Supply Chain Planning
Depending on who you ask, the global economy has hit a bottom, and it’s on the way up or it has already peaked and it’s on the way down. No matter which view you have of the macro-picture, one thing is certain in the finer details of supply chain planning: although there’s a striking mix of the very good and the very bad, depending on the industry, everyone is being forced to adapt. As the actions of these adapting companies become clearer, noticeable trends are beginning to develop.
A Trend Toward Urban: Fulfillment Centers Moving to the City
Real estate developers in the logistics arena have seen some good times lately. Demand and imports in the US continue to grow, and e-commerce continues to fuel activity.
What’s interesting, however — and what has been exciting for them — is the growth in urban sectors. While the huge fulfillment centers in the remote locations far from cities are still critical, retailers and distributors are supporting the rural locations with smaller fulfillment centers in urban areas. Research reveals growing demand for locations under 200,000 square feet in dense urban areas.
Amazon has been a textbook example of this new trend. As this September 2015 article from Supply Chain Digest explains: “Amazon and others often find space in old industrial and warehouse areas within a city, and generally need few of the amenities companies look for today in traditional DCs, such as high ceilings and modern layouts. Location is the chief attribute these distributors are seeking to support so-called ‘last mile’ delivery.”
In the case of Amazon, they began this small service center experiment in London in 2013. It worked exceedingly well, and they launched the same strategy in the United States soon after. As noted in the Supply Chain Digest article above, Amazon already has 19 such urban centers as of June 2015 with more on the way.
Crisis in the Publishing Industry and How Publishers Are Switching from In-House to Third-Party Logistics Providers
Publishing has been wading through a crisis ever since the e-book hit the markets and redefined what “book” means. Now that years have passed since the late 2000s when the sea-change began to take form and noticeably affect publishers, what this crisis means for the supply chain has taken a more observable form. The new publishing paradigm has emerged. Publishers have realized that the usual fixed pricing model and the familiar system of publisher owned and operated warehouses is no longer ideal. The use of variable pricing models and, as bound paper inventories diminish, the switch to third-party logistics providers are rewriting the supply chain story.
McGraw-Hill Education is a recent example of this new dynamic as a recent August 2015 white paper from Supply Chain Management Review observed. The publisher worked with a third-party provider (GENCO) to accomplish four major goals:
- Mitigate risk
- Transfer assets
- Establish a variable pricing model
- Build a flexible platform
McGraw-Hill’s risk was two-fold: a large supply chain workforce and excess warehouse space for an ever-shrinking inventory.
What was heartening for the employees, however, was that they didn’t lose their jobs. Their positions were transferred to the third-party logistics provider — same job; different boss. The transferred employees were then placed in a consolidated warehouse system that used Lean principles to obtain the highest efficiency.
McGraw-Hill’s long-term leases were near their end dates. The third-party provider transferred the real estate assets, took over the leases, and made more efficient decisions with the excess space.
- Variable Price Model
McGraw-Hill, through the third-party provider GENCO, needed to change to a variable pricing model that could bring in new streams of revenue. GENCO’s solution was surprisingly simple: re-purpose the excess warehouse space by leasing it out to tenants, even if those tenants were competing publishers. Instead of unavoidable losses, the unused space became strengths that helped stabilize McGraw-Hill.
- Flexible Platform
The third-party provider had a large network of distribution centers that McGraw-Hill could use. This flexibility and access to large amount of resources without taking the risk was exactly what McGraw-Hill needed.
To summarize all of it in one sentence: today’s publishers must trim the excess weight of fixed, in-house systems and transform themselves into lean, agile operations that can turn on a dime as the industry continues to change rapidly.
How China’s Decline Will Hurt Asian Parts Suppliers
Asian electronic-parts suppliers are nervous, to say the least. And there are three reasons for that: China’s devastating downturn, the evolving smartphone industry, and the frighteningly volatile market.
In a recent September 2015 article from The Wall Street Journal — as quoted by Supply & Demand-Chain Executive — a severe slowdown in China’s smartphone market is sending ripples through the supply chain: “World-wide sales of smartphones grew at their slowest rate since 2013, research firm Gartner said this month, with sales in China falling for the first time in the second quarter.”
Samsung Electronics Co. and SK Hynix Inc. will certainly feel the burn. Many smartphone devices use the memory chips of these companies to store data. And other companies higher up in the supply chain, like Fanuc Corp. and Tokyo Electron Ltd., have already lowered their sales forecasts for the fiscal year that ends next March.
Aerospace and Defense Supply Chains Still Trying to Figure Out Wearables, Analytics, and the Internet of Things
As Supply Chain Quarterly noted recently in a September 2015 article, digital technology is still in its infancy in supply chain planning. It’s ironic, really. As covered in the fascinating new report from Accenture — “Are You Playing Ramp Up Roulette With Your Suppliers?” — industries with incredibly advanced technology (aerospace and defense) are still rookies in their use of digital technology in supply chain planning.
Upon first look, the numbers in the report seem promising, especially in the use of analytics:
Three-fourths of respondents [in aerospace and defense] say they have either implemented or plan to implement analytics for supply chain execution…The use of mobility tools, such as tablets, wearables, and other personal devices, is also increasing, with half of respondents planning to use or already using them for supply chain execution. Cloud-based technology, currently used or planned by 34 percent of respondents, also shows great potential for the aerospace and defense industry.
But the report makes this conclusion: the aerospace and defense industries are “still challenged by a lack of transparency and weak collaboration.” There is still great potential for improvement, and Supply Chain Quarterly suggested a few great ideas to start: “analytics and simulation of products could be used during development and testing, and wearables could help companies conduct virtual production inspections.”
Meanwhile, other industries are already finding powerful ways to use digital technology. Take the Internet of Things, for example; as InboundLogistics.com writer Udaya Shankar explains, companies are using RFID chips in pallets that are linked to a device integrated in the shipment vehicle to provide crystal clear in-transit visibility. This sends vital information to the company — GPS coordinates, weather conditions, traffic conditions, departure and arrival times, the driving behavior and speed of the driver — that adds many new capabilities to supply chain planning.
As Shankar observes: “Combining real-time sensor data with environmental data can provide intelligence of higher order to all the stakeholders in the ecosystem.”