It could have saved thousands of dollars by taking the "slap on RFID and ship" route, but vitamin-maker Schiff thinks its full-blown RFID project will have a bigger payoff in the end.
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.
If Rod Farrimond ever tires of his career in information technology, he should have no problem landing a job in sales—not after the coup he pulled off last spring. Farrimond works for Salt Lake City-based Schiff Nutrition International, a maker of vitamins and nutritional supplements, but his sales feat had nothing to do with multi-year contracts for Tiger's Milk bars or Glucosamine Gelcaps. What Farrimond pulled off was a feat of a whole other order of magnitude: He convinced management to sink nearly half a million dollars into a project that offered virtually no prospect of a conventional ROI.
The story began with a mandate from Wal-Mart. In March 2006, Schiff got word that if it wanted to continue doing business with the mega-retailer, it had until January 2007 to start putting RFID tags on the cases and pallets it ships to Wal-Mart's DCs. That created a dilemma for Schiff, which had yet to get started with RFID. It wasn't a question of whether or not to comply with the mandate (it would). It was a question of how deeply to get involved with RFID to accommodate a single customer whose business represented less than 1 percent of the company's total volume.
For many suppliers in Schiff 's position, the answer would have been obvious: slap and ship. They'd buy some tags, slap them on the shipments that required them, and hope for the best. But Farrimond, who is the company's manager of business analysis, rejected that idea from the start. Though slap and ship might be cheaper in the short term, he felt Schiff would be better off finding a scaleable solution that would allow it to meet similar requests from other customers down the road. (At press time, Schiff had been asked to start shipping RFID-tagged product to a Sam's Club DC in Desoto, Texas.)
As reasonable as that argument might sound, it would still be tough to sell to management. That main hurdle? Return on investment (ROI). Farrimond's back-of-an envelope calculations showed that only 180 of the 25,000 cases the company ships each week would require tags, which meant Schiff wouldn't see any operational savings right away. He'd have to persuade management that the payback would come elsewhere in the supply chain. As Farrimond puts it, "We're not going to see it come back in any hard form of ROI, but we believe it'll be there. RFID is a supply chain initiative, and ROI studies usually have a hard time dealing with the fact that the ROI may not come within your own four walls."
In meeting after meeting, Farrimond laid out his case. Schiff might not see savings in its operating costs for a while, but it would almost certainly see sales growth through a reduction in out-of-stocks and increased inventory turns at Wal-Mart. "When that occurs,"he notes,"then our top-line growth accelerates. It'll probably never be attributed directly to RFID, but it's good for the company. We had to talk long and hard to our executive team about why that's important."
The right stuff
In the end, Farrimond's arguments carried the day. Management gave the project the green light and approved a budget of $465,000 for the RFID initiative. But as the project got under way, Farrimond began to wonder whether pitching RFID to management might not have been the easy part. In a matter of months, he and his team would have to design a system from the ground up, choosing the tags, readers, and middleware that best met their requirements. There was the added pressure to get it right the first time because Schiff, a mid-sized company (it recorded $178 million in sales in 2006), didn't have the luxury of limitless funds.
Rather than try to design the system on his own, Farrimond decided to consult with the experts. Over the next few months, he made several trips to IBM's RFID testing lab in Raleigh, N.C., to get recommendations from the center's specialists and test different types of equipment. He wanted to find a solution that would work for both cases and pallets, including mixed pallets, and that wouldn't require wholesale changes to the DC's operations. For example, the system had to allow DC workers to stack cases on pallets the usual way without worrying about the orientation of the tags.
On top of that, the solution had to be fully scaleable. "Schiff wanted a solution that not only offered enhanced productivity, but was also interoperable with other supply chain partners, highly scaleable, and replicable for future customers and their unique specifications," says Scott Burroughs, middleware software solutions executive for IBM Software Group.
In just 12 weeks, specialists from IBM and systems integrator OATSystems helped Farrimond come up with a system that's able to read tags on mixed pallets containing over 100 cases with 100 percent accuracy. "We know that all the cases on that pallet actually belong there, and we are able to associate a certain pallet with a particular sales order, and we know everything about the sales order and all the EPC numbers that went with the sales order," says Farrimond. Eventually, Schiff will be able to use the data collected to create an electronic "pedigree" that can be used to document the products' movement throughout the supply chain, verifying their authenticity and deterring counterfeiters.
The company rolled out the RFID system in late October at its DC in Salt Lake City. After a two-week trial period, it shipped its first RFIDtagged pallet to Wal-Mart in mid-November. In January, it began shipping tagged cases (corrugated cases of plastic bottles containing tablets and capsules) to three RFID-enabled Wal-Mart DCs. Farrimond reports that Wal- Mart achieves read rates of about 96 percent at its DC, which is slightly better than the average read rates recorded by the retailer. Schiff currently tags six stock-keeping units (SKUs), but Farrimond expects to increase the number to 15 shortly.
As for the cost, the project came in 30 percent under budget. The company had allocated $465,000 for the RFID initiative; Farrimond and his team spent only $323,000.
The next act
Right now, Schiff is using its RFID system purely for compliance with Wal-Mart's mandate. But it soon will begin taking advantage of the technology in other ways. For example, the company plans to start attaching RFID tags to promotional displays bound for the sales floor at Sam's Club stores sometime this month. "We're talking about putting a 20-cent tag on a $1,000 display of products," says Farrimond, "and being able to make sure that pallet is out on the floor when it should be. That type of thing has an immediate payback."
In the meantime, Farrimond has begun to identify possible ways to integrate the technology into the company's internal operations as tag use becomes more widespread. For example, he foresees a day when Schiff will be able to use automatic RFID reads, rather than laborintensive bar-code scans, to collect data for advance ship notices (ASNs).
Eventually, Schiff will be able to use the data gleaned from RFID reads to trace inventory down to the store level. "That's where the real gold is, and we're helping them to mine that gold by capturing the data and analyzing it downstream," says Paul Cataldo, vice president of marketing at middleware provider OATSystems.
That tracing capability will enable Schiff to confirm that its deliveries have been received at customers' DCs, which will help resolve disputes in cases where, say, a retailer claims to have received only 58 of the 60 cases it ordered. "We can look at our information pOréal and start to look for those case reads if there is a discrepancy," says Farrimond."If we see all 60 case reads, we can tell them that either their hand count was wrong or something else happened. We'll have the ability to tell them what distribution center received them and which store they were shipped to."
An equal opportunity technology
Though small and mid-sized companies often assume that RFID is out of their reach, Schiff 's experience shows that it's not just for the giants, says Farrimond. "One reason we wanted to share this story," he says, "is to point out that if you are smart and do it well and get a good partner to implement with, then even small and medium-sized businesses can do this without damaging your profitability."
What they need to understand, he adds, is that the ROI is unlikely to come from the traditional sources (like operational savings) but rather, from increased revenues elsewhere in the supply chain. "You have to recognize that it's the supply chain that becomes more successful, and not necessarily [operations within] your four walls. The ROI will come when the supply chain is more efficient and you can sell more things or sell them faster. If people realize that this little company can do it for 1 percent of [its] volume, then maybe others will realize they can figure out how to do it as well."
"we've got it on tape"
Not so long ago, a company that took the RFID plunge— investing in the technology in hopes of streamlining its logistics operations—could expect to wait three to five years for a payback. But that's starting to change. Someday soon, the average payback period for RFID projects could drop into the range normally associated with warehouse management systems and other software.
In fact, reports are beginning to trickle in about companies whose innovative applications are paying for themselves in 12 months or less. Take electronics giant Sony, which has combined item-level RFID tagging and digital video at its distribution center in the Netherlands. Sony expects to see a return on its RFID investment in under a year, due to the products' high value (the facility handles digital cameras and camcorders) and the volume of orders shipped from the site. (Currently, the electronics giant is moving 60 pallets of item-level tagged goods through the DC every hour, with plans to increase the volume.) The payoff, it says, will come in the form of increased shipping efficiency, reduced shrinkage, and a streamlined claims process.
For the project, which went live at its primary European DC in Tilburg earlier this year, Sony is using RFID tags from UPM Raflatac and Reva Systems' Tag Acquisition Processor (TAP) system, which filters RFID data from networked RFID readers, manages those readers, and sends the data to back-end systems.
Sony tags products to be shipped with RFID labels and then records the items' IDs at each stage of the fulfillment process, as they are picked, stacked, and shrink-wrapped on pallets. An automated video system records the process, burns RFID data onto the video image, and indexes the MPEG4 video stream according to the RFID information. The system also logs pallet movement through dock doors and onto trailers, combining video and RFID to provide visual and electronic proof of delivery.
Among other benefits, the new system is expected to help Sony resolve difficulties confirming deliveries to major retailers during peak shipping periods. In the event of a dispute, Sony will be able to provide not just electronic shipment confirmation, but also video proof that the items have been loaded onto trucks and shipped.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."