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Top 10 Logistics Stories of 2017

Logistics Trends | By Chris Cunnane • 12/13/2017

2017 is just about in the books, and it has been a busy year for the supply chain industry. Let’s look back at ten of the top logistics stories of the year.

Drones

2017 has been the year of the drone. There’s been a lot of interest in using drones for last mile deliveries. In the US, an easing of FAA regulations could finally make it a reality, which is good news for the likes of Amazon, Walmart, UPS, and Google, who have all invested heavily in drone research and patents. Overseas, JD.com has been at the forefront of drone technology. The retailer is developing a network of up to 150 drone operation sites as well as heavy duty drones that are capable of making deliveries of items weighting up to a ton. However, one of the most viable uses of drones has been in humanitarian and relief efforts. This includes the delivery of medicine, supplies, and blood samples to difficult to reach terrains. Drone technology will certainly continue to be a top story as we head into 2018.

Amazon vs. Walmart

The rivalry between Amazon and Walmart reached a fever pitch in 2017. As Walmart shifted its focus to blend the brick and mortar business with e-commerce, it took aim at eroding Amazon’s market share. This was evident with its acquisition strategy over the course of the past 15 months, which included Jet.com, Bonobos, Moosejaw, and Modcloth. Walmart also acquired Parcel to make same-day deliveries in New York. In turn, Amazon turned the grocery world on its head with its acquisition of Whole Foods. This move finally put Amazon into a favorable position within the grocery industry, although it is still a far cry from Walmart’s grocery business. The two retail giants are pushing ahead for drone deliveries as well as integrating e-commerce with brick and mortar. This is a rivalry that is just heating up.

Donald Trump

In his first year as President of the United States, Donald Trump has made an impact on the supply chain and logistics industry. His biggest impact has been around global trade. While it was not a surprise, and it was also a move that Hillary Clinton had vowed to make as well, Trump pulled the US out of the Tran-Pacific Partnership (TPP) as one of his first acts as president. The remaining members of the proposed TPP have since gone back to the drawing board to establish a new trade agreement. President Trump has also threatened to pull the US out of NAFTA if the deal was not restructured. While the rhetoric has been toned down, negotiations are still underway to revise the trade deal. President Trump also had a strong stance on implementing a border adjustment tax to discourage US companies importing goods from Mexico as part of their manufacturing process.

Digital Freight Matching

Digital freight matching, or the “Uberization” of freight, has been a popular topic. While hundreds of millions of dollars have poured into this market, the implementation of a program has generally only been seen on the last mile delivery side, due to companies like Instacart and Deliv showing that a crowd-sourced model for home delivery can work. On the trucking side of things, Uber officially launched Uber Freight, its digital freight matching service in May. The app will match truckers with available capacity to companies that need to ship freight throughout the United States. Amazon has plans to launch a digital freight matching service as well. Its launch of a trucking app designed to streamline deliveries to its warehouses might just be the first step in building out a network of drivers.

Warehouse Innovation

Innovations in the warehouse continued to reflect the changing role automation plays in today’s digital environment. One of the biggest stories in 2017 from a warehouse perspective is the continued use of robots within the warehouse. With a labor shortage looming, autonomous robots are coming to the rescue. Most of these robots are used in conjunction with a human labor component, bringing bins or racks of items to be picked to a central location, allowing the warehouse worker to be more efficient. However, as more companies invest in robotics, the warehouse is getting closer to having robotic piece-picking. The intricacies of this task are still a ways off, but it is becoming closer to reality. Another trend within the warehouse has been the use of exoskeletons for worker safety. GEODIS and Lowe’s are two examples of companies that are using this technology to reduce injury risk.

Autonomous Trucks

While the driver shortage continues to grow, an eventual hope is that autonomous trucks could help solve the problem. We are still a ways away from that scenario, but autonomous trucks are continuing to pick up steam. In 2017 alone, there were a number of investments and announcements regarding autonomous trucks. The USPS and Deutsche-Post both announced plans to develop autonomous trucks by the year 2025. Domino’s Pizza and Ford also announced a pilot program to make pizza deliveries with an autonomous vehicle. However, these plans still need to clear regulatory hurdles. In the meantime, the use of platooning technology seems to be the best use case for autonomous trucks for the foreseeable future.

E-Commerce Integration

The convergence of channels is becoming increasingly important in today’s omni-channel world. It is the prime reason that Walmart has decided to change its legal name from Walmart Stores Inc. to Walmart Inc. With the convergence of channels comes new challenges, but also new solutions. More customers are shifting to a “buy online, pick-up in-store” model, and retailers are taking notice. The end goal is to make this process as easy and seamless as possible. While the in-store pick-up used to be a great way to get customers to walk into the store, this is no longer the case. From supermarkets to big box retailers, the trend is shifting to curb-side delivery, where a store associate will actually run an order out to the parking lot in a designated section. This is truly changing the way people shop and how orders are fulfilled.

Last Mile Deliveries

Last mile deliveries continue to be an expensive and difficult piece of the logistics puzzle. This is especially true for restaurants and grocers. As a result, there has been an influx of interest in using third party companies to oversee the last mile. Instacart, DoorDash, Deliveroo, and UberEats, just to name a few, have seen business increase. For Instacart, there was concern following Amazon’s acquisition of Whole Foods, considering the partnership it had with Whole Foods. The acquisition has not hurt Instacart so far, but the company has expanded is relationships with other big retailers, including Walmart. Major retailers such as Target and Best Buy have also reduced spending thresholds to qualify for free delivery as customer expectations have changed. I expect to see a lot more interest in how to handle the last mile in 2018.

Natural Disasters

Natural disasters put an incredible amount of strain on the supply chain. And 2017 was no different, especially given the destruction left in the wake of Hurricanes Harvey, Irma, Jose, and Maria. Collectively, these four storms caused more than $200 billion of damages. This sent a ripple effect through the supply chain, as retailers raced to replenish supplies, ports were closed, trucks could not get deliveries through, and power outages caused further delays. A critical piece of setting up relief issues comes down to fleet management for disaster relief.

Blockchain

As Steve Banker wrote about earlier this year, blockchain is still at the bottom of the supply chain maturity curve. However, the technology has gained steam in 2017, with a few programs using the technology for food safety and traceability programs. For instance, Walmart has already successfully piloted blockchain programs to trace pork products from one farm owned by Chinese meat producer Jinluo to a Walmart distribution center in Beijing, as well as to trace mangos in the US from the plants to store shelves. The company is also looking to accelerate the acceptance and adoption of using blockchain technology to increase food safety, with a promised investment of $25 million by the year 2020.

Final Word

2017 was a busy year for the supply chain and logistics space. Technology innovations abound and will continue to change the nature of the industry for years to come. Some of these technologies are showing growth already, such as warehouse innovations and e-commerce integration. Others are picking up steam in a limited capacity, such as drones and blockchain. And others are still unknown entities that still need time to mature, such as digital freight matching and autonomous trucks. I’m sure In the end, it was an exciting year, and I look forward to exploring these topics more in the future. Let me know if there are any topics I missed.

Supply Chain Trends to Watch in 2018

Logistics Trends | By Steve Banker • 12/11/2017

There are several key supply chain trends to watch in 2018.

Supply Chain Trends 2018 — *Omnichannel Fulfillment Revenues*

Omnichannel Revenue Management

The retail supply chain has been going through a massive transformation. Traditional brick and mortar retailers seek to leverage their stores to better compete against Amazon and other ecommerce retailers. ARC’s Chris Cunnane does an annual survey omnichannel retail in conjunction with DC Velocity. The main reason retailers invest in expensive omnichannel initiatives is to increase sales, increase market share, and improve customer loyalty. Meanwhile, most retailers have trouble understanding just what their profitability is surrounding different omnichannel order flow paths. For example, in my colleague’s latest survey a majority of retailers report they can’t even measure the financial impact of a return.

Driving unprofitable sales makes no sense. Eventually retailers need to understand their true costs and margin based on the omnichannel flow path. Will significantly more retailers begin tackling this problem this year? We don’t know; that will be the focus of Chris’s next survey on this topic. Further, if companies can measure their profitability, what are the best practices that separate more profitable retailers from less profitable ones? Solutions certainly exist in this area, but Chris’s research will also focus on process and people issues. Meanwhile B2B companies also need to improve their multichannel capabilities.

Logistics Workers, Labor Shortages, and Automation

The industry continues to discuss the driver shortage. Basic economics tells us that if you raise wages, you will attract new drivers to the industry. Not surprisingly, carriers remain reluctant to embrace that tactic. There continues to be discussion about whether autonomous vehicles could be a solution to the shortage. They won’t be; at least not any time soon. The technology challenges in getting to a fully autonomous truck are daunting. Because autonomous vehicles won’t happen soon, carriers need to take aggressive actions to lure new drivers into the industry and recruit and retain existing drivers. Further, shippers and carriers can reduce empty miles, and thus reduce the need for drivers, by using transportation management and transportation network design solutions.

There has been less public discussion about looming labor shortages in warehousing. The amount of picking, because of omnichannel and ecommerce, has increased the need for warehouse workers. But it is not a desirable job despite paying about $15 per hour on average. Logistics service providers are actively exploring the use of autonomous mobile robots to meet the labor shortage. The economics, when bots are sold in a Robot as a Service (RaaS), make this form of automation a viable alternative to people. Expect booming sales in this market over the next few years. ARC will be discussing autonomous mobile robots in some detail at ARC’s Annual Industry Forum in February in Orlando. Please join us!

Tariffs and Global Supply Chain Networks

The move to install tariffs and bring more production back to America has gone much more slowly than I expected following the election of Donald Trump. I have to admit that Frank McGuigan, the President and COO of Transplace, was much more prescient than I. Transplace is a leading provider cross-border intermodal services throughout North America. He better understood how slowly politics often moves and how significant a trading partner Mexico is for the U.S. Similarly, the UK/European Brexit negotiations have moved at a glacial pace.

Jim Preuninger, the CEO at Amber Road, points out that in times of agrees that scenario analysis is critical. Amber Road is a leading supplier of global trade management. “In times of uncertainty, scenario building and analysis can be done preemptively to provide more time to fully understand, design, and implement needed changes. Multinational companies design their supply chains taking into consideration many factors, including fully landed costs, regulatory issues – including tariffs, lead times, and supplier quality and reliability.”

I reached out to Toby Brzoznowski, a cofounder and executive vice president at LLamasoft, on this topic. LLamasoft is a leading provider of supply chain design software. I asked him whether there was any evidence that multinationals were preemptively redesigning their supply chain networks – before the tariffs go into place – in the belief that eventually the costs of having manufacturing nodes in Mexico or China will go up significantly. For example, maybe costs to manufacture in Indonesia are slightly higher, but the fear of Chinese tariffs tips the balance and manufacturers move their facilities from China to Indonesia.

Mr. Brzoznowski replied that “Day One after the elections, I heard of multiple companies that had put analysis projects in place to run landed-cost scenarios for a wide range of potential tariff increases, or changes to trade agreements. However, as you said, things have not moved quickly, and it seems at this point that companies now have their contingencies mapped out but are sitting and waiting to see what happens.”

If significant new tariffs emerge, supply chain networks will change greatly. But politics in the US remain tumultuous. If the Trump administration does not impose new tariffs this year, it may not happen. The US House of Representatives could be taken over by Democrats in 2018; there is even a chance Trump could be impeached if the House goes Democrat. So, this remains an important trend to monitor, but whether tariffs will increase remains very difficult to predict.

The Hype Surrounding Digital Technologies Will Continue

Emerging technologies such as blockchain, 3D printing, autonomous mobile robots, IoT, machine learning, and related technologies continue to get a tremendous of amount of publicity. These technologies are being lumped together as “Digital” technologies, although the logic for that grouping – beyond the fact that they are all interesting, emerging technologies – is unclear. But these technologies are at very different points on the supply chain maturity curve. As previously mentioned, autonomous mobile robots are rapidly approaching maturity. Blockchain is at the bottom of the maturity curve. ARC will continue to assess and report on the maturity of these technologies.

Green Chemistry and the Design of Chemical Supply Chains

Chemical Industry | By Steve Banker • 06/02/2010

My colleague Asish Ghosh has retired—for the second time. Ten years ago he announced his first retirement, got his retirement party, and a few weeks later we called him back in to help us with a quick turnaround project. He then worked part time for another decade, retired again last week, and got his second retirement party. I’m not sure what the moral of this story is, except, perhaps, that two parties are better than one.

Asish’s last publication for ARC, assuming he is not shooting for a third retirement party, is a strategic report titled “Chemical Industry Trends, Challenges and Opportunities” (available to ARC clients only). There is a section in the report on “green chemistry” that has implications for chemical supply chains, including companies that manufacture, use, distribute, or transport chemicals.

Green chemistry “efficiently utilizes renewable raw materials, eliminates waste, and avoids the use of toxic and or hazardous raw materials, intermediates, and products.” There are twelve principles of green chemistry, some of which only make sense if you have a degree in chemistry. But the core concepts behind these principles are the following:

Design processes to maximize the amount of raw material used in the final product;
Use safe, environment-benign substances, including solvents or catalysts, whenever possible;
Design energy-efficient processes;
The best form of waste disposal is not creating any waste in the first place.

In the United States, the Environmental Protection Agency (EPA) is promoting the “research, development, and implementation of innovative chemical technologies that accomplish pollution prevention in a scientifically sound and cost-effective manner.” Further, “the design of greener, more sustainable products and processes has become a top priority for many chemical manufacturers.” According to Asish, if you go to the websites of the leading chemical companies, you’ll find “green chemistry” messaging all over them.

It is a truism of supply chain management that once you design a supply chain – including the product design, the manufacturing processes, the sourcing strategy, and the manufacturing and distribution networks – you have locked in a very high percentage of the costs. In the chemical industry, green chemistry principles is a growing focus of supply chain design.

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