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3 , 2005 |
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The Case for Gaining Competitive Advantage through
Operational Efficiency
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here for the full white paper or visit www.cadretech
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Groundbreaking
Research:
The most comprehensive report and analysis to date on
the debate and market battle between ERP and best-of-breed
supply chain software applications.
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Dan Gilmore
Editor-in-Chief |
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Taking a page from the Motley Fool’s trademark
question to investment pundits on individual stocks,
while moderating an all-star panel at this week’s
Retail Industry Leaders Association annual logistics
conference in San Diego, I ask panelists how they viewed
supply chain “collaboration”: Buy, Sell
or Hold?
It’s an interesting question, because at some
levels progress on collaboration, both of the CPFR-specific
variety and more general collaboration, has slowed a
bit over the past couple of years.
First, I would highly recommend the RILA Logistics conference
itself to supply chain and logistics professionals in
both the retail and consumer-related industries. It’s
a very executive-level audience, representing many of
North America’s greatest companies and supply
chains. The quality of the presentations and “potpourri’s
(sessions featuring open give and take on key issues)
is generally outstanding. Where else can you find Mitch
Stover, Sr. VP of Distribution at Target, and Johnnie
Dobbs, his counterpart at Wal-Mart, sharing both the
podium and many of their perspectives, approaches and
learnings to a roomful of distribution professionals?
(See “News and Views” piece nearby).
Back to collaboration. Our panel session was on the
last day, which was interesting because the need for
more collaboration, especially between carriers, shippers
and everyone else involved in the global movement of
goods, had been called for repeatedly by a succession
of speakers and audience members in earlier sessions.
Our panelists were Bruce Johnson, VP of Distribution
for Canadian Tire, Fred Berkheimer, VP of Logistics
for Unilever HPC NA, and John Fontanella, VP of supply
chain research at analyst firm Yankee Group.
Canadian Tire (the largest mass merchant north of the
border) has done simply an outstanding job of collaboration,
sharing a huge amount of data with now some 200 of its
key suppliers. It’s a story we don’t have
room for today, but it has keenly honed its demand planning
skills and capabilities, which it then uses to communicate
a rolling 26-week forecast that it shares with both
suppliers and carriers, with the unit forecast translated
into every conceivable derivative that could be of use
to its partners (cartons, cube, weight, containers,
etc.). While Canadian Tire has achieved a multitude
of benefits, including improved turns and reduced out-of-stocks,
Johnson noted some of the biggest gains have come from
reduced logistics costs – by driving DC labor,
transportation decisions, slotting and many other decisions
from the forecast, it has significantly improved the
flow goods and total logistics costs.
Berkheimer compared the early days of CPFR to driving
the original model T’s – it took a lot of
fussing and many steps to get the thing to run. He then
noted that as a manufacturer dealing with many retailers,
“it was like we were trying to keep 20 model T’s
going.” While recognizing some of the continuing
challenges, Berkheimer observed that substantial recent
improvements in supporting technology have had an impact,
and that the technology support plus experience in working
out the kinks in the business relationships had allowed
them to scale Unilever’s collaborations and start
to drive real benefits from CPFR.
Fontanella added the sharp observation that companies
embarking on collaboration at a partner’s request
often initially find they don’t know enough about
their own business processes to really collaborate effectively.
Some closing thoughts: Berkheimer posed a simple question
that is perhaps the clearest way to think about the
how to frame collaborative opportunities: “Maybe
the best way to think about collaboration,” he
noted, “is to ask: If this were just one company,
how would we do things differently?” It’s
a great way to start thinking about the possibilities,
challenged only perhaps by the fact that many companies
haven’t yet been able to integrate supply chain
goals and processes within their enterprise walls.
While I think the term “collaboration” is
overused, and has come to mean even the most basic business
system integration in some cases, for supply chain industry
leaders, there are limited gains left to be squeezed
from internal operations. Only changes to the extended
supply chain, whatever you call it, can today lead to
major performance gains.
What’s your stance on collaboration: buy, sell
or hold, and why? How do you define collaboration?
Let
us know your thoughts.
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By Mark Fralick
SCDigest Contributing Editor
In my last RFID coIumn, I explained
the importance of understanding how you and/or your
RFID vendors will deal with the “context”
of read data. Here’s why: the processes occurring
in the facility coupled with the integration (communication)
ability of the execution system (such as a WMS) will
ultimately determine where context decisions are made
and, therefore, where the processing is done. I like
to think of this is as the “push or pull”
decision (although there is a case for a combination
of push and pull).
We’ll consider by using a typical distribution
example: truck loading. We have a set of dock doors
similar to those in the figure below. (click
here for diagram in full article) Each dock
door could be equipped with photo-eyes under the gateway
frame where the antennas are mounted. Additionally,
a light stack may be used to visually indicate to the
fork truck driver that pallet is correct and accounted
for.
Push
Example:
In this situation, pallet jacks are loading a truck
and are not being controlled by a WMS. Therefore, the
Edge, using RFID “middleware” functionality,
is doing the bulk of the context work. In addition to
the readers, the photo eye and stack light are controlled
by the Edge Device. The Edge Device uses presence detection
from the photo-eye to activate the reader(s) for the
corresponding door. The edge interrogates the tags for
a pallet tag and any case tags. The processing might
look like this ...
Click
Here for the Full Column
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Port congestion isn’t likely to improve
any time soon – what is the forecast for
annual overseas container shipment growth over
the next 10 years?
Answer below
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Feedback is coming in at a rate greater than we
can publish it – thanks for your response.
Ok, we’re still really backed up. Our feedback
of the week is from Ken Barker of American Textile,
with a great letter questioning some of the thinking
behind an article we referenced that spoke to
where Gillette expects to get ROI from RFID.
You also find a brief note from Mark Baxa of Monsanto
with some kind words on the presentation Dan Gilmore
made on Integrated Logistics to the St. Louis
CSCMP/CLM roundtable (email
us if you would like to discuss Dan speaking at
your event), letters on RFID and POS data,
digital business transformation, and more. You'll
also find a response below from a manager of SynTime,
responding to a letter last week questioning some
of the company’s employment ads in China.
For
the complete comments from readers, click
here.
Keep
the dialog going! Give us your thoughts on this
week's Supply Chain topics.
feedback@scdigest.com |
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Great “distribution potpourri” session at
the RILA conference led by Mitch Stover, Sr. VP of Distribution
at Target, and Johnnie Dobbs, VP of Logistics at Wal-Mart,
not only for their insight, but also for the fact that
RFID hardly came up at all.
Quick summary of a few of the key discussion points:
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Challenges
of going to 7 x 24 DC operations: Both have been
very pleased with their efforts, though acknowledged
the issue can be difficult when converting an
existing DC versus starting a new one in 24x7
mode. Both companies are running two sets of shifts
(4 x 10 and 3 x 12), with some weekend pay premiums.
The main point was that the benefits from additional
leverage of its distribution center assets was
enormous, not only in terms of reducing the needed
multi-million DCs, but also in improving store
service levels. Stover said Target really hasn’t
had any store service issues since they went to
this schedule. Some keys to success identified
were to give pretty flexible scheduling when converting
an existing DC, really focusing on training with
the influx of new employees, and having consistent
supervisor/management personnel on the new shifts.
Now, both execs would like to see more of the
vendors on the same schedule.
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Both of course run heavily automated DCs operations,
and now are looking more at rifle shots to solve
specific problems. I liked Dobbs perspective, though,
that “We first say, ‘Let’s try
to automate everything,’ and then back off
based on ROI." |
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Reducing operations is a big focus for both retailers,
often representing a third of total DC labor costs.
There continues in some quarters to be the misconception
that Wal-Mart had long ago leapt on the UCC-128/ASN
bandwagon – as Dobbs noted, they are only
getting vendor ASNs from a portion of their base,
mostly for specific product types. So, both companies
have/will continue to automate receiving processes,
and this is another big driver of RFID, ultimately
enabling nearly unattended receipts. |
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Interestingly, contrary to the normal dialog these
days, both execs were positive on taking a base
distribution/WMS package and doing heavy modifications
to it to meet specific needs. As Stover said, “Target
is a distribution company – it’s a core
competence,” in explaining why the heavy investment
in custom systems/functionality is smart business
for them. But both retailers continue to add “bolt-on’
applications for specific functions (areas of automation,
for example). It was stated that the base WMS almost
becomes for them just the primary vehicle to maintain
transactions to all the corporate inventory, merchandising
and financial systems, with processing functionality
achieved with bolt-ons. |
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Both emphasized the need to understand all the
ways inventory can enter your DC. The fact that
there are so many paths (buyers, merchandisers,
vendors/VMI, etc.) is in part what makes the challenge
of inventory reduction so great. |
Lots more than we have space for – go to RILA
next year, where they will probably do it again.
What are your thoughts on three-shift or 7x24 operations?
Are some companies building more DCs than they need
to because they won’t take this step? Will vendors
to retail ultimately have to synch deliveries and operations
even more in tune with the big box retailers? And what
can we do about all those inventory paths into the system?
Let us know your thoughts.
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Stan Ruta, Sr. VP of Store Operations
for Tractor Supply, gave a nice presentation on his
company’s successful efforts to improve the flow
of goods from DCs to the store shelf.
It started with an audience poll question that showed
a large majority of retail attendees do not even measure
the time it takes from receipt in the back room to movement
to the floor. While not scientific, think this informal
poll is pretty accurate of the true picture.
He started with a simple proposition: If freight isn’t
moved efficiently all the way to the shelf, “the
consequences are huge.” Those consequences include
out-of-stocks, customer satisfaction, inventory turns,
profits. Tractor Supply faced some of those issues,
and embarked on a project to improve the flow of goods
to the floor.
The company assembled a best practices team to focus
on how to improve this process, with significant representation
from store operations at the regional, district and
store level, plus distribution, IT and transportation.
A number of roadblocks to more efficient delivery to
the floor were identified, such as poor communication
of delivery times to the stores, mismatch between products
in totes and on pallets versus store layouts, challenging
in-store receiving processes using very long, multi-page
packing lists, items that had to be assembled in-store,
not well considered approaches to vendor-direct deliveries,
and no real dedicated teams or disciplined scheduling
for receipts and floor putaway.
The teams recommended approaches that solved most of
the problems without need for many investments in new
systems. Steps included substantially improving communication
of deliveries to enable proactive scheduling, reslotting
of the DCs so that totes and pallets better match store
layouts, moving to “assumed receipts” for
all except high cost items, working with vendors to
significantly reduce store assembly time for many products,
and dedicated “freight teams” in-store that
worked either early or late.
All this happenedd, from kick-off to pilots in select
stores to chain wide roll-out, in about nine months.
Tractor Supply is considering changing its initial goal,
to get product from backroom receipt to the store floor
in 24 hours, to “freight in 8,” in part
by looking at moving goods from receipt straight to
the floor.
This “last 30 yards” thing is of course
what’s emerging as perhaps the real driver behind
RFID – but that’s for another time. Whatever
the mechanism, as Tractor Supply’s story shows,
this is a huge area for potential improvement for most
retailers.
Why is “the last 30 yards” so hard for retailers
to manage? Do many/most have relatively simple opportunities
to make major gains with then right focus and attention?
Should there be more retailer-vendor collaboration on
this issue? Let us know your thoughts.
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We’re generally
big backers here of “labor management” in
logistics – tools and systems that enabled detailed
reporting at an individual level of performance against
discrete, engineered standards. But a vendor exhibiting
at RILA caught our eye with a solution that might be
termed ”poor man’s labor management.”
It’s from a company called Symon (www.symon.com),
which was exhibiting a system that basically combines
some software with some smarts about pulling data out
of databases and constructing business rules with it,
and a series of large electronic displays to flexibly
output the data.
The company has its roots in and sells many systems
to call centers. The concept there: visually show how
everyone is performing in near real time, drive competition
among callers, show how teams are doing against goals,
etc.
They have now taken the solution into distribution,
and have one customer, Stage Stores. The basic idea:
get rid of white boards and other difficult-to-manage
traditional “visual, visible” performance
monitors, and to create some competition among individual
employees and teams in terms of output by seeing in
real-time how they stack up against each other. The
result of this visual competition, Symon argues, will
be increased productivity. It will also provide performance
data to management that will also drive improved performance.
This kind of system would have the downside of any system
that doesn’t use discrete standards (a pick is
a pick regardless of how hard it is). Still, the visual
part is compelling, and for companies that don’t
want to develop standards, this could be an interesting
approach to get part of the way there.
Do we need better use of visual performance systems
in distribution? Let us know your thoughts.
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I have personally met Jamshed Dubash and have heard
his theories about RFID. My personal opinion is that
his methods for calculating ROI (pelaton) are not scientific,
even though they look rational. He has a large grid
that he uses to explain the payback for implementing
RFID, but a large number of the metrics used in the
rationale are subjective. If he will part with it, you
should get a copy of the full peloton model and see
if it looks more like science or slight of hand.
I believe in RFID and think it is a technology that
can ultimately help in the warehousing and supply chain
management arenas. But I don't believe in forcing the
technology on companies and the general public. There
are consumer privacy concerns, some legitimate, some
not, that should be addressed. However, the organizations
that discuss these concerns treat them as nuisances
from an unformed public and dismiss them out of hand.
That's wrong. It doesn't help that the proponents of
RFID can't keep their stories straight. I have attended
presentations in which the presenter brushes off RFID's
ability to track people's movements with: "The
technology can only read RFID tags within about 18 inches,
so what's the problem?" Then in the next breath,
the same presenter brags about operational RFID setups
that can read a car mounted RFID tag and everyone's
RFID-enabled badges in the car as they go through a
checkpoint onto a military base. So, which is it: 18
inches or 11 feet? Also, the RFID proponents talk about
the harmlessness of the data. The public is told that
it is just supply chain data, nothing more. However,
when the question arises as to whether the public will
have access to the vast RFID-collected data, the nervous
answer is: "Well, we could make a subset of one
of the databases available to the public on-line, but
they won't have access to everything." That doesn't
sound very harmless. The American public catch these
inconsistencies every time.
Another major problem with RFID is that it is a technology
of the rich and for the rich. Some of the organizations
pushing RFID have RFID research labs bigger than the
8 door loading dock at my company. If you are a company
like Gillette, with high priced product and an MIT connection,
you have the capital and can at least project an ROI
for using RFID. If, on the other hand, you are a smaller
company with lower priced, high-volume product, the
RFID equation is almost entirely cost, with little or
no ROI projected out to 5 years or more. It is expensive
to implement using the "slap and ship" methodology,
but even more expensive to try to leverage it into your
operation. And you can't just implement it, like any
other technology. Each installation is different and
you need to set up a test system/lab, to see what you
need to implement it in your facility. That typically
costs about $50,000 for a small test system, if you
have the room and you're going to need a lot of room.
You need to figure out which RFID readers (buy), antennas
(buy) and tags (buy) work best in your facility with
your product. Don't forget, your cartons should be capable
of reading at 100% on a conveyor going 600 feet per
minute (that's 10 feet per second and, yes, it is as
quick as it sounds). So you'll probably need a circular
test conveyor outfitted with RFID equipment that can
go this fast if you don't have one. You are supposed
to have a final RFID read when the merchandise is loaded
on the truck at shipping time, so you will either need
to outfit your forktrucks with RFID readers and antennas,
or you will need to outfit your dock doors with that
equipment. All this equipment has to be connected to
your network, which will increase your network traffic
as much as 600% of normal, so you may need to upgrade
your networking equipment (buy). You need to store the
data, so you will need to expand your existing disk
capacity (buy). Don't forget, that the cables connecting
the antennas to the readers have to be a specific length
to coincide with the frequency you are using, or you
will detune the antennas and make them less efficient.
Of course, all this technology is beyond almost every
mere mortal, so you either need to get educated (buy
training) or hire a consulting firm (buy expertise)
who is a specialist in this technology that no one has
successfully implemented, yet. And, don't forget tags.
You'll need tags to test with, so you need to get out
there and buy some. Once you have bought all this, and
spent considerable man-hours figuring it out and testing
it, you will be ready to buy the equipment you will
install in production. Oh, and don't forget tags. You'll
need lots of tags, so get out there and buy some. You
can see why the RFID consulting firms and hardware vendors
everywhere are salivating. For most smaller companies,
it is a deduction from their profit margin and their
only option is to take the least expensive way out.
If you listen to the consultants, the hardware vendors,
and the big players and get caught up in the RFID hype,
you will almost certainly lose if you're not a fairly
large company. The catch is that the whole concept depends
on getting everyone on board. If there isn't universal
implementation, tag costs remain high because there
isn't enough demand to drive production into cost-effectiveness
and what little ROI that was projected disappears for
everyone who has implemented.
Ken Barker
American Textile
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Dan, thanks for coming to speak at
the St. Louis CSCMP Roundtable. People were very pleased
with your presentation on "Integrated Logistics."
You had real substance to your talk and did a great
job of working through the subject.
Mark Baxa
Monsanto
Some very meaty topics in this week's issue!
A few random comments, cutting across two of your articles
(Gillette's RFID plans, and the "Digital Business
Transformation" piece).
RFID/EPC will be THE way we track units through the
supply chain...eventually. It will only get people excited
when we prove that the retailer can use the information
to improve in store operations enough to significantly
reduce out of stocks, and when the manufacturer can
harness the information to improve the forecast...not
before. Some companies (and Gillette may be one of them)
can show wins via loss elimination from theft, or greater
product visibility due to less "secure" in
store placement, but the real holy grail is out of stock
reduction and forecast improvement.
I also completely agree with the points made in the
DBT article (by my old mentor Ralph Drayer and his associates),
with an exclamation point on the reasons behind lack
of effective collaboration. Taking that issue one step
further, it is not only "old best practices"
preventing better collaboration, it is also the fact
that most corporations have still not learned to develop
effective cross functional organizations,
and supporting measures, to encourage collaboration
INSIDE the companies, much less across company boundaries.
"Horizontally" structured organizations, with
measures that cut across the boundaries, are required
as a first step to supply chain integration. We have
a long way to go!
Lamar Johnson
P&G (retired)
It is true that companies have not taken full advantage
of the POS data. Few of the reasons for the same are:
-- Too hard to gather complete and useful information
at the time of sales.
-- Difference in identifiers (product Id, UOM etc) used
by secondary sales and by the company
-- Lack of focus by the companies to analyze the POS
data (they are strugling to get the sales out).
RFID / EPC is going to make the POS data collection
and transmit it back to manufacturer easier. Since the
original sales itself is going to be simpler, business
will have time to analyze the POS data in a timely fashion
and make corrections to their complete supply chain
elements.
Santhosh Kumar
Bristlecone Inc
Thank you for your feedback regarding SynTime's employment
section. It is true that China does not have the same
equal opportunity employment regulations and "open
mindedness" as the United States, and employers
are quite direct at stating their requirements regarding
age and sex. (Unfortunately, even though the U.S. does
have these regulations, employers often do the same
screening but is just not as overt.)
There are numerous other ways that Chinese companies
operate that are different from the U.S. companies,
some due to cultural differences while others are due
to yet-to-be-enlightened attitudes of people. It is
not realistic for any Western company to expect that
a Chinese company, or a European company for that matter,
operate the same way as a U.S. company. So it is not
quite fair for you to judge Chinese companies through
purely Western glasses. However, as China opens up more
to the rest of the world, it is reasonable to expect
that over time Chinese companies will learn about and
adopt the more enlightened and effective management
methods of Western companies. And as SynTime enters
the Western business world more aggressively, it is
this kind of feedback that will ensure that our company
will become more aligned to world standards. So thank
you again for your feedback. We will carefully consider
ways that we can handle this better.
Tom Chin
SynTime
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