This Week in SCDigest

Trip Report: Material Handling and Logistics Conference

I am just a couple of days back from the 2013 Material Handling and Logistics Conference at the beautiful Canyons resort in the mountains of Park City, UT.

This is an interesting event, started all the way back in 1985 by what was then HK Systems as more of a thought leadership forum, with commercialism very muted, and generally high quality presentations. The tradition continued after Dematic acquired HK in 2010, and I will note that it was good to see many familiar HK faces once again this year three years after that deal.

The conference felt well-attended, with some 450 attendees, a solid number for this type of event. Dematic was good enough to get me out there for a presentation (on eFulfillment), and that plus a solid line-up of other presentations makes a trip report on the event well-justified. Dematic is a materials handling automation vendor, but the content covers a broad array of more general supply chain and logistics topics.

I am going to start with a materials handling presentation, however, on what is happening with DC automation in Europe, nicely presented by Chris Lingamfelter, fairly newly in charge of Dematic's European sales operation.

The bottom line: the Europeans are far, far ahead of the US in terms of automating DCs, in some cases to the point of almost lights out operations. Lingamfelter cited four factors: much higher wage and real estate costs, much more difficulty in terminating workers, even for extreme incompetence, and much longer payback horizons. (Our columnist Marc Wulfraat in the past has also noted the common practice of governments providing low cost financing for these investments as another factor not seen in the US).

So Euro companies tend to build up, not out, and fill all the available space with about as much automation as can fit in the building. He notes, for example, that Euro logistics executives often shake their heads in amazement at all the unused vertical space above sortation systems in US DCs.

Is this causing any social or political backlash over there, as these DCs need a lot less labor? Not at all, Lingamfelter said, as there simply is a cultural predilection to automate everything. He cited an example of a new "Green," heavily automated DC built into the side of a mountain in Spain, despite low wages from the 25% unemployment rate in the country.

Lingamfelter, says the drive for automation is cultural and widespread, from self-cleaning toilets in public places to what appeared to be a mom and pop pharmacy in Germany that had a sophisticated automated prescription delivery system running underneath the store.

Is this level of DC automation coming to the US? Yes, but it will take a while to reach critical mass, I believe.

Changing gears, Dr. Paul Dittmann, a former Whirlpool supply chain executive who has been running the supply chain forum at the University of Tennessee in recent years, gave a very good presentation based on his recent book titled Supply Chain Transformation.

We'll review the book in more detail soon, but Dittmann said that his research showed that just 18% of companies have a formal, written, multi-year supply chain strategy. Key to the strategic exercise, Dittmann said, is anticipating customer needs - and what supply chain capabilities and performance levels will be needed to meet them.

When retail giant Walgreen's recently underwent such an exercise, it identified 11 new supply chain capabilities that would be needed soon, Dittmann said, resulting in 25 separate projects to get there. More thoughts on supply chain strategy here soon. Do you have one? Few do, as my anecdotal experience shows and Dittmann's research agrees.

Good presentation from Dalen Mathys-Cook of Peapod and Paul Huppertz of The Progress Group on the on-line grocer's efforts to build a new automated - or at least that was the idea - distribution center for the Northeast market that provided excellent insight on the challenges of designing a new and complex DC successfully.

Peapod's flagship Chicago DC is a manual pick operation, with downstream sortation - and challenged (as will be the Northeast facility) by having many individual pick areas (segregated by SKU type and temperature) and very short, late evening picking windows before the first trucks are staged by route and customer early in the morning.

The team looked at a high/medium/low automation option for each area - and that's a lot of work, especially in generating quality equipment cost and labor rate data. We've already written up a larger case study on the effort (see The Complex Challenges of Designing an Automated Distribution Center), but after an unexpected reduction in the CapEx budget that created the need to partially go back to the drawing board, the final design pulled back on some of the desired automation. For most "B" movers, however, the manual pick tunnels will be automatically replenished by Dematic's multi-shuttle system. Slow movers will also be partially automated with an interesting "put wall" concept.

Peapod's Mathys-Cook noted that it is critical on these kind of projects to gain a deep understanding of how the budgeting and approval process works within your company - from both a capital appropriations perspective as well as the functional design of the system.

Another good presentation came from Brian Wagner of Packing & Technology Integrated Solutions on key trends in packaging (though I wish he would have given a few specific examples of technical/material advances that are coming soon).

As a note, demand for packaging engineers is high, with most grads from schools like Michigan State, Clemson and others weighing numerous job offers when they graduate.

Wagner said the Green movement in packaging is still a force, but overall has ebbed a bit, in part because companies found some of those packaging reduction efforts led to increased product damage and/or loss of branding from the packaging.

Among the many interesting insights that Wagner offered is that with 70% of economic growth in the next decade expected to come from emerging markets, we really don't have much knowledge about the technical or consumer needs for packaging in these markets- such as what is the impact on a product and its packaging as it undergoes large shocks and vibrations being transported across long, very poor roads under who knows what kind of loading conditions?

He said if a company is not adequately staffed with packaging engineers - which the majority are not, as some in the audience attested - taking 20% out of packaging costs with the right effort/resources is usually fairly easy to achieve.

Tim Faley of Grainger gave a solid presentation as well on the wholesale giant's efforts to build a new generation of distribution centers after a similar effort a decade or so ago did not keep up with changing market/strategy needs - something executives did not want to see repeated. The facilities also needed to manage a tremendous increase in the SKU base as part of its changing business strategy.

Among the most interesting of Grainger's overall system requirements was that it could "accommodate a wide range of associate abilities" - recognizing that workers for a new DC start out young but obvious age over time, as Grainger enjoys what sounds like an unusually long tenure with its DC employees and the demographics change. It also is considering hiring disabled workers, an approach in which Walgreen's led the way.

In the end, Grainger went with a AS/RS storage system for most of the 500,000 or so SKUs the building holds, and an automated "goods-to-picker" system for most of its picking activity (obviously not for say ladders). Faley said the system is meeting cost and productivity goals, but cautioned you really need to allow for a lot of time for the system to reach peak rates. Don't set yourself up for trouble by thinking you will manage that ramp differently, and overpromise and under-deliver.

Economist Marci Rossi is bullish on the economy over the next few years, and believes 2013 will become an inflection point in which consumer confidence really takes off. She thinks the change in monetary policy of late in Japan will reverse its 20-year economic stall and help propel the whole world economy.

Lots more, but I am out of space. Nice job by Cheryl Falk and the rest of the Dematic team on a very good event. Notable, I would add, was Dematic's investment in keynote speakers for a conference of this size, which included everyone from Jay Leno to innovation author and former Apple technology evangelist Guy Kawasaki.


Any reaction to this trip report on the MHLC? Let us know your thoughts at the Feedback section below.

Do you agree or disagree that companies often don't use systems thinking to guide supply chain decisions? Why or why not?

I agree. I began my career in systems in 1965 and recall encountering few instances of systems thinking and even fewer instances of causal loops. I hypothesize two reasons for this.

First, systems thinking ã la Forrester is not encountered all that frequently in business and even less so in general. I suppose one may give systems thinking the Rumsfeldian label of an Unknown Unknown. It's difficult to apply, or even consider, something that you don't know you don't know.

Second, systems thinking, properly applied, exposes what you don't know. To borrow from Twain, it also exposes what you know that just ain't so. It further uncovers variables for which a sensing mechanism may not exist. Ergo, systems thinking is hard work that provides plenty of embarrassing moments as one moves to understanding and subsequent resolution of the issue. This is not for the faint of heart and feeble of mind.

I teach a course in System Design and Control where the two texts are Sterman, J. (2000). Business Dynamics: Systems Thinking and Modeling for a Complex World. Boston and Supply Chain Council. (n.d.). Supply Chain Operations Reference (SCOR) Model: Overview, Version 10.0 to examine contemporary supply chain issues. The December 2011 decision by China to apply tariffs on automobiles imported from the US is example of such an issue.

Ever used a causal diagram?

Oh, yes. hardly a week goes by without a little sketch on some issue I'm dealing with. I've Vensim on my computers and often open it up to raw loops.

James Drogan
Senior Lecturer and Chair, Global Business and Transportation Department
Director of Online Programs
SUNY Maritime College

David is right on point regarding the application of systems thinking to the planning and execution of the many facets of the integrated supply chain. I have attempted to employ the systems approach to a variety of challenges since reading some of the works of one of the early advocates of the systems thinking by the late C. West Churchman (i.e. The Systems Approach and the follow-on The Systems Approach and its Enemies).

The Causal Diagram and some of the Lean Sigma tools (e.g. Value Stream Mapping) are indeed keys to the implementation to this approach. Two additional requirements are that an individual have be prepared to do perform a thorough analysis without leaping to what may be erroneous results and that the individual/team have an understanding of the process including those areas directly impacted and those only tangentially related. It is this latter requirement that makes it particularly suitable to the supply chain process as it has impacts across most if not all of the various functions and silos within an organization. Thank you for your column. It is always good to be reminded of the fundamental need for systems thinking within our profession.

Millard Humphreys
Principal/Consultant
QED Logistics LLC