Avoiding Christmas Past: Use Technology to Ensure Timely Holiday Deliveries

By Roei Ganzarski

The holiday season is quickly approaching, and that means it’s only a matter of time before Santa’s sleigh is filled up with presents from online orders and cross-country relatives. FedEx is anticipating an increase in holiday shipments of 8.8 percent, and UPS is anticipating an 11 percent increase over 2013. Will UPS and FedEx be prepared to meet their delivery dates in 2014, or will we see the industry crumble once again under the load?

Last year, Cyber Monday saw a 20.6 percent jump in online retail sales – a new record, according to the IBM 2013 Holiday Benchmark Reports. And in the final weekend before Christmas, online sales were up 37 percent over the previous year. The massive amount of orders and data snowballed until networks couldn’t manage the resources. As a result, the shipping industry was hit with a snowstorm of a problem.

The number of orders, coupled with weeks of bad weather hindering delivery services, made it so packages were not delivered by their promised dates. Companies like FedEx, Amazon, and UPS tried to remedy the problem. UPS brought in additional workers on Christmas night to sort through packages for Thursday and Friday deliveries, and FedEx rushed some packages so customers could pick up items at local FedEx Express centers on Christmas Day. Despite this, many people were left disappointed when packages didn’t show. While bad weather was a factor in the delivery delay, UPS acknowledged in a statement the real problem was that the network was overloaded. The system couldn’t manage the resources necessary to ensure timely delivery, and as a result, real people felt the burden in real-time.

So how can the delivery industry better manage their resources vis-à-vis growing demand, while readjusting to real-time disruptions like bad weather and icy roads?

Real-time operations optimization technology helps many industries manage their resources in an ever-changing environment. On-demand aviation industry is an example where the technology is already helping companies increase efficiency and reduce costs. Aviation companies like charter airline JetSuite use this technology to manage airplane fleets and staff in an industry with constant real-time change requirements and unpredictable disruptions (like bad weather and mechanical failures). The solution enabled the airline to manage their potential

revenue and maximize resources, while at the same time lowering fuel costs and waste, and providing superior customer service, all in real-time.

If the shipping industry had introduced real-time operations optimization technology, the delays of last year’s shipping debacle could have been minimized. Delivery companies would have been able to optimize the massive number of orders received and utilized their resources more efficiently. FedEx, for instance, handled more than 275 million shipments between Thanksgiving and Christmas, but how many of those shipments were truly optimized, taking into account all elements of their operation to include resources, demand, cost structure, labor rules and more?

As consumers continue to see the ease of online shopping, the demand for shipping only continues to grow. Ongoing disruptions, such as bad weather or mechanical breakdowns, are unavoidable, especially during busy seasons. To ensure a successful and happy holiday delivery season, companies should focus on technology that allows the system to react in real-time to whatever comes its way. A more efficient allocation of resources allows shipping companies to better manage their delivery service, keep their customers happy, and avoid being deemed the “Grinch” of the holiday season.

Ensuring Business Sustainability During Disasters, Disruptions, and Service Failures

By Kristi Montgomery

We have seen horrific natural disasters in recent years that taxed both supply chains and our core businesses. Approximately 85 percent of global supply chains experienced at least one significant disruption during 2013. This affects both an organization’s bottom line and its ability to be there for customers.

Businesses that survive natural disasters, operational interruptions, and service failures are ones that plan proactively. Managers at these companies know they must develop a business continuity plan well before a disruption hits.

Business continuity is activity that ensures critical functions will be available to customers, suppliers, regulators, and other entities. It is not something developed during a disaster. It is daily maintenance of service, consistency, and recoverability within an organization, and is much more than picking up the pieces after a disaster.

To avoid being caught unprepared, start developing a business continuity plan now. Though the process requires a significant investment in time and resources, getting started is simple.

Prepare

Identify what needs the most protection by asking:

What are our critical systems?

What are our critical products or services?

Who are our key resources and stakeholders?

Next, gather a representational cross-section of staff to brainstorm all possible scenarios of failure. Think about factors both on the ground and in the cloud, such as access to your physical buildings and equipment—along with connections to data, servers, and the Internet. Build a matrix of risk and probability for the various failure scenarios.

Develop the plan

Create a matrix of accountability for each system/function. Include a decision-making chain of command.

Outline a process and contacts for both internal and external communications.

Determine which risks from the matrix must be covered. Do you prepare for all high, medium, and low-risk probabilities? Or, is it sufficient to cover just high-risk/high-probability scenarios?

Map the supply chain people/processes/data identified in your preparation phase.

Define recovery windows for each critical and key component.

Assess when, how, and where to replicate data.

Identify redundancy sources for physical sites, power, circuits, hardware, software, and operators.

Calculate resources needed for each section of the plan and how they can be sourced.

Train and implement

Start with internal training. All employees should know three basic things: Who to contact in an emergency; what to do; and what not to do.

The key players must be fully trained on all aspects of the plan, since they may be called upon to work outside their normal areas if co-workers are unable to respond. Pre-establish these roles, so gaps can be quickly identified.

Stakeholders must understand and support the plan.

Begin implementation by engaging suppliers to set up your redundancies.

Document these suppliers and create a matrix with 24/7 contact information.

Install needed hardware/software and set up your data synchronization.

Don’t forget to test the plan not only within departments, but with annual company-wide drills. During testing, failures are really successes, because opportunities for improvement are presented and can be corrected. During real-life disasters, the situation reverses—failures can have extremely negative consequences. So, it is critical to debrief and update the plan after each test and drill.

Even with the best advance planning, be prepared for surprises when a real disaster hits. As you work through the situation, focus on what is going well and make notes about what is not working as planned. The goal during a disaster should not be to blindly follow your plan. Instead, use both the plan and common-sense flexibility to communicate, cooperate, coordinate, and collaborate.

Post-event assessments are vital. A business continuity plan rarely remains static. It needs to be re-shaped and updated constantly as your own systems, personnel, and response-scenarios change. Ensure there are resources assigned to maintain and update the plan.

As you create your plan, you will be focused on the survival of your own business. But, don’t forget to take care of your people, protect your physical assets, and minimize the impact on your customers. Consider how to tap into your network to leverage sustainable business continuity.

Remember, disaster recovery is a subset of business continuity. Many businesses have a recovery plan for hurricanes, tornados, or earthquakes, but what about an accidental gas main explosion that levels your corporate office, or a nationwide telecommunications outage? It is crucial to identify not just how you recover from a major natural disaster, but how your business remains sustainable throughout all types of disruptions.

Rails Give Agricultural Industry Seeds to Grow

By Paul Hammes

Freight railroads represent a critical supply chain link for agricultural product shippers. It's not enough that railroads haul a ton of freight nearly 500 miles on a single gallon of diesel fuel—the equivalent of a standard mid-sized car getting 200 miles per gallon.

To provide agricultural product shippers with the best value and service, freight railroads need to increase capacity while delivering reliable, consistent service to an industry with a high level of seasonal, geographic, and product variability.

The rail industry, particularly across the Midwest and western portions of the United States, has responded to these requirements in numerous ways, including:

Capacity. Many industries continue to act cautiously in today's volatile economy, making only minimal capital investments. In contrast, freight rail has invested approximately $10 billion annually back into the rail network, despite the worst recession in a generation.

In fact, railroads invested a record $10.7 billion in 2010 and are projected to spend $12 billion in 2011. Those are private dollars supporting our country's transportation infrastructure, with no taxpayer burden.

Freight railroads moved nearly 1.15 million carloads of grain in 2010, almost an 11-percent gain over 2009, reflecting strong overseas demand for high-quality, competitively priced U.S. grain. U.S. wheat exports in 2011 are projected to hit their highest levels since 1992, according to the U.S. Department of Agriculture.

Reliable service. Freight railroads continue to develop a large shuttle-train network that provides shippers with cost-effective access to all major domestic and export markets. These grain train shuttles are dedicated sets of 75 to 110 covered hopper cars for loading whole grains that move as a unit from one origin to one destination.

Throughout the Midwest, West, and Mexico, where a large number of grains are produced and consumed, railroads have helped develop about 400 shuttle service locations. This efficient service offering can more than double the productivity of covered hoppers for grain.

Variability. U.S. energy policy increased ethanol production from approximately three billion gallons annually in 2003 to more than 13 billion gallons per year in 2010. The rail sector responded by helping shippers locate and design infrastructure for rail-served production plants, and developing unit-train ethanol unloading terminals in all major consumptive markets to ensure consistent, high-volume ethanol movement. The result was a five-fold increase in ethanol rail car loadings.

U.S. railroads played a key role in supporting grain export increases in 2010 and early 2011, when crop failures in Russia and Eastern Europe increased U.S. wheat exports by 46 percent. Approximately 69 percent of the total U.S. wheat exported out of the Gulf moved there by rail, 31 percent by barge.

Ongoing Commitment

In July 2010, The Economist cited America's freight rail network as one of the unsung transportation successes of the past 30 years, universally recognized as the best in the world. Ongoing investments in infrastructure, training, equipment, and technology represent the railroads' commitment to providing the safest and most efficient service to America's agricultural industry.

Global Logistics—May 2014

By Joseph O'Reilly

U.S. Welcomes European Invasion

A European invasion is coming, but no need to worry—U.S. retailers will be welcome beneficiaries. Many U.S. companies are exploring European materials handling and last-mile strategies as omnichannel complexity, delivery urgency, and urban logistics complicate new market opportunities.

A few notable examples of this European invasion were on display at the March 2014 MODEX Expo in Atlanta. One is Swisslog's robotic AutoStore small parts storage system—which optimizes the use of labor and space, two constraints pervasive in Europe. There are only a few installations in the United States thus far, but Bill Leber, Swisslog's director of business development, expects the system to gain traction because emerging retail and distribution dynamics are changing the way companies view their automation architecture.

Businesses are moving toward more decentralized DC networks, with facilities located closer to demand. They want to consolidate inbound moves, and keep expensive last-mile transportation in check. Consequently, warehouse footprints are trending smaller, which requires a different type of storage solution. Leber even envisions brick-and-mortar retailers eventually using the AutoStore system in their back rooms to fulfill direct-to-home orders.

The omnichannel phenomenon is creating new retail formats at same-day speed. Walmart, for instance, now operates five different types of stores: the Supercenter, Sam's Club, Neighborhood Markets, Express stores, and Campus stores. The retailer is also starting to leverage these footprints in unique ways — tethering smaller stores to larger ones, for example.

At the same time, the world's population is getting denser. "By 2050, 85 percent of the developed world population will live in cities," notes Alan Erera, associate professor and chair for graduate studies at Georgia Institute of Technology. "In the United States, urban population growth is currently outpacing the suburbs."

This densification requires new tactics to manage e-commerce growth, omnichannel complexity, and expedited delivery demands.

Space has always presented a challenge in Europe—especially in densely populated cities. Continental service providers, who have been dealing with the space problem for years, developed some innovative distribution strategies for managing timely deliveries and same-day service.

"Europe is adept at ensuring timely deliveries in dense areas," explains Bobby Miller, global CPG strategist for planning software vendor ORTEC. "The strategy is all about mom-and-pop stores, smaller trucks, and fulfilling from everywhere."

Atlanta-based ORTEC has been helping European grocers use technology in innovative ways. While urbanization presents routing challenges, retailers can focus on value-added last mile, direct-to-home delivery services if they work in high-volume markets, which Europe has in abundance.

At the MODEX Expo, Miller demonstrated how some grocers are getting away from traditional planning — instead seeing order fulfillment as a constant churn of data transmissions and route optimization. He cited Dutch international retailer Ahold, which is using ORTEC's technology, and a network of distribution hubs and local depots, to fulfill same-day orders in Rotterdam — within 18 hours of order acceptance.

Belgium-based Delhaize Group has enjoyed similar success in Greece with a hybrid omnichannel approach. It leverages a network of seven hubs, 50 satellite neighborhood stores, and 100 trucks to fulfill online, phone, click-and-collect, email, and fax orders — all same day. The key differentiator is continuous planning and dynamic route optimization.

European technologies and strategies have had time to develop and mature. As U.S. companies start tackling similar parameters — especially in the context of smaller footprints and omnichannel complexity — a working lab with empirical results is just a continent away.

2014: Bad Air Days Ahead?

Air cargo is poised for stronger growth in 2014 after years of stagnation following the global financial crisis, reports the International Air Transport Association (IATA). The airline industry is on track to post its second consecutive year of improved figures, despite revising expected profits from $19.7 billion to $18.7 billion. Higher oil prices are expected to erode revenue.

"In general, the outlook is positive," says Tony Tyler, director general and CEO of IATA. "The cyclical economic upturn is supporting a strong demand environment, which is compensating for the challenges of higher fuel costs related to geopolitical instability. Overall industry returns, however, remain at an unsatisfactory level, with a net profit margin of just 2.5 percent."

While cargo is showing renewed strength (projected at four-percent growth in 2014), the industry is still challenged by poor infrastructure, restrictive regulations, and high taxes in different parts of the world. Moreover, the trend toward nearshoring will continue to have a negative impact on air freight as production locates closer to demand.

Here are some highlights of IATA's report, by region:

North America. The efficiencies gained through consolidation, and the contribution of ancillary revenues on the passenger side, are driving a 2014 profit forecast of $8.6 billion.

Europe. Despite optimism over the end of the Eurozone recession, and the winding down of austerity measures, major structural issues—such as the failure of the Single European Sky—remain. With a $3.1-billion profit forecast for 2014, the European region also faces the greatest exposure to the geopolitical conflict in the Ukraine.

Asia-Pacific. Airlines have the largest share of international air cargo. Turmoil in foreign exchange markets earlier in 2014, however, adversely affected growth prospects for large economies such as India and Indonesia. The resulting negative impact on passenger revenues more than offsets cargo improvements. IATA projects $3.7-billion profit in Asia-Pacific for 2014.

Middle East. As revenues from high oil prices benefit home markets, and the region's carriers continue to win market share in long-haul connections through Middle East hubs, IATA estimates a $2.2-billion profit for 2014. Cargo, in particular, is experiencing strong growth as a result of tapping into newly emerging trade lanes between Africa and Asia.

Latin America. Poor economic performance in Argentina and Brazil, along with continued political and social unrest in Venezuela, are driving down profitability expectations to $1 billion for 2014. An improved industry structure achieved through consolidation—within Brazil and across borders—and a closer matching of capacity to demand are contributing to improvements over 2013 performance.

Africa. Network development by a handful of African airlines is leading growth. But profitability—forecast at $100 million for 2014—is far from being evenly spread across the continent. While African governments are committed to achieving world-class safety levels by 2015, the continent suffers from lack of a holistic vision for developing connectivity across its vast distances. Poor regulation, high infrastructure costs, and an array of taxes and charges continue to hinder development.

Here Comes the Sun: U.S. Solar Panel Imports

Sustainability initiatives continue to drive an increase in U.S. solar panel imports.

Source: Zepol Corporation

Brazil Gets a Sugar Rush

When the 2013 U.S. Midwest drought severely impacted crop production—notably soybeans—Brazil was widely tapped to help fill the void. But record crops raised new concerns about whether the country's producers have enough assets and adequate infrastructure to meet export demand. Despite cheaper labor, Brazil is challenged by poor hinterland connectivity, adding to total logistics costs.

But sugar is sweetening the outlook. Declining freight rates are helping Brazilian sugar exporters grow business in Asia and the Middle East—to the detriment of Thai producers, suggests a recent Jakarta Globe report. Despite a longer distance to market, global consumers prefer Brazil's sugar quality. Cheaper transport costs, in turn, have tipped the scale in favor of Brazil, which is the world's largest sugar exporter.

Rates for larger Panamax size vessels were hurt by Chinese buyers defaulting on soybean cargoes from the United States and South America, according to the Jakarta Globe. An avian flu epidemic in China curtailed soybean and corn demand in the region, and soybean defaults increased the availability of vessels for hire.

Consequently, in March 2014, only 6,500 tons of Thai raw sugar was sold to China, one of the world's leading raw sugar importers, compared with 290,000 tons from Brazil. As sugar stocks in Thailand continue to soar, producers are being forced to reduce prices in order to win back business.

Anchors Await

As if the ocean shipping industry needs another concern, global schedule reliability is trending downward, reaching an all-time low of 68.4 percent during the last period, suggests SeaIntel Maritime Analysis' March 2014 Global Liner Performance report.

Hamburg Süd remains the most dependable carrier from a global perspective, with 84-percent performance reliability in February. Maersk Line at 79.5 percent ranked second, and CSAV ranked third at 75.8 percent. At the other end of the scale, Zim, MSC, and NYK were the lowest-performing steamship lines among the Top 20, according to the SeaIntel report.

Performance declined significantly along all the major east-west trade lanes—Transpacific Eastbound, Asia to North Europe, Asia to the Mediterranean, and Transatlantic Eastbound. Europe to Africa was the one notable exception, demonstrating a seven-percent month-over-month improvement between January and February 2014.

"The continuous drop is now reaching a frustrating level for shippers," says Alan Murphy, COO and partner at SeaIntel. "In February, shippers engaged in the Transpacific Eastbound and Asia-Mediterranean trade lanes had containers arriving on time less than 50 percent of the time."

Remote Scanning Pilot Takes Off

Amsterdam'sSchiphol Airport is giving new meaning to remote control. Authorities recently launched a security scanning system that allows Dutch Customs to view shipments scanned off-site at a freight forwarder's facility, then decide if selected shipments require further inspection.

Service provider Rhenus Logistics and Customs are currently piloting the system. Once fully operational, the remote scanning scheme—part of the airport's SmartGate Cargo project, a joint initiative among Customs, Amsterdam Airport Schiphol, Air Cargo Netherlands, and KLM Cargo—will speed the flow of freight, reduce the number of physical inspections, and enable Customs to use its resources more efficiently.

Air Freight Collaboration and Agility

By Horst Von Kanel

In response to a sluggish airfreight market and generally lower cargo volumes and capacity, airfreight forwarders (AFF) are using strategic business practices and concepts to assist them in effectively managing airfreight shipments for optimal efficiency, performance, and results. By implementing collaborative and flexible logistics practices and remaining agile, managing air freight today can be a win-win process for both shipper and forwarder.

When it comes to locking in rate commitments with carriers, the prudent tactic in the current market is to remain flexible. Short-term opportunistic transactions are the most effective strategy. With the current capacity situation, the average wait for spot requests has dropped considerably, and AFFs are certainly on the phone more these days looking for opportunities for shipper clients.

The volatility in the airfreight market suggests there’s no advantage to making long-term purchase commitments. Shippers, on the other hand, see an opportunity to lock in low rates – but this can be a double-edged sword when capacity is tight. There are times when the best rate may not always be the best solution. Higher-paying cargo may receive priority status, which can result in transit delays for lower-paying freight. It’s always a thin line between getting the cheapest rate and having your shipment offloaded for revenue reasons. Airfreight shipments tend to be time-sensitive, so it’s likely any transit delay or late arrival at destination would negatively impact the shipper’s supply chain.

What can be done to address these market challenges and reach the best supply chain solution for global shippers’ airfreight shipments? Addressing this market requires an investment in time, research, and innovative solutions when scheduling shipments. Consider the case of Latin American exports moving to Asia or Europe. When air capacity is unavailable, fruits and vegetables from the West Coast of South America often travel by ocean container to a hub location, such as Panama or Miami, then by air to their final destination. This alternative supply chain solution effectively addresses market conditions and product supply chain requirements for reliable, expedited transit. By managing a shippers’ expectations, reviewing outcomes and service options, and the differences among them, AFFs are able to more effectively serve the needs of shippers with varying supply chain options.

To better navigate today’s market fluctuations, AFFs and global and regional airlines develop collaborative business partnerships that serve both well. By working together as preferred vendor partners, AFFs and carriers are able to better manage capacity, balance trade lane freight load factors, and support each other’s business needs. This global carrier concept, down to the field level, helps maintain quality service levels for shippers and maintain efficiencies.

Global gateway efficiencies

The global gateway concept involves superior freight management and achieves supply chain cost savings. Global gateway locations are strategically positioned to safely and quickly handle cargo being transferred between regions. At these dedicated hub locations, logistics service providers are able to effectively and securely receive airfreight, organize expedited transit, and carefully control and monitor freight shipments until they reach their final destination.

Freight consolidation at these hub locations effectively reduces production costs in specific trade lanes, and will usually reduce operational costs at the final destination. Gateways handle imports and exports from global markets, and utilize fixed schedules to ensure predictable transit for service providers and other trading partners. For example, trucking companies may work with fixed schedules, like airlines, with trucks leaving the origin point at 10 p.m. and arriving at destination within one hour of the scheduled arrival. This predictability ensures the shipper client and other service provider partners have a detailed schedule of when the freight will be delivered. Reliable, consistent service helps shippers maintain the integrity of their supply chain, resulting in a more cost-efficient process. The global gateway concept provides the control and service level performance needed when delivering global coverage and a high-quality, reliable service to global shippers.

The airfreight market’s unpredictability poses a real challenge for many shippers. For 10 to 15 years, purchasing behavior was driven by the calendar. But now, the classic seasonality in airfreight is gone. There was a time when the industry knew in January that pricing on certain lanes would go up by X in August and decrease again at the end of December. In recent years, these predictable swings have mostly disappeared.

By following market conditions, managing distribution channels with flexible solutions and innovative ideas, and making the best use of established gateways for optimal performance, forwarders are able to respond with efficient, dependable results.

Challenges for Today’s Global Supply Chain: Cost, Profitability and Personalization

By Scott Swartz

When market research firm PWC put out its Global Supply Study in 2013, the concerns of the 500 surveyed executives were mostly what one would expect: profitability, cost management, and customer satisfaction. A fourth concern, however, indicates a shift in global supply chain realities. PWC’s study participants are worried about flexibility – and they should be.

That’s because globalization is changing the way companies view and use their supply chains to compete and gain market share. Global companies are managing multiple supply chains, and they’re counting on those operations to not only deliver goods on time, but to tailor and respond to divergent customer and supplier expectations regarding pricing and packages. To do that, supply chain operators need the capability to personalize offerings for multiple customer segments.

Among the challenges facing today’s supply chain are many that link directly to monetization. Market volatility, economic contractions and modest recovery cycles affect the way companies manage distribution, manufacturing, invoicing and materials sourcing. Expansion into new markets introduces complex taxation, invoicing and localization burdens. And dispersed market segments demand different pricing models and services. With so many critical functions in flux, enterprises need to optimize their supply chains simply to remain competitive.

Globalization and a Shifting Supply Chain Landscape

Unfortunately, many businesses are trying to apply outmoded processes and technologies to global supply chain operations. Often, existing systems are not capable of meeting modern demands. If a company needs to reroute an inbound container shipment, for example, a lack of visibility into the overall system can turn a simple decision to redirect a shipment from one port to another into a problem that ripples across the supply chain, and results in higher costs and decreased efficiency. As an organization’s logistics expand, so must its ability to quickly see the cost and service implications of every decision.

That visibility is particularly important in a time when most products have become commoditized. Gone are the days when pricing, features, and brand recognition were enough to set a business apart from its competitors. Differentiation in the

global marketplace has as much to do with what happens in the supply chain as it does with product innovation. When the market dampens the payback for higher prices, businesses must instead meet their profitability goals by redesigning and enhancing their supply chains, and then use those improved operations to deliver value-added services to more sophisticated customers. Increasingly, logistics leaders are charged with delivering legacy products while also supporting the development, production, and transport of new offerings.

With an optimized global supply chain, an enterprise can address many of the pressures reported in the PWC study. Such a system delivers:

Reduced costs. Companies that can easily access information about their suppliers make better procurement decisions. Online supplier and buyer community management is one approach businesses have taken to reduce their supplier sourcing and procurement costs.

Increased transparency. A global business needs a single point of access for its supplier information and its buyer-supplier communities. With a global view and a transparent supply base, international supply chain operators can identify reliable suppliers anywhere in the world.

Lower risk. An optimized supply chain allows a company to quickly assess a supplier’s ability to meet financial, legal, safety, quality, and environmental regulations and expectations. Those regulations differ based on customer and local standards, of course, so flexibility becomes essential to risk management.

Support legacy and new products. Today’s global supply chain operators require a billing partner and a supplier settlement platform that can support existing products and adapt for new offerings. That platform needs to accommodate taxation, invoicing and other critical functions. As importantly, it must accommodate multiple and fluid business models to enable the company to reach international markets.

Solving Complex Global Supply Chain Challenges

As companies look to amplify growth and expand quickly into promising new markets, they will have to take a hard look at what their current supply chains are capable of, and whether those capabilities are enough to support global competition. Many will find that in order to support existing and future business objectives, they’ll have to reconsider their management processes in favor of more flexible practices.

Managing Complex Supply Chains in Emerging Asia

By Eng Keat Lee

Capitalizing on Asia's emerging markets requires the ability to effectively manage the complex supply chain challenges that the region presents. Often the first step to turning economic potential into actual growth is creating a strong and secure logistics hub.

Global businesses commonly centralize their logistics and supply chain management functions in a stable, secure location that offers access to a broader region. For many corporations looking to establish a presence in Asia, Singapore is an attractive supply chain management hub because of its extensive connectivity, innovation ecosystem, and the availability of consultancies and other supply chain support services.

Companies located in Singapore also benefit from a government that knows the importance of the logistics sector. Singapore has committed $33.2 million to a five-year roadmap designed to help the sector transition toward productivity-driven long-term growth.

Many companies grasp the need to tailor their supply chains to individual Asian markets, but still desire to gain advantages by coordinating operations throughout the region. This often leads them to establish operational and technical hubs—control towers that oversee their network of supply chains in Asia.

This shift toward a centralized supply chain management hub is popular with technology and industrial businesses. Iconic consumer companies, such as Nike and Unilever, also use such hubs to reach global markets from a centralized location. Nike established its global trading hub in Singapore to leverage the country's finance and logistics strengths to undertake centralized global product sourcing, logistics, and brand protection. Unilever centralized its logistics leadership for Asia in Singapore to manage end-to-end supply chain functions, allowing the company to cut costs and shrink its carbon footprint.

Drawing a Crowd

A robust ecosystem of supply chain management experts and consultants supports these control towers. One way companies are aggregating their Asia-related expertise is by establishing centers of excellence that build solutions tailored for specific industry verticals. For example, global third-party logistics provider DB

Schenker set up its first global solution and competence center for electronics and industrial sectors in Singapore to develop and implement logistics solutions worldwide.

Such partnerships require careful planning and government commitment to create an ecosystem that attracts businesses across industries. In the logistics space, developing this ecosystem has required the Singapore government to invest in facilities that attract international logistics companies. Among the most significant investment is the consolidation of Singapore's port facilities into a mega-port currently under construction at the Tuas industrial zone. The port is a long-term investment in Singapore's ability to host large-scale supply chain management operations, and is expected to begin operating its first berths by 2024.

Companies with experience operating in emerging markets understand that the potential for growth is tempered by the challenges these markets inherently pose. Singapore offers an ecosystem where global companies with complex logistics needs can manage their supply chains throughout the region. Singapore is well-positioned to help global companies realize success in one of the world's most dynamic regions.

Weathering Climate Change and Supply Chain Risk

By Gary Hanifan

Companies have become more aware than ever of the considerable risks that climate change poses to their businesses and supply chains. A current or future risk related to climate change was identified by 70 percent of the 2,500 companies responding to Reducing Risk and Driving Business Value, a 2012 survey conducted by the Carbon Disclosure Project (CDP) and Accenture.

These risks are defined as having the potential to significantly affect operations or revenue. More than half of the supply chain risks due to drought and precipitation extremes are already affecting respondents' operations, or are expected to have an effect within the next five years.

Other concerns include the potential for reducing or disrupting production capacity, reduced demand for goods, and even the inability to do business.

Many leading companies are taking innovative steps to address these risks from the perspective of supply chain sustainability. Some, for example, are optimizing carriers to ensure the most efficient methods of transporting goods.

Other companies are optimizing transport containers. One large oil and gas marketing company, for example, is using between 15 and 20 percent of raw materials containers arriving at its plant for loading end products and returning them to the seaport.

Some companies are using SmartWay carriers; one U.S. consumer products company routed more than 95 percent of truckload traffic in 2011 through SmartWay carriers, resulting in significant fuel savings.

Other levers for embedding sustainability in inbound logistics could include: increasing full-load shipments; reducing the number of trips; reducing empty truck returns; adopting cleaner transportation modes to reduce CO2 emissions; and selecting in-region suppliers to reduce inbound distance.

Survey results also indicate that only 25 percent of respondents that cited water-related supply chain risks as a major concern have done the work to identify risks at the level of detail necessary to mitigate potential disruption.

Supplier awareness is an even greater concern. Nearly one in five respondents indicate that their suppliers are not aware of the water risks affecting operations. Another 38 percent say their suppliers are aware of, but not actively engaged in, addressing the challenge.

Too few discussions of supply chain risk management deal with reducing risk costs in a systematic, quantitative way. Companies can take four major steps to address this process:

Review how data is collected and managed. Companies collect data through scorecards, questionnaires, audits, and other methods. But survey results indicate that more work needs to be done to determine best practices for analyzing data, and using the results to improve both practices and processes.

Organizations still have much to do to turn data into information and knowledge they can use for better decision-making. Properly collected and organized data is the foundation for supply chain risk analytics that can point the way to effective action.

Make governance more effective. Many companies are improving collaboration among internal functions, with marketing, legal, and other teams now more involved in decision-making related to sustainability and climate change risk.

While procurement may continue to play a central role, companies could facilitate improved collaboration between the procurement team and other internal and external stakeholders to improve processes, and to ensure that risks related to climate and other possible disruptions are properly identified and factored in the way they define and manage processes.

Improve collaboration with suppliers. Ninety percent of CDP supply chain program members participating in the survey identify physical risks related to climate change, compared with only 45 percent of suppliers surveyed. Risk management can be built into supplier rewards and incentives, with reports on energy and climate risk management a requirement for reaching compensation goals.

Companies can also push suppliers to institute board-level management of climate change strategies, including disruption risk.

Actively manage stakeholder relationships. Investors—who are well aware of the wider impact of a company's supply chain sustainability on the environment—may punish companies that fail to address climate-related supply chain risks. Companies may wish to review and, if necessary, expand efforts to educate

shareholders and other stakeholders about efforts to increase supply chain sustainability while protecting future operations and revenues.

The supply chain can play a key role in innovations such as low-carbon products, sustainability related services, better product and packaging design, and other developments that can help increase revenues, enhance reputations and, in many cases, command premium pricing. The growing awareness of supply chain risk caused by major weather events, water shortages, and other conditions can be expected to increase investment in broader emission-reduction initiatives.

Companies that recognize supply chain risk presented by climate change may be more likely to look for innovative ways to reduce emissions and realize further cost savings.

The risks that climate change poses to business operations and continuity are real, and supply chain professionals play an important role in mitigating those risks. At the same time, however, improving supply chain sustainability, and protecting against risk, provide new ways to identify opportunities for revenue-generating innovations.

Could New Fuel Efficiency Standards Lead to Transportation Cost Savings?

By Mike Meehan

In February 2014, the Obama administration outlined plans for improving fuel efficiency and reducing greenhouse gas emissions for American trucks. To support this effort, the Environmental Protection Agency and U.S. Department of Transportation must set new standards for medium- and heavy-duty vehicles.

The rules, which the agencies must issue by March 2016, will have ripple effects in a number of transportation-related industries. While over-the-road (OTR) trucks represent just four percent of vehicles on the road, they account for 25 percent of fuel use and greenhouse gas emissions.

Whether shippers operate a private fleet or depend on outside carriers, the miles-per-gallon achieved by the fleet that delivers their freight heavily impacts final landed cost. The average OTR truck travels more than 100,000 miles annually, and burns more than 16,000 gallons of diesel, typically in the six-miles-per-gallon range, at a cost of about $4 per gallon.

The mandates are not aimed at carriers or shippers, however, but at original equipment manufacturers. For years, builders of the country's heavy OTR equipment have toiled to meet increasingly demanding standards for reduced emissions.

From 2002 to 2012, the reduction in harmful emissions from new OTR equipment has been nothing short of exceptional. Current model year tractors produce 94 percent less harmful emissions than pre-2002 equipment. The focus now is on reducing CO2 emissions. The only way to do that is to burn less fuel.

Setting the Standard

The standards and proposed extensions call for an average fuel economy increase of 2.5 percent each year. This means that, as the nation's large fleets begin to replace older equipment, trucks will consume less fuel to cover the same miles.

Major truckload carriers have already done the math and realized that investing in new trucks is a smart decision. When a half-mile-per-gallon improvement in fuel economy equates to a monthly fuel savings of more than $400 per tractor, it's easy to understand why large carriers are investing in new assets and shortening the

average time they hold their equipment. In fact, the average fleet age for the top truckload carriers in the country is less than three years old.

The new fuel economy standards should mean more new trucks on the road sooner, and an overall reduction in fuel consumption. New concept models are already achieving nine to 10 miles per gallon.

With many major corporations still holding on to large amounts of cash after navigating through the recession, investing some of that capital in new equipment might be the biggest bang for their buck in a long time.

Some major shippers are even considering a return to private fleet operations because of the greater efficiencies available, both through equipment design and operations management advances. That's especially true when you consider new flexible leasing structure options available from some fleet management companies, allowing companies to base equipment decisions on optimal truck performance, rather than simply running trucks as long as possible.

If you can adapt to this thinking, your company will be well-positioned to ride out the regulatory changes with minimal impact—and may even save on your bottom line.

Optimized Operations Are Green Operations

By Kris Kosmala

Many companies in the ocean shipping industry are coping with increasing operating costs, below break-even performance, and aggressive price competition. Under these circumstances, the environmental impact of shipping, and ways to minimize its harmful emissions, are pushed into the shadow of more urgent cost-cutting activities.

In the meantime, governments around the world continue introducing environmental policies and regulations that impact the development of ships, ports, and operating procedures, aiming to facilitate greener operations on land, at sea, and at port. The good news is that even though environmental regulations are burdensome, green operations can yield efficiency and improved profits.

In port, shipping lines have already made significant progress to optimize operations, leading to reduced costs and environmental impact. Better organization of stacks and access lanes within the terminals allow for fluid movement of equipment, shorter driving distances while moving containers about the yard, and faster truck turnaround.

Switching to electricity and alternate fuels to power the equipment brings additional economic and environmental benefits. On the ship side, however, there is still more to do. There is a dearth of breakthrough designs for hulls, engines, and the propulsion systems to make a significant impact. Even the latest generation eco-vessels only tinker with the old and proven technologies.

Taking the Airlines' Lead

As vessel technology slowly evolves, better economics can be found in optimizing operating policies and procedures. As much as ocean shippers may dislike being compared to airlines, they may find guidance in the way air carriers adapted to high fuel prices, overcapacity, conflicting environmental regulations, relentless competition, and fleet modernization dilemmas.

Like air cargo shipping, ocean shipping operations benefit greatly from departing the port seamlessly, gradual speed increase, maintaining a steady cruising speed, gradual speed decrease, and docking into port without error or interference.

It is estimated that each nearshore and port call produces about 30 percent of the total journey's pollution. The more seamlessly vessels transition between ports, the greener and less costly the voyage.

Ideally, the existing inventory of vessels varying in age, sailing capability, and engine design could be upgraded to the latest eco-designs. The timing of decisions to replace old vessels with new ones has a big impact on the bottom line. Rejuvenating the fleet in accordance with the pace of economic events — ordering newbuilds at the bottom of the market, and disposing of older vessels at the top of the secondhand market — is an art in itself.

Until all ships are fresh eco-builds, the key green decisions affecting fleet economics are sailing speed, and fuel type and chemical makeup. The former impacts the deep sea segment of the voyage, while the latter impacts the vessel once it is close to shore or in port.

Ocean lines should use modern optimization technologies to model complex plans requiring evaluation of multiple operating constraints and complex business rules, then simulate their execution and financial impacts to select the most viable plan for implementation. At sea, the combination of sailing speed, day rate, and utilization represents another opportunity to optimize, and logistics managers can explore these factors with the help of planning optimization technologies.

Closer to shore, however, the situation requires different approaches. Various jurisdictions have differing interpretations of ISO 8217 on their books, and additional environmental regulations come into play at different nautical distance from shore. It is here that greater collaboration between shippers and ports could save money and, in the process, greatly benefit the environment. Currently, most ports utilize relatively simple tools to schedule slots and sequence vessels' arrivals and departures. They have not fully explored the potential of advanced supply chain planning and optimization platforms to manage berth access and collaboratively plan with the shippers. Typically, the ship steams according to the economics of the shipper — not according to the availability of the berth — to accommodate the ship immediately upon arrival at the destination. A vessel missing its slot, then anchored for days and waiting for the new available berthing slot is bad news for the shipping line, its customers, and for the environment.

Every party in the shipping industry is trying to make a difference on its own. But it is their collaborative efforts — and how they use available optimization IT solutions — that will see them reap the benefits and have a profound effect on the longevity of their business, and society at large.

Getting Green, Going Lean

By Felecia Stratton

Creating a viable and sustainable green strategy can be a challenge for companies that want to be good corporate citizens, but also remain competitive. If customers are focused on price, how conscious is your green conscience when you need to drive out costs—at all costs?

It's a valid question in today's economy as companies deliberate capital investments, sourcing strategies, and even requests for proposals. Do you choose the lowest-cost transportation and logistics provider, or the one that costs more but offers green solutions?

It doesn't have to be an either-or proposition. Countless companies have successfully integrated sustainability objectives with sound business principles. Inbound Logistics' annual Lean and Green issue salutes these best-in-class cases.

Our 75 Green Supply Chain Partners list offers a sampling of logistics leaders that have made sustainability a priority, and continue to push the needle in terms of innovation and execution. They "get green"—and are helping to bring more shippers and suppliers into the fold.

Some shippers have taken their own green lead; Walmart chief among them. Sustainability and supply chain excellence are one and the same for the world's largest retailer. A green project needs to make good business sense to get the green light; in turn, a venture is only worth pursuing if it receives Walmart's green thumbs up. Follow Green Logistics the Walmart Way for an updated view into how the company created an organizational culture where sustainability permeates all aspects of its supply chain, extending to its suppliers and customers as well.

Walmart has built a culture that integrates green into its business processes. In other cases, synergies are less apparent.

Merrill Douglas' article, The Lean Supply Chain, demonstrates how shippers and service providers are incorporating Lean best practices into their operations to better match demand to supply, react faster to market change, reduce inventory carrying costs, and eliminate waste. In principle, Lean doesn't always correlate with green. Carrying less inventory requires more frequent shipments of smaller quantities, which increases transportation costs and carbon emissions.

Demand-driven logistics practices, however, are a perfect focal point to integrate green with Lean, which helps reduce material and time waste, ensure more accurate fulfillment, and thereby eliminate inventory obsolescence and returns. Moreover, shippers can offset frequent deliveries and higher transportation costs by working more collaboratively upstream in the supply chain, pooling shipments, rationalizing assets, optimizing loads, and achieving greater economies of scale.

Understanding the interplay between supply chain execution excellence and sustainability excellence is critical to developing a long-term strategy that strikes the proper balance; and achieves success at getting green and going lean.

Green Logistics The Walmart Way

By Joseph O'Reilly

Why sustainability best practices are part of the retailer's supply chain DNA.

Every once in a while, a company comes along that separates from the herd and differentiates itself through leadership, vision, innovation, and a capacity to change the marketplace. Walmart is one of those companies.

In a marketing and consumption-driven world, where being green often costs more, the Bentonville, Ark.-based big box retailer broke the mold by rolling back prices and preconceptions in the interest of both the environment and economy. It created a business case for sustainability that permeates all facets of its organization—and extends to suppliers and customers, as well.

"Early in our journey toward sustainability, it was clear that any efforts we undertook had to make good business sense," explains Jeff Smith, senior director of logistics maintenance and purchasing, Walmart. "We have never been interested in trying to create an image of sustainability just for the sake of the image. Every idea is challenged from a business standpoint, and has to demonstrate that it is a good use of our resources."

In 2009, when Walmart announced it was introducing a sustainability index to evaluate product supplier performance, it pushed the needle forward in a seismic way. Others have innovated more, and some have pushed carbon-less further, but no company has spread the gospel of green quite like Walmart.

Going Green in a Big Way

The five-and-dime thrift shop that Sam Walton built into the world's largest retailer is changing expectations in a big way. Consider that Walmart is succeeding where many governments have failed: legislating behavioral change by raising awareness, facilitating best practices, sharing information, and holding suppliers and partners accountable—all within the framework of sound business principles.

Green is not a contrived part of the business that preys on consumer conscience at the store shelf, then fails to deliver at the loading dock. Business strategy and sustainability go hand-in-hand.

For Elizabeth Fretheim, Walmart's director of business strategy and sustainability, the retailer's ethos is an augmented reality.

"Within the transportation function, for example, we want to accomplish three goals: fill every trailer to capacity; drive those trailers the fewest miles possible; and use the most efficient equipment," she explains. "All these efforts drive sustainability, as well as operational efficiency."

Walmart's green strategy is centrally organized; it has a clear roadmap for where it wants to go. In its quest for a 100-percent renewable energy power supply, for example, the company aims to procure seven billion kilowatt hours of renewable energy globally every year by 2021—a 600-percent increase over 2010 levels—and reduce by 20 percent the kilowatt-hour-per-square-foot energy intensity required to power its buildings globally during the same period.

Thriving on Collaboration

With that direction, Walmart has made a concerted effort over the past several years to put in place organizational structures that ensure broad support for various business units, and that each unit has the autonomy to pursue projects that support these goals. Such an approach thrives on collaboration.

"We need to be well-aligned with buyers to ensure we can fill trailers both inbound and outbound," says Fretheim. "Without that collaboration, it is difficult for us to achieve our goals. Even though our metrics are logistics-focused, what we are trying to do affects the entire company."

Smith recalls attending a recent training class for senior directors where they focused on collaboration to help achieve strategic execution.

"Sustainability is an ideal gateway to establishing relationships internally with other business units and externally with business partners," he says. "The sustainability projects I work on drive collaboration, which can then be leveraged in many other areas of the business."

The organization is filled with examples of this type of collaboration—from the real estate division's efforts in developing renewable energy projects and vetting new technologies, to the logistics department testing and implementing the use of hydrogen fuel cells in the warehouse. Everyone is accountable for Walmart's performance.

"For Walmart to be successful, we rely on associates at every level to help us not only drive the strategy, but also raise new ideas," Fretheim says. "I need people on the DC dock to tell me when trailers are coming in less than full. Even though I have sustainability in my title, a lot of people within Walmart carry that responsibility."

A Corporate Culture of Green

Walmart's success is no doubt partly attributed to its leadership. CEO Mike Duke, an engineer by trade, relishes detail. Speaking at Walmart's semi-annual Sustainability Milestones meeting in July 2009, Duke stated: "The engineer in me likes data. I like research. I like metrics. More than anything, I love an elegant process for arriving at innovative solutions that are both profitable and sustainable."

It's not hard to see the impetus for much of what Walmart has endeavored to do. And the company's success demonstrates the importance of having executive-level buy in. Equally important is growing an organizational culture that embraces the CEO's mission. Walmart employees are an integral part of its sustainability program, and the company invests in their development.

For example, the company engineered its My Sustainability Plan program, with the guidance of consultancy BBMG, to provide a framework for individuals and organizations to augment their respective well-being. It provides a tailored scorecard to help users incorporate sustainability into their own lives. It's pragmatic in the sense that developing happier employees reduces costly turnover. But it also contributes to a happier shopping experience for the customer. It's the essence of the iconic Walmart greeter or yellow smiley-face sign.

"As associates bring these sustainable best practices into their personal lives, we believe they'll carry them back to work—if you get into the habit of turning off lights at home, you will do the same when leaving a meeting room," says Fretheim.

In this manner, employees become invested in green. When you consider the breadth of Walmart's global workforce—2.2 million people in nearly 30 countries—that's a sizable group of disciples living and breathing Walmart's word.

Walmart's mission, though, extends well beyond the enterprise—and that's where the company has earned its reputation. The much-ballyhooed supplier sustainability index introduced in 2009—which measures a product's sustainability using various metrics across nearly 200 product categories and more than 100,000 global suppliers—has some aggressive targets.

By 2017, Walmart expects to buy 70 percent of the goods it sells in U.S. stores and U.S. Sam's Clubs from suppliers that use the index to evaluate and share the sustainability of their products. Taking it one step further, the company hopes to begin using these same standards to influence the design of its U.S. private brand products.

Spreading the Word, Worldwide

The Walmart Foundation has also provided a $2-million grant to help support the launch of The Sustainability Consortium—a group of green-minded global companies—in China, to help provide training and develop partnerships that will improve sustainability in-country.

Those are future aspirations. The returns are equally bold.

In 2012, the EPA Green Power Partnership recognized Walmart as the largest on-site green power generator in the United States, with more than 200 solar projects across the country. Renewable energy now provides 21 percent of Walmart's electricity globally. In 2012, the company delivered 297 million more cases while driving 11 million fewer miles, increasing fleet efficiency by 10 percent in 2012 alone—and by 80 percent since 2005. Walmart also fulfilled its 2009 pledge to reduce greenhouse gas emissions 20 percent by 2012—one year early.

Walmart's achievements resonate internally. But they are more persuasive beyond the organization.

"Few companies have the size and scale to communicate with and potentially influence other companies," says Smith. "We have a platform to show our peers where we see success both as a business and as a responsible corporate citizen, then encourage and challenge them to do the same."

The sustainability index is the embodiment of this advocacy. It provides a platform for companies to jump from and climb back on as they follow their own unique green journeys. Many companies have already made significant progress pushing sustainability projects, but have no means to benchmark performance.

"Sustainability can be a complex subject," explains Fretheim. "Trying to understand if a process is greener than what you're already doing—when you're trying to drive that down into every level of your business—is difficult. The business understands the business goals. It's more difficult to perform sustainability assessments at every level."

The index has become a de-facto standard for businesses to follow. If nothing else, it gives partners an idea of the types of questions they should be asking themselves, or areas of the business where they should focus attention—whether it's renewable energies, energy efficiency, or waste reduction.

"The idea is to help suppliers understand how they can improve their logistics functions—not only from their plant to our DC or store, but also back through their supply chain to raw material sources," Fretheim says.

Christopher Schraeder, senior manager of sustainability communications for Walmart, goes one step further, suggesting, "It starts to shift the conversation from 'Should we be doing this?' to 'How do we do this?'"

In time, the expectation is these suppliers will return the favor and say, "Hey Walmart, look at what we're doing."

Owning Green

One challenge organizations encounter as they chase sustainability gains is distilling the true value of their investments so they can demonstrate ROI to the CFO and continue to raise expectations and inject capital in new projects. If business and sustainability strategy aren't aligned, that task is difficult.

At Walmart, the two objectives are firmly knotted. One supports the other. An efficient supply chain is a green one—and vice versa. Everything is measured and benchmarked, and the company goes to great lengths to track ROI on each investment.

"If a sustainable initiative is good for the business in general—and we believe this is true—then each project we implement supports our business, and empowers our efforts to be more sustainable," says Smith.

Making a Positive Impact

There is no downside when it comes to sustainability, provided companies approach it with the right motivations and perspective. "Based on the positive impact our efforts have had on our business, you'd have to question why companies would choose not to engage in this area to improve their performance when the opportunity is before them," says Smith.

Walmart's objective is to make sustainable best practices a standard course of doing business—so companies will eventually have no other option than to follow a new status quo. Bringing customers into the fold will require a similar metamorphosis. Consumers today have a choice. When that decision pits cost against conscience, especially in today's economy, the answer for many is simple—with no regrets.

"We don't think our customers should have to make a choice or trade-off between a product that is sustainable and a product that's not," Schraeder concludes. "We're trying to look at how we conduct our business, work with suppliers, and approach and view our entire supply chain to make sure that every product we put on our shelves is driven by sustainable practices."

Logistics Sector Leads the Internet of Things Revolution

By Vittorio Aronica

The Internet of Things (IoT) has been hailed for years as the technology wave of the future. But while we were waiting for refrigerators that order from the store when we're low on milk, the logistics sector has been making the first tangible forays into a real IoT environment.

Using connected devices such as sensors and cell phones, logistics providers have begun improving efficiency, tracking packages with unprecedented accuracy, and giving shippers delivery time and shipment updates. GPS-enabled tracking allows providers to optimize shipping distances, times, and costs. Smart containers and carriers provide location and status of raw materials, parts, and products throughout supply chains.

The Future of Logistics

In the near future, shippers and logistics providers will coordinate through a connected, standardized ecosystem to provide the most efficient delivery experience for businesses and consumers. For example, imagine consumers ordering online from several stores, and having goods routed to a single consolidation center that ships them all in one box.

New, specialized players in high-density population areas might materialize, using technology-enabled smart containers. They will operate as multi-tenant distribution service providers that share capacity, tracking, and visibility across multiple logistics providers. It's easy to foresee market segmentation between last-mile distributors and larger logistics operations that are focused on hub management and orchestration. Each segment would require a high level of specialization, and coordination between the two types of companies would be critical.

New Technologies, New Regulations

The extended adoption of new technologies will be capital intensive due to pervasive implications along the entire supply chain—including physical assets—that will require a strong governance framework supported by regulatory and open standards. This is similar to what happened with the adoption of broadband and wireless services, but still difficult to predict.

A one-to-many environment could mean segregating duties between infrastructure owners and business users. A high degree of complex standardization will be involved in routing packages in a metropolitan area and returning proof of delivery to shippers.

Yet, most carriers who currently provide last-mile services run three-level local partner distribution systems to ensure the widest ZIP code coverage. Local, independent players—most not exclusive—often provide the second and third legs. So logistics operators already know the challenges of providing end-to-end traceability across multiple players.

Electronically embedded routing information in packages, supported by a near field communication technology, may reduce complexity in some ways, but getting all links in the chain to agree on and adopt common protocols will remain a major challenge.

Many people continue to look at the Internet of Things as a fanciful, futuristic notion that might not have any major impact on their lives anytime soon. But supply chain and logistics professionals are taking steps to turn goods, containers, and vehicles into smart "things" that can communicate in ways that significantly improve people's daily lives.

So, the challenge is: who will shape the future and who will stay behind?

Transportation Modeling: Is There Ever an Average Day?

By Mike Mulqueen

Most large shippers spend a great deal of time and money collecting, analyzing, and maintaining the data used to drive daily transportation planning and execution.

When codified and integrated into the shipper's transportation system, this data becomes the organization's transportation policy. This policy is comprised of lanes, modes, rates, service levels, capacity, and a multitude of other variables that must work in concert to drive daily decision-making.

The transportation policy defines the framework upon which all transportation decisions will be made. It needs flexibility to allow the transportation management system sufficient latitude to find savings, and needs to take into account the typical variability found within virtually every supply chain. This is where shippers can often find opportunities to improve existing processes.

Deterministic vs. Stochastic Strategic Planning

Many analysts still rely heavily on statistical averages, ignoring the inherent variability that underlies nearly every aspect of transportation. The data used in daily planning ultimately reflects the inefficiencies.

So why do most organizations develop their policy this way? The simple answer is that averaging is easy to comprehend and calculate.

Yet averages rarely reflect reality. For example, if half of a supplier's shipments weigh 5,000 pounds, and half weigh 40,000 pounds, the average is 22,500 pounds—a weight the supplier never ships. A fundamental input in the transportation policy is wrong.

A deterministic planning tool can be effective in daily planning when values are known. However, strategic planning should utilize a stochastic approach based on calculated probabilities, not the forecasted certainties implied in the deterministic approach.

Stochastic principles are not new to supply chain planning. The concept of safety stock exists because we cannot predict customer demand, lead times, or order fill rates with any certainty. The latest transportation modeling technology allows for combined stochastic optimization and simulation.

How Does This Work in the Real World?

Let's take the example of prepaid-to-collect conversion—which shipments should be prepaid and which should be collect?

Prepaid-to-collect is a long-term, strategic decision that is subject to significant levels of variability that shippers must consider.

These variable elements include:

Order quantities (can less-than-truckload shipments be consolidated?)

Freight rates

Fuel prices (if no fuel surcharge is assessed, the shipper takes on all the fuel price volatility risk)

Order frequency

Transport lead times (is there time to consolidate shipments?)

A deterministic approach assumes order quantities vary little, and that the customer understands the rate and fuel surcharges used throughout the year.

Through stochastic optimization and simulation, variable data can be modeled in a way that makes the analysts more confident they are making the best decision—defined not by a snapshot of data, but over time.

Most organizations take a deterministic approach simply because it has always been done. However, long-term strategic planning must account for known variables to create an efficient transportation policy that reflects the reality of an ever-changing world.

First Aid for the Hospital Supply Chain

By Justine Brown

Hospitals are aching to cut costs and increase efficiencies. Some supply chain management therapy might be just what the doctor ordered.

Healthcare reform, a growing number of regulations, skyrocketing operational costs, and increasingly stringent insurance reimbursement guidelines put significant pressure on healthcare providers. For many, implementing cost-cutting measures and improving operational efficiencies have become mandatory regimens.

"For a long time, hospitals made money in spite of themselves," says Chip Geiger, purchasing manager at Illinois-based Rockford Health Systems, which combines the resources of Rockford Memorial Hospital, a tertiary care hospital; and Rockford Clinic's primary and specialty doctors. "But in the current economic and regulatory climate, we have to operate with more business savvy."

Many healthcare providers have identified supply chain operations as an area with significant potential for improvement. Here are five cures for common supply chain ailments that can help put hospitals on the road to improved operational and financial health.

1. Stitch Up the Knowledge Gap

Advanced supply chain operations can significantly improve a hospital's financial performance. To achieve that positive outcome, however, the healthcare provider must take control of its supply chain strategy and proactively manage the process. Yet many hospitals lack the logistics know-how to accomplish these feats.

The hospital supply chain manager's role can vary significantly from other industries, tending to focus more on contracts and purchasing, and working with suppliers to negotiate better pricing for items such as medical devices and surgical implants.

"Many hospitals don't know where to start making supply chain improvements, because their staff isn't familiar with the sophisticated logistics tools and strategies other industries use," says Ira Tauber, chief operating officer for Reading, Pa.-based healthcare logistics provider Triose. "They know how to negotiate the price of a product, for example, but not how to calculate the total landed cost."

To launch initiatives such as improving freight management, hospital supply chain managers may need to research industry best practices, or enlist help from a third-party provider or consultant.

2. Write a Prescription

Formulating a plan is a vital component of improving hospital supply chain operations. That's exactly what Rockford Health System did to treat its inefficient freight management processes.

Rockford Health System is the largest health system serving northern Illinois and southern Wisconsin. It comprises a tertiary care hospital, outpatient clinics, an in-patient hospital offering rehabilitation services, and a visiting nurses association. To gain a more complete and accurate picture of its freight costs, the company worked with a consultant to review its supply chain processes (see sidebar below).

"We weren't tracking or reporting freight expenses, so we had no visibility into how they were impacting our overall bottom line," recalls Geiger. "We estimated we were spending $149,000 on freight annually.

"But once we standardized our reporting, and began pulling the right numbers, we discovered our annual freight costs were closer to $350,000," he says. "That is a huge difference. We knew transportation represented a substantial opportunity for savings."

Rockford's goals included connecting finance and accounts payable personnel with purchasing staff, and devising a method to track and better manage costs. It addressed these needs by implementing Triose's freight management solution, which encompassed negotiating preferred carrier rates and contracts; training and educating vendors and monitoring compliance; supporting purchasing and materials management personnel; auditing freight bills; and managing shipment information.

During the first implementation phase, Rockford used the freight management system to handle 43 percent of its freight spending, and saved $51,866. Today, it manages nearly 70 percent of its spending with the Triose system, and has saved more than $500,000 on freight costs over the past five years.

"With consistent processes in place, I now have confidence in my numbers," says Geiger. "I can hone in on what we are spending, and work toward increasing savings."

3. Get Your Eyes Checked

Lack of supply chain and freight spend visibility can limit a hospital's ability to operate efficiently. This was the case for Baystate Health, a Springfield, Mass., not-for-profit healthcare system that operates three 800-bed hospitals. The company averages 1,500 shipments weekly—mostly inbound—and works with more than 5,000 vendors.

In 2007, Baystate conducted an audit to identify how much it was spending on shipping. The management team was shocked to learn its annual freight spend was nearly $1 million. They set out to evaluate those costs for potential areas of savings, and establish more spending accountability and visibility. But with more than 1,450 separate departments generating freight charges, setting up an improved billing system proved a challenge.

"Baystate knew it had a problem and an opportunity to save money, but had no idea how to attack it," recalls Tauber. "The team had zero visibility into shipping information.

"They realized that implementing a freight management program would put some controls and processes in place, and address the various departments and staff that impact shipping and logistics," he adds.

In 2011, Baystate began working with Triose to implement an inbound freight management program and customized billing method that would meet the needs of the hospital system's accounting department. Triose customized an integrated billing solution that allowed for accurate allocation of freight costs to departments at multiple levels, saving hours of manual processing. The initiatives also resulted in reduced costs and improved vendor compliance.

"The ability to assign charges at the cost-center level provided huge visibility improvements," says Todd Bailey, manager of warehousing and transportation at Baystate Health.

During the first year of using the Triose program, Baystate saved $265,000 on freight spend, cut more than 20 percent of its shipping costs, and achieved 70-percent vendor compliance.

As a bonus, the solution also helped ease chaos on Baystate's shipping dock by enhancing scheduling visibility. In the past, trucks arrived all day, and shipment receivers constantly ran back and forth to the dock to accept orders. Today, most shipments to the hospital arrive all at once each morning on one truck.

"All our shipment information is more streamlined now," says Bailey. "We aren't losing freight or receiving late shipments. Nothing in our shipping process negatively affects the continuum of patient care."

4. Put Freight Spending On A Diet

Hospitals generally deal with high freight costs because of the nature of their operations. Most shipments are inbound, and a large percentage ships via expedited service. In Rockford's case, for example, about 83 percent of shipments were either overnight or second-day.

"In healthcare, many products are too expensive to hold in inventory," explains Geiger. "Our staff can go online to order products as needed, and those orders go directly to vendors."

This means 2,000 Rockford employees may be ordering products and supplies at any given time—an approach that can lead to excess inventory and poor purchasing visibility. Implementing better controls helps trim the fat.

"Facilities have to determine which items they truly need to receive overnight, and which ones can wait," says Geiger. "Sometimes an item is needed for surgery scheduled for the next day, but other times the shipment can travel via ground, which significantly reduces shipping costs."

5. Improve Your Flexibility

Hospital supply chains must be able to adapt to changing needs, while still delivering reliably. Consider Stryker Medical, a medical equipment manufacturer that faced an efficiency problem requiring some supply chain agility.

Stryker's inventory consists of thousands of large items such as hospital beds and furniture, stretchers and transport devices, ambulance cots, and evacuation equipment. In the past, it manufactured and stored all products at its headquarters in Kalamazoo, Mich.

Large items were often loaded onto trucks with little planning about their destination. Many times, those trucks left the dock carrying only 12 to 15 items, generating multiple truckloads to one destination.

In addition, the company annually ships more than 3,000 trial units, which prospective customers can test to facilitate the purchasing process. Delivering those items can be complex, because many require special care and coordination.

Additionally, delivery and setup must be completed quickly, with minimal disruption to healthcare operations.

Stryker's previous carrier was inflexible, and could not always meet the company's special delivery needs. As a result, delivery times were difficult to schedule, coordinate, and predict. Stryker needed to reduce manual tasks, store and track inventory, and ensure on-time delivery.

"Working with hospitals is complex because they often change their requirements with little notice," says Matt Bielanski, logistics team leader for Stryker Medical. "Many transportation providers can guarantee a delivery date or time, but are reluctant to change at the last minute, or ensure their driver can meet with a sales rep to coordinate prior to delivery. But, because our business centers around customer need, the availability of special staff, and access to additional labor to transport patients or equipment, carrier flexibility is critical."

Stryker Medical began looking for a new transportation provider that could partner with its sales force, work professionally with customers, and maintain flexibility in the face of rapid changes. The company chose Chattanooga, Tenn.-based third-party logistics (3PL) provider Kenco.

Kenco helped Stryker develop a ZIP code-based transportation management system (TMS) that streamlined deliveries. It also helped develop a distribution network that has grown to include nine regional distribution centers. Today, all of Stryker Medical's equipment is still built in Kalamazoo, but it is then matched up with complementary items and moved to one of the DCs, which are strategically located to provide one-day transit time to 85 percent of the U.S. population.

"Kenco helped us determine ways to put more beds and stretchers on trailers so we could reduce the number of shipments we moved," says Jim Krawcyzk, senior director of customer care for Stryker Medical. "The 3PL also configured racking systems and special handling equipment within the trailers to help move beds and stretchers with minimal damage. The TMS helps us coordinate shipments, and regional distribution centers make it easier for us to get products to customers more quickly."

Today, Stryker has reduced the number of trucks it uses per delivery, and consolidated trial unit storage. In total, the company saves $1.6 million annually through reduced fuel, labor, and outsourcing.

"Even as our volume has grown, overall freight spend has remained flat, thanks to innovative problem-solving and data analytics," says Bielanski. "From a qualitative point of view, our sales force has seen a great increase in the responsiveness of our downstream supply chain."

To coordinate deliveries, Stryker Medical sales representatives contact the closest regional DC. "Our sales reps have developed good personal relationships with the drivers and staff at each regional distribution center," says Jeffrey Vander Ploeg, director of distribution and logistics at Stryker Medical. "We have solved 99 percent of our delivery coordination issues."

"Stryker's on-time delivery rate falls just below 100 percent, and the regional DCs allow us to retain a small business approach that serves hospitals' unique delivery needs," Bielanski says. "They enjoy doing business with us because we make it easy." Kenco's solutions have also helped Stryker present a more professional image to customers.

Hospitals across the board are now looking at transportation and logistics costs as a key driver of economic stability.

"All hospitals are being pinched for costs, and many are moving to 3PLs to mitigate transportation and logistics expenses," says Krawcyzk. "In our case, we were able to clearly demonstrate the value of using a third-party logistics partner to manage and deliver our products. Many hospitals and healthcare systems are turning to outsourcing logistics because it helps them address their cost issues."

With reform still in its infancy, it's likely that today's healthcare systems and hospitals will continue to face cost-reduction pressure for years to come. Those that can streamline logistics and boost their supply chain strength will improve their chances of a healthy future.