of a historic Navy air base, where it plans to renovate three massive hangars and use them for projects involving robotics as well as aviation and space exploration.

Starting in 2013, Google acquired several companies that produce robots or supporting technologies including Japan-based, Schaft Inc. which makes humanoid robots; US-based, Industrial Perception makes robot arms and robot vision; Boston Dynamics makes mobile and humanoid robots; UK-based, DeepMindTechnologies specializes in artificial intelligence; and Titan Aerospace in the US produces solar-powered drones.

Google Robot

Google-owned Boston Dynamics’ Atlas Robot

My colleague Stefan Miksch, who is located in ARC’s offices in Dresden Germany, attended a forum at the Fraunhofer Institute. According to Prof. Dr. Bauernhanslm, Google’s goal is to develop a robot with characteristics, which much like a smartphone, can serve as a platform for products and services. Both require data and intelligence to perform well, strengths that Google clearly has.  Most robots have a similar hardware base.  With industrial robots connected to a control system, companies will be able to personalize their robots by downloading “apps” to the robots that would enable them to perform specific tasks.   While Google plans to offer the hardware, intelligence, and apps to make the robots work; it’s likely that other application developers will also offer software solutions for Google robot users.

In 2013, approximately 179,000 industrial robots were sold; almost 12 percent more than in 2012. Asia, with around 100,000 units, was the largest market.  Companies in other regions also are increasingly using industrial robots in manufacturing.  However, China is the largest single market for industrial robots, with approximately 37,000 units sold in 2013.  A combination of rising wages and the need for new production capacity that can manufacture products to global standards is driving this demand.  Not surprisingly, Google is targeting this booming Chinese market for industrial robots.  Chinese contract electronics manufacturer, Foxconn, announced plans to cooperate with Google for industrial robots and is interested in acquiring 10,000 units.

Google industrial robots and apps are still out on the horizon, perhaps three to five years for fully functional Google industrial robot implementations. Nevertheless, this is something industrial organizations need to be aware of and continue to track.

The perfect order metric (POM) is one of the most critical metrics in fulfillment.

The Warehouse Education and Research Council’s (WERC) definition of the perfect order metric is that a perfect order is delivered:

  • Complete;
  • On time;
  • Damage free;
  • And, with the correct documentation and invoicing.

This is tough to achieve a very high POM number because the final formula is based on multiplying the sub metrics together. So if the orders delivered in a time period averaged 99 percent complete, 99 percent on time, 99 percent damage free, and had 99 percent documentation (0.99 * 0.99 * 0.99 * 0.99), the final POM number for that period would be only 96 percent.  And the worse the numbers you start with, the worse it gets.  So if only 80 percent of shipments were on time and 80 percent were shipped complete, even if the company was perfect in the other areas, the total POM would only be 64 percent!

The Perfect Order

As if that is not tough enough, some large retailers have a far more demanding view of what a perfect order is. A paradigm shift is taking place in the fast-moving consumer goods supply chain. Large retailers are saying a manufacturer’s job is no longer done when the goods arrive at the retailer’s distribution center (DC). Instead, a manufacturer must now collaborate with its retail partners to ensure strong in-stock performance at the retail shelf, which ultimately leads to increased revenues and profits for both parties. The perfect order metric, as traditionally defined, is still important, but no longer sufficient.

But realistically, very few manufacturers have the ability to move toward a tougher view of POM that adds on-shelf availability of the product as one of the definition subcomponents; and the manufacturers that do have this capability tend to be a retailer’s category captains.

So let’s turn back to the traditional definition. I’ve asserted this a critical metric.  It is critical because a strong performance on POM improves top line revenues.  Many companies don’t want to do business with unreliable suppliers.  In fact, some companies have quantified this.  They have done studies to see how many POM mistakes it takes to lose a customer.  Some have called the results “eye opening.”

Achieving a strong POM performance can, of course, increase fulfillment costs. If you have to hold more inventory to ship complete, there are costs associated with that.

Part of this depends on how a company defines a complete shipment. For example, imagine that a company tells a customer we don’t have that item, but we can ship the rest of the order, and the customer agrees to this.  Then let’s assume the amended order is delivered “complete.”  For some companies, this would not negatively affect the POM.  Achieving this kind of order completeness does not require extensive inventory, just real time inventory accuracy.

Other companies are tougher on themselves. If a customer calls and they have to admit they don’t have an item a customer wants, this counts as a deviation that negatively affects POM.  And this will certainly require more inventory.  Moving from a 98 to a 99 percent inventory service level, requires exponentially more inventory than moving from a 90 to 91 percent coverage position.

In other ways, however, improvements in POM actually lower costs. For example, better warehousing processes that lead to fewer mispicks, and thus fewer returns, will almost always save money because handling returns is so expensive.  Fewer returns also tends to drive a faster cash conversion cycle because customers are very slow to pay for orders that are being disputed.

In conclusion, I do think companies need to pay close attention to the perfect order metric. But it can be too simplistic, not to say unrealistic, to say our goal is a 100 percent POM score.  The right POM goal will depend on a company’s competitive strategy.  Those competing on service should strive for a very high score, those competing on price have a bit more latitude.

Categories Metrics and Standards
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