ASICS America's single distribution center couldn't keep up with surging demand for its athletic shoes and apparel. Changing its distribution pattern and adding another warehouse helped the company manage both current sales and future growth.
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.
Back in 2008, ASICS America was having trouble keeping ahead of demand for its athletic shoes and apparel. Sales for the North American branch of the Japanese manufacturer were growing by 21 percent annually, which turned out to be both a blessing and a curse. While the gains in revenue and market share were welcome indeed, the strong sales performance had also caused ASICS' single U.S. distribution center to hit capacity. That resulted in service slowdowns and raised concerns about the company's ability to handle future growth.
"We realized a year ago that with the growth we were having as a company, our current distribution model was not going to support the business in the next couple of years," says Gary Jordan, chief supply chain officer for ASICS America.
Clearly, the manufacturer needed more distribution capacity, and soon. Before it could act, however, Jordan and his colleagues needed to answer two questions: How could the company quickly get a handle on current growth? And what would be the most cost-effective way to develop capacity to support future expansion? To answer those questions, ASICS America conducted an analysis of its distribution system. The results led the manufacturer to reroute some of its shipments to bypass the DC, expand its use of a third-party logistics service provider (3PL), and build a second distribution center. Here's a look at what ASICS America has accomplished to date and its plans for the future.
Stretched to the limit
ASICS was founded in 1949 in Kobe, Japan, as a manufacturer of basketball shoes. Its name is an acronym for the Latin phrase anima sana in corpore sano, which translates to "a sound mind in a sound body." Today, the company makes athletic footwear, apparel, and accessories for a broad spectrum of sports, and its worldwide sales total around $2.4 billion. ASICS America, which serves the United States, Canada, and Mexico, is based in Irvine, Calif.
ASICS America's shoes and clothing are made by contract manufacturers in China, Vietnam, and Indonesia. Those items are shipped in ocean containers to the ports of Los Angeles and Long Beach. On average, the company imports 2,200 40-foot-equivalent containers each year into the United States.
Back in 2008, the company's U.S. distribution system was fairly straightforward. The logistics service provider APL Logistics (APLL) unloaded ASICS' ocean containers at its Torrance, Calif., facility. It then reloaded most of the merchandise into 53-foot trailers for over-the-road shipment to ASICS' 350,000-square-foot distribution center in Southaven, Miss. That facility, located near Memphis, Tenn., handled orders for most of ASICS America's 3,000 retail customers in the United States. At that time, Southaven carried about 23,000 stock-keeping units (SKUs) and typically held about $100 million in inventory.
APLL also handled about 6 percent of the imported goods as "DC bypass shipments," which skipped Southaven and went directly to a customer. These generally were full container loads of product destined for customers on the West Coast, Jordan says.
ASICS had anticipated and prepared for rapid growth, spending millions of dollars in 2005 and 2006 to retrofit the Southaven facility and boost throughput to 50,000 units per day. Even so, the 21-percent sales growth in 2008 was taxing the company's distribution capacity. That year, Southaven was shipping 70,000 or more units daily and had seen volumes as high as 110,000 units per day. "We had reached a point where we were not going to get any more out of [that distribution center]," Jordan says.
At the same time, ASICS America was coming under another sort of pressure. Retail customers had begun requesting value-added services, such as garment-on-hanger shipments, which the Southaven facility could not accommodate. Furthermore, bricks-and-mortar retailers that were also selling merchandise online were asking the manufacturer to ship individual orders to customers—another service the operation wasn't set up to provide. In short, capacity constraints were not only slowing down order fulfillment, but also preventing ASICS America from serving new customers and markets. "We couldn't handle that type of business out of our current distribution network," says Jordan, "and it was limiting our sales opportunity."
A two-part plan
When it became clear that the current distribution strategy was no longer adequate, an in-house team at ASICS America began an analysis of the company's distribution network, poring over data for sales, shipments, order types, frequency of orders, and SKUs. The team recommended shifting some distribution operations to the West Coast to relieve the pressure on the Mississippi DC. But it also determined that ASICS couldn't handle that task on its own, largely because it didn't have the ability to provide the kind of service customers on the West Coast needed for their particular order types, Jordan says.
At that point, Jordan brought in the supply chain consulting firm Fortna Inc. of Reading, Pa., to get a second opinion on how best to solve the capacity problem. Fortna had worked with ASICS America in the past, assisting it with the upgrade of its Southaven facility a few years earlier. After reviewing the data collected by the project team, Fortna requested some additional information for analysis, including customer types and ordering profiles, inbound container and transfer costs, the 3PL's capabilities, and information system capabilities. The consulting firm also studied the cost of handling different order types at the Southaven facility versus handling them in California.
In 2009, Fortna made two recommendations: handle more cargo at the West Coast instead of shipping it to Southaven, and construct a second distribution center close to the Southaven site.
Fortna's analysis indicated that establishing a West Coast operation to break down imported containers and build mixed loads for shipment to customers in the Western United States could save ASICS America millions of dollars. The manufacturer decided to move quickly on that recommendation, setting a target of diverting 20 percent of its incoming merchandise directly to customers.
The task of handling those shipments would be contracted out to a third-party service provider, which would be more economical and efficient than setting up and running a facility on its own. ASICS America opted to retain its current 3PL for the new assignment after Fortna determined that APLL's prices for the required services were in line with the market. The fact that time was of the essence also encouraged the footwear and apparel maker to expand the existing relationship. "We realized that our sales-growth projections did not allow us the time to do a full [request for quotation from other 3PLs] on this," says Jordan. "That played into our decision to leave the business with APL Logistics."
To accommodate the new plan, APL Logistics shifted its work for ASICS to a multi-tenant facility located in City of Industry, a municipality in California. There, the 3PL breaks down some of the inbound containers to create mixed loads and runs a pick-pack operation that serves retailers in the Western United States. APLL recently began price ticketing and labeling products for those customers as well.
To help ASICS reduce its inbound transportation costs, APLL has started to ship some containers by intermodal rail service from City of Industry to the Southaven DC. Jordan's group decides on the routing before containers arrive at Los Angeles or Long Beach. "During the in-transit period, when the shipment is on the water, the determination is made whether the container stays in the City of Industry facility, goes over the road, or goes intermodal," Jordan explains. He expects to eventually move about half of the Mississippi-bound containers by rail.
Diverting shipments at the West Coast does not save money on outbound freight because ASICS America's retail customers generally pick up their shipments at the City of Industry facility. The primary benefit of that system is that it has helped the company manage rising freight volumes. So far, ASICS has reduced the volume of merchandise moving through Southaven by 14 percent, keeping throughput there manageable. It has also reduced overall handling costs because more shipments are going directly to customers as full container loads. In addition, the cargo diversion improves customer satisfaction because more of its customers get their orders shortly after the ocean vessel arrives rather than having to wait for them to be processed in Southaven.
Prepared for the future
Now that the West Coast operation is up and running, ASICS America has moved on to the next phase of its network redesign: building a new, larger DC near its original facility. In April 2010, it broke ground for construction of a 520,000-square-foot DC in Byhalia, Miss., about 20 miles from the current distribution center. Fortna will oversee design, procurement, and installation of the material handling systems for the new building.
The Byhalia facility, slated for completion in April 2011, will have the capacity to handle 140,000 units per day in a single-shift operation. It will focus on shipping footwear, while the Southaven location will distribute apparel and accessories and store additional footwear during peak periods.
ASICS America will also have enough land on the 38-acre Byhalia site to accommodate future expansion. That expansion may happen sooner rather than later, judging from the way sales have been going. Last year, sales grew by nearly 10 percent—a strong showing in a recession. This year, the footwear company expects sales growth in the range of 13 to 14 percent.
As Jordan well knows, revamping a distribution network requires more than simply building and staffing facilities. Although the need to change ASICS America's distribution network was obvious, he notes, it wasn't easy to get everyone to support the project. That's because ASICS America had previously operated two DCs before consolidating operations into the Southaven facility in the early 1990s; many members of the distribution staff had painful memories of the difficulties managing multiple facilities and balancing inventory. By promising support during the transition, Fortna was able to convince them that the project's goals were achievable, Jordan says.
Based on his experience, Jordan has some advice for other supply chain executives who are considering a distribution network redesign: engage someone outside the company to evaluate the options and to make recommendations. "You need a fresh set of eyes," he says, "because you don't want to allow tribal knowledge to limit your vision or thinking."
This story first appeared in the Quarter 2/2010 edition of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media's DC Velocity. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership dues include the **ital{Quarterly's} subscription fee). Subscriptions are also available to non-members for $89 a year. For more information, visit www.SupplyChainQuarterly.com.
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."