John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
Given Americans' infatuation with all things large—whether it's sport utility vehicles that break the five-ton barrier or larger-than-life TV screens—it's hardly surprising that the distribution centers through which all those items pass are being super-sized as well. And it's not just the Wal-Marts and Targets of the world that boast facilities whose square footage is measured in the millions. When Columbia Sportswear dedicated its new 550,000- square-foot distribution center in Kentucky early this year, CEO Tim Boyle hastened to assure onlookers that the company was committed to making it a bigger operation "as quickly as we can." And that wasn't just talk. Columbia, whose goal is to operate a DC in the one million square foot range, has already completed land preparation on an adjacent lot for an expansion in the not-too-distant future.
But not everyone is convinced that bigger is better. The pharmacy chain CVS opened a DC measuring just 400,000 square feet in Ennis, Texas, this past fall. And far from apologizing for its size, Kevin Smith, the chain's senior vice president of supply chain and logistics, touts it as a selling point. The Ennis facility, he claims, will service the same volume and number of stores as a DC twice its size. Let the others keep building their mega-structures, he says; CVS will be sticking with the "small is beautiful" philosophy going forward. "We've determined that the optimal operating model for the future will [feature] less labor, more automation and a smaller footprint."
What's the attraction of that smaller footprint? It's partly about productivity. "There are distinct productivity opportunities with smaller DCs," says Smith."Engineering studies show that for every 100,000 square feet you expand a DC beyond 500,000 square feet, you give up 10 to 12 percent of productivity. At a large DC, 70 percent of labor time is spent traveling to select an item or to put something away. That is unproductive time for us, so small is better."
Another consideration is the rising cost of real estate and construction in the parts of the country where CVS does business. "Over the years, DCs have become bigger and bigger, primarily because there is a belief that there is an administrative benefit to running one large facility as opposed to two small ones," says Smith. "But there are drawbacks to large buildings. They require large investments in land and building construction."
Rx for a labor shortage
But beyond cost and real estate considerations, CVS believes there's an even more compelling reason for investing in smaller, but more automated, facilities: a projected shortage of labor. Smith is convinced that declining birth rates and the emergence of alternative service-oriented jobs will significantly drain the labor pool available to DCs in coming years.
It's clear that CVS's management has given a great deal of thought to how it will cope with that shortage. "What we need to do is develop an environment that attracts enough labor to our operations, but that capitalizes on automation as much as possible to limit our dependence on labor," Smith says."Of course,we will always need people to move product. There is simply no reasonable substitute … for the flexibility of the human hand when it comes to picking the 20,000 odd items that we pick and ship every day."
Though CVS's distribution operations will always rely on workers to some degree, Smith says the company has made every effort to reduce its dependency on labor. For example, when it built the Ennis facility, CVS installed a state-of-theart material handling system. Designed by Witron, the system uses extensive automatic storage and retrieval technology to present items to pickers as needed. Key features include Witron's Dynamic Picking System for piece-picked items and its Module Picking System for items picked in full cases.
If the automated system performs as projected, CVS will consider it money well spent. The pharmacy chain, which currently operates 13 regional DCs that total 7.2 million square feet, is in the midst of reorganizing its DC base after acquiring the 1,260-store Eckerd chain last year. Plans call for the company's DC in Garland, Texas, which is 35 miles down the road from Ennis, to be closed by July, with the Ennis facility picking up the slack. "By next summer we will be servicing our 5,375 stores from 7.2 million square feet in 12 DCs," says Smith. "… That means we'll absorb $7 billion of additional sales [from the Eckerd merger] and do it from one less DC."
Those savings all add up for CVS, a company that considers logistics to be a core competency. "The contribution we make is non-marginable," says Smith. "Every dollar we save goes directly to the bottom line and represents a dollar of profit. Over the past few years, we've been able to save lots of [money] through process improvements, inventory control and good labor management."
It appears that the company has achieved those results without sacrificing performance. Smith reports that the logistics group has maintained an on-time delivery rate of 98.4 percent (within a 15- minute window) for the 300,000 store deliveries made each year and an inventory turn rate of five turns per year. But that hasn't kept it from striving for improvement. "We continue to pursue the ?Wow' factor," he says. "We want our competitors and our suppliers to shake their heads and ask ?How do they operate at such low costs with such high quality and accuracy and instock rates?'"
location, location, location
When a new rule limiting how long truck drivers can stay on the road took effect in January 2004, it wasn't just drivers and fleet managers who were thrown for a loop. The managers who oversee distribution networks found their operating models shaken to the core as well. For decades, it's been common practice to operate a few strategically located super-sized DCs, from which truckers would fan out to cover far-flung geographic territories. But now that drivers face severe restrictions on how long they can remain on the road, DC managers are beginning to wonder if they wouldn't be better off with more, smaller DCs.
"Some companies are evaluating if they should go to smaller DCs in order to provide more just-in-time deliveries to their retail locations …," says Erin Henderson, manager of site selection and economic development for The Facility Group. "The old trucking laws played a part in [justifying] large DCs, but because the new law requires drivers to have more rest time, retailers are realizing they can't meet their daily delivery requirements."
What's sparked all the turmoil are provisions in the new federal truck driver hours-of-service (HOS) rule mandating more rest time for drivers. Prior to Jan. 4, 2004, when the new regulations kicked in, drivers had the flexibility of using mid-day breaks to extend the on-duty period if necessary. But the new rule, which was aimed at preventing accidents caused by driver fatigue, eliminated that option. It also limited drivers to a maximum of 11 hours of driving in a 14-hour shift (in contrast to the former 10 hours of driving within a 15- hour shift). A shift cannot begin unless the driver has taken at least 10 hours off, and each shift must be followed by at least another 10 hours off.
Some of the loudest rumblings are coming from companies that supply retailers scattered throughout the Southeast. It's been generally held that the I-85 corridor just north of Atlanta is the best location from which to serve the Southeast. Now, however, that's been called into question. The time restrictions have made it much tougher for Florida-bound drivers to reach their destinations in a single shift. Things only got worse recently when the city of Atlanta banned trucks from entering the city unless they had a bill of lading for a delivery inside city limits, depriving truckers of a traditional shortcut.
But what's bad news for truckers may be welcome news for real estate developers in places like Fayetteville and Hampton, Ga. Facing a logistical nightmare, some companies are said to be considering revamping their DC networks with an eye toward opening facilities in communities not north, but south of Atlanta.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.