The pitch is that supply chain software will slash costs and take performance to new levels. But our exclusive survey finds that nearly half of software users have not gotten the expected return on their investment.
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.
One out of every two supply chain software deployments is falling short when it comes to delivering the expected return on the investment. That was the surprising finding of this year's survey on supply chain software and how logistics professionals are using it. Designed as a follow-up to a study conducted last year, this year's research looked specifically at which applications are most popular, what kind of payback they're providing, and the challenges users face to successful deployment.
To conduct the study, DC Velocity teamed up with Boston-based Nucleus Research to survey readers of DCV and its sister publication, CSCMP's Supply Chain Quarterly, on their use of supply chain applications. Two hundred and fifteen usable responses were received from readers of the two magazines; those responses formed the basis for the findings reported here. As for the type of business they worked for, the survey respondents covered the gamut, with 29 percent hailing from manufacturing, 21 percent from third-party logistics services, and 18 percent from the wholesale distribution side. Another 14 percent worked in retail, 6 percent in transportation, and the remaining 12 percent in "other" industries. Respondents came from organizations of all sizes, with roughly a third working for companies with annual revenues of under $100 million, a third for companies with revenues between $100 million and $1 billion, and a third for corporations with revenues over $1 billion.
Among readers of DCV and SCQ, warehouse management systems remain the most widely used type of supply chain application.
When it comes to analytics in the supply chain, most users are looking for insights into how to manage their inventory more efficiently.
Lack of resources poses the biggest hurdle to readers' adoption of analytics in their supply chain operations.
WMS ON TOP AGAIN
So what software tools are readers using? As was the case in last year's survey, warehouse management systems (WMS) topped the list, with 57 percent of respondents using this type of solution. Given that so many of DC Velocity's readers are involved in running distribution centers, this came as little surprise. However, the survey did indicate some disparity in WMS adoption rates among companies of various sizes. For instance, 82 percent of respondents from companies with annual sales between $1 billion and $5 billion were using a WMS, compared with only 47 percent of respondents from companies with less than $100 million in revenues. This may indicate that small companies still have a hard time justifying the software's expense.
Next on the list of most widely used applications was enterprise resource planning (ERP) software—again no surprise given that most organizations use ERP programs as the system of record for financial transactions. Tied for third place were transportation management software (TMS) and business analytics solutions. (For the full list, see Exhibit 1.)
The study also found that different types of businesses favored different types of software. For example, manufacturers were the top users of WMS and warehouse control systems (WCS) as well as control towers and solutions for demand planning, supply planning, and analytics. Companies in the wholesale distribution sector were the primary users of inventory optimization software, while third-party logistics service providers (3PLs) were the biggest users of TMS and yard management software. Interestingly, labor management software usage was evenly split among manufacturers, retailers, and 3PLs, indicating that all three groups are seeking to optimize DC work force performance. Finally, in a bit of a surprise, slightly more manufacturers than retailers said they had deployed distributed order management systems (DOMs). DOMs, which are designed to help users determine the optimal location from which to fill a particular order (i.e., from store inventory vs. DC stock), are generally regarded as a tool to be used by retailers engaged in omnichannel commerce.
Asked about their recent software purchasing activity, 23 percent of survey takers said their company had invested in software in the past year. As for which applications they had bought, WMS again came in first, accounting for 21 percent of new purchases. TMS came in second (10 percent), followed by business analytics (9 percent).
THE PAYBACK CHALLENGE
Since a software purchase can run into the thousands of dollars, it's hardly surprising that companies would be looking for a quick payback on their investment. But what constitutes a quick payback? As the survey made clear, expectations vary all over the map. At one end of the spectrum were companies that expected payback within three months (5 percent); at the other were businesses that expected payback within three years (24 percent). The remainder expected a return in one year (31 percent), two years (28 percent), or six months (12 percent).
In regard to actual payback, many respondents expressed disappointment with their software implementations. Only 48 percent reported that they had realized the expected payback from a software investment, while 18 percent said they had not. Another 34 percent were uncertain as to whether the software had met the company's expectations for return on investment (ROI).
As for the reasons behind the disappointment, one common complaint was that the vendor had oversold the software's potential for improving performance. Wrote one reader about a WMS deployment: "Support and maintenance continued to bleed cash as the products overpromised and underperformed." Another reader reported that a WMS deployment had resulted in "cost overruns, project delays, a large number of defects, and overall poor performance." Yet another complained that "too many modifications were needed, which all were à la carte and cost extra $$."
One option for companies looking to minimize software implementation costs is to take the cloud-based route—a model in which the application is hosted by the vendor (or a third party) on an off-site server and delivered via the Internet. Among other advantages, this allows the user to avoid a hefty upfront capital outlay for software licenses as well as ongoing expenses for upgrades and maintenance. Plus, the user can configure the cloud application to its business needs instead of having to pay a programmer for custom coding.
And in fact, one-third of the survey respondents have done just that, opting to use cloud-based versions of at least some of their applications (TMS and business intelligence programs being the most popular cloud-based choices). When asked whether this had shortened the payback period, more than half the cloud-based software users—53 percent, to be exact—replied that it had.
ANALYTICS USE HINDERED BY RESOURCES
In the past year, there's been considerable buzz about the potential of business analytics, or business intelligence, software tools, which help users gain insights into their operations and parlay those insights into process improvements. To find out how far readers had progressed in adopting these tools, our survey asked about their use of four specific types of analytics: descriptive (which detail what happened in the past and why), predictive (which foretell what might happen in a supply chain), prescriptive (which recommend courses of action), and big data analysis (which entails sifting through reams of information for operational insights).
Despite the hype, only 41 percent of survey respondents said they were using business intelligence tools right now. Of the respondents in that subgroup, just over half (51 percent) are using descriptive analytics, 43 percent predictive analytics, and 17 percent prescriptive analytics. Thirty-three percent said they were engaging in big data analysis.
As for where they're applying these tools, the majority of analytics users—65 percent—pointed to inventory management. Clearly, companies are struggling with the classic inventory challenge—determining how low they can go with respect to stock levels without sacrificing service. The second most common area was warehousing, cited by 56 percent. With more demands being placed on retailers and manufacturers, especially in the area of omnichannel commerce, analytics can provide insights into how businesses can rev up throughput in their DCs. (See Exhibit 2 for the complete list.)
The flip side, of course, is that the majority of respondents—59 percent—are not using analytics at all. When asked why they weren't, 39 percent of the non-users cited a lack of staff resources. Another 19 percent said they saw no value in it. (See Exhibit 3.) That stands in sharp contrast to the findings of last year's survey, when "No perceived value" was the top reason given for not making use of analytics. If the lack of resources has indeed become the biggest obstacle to the use of analytics, software vendors clearly have to do more to convince potential clients that it's a worthwhile expenditure of time and money.
Given the perennial issue of resources, it's not surprising that the biggest companies were the most likely to be using business analytics. And indeed the top-tier companies—those with more than $5 billion in annual revenues—had the highest adoption rate, at 65 percent. The next tier down—companies with revenues between $1 billion and $5 billion—had the second highest adoption rate, at 54 percent. It should be noted that business intelligence is a cutting-edge technology that often requires the help of outside experts to mine the data for operational insights. It would stand to reason that bigger, better-capitalized companies would be in a better position to take advantage of business intelligence.
FINDING VALUE
Finally, the survey asked readers to name the biggest obstacle they faced to successful software deployment. First on the list was systems integration, cited by 31 percent. Next came company culture (defined as employee acceptance and support), cited by 21 percent. Rounding out the list were lack of information technology (IT) resources (19 percent), lack of good user training (10 percent), and absence of upper management support for software deployments (9 percent).
All this suggests that when it comes to future supply chain software implementations, logistics managers may want to consider going to the cloud. Not only are cloud-based applications likely to provide a quicker return on investment than traditional versions do, but they tend to be user-friendlier as well. And more importantly, perhaps, they offer users a way around such common hurdles as systems integration and lack of IT support.
Robotic technology has been sweeping through warehouses nationwide as companies seek to automate repetitive tasks in a bid to speed operations and free up human labor for other activities. Many of those implementations have been focused on picking tasks, a trend driven largely by the need to fill accelerating e-commerce orders. But as the robotic-picking market matures and e-commerce growth levels off, the robotic revolution is shifting behind the picking lines, with many companies investing in pallet-handling robots as a way to keep efficiency gains coming.
“Earlier in this decade and the previous decade, we [saw] a lot of [material handling] transformation around e-commerce and the handling of goods to order,” explains Josh Kivenko, chief marketing officer and senior vice president at Vecna Robotics, which provides autonomous mobile robots (AMRs) for pallet handling and logistics operations. “Now we’re talking about pallets—moving material in bulk behind that line.”
Kivenko explains that whether items are being packaged and shipped directly to a customer’s home address or moved as finished goods to a shipping bay for store delivery, those items are first moved in bulk in some way, often by human hands and with human-operated equipment. He describes warehouses as chaotic environments in which humans move pallets and cartons in multiple ways—up and down, side to side, from receiving to storage, from storage to shipping, or via cross-docking. Automation can help bring order to that chaos.
“What we’re trying to do is relieve some of the pressure [on the] humans [doing] this work,” Kivenko says of companies that develop pallet-handling robotic technologies. “At the end of the day, we’re trying to automate some of those flows, relieve labor pressure, save costs, and keep the goods flowing.”
But automated pallet handling isn’t right for every situation, so it’s important to understand the warehouse conditions required and the protocols and best practices needed to make it a win. Here are some guidelines for applying pallet-handling robots and gaining the most from your investment.
FIRST, UNDERSTAND THE TECHNOLOGY
Pallet-handling robots fall into four general categories, explains Rich O’Connor, vice president of storage and automation for Raymond West Group, a business unit of lift truck manufacturer The Raymond Corp. They include:
Palletizing/depalletizing robots, which are used to load or unload items onto and off of pallets, usually with the use of a robotic arm for picking and placing. Today, these systems are being increasingly integrated with automated storage and retrieval systems (AS/RS) to further streamline pallet handling in the warehouse, O’Connor explains.
Autonomous guided vehicles (AGVs) and autonomous mobile robots (AMRs), which are used to transport pallets within the warehouse. Often outfitted with lift decks or conveyors, or designed to tug or tow items, these robots move pallets from point A to B within a facility. AGVs, which often follow a marked guide-path or wire in the floor, have been around for many years, but the advent of high-performance guidance and vision systems is allowing them more flexibility today, O’Connor says. AMRs are self-guided vehicles that use software and sensors to navigate their way through the warehouse.
Forklift AGVs and AMRs, which can move products both horizontally, from place to place, and vertically, into and out of storage racks. They come in various styles—including stackers, counterbalanced trucks, reach trucks, and even very narrow aisle (VNA) vehicles for use in densely packed warehouses. These vehicles are more complex than those used only for horizontal transport, O’Connor explains. They must be “highly integrated” into the facility’s warehouse management system (WMS) or warehouse execution system (WES) so that they know precisely where to retrieve and deliver pallets within the facility.
Robotic pallet shuttles, which move pallets into, out of, and within dense storage racking. The Raymond Corp. describes such a system as “a standalone, automated deep-lane pallet storage system that utilizes self-powered shuttle carriages to move pallets toward the back or front in a racking channel. Shuttles are motor driven and travel along rails within a storage lane.”
O’Connor and others say that no matter which of these technologies you’re investing in, it’s important to remember that they are all part of a larger system designed to optimize operations throughout the warehouse.
“The expanding role of all these different styles working together is what’s amazing today,” O’Connor says.
SECOND, ENSURE THE TECHNOLOGY IS A FIT
Kivenko, of Vecna, also emphasizes the importance of pallet-handling robots working in concert, particularly AMRs and AGVs.
“The magic isn’t just that the robots are autonomous and driving by themselves. The magic is multiple robots—when you have a [whole integrated] system [in place],” he says. “[It’s] how the fleet operates autonomously and optimizes itself for continuous improvement. That’s where the exponential gains are. [It’s] not just about automating what a worker does; it’s about automating a system.”
But you can’t install these systems in just any warehouse and expect magic. Kivenko and others point to certain conditions that enable the best robotic pallet-handling outcomes, especially when it comes to transportation-based and forklift-type AMRs and AGVs.
“The robots that I sell are large-load machines with very expensive technology,” Kivenko explains. “They move material, generally, in larger facilities. And in order for them to produce a return [on investment]—because that’s the name of the game here—they have to be higher-velocity facilities.”
He says pallet-handling robots work best in large facilities running multiple shifts, usually more than five days a week. Wider aisles allow the equipment to move more freely through the facility and at higher speeds, to optimize efficiency and productivity. Strong Wi-Fi networks and clean, dry environments also help keep equipment running at top performance.
O’Connor agrees that pallet-handling robots are best suited to facilities with multishift operations, where they can ease labor constraints and boost productivity. And he says many customers are willing to extend the typical two- to three-year ROI period to five years in order to achieve those gains. But there is even more to it than that. O’Connor’s colleague John Rosenberger says customers must first step back and analyze their processes to ensure that, even if they have the right facility for pallet-handling AMRs or AGVs, they are moving material in the most efficient way to begin with.
“Many times, we find that the processes in place [are inefficient],” says Rosenberger, who is director of iWarehouse Gateway and global telematics for The Raymond Corp. He emphasizes the importance of analyzing existing data—from an equipment telematics system or similar—to determine the best path toward automation.
“Do you have congestion zones now?” he asks. “They’ll still exist if you automate [those processes exactly].”
THIRD, MAKE SIMPLICITY A PRIORITY
Another basic rule of thumb when implementing pallet-handling robotics: Keep it simple.
Andy Lockhart, director of strategic engagement for global warehouse and logistics process automation company Vanderlande, says that when designing a pallet-handling robotics system, “you want to minimize the processes you [automate]. When you can create [an automated system] that focuses on one task—for example, AMRs delivering pallets from a high-bay [storage rack] directly to the palletizing cell—you can do that efficiently and effectively. When you ask the AMR to do this and this and this … you are adding risk of failure.”
Lockhart’s colleague Jake Heldenberg advises customers to first test their target processes via pilot programs within the warehouse or DC. Heldenberg is Vanderlande’s head of solution design, warehousing, North America.
“If AGVs or AMRs for pallet handling are interesting [to a customer], the best thing to do is pilot one or two in an existing DC,” he says, explaining that the process can help companies troubleshoot, understand integration timelines, and gauge ROI. But pilot programs can add expense to a project, making it unaffordable for some.
“If that’s the case, then the best advice is work with a vendor who has experience integrating [the technology],” Heldenberg says. “Use their experience to benefit your business. You won’t have the same hiccups and challenges you would with a less-experienced vendor.”
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”