Category Archives: Logistics

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)
Alabama

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 Guarana … Still!)

*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.

Walmart: Still Running on a 56.6 baud Modem …

Walmart recently released a statement that it plans to use employees to do home deliveries, presumably to fulfill online orders, as recently reported on The Washington Post. the doctor couldn’t believe it at first … convinced it was an article from the Onion misposted on a real news site, but apparently it’s real.

Overlooking all the things that could go terribly wrong with this, and all of the new legal liabilities this could cause them to incur (which would give your average risk manager and Chief Counsel nightmares for months), this makes absolutely no sense from a supply chain perspective where the name of the game is cost control (unless, of course, Walmart is looking for a way to actually lose money as a tax avoidance scheme).

There’s a reason even Amazon uses third party carriers for its prime service, and the reason is that, as stated by the article, last mile logistics are costly. Very costly. And they can only be minimized by maximizing the number of packages delivered per hour by a driver. An employee who can only deliver a few packages due to space limitations in their car can’t maximize deliveries compared to a Fedex or UPS van driver that has a van built to maximize the number of packages that can be carried at one time and that is making deliveries determined by software that minimizes the delivery radius of all assigned packaged and delivery time using route optimization software (that eliminates left turns and backed-up routes).

Now, maybe Walmart is thinking that they can introduce a new kind of package assignment algorithm that minimizes the distance from an employee’s home route, and then just pay that employee for additional distance and time required (using google map calculations, etc.), but you still have the problem that the closest employee(s) may not be working that day, may not be able to do deliveries that day, or may not be able to fit the packages in their vehicle. Most of the time the software will have to re-assign and re-assign again until a viable sub-optimal match is found, and at the end of the day the cost would be more than just having a full time driver deliver everything according to route optimization software at a cost that is still more than negotiating a good volume-based outsourcing agreement with the dominant local carriers who can increase the delivery density even more.

The reality is that just because something sounds good (as in 90% of all customers live within 10 miles, where most employees are also located), does not mean it is good — and that’s why you need to perform analytics and optimization before embarking on major initiatives such as this. Because even if Walmart could get near-optimal assignments, it still needs volume, and as long as it takes 3 times as long to do anything on their site as it does on Amazon (and that is definitely true in Canada, where the outsourced development organization prefers to benchmark against sites for other real-world retailers and not Amazon from an online retail perspective), and as long as they continue to ship 6 (light) items on the same order across 5 boxes, their online volume growth is not going to be fast enough to make this idea anywhere as efficient as they hope in the next few years. This is one case where the doctor hopes their trials flop and they see the error of their ways and go back to investing in more hybrid vehicles, more efficient warehouses and inventory management methods, and other initiatives guaranteed to increase efficiency and sustainability.

What’s the Future of Just In Time for Consumer?

It’s the holiday season, which means retail is in overdrive. This means on-line retail is in overdrive, and this means shipping is in overdrive.

Shipping which relies on postal services or private carriers. Postal services which are in dire straits and which are getting costlier by the year and private carriers which are also getting costlier. The USPS recently announced yet another round of price increases for 2017, just six months after it raised prices almost 10% (which followed price increases barely six months before).

Costs just keep increasing, and it’s hurting small retailers who can’t negotiate Amazon and eBay bulk shipping rates (and offer free shipping @ 35 or low cost shipping on individual orders). People aren’t going to pay a $20 shipping fee to ship a $10 product. And they’re not going to buy from retailers where this is the case.

So, we’re entering the age where the Amazons and their ilk are going to do in the online world what the Walmarts and their ilk did in the offline world — kill the little guy unless the little guy falls in line. Prepare to see even more Amazon and e-Bay storefronts popping, piggy-backing off the already in place infrastructure in exchange for a small piece of the profit. And prepare to see the closure of even more independent storefronts that wanted to compete without having to give a cut to the new digital mafia, as they just won’t be able to compete.

This means that sales will centralize, but shipping rates won’t necessarily standardize. The Amazon resellers also use the Amazon warehouses will be able to take advantage of the lowest shipping rates, and the rest, like the e-Bay storefronts, will be subject to reduced rates, but not the Amazon warehouse rates. And these rates will keep increasing as fuel goes up, labour goes up, and the carrier rates go up even more. Stores were invented for a reason — it’s much more cost effective to ship a pallet to one location than 100 items to 100 locations. Even with route optimization, right turns only, last-leg optimization with the local post, and so on — package delivery costs can only go so low. As long as a human is involved.

This says that the future of just in time for the average, cash-strapped consumer, is likely one of two futures. The past where physical stores regain their supremacy. Or the pre-SkyNet future where drones rule the skies.

However, the best future for just in time consumer delivery might be one where the old mail order model is modernized for the e-Commerce world. Back in the day, if you were in a rural community or small town, and you wanted something from a big box store (like Sears) you’d go to a local mail-order outlet where you would hand over some money (which could just be a deposit or the entire amount) to order something from a catalogue. Then, a few weeks later, you’d go back to pick it up. Amazon has revived this with the Amazon locker where you can get faster delivery and pick up by agreeing to pick up at a nearby locker, which is essentially a digitized bus locker system where you scan a code which opens a locker with your package.

The best future is one where a third party opens a lock location that can be rented by any online merchant that wants to use a locker for delivery where carriers offer lower rates to ship to the locker location. It would require at least USPS to agree to offer lower rates to ship to a locker location, which would require a large number of locker locations for the locker owner to negotiate better rates. This means that, in the short term, for this concept to take off, Amazon will have to go heavy into it, offer not only faster shipping but significantly lower shipping rates to get them to take off, and then offer these rates to their resellers at cost, or a loss, to get everyone using them. But it would then be able to capitalize on yet another revenue stream, as it could allow third party non-Amazon storefronts to ship to these locations for a small fee, and get an even bigger footprint in the physical world — which would allow it to create Amazon stores with “best sellers”, the same way Apple was able to create Apple Stores.

In summary, the future of just in time for consumer is still a bit cloudy, but it should be a hybrid locker / storefront model where costs can stay down, but customer satisfaction can stay high. Thoughts?