James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
Four years after entering the U.S. Computer market, Fujitsu Computer Systems Corp. had a revelation. To succeed in this highly competitive arena, it would need to move faster and manage its inventory and costs more aggressively. The way to get there: a flexible supply chain made possible by rapid replenishment.
But Fujitsu's drive to boost its flexibility didn't end with retooling its supply chain. The company has also proved to be flexible when it comes to adapting its rapid replenishment model to meet current supply chain realities. Over the years, for example, Fujitsu has tweaked its demand planning process to shorten lead times. It has also blunted the impact of soaring fuel costs by adjusting its shipping and production processes in a bid to take advantage of the most cost-effective transportation modes.
Aligning supply with demand
Fujitsu Computer Systems, which is the U.S. subsidiary of Tokyo-based Fujitsu Ltd., first entered the competitive North American computer market in 1996. In the beginning, the company, which was making products to forecast, often found itself struggling to turn a profit. Before long, it realized that it needed to find a business model that would allow it to better align inventory with customer demand.
To that end, Fujitsu turned to a make-to-order manufacturing strategy and a direct-ship delivery model, also known as the "rapid replenishment" approach. Under this model, the Sunnyvale, Calif.-based company takes orders from U.S. customers for its laptop and server computers, builds them to customer specifications in Japan, and then ships the finished product across the Pacific to the United States.
A major advantage of rapid replenishment is its extreme flexibility. The business model virtually eliminates the need to keep inventory in stock (and enables the company to turn what inventory it does have 50 times a year). "Because we have no inventory in the pipeline, we are able to change and react very quickly to market conditions," says Kevin P. Wrenn, senior vice president of PC business and operations. "Our ability to respond to the market gives us total flexibility with our business model."
Keeping tabs on demand
The company set the stage for its shift to rapid replenishment by creating a front-end Web interface to process orders from both consumers and businesses. Initially, Fujitsu used the Web mechanism only for personal computer orders. But the approach worked so well that the company has since expanded it to include orders for servers and storage devices. All communication with customers regarding product and order information is handled online.
The order site for businesses also features a tool that provides potential customers with price quotes. "The quote tool database and the order management database are linked so there's no duplication of effort," says Wrenn. "By linking up the quote number, order entry is seamless, and it saves us a lot of time and improves the customer experience."
Once an order is placed on the Web site, the system automatically calculates a delivery date based on parts availability in Fujitsu's Japanese factories. The personal computers are made to order in a plant in Shimane, Japan, while the larger server computers are built in a facility in Kasashima, Japan. The two factories use a pull system to get parts from more than a hundred suppliers. Key vendors also locate stock near the factory in order to respond rapidly to requests for replenishments.
Each day, the U.S. operation feeds order information to the factories for use in demand planning. Fujitsu's homegrown demand planning application then looks at the customer demand data and adjusts production on a daily basis, rather than waiting for a weekly forecast.
Because the product configurations are limited, it's a relatively simple matter for the Fujitsu factories to keep tabs on their parts needs. "In terms of hard drives and memory, there are only a small number of components they need to manage," Wrenn says.
But the business hasn't always operated that way. Four years ago, the U.S. operation tried to engage in demand planning as well. The company, however, soon concluded that the method ended up duplicating work and has since decided to leave it to the factories to assess parts needs. The result has been an improvement in the stability of supply and a 30-percent reduction in lead times. "We spend our focus on keeping component flexibility at the factory," Wrenn explains. "There's no such thing as forecasts. It's all about how you manage demand."
Fast response
Once the computers are finished, they're shipped out to the United States in a couple of different ways. Personal computers assembled at the Shimane factory are generally trucked to Kansai International Airport about six hours away in Osaka.
From here, Fujitsu ships them via direct flights to regional hubs in the United States. At the hubs, the shipments are broken out and sorted for final delivery. Wrenn says that personal computer orders are usually delivered in four to six days. In fact, an order placed on Monday generally ships by Friday.
Deliveries for servers are handled somewhat differently. These shipments are turned over to freight forwarders, which manage the movement of the goods from the Kasashima plant to one of six U.S. gateways: New York, Atlanta, Dallas, Los Angeles, San Francisco, or Chicago. The freight forwarder in the United States takes care of customs clearance. Because Fujitsu is C-TPAT certified, about 95 percent of its shipments qualify for "wheels up" treatment or electronic clearance prior to the plane's arrival.
When the servers arrive in the United States, a third-party logistics service company (3PL) takes over the delivery. (The average distance for deliveries from the gateway to a customer location is somewhere between 300 and 400 miles.) The 3PL also handles the communication and detail coordination with the customer. In addition, the 3PL works in concert with Fujitsu's field engineering staff, which handles the actual installation once the 3PL has delivered the product to the customer. Wrenn says that low-end servers ship in seven to nine days after order placement, while high-end servers ship in 12 to 15 days.
Although the company employs the direct-ship approach in order to minimize its inventory, it does maintain a small amount of stock at a Memphis, Tenn., facility, which also acts as a service operations center. Wrenn reports that less than a million dollars' worth of inventory is kept on hand in the Memphis facility. Most of that inventory is used to fill sameday and next-day orders placed online.
Weighing the cost of speed
Air freight would seem the natural modal choice for a company pursuing a rapid replenishment strategy. And in fact, Fujitsu originally shipped all of its products by air. But in the past year, the company has begun shifting some of its freight to a more cost-effective alternative: ocean service.
What prompted the move was a steady increase in airline fuel costs. "Fuel surcharges got to be upwards of 18 or 19 percent," says Wrenn. "That's very significant, so we started looking at alternative ways to manage costs." As it weighed its options, the company decided that maybe some of its shipments weren't so time-sensitive after all. In particular, many of its large corporate orders had rollout times of two months, which opened up the possibility of moving some of the merchandise by ocean. Ultimately, the company decided to give it a try. "What we ended up doing was building the product early and putting it on a boat in time for when the customer needed it," Wrenn says.
When it comes to large orders these days, Fujitsu will send some of the product by air and some by water. For example, if a large West Coast retailer orders on an eightweek cycle, Fujitsu will manufacture the product required for week one and week four of the rollout at the same time. The week-one orders will be sent by air, while week-four orders will go by ocean. The company will follow the same production pattern for the next phase of the cycle: It will build week-two and week-five orders at the same time, but week-two merchandise will get the faster air treatment, while the week-five products will take the boat.
The savings, not surprisingly, can be substantial. "It costs us 10 bucks to ship a computer by ocean," reports Wrenn, "and 30 bucks to ship by air." Though the majority of the company's shipments still move via air, ocean freight has made significant inroads. At present, Fujitsu spends $8 million annually on air movements and about $1 million on ocean.
Flexibility pays off
The rapid replenishment model has served Fujitsu well. Last year, the U.S. division recorded almost $700 million in personal computer and server-storage sales—up from $300 million just four years ago. It built and shipped more than 200,000 personal computers and more than 3,000 servers under the rapid replenishment model in 2006 alone.
In fact, the approach has worked so well that Fujitsu's parent company has since extended it to other parts of its multinational operation. Fujitsu now uses this model for its home market in Japan, for large Asian sales, and for European orders of its low-cost computers.
Fujitsu credits the rapid replenishment model with enabling it to compete by keeping inventory to the bare minimum. "The model is helpful in reducing our costs," Wrenn says. "We don't have a lot of inventory in the pipeline, and we haven't had a write-off in four years, here in the States or in the factory."
The model has also allowed Wrenn to hold down labor costs in the United States. When the company added server computers to the personal computer business, he says, his 40-person operations group was able to absorb the added workload without any expansion in staff.
But rapid replenishment's biggest benefit may be its inherent flexibility. "When it comes to changes in the market, we can make changes in real time with no impact," Wrenn says. "We've won quite a few deals because of our ability to respond. We react and as a result, we get the revenue."
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."