Category Archives: Logistics

There is No Free Lunch, and There is No Free Shipping Either!

Even though shipping is not, or should not, be that complicated anymore, it’s still relatively human intensive (as even technology-driven shipping requires someone to scan the labels, read the response, and load the products into the right boxes and then into the right truck for delivery to the right recipient) and will always costly. Why?

  • Every form of transportation requires a vehicle

    and all vehicles have acquisition and maintenance costs

  • Every form of vehicle requires some form of power

    and all forms of power have a cost, even if they are based on some form of renewable resource (as windmills have to be maintained and biomass has to be grown) — so energy costs will never go to zero

  • Every vehicle requires an operator

    even if the operator is the programmer maintaining the system that controls the drone or the self-driving truck

And not all goods are simple consumer goods that can be put in a box on a truck and handed to you by an average FedEx delivery driver. Some are fragile and require extra packaging. Some need to stay cold or frozen. Some are hazardous materials. Sometimes shipping a single small item can cost thousands, especially when you add in the extra costs in packaging, handling, pick-up, and delivery.

In other words, shipping is expensive. And anyone giving you free shipping is including it in the price, probably at a padded mark-up. So don’t fret the shipping, fret the total cost of the purchase relative to the value received. Sometimes if you shop around you can get a better product at a lower overall price, shipping included.

This is especially true if you’re buying from online marketplaces, Amazon NOT excluded. (Going back to Amazon, as the doctor has noted before, by now consumers should have caught on to the fact that many of the less-reputable third party merchants that use Amazon Prime Shipping mark up their merchandise to cover the shipping costs. the doctor has seen $40 to $60 mark-up on small items that probably only cost $10 to ship with Amazon’s massive shipping discounts.)

Logistics is the new Black, but Procurement is the Rodney Dangerfield of the corporation!

the doctor recently stumbled on a piece published last year by Jeff Ashcroft over on LinkedIn where he said Logistics is the New Black where he noted that the word “logistics” has subtly worked its way further and further into the common lexicon thanks to massive marketing campaigns of courier, rail, and forwarding companies. This is making it the new black.

However, while it was never the Rodney Dangerfield of the Corporate World, as that distinction is reserved for Procurement, it was the black sheep. Needed, but kept at arms length … just in case.

However, now that savvy merchants are realizing that in their logistics function may lurk the well spring of the truly exceptional customer experience they seek, and must now deliver, logistics is taking center stage. This is good, and bad.

It’s great in that good logistics is a necessary condition for supply chain success, and if it’s not successful, the supply chain will never be, but it’s bad in that it’s only one half of the coin for supply chain success, the other being good Procurement. But, as SI has been saying for years, Procurement is the Rodney Dangerfield that don’t get no respect in the average organization (otherwise, why would almost half of Procurement organizations be without modern platforms).

When there is no easy correlation to the average consumer, when organizations like the Dairy Farmers of Canada say they are supply management, when HR organizations say they do Sourcing, and when even Apple, which has been repeatedly recognized to have the best supply chain in the world doesn’t talk about it (with the closest they come being Supplier Responsibility, probably as a result of breathing all that California smug), how is anyone to be expected to understand what a modern Purchasing, or Procurement, organization does? Especially when the term procure is often used in stories about rebels procuring supplies from the government (and this is the example of procure used on the urban dictionary, the military procuring what it needs from the private sector, or, even worse, often linked to prostitution. And purchasing, that’s what the office manager (in charge of office supplies) does.

In fact, all things considered, Procurement is probably lucky to even be the Rodney Dangerfield of the corporate world. While it might not get any respect, at least it gets recognition.

Maybe someday someone will find a way to bring sexy back to Procurement and then it will get some respect, and take the first step towards becoming the new black.

The More Things Change … Roll On!

Roll on highway, roll on along
Roll on daddy till you get back home
Roll on family, roll on crew
Roll on momma like I asked you to do
And roll on eighteen-wheeler, roll on (roll on)

We’re still being promised drone delivery, but the reality is most goods still move over land by truck (even if rail is more environmentally friendly and uses less fuel and could be built to use renewable energy, especially for short haul or common lanes, if we went back to a powered track … ) … and those trucks Roll On!

Ten years ago we noted that, despite the fact you need those trucks to Roll On, your logistics could come to a screeching halt. You could wake up and there could be no one to drive the truck (due to a continuing driver shortage or a unionized strike), no fuel to gas it up (due to shortages caused by a natural disaster, etc.), or, worse yet, no truck at all (because your delivery company can’t afford the new insurance premiums, which is a harsh reality — a few years ago minimum insurance requirements were jacked up across the board and small mom-and-pop shops had to shut down, and it could happen again).

And the situation has’t changed. The sky isn’t falling, but without proper planning, that includes contingency plans, with the continual driver shortage, constantly rising fuel prices (and seemingly regular shortages due to poor planning and resiliency on the part of the providers and an increasing array of governmental regulations in developed countries), and increasing thefts of expensive automobile — and truck — parts (with restricted supply) to take advantage of high (scrap) metal prices, any company could find itself in a situation where the sky might as well be falling.

And the eight pieces of advice given by Lora Cecere (the supply chain shaman), then of AMR and now of Supply Chain Insights, are just as relevant now as then.

  • Plan for tighter capacity
  • Make Fuel Management Part of Risk Management
  • Get the Right Supply Chain Planning (SCP) Master Data
  • Rethink Customer-PickUp (CPU) Programs
  • Diversify Entry Ports
  • Face Reality — (Re)Design Your Network for Efficiency
  • Get Help from a Good Partner
  • Make U.S. Transportation Infrastructure an Item on the National Agenda*

As are the three pieces of advice the doctor gave you ten years ago:

  • Use Decision Optimization
  • Don’t Forget Security
  • Invest in Visibility

And the only thing we’d add is that when you have to spot-buy, spot-buy smartly. Use new services like Freightos. Don’t know who they are? Better find out … NOW! (SI Freightos intro … and they are Flippin’ Freight Quotes Faster than a Fleet-Footed Feline on GuaranaStill!)

*Best of luck getting anything accomplished with your current administration — hard to buy American to build American when there are no more American-made options!

Factors to Consider When Re-Shoring Your Supply Chain

As part of his Make America Great Again campaign, Trump is preaching Buy American. If you want to fall in line, then you have to Buy American. But you can’t Buy American without American manufactured goods, of which there are not enough to go around if everyone wants to Buy American as so much manufacturing was outsourced over the years.

And even if you don’t want to fall in line with Trump, you might still want to Buy American because if Trump continues to raise import tariffs on a whole host of goods, you might want to Buy American just because the costs of not doing so are getting too high. Either way, if more companies want to Buy American, then we need to bring back American Made.

And if we are to return to “American Made”, that’s going to mean an awful lot of restoring. And, unfortunately, that’s easier said than done. Why?

Our Factories our Out of Date

You can’t just bring in a cleaning crew and restart a 20 year old factory overnight. By now, anything of value of moveable size that wasn’t already looted is probably broken or rusted. But even fixing everything up is not enough. Technology has moved on, and so has the production lines for that technology — and right now all the new production lines exist in China, not the United States, as a result of all of the production moving there and Chinese factories investing in the infrastructure necessary to make new products. In many industries, we need completely new or fully overhauled factories to start producing American Made products again, and these factories are not going to be built or revamped over night.

Our Workforce is Unskilled

You can’t just un-retire the workforce, or at least the workforce still of working age. First of all, if a plant has been shut down for two decades, any workers who are still young enough to come back full time would be in their late 40s or 50s now and would have been late 20s or early 30s then. These would have been the junior line engineers, not the senior line engineers or plant managers. As a result, they wouldn’t even have had half of the skills you’re looking for when they retired. And since technology has moved ahead 20 years, and they haven’t kept up (as they had no reason to without an appropriate job), they know less than kids in college. The workforce has to be retrained.

Our Logistics Have to be Rethought

This is not as big of an issue, but right now all of the carriers have lanes optimized for getting goods from ports to common warehouse locations, not from factories in busy industrial parks, or, more likely, on the outskirts of big cities to your warehouses on the outskirts of other big cities. You need to redesign your logistics and so do they. But the good news is that with the right re-design, and freight optimization, they’d have less empty lanes as, right now, they have a lot of full lanes from ports to warehouse districts and empty lanes back. Now they’d have full lanes from industrial parks with factories to other industrial parks with warehouses that also have nearby factories they can pick up from and so on.

Our Labour Costs are Much Higher

So not only do we have to overhaul our factories, but we have to insure we adopt the most efficient technologies that allow our workers to be as productive as possible for every hour they work. And we have to focus on lean process design and lean manufacturing to ensure that there is no waste in the process. That’s the only way a company can really compensate for the higher labour (and sometimes energy and overhead costs in general) that comes with American Made. One has to remember that even though a lot of consumers want to buy American, just like they want to buy sustainable, they are only willing to pay so much of a premium.

This is not to say that you should not reshore. You absolutely should. the doctor has been preaching the value of home-sourcing for a decade! However, you have to do it smart and to get it right, you will have to start slow. And don’t be afraid to ask for help.

Is WalMart Going to Force Logistics Scheduling Optimization Mainstream?

Recently, Spend Matters pointed out that Retail Mega-Giant Wal-Mart is stepping up its pressure on suppliers to get fulfillment perfect or pay a fine. According to Bloomberg, the goal is to add 1 Billion to revenue by improving (desired) product availability at stores (as the average stock-out rate of 8% costs a mega-retailer like Wal-Mart an awful lot of money).

But it’s not just stock-outs costing Walmart money. It’s deliveries that don’t happen when they are expected to happen. If a delivery arrives late, then warehouse workers have to stay overtime to get the truck unloaded, and that costs Walmart at least time and a half for every hour the workers have to stay late (plus any hours they had to be paid to wait around, probably doing nothing, for the delivery). If a delivery arrives (a day) early, then regularly scheduled deliveries have to be pushed ahead, possibly contributing to overtime and payment for empty hours (when workers show up for their shift and there is no work to be done for two hours).

And if trucks are waiting in winter, the drivers are not only being paid to sit to wait, but are probably also idling their trucks to keep warm, burning fuel, bumping up costs. So, the supplier is paying more to deliver, and passing that cost onto Walmart. When you think of how many early and late deliveries a mega-retailer like Wal-Mart must get, and you add up all the OT costs, empty hour costs for warehouse workers and drivers, and additional fuel costs, that costs a lot of money even before you take in the potential losses from stock-outs.

Bravo for Wal-Mart for trying to force more perfection into the supply chain and eliminate the considerable losses that come from imperfect orders. But how will the average supplier and/or carrier comply? Logistics scheduling can be a nightmare and be way too much for the average scheduler, or spreadsheet to handle. But as we’ve indicated before, not too much for an appropriately defined optimization solution. It’s about time optimization got more respect, even if it starts with scheduling.

And while optimization needs to be more universally applied, once a supplier or carrier gets comfortable with scheduling optimization, they’ll get more comfortable with optimization in general and move onto the adoption of decision optimization for logistics, and that’s just one step away from the application of decision optimization to high value / strategic events. And that’s, hopefully, only one step away from the universal application of optimization across all sourcing events.

So while this isn’t the most critical application of optimization for an average organization, it’s a great start and bravo to Wal-Mart for forcing suppliers and carriers to perform better in a manner that should force the eventual adoption of optimization.

And if you don’t like it, get over it. And if you don’t like Wal-Mart, remember, their dominance is all your fault.