Sunday 23rd Oct 2016 - Logistics Manager

What’s your favourite flavour?

Ask a dozen logisticians to name their most admired supply chains and you will get a dozen different answers – more if you give them time to think about it! Ask non-logisticians the same question, and whereas a few years ago you would have been met with blank stares, today you are likely to hear similarly opinionated views.

The term ‘supply chain’ was invented by Chrysler buyer Thomas Stallkamp back in the mid-1980s. Back then we did not have supply chain directors, in fact we had only recently seen the emergence of distribution directors, many of whom had risen through the ranks of transport managers. As one colleague succinctly noted, if you worked in the industry at that time you “still had the whiff of diesel about you”.

Our perception of the supply chain tended to be node, rather than network, centric. When we talked of ‘improving’ the supply chain we were really looking at the ‘trucks and sheds’ under a company’s direct control, and when we ‘optimised’ the supply chain it was at a silo or functional level. Supply chains operated across different geographies, but they were managed on a country by country basis, for the simple reason that this was the way organisations were structured and IT systems worked. The supply chain was the dirty, unglamorous, part of the business that needed to be managed in order to get on with the real jobs of selling or manufacturing.

Contrast this to the situation today. The supply chain is now a professional discipline in its own right, and a company’s reputation, its share price, indeed its very success or failure, is inextricably linked to the performance of its supply chain. This was vividly brought to light in two recent high-profile retail business stories – the takeover battle for Marks & Spencer, and the appointment of a new group chief executive at Sainsbury’s. The common factor in much of the press coverage was how reform of their respective supply chains would be crucial to both companies’ survival.

At the same time as supply chains are coming under this tougher external scrutiny, companies are facing a plethora of challenges and initiatives: globalisation; acquisitions, mergers and divestitures; reducing safety stocks; partner collaboration; multiple channels to market; outsourcing; just-in-time/just-in-sequence; and radio frequency identification (RFID).

Optimisation of the supply chain remains one of the few areas where additional value can be realised. But is this true for all industries and all organisations, or can we identify leaders and laggards? To answer this question we need to look at the criticality of the supply chain activities to different industries, something that market analyst Frost & Sullivan examined earlier this year (see Fig 1). This work studied the strategic importance of logistics activities across different industries, measured against the level of cost pressures inherent within those same industries. It stands to reason that those industries where cost pressures are high should exhibit most supply chain innovation, and that the level of innovation should increase as logistics activities become increasingly important to the core business.

This theoretical analysis is validated by real-life experience, with retail being the industry that is generally accepted as setting the trend in supply chain innovation and efficiency. Harking back to the mid-1980s, the retail industry led a number of key initiatives: centralised, composite, distribution; the roll-out of EDI; the adoption of key IT applications, including EPOS and warehouse management systems; and the outsourcing of logistics activities to specialist third parties. Contrast this to pharmaceuticals, where companies are primarily differentiated by the size, cost and activities of their research & development operations, together with their ability to bring new products rapidly to market. Here logistics barely seems to happen as a separate item on the balance sheet, and correspondingly little in the way of supply chain innovation would appear to have occurred.

Somewhere in the middle is automotive, an industry that has rightly been lauded for its lean production but that has traditionally viewed the supply chain as a necessary evil on either end. This view is changing rapidly, largely as a result of the depressed state of the new car market, the geographical expansion into new areas of supply and demand such as central Europe and – more tantalisingly – China, the use of postponed customisation to counter the expansion of model options, together with an acceptance that the value in a car is only realised when the customer hands over the cash, rather than when it rolls off the production line.

It is always dangerous to assume that what is true for an industry in general is true for every company contained therein – there are always early adopters or visionaries who will seek to retain or gain competitive advantage. However, the pace of technology and business change means that an attitude of ‘sit back, do nothing, and wait to see what the industry decides is the best way forward’ is increasingly unsustainable.

Pushing the boundaries

What, then, are the current retail supply chain Cost PressureHighMediumLowNon-CoreCost Importance of Logistics Activities Textile Oil, GasCritical Petrochemicals Industrial RetailCoreSource: Frost & Sullivan

initiatives that other industries should look to as a portent for the future? The biggest impact is globalisation, both on the supply and demand side. Globalisation brings significant supply chain challenges: the constantly changing corporate landscapes resulting from mergers, acquisitions and joint ventures; an increasing number of partners, heightening the need for collaboration; balancing extended supply chains with reduced safety stock; the fact that local competitors might also be global collaborators.

While planning for extended supply chains is relatively easy, when it comes to execution the number of variables at play, and the timescales over which they are executed, is often beyond the control of a single individual, particularly when something goes wrong.

With there being little point in optimising something you cannot see, the initial requirement is to get visibility and accountability into these globalised supply chains. The solution is investment, either directly by retailers or indirectly through their lead logistics providers, in applications that put them back in control of their supply chains. Such applications are under-written by accessibility, hence the popularity of web-native applications using the Internet as the underlying architecture.

But these applications also need to combine planning and execution functionality, together with flexible business rules, to transform a theoretically optimised plan into one that is flexible, feasible and practical. The key word here is flexibility, since business models in the retail world are in constant flux. What use is your supply chain software if it cannot manage your multiple, disparate, supply chains at the same time?

While retailers have been adopting these solutions, they have also been examining their own logistics structures. When Tesco initiated the move to factory gate pricing in late 2001, there was a recognition that collecting product from the supplier, rather than having it delivered to the distribution centre, would deliver key benefits: cost visibility and accountability; improved asset use; a smoothing of some of the variability in distribution; and greater discipline on all parties.

This was achieved by putting in place what amounted to an over-arching internal fourth-party logistics (4PL) structure, where the retailer retains the intellectual expertise to control the supply chain, the systems control the transport planning and execution, and the transport companies handle the physical transport. As a result, retailers now have a framework that is expandable beyond the traditionally imposed boundaries of geography, mode, product or service provider.

This ‘internal 4PL’ model is already being adopted by other organisations, such as DuPont, who want to handle complex global logistics operations in a rapidly changing environment and in the absence of a truly global logistics service provider. For these companies, where logistics is a core competency but owning expensive logistics assets is not, technology is being used to enable their supply chains, rather than constrain them.

Track and trace

RFID is probably the hottest subject in retail at the moment – certainly if measured by the number of pilots, conferences and seminars that keep appearing. Perceptions vary from “it’s the next revolution in the retail supply chain” to “these are just electronic barcodes”, whereas the reality lies somewhere between the two.

While a lot of the initial work revolved around tracking shipping units (pallets, cases, etc.), most talk now is of producing RF tags cheaply enough to put on every selling unit. Showcases such as the Metro ‘Future Store’ in Rheinberg, Germany, show how seriously the whole initiative is being taken.

There remain significant barriers to widespread adoption, including not just cost but also lack of standardisation and fears regarding privacy. What is not open to question is that RFID is going to result in an explosion in the amount of data being generated within the supply chain. The value will come to those organisations that are capable of translating this data into usable information. Management by exception will be the rule, meaning that the systems controlling the supply chain will become increasingly critical.

Finally, and perhaps as a natural result of the above, there is the question of total product traceability. Pressures are growing across the retail industry, from consumers, producers and retailers, to governmental, regulatory bodies and lobby groups, for an increase in supply chain traceability.

EU Regulation 178/2002, which will apply throughout the European Union from January 1, 2005, lays down the general principles and requirements of European food law. This requires that the traceability of food and ingredients must now take place at all stages of production, processing and distribution. This will entail ‘Field to Fork’ tracking, from the finished product on the consumer’s plate, back through the retailer’s store and supply chain, via the wholesaler to the producer, and from there back to the farmer, even to the point of being able to identify the seed, fertilisers and other chemicals used in the original production.

Currently all of this information is available, but across multiple systems. The technology now exists to leave this data in situ, but to provide a secure ‘envelope’ around the unique references, such as the Electronic Product Code, that are applied to products for tracking purposes. This security envelope protects the privacy of the data associated with a product, while at the same time allowing product location information to be shared between participants within the supply chain.

In this way competing manufacturers, logistics providers, distributors and retailers can trace product from one end of the supply chain to the other, securely, even if there is a break in recording of location information. It also helps to address the issue of privacy in RFID tracking by giving participants in the supply chain, including the consumer, complete control over what information they may choose to share with others.

Achieving best practice

The flow has not all been one way, however. To many, the factory gate pricing initiative was really just taking the traditional manufacturing ‘ex works’ approach and applying it to retail. But factory gate pricing was part of a wider project, built on the lessons learned in lean production by the automotive industry, and Toyota in particular. Prior to factory gate pricing, Tesco had already adopted Toyota’s ‘lean thinking’ approach by pulling products through the now-defined value stream and having them flow towards the customer both quickly and accurately.

With all these retail supply chain initiatives taking place are we approaching the point where the rate of change makes it impossible to come up with measurable benchmarks and benefits? Are we in danger of reaching ‘initiative fatigue’, where we demand too many initiatives in rapid succession?

Here again retailers are looking to their supply chain partners to assist, encouraging logistics providers and others to work with them, to share the workload but also to share in the benefits.

To conclude, when it comes to the supply chain one of the greatest dangers companies face is benchmarking only against the direct competition. The smarter companies are looking outside their own industries, learning from elsewhere and adapting this to operate within their own organisations, proving again the old axiom that ‘best practice is simply that, best practice’. n

Dominic Regan is director of sales and strategic marketing at G-Log UK.

Tel: 01483 739500.

Asda’s George clothing brand, created in 1990 by George Davis, is now the second largest volume clothing retailer and market leader for childrenswear and schoolwear. The number of stores in which the George brand can be found has risen from five in 1990 to more than 254 of Asda’s 270 stores throughout the UK, taking up about 140,000sq m of space.

Over the past four years the proportion of Asda shoppers buying George has risen from 13% to around 40%, and consumer demand for the brand is not showing any signs of abating. In fact Asda’s US-parent, Wal-Mart, is turning the brand into a global commodity – it has created George Global and ultimately aims to sell the clothing in about 5,000 Wal-Mart stores worldwide.

In the UK, three distribution centres – at Newcastle-under-Lyme, Ince and Brackmills – are dedicated to the George brand handling a maximum throughput of five million units a week and the three each carry different ranges, using cross-docking techniques in preparation for delivery to stores. Built only two years ago, the £4.5M four-storey distribution centre at Newcastle-under-Lyme is the newest of the three, and the second largest within the Asda empire “in terms of square footage”. However, the 24,645sq m centre has already been extended by a further 10,230sq m in order to meet the increasing and rapid demand for the George clothing brand. Asda bought the neighbouring land to accommodate the expansion.

Including all the mezzanines, the centre amounts to about 93,000sq m.

At present, the main building accommodates both goods in and goods out. However, that will change with the completed extension and relevant systems all being in place – goods will be received in the existing building with the various processes flowing across the facility and finally reaching the extension where they will be loaded for delivery to stores.

The Newcastle-under-Lyme centre handles both hanging and boxed garments, and largely operates manual processes in terms of picking. But it is changing to a semi-automated system in order to meet the major growth expected over the coming 12 months. Damion Laycock, general manager at the centre, says: “The reason for going to automation is to get more volume out of the place, and to give additional capacity to handle an expected increase in volumes.”

Which is why SDI Greenstone has also installed a conveyor at the centre along with mezzanines and RF tagging equipment to move and track items through the 7.5km-long system.

However, there are no plans for the centre to become fully automated. Peter Ulleri, Asda’s project manager at the centre, explains: “It was always intended that the site would start manually and then add automation. Any automation must justify itself against strict criteria before we even think of installation.”