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.
Four years after entering the U.S. Computer market, Fujitsu Computer Systems Corp. had a revelation. To succeed in this highly competitive arena, it would need to move faster and manage its inventory and costs more aggressively. The way to get there: a flexible supply chain made possible by rapid replenishment.
But Fujitsu's drive to boost its flexibility didn't end with retooling its supply chain. The company has also proved to be flexible when it comes to adapting its rapid replenishment model to meet current supply chain realities. Over the years, for example, Fujitsu has tweaked its demand planning process to shorten lead times. It has also blunted the impact of soaring fuel costs by adjusting its shipping and production processes in a bid to take advantage of the most cost-effective transportation modes.
Aligning supply with demand
Fujitsu Computer Systems, which is the U.S. subsidiary of Tokyo-based Fujitsu Ltd., first entered the competitive North American computer market in 1996. In the beginning, the company, which was making products to forecast, often found itself struggling to turn a profit. Before long, it realized that it needed to find a business model that would allow it to better align inventory with customer demand.
To that end, Fujitsu turned to a make-to-order manufacturing strategy and a direct-ship delivery model, also known as the "rapid replenishment" approach. Under this model, the Sunnyvale, Calif.-based company takes orders from U.S. customers for its laptop and server computers, builds them to customer specifications in Japan, and then ships the finished product across the Pacific to the United States.
A major advantage of rapid replenishment is its extreme flexibility. The business model virtually eliminates the need to keep inventory in stock (and enables the company to turn what inventory it does have 50 times a year). "Because we have no inventory in the pipeline, we are able to change and react very quickly to market conditions," says Kevin P. Wrenn, senior vice president of PC business and operations. "Our ability to respond to the market gives us total flexibility with our business model."
Keeping tabs on demand
The company set the stage for its shift to rapid replenishment by creating a front-end Web interface to process orders from both consumers and businesses. Initially, Fujitsu used the Web mechanism only for personal computer orders. But the approach worked so well that the company has since expanded it to include orders for servers and storage devices. All communication with customers regarding product and order information is handled online.
The order site for businesses also features a tool that provides potential customers with price quotes. "The quote tool database and the order management database are linked so there's no duplication of effort," says Wrenn. "By linking up the quote number, order entry is seamless, and it saves us a lot of time and improves the customer experience."
Once an order is placed on the Web site, the system automatically calculates a delivery date based on parts availability in Fujitsu's Japanese factories. The personal computers are made to order in a plant in Shimane, Japan, while the larger server computers are built in a facility in Kasashima, Japan. The two factories use a pull system to get parts from more than a hundred suppliers. Key vendors also locate stock near the factory in order to respond rapidly to requests for replenishments.
Each day, the U.S. operation feeds order information to the factories for use in demand planning. Fujitsu's homegrown demand planning application then looks at the customer demand data and adjusts production on a daily basis, rather than waiting for a weekly forecast.
Because the product configurations are limited, it's a relatively simple matter for the Fujitsu factories to keep tabs on their parts needs. "In terms of hard drives and memory, there are only a small number of components they need to manage," Wrenn says.
But the business hasn't always operated that way. Four years ago, the U.S. operation tried to engage in demand planning as well. The company, however, soon concluded that the method ended up duplicating work and has since decided to leave it to the factories to assess parts needs. The result has been an improvement in the stability of supply and a 30-percent reduction in lead times. "We spend our focus on keeping component flexibility at the factory," Wrenn explains. "There's no such thing as forecasts. It's all about how you manage demand."
Fast response
Once the computers are finished, they're shipped out to the United States in a couple of different ways. Personal computers assembled at the Shimane factory are generally trucked to Kansai International Airport about six hours away in Osaka.
From here, Fujitsu ships them via direct flights to regional hubs in the United States. At the hubs, the shipments are broken out and sorted for final delivery. Wrenn says that personal computer orders are usually delivered in four to six days. In fact, an order placed on Monday generally ships by Friday.
Deliveries for servers are handled somewhat differently. These shipments are turned over to freight forwarders, which manage the movement of the goods from the Kasashima plant to one of six U.S. gateways: New York, Atlanta, Dallas, Los Angeles, San Francisco, or Chicago. The freight forwarder in the United States takes care of customs clearance. Because Fujitsu is C-TPAT certified, about 95 percent of its shipments qualify for "wheels up" treatment or electronic clearance prior to the plane's arrival.
When the servers arrive in the United States, a third-party logistics service company (3PL) takes over the delivery. (The average distance for deliveries from the gateway to a customer location is somewhere between 300 and 400 miles.) The 3PL also handles the communication and detail coordination with the customer. In addition, the 3PL works in concert with Fujitsu's field engineering staff, which handles the actual installation once the 3PL has delivered the product to the customer. Wrenn says that low-end servers ship in seven to nine days after order placement, while high-end servers ship in 12 to 15 days.
Although the company employs the direct-ship approach in order to minimize its inventory, it does maintain a small amount of stock at a Memphis, Tenn., facility, which also acts as a service operations center. Wrenn reports that less than a million dollars' worth of inventory is kept on hand in the Memphis facility. Most of that inventory is used to fill sameday and next-day orders placed online.
Weighing the cost of speed
Air freight would seem the natural modal choice for a company pursuing a rapid replenishment strategy. And in fact, Fujitsu originally shipped all of its products by air. But in the past year, the company has begun shifting some of its freight to a more cost-effective alternative: ocean service.
What prompted the move was a steady increase in airline fuel costs. "Fuel surcharges got to be upwards of 18 or 19 percent," says Wrenn. "That's very significant, so we started looking at alternative ways to manage costs." As it weighed its options, the company decided that maybe some of its shipments weren't so time-sensitive after all. In particular, many of its large corporate orders had rollout times of two months, which opened up the possibility of moving some of the merchandise by ocean. Ultimately, the company decided to give it a try. "What we ended up doing was building the product early and putting it on a boat in time for when the customer needed it," Wrenn says.
When it comes to large orders these days, Fujitsu will send some of the product by air and some by water. For example, if a large West Coast retailer orders on an eightweek cycle, Fujitsu will manufacture the product required for week one and week four of the rollout at the same time. The week-one orders will be sent by air, while week-four orders will go by ocean. The company will follow the same production pattern for the next phase of the cycle: It will build week-two and week-five orders at the same time, but week-two merchandise will get the faster air treatment, while the week-five products will take the boat.
The savings, not surprisingly, can be substantial. "It costs us 10 bucks to ship a computer by ocean," reports Wrenn, "and 30 bucks to ship by air." Though the majority of the company's shipments still move via air, ocean freight has made significant inroads. At present, Fujitsu spends $8 million annually on air movements and about $1 million on ocean.
Flexibility pays off
The rapid replenishment model has served Fujitsu well. Last year, the U.S. division recorded almost $700 million in personal computer and server-storage sales—up from $300 million just four years ago. It built and shipped more than 200,000 personal computers and more than 3,000 servers under the rapid replenishment model in 2006 alone.
In fact, the approach has worked so well that Fujitsu's parent company has since extended it to other parts of its multinational operation. Fujitsu now uses this model for its home market in Japan, for large Asian sales, and for European orders of its low-cost computers.
Fujitsu credits the rapid replenishment model with enabling it to compete by keeping inventory to the bare minimum. "The model is helpful in reducing our costs," Wrenn says. "We don't have a lot of inventory in the pipeline, and we haven't had a write-off in four years, here in the States or in the factory."
The model has also allowed Wrenn to hold down labor costs in the United States. When the company added server computers to the personal computer business, he says, his 40-person operations group was able to absorb the added workload without any expansion in staff.
But rapid replenishment's biggest benefit may be its inherent flexibility. "When it comes to changes in the market, we can make changes in real time with no impact," Wrenn says. "We've won quite a few deals because of our ability to respond. We react and as a result, we get the revenue."
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
After years in the military, service members and their spouses can find the transition to civilian life difficult. For many, a valuable support on that journey is the U.S. Department of Defense (DOD) SkillBridge program. During their final 180 days of service, participants in the program are connected with companies that provide them with civilian work experience and training. There is no cost to those companies while the service member continues receiving military compensation and benefits.
Both sides benefit from the program. “We’re proud to work with SkillBridge to give back to our military veterans for the bravery and sacrifices they’ve made for all of us,” Troy Pederson, director of training and development at LiftOne, a Hyster-Yale dealer and established SkillBridge employer, said in a release. “In the last year, we’ve helped 10 SkillBridge interns transition from military to civilian life, and the value and positive impact of the program can’t be overstated. At LiftOne, we’ve gained so much from the experience and diverse mix of technical and leadership skills of our SkillBridge candidates.”