Supply Chain Matters has always been of the belief that history provides valuable learning, especially when business process improvement and technology deployment are being considered. Thus, we wanted to call attention to a commentary featured on Strategy + Business, Navigating Retail’s Last Mile, that reflects on important learning related to online fulfillment. (Complimentary account sign-up required)
The authors revisit the past 16 years of last mile retail efforts of the late 1990’s and early 2000s, when most online start-ups struggled with the trade-off between speed and consumer choice. The commentary argues that early start-ups such as HomeGrocer, Kozmo and Webvan focused on speed at the expense of variety.
The premise is that many of the same challenges persist today, often with added Omni-channel complexities. In essence, the argument is:
“the fundamental economics of the last mile haven’t changed. Companies have to offer a solution with costs equal to or lower than the customer’s willingness to pay (the “cost to serve’)”
In its analysis, the authors conducted research on the “cost to serve” for an array of retail models including traditional physical store, curbside pickup, crowdsourced shoppers, white glove delivery and pure-play e-commerce. This was supported by a survey of 2000 online U.S. shoppers regarding shopping preferences.
Our readers are welcomed to explore the specific examples, which from our perspective, provide excellent examples of what’s involved in an effective “cost-to-serve” tradeoff analysis.
Supply Chain Matters advises readers to focus on the two key takeaways that were provided over the Strategy+Business two decade timeline. The first was clearly summarized: “The pursuit of speed without an understanding of cost led to the demise of many of the early last-mile players” Many of us in the industry analyst community have observed this lesson being replayed again over the last 2-3 years, as online retailers discovered the hard way, the unexpected hidden expenses of fulfilling online consumer demand where consumers ordered more frequently but with lower average order sizes. Often, this reflects the dynamic tension among sales and marketing and supply chain as dynamic online programs are deployed without accurate awareness or knowledge of the associated cost factors.
We would like to offer another supplemental important takeaway based on our observations of online fulfillment history. That would be that technology has also come a long way, particularly in the ability to analyze and predict cost-to-serve across various customer fulfillment channels. Technology providers have leveraged in-memory and other information management technologies that can span supply chain and customer management applications towards needs for more informed and contextual based decision-making. Teams should therefore be focusing technology strategy toward supporting more intelligent fulfillment capabilities that can provide various cost-to-serve decision-making contexts as was described in the article’s examples.
The final takeaway was that consumer behaviors will continue to change and evolve. Rather than constantly reacting to such changes, instead lead customers to online fulfillment that makes the most economic sense. The authors point to determining the most appropriate model for last-mile delivery of their goods and create a value-proposition that builds on inherent strengths. If you think about it, that is exactly what retailers such as Alibaba, Amazon, Best Buy, Restoration Hardware and Wal-Mart are currently deploying. Build on the inherent strengths that you have and lead consumers to attractive fulfillment options.
Global commercial real estate firm CBRE Group Inc. has released a research report indicating that over the next decade, 20 markets worldwide—including South Florida; Santiago, Chile; Bajio, Mexico; and Philadelphia—are set to emerge as global logistics hubs.
The concept of emerging global logistics hubs was brought forward to in the book, Logistics Clusters, Delivering Value and Driving Growth, authored by Yossi Sheffi at MIT’s Center for Logistics and Transportation.
According to the CBRE research report, while global hubs will continue to best meet the needs of companies with international supply chains that encompass the sourcing, manufacturing, distribution and sale of goods, there are 20 specific regional hubs that are poised to become major players in the network for global trade. Although they currently serve as central processing locations for regional supply chain networks, the report cites a number of factors are shifting the dynamics of international distribution and catapulting some regional hubs into the supply chain spotlight. We have attached the report’s infographic that names these various hubs.
The CBRE research points to significant logistics investments, such as the ongoing expansion of the Panama Canal, regional industry production cluster, such as those manifested in the automotive sector, the ongoing impacts of Omni-channel and E-Commerce, and evolving trade agreements as major impetus factors for these new emerging logistics centers.
In the latter, the report cites The Trans-Pacific Partnership (TPP) as a potential trade agreement that will have drastic effects on global trade routes and manufacturing demand in Asia. Supply Chain Matters has recently published our initial impressions of the impacts of TPP.
For the implication of e-commerce’s impact on customer fulfillment and supporting logistics, the report indicates:
“In the past, a network of regional centers that fed into the local supply chains with 3-4 day delivery time coverage of the region was sufficient to meet service standards. However, compressed service times—in many cases, to overnight or same-day delivery—has reshaped the supply chain and has often resulted in distribution direct to the consumer from a global or large regional hub. The Eastern Pennsylvania region, anchored by Philadelphia but fueled by the growth of the Lehigh Valley, is an example of a hub that has been transformed by this new technology. This mid-Atlantic location enjoys access to over100 million people within a one-day drive, including key metropolitan areas such as New York, Washington, D.C., and Boston.”
“E-commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Brick-and-mortar retailers are entering the online sales market, resulting in strong demand for modern logistics in Tokyo, as logistics networks must be upgraded to accommodate the higher volumes of package movement. Additionally, the online trend is strong in Taiwan and South Korea, where 83% and 73% of shoppers, respectively, go online to avoid going to a physical store.”
There are many other insights and observations regarding rapidly shifting patterns of logistics which are impacting commercial real estate investment. However, what should be of concern to supply chain and Sales and Operations teams are the implications to existing distribution fulfillment networks that were formed under far different business process assumptions than today’s Omni-channel and global production strategy world.
The report itself can be accessed at this CBRE hosted web link. Please note that registration and account sign-up is required to download this complimentary report.
The following commentary is a Supply Chain Matters guest posting authored by Jim Barnes, Services Managing Director, Institute for Supply Management (ISM).
One of the biggest challenges in our industry is gaining recognition of the value procurement and supply chain management brings to the corporate bottom line. We know supply management increases shareholder value by making business more competitive and more profitable, yet it’s hard to tell the story. The perception is we’re not very strategic but are overly tactical: processing paper, comparing one price against another and policing what other departments order.
To change this perception many in supply management are exploring the option of automating some functions to move away from tactical processing and focus more on strategic interactions with suppliers. Generally speaking, automation can help reduce the number of people doing tactical work; reduce the amount of money needed to do that work; and provide supply management professionals with more time to develop better relationships with suppliers.
There are several factors to keep in mind when considering the option of automation:
- Know which processes can be automated and which cannot;
- Recognize your human resources may not be interchangeable; and
- Realize if you automate a bad process, you’ll just get bad stuff quicker.
Most transaction processes lend themselves well to automation, and there are tools to automate the bidding and RFP processes, too. However, it’s very hard to automate the human interactions in supplier relationships like strategic sourcing and negotiating.
As you automate processes and free up supply management professionals, don’t assume everyone has the ability to move into a more strategic, interactive role with suppliers. At ISM Services, we offer clients the opportunity to survey their supply management professionals to determine if they tend to be more tactical or more strategic. Then we put them through a negotiation exercise where they can learn the difference between the skill sets, the value of both and determine where their strengths lie. Participants learn that many times it makes sense to negotiate as a team with the best combination of negotiating styles to suit the objective.
It’s important to remember that automation on its own is not the answer; you still need to have a good process in place. One of our clients had a highly manual, time consuming process for receiving goods and verifying documentation. When they first automated the process they merely replicated their manual process, and it yielded the same result, a very high exception rate. After spending significant effort to re-engineer the process, they learned to rework and reset the rules to get much better results from the process.
Another problem can arise when departments are automated and outsourced at the same time, or at a later date. For example, supply management professionals who automate their accounts payable and outsource it can run into problems because the new people managing it don’t have the important knowledge of the inner workings of the company. The result, according to an experienced practitioner-friend of mine, is “your mess for less.”
So how do you decide which automation strategy is best for your company and avoid some of the pitfalls? First, determine what you want to accomplish in which departments and then establish the metrics to measure your progress and accomplishments. For example, do you want to take work out of a process? Do you want to eliminate onerous authorizations or unnecessary three-way match requirements? In the end you want to eliminate work of lesser value to the company and instill more strategic practices with your suppliers.
Second, take time to explore your options because there are quite a few available. Talk to your peers to find out what is working for them. Attend conferences and visit the vendors there and try their tools. ISM Services does not recommend nor endorse automation software but we are available to help you evaluate it against your goals.
When managed well, automation can be a game changer in the supply management industry. It can result in more efficient and cost-effective processes and give supply management professionals more time to collaborate and innovate with suppliers. It can shift the perception of procurement and supply chain management from tactical order processor to strategic partner in the C-suite.
Machine learning technology, which is a form of artificial intelligence, has now made its way into the area of procurement process support.
A simplified explanation of this technology is that algorithms actually “learn” from data and information patterns to make subsequent predictions based on such patterns. Supply Chain Matters has previously pointed out how machine-learning has been applied to manufacturing and supply chain planning focused processes. The technology when leveraged to support B2B direct procurement support can bring added scale and improved value for direct spend supplier collaboration. The added benefit for this type of technology is the ability to leverage item-level business intelligence as well as to provide more timely and robust support in the area of master data management.
In a previous commentary, Supply Chain Matters raised awareness to the critical importance of seamless interoperability for B2B business networks. Teams are well aware of the pain associated with maintaining connectivity and end-to-end visibility throughout their constantly changing B2B network. Managing today’s complex supply chain networks therefore demands not only end-to-end transactional messaging management but key planning, replenishment, and supply-chain decision support.
Teams that are dealing with existing ERP backbone systems such as SAP, require and expect seamless integration. They often have the added challenge in assessing and evaluating SAP’s changing product strategies and application roadmaps related in support of supplier networks. In the specific case of SAP’s Ariba cloud-based network, there are elongated roadmap timetables concerning full direct materials processes support as well as migration to the HANA platform.
One of the major benefits of working with best-of-breed technology vendors is their ability to innovate at a quicker pace than larger ERP providers. Because such vendors often support customers with existing ERP backbones, best-of-breed vendors understand that they must integrate information as seamless as possible. In the specific area of procurement and B2B business networks, ERP vendors have often accelerated their own path to innovation by acquiring emerging cloud-based vendors.
Nipendo, a cloud-based global provider of B2B network based supply chain technology recently announced that it was awarded a U.S. patent related to: “automated reconciliation of cross-enterprise transactions and digital documents.” Nipendo Supplier Cloud leverages this machine learning technology in the automated reconciliation of Procure-to-Pay processes throughout the entire supplier base, including direct goods suppliers.
What makes Nipendo’s technology different among existing vendor approaches is its leveraging of best-practice process templates (business rules) that govern interactions among suppliers and trading partners. Rather than custom programming and field-to-field information mapping that is often required in EDI grounded processes, machine learning techniques are applied to automate the majority of processes. The business rule platform enables teams to more quickly exchange real-time information with suppliers, orchestrate supply chain processes, and reconcile transactions to existing ERP systems. The advantage to teams is noted as simplicity, speed, and scale in supplier collaboration, and we tend to agree.
In our observations of the procurement technology landscape, this was our first awareness to such leveraged use of machine learning techniques, and we were impressed.
For further information, readers can explore Nipendo’s B2B Integration Solutions web page.
© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters® blog. All rights reserved.
Disclosure: Nipendo is a current client of the Ferrari Consulting and Research Group LLC
A lot of electronic alerts come across the desk of Supply Chain Matters regarding web content focused on key topics and challenges involving today’s supply chains. We only elect to share content that we feel will serve the interest levels of our global based readers.
Thus we recently came across a blog posting on EBN: Talking about Supply Chain with John Kern, Cisco.
EBN Editor-in-Chief Hailey McKeefry recently interviewed the Senior Vice President, Supply Chain Operations at Cisco. This author has heard John Kern speak at prior industry conferences and has spoken with John on past occasions. I find John to be a visionary leader.
In the EBN interview, John articulates the mission of supply chain management- namely on enabling the success of the company strategy. He further speaks to the uniques challenges underway within high tech supply chains, in-particular, customer shifts from capital investments to services investments.
John further articulates Cisco strategies regarding the challenge of demand and available supply of supply chain talent. Pay particular attention to what is defined as the “landing zone”, which is defined as what the supply chain needs to look like in three years in terms of locations, skills, generational mix, roles and leadership.
By our lens, this is an insightful interview and worthy of reading and reflection. Take some time on the beach or in the yard to review it.
Bob Ferrari, Executive Editor
Continuing with our Friday theme of information technology developments related to supply chain manufacturing and product management, Supply Chain Matters calls reader attention to what we believe are two recent noteworthy tech announcements with broader implications.
Cisco IoT System Annoucement
Earlier this month, Cisco announced its offering of an Internet of Things (IoT) technology platform targeted to support large-scale industrial networks. The announcement was somewhat unique in that this new Cisco IoT system includes a technology architecture consisting of six technology pillars and the technology providers Fog Computing System. The announced system further includes 15 new IoT focused products within these respective pillars, addressing support in areas of network connectivity, physical security, data analytics and overall data management.
The broader implication of the Cisco announcement relates to specific IoT industry vertical support and key strategic partners. Partners such as General Electric, OSISoft and Toshiba, among others, are porting their respective IoT applications to run on the Fog Computing network.
Perhaps the most significant partnership is that related to GE and that equipment manufacturer’s strategies related to its industrial Internet ecosystem of partnerships and its own Predix equipment intelligence platform. The GE and Cisco relationship has a focus to extend industry focused collaboration that includes oil and gas, transportation, healthcare and power generation industry sectors. This happen to be key industry verticals for the most promising IoT business focused applications.
GE has other key technology partners that include Amazon Web Services, AT&T and Intel. However, from our lens, the latest Cisco IoT System announcement provides evidence of Cisco’s commitment to provide turn-key technology components and provide added influence with GE and other Cisco industry and IT system integration partners.
Cisco obviously wants to be a power player in IoT.
Thin Film to Unveil Smart Wine Bottle
Thin Film Electronics announced a partnership with G World Group to undertake a trail of what is claimed as the first “smart wine bottle” utilizing printed electronics label technology.
Supply Chain Matters called prior reader attention to Thin Film’s application of a printed electronics label applied to premium liquor bottles for Diageo. This latest announcement provides added application of this technology for premium wines and opens further opportunities to combat or defeat counterfeiting of specific products.
The latest announcement indicates that G World and Thin Film will execute a field trail in collaboration with Fermgrove Wine Group, a Western Australia premium wine company. Fermgrove, owned bt the Chinese food group Pegasus, is a supplier of five-star premium wine in the Asia-Pacific region and exports more than 600,000 bottles of wine annually to China. Since counterfeit wine is pervasive throughout Asia, the new labeling technology will be tested to provide product authenticity as well as supply chain visibility.
G World has placed what is termed as a 7 figure unit order for Thin Film’s NFC Open Sense tags which leverage near field communications technology to authenticate the track products and detect the product’s sealed or open status. As noted in our previous commentary related to Thin Film’s smart label technology applied to Johnnie Walker Blue Label® bottles, the tags remain active after the factory seal is broken, allowing the brand to extend dialogue or strengthen relationships with customers through customer relationship management focused programs.
Once again, this singular smart label trial opens-up the possibilities among multiple supply chain related business process and/or brand marketing loyalty use cases. The reading or sensing of the label can be accomplished with NFC enabled devices, such as smartphones or other mobile devices, which opens up further opportunities to be able to leverage such capabilities without the addition of more expensive infrastructure or proprietary networking or label reading technologies as was the case with the initial phases of RFID labels. Thus far, there have been trials conducted within pharmaceutical, fresh produce and premium beverage use cases. We may well witness the commercial introduction of this new item-level tracking technology in the not too distant future.
Technology marches on.