Trends—March 2015

Trends—March 2015

Learning the ABCs of DCs

To be competitive in today’s dynamic retail space, online companies need to rethink distribution networks that were built to serve the brick-and-mortar store model, suggests research conducted by supply chain faculty at the University of Tennessee’s (UT) Haslam College of Business.

Supply chain faculty surveyed more than 200 companies, and worked with third-party logistics provider Kenco, to produce its new report, The ABCs of DCs.

The research concludes that distribution centers (DCs) must be dynamic to meet customer expectations as Internet orders increase. Cost can no longer be the sole motivator for warehouse management. DCs must routinely seek to optimize their networks and adopt modern tools, such as advanced shipping notices and warehouse information systems, to maximize accuracy and efficiency.

"Logistics professionals who operate distribution centers are expected to improve customer responsiveness, decrease cost, and manage higher volumes every year," explains Paul Dittmann, executive director of UT’s Global Supply Chain Institute. "The most efficient distribution centers find innovative ways to meet all three of these demands rather than sub-optimizing one of the three."

Manufacturers/Retailers Taking IT Slow

Despite recognition that global supply chains have become increasingly complex, most manufacturers and retailers still rely on outdated tools and ineffective processes to manage the end-to-end value chain, according to JDA research.

The Scottsdale, Ariz.-based software solutions provider’s JDA Vision 2015 Supply Chain Market Study is based on a global survey of 255 executives across 17 countries, representing a wide range of retailers and manufacturers.

"It’s no secret that retailers’ and manufacturers’ supply chains have become increasingly complicated—often spanning thousands of miles and dozens of trading partners," says Kevin Iaquinto, chief marketing officer at JDA.

Still, executives have been slow to adopt best practices and best-in-class technology solutions in critical areas including production planning and scheduling, supply chain planning and execution, demand management, and transportation.

Among key findings:

  • Supply chain planning and execution. When asked about priorities for optimizing inventory management, the top two responses were "improving service levels" (named as a top-three priority by 93 percent) and "moving inventory closer to demand" (88 percent).
  • However, organizations lack a clear way to measure and improve effectiveness in this area; respondents provided at least 25 different metrics they apply to measure inventory management performance. In addition, most companies are not currently implementing advanced technology tools. Fifty-nine percent of executives cite "deploying automation" to manage inventory as a key initiative for the future.

  • Demand management. To meet the needs of today’s price-conscious and innovation-driven consumers, both retailers and manufacturers have invested heavily in more frequent product launches, as well as more aggressive sales promotions. JDA’s survey reveals, however, that companies lack a scientific way to forecast the effects of these expensive initiatives. For new products, 59 percent of responding companies either develop no forecast at all, or rely on a backward-looking forecast developed by the sales and marketing team.
  • Transportation management. JDA survey respondents report that 33 percent of all customer orders require expediting, which erodes margins significantly. More surprising, only 26 percent of transportation organizations employ a shared services model for centralized transportation management, and only 46 percent have created a core carrier program. In addition, just 43 percent of firms employ commercially available software solutions to optimize their transportation moves.

Importance for driving demand management decisions

Achieving service goals stands out as the top objective for driving demand management decisions both in #1 responses and overall top-three selection.

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Source: JDA Vision 2015 Supply Chain Market Study

Top challenges to demand management process

Responses underscore the disconnect between S&OP decisions and detailed demand plans.

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Source: JDA Vision 2015 Supply Chain Market Study

Partners in Learning

While the emergence of a supply chain talent gap is giving shippers plenty of cause for concern as they recruit a new generation of practitioners, there’s also a silver lining—the private sector has even more incentive to foster closer partnerships with universities.

Case in point: Syracuse University’s H.H. Franklin Center for Supply Chain Management is collaborating with Staples to drive new research and innovation by working on real-world challenges. As part of the Whitman School project, supply chain faculty and students will analyze fulfillment operations, and make recommendations regarding how the office supplies retailer can further improve its inventory and distribution decisions.

"Staples already has an excellent distribution system, with the capability to deliver next-day to 96 percent of the U.S. population," says Burak Kazaz, PhD, executive director of the H.H. Franklin Center.

Professors and students will analyze big data on customer orders, and make adjustments in inventory deployment decisions to create further efficiencies.

In a second project, professors and students are developing a risk assessment methodology to analyze exposure in the entire Staples supply chain. The work brings out a new perspective in supply chain risk management. The end result of both projects will be presented to senior Staples leadership.

"This collaboration not only provides a real-world consulting experience for students, but also contributes greatly to Staples’ supply chain knowledge to help it make better business decisions," says Dr. Kazaz.

"Relationships such as these are the wave of the future for business programs," he adds. "The experiential learning opportunity allows students to solve real business problems to help corporations meet challenges."

This type of engagement provides Staples with objective insight into its own supply chain operations, while at the same time creating a pipeline for recruiting supply chain professionals who already have a working knowledge of its business.

"Staples supports the learning opportunities this engagement provides to the next generation of supply chain professionals," says Don Ralph, senior vice president, supply chain and logistics, Staples. "The company sees real value in bringing a fresh pair of eyes and new ways of thinking to data analytics and risk management planning."

Missing the Spot

Spot market freight availability declined for a second consecutive month in February 2015, a seasonal pattern that mimics the first quarter of 2013 but at higher volume, according to the DAT North American Freight Index, a measure of conditions on the spot truckload freight market.

Some of the lag may be attributed to residual effects of the West Coast port labor impasse, which greatly reduced outbound volumes from California, and, in turn, reduced rates.

Month-over-month freight volume dipped six percent in February. Juxtaposed against the extreme demand created by the polar vortex in February 2014, however, volume was 37 percent lower.

Compared to January 2015, freight volume by equipment type declined 3.9 percent for vans, 3.4 percent for flatbeds, and 18 percent for refrigerated (reefer) trailers in February. Truckload rates on the spot market drifted down 1.9 percent for vans, 3.2 percent for flatbeds, and 5.2 percent for reefers.

Supreme Court Sides with Amtrak

Lingering service issues and delays have beset captive rail shippers over the past few years, in large part due to weather-related events, as well as growing demand in the oil and gas industry that is diverting railroad attention and investment. A recent U.S. Supreme Court decision threatens to complicate matters even further.

The Court has given new life to a federal law—the Passenger Rail Investment and Improvement Act of 2008 (PRIIA)—that aims to improve Amtrak’s on-time performance, superseding a lower court ruling that favored the freight railroad industry.

Amtrak has always straddled an uneasy balance as a non-profitable "private company" funded and controlled by the federal government. It was created in 1970 as a "for-profit corporation" supported by billions of dollars in public subsidies, and governed by a board of directors nominated by the president of the United States.

Amtrak, which by and large does not own the tracks it runs on, is at the mercy of Class I railroads to operate on time—which passenger rail proponents argue is one of the reasons for low ridership.

PRIIA proposes giving more control to Amtrak and the Federal Railroad Administration to hold Class I’s accountable for delays—even to the point of levying fines for non-compliance. The crux of the argument is whether Amtrak, as a "private company," should be allowed a voice in regulatory decision-making that impacts freight rail competitors.

The Supreme Court decision, which concludes that Amtrak is "mostly" a government entity, now kicks it back to the lower appeals courts for further debate.

Where’s The Beef?

In an effort to advance and improve transparency within the U.S. beef supply chain, Cargill, McDonald’s, Tyson Foods, and Walmart are among a group of 43 founding members in the U.S. Roundtable for Sustainable Beef (USRSB). The USRSB comprises a group of U.S. beef value chain participants including producers, processors, retailers, foodservice operators, packers, and non-governmental organizations. Its objective is to identify sustainability indicators, establish verification methodologies, and generate field project data to test and confirm sustainability concepts for use throughout the United States.

The group is using the Netherlands-based Global Roundtable for Sustainable Beef’s (GRSB) guidelines to support its effort. Specifically, members will develop sustainability indicators relevant to the various beef systems in the United States, as well as a means to verify and share sustainable progress transparently. Like the GRSB, the USRSB will not mandate standards or verify the performance of individual beef value chain participants.

The move comes after several consumer, animal rights, and environmental groups widely criticized the GRSB’s guiding principles for not being progressive enough.

Global Roundtable for Sustainable Beef’s Five Guiding Principles

  1. Produce beef in a manner that identifies and manages natural resources responsibly and maintains or enhances the health of ecosystems.
  2. Protect and respect human rights.
  3. Respect and manage animals to ensure their health and welfare.
  4. Ensure the safety and quality of beef products and utilize information-sharing systems that promote beef sustainability.
  5. Encourage innovation, optimize production, reduce waste, and add to economic viability.

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