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Supply Chain Management in the Digital Age, Part Two

Posted by Chris Wright on Apr 30, 2019 7:57:15 PM

This is the second of the three-part series, "Supply Chain Management in the Digital Age," introduced last month.  In this post I will discuss the use of automation and IoT in warehousing and material handling.

Supply chain automation has been around for decades, but the sad fact remains that too few operations are adopting at a rate that satisfies the needs and wants of their consumers. Conversely, IoT is a recent innovation that is gaining traction in some interesting ways. (Note: In part three of this series which focuses on advanced analytics, I will cover some of these).Although materially different in maturity, I’d argue that for most organizations, these two technologies are both on similar footing: underfunded and underutilized.However, both tools offer enticing benefits to the bottom line, speed, customer satisfaction and competitive advantage, and herein we’ll examine some of the reasons why.

Fundamentally, the sole purpose of supply chain management is to meet the needs of consumers. And today’s consumers demand more choices and faster service. Meeting these demands presents cost challenges throughout the supply chain. More consumer choices results in more SKUs, driving up bin requirements, travel time, inventory control costs and slotting activities. Similarly, faster service requires an expanded geographical footprint to reach customers which results in more frequent orders at smaller quantities, driving up the cost of picking, shipping and supplies. With increased cost and complexity, organizations need to focus on solutions that  minimize future cost increases; and, 2) [rapidly and continually] present opportunities for cost and performance improvement.

Whether you’re the hiring manager of a distribution center or just an avid consumer of industry articles, you’re likely aware of mounting pressures on our industry. Labor shortages, rising labor costs and an impending explosion in the growth of consumer parcel demand have created a trifecta of worry for CSCOs and supply chain leaders. Let’s look at some supporting detail. 

McKinsey suggests that parcel demand in the U.S. and other mature markets could roughly double over the next 10 years, growing to 25 billion parcels per year domestically (McKinsey & Company, 2016). Couple that with the United States, in which the Employment Cost Index shows increased financial pressure on transportation and warehousing companies. Since around 2015, the year-over-year increases in compensation for transportation and warehousing have outstripped most other areas of private industry by a significant margin, topping the scale at a 3.8 percent year-over-year increase in September of 2018  (U.S. Department of Labor, Bureau of Labor Statistics, 2019).


As shown in the graph, from 2010 to 2018 job openings for the transportation, warehousing and utilities industries reflected a growth rate 20 percent higher than all other private sector (non-governmental) industries. The storyline? Within these industries, labor is getting scarce, driving wages higher.

Henry Ford once said, “If you need a machine and don’t buy it, then ultimately you will find that you have paid for it but don’t have it.” Ford’s sentiment resonated throughout the manufacturing industry, changing it forever. Warehousing and material handling however, still has work to do. A recent benchmarking study by the Warehousing, Education and Research Council (WERC)[1] showed that less than 20 percent of distribution centers (DC) have incorporated robotics and automation or IoT into their operations. The same study showed that over 30 percent of all DCs had no immediate plans to incorporate robotics and automation into their operations. This is leaving money, opportunity and competitive advantage, on the table. 

Consider this: Picking is one of the biggest labor drivers in DCs. Most pickers rack up a pretty good number of steps on their Fitbit each day because just getting to the product can comprise up to roughly 50 percent of their work time. It’s a fact of life that many DCs would love to eliminate (or at least reduce) as it has a direct impact on the operation’s P&Ls.  An average organization might pick & ship somewhere between 25 and 45 tasks per hour. For a company processing two million lines per year at 45 tasks per hour, they will spend approximately 44 thousand hours or 21 FTEs, just in picking. 

Because automation for DC operations has been around for decades, there are a number of reliable “part-to-picker” automation options available. Each provide productivity capacities well beyond that of a human operator. So, by using the example above, a threefold improvement in tasks per hour for the company above would reduce overall pick labor by greater than 65 percent and, depending on average labor-cost, could pay for the investment in less than two years. To the readers who think two years might be a hard pill to swallow, please also consider the alternative: labor shortages, inevitably increasing costs, and increasing demand from customers.

IoT (or iIoT) is a relatively recent addition to the supply chain practitioner’s toolkit, but has a very bright future. Sensors and GPS are finding their way into material handling equipment (MHE), our warehouse aisles, our delivery fleet and even our products, to provide valuable insights into supply chain events and patterns. I like to think of IoT as Data Collection 2.0 – a modern method of collecting time, space and activity information that was previously hidden from the metrics minded. IoT sensors and accompanying telemetry systems can provide real-time feedback on the status of MHE devices, providing companies with invaluable information that allows them to dial in the size and effectiveness of their fleet of MHE. 

Preventative maintenance is one of the most underrated but vital functions in any modern warehouse. With IoT sensing and data collection, preventative maintenance can be triggered based on usage hours, fault codes or certain operating conditions, and it’s proving more reliable than traditional scheduling methods. Now, the fun stuff. Have you ever wondered how much time your $12K rider pallet jack spends travelling from one end of your warehouse to the other without a load?  Deadheading in material handling is no less acceptable than it is in trucking, but it hasn’t always been an easy thing to measure. Load sensing can help you detect the size of the load that each piece of equipment is (or isn’t) carrying and telemetry systems take it a step further. IoT with a telemetry system can construct a virtual timeline of your fleet’s movement throughout the warehouse. Why is Aisle 14 always so congested, you might ask.  Where is the most accident-prone area in the facility? Or, what space am I not using to its full potential? The data collection benefits from IoT is creating new opportunities – previously hidden opportunities – for continuous improvement in the digital-age warehouse. And with 5G right around the corner, advanced analytics progressing at an astounding rate, and cloud computing enabling cheaper and faster solutions, logisticians have tremendous new fuel for the fire – all available for the organization that is willing to embrace change and invest in their future and their customer’s future. 

Automation is a clear path to labor cost reduction and IoT offers continuous improvement opportunities previously hidden in the dark spots of our traditional data capture methods. These are two of the elements that define supply chain management in the digital age.

For more details on how a part-to-picker system might benefit your supply chain, contact Tech Data’s Supply Chain Management (SCM) group and we’ll share some details on how we’re future-proofing our own operations.

About the Author

Chris Wright - GLMS-2Chris Wright serves as the director of program and project management within Global Lifecycle Management, a specialized solutions business of Tech Data. 

[1] WERC DC Measures: 2018 Trends & Challenges


Tags: Digital, Supply Chain, Services, Supply Chain Management Services, Digital Age