Wednesday 22nd Nov 2017 - Logistics Manager

Future trends in the supply chain

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The use of temporary labour, dealing with seasonal peaks in demand, retaining flexibility and responsiveness, managing risk, and aligning a supply chain to best serve the customer, are all dynamic areas of supply chain management. Our panellists gave their views on how technology, marketmoves and working practices are influencing these dynamic areas and what future trends we might expect to see.

Our February Roundtable discussion was supported by Vocollect, creators of voice-based systems with a growing range of applications in the supply chain. Voice is one of a number of emerging technologies that may well transform supply chain practices in the years to come, so it was appropriate to address the general theme of ”future trends”, a number of which had been tentatively identified in advance.

Chairing the meeting, Nick Allen asked Professor Richard Wilding (see panel for affiliations) first for any academic learnings on the perennial problem of matching staffing levels to seasonal and other peaks and troughs in a world where demand is getting noticeably ”spikier”.

Wilding suggested this was an element of a much bigger discussion on flexibility. ”How easy is it to get rid of, or recruit, people? We can”t afford very long training regimes (and ”voice” fits in here – it can make it possible for new staff to be reasonably effective in three or four days, rather than weeks). The pool of labour now could be from anywhere in Europe, offering varying language skills which we need to accommodate. The technology is allowing this – by offering ”mother tongue” instructions: this tends to commoditise the labour market, putting pressure on pay but offering flexibility. ”The alternative of course would be more flexible automation – but you can”t realistically automate everything”.

Broadly, Wilding stated, there are ”leading” strategies which try to match resources to real or anticipated demand. Alternatively, there are ”levelling” strategies which seek to smooth out the effects of peaks and troughs – but this is certainly not what most distribution centres are suppose to be about.

David Stanhope of Voiteq suggested that there are innovators who try to lead the market in these strategies, but ”sometimes they jump to early, and it”s been like that with “voice”. The point we are at now is trying to get the mass market to see it as an established strategy.

”The important thing is the ability to get labour up and running (even if not fully effective) from day one. This isn”t just about seasonal peaks – it applies anywhere that labour resources are tight”, citing the notorious case of Daventry in the English Midlands, which is geographically the most efficient distribution location for many firms but ”enjoys” all the labour issues associated with effectively 100 per cent employment.

Wilding agreed that in the ”Golden rectangle” around Milton Keynes, Daventry, Northampton, Rugby from which almost the whole of the UK population can be reached in 24 hours, there are some of the highest paid warehouse operators in Europe. ”So are we better off in some not quite so perfect location, if labour is cheaper and more available, if there are local incentives? It”s very complex – and sometimes the location decision can have no obvious reason beyond the purely personal”.

Multi-temperature operation

Raf Jezierski of Vocollect suggested that this issue was inter-related with others, such as the growth in multi-temperature operation at both truck and DC level. ”Where are supplies of, frozen, chilled or ambient, coming from? Where are they distributed to? Most companies are looking to reduce the number of DCs through multi-temperature operation, which drives the need for further DC efficiency”. And efficiency will include factors like skills availability, pay rates, geography and so on.

A consequence, suggested Anil Valsan of Frost & Sullivan, is that in the UK DCs are becoming purely regional, not national or pan-European. ”The role of UK DCs is changing, while European DCs are in Benelux or, increasingly, France”, although Wilding pointed out that French labour laws – ”it takes you two years to move people out” were still a disincentive.

Anton du Preez mentioned a recent Vocollect prospect, with very seasonal demand, where the DC management has effectively outsourced the entire staffing function to an agency, with the possibility that the agency can balance staff across different non-synchronous peaks and troughs in different supply chains. Could this balancing by a third party become a trend? Allen asked whether this could be a role for a 3PL? Du Preez answered ”probably, but this was in fact a specialist European recruitment agency”. Stanhope observed that 3PLs themselves have similar problems and go to specialist agencies for their own pool of labour.

Valsan pointed out other methods of coping – there are firms which schedule staff on as tight as a two-day basis, or even call in staff by SMS messaging.

Du Preez raised the need to integrate demand planning, through whatever crystal ball is in vogue, with labour planning. ”Once you have some concept of demand, you need to be able to map out what this means for labour requirements to fulfil demand in the warehouses, or indeed in the retail stores”. This, he observed, was a growing feature of the latest warehouse management systems.

Jezierski suggested a paradox that while the focus is on IT and mechanical handling, ”the industry is still very human, with a lot of intellectually based decisions. Systems that improve visibility, production accuracy and so on impact not just on the industry but also on the individuals – they are able to do their jobs more safely, more effectively and perhaps more rewardingly. Is there a marketplace message that we have gone too far in automation, and need to pull back to understand the human capabilities?” There was general agreement that ”it”s easier to be flexible with people than with automation”.

A corollary, suggested Valsan, is that approaches like kaizen, which are familiar in production oriented systems, ought to be applied to the warehouse environment, with positive implications for manpower retention and quality of work. Stanhope said ”We find retention of labour is definitely better in ”voice” warehouses, compared with paper-based ones. The operators feel they are doing things differently: this creates a good solid and flexible workforce which reduces the need for temporary labour”.

Stanhope also explained that one of the reasons for ”voice” popularity is that the operator ”trains” the system (in 10 or 15 minutes) to recognise his or her particular voice pattern. ”So it doesn”t matter what your accent is, providing you are consistent”.

Moving the discussion forward, Allen asked for any evidence of growth in ”port-centric” logistics, especially given the preponderance of imports. Valsan noted that there are many classic examples of European DCs close to ports in the Netherlands and Belgium; but equally he is seeing a shift towards the new Eastern European manufacturing bases, and growing conections with Asia – the recent China-Germany rail link experiments giving an inkling of the possibilities.

Jezierski said that Holland, and indeed the UK, had been very quick to take advantage of an open and deregulated Europe and had got ahead of the game. The Dutch in particular have a proven ability to handle transit traffic and to combine deep-sea, coastal shipping and intra-continental flows. But there are other drivers: free trade zones for example in places such as Dubai support increasing amounts of ”remanufacture, reprocess and reship” activity.

Stanhope pointed out that such operations fulfil a very different need from the traditional DC. ”[Import area facilities] aren”t necessarily in the best location to be a national distribution centre. We do see smaller operations where most of the goods handled are from the Far East running this way, but in retail, for example, there is a need to think about the distribution pattern at least as much as the pattern of supply sources.

Location, location, location

”Location very much depends on the nature of the business”, he continued. One client, catering wholesaler Brake Brothers, needs three or five DCs around the M25 to get to a large number of London customers in the most efficient way. But other organisations would need far fewer DCs. Valsan added that developments like the London congestion zone, and similar schemes in any city with a ring road, were likely to boost a trend to having multiple small DCs on the periphery, allowing more agile delivery into the city with smaller vans.

Wilding tried to pull these strands together, Sometimes, customers don”t want choice – it just adds to confusion. Indeed, excessive ”choice” can actually suppress demand – customers get so confused that they don”t make the purchase at allsuggesting that there are two separate dimensions – the product and the market. ”If the market is calling for two hour delivery, you will have lots of little depots: if the market only needs “order day one for delivery day three”, you will have fewer, larger centres. Equally, if the product is likely to deteriorate in transit, that is a driver towards lots of small depots with a fast response. If the product has a long life, that suggests fewer depots.”

All this, he added, has to be squared with the corporate strategy, the competitive strategy and supply chain strategies of process design, network/infrastructure design, organisation, and IT.

A knotty debating point raised by the Chairman was the question of whether, in this supposedly customer-centred world, we are actually offering too much choice! Wilding opined that this is all about segmentation of the customer base. ”You can”t have an “average” supply chain – or 50 per cent of customers will be sick of you, while you spend too much money on the other 50 per cent. Customer-centric means going with the market, finding the value for the customer. Sometimes, customers don”t want choice – it just adds to confusion”. That”s why, he suggested, the limited range of an Aldi still allows the firm to compete with the apparently unbounded choice of a Tesco. Indeed, excessive ”choice” can actually suppress demand – customers get so confused that they don”t make the purchase at all.

Everyone around the table had their own examples, which won”t be rehearsed here lest, as Wilding warned, ”we start sounding like grumpy old men!” Clearly, though, there are several drivers of burgeoning ”choice”, not all of which are led by the consumer. Some industries need to offer wide choice, as close to ”mass customisation” as they can get. In others there is the suspicion that the consumer has been ”trained” to expect choice, even if the increased range offers no discernible benefit and only serves to drive up cost. But nobody was expecting a radical pruning of sku numbers any time soon.

The Roundtable”s deliberations were significantly diverted by the arrival of Guy Meisl from Zavvi (formerly Virgin Megastore). His company has recently adopted a business model for which ”outrageous” seems almost too mild a term. We hope to describe this in more detail in a future issue; suffice it to say that Zavvi has outsourced ”everything”, including product buying, to Entertainment UK – which, apart from anything else, is owned by a competitor!

Entertainment (CDs, DVDs and the like) is, it must be said, an unusual industry. As Meisl explained, the choice of ”core” products is out of Zavvi”s hands – everyone has to stock the ”Top 50”, so there is no exclusivity of product, and EUK might as well buy for everybody. On the other hand, the campaign element, the promotions, and the decisions about depth of stock – back catalogues, niche markets etc – remains with Zavvi, and it is in those decisions that the firm is head to head with HMV (many of the other competitors having failed or been taken over). Meisl said ”It”s in the extended range that we make the money; there”s nothing to be made out of chart-toppers, but we need them to get people into the shop”.

Frighteningly, for the others around the table, Meisl admitted that he now has virtually no visibility of stock. ”Even if I know EUK has stock, it may be destined for Woolworths!” – and this in a business that does 10 per cent of annual turnover in the single week before Christmas.

On the other hand, Zavvi has finessed itself out of some of the problems that had earlier occupied this Roundtable. No warehouse – so, no peak labour problem! Although store manning is still an issue.

But from experience with the old (as in ”listed aircraft hangar”) warehouse, Meisl agreed on the relative merits of automation and people. ”People you can phase in: even if they are going to be massively inefficient at first, by the following week they will be at 80 or 90 per cent efficiency. But you have to build capacity up to the peak. I would know that on say week 35 I needed maximum warehouse capacity, but also that if I just brought people in on the Monday morning the place would collapse. You have to bring them on before the peak”.

Did the Roundtable discern any future trends? The most important findings seemed to be that future investment in technology is more likely to be targeted at getting the best out of people, rather than replacing them with automation; that the choice of location for supply chain nodes is by no means the ”no-brainer” that it is classically assumed to be – the number of factors that need to be traded off just seems to increase; and that, just when you think you have a handle on the answers, someone else is quite capable of coming along with a whole new supply chain strategy. There”s nothing ”same old same-old”, about 21st century logistics.

Guy Meisl

Head of Logistics, Zavvi Entertainments Group

”People you can phase in: even if they are going to be massively inefficient at first, by the following week they will be at 80 or 90 per cent efficiency. But you have to build capacity up to the peak.”