Much Ado About Trends in Distribution
England’s King George III has repeatedly been criticized for writing that “nothing of importance happened today,” on July 4, 1776.
Many of today’s companies may be guilty of making the same mistake, at least when it comes to supply chain management — because right now there are several such “nothings” happening all across the world.
Consider, for example, the following logistics and sourcing trends. Some are quite small in scope. Others may seem too far away to address just yet — or they’ve been in the vernacular so long that they’re easily overlooked. Yet all of them ultimately could have a revolutionary impact on your supply chain and business success.
Thanks to the rapid growth of e-commerce — which is expanding five times faster than aggregate retail sales — and the fact that many retailers are now asking their business partners to provide them with smaller, more frequent deliveries into their stores or warehouses, companies must be able to perform an increasing amount of small-package shipping and logistics. As a result, many distribution networks are beginning to move in the direction of:
- Higher warehouses. Distribution centers with clear ceiling heights of 40 feet allow for the use of multiple mezzanine levels as well as mechanized picking and putaway/retrieval systems, which are often essential for efficiently performing a wide variety of distribution or value-added functions under the same roof.
- Larger facilities. E-commerce activities require up to three times more space than brick-and-mortar logistics functions. And depending on the technologies deployed, they also can require many more employees who not only need more space to work, but also more amenities like larger break rooms and restrooms.
- Multiple distribution points closer to consumers and major package carriers. In addition to the already thriving warehousing markets of Atlanta, Chicago, Dallas, Los Angeles and New York, don’t be surprised to see a heightened interest in setting up additional inventory distribution points in other popular venues like Memphis, Louisville and Indianapolis. Not only are these places major population centers in their own right, they’re also close to the major parcel carriers’ hubs.
Nearshoring And Farshoring
In the past few years, many business leaders have expressed a desire to move their Asia-based production back to North America, a shift that many attribute to China’s increasing labor costs, North America’s superior speed-to-market for western consumers and Mexico’s impressive cost-efficiency. At the same time, there are several reasons to assume that we haven’t seen the last of “the world’s factory floor” either, including China’s continued manufacturing edge for certain kinds of products as well as its much-improved transportation infrastructure and highly productive (and still-largely untapped) labor base.
From a logistics location perspective, this means that your company should anticipate the possibility of:
- Rightshoring. Rather than choosing between nearshoring or farshoring, many businesses are opting to establish key manufacturing centers within each key business region — and reconfiguring their global distribution center networks accordingly. Each of these centers offers proximity to a key market cluster, allowing for shorter order-to-delivery cycles, lower inventory carrying costs and reduced carbon footprints. But each often calls for its own distinct supply chain, too.
- More outbound domestic demand in China. The many jobs created by China’s manufacturing boom have led to vast numbers of new consumers with discretionary income and the desire to spend. As a result, even those companies that don’t elect to situate at least a portion of their manufacturing in China will need to have some domestic demand distribution centers there so that they can capitalize on the significant sales (and important e-commerce growth) opportunities posed by this fast-growing market.
There’s no doubt that we live in an era where the possibility of Big Data reigns supreme. Here in the supply chain arena, this means:
- Greater emphasis on getting all of the segments/nodes of companies’ supply chains on the same page
- Finding better ways to quickly measure and manage the data that companies’ various supply chain partners supply
- Moving toward real-time, rational and predictive decision-making.
Industry experts agree that these are essential and ultimately attainable goals, especially now that some suppliers and providers have begun to roll out Big Data tools. However just as “for want of a nail . . . the kingdom was lost,” they’re also cautioning businesses not to forget there are still many smaller, more granular forms of data management that are often equally important. These include:
- Increased deployment of Labor Management Systems. Since labor is often the biggest cost in a warehouse — and likely to get bigger as labor-intensive e-commerce practices continue to grow — the value of a system that can help companies measure and monitor warehouse workers down to the granular level and deliver typical savings of 5 to 15 percent cannot emphasized strongly enough.
- A heightened interest in slot-level inventory accuracy. As orders get smaller and more individualized, the possibility of SKUs getting lost in the shuffle with seasonal goods, shorter life-cycle products and promotional items will become more pronounced — and the importance of count backs, cycle counting that much more essential.
- Automated asset deployment. Amazon isn’t the only company planning to use drone-like/autonomous vehicles to drive supply chain efficiency. Many newer warehousing facilities are being equipped with shuttles that can efficiently put away and pick up inventory on multiple levels. And even traditional equipment such as forklifts is often being equipped with technologies that can do everything from choosing the least congested route to figuring out how to successfully maximize the amount of times they’re traveling with loads.
Logistics As A Corporate Priority
Finally there is the issue of logistics itself — or more accurately, where logistics concerns fall within companies’ pecking order.
Over the past two decades, the respect accorded to supply chain management has increased significantly. As a result, most organizations today are much more cognizant of the fact that warehousing, transportation and other distribution activities are about far more than merely getting goods from Point A to B; they’re about helping companies establish competitive advantage.
Although supply chain management may not be one of your company’s core competencies, it is undoubtedly a critical competency in today’s world. So don’t underestimate its importance — because if your company can’t find a way deliver the goods (or raw materials) to customers consistently, reliably and cost-effectively, there’s probably a competitor waiting in the wings that can.
David Frentzel is Senior Vice President of Global Contract Logistics at APL Logistics.