As the pandemic’s turmoil subsides, 3PLs look to find their footing
The nation’s shippers and their third-party service providers face a post-pandemic market beset with nagging disruptions, tight warehouse space, and higher costs for just about everything. Here’s how two organizations—BJC HealthCare and Ryder—tackled the challenge.
Gary Frantz is a contributing editor for DC Velocity and its sister publication, Supply Chain Xchange. He is a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
Third-party logistics service providers, like everyone else, navigated through the pandemic’s dark, unfamiliar recesses without a good road map to guide them. It was a time when, as a nation and an economy, we were dealing with unprecedented circumstances driven by a once-in-a-century health emergency of a scope, depth, and scale never before encountered.
Thankfully, the pandemic has subsided—mostly. Businesses—and their logistics service providers—are slowly recovering their footing and figuring out the lay of the land in today’s new normal.
Yet it is anything but normal. Inflation, while moderating somewhat, continues to raise the costs of just about everything. Consumers are still experiencing persistent supply chain delays and shortages of goods. Shipping volumes have declined, and trucking capacity remains loose. Some inventories are still out of position and need to be redeployed. Warehouse vacancy rates are the lowest in a decade.
What did third-party logistics service providers (3PLs) learn? How do those learnings affect the 3PL business model? And what do shippers want now?
RIPE FOR DISRUPTION
To answer those questions, it helps to know a bit about the sector’s recent history.
A huge sea change already was underway in logistics when Covid hit, recalls Matthew Beckett, senior director–analyst at research firm Gartner Inc. “First was the onset of digital transformation in an industry ripe for change,” he notes. “Second was how e-commerce exploded onto the scene.” Combined, “those two elements had a massive transformational effect on 3PLs” and how they engaged with and serviced clients. “It [Covid] accelerated what was going to take a few years to happen to literally … a matter of months.”
He believes 3PLs as a result have had to take a hard look in the mirror—and reimagine themselves. “I think they failed to innovate. They didn’t respond effectively or fast enough to the need for end-to-end visibility. They were slow to adopt and implement digital solutions,” he’s observed. “They did not scale quickly enough.”
Nevertheless, 3PLs now are racing to catch up, adapt, and develop the technology tools and capabilities necessary for today’s post-pandemic supply chains. They are doubling down on end-to-end visibility and converting manual processes to digital. They are betting big on integration and data hub capabilities. They’re extending further upstream into a client’s forecasting, sourcing, and manufacturing activities, and downstream to support multiple fulfillment channels—both e-commerce and resurgent brick-and-mortar sales. And they’re dealing with an explosion of last-mile home deliveries, from parcels and packages to big-and-bulky items.
Beckett says there have been big changes in 3PLs’ mindset as well: They’re putting a much more solid stake in the ground and investing in innovation across all aspects of supply chain operations and control; being truly committed to partnerships, including taking real skin in the game with the client; making an honest, credible commitment to meaningful collaboration, not just lip service; and weaning themselves from a historical reliance on transactional relationships.
All of this is leading to the emergence of next-generation “4PL” models, which Beckett describes as “a logistics integrator [using a common platform to] manage physical execution through external networks.” He adds that “the 4PL typically assumes total responsibility for the design, build, run, and measurement of an integrated and comprehensive ... end-to-end supply chain.
“Shippers want more innovation and less transactional focus,” Beckett believes. “The biggest hurdle to overcome is trust. The industry has had a transactional mindset for so long it’s hard to shed that and develop the type of trust needed for a true, collaborative partnership.”
A LIFETIME OF LESSONS
No industry was more impacted or thrown into disarray by the pandemic than health care. As Covid-19 spread throughout the country, it placed incredible burdens on health-care systems. It exposed serious fissures in the traditional supply chain operating model—a model that focused on lowest cost, reliance on indirect suppliers, and just-in-time (JIT) inventory practices, which in some cases failed under the unprecedented stressors on the industry.
Demand for goods, particularly personal protective equipment (PPE), went through the roof. Inventories were there one day and gone the next. Traditional methods and practices of acquiring medical goods and securing inventory went awry.
“It was a lifetime of lessons,” recalls Tom Harvieux, vice president and chief supply chain officer for St. Louis, Missouri-based BJC HealthCare, one of the nation’s largest not-for-profit health-care systems. BJC operates 14 hospitals, multiple outpatient centers, and 300 clinics, collectively with some 3,200 beds.
In pre-Covid times, “our supply chain was built around maximizing low cost. We were highly reliant on intermediaries, third parties, indirect sourcing, and buying product through distributors,” he notes. “There was very little focus on end-to-end visibility.”
Relationships were transactional. “Silos” of procurement and logistics services between trading partners did not communicate well or at all. “It didn’t lend itself well to collaboration,” he says. “There was little coordination between sellers, buyers, and the people responsible for running the logistics organization”—in other words, those whose job it was to get supplies to hospitals and on the floors where and when they were needed.
That was his view of BJC’s supply chain before the pandemic. In 2018, he and his team embarked on a fundamental redesign and restructuring of their supplier sourcing and supply chain model. They wrote an RFP (request for proposal) seeking a service provider that could centralize logistics and stand up a dedicated BJC warehouse to serve the entire BJC system, automate “the heck out of it,” staff it, and institute not just tools and processes, but also an effective, proven continuous improvement mindset and culture throughout the operation. Oh, and reduce product cost and improve inventory availability by an order of magnitude.
Funding was secured in 2019. Seven bids were solicited, received, and reviewed. BJC settled on Ryder as its 3PL vendor for the warehouse setup, including a WMS (warehouse management system); automated storage and handling equipment; systems integration; a dedicated, closed-loop transportation network; and a visibility platform. BJC would handle front-end inventory planning, forecasting, and buying. What tipped the contract in Ryder’s favor was its attentiveness to BJC’s requirements and requests. “They listened when it came to our automation needs,” Harvieux says.
Work started in early 2020. And then Covid hit, searing its way through the populace and putting health-care systems under unheard-of pressures. Given the lean nature of JIT practices, “there was not a lot of buffer. So, when demand spiked with Covid, it just broke the entire supply chain,” mostly around acquiring PPE, he recalls.
Harvieux’s team members found themselves running on parallel tracks: still operating the old model and struggling, like every other health-care system in the country, to keep their hospitals stocked with supplies in a raging pandemic, while simultaneously helming a fundamental reinvention and buildout of the new model. It was like trying to build a new car while still driving the old one.
SIMPLIFY AND TAKE CONTROL
BJC’s objective was to move from a “distributor-managed” model to a “self-managed” one. The distributor-managed model starts at the hospital dock door, meaning the health-services provider is receiving goods but not managing inventory or distribution. By contrast, the self-managed model leverages a 3PL group to complement the health-care system’s in-house resources to provide full control over an end-to-end supply chain, including supplier sourcing, inventory management, and distribution.
Harvieux cites several critical goals for the reinvention, with the overall mission being to “simplify and take control.” Among the keys: Ditch [mostly] buying from intermediaries such as distributors and develop strong, enduring relationships directly with manufacturers. Stand up a dedicated warehouse where BJC owned and controlled the inventory. Hire a specialist (Ryder) to design the warehouse layout, spec tech and equipment, project manage the buildout, hire and train staff, and start up and run the warehouse (“Running warehouses isn’t our core competency, nor should it be,” Harvieux recalls telling his team).
Other primary objectives: Install the best automated systems on the market. Integrate BJC’s existing ERP (enterprise resource planning) system with an advanced WMS platform for real-time inventory and order management, analytics, and fulfillment. And, last but not least, layer over the top a “single source of truth” visibility platform connecting all the nodes and flows in BJC’s supply chain.
Harvieux emphasizes that it was paramount that BJC have the full picture of its supply chain, constantly updated, on demand, 24/7. That meant an all-encompassing solution providing accurate, real-time end-to-end visibility—from orders placed at manufacturing, to product leaving the plant, through transport, to cross-docked at the warehouse, in inventory, picked from inventory, individual order shipped, in-transit, and received on a specific floor of a hospital. The answer for BJC: RyderShare, the 3PL’s dedicated visibility offering.
Work on the distribution center began in August 2020 and was largely completed in November 2021, when BJC started to receive and build inventory. Outbound operations (shipments to hospitals and other BJC facilities) commenced in January 2022.
The project saw BJC and Ryder stand up a new 412,000-square-foot ambient-temperature facility with 44 dock doors. It has 20,000 pallet locations and 1.3 miles of conveyors. Its AutoStore automated storage and retrieval system has 27,000 bin locations. All told, the DC houses 6,500 active SKUs (stock-keeping units) from more than 100 suppliers that encompass numerous health-care commodities, including tape and bandages, surgical supplies, and medical devices. In the facility, Ryder manages a workforce of some 160 employees who perform various warehouse planning and operations, material handling, administration, and fulfillment roles. All employees participate in Lean continuous improvement activities.
Harvieux recalls that under the old model, BJC facilities were dealing with “hundreds” of parcel shipments daily from distributors and manufacturers—at a significant cost. Since transportation and logistics expense was built into the product price charged by the distributor, it was difficult, if not impossible, to know the true costs of goods purchased.
Under the new self-managed model, those parcel shipments have essentially disappeared, replaced by consolidated, sequenced loads delivered daily (and sometimes two or three times a day) to hospitals by dedicated truck. Harvieux and his team now have clear visibility into—and control over—actual logistics and supply chain costs. And, because goods are sourced directly with manufacturers and suppliers, shipping costs once embedded in product pricing are stripped out—providing significant savings in cost of goods purchased. The savings also have been significant on the annual operating cost of the DC.
HOW IT WORKS
BJC and Ryder collaborated to build a fully engineered warehousing, inventory management, fulfillment, and transportation solution. Multiple highly reliable systems and re-engineered processes were designed and implemented around reorder points and how hospitals send signals back to the DC.
Typically, hospital departments drop orders into the ERP/WMS every afternoon. By 6 p.m., orders are picked from the AutoStore system and the totes are loaded, stacked in designated order on pallets, sequenced in trailers, and rolling out of the building on dedicated Ryder trucks (typically a tractor pulling a 48-foot trailer) for delivery.
Trailers are loaded in a specific sequence dictated by the WMS. For example, supplies needed for surgeries are on top of a pallet at the tail of a trailer. This allows hospital staff who are unloading pallets to get those more time-critical items onto carts for delivery first. Hospital staff don’t have to guess where supplies go; every tote in the trailer has a label specifying the destination floor, storeroom, and/or locker. At any time, Harvieux and his team can go into RyderShare and check the in-process status of any supplier order in transit, item in the warehouse, or order being filled as well as the status of a particular product, such as a surgical kit, that’s en route to a hospital.
“We implemented a Kanban system for triggering orders from hospitals into the DC,” Harvieux explains. BJC’s ERP system has near-real time inventory data and communicates constantly with the WMS. Hospital staff place orders in the ERP. If inventory is available, the order is passed to the WMS. Once an order is picked at the DC, confirmation is passed back to the ERP, which updates inventory records. In some cases, orders are triggered automatically based on minimum/maximum quantity levels written into the ERP’s instructions. Harvieux’s team manages and oversees the entire process.
During the pandemic, BJC’s fill rates (percentage of orders completely filled and delivered on time) struggled to reach the low 90% range, and for some products, even lower.
With the new DC, fill rates are consistently hitting 98.5% for orders going to the nursing and surgical procedure areas.
Building direct relationships with suppliers has provided an added benefit on the inbound side, Harvieux says. Before, shipments arrived in all shapes, sizes, and packing configurations. There were no consistent guidelines for how suppliers packaged, segregated, and shipped orders. Now BJC has collaborated with its direct suppliers to create a common set of instructions for how goods are to be packed, loaded on pallets, and sent to BJC. That’s enabled other efficiencies in the receipt and putaway of inbound goods when they arrive at the warehouse.
WORKING OUT THE BUGS
While there are still hiccups here and there, and some bugs to work out, Harvieux is pleased with how the overall project developed, was executed, and is operating today, including the technology, integration, and warehouse management. “We would have struggled with the technology and the integration because that’s not a core competency of ours,” he notes.
And for the rest of the 3PL industry, the story of BJC and Ryder provides a real-world example of the success that can be achieved when the old transactional ways of doing business are set aside and replaced with relationships built on trust and meaningful collaboration.
The consulting firm Accenture has acquired Staufen AG, a German management consulting firm, saying the move will expand Accenture’s capabilities to drive operational excellence and competitiveness in manufacturing and supply chains.
Specifically, adding Staufen will help Accenture serve clients in discrete manufacturing industries including automotive, aerospace and defense, industrial goods, and medical equipment.
According to Accenture it made the deal because manufacturers are under pressure to mitigate supply chain disruptions, geopolitical tensions, and fluctuating tariffs while staying abreast of rapid technological advances. To meet those needs, Staufen brings expertise in helping clients optimize their entire value chains, drive value with digital manufacturing initiatives, and improve overall businesses performance.
Staufen’s service portfolio includes solutions for Industry 4.0, supply chain management, and organizational change as well as data-driven tools, continuous improvement techniques, and lean management principles. Its approach enhances clients’ product design, shopfloor processes, time to market, and sustainability efforts, reducing costs, eliminating inefficiencies, and optimizing production capacity, the company said.
“Manufacturers must continuously improve their entire value chains to stay competitive,” Matthias Hégelé, Accenture’s supply chain and operations lead for Germany, Austria, and Switzerland, said in a release.
“The acquisition of Staufen aligns with our strategy to reinvent supply chains and manufacturing for clients. We will combine Staufen’s proven expertise in operational excellence and value chain transformation with our capabilities in digital technologies, such as AI, generative AI, digital twins and supply chain and manufacturing software platforms, to help clients transform their core value chains, improving efficiency and productivity, supporting sustainable practices, and building resilient, autonomous systems,” Hégelé said.
Part of the reason for that situation is that companies can’t adjust to tariffs overnight by finding new suppliers. “Supply chains are complex. Retailers continue to engage in diversification efforts. Unfortunately, it takes significant time to move supply chains, even if you can find available capacity,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a release.
“While we support the need to address the fentanyl crisis at our borders, new tariffs on China and other countries will mean higher prices for American families,” Gold said. “Retailers have engaged in mitigation strategies to minimize the potential impact of tariffs, including frontloading of some products, but that can lead to increased challenges because of added warehousing and related costs. We hope to resolve our outstanding border security issues as quickly as possible because there will be a significant impact on the economy if increased tariffs are maintained and expanded.”
Hackett Associates Founder Ben Hackett said tariffs on Canada and Mexico would initially have minimal impact at ports because most imports from either country move by truck, rail or pipeline. In the long term, tariffs on goods that receive final manufacturing in Canada or Mexico but originate elsewhere could prompt an increase in direct maritime imports to the U.S. In the meantime, port cargo “could be badly hit” if tariffs on overseas Asian and European nations increase prices and prompt consumers to buy less, he said.
“At this stage, the situation is fluid, and it’s too early to know if the tariffs will be implemented, removed or further delayed,” Hackett said. “As such, our view of North American imports has not changed significantly for the next six months.”
U.S. ports covered by Global Port Tracker handled 2.14 million twenty-foot equivalent units (TEUs) in December, although the Port of New York and New Jersey and the Port of Miami have yet to report final data. That was down 0.9% from November but up 14.4% year over year, and would be the busiest December on record. For the year, December brought 2024 to a total of 25.5 million TEU, up 14.8% from 2023 and the highest level since 2021’s record of 25.8 million TEU during the pandemic.
Global Port Tracker provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.
Having reported on the supply chain world for some 25 years, I've seen technologies come and go. Many were once touted as the best thing since sliced bread but either failed to live up to the hype or else had to simmer a few years before they caught on.
Remember the hoopla surrounding dot-com retail? In the late 1990s, we were told that stores as we knew them would eventually go away, to be totally replaced by online shopping. The ease and convenience of e-commerce made that a reasonable expectation. But in March 2000, the bubble burst, and a host of online retailers closed their virtual doors forever. Of course, online shopping is still very much with us, and its share of total retail sales is growing by the year. Maybe we'll get to that retail seventh heaven someday, but it's taking much longer than originally predicted.
Then there's RFID (radio-frequency identification). These small electronic tags were going to replace barcodes largely because of the vast amount of data they can hold and their capacity to update information.
In 2003, Walmart famously demanded that its top 100 suppliers affix RFID tags to all pallets and cases shipped to its DCs. We figured that if Walmart had gone all in on RFID, the rest of the industry would automatically follow. Well, not so fast. It's true that after years of stutter-step progress, Walmart today is more heavily invested in RFID than ever. But in the rest of the world, the humble barcode is still king.
A more recently hyped technology is blockchain. It was actually conceived back in 1982 but remained just a concept until 2008, when a person (or persons) using the name "Satoshi Nakamoto" created an actual blockchain to serve as the public distributed ledger for cryptocurrency transactions. Blockchain was expected to revolutionize the way supply chain partners do business. But it, too, has been a bit slow to take off, and it's still unclear how the blockchain story will play out.
That brings us to the latest potentially game-changing technology: artificial intelligence (AI). In some ways, AI is really just data analytics on steroids. Supply chains have relied on data analytics for decades—the difference now is the promise of greater accuracy and better simulations. Will it ultimately change everything we do in supply chain management? Maybe. But it may take a while. A November report from workplace tools developer Slack showed that AI adoption rates among U.S. workers had slowed in the last quarter, while a recent analysis of open supply chain jobs by software integration specialist Cleo found that only 2% of open jobs required AI skills.
So is AI just another fad or a truly transformative technology? It appears we'll need a few good use cases before we can make that call.
Economic activity in the logistics industry expanded in January, growing at its fastest clip in more than two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI jumped nearly five points from December to a reading of 62, reflecting continued steady growth in the U.S. economy along with faster-than-expected inventory growth across the sector as retailers, wholesalers, and manufacturers attempted to manage the uncertainty of tariffs and a changing regulatory environment. The January reading represented the fastest rate of expansion since June 2022, the LMI researchers said.
An LMI reading above 50 indicates growth across warehousing and transportation markets, and a reading below 50 indicates contraction. The LMI has remained in the mid- to high 50s range for most of the past year, indicating moderate, consistent growth in logistics markets.
Inventory levels rose 8.5 points from December, driven by downstream retailers stocking up ahead of the Trump administration’s potential tariffs on imports from Mexico, Canada, and China. Those increases led to higher costs throughout the industry: inventory costs, warehousing prices, and transportation prices all expanded to readings above 70, indicating strong growth. This occurred alongside slowing growth in warehousing and transportation capacity, suggesting that prices are up due to demand rather than other factors, such as inflation, according to the LMI researchers.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
As commodities go, furniture presents its share of manufacturing and distribution challenges. For one thing, it's bulky. Second, its main components—wood and cloth—are easily damaged in transit. Third, much of it is manufactured overseas, making for some very long supply chains with all the associated risks. And finally, completed pieces can sit on the showroom floor for weeks or months, tying up inventory dollars and valuable retail space.
In other words, the furniture market is ripe for disruption. And John "Jay" Rogers wants to be the catalyst. In 2022, he cofounded a company that takes a whole new approach to furniture manufacturing—one that leverages the power of 3D printing and robotics. Rogers serves as CEO of that company, Haddy, which essentially aims to transform how furniture—and all elements of the "built environment"—are designed, manufactured, distributed, and, ultimately, recycled.
Rogers graduated from Princeton University and went to work for a medical device startup in China before moving to a hedge fund company, where he became a Chartered Financial Analyst (CFA). After that, he joined the U.S. Marine Corps, serving eight years in the infantry. Following two combat tours, he earned an MBA from the Harvard Business School and became a consultant for McKinsey & Co.
During this time, he founded Local Motors, a next-generation vehicle manufacturer that launched the world's first 3D-printed car, the Strati, in 2014. In 2021, he brought the technology to the furniture industry to launch Haddy. The father of four boys, Rogers is also a director of the RBR Foundation, a philanthropic organization focused on education and health care.
Rogers spoke recently with DC Velocity Group Editorial Director David Maloney on an episode of the "Logistics Matters" podcast.
Q: Could you tell us about Haddy and how this unique company came to be?
A: Absolutely. We have believed in the future of distributed digital manufacturing for a long time. The world has gone from being heavily globalized to one where lengthy supply chains are a liability—thanks to factors like the growing risk of terrorist attacks and the threat of tariffs. At the same time, there are more capabilities to produce things locally. Haddy is an outgrowth of those general trends.
Adoption of the technologies used in 3D printing has been decidedly uneven, although we do hear about applications like tissue bioprinting and food printing as well as the printing of trays for dental aligners. At Haddy, we saw an opportunity to take advantage of large-scale structural printing to approach the furniture and furnishings industry. The technology and software that make this possible are already here.
Q: Furniture is a very mature market. Why did you see this as a market that was ripe for disruption?
A:The furniture market has actually been disrupted many times in the last 200 years. The manufacturing of furniture for U.S. consumption originally took place in England. It then moved to Boston and from there to New Amsterdam, the Midwest, and North Carolina. Eventually, it went to Taiwan, then China, and now Vietnam, Indonesia, and Thailand. And each of those moves brought some type of disruption.
Other disruptions have been based on design. You can look at things like the advent of glue-laminated wood with Herman Miller, MillerKnoll, and the Eames [furniture design and manufacturing] movement. And you can look at changes in the way manufacturing is powered—the move from manual operations to machine-driven operations powered by steam and electricity. So the furniture industry has been continuously disrupted, sometimes by labor markets and sometimes by machines and methods.
What's happening now is that we're seeing changes in the way that labor is applied in furniture manufacturing. Furniture has traditionally been put together by human hands. But today, we have an opportunity to reassign those hands to processes that take place around the edges of furniture production. The hands are now directing robotics through programming and design; they're not actually making the furniture.
And so, we see this mature market as being one that's been continuously disrupted during the last 200 years. And this disruption now has a lot to do with changing the way that labor interacts with the making of furniture.
Q: How do your 3D printers actually create the furniture?
A:All 3D printing is not the same. The 3D printers we use are so-called "hybrid" systems. When we say hybrid, what we mean is that they're not just printers—they are holders, printers, polishers, and cutters, and they also do milling and things like that. We measure things and then print things, which is the additive portion. Then we can do subtractive and polishing work—re-measuring, moving, and printing parts again. And so, these hybrid systems are the actual makers of the furniture.
Q: What types of products are you making?
A: We've started with hardline or case goods, as they're sometimes known, for both residential and commercial use—cabinets, wall bookshelves, freestanding bookshelves, tables, rigid chairs, planters, and the like. Basically, we've been concentrating on products that don't have upholstery.
It's not that upholstery isn't necessary in furniture, as it is used in many pieces. But right now, we have found that digital furniture manufacturing becomes analog again when you have to factor in the sewing process. And so, to move quickly and fully leverage the advantages of digital manufacturing, we're sticking to the hardline groups, except for a couple of pieces that we have debuted that have 3D-printed cushions, which are super cool.
Q: Of course, 3D printers create objects in layers. What types of materials are you running through your 3D printers to create this furniture?
A: We use recycled materials, primarily polymer composites—a bio-compostable polymer or a synthetic polymer. We look for either recycled or bio-compostable [materials], which we then reinforce with fibers and fillers, and that's what makes them composites. To create the bio-compostables, we marry them with bio-fibers, such as hemp or bamboo. For synthetic materials, we marry them with things like glass or carbon fibers.
Q: Does producing goods via 3D printing allow you to customize products easily?
A: Absolutely. The real problem in the furniture and furnishings industries is that when you tool up to make something with a jig, a fixture, or a mold, you tend to be less creative because you now feel you have to make and sell a lot of that item to justify the investment.
One of the great promises of 3D printing is that it doesn't have a mold and doesn't require tooling. It exists in the digital realm before it becomes physical, and so customization is part and parcel of the process.
I would also add that people aren't necessarily looking for one-off furniture. Just because we can customize doesn't mean we're telling customers that once we've delivered a product, we break the digital mold, so to speak. We still feel that people like styles and trends created by designers, but the customization really allows enterprise clients—like businesses, retailers, and architects—to think more freely.
Customization is most useful in allowing people to "iterate" quickly. Our designers can do something digitally first without having to build a tool, which frees them to be more creative. Plus, because our material is fully recyclable, if we print something for the first time and find it doesn't work, we can just recycle it. So there's really no penalty for a failed first printing—in fact, those failures bring their own rewards in the form of lessons we can apply in future digital and physical iterations.
Q: You currently produce your furniture in an automated microfactory in Florida, with plans to set up several more. Could you talk a little about what your microfactory looks like and how you distribute the finished goods?
A: Our microfactory is a 30,000-square-foot box that mainly contains the robots that make our furniture along with shipping docks. But we don't intend for our microfactories to be storage warehouses and trans-shipment facilities like the kind you'd typically see in the furniture industry—all of the trappings of a global supply chain. Instead, a microfactory is meant to be a site where you print the product, put it on a dock, and then ship it out. So a microfactory is essentially an enabler of regional manufacturing and distribution.
Q: Do you manufacture your products on a print-to-order basis as opposed to a print-to-stock model?
A: No. We may someday get to the point where we receive an order digitally, print it, and then send it out on a truck the next day. But right now, we aren't set up to do a mini-delivery to one customer out of a microfactory.
We are an enterprise company that partners with architects, designers, builders, and retailers, who then distribute our furnishings to their customers. We are not trying to go direct-to-consumer at this stage. It's not the way a microfactory is set up to distribute goods.
Q: You've mentioned your company's use of recycled materials. Could you talk a little bit about other ways you're looking to reduce waste and help support a circular economy?
A: Yes. Sustainability and a circular economy are really something that you have to plan for. In our case, our plans call for moving toward a distributed digital manufacturing model, where we establish microfactories in various regions around the world to serve customers within a 10-hour driving radius of the factory. That is a pretty large area, so we could cover the United States with just four or five microfactories.
That also means that we can credibly build our recycling network as part of our microfactory setup. As I mentioned, we use recycled polymer stock in our production, so we're keeping that material out of a landfill. And then we tell our enterprise customers that while the furniture they're buying is extremely durable, when they're ready to run a special and offer customers a credit for turning in their used furniture, we'll buy back the material. Buying back that material actually reduces our costs because it's already been composited and created and recaptured. So our microfactory network is well designed for circularity in concert with our enterprise customers.