Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

You can’t really count on cycle counting.

Guest Commentary | By •

matt-yearlingWhether we like it or not, every company on the planet with any significant supply chain operation has an inventory reconciliation problem. It doesn’t matter if you are a retailer, manufacturer or logistics service provider, or if you have the latest and greatest warehouse management system. The fact is, if humans have to physically touch or scan inventory in the put away, inventory check or pick process, then errors will occur. The only debate will be the size and scale of the problem.

I talk to many organizations and they all deal with this problem. As you can imagine, there is a broad array of approaches taken and process maturity across companies. Some never check, some shutdown operations to do a full check, and others have a robust approach to cycle counting. In the best case scenario, you have a process that gets you into the 95% to 99% confidence level of inventory. Why not 100%? Just to reiterate, you may have the best warehouse staff on the planet, but if they are following manual repetitive tasks, errors will unfortunately occur.

Industry leading companies are now looking into autonomous UAS (Unmanned Aircraft System) technology or drones, coupled with advanced sensors capabilities, including passive-RFID, optical, and barcode, to significantly improve the operational effectiveness and efficiency of inventory checks in yards, lots, and inside of warehouses. Elevating the sensor platform into the air with the use of an autonomous UAS enables automatic, accurate, efficient, and safe inventory checks in hard to reach locations.

However, today this technology is very much in beta in a number of supply chain environments. The key message here is if you don’t have an initiative looking at drones, you are behind your competitors. There are many large corporations that are absolutely working on this, and there are others that have not even started. So if you fall in the latter category, you are going to have some problems ahead of you.

Everyone else’s margin is your opportunity. If you are not focusing on making your supply chain better-faster-cheaper, which pretty much every supply chain is doing today, then you have a problem on your hands. Take manual repetitive tasks and put it in the arms of an autonomous robot. Just do that, and you are going to have significant return on your hands, especially if you are operating at scale. So the bullet point here is if you’re not doing anything right now, if you’re not even talking about it right now, your competitors are. Period.

 I don’t want to come across as flippant, but the ideal timeframe to start looking at this was six to twelve months ago. I don’t want to overemphasize the point, but this is highly relevant for any company that has a massive supply chain. The reality is that this technology is moving faster than Moore’s Law is in the semiconductor business. You just need to look at the amount of money being pumped into the drone business, the number of use-case applications, the number of companies that are looking at adopting it, the advances and cost performance of all the technology related to it. It is moving so much faster than any other technology that I am aware of. You really need to be looking at it right now.

In terms of a pilot, the way that companies have engaged us, they say, “Here’s what our problems are. Is this something that is a near-term opportunity for this type of technology?” Invariably that means us going out, taking a look at the facility, collaborating on the potential key-use cases, and then putting together a proof-of-concept to show the value. There’s no point in introducing a technology that brings more burden and more cost structure. This needs to radically change and shift the way companies are operating today. If it is not going to have that impact, you are wasting your time and you should move on to another use-case in your organization. There is undoubtedly an application in your organization that is going to have the biggest return, and we want to find that.

We have been thoughtful in our approach to focus on specific areas that we are good at, and it seems to be resonating with the people we talk to. We can rapidly understand if it is going to be worthwhile for a particular organization.  For instance, if you are working with a 10,000 sq. ft. warehouse, you are wasting your time. If you have a 1,000,000 sq. ft. distribution center, we can generate significant value.

Why should we care?

It all boils down to the customer experience. I know how frustrated I get when I try to buy a product online and the retailer doesn’t know for sure if the item is in stock or it cannot deliver it to me in a timely fashion. And believe me, it has happened to me in well-known retailers. Consumers want retailers to set reasonable expectations and consistently meet them.

If a retailer has 100 distribution centers, each carrying $25M worth of inventory, with a 1% inventory error rate, you can imagine the scale of ambiguity and exposure that would persist around inventory items across its distribution network.

The #1 reason why organizations care is inventory accuracy, and the race to 100% confidence level exists across all omni-channel organizations.

What are the potential solutions to this problem?

I touched on a potential approach in a previous blog post regarding the Four Stages in Digital Disruption, which in the context of cycle counting would mean:

  1. Managed: How does my warehouse management system (WMS) prioritize and manage my process of dealing with inventory?
  2. Assisted: How does the use of barcode/RFID scanners, wearables and other technology enable warehouse operators do their job more consistently?
  3. Automated: What autonomous robots exist for the purpose of checking inventory at the frequency I prefer?
  4. Optimized: What technology exists to give me greater insight into inventory levels, position, movement, etc. with the real-time data received from autonomous robots?

Interestingly enough, organizations that are approaching me for help with #3 and #4 already have significant competence in #1 and #2. But because #1 and #2 still depend heavily on humans, they are still falling short on their inventory level confidence.

By passing the job of automatic cycle counting to an autonomous robot, organizations now have an enabler to get to the 100% confidence goal they are trying to achieve. For example, as reported by Reuters a few months ago, Walmart is 6-9 months from using drones to check warehouse inventory. According to the article, “drones can reduce the labor intensive process of checking stocks around the warehouse to one day, [which] currently takes a month to finish manually.”

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Matt Yearling is CEO of PINC Solutions. He joined PINC as chief executive officer in March 2013 and is responsible for the overall strategic and operational management of the company. Matt’s past roles include vice president and general manager of Encryption Products at Symantec Corporation, senior vice president of Global CRM Product Development at Sage Inc., Chief Technology Officer for Embarcadero Systems Corp (a Ports America company). As vice president of Oracle On Demand, Matt played a pivotal role in making it Oracle’s fastest growing line-of-business.

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?

Kraft’s Approach to Cutting Inventory Across the Extended Supply Chain

Consumer Packaged Goods (CPG) | By •

In a previous posting, I wrote about how Kraft leverages downstream data to drive supply chain collaboration, based on a talk given by Ron Volpe, Customer VP of Supply Chain at Kraft Foods, at the CSCMP Annual Global Conference last September. In that article, I briefly mentioned that Kraft has truly audacious inventory reduction goals, which is what I want to focus on today.

Kraft’s goal is to reduce its extended supply chain inventory down from 80 days to 40 days of inventory within 5 years. What Kraft means by the extended supply chain, and where that inventory resides, is shown below.

Inventory across Kraft's extended supply chain
Inventory across Kraft’s extended supply chain

Further, Ron believes Kraft can cut inventory across the extended supply chain in half without making major changes to manufacturing or product line depth, like cutting production line changeover speeds or reducing the number of stock keeping units. Leveraging downstream data will be critical to achieving this goal.

In standard consumer goods to retail supply chains, the manufacturer has safety stock in its warehouse based on historical demand as represented by shipment data. The retailer does the same. If the two companies can move to a vendor managed inventory arrangement, then that inventory slush fund can be substantially cut. Now the safety stock targets reflect historical demand placed only at the retail distribution center.

But there is still a safety stock trigger that exists at the retail DC. Instead of reacting to true consumer demand, retailers may well be shipping to stores that do not need the inventory. How can that be? Why would a store place an order on the DC if it did not need the product?

The sad truth is that inventory accuracy at the store level is frequently appallingly bad. The store level category manager walks around with a clipboard, sees voids on the shelf, and assumes that the shelf would be stocked if there was inventory in the backroom. But, finding inventory in a cluttered store storage area is not easy. It is often the case that a consumer goods manufacturer with visibility to inventory in the retailer’s DC and the store level sell-through data, has a better understanding of what the true inventory situation at the store level is.

Using downstream data allows supply chain partners to cut inventory across an extended supply chain in new ways. But it is not easy. And to truly get to a situation where the bullwhip effect has been tamed, retailers also need to do their share of the heavy lifting.

The Evolution of Omni-Channel Logistics

Retail | By •

Traditional retailers were fairly slow to wake up to the huge threat posed by Amazon. But my recent visit to “Retail’s BIG Show,” put on by the National Retail Federation (NRF), convinces me that they are now wide awake.

One way bricks and mortar retailers have responded to Amazon and other e-retailers is by turning their stores into more of an asset with omni-channel commerce. Omni-channel is based on providing consumers with a more seamless shopping experience by better leveraging both stores and the e-commerce channels. The idea is that a customer should be able to go to a store, see something they like, and order it for home delivery. Or order the item online and pick it up at a store. The same sorts of permutations apply to returns.

Retailers can use new tools to decide whether it makes more sense to deliver an online order from one of their e-commerce warehouses or directly from a store. It will cost more in labor to deliver from the store, but perhaps less in transportation. Further, if it becomes clear that a store has too much of a particular type of inventory, it makes sense to deliver from the store, even if it costs more, rather than pay for transportation to move the excess inventory to another place in the supply chain where it is needed.

Manhattan Associates can help retailers make these fulfillment location decisions based upon a distributed order management (DOM) solution. Manhattan’s DOM solution provides visibility to all network inventory – e-commerce and store –and then provides rules-based decision making on where to fulfill from. JDA addresses the same problem from an optimization perspective. The company told me at NRF that its solution makes these channel/facility fulfillment decisions by instantaneously and optimally trading off the costs of labor, transportation, and inventory.

But a prerequisite of successfully deciding whether an order should be shipped from a store or a DC is inventory accuracy. In a warehouse using a warehouse management system (WMS), a cycle count should show at least 99.9 percent inventory accuracy. A cycle count not only proves that a company has the inventory it expects to have, it also shows that the inventory is in the correct slots, and that the correct number of items is located in each slot. In short, it shows that inventory has neither been stolen or misplaced.

I also saw folks from Checkpoint Systems at the NRF show. The company sells RFID and anti-theft tags (electronic article surveillance). They told me that the highest level of inventory accuracy the store floor can hope to achieve is about 96 percent, and then only through the use of item-level RFID tags. I believe this claim. It is far more difficult to prevent theft at a store than in a DC. Further, the store inventory system may be showing inventory that is really sitting in some shopper’s cart prior to check out.

If you were trying to do in-store fulfillment, a store associate would find at least four percent of the time that the inventory is not on the store floor. That is four unhappy customers out of every 100, which is too high, especially when you consider an unhappy customer may choose to take their business elsewhere in the future.

In the age of Internet retailing and fickle shoppers, I believe we may be greatly overestimating the lifetime value of a customer. But whatever the true lifetime value of a customer is, poor delivery capabilities will adversely affect it.

But inventory accuracy is not the whole problem for store floor fulfillment of online orders. Inventory accuracy does not mean location accuracy. Shoppers pull stuff off the shelf and put it back helter skelter. Therefore, you could achieve a high degree of inventory accuracy and still be unable to fulfill orders in a timely manner.

Item-level RFID will at least permit the items to be found. RFID scanners can be put in Geiger counter mode where they beep louder as you get close to the SKU whose number you have entered into the reader. But item-level RFID is expensive. Right now the only product categories it makes sense for is high-margin apparel and maybe electronics.

There are also customer experience and store management cultural issues that provide arguments against doing online fulfillment on the store floor.

There is likely to be a fair bit of experimentation around how to best practice in-store fulfillment. There will probably not be a one size fits all solution. But I believe most retailers will discover that if they want to use store associates to fulfill Internet orders, they will need to do it in specially designed backrooms, not on the store floor!

(Note: JDA and Manhattan Associates are Logistics Viewpoints sponsors)

Google, Same-Day Delivery, and Container Tracking

Logistics Trends | By •

Meet Google, your new supply chain and logistics technology provider.

According to a New York Times article, Google has started to test a same-day delivery service in San Francisco with some Google employees and their friends. At least one national apparel retailer is participating in the test, according to a source. Although Amazon and Walmart have made headlines in recent months with their own same-day delivery offerings (see “On Amazon’s Quest for Same-Day Delivery” and Walmart to Go), Google’s plan to offer this service was first reported last December in the Wall Street Journal. Here are some excerpts from that article:

Google is pushing back [on Amazon] with the quick-shipping service, and some retailers are interested in signing up for it, said people familiar with the matter. They said Google has pitched the project to big retailers that it has teamed up with in the past, a group that includes Macy’s Inc., Gap Inc., and OfficeMax Inc.

 

The quick-shipping service would be based on Google’s behind-the-scenes system that allows shoppers to figure out whether nearby stores have a product in stock and whether they can get that product shipped to them within a day. When shoppers place an order on participating retailers’ sites, Google’s system could kick in to offer them the option of same-day or next-day delivery, said a person familiar with the matter.

 

The effort could involve partnerships with shippers such as United Parcel Service Inc. and local courier companies, said people familiar with the matter.

Two quick takeaways: First, the success of Google’s approach will depend on the ability for retailers to provide customers searching online with accurate, real-time visibility to SKU inventory by store. This remains a big challenge for many retailers (see “Phantom Inventory Creates Havoc in Retail Supply Chains”), so unless retailers make significant improvements in store-level inventory accuracy, many customers will be scheduling same-day deliveries of products that aren’t available.

Second, it isn’t enough for Google’s system to determine whether it’s possible to ship a product within a day; the system should also balance the delivery costs incurred by the retailer with the pricing and time windows it offers customers to maximize profitability. For example, if a customer’s neighbor already has a delivery scheduled for 5:00-7:00 PM, the system should incentivize the customer to choose the same delivery window, which would allow both orders to travel on the same truck, thus minimizing the retailer’s delivery cost.

Shifting gears, earlier this month Google was issued a patent for a container tracking system. Here is the abstract:

Shipping containers are networked for transferring data between the shipping containers. The shipping containers include sensors for detecting conditions associated with the shipping containers. The conditions sensed by any shipping container whether transported by rail or ship is transmitted from an ad hoc network, via a gateway configured for satellite or cellular communications for example, to a container-tracking application server or equivalent computer system. The computer system is remotely located to the shipping container for central compilation, analysis, and/or display of data regarding the shipping containers.

Under “Field of the Invention,” the document says, “The present invention relates broadly to wireless transceivers, including the design of a wireless transceiver as well as to forming ad hoc networks with wireless transceivers and to communication protocols between wireless transceivers.” In other words, the invention includes wireless tags and readers and a way of networking them. Here is a use case example the document highlights:

A warehouse store such as Costco carries hundreds of brands of products. Nevertheless, all products need to be inventoried on a realtime basis. In accordance with the present invention, a Wireless Reader Tag is attached to each pallet of goods and assigned a class designation that denotes the manufacturer of goods on that pallet (e.g., Pillsbury, Sony, Kellogg’s, etc.). Each Wireless Reader Tag may also include in its class designation or profile, information about the goods on the pallet. Each boxes on the pallet carries a Wireless Tag that is read by the Wireless Reader Tag of the pallet. On demand, each Wireless Reader Tag gathers information about the Wireless Tags on its pallet and relays the information back to the asset-tracking application server. At any given time, an employee of the warehouse store can inventory goods of a selected manufacturer by sending a query that will be received only by Wireless Reader Tags of the selected class corresponding to such manufacturer. Messages directed to a selected class will not appreciably affect the battery life of Wireless Reader Tags of other classes, as only Wireless Reader Tags of the selected class will wake up from standby mode to receive the messages and process the query. The manufacturer classes can be divided further into categories and subcategories, thereby further collectively reduce battery consumption and radio interference.

I don’t know how this differs from systems currently offered by RFID technology vendors like Motorola Solutions and Savi Technology, but here’s my big picture takeaway: Google is paying attention to supply chain and logistics opportunities, and looking for ways to leverage its technology and intellectual property — including tablets and smartphones, which could serve as tag readers — to improve supply chain processes.

At the end of the day, I believe Google will partner with leading supply chain and logistics technology vendors to exploit these opportunities. And maybe in a few years we’ll have a clearer answer to a question I first raised in a February 2009 posting: If Google was in charge of your supply chain, what would it look like?

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