| August
19, 2004 |
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Dan Gilmore
Editor-in-Chief |
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Is highly automated warehousing likely
to be in our future?
It’s an interesting question, and one that I’ve
discussed off and on with a number of logistics professionals
and technology vendors over the past few years. My perception
from these dialogs is that there is a small but growing
interest, at least in some sectors, in using advanced
material handling technologies to radically decrease
the number of people required to get product out the
door.
This has been happening to some degree in Europe, at
least in the most advanced economies. There are two
primary factors driving interest there: the scarcity/high
cost of land, and the relatively higher cost of labor
(wages, benefits, regulations). The former causes companies
to look to build distribution facilities up, not out,
with higher density/extremely high building designs
that require automation to move unit loads effectively.
The latter simply means that as wages increase for distribution
personnel, at some point the high cost of automation
begins to provide an ROI.
It’s also in Europe where you see many more “total
solution” vendors – those that provide integrated
material handling automation and warehouse management/automation
control systems, under the logical theory that this
stuff starts to get really complex, has to work perfectly
together, and perhaps most importantly the end user
company needs to be able to hold one party accountable
for making sure it works.
The U.S. doesn’t really face the land scarcity/cost
issue. Distribution labor costs are all over the map
– sometimes very high in unionized DCs, especially
those where the operators are attached to a manufacturing
union that operates in an attached plant, but relatively
low in other operations.
There has been some slowly emerging interest here in
the U.S. A VP of Operations for a major beverage industry
company has been talking for some time about a goal
of “lights out” warehousing, and taking
some first steps with increased use of laser-guided
vehicles. One of the country’s largest wine producers
recently had “drawing board” level plans
for a highly automated, high-density facility that,
in theory, would be able to distribute millions of cases
of wine per year with a relative handful of operators.
Procter & Gamble has deployed automated truck loading
automation technology in several of its DCs.
At one level, you could argue that there hasn’t
been any real innovation in warehouse and distribution
technology in the past 10-15 years. Of course, there
have been gains in material handling technologies and
warehouse management software, but to my mind a well-running
DC in 2004 looks a lot like one from 1994. Contrast
that to manufacturing, where I think in many industries
there have been significant improvements in operations
through increased automation during that time.
So, some people ask, is the way to dramatically reduce
distribution costs to take a similar approach? Maybe.
However, there are a number of significant barriers.
These include the fact that for many companies distribution
labor costs are still manageable and not high enough
to justify the automation; the increasing need for flexibility
in operations; challenges with automating case and piece
level picking; and of course the (correct) perception
of high risk in such endeavors.
But I believe the AS/RS market has seen some resurgence
in the past few years. The increased interest in labor
management software and standards for distribution is
related to this whole issue – trying to get some
control over DC labor costs. RFID certainly could play
a role in eliminating some need for human intervention
in DC operations.
So, are we likely to see “lights out” warehousing
any time soon? Probably not. But I do think the high
cost of distribution labor for many companies will drive
more and more to look for automated ways to take some
of that back out.
Do you think we may be heading down a path where lights-out
warehousing makes sense? Can it really be cost-justified
given U.S. land and labor dynamics?
Let
us know your thoughts.
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By Ned Blinick, Blinco
Systems Inc./3rdwave
 AMR
Research provided the following quote from one
of their clients:
“More than 80% of our purchase orders are
for configured products—we don’t buy
from the supplier’s stock. I estimate about
40% are special orders customized in one way or
another to our needs. As a result, a big portion
of our orders have long lead times, usually measured
in months rather than days. Our volume averages
about 6,000 line items per month. On-time delivery
from our suppliers runs 80% to 85%. That means
that 1,000 to 1,500 items will not be delivered
on time.
“I developed a pretty slick tool where I
show my suppliers their status, and highlight
with bright colors when they are delinquent or
not supporting my needs. The problem is that most
suppliers in my category are not organized to
provide an update when they miss a schedule, or,
for that matter, to give me an early warning before
they become delinquent.”
This quote is rather remarkable. First, the fact
that this quote is from a company among the Fortune
2000. They spend mountains of money on ERP and
SCM solutions along with all the other ancillary
systems to support their business processes, improve
their supply chain visibility and insure high
levels of customer service. That this quote is
so prominently positioned indicates that this
is not an isolated issue among AMR’s clients.
So the quote begs the question: Why - after all
the hype, investment in and discussion about ERP,
SCM, CRM, SRM, Logistics ASPs, 3PLs, integrating
middleware applications, the Web, etc. - does
this problem still exist?
For
complete column, click here
Give
us your feedback.
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How does the U.S. rank within the top 25 industrialized
nations in terms of overall transportation costs?
Answer
below
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Feedback
is coming in at a rate greater than we can publish
it – thanks for your response. Our Feedback
of the Week is Scott Brown of Plexus Electronics,
with some strong comments stemming from our piece
on “software prices in the toilet,”
commenting on what supply chain software vendors
need to do to be more successful.
There
is also a great letter from Leon McGinnis at Georgia
Tech, who provides some interesting comments on
our News and Views piece on measuring plant productivity.
You’ll find a couple of other good letters
on our piece on “improving distribution
productivity with low capital investment.”
For more 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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Full Article >>
I don’t think many
of us would dispute the view that our supply chains
seem to be increasingly complex. Interesting thought
piece from consultants PRTM on some ways to think about
reducing this complexity – and supply chain costs
at the same time.
The article suggests a simple framework for analyzing
current complexity and opportunities for simplification.
There are five key levers for reducing supply chain
complexity:
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Configuration
(the physical supply chain) |
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Management practice
(supply chain strategies such as lean, strategic
sourcing, etc.) |
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External relationships
(collaboration, moving in-house supply chain activities
to partners/suppliers) |
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Organization (internal
functional organization, outsourcing to third-party
providers) |
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Information systems (process automation) |
These five levers should be considered along the supply
chain processes of plan, source make and deliver (see
figure below).
Source: PRTM
Supply chain complexity not only often adds time and
cost, it also reduces supply chain adaptability, a key
component today for corporate success. The article uses
some of the examples in the chart to illustrate the
potential for complexity reduction.
Key Takeaway: Most “simplification”
initiatives tend to come as a result of some other project,
rather than as an end in themselves, and rightly so.
Nevertheless, I think it is useful to focus on complexity
as a characteristic in and of itself. Simplification
will usually lead to improved operating metrics, though
perhaps not as directly as some other tactical projects.
The PRTM framework is a reasonable way to at least evaluate
your supply chain for simplification opportunities.
Is “complexity” a huge hidden cost for many
supply chains? Do most companies simply accept it’s
a fact of life and try to optimize within that complexity?
What are the keys to simplification? Let us know your
thoughts.
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Full Article >>
We thought
it was worth sharing the latest benchmark report from
The Grocery Manufacturers Association (GMA) on “unsaleables”
– product delivered to retailers but which cannot
be sold due to damage, overstock, obsolescence, etc.
The report data only covers product delivered to retailers’
warehouses for store delivery, meaning it does not include
products using direct store delivery, as well as a variety
of perishable precuts such as produce, etc. In short,
the focus is on what we generally think of as branded
consumer packaged goods, including packaged food and
beverage products not utilizing DSD.
For 2003, unsaleables represented an average of 1.11%
percent of total sales for the 44 companies responding
to the survey, down from 1.18% in 2002. This bucked
the trend, as this was only the second time in the ten-years
of the survey that the percentage of unsaleables declined
from the previous year. The weighted average cost (meaning
the reporting companies’ total sales were factored
into the average) came in at slightly less, just about
1% of sales, though the improvement in 2003 was greatest
for small companies.
As you would expect, respondents reported that product
damage was by far the greatest source of unsaleables,
at 58%. Other factors are expired product (22%), discontinued
items (13%), and seasonal product overstocks (6%).
This is, of course, far from a trivial issue for both
retailers and manufacturers. GMA estimates the cost
to the CPG industry at something like $2.57 billion,
based on total industry sales in those categories multiplied
by the unsaleable percentage. We’ve noted before
on these pages how Procter & Gamble has changed
its quality metrics to reflect not the quality coming
off the production line, but the saleability of product
at the retail shelf, in the process learning a lot more
about the impact of packaging on preventing damage.
Manufacturers reducing their unsaleable percentages
also cite such efforts as collaborative planning, SKU
rationalization, focus on policy compliance and changing
allowance policies as key factors in the improvement.
In the end, companies that focus on unsaleables as a
key metric will often reap significant rewards. Perfect
order gets at some of it (product damaged getting to
the retailer DC), but not all. I’ve worked with
a number of companies that seem to accept this percentage
almost as a given, to simply be included in annual budgets,
rather than as a rich opportunity for potential improvement.
Who owns the unsaleable metric in your company?
Are CPG companies doing enough to reduce unsaleables?
Is improved packaging for logistics, including “in-store”
logistics,” a rich potential source of improvement?
Where else do you see opportunity? Let us know your
thoughts.
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View
Full Article >>
I thought it was worth noting the
expansion of UPS’ Trade Direct service to support
air cargo, after the release of previous services for
truck and ocean freight.
In summary, Trade Direct is a one-stop shopping service
that will handle international goods movement door-to-door,
meaning a company can have goods manufactured in Asia,
Mexico and other countries shipped from the factory
over multiple modes through customs and direct to a
consumer, reseller, or retailer’s door.
Quoting from the official press release: “UPS
Trade Direct handles the transport of goods from the
moment they are shipped from a factory in Asia, Europe,
South America or across the border in Mexico and Canada
to the time they arrive at a retail store or consumer’s
home. The service allows customers to speed their merchandise
directly into the UPS delivery system as soon as the
goods clear customs, reducing the need for lengthy and
costly warehouse stops before final U.S. delivery.”
There is a lot of overhead (and time) in many international
movements, especially in bringing goods from a port
into a distribution center, only to send it back out
to the end customer or channel. With the growth of offshoring
and international trade, this is becoming an increasingly
important supply chain issue for many companies.
Outsourcing the whole thing to someone like UPS may
be the best solution for many companies, both to reduce
the administrative overhead of international moves,
and to reduce total transportation costs.
Are there opportunities for many companies to smooth
the inbound movement of goods from overseas? When does
outsourcing this activity make sense? Let us know your
thoughts.
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I think that
the future can be bright for software firms in the supply
chain arena but a couple of things need attention. First,
being all things to all people is rarely a recipe for
success, nor is it likely they can reach the highest
standards of functionality and providing best practices
inherent to their systems trying to do it all. This
leads to too many compromises and more complexity than
most companies require to be successful. In supply chain,
design, flexibility, agility and sustainability of a
top level of cost effective customer service is the
goal, speed to implement and portability of solutions
globally within the organization are keys.
My opinion after over twenty years in supply chains
both in consumer products and high tech environments
is that the majority of companies can use help in the
areas of supply chain design but often lack the basic
capabilities and often the necessary penetration of
supply chain knowledge to really use some of the huge
[supply chain software] suites without a great deal
of investment in understanding basic concepts. This
is especially true at the executive levels of the organization,
where these capabilities and/or their company’s
needs are not really understood. True, most often these
projects spring from the middle levels of an organization
upward for approval, but that seldom gets the executives
to the level of understanding they need to achieve.
Consequently in the future supply chain systems providers
need to choose their niches carefully and understand
the real scope of need each potential customer has before
selling (or overselling) the systems and ballooning
the scope beyond what the organization is capable of
digesting, using or understanding. Especially in terms
of what it means to their business model and the models
of their customers.
The path to improvement in supply chain performance
lies on the road that takes you through real fundamental
shifts in these models very often. Simply implementing
a new system will not be enough. The physics of each
supply chain must be fully analyzed and understood in
prospecting for customers and solutions. The company
must first understand how the physics of their supply
chain operate and need to operate differently before
buying a new system. The software companies need to
spend more up-front time or partner with those who will
to support this process. Helping prospective customers
to understand what their customer's needs are first.
The software then needs to be modular enough to allow
investment on an as needed basis, or a best of breed
strategy could also be applied to acquire the packages
that cover only the functionality that is in scope at
that time.
Finally, development and adherence to standards such
as the SCORE model by software vendors can help to allow
more direct comparison of functionality against a common
model, a common set of expectations and better interoperability.
Scott Brown
Plexus Electronic Assembly
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Plant
productivity measurement is a fundamental problem that
hasn't received nearly the attention it warrants. In
the (long gone) era when labor was the primary production
resource, it made sense to equate plant productivity
with labor productivity. When direct labor is only five
percent, that approach no longer makes sense, and we
really need an approach that looks at the "system
performance." Unfortunately, there doesn't seem
to be a well-accepted way to do this.
The "total factor productivity" approach attempts
to calculate a "weighted" productivity, by
assigning prices to outputs and aggregating them in
the numerator, and costs to the resources, and aggregating
them in the denominator. The problem, of course, is
figuring out what the prices and costs should be. They
will be different in different locations, which makes
site-to-site comparisons difficult. In addition, in
a dynamic market, all these prices and costs are constantly
changing, so you can't really compare one site's results
from one period to the next.
There are some "non-parametric" approaches,
i.e., methods that don't depend on prices or costs,
but they usually require quite a bit of data, and none
have yet become "standard practice" in the
industry. One that holds a good deal of promise is data
envelopment analysis. Here at Georgia Tech, we've developed
a web-based tool that allows an individual warehouse
to compare itself to a "peer group" of nearly
200 other warehouses with regard to operational efficiency.
Considering labor, space, and equipment as the input
resources, and lines and orders shipped as the outputs,
we calculate a "system efficiency score" for
the warehouse. One interesting result is that, on the
average, warehouses appear to use about 30% more resources
than they should, if they performed up to the benchmark
in their peer group. More details are available at www.isye.gatech.edu/ideas.
Basically, it's technically hard to do a system-based
analysis that considers all the important resources
used and all the outputs produced. What we do today
is depend on the kinds of ad hoc approaches described
in the IW article, and trust we'll be smart enough to
understand them, and to factor in all the important
attributes that we know affect performance. The more
dynamic the business, in terms of products, customers,
or competitors, the harder the performance assessment
problem.
Maybe it's an opportunity for a productive engagement
between industry and academe.
Leon McGinnis
Georgia Tech University
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These
are great ideas for improving productivity, but one
key element is understated.
The third bullet is “Focus on training and exception
handling.” I would argue that a greater path to
improved productivity is education. I differentiate
Education from Training in terms of why versus how.
When you educate your workforce they understand why
they do things, why their actions impact others, and
why improvements will help the employer and employee.
Most operations in need of improvements utilize people.
Only people can be educated – machines and monkeys
are only trained.
My plug: The APICS organization is a fantastic source
for education in all areas of Supply Chain Management.
Contact your local APICS chapter, or the society itself
at www.APICS.org for more information – and education.
Ken Nixon, CPIM, CIRM
APICS Region 10 Vice President
Though it is alluded to, I missed the most fundamental
step in any productivity effort: Measure. Many initiatives
fall flat when little time is given to establishing
a solid baseline from which to launch improvement projects.
Additionally, simply putting eyes on the problem can
often yield tangible results with almost no level of
capital investment or increased operating costs. Nothing
replaces frontline supervision getting their hands into
the mix.
K.B. Marshall
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