Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Recent Supply Chain Case Studies from Logistics Viewpoints

Learning & Leadership | By •

I recently attempted to read a white paper from McKinsey that talked about the value a digitization program can provide; the problem was that after reading the article for ten minutes I still had no idea how they defined “digitization.” Sometimes I get fed up with theory. What follows are ten supply chain case studies published over the last year in Logistics Viewpoints that provide a practical approach to improving supply chain capabilities. Click on the subheadings to see the full case studies.

Amazon supply chain case study

Amazon Launches Trucking App

Amazon is no stranger to innovation; we need to look no further than its investment in drone technology, warehouse robots, robotic picking competitions, the Prime program, dash buttons, cloud services, and a host of others. Often, the company will quietly launch one its new services as a test run before making any major announcements or grand roll-outs. Last month, Amazon did it again with the launch of its first trucking app.

Drones Over Africa: Delivering Lifesaving Medical Supplies

In October 2016, Zipline began using delivery drones for moving medical supplies to health clinics in Rwanda. The San Francisco based company is a combination high tech startup, drone manufacturer, logistics service provider, and public healthcare system consultant.

eCommerce Company uses Artificial Intelligence to Improve their Value Chain

Artificial Learning has become a hot topic. Supply chain software companies are working to incorporate machine learning and AI capabilities into their solutions. But there are companies that have built their own data science teams, developed AI capabilities, and improved their value chain capabilities through the initiative. Plated, a meal kit subscription company, has a good case study in this area.

Fleet Management for Disaster Relief

When it comes to relief efforts after a hurricane or other natural disaster, rental car companies are the face of the future. This comes down to their ability to manage their fleets appropriately, to get the proper vehicles to the proper locations at the proper time.

How Pactiv Improved Its Yard Operations Across Twelve Facilities

Pactiv, headquartered in Lake Forest, Illinois, is a leading manufacturer and distributor of foodservice and food packaging products. Their manual approach to yard management was hindering their ability to find trailers in their yard. And they wanted to reduce trailer detention times and the $25 daily fee they get charged by carriers for each day after the initial 72 hours.

A Distribution Revolution in the Making? A Wholesaler Implements Mobile Picking Robots in their DC

A revolution in robotic automation for the piece picking warehouse is emerging – mobile picking robots! The combination of mobile robots and picking arms is potentially revolutionary.  These solutions are just beginning to emerge. Rochester Drug Coop (RDC) has implemented a solution from IAM Robotics with future phases already planned.

AGCO Drives an 18 Percent Reduction in Freight Costs while Maintaining Service Levels!

AGCO Corporation – a global leader in the design, manufacture and distribution of agricultural equipment – began their supply chain transformation in 2012. An initial conclusion was that inbound material logistics and freight management should not be run as separate operations. There were synergies that could be captured by running these operations together on a globally integrated basis.

Home Depot Grows Revenues by Investing in Time Definite Deliveries

Historically, the main reason companies implemented transportation management technologies is to reduce costs. Occasionally, I’ve come across companies that implement logistics solutions to drive increased sales. There can be a strong business case for investing in a transportation management system (TMS) to grow revenues. Home Depot has proven that using a TMS to improve the ability to do time definite deliveries can boost revenues.

Benchmarking: A Key Ingredient to Campbell Soups Ability to Greatly Improve their Forecasting

Companies greatly reduce their inventory carrying costs through better forecasting. But how can they know if they are doing a good job in this area. Benchmarking forecasting can be devilishly difficult. This case study explained Campbell Soup’s approach to this process.

Terex AWP: New Yard Management System Works like a Charm

Terex is a global manufacturer of lifting and material processing products. The Aerial Work Platforms (AWP) business unit sells many of its products under the well-known Genie brand name. Genie customers are mostly equipment rental companies that purchase high-volumes of units on an annual basis.  The company had a cumbersome process for finding the precise made-to-order unit that reflected a customer’s requested features in their yard. After a pilot, they implemented a real-time yard management system to drive better fulfillment efficiencies.

Home Depot Grows Revenues by Investing in Time Definite Deliveries

Retail | By •

Historically, the main reason companies implemented transportation management technologies is to reduce costs. Occasionally, I’ve come across companies that implement logistics solutions to drive increased sales. There can be a strong business case for investing in a transportation management system (TMS) to grow revenues. Home Depot has proven that using a TMS to improve the ability to do time definite deliveries can boost revenues.

Mark Holifield, the Executive Vice President of Supply Chain and Product Development at Home Depot, spoke on March 7th at the Descartes Evolution user conference.

A large-scale supply chain transformation has played a significant role in allowing Home Depot to achieve some aggressive growth, margin, and return on investment targets. Their original goals were set in 2015 to be achieved by the end of 2018. They have already achieved those goals. New stretch goals have been set for 2020 so the transformation program is ongoing.

Mr. Holifield talked about the impressive range of investments and projects they engaged in to improve their supply chain capabilities. But in this article, the focus is on one transportation project whose impetus was, in large part, to drive increased revenues. Home Depot investing in routing, telematics and routing solutions from Descartes to drive a two to four-hour delivery window for their customers – both consumers and construction professionals (Pros).

This was a tough problem to solve.  Home Depot has about 2000 stores, virtually all of whom are engaged in home and site deliveries. But they only have about one thousand trucks for delivery to these sites, so there is not a truck for every store. So, part of what the retailer is experimenting with is crowd sourced deliveries in cars.

Mr. Holifield called the Descartes product very scalable and said that it was a simple and intuitive product. “The simplest approach to change management is to roll out great product. Then it sells itself.”

Time Definite Deliveries
Home Depot Invests in TMS to Grow Revenues

Home Depot began by piloting the product. The pilot helped to prove the capabilities of the product. But the pilot also allowed them to gauge the revenue growth potential from giving customers a narrower, time definite, delivery window. Once the company saw the kinds of revenues these capabilities could deliver, and how the market basket of what was purchased by customers expanded, the supply chain organization got the head of the Pros Channel to agree to pay for a substantial portion of the project.

Chris Jones, an Executive Vice President at Descartes, presented some research that Descartes had done in conjunction with DC Velocity. (He had previously published research on how fleets contribute to competitive advantage in Logistics Viewpoints). Mr. Jones demonstrated a connection between the financial performance of respondents and whether they viewed transportation as a source of strategic importance. The respondents that came from companies that viewed transportation as strategic were much more focused on using a transportation management system to improve business growth and service than other respondents. Top performers were at least two times more likely to value investment in transportation technology to improve customer service over cost-cutting strategies. Clearly, Home Depot would fall into that category.

HP and Home Depot Receive Recognition for Excellence in Transportation Sustainability

Procurement | By •

In the last few weeks I’ve had the opportunity to speak to two of the three large shippers that were SmartWay Excellence awardees.  I spoke to Ron Guzzi the Senior Manager of Transportation Carrier Relations and Sourcing at Home Depot.  I also spoke to Blair Chikasuye, the Global Logistics Environment Manager at Hewlett-Packard (HP), about their transportation related sustainability initiatives.

The SmartWay Program is a voluntary collaboration between the U.S. Environmental Protection Agency (EPA), Natural Resources Canada, and the freight industry.  It is intended to increase energy efficiency while trimming greenhouse gas emissions and air pollution.

smartway

Both Home Depot and HP have aggressive targets for reductions in greenhouse gases.  Home Depot set a 20 percent reduction target for their domestic supply chain greenhouse gas emissions by 2015 (from 2008 levels).

HP has committed to reducing their first tier manufacturing and global product transportation-related GHG emissions intensity by 20% by 2020, compared to 2010. HP has made great strides in fulfilling this commitment and, as of December 2013, achieved a GHG emissions intensity reduction of 18% compared to 2010 levels.

At both companies, the transportation department has a role to play in helping their companies meet their overall corporate sustainability goals.  Both Home Depot and HP are pushing to convert more shipments from truckload to intermodal.  In Home Depot’s case, they are using a transportation management system (TMS) from Manhattan Associates to help facilitate this.  HP is working with Menlo Worldwide Logistics as their managed transportation services provider.  Menlo, in turn, utilizes their own homegrown TMS application.

Ron Guzzi from Home Depot leads a team of 10 people focused on getting carrier bids, writing the contracts, and making sure awarded contracts are adhered to.  At Home Depot, carriers compete for business based upon cost, reliability, and sustainability.  At Home Depot, Ron’s transportation team is influenced by the environmental team, “but we drive the procurement process.”

Ron made the point that every dollar of their North American transportation budget is spent on SmartWay certified carriers.  Home Depot is one of the very few shippers that has gone beyond just having a preference for working with SmartWay carriers to giving preference to carriers that score in the top categories of SmartWay’s rankings.  SmartWay carriers, in general, should be presumed to be causing fewer carbon emissions than carriers not certified.  But SmartWay ranks carriers into five categories from the best in class, the top 20 percent of carriers in the program, down tier by tier to carriers that are still certified but not showing the same degree of excellence.  Bids from Home Depot’s highest quintile of SmartWay carriers suffer no penalty.  Bids from second quintile carriers have their rates on a particular lane inflated by one quarter of one percent; the third quintile has a lane penalty of one half a percent; the fourth quintile, three quarters of a percent; and the bottom category suffers a one percent inflation of their bid.

Blair Chikasuye from HP is part of the global transportation procurement team but has dotted line relationships to the global social and environmental responsibility team.

In 2008, HP was the first company to meet requirements from the EPA to have the agency’s SmartWay logo displayed on its consumer product packaging.  Blair describes this as a “great partnership.”  And the benefits are likely to increase in the next couple of years.  In March, President Obama issued an executive order directing US federal agencies to set carbon reduction targets by at least 40 percent over the next decade.  One part of the order mandates purchasing sustainable products and services identified by EPA programs including making use of SmartWay Transport partners.  Out of the top 40 US government suppliers, HP is among only three that use SmartWay carriers for all domestic shipments.

But HP has a global supply chain, and SmartWay is just one piece of the puzzle to drive their end to end logistics sustainability efforts.  In 2014, HP became one of the first companies to be awarded a “first leaf” by Green Freight Asia and Green Freight Europe for transparency of CO2e data and policies related to transportation GHG emissions. HP is also an active participant organizations such as the Global Logistics Emissions Council, the Clean Cargo Working Group (Ocean), and IATA (Air).  These other organizations are necessary, because the carbon emissions from a truckload move in the US can’t be assumed to be the same as the same type of move in Thailand.  Unfortunately, none of the other sustainability organizations have made as much progress as SmartWay.

In the U.S., HP, like Home Depot, is incentivizing carriers to improve their emissions performance by partnering with carriers to implement natural gas trucks at their West Coast distribution center and developing shared freight arrangements.

On the global front, HP is actively exploring new lanes and gateways to drive lower greenhouse gas emissions.  They have helped establish a new freight train network from Chongqing to Germany, along the Trans-Eurasian Railway, which enables the shipment of products at a fraction of the carbon impact of air freight and investigated alternative ports to decrease shipping distances, including use of the port of Piraeus in Greece, and expanded use of the Panama Canal.

The pressure to be a sustainable company is only going to grow.  Home Depot and Hewlett-Packard are currently at the front of the pack when it comes to excellence in transportation sustainability.

This Week in Logistics News (December 9-13, 2013)

Global Trade | By •

Same-day delivery (or is it shipping?) and global trade dominated the news this week, so let’s take a look.

Home Depot grabbed the headlines on Wednesday when the WSJ reported that the company is spending “at least $300 million on supply chain, technology and online improvements in the fiscal year that begins in February, including building new fulfillment centers and overhauling its warehouse technology systems” to enable same-day shipping and delivery of orders. I shared my takeaways from this announcement yesterday, so I won’t repeat myself here. I’m guessing, however, that many supply chain and logistics software vendors (and probably many 3PLs too) rushed to their phones yesterday to call Home Depot’s SVP of Supply Chain Management in hopes of getting a piece of that $300 million pie.

Side note: I received a comment yesterday about my Home Depot posting because the title referenced same-day delivery but I also mentioned same-day shipping in the writeup. The reader was confused by what exactly Home Depot was focusing on. His comment raised an excellent point: There is a huge difference between same-day shipping (getting an order out the same day it’s received) and same-day delivery (getting a product to a customer the same day they order it). Therefore, it’s important to get the words right. In Home Depot’s case, as discussed in more detail in the WSJ article, the company is working to enable both same-day shipping and same-day delivery.

The WSJ also published an article this week highlighting how Sears and many other retailers are ramping up their “ship from store” capabilities. The article states that “about a third of all retailers use brick-and-mortar stores as fulfillment centers for online orders; another 26% plan to do so soon.” And who are among the biggest beneficiaries of this trend? UPS and FedEx. According to the article:

UPS and FedEx…are now eager to help traditional retailers deal with [ship-from-store]. They have engineered new strategies for jockeying inventory across the country to avoid overstocks and markdowns and to keep customers from defecting to Amazon, a big problem last year.

 

UPS says it is working with about 40 retailers on implementing these strategies — about double the number a year ago. FedEx said these partnerships helped boost revenue in its ground delivery business 11% in its fiscal first quarter.

Historically, when it came to “IT transformation” projects, companies reached out to the big consulting firms like IBM and Accenture for help. Are UPS and FedEx becoming the equivalent of IBM and Accenture for “logistics transformation” projects like same-day delivery and ship-from-store?

Moving on to global trade, there were two important developments this week. First, the World Trade Organization  announced that it reached its first global trade agreement. It only took 18 years. After more than a decade of failed “Doha Round” negotiations, the 159 members scaled back their ambitions and settled on a more limited agreement called the “Bali Package.” Trade facilitation was a key piece of the agreement. Here’s an excerpt from the press release:

The objectives are: to speed up customs procedures; make trade easier, faster and cheaper; provide clarity, efficiency and transparency; reduce bureaucracy and corruption, and use technological advances. It also has provisions on goods in transit, an issue particularly of interest to landlocked countries seeking to trade through ports in neighbouring countries.

 

The benefits to the world economy are calculated to be between $400 billion and $1 trillion by reducing costs of trade by between 10% and 15%, increasing trade flows and revenue collection, creating a stable business environment and attracting foreign investment.

The WTO is aiming for the General Council to formally adopt the Bali agreement by July 31, 2014. This all sounds good on paper, but realizing the objectives will take many, many years — if ever. Just look at how many years and dollars have been spent here in the U.S. on the Automated Commercial Environment (ACE), which began in 2001, and it’s still not completed. Just saying. Also, whatever gains are achieved via trade facilitation will be reduced or wiped away if countries continue to adopt protectionist measures, which the former head of the WTO warned about earlier this year:

“As long as global economic weakness persists, protectionist pressure will build and could eventually become overwhelming. The threat of protectionism may be greater now than at any time since the start of the crisis, since other polices to restore growth have been tried and found wanting.”

The other global trade development this week was that the Trans-Pacific Partnership (TPP) negotiations have stalled, due in large part to disagreements between the United States and Japan over agriculture and automobiles. The talks are set to resume in late January. In many ways, the TPP is vastly more important to the U.S. than the Bali agreement. Simply put, the countries in the TPP (which includes Canada, Japan, Vietnam, Australia, Singapore, and six other Asian countries) account for 40 percent of U.S. imports and exports. And for every proponent of the deal there’s an opponent, not only here in the U.S. but in the other countries too. Which is why trade agreements take so long to negotiate, and so long to fully enact. Nonetheless, if you’re involved in trans-Pacific trade, you have to stay informed of what’s happening with TPP.

And with that, have a happy weekend!

Song of the Week: “Lost That Easy” by Cold War Kids

Amazon vs. Walmart: E-Fulfillment vs. Omni-Channel Logistics

Logistics Trends | By •

There were two recent stories about Amazon vs. Walmart when WalMart announced it was opening two new distribution centers to fill e-commerce orders. One story, in the Wall Street Journal (WSJ), got it mostly wrong (Wal-Mart Builds Warehouse for Web Orders), and a story in USA Today got it mostly right (Retail stores become shipping hubs to battle Amazon).

Here are some excerpts from the WSJ article:

[Walmart is] building a pair of dedicated warehouses to handle Internet orders and speed up shipments, its latest move as it tries to catch up to online rival Amazon.com Inc.

 

Wal-Mart got into e-commerce more than a decade ago, but it’s online sales still account for just a fraction of its $469 billion in total revenue. Wal-Mart’s Web sales came in at $7.7 billion last year, compared with more than $61 billion for Amazon, according to trade publication Internet Retailer.

In short, Walmart still badly lags Amazon in e-commerce and it is playing catch up. You have to go pretty deep into the article before you see this excerpt:

Wal-Mart maintains that it isn’t trying to replicate Amazon’s business model, which it believes would be a mistake considering it has 4,100 stores within five miles of two-thirds of the U.S. population, Mr. Anderson [president of Walmart.com] said. Instead, Wal-Mart plans to combine its stores, existing distribution centers, and new facilities into what it calls its “next generation fulfillment network.”

But this afterthought, placed at the bottom of the article, is really the heart of a retail strategy known as Omni-channel Commerce, being implemented by not only Walmart but by many leading brick and mortar retailers. (Ann Inc.’s efforts are profiled in Omni-channel Momentum; Macy’s in Macy’s Wins with Omni-channel Fulfillment; Best Buy’s in Best Buy Embraces Omni-Channel Commerce; and Home Depot in Home Depot Drops the “E” Off of E-Commerce).

Omni-channel is an initiative by brick and mortar retailers to better integrate their stores and e-commerce channels. So a retailer might support buy online, pick-up at store; or order online, deliver to home from a store; several other fulfillment paths are also possible.

The USA Today article got this right, and focused specifically on one omni-channel fulfillment strategy, perhaps the most promising one, known as ship from store. Here are some excerpts from USA Today:

Some of the world’s largest retailers are turning their stores into mini distribution hubs to help them compete better online against Amazon.com.

 

Instead of fulfilling Web orders from warehouses hundreds of miles from shoppers’ homes, companies including Wal-Mart, Best Buy and Gap are routing orders to stores nearby.

 

Store employees pick products from shelves, pack them into boxes and drop them into waiting FedEx and UPS trucks that zip off to homes a few miles away.

 

The trend, known as Ship from Store, saves money through shorter delivery routes. More important, it speeds deliveries, avoids costly markdowns and recoups sales that have been lost to Amazon, the world’s largest Internet retailer.

This ship from store strategy won’t be easy. In order to intelligently allocate inventory from stores, retailers need to implement a technology platform known as distributed order management (DOM). Walmart is investing $430 million in what it calls its “global-technology platform.” A major piece of the investment will be in a proprietary DOM, although commercially available DOM solutions can be bought from companies like Manhattan Associates, Oracle, and IBM (Manhattan Associates and Oracle are ARC customers).

Secondly, retailers need to be able to execute the “perfect order” from the store. This means they need to implement, in effect, miniature warehouse management systems (WMS) in the back room of their stores. A WMS is a real-time fulfillment solution that can ensure virtually 100 percent accuracy in picking, something that will be very difficult to achieve if picking is done in the front of the store or if the store does not use “WMS light” type solutions. The article The Evolution of Omni-Channel Logistics describes the inventory accuracy hurdles involved with store picking.

Thirdly, retailers need to take the culture of the perfect order as practiced in distribution centers, and graft it into the store. This culture change is likely to be far more difficult than implementing new technologies (see Walmart’s Omni-Channel Dilemma).

Finally, I disagree that the best way to ship from the store is by using UPS or FedEx. Because brick and mortar retailers in metropolitan areas have stores in close proximity to large numbers of consumers, they could use a paratransit style dynamic routing solution to compete on speed, delivering goods in as short as 90 minutes of the order being placed.

Omni-channel commerce is driving the most interesting set of logistics challenges the supply chain field has seen in a generation. The most effective strategies and technologies are not known yet. Consequently, this will be an area closely examined for years to come.

(I’ll be giving a webinar “Are retailers ready for omnichannel commerce” on October 15th and a speech on Omnichannel Logistics at the CSCMP Annual Global Conference on October 22).

Best Buy Embraces Omni-Channel Commerce

Retail | By •

Big box retailers are facing pressure from two directions, Walmart’s low prices and Amazon’s e-commerce driven convenience. These retailers are in the process of reinventing themselves by embracing omni-channel commerce, which aims to deliver a seamless consumer shopping experience through all available channels — i.e., mobile devices, personal computers, bricks-and-mortar stores, catalogs, and so forth.

A few weeks ago I wrote about how Home Depot is approaching this challenge. I recently came across a Wired article on how Best Buy is trying to reinvent itself for this new era of retailing. As with Home Depot, Best Buy will need to support the new strategy with enhanced logistics capabilities. What follows are a few of the points I found interesting in the article.

Logistics is already a differentiator for Best Buy. A customer can order a product online and Best Buy can deliver it to a nearby store for the customer to pick up that day. Best Buy already has a warehousing infrastructure in place to support its 1,400 stores across the nation. But it is unclear how long this advantage will last because Amazon is launching same day delivery pilots in selected metropolitan areas.

Big Box retailers can potentially differentiate themselves by providing enhanced customer service, especially for complicated products like consumer electronics, in the form of knowledgeable salespeople. But this is difficult for Big Box retailers to achieve because they carry such a broad array of products. A goal is to become more like an Apple store. Because Apple stores carry a limited number of SKUs, it is much easier for Apple salespeople to answer shoppers’ questions.

Best Buy is responding to this by launching a “showrooming” pilot project in 50 stores. As described in the article, “When a customer comes in to test out a few high-end cameras, a sales rep with a tablet can meet them to compare specs on the various models.” Specially trained sales staff – people trained in a particular product category – can then provide the kind of hands-on service that customers can’t find online. Best Buy wants to avoid situations where customers go to its stores to get an in-person feel for a product, but then go online to buy it for a lower price. To combat this, the company has made matching competitors’ prices a top priority. And if a shopper wants a product that isn’t in stock at a store, the salesperson can help him place an order through BestBuy.com.

The customer then has the choice of delivery methods. They can elect for either same day in-store pickup or home delivery. Almost half of Best Buy’s current online customers choose in-store pickup. This has a couple of advantages. First, many customers do not want expensive electronics sitting on their front porch where they might get stolen. And second, it gives customers a chance to practice using the product at the store where a salesperson can guide them.

And of course, if a customer elects to pick up a purchase at a store, there is always the chance for additional sales – extra memory cards, batteries, or even a product unrelated to his initial purchase.

As I think about Best Buy’s challenge, it is partly premised on the company’s ability to compete on price. The costs associated with supporting a network of stores might put the company at a disadvantage. One dodge here is to cut agreements with manufacturers where a particular SKU is only available at Best Buy. So if customers try to comparison shop, they can’t find that product anywhere else. Walmart does a bit of this.

The other thing that strikes me is that high touch, in-store service will be key to Best Buy’s success. Incenting customers to pick up online purchases at its stores eases the logistics burden and provides customers with one-on-one training that many will highly value.

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