Warehouse performance improvement programs: What works best?
When it comes to boosting DC performance, are you better off focusing on process or technology? According to a recent study, the answer depends on whether you're a shipper or a 3PL.
It's the rare warehouse these days that hasn't engaged in some type of cost cutting or performance improvement program. Some have turned to technology in a bid to streamline operations. Others have taken the process route, putting programs like continuous improvement plans in place. Still others have changed up their personnel (for example, bringing in highly effective managers to run their facilities), pulled up stakes and moved to a location with lower labor costs or tax advantages, or in the case of shippers, outsourced their warehousing operations.
Which of these changes is likely to produce the biggest payoff? To find out, ARC partnered with DC Velocity and eft (eyefortransport) to conduct a study that asked this core question: "Over the last five years, what change led to the greatest improvement in distribution costs per unit shipped?" The survey was conducted among 150 valid respondents from a variety of sectors: 34 percent hailed from the wholesale business, 33.3 percent from third-party logistics service providers (3PLs), 14.7 percent from manufacturing, and 14.0 percent from retail. The remaining 4 percent fell into the "other" category. Slightly over half the facilities profiled in the study (54.3 percent) were located in North America, while the remainder were in Europe, the Middle East, Africa, Asia, and Latin America.
In considering the results that follow, readers should keep in mind that the benefits reflect what respondents identified as their "most effective" tactic for reducing costs over the past five years. The way this question is worded means that these are atypical results. These should not be considered the results the typical company would get from implementing technology or a process change program. Rather, this is an analysis comparing the relative benefits of highly successful technology projects to highly successful process programs.
DIFFERENT STROKES
So where have companies gotten the most bang for their buck when it comes to DC cost-cutting initiatives? As it turns out, the answer depends on whether the company is a shipper or a 3PL.
For the shippers who participated in the survey, technology projects proved to be the hands-down winner. Nearly half (48 percent) reported that their greatest improvements had come from a technology implementation (most commonly one involving warehouse software). Process was a distant second, cited by 25 percent of the shipper respondents. Trailing behind were outsourcing (14 percent), people (9 percent), and location (4 percent). (See Exhibit 1.)
It was a different story altogether with the 3PLs. Among these respondents, well over half (59.2 percent) credited process improvements with producing the best results.
As for why the 3PLs would choose process over technology, there are a number of good reasons for that, all relating to the nature of the business. For starters, there's the issue of payback. Third parties that run dedicated facilities for their clients often lease those warehouses for the length of a contract with a customer. Common lease lengths are three to four years. Problem is, the return on investment (ROI) for a technology project may well exceed that. For instance, some types of material handling equipment have historically had a payback period of four to five years. It's not hard to see why a 3PL would be reluctant to make that investment.
Further, bringing in technology isn't always an option for 3PLs. For instance, if a 3PL agrees to operate a warehouse that the shipper had built and staffed, the 3PL will inherit the technology already in place. So if the warehouse is already using, say, a warehouse management system (WMS), the 3PL won't have the opportunity to cut costs by introducing warehousing software.
Although technology projects may not be a slam dunk for 3PLs, process improvements are a natural. Large 3PLs report that continuous improvement programs tend to be high on potential customers' "want lists" and almost always appear on their requests for proposal (RFPs). These capabilities, according to one top 3PL executive, "are table stakes. You have to be able to show you possess a continuous improvement program to be in the game."
GETTING RESULTS
All this raises the obvious question, What kinds of results have these projects produced? To get an idea of the extent of the savings, the study asked, "How much have your distribution costs per unit shipped decreased based upon the implementation of [your] technology or process project? Please answer for the first full year after the shakeout period was completed."
As Exhibit 2 shows, both process changes and technology implementations produced solid results (the survey subsamples weren't large enough to provide solid data for the people, location, or outsourcing options). But it's worth noting that technology projects performed both better and worse than process projects—they were more likely to produce savings of 10 percent or more but also more likely to result in savings of 1 percent or less.
Interestingly, for both technology implementations and process programs, we found a correlation between results and warehouse complexity. The more complex the warehouse, as measured either by the value of goods shipped or the percentage of broken-case or full-case picking, the more likely respondents were to report that their project had resulted in distribution-cost-per-unit savings of greater than 8 percent.
As for the initiatives themselves, the most common technology projects were software implementations, rather than material handling equipment or other types of installations. Voice recognition and labor management system (LMS) implementations tended to produce bigger savings than warehouse management systems did. However, it's important to note that both voice and labor management systems are often built on a WMS platform and rely on that system to direct their operations. That is, without a WMS in place, it's much more difficult to implement voice and LMS technology, and more difficult to get stellar results from those implementations.
When it came to process programs, continuous improvement projects were the most common, representing more than two-thirds (67 percent) of all process initiatives.
EFFECT ON CUSTOMER SERVICE
Of course, cost is not the only measure of a project's success. If cost savings come at the expense of service, it would be hard to argue that a project was truly successful. To get a better idea of how these technology and process projects had affected customer service, we asked respondents whether their programs had resulted in changes to on-time shipping performance. For purposes of the survey, we defined orders shipped "on time" as orders shipped at the planned time ("shipped" meaning off the dock and in transit).
As Exhibit 3 indicates, the respondents' improvement initiatives posed very little threat to service. Projects that improved companies' cost position usually improved their on-time shipping performance as well.
As for how the two main types of projects stacked up, once again, technology projects performed both better and worse than process projects—they were more likely to boost on-time shipping by over 5 percent and more likely to result in a drop in performance. None of the "process" respondents reported that service had deteriorated as a result of their project.
Based on improvements in on-time shipping, it's not surprising that high percentages of both technology and process respondents reported better performance against the "perfect order" metric: 75 percent and 66 percent, respectively. (To be considered "perfect," an order must arrive complete, be delivered on time, arrive free of damage, and be accompanied by the correct invoice and other documentation.) Similarly, 82 percent of process respondents and 64 percent of technology respondents reported improvements in order cycle time.
Another measure of customer service is lost sales due to stockouts in the warehouse. Forty percent of technology respondents and 44 percent of process respondents reported that their performance against this metric had improved as a result of their project.
Successful projects tend to be successful on multiple dimensions. Exhibit 4 indicates some of the other benefits respondents realized from their warehouse improvement programs. In many cases, technology projects and process projects produced essentially the same results. There were a few differences, however. For instance, technology projects substantially outperformed their process counterparts when it came to the warehouse's ability to implement other technologies in the future. For their part, process projects outperformed technology with respect to executive time devoted to overseeing warehousing and supplier relationships.
PAYBACK, STARTUP ISSUES, AND CONTINUOUS IMPROVEMENT
A payback period is a classic way to measure the success of a project (a payback period being the length of time required for a company to recoup its initial investment through cost savings). In this area, process clearly beat technology. With process programs, over 20 percent of respondents reported that they had been able to launch a program at minimal cost.
Of course, payback would logically be related to how a warehouse was performing before the technology or process program was introduced. If a warehouse is significantly underperforming, the greater the chances that a project will result in significant improvements.
Of the two groups, the process respondents were more likely to say their warehouses had been "significantly underperforming" before the project began; 20 percent of process respondents said that had been the case, compared with only 11 percent of technology respondents.
As for the startup process, ARC asked respondents whether they had experienced "significant issues" in launching the project or program. Not surprisingly, perhaps, software projects were more likely to be associated with startup glitches (60.7 percent) than process projects (56 percent) were. Technology projects based on the implementation of equipment—as opposed to software—created the fewest significant issues.
Another way to assess the success of a project is to determine whether it resulted in a one-time cost reduction or in ongoing distribution cost savings. In this area, process projects appeared to perform just slightly better than technology projects. That finding came as something of a surprise given that the most common type of process project was the implementation of a continuous improvement program and the whole point of these initiatives is to drive gains on an ongoing basis.
SUCCESS FACTORS
Finally, to gain some insight into what worked and what didn't when it came to implementing a warehouse improvement program, ARC asked respondents what factors had contributed to their project's success. With respect to technology projects, the respondents identified two factors as the most important: 1) the process changes the company put in place to support the technology, and 2) the training and culture-change program the company implemented to support the implementation.
As for the process projects, respondents said the biggest factor in a continuous improvement project's success was the company's culture—that is, whether it had already committed to a continuous improvement regimen. This should probably come as no surprise. When you talk to companies that are proud of their continuous improvement capabilities, they're sure to tell you that for them, operational excellence (OpX) is no "one and done" deal; it's something they've embedded into their culture.
Leaders at American ports are cheering the latest round of federal infrastructure funding announced today, which will bring almost $580 million in Port Infrastructure Development Program (PIDP) awards, funding 31 projects in 15 states and one territory.
“Modernizing America’s port infrastructure is essential to strengthening the multimodal network that supports our nation's supply chain,” Maritime Administrator Ann Phillips said in a release. “Approximately 2.3 billion short tons of goods move through U.S. waterways each year, and the benefits of developing port infrastructure extend far beyond the maritime sector. This funding enhances the flow and capacity of goods moved, bolstering supply chain resilience across all transportation modes, and addressing the environmental and health impacts on port communities.”
Even as the new awardees begin the necessary paperwork, industry group the American Association of Port Authorities (AAPA) said it continues to urge Congress to continue funding PIDP at the full authorized amount and get shovels in the ground faster by passing the bipartisan Permitting Optimization for Responsible Transportation (PORT) Act, which slashes red tape, streamlines outdated permitting, and makes the process more efficient and predictable.
"Our nation's ports sincerely thank our bipartisan Congressional leaders, as well as the USDOT for making these critical awards possible," Cary Davis, AAPA President and CEO, said in a release. "Now comes the hard part. AAPA ports will continue working closely with our Federal Government partners to get the money deployed and shovels in the ground as soon as possible so we can complete these port infrastructure upgrades and realize the benefits to our nation's supply chain and people faster."
Supply chains are poised for accelerated adoption of mobile robots and drones as those technologies mature and companies focus on implementing artificial intelligence (AI) and automation across their logistics operations.
That’s according to data from Gartner’s Hype Cycle for Mobile Robots and Drones, released this week. The report shows that several mobile robotics technologies will mature over the next two to five years, and also identifies breakthrough and rising technologies set to have an impact further out.
Gartner’s Hype Cycle is a graphical depiction of a common pattern that arises with each new technology or innovation through five phases of maturity and adoption. Chief supply chain officers can use the research to find robotic solutions that meet their needs, according to Gartner.
Gartner, Inc.
The mobile robotic technologies set to mature over the next two to five years are: collaborative in-aisle picking robots, light-cargo delivery robots, autonomous mobile robots (AMRs) for transport, mobile robotic goods-to-person systems, and robotic cube storage systems.
“As organizations look to further improve logistic operations, support automation and augment humans in various jobs, supply chain leaders have turned to mobile robots to support their strategy,” Dwight Klappich, VP analyst and Gartner fellow with the Gartner Supply Chain practice, said in a statement announcing the findings. “Mobile robots are continuing to evolve, becoming more powerful and practical, thus paving the way for continued technology innovation.”
Technologies that are on the rise include autonomous data collection and inspection technologies, which are expected to deliver benefits over the next five to 10 years. These include solutions like indoor-flying drones, which utilize AI-enabled vision or RFID to help with time-consuming inventory management, inspection, and surveillance tasks. The technology can also alleviate safety concerns that arise in warehouses, such as workers counting inventory in hard-to-reach places.
“Automating labor-intensive tasks can provide notable benefits,” Klappich said. “With AI capabilities increasingly embedded in mobile robots and drones, the potential to function unaided and adapt to environments will make it possible to support a growing number of use cases.”
Humanoid robots—which resemble the human body in shape—are among the technologies in the breakthrough stage, meaning that they are expected to have a transformational effect on supply chains, but their mainstream adoption could take 10 years or more.
“For supply chains with high-volume and predictable processes, humanoid robots have the potential to enhance or supplement the supply chain workforce,” Klappich also said. “However, while the pace of innovation is encouraging, the industry is years away from general-purpose humanoid robots being used in more complex retail and industrial environments.”
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.
The Boston-based enterprise software vendor Board has acquired the California company Prevedere, a provider of predictive planning technology, saying the move will integrate internal performance metrics with external economic intelligence.
According to Board, the combined technologies will integrate millions of external data points—ranging from macroeconomic indicators to AI-driven predictive models—to help companies build predictive models for critical planning needs, cutting costs by reducing inventory excess and optimizing logistics in response to global trade dynamics.
That is particularly valuable in today’s rapidly changing markets, where companies face evolving customer preferences and economic shifts, the company said. “Our customers spend significant time analyzing internal data but often lack visibility into how external factors might impact their planning,” Jeff Casale, CEO of Board, said in a release. “By integrating Prevedere, we eliminate those blind spots, equipping executives with a complete view of their operating environment. This empowers them to respond dynamically to market changes and make informed decisions that drive competitive advantage.”