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 you look up, you might glimpse some of the 88 solar tracking mirrors on the roof moving in unison to capture sunlight as it rises over the Nevada desert, reflecting light to the floor below. If you look around, you'll see walls consisting not of gypsum board, but of compressed field straw. If you glance down, you'll find yourself looking at carpets made from 100-percent recycled polyester. And if you visit a restroom, you'll be dazzled by colorful countertops constructed of 100-percent recycled plastic.
What you won't see in this building are plaques on the walls or display cases. This is no eco-construction showcase or Museum of Environmentally Responsible Design. It's outdoor apparel and equipment retailer Patagonia's distribution center in Reno, Nev., and what you're more likely to see are racks, sortation systems and pallets.
Patagonia, you see, practices what it preaches (or in modern parlance,walks the walk). And what it preaches is conservation and environmentalism. The company's mission statement declares, "Patagonia exists to use business to inspire and implement solutions to the environmental crisis." Not that it doesn't want to make a profit; the company pushes hard to hit its annual financial numbers. After all, the more the company makes, the more it can give away. Patagonia donates 10 percent of its pre-tax profits (or 1 percent of sales, whichever is greater) to grassroots environmental groups each year. Over the years,it has given away more than $17 million in cash and another several million in merchandise.
Green and clean
Built in 1996 for $19 million—the company's largest capital expense ever—the 171,000-square-foot Reno facility, which is constructed mostly of recycled materials, embodies Patagonia's serious commitment to the environment.
"We chose to make this facility as environmentally friendly as possible," says Dave Abeloe, Patagonia's director of distribution, who oversaw the DC's design and construction. "The center features uncommon but very energy-efficient heating, cooling and lighting systems. We also paid a premium for recycled materials instead of using standard off-the- shelf materials."
Like the premium-priced recycled materials, the center's energy-efficient heating system represented a relatively high-cost alternative. But Patagonia, which supports the use of renewable energy, was committed to the idea of generating its own solar power.
The initial plans for the distribution center called for running the entire facility by solar power. However, it would have taken acres of solar panels, so the idea was dropped early in the process. As technology improved and costs decreased, Patagonia revisited the idea in 1999, but on a much smaller scale.
The company invested $55,000 to install 16 300-watt panels that provide just under 5 kilowatts of solar energy. The power is piped directly into the building's local power grid, reducing consumption from the power company. The energy, enough to fully power three average-sized homes, runs Patagonia's onsite outlet store. As funds allow, Patagonia plans to install additional panels to produce more energy. Abeloe projects a 12-year return on investment.
Though 12 years may sound like an eternity for companies pressed to keep ROI to 18 months or less, to Patagonia it seemed a reasonable tradeoff for doing the ecologically correct thing. "For us to make a statement like installing a solar system lets the business world know that if you take a long-term view of the return, these systems can make sense," Abeloe says. "Businesses have to understand that you can do the right thing and be profitable if you take the long view."
Patagonia, however, is already hitting its ROI targets on a number of other environmental projects. For example, use of ample insulation, window glazing and sunscreens reduces heat gain inside, leaving the interior comfortably cool all day without air conditioning, despite temperatures outdoors that reach 95 degrees. (During the night and early morning hours, exhaust fans suck the stale air out of the building.)
Patagonia's energy-efficient lighting systems, which rely on motion sensors, help conserve electricity. In winter, a radiant heating system that uses copper tubing and hot water saves natural gas. A bio-filtration system that employs an oil/water separator moves runoff from the roof and parking lot to percolate back into the ground.
"Depending on the design elements, some of these systems provided shortterm payback of three to four years," says Abeloe. "The lighting control system brought energy savings of over 30 percent a year, and that payback was reached several years ago. One of the other design elements was the radiant heat system. That had an eight-year payback period and based on energy savings, we should see that return completed sometime in the next few months."
However, not too much could be done when it came to the material handling equipment used at the facility. "When we sent out requests for proposals, we didn't specifically mandate the environmental elements into the material handling systems," says Abeloe. "The trays on our Crisplant tilttray sorter and the wood dividers that separate the packing stations are made from re-claimed sources, but those are pretty minor elements in the big scheme of things."
Risky business
Though it doesn't face the same ROI pressures that confront most U.S. businesses, Patagonia most definitely has to meet its annual profit numbers. Nobody knows that b etter than Abeloe. "We have to be profitable —there's no question about that," he says.
And Abeloe was never so aware of that mandate as he was during the DC's design and construction process. An avid rock climber who knows all about taking risks, Abeloe likens the building of the Reno DC to a technical climb, where one miscalculation can easily spell disaster. "The risks of climbing outdoors involve changing weather, routefinding problems in unfamiliar territory, and proper use of climbing gear and equipment," he says. "The risks we faced with developing our facility were also quite daunting. We made the decision to completely change how we operated our DC, which meant creating entirely new material handling systems and methodologies."
One of those changes was converting the company's computer system to run on Manhattan Associates' PkMS warehouse management system (WMS) platform. That may not sound risky today, but it's important to note that Patagonia was an early adapter of the system, serving as the test site when Manhattan deployed the system in 1996. "We were the guinea pig for Manhattan's efforts to modify its existing package by adding a tilt-tray sorter," says Abeloe. "We were pretty nervous knowing that they were modifying something that wasn't quite ready to support the way we wanted to operate our DC, but as it turns out, it supports our business very well."
It's easy to understand Abeloe's concern when you consider the company's order volume: Patagonia records about $225 million in annual sales, with the majority coming during two peak seasons—fall/winter and spring/summer. Combining orders from its catalog, Web site and retail outlets, the DC ships an average of 26,000 units per day in the fall/winter cycle, and 21,000 packages daily in the spring/summer season. The DC has run as many as 51,000 orders through its sorter in a nine-hour shift.
Orders received by noon that specify next-day delivery are shipped the same day to the customer. During peak season, up to 75 percent of mail-order and Internet orders are marked for overnight delivery.
Impressively, overall accuracy has improved every year since the Reno facility opened. During the last physical inventory, Abeloe's team counted 1.7 million units, with a variance of only 792 units. Pick rates for skilled workers are 400-plus units per hour, and shipping accuracy remains steady at 99.98 percent.
"We feel we could easily double our business with the existing equipment and setup," says Abeloe. "We'd merely have to add staff and make a few minor adjustments."
One adjustment on tap calls for improving the current labeling and pre-ticketing functions,as more of Patagonia's retail customers start to request those services. "The larger retailers that buy our products are becoming a lot more sophisticated in their operations," says Abeloe, "and they would like some of the work they are currently doing moved upstream into our facility."
By this summer, the DC should have a system in place to label and pre-ticket merchandise for customers. Although still a work in progress, the blueprint calls for a separate ticketing area where units are routed in a batch, or "wave" of work , to be ticketed with the specific information requested by the customer. That inventory will then be routed ba ck onto a conveyor system to the tilt-tray sorter, which will segregate those units to the order level.
Employees climb on board
None of this would be possible without a dedicated labor force. The company takes great pride in reporting that its 45 full-time distribution center employees (that number grows to 80 when you include returns management and quality service) all share the company's commitment to making the world a better place to live.
Abeloe singles out his staff as a major source of efficiencies within the warehouse, a competitive advantage that in part allows Patagonia to meet its financial numbers and make its charitable contributions each year.
"One of the things that we do in the DC is train new associates to be as flexible as possible," says Abeloe. "We do that with our skill-based pay program. When we hire new people to work in the DC, the expectation is that over 24 months they will learn everything they possibly can about all operations, from receiving through shipping. That allows us to be very flexible in meeting day-to-day needs and special customer requests."
Typically, a worker spends several months in receiving, for example,and receives a salary increase once he has mastered that area. Next, the employee spends time in packaging, receiving another merit increase when he has fully grasped duties at that location. As the volume of work changes from season to season, staffing can be quickly adjusted to cover the seasonal peaks and valleys of order volume for each of Patagonia's business divisions. "[The tasks are] broken down into about a half dozen major categories within the warehouse," says Abeloe. "The system allows our staff to be much more efficient in scheduling themselves. How that relates to giving back is that the employees we have are very well trained and our turnover is extremely low—less than 10 percent.
"Our employees also support what we do as a company, because we do some fairly controversial things as far as giving money to [environmental activist] groups," Abeloe adds."Having employees who support our company's position allows us to continue to give away money and have some impact on the business community and on the world environment."
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."