Technology that keeps the lines of communication open is helping consumer goods companies satisfy even their fussiest customers: the big box retailers.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
Supply chain information technology advocates used to boast that the information was almost more important than the shipment itself. You don't hear that claim much any more, but underlying it was an essential truth about supply chain management: Clear, accurate and timely communication between shippers and receivers is fundamental.
Nowhere is that more true than in the often prickly relationship between consumer packaged goods (CPG) companies and their retailer customers. Requirements placed on CPG companies by the Wal-Marts, Targets and other big box companies are becoming ever more onerous. Make a mistake on a shipment—deliver it late (or at the wrong time) or incomplete or with the wrong goods or with inaccurate documentation—and you risk not only losing the sale but also being slapped with a penalty.
For all the talk of collaboration, it's all too clear that the retailers are still calling the shots. But the CPG companies aren't wasting energy complaining about it. "Beating up on the big retailers is passé," says Thomas Bornemann, managing partner for Clarkston Consulting, which has a large consumer goods practice. "Whatever the initiative is, it has to be used internally to improve. Companies that embrace that idea are going to win."
Their victory will be achieved largely through a number of emerging technologies. Mike Dempsey, industry strategy leader for RedPrairie, a supply chain software systems provider, says, "The big point is changing distribution patterns."He says the pressure to reduce cycle times among retailers is throwing new demands on suppliers, primarily in the area of software.
"It ties back to globalization," he says. "Products are being manufactured on a worldwide basis. They are going to lower-cost labor markets. You have to create solutions that support those movements." Systems have to be developed to overcome the inherent contradiction between offshore sourcing and demands for shorter cycle times. "The primary way to mitigate it is through software technology and optimization tools," he says.
Bornemann is not persuaded that the offshore sourcing of consumer products is as widespread as is generally assumed—for the very reason that it's difficult to reconcile with demands for responsiveness."Outsourcing is not nearly as pervasive as people think because of that problem," he says. He reports that Procter & Gamble, for instance, will not outsource its core manufacturing because it's almost impossible to control.
Past perfect
The answer for CPGs is more actively collaborating with their customers, better understanding what they expect and making the exchange of information between the parties speedier and more accurate.
"We're seeing a new emphasis on customer intimacy," Bornemann says. What that means is that both CPG companies and the retailers see credibility as a two-way street, he explains.
For example, though retailers still demand the "perfect order"—one that's on time and complete and is accompanied by correct information —they're also willing to share performance information with their suppliers. That scorecard gives the CPG companies the information they need to dissect and solve problems.
Coty Inc. is one company that gleaned valuable performance and operating data from its customers' scorecards. A couple of years back, Coty and Clarkston developed a customer scorecard that measures Coty's performance from its customers' perspective. The goal of the scorecard was to improve those customers' satisfaction with Coty's performance, which would in turn reduce compliance fees charged by the retailers.
Coty implemented the scorecard with five customers last year and currently uses it with 15 customers. The metrics derived from the scorecard have allowed Coty to improve its order fill rates, reduce out-of-stock occurrences and eliminate order cancellations resulting from data errors, according to Clarkston. Coty has also increased the frequency of its advance shipping notifications (ASNs) to improve shipment visibility—a decision derived from what it learned from the scorecard reports.
The goals of greater accuracy and fewer penalties are closely connected with one of the more important trends by the CPGs. "One of the biggest drivers I am seeing is managing the customer as a profitable entity," Bornemann notes. Many suppliers to Wal-Mart, for instance, have established offices in the retail giant's home town of Bentonville, Ark. They offer something like one-stop shopping to Wal-Mart, taking consolidated orders for all Wal-Mart locations at that one point. Not only does that make life easier for Wal-Mart, Bornemann says, but it also allows the CPGs to handle the volume better.
Then there's the issue of getting goods to the retailers, often on short notice. That need to respond quickly has led many CPGs to regionalize their distribution centers in an attempt to get physically closer to the customer's final distribution point. "That makes it more difficult to manage," Bornemann acknowledges, "but they're getting control. We're continuing to see that trend. You have got to get closer; you have to be quicker."
Even then, short lead times are problematic, and they continue to force CPGs to keep finished-goods inventory levels high. Finished-goods inventory levels are as much or more about customer service than supply chain management effectiveness. "Finished-goods inventory won't go away until we get to a responsive supply chain and make to order," Bornemann says. "The next 10 years of supply chain will be focused on that.
"Information technology plays a big part in that," Bornemann continues. "With good IT, you can do things in seconds versus days. You can cut a lot of cycle time out. Also, you can collaborate much further up the chain."
The demands for visibility emerging from the retail sector are also driving some IT investment. John Fontanella, vice president, supply chain management at AMR Research, says, "A lot of CPGretailer communication is still via EDI or ASNs. But the retailers want to look further upstream."
Outside assistance
Related to that are two technological innovations that have evolved rapidly over the last two or three years: the WorldWide Retail Exchange (WWRE) and UCCnet.
The WWRE, which was started by a group of major retailers in 2000, aims to link suppliers and retailers in order to automate supply chain processes and thus reduce inefficiencies. It currently has 64 retail members and claims to have saved members more than $1 billion.While started by retailers, it operates as an independent company and neutral intermediary. WWRE, which has become a major business- to-business exchange in the retail marketplace, adds that its products include planning, negotiation, purchasing and logistics modules.
UCCnet, an offshoot of the Uniform Code Council, provides standards-based electronic commerce services, with an eye toward allowing participants to synchronize item information in 23 industries using the Internet. Founded in 1998 and launched in 2000, it now has more than 750 members, including 416 added during the first half of this year.
An example of UCCnet at work is communication between Kraft Foods and Shaw's Supermarkets, a New England grocer. In the past, each time Kraft launched a new product or changed product specifications, someone at Shaw's had to go in and manually update the grocer's systems. Using UCCnet technology, Kraft is able to send Shaw's data in XML (extensible markup language) form that allows the grocer to quickly update data on Kraft products in its ERP and other systems.
UCCnet says that studies by the Grocery Manufacturers of America, the Food Marketing Institute and UCCnet indicate that the technology's benefits could be substantial, including reductions in invoice discrepancies, reductions in product delivery errors, improved purchase order quality and better retail scanning accuracy.
UCCnet and WWRE are two of a number of related technologies that are creating the tools for development of what has been called intelligent response. "When you look at supply chain process management," Dempsey says, "you'll find there are really three elements to it. There's the data integration layer. Suppliers and retailers are integrating data. Once you get that, you begin to get visibility. Coupled with that is the event management level. Event management software is there today that can identify specific occurrences or lack of occurrences and provide information. Beyond that, the real purpose of visibility and event management is it can do what [consulting firm] Gartner [Group] called intelligent response. If you need to make better decisions about the supply chain, these systems provide data and you can arrange for a predetermined automatic response to events."
Engulfed by the radio wave?
The next major technology that will affect the relationship between CPGs and their customers is one that may not be new but has nonetheless received extraordinary attention over the last year—RFID.
Despite mandates by Wal-Mart and the Department of Defense for quick implementation of RFID systems, the trend may not take hold as quickly as some of the publicity might imply. "Overall, this industry knows that it will be quite a while—five to 10 years—before RFID tags that are both readable and writable will permeate this industry," Bornemann says. Part of the reason is the expense involved in implementing the technology—an estimated $2 million per DC or factory just for the hardware, he reports. And standard protocols are just on the verge of widespread adoption. Even so, companies are beginning to think about how to derive internal benefits from RFID technology.
"Customers of CPG companies are putting stakes in the ground mandating inclusion of tags in cases and pallets for their benefit," says Christopher Verheuvel, vice president of the retail group for Manugistics Group Inc., a large provider of supply chain software systems. Indeed, only last month,Wal-Mart reaffirmed its commitment to phasing in RFID throughout its distribution network in 2005, with a goal of having it completed by the end of 2006.
"The real question becomes, 'OK, Mr. CPG manufacturer, if you're going to invest, wouldn't you like to get some benefit, too?'" says Verheuvel. "We've started talking to CPG executives and they've faced the business reality of what their customers are asking."
He says that the RFID systems' efficiency in collecting accurate data is the key. "RFID allows you to respond more effectively," he says. "It's well known that CPGs carry excess inventory because they have to support the Wal-Marts against their service levers. The closer you can get to the execution, the less inventory you have to carry."
But the real test of RFID will be whether the benefits are widespread.Verheuvel thinks they will be. "There will always be integration issues," he says."More important are the business process issues. What is the value to the organization? You have to look at the cost of integration, the physical tags and readers, the business process costs. Then you have to make a decision. Is the tradeoff of a more nimble supply chain worth it? Almost always, the answer will be yes."
Verheuvel also believes that adoption of RFID will proceed faster than most observers are predicting. "Whenever you think item tagging will occur," he says, "it will happen sooner."
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.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
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.