This Week in SCDigest

Perfect Logistics - Really?

A few weeks ago, I wrote a First Thoughts column on our second supply chain Megatrend for 2012, The Coming Era of Perfect Logistics.

This was a logical extension of Megatrend number 1, on Turbo Supply Chain Visibility. Why? Because as I wrote then, "A perhaps obviously but nevertheless important corollary to the substantial improvement in supply chain visibility that is occurring right now is this: with rising visibility comes rising control. And with rising control comes the ability to wring errors and delays out of the process."

I continued: "This is especially true at the execution layers of the supply chain. While volatility in everything from demand to commodity prices will always play some on havoc planning and forecasting processes, when it comes to supply chain execution, visibility will enable companies to get very close to zero errors: in fact, Perfect Logistics."

I received some interesting feedback on that proposition, both of the email variety and a few phone calls from friends in the business. The general theme of those communications was this: OK, that's was kind of witty, but the idea that logistics will be "perfect" is a pipe dream.

I am going to share a few of those feedbacks here, but let me just first say this: Yes, complete perfection is not in the cards, as anytime human beings are involved of course the results will not be perfect.

But that said, I am hugely confident that we are going to get a lot closer to "perfection" than the doubters believe, and soon.

So let me try it this way: let us define logistics as processes associated with moving goods from point A to point B. That movement can be taking a pallet of goods from DC receiving to a putaway location, moving a unit into a case during a picking process, or moving a truckload of goods to a customer's DC.

I will also assert that the level of visibility capable of being achieved today can in fact make every one of those moves quite visible to "the system." And that as I noted above from my earlier column, with complete visibility comes complete or near complete control. And with that the ability to wring out errors in what in the end are simply physical transactional processes. Those are a lot easier to perfect than say forecasting.

I cited a number of examples in that first column of companies that were right now nearly perfecting logistics in part of the supply chain. That includes Perdue Pharma, maker of the drug OxyContin, which uses a Las Vegas style camera system to video record every step of the packing process as the drug (which is literally worth more than its weight in gold) is placed into shipping containers pack by pack. Another was a division of South Africa's Imperial Logistics, which manages direct store delivery for a major food company in the country with a command center that tracks and reacts to delivery truck movements (based on GPS and a detailed scheduling system), through which it is alerted if a driver is even going to be a few minutes late from the schedule, with dynamic response capabilities.

I thought of a couple more. During the Walmart RFID era in 2004-05, tech giant HP (at the time very interested in RFID due to predicted explosion in data management requirements), began using RFID-tagged pallets in at least one of its own DCs. Using this much more detailed visibility to inventory moves, HP was quickly able to see that in some cases there was excessive product "dwell" as it moved throughout the DC. With fairly basic tools, HP was able to reduce some of that dwell - just think what a tier 1 WMS system might soon do with that level of visibility.

At the annual CSCMP conference in Atlanta last week, Intel supply chain executive Frank Jones discussed how the "Internet of Things" will transform supply chain execution. With so many goods soon with a chip in them and connected to the Internet, Jones said companies will soon be able to see that if products are not where they should be (stolen), the company will simply de-activate the items so they are of no use to the thieves.

We are simply not that far away from this. The time to start thinking and planning for it is now.

Ok, so on to some of the reader Feedback (which you will find below, carried over from last week but with a couple of additions).

David Schneider, a former supply chain execution and now running his own supply chain consulting firm, wrote that "Perfect Logistics across the entire Supply Chain is a nominal concept, a place that exists in name only. The place does not exist. It is a state of mind, like seeking nirvana, where the journey to enlightenment will still be highly rewarding for those to embark on it."

He also argues that "Perfect Logistics runs into the immutable brick wall of the Law of Diminishing Returns. We can get near perfect, but the price is quite high."

So my comments to that are this: as noted above, any time human beings are involved, there is going to be some imperfection. Maybe the right term should have been "near Perfect Logistics," but that wouldn't have had quite the same ring to it.

Is there a point of diminishing returns? Probably. But there is also a sort of "Moore's Law" to this, I believe, where the cost of visibility is going to fall rapidly. Look at the cost today of putting video surveillance in our homes or anywhere else versus not that many years ago. And the RFID era is simply coming, despite all the fits and heaves to date. That will be the inflection point when this gains critical mass.

Colin Pereira also wrote in saying "The article seems to suggest that having more information at a point of time would lead to perfection in logistics, i.e., zero errors. In a real world though, perfection can also be measured by a post-facto analysis, which may show that a particular level of execution might have been bettered based on information that was created subsequent to the decision being made for the original event."

So let me say this about that. I believe the concept of Perfect Logistics as I am looking at it has at its core error prevention. It is simply possible right now to almost 100% prevent common errors such as putting the right item or quantity in a case, or the wrong case or number on a pallet, or the wrong case pallet on a truck. The continuous reduction in RFID costs plus what would really be a fairly easy exercise to augment current software systems to support those RFID capabilities would eliminate nearly all of those errors as soon as those systems are deployed.

Second, turbo visibility will enable us to see almost in real time when in fact logistics errors or exceptions do occur, as in the example of Imperial Logistics above, enabling rapid response and correction. Together, both will get us a lot closer to Perfect Logistics.

Finally, Eileen Daugherty wrote that "Do you think that the investment to get this level of visibility and Perfect Logistic will really have a strong ROI?" This was also the gist of many of the phone discussions I had on the topic.

My answer: Yes and No - but it really doesn't matter. As noted above, the costs keep coming down, and so the ROI picture will be increasingly more favorable.

Moreover, the driver in the end will be customer service advantage, for which real ROI is often thrown out the window, even if one is shown on paper. I have predicted a visibility "arms race" of sorts. Incrementally, improvements in visibility and logistics perfection will force matching or superior capabilities by others.

Fun stuff. Just consider this: do not FedEx and UPS have nearly Perfect Logistics today? I would say so. It is coming to the rest of us very soon.

Do you agree or not that a new era of Perfect Logistics coming? Or is it something of a pipe dream? Let us know your thoughts at the Feedback section below.

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Perfect Logistics across the entire Supply Chain is a "nominal concept," a place that exists in name only. The place does not exist. It is a state of mind, like seeking nirvana, where the journey to enlightenment will still be highly rewarding for those to embark on it.

The examples in your article, and where Perfect Logistics will come the closest, is in tightly controlled links. When the process crosses entity lines, between businesses, the concept of perfection will be subject to the financial, technological and cognitive resources of each of the links. Some links will be very strong, others not. The variability of performance will be directly related to the level of commitment to perfection a player's management team makes.

Finally, Perfect Logistics runs into the immutable brick wall of the Law of Diminishing Returns. We can get near perfect, but the price is quite high. There is always a point that the cost to get that last degree of perfection is beyond the resources of the component companies. Costs may drop and new technology developed, but imperfect man will still be involved in the equation. Every time you make something foolproof, a new and improved fool arrives.

And all of us get to go to work to solve the new and improved problems.

David K. Schneider
David K Schneider & Company, LLC

More on Perfect Logistics:

Would you define perfect logistics by the logistics decisions and execution that were taken based on information available at a point of time?

The article seems to suggest that having more information at a point of time would lead to perfection in logistics, i.e., zero errors.

In a real world though, perfection can also be measured by a post-facto analysis, which may show that a particular level of execution might have been bettered based on information that was created subsequent to the decision being made for the original event.

Perfection, to me, is a function of not just utilizing information related to current instant and also being able to assimilate information related to future events that have a bearing on what is being attempted to be done. Given that prediction will ultimately have some error - I think that "perfect logistics" is not a reality. Second, the cost of getting all of that information real time, and processing it - may not be worth the "perfection". It might be better to live with imperfection in the interest of cost - though this then becomes a matter of choice.

Colin Pereira

I think you have extremely well articulated a sense many of us in supply chain are starting to sense, but which we haven't yet given much voice to.

Of course true perfection is perhaps an unreachable goal, but where I feel you really hit the nail on the head was the increasingly greater control we have over logistics execution, and that is being driven by ever better visibility, as you note.

How much will it cost? That is the question. And whether that investment is worth it will depend on if customers will pay for it.

Andrew Helferidge

This was a very interesting discussion. I hadn't really thought about it that way.

My question though would be do you think that the investment to get this level of visibility and Perfect Logistic will really have a strong ROI?

That has always seemed like the barrier to investments in visiblity, which I think can be hard to justify.

Eileen Daugherty

I was a little dubious at first about achieving "perfection" in anything, but after reading this a second time you have largely convinced me that something like this is in fact likely to be realized.

Good job.

Whether I agree with you or not, your pieces are always thought provoking.

Niles Smyth

Manchester, UK