OilAlmost six years ago the American Recovery and Reinvestment Act (ARRA) was signed into law. Approximately a year later signs were placed on the highway between my home and work that said “This construction is funded by the ARRA.” The traffic on my commute is horrible, so I was optimistic about what was going to occur. Would they add another lane on the entire stretch of my commute?  Would they create an extra lane prior to exits to remove congestion from traffic exiting and entering the highway? For some unknown reason it just occurred to me –  those signs are gone, and nothing ever changed. What happened? What was done? Was anything done? If so, what?

And now on to this week’s logistics news.

A Bloomberg article references an ATA calculation that a decrease of 1 cent in fuel price amounts to industrywide annual fuel savings of $350 million. According to this calculation, the recent 70 cent drop in fuel price would amount to $24.5 billion in savings next year. This immediately reminded me of the business strategy concept of potential industry earnings (PIE). Who will capture these savings? According to the article, about 85% of the savings is captured by shippers through lower fuel surcharges. And trucking companies see these lower fuel charges as an opening to raise freight rates to capture some of the total reduction in shipping prices. Of course, competitive pressures will determine to a large degree who in the value chain will obtain the benefits. The article notes that decreases in fuel prices normally occur at times of low economic growth and demand for resources. However, today strong economic growth is increasing demand for cargo space. Meanwhile, the market for drivers is also tight, raising the possibility that drivers may be able to capture additional benefit in the form of compensation and benefits. It will be interesting to see how this plays out.

The Wall Street Journal also ran an article on the costs and benefits of cheaper oil prices. The article is focused on manufacturing and production, but is still of relevance to the logistics industry.  For example, suppliers to oil exploration and production companies are likely to see decreases in business due to reductions in new projects. The article references companies such as GE for its oil and gas business, Dover’s  heavy equipment and pump sales, and Rockwell Automation’s sales to the oil and gas industry. However, those companies that consume oil are likely to benefit from the price decrease. Examples include chemical companies that use oil as feedstock and manufacturers that use oil to power their factories. Finally, the reduction in oil prices translates to a reduction in gas prices that effectively serves as a break on consumers that spurs additional discretionary spending. In all, it is a net benefit to economic activity.

Descartes extended its presence in the global trade management arena this week with an acquisition of e-customs, Inc., a provider of electronic security and fiscal customs filing solutions in the UK. Its cloud-based solution provides both shippers and logistics service providers with customs capabilities to cost effectively comply with UK fiscal filing and security filing requirements. On the same day this week, Descartes also announced its acquisition of  Pentant Limited, UK-based certified Community System Provider (CSP) offering customs connectivity and import/export inventory control solutions for ocean, truck and air cargo. Pentant and e-customs were opertated independently of one another, but were under control of common investors.

Transportation Topics reported that the Cass Freight Index for November increased, continuing its positive momentum. Shipping increased 4.2 percent, year over year. However, it declined 0.2 percent sequentially. Expenditures also increased (5 percent) year over year in November, and decreased a bit sequentially. The Cass Report stated:

The November Cass Freight Index showed a drop in total freight expenditures of 0.7 percent and a corresponding decline in shipment volumes of 0.2 percent. This was not unexpected given the fact that retailers stocked up early in anticipation of problems at the West Coast ports…..Not all shippers were able to avoid deliveries to West Coast ports in November and they are experiencing three week – or longer – delays in receiving their goods.

And from the “Self-Serving Research” file…

A survey indicates that almost one in five small businesses are facing supply chain bullyings. This was a survey of the Federation of Small Businesses members in the UK.  The article goes on to discuss the forms of payment bullying and includes a number of quotes from the national chairman of the federation.

Transportation Topics reported on a study that details how federal spending on transportation infrastructure boosts the economy by creating jobs beyond the construction sector. Did I mention that the study was funded by the Transportation Construction Coalition? The coalition includes the American Road and Transportation Builders Association, Associated General Contractors of America and several labor unions, according to the article. The article also transparently states that the coalition study and others recently released are designed to build the case that Congress should pass a long-term transportation funding bill next year. Now I remember, reading this article reminded me of the ARRA project conducted on the route I take to work each day (see intro paragraph).

Have a great weekend!

This week’s video, Conjunction Junction by Schoolhouse Rock. Remember it? “Conjunction junction, what’s your function? And, but, and or…”

 

 

 

 

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One of Santa's Control Towers

One of Santa’s Control Towers

Last Christmas Eve I was at a family party watching television with my niece and nephew. The local channel was broadcasting NORAD’s tracking of Santa across the globe. This is when my nine year-old nephew looked up at me and said, “Uncle Clint, how does Santa get to every house in the world in one night?” I immediately focused on maintaining my composure. Luckily for me, we had been discussing world geography in the days prior. I calmly turned to him and said, “Time zones. Santa takes advantage of the time zones for his deliveries.” My nephew looked at me with crinkle in his forehead as he pondered my response, and said, “Oh….ok.” Phew, I just barely ducked that one. But after that night, I decided to embark on some investigative journalism to learn more about Santa’s routing optimization excellence.

Thankfully, in the off-season I found a North Pole insider that was willing to speak with me on the condition of anonymity. He was not authorized to disclose the details, so I cannot provide his identity. Let’s just say he looks “elf-like.” Clearly Santa’s reindeers are his competitive advantage in transportation. But that’s obvious. What many don’t know is the set of parameters that Santa’s elves use to optimize his Christmas Eve routing. Surprisingly, travel speed isn’t a critical constraint as Santa has much flexibility in this area. However, when relaxing constraints, the elves determined that packaging and putting of items were critical to productivity. Subsequently, they initiated a study, ran some scenarios, and determined that packaging in standardized boxes and proper palletizing would relax this constraint. There were many other constraints that I will not address in this piece. Let’s just say that the carrots people leave on their mantles for the reindeer are critical to productivity. However, to my amusement, the routing engine did in fact simulate numerous paths and it was determined that leveraging time zones was in fact one of the most important parameters in the calculation. Santa recently modified his routing from a country based route to a longitudinal route. The extra flexibility afforded to him from the staggered time zones has allowed him to meet the increased demand requirements from a growing global population. So time zones are in fact part of the secret sauce to Santa’s routing optimization excellence!

Happy Holidays from Logistics Viewpoints!

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droneEarlier this year, my colleague Ralph Rio wrote an insightful and very popular article about Amazon’s interest in drones for home delivery. Amazon is continuing to push forward with their drone research and testing. One major obstacle, however, is rules that are in place by the Federal Aviation Authority (FAA). In a letter to the FAA, Amazon has warned that if the FAA does not relax its attitude towards drone regulations, the company will be forced to move all of its drone testing overseas. This is not too surprising, as Amazon is already testing drones in the UK. Additionally, sources have said in the past that India will be the launchpad for Amazon’s drone delivery service. But Amazon certainly sees potential in the US market, despite FAA regulation that make commercial use of drones illegal. In fact, the FAA struck down beer delivery drones to ice fishermen earlier this year.

In his letter to the FAA, Amazon’s vice president of global public policy Paul Misener wrote:

“Without the ability to test outdoors in the United States soon, we will have no choice but to divert even more of our [drone] research and development resources abroad. I fear the FAA may be questioning the fundamental benefits of keeping [drone] technology innovation in the United States.”

I asked Ralph Rio for his take on Misener’s letter and whether it could make an impact on the FAA’s current laws. Additionally, with more companies looking to introduce drone deliveries to control the last mile of the customer experience, would there be any changes to planned overhauls that could become more restrictive in 2015 and beyond.

“In my honest opinion, segment the administrative FAA from the elected politicians. The FAA is a bureaucracy. People in a bureaucracy do not want to be blamed for a mistake; they are highly cautious. The FAA is already under high pressure to act, but they haven’t. The additional pressure from Amazon will have little or no effect.
The politicians are highly motivated for votes to get re-elected. If Amazon identifies a specific set of employees who will lose their jobs, this will engage the corresponding congressman and/or senator. To date, the FAA has been the primary participant.  If a senator applies pressure, then there could be an effect.  Otherwise, no.”

bike-messenger-new-rulesSo it appears that Amazon may need to push more drone research resources overseas, at least for the foreseeable future. Looking at the complete opposite end of the spectrum, Amazon is also experimenting with some low tech initiatives for faster delivery time frames. Currently, the company is looking at the use of bicycles for one hour deliveries in Manhattan. Amazon has run several time trials with bike messengers from various bike courier companies. The winner of the time trials, according to reports, will win the right to run packages for Amazon. The time trials consider both speed and safety – the quickest and most careful will win.

With a large New York City home base, this move is a way to bolster local deliveries in one of their prime markets. With crowdsourcing same day delivery options such as Deliv, as well as local retailers increasing their use of same day deliveries, this move could prove to be beneficial to Amazon. The use of bike messengers could be especially convenient during heavy traffic times. The service will clearly be used for delivering small items; using bicycles rather than trucks will allow Amazon to push out more orders and pack their private fleet trucks more efficiently or avoid the use of other carriers. It will be interesting to see how this service translates to other metropolitan areas.

Tom K CroppedI am not sure exactly when it happened, but one day I woke up and realized that supply chain solutions such as warehouse management systems (WMS) are finally considered “mature” software applications. Being in the logistics Industry for 45 years, this was quite an epiphany for me. I spent my early years working with companies that wanted a “build to specification” solution, which required a lot of product customizations. I guess you could blame it on a few key aspects of that time period: early versions of WMS were not functionally rich; they were not highly configurable; and the buyers believed that a built-to-order solution would provide them with a competitive advantage. It was inevitable that the early WMS projects were going to be highly customized deployments. But somewhere along the way, things changed.

Current WMS solutions have a strong base of functionality and include a level of configurability that enables extensibility without code modifications. Although most software vendors continue to enhance their products and release new versions on a routine basis, the products can address the core functional requirements for most companies in most major vertical industries across the globe. In parallel, the buying behavior has changed.  Today, most companies are looking for a WMS with a low total cost of ownership (TCO) and expect the baseline WMS to address their core logistics requirements without requiring additional customization. This may be a “chicken and egg” situation, but my guess is that the functional richness of many of today’s WMSs had something to do with this change in attitude.

So this is where I apparently woke up…

Now is a good time to be in the WMS software industry.  Today, we’re seeing a great deal of interest in new WMS solutions. I see a few macro drivers for this increased interest: food safety regulations, pharma drug serialization regulations, a need to replace legacy WMS applications (remember the TCO that I mentioned?); and of course, the dynamics associated with order fulfillment in an omni-channel world. Companies looking to upgrade their warehousing capabilities are often happy to discover that many of today’s WMS solutions can satisfy their needs right “out of the box.”

So what’s the next frontier for us software providers? What is the next best thing that we can offer our current and future clients that will give them the greatest business value? How about another way to pick an order? Hmmm, probably not. How about another putaway algorithm? Ummm, I don’t think so.

I think it will relate to breaking down the silos of individual supply chain applications. Just as the WMS applications evolved through functional richness, so have transportation management systems (TMS) and demand planning & fulfillment (DnF) applications.  By itself, each solution provides tremendous business value. Each has the ability to react and respond to supply chain disruptions as they occur. But each also commonly operates within a silo and does not take into account the constraints across the three application areas. Nor do they provide the ability to iteratively re-optimize tasks when it is necessary to re-do the original plans.

Ahhh, so perhaps THIS is the next best thing!

Well, I see the huge potential business value.  But these new “intelligent fulfillment” processes can be difficult to implement.  To be able to efficiently conduct constraint-aware planning and iterative execution, you must start with an application platform. Trying to get to this level of operational effectiveness with a group of disparate applications from multiple software vendors is a non-starter. The integration costs and upgradability costs are too steep for most companies (…and please remember again my point about their desire for a lower TCO!).

I mentioned earlier that I find this to be a good time to be in the WMS software industry because of the amount of interest and activity we are seeing today.  Some of the companies we are currently engaged with do, in fact, share this vision of what we refer to as an “intelligent fulfillment platform.” But they are still a minority. Most of the company software evaluations in which we have had the privilege to participate only involve a single supply chain silo. I think these companies are setting the bar too low for themselves. That is why I try to talk to companies about the vision of the intelligent fulfillment platform whenever I have the opportunity.

Once they understand the business value, they tend to agree that it is a great new way to look at improving their respective supply chains and indeed, represents a wake-up call for the industry.

 

As VP, Solutions Strategy for JDA Software, Tom Kozenski is responsible for driving the product direction of JDA’s IF – Intelligent Fulfillment Supply Chain Suite. Kozenski brings more than 45 years of supply chain technology and logistics experience to this role. Kozenski joined JDA as part of the JDA/RedPrairie merger in 2012, where he served as an integral part of RedPrairie’s leadership team for more than 18 years. Prior to his career at RedPrairie, Kozenski held pre-sales and product management positions for other logistics software companies. He began his career in warehouse operations management working in the consumer electronics, mail order fulfillment, and book publishing industries for 17 years. Kozenski is an active industry speaker on supply chain and retail technology topics. He has presented at numerous supply chain organizations including PROMAT, CSCMP, WERC, FMI, NAW, and APICS.

I spoke to Carl Fowler, the Vice President of North American Sales and Engineering at Menlo Logistics, on the topic of continuous improvement and procuring warehousing services.

Carl Fowler.jpg

Carl Fowler

The question I had in mind was this, suppose you know that your warehousing operations were not what they should be and you wanted a 3PL to manage your warehousing operations for you.  Further, suppose that one criterion that was important was selected a 3PL with expertise in continuous improvement.  How would you know which 3PLs had a strong Lean or Six Sigma culture?  After all, it is very likely that each 3PL would claim to have expertise in this area.

Carl has good immediate answers to that question, but he also had a broader and more thoughtful response about how the existing procurement process can so often lead to suboptimal results.

Carl’s immediate answer was that companies should ask:

  • How many employee-led Kaizen events took place at the warehouse in question? Were those bottom up or top down events? (Companies that live Lean will tell you bottom up is better).
  • Does the 3PL run Kaizen events outside of the supply chain area? For example, in back office or sales or customer service functions? This is a good indicator of how deeply embedded Lean is into the culture as a whole.
  • What were the hard dollar savings associated with these continuous improvement events? The soft dollar savings? The productivity improvements? How were these benefits measured and did the customer sign off on them?
  • How many value stream mapping engagements did the 3PL have with reference clients and did those engagements reach beyond the warehouse to broader supply chain processes?

Carl mentioned that 3PLs that have really embedded Lean into their culture have to hire a different profile of worker.  So often, 3PLs hire warehouse associates for simple functional tasks – inventory put-away, pick and pack, etc.   There is no sense of a greater calling.  3PLs that truly have embedded lean into their culture and processes put engagement and respect for the warehouse worker at the forefront. Workers are given the opportunity and authority to influence the work – through applying their experience and using teachings on how to use lean tools to remove waste.   If you really want employees to function well in this environment, you have to be able to practice “servant leadership” and truly make them the core and the driver of continuous improvement processes — and by sharing the success with them through performance incentives based on efficiency improvement.

And the combination of engagement and incentive pay means that Menlo has much higher warehouse associate retention than the industry as a whole.

But while Carl walked me through the right questions to ask, his perspective was that the traditional 3PL request for proposal (RFP) process was broken.  A potential customer is putting the 3PL into a box through a process that was too prescriptive, and consequently robbing themselves of an opportunity to reengineer their supply chains.

Is what the company wants really just the ability to save half a cent on line orders picked in an hour?  Than fine, the traditional procurement led process – which requires “conspicuous compliance to the RFP” – is just fine.  Noncompliance to all criteria on the RFP becomes an easy way to eliminate prospective 3PL partners.

But if the question is broadened, Is Memphis even the right location for a warehouse based on the company’s demand profile?  Are we looking for improvements to the order to cash process?  This would involve services that go beyond warehousing.

In short, companies should begin by asking themselves how they want to achieve bigger and more fundamental supply chain objectives.  Begin by using a Request for Information that states the problem and asks 3PLs how they think that problem can best be solved.

In providing those alternatives to a potential customer, for the right opportunity, Menlo is willing to incur upfront costs.  They will send in their “lean,” consultants, typically degreed professionals with engineering and operations research backgrounds, who are proficient in network design, to come up with Menlo’s suggested alternative to a problem, at no cost to the customer.

Now it is likely that other 3PLs will come up with different alternatives.  At this point, the customer may want to combine the best ideas of each 3PL into a RFP.  In short, it is an iterative RFP process.  This is a longer process.  Menlo is completely comfortable with a sales cycle that takes 12 to 19 months.  In fact, because they seek to provide creative higher value solutions, a short sales cycle is suspect.

And what seems like a longer process can actually save companies money.

According to Carl, when Menlo and most other major 3PLs lose in a sales cycle, the most common reason is because the company abandoned the search for a 3PL partner.  “Think about all the money and time wasted when this happens.”

Finally, Carl believes that this more free form, higher-value-add style of procurement actually benefits 3PLs with a true Lean culture.  Lean is what allows 3PLs to creatively solve more important value chain problems.