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Transcript
Rob McKeel of Fortna
David Maloney, Editorial Director, DC Velocity :
What are distributors doing to address the new norm? Evidence that freight companies are adjusting to life in the pandemic. And a surge in logistics activity: Is it a sign of more good things to come?
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Fortna. Fortna partners with the world's leading brands to transform their distribution operations to keep pace with digital disruption and growth objectives. Known worldwide as the distribution experts, Fortna designs and delivers intelligent solutions powered by their proprietary software to optimize fast, accurate, and cost-effective order fulfillment. For more information, visit Fortna.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week.
But to begin today, we welcome back Rob McKeel, CEO of Fortna. Rob was a guest on one of our first podcasts, and it's great to have him with us again. Rob, when you were with us in April, we were just at the beginning phases of coping with the Covid-19 pandemic. We've now been in the midst of it for several months. And what have we learned so far as it relates to how supply chains operate?
Rob McKeel, CEO, Fortna :
Hey Dave, I think we've mentioned the last time we talked, that the last several months have been a significant stress test on people's supply chains. And the learnings from many of our clients through that stress test have been insights into how their supply chain performed, both in upside scenario, where they saw increased e-comm demand and in a downside scenario where some of the retail demand was, was stressed. And in particularly [sic], I think clients saw how their supply chains were able to be flexible to handle those surges or declines in the various channels that they take their products to market.
And this also spawned, for us, a lot of new conversations around network strategy and supply chain capabilities, when you think about that, that flexibility and those those changes in channel. And because we do a lot of work, and we have a lot of expertise in both the network strategy and work inside the four walls of the distribution center, we've seen an increase in activity to talk about how we can help sort of solve those, those two dimensions. It's also some conversation on how ship-to-store and pick-up-from-store mechanism(s) might work as people go forward with a new model.
David Maloney, Editorial Director, DC Velocity :
Rob, you do a lot at Fortna with retail. So what are your retail customers saying about the upcoming holiday season? Especially if it may be an e-commerce-dominated selling season?
Rob McKeel, CEO, Fortna :
Yeah, I think, you know, I think the e-comm channel obviously received a huge boost here during the stay-at-home environment. I think the shift to that e-comm environment is likely to continue, and there's two peaks we're heading into, of course: the back-to-school peak and the holiday peak. And so I think clients are evaluating both of those, both of those peaks as challenges coming forward.
For most of the clients, e-comm has two challenges. First is the sheer volume as that mix shift went from retail to e-comm in a pretty fast way, and an increase in volume on the e-comm side. Second is the service-level expectations for immediacy in that e-comm channel. We're getting used to getting things just days after we order them, and so folks have to make sure they can meet the service levels as that e-comm channel picks up percentages of the of the of the delivery method.
For Fortna, this resulted in combinations of engagement, so we've had, like I said, we've had a lot of conversations on the strategy side, but also conversations on investments or upgrades that could happen to meet those those two peaks. And then given where we are in the year, there's a balance on what types of activities can be done to meet, obviously school peaks around the corner—so when everybody goes back to school; the school peak's around the corner and the holiday peak's fast approaching—or what will have to happen for the relative, the different peaks in 2021. You know we spent a lot of our time on looking at the strategy and needs and translating that into economic benefit. So some of that may need more investment early. Some of that may mean it's better to wait and make that investment at the next peak cycle, depending on how long some of these implementations take. So, it's really client-dependent, but lots of folks are exploring how this might affect their, their peak season. We'd love to hear, or help, you know, any of your listeners who might need to navigate these kind(s) of challenges.
David Maloney, Editorial Director, DC Velocity :
Are networks and facility designs going to be changed forever, based on the pandemic and what you've talked about so far? And if so, what are some of the factors that will make those changes?
Rob McKeel, CEO, Fortna :
Yeah, I think there will be some permanent changes.
So, one, clients are looking for resiliency in their supply chains and flexibility to deal with a less predictable environment, while still trying to preserve a dynamic mix between retail and e-comm, obviously with e-comm getting a bigger share going forward. That will necessitate changes in some of the network strategies and in in how the DC itself works the technology deployed in the DC. We talked about pickup-in-store, and you know, lots of people have been trained now to order and then just drive by and pick up. And while that's not a way that I think the stores ever envisioned volume being, in some segments that might be more attractive, and therefore, of course exploring fulfillment options that allow that to be economic and and beneficial to the end customer. I do think some of those will create changes.
I mean, there's a lot of conversation about pushing sortation closer to the point of delivery. That may create, instead of a giant sort of hub-and-spoke network, more stars coming off of that major hub. So you have sort of tiers of distribution and sortation as it goes through the the network—again, to enable that one-day delivery or pick-up-from-store and replenish the stores and those fashions. I do think some of that will be permanent changes to the networks and technologies
David Maloney, Editorial Director, DC Velocity :
Are there particular technologies that you think will lead the way to the new normal?
Rob McKeel, CEO, Fortna :
Now, I think the conversation on technology is probably higher than it's ever been. You know, it's been at a good pace in this industry for the recent past, and I think it's going to continue on that pace. So, lots of conversation on software, robotics, different automation strategies to improve throughput and handle mix and flexibility.
Now, we help evaluate the cost-benefit, so it's not always a new technology is the best for the application. So we weigh the application of the technology against the operating metrics that the client's trying to reach, and through that, make sure they're using the right technology for what they're doing. And as technology becomes, advances and becomes more pervasive in the industry, of course, the economics get better as time goes forward.
Given the environment, I think some new benefits start to get factored in that evaluation. Things like labor flexibility, social distancing, fulfillment-channel flexibility—all those things start weighing into the use of technology and the cost-benefit equation. And that makes some of the business cases for applying technology maybe more attractive than they would have been without those considerations. And part of what we do is help go through all those factors and make sure that's the right choice around technology.
So, some examples in that are automation applied to reverse logistics. If there's more e-comm, obviously, there's going to be more returns. Returns create a back channel that has to be worked to make sure that inventory gets recycled.
Then there's intelligence coupled with sortation to handle a lot more eaches mix. As people get into micro fulfillment and get into again, more e-comm, you get more eaches, sort of orders, and therefore technology to help deal with that variety inside the eaches picking process. Things like robotic put-pick, obviously software, such as our, Fortna's WES system help manage that complexity and deal with the variety that might be seen at the distribution center.
The other area is just the areas around AS/RS systems, where we see lots of capabilities in the industry and a lot of interest in applying those. But to the point you asked about further, one of the unique places is around micro fulfillment. And we've been talking, in deploying solutions like Autostore, which are very space-efficient, you know, they can be molded into some of these unique retail spaces, and also (are) more economical in some cases than traditional AS/RS systems. So I think that kind of flexibility is becoming an important factor in the technology choice.
David Maloney, Editorial Director, DC Velocity :
Thank you, Rob. We appreciate you being a part of our podcast today.
Rob McKeel, CEO, Fortna :
Great, thank you. As always, I appreciate you inviting me.
David Maloney, Editorial Director, DC Velocity :
Again, if you would like more information on Fortna, go to a Fortna.com. That's F-O-R-T-N-A dot com.
Now, let's turn to some of the other supply chain news from the week. Ben, you wrote about a report on how companies in the freight sector are adapting to the pandemic. Can you share with us some of their business strategies?
Ben Ames, Senior News Editor, DC Velocity :
That's right, Dave. We've seen how many companies have reacted in a physical way to new working conditions during the pandemic, such as having employees wear masks, frequently wiping down surfaces, but now we're starting to see how companies in the freight sector are adapting to the pandemic financially. Now, this comes from a survey that shows that 76% of logistics companies in the freight sector have adjusted their initial 2020 budgets for the new reality. So it's very widespread, with more than three-quarters of the respondents saying, of course, that they've significantly shifted their planned spending.
The survey came from DDC FPO, which is a company in Colorado that provides freight billing tools and business-process outsourcing. And for this survey, they spoke with executives at manufacturers, warehousing distribution centers, motor carriers, 3PL brokers, and freight technology providers.
David Maloney, Editorial Director, DC Velocity :
Ben, what sort of changes are those companies making?
Ben Ames, Senior News Editor, DC Velocity :
There were some details on that. Most of the companies in the survey were trying to improve operational efficiencies, such as moving away from manual processes to digital ones, and looking for ways to increase communication processes with external sources.
And because a lot of transportation providers, their assets have fixed costs, with equipment like tractors or trailers or containers, they're trying to save money instead in costs that are actually more variable. And that includes often reducing payroll through human-resources costs—what most of us might call layoffs, or cut hours, maybe furloughs.
In addition, the pandemic, in the greater view, is forcing many organizations to fast-track initiatives they were already doing. We've often heard of trends like companies trying to become leaner, more agile, more efficient. So the pandemic has given them, sort of lit a fire under some of those efforts and accelerated some of that.
David Maloney, Editorial Director, DC Velocity :
Yeah, that's often the case when people go through a crisis situation of some kind. It does create a better, leaner company on the other end. Let's hope that's the case for these companies. Thank you Ben.
Victoria, the new Logistics Managers' Index report is out, and it shows a surge in June. Is that mostly due to the reopening of the economy?
Victoria Kickham, Senior Editor, DC Velocity :
Hi, Dave. Thanks.
So, short answer: Yes.
Just to step back a little bit, the Logistics Managers' Index, or the LMI, as we refer to it, as you say, gauges business activity in the logistics industry, essentially measuring activity across transportation, warehousing, and inventory.
So, as you point out, in June the LMI was up considerably, continuing a recovery that we saw from the low point in April. In fact, it grew more than seven points to reach its highest reading in 16 months. So that essentially puts the industry back to about 2018, early 2019 growth levels, which is good.
A little bit more history: The LMI had been slowing the last year or so, indicating the industry was sort of seeing a slow and steady growth rate. But it surged in March due to the pandemic, and sort of panic buying in the run-up to the pandemic, I should say, and then it really slowed in April.
So, what we're seeing in in the Spring, as the researchers say, as you point out, the post Covid-19 sort of reopening of the economy really played a role in the growth. Retailers and others sort of increased inventory levels, warehouse space remained at a premium, and transportation metrics began to move in the right direction again. We saw a double-digit increase in transportation utilization and prices, for instance. The reading was 61.7 in June. That's up from 54 and a half in May and 51.3 in April. Any reading above 50 indicates growth, but as you can see, where we were in June is a really big jump. So the bottom line is that, at least for June, the researchers say the logistics sector has begun to regain its footing from the slowdown that we saw earlier in the year.
David Maloney, Editorial Director, DC Velocity :
Victoria, do the researchers expect this trend to continue?
Victoria Kickham, Senior Editor, DC Velocity :
Well, you know, it's always a crystal-ball kind of thing, but what they're saying is, if July's levels remain strong, the outlook is likely to remain positive. But there's a big question mark on the horizon, and that's the rising number of Covid-19 cases that we're seeing in states like Florida, California, Arizona, I think Arkansas may be one as well. And the concern is that if states begin to shut down their economies again, that could really put the brakes on the growth we've seen these last couple of months
David Maloney, Editorial Director, DC Velocity :
With the logistics sector being such a big part of the GDP, I think it's a good sign when the logistic sector is strong, a good sign for the rest of the economy. Thanks, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity :
Thanks, Dave.
Victoria Kickham, Senior Editor, DC Velocity :
Thank you.
David Maloney, Editorial Director, DC Velocity :
And again, our thanks to Rob McKeel for being our guest today. We encourage your feedback on this topic and our other stories. You can email us at podcast@dcvelocity.com.
And a reminder that Logistics Matters is sponsored by Fortna. Fortna partners with the world's top brands to transform distribution operations into competitive advantage. Expertise includes distribution strategy, DC operations, micro-fulfillment, automation, and intelligent software. Distribution solutions designed today for tomorrow's challenges. Learn more about the distribution experts at Fortna.com.
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We'll be back again next week with another edition of Logistics Matters, when we will look at the state of logistics. Be sure to join us. Until then, please stay safe and have a great week.
