MHD Supply Chain Solutions NOVEMBER / DECEMBER 2018
COVER STORY
THE POWER OF AI
AI is reinventing the digital economy
TRUST AND THE SUPPLY CHAIN Focus your leadership culture on trust
IN FOCUS:
OPTIMISED WAREHOUSES
Welcome to the future Swisslog’s vision of the warehouse of the future
MHD FROM THE EDITOR
MHD Supply Chain Solutions CONTACT MHD Supply Chain Solutions is published by The Intermedia Group Pty Ltd ABN 940 025 836 82 41 Bridge Road, Glebe NSW 2037 Telephone: (+61) 02 9660 2113 Fax: (+61) 02 9660 4419 Email: mhd@intermedia.com.au
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ACKNOWLEDGEMENT MHD Supply Chain Solutions magazine is recognised by the Australian Supply Chain Institute, the Chartered Institute of Logistics and Transport Australia, the Supply Chain and Logistics Association of Australia and the Singapore Logistics and Supply Chain Management Society.
CAN YOU PREDICT THE FUTURE?
L
ooking into the future has been a fascination of mankind for many millennia and is the favourite subject for many a current and past work of literary and cinematic fiction. It is also a favourite topic for economic commentators who, it must be said, get it wrong more often than their counterparts in the world of pure fantasy. It is, however, an essential area of study for engineers and planners in the supply chain industry. Predicting future demand, after all, is an area of vital interest to any business involved in the manufacturing, supply and distribution of goods, and thus skilled forecasters are much sought after. As if getting the items that will sell well, right, and having enough of them at the right time weren’t hard enough, try predicting exactly who and where will order them. In the age of item-level supply not only do you have to get your stock right but also the area where your goods will sell, the day and time as well, and then make sure the product arrives in your customer’s hands in a very, very short time. Welcome to anticipatory logistics. “Anticipatory logistics is a process that foresees which logistic services will be needed in the future and in which region. The area where anticipatory logistics has already developed is anticipatory shipping. This allows online retailers to predict orders before they have occurred, based on previous customer behaviour data. This information is then used to ship or move goods closer to the potential customer to enable faster delivery. In the future, we will see anticipatory logistics extend across the value chain.” Anticipatory logistics is just one of the topics explored in our cover story and this issue’s feature, Optimised warehouses. I guess we could also have called the feature “Future logistics” as it’s all about building now, equipping now, acquiring the right technology and business processes now, for the future that is just around the corner.
Charles Pauka Editor charles@intermedia.com.au
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MHD NOVEMBER / DECEMBER 2018 | 3
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ISSUE #6 VOLUME 48
NOVEMBER / DECEMBER 2018
THIS ISSUE NEWS
COVER STORY
06 The 2018 MHD Supply Chain Software Users’ Survey has now concluded. What did you say about IT in the supply chain?
COMMENT 10 Digital procurement takes flight
IN FOCUS: OPTIMISED WAREHOUSES 16 E-commerce and real estate 17 Manage your supply chain more smartly 18 A DC for efficiency 22 AI powered supply chain capabilities 24 It’s a matter of survival 26 Spotlight on: outsourcing transport and warehousing 30 Toll goes e-commerce 34 8 steps to success 35 Get connected 36 MH market to hit $265 billion+ 37 In the box seat: clever forklift conversion 38 Small and big 39 Shifting berries at Costa
12
SUPPLY CHAIN
MHD
30
Supply Chain Solutions NOVEMBER / DECEMBER 2018
DEPARTMENTS AND REGULARS
COVER STORY
THE POWER OF AI
AI is reinventing the digital economy
Welcome to the future
TRUST AND THE SUPPLY CHAIN
40 Trust and the supply chain 42 Supply chain skills for the future 44 Plan4demand: Realising the full potential of demand planning – Part 3. in a series 47 A digital future
Swisslog’s vision of the warehouse of the future
48 ASCI – contacts, courses, news 50 From the Supply Chain and Logistics Association of Australia 51 Subscription information
Focus your leadership culture on trust
IN FOCUS:
OPTIMISED WAREHOUSES
ON THE COVER What are the current trends impacting the warehouse of the future? See page 12.
38 MHD NOVEMBER / DECEMBER 2018 | 5
MHD NEWS
SOFTWARE SURVEY: USERS HAVE SPOKEN
MHD Supply Chain Solutions magazine and Transport and Logistics News recently invited our readers to tell us what you thought, what you wanted when IT comes to supply chain software. The results are in and make for interesting reading. WHY A SURVEY? Businesses in the supply chain business, whether as a wholesaler, retailer, distributor, 3PL or transport operator, may be using ERP, WMS, Excel, or any of the many specialist software applications available for the supply chain and logistics industry. You are operating in possibly the most diverse and confusing sector IT-wise. Because while there are software packages that will look after everything from voice picking, vehicle scheduling to full automation, many users today admit to still being almost inseparably wedded to their Excel spreadsheet and paper printouts. Microlistics CEO Mark Dawson put it this way: “Today’s supply chain is everchanging. Customers expect instant gratification and new trends are popping up every day hence agile, scalable and flexible
solutions are required to keep up with these demands,” he said. “Automation is coming fast and the balance between traditional operations and the blend of automation balanced against service demands and TCO are critical in the assessment of modern supply chain systems. Gone are the days of heavy software packages where it can take years to reap benefits. ROI is now measured in months, not years. Microlistics is built this way from our solutions, our processes and our people.”
LET’S FIND OUT WHAT YOU NEED, WHAT YOU WANT Warehouse management systems (WMS) are amongst the most popular supply chain applications.
While most respondents reported using dedicated, sophisticated software packages such as ERP, WMS and CRM, there are many users out there who couldn’t possibly be divorced from their spreadsheets, whether they are using these as their primary solution or alongside a dedicated package.
1/ Moving to the cloud While most (about 2/3) of respondents are still working with a dedicated, in-house hosting arrangement, software-as-a-service (SaaS) and more frequently, cloud-hosted arrangements are gaining preference. Cloud and SaaS availability came third on the list of top considerations when selecting a software package and supplier. This trend is expected to accelerate with the continuing growth of e-commerce in society. As managing director of Manhattan Solutions Australia and New Zealand Raghav Sibal said: 6 | MHD NOVEMBER / DECEMBER 2018
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The survey gave users the opportunity to reflect on their experiences with current packages, what they were missing, what they were looking for.
”
“The continued growth of e-commerce has dramatically changed how distribution centres operate. One example of this can be found in the way that orders are processed and shipping is handled. Long gone are the times of shipping in five to seven business days; delivery expectations have changed, and distribution centres are feeling the pressure. They’re expected to take action on an order within minutes of when it’s received and complete processing within a couple of hours. “As e-commerce continues to grow, ensuring distribution centre efficiency must be a top priority. This can be achieved with help from technology, including a warehouse management system (WMS) whose algorithms can ensure that processing a number of the same simple orders at once is handled as efficiently as if you were processing just one single order. “Manhattan Solutions addresses technology investment challenges, with products and services that are always current and automatically include the customer’s latest extensions and modifications, reducing or eliminating both downtime needed for upgrades and additional fees. Manhattan Active Solutions can run in Manhattan’s cloud or in the customer’s choice of a public or private cloud environment.”
As Bestrane group managing director David Sanders described: “Today’s software is smarter, faster, cheaper than ever before. In addition, many applications are available through an internet-connected browser to all types of sensors that is rapidly expanding the number, type and location of ‘users’. “This means that expanding software capabilities are beginning to blur organisational boundaries and make changes to business processes the norm rather than an event.”
2/ Service and support are paramount
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By far the most important and crucial element on respondents list of priorities were ‘Service support’, which 87% of respondents marked as first or second on the list of determinants when deciding on a software package, followed by ‘System training’ (73%). 8 | MHD NOVEMBER / DECEMBER 2018
3/ Excellence everywhere The third most prominent takeaway from the survey is the determination of users to research and find the highest performing and most advanced software package for each specific application. In other words, packages have to be excellent in every aspect, or users will select separate individual applications to make up their suite of supply chain applications. “I’d prefer to be using the best products from different suppliers, provided they talk to each other, than one great product and two average additional modules that are all supported from the same company,” as one respondent said. Or, as another one put it: “’Best of the Breed’ that can actually integrate to deliver the expected outcomes.”
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MHD COMMENT
DIGITAL PROCUREMENT TAKES FLIGHT
New survey shows companies betting big on technology to transform the function
DR MARCELL VOLLMER
F
or the past 20 years, procurement has slowly evolved from a tactical, manual process to a strategic, digital function. But momentum is rising and to stay competitive in today’s digital world, procurement must continue to evolve. According to the results of a new global survey conducted by the University of Applied Sciences Würzburg-Schweinfurt with support from SAP Ariba, leading procurement organisations see digitisation as the future.
OPPORTUNITIES ABOUND “The message is loud and clear,” said Dr Karsten Machholz, professor of strategic procurement and supply chain management at the University of Applied Sciences Würzburg-Schweinfurt and co-author of What’s the Next Big Thing in Procurement. “Procurement executives around the world believe digitisation is more critical than ever. And they are taking steps to accelerate it within their organisations and increase the value they deliver.” To understand their goals, Dr Machholz joined forces with SAP Ariba 10 | MHD NOVEMBER / DECEMBER 2018
to survey more than 450 procurement and supply chain executives across EMEA, North and South America and Asia Pacific. The study, which covered all major industries and included blue chip enterprises and mid-market companies alike, uncovered several striking findings: • The digitisation of procurement is only in its infancy. While 83 per cent of respondents believe digitisation will profoundly impact their business, only five per cent have highly automated processes in place. • Procurement professionals recognise the value in purpose. Driving down costs is still their number one priority. But 88 per cent of procurement executives surveyed have higher objectives as well, such as eliminating forced labour, conflict minerals and poverty from their supply chains. • Procurement leaders expect their information systems to become not only faster, but also more intelligent. While robots are unlikely to replace buyers anytime soon, AI and machine learning will make robots more intelligent and efficient.
The digital transformation won’t immediately resolve the challenges that organisations typically face, though. Budget restrictions, poor data quality, insufficient analytics and lack of talent will continue to present setbacks. The survey results highlighted several strategies businesses can use to remove these common roadblocks: • Don’t just automate, innovate. Use digital technologies to redesign processes and make work the way they should. • Cleanse data and leverage intelligent technologies and predictive analytics to make smarter decisions. • Look beyond savings to measure success. Find a purpose, and deliver on it. Business networks enable buyers and suppliers to evaluate each other not only on the basis of traditional criteria such as inventories, cycle times and contracting terms, but also on whether a potential trading partner has brand values that align with their own. • Recognise that companies are only as good as the people they recruit and retain. Develop a talent management strategy to advance roles, skills and knowledge. The most exciting part is realising that this is only the beginning. We’re on the brink of a transformation that will unearth more opportunity for companies in the decade than they have seen in the past two combined. The future is digital and in embracing intelligent technologies, procurement can take the lead in maximising these opportunities to not only deliver cost savings and process efficiencies, but to inspire collaboration and innovate to create a better world. Dr Marcell Vollmer is the chief digital officer at SAP Ariba. For more information visit www.ariba.com. ■
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WELCOME TO THE FUTURE What are the current trends impacting the warehouse of the future?
W
hat will the warehouse of 2030 look like? 12 years may not sound like a long time, but with the pace of change being faster than ever before, companies need to start planning now, in order to keep up with ever-increasing market demands. As people begin to have more disposable income and higher expectations for fast delivery, existing distribution networks may be stretched beyond their capacity to adapt. E-commerce is a key driver for logistics and warehousing technology as consumers expect rapid responses to order placement. Technology is being driven to pick smaller quantities at an increasing rate. It’s crucial for the supply chain, logistics and warehousing industries to examine current trends and see how they can best adapt to the changing needs of the market.
TRENDS IN SOCIETY The goods that make their way through supply chains ultimately end up with consumers, and consumers 12 | MHD NOVEMBER / DECEMBER 2018
not only drive demand, but set expectations for delivery. That makes it valuable to quickly review the macro changes occurring in society as we consider the warehouse of the future. Major trends include:
1/ Aging population In the coming years, global demographics will change due to increasing life expectancy, declining fertility rates and rising levels of education. The number of people older than 65 is expected to double in the next 25 years, reaching 13 per cent of the global population. This will impact global productivity, personal savings and the labour force. It will also change consumption and spending behaviour on a global scale, impacting production, logistics, warehousing and retailing.
2/ Expanding middle class The global middle class is projected to more than double between 2009 and 2030, rising from less than 2 billion to nearly 5 billion people. The middle class will then account for 60 per cent of the world’s population (ESPAS, 2015, p.19). Formerly poor populations, while still lagging behind developed countries, will have more purchasing power and greater access
MICHIEL VEENMAN
to information and communication technologies, and enjoy greater mobility (ESPAS, 2015, p.20).
3/ Urbanisation Urban population is expected to pass 6 billion by 2045. In 2015, 54 per cent of the world’s population was living in cities; by 2050, that will reach 66 per cent. It is predicted that by 2030, the world will have 41 mega-cities with 10 million inhabitants or more. These developments will impact where goods are produced and consumed.
4/ Growth of the sharing economy Uber, Airbnb and TaskRabbit are examples of the rapid emergence of the sharing economy. According to PwC, the five key sharing sectors — travel, car-sharing, finance, staffing and music/video streaming — have a potential to generate global revenues of $335 billion by 2025 (PwC, 2015). The concept is already being extended to the construction industry and sharing will eventually come to logistics with its heavy assets and infrastructure.
5/ Globalisation and de-globalisation Globalisation is the increased movement of goods, capital and workers across national boundaries.
MHD COVER STORY Today it is common for companies to develop a product in the United States, manufacture it in China and sell it in Europe or Africa. Some experts also note the value created by the global flow of data and communication, which is often referred to as globalisation 2.0. According to McKinsey, “data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.” While globalisation continues to advance, a counter-movement is also emerging as nationalism and the desire to source products locally, particularly food, grows. This de-globalisation is already impacting the decisions consumers in some markets are making about the products they purchase.
6/ Increased connectivity The increasing connectedness of people and information is creating greater transparency, better information provision, more critical thinking and more creative and dynamic individuals. It is assumed that pressure for greater accountability and transparency at the different levels of governance — and within industry — will increase.
7/ Changing labour market With global population growth in developing countries and population aging in developed countries, the demographic landscape is changing at the international level. The projected change in working-age population predicts an explosive workforce growth of nearly 1 billion in the developing countries,
“
It’s crucial for the supply chain, logistics and warehousing industries to examine current trends and see how they can best adapt to the changing needs of the market.
”
mainly driven by high fertility rates. The opposite trend is predicted for the most advanced economies, with a future decline in the working age population (Rand, 2015, p.15). In the short term, this is increasing the value placed on ergonomics and other factors that increase worker satisfaction in developed countries where the labour force is shrinking. In the longer term, China and India may gain importance, whereas Europe may lose traction in global governance and economy (Rand, 2015, p.16).
TRENDS IN LOGISTICS The supply chain is being impacted by a number of trends resulting both from the broader changes in society and advances in technology. These include:
1/ E-commerce One of the biggest current trends already creating significant disruption in the supply chain is the continued growth in e-commerce. In Europe, the average share of e-commerce in retail was 7 per cent in 2015, 8 per cent in 2016 and projected to reach 8.8 per cent in 2017. Globally, retail e-commerce is expected to increase to 14.6 per cent of total retail, with a market volume of more than $4 trillion (eMarketer, 2016). E-commerce has continued to experience high growth rates, in part by shrinking the time between order and delivery. Early in its development, consumers often waited a week or more to receive their orders. While this may still be the case in some specialty categories, major e-commerce players now routinely offer two-day delivery on many orders, while next-day and even same-day delivery is increasingly common. This is creating higher expectations among consumers and, as e-commerce expands to new categories such as food, delivery times are continuing to be compressed and e-tailers are exploring multiple options to consistently achieve next day or same day delivery.
2/ Anticipatory logistics Anticipatory logistics is a process that foresees which logistic services will be needed in the future and in which region. The area where anticipatory logistics has already developed is anticipatory shipping. This allows online retailers to predict orders before they have occurred, based on previous customer behaviour data. This information is then used to ship or move goods closer to the potential customer to enable faster delivery. In the future, we will see anticipatory logistics extend across the value chain. MHD NOVEMBER / DECEMBER 2018 | 13
“
Industrial IoT networks will soon become an essential component of efficient warehouse management as they provide the connectivity and data on which the smart warehouse will depend.
”
3/ Customer-centric production/ batch size of one In the future, the customer will increasingly become the centre of production. The result will likely be more localised production, as customers do not want to wait for their individualised product. The trend of 3D printing will drive both the individualisation and the localisation of production. The Adidas Speed Factory in Germany, which allows customers to customise their shoes, is an early example of this trend. (Adidas Group 2015). The impact on warehousing and logistics are significant: these customised shoes never see a warehouse; they are shipped directly from the factory to the customer, reducing the need for warehouse space. However, the logistics required to support individualised production increase. Even if we are not yet at a point where ‘batch-size-one’ production is feasible for most products, it seems likely that as this trend develops, companies will move production closer to their customers, and focus on next-shoring and near-shoring.
4/ Omni-channel logistics Consumers are already using multiple channels for their shopping. They start and end their buying journey at different points and expect lots of information, a certain delivery speed and personalised experiences. This is creating opportunities for retailers to merge the different channels and optimise the whole journey for a customer, rather than optimising each channel separately (DHL Trend Research, 2015). From the retailers’ perspective, omnichannel logistics can achieve an increase in customer base and loyalty, and also improve profitability. Shoppers using multiple channels for their shopping spend 15-30 per cent more than traditional shoppers.
By 2030, the omni-channel journey of a customer will move further, and the channels might be even more diverse than today. Home delivery is currently the most preferred mode of delivery — nearly 70 per cent of all online shoppers make use of it. Yet around 50 per cent of them have already experimented with buying online and picking up in a store. In a survey by PwC in 2017, 33 per cent of shoppers were open to kerbside pickup, and 28 per cent to pick up at a third-party location. These modes are commonly referred to as ‘click and collect’ and experts assume that these models will grow even more (PwC, 2017). As noted in DHL’s 2015 Trends Report: “Looking ahead, we expect to see the physical assets of logistics networks being virtualised and managed much more dynamically in line with customer demands. It is also anticipated that there will be more focus.”
5/ Same-day (or faster) delivery As noted earlier, e-commerce has continued to grow by shaping and meeting consumer expectations for faster delivery. The next frontier is same-day delivery. According to DHL’s 2017 Trend Research: Sharing Economy Logistics report, “41 per cent of US consumers have used programs offering same-day, expedited, or on-demand delivery services.” Other studies show that 20 to 25 per cent of consumers would pay significantly more to receive items on the same day. These premiums would be up to 3 Euro, 20 RMB and 3 US dollars for the respective regions. Assuming that the customers would have to pay the full costs for this fast delivery, only around 2 per cent of all customers would be willing to pay more than that. McKinsey experts predict that “same-day and instant delivery will likely reach a combined share of 15 per cent of the market by 2020” (McKinsey, 2016, p. 9).
EMERGING TECHNOLOGIES Emerging technologies will play a significant role in shaping the warehouse of the future and supporting faster delivery. The major technology developments on the horizon include:
1/ Drones Leading companies like Amazon and DHL are actively exploring the potential of drones and filing patents for the use of drones in logistics. Amazon has patented an idea for an airship that can launch drones over larger cities. At the same time, many 14 | MHD NOVEMBER / DECEMBER 2018
MHD COVER STORY people see issues with thousands of drones flying over a city. These include traffic congestion, noise and an obstructed view of the sky. Energywise, flying is the most inefficient means of transportation. In 2030, drones should play a role in the supply chain, although legislation could delay their application. The greatest potential may be in nonurban areas where drones would allow consumers to get the same high-speed, i.e., 2-hour delivery, as is possible in cities. In addition, larger drones may play a role in connecting cities and even doing long-haul cargo flights. Inside cities, drones could play a role in ultra-high speed or short-distance deliveries. What percentage of parcel deliveries drones will carry in 2030 is still uncertain, but any future distribution plan should be designed to interact with drones.
2/ 3D Printing 3D printing will significantly change the way many products get to market. The most common 3D printing application today is small plastic parts. This is still a slow and, therefore, expensive process, but should become radically cheaper and faster as the technology matures. Plus, more advanced machines that can print complex parts of multiple materials, including metal, will emerge. There are even companies creating machines that will enable 3D printed food. By 2030, it is possible that we will see a three-tier approach to the use of 3D printing: A. S ome consumers will have cheap, easy-to-use 3D printers that allow them to print small plastic parts based on licensed 3D models they buy online. This would apply to things like replacement parts for home appliances, a plastic case for a mobile phone or toys for children. B. For less tech-savvy consumers, or larger, more complicated parts, there will be ‘print shops’ in cities. Consumers could either send their digital designs to be printed or order a product online and never know it was printed on-demand for them. Ideally these print shops would be integrated into urban distribution centres.
C. C omplex industrial applications, which use multiple materials including metal, would be supported by sophisticated 3D printers within manufacturing or service centres.
3/ Autonomous vehicles Autonomous guided vehicles (AGV) have been used in warehouses for 30 years. In the next 10 years, the use of AGVs in warehouses will grow exponentially. There are several drivers behind this trend. First, there is an increasing demand for flexibility in warehousing. Changes in processes, product ranges or distribution channels are all impacting warehouse requirements. Traditional, bolted-down automated conveyor systems are not able to adapt to these changes. AGV provide the required flexibility. The other driver is the simultaneous decrease in cost and increase in performance of AGV as the core components increasingly support consumer products, such as robotic vacuum cleaners and automated lawnmowers. The economies of scale are much greater for consumer products than for warehouse technology and could drive down the costs of the underlying technologies, such as sensors and navigation systems, used by AGV. A similar impact could result from the technologies used to support self-driving automobiles. Where early AGV still relied on fixed infrastructures, such as reflectors, floor markings or tags, the technology is available today to allow AGV to navigate with the help of on-board radar and camera systems. Intelligent software and self-learning capabilities interpret the images and instruct the vehicle where to go. This makes the systems plug-and-play and, therefore, easy to deploy and more flexible. Replacing a large conveying system with flexible AGV could require hundreds or thousands of small AGV operating together. This would have been impossible in the past, but today, and certainly in 2030, the combination of peer-to-peer communication, faster wireless networks and cloud-based processing power enable coordinated operation. As the technology progresses, advances in sensors and electronics will allow AGV to move faster, even when interacting with people.
4/ Mobile robotics In this context, a mobile robot is an AGV with a robot on top. This allows the robot to drive through the warehouse to where products are stored and retrieve them. For this to work effectively, these robots need robust navigation, vision systems and multi-functional grippers. A level of artificial intelligence is also required to deal with the nearinfinite variety of products, shelf configurations and product placement. All of these supporting technologies are advancing rapidly.
5/ IoT connectivity As more sensors are installed in machines and processes, the opportunity exists to connect groups of machines or entire facilities into IoT networks that provide visibility into product movement and enable capabilities such as predictive maintenance. Industrial IoT networks will soon become an essential component of efficient warehouse management as they provide the connectivity and data on which the smart warehouse will depend.
6/ Big data Big data programs are already shaping everything from marketing to forecasting. They will also drive key advances in logistics, such as the predictive shipping model discussed earlier and will enable machine learning as the integration of realtime and historical data is what allows machines to continually improve their operation based on past actions. This article is the first in a two-part series. The next article – to feature in the next edition of MHD magazine – will examine the impacts these trends and technologies have on distribution; what the distribution centre of 2030 will look like; scale, flexibility and the need for automation; and pose a key question of ownership: who will own and operate the distribution centres of the future? Michiel Veenman is the head of the competence centre, warehouse and distribution solutions at Swisslog. Michiel is responsible for the development of some of Swisslog’s next-generation solutions. Michiel has over 20 years of experience in intralogistics. For more information visit www.swisslog.com. ■ MHD NOVEMBER / DECEMBER 2018 | 15
MHD FEATURE
E-COMMERCE AND REAL ESTATE G
SASS J-BALEH
lobal capital has followed Australia’s industrial assets as investors position themselves ahead of the growth in e-commerce, where this has played out in overseas markets. Given the usual US-Australia lag in market/consumer trends, the e-commerce boom that occurred in the USA a decade ago is a pattern projected to be replicated in Australia. Over 2002 to 2007, the USA recorded an average annual growth rate of retail e-commerce sales of around 24 per cent. This was against a backdrop of a relatively low and constant population growth rate averaging 0.8 per cent per annum. Over this time, we saw the USA industrial property sector benefit, as global capital followed the e-commerce growth stage experienced in the US – particularly within locations where population is highly concentrated. Australia is currently experiencing an annual growth rate in online retail sales of around 29 per cent over the last four years (according to the ABS), and with our stronger population growth rate (historic and forecast) averaging 1.6 per cent and large investments in transport- and industrialspecific infrastructure, this is expected to be a key driver for an exponential growth path As e-commerce of online retail sales – like the US. grows, there will According to the ABS, the share of online retail sales to total retail sales in 2017 be positive spillThe application of the same annual growth rate in the share of online retail sales that occurred in the US between 2017 to A Australia, approximately 4.32009 perandcent. results in Australia’s online share by 2025. To note, this growth rate is conservative, as Australia has achieved a over effects onincreasing the to 9.9 per centrepresented higher annual growth rate of online retail sales over the pastsimilar few years than the US during their booming years of 2002 to 2007. level was achieved in the US in 2009 industrial market. Based on retail trade forecasts to 2025 (by Delloitte Access this share represents total online retail sales equating to $37.8 –Economics), an 8-year lag. billion in 2025. The application of the same annual growth Therefore, online retail sales in Australia, currently at around $13 billion (ABS), have the potential to increase by almost three-fold to $37.8 billion – an increase of $24.9 billion. rate in the share of online retail sales that
“ ”
12.0%
9.5%
10.0%
9.9%
8.0% 4.1%
6.0% 1.8%
4.0% 2.0%
4.3% 1.8%
0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
S hare of Total Retail Sales (%)
eCommerce Sales as a Share of Total Retail Sales
USA
Australia
Forecast
Source: ABS / DAE / Colliers Research
Australia was faster at achieving the 4.3 per cent share, from 1.8 per cent, at 4 years compared to the US at 6 years.
16 | MHD NOVEMBER / DECEMBER 2018
occurred in the US between 2009 and 2017 to Australia, results in Australia’s online share increasing to 9.9 per cent by 2025. This growth rate is conservative, as Australia has achieved a higher annual growth rate of online retail sales over the past few years than the US during its boom years of 2002 to 2007. Based on retail trade forecasts to 2025 (by Deloitte Access Economics), this share represents total online retail sales equating to $37.8 billion in 2025. Therefore, online retail sales in Australia, currently at around $13 billion (ABS), have the potential to increase by almost three-fold to $37.8 billion – an increase of $24.9 billion. Australia was faster at achieving the 4.3 per cent share, from 1.8 per cent, at four years compared to the US at six years. As e-commerce grows, there will be positive spill-over effects on the industrial market. That being said, e-commerce sales growth does not translate into a one-forone increase in industrial space. However, it will certainly be a contributing factor in pushing demand for industrial space in Australia over the short, medium, and long term and place greater emphasis on supply chain efficiency and effectiveness in the Australian market. It is this pursuit of supply chain efficiency and effectiveness that directly impacts industrial property requirements in the marketplace. The path to achieving efficiency and effectiveness in the supply chain, to cater for evolving demand/expectations, involves (but is not limited to): • Locational optimality (whether servicing global / domestic / state / local market). • Scale optimality. • Technology input. The take-up strategy (e-commerce) has been faster with the global enterprises, particularly US-based and 3PL, who are facing this challenge head-on as they strive to meet the new customer demands. We are now seeing this flowing through to all businesses, irrespective of size and whether Business-toCustomer or Business-to-Business. Sass J-Baleh is associate director, research at Colliers International. For more information email sass.jbaleh@colliers.com or visit www.colliers.com.au. ■
MHD FEATURE 3/ EMBRACING BLOCKCHAIN It’s the high-tech development that’s shot to prominence in recent years – but when it comes to blockchain, interest and adoption are two different things. Expect that to change in 2019 and beyond as larger organisations progressively implement aspects of the technology within their supply chains.
4/ RETAIL ALERT
GET SMARTER How to manage your supply chain more smartly in uncertain times PATRICK ELLIOTT
M
anaging a supply chain has never been simple and in an era of evolving trade barriers and global economic uncertainty, it’s more complex than ever. Here are four things to keep in mind as you review your supply chain for the 2019 financial year and beyond.
1/ AGILE PLANNING Supply chains are rarely static. These days they’re under constant pressure to evolve and adapt, for a multitude of reasons. They include regulatory changes, such as new emissions standards, digital disruption and staff turnover, and the emergence of competitors offering better value products and services.
Effective, connected planning and the ability to adapt quickly can mean the difference between thriving and struggling. ‘Siloed’ sections of the supply chain are more likely to lead to the latter outcome. Unfortunately, that’s just the model legacy solutions tend to promulgate. By contrast, cloud-based software allows a bird’s eye view of operations, from supplier status to customer demand.
2/ MAKING PLANNING AN ENTERPRISE-WIDE AFFAIR Joined-up planning can’t occur across the enterprise if business units continue to do their own thing. Collaboration is crucial to success in an era where supply chain networks are no longer linear but, rather, more akin to sprawling spiderwebs. It’s tricky to achieve without the right tools. Putting them in the hands of decision makers and frontline staff, makes it possible for companies to adapt their supply chain planning models quickly and simply.
Optimising the supply chain is important for organisations of all stripes, but in one sector it’s critical. For retailers with an omni-channel model, featuring both bricks and mortar outlets and an online presence, having a supply chain that can service both efficiently is imperative. There are significant differences between supplying one or several stores and supplying thousands or millions of individual customers. For organisations attempting to make a go of these two very different business models simultaneously, tools that provide a holistic view of inventory aren’t nice to have – they’re essential.
TRANSFORM AND GROW Supply chains are going through a period of unprecedented transformation, in Australia and abroad. Organisations that aren’t alive to the possibilities that connecting the planning process can offer – and alert to the dangers of not doing so – may struggle to stay competitive in 2019 and beyond. Patrick Elliott is the vice president, ANZ, for Anaplan. For more information call +61 2 8310 6342 or visit www.anaplan.com. ■
MHD NOVEMBER / DECEMBER 2018 | 17
A DC FOR EFFICIENCY Case study: Vivin Imports, Wetherill Park, Sydney
V
ivin Imports is one of Australia’s largest furniture wholesalers supplying major furniture retailers and independents. With recent growth in residential home construction and renovations, Vivin has experienced increased demand for its products across the country. To accommodate this business growth, the company had to elevate its logistics capability to retain and build on its competitive advantage. The distribution centre was identified as a crucial contributor to supply chain efficiency and effectiveness. The Vivin management felt a critical change was required and committed to a new purpose-built 23,300m2 distribution centre. The next step was to decide how this distribution centre should be fitted out. Vivin knew that it had capacity constraints in the existing warehouse, and adding to the complication was the regulatory compliance for fire
safety coverage, particularly for foam products and mattresses. The new warehouse required a storage fitout to accommodate oversized products and ensure appropriate safety compliance.
THE INITIAL LAYOUT Dexion Solutions was invited to put forward a proposal for the new distribution centre based on an existing pallet racking configuration supplied. This consisted of standard selective pallet racking with 2,600mm clear entry bays arranged to 3,420mm aisles throughout the warehouse. Half of this layout was to be fitted with in-rack fire sprinklers. Experience has shown that this was an industry that adopted a ‘default’ layout, where there was no in-depth operational qualification of client operations undertaken. Based on the understanding that not all products have the same dimensional characteristics and demand profile, it
is questionable why many businesses accept this ‘uniform’ arrangement. It could be that there is a lack of understanding of warehouse operations among many suppliers. This results in them often taking a lowest ‘cost-only’ approach, which drives the design to what is often seen – a ‘default selective rack layout’. Likewise, many clients have a very good understanding of the price and product specifications, but not the value of the total fitout. That’s because this value can be difficult to explain in sufficient detail by those selling the equipment and as a result, both supplier and customer often agree on a ‘default’ layout. To demonstrate the limitations of this default layout, the supplied 2D drawing was turned it into a 3D render. This gave Vivin a better perspective and understanding of the system with which they would end up, and also allowed the supplier team to highlight any potential shortfalls of the design. Dexion Solutions go the extra mile to fully analyse the space and develop 3D renders where appropriate to ensure the customer has a thorough understanding of what can be achieved – adding so much more value and insight to the project. This additional stage in planning can also be recognised in ROI well into the future.
DEVELOPING A COMPLETE SYSTEM The team requested design-relevant data, which included a snapshot of inventory, transaction table and the item master. This was then backed 18 | MHD NOVEMBER / DECEMBER 2018
MHD FEATURE
up with operational site observation and development of a process logic to support the design. The purpose of this study was to retain what was being done well, as well as engineer out any existing limitations, risks and difficulties where possible. This is what was found: • Standard 2,600mm clear entry bays did not provide optimised storage density for the range of products, so the design was altered to include a calculated combination of 2,600mm and 3,850mm clear entry bays. • To account for product overhang and a 100mm longitudinal flue in accordance with fire engineering and AS 4084:2012, this directed the design towards the specification of customised double entry frame depths of 2,106mm and 2,303mm respectively. The basic design only had a single double entry 2,106mm arrangement, which would have restricted the storage of oversized products like sofas. • Finally, no elevations were provided in the original design so these had to be calculated. Twelve (12) differing elevations were designed to accommodate the 100mm transverse flue space as per criteria specified in FM8-9.
TOP AND ABOVE: The default layout (top) and the layout proposed by Dexion Solutions (above) following the operations analysis. Now that the storage profiles had been determined, it was time to develop a fully optimised warehouse layout. The storage system had to accommodate non-standard product sizes, all the while balancing productivity with storage. To achieve this, the layout developed by Dexion Solutions comprised of 1,500 bays of selective Speedlock racking, with different frame depths and bay widths to accommodate variations in product dimensions.
AISLE WIDTHS The original default design had 3,420mm aisles rack to rack, but was this adequate? Let’s consider how the space will be used. 2,100mm width pallets are put away and retrieved at ground level and at height. While the aisles are certainly wider than the pallet, the space doesn’t consider the materials handling equipment that will be used to manoeuvre the pallets. As shown in the diagram, the resulting sweep arc of a forklift turning towards the racking is not considered in the conforming design. MHD NOVEMBER / DECEMBER 2018 | 19
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The material flow was calculated along with the operational task sequences.
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Adhering to a 3,420mm aisle would have resulted in a 343mm aisle width deficit! Aisle widths had to be increased to 3,850mm for operational viability, which was independently verified by the MHE provider. With larger aisle widths, the rack orientation was required to change from North to South to East to West due to the building column grid. This flagged a significant change to the initial layout and it marked a fundamental change from being a storage-centric design to one that was operationally focused.
IN-RACK FIRE SPRINKLERS The initial layout directed that half the site be fitted with in-rack sprinklers. For this qualification, Dexion Solutions used inventory data and item master lookups to identify all the items that needed additional fire coverage. A line-by-line slotting calculation was applied. This was not as easy task! From this exercise, it was determined that just over a quarter of the site required in-rack sprinkler coverage, quite a difference from half the site. This area allocation also accounted for likely and predicted storage variations. With a reduced area for in-rack sprinkler coverage, a significant cost saving was instantly realised. Combined with all the previous qualifications, this verification just added another layer to the optimised layout that could not be ignored.
RIGHT: The staging area.
FURNITURE REPAIR ZONES To complete the design, a concept of operations was developed, with staging areas and furniture repair zones laid out. The material flow was calculated along with the operational task sequences. This ensured that both the physical and logical designs were complementary to each other.
WAREHOUSE MANAGEMENT SYSTEM INTEGRATION The system logic threads that were recommended could be applied to the warehouse management system (WMS) for configuration to achieve balanced task flows. The pertinent points about the operational sequences were the inclusion of batch and discrete order picking based on order profile waving, pick and drop locations for intermediary task staging, and task interleaving. With both the physical and logical designs undertaken in tandem rather than in isolation, a verifiable, auditable and clearly specified result was planned and achieved.
LABELS AND END OF AISLE SIGNS The design of the warehouse location map and the subsequent location labelling specification can be crucial to a project’s success. For Vivin, the Dexion Solutions team used 3,850mm beam lengths, which were mapped out and labelled for three locations per bay instead of the average of two locations across a shorter beam length. This will allow for the storage of one OR two non-standard product sizes whilst also allowing for flexibility to use each level for up to three standard pallets. The labels are made of polyester with a long-term adhesive, making them ultra-durable and resistant to liquids. A unique feature of these labels is that they can be removed and relocated without tearing, offering even further flexibility for the customer. End-of-aisle signs were also installed as an identification tool to clearly define the aisles amongst the racking bays.
SAFETY AND COMPLIANCE Bay profiles were configured to conform with FM Global Fire Engineering transverse flue requirements. 100mm longitudinal flue space maintained between products for oversized products to conform with fire regulations (FM global requirement) and AS 4084: 2012. To further enhance the safety of the warehouse, Dexion Solutions also provided the following: 20 | MHD NOVEMBER / DECEMBER 2018
MHD FEATURE
1/ Rack protection The warehouse storage fitout was further enhanced with rack protection, including specially designed baseplates with heavy duty fixings, front and rear deflection guards, and upright protection. All upright protection used is in safety yellow, as this stands out most prominently against the racking creating a much safer warehouse environment.
2/ Safe working load signs Safe working load signs were installed for each bay of racking. This ensures the storage systems does not get overloaded by warehouse operators, and meets Australian Safety Standards.
3/ Traffic management plan and line markings A traffic management plan is crucial to creating optimal traffic flow throughout the warehouse and to minimising any risk of collisions. As part of a good traffic management plan, line markings can effectively segregate pedestrian and materials handling equipment, reducing the potential for accident or injury and ultimately improving overall workplace safety.
CONCLUSION The design concentrated on the principle of balancing productivity with storage. All the work done was qualified by analysis, observation and logic, all of which are fundamental in any system design. The client’s interests were always in the equation and Dexion Solutions provided a value proposition, not just materials. This is added value that will be realised every day, year on year.
TOP LEFT: Rack protection and forklift movement clearance are defining elements of the final design.
“The Dexion Solutions team really stood out from the start with their knowledge and comprehensive approach to storage systems, said Vivin Imports national logistics manager Mark Redman. “Not willing to settle for the standard approach, James Hardy and the Dexion Solutions team analysed our operational data and business goals to completely optimise the warehouse space. “The team was great to work with and through this experience we have gained insights that will be used to enhance our day-to-day warehouse functions. We’re confident this warehouse fitout will provide the business with a competitive advantage well into the future.” For more information contact info@dexionsolutions.com.au or visit www.dexionsolutions.com.au. You can also view a video of this project here: https://youtu.be/_wQtCjPAybs. ■ MHD NOVEMBER / DECEMBER 2018 | 21
AI POWER LEVINE NAIDOO
Creating a new digital fabric with AI powered supply chain capabilities
C
ollaborative business and AI are reinventing the digital economy. In today’s connected economy, organisations are increasingly reliant on collaborative business with existing and new trading partners (customers, suppliers and regulators). The latest innovations in artificial intelligence (AI) are equally contributing to the rapid augmentation of business models. The use of AI is becoming pervasive in how products and services are designed, built and delivered – ushering in a new wave of economic growth. In fact, more than half of outperforming supply chain executives surveyed said their top investments in the next three years will be cognitive or cloud. 86 per cent said cognitive computing will transform their demand planning and forecasting capabilities (Institute of Business Value, 2017).
BUSINESS FRICTION Any hindrance or business friction in collaborative-styled trading partner interactions and internal processes contributes to significant loss of national productivity, increased operational costs and lowered working capital. Friction is costing Australian businesses $29 billion a year (CMO from IDG, 2018). The economic impact can be expected to grow in the Australian economy as supply chains have lengthened for all sectors over the last 50 years. This is largely-driven by 22 | MHD NOVEMBER / DECEMBER 2018
production being fragmented across more countries (Rachel Adeney, 2018). If organisations are to meet increasing demands to become more efficient and competitive, they must tackle the friction and fragmentation challenge.
COMPLIANCE CAN ALSO INCREASE BUSINESS FRICTION The annual regulatory compliance cost imposed on the Australian community is estimated around $65 billion with about 72 per cent being attributed to tax, financial system, corporations, competition and consumer laws and regulations (The Mandarin, 2018). Most compliance regimes (regulatory and corporate governance, risk and compliance based) are introduced with an intent to increase performance in some form, shape or the other. However, in many instances they tend to increase business friction.
FRICTION IMPACTS EVERY BUSINESS Every business is impacted by two types of activities in varying degrees – there are no exceptions. The first being procurement-related activities, with the most common amongst all businesses being accounts payable and accounts receivable (sending and receiving invoices, payments and remittance advices). The second type of activity is compliance and the degree of impact depends on the type of business - tax (company, payroll and indirect) and superannuation affects every business. It is also important to emphasise that compliance activities are sometimes inseparable from other activities, for
example, GST compliance is embedded in procurement related activities.
SUPPLY CHAIN CAPABILITIES HAVE EVOLVED OVER TIME Supply chain capabilities have evolved in leaps and bounds over the last decade to create efficient ecosystems of organisations, people, activities, information and resources. A supply chain philosophy can be applied to digitally transform typical or common areas of friction: • Enriched digital interactions – trading partner onboarding and subsequent interactions are enriched via digital channels. • Collaborative business to business – processes and activities are optimised and automated via B2B integration techniques. • Insights and optimisation – visibility and advanced insight enabled by AI.
LEVERAGING THE FULL POWER OF AI Watson Supply Chain Insights includes advanced AI capabilities specifically designed to give supply chain professionals greater visibility and insights. Companies can create situational awareness by combining and correlating the vast swathes of data they possess and see the impact of external events such as weather and traffic. Using the operations centre, supply chain professionals can drill down in any given event to understand what orders are impacted and the potential financial implications. Watson can correlate all relevant information about
MHD FEATURE a supplier or customer to quickly get a 360 view for impact analysis. It can help supply chain practitioners plan for mitigations based on a complete view of a supplier or customer. In turn, this allows supply chain professionals to look beyond their own operations and align with business and customer needs.
AN EXAMPLE OF HARNESSING AI Lenovo took part in the Watson Supply Chain Fast Start program, enabling it to complete its first analyses with IBM Supply Chain Insights in just five weeks (IBM, 2018). In this short and focused exercise, the IBM team helped Lenovo complete three AI-driven use-case analyses using supply chain data from its production system. Lenovo is using IBM Watson Supply Chain Insights to rapidly predict, assess and mitigate the risk of disruptions to its supply chain. The average response time to supply chain disruptions shrinks from days to minutes — up to 90 per cent faster than before. Lenovo’s supply chain professionals are now gaining the visibility to drive faster, better-informed decisions. If a key link in the supply chain is disrupted, they can drill
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The use of supply chain capabilities and fit-for-purpose AI can reduce friction and raise performance.
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down to identify which of its orders are affected, determine the potential financial implications, and act to mitigate the impact. To support this new way of working, Lenovo is embracing a collaborative approach to decision-making. Today, supply chain managers from across the business meet in ‘resolution rooms’ — digital spaces that bring key stakeholders together quickly for even shorter response times.
SUPPLY CHAIN CAPABILITIES CAN CREATE A DIGITAL FABRIC Organisations are constantly challenged to move resources, assets, inventory and personnel much more effectively to ensure they exceed client expectations. From better insights to driving down operational costs, AI can help organisations build more agile, intelligent and customer-centric supply chains. The use of supply chain capabilities and fit-for-purpose AI can reduce friction and raise performance. Levine Naidoo is the IBM Watson Supply Chain Leader A/NZ. For more information email levine.naidoo@au1.ibm.com. ■
CARRYSTAR
SCAN TO LEARN MORE ABOUT CARRYSTAR visit www.swisslog.com
THE LATEST FULLY AUTOMATED ORDER FULLFILMENT TECHNOLOGY WITH MINIMAL FIXED INFRASTRUCTURE AND MAXIMUM EFFICIENCY A new and unique solution that picks stacks or layers directly from source pallet to order pallet(s), without the use of conveyors. A hygienic, flexible and low-cost solution that improves intralogistics efficiencies in existing and new warehouses. MHD NOVEMBER / DECEMBER 2018 | 23
CEO of CartonCloud Vincent Fletcher with the owner of CartonCloud customer APF Cold & Storage Logistics Tom Colyer (L-R).
IT’S A MATTER OF SURVIVAL Will SME logistic providers survive the growing divide in technology? VINCENT FLETCHER
W
henever I open LinkedIn I am bombarded by articles about driverless vehicles, drone deliveries, robotic picking facilities, machine learning, AI, blockchain, Elon Musk, Uberification, and a whole array of other industry buzzwords. Whilst all of these are taking place in a few gigantic organisations, for the vast majority of businesses in the logistics industry, paperwork and Excel still reign supreme. This is what I refer to as the growing divide, and left unchanged, the Mum-andDad operators of the last 60 years will be pushed aside on both price and service. I was first introduced to the logistics industry in 2012 when a school friend and I purchased a refrigerated 3PL in Sydney. We were 24 at the time. He had come from managing Kuehne+Nagel’s Auckland warehousing operation, and I had come from building software. We purchased the business because we believed it could be improved through automation, and simply by bringing it up-to-par with what we believed to be normal in the industry, would put us in a decent position to sell the company again, potentially making good money in a short time.
24 | MHD NOVEMBER / DECEMBER 2018
To do this, we built our own cloud-based transport and warehouse management system because we couldn’t find anything that matched the unique requirements of the SME sector. Nothing had easy, automated data importing or mobile apps for capturing signatures. We also found the mainstream applications looked like old Windows-95 programs, and they charged upwards of $50k upfront with multi-year lock-in contracts. We figured our business was unique, that we were the only one in the SME industry with the problem of needing to import 50 different looking manifests, from 50 different suppliers, every day. We believed that our competitors had figured out how to get their clients to conform to a standard CSV file that they could import, and we were the only ones powerless to have our clients change what they did. Since building that application for ourselves, we found that in fact, nearly all SME operators had (and still have) these issues. While the enterprise players are implementing automated conveyor belts, self-driving forklifts and robotic shelves, the Mum-and-Dad businesses are still getting sign-off using paper and pen, posting invoices back to the their clients and drowning in complicated excel spreadsheets.
MHD FEATURE HOW CAN SME COMPETE WITH SUCH MAJOR TECHNOLOGICAL CHANGES OCCURRING? To answer this, we first need to look at what advantages SME operators have over their enterprise competitors. SME logistics businesses enter by filling a niche. This is either a service variation, such as offering refrigeration, or a location variation, such as delivering to remote areas. This has, and continues to be, a powerful way of entering the market, however, this advantage is slipping as big players are being forced to make massive changes. Firstly, crowdsourcing systems like Sherpa and Uber are eating away at the enterprise market share. Taxi-truck businesses are now suffering as they struggle to compete on both service and price for point-to-point courier work. For this reason, they’re needing to adapt the services they can offer their clients, moving into markets traditionally operated by large numbers of SME, adding to the competition. In addition,
enterprises are needing to expand their geographic footprint and to develop their own routes in rural areas often as loss-leaders to support their higher volume, profitable areas. To compete with this growing competition, SME need to refine their operations to provide higher levels of service at an even lower cost base. This can be achieved by reducing administration costs, closing revenue leakage gaps (which are anywhere from 1-3% in most SME operators that don’t use logistics software), and building more scalable, repeatable business processes to ensure that service levels remain consistent. The great news, however, is that there’s a new breed of cloud-based logistics applications specifically designed for SME businesses, with near-zero upfront cost and no lock in contracts. These applications are focused on the challenges faced by SME, automating data entry, providing online client visibility and automating invoicing. They offer a very affordable
way to achieve cost reductions and service improvements. This de-risks the SME operator enormously, allowing them to give-it-a-go and test the gains for themselves without fear of wasting money on systems that don’t fit the business’s needs. Without contracts, SME operators are able to walk away with a moment’s notice if they’re unhappy (or something better comes along). This also holds software vendors accountable to delivering on what they promise, focusing on customer support, client retention, and adding new features to ensure their clients remain. Whether you’re a business looking to implement your first piece of software or a company running an on-premise, complex Windows 95-style application, take a quick look at the software landscape and see how you can improve your business service, increase your market, and cut your costs. Vincent Fletcher is the founder and CEO of CartonCloud. For more information visit www.cartoncloud.com.au. ■
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SPOTLIGHT ON…
Outsourcing transport and warehousing: pricing, honesty and contentious issues MAL WALKER
I
n my last article I outlined reasons why companies outsource and described key drivers for successful third-party logistics (3PL) relationships. In this volume I briefly describe five pricing options that are commonly used in Australia and how to ensure that the 3PL is honest, together with the four most contentious issues confronting customers as they enter 3PL contracts.
PRICING OPTIONS – WAREHOUSING There are five common pricing scenarios used in 3PL warehousing and transport contracts.
1/ Fixed price In a fixed-fee contract, the price is held for a specific term regardless of volume fluctuations. The advantage for the customer is that they know precisely how much they will pay for services rendered. For the 3PL, they can accurately plan cash flow and resources to service the contract. The disadvantage for both parties is that if the contracted work varies beyond reasonable expectations at the time the fees were set, one party may suffer while the other thrives. For example, the 3PL may struggle to make a reasonable margin, while the customer experiences low-cost operations. Conversely, the 3PL may be banking large margins, while the customer languishes with a higher than expected cost base. Needless to say, fixed-price arrangements eventually transition to other pricing methods. 26 | MHD NOVEMBER / DECEMBER 2018
2/ Percentage of sales value (or goods value) In the early days of outsourcing in Australia, many relationships were formed with minimal information available from customers. And dare I say, it seems that some 3PL did not really do their homework to fully audit and understand their prospective client’s business. Oddly, it was relatively easy for a 3PL to convince a client that, say, 6-8% of sales value would suffice as a fee for logistics services. Not that the 3PL is entirely guilty of driving this. Some clients actively pursued percentage of sales value pricing, although over time, a number of transport companies discovered that they were losing money on such deals. Ironically, their customers perceived that the 3PL were skimming the cream off very lucrative transport rate structures. Regardless of whether they were or not, it was common for the parties to fall into dispute and call in consultants to mediate. Today there are very few companies using percentage of sales value pricing, and in my view, it should be avoided.
3/ Activity-based rates Activity-based rates are akin to ‘piece rates’ where a charge is attached to actual volumes handled. Activity rates are common for short-term storage arrangements and can be lucrative for 3PL who are able to manage effective public warehouses. For longer term agreements, customers tend to apply pressure on providers to reduce their rates, which makes activity-based pricing less attractive and risky for
the 3PL, especially if volumes are low or erratic. For customers, variable rates can be an appealing means of paying for services, especially if they run a business with highly seasonal products. The advantage for customers is that they can minimise cost, but this can be at the 3PL’s expense since their ability to make reasonable margins is low. In other cases the advantage can flow to the 3PL, particularly when volumes exceed expectations and revenues go wildly beyond expectations. The downside for longterm use of activity rates is that both parties eventually commence arguing over which party has advantage or disadvantage from rate cards. At this point it is not uncommon for the parties to establish an alternative, which is normally the ‘hybrid’.
4/ Hybrid: part fixed, part variable Blending activity and fixed rates is becoming more popular in contemporary relationships, especially where the parties have been working together for some years. The fixed cost component normally includes charges for warehouse space, leasing of mobile and static assets, information technology and management overheads. The activity rates or variable fees are derived from actual warehouse movement of products and are typically invoiced on a weekly or monthly basis. The benefit of the hybrid is that a low fixed cost structure is supplemented by realistic volume fluctuations. The downside for the 3PL is that they have to employ assets and labour resources to support the contract, even in low periods. A common practice is for the
MHD FEATURE 3PL to employ permanent labour based on minimum or average volumes, while adding casual labour to the mix as volumes increase. While customers do not disagree with this practice, in principle, they are often the first to complain when KPI are below par, or customer service suffers. These days some 3PL place ‘peak period’ exclusions into their agreements which effectively net out service failures at peak periods - e.g. Easter, Christmas, end of month, financial year end, etc. Even so, the hybrid is becoming more common and is typically used in ‘mature’ outsourcing relationships.
5/ Free of charge service (supplemented by other services) Believe it or not, there are some 3PL who provide free warehousing services to clients who are prolific users of freight forwarding or transport services across the four modes (rail, road, air and sea). How do they do this? They simply incorporate the warehousing charges into the transport rates and make sure there is sufficient overhead and margin recovery to pay for the contract warehousing services. The advantage for the customer is that an all inclusive price can be negotiated into a single transport card. The downside is that the customer can remain dubious about the efficacy of the rate card, particularly if it perceives that the 3PL is too prosperous. In such cases, transport benchmarks are used to gauge rate integrity and/or mediators are hauled into to arbitrate.
KEEPING YOUR 3PL HONEST Now that I have outlined the pricing options, a common question put by many customers of 3PL is: “How can I trust the 3PL’s pricing basis?” Well, in forging customer and 3PL contract agreements, there are two common occurrences.
1/ Closed-book relationship In closed-book relationships, the 3PL does not divulge its operating costs, overheads and margin to its customer under any circumstances. Customer audits are not allowed and the 3PL maintains its financial privacy. Any price adjustments are subject to negotiation until the customer is satisfied with the value received and/or market competitiveness.
2/ Open-book relationship The open-book relationship in colloquial terms is a ‘show and tell’ method of ensuring that the 3PL is being honest in its operations and pricing of its customer’s business. The 3PL allows the customer
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How can I trust the 3PL’s pricing basis?
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to examine books or calculation methods used for pricing to check if charges are well founded. Open book reviews can be useful for any of the above pricing options and are frequently used for hybrid operations. The question of which is most suitable is debatable. While some customers respect their 3PL’s right to privacy, others perceive advantage in combing through the 3PL’s pricing mechanisms and profit and loss account to check fee integrity. Amazingly, and despite a high number of customers who elect open book arrangements, few actually audit or review 3PL cost structures once an agreement is in place.
ENTERING CONTRACTS Many managers wonder how to structure their 3PL relationship. This answer is complex, but the short answer is that it should always be under written agreement with a full specification of operations, forecast volumes, rate cards and terms and conditions. There is much to cover in this area, and too much for this article, so in the following paragraphs I will allude to the four most contentious issues that cause angst, debate and posturing during negotiation of customer/3PL contracts.
1/ Liability Strangely, companies that outsource can assume that the entire risk of the product for loss and damage should be with the 3PL, regardless of whether goods are warehoused, or in transit. Practically this is unworkable, as 3PL are merely service entities who gain their income from fairly thin service margins. Most simply cannot sustain the total risk of products worth large multiples more than the margins they are making on the warehouse or transport service itself. MHD NOVEMBER / DECEMBER 2018 | 27
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What is the 3PL liability for negligence, wilful damage, or theft by an employee?
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In Australia, most transport companies are ‘private carriers’ as opposed to ‘common carriers’. By default, they reserve the right to accept or reject offers for carriage and enter contracts with set terms and conditions. Consequently, transport companies tend to specifically exclude liability for loss and damage caused by negligence and/or wilful acts by employees in their contracts, or accept a very low limit of liability in such instances. Yet, at common law, the principle of negligence applies a mandate to the transport company to handle goods with reasonable care and to accept liability for damage, loss or delays resulting from negligence or misconduct of employees. So what does this mean? For the customer, it is worthwhile negotiating an annual allowance in contracts to cover negligence, wilful damage and theft. For very large claims, the onus will be on the customer to litigate for resolution.
2/ Ullage Ullage is a term that historically refers to the quantity of liquid within a container that is lost, by leakage, during shipment or storage. The word has now developed a wider logistical meaning and is often used in contracts to define inventory losses in a warehouse facility that are unexplainable. For example, short deliveries that were not picked up, inaccuracies resulting from mis-counts, oversupply or undersupply to a customer, pilferage and data entry errors. While clients want perfect inventory management, the reality is that there is
no such thing. Most companies suffer inaccuracies in the range of 0.1-2.5% of stock value. Accordingly, warehouse providers may insert a ‘no liability’ clause in their contracts that specifically excludes them from ullage responsibility.
3/ Ownership In the majority of 3PL warehousing operations, the goods handled always remain the responsibility of the customer until passed into the hands of the end user. By implication it is the customer’s responsibility to take out ‘all risks’ insurance to protect themselves against partial or total loss or damage. In some cases, 3PL may enter into reseller or joint venture arrangements and accept requests to take out ‘all risks’ insurance on their client’s behalf – although it is normally more expensive for 3PL to secure such insurance than their customers. Additionally, it becomes complicated when insurance claims are made for losses by both the ‘handling party’ and ‘owner’ of the policy, so these arrangements are best avoided.
4/ Consequential damages This is indeed a contentious issue. Consequential damages can be demanded by customers of 3PL for compensation due to loss, damage and poor performance - e.g. late or no delivery, inability to supply due to damage caused by the 3PL, below par results against KPIs. Compensation sought by customers can relate to loss of sales revenue or margin, market share, reputation, and/ or goodwill. However, nearly all 3PL who contract for both warehousing and transport will not accept consequential damages under any circumstances. This can infuriate customers, especially if they expect their 3PL to care for their products better than themselves. But the reality is that acceptance of consequential damage by a 3PL is extremely risky and akin to giving the customer an open cheque book. If they do accept consequential damages, rest assured that the customer will pay for it, either via greater margins or contract contingency sums in favour of the 3PL. Mal Walker is manager, consulting with the Logistics Bureau, where he works with local and international organisations to guide them in specification preparation, establishment and review of outsourcing contracts. He holds qualifications in engineering, business operations and logistics. For more information contact Mal on 0412 271 503 or email mwalker@logisticsbureau.com. ■
28 | MHD NOVEMBER / DECEMBER 2018
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MHD FEATURE
FASHION RETAIL DC
TOLL GOES E-COMMERCE Toll has implemented an advanced retail and e-commerce distribution centre
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oll Group’s new $160 million retail and e-commerce order fulfilment and distribution centre in western Sydney is designed to support the growth of online shopping by processing orders faster and more cost-effectively. The 32,000 sqm DC has 15,600 sqm of automation equipment, which picks, processes and packs up to 375,000 items per day, reducing delivery times from days to hours. Commenting on the project, Toll Global Logistics President, Chris Pearce, said today’s market is placing aggressive demands on retailers to provide fast order fulfilment and delivery, without increasing costs. “Toll’s investment in the new facility is helping our customers adapt to the new retail environment. The facility is equipped with advanced automation technology so retailers can deliver their e-commerce orders faster, and in a much more economical way,” said Mr Pearce. “Retailers will benefit from the ability to deliver goods to their stores and direct to customers faster and more cost-effectively. And shoppers will enjoy flexible order times and faster order processing, receiving their purchases within hours, not days.” 30 | MHD NOVEMBER / DECEMBER 2018
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The new DC offers complete omnichannel capability to help retailers adapt to the changing needs of customers and operates as a shared, multi-user facility.
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The facility was constructed in collaboration with a major apparel retailer as the anchor tenant. Toll, Dematic and the client collaborated to design the facility with scalability and future growth in mind. Toll is constantly looking to improve its omni-channel service for customers. This includes offering faster and more convenient delivery options for online and ‘click and collect’ orders. The new DC offers complete omni-channel capability to help retailers adapt to the changing needs of customers and operates as a shared, multi-user facility. Safety and environmental initiatives include a 70% reduction in manual handling, packaging optimisation and recycling, LED lighting and rainwater harvesting. The site is ideally positioned on the corner of the M5 and M7 tollways, enabling convenient transport links for NSW and interstate deliveries. The DC commenced operations in December 2017. Toll transitioned customers through that peak period, and was fully live by the end of January, ahead of schedule.
AUTOMATED REPLENISHMENT Distribution in the DC starts at the receiving door. Cartons are unloaded from shipping containers and moved into storage, before being transported by a fleet of 10 Dematic automated guided vehicles (AGV) to the decant area. Six double-pallet AGV are used for longer distance runs, together with four single-pallet AGV, which have been customised for the facility to provide additional safety processes around interaction with the decant tables. The single-pallet AGV take the pallet from the handover point from the doublepallet AGV onto turntables, from which products are decanted and transported into the automation system.
AGV BENEFITS A key benefit of using AGV over forklifts for repetitive materials handling tasks is that they are predictable. They are safe, don’t take breaks, and they efficiently handle repetitive tasks. “At the moment we are in the process of scaling up,” said Leon Land, senior product manager at Toll. “We’ve got the ability to add capacity, extra shifts and extra hours within the timeframe that we currently operate. “The DC typically operates 12 hours a day, 5 days a week. The facility is operating at the moment with our anchor client, which is about 50% of the capacity. “Within the scope and design of this facility, we’ve allowed for seasonality. We can scale up. We can add hours, shifts and weekends to satisfy our customers’ needs.” He added: “A typical day at the moment is about 80,000 order lines. This utilises about 50% of the design capacity, which is around 170,000 order lines per shift.”
RAPIDPICK GTP PICK STATIONS To achieve this, the automated order fulfilment system includes 24 Dematic RapidPICK goodsto-person (GTP) pick stations. Products and order cartons are delivered to operators in a precise sequence, allowing for very high picking efficiency and accuracy. “Employees are very happy with the new system,” Mr Land said. “It’s ergonomic, safe and there will be no horror stories of people walking mile after mile looking for products in the DC.” The new GTP pick stations are very intuitive, easy to learn and operate. Users manage their processes via touchscreens, so it is very easy for Toll to train a new team member on the system. Products arrive at the pick stations from 24 aisles of Dematic Multishuttle, which provides high-density storage and is capable of supplying products in the correct sequence for order fulfilment, at high rates. Cardboard cartons are created in two sizes by automated carton erectors, with a licence plate applied on creation. These are then held in one of six Multishuttle order buffers ready for release to the pick stations. Orders are picked and packed at the 1:1 Dematic RapidPICK stations. “When all items for an order have been picked, order cartons are transported by conveyor via QA and automated invoice insertion to order finishing areas for either e-commerce or brick-and-mortar store orders,” said Toll’s general manager for specialty retail Robert Charles. MHD NOVEMBER / DECEMBER 2018 | 31
MHD FEATURE schedule and compressing that schedule and keeping it on track was vital expertise that Dematic brought in this process.” “Naturally, we’re very proud of the DC,” added Mr Land. “It’s a highly automated facility. It’s changed the way we operate within the retail environment and everyone who has been involved in the project is very proud of the outcome.”
THREE YEARS IN THE MAKING
“Store order cartons go through automatic carton optimising machines, where the carton is cut down in size to suit the fill level, reducing transport costs. Completed order cartons may be held in a Multishuttle pack and hold buffer, before being transported via the despatch sorter and directly loaded into Toll trailers. “E-commerce orders are transported to an automated packing bench with semiautomated satchel bagging machines. Satchels are then loaded into despatch cages, and loaded into the back of vehicles with minimal handling,” said Mr Charles. The facility specialises in split case and full case picking, and currently operates from 6am to 6pm, which caters for the DC’s cut-off times to make sure Toll gets its online and other deliveries to customers on time.
THE HEAD CONTRACTOR “Dematic’s ability to support us on this project was what led us to them,” added Mr Charles. “We collaborated very well. We put together a very strong project team to deliver this project.” “We transitioned our customer during their peak Christmas period and we wouldn’t have done that if we didn’t have the confidence in our new systems and processes,” said Toll’s Leon Land. “Dematic brought a very strong sense of how to deliver a highly automated supply chain and integrated logistics environment to us. “We understand these things as a thirdparty company, but putting together and integrating all the automation, all of the third-party equipment, and bringing that 32 | MHD NOVEMBER / DECEMBER 2018
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A lot of work was done in the first 18 months evaluating multiple options and technology, whether it would be fully or semi-automated.
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The DC was three years in the making and went live in December 2017. However, a lot of work was done in the first 18 months evaluating multiple options and technology, whether it would be fully or semi-automated. “Toll looked at the business case justification, and once we got to a point where we agreed that the DC was going to be a fully automated integrated logistics centre, not only for our core customer, but also for other customers, we built at twice the capacity so that we could fulfil requirements for multiple customers,” said Mr Charles. When evaluating a solution of this nature, Toll takes many disparate factors into consideration. It looks at customer service levels and, for Toll, how to reduce total costs, which is a big part of why businesses make decisions and realise commercial benefits. “Safety is, of course, our number one priority on site,” he said. “We work in an environment where there’s a lot of moving equipment, so we’re always looking at ways to segregate personnel from equipment and machine operations, and minimise the potential for accidents,” said Mr Land.
TOLL The Toll Group operates an extensive global logistics network across 1,200 locations in more than 50 countries. 43,000 employees provide a diverse range of transport and logistics solutions covering road, air, sea and rail to help customers meet their global supply chain needs. Toll Global Logistics has its own in-house integrated logistics capability. Toll’s team will evaluate an operation and that takes into account the operational requirements, the commercial considerations and the technical demands. “After Toll develops the concept and the design levels and throughputs, we engage the market,” said Mr Charles. “Dematic was a good choice for Toll because we’ve worked with Dematic in the past on a similar facility. There’s a good cultural alignment between Toll and Dematic, and it’s all about the people within the teams to be able to deliver something like this successfully,” he said. “Once we selected Dematic as a partner, we had two joint project teams to execute the solution, so their involvement and their input into the solution was very detailed.” In that detailed design phase, a lot of the input was around IT functionality, processes, and Toll understanding what needed to change from the concept to be able to accommodate some of the automation that it was looking to put in, such as Multishuttles and goods-to-person (GTP) stations.
DEMATIC’S MULTIFACETED ROLE “We had a lot of input from Dematic on third-party equipment, such as the carton-optimising machines, which deliver our customers fantastic benefit in terms of our outbound transport. “Thanks to our carton-optimising system, we have the ability to reduce the carton sizes and ship 30% more in the containers,” said Mr Charles. “Dematic had a lot of involvement in terms of the IT functionality – the detailed design of the solution and the system – with regards to how do the Multishuttle system and the GTP stations work efficiently together, to ensure we would achieve peak productivity and accuracy,” he said.
“When we looked at the design of the facility, we had to take into account multiple retail customers.”
FLEXIBLE SYSTEM DESIGNED FOR GROWTH “Some retailers are dedicated store retailers. We have others that are wholesale retailers who deliver to other distribution centres, and we also have retailers that have a large e-commerce component,” said Mr Charles. “Our anchor tenant has over 1,000 retail stores. Our second customer is a wholesale business. “This business is delivering into other distribution centres that then deliver to its network of stores, and this customer also has a very large e-commerce component. Toll has a lot of customers who have a fashion retail background, so the distribution profile for this facility caters for any fashion retail customer in the industry.” “However, this site is also capable of handling any retailer,” added Mr Charles.“So, if the retailer was a stationery retailer or in another line of retailing, the solution that we’ve implemented can cater for that.any product category. “The facility with the automation that has been implemented is mainly a unit pick-and-pack operation: between 95-98% of the volume goes to the automation as it’s picked at unit level,” explained Mr Charles.
E-COMMERCE DRIVING GROWTH “Between 10 and 15% of volume is e-commerce-driven and the growth across the sector is immense,” he said.
“This is one of the key factors we had in mind when we designed the facility. Scalability and flexibility is key in any 3PL. We have multiple customers, their businesses change every year and we have to be able to evolve with them. “If we look at what we’ve built here, we’ve built two facilities. We’ve got a fully automated one which is Project Enterprise, however, we also have a manual facility across the hard stand, which also has a lot of other customers. “Therefore, if we need to expand, we have the ability to expand the automation, which gives us the flexibility to grow, or contract, depending on what we need to do,” concluded Mr Charles. For more information visit www.dematic.com/en-au. You can also watch a video of this DC in action at https://youtu.be/m6iOqRH8NX8. ■ MHD NOVEMBER / DECEMBER 2018 | 33
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8 STEPS TO SUCCESS HELEN MASTERS
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he bigger they come, the harder they fall’ is a principle usually applied to business adversaries or schoolyard bullies. However, it also describes the daily risk faced by asset managers responsible for the specialised material handling equipment that is required for modern industrial manufacturing. Every supply chain begins with reliable, precisely orchestrated manufacturing, and in many industries and sectors, that production depends on big, heavy-duty equipment. This means the success of the entire enterprise hinges on preventive and predictive maintenance programs that can prevent costly failures and thereby protect valuable business relationships, and so make a powerful contribution to the company’s bottom line. The very good news for maintenance managers is that, as the equipment itself gets more expensive and complicated, there are new tools in the toolbox to keep cornerstone assets in top working condition. Even a decade ago, preparing for a major failure meant making sure technicians knew what to do, minimising costly delays due to shortages of parts and material, and taking advantage of quiet periods (like December holidays) to schedule routine but often undifferentiated maintenance to try and spot failures before they occur. But when it came to anticipating specific, critical failures, maintenance teams basically had to hope for the best.
MANAGE IN THE CLOUD With the rise of state-of-theart, cloud-based enterprise asset management (EAM) services, there is much more a manufacturer can and should do to keep mission-critical systems at peak operating performance. Below are eight standard steps that can help any maintenance operation combine decades-old strategies with the latest EAM innovations. 1/ Understand the basics. The three traditional elements of an equipment maintenance program — employee 34 | MHD NOVEMBER / DECEMBER 2018
training, visual inspection and following the original equipment manufacturer’s instructions — are tried and true techniques that date back decades. They are still important cornerstones of the effort to get maintenance logistics and costs under control and minimise mean time between failures. 2/ Recognise that the world has changed. While the basics still matter, the rise of EAM means there is so much more that can be done. An important early step in any company’s asset management journey is to get an up-to-date sense of what is possible — recognising that many of today’s best opportunities were unknown as recently as three to five years ago. 3/ Set your performance expectations high. Top performance from critical material handling equipment is not an optional extra – it is essential to your company’s ability to compete and thrive in a very tough manufacturing marketplace. When setting your performance targets for that equipment, you will want to set them high and challenge your maintenance operation to do better every quarter. 4/ Benchmark your current performance. Once you establish your targets, the next step is to benchmark your current performance against the endpoint. This is the moment when you should expect to be disappointed. If the benchmarking shows no room for improvement, you have not set high enough goals. 5/ Map the chokepoints. Your manufacturing process works best when critical devices and systems all operate in sync. Therefore it is important to know where the system is at the greatest risk of breaking down. The chokepoints might be with specific pieces of equipment that may be even more important than the rest, or with legacy practices that have you relying on visual inspections or paper-based systems to plan and manage essential maintenance activities. Either way, the first step to closing the gaps in your asset management operation is to fully catalogue them.
6/ Learn what is available to you. Today’s modern EAM solutions allow better coordination of preventive and predictive maintenance, using sophisticated sensors and Industrial Internet of Things (IIoT) technology to spot subtle changes in performance before they are obvious by physical inspection. They aggregate equipment specifications with actual operating history to anticipate when those failures are more likely to occur. 7/ Calculate the costs and benefits. EAM requires an upfront investment of time, money and attention. It pays off in savings on equipment maintenance and measurable improvements in system performance. The most successful, forward-looking manufacturing businesses are moving their IT operations to the cloud, an option that boosts cybersecurity, reduces IT costs, assures timely, trouble-free software upgrades, minimises or eliminates costly, time-consuming modifications and frees up in-house IT staff for more targeted, mission-critical projects. 8/ Look at the system benefits. A best-in-class EAM solution meshes seamlessly with the company’s other systems to give management a complete view of the physical assets on which the success of the wwhole enterprise depends. A best-in-class EAM solution will integrate with mobile and tablet devices, allowing technicians to capture checklists of nearly any kind in the field and log their repairs and upgrades as they work. It will take time to transform your equipment maintenance operations. But with a strategic commitment to embrace cloud-based EAM, you should start to see steady improvements every quarter. The bottom line is the opportunity to turn your specialised material handling equipment into a significant source of cost savings and efficiency gains — and to keep pace with competitors who are almost certainly doing the same. Helen Masters is the senior vice president and general manager, Asia-Pacific, at Infor Systems. For more information visit www.infor.com. ■
MHD FEATURE
GET CONNECTED MICHAEL DYSON
IoT disruption in transport & logistics: how to leverage connected devices
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ransport and logistics (T&L) businesses are increasingly finding new applications for the Internet of Things (IoT) they never knew existed. These technologies are now transforming the way these businesses operate and are creating entirely new systems and services, better engaging customers and driving growth. Despite the huge rise in connected devices, there are still some industries that are hesitant to adopt new technologies, regardless of the business benefits. With nearly 20 billion devices predicted to be connected to the IoT by 2020, it is essential that organisations invest in new IoT technologies to keep up with evolving customer demands. With IoT’s growing maturity come new approaches, business models and solutions that will see organisations ramping up deployments and incorporating this technology into their products, processes and workflows. As consumer demands for faster delivery, a wider range of delivery options and better tracking ramp up, the T&L industry can benefit from investing in IoT. However, the important thing to consider is that IoT cannot be deployed in a silo. Connecting a business from a technology perspective is all about leveraging mobile (where the business information resides) with IoT. Mobility has taken functionality way beyond the four walls of a business, and IoT stands to amplify this. The communication between mobile and IoT allows even more information to be connected to back-office systems even without the need for human intervention. As the adoption of this technology continues, the T&L industry is ripe for IoT transformation.
IOT IN TRANSPORT AND LOGISTICS Whether by air, ground or sea, T&L is an essential component of the supply chain’s efficiency and productivity, and access to real-time data is critical. There is a growing reliance on mobile devices and IoT to provide visibility into the supply chain right from the warehouse floor through to T&L workers and the end consumer. T&L businesses are focused on maximising supply chain efficiency to sustain profitability and efficiencies. IoT has already begun to disrupt this industry through systems that are able to sense and respond to vehicle usage and changes in real time, managing downtime to operate fleets at the lowest possible cost. IoT provides the ability to track where vehicles are on their route, ensuring they are delivering packages and goods on time and being able to reroute trucks based on live situations such as accidents, road closures or weather conditions. Many T&L drivers, or other workers in the supply chain are mobile. They depend on a mobile device for all of their communications and information. Through device management, companies can keep their devices secure and be able to locate them if they are lost or stolen. It can also manage what’s on the device - applications, data, or documents. This ensures workers on the road are as productive as they are in the office, anywhere and anytime. With workers constantly on the move, visibility into where these assets are, and what they are doing can improve business operations. Device management solutions can track everything a mobile device does and when it does it. Additionally, freight movements are expected to double across Australian metropolitan areas and by up to 25 per cent in bush areas by 2056. In response to this, driverless trucks could become a common sight on New South Wales roads in the future, with the state government exploring new technologies that would make it a reality. IoT will
play a major role in tracking these driverless vehicles on their routes, deploying preventative maintenance, observing driver behaviour and monitoring vehicle security with the goal of improving the bottom line. The explosive growth in the breadth and depth of business mobility is the genesis behind enterprise mobility management (EMM). And as IoT takes off, the security and management challenges are multiplying. Businesses need to deal with an order of magnitude of more devices and endpoints as well as their increasing diversity. A smart approach is to look for an integrated mobility platform that is able to manage, secure and protect all endpoints – including apps, content, data, analytics and more.
FUTURE-PROOFING IOT The T&L industry is seeing a growing reliance on mobile devices to improve customer service, reduce costs, and increase productivity. The downside is that more mobile devices also means; more complexity, more IT headaches, and more risk. The idea of enterprise mobility has moved well beyond BYOD and smartphone management, to delivering mission critical mobility deployments to achieve business transformation through IoT. Thanks to the IoT and exciting developments in driverless trucks, virtual reality, wearables and mobility management, organisations can design, enable and deliver rich, differentiated experiences for their workers, as well as achieving improved efficiency, productivity and an improved bottom line. This year will be a breakthrough in IoT usage and applications within the supply chain industry. The ubiquitous nature of IoT will be evident and the technologies driving the usage will continue to emerge and evolve to meet the important needs of deployment, distribution and security. Michael Dyson is the managing director in ANZ of SOTI. For more information call +61 3 9913 3211 or visit www.soti.net. ■ MHD NOVEMBER / DECEMBER 2018 | 35
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$265 BILLION +
The material handling equipment market will hit USD190bn (AUD265bn), with 5.5% growth till 2024
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ccording to a new growth forecast report by Global Market Insights, the material handling equipment market is growing at 5.5% CAGR to surpass USD 190 billion (AUD 265bn) by 2024. Growing automation capabilities in the manufacturing space, coupled with increasing penetration of advanced technologies such as IoT, RFID, and AI, are expected to drive the material handling equipment market growth. Automated material handling systems are gaining popularity with the growing inclination of industries to replace human labour with automated systems. RFID, IoT, and automatic identification & data capture (AIDC) technologies are becoming significantly popular as they improve the order fulfillment processes and help in enhancing productivity across the supply chain. As human capital is becoming difficult to retain and recruit, automated material handling systems are aiding companies in managing the labour challenges whilst ensuring profitability and productivity. Rising labour costs in countries including China & India will support the material handling equipment market growth. The booming manufacturing sector in the region, coupled with high-cost labour, is compelling manufacturers to use sophisticated machinery to ensure high throughput in lesser time. Conventional manual techniques reduce the productivity and lead to time consumption. Traditional techniques for material handling are also prone to errors caused by human fatigue. Moreover, they also pose a restriction to the amount of load that can be transferred or stored. Bulk material handling and storage systems and industrial trucks are facilitating the management of large volumes of data, thereby reducing the unnecessary time consumption. Real-time technical challenges in the operation of these systems with the 36 | MHD NOVEMBER / DECEMBER 2018
requirement of high capital investment are anticipated to negatively impact the material handling equipment market. The complexity involved in the integration of hardware and software for manufacturing facilities is restricting companies that have budgetary constraints from adopting these systems. Moreover, cybersecurity threats in these systems are also factors hindering the industry growth. The robotics segment in the material handling equipment market is expected to witness significant CAGR of over 8% to reach over USD 20
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The robotics segment in the material handling equipment market is expected to witness significant CAGR of over 8% to reach over USD 20bn by 2024.
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billion by 2024, owing to the demand for high-performance robotic systems across various industry verticals. The rising awareness about the advantages of automated systems globally will fuel the demand for robots across industries. Extensive R&D undertaken in the field of robotics and AI in countries including Japan and China is expected to fuel the material handling equipment market over the forecast period. The incorporation of machine learning capabilities in the robots to increase productivity with predictive maintenance further contributes to the industry demand. The expanding 3PL sector globally is expected to witness a CAGR of over 6% in the material handling equipment market. The increasing complexity of supply chains is compelling businesses
to turn towards 3PL service providers to ensure smooth and efficient operations. 3PL service providers are focusing on real-time systems for enhanced visibility. Furthermore, the flourishing durable manufacturing sector in countries including India and China is providing impetus to the market. The growing durable manufacturing industry adopting the latest technologies for production in countries including France and Germany will surge the demand for the equipment. The developments in the manufacturing sector in countries such as Japan, China, and India are expected to propel the material handling equipment market growth. These systems are increasingly being adopted in warehouses and production facilities for automating all processes. The growing transport and logistics industry in the US is providing growth opportunities to the industry, valued at over USD 25 billion in 2017. The early technology adoption in the region and the ongoing R&D in the U.S. will fuel the material handling equipment market demand. Stringent government regulations related to operator safety in Europe are compelling manufacturers to use high-quality machines that comply with the existing standards. Key vendors in the material handling equipment market comprise Hyster-Yale Materials Handling, Inc., KUKA AG, Kion Group AG, JBT Corporation, Flexlink, Intelligrated, Inc., Dematic GmbH & Co., KG., Columbus McKinnon, and Daifuku Co., Ltd. Companies are trying to launch new solutions and expand the product portfolio. The industry is characterised by strategic acquisitions and collaborations with technology providers to offer enhanced solutions. Increasing investments in the R&D of new automation systems will contribute to industry growth. The full report is available here: https://bit.ly/2q4d7Cq. â–
MHD FEATURE
IN THE BOX SEAT A
uniquely modified Toyota 8-Series 1.8 tonne payload forklift has allowed Glen Dimplex factory hand Shaun O’Bryan to carry out an increased range of duties at the business’ warehouse in Dry Creek, north of Adelaide. Mr O’Bryan, who has dwarfism, was placed in employment with Glen Dimplex by specialist Disability Employment Service provider Barkuma in 2012. Starting as a factory labourer, Mr O’Bryan gradually acquired new skills and responsibilities on the job, most recently culminating in a desire to get his forklift licence. Luke Axford from business development at Barkuma described the process as starting with a visit to Shaun where “we spoke about an issue he was having on site with an electric walk-behind forklift and discussed the possibility of him making some workplace modifications through the Federal Government’s JobAccess program,” said Mr Axford. “JobAccess provided an occupational therapist and after an environment assessment and report, the department authorised quotes and contact was made with Toyota Material Handling (TMHA) South Australia area sales manager Paul Warburton. Paul helped select a model that could most easily be modified.” Mr Warburton engaged the assistance of longstanding key partner Dometic for some design and engineering elements of the 8-Series forklift modifications. Dometic general manager Phil Wilkins said the company’s 25-year relationship with TMHA, during which it has modified Toyota machinery, put it in good stead for such an unusual and extensive job. “Most of the work was done by the Toyota guys, but we handled the heavy components such as the platform, for example, because we have a metal fabrication shop,” said Mr Wilkins. “Normally when modifying a forklift, we’re arranging an increase in cabin height but in Shaun’s case we were looking to reduce it. The main thing was to get the correct seat index point - the point of your hips when
you’re sitting in the seat - for Shaun because his legs and arms are shorter in proportion to his torso.” Modifications included raising the 8-Series’ floor and pedals by 15 centimetres, moving handles down and adding extra handles to assist entry and exit, and the addition of mini-levers. “Our pre-delivery guys worked really hard to get it to suit Shaun - it is a unique machine and definitely customised for him. He was stoked beyond words, so the result speaks for itself,” Mr Warburton said. Dometic’s Phil Wilkins said one of the cleverest things about the modifications is that they are easily reversable and transferable. “We didn’t want the modifications to lock Shaun into that forklift because they do have an expiry date. When it’s due to be traded or upgraded, everything can be un-bolted to return the forklift to standard so it won’t affect its value. “And if it’s replaced with another 8-Series, 90 per cent of the modifications can just bolt straight onto the new machine. Simple as that,” said Mr Wilkins. Many different parties threw their resources and support behind the project over a nine-month period, going above and beyond to ensure the desired outcome. Mr Maidment said Shaun’s ability to operate the modified Toyota 8-Series forklift has
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Toyota did such a fantastic job with the modifications. It’s very comfortable to use. It feels exactly like it was built for me.
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also opened up a path to promotion. “I was contemplating moving his range of heaters off site but couldn’t do so without having to send another person to work with him. But now, we can seriously look into that because Shaun can handle everything on his own, including dispatch,” said Mr Maidment. Man-of-the-moment Shaun O’Bryan is still pinching himself over the magnitude of his equipment upgrade. “The old walkaround forklift wasn’t suitable for me, but I never expected a whole brand-new fork truck,” Mr O’Bryan said. “Toyota did such a fantastic job with the modifications. It’s very comfortable to use. It feels exactly like it was built for me. It’s a real ripper.” For more information visit www.toyotamaterialhandling.com.au. ■
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MHD FEATURE
SMALL AND BIG
Container logistics company ACFS has deployed Hyster technology nationally to deliver speed and efficiency for customers
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ustralia’s largest privately owned container logistics group ACFS is enhancing its productivity and costefficiency for customers through a fleet of Hyster materials handling equipment deployed across its five mainland Australian sites. ACFS has built up a fleet of more than 40 Hyster lift trucks through Australian dealer Adaptalift Group. The units – ranging in capacity from warehouse trucks of 1.8-5 tonnes to reach stackers capable of handling loads exceeding 60 tonnes – are assisting ACFS as it grows its business rapidly to now well exceed 1.2 million TEU a year. 38 | MHD NOVEMBER / DECEMBER 2018
1. Wayne Morris, left, with a forklift ACFS uses in its 40,000sqm warehouse. 2. An ACFS Hyster RS45-31 CH reach stacker, which is part of a range of 12 different heavy-duty lift trucks.
The toughness and versatility of the Hyster trucks have paid off in service. “We have definitely had an improvement in productivity, which reflects in costefficiency and speed of turnaround for customers,” said general manager for national operations at ACFS Wayne Morris. “The Hyster empty container handler’s capacity to handle two containers instead of one further improves productivity and provides a very efficient unit for ACFS.” Hyster-Yale managing director Asia Pacific Tony Fagg said the machines’ unique technologies, capabilities and backup service are key to moving goods quickly and efficiently for ACFS customers. “These qualities are particularly valued at peak times when customers need their stock as soon as they can get it,” he said. An example of Hyster technology in use at ACFS’ 14-hectare Port Botany Facility is the RS45-31 CH reach stacker, which is part of a range of 12 different heavy-duty trucks designed to suit the toughest applications with intermodal handling (IH) options for stacking in different rail positions and container handling (CH) options for highdensity container stacking up to six high and three rows deep. Capacities of up to 41 tonnes are possible in the 2nd row for CH models, ensuring that there are no container weight limitations there. These reach stackers are available up to EU Stage IV emissions compliant, producing lower emissions and offering up to 25% fuel savings compared to the previous generation of product, significantly reducing lifetime cost. “Hyster equipment is also well supported with service,” said Mr Morris. “One of the reasons Adaptalift Group was chosen was that we like to partner with companies with national capability. ACFS has a national presence, and an expanding operation, so prompt service and avoidance of downtime is very important for us. If we ever need help, particularly in our peak seasons, Adaptalift Group have the ability to support us in times of need. Their technicians are available 24/7 and they’re always quick to follow up.” For more information visit www.hyster.com. A video of the ACFS stackers is available at https://bit.ly/2D2kp2x. ■
MHD FEATURE
SHIFTING BERRIES Crown helps Costa shift more berries at Corindi
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ustralia’s leading grower, packer and marketer of premium fresh fruit and vegetables is distributing substantial quantities of berries to Australian and global customers with help from Crown Equipment. Costa, which runs its berry operation in Corindi on the Mid-North Coast of New South Wales, supplies approximately 45 per cent of Australia’s blueberries and 65 per cent of the country’s raspberries. The company processes, packs and dispatches 100-plus pallets of produce per day in the peak season with the help of three Crown RC 5500 Series stand-up forklifts, an FC 5200 Series sit-down counterbalance forklift, a WP Series power pallet jack and an M Series walkie stacker. Costa began using Crown material handling equipment at its berry operation in 2011 when the company bought its first RC Series forklift. According to post-harvest manager Sukhminder Grewal, the material handling staff at Costa reaped measurable benefits from the RC Series once they were used to its stand-up configuration. “Our post-harvest team initially had reservations about using a stand-up forklift,” Mr Grewal said. “However, when they started using it, they found it to be very good and did not want to drive any other type of forklift. “They have great performance and a long lasting battery – they last about three days in
between charging. They’re easy to use in small spaces and the operators like using them.” The success of the RC Series forklifts led the company to expand their fleet with Crown. “Crown provided us with great service for our first forklift,” Mr Grewal said. “When our business expanded, we needed to grow our forklift fleet too. We preferred Crown due to the top-class service and the team favoured their equipment. “Dealing with Crown staff has been great, we have no issues. They respond to our queries the same day or the next morning. “We’ve recommended Crown to other Costa sites and our West Australia site now uses Crown.” Costa is a world leader in blueberry varietal improvement and is committed to the continual delivery of exceptional quality berries. The company supplies produce to all major Australian supermarket chains, independent grocers and a range of food industry stakeholders. In Australia, Costa’s berries are distributed and sold under the Driscoll’s brand. Within Europe, the Middle East and Asia, Costa sell blueberries under the African Blue and Fresh Corindi brands. The company also exports to Asia, North America and Europe.
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We’ve recommended Crown to other Costa sites and our West Australia site now uses Crown.
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For more information call 131 604 or visit www.crown.com. ■ MHD NOVEMBER / DECEMBER 2018 | 39
TRUST AND THE SUPPLY CHAIN
Does your leadership culture focus on trust as a key to successful supply chains? SIMON POPLEY AND CARLY AMADO
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uccessful supply chain, freight and logistics activity have always been, and are increasingly so, dependent on a high degree of collaboration and trust. Trust is an important part of highperforming, cohesive businesses and the teams that drive them. Trust is also pivotal across all areas of the supply chain with suppliers, customers, partners, leaders and teams at all levels of operations. In today’s dynamic, traditional and e-commerce, omnichannel, artificial intelligence, Industry 4.0, machine learning, 3D printing, robots, cobots, and the digital supply chain and the last mile conundrum, building cohesive teams to manage / lead change, enabling and reinforcing trust at all levels, from a technology and human perspective, is critical to success. E-commerce is booming, blockchain continues to press as a significant supply chain and logistics enabler. Blockchain is a term widely used 40 | MHD NOVEMBER / DECEMBER 2018
to represent an entire new suite of technologies. While the upsides of blockchain technology are widely heralded, there is mistrust around the technology as it is yet to be fully understood by many across the supply chain landscape. Retail e-commerce sales worldwide as predicted by eMarketer, will increase to $4.058 trillion in 2020. Having said that, e-commerce customers are becoming more aware of fraudulent practices and trust is crucial. The onus is on the rapidly increasing numbers of e-commerce players to build trust through transparency of processes.
WHAT IS TRUST AND ITS ROLE IN SUPPLY CHAINS? Understanding the nature of trust is important. The problem with a word like ‘trust’ is that we all believe we understand it. ‘Trust’ in at least that sense, is taken for granted. That makes it all the more critical to ensure all parties involved in any given supply chain activity or process, are well aligned.
Key elements of trust in supply chains are honesty, loyalty, fairness, openness and competence. Many supply chain and logistics organisations are well advanced in leadership development and executive coaching programs. Leadership through enhanced engagement, including building trust with customers, suppliers and internal team members, is increasingly a top priority for many organisations. Trust is a multifaceted complex phenomenon that integrates psychological processes and group dynamics. The adoption of leadership development and executive coaching as an effective business tool / process in the supply chain and logistics industry to improve business outcomes is about 10 years behind other sectors (e.g. banking / finance / insurance / media), but the value proposition of this investment is increasingly being understood and leveraged. Trust may present as a trait, a process or an emergent state and exist at individual, team, and leadership,
MHD SUPPLY CHAIN UNCERTAINTY
PROBABILITY FOR GAIN
TRUST
ABOVE: Key elements of trust are honesty, loyalty, fairness, openness and competence.
organisational and inter-organisational levels. Trust evolves over time, developing, building, declining and resurfacing in relationships. Without trust, supply chains would cease to function. It represents the unwritten view of a shared reality that allows organisations and the people who drive them, the confidence to collaborate and transact.
BUILDING TRUST IN AN ORGANISATION Trust and respect form the foundation of quality business (and personal) relationships. Common issues we regularly see in supply chain and logistics organisations, often in 3PL / CL and freight forwarding companies, that undermine trust are: 1/ Conflicting agendas of internal management teams and between suppliers and customers. Often there is a strong talent pool across leadership teams, but they are not all aligned to overall strategic plans, or the plans are not reinforced to the team creating competing priorities and divisions that are running their own agenda often varying off the agreed strategic (or operational path).
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Trust and respect form the foundation of quality business (and personal) relationships.
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DISTRUST
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2/ Poor people and mission management and leadership skills in key executive positions. Often talent is sourced/promoted based on short-term commercial performance only and the people skills and emotional intelligence (EQ) is lacking. Without EQ trust can be compromised. 3/ Competition between BU / operating divisions. Competition between functions, departments and units. The old sales vs. operations mentality. Finance vs. IT, etc. Negatively focused internal competition is inherent in many organisations and needs to be called out and addressed. The atmosphere is often tense with business units / divisions not helping each other to achieve the organisation’s strategic and tactical objectives. A key aim of most organisations is to grow and thrive, but to achieve this, internal and external partners must attain a high level of trust in each other. More supply chain organisations are leveraging coaching expertise for team building initiatives, to ensure their organisation possesses a desire to improve team engagement and trust. If trust within and between your teams is lacking or severely broken, addressing the underlying issues can be not only a valuable investment, but ultimately the difference between wider business success or failure. Simon Popley is senior partner, leadership and coaching, and Carly Amado is a senior associate, talent and coaching at the Logistics Executive Group. The Logistics Executive Group is celebrating its 20th Anniversary of talent acquisition, development and deploying bespoke and coaching programs from their offices throughout Australia, Asia, India and Dubai. Contact Simon Popley at simonp@ logisticsexecutive.com, or Carly Amado at carlya@logisticsexecutive.com. ■ MHD NOVEMBER / DECEMBER 2018 | 41
MHD SUPPLY CHAIN
SUPPLY CHAIN SKILLS FOR THE FUTURE People are one of a supply chain organisation’s biggest assets
PATRICK VAN HULL
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Develop connections, both formal and informal, between different parts of your organisation to enable broader exposure to the business and facilitate collaboration across functional teams.
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he supply chain team of the future will look very different from the one we’re familiar with today. In some cases, the team will need radically different skills and capabilities. Many of these skills fall outside the traditional realms of functional supply chain expertise. It almost goes without saying that people are one of a supply chain organisation’s biggest assets. Although investment in talent is a top priority today for many supply chain leaders, this hasn’t always been the case. Rewind just a couple of years ago. A 2016 Gartner survey of 261 supply chain leaders revealed that talent development was a top investment priority for only 28 per cent of respondents, a mere 12th on the list of other competing investment buckets. Supply chain has been, and always will be, an ongoing balancing act of competing priorities. Can supply chain leaders really afford to continue to devalue talent in favour of the functions they serve? In the many conversations Gartner has had with the supply chain community over recent months, the answer is increasingly a resounding “No!”
WHAT’S CHANGED? A number of external factors have contributed to this urgent realignment and prioritisation of expertise and capability development. First is the growing complexity of business and the level of agility required to meet increasing customer demands, which requires increasing excellence in execution. Then there’s the elevated role of supply chain within the wider organisation as a creator of value, rather than just a service function or cost centre. This demands a broader understanding of the business through all levels of the supply chain. Acting as the ‘glue’ between multiple parts of the business — as well as with customers, suppliers and other external partners — requires a shift in skills beyond pure functional supply chain expertise to less tangible social skills around communication and influence. This draws on analytically minded, problem-solving skills to make
42 | MHD NOVEMBER / DECEMBER 2018
more effective business decisions, as well as keeping assembly lines running and delivery promises to customers. Finally, the explosion of new technologies enabling the automation of previously manual activities and the augmentation of other human-led capabilities, have given rise to a new of era of digitalisation requiring new levels of skills and new ways of working. Once harnessed, digital technologies provide opportunities to deliver innovation in both product and process for the benefit of the customer. They’re also putting pressure on organisations to develop new capabilities and lead the existing workforce through a period of uncertainty.
NOW’S THE TIME These demand drivers for talent realignment and prioritisation are being met with pressures from the supply side of the equation. Supply chain leaders are challenged to develop their existing talent to align with the changes in competency profile. Where gaps on their benches are identified, they must bring in the expertise required. The speed of change within the business, coupled with the explosion in the need for expertise in digital technologies, is met with the reality that those skills take time to develop and aren’t always readily available from the marketplace. At the same time, a strong competitive market for supply chain talent prevails. Now’s the time for supply chain leaders to lead the charge on talent strategy and execution by developing winning talent strategies and innovative battle plans. Companies already taking the lead on this are developing strategies that embrace the entire supply chain organisation, from hourly associate to the most senior level executive. The goal is to build an agile team equipped to face the challenges of tomorrow, starting today. The good news is that Australia has a relative abundance of supply at all hiring levels, indicating a healthy talent pool countered by a tightening of suitable employment opportunities.
AGILITY IS NEW WATCHWORD FOR TALENT Building out organisations requires a balance of planning for long-term requirements and change management processes, at the same time responding to more short-term needs, such as emerging digital technologies. A one-size-fits-all approach to strategic workforce planning will no longer work. Develop a talent roadmap for the future. With a clear business strategy in place, harness this to develop career pathways and roadmaps for existing employees who may need to alter their skill sets with your support to meet the future needs of the business. Take care to minimise any changerelated anxiety that may lead to decreased levels of motivation and workforce effectiveness or even loss of key talent. Where appropriate, consider working with outside providers to fill in capabilities in key areas — blockchain is a good example.
DON’T COMPETE WITH THE ‘COOL’ BRANDS – BUILD YOUR OWN Competition for talented supply chain professionals is on the rise, with high-profile brands like Amazon,
Google and Apple with ‘cool’ value propositions posing a real threat to other companies offering more traditional career pathways. Moving forward, companies will be compelled to sell themselves more overtly as ‘destination employers’ to attract top talent their way. Create a unique talent brand that establishes clear on-boarding and development paths for new employees, as well as programs to develop existing employees at all levels. Building expertise internally will likely be much more cost-effective than buying new skills.
TAKE A GLOBAL VIEW OF THE TALENT MARKET LANDSCAPE Talent has become an increasingly critical component of overall supply network planning. Take into account the differences in the talent supply market across geographies, when considering where to position teams that require colocation. Could global centres of excellence be located in markets with a richer seam of qualified supply chain talent? Equally, be prepared to embrace a flexible approach to remotely based employees where supplies of local talent are in short supply.
DEVELOP STRONG INTERNAL ‘GLUE’ TO KEEP YOUR SUPPLY CHAIN ORGANISATION INTEGRATED AND ROBUST The connections developed between people in your organisation create a glue that holds the parts together. Develop connections, both formal and informal, between different parts of your organisation to enable broader exposure to the business and facilitate collaboration across functional teams. Likewise, building connections between different levels of the organisation through initiatives such as mentoring and open discussion, can connect less experienced people with those more tenured and facilitate successful knowledge transfer in both directions. Similarly, although diversity initiatives may run the risk of neglect during challenging times, they can prove a useful tool for both filling talent gaps and enabling a more inclusive and cohesive workforce. Patrick Van Hull is a research vice president at Gartner. He provides insights into the key challenges and trends affecting global supply chains, across industries. For more information, visit www.gartner.com/supplychain. ■ MHD NOVEMBER / DECEMBER 2018 | 43
PLAN4DEMAND Realising the full potential of demand planning – Part 3. in a series
ROD HOZACK
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n this series, we explore how the longer-term demand plan should play a more prominent role in businesses. The first two parts dealt with the key elements in setting up the demand planning and forecasting process, and this time, we will explore what the key behavioural elements are, i.e. what we do with the process and the outcomes when we get them. You can read Part 1. here: https://bit.ly/2MpyPzS and Part 2. here: https://bit.ly/2ALsebk.
INFLUENCING BEHAVIOUR AND WHAT TO DO WITH THE OUTCOMES OF GOOD PROCESS In the first two parts of this series exploring the role of the longerterm demand plan in businesses, we described the mechanics behind what is required to achieve a robust demandplanning process. This second pair explores what to do with the process and plans once they are properly set-up. Let’s begin with the end in mind and paint a picture of the relationship between strategy and the value of long-range demand planning and forecasting. A Harvard Business Review study of 500 companies over 50 years (some 25,000 years of data) on why 44 | MHD NOVEMBER / DECEMBER 2018
growth stalls in well-established companies, initially shed little light on the cause although the symptoms were interesting. The study showed that: • There was a last burst of energy, where sales the year before the stall, were typically buoyant, if not, the best ever. • The decline was not a steady descent; it was a sudden drop. • Few, if any, of the senior team saw it coming. What emerged from the analysis was that more than 70 per cent of the reasons for the stall could be classified as strategic in nature. This dispels the notion explored in part one of this paper that getting the short-term right means the longer term will take care of itself. Tying this into observations made by other authors, a pattern starts to emerge about strategy: • Only five per cent of the workforce understands strategy. • Only 25 per cent of managers have incentives linked to strategy. • 85 per cent of executive teams spend less than one hour per month discussing and working on strategy. • 60 per cent of organisations don’t link budgets to strategy. The first five keys to Realising the full potential of demand planning
were discussed in Parts 1&2. Before we get into the remaining five keys, there is an underlying principle we need to understand, which not only relates to demand planning but almost everything we do in business, too. This principle is that there is only one thing we are doing in business and that is, influencing behaviour (it is important to add, ‘... with integrity’ because otherwise, it sounds so manipulative). Think of any function within a business and you will see the behavioural element, for example: • Selling: finding customer needs and converting the sale. • Marketing: developing a brand image and increasing consumer recall and recognition. • Human resources: facilitating an effective working environment. • Information technology: facilitating effective work flows. The fact is, that unless there is a behaviour change, it doesn’t matter how good your processes are, how capable your people are, or how sophisticated your computer systems are, it will all amount to nought unless there is a different behavioural outcome. So let’s look at how this might apply to the demand planning process, with keys six to ten.
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BEHAVIOUR CHECKLIST 1. Op
a. Document assumptions. b. Quantify, time phase, and measure accuracy of assumptions over the whole demand planning horizon, e.g. 24 months.
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6. Assumption management of the whole 24-month horizon “During my 40 years at Gallup, I’ve observed that one of the main reasons very talented leaders fail is because their thinking failed them; not their leadership or management skills, which in many cases are just fine, but their thinking. Specifically, failed leaders in business and politics are usually wrong about a core premise that drives all their strategies. Because they are so wrong about that premise, every subsequent decision they make is bad.” Jim Clifton, chairman and CEO of Gallup. Coming back to the Harvard article, ‘Why Growth Stalls’, these are the key elements underpinning the reasons for growth to stall:
a. Assumptions about the business model are not written down For some reason, this is one of the hardest elements of a business to change. Documenting assumptions is typically done just once a year (if at all) as part of the strategic and business planning process, and promptly forgotten until the following year. Often, they are also merely qualitative statements, that are not quantified or time phased. When a company is struggling with this, the first thing I ask them to do is to write down the assumptions in their strategic and business plans. The next is to word them in such a way as to be more easily quantified. For example, during one workshop, a client came up with an assumption that a key segment for sales in China would remain stable in the next three years. Through the workshop, it was refined, so that it finally read, the volume sold in China would be 200,000 tonnes, at X price, with X COGs, until August 2019, thereafter the volume would slowly decline by one per cent per month until August 2020, seasonally adjusted. Once we have this, we can create the sort of table shown in figure 1 and measure accuracy. Yes, measure accuracy. This way
Most likely outcome
Figure 1: Documenting assumptions.
we drive continual improvements, and if it is hardwired to the outcome plan, once an assumption is changed, the plan must also change. Dealing with the gap or bad news that a change in assumption may create, is another story, which we’ll cover later in the paper.
b. The marketing model has not been updated in several years It is imperative to make sure the market is modelled from high-level industry or category level, right down to how it interfaces with the bottom-up, detailed forecast. The key areas identified as ‘missing’ from those companies whose growth had stalled were: i. Market share assumptions had not been updated in a long time. ii. Consumer testing of key attributes was done infrequently, if at all. iii. Competitors were getting better at translating consumer insights into new products.
TEN SHARED ASSUMPTIONS IN THE 1970S ABOUT GENERAL MOTORS, BY PROFESSOR JAMES O’TOOLE: 01. General Motors is in the business of making money, not cars. 02. Success doesn’t come from technological innovations, it comes from being able to successfully copy innovation from others. 03. Cars are status symbols, so styling is more important than performance. 04. Foreign competitors will never gain more than 15 per cent of the US market. 05. Energy will always be abundant and cheap. 06. Workers have no important impact on production or product quality. 07. Consumer, social, and environmental issues, are unimportant to the public. 08. Government is the enemy and should be fought every step of the way. 09. Strict centralised financial control is the secret to good administration. 10. Managers should always be developed and promoted from within.
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a. Understand and plan for uncertainty.
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iv. Consumers were becoming less willing to pay a price premium for the companies’ brands. By way of illustration, Professor James O’Toole researched the prevailing set of working assumptions that General Motors held during the 70s. These were both explicit and implicit. At the time, General Motors was the number one car company in the world, and now, nearly 50 years on, the impact on current performance can’t be separated.
7. Understand and use uncertainty “If I was that good at forecasting, I wouldn’t be doing this – I’d be at the races every Wednesday and playing the stock market the rest of the time, and I would be very wealthy indeed.” Or so I was told when I first starting learning about forecasting. The expectation that our demand plans are going to be ‘right’ is a misapprehension. However, let’s look at some of the things we can predict with a fair amount of certainty. For example, we can predict that the sun will rise at certain time, in 12 months’ time, or even 10 years’ time ... and if that forecast 46 | MHD NOVEMBER / DECEMBER 2018
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Managing uncertainty plays an important role in the integrity of the longer-term plan.
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BEHAVIOUR CHECKLIST 2.
doesn’t come true, it is not going to matter too much because none of us are going to be here anyway. This is probably not going to be too useful in the demand planning and forecasting space, but coming down a level, I can predict Christmas, Easter, New Year and so on, easily enough. This is now starting to get to a level of granularity that most companies can deal with, and indeed need to deal with. Another level of granularity could be, the number of competitors, how many new products they’ll launch or promotions they’ll do, which is a level of detail that we can build and test assumptions around. The important point is to decide at what level to align key strategic drivers and then plan for ‘normal-cause’ variation around anticipated outcomes. Managing uncertainty plays an important role in the integrity of the longer-term plan. The critical element is to understand the impact of a small raft of quantified assumptions (key 6. above), use those assumptions to derive our projections, and then assess the ‘normal-cause’ variations to those assumptions. This is more commonly done as an opportunities and vulnerabilities (risks) assessment. By definition, an opportunity is not in the demand plan, but if certain assumptions come true, it could be an upside. A vulnerability, on the other hand, is something that is in the plan but if certain other assumptions come true, it may reduce the plan. As mentioned above, in a robust demand planning environment, these opportunities and vulnerabilities should be balanced on either side of the expected outcomes, and importantly, accompanied by agreed contingency plans to facilitate swift responses if these assumptions come true. Often companies don’t plan for the risks, which is obviously not a good thing, but when a company can’t respond quickly enough to an opportunity, it’s even more troublesome. Rod Hozack is a partner at Oliver Wight. For more information email information@oliverwight.com or visit www.oliverwight.com. ■
MHD SUPPLY CHAIN
A DIGITAL FUTURE TOM MOORE
How cyber security can help the supply chain move forward with confidence in our drive towards a digital future ransport and logistics are the backbone of the economy in our big country. They also represent big business – the supply chain industry generates revenue of around $97 billion annually and employs close to half a million people. The industry is undergoing a period of rapid transformation, courtesy of a surge of new technologies and innovations. Integrated transport facilities that allow for the receipt, storage and dispatch of goods from one location are being developed, with a heavy focus on automation. A new level of cyber-risk comes standard with new technologies and systems. Ensuring sensitive commercial and personal data is secure should be top priority for Australia’s transport and logistics providers as they embark on business-critical implementations and upgrades.
reputational and financial damage and it makes sense to take all steps possible to lock down mission-critical systems from the outset. Taking what Aura refers to as a ‘secure by design’ approach avoids exposure to unnecessary risk and ensures cyber-security is factored into system upgrades and overhauls. It will likely be viewed as ‘bridesmaid’ technology – not the aspect of a major project that wows users or gets the project team excited – but treating it as a low priority is an invitation for hackers to swoop. The Australian Cyber Security Centre’s 2017 Threat Report notes the presence of ‘thousands of adversaries around the world willing to steal information, illegally make profits and undermine their targets’. Unfortunately, for many large organisations, it takes a negative experience to put information security where it belongs. That is, at the top of agenda, at the outset of a project. All too often, our team is called on to act as the clean-up crew; fixing vulnerabilities that could have been more easily and cheaply attended to during an earlier project stage.
TOWING THE LINE
WHY BE ‘SECURE BY DESIGN’?
Australia’s tough new data breach reporting laws that came into effect in February 2018 mean a rigorous approach to IT security is more important than ever. Businesses with a turnover in excess of $3 million that experience a data breach, or suspect one has taken place, must notify their customers and the Office of the Information Commissioner, a statutory body that can impose stiff penalties on companies that don’t take appropriate action to remediate the issue.
A ‘secure by design’ approach allows businesses to identify security risks in the early stages, and remediate vulnerabilities when it is most costand time-effective to do so. Being secure by design is about proactively managing information security risk across the life of a project. Think of it this way: imagine trying to retrofit seatbelts, airbags, and crumple zones to the design of a motor vehicle – hardly a straightforward undertaking! When you buy a vehicle, you quite reasonably expect the manufacturer will have accommodated those safety requirements before focusing on performance and aesthetics. The same should apply when implementing a new IT system. The secure by design process should begin at the project kick-off meeting, when solution requirements and desired
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DESIGNING SECURITY INTO THE SYSTEM The optimum time to implement security measures is when new systems are being planned and installed. Ransomware and phishing attacks can result in significant
business outcomes are being discussed. That way, you can ensure you’re making good security design choices and building a secure system from the ground up. Doing things properly at the outset should mean no nasty surprises during the testing phase. It’s worth noting that being secure by design isn’t a discrete activity – it’s an ongoing process. IT systems are not static. They’re designed, built, tested, deployed, modified and patched – and used. They have an operational lifecycle and security is vital at every life stage. IT systems’ inherent risk can never be fully eradicated but must be managed via monthly reporting, regular penetration testing and scrutiny upgrades, in the event of changes to the risk profile. Being secure by design is considered a four-phase process. During the design phase, potential security risks are identified by software and infrastructure security architects. The same consultants remain involved throughout the build process, to ensure systems are being implemented securely. They undertake an endto-end penetration test prior to ‘go live’ to ensure any remaining security flaws are remediated. And during the operating phase, they carry out ongoing analysis, reporting and security optimisation.
MOVING AHEAD WITH CONFIDENCE The wholesale embracing of digitisation and automation isn’t optional for Australia’s transport and logistics sector – it’s essential for survival in a rapidly evolving and highly competitive marketplace. Ensuring new systems and technologies are secure and cannot be easily compromised will allow companies to progress into the digital era with confidence. Tom Moore is Australia and New Zealand practice manager for Aura Information Security. For more information call +61 2 9856 2600 or email sales@aurainfosec.com. ■ MHD NOVEMBER / DECEMBER 2018 | 47
The Hercules.
DEFENCE AND LOGISTICS INDUSTRY TACKLE DISASTER RELIEF SCENARIO AT RAAF BASE RICHMOND
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ogistics experts from Defence and industry have combined their collective experience for scenariobased training at RAAF Base Richmond. Up to 40 members of the Australasian Supply Chain Institute (ASCI) worked alongside logistics counterparts at RAAF Base Richmond on September 26, responding to a notional cyclone in northern Queensland. RAAF Logistics Officer, Squadron Leader Ben Barber, said Defence and ASCI members worked in four-person teams to conceive a plan to deliver relief to affected communities. “We began by simulating their deployment on board a C-130J Hercules Fuselage Trainer, and provided an ‘in-flight’ briefing on the situation,” Squadron Leader Barber said. “The teams each then developed a plan using Defence assets to overcome damaged infrastructure, deliver urgent supplies, and restore services.” 48 | MHD NOVEMBER / DECEMBER 2018
“Throughout this event, the ASCI members were able to understand the operational challenges we face, and share their experience and knowledge with Defence members.” Each team presented its response plan, with ASCI President Henry Brunekreef announcing a ‘winning’ team for the day: ASCI Corporate Member, Danone! “It’s our hope to make this an annual event to continue a working relationship between the Commonwealth and industry,” Mr Brunekreef said. “This event tested the knowledge and decision-making of our members, and allowed them to gain new perspectives on supply chain challenges they might not ordinarily experience.” “We’d like to thank the RAAF Base Richmond for hosting this scenario, and Oracle as a sponsor for this event.” As well as focusing on challenges for logistics, the event at RAAF Base
Richmond provided an opportunity for Oracle to present on emerging technologies within the industry. Simon Smithers, Oracle’s Cloud Supply-Chain Management Solutions Director, said the field was already being shaped by developments in Artificial Intelligence, Blockchain, and Internet of Things. “Having worked with many organisations to modernise their supply chain, we know the transformational effect that these technologies can have on the supply chain when used in conjunction with the cloud to track, optimise and secure every step,” Mr Smithers said. “The event at RAAF Base Richmond was a great demonstration of this, allowing us all to re-imagine what is possible when emerging technology is combined with a talented group of industry peers, and a fresh outlook on a new challenge.” ■
MHD ASCI
ASCI COURSES TERM 1
TERM 2
APICS Certified in Production and Inventory Management (CPIM) Part 1 Guided Learning Program Seven consecutive Thursday from 1-3pm or 7-9pm
APICS Certified in Production and Inventory Management (CPIM) Part 1 Guided Learning Program Seven consecutive Thursday from 1-3pm or 7-9pm
Commencing 7 February until 21 March 2019
Commencing 2 May until 13 June 2019
APICS Certified in Production and Inventory Management (CPIM) Part 2 Guided Learning Program 13 consecutive Tuesday from 1-3pm or 7-9pm
APICS Certified in Production and Inventory Management (CPIM) Part 2 Guided Learning Program 13 consecutive Tuesday from 1-3pm or 7-9pm
Commencing 8 January until 2 April 2019 APICS Certified Supply Chain Professional (CSCP) 13 consecutive Wednesday from 1-3pm or 7-9pm Commencing 9 January until 3 April 2019
TERM 3
APICS Certified in Production and Inventory Management (CPIM) Part 1 Guided Learning Program Seven consecutive Thursday from 1-3pm or 7-9pm Commencing 18 July until 29 August 2019 APICS Certified in Production and Inventory Management (CPIM) Part 2 Guided Learning Program 13 consecutive Tuesday from 1-3pm or 7-9pm Commencing 9 July until 1 October 2019 APICS Certified Supply Chain Professional (CSCP) 13 consecutive Wednesday from 1-3pm or 7-9pm Commencing 10 July until 2 October 2019 APICS Certified in Logistics, Transport and Distribution (CLTD) 7 consecutive Thursday from 7-9pm
Commencing 9 April until 2 July 2019 APICS Certified Supply Chain Professional (CSCP) 13 consecutive Wednesday from 1-3pm or 7-9pm Commencing 10 April until 3 July 2019 APICS Certified in Logistics, Transport and Distribution (CLTD) 7 consecutive Thursday from 9.30-11.30am Commencing 2 May until 13 June 2019
EARLY BIRD PROMOTION
is $100 off the Guided Learning registration when bookings are secured between from 1 Nov – 25 Nov 2018 for any of these programs scheduled for 2019. APICS Learning Systems must be purchased prior to Guided Learning sessions commencing. This schedule is subject to change.
TERM 4
APICS Certified in Production and Inventory Management (CPIM) Part 1 Guided Learning Program Seven consecutive Wednesday from 1-3pm or 7-9pm Commencing 8 October until 19 November 2019 APICS Certified in Production and Inventory Management (CPIM) Part 2 Guided Learning Program 13 consecutive Thursday from 1-3pm or 7-9pm Commencing 12 September until 5 December 2019
Commencing 10 July until 2 October 2019
BELOW LEFT: Onboard the Hercules heading to far north Queensland (simulated). BELOW RIGHT: Henry Brunekreef, President of ASCI awards Brendan Iddles from Danone the ASCI Leadership Cup. Photo credit: Royal Australian Air Force
Join our community by registering to our newsletter via our website, to receive valuable content, webinars, news and participate in forums or networking events. 1300 557 175 | enquiries@ASCI.org.au | www.ASCI.org.au MHD NOVEMBER / DECEMBER 2018 | 49
MHD NEWS FROM SCLAA
CHAIRWOMAN’S REPORT
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AMANDA O’BRIEN
“
The ability to innovate or compete in this market is becoming increasingly difficult.
”
he economic environment has been less than buoyant in recent times despite reports from government and news. The buzzwords at the moment - ‘fake news!’ - are becoming particularly poignant in a volatile globalised marketplace. The supply chain is facing enormous challenges, which inevitably impact on all providers – what with the recent port infrastructure charges on the rise again, slot fees are doubling, and carriers will bear the brunt of these increased costs. There seems little relief for the road transport provider who is facing declining volumes, aggressive price reductions required by multinationals and SME alike and an everincreasing burden of regulation and rising fuel prices. The ability to innovate or compete in this market is becoming increasingly difficult. Ultimately road carriers require the costs to be passed on to the end customer to accept, and commercially the ability to service customers has become progressively more difficult. There has been a 35% spike in liquidations of companies over the last three months. This cannot be good for our economy and jobs growth. How can business innovate, train, maintain service levels and employ people at our current labour rates when competing with the rest of the world? Such burdens are placing increased financial pressure on the carrier, and it would seem the relationships with the end customer are becoming increasingly fragile. Business must brace to better prepare for their processes, people and communications to their end customers must be heightened in this significant wave of direct cost increase. Increasingly, reviewing the ways supply chains operate and implementing new procedures to drive efficiencies in the current economic environment is essential for survival. So it would be remissive of me not to include CoR with the new laws that came into effect on 1st October 2018 under the National Heavy Vehicle Law. Are you still not prepared? Corporate fines are five times the amount of individual fines and there are varying degrees of severity. Worst case scenario is for Category 1. Recklessness breaches, which include five years imprisonment, $300,000 for individuals and $3,000,000 for corporations. It has been previously mentioned that with the increased
50 | MHD NOVEMBER / DECEMBER 2018
regulation and steps, companies need to implement and update their management systems and actively assess staff training and the control COR risk is paramount. So, with all these factors and increased burdens on individuals and business’ alike, trust and the morality of society starts to erode and the biggest impact to this is mental health. There is a stigma in speaking about this but it poses an even bigger threat to our communities, businesses, individuals and the tight fabric of the societal values of Australian culture. We, as a diverse society from governments to communities need to increase our efforts to address this big problem that can effectively undermine the future of our young minds. Dealing with an increasing technological, profit-driven and volatile world, there is a sense that this is lying underneath the surface and can have substantial consequences if not addressed. It affects all generations who with instant gratification turn to increasingly mindnumbing vices, which in turn breaks down our relationships and moral values that are key to sustaining our communities and standards in Australia. And so, in the midst of an increasingly complex society, it is more important than ever to support your fellow supply chain professionals at the ASCL Awards on 23 November 2018. Come and network to build and sustain, applaud and congratulate your fellow Australians who are striving to make an impact and improve our important supply chains both in Australia and overseas. It is also poignant that we’re having it at the iconic Luna Park in Sydney, and it may well be the last time its doors open so it makes it extra special to celebrate at this location. Luna Park will soon be closing its doors as an Australian icon, fundamentally a consequence of the challenging financial and economic times we live in. Go to https://sclaa.com.au/awards/ to celebrate the great achievements of people in our supply chain. For more information on how you can join the association and take part in the awards visit the website sclaa.com.au or call our secretariat on 1300 364 160. Amanda O’Brien is the national chairwoman of the Supply Chain and Logistics Association of Australia. Email amandao@xtremefreight.com.au. ■
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increase
in volume of items ordered by 2020 1
increase
in items shipped by 2021 1
Legacy mobile devices
Not made for the pace of e-commerce
device error
Accelerates e-commerce fulfillment Modern Android operating systems are built for today’s on-demand economy and offer up to seven years of security support, making them the best choice for daily operations.
Uptime
Slower task completion Less intuitive, green screen push-button devices Battery change prompts cold reboot that creates downtime, lost productivity Lack of replacement parts leads to retired devices and slower operations
Hamper training efforts Longer training cycles due to a slow, unfamiliar interface and cumbersome navigation costs valuable time.
agree e-commerce is driving the need for faster delivery 2
Zebra Android devices
Outdated Windows® mobile operating systems, developed long before the e-commerce revolution, can’t handle today’s fulfillment demands and security risks.
Downtime
of executives
40% faster data entry and 60% fewer errors with touch screen 3 Fast charging, hot swap batteries keep devices running Readily available replacement parts help maintain business continuity.
Enhance training efforts Slash training time with a user interface that’s already familiar to workers.
Contact SupplyChainAPAC@Ivanti.com and learn how to seize new warehouse opportunities with Zebra and Ivanti Android Solution. 1. Warehousing 2020 Vision Study, Zebra Technologies, 2016 2. The Future of Fulfillment Vision Study, Zebra Technologies, 2018 3. In tests using TC8000 versus traditional push-button devices
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