Supply Chain Predictions from the Pros

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Last week I shared my thoughts on upcoming technology trends in the supply chain industry. Now I’d like to turn to Schematic’s network of advisers, senior executives and associate team to share their perspective on what emerging trends will reshape the supply chain industry this year.

Ron Kyslinger (VP Fulfillment Engineering Walmart)

  • Modeling software, whether that be commercially available or home grown, typically results in pointing to the same locations as best suited for locating e-commerce fulfillment centers. This is because the software typically heavily compensates transportation aspects. This results in facilities competing for the same labor pool, which leads to facilities paying higher wages in an attempt to lure individuals away from competitors. This demographic of the labor pool can be enticed for as little as an extra $0.25 per hour, which leads to a transient labor pool and constant turnover and training expenses. In an attempt to curtail these expenses, companies start to raise wages.
  • As e-commerce facilities tend to run two shifts seven days a week, a significant amount of people willing to work night shift and weekends are needed. Companies are forced to pay disproportionate shift premiums to attract people for these shifts. Wages for this particular labor demographic grow in a very disproportionate way as compared to the national average.
  • With the ever-increasing e-commerce growth, the competition for labor is ever increasing and driving VCPU to unnatural levels which makes automation increasingly attractive. Automation requires a higher skilled labor force that is trained to run and maintain the specific automation/equipment leveraged by that company/fulfillment center. As the skills start to differentiate, this results in significantly reducing turnover and creates a more stable workforce for which companies can invest in training specific to their equipment. I call this creating “sustainable jobs.” Companies can create jobs that are less physically demanding on the body and allow people to perform more engaging work. Work that they are proud to tell others they do and work that they can continue to do as a career, well into their older years.

John White (CEO Fortna)

  • Fulfillment operations previously viewed as cost centers are today’s drivers of competitive differentiation. The speed of change driven in large part by e-commerce, service expectations, challenging labor market and new technologies are redefining fulfillment strategies across many industries (B2C and B2B ). Those companies that have been and are investing to decrease order cycle time, reduce reliance on labor, and provide greater flexibility will be rewarded in the years to come. Those that have been applying old thinking to new challenges and changes will continue to see the gap increase between them and their competitors.
  • Some of today’s and many of tomorrow’s fulfillment operations will be more akin to high-tech manufacturing operations than warehouses and distribution centers of the past. Autonomous vehicles, robotics, bots, wearables, augmented reality, goods to person (GTP), drones, and hybrids and combinations of these and other technologies will continue to see increased application, adoption and justification. Based on ever changing and increasing service expectations, desire to decrease reliance on labor, and the need for increased flexibility due to uncertainty will drive increased focus on the need for an agnostic Warehouse Execution Systems (WES) that will integrate and optimize disparate technologies and allow “bolt-on” capabilities and phased implementation to support growth, change and continuous improvement.

Mike Britt (MG Britt Consulting; ex-Director of Maintenance UPS)

  • I believe last mile delivery is going to change in the US in 2018. The EU already has package lockers near mass transit so you have your package delivered to a location on your way home from work, this saves time and reduces emissions due to the fact that you can make multiple package deliveries at one stop instead of going to each address. I think this will become part of the delivery strategy in the US as more and more cities are looking for zero tail pipe emissions & congestion reductions on last mile delivery. Electric vehicles have shorted ranges than ICE vehicles, so making multiple deliveries at centralized locations along the route in which customers travel makes sense instead of going to each address. The customer will be notified on their smart phone of a code and locker number where their package is located. Simply pick it up on the way home, of course larger deliveries will still go to the home. Any reduction in miles driven helps alternative low emissions propulsion technologies to be part of the solution.

Tom Nightingale (CEO International Package Shipping)

  • The mother of all capacity shortages finally hits — We have been talking about it forever, but this your will see driver wages rise ~10% and TL prices rise ~20%. Freight will sit in the first half of the year.
  • Strategic sourcing shifts — As nationalistic trade policies take hold globally, sourcing will migrate to lower tariff areas.

Vik Srinivasan (Group Vice President, Distribution Meijer)

  • There is a shift in labor availability along with a growth in wage rates/benefits. Combined, this is driving the increased evaluation of automated/robotics solutions and is reducing the ROI duration on those investments as well. Europe provides a glimpse of what the evolution path may look like.

Brian Reed (Transportation Executive)

  • With the battle for trucks at full force in 2018, winning the fight for capacity will be key. Becoming a better shipper/receiver will draw better quality options to facilities and help mitigate some cost. When you are difficult to service, better and lower cost options steer clear of your freight. To be at the front of the line, it may require investment at physical locations but most often those dollars can be offset not only in freight savings but other operational benefits.
  • There is a huge opportunity to change the rate swinging script in 2018 if providers are willing to sacrifice some short-term wins for more consistent success in the future. While it may seem foolish to lock in long term rates now while they hold all the cards, a small concession to shippers can provide enough good will to break the cycle. If one was expecting a 15% gain, only take 10%, but lock the commitment in longer to bridge up and down swings. It’s time to remove the peaks and valleys. This will take more than just negotiations and handshakes but new technology and contract arrangements will hit the market in 2018 to enable this.

Federico Esnola (Supply Chain Senior Logistics Manager Tenaris)

  • I tend to agree on two key drivers that will continue boosting the shape of supply chains during 2018: [A] logistics as a service driven by last-mile + reverse logistics (and not only at retail sector), and [b] digitalization (and digitizing) as opportunities for efficiencies and service itself (to feed digital consumers). An additional trend may be the sharing logistics, as collaboration among players or new businesses to share capabilities, that may change the way that we evaluate our assets to reduce cost or gain flexibility. Looking beyond 2018, the pressure from sustainable networks, mainly from transportation emission, may arise driven by the challenging targets from 2020–2025 at US & Europe (as a check-point for 2050 climate goals).

Will Nichols (Schematic Associate)

  • Maritime shipping startups and incumbents alike will test the waters for unmanned and autonomous cargo ships — but may steer into heavy regulation. Following a record year for venture investment in automotive tech, the $300+ billion maritime shipping industry is the latest logistics and transportation sector to undergo a massive shift towards modernization and digitalization. In 2018, expect to see autonomous shipping vessels test the waters of commercialization. The technology powering autonomous shipping is widely available: the connected sensor networks and AI technology used in autonomous cars will enable autonomous vessels to communicate and be controlled remotely while at sea. A major remaining barrier is the regulatory environment. Because the shipping industry primarily serves to move goods internationally, cross-border agreements will need to be reached among foreign trade partners. But given the obvious benefits of semi and fully autonomous shipping — which should be familiar to watchers of the autonomous trucking industry — we expect to see regulation in this space move forward quickly. Those benefits include: more space on board devoted to shipping containers rather than crewmembers; a decrease in labor cost of transporting goods; and an increase in safety — human error is currently responsible for 3 in 5 shipping accidents.

Alex Lee (Schematic Associate)

  • Perfect orders are the percentage of orders delivered to the right place, with the right product, at the right time, in the right condition, in the right package, in the right quantity, with the right documentation, to the right customer, with the correct invoice. In 2017, only 84% of all orders met the criteria for perfect order, largely due to complexities such as the last-mile delivery. As e-commerce shopping continues its rapid growth, customers will expect a higher rate of perfect orders. In 2018, we will see an increase in logistics and delivery companies track the rate of perfect orders as a key performance indicator and this metric will drive many process improvements, especially in the last-mile space. Disciplined execution and technology offering increased visibility could drive perfect orders above 90% in 2018. Long term, it will be exponentially more difficult to go from 90% to 99% than from 80% to 90%. Autonomous robots will be required to deliver the ongoing improvements to reach 99% perfect orders.