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A Time for Broader Technology Vision Across Supply Chain Execution Partner Ecosystems

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This author has been writing and speaking on the significant impacts that the Internet of Things (IoT) will have on industry supply chains in the next five years. Physical devices such as sensors, production equipment, transport vehicles and other supply chain focused devices connected to the Internet, transmitting valuable data and insights, literally bring the notions of connecting the physical and digital supply chain closer to reality.  

More and more industry supply chains have opted to outsource logistics, transportation and customer fulfillment to outsourced logistics and transportation partners and thus leveraging the potential benefits of IoT becomes a de-facto capability requirement. They also require broader vision among supply chain service providers for incorporating such strategies in their strategic planning.

Industry supply chain teams have gained significant learning from previously vendor hyped, single focused initiatives such as RFID, which ultimately had to overcome initial unplanned and unforeseen cost and technical infrastructure hurdles to reach compelling cost and operational benefits.  The broader vision of cost-effective item tracking and data management was a missing element. Similarly, the context for the benefits of IoT itself need to include leveraging the convergence that is now occurring in data analytics, in-memory, mobile and software engineered systems technologies that are providing deeper capabilities at less cost than a mere few years ago.  

Last week I had the opportunity to speak with Chris Power, Director of Product Management for Airclic.  For those readers unfamiliar, Airclic supports the critical last-mile of the supply chain, providing a cloud-based proof-of-delivery and routing service for food service, retail, healthcare, third-party logistics (3PL) and transportation industries.

In our discussion, Power observed that B2C/B2B Omni-channel fulfillment requirements are presently driving profound impacts on logistics and customer fulfillment needs. More and more B2C focused supply chains are moving their focus toward increased requirements for cross-dock, sorting and service center capabilities.  Goods are becoming more in-motion vs. traditional aspects of transport, store and ship. From Power’s observations, teams initially tend to seek more and more data regarding different logistical touch points, but “their eyes more often become bigger than their stomachs” when all that data overwhelms systems and people resources. That is often when Airclic gets the call. The need then shifts toward the broader need for making more effective use of data and avoiding data overload.

We discussed the notion that the term “big-data’’ may be disserving, and that a better term may well be what we at the Ferrari Research Group advocate, which is “smarter data”. Smarter objects that report on exceptions or abnormalities beyond a threshold provide a huge opportunity for managing the critical last mile of the supply chain.

Airclic advocates a three-stage maturity model.  First is harnessing capabilities to gain more automated visibility.  A second phase addresses managing exceptions, “tell me when there is a problem” vs. a hose line of streaming, overwhelming data. The third phase, one that Powers observes that few supply chain have achieved to-date, is predicting what is going to occur, especially in peak or seasonal demand periods when all resources are stretched. One example we discussed was last winter’s situation when horrible weather conditions caused noteworthy transportation and logistics delays, especially during the critical holiday buying period. Supply chain teams were often reacting to bottleneck disruption vs. anticipating such disruptions and executing alternate strategies that buffer or overcome disruption quicker.

However it is quite important to point out that the true benefits of harnessing IoT, smarter sensors and more predictive analytics within the physical aspects of products in movement is highly dependent on the ability of key upstream supply chain participants to have vision and commitment to invest in IoT, coupled with smarter data capabilities. As a community, 3PL’s, with the exception of FedEx, UPS or other visionary players, have not had a track record for investing in leading-edge technologies unless prompted and compensated by specific customers. In this author’s view, the time is long overdue for the broader logistics and 3PL community to broaden their vision and invest in such capabilities without solely passing the tin cup of customer donation. Leveraging the physical and digital capabilities is a service that will attract customers, and the economics for such investments will change for the better. 

The time is now for bold vision and broader technology perspective across supply chain execution partner ecosystems.

Supply Chain Matters invites other supply chain logistics and transportation industry players to share their views on the business benefits of harnessing IoT, enhanced mobile, smarter data and decision-making capabilities for industry supply chains.

Bob Ferrari


Many Signs of a Highly Competitive Online Holiday Buying Season

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Streaming reports over the past several weeks provide every indication to Supply Chain Matters that supply chain teams need to be prepared for highly competitive, promotional-driven online buying activity in the upcoming holiday buying surge. If there were thoughts that last year’s period was stressful, we venture that this year will bring similar stress. As we have further noted in prior commentaries, the evidence is growing that shoppers have permanently altered their shopping habits in favor of online. Thus, this year will provide interesting online challenges and we predict another round of blame games.

Similar to last year, the period between the Thanksgiving and Christmas holidays is relatively short.  If the combination of bad weather and savvy online consumers plays out again when online consumers waited for the most attractive last-minute deals, online business results will be factored by which online retailer offers the best promotions as well as free shipping.

Let’s reflect on some current data points.

UPS, which was literally thrown under the bus as the Grinch that stole Christmas in 2013, recently announced an all-out effort to augment its operational capabilities during the peak holiday shipping period.  These efforts result from a $500 million investment by UPS after last year’s incidents were evaluated. Included is that for the first time in the parcel shipping’s firm’s 107 year history, UPS will operate full U.S. based air and ground operations on the day after the Thanksgiving holiday, the traditional Black Friday shopping period, in order to stay ahead of expected surge in delivery activity. UPS is also implementing plans to augment its package-car capabilities by an additional 10 percent over last year’s levels as well as dramatically flexing its capacity and intermodal capabilities at its Worldport central hub. Brown will also deploy what it terms as pop-up “mobile distribution center villages” that will function across various U.S, network points beginning with the expected holiday delivery surge. A complete detail of the UPS surge effort can be garnered from this published DCVelocity article.

No doubt parcel delivery giant FedEx will also have augmented capabilities and as noted in our recent commentary, the U.S. Postal Service has aggressively jumped-in offering both Sunday delivery and more aggressive small parcel shipping rates.

Retailers have also had to implement contingency ocean container transport plans amid the ongoing threat of west coast port disruptions prompted by ongoing labor negotiations. That may lead to earlier product promotions to offload bloated inventories.

Many online retailers have garnered their own online marketing and customer fulfillment learning from 2013. Some examples: Staples announced a series of enhancements to the omnichannel experience for its customers, including the ability to buy online and pick-up purchases at a local retail outlet that same-day. According to the announcement, Staples.com will automatically display the inventory available at the three closest retail brick and mortar stores, and indication that such stores now become online mini distribution sites. Customer have the continued option for shipping their online purchases direct to a local store with free shipping. In late August, Macy’s announced its $1 billion technology and infrastructure investment in omnichannel capabilities. That effort now includes the ability for online consumers to order online and pick-up their merchandise within 675 full-line stores. Wal-Mart has plowed $500 million into its new online E-commerce business, including the addition of three new online fulfillment centers, and had plans to invest an additional $150 million in the current fiscal year. Last year, the retailer was cited as having the highest online sales growth, 30 percent compared to Amazon’s 20 percent gain. Wal-Mart now has upwards of $10 billion of total revenues coming from its online channels, and no-doubt this aggressive retailer will be offering consumers attractive online offers.

Other online retailers such as Best Buy, recovering from previous stings with balancing brick and mortar and online capabilities are also preparing for more aggressive omnichannel support capabilities.

In a prior Supply Chain Matters commentary stemming from the IBM Smarter Commerce event, we highlighted what IBM described a “dark store” which is one that can serve as a localized fulfillment entity for limited volumes, or be able to convert to a broader based customer shipment fulfillment entity after retail closing hours. We may well observe some pilot applications of this capability in the coming period.

And then there is the gorilla of online fulfillment, Amazon, which continues to provide indications that it will again be prepared to offer aggressive product promotional and free shipping capabilities, including same-day delivery orchestrated by Amazon’s own package delivery network. There have been published implications that Google and its Google Shopping Express will offer retailers added options for online promotional activity including same-day or Sunday delivery.

B2C focused marketing and supply chain teams have planned all year for the upcoming holiday buying surge. No doubt, there have been budget dynamics as to which segment received the bulk of investments, the online marketing and promotional side, or the back-end online customer service and fulfillment.  Preparations have been made and the ultimate test comes in but a few weeks. New learning as well as finger-point will be ever more interesting to observe.

Keep your web browser connected to Supply Chain Matters for our continued coverage of B2C/B2B omnichannel commerce learning during the 2014 holiday surge.

Bob Ferrari


Breaking News: CMA-CGM Announces Ocean Three Service Sharing Alliance

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At the beginning of this year, a 2014 Supply Chain Matters prediction and consul was that industry supply chain teams should anticipate continued consolidation activity for the ocean container industry.  That indeed has been unfolding. The failed attempt among the top three global ocean container carriers to form the P3 Network was quickly followed by the announcement of the 2M Alliance and the Hapag-LloydMSC merger. Now comes the next iteration.  Container_Term

Today features the announcement from French container shipping group CMA CGM that the service carrier has entered into service-sharing alliance with China Shipping Container Lines (CSCL) and United Arab Shipping (UASC).  According to the announcement, the alliance will be termed Ocean Three, and will extend among Asia-Europe, Asia-Mediterranean, Transpacific and Asia- United States East Coast transit routes. The agreements will reportedly cover vessel sharing, slot exchange and slot charter agreements among the three carriers. Routes will be utilizing transshipment hubs common to the three partners. Rather noteworthy is that this alliance covers container shipments originating from the Middle East, Indian sub-continent and West Africa.

This new alliance requires the approval from the U.S. Federal Maritime Commission before it can go into effect.

Readers will recall that CMA CGM was one of the lines originally included in the former P3 Network alliance proposal, and was not included in the 2M Network alliance announcement among industry leader Maersk Lines and Mediterranean Shipping Company (MSC). If approved the Ocean Three alliance will also compete with the announced merger of Hapag-Lloyd and Chile based CSAV, an effort to create the fourth largest global container shipping line by consolidation. That merger is still subject to approval from European Union maritime officials.

Industry supply chain teams and transportation and logistics service providers should anticipate further announcements related to consolidation as the industry domino effect continues. While the various ocean container carriers continue to point out the benefits of increased efficiencies, schedule frequency and overall capacity utilization from these consolidation moves, the smoking gun remains as to the impacts to future tariff rates.

Bob Ferrari


The U.S. Postal Service Suddenly Changes the Dynamics of Parcel Shipping and Online Commerce

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This week, the U.S. Postal Service (USPS) suddenly changed the dynamics related to shipping costs in B2C/B2B online commerce and the beneficiaries may well be online customers and mass retailers. The agency aggressively cut shipping prices involving small packages in what the Wall Street Journal described as: “..aiming to steal business from both FedEx Corp. and United Parcel Service Inc.,”

In effect, the Postal Service is acknowledging that its parcel rates were not competitive with its market competitors and it wants to do something about that.  The steepest rate cuts are targeted to large volume shippers with packages of less than 5 pounds, with cuts involving other package weights and volumes. In its reporting, the Wall Street Journal (paid subscription or free metered view) cites an industry observer as indicating that a number of E-commerce shippers are either considering or have elected to now utilize the USPS as a result of this rate price change. In its article, WSJ further features a table that contrasts carrier shipping costs for 5-10-20 pound packages which clearly depicts more competitive USPS rates, especially when shippers factor the added fuel and other surcharges incurred by both FedEx and UPS. The USPS does not apply surcharges and has been the last-mile delivery mechanism for many rural addresses in the United States.

In previous Supply Chain Matters commentaries, we raised awareness that planned dimensional-based rate increases initially announced by FedEx and subsequently UPS  would have definite impacts to E-commerce shipments in 2015. These rate hikes especially involved low weight but high bulk item shipments such as a case of toilet paper or paper towels.

Both FedEx and UPS were not at all pleased by the latest USPS pricing move and have each logged formal protests and claiming foul. No doubt, certain members of the U.S. Congress may be receiving protest calls.  Then again, the cry concerning the USPS was to stop hemorrhaging money and this may well be a bold step in that direction. Officials at the USPS indicate that they will make money with these more competitive rates.

The USPS has made other important moves including partnering with online retailers Amazonfor Sunday deliveries, This week provided an additional announcement that Amazon, specifically its Amazon Fresh unit, and the USPS will partner in a trail to shuttle insulated containers of food products and groceries to residences in San Francisco, and perhaps other urban markets as well.

In the view of Supply Chain Matters, this latest move sets-up a whole different dynamic for B2C/B2B online customer fulfillment in the forthcoming holiday buying peak period.  Online retailers who want to maintain attractive free shipping options now have a potential new alternative to control costs of such programs.  Both FedEx and UPS will have to deal with a different competitive landscape in terms of rates.

Readers will recall that during the 2013 holiday surge period, the prime headline was the blame game directed at package delivery carriers carrier’s UPS, and to some extent FedEx, inability to handle the last-minute online fulfillment volumes that swamped logistics networks in the two days prior to the Christmas holiday. Both carriers have since invested in added logistics capabilities and have alerted online retailers that there may be a premium cost involved in supporting last-minute or time-sensitive shipments. Amazon for one has also been working on developing its own parcel delivery network.

The USPS has in all likelihood, added itself to this dynamic in the upcoming period. Reducing rates is one strategy, but delivering on-time at the height of crunch periods when all networks are tapped is the other test of competitiveness. We will all have to wait and observe.

In the meantime, we extend a Supply Chain Matters thumbs-up to the USPS for finally making bold moves.

 

You and I as online consumers, and many online retailers and businesses stand to benefit with these latest USPS moves.

Bob Ferrari


Significant Progress Reported in West Coast Port Labor Contract Talks- No Final Deal As Yet

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Some fitting good news came prior to the Labor Day holiday weekend in the U.S. concerning the ongoing labor negotiations concerning the Pacific Maritime Association, representing numerous west coast ports, and the International Longshore and Warehouse Union. The existing labor contract involving 29 U.S. west coast ports expired on July 1st.

The Associated Press and other supply chain focused business media report that ongoing talks have made significant progress with a tentative deal reached on the critical knotty issue of healthcare benefits. According to the AP report, the association especially focused on limiting fraud in health plans to avoid penalties that may occur under the Affordable Care Act. The AP report further cites a federal grand jury investigation in California indicting three people for an alleged $50 million scheme to swindle health plans involving dockworkers along with other federal investigations concerning fraud among the subject health plans.

In conformance to negotiation practices, no details have been released concerning specifics to the tentative agreement on the healthcare component. Other remaining issues involve compensation, job security and workplace safety, which imply that contract negotiations will most likely continue for several additional weeks.

Industry and retail focused supply chains have already implement contingency plans including the re-routing of inbound and outbound ocean shipments to U.S. east coast and other North American ports. That activity will likely continue as supply chains move into the critical pre-holiday surge of inbound products from China and other Asia-based producers.


Continued Good News Concerning U.S. Manufacturing Momentum- But Also A Cause for Concern

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Business media is alive with today’s headlines concerning the August report of U.S. manufacturing activity. The ISM PMI Index for August was reported as 59, almost two points higher than the July reading and the highest level in three years. Even more optimistic, the all-important New Orders index increased to 66.7, the highest level since April 2004. The production index also rose to its strongest level since May 2010. Of the total 18 industries surveyed in the ISM PMI Index, 17 showed positive gains, which is extraordinary.

If you have been receiving our Supply Chain Matters Quarterly Newsletter, (automatically distributed to registered readers) we regularly report trending of major global PMI indices across the globe. In our trending, the U.S. PMI has consistently led most other regions for the past 4 quarters. Thus, U.S. manufacturing momentum is indeed a significant headline.

However, before our U.S. based readers get too carried away with euphoria, there are still important changes and supply chain re-building initiatives required.  In a recent Supply Chain Matters commentary, we noted how Mexico will likely become a significant manufacturing and export hub for the global automobile industry, to include its own supplier component network.  The recent efforts by Wal-Mart and others to added significant monetary commitments for sourcing more products in the United States have uncovered needs for re-building globally competitive component supplier networks in areas such as shoes, apparel, consumer electronics and other direct-labor intensive industries seeking to nearshore products within the U.S.. Logistics and transportation infrastructure is currently struggling to support such momentum, particularly rail, barge and trucking.

Yes, the current continued surge of U.S. manufacturing is noteworthy, but much work remains to insure continued sustained momentum in the coming months and years. Addressing the rebuilding of supply chain network ecosystems in key industries and rebuilding long overdue logistics and surface transportation networks remain important priorities.

Bob Ferrari


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