THE SUPPLY CHAIN BLOG
5 Supply Chain Trends for 2021
This past year has created many new challenges for everyone, causing consumers and companies to adapt. We expect some of the supply chain changes to be temporary but that many of them will have a lasting impact on the supply chain industry going forward. Below, we discuss some of the trends that we expect to see in 2021.
This past year has created many new challenges for everyone, causing consumers and companies to adapt. We expect some of the supply chain changes to be temporary but that many of them will have a lasting impact on the supply chain industry going forward. Below, we discuss some of the trends that we expect to see in 2021.
Fulfillment and Logistics as a Competitive Tool
Every year we continue to see consumer behavior change, and in no year has that change happened as rapidly as in 2020. People want to get quality goods for a reasonable price and quickly. Unorganized supply chains will become increasingly exposed as companies will have to choose between bad service levels or unsustainable costs to meet customer demand. The most obvious example of this trend is Amazon's move to achieve next-day or same-day shipping. As stated above, consumer expectations for service continue to rise. This means businesses that have systems in place to forecast well, stock optimal levels of inventory and fulfill efficiently have a significant advantage over those that do not.
Focusing on E-Commerce, Service Levels and Omnichannel Development
The shift from brick and mortar retail to e-commerce has been growing every year, and COVID-19 only expedited that growth even more. It's no surprise that consumer’s extreme shift to e-commerce seen in 2020 will have a lasting effect on the way people do business moving forward. In addition to the e-commerce shift, service levels are also becoming a higher focus as consumers are going to choose the quickest and most reliable option. To keep up with these shifts, companies are going to have to continue to focus on developing their omnichannel strategy. This means using support systems to create an interconnected network of stores, warehouses and 3PLs, providing the flexibility to fulfill both large wholesale purchases and small e-commerce orders. Companies can then leverage this interconnectivity within the network to optimize fulfillment strategy on an order level basis.
Shifting E-Commerce to a 3PL
Another industry trend we expect to see is a significant shift for e-commerce distribution towards third-party logistics companies (3PLs). The e-commerce industry, in comparison to brick and mortar stores, presents a complexity that is hard to tackle for smaller companies. 3PLs provide an option that will allow companies to set up much quicker than if they opened their own warehouse and allow them to avoid significant fixed costs, have access to an already established network and get specialized processes based on their needs.
Making Procurement a Focus
COVID-19 complications and global trade friction with China mixed with consumer’s increasing expectations for better service have signaled to the supply chain world that now may be the time to focus on procurement. By moving suppliers closer to home (near-shoring) and prioritizing the procurement process to make lead time and flexibility priorities, companies can improve their fulfillment times and overall supply chain. Developing a regional supply chain offers the better potential for mutually beneficial relationships and improves both time and proximity to market. This confidence in relationship management and product could challenge the prior approach of low-cost country sourcing.
Freight Normalization – A New Baselinne
COVID-19 has caused overwhelming increases to volume causing capacities to be tested and costs and rejection rates to skyrocket. As the freight companies profit on these higher rates, it can be expected that they will reinvest into capital expenditures, such as more trucks, increasing capacity to meet market demand and normalizing from the economic shifts of 2020.
We wish everyone a safe and healthy 2021.
Supply Chain in COVID-19: The Option of Nearshoring
Our CEO, Håkan Andersson, was recently featured on a podcast with industry expert, Bob Hess, about the potential for #nearshoring as a result of the pandemic. Listen here: https://nkf.re/3dhqU0
Our CEO, Håkan Andersson, was recently featured on a podcast with industry expert, Bob Hess, about the potential for #nearshoring as a result of the pandemic.
Listen here: https://nkf.re/3dhqU0
Why an Oversized Inventory Doesn’t Solve Service Level Issues
We are right now working with a great company, who supplies the retail and construction industry. They are totally devoted to quality and would go to any length to ensure that the product is delivered in perfect condition at the right time. With an annual growth of 30 – 40 % it is not surprising that all processes and support systems aren’t fully developed and rules of thumb are used instead. To make sure that an order always can be delivered on time the rule for inventory is 6 months sales in stock. Looking at statistics we saw that the service level was 95%, which is right on the average level in the US industry. Looking at the reasons behind the counter-intuitive “non-100%” service level provided some lessons.
We are right now working with a great company, who supplies the retail and construction industry. They are totally devoted to quality and would go to any length to ensure that the product is delivered in perfect condition at the right time. With an annual growth of 30 – 40 % it is not surprising that all processes and support systems aren’t fully developed and rules of thumb are used instead. To make sure that an order always can be delivered on time the rule for inventory is 6 months sales in stock. Looking at statistics we saw that the service level was 95%, which is right on the average level in the US industry. Looking at the reasons behind the counter-intuitive “non-100%” service level provided some lessons:
It is hard to say what 6 months inventory means. An average growth of 40% means that some products grow by 100 % and some less. So, with the sales history as a guide you will inevitably go wrong on some products.
The demand isn’t continuous on all items. In this specific case the orders from big developers can be totally disruptive and distort the forecasting with unanticipated spikes in demand. This wouldn’t be different with an inventory management system though. You still need to handle this separately.
The supplier lead time and reliability varies for different items. The agreed lead time can be handled fairly conveniently with a more specific rule of thumb, say by different categories or absolutely in an inventory management system. The lack of reliability is a much harder nut to crack, it takes very disciplined supplier management.
Short term it will take some hands-on inventory management to get closer to the 100 %, longer term it will take an inventory management system. In the mean-time it will take some work to figure out what to do with all the mostly obsolete goods in “the grave yard” the rented warehouse where all obsolete goods go.
Logistics as an Investment Guide
Can companies’ activities in logistics be a good indicator of investment opportunities? Many investors are looking for companies that that grow very fast while being profitable. Fast track firms selling physical products likely outgrow their existing distribution network and need to expand to satisfy the demand for their products.
Can companies’ activities in logistics be a good indicator of investment opportunities?
Many investors are looking for companies that that grow very fast while being profitable. Fast track firms selling physical products likely outgrow their existing distribution network and need to expand to satisfy the demand for their products. If they can finance such an expansion with their own money, they are likely to also be profitable.
I know from experience that companies expanding their logistics networks or their warehouse capacities often have very good finances and that they in many cases would be good targets for investments. Though it is not a fully scientific way of proving a theory, I have structured the unsolicited inquiries that Establish received last year about new warehouse designs or expansions of distribution networks. Companies that we knew from previous years are exclude to remove that bias.
The resulting list of fast growing profitable companies says a lot about which industries are expanding and the age we live in:
Developers of equipment for virtual reality experiences.
Manufacturers of 3D printers.
Pharmaceutical companies, in general but with an over-representation of vaccine and natural products.
Suppliers of guns and ammunition. These companies are not primarily catering to the military or the hunters…
High quality, very specialized products that have previously been imported from Germany and Scandinavia, but where the production is gradually moving to the US.
Companies in different industries that are using the concept for Delayed Differentiation or Postponement by importing generic pieces from low-cost countries and assembling and customizing the products in the USA. Few SKUs in and many different items out.
Suppliers of equipment for greenhouses. From Oregon and Colorado…
Sports goods; highly specialized Cross-fit and Lacrosse equipment
Suppliers of merchandise around movie franchises
Makers of craft beer and whiskey
Specialized logistics solutions for target industries such as expensive art to frozen food
Companies that handle “The Long Tail” of low frequent products for companies that want to focus on their best sellers but need to provide availability of the other items in their assortment
What do you think?
Black Friday’s Results and Its Logistics Impact
Another year of holiday shopping madness is nearly in the books, and the Thanksgiving and Black Friday results are out. What happened and what does it mean for your business? Well, not much changed and holiday shopping appears to be following the same trend as it has been. From both personal experience at the Matt at Millenia in Florida and from reports across the country, in-person shopping is decreasing and online shopping is increasing significantly.
Another year of holiday shopping madness is nearly in the books, and the Thanksgiving and Black Friday results are out. What happened and what does it mean for your business? Well, not much changed and holiday shopping appears to be following the same trend as it has been. From both personal experience at the Matt at Millenia in Florida and from reports across the country, in-person shopping is decreasing and online shopping is increasing significantly. According to Visa, cardholders spent 22% more online shopping than last year and Amazon’s sales rose 29%. Not only are people spending more online, they are doing it over their mobile devices, as well: 26% of Thanksgiving sales were made on mobile devices, according to Adobe. Meanwhile in retail stores, the traffic was less than usual as retailers spread their sales across the week, and not only on Thursday or Friday. The Mall at Millenia was much less crowded (no fights to find parking!) than last year, and the sales were worse, as well.
So what do these changes mean to your company? If you are a retailer or sell consumer goods, the e-commerce sector is here to stay and its portion of your business will keep growing larger. It is best to keep investing and expanding your e-commerce logistics infrastructure and continuously evaluating your brick and mortar vs. e-comm business plan, including your transportation (especially parcel) contracts, modes and carriers. Additionally, from a technological perspective, your website needs to be simple and easy to use, as well as adaptive to mobile and able to handle spikes in traffic on heavy shopping days. The easier it is to buy your products, the more business you will do, both on mobile and computer web browsers.
Need assistance in evaluating your adaptiveness to the new e-commerce distribution requirements? Establish can both evaluate your current distribution infrastructure as well as design your improved network and distribution facilities. Give us a call at 212-776-9900 and we’ll discuss any logistics problem with you.
3 Ways to Increase Sustainability and Profit through Smart Logistics
Nearly all of the150 largest companies in the world have a Chief Sustainability Officer at VP level or higher. Corporate Social Responsibility (CSR) is a major talking point in many annual reports and conferences. This is all good and proper, but many of us have a feeling that it is simply window dressing we are witnessing, and not a lot of concrete action.
Nearly all of the150 largest companies in the world have a Chief Sustainability Officer at VP level or higher. Corporate Social Responsibility (CSR) is a major talking point in many annual reports and conferences. This is all good and proper, but many of us have a feeling that it is simply window dressing we are witnessing, and not a lot of concrete action.
One sector to take real, hands-on action is in transportation. In the United States in 2011, 27% of the greenhouse emissions came from the transportation sector, and more than one-quarter of that is from the transportation of goods.
Smart logistics in transportation is about cutting costs and emissions by minimizing the miles trucks drive every day on our roads. It is improving sustainability, hands-on, and real, positive environmental impact can be achieved by three very straightforward methods:
Distribution Network Optimization is about finding the right number and locations for your distribution centers (DCs) to create the optimal balance between the costs of transportation, warehousing and inventory to achieve the required service levels. Transportation, on average, accounts for about half of the total logistics costs so it is the primary consideration in determining the optimal distribution network. The results vary depending on situation, but a 15 – 20% reduction in payload distance (ton-miles) is standard. The reduction is due to trucks not moving, so you don’t have to fake any emissions tests. The bonus is that your cost savings are about as substantial.
Freight Negotiation is about finding the carrier for whom your shipments will generate the least new miles driven by better utilizing existing capacity. The best example is that if a carrier has a flow in the reverse direction of your transportation needs, the carrier would then transport your goods rather than driving back deadhead. It is financially beneficial to both parties, as the carrier earns money it otherwise would not have and you get much better rates. You are of course negotiating the profit margin, too, but that is not where the major savings come from. The environment benefits from reduced emissions from having one less truck on the road during the former deadhead haul.
Freight Planning is about making your shipments as efficient as possible. Three examples of smart logistics in freight planning are: pooling multiple shipments into one, load planning to perfect the balance between weight and volume to optimally fill a truck and route optimization of your own fleet. All three examples reduce the emissions in a way that makes an impact on the environment while improving your bottom line by minimizing the ton-miles you accrue.
Logistics as The New Storefront
Logistics is the new storefront, meaning you can make money for your customers through logistics. You want to be the one who is talking to the customer, because that makes the difference. You want to be in charge of the inventory management because the availability is the key in the new world here of Logistics as the Game Changer!
Logistics is the new storefront, meaning you can make money for your customers through logistics. You want to be the one who is talking to the customer, because that makes the difference. You want to be in charge of the inventory management because the availability is the key in the new world here of Logistics as the Game Changer!
Hello, Dustin. Thank you very much for inviting me to talk a bit about logistics as your new storefront.
What I mean with logistics as your new storefront, it’s easiest to explain if I give you some examples.
The first and obvious thing here is the online economy and the growth of the same, the Amazons of the world.
As a matter of fact, if you think about it, a lot of people have their main contact as consumers with their suppliers or vendors through what is sent to them in the mail. That means that, for many companies, the actual delivery of a product is the only physical contact that there is between the company and the customer. This is perhaps more clear if you look into the business-to-business market, where more and more companies are buying a solution rather than a physical product per se.
Example 1: fighter jets
A very typical example here is that we are working with a manufacturer of fighter jets, and a manufacturer of fighter jets typically wants to sell a hundred fighter jets or so to a government in some country. What’s happening is that the governments are buying airborne hours instead of airplanes or spare parts. This is now a a very different ballgame, and it’s a ballgame where logistics has the skills that make all the difference.
Example 2: dialysis supplier
Another typical example is, we work with a company that supplies machinery and supplies for dialysis. What we found was that there were a lot of complaints around their deliveries. The reason why that happened was that the customers didn’t do their part of ordering when they should have and they didn’t respect the quantities and the delivery times.
The reason for this is that these people were physicians or nurses who are busy saving lives; they don’t want to spend time managing inventories of the dialysis water.
You could see that as a problem, or you can use that as your storefront and sell the solution of having all the supplies there all the time; and you can charge for it.
Example 3: aftermarket spare parts
Another example is the aftermarket, where you used to sell spare parts. What you do now is keep the car or machine or whatever it is, to keep it running. Then you are selling the availability and service. That, my friend, is raw and beautiful logistics.
What do we do in this new, exciting world of logistics as the game changer?
Well, the first thing is to take control.
Here, I’m talking about you have the question that many of our clients are asking, which is: Should we outsource our logistics to 3PL or do it in-house? In this case, the answer is obviously a combination of them both.
For instance, there is a huge difference between transportation and delivery. Transportation is much better done by the carriers of the world, whereas you might want to manage the delivery yourself, the actual vendor-managed inventory or white-glove services. That might be something you want to do yourself, whereas the transportation between point A and point B, that could very well be outsourced.
Another thing is material handling. The forklift truck that is putting the pallet on the racking and taking it down. Possibly done, in many cases, better by 3PL. However, when it comes to value-added services, then you want to be in charge of the quality, you want to be the one who is talking to the customer, because that makes a difference. You want to be in charge of the inventory management because the availability is the key in the new world here.
One aspect of this is the rise of white-glove services. What I’m thinking about here is that you make the delivery to logistics a service. This could be that you’re delivering the product and you’re installing. It could be that you do Vendor Managed Inventory, which is a service; it may be—and it so happens to be in most cases—that you benefit from delivery of services and you get efficient with managed inventory, but it is a service. And while you’re doing a delivery of some supplies to a machine, perform service to the machine to up the availability.
A huge thing here is to realize that all of those things are part of your product or they might be products in themselves. Instead of seeing this and handling this as an increase in cost, you should embrace the productification and charge for it. You package the services and you charge for it. If you charge for it, then you have a customer who is paying his part because he puts a value on it, and you get the resources you need to do a good job because the company’s making money out of it.
Lastly, regarding what to do in a storefront and what you can charge for –those are achievements within the logistics that are very important.
This could be within the sustainability area, the environmental area, where, if you’re good at your logistics, your achievements of reducing carbon dioxide emissions would far exceed, in most companies, what you could achieve with other measures. This is something that you should market; this is something you should talk about.
To summarize, logistics is the new storefront, and this makes logistics so much more important and so much more fun. Enjoy yourself out there. Thank you, bye-bye.
Growth in E-commerce Distribution Centers
Global online B2C retail sales are increasing. This trend is spurring the need to locate e-commerce DCs closer to customers. Local depots for urban delivery are now needed more than ever. To be successful with e-commerce you need new logistics models which can provide rapid order fulfillment and returns processing.
Global online B2C retail sales are increasing. This trend is spurring the need to locate e-commerce DCs closer to customers. Local depots for urban delivery are now needed more than ever. To be successful with e-commerce you need new logistics models which can provide rapid order fulfillment and returns processing.
Four Reasons 2014 Will Be The “Year of The Global Distribution Center”
Retail logistics has evolved to the point where companies now need to consider mega e-fulfillment centers, parcel hubs and delivery centers, local ‘urban logistics’ depots for rapid order fulfillment, and returns processing centers. They also must think about factors such as: internet penetration, fixed and mobile broadband costs, smart phone usage, demographics, the regulatory climate, the logistics and transport infrastructure, and industrial real estate options.
E-Commerce Fulfillment Centers and How They Do Site Selection
Strategic site selection drivers include workforce, service levels, transportation, cost, real estate, operating environment and more. In the US DCs are more likely to locate in states that do NOT tax internet sales, states with high levels of labor, full and part-time, states with right to work laws, states that house both air and ground UPS/FedEx hubs, states where “zone-skipping” is available to major population centers, states that offer real property or other tax incentives, and states with a robust FTZ program.
How is E-commerce Changing Distribution Center Site Selection?
One solution gaining traction among retail supply chain executives is locating fulfillment facilities closer to their customer base in order to meet service commitment goals such as aggressive delivery schedules. Based on JLL’s Big Box Outlook report,demand for “big box” space (warehouse and DCs that exceed 250,000 square feet) is also growing in secondary major distribution and population hubs such as Indianapolis, Memphis, Phoenix, and Houston as traditional tier-one markets such as Chicago, Atlanta, and New Jersey have become more congested and their supply scarce.