Category Archives: Logistics

Will You Need to Ship Same Day?

Amazon is renting locker storage in physical storage locations across the country and dramatically broadening its DC footprint so that it can launch a same-day delivery service. Wal-mart Stores and e-Bay are testing same day delivery in multiple locations. And now the cash-strapped USPS is turning to same-day delivery. So are you going to have to ship same-day?

If you’re a retailer that makes money on impulse purchases, most likely (or lose a chunk of your market share). So what about if you’re a manufacturer that supplies a retailer that does same day delivery? Probably not, but it’s quite likely that you are going to have to ship more often and deal with less lead-times.

If a retailer is shipping same day, it is going to need to not only be updating its inventory daily, but it’s inventory turn-over projections daily, and (re)ordering as soon as it detects that waiting longer will risk a stock-out given the minimum lead-time required by the manufacturer. At some point, it’s going to be ordering too often, shipment volumes are going to be too low, and it’s going to need to re-adjust it’s ordering strategy to keep costs down. So it’s going to adjust it’s algorithms to calculate with respect to a specific, regular, order day, and then realize it needs to order early. Then it’s going to realize that inventory levels for some items will need to be relatively high due to long lead times. And it’s going to ask you to reduce your minimum lead times and distribution efficiency so that it can optimize it’s re-order times and respond to unplanned demand surges in the supply chain.

Net effect: you’re probably not going to have to ship same day as a manufacturer, but you’re going to be asked to reduce your lead times and increase your distribution efficiency.

Anyone disagree?

Is the California High Speed Rail Authority Saving a Dime and Losing a Dollar?

A recent article in the Economist on California High-Speed Rail (HSR), touted Cheaper, Slower as if it was a good thing. Quoting the “Fresno Bee”, The CEO of the HSR Authority has decided to extend the first phase of the project, which was due to complete in 2017, until September 18.

As a result of this extension, which is expected to result in less weekend and overtime work, the California HSR Authority is expecting to save $150 Million of taxpayers’ money. This is being promoted as a good thing. I’m not sure I agree.

You see, for Taxpayers to benefit, the State as a whole has to be financially sound. This means that Revenues Minus Expenditures has to be at least zero, if not positive, and anything that increases revenue or decreases expenditures is generally good, unless the State is running a deficit, in which case the State needs to look at each action and see what the costs of the action are.

In this case, the cost of delaying the project is delaying revenues another year. If you look at the revenue projections for the project, available at this link on the California HSR site, you will see that they are massive. Over 2 Billion annually. Now while it’s true that this is just one piece, from Bakersfield to Fresno / Madera, due to the lack of travel options in the area and the fact that it is a vital part of the corridor between LA and San Jose, the revenue projections for this piece alone appear to be over 25% of the total projections. In other words, to save this 150 Million, the State is delaying at least 500 Million of Revenue by at least a year. Now, HSR does have a high operating cost, we don’t know what the profit margins are, and the HSR might actually be projected to lose money early on, but I’d like to see a full cost benefit analysis of what it is costing in the long run to achieve a projected savings of $150 Million. Until someone does this, we have no idea what the projected savings really are, and even less of an idea as to what the savings will even be as they might not even materialize when you consider expected labour increases, expected material cost increases (given the fact that inflationary times are back), and the fact that a whole slew of things could go wrong to cause delays that need to be made up with overtime.

I’m a little disappointed the Economist took the Fresno Bee at their word. An analysis really is needed here.

I’m Not Sure That I Buy That This Increases Sustainability

According to this recent blog post over on Core 77, Walmart (Canada)’s New Supercube Increases Sustainability by Designing Bigger Trucks. Working with an Ontario-based Company called Innovative Trailer Design, they have commissioned the Walmart Supercube that can hold 30% more cargo in the same footprint. By designing a truck with a squashed cab, they can increase the trailer length from 53 feet to 60 feet without increasing the overall vehicle length. Plus, they are lowering the floor of the trailer and installing a built-in scissor lift to help load the cargo into the far reaches. And they’ve even added a dromedory box that holds an additional 10% of cargo behind the cab that can be independently loaded and unloaded.

Now, technically, if there is no significant difference in fuel usage, then the trucks will be a more sustainable way to move cargo since you will now only require 3 trucks to move what used to take 4 trucks, but if the total number of trucks on the roads do not decrease, then there is no significant advantage.

Plus, more cargo = more consumption, and that’s never an argument for sustainability.

It’s a great concept, and a cool design, but I’m not sure I buy that it’s going to improve sustainability.

Wow! Charbroiled Burgers More Environmentally Unfriendly than Clean-Diesel Trucks!

I have to admit that I was a little shocked when I came across this article on DC Velocity that referenced recent research from the University of California-Riverside that resulted in a study which found charbroiled burgers produce more particulates than clean-diesel trucks.

Specifically, if a clean-diesel 18-wheeler truck is burning ultra-low sulfer diesel fuel, it would have to travel 143 miles on the freeway to send up the same mass of particulates as a single charbroiled hamburger patty. As per this article on WSAZ News on “new california study finds more particulate emissions from charbroiled burgers than diesel trucks”, clean diesel technology is really cleaning up the trucking industry. Recent research from North Carolina State University demonstrated that trucks in compliance with newer standards showed a 98% decrease in NOx and a 94% reduction in particulate matter emissions.

The study, summarized on UCR Today, also found that commercial cooking is the second-largest source of particulate matter in the South Coast Air Basin. Looks like we need to start installing clean cooking technology now!

Anyway, this gives you something to think about that before your next trip to Hardee’s, for example.

Good Advice and Bad Advice for Controlling Transportation Insurance Costs

Inbound Logistics recently ran an interesting article on controlling transportation insurance costs, which can be quite high if you are transporting high-value items (such as electronics and pharmaceuticals) or high-risk items (such as alcohol and tobacco). The tips can be grouped into three categories, average, good, and bad. In this post we will review the good and the bad, which, in the latter case, might also be just plain ugly.

The good tips were:

  • Become a Partner in Loss Prevention
    It’s amazing how much control you have over keeping your shipments safe, and the safer your shipments appear to be when the underwrite does her analysis, the better off you are. You can make sure that your trucks and facilities are always secure and monitored, you can make sure that at least two people are involved every time something is loaded or unloaded, and you can insure that any potential security breaches are dealt with quickly and efficiently.
  • Operate in Full-Disclosure Mode
    The more your insurance company knows about your operations, shipment preparations, supply chain, and logistics, the more informed underwriting and pricing decisions it can make and the more comfortable it is with giving you the benefit of the doubt when there is one, and a lower rate.
  • Limit the value of individual shipments on single conveyances
    Limit the value of individual shipments on single conveyances. This isn’t life insurance. It doesn’t help you to have more coverage then you will ever need.

The bad tips were:

  • Seek out transportation providers willing to offer higher liability limits.
    Just because they are willing to offer higher limits does not mean that they are safer. It might just mean that they are more desperate for business. You want the safest providers you can find, as that is what is the most likely to help you lower your premiums.
  • Shift Cost, Obligations, and Risk of Cargo Loss to Your Trading Partners Earlier in the Transaction
    This is equivalent to telling your CFO to improve working capital by extending days payable outstanding. You don’t reduce costs by transferring the problem to someone else. You increase them. Just like extending DPO forces your suppliers to borrow more money at higher interest rates for longer periods of time, which results in them charging you higher prices, shifting risk to your buyers prematurely just results in them demanding lower prices as they have to pay higher insurance costs and factor that into their TCO. Dumb, de-dumb, dumb, DUMB!