Plenty of companies have launched inventory projects that saved them some money. But how many have saved an amount equivalent to the GDP of a small country?
David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
For some of us, an impulse buy at the hardware store means a light-up keychain. For others, apparently, it's a riding mower or utility tractor outfitted with a 6.5-bushel rear bagger, 48-inch front blade or 12-volt oscillating fan.
You read that right. According to someone who should know—Loren Troyer, director of order fulfillment for Deere & Co.'s Commercial and Consumer Equipment Division—most of the company's riding mowers, garden tractors and ATVs are bought on impulse by customers who drop by a hardware store for a hammer or set of hinges. Once that shiny green riding mower or tractor catches their eye, however, hammers and hinges are quickly forgotten.
Those impulse purchases also tend to be highly seasonal (two-thirds of Deere's annual retail sales occur between April and July). Taken together, those two factors pretty much explain why Deere's dealers are eager to stock as many tractors and mowers as they can store. And in the past, that's exactly what they did—with the company's blessing. To encourage dealers to stock (and by extension, sell) as many vehicles as possible, Deere offered them free financing.
As much as the dealers may have liked that arrangement, not everybody was happy. The finance people in particular had begun to question the wisdom of tying up so much money in inventory. "[W]e basically encouraged our 2,500 dealers in North America to stock as much as they could," says Troyer. "[A]s a result, two-thirds of our entire assets as a division consisted of finished goods either at the warehouse or at the dealers."
Translated into dollars, those inventories represented a whopping $1.4 billion in 2001. And all indications were that inventories would continue to swell. Deere's own growth projections showed that if it continued on its current course, the division would be carrying as much as $2 billion in inventory in four years' time.
Crunch time
Faced with those projections, the company realized it was time to move forward with an inventory optimization project. In 2001, it began a search for software powerful enough to optimize inventories at various stages of the supply chain and on through to the showrooms of its 2,500 dealers. Specifically, what Deere needed was software that would help it determine optimal stocking levels for its plants, warehouses and dealers, balancing the desire to keep inventories to a minimum with the need to maintain sufficient stocks to avoid hurting sales.
It didn't take long for word to reach Deere of an emerging company, SmartOps. And what it heard captured its attention: The new company reportedly specialized in sophisticated supply chain optimization, and its program appeared to be particularly well suited to a multistage supply chain like Deere's.
If the company was new, its basic premise was not. The launch of the Pittsburgh-based SmartOps actually represented the culmination of a decade's worth of research by its founder, Dr. Sridhar Tayur, a professor of operations management and research at Carnegie Mellon University (CMU), and his colleagues at CMU.
What they were bringing to market was no less than a revolutionary approach to inventory optimization. Unlike the typical inventory software of the day, which essentially assumed that nothing would change once the plan was created, the SmartOps model was designed to take uncertainty into account—reflecting the real-life potential for floods, port congestion, labor disruptions, hurricanes, and so forth.
To do that, Tayur and his colleagues created algorithms that took traditional supply chain information (lead times, historical demand, growth projections) and combined it with data on unexpected occurrences, including how likely they were and how they would affect supply and demand. As difficult as that may sound, the researchers felt they could do nothing less. "The modeling has to represent the complexity of the real supply chain and the software must be robust enough to reflect real world conditions," says Martin Barkman, SmartOps' senior vice president for commercial operations.
Getting dealer buy-in
In 2001, Deere embarked on a pilot program with SmartOps to model different ways to reduce its inventory by 50 percent. Some of the information fed into the model was standard stuff: historical data on dealers' prior sales, dealers' projections for future sales, desired customer service levels, the company's growth projections, lead times, and shipping frequency, for example. Other information—like data on variability— was decidedly out of the ordinary.
The result was a detailed inventory model that forecast how much inventory Deere would need—no more and no less—and where that inventory should be stored. "The overall goal," says Barkman, "is to drop inventories, not service." But executing on the model would not simply be a matter of cutting inventories. Early in the project, Deere's managers had realized that the initiative would also require them to overhaul their distribution and logistics processes. The company could hardly ask dealers to slash their stocks without assurances that it would be able to whisk replenishments to them if the need arose. "It's actually not [simply] an issue of what we stocked," says Troyer, "but whether we could get product to our dealers when they needed it. We needed to improve our order filling and delivery."
Providing those assurances wouldn't be easy. The division's on-time delivery record was not likely to inspire confidence. In 2002, for example, it had only managed to get merchandise to dealers when they wanted it 50 percent of the time. Its record for delivering merchandise on its promised date wasn't much better—63 percent.
Supply chain overhaul
Still, Deere attacked the project with gusto, setting aggressive goals for improving order fulfillment and delivery performance. One of those goals, for example, was to cut the time it took to respond to dealer demands to two days. To do that, it has begun hiring third-party logistics service providers to stock some products closer to dealers to cut down on replenishment times (and transit costs).
Another goal was to boost efficiency. Here again, the SmartOps optimization tools proved helpful. Deere used the software to optimize its factory-to-dealer transportation. "You can't change the physics of moving product from Point A to Point B, but you can move it smarter," says Troyer. By loading its trucks more efficiently,Deere has improved truck utilization by 20 percent. Troyer projects that those savings alone will pay for the third-party services.
Through these and other initiatives, Deere has cut its order-to-delivery cycle from several weeks to five to seven days. Its on-time delivery performance has skyrocketed as well. The division that once struggled to deliver just half its shipments when the dealers wanted them now boasts a success rate of 88 percent. Likewise, the division now makes good on its delivery promises not 63, but 93, percent of the time.
With such consistent improvements, Deere had little trouble convincing dealers to cooperate with the new inventory program. Over the next few years, it gradually reduced inventory to the levels considered optimal for each dealer. In the meantime, it has adopted a new financing program designed to discourage dealers from carrying excess inventory. Today, the division finances only the recommended amount of stock for each dealer (as determined by the software). Dealers can purchase more vehicles and accessories if they wish, but they must finance those purchases themselves.
Less is more
It's fair to say Deere & Co. looks at inventory—and indeed, its supply chain—in a whole new light these days. "Historically, we had to increase our inventory to support higher sales," says Troyer. "But now we realize we have to turn our inventory faster and be more flexible. Today, we are much closer to having the right amount of stock at the dealers and ... in our warehouse for what we will need to replenish for the next couple of weeks."
That's not to imply that Deere rigidly adheres to the original SmartOps model's stocking recommendations. Rather, the SmartOps software continuously evaluates and adjusts inventories based on current sales and other factors. "Inventory reduction is a journey," says Troyer, "not a destination."
How far has Deere come on that inventory-reduction journey? Quite a ways, it seems. Incredibly, the program has produced inventory savings that approach the GDP of a small country—say, an Andorra or Guinea-Bissau. In 2001, the Commercial and Consumer Equipment Division carried $1.4 billion in inventory and projected it would be carrying $2 billion by 2005. Today, it maintains a total inventory of just $900 million—$1.1 billion less than its original estimate for 2005.
And Deere is saving more than just inventory expenses. If the division had continued on its original course, it would have been forced to expand its infrastructure to accommodate the mountains of inventory. At the very least, says Troyer, Deere would have had to enlarge some of its distribution facilities. But so far, that hasn't been necessary.
The inventory savings have also helped offset rising materials costs, like the steel and plastics used to make tractors. That alone has gone a long way toward helping the division and its dealers remain competitive in a tough market. "Our dealers now understand that," says Troyer, who acknowledges that the project's success depended heavily on the dealers' cooperation and support. "It's such a mindset change from the days when our philosophy was to bury them in inventory."
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.