Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

Oracle’s Point of View on Continuous Innovation

Cloud/Software-as-a-Service | By •

continuous innovationJeff Stiles is the VP Solutions Marketing at Oracle. Oracle is a sponsor of ARC’s Supply Chain Forum. One of the sessions at our forum involves an Oracle customer. Executives from HarbisonWalker International are talking about how their broad implementation of Oracle Cloud applications allowed them to unleash continuous innovation.

Jeff and I discussed the concept of continuous innovation. What follows is an abbreviated synopsis of the discussion. For the full discussion, please view the video below.

Jeff began by discussing how Covid-19 has amplified issues that have existed in supply chain management (SCM) for some time and accelerated change across SCM. He mentioned a PwC Pulse survey. This survey identified innovation as the type priority for chief financial officers (CFOs). CFO’s would not historically have been focused on innovation.

Innovation needs to be a key part of the way companies operate today. Innovation can encompass bringing new products to markets, providing products as services, or even evolving the entire business model. Our point of view is that continuous innovation is just part of the fabric of business. It is just table stakes today.

To facilitate innovation, companies need to connect innovation processes all the way from product ideation, through a product’s commercialization, to commercial success. Silos hinder success in this area. Product engineering and development cannot work independently of downstream functions of planning, sourcing, making and delivering products.

Meanwhile the role of the CIO is changing from being a Chief Information Officer to being a Chief Innovation Officer. The function of the information technology (IT) organization is changing. Traditionally IT organizations had to spend a considerable amount of time maintaining the business applications that are used to support all the lines of business. Those applications were often very highly customized. What that lead to is mountains of technical debt. That comes in many forms. But one of the things that we are seeing is a concerted effort to move past that in order to fund innovation.

When IT organization manage there are costs. These environments can be virtualized. But the IT organization still has to maintain and update the applications. Then there are upgrades, which can rival a brand new implementation in scope when applications have been customized.

Contrast that with a Cloud platform that delivers innovation every 90 days in the form of new functionality that becomes available. This is an appreciating asset. The IT function is shifting from a maintenance focus to higher order tasks like managing the process of change. This allows the IT organization to become a partner with the lines of business in driving business innovation.

Product and service innovation start with a clear definition of the product or the service. Clarifying that in enterprise product records is important. There needs to be a single view of that in a bill of materials that is used to product products is essential.

When you think about manufacturers that are provisioning their product as a service, they must ensure the service is always on and up to date.

Ongoing product and service innovation has multiple dimensions. An enterprise system can help ensure that the product has been properly produced. But the downstream functions are also involved in serving the customer. When you are in a service business it is a very different relationship with the end customer. In many cases, that service comes with a subscription business model. The financial applications need to be able to recognize revenue ratably.

The software industry tends to think of categories of software – supply chain management, customer relationship management, and so forth. The reality is that they need to be tied together. Innovation need to be though about from a value chain perspective. You can’t constrain your thinking about innovation to a product lifecycle management application.

The Amazon Supply Chain: The Most Innovative in the World?

Retail | By •

Is the Amazon supply chain the most innovative in the world?  A very strong argument can be made that they are despite some announcements that were pie in the sky – like the patent they won in January for floating warehouses that use drones for deliveries and replenishment. Or for that matter, Jeff Bezos’ drone prediction made five years ago on 60 Minutes.  Drones for home delivery are still too dangerous, as opposed to using drones for inventory management.

Amazon Supply Chain: Most Innovative in the World?
Amazon’s CEO Jeff Bezos

But other events are both innovative and meaningful. Let’s just review some of their activities over just the past year.

Relay

Relay, quietly released in October, is Amazon’s first trucking app, and is designed to make trips to Amazon warehouses faster and more efficient. Drivers can enter cargo information into the app before they arrive. Once they have entered the information, they are given a QR code which they will use at the security gate. The idea is that by pre-checking in, they use the QR code to pass through security instead of the manual process of showing and scanning a badge at the gate. With the pre-check in process, it gives Amazon better visibility into the current location of its deliveries, and can better prepare for arrivals. Some of Amazon’s warehouses and fulfillment centers have built lanes that are dedicated solely for Relay users.  Relay aims to speed up the process of making deliveries to warehouses. Additionally, it can help to reduce manual processes.

The actual application of Relay is narrow, as it is only used for deliveries to Amazon facilities. However, the vision may be bigger. It may be a way for Amazon to make inroads for a much larger future Uber-type  freight matching service.

Whole Foods and Dash

Amazon’s acquired Whole Foods in June for $13.7 billion in cash.  The move finally puts Amazon in the position that it has been working towards for years in the grocery space. Grocery has been one area that Amazon has not been able to crack, even with the launch of Amazon Fresh. By bringing the Whole Foods brand into the Amazon family, the company immediately gets a boost for its grocery business.

Of course, Walmart is the goliath in this space. But Amazon seeks to use convenient deliveries and technology to begin to make up the difference.  Amazon’s Dash buttons, introduced before the acquisition, are a great complement to the acquisition. The Dash Button is a small wireless device about the size of a pack of gum. When a customer presses the button, the device uses Wi-Fi to order items the customer has pre-selected from Amazon.  Amazon’s vision is that people will mount their buttons in their kitchen, pantry, laundry room, and bathroom using the attached adhesive strip on the back of the device.  Then, for example, when they run out of Tide laundry detergent, the consumer pushes the button and Tide is automatically ordered.  A consumer would purchase a Dash Button for $4.99 on Amazon.com for each of their favorite brands.  With each purchase comes a $4.99 instant credit after the first purchase.

Amazon brought its supply chain expertise as well.  Whole Foods was notorious for holding too much inventory at their stores.  When a client asked for something, a helpful associate would go to the backroom and search for it, and perhaps in ten minutes would return with the item, or perhaps not.  Now they have gone to a lean, JIT grocery supply chain with virtually no inventory in the back.  But the store shelves are as full, or fuller, than they were previously.

But much work remains to be done to build out a profitable home delivery network.  In theory, the Whole Food stores could be used as forward warehouses, in addition or instead of being stores.  But even after decluttering the back rooms, most of the Whole Foods locations do not offer the right layout to switch over to a delivery warehouse, as they do not have the required docks or quite enough back room space.

Amazon, the Carrier

In February, Amazon announced plans to build its first air cargo hub at Cincinnati/Northern Kentucky Airport.  This is based on sound economics.  When the 2-million-square-foot facility opens, it will reduce the company’s dependence on UPS and FedEx. But Amazon was already moving away from reliance on the parcel giants by giving an increasing share of its parcel business to lower cost regional providers.  And many e-commerce shoppers have seen their orders delivered by the company’s fleet of private trucks.

Amazon had already moved into the ocean freight business for similar reasons. But this year, Amazon began taking greater control over shipments from China. Specifically, Amazon has started handling the shipment of goods from Chinese retailers that sell on its platform. For this line of business Amazon is acting as its own freight forwarder by reserving space on ships and clearing customs itself. This also reduced the fees it pays to outside logistics providers.

The company plans to use this new air hub to house its current and future fleet of planes. It’s expected to cost Amazon over $1.5 billion which means this will be a highly automated facility, just as UPS’s and FedEx’s are. It is reported the company will initially employ 2,000 people, which means this hub will work at scale.

It is speculated that Amazon’s end goal is to deliver packages for itself and other retailers.  Large retailer competitors are very unlikely to ever use Amazon in this way; those companies see Amazon as their toughest competitor and will do nothing to help them achieve additional logistics scale.  But small retailers could find this an interesting service.  Many smaller retailers already sell through the Amazon marketplace. There could be bundled deal for marketing and logistics.

Amazon, the Warehousing Giant

In January it was reported that Amazon had 45,000 robots across 20 distribution centers.  Today, they have roughly 100,000 robots in use across the world. Amazon has made huge investments in automation. The company spent $775 million to acquire Kiva Robots in 2012, now called Amazon Robotics. According to one report, worldwide Amazon has 493 warehouses covering about 180 square million feet. Their investment in autonomous mobile robots has certainly paid for itself in increased productivity with many more warehouses still ripe for the deployment of autonomous mobile robots.

But it looks smart for a second reason, warehouse workers are getting increasingly hard to find. We (ARC Advisory Group) had the CEO of a large North American logistics service provider in to visit us recently.  He told us that a few years ago they had ten applicants for every open warehouse job they had; today it is just one.  “If an ex-con with a burglary record shows up, we say ‘We know you will steal from us, but we can really use the help. You’re hired!’”

There is a greater need for warehouse workers because of ecommerce.  Historically, consumers went to stores and picked their goods off the shelves.  Now warehouse workers are increasingly doing the labor consumers use to do for themselves. Not surprisingly, this CEO also believes warehouse wages are poised to rise significantly.

In conclusion, while Amazon runs the most innovative supply chain, that doesn’t mean it is the best. Amazon is a much smaller and less profitable company than Walmart.  Last mile deliveries are expensive, which kills profits. Amazon remains lucky that Wall Street values high growth so much more than profitability.

Amazon Innovates at Scale: Launching Prime Now in 111 Days

Learning & Leadership | By •

Dave Clark, the Senior Vice President of Worldwide Operations and Sales at Amazon, talked about innovating at scale at CSCMP’s annual conference last week. For Amazon this means innovating like a start-up but being able to bring to bear the scale and resources of a big company to support the kind of rapid innovation typical of startups. He talked about some “start-ups” they had launched in their company.

Prime Now was one such innovation. Prime Now is a service for Amazon Prime members that allows for one hour deliveries of daily essentials using a mobile app in select metro regions.

The company went from concept to launch in 111 days (their goal was 90). This included deciding where to pilot; launching a new urban DC located in the heart of the delivery area (which ended up being Manhattan); deciding which 25,000 stock keeping units to stock in the new warehouse; and developing software for customers and the internal operations team.

They started by working backwards from the customer. The first step is to provide a press release type document with detailed supporting material on how the promise to the customer will be accomplished. Engineers, software developers, operational executives, and others attend this meeting. For the first hour, no one talks. The attendees carefully read and digest the document and then discuss the business and technical case. The culture of Amazon is to ruthlessly probe the merits of ideas, but not to take those probes personally.

How deeply decisions are probed depends upon whether they are “one way or two way” doors. A two way door implies that even if the decision is not optimal, you can still fix it later. With one way door decisions there is no going back, you are locked into that decision for some considerable period of time or money. Clearly, one way door decisions require data gathering and detailed analytic analysis to a much greater degree.

Once the company has agreed to proceed with a start-up project, putting the right team together is critical. You need an entrepreneurial, experienced leader and passionate, dedicated team members committed to the project. A recent article in the New York Times – Inside Amazon: Wrestling Big Ideas in a Bruising Environment – suggests that finding dedicated white collar team members is probably not much of a problem. Employees interested in work/life balance don’t last long at Amazon.

A dedicated team helps you go through rapid release cycles. For example, they launched on mobile iOS first (the iPhone operating system) and then Android as a fast follower. Dave said, and this involved some understatement, that “this is not the way we would usually do it.” Amazon is in the Android operating system camp for its Fire Phone and Kindle Fire range of tablets. Once launched, they added new features on a regular basis.

Amazon also seeks to leverage internal technical services from the larger company. The goal is not to build anything they don’t have to. At Amazon, which is as much a tech company as a retailer and logistics company, they already have great internally developed software they can leverage; they are not a company that believes in off the shelf software. Presumably, many of the software components previously developed were reassembled and reused in developing the new consumer facing and logistical solutions.

According to Dave, the technology challenges were not the hardest, it was overcoming some existing processes that just did not fit a startup. He gave the example of their current warehouse lease process. Amazon has developed a detailed process for leasing space for their giant fulfillment centers. That process was just not appropriate for a much smaller warehouse that needed to be brought live in a much quicker time frame. Once they got permission to jetsam this process, they leased the fifth floor of a building in a prime location – both centrally located and next to a subway – and had racking up within 16 days.

To achieve one hour delivery goods needed to be picked/packed and out of the warehouse in 15 minutes. Normally, one might expect a tech company like Amazon to develop an alerting system to differentiate between one hour deliveries and deliveries slotted for a predefined two hour delivery window. But because of the need for speed, Amazon did not have time to develop that solution. Instead they just used a loud horn to alert workers to rush deliveries in the early days of Prime Now.

The fast iteration cycles associated with Prime Now has continued. They are now serving 14 metro areas. And the company just launched Amazon Flex which their web site describes as a way to “make $18–25 per hour delivering packages for Amazon with your car and smartphone. Be your own boss: deliver when you want, as much as you want.” This is basically an Uber type app for couriers that will allow Amazon to more economically scale their one hour delivery capabilities.

flex

Forget Innovation, Just Execute Better

Just for Fun | By •

Have we reached the point where we should just focus on executing better with the systems and processes we have than chase the next technological or process innovation?

Translation: There’s still plenty of juice to squeeze in the fruit we currently have, so why go pick more fruit when our hands are already full?

This was one of the questions a longtime friend of mine (a Senior VP of Global Logistics) raised in a recent conversation. The benefits from better execution can be as large or larger than what “the next big thing” promises — and with less risk, and perhaps less time and effort too.

Imagine if…

…you eliminated “maverick spending” and followed the routing guide?

…your drivers obeyed the speed limit and didn’t keep their trucks idling during stops?

…your store associates replenished the shelves on time, returned misplaced items to their correct locations, and scanned each item at checkout?

…your trading partners sent you data on time, accurate and complete?

…the import and export information you file with customs was always accurate, complete, and on time?

…you properly trained new employees on your systems and processes?

And the list goes on.

As an industry analyst, my focus is generally on the road ahead, on the what’s next, on the greener grass beyond the fence. It’s “innovate or die,” right?

Well, not always.

Sometimes it’s “execute or die,” as we see all the time in sports and politics, and yes, in the business world too. Would JCPenney be in better shape today, for example, if it had executed better and innovated less?

Innovation is important, but it’s also over-hyped.

So forget about offering same-day delivery if your lead time variability is all over the place today.

Don’t think about implementing in-memory business intelligence if your data quality sucks.

And if your store inventory system says a product is in stock, but you can’t find it in the back room or on the shelf, forget about giving your store associates iPads to walk around with.

If you can’t execute, then what makes you think you can innovate?

4 Important Factors to Consider When Evaluating 3PL Partners

Logistics Service Providers | By •

I often get emails from logistics executives looking for help and advice on selecting a 3PL partner. A couple of weeks ago, for example, I received an email from someone asking if I had updated a framework I had developed several years ago to help companies evaluate 3PLs. The answer was no, but this person’s email got the wheels in my head turning: What are the most important factors to consider when evaluating and selecting a 3PL partner?

I discussed this question last week on my talk show Talking Logistics, which you can watch by clicking below. I won’t repeat everything I talked about here, but I want to focus on the four evaluation factors I highlighted that go beyond the basics.

3PL_Factors_Spreecast_Screenshot

First let me tell you how I came up with these factors. I started by looking at the most common areas where 3PLs fall short of customer expectations. The number one complaint of customers — by a wide margin — is that their 3PLs are not proactive enough in identifying continuous improvement opportunities (see my October 2011 posting “I Wish My 3PL Was More Proactive”). Another top complaint is that 3PLs are slow to implement process changes and other requests.

I then asked myself, are there things you can look for when evaluating prospective 3PL partners that would minimize or eliminate the risk of experiencing these issues? And that’s how I came up with these four evaluation factors:

1. Alignment of Continuous Improvement Cultures. I’ve had the opportunity to research many successful 3PL-customer relationships and the common thread across them all is that both parties have strong continuous improvement cultures, usually grounded in Lean/Six Sigma principles — a common language that immediately creates a bonding point. It’s like meeting someone for the first time and realizing that you both grew up in the same neighborhood or went to the same university. Sharing the same experience and level of commitment to continuous improvement creates a strong foundation to build a lasting relationship.

And you can gauge that level of commitment by, among other things, the number of continuous improvement projects the 3PL initiates and completes each year; the investments it makes in formalized training programs; the number of Six Sigma Black Belts the 3PL has across the organization; and the number of awards it receives from customers related to successful continuous improvement projects. Simply put, if continuous improvement is not part of a 3PL’s DNA, then you are setting yourself up for disappointment down the road.

2. Modern IT Platform with a Focus on Innovation. Why does it take a 3PL so long to make a process change or enable a new process in response to a customer request? The answer, in most cases, is that they are burdened with an inflexible and outdated IT infrastructure. If the majority of a 3PL’s systems were developed in the 90s (or earlier), or they are written in outdated and proprietary languages, then you are putting yourself at risk of experiencing integration issues, and more importantly, the 3PL will not be able to keep pace with your rapidly changing supply chain and logistics requirements. In short, make sure that a 3PL’s commitment to continuous improvement also applies to its IT systems, that the company is keeping pace with the rapid and ongoing changes occurring in technology, and that its IT strategy and roadmap align with yours.

It’s also important to look at the number of IT resources a 3PL has and how much the company invests in technology annually, as a percent of net revenues. But don’t be fooled by the overall dollar investment. Many 3PLs spend a lot of money on IT annually, but the vast majority goes to maintaining existing systems. And the older and more outdated the systems are, the more money they cost to maintain. Therefore, what you really want to know is how much of a 3PL’s annual IT budget goes toward innovation-related projects — i.e., toward developing or implementing new applications or functionality, especially customer-facing solutions.

3. Invest in Talent Development and Retention. There is a shortage of supply chain and logistics talent in the industry, and it’s arguably the biggest issue facing both 3PLs and their customers. At the end of the day, it’s people that make or break any relationship, including a business one. In fact, one of the things that often creates friction in a 3PL-customer relationship is when the primary person in charge of managing the customer relationship is moved to a different account or leaves the 3PL. How deep is the 3PL’s talent pool? Will the replacement be as competent and have the same communication and relationship management skills as the other person? Does the 3PL have a defined succession planning process that involves the customer to ensure a smooth transition? These are all important questions to consider. Ideally, the 3PL will have people across all levels of the organization that are knowledgeable about your vertical industry, and even better, have worked in it. Also, take a close look at the training and development programs the 3PL invests in, and the content of those programs. This will shed some light on what skills and knowledge the 3PL deems important, and if they align with your expectations.

4. Provide Business Intelligence and Insights. This point goes beyond IT. Sure, having access to BI dashboards is very important, but I view that as a basic requirement these days. What I’m talking about here relates to something many customers say they want from their 3PLs: “Tell me something I don’t already know.” As I wrote about last September in “Operational Excellence is Not Enough – Why 3PLs Must Leverage Their Most Valuable Asset,” customers want their 3PL partners to provide them with insights about leading industry practices and trends, as well as to facilitate networking and knowledge-exchange opportunities with other shippers in the 3PL’s community. Does the 3PL conduct market research and share its findings with customers? Does the 3PL organize peer-to-peer learning and networking events for customers and industry experts to attend? Does the 3PL make it easy for you to contact and collaborate with their extended team of experts? If all a 3PL has to offer is a dashboard, then don’t expect to gain much insight beyond what you already know.

Obviously, there are many important factors to consider when evaluating and selecting a 3PL partner. But in my opinion, the four factors above are the most critical in paving a smoother path to a long and successful relationship.

What do you think? Post a comment and share your perspective.

3PLs and Software Vendors: Keep Innovating Your Business Models

Cloud/Software-as-a-Service | By •

Most of the time, when people talk about innovation in supply chain management and logistics, the focus is on technology (e.g., social and mobile) or business processes (e.g., same-day delivery and omni-channel fulfillment). But what about innovation in business models? Is there an opportunity for 3PLs and software vendors, for example, to innovate their business models to deliver greater value to clients, differentiate themselves from the competition and gain market share, and achieve greater financial success?

Of course there is, and it’s already happening.

Over the past decade, software vendors have been moving away from the traditional model of having customers pay large sums of money upfront to implement software solutions in-house toward software-as-a-service (SaaS) and cloud computing models where customers pay over time to access solutions deployed remotely via the Internet.

In the 3PL realm, it’s no longer outsource everything or nothing. Many service providers now offer customers more configurable service options, where customers can choose which functions they want to keep in-house (such as procurement) and which ones they want to outsource (such as day-to-day operations and IT). Some 3PLs and their customers are also starting to adopt Vested Outsourcing principles in the way they work together.

And as I’ve discussed in previous postings, the business models of 3PLs, software vendors, and consultants continue to converge. A successful 3PL today, for example, is an operations manager, a consultant, and a technology provider all rolled into one.

Simply put, 3PLs and software vendors have been transforming their business models over the past few years. The challenge now is to keep looking for additional opportunities to innovate. But how do you find these opportunities?

You can start by answering these three questions:

1. Is your mission statement aligned with your customer’s objectives and desired outcomes? As highlighted in a recent HBR blog posting (“When Business Models Trump Technology”), an Israeli company, Netafim, captured almost one-third of the “seemingly commoditized” micro-irrigation equipment market by changing its business model to better address the needs and constraints of its customers (read the posting for all the details). According to the authors, “Netafim went so far as to change [its] mission statement from ‘making the best drip irrigation equipment for customers’ to ‘helping the world grow more with less’, an objective far more aligned with the objectives of its customers, the farmers.”

This reminded me of the Jaguar and Unipart Logistics case study I wrote about last year. Jaguar and Unipart created the following shared vision statement, which they review at the start of every meeting between the two companies:

”To support Jaguar dealers in delivering a Unique Personal Ownership Experience to Jaguar Drivers worldwide, ensuring industry leading owner loyalty through partnership and world-class logistics.”

This shared vision statement aligns both companies toward a common goal that both unifies and transcends the interests of each company.

Simply put, if your mission statement and objectives are not aligned with those of your customers, then an opportunity exists to change your business model to close that gap.

2. What challenges and constraints do your customers still face that you can solve or alleviate for them? The SaaS model emerged in large part to address a problem many companies faced: they had limited IT resources and limited (and shrinking) IT budgets. Supply chain and logistics organizations face many challenges today, such as finding and retaining talent, enabling new business processes quickly, and dealing with high variability in supply and demand. The idea here is to take a step back and look at all of the resources and assets you have at your disposal (including those you’ve only been utilizing internally) to see if there are opportunities to bundle, price, and deliver them together in new and unique ways to solve the problems and constraints your customers still face.

3. What is your customer’s total experience with your product or service? In their July 1997 HBR article “Discovering New Points of Differentiation,” Ian C. MacMillan and Rita Gunther McGrath write that “most companies, in seeking to differentiate themselves, focus their energy only on their products or services. In fact, a company has the opportunity to differentiate itself at every point where it comes in contact with its customers—from the moment customers realize that they need a product or service to the time when they no longer want it and decide to dispose of it.” They go on to say: “We believe that if companies open up their creative thinking to their customers’ entire experience with a product or service—what we call the consumption chain—they can uncover opportunities to position their offerings in ways that they, and their competitors, would never have thought possible.”

The article outlines how to map the consumption chain, which includes answering questions such as: How do customers find your offering? How do customers make their final selection? How is your product or service delivered? How is your product or service paid for? What is your customer really using your product for? What do customers need help with when they use your product?

The bottom line is that by exploring these questions in detail, you will likely uncover opportunities to streamline and improve your existing business model and practices.

I’ll end with a quote from another great HBR article related to this topic: “One secret to maintaining a thriving business is recognizing when it needs a fundamental change.” Something to think about and discuss in your next strategy meeting.

For related commentary, see the following postings:

 

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