2021 Technology Roundtable: Advanced solutions for continued recovery

When we look back on this time in history, we can say with some certainty that the pandemic acted as a “great accelerator” for the many trends, challenges and innovations that were already defining the environment in which logistics and supply chain professionals operate.

For one, it immediately intensified the pressure on our global freight networks that were already bursting at the seams. That, in turn, accelerated our adoption of new supply chain software and warehouse/DC automation necessary to streamline operations to meet ever-pressing customer demands despite shrinking labor availability and freight capacity—all while e-commerce volumes skyrocketed.

To help us track the path of technology’s great acceleration, we’re joined by:

• Ian Hobkirk, founder and managing director of Commonwealth Supply Chain Advisors;
• Bill Brooks, vice president, North American transportation at Capgemini;
• Dwight Klappich, research vice president at Gartner;
• Norm Saenz, managing director a supply chain consultancy St. Onge Company.

Our “2021 Technology Roundtable” panel covers the growing importance of supply chain network design technology; the evolution of advanced transportation management systems; the rise of goods-to-person picking systems; and how logistics and distribution operations can optimize e-commerce automation and delivery systems.

Supply chain network design technology

Logistics Management (LM): The pandemic has caused e-commerce orders to surge across nearly every industry. From your unique perspective, how has this affected supply chain networks across the board?

Ian Hobkirk: The pandemic took a trend that was steadily building over 20 years and accelerated it significantly. As a percentage of total retail sales, e-commerce has been taking about 1 to 1.5 percentage points a year away from brick-and-mortar sales pretty steadily for the last five years. In 2020, e-commerce market share grew by 4% in the second quarter alone.

That means that when the pandemic first hit, we saw the equivalent of more than three years of natural e-commerce growth in just a month or two, and in many industries it was much higher. Now, e-commerce levels have subsided a bit since the initial surge, but we are still running more than a year ahead of the pre-pandemic trend overall.

Last year, this e-commerce surge hit companies like a tsunami. Many companies that had long-term plans to “some day” change their supply chain networks to make them more e-commerce-friendly have realized that some day is now, and they have to get serious about modernizing their networks.

LM: What specific pressures has this environment created for the way supply chain networks are currently aligned?

Hobkirk: For consumer goods manufacturers that have primarily sold through a wholesale channel, their DCs traditionally have had to ship big orders to other retailers, either to their customers’ DCs or to their customers’ stores directly. In most cases, the consumer goods manufacturer does not pay for the outbound freight from their DC in that scenario—the freight is usually customer-routed.

So, for manufacturers who sourced most of their goods from other countries, this meant that the cheapest, most efficient network for the manufacturer was to have a DC as close as possible to the seaport where the goods were landed. If you doubt that, just look out the window the next time you’re on a flight that’s about to land in Los Angeles or Newark—there are a massive amount of DCs within an hour’s drive of those seaports.

For wholesale distribution, the manufacturers still, for the most part, don’t bring their goods any further than they have to. They dump them near the port of entry and make it the retailer’s problem to get it to their DCs or stores. And the retailers have largely abetted this trend—most of them would save a lot of money if their suppliers had more centrally located DCs, but none of the major retailers are really setup to incentivize their suppliers to make these changes.

That kind of design was all well and good in the world of brick-and-mortar retail, but with e-commerce distribution, consumers expect to get their stuff within two-days after they place an order. A company with a single DC in Long Beach isn’t going to be able to achieve those service levels for much of the country. And what’s more, the parcel shipping costs for e-commerce shipments are often paid for by the manufacturer, so the cost alone of trying to ship to the entire country from a single DC in a coastal city starts to really eat away at profits.

LM: Let’s address a solution. How does a company go about re-thinking their supply chain network?

Hobkirk: Well, for companies that woke up last April to discover that they finally had a real e-commerce channel, their next realization was often that they didn’t have a supply chain network that could really support that channel over the long term. For the first quarter or two of the pandemic, companies were just scrambling to get orders out the door. But now that they’ve had a chance to catch their breaths and think strategically, many of them are realizing that they simply have to have more forward-positioned inventory to fill e-commerce orders.

Companies should start by thinking about top-line sales growth. How fast do their customers expect to receive an order? Amazon has set the bar for customer service in a lot of industries at two-day ground shipping to 90% of the U.S. I talk to a lot of companies who believe that their customers are ‘different,’ that they don’t expect that level of service. Maybe not today, but what are your competitors offering?

Can your products—or comparable ones—be easily purchased elsewhere from companies with better service levels? If you fulfill drop ship e-commerce orders for major retailers like Amazon or Wayfair, how much could you increase your product visibility and sales by being able to hit those two-day delivery targets?

The next thing to consider is the bottom-line—what will changing your supply chain network do to your profitability? Most companies can hit those two-day delivery targets with two DCs—that’s not rocket science.

So, it often boils down to evaluating the improved service levels and outbound freight savings against the costs of operating a second DC, carrying extra inventory, and paying more in inbound freight to supply a more distant distribution center. At the end of the day can I save money and grow sales? That’s where it gets tricky.

LM: What is technology’s role in supply chain network re-design?

Hobkirk: There are two ways that software can help with this analysis: strategy and execution. Companies have to first determine what the best overall network looks like— how many DCs should you have, where should they be located, and what are the best inbound ports-of-entry to re-supply the DCs. Supply chain network design software can help evaluate these decisions.

Then, there are other levels of detail that have to be looked at, such as what inventory should be stocked in the DCs, and what’s the best outbound transportation strategy to boost service levels and minimize costs. Inventory optimization software and transportation optimization software can really drill down into these issues.

Once the network strategy is set, companies next have to determine if they have the right decision-support technology to actually execute the plan in a more complex environment with lots of choices for how to best fulfill an order. Technologies like distributed order management (DOM) and transportation management software (TMS) can be useful tools on the tactical level.

LM: How does network design software work?

Hobkirk: For the strategy element, technology like supply chain network design software can help companies map out how many DCs they should have and what they need to stock in them. These software systems evaluate a number of trade-offs such as inbound versus outbound freight costs, DC operating expenses, and inventory carrying costs.

They can adjust for varying regional factors like labor and occupancy rates and tax structures. Companies can explore scenarios that involve filling e-commerce orders from retail stores, and how this approach might reduce capital investment in additional DCs in some regions. Network design software takes a structure of rates that is defined by carrier contracts, distribution processing rates, and labor costs and uses them to project total operating expenses based on actual historical sales orders with allowances for growth.

A broad strategy can be defined by using this sort of technology. Often, that strategy can be further refined by using transportation optimization software that can drill into more complex modal strategies—like parcel zone skipping and the use of regional parcel carriers.

Specific inventory stocking strategies and costs can be defined with the help of inventory optimization software. At the end of a strategic study like this, companies will know what their ideal network looks like, what kinds of service levels they can achieve, and at what point of scale they can start to see net savings in operating expenses from making the change.

LM: What advice do you have for logistics management professionals who now need to re-think their supply chain networks?

Hobkirk: Act now. If you wait until you start losing market share, you’ll have a deep hole to dig out of and your competitors will gain a foothold that may be impossible to ever fully remedy. Supply chain network design studies typically take three months to complete, and you’ll need to start with this process.

You can either purchase a license to the necessary software, or work with a consulting firm that already has a license as well as broad experience in seeing past the numbers and evaluating the qualitative factors as well.

Within about three months you’ll know what the best strategy is both from a service and cost perspective, and whether the time to act is now or at some future point of growth. After the course it set, then all of the smaller supply chain decisions can be made within this broader context.

The pandemic has caused the e-commerce shift to take a multi-year leap forward—companies that have been thinking about expanding their network can’t afford to put off a real analysis any longer.

Advancing transportation management systems

LM: Logistics managers are now forced to manage through wildly imbalanced freight networks, tightening capacity, skyrocketing rates, driver shortages and unreasonable customer expectations. How would you define this current freight management environment?

Bill Brooks: Unprecedented. That term has been used a lot during this pandemic, but it’s accurate. There hasn’t been anything like it in our lifetime. The old adage was ‘necessity is the mother of invention,’ but in our times we’re solving the new challenges by simply putting existing technology to work in new ways. In a lot of instances, it’s that we’re using what we’ve learned or are using it elsewhere and then re-applying it to our current needs.

LM: What would you say are the biggest challenges logistics managers are facing due to this new current freight environment?

Brooks: The ability to adjust on the fly. The facts change, circumstances change, and a lot of the situations we didn’t even think would be possible or even relevant. So, we have to be able to adjust quickly, and change course at a moment’s notice. We need to shift our companies to either propel ourselves or protect ourselves based on a series of events or data that a few months ago we didn’t think would ever be applicable. And, of course, data is critical in that process.

LM: One could say that a “silver lining” to the pandemic is that it’s accelerating the use of technology to better manage freight. Are you seeing this happen or is it wishful thinking?

Brooks: I’d say it’s definitely happening. The companies that embrace the technology and the ‘new normal’ are going to be the ones that not only survive these times, but thrive. They will be able to adjust and still meet their customers’ demands, save on vendor costs, and develop new opportunities that take advantage of the knowledge they have and thus increase their market share.

LM: As transportation management gets more complex, are more technology vendors also integrating more advanced options into their platforms to help shippers wrap their arms around these complexities? If so, what are you seeing?

Brooks: Yes, you’re definitely seeing more advanced transportation management systems. Software is dynamic and changing at least annually and in most cases monthly. Thus, software as a service (SaaS) is more prevalent, so you can always be up to date. The Cloud is being more and more utilized so you can manage the large volume data—and quickly and easily.

And, finally, new technology such as sensors, Internet of Things (IoT), artificial intelligence (AI), and machine learning (ML) are driving costs down, improving accuracy, providing real-time data updates, and getting it all to either our customers or our supply chain leadership teams faster and with more detail than ever before.

LM: Can you share an example of how this advanced transportation management solution would work?

Brooks: It obviously depends on the company, but it would be a combination of things. It would not be a complete overhaul of existing systems, but I’d see an add-on in various places that would take advantage of a host of items such as TMS, data analytics, AI, sensors, ML, 5G computing, Cloud storage—and with as much as integration as possible to feed the existing systems across the enterprise.

LM: What would be the greatest benefit to logistics mangers?

Brooks: They’d be getting better data in the right hands at a faster pace than ever before. Thus, they can save money, make more money, and increase market share—all at the same time because we’re enabling them to use their expertise, but we’re enhancing that ability.

LM: For shippers who are looking to invest in TMS and a more advanced approach to transportation management in 2021, what should they be looking for?

Brooks: They need to look for software that is agile and can be updated very easily; that utilizes the Cloud and can grow as the data volume grows; that uses the latest technology whether it’s 5G, sensors, AI, ML or whatever the latest technology is at that time; that integrates into the rest of their systems so they’re not reinventing all the time or have data that they can’t access; and that’s cost effective and an enabler, not a detractor.

The rise of goods-to-person systems to combat labor issues

LM: How would you define the current overall fulfillment logistics environment as we roll through recovery?

Klappich: Many factors are driving increased demand for warehouse automation, and especially operational robotics. Labor constraints, rising wages, competition, customer demands for increasingly short lead times to same-day for curb side pick-up/click-and-collect are putting huge pressure on businesses of all sorts.

The Amazon affect, direct-to-consumer, and growth in omni-channel retail have dramatically changed the order mix and order profile for logistics operations across industries. Combine this with massive increases in order volume and velocity, and companies must seek new ways of managing their logistics operations.

People-centric processes that have been in place, and minimally changed, for the last 50 years, are now obsolete in the new high-volume, high-velocity world businesses now call home. The solution is shifting work from people to automation, notably robots.

LM: The labor crisis was already on the rise pre-pandemic. How has this current environment aggravated
the crisis?

Klappich: A Gartner study found that when asked what their main motivation for seeking warehouse automation was, nearly half of the respondents said that it was labor availability constraints not labor cost. This study was done pre-pandemic, but anecdotal evidence from Gartner client interactions since then suggests the problem continues even with higher-levels
of unemployment.

Companies say it’s hard to find and hire people, on-board them and get them productive—and then turnover is very high. This is a vicious cycle that repeats itself over and over. One customer in Latin America explained that while labor costs were low, they had over 100% employee turnover per year, and the continuous on-boarding issues made investing in automation justifiable.

LM: How has technology played a role in solving this current labor challenge? Has there been a particular solution that’s rising up to meet these new, very specific challenges?

Klappich: To address these challenges, companies across all industries and of all sizes are looking to automation and robotics to help them profitably address these issues and serve this new and more demanding consumer. Profitability is the key.

Automation is not new, and companies have been automating warehousing operations for more than 40 years. While these conventional material handling systems are proven and the technologies are largely mature, they came at a steep price tag, and the time-to-value and payback periods were too long for many companies, especially 3PLs and retailers that live on thin margins.

For a long time, companies had to find the balance between automated and human driven processes. Indeed, in some environments (e.g., full pallets and case picking) automation has gained some traction, but the majority of companies remain minimally automated if automated at all. Robotics is changing this calculus, making automation now something companies of all sizes and maturity can consider.

LM: How are you seeing goods-to-person systems being put the work and what would you say are the biggest benefits?

Klappich: Robotic goods-to-person (G2P) systems reduce travel by keeping a human in one place and letting the robots do all the movements of goods to and from the human. This approach carries low upfront costs and the ability to deploy within a few weeks with minimal infrastructure impact.

These solutions are well suited to e-commerce, and now in some cases micro-fulfillment, because the way the robots move the goods is on portable racks where typically multiple items are stored on the incoming rack and the picker is picking to multiple orders on outgoing racks. Goods-to-person solutions also enable soft enforcement of social distancing by placing people six feet or more apart while the robots move around.

There are a variety of G2P-type solutions from the above-mentioned, floor-robotics solutions, but there are other examples of engineered G2P solutions and shuttle systems that also provide goods-to-person capabilities. These engineered systems are often slightly more costly, but offer additional benefits such as high-density storage that’s
critical to some retailers

LM: What’s next for goods-to-person technology?

Klappich: While soft social-distancing has been a key motivator during the pandemic, the productivity benefits will remain and be the prime drivers moving forward. Rapid time to value, lower up-front costs, adaptability and scalability make G2P as it is today very appealing to many companies.

Moving forward, G2P will evolve to goods-to-robot and goods-to-robot-to-robot replacing the human picker with intelligent collaborative picking robots. Companies like RightHand Robotics and iAm robotics offer stationary robotic-picking systems that are being combined with G2P systems.

Also, back in March, Boston Dynamics announced availability of its first logistics robot Stretch that combines a mobile robot and robotic picking arm that has many potential use cases. Bottom line: As the robotic technologies continue to mature, we anticipate more convergence of robotic systems like G2P and picking robots to drive efficiency even higher.

Optimizing e-commerce automation systems

LM: How would you would you best define the current environment inside today’s warehouse and DC operations?

Norm Saenz: Competition is fierce in the e-commerce world, with almost everyone looking to get a piece of this booming market channel. This has forced many business managers to identify space within their network of facilities to establish operations, equipment, and systems to process fulfillment orders.

And, the pressure increases with same- and next-day delivery demands to compete against the leaders in the industry. These business managers are pushing aggressive initiatives to add automation to get ready for the next peak season to enable more volume with a more productive workforce.

LM: Is there any way to roll up one or two of the biggest challenges facing warehouse and DC operations considering this new pressurized environment?

Saenz: It would have to be labor. The biggest challenges navigating labor this year will continue to be maintaining the proper staffing levels and using the right balance of automation to deliver on expected service levels while controlling costs. Regardless of the productivity gained with automation, there’s always labor required to operate a facility. The challenge is avoiding under-staffing, over-staffing and spending too much on systems to control the total distribution cost per unit.

LM: Given that this is one of the most unique environments we’ve ever seen inside our operations, are you seeing any predominant technology trends being applied to help tackle these significant challenges?

Saenz: We’ve never seen this much consideration in technology and automation. There has been an explosion in the use of advanced technologies, including put-walls, unit sorters, shuttle systems, AMRs, auto-stores, AS/RS and more. The real trend is the increase in evaluation of these and other automated technologies.

Depending on the level of existing technology, it’s always wise to start with a lower cost design involving more traditional solutions, and use that as the baseline to justifying advanced technologies. It can be tempting to skip the planning and justification phase, but that often results in a failed system design and implementation.

LM: From a practical perspective, what seems to be working best in terms of meeting the new fulfillment challenges?

Saenz: What works best for one company is likely different for another, so there really is not ‘one solution fits all’ to meet fulfillment challenges. This means that an ‘out of the box’ automated design is not going to solve your fulfillment challenges.

Most automated designs are going to struggle to provide expected results without proper quality item data (i.e. size, weight), order profile alignment, effective slotting strategies, optimized wave planning, quality systems integration, and other design factors.

If the directive is to “add automation” to lower operating costs, it’s import to still spend the time preparing accurate planning data, evaluating alternative designs, and discovering the right-fit technology for your specific business.

LM: Taking all the technology and automation you see being applied, are there any tried and true pieces that continue to be overlooked as a solution to today’s increased fulfillment pressures?

Saenz: The most basic overlooked design factor is the pick storage media used to hold inventory for order fulfillment. This is often the lowest cost part of a design, but under sizing pick locations can crush throughput volumes. This is true for basic shelving, carton flow, and pallet flow pick multi-level platforms—but also for automated systems using totes.

If the storage or pick media equipment is inappropriately sized to support an effective day’s worth of supply, then fulfillment screeches to a stop. A proper design is based on having a quality item master (i.e. size, weight) and forecast information.

But, once an initial design is set-up, it will begin to fail over time if slotting isn’t evaluated and maintained on an on-going basis.

Business seasonality and new SKUs can quickly change what use to be an effective slotting design. For continuous improvement, slotting software within your existing WMS—or a separate integrated system—is a must-have to sustain expected productivity levels.

LM: What advice do you have for logistics operations managers who are looking to accelerate their use of technology?

Saenz: As mentioned, the key is having the planning data required to identify, develop and manage an efficient operation. If a robust item master is lacking, then invest the equipment, labor, and space required to collect this information. And, establish an on-going practice of collecting this information for new items arriving in the facility.

It’s important to have a single managed item master across multiple facilities to leverage this valuable information. Armed with a solid item master, order history, forecasts and inventory projections, a business can make informed decisions to support their specific needs.