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A healthy industry - for sure

By David Maloney | April 06, 2015 | 4:01 PM | Categories: Lift Trucks, Material Handling, Warehousing

It has been just over a week since all of us at DC Velocity have come home from ProMat and we’ve had some time to reflect on this year’s show, which is always one of the top conferences in the supply chain industry.

This year, more than 800 exhibitors were on hand to show off their wares in the huge hall at Chicago’s McCormick Place, and over 30,000 people attended the four-day show. The biggest impression I walked away with this year is that we are in a very healthy industry. Supply chain has shaken off the rust of the Great Recession and has more than made up for six years of barely keeping above water. I believe we are poised for great things ahead.

Plenty of intriguing technologies were on display during ProMat, as well as the latest in software offerings. During the show, DC Velocity editors held over 80 meetings with exhibitors and attendees. We produced more than 60 articles of ProMat coverage. If you could not make it to the show, you can find information on many of the leading technologies on display as well as select conference sessions held at ProMat here:

http://www.dcvelocity.com/conference_reports/promat2015/

We also produced 10 videos highlighting some of the latest solutions found in the exhibits. You can view those videos here:

http://www.dcvelocity.com/dcvtv/profiles/

Additionally, DC Velocity recorded video interviews at our in-booth studio with many industry leaders as part of our continuing Meet the Rainmakers series. These will be released over the next two months. Look for those videos in our This Week on DCV-TV newsletter.

I would like to express my thanks to the many people our editors met with during ProMat for helping us to provide such extensive coverage to DC Velocity readers. See you all at Modex next year in Atlanta.

Will smart robots take your job?

By Mitch Mac Donald | March 30, 2015 | 3:04 AM | Categories: Lift Trucks, Material Handling, Warehousing

Technology in logistics is replacing jobs traditionally done by humans, the trend and will continue at a record pace for the foreseeable future. Many have grown accustomed to seeing this kind of thing in certain industries like manufacturing, healthcare, and logistics. But now, according Professor Edward D. Hess of the University of Virginia's Darden Graduate School of Business, technology will be coming for white collar jobs, too.

"Technology will be replacing more jobs at an ever-increasing pace, particularly with this next round of technology, which includes artificial intelligence. AI is the game changer," says Hess, author of a new book Learn or Die: Using Science to Build a Leading-Edge Learning Organization (Columbia Business School Publishing, 2014, ISBN: 978-0-231-17024-6, www.EDHLTD.com). "It is the biggest discovery since fire! It effectively threatens to wipe out a whole new group of jobs, including white collar positions."

His assertions are supported by a recent University of Oxford study that found over the next 10 to 20 years, of full two-thirds of U.S. employees have a medium-to-high risk of being displaced by smart robots and machines powered by artificial intelligence.

So, what can you do to keep your job?

"When the AI tech tsunami hits, the only jobs that will be safe are the ones that require a human element,” says Hess. “The things that humans will be able to do better than robots is creative, innovative, and complex critical thinking and engaging emotionally with other humans. You must take up your skills in these areas in order to make yourself more irreplaceable."

His advice on the skills sets that will strengthen employability in the rise of smart machines include:

  • Overcome cognitive blindness. Humans have a problem when competing with smart machines. We are lazy, sub-optimal thinkers, Hess says. We seek to confirm what we already believe, and we tend not to be open-minded or rational. We take what we already know, replicate it, improve it, and repeat. It is easier than thinking critically or innovatively, but it makes us cognitively blind. You can overcome your cognitive blindness by strengthening your critical thinking.
  • Get good at not knowing. We have to change our mindset about what being smart really is. In the technology-enabled world, how much you know will be irrelevant, because smart machines and the Internet will always know more than you. What will be more important is knowing what you don't know and knowing how to use best learning processes—in other words, the smartest people will be focused on continuously learning.
  • "Quiet your ego," recommends Hess. Humilitywill help you really hear what your customers and colleagues are saying, and humility will help you be open-minded and more willing to try new ways. Don't be so consumed with being right—be consumed with constantly “stress testing” what you believe against new data. Treat everything you think you know as conditional, subject to modification by better data.
  • Become an true collaborator. "The ability to collaborate effectively will be an essential skill in years to come," says Hess. "The powerful work connections that will be needed to build successful organizations will result from relationships that are built by authentically relating to another person, recognizing their uniqueness, and doing so in a respectful way that builds trust.

          "Artificial intelligence will in many ways make our lives better," says Hess. "But it will also challenge all of us to take our skills to a higher level in order to compete and stay relevant. We humans need to focus on continually developing the skills that are ours and ours alone."

UPS’ Fork in the B2C Road

By Mark Solomon | March 16, 2015 | 4:59 PM

 

 

How does UPS Inc. manage the seismic shift from steady-Eddie B2B commerce to the volatile and less-margin friendly world of B2C? Bill Greene, lead transport analyst at Morgan Stanley & Co. and one of the scene’s more astute observers, says UPS can try to maintain its margins and risk losing market share, or maintain share –at the expense of margins—by sticking with an aggressive pricing stance. Greene says UPS should pursue market share, even if it means a short to medium-term hit on margins. 

Unlike the B2B segment where UPS and its rival FedEx Corp. enjoy a virtual monopoly, the B2C market is more competitive. Besides FedEx, the U.S. Postal Service is a major player and becoming more formidable. In addition, there are smaller players that, while they could never directly challenge UPS, could affect pricing on the margins. Greene reckons that if UPS pursued market share growth by offering cheaper capacity to the market, it could take share from USPS, FedEx, and the smaller players. Growth at UPS's competitors would become more expensive, Greene said. This could force competitors to pull back on their own capacity investments, and would remove incentives for potential entrants like Amazon.com to build delivery capabilities.

If managed correctly, UPS could ramp up revenue growth from market share gains while discouraging rivals from re-investing in their networks and new entrants from taking the plunge, Greene says. This, in turn, could improve UPS’ B2C delivery density, the lack of which today is the biggest impediment to the company’s profit outlook in B2C.

Such a move is not without risks, Greene acknowledges. UPS’ margins would fall (the only question would be by how much) and investors seeing margin compression could flee the stock. It would not be an easy choice for UPS management, Greene says, but it may be preferable to the alternative, which is to keep rates high in a bid to preserve margins. What should also be recognized is that FedEx, with its independent contractor driver network, is in a better position to attain suitable margins on B2C deliveries than UPS’ unionized system and the higher labor costs that accompany it.

 

A new warehousing model?

By Susan Lacefield | March 06, 2015 | 11:33 AM

My colleague Mark Solomon has done an excellent job of covering “Uber-like” service providers—like 10-4, Cargomatic, and Box Smart—which match loads with unused truck capacity.

 A similar phenomenon is also being seen in the warehousing space with the company Flexe.

Flexe is a service provider that helps companies share underutilized warehousing capacity by matching those that need space to store their products with those that have excess space. In a sense, it provides a spot market for warehousing space.

Last week, the event and research company eyefortransport did an interesting webcast with Flexe CEO and Co-founder Karl Siebrecht and one the company’s customers, Dhruv Agarwal, CEO of True Fabrications, which sells wine accessories. Cleverly the webcast title described Flexe as being “AirBnB for Warehousing.”

In his presentation, Agarwal said that using Flexe has allowed his company to grow without having to expand its warehousing space. “It allows us to act as if we have a warehouse twice as big [as what we currently have],” Agarwal said. 

That’s one of the biggest advantages of Flexe, according to Siebrecht. “Warehousing is the most fixed of all assets in the supply chain,” he says. By allowing companies to tap into other organizations’ unused warehousing space, Flexe helps companies create much more flexible and responsive supply chains without having to increase fixed cost.

This type of model does seem to have a lot of potential, in particular for seasonal products. Additionally retailers might find this one way to respond to the need to have more product stored closer to the customer to fulfill omnichannel retailing and e-commerce demands. 

The big question, of course, is security. After all, there have been numerous reported cases of Uber drivers sexually assaulting customers and the unforgettable story of the AirBnB customer that refused to leave. How can you prevent the warehousing equivalent of this from happening to you? Flexe insists that it screens all its partners to meet standards of service and has a rigorous training and onboarding process. 

While there are certainly a lot of unknowns about this new model that may make a cautious person hesitate, it’s definitely an idea worth keeping an eye on, and I would love to hear from anyone who has had experience with Flexe or other similar models.

The expanding supply chain

By David Maloney | February 21, 2015 | 12:33 PM | Categories: Transportation, Warehousing

The recent move by FedEx to acquire Genco Supply Chain Solutions is proof of the growing trend of companies looking to stretch their traditional supply chain borders. The huge transportation company sees embarking into the contract warehouse business as an integral part of its future.

In doing so, it matches UPS, DHL, and other transportation providers who see a link between moving products and processing them in a distribution center.

Up until now, FedEx has not been a big player in this arena. With Genco under its umbrella, it has a proven commodity that has a nationwide footprint in warehousing and distribution – 35 million square feet in 130 locations.

Genco is also recognized as a leader in handling returns, which of course must be transported back to the distribution center. Once processed, FedEx can leverage its transportation network to deliver the returns to other parts of the supply chain. It should be a profitable union – one that recognizes the symbiosis within the supply chain of these important functions.

The move comes as no surprise to those of us at DC Velocity, confirming a core belief here. From its initial edition, DC Velocity has stressed the marriage of both transportation and distribution in an evolving, forward-thinking supply chain.

Manage like a coach, not a dictator

By Mitch Mac Donald | February 17, 2015 | 1:31 PM | Categories: Lift Trucks, Material Handling, Warehousing

Common sense sometimes isn’t as common as it should be. This came to mind in correspondence with the folks at West Monroe Partners.

 

Michael Harris, manager of workforce optimization at WMP makes a very strong case for a shift in mindset and approach for warehouse managers in dealing with team management. The bottom line: managers who coach their team will yield more positive result than those who dictate.

 

Harris notes it is very common in warehouses with standards to discipline based solely on a performance percent – for example, John only achieved 80% of his target for the week.  The problem is deeper than John’s performance, though, because there is typically no detail on what caused the subpar performance. For example, was it because an environmental condition was not present, i.e., a wheel on John’s picking cart is broken? Or was it due to something John is or is not doing? 

 

Managers have two ways to approach this matter with John. They can discipline him for poor performance, or they can coach him to improve his performance.

 

In a disciplinary approach, says Harris, the associate is instructed to react to a course of action dictated to them through the company’s formal discipline process. There is little to no opportunity for the associate to have input into this course of action and it ends up creating low morale and a lack of trust. It can also strain the relationship between the associates and the management team.

 

By instead taking a coaching approach, he suggests, a manager engages John to actively work together to address the issue. This creates a process of supervisors observing the associates and their environment to determine a root cause. It also gives the management team and the associates an opportunity to improve their relationship and create a team environment where both sides are working together towards a common goal.

 

If the root cause is a methods issue with the associate, the supervisor can explain what the associate is adding to the work or doing different from the preferred methods and how that equates to their underperformance.

 

Coaching should be utilized as the initial steps to newly-identified underperformance, Harris states. “Supervisors should give the associate an opportunity to learn from mistakes and fix any issues prior to launching into the formal discipline process, which may still be necessary if the associate continues to show an inability or unwillingness to address the issue.”

 

According to Harris, this approach helps the associate understand exactly what activities hurt their productivity and gives them hands on understanding of how to fix the issue as well as how it benefits them to do so. It also gives the supervisor and manager insight into any issues outside of the associate’s control that are affecting overall productivity.

 

Managers, Harris maintains, can foster this environment by utilizing the same coaching approach between themselves and their supervisors. In addition, having regular discussions on the process and helping supervisors to understand how a coaching approach will benefit the operation in the long run will go a long way. Some key benefits include:

  • Increased morale
  • Stronger relationship between management team and associates, manager and supervisors
  • Reduced turnover
  • Consistent performance and increased productivity

Supervisors applying the coaching approach have an intimate knowledge of the functions under their responsibility (the methods for each job) and incorporate the following steps into their typical day:

  • Identify consistently underperforming associates.
  • Schedule time to observe identified associates as soon as possible.
  • Address any root cause issues immediately during observations.
  • Practices good listening skills when working with associates.
  • Utilize proper training techniques to ensure understanding and buy in.
  • Document each associate interaction related to coaching or discipline.
  • Spends as much time as possible in the operation even when not performing formal observations.
  • Have an “open door” policy and a process for associates to report operational concerns or other issues.

Managers applying the coaching approach also have an intimate knowledge of the operation and incorporate the following steps into their typical day routines:

  • Have an “open door” policy and a process for associates to report operational concerns or other issues.
  • Works with supervisors on a regular basis (including occasional role plays) to help them develop their communication and conflict resolution skills which are essential to the coaching approach.
  • Develops and trains supervisors on how to identify coaching opportunities versus when discipline is necessary.
  • Performs regular walk through of their operation over the course of each shift to ensure visibility and to give the opportunity for associates to approach with questions and concerns.

The Fuel Surcharge Head-Scratcher

By Mark Solomon | February 11, 2015 | 8:05 AM

I’ve been doing this stuff for awhile, and I must confess that I don't really get the mechanism of fuel surcharges.

 

In its fourth-quarter conference call last week, UPS Inc. executives talked about the headwinds its three units—in particular less-than-truckload operator UPS Freight—would face as a result of lower fuel surcharges that would negatively impact revenues. But all the comments did was reinforce a basic question: Wouldn’t UPS offset those revenue headwinds from the lowered costs that would come from the cheaper cost of fuel purchases?

 

I have asked this general question of many analysts, especially in the wake of a dramatic fall in oil prices and recent moves by FedEx Corp. and UPS to raise their surcharges despite the dramatic decline in the price of the commodity. I get what appear to be cogent responses, but they are just not sinking in.

 

I am guilty of looking at this in a symmetrical way. That is, fuel costs and expenses should even out, albeit with a time lag that should be appropriately priced in by the shipping and investment community. Yet I am reminded that such thinking is off base. I’m told through analysts’ comments that the decline in oil prices is a negative for some of the largest consumers of fuel in the country. I read that some LTL carriers historically over-recover fuel expenses, and that when prices decline they have to give back some of that recovered revenue.

 

Fuel surcharges were created in the early 1970s after the first Arab oil embargo. They were designed to help carriers recoup the volatile—and in those days unprecedented—moves in oil prices without resorting to the difficult practice of hedging. Surcharges disappeared for about 20 years before returning as a permanent fixture in 1996. At that time, diesel prices had risen to about $1.19 a gallon, a high price in those days. A group of retail outlets was formed to report diesel prices to the Department of Energy. DOE compiled the data into a weekly index of chart of average prices on a national and regional scale. The DOE index would allow carriers to keep fuel charges separate from the line-haul rate, thus ensuring transparency on the impact of fluctuating fuel prices.

 

Over the years, surcharges have taken on different forms. For example, one approach has been to calculate daily fuel prices along a specific route and to set surcharges based on the prevailing daily changes. Whatever the case, a mechanism originally meant to be a pass-through to help carriers cope with fuel price volatility has turned into its own revenue stream. Today, somewhat perversely, it is better for carriers when fuel prices are higher so they can impose higher fuel surcharges in the hope that the surcharges run ahead of their costs. And conversely, in an environment like today’s, where in theory lower oil and fuel prices should benefit those who consume lots of the product, it’s actually a bad thing.

 

 I think I’m getting it…

Now is not the time to stop fuel-saving innovations

By David Maloney | January 19, 2015 | 8:15 PM | Categories: Transportation

As of today, the average gallon of gasoline in the United States is $2.06. It is even much less in some regions of the country. In New Jersey, drivers are spending only $1.69 a gallon. That is the lowest cost to fuel a car since 2009.

 

Diesel prices have also seen a drop with the average at $3.09 a gallon, down 83 cents from the same week a year ago.

 

Americans are saving millions of dollars each week on fuel costs. But if history tells us anything, we should not expect it to last. Fuel prices are highly volatile.  Companies would be wise not to make important decisions based on their current low fuel bills. That is especially true of firms that have programs designed to reduce their energy spend. Now is not the time to change course.

 

I recently visited Burris Logistics, a company that has made it a mission to reduce its fuel consumption significantly. Working with Ryder, Burris has redesigned its trucks, including modifications in engine design, gear ratios, and automatic transmissions to reduce fuel usage. They have also changed the body designs of the cabs and trailers to make them more aerodynamic and able to slice through the wind. They have added low resistance tires and mud flaps that allow air, but not road spray to pass through them. All of these innovations have increased the miles per gallon on Burris trucks by 50 percent since the campaign began.

 

My hope is that companies such as Burris do not stop innovating, even though diesel prices have dropped. The fuel nirvana we are now experiencing will not last. Innovations will still provide a reasonable return on investment, now and in the future.

Bill Logue’s Legacy

By DC Velocity | January 06, 2015 | 9:47 AM

William J. Logue walked into the fire when he was named to run FedEx Freight, FedEx Corp.’s LTL unit, in 2010. The LTL sector was flat on its back, hammered by freight and economic recessions, and by ill-conceived rate-cutting moves designed to defend market share and to try—unsuccessfully as it turned out—to force YRC Freight, the then-market leader, out of business.

 But Fred Smith, FedEx’s founder, didn’t build a $44 billion colossus by getting the big personnel decisions wrong. Smith knew that Logue, who ran air and ground operations at the parent’s main “FedEx Express” unit, was a master operator who grasped the trucking industry and how to apply processes long used in the express business to improve LTL’s value proposition. In addition, with more than two decades at FedEx, Logue had the corporate savvy to maneuver through the cultural maze to get things done.

Last Wednesday, Logue retired, leaving behind a healthier and profitable FedEx Freight for his successor, Michael Ducker, who, not coincidentally, comes to the job from the same role that Logue had when he was tapped. More significantly, Logue leaves having positioned FedEx Freight to be the type of operation Smith wants as he leads a vastly revamped FedEx into the balance of the century’s second decade.

One of Logue’s first tasks was to undo the disastrous scorched-earth rate strategy that was implemented before he got to FedEx Freight by people at higher levels than him. Then he engineered the most important step in the unit’s history: A dual-use network design to support a "priority" service for shipments that required delivery within two days, and an "economy" option for deliveries of three days or more.

Logue reasoned that LTL shippers accustomed to paying for services based on miles driven would gravitate to a model that offered choices based on transit times. He had to fight consultants who doubted that shippers would pay for slower times for shipments moving less than 600 miles. In the end, though, the customers got it, even if the consultants didn’t.

The service’s success depended on flawless execution utilizing the same type of tracking technology that made FedEx famous. It also depended on an increasing use of rail intermodal to keep the service economical. Today about 18 percent of all shipments—and about one-quarter of traffic moving over the “economy” network—travels via intermodal, according to a source close to FedEx. So far, the model has worked, with the “economy” service generating an especially strong following.

Logue (who was not available to be interviewed prior to his retirement) leaves with an industry that has become quite profitable, and is poised to become even more so. But he also leaves with one objective undone: Migrating FedEx Freight away from "classification" pricing, where rates are determined by the characteristics of commodity classes, to a structure based on shipment dimensions and density.

The approach, long used by FedEx's parcel customers, would be a "game-changer" for LTL if adopted, Logue said in early 2012. Logue departs as LTL is on the cusp of such a profound change. Though he won’t be around to see it, he was around to get FedEx Freight to the point where it appears to be set for years to come. For that, the company owes him a huge debt of gratitude


—Mark Solomon
Senior Editor

It's the most volume-filled time of the year

By David Maloney | December 15, 2014 | 1:35 PM

Sometime this week, UPS, FedEx and the United States Postal Service will likely reach an all-time high for the most packages shipped in one day. FedEx is predicting that 16 million packages will ship today alone (it is Monday, December 12 as I write this).

In an interview with CNN, Chuck Vookies, a senior station manager at the FedEx facility in Marietta, Ga. said that today’s volumes is higher than last year and about 30 percent more than a normal day’s volume. He attributed the increase to more online shopping.

During the last holiday season, higher volumes led to many packages shipped by the three services not reaching their destinations in the time promised. This led them to take steps to assure that their systems can now handle added capacities. Few employees are allowed vacation time between now and Christmas. More trucks were added to their networks and extra workers brought in to sorting centers as well.

We will see yet if these steps fix the volume crunch. All three services are confident they will shine this year.

Another step that both FedEx and UPS have taken to address their capacities is a plan to begin dimensional-weight pricing on small parcels. That won’t affect this year’s volume, but it is still essential to understand if you are a shipper. I wrote an extensive explanation of dim-weight pricing in a story in DC Velocity that appears in this month’s issue:

http://www.dcvelocity.com/articles/20141117-how-to-avoid-a-dim-future/

The article explains how you might be able to keep from seeing huge boosts in small package shipment costs that will now fall under dim weight pricing.

The reason for the change is that a lot of the volume that UPS and FedEx ships is air – packages that are much too big for their contents. These packages, which contain a lot of empty space, have until now taken a lot of the cube capacity from airplanes and trucks. Starting in January, customers will now pay a premium for not right-sizing their shipments with the correct amount of packaging.

By the way, if you are doing some last minute shipping and still want your packages to arrive by Christmas Eve, FedEx recommends you ship ground packages by this Friday, December 17. The company will accept next day packages by December 23 and still get them there by December 24. At least that is the plan.

I wish you all a very happy holiday season.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

Thoughts from our editors.



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