Supply Chain by the Numbers for Week of May 5, 2017

Supply Chain by the Numbers

- May, 2017 -

Germany's Powerful Hidden Manufacturing Champions; Walmart Improved DC Safety with Bold New Approach to Training; UPS, FedEx to Get Tough on eCommerce Shipping Rates; Despite what You Read, US Retail RFID Adoption is Low, Analysis Finds



48%
That, astoundingly, is the percent of mid-sized manufacturing leaders that are headquartered in Germany, according to updated data from well-known business figure and author Hermann Simon. Simon calls these companies "Hidden Champions," and he defines them with three criteria: company has to be among the top three in the world in its industry, and first on its continent; its revenue must be below €5 billion; and it should be little known to the general public. While most who think of Germany's manufacturing strength likely first turn to global auto giants such as Volkswagen, Daimler, and BMW, or huge industrial companies such as Siemens and BASF, these more than 1300 German Hidden Champions produce more than 25% of Germany's exports, which rank third in the world, just behind the US, despite the fact that the overall US economy is more than five times the size of Germany's. Manufacturing also still represents about 25% of Germany's GDP - near double the rate in the US and the UK. Why did Germany develop and is maintaining this advantage? There are several factors, Simon says, including CEO continuity, narrow product but more intense export focus, the country's strong apprentice program, and tax policy advantages, with the high taxes on assets in France and the inheritance tax in the US preventing the accumulation of capital necessary for the formation of a strong mid-sized sector. Very interesting.

4-8%

That is about what percent of soft goods and mass merchant US retail volumes that are currently seeing item-level RFID tagging, according to new analysis from the RFID unit of SML Group, a provider of RFID systems. That compares to other estimates that make it sound like RFID has become almost ubiquitous in soft goods retail, such as the figures from RFID standards and education group GS1 that say the adoption percentage is more than 50% - and some estimates are even much higher than that. Where is the disconnect? Too many estimates count "intention" as reflected in survey data and pilot programs where retailers are testing RFID technology, as the same as true adoptions. The reality is that the sheer volume of tagged items is still low in absolute and percentage terms, SML says. Why the slow adoption in the face of what appears to be clear benefits from the technology? Like most companies, the majority of retailers are just slow to change, says SML exec Dean Frew, though he believes pressures to have high levels of inventory accuracy to support ecommerce (buy on-line and pick up at store, or store-based efullfillment services) will soon drive more retailers to adopt RFID. SML expects about one-third of apparel and footwear retailers will fully adopt RFID technology over the next five years - we'll see.



54%
That was the reduction in reportable safety incidents during a pilot program in eight of Walmart's US distribution centers a few years that was based on "adaptive micro learning," according to a presentation by Marcus Presley, Senior Manager, Logistics Compliance & Safety at Walmart, at this week's WERC annual conference in Ft. Worth. What on earth is that? In great summary, rather than relying primarily on occasional classroom style training that has shown to have little long-term impact, adaptive micro learning is based on regular, short (4-5 minute) educational and testing events that employees access on their own and which cover a wide range of relevant (for a given employee's job) safety-related topics. The "adaptive" part of the concept comes from the fact that the learning can be tailored and focused as things change. So, for example, as supervisor observations indicate associates in a given department are using some unsafe techniques, each employee would be pushed to review the correct method for that task. The supporting technology for all this, from a company called Axonify, could allow this tailoring to be at an individual level, based on observations of a specific worker, but Walmart is not choosing to use this capability yet. The retail giant has rolled this out to some 150 US DCs, and some 90% of relevant associates access the system - from terminals all over the DCs - at least once per month over the past year, with the average of those logging on 6-7 times per month. The system uses "gamification" to drive engagement. In the future, Walmart might use the platform for other purposes, for example quality-related training, in addition to the current focus on safety.



7%
That was the increase in the volume of UPS's parcel business shipped to consumers' homes - a proxy for the change in its ecommerce business - in its first quarter, as reported in its earning call last week. But despite that rise, operating profit fell 2.4% in Q1, the result of two factors: increased spending on its delivery network - largely to support the growth in ecommerce deliveries - and the much lower margins on the growing ecommerce volumes versus its B2B delivery business. As a result, UPS is sharply increasing those ecommerce rates - though some investors say not fast enough - and vowing to get tough with retailers which overstate their forecasts for the 2017 peak season. "UPS is asking retailers to help pay when the extra space and workers aren't put to use - or even when the boxes don't match the sizes that retailers promised earlier in the year," the Wall Street Journal reported this week. "If there are variations to the plan, let's see what we can do, but we should be compensated accordingly," said UPS Chief Executive David Abney in a recent interview. FedEx is facing the same investment and margin challenges - and says it has dropped some retailers that refused recent price increases. The days of "free shipping" may soon be somewhat over, as retailer cannot absorb rising costs from UPS and FedEx.