The nature of business competition is changing, according to Martin Christopher, director of Cranfield University’s Centre for Logistics and Supply Chain Management. A world in which individual companies compete, he says, is instead turning into one in which their respective supply chains compete. An overly fanciful notion, thought some, when Christopher first made this prediction. But today he stands fully vindicated.
For proof, look no further than the high street. Marks & Spencer, once the nation’s favourite outfitter, has suffered a torrid few years as rivals such as Tesco, Asda and Matalan have trounced it on price, variety, availability and responsiveness to the fashions of the moment. Or, at the other end of the spectrum, Airbus’ mighty double-decker A380 passenger jet. With Boeing in second place in the global commercial airliner business, Airbus looks set to widen its lead with a plane that is assembled from pieces streaming to Toulouse from all over the world.
But as with the telecoms industry and the internet, effective supply chain management encounters problems during ‘the final mile’. While co-ordinating a flow of goods around the world seems manageable, the flow often falters as it gets closer to its destination – the consumer. And while managers wrestling with the problem can see hopeful signs, such as wireless technology and RFID, other difficulties lie ahead. Road congestion and driver shortages, for example, are set to worsen.
Take inventory levels. ‘Just in time’ has been around for 20 years, but there’s still scope to squeeze more inventory out of the average supply chain. According to the annual cash management survey from GTNews/REL Consultancy Group, Europe’s 1,000 largest companies could free up about EUR580bn of working capital by working more closely with suppliers and customers.
Companies can make reductions of between 10% and 15% in their working capital through better inventory management, a further 20-30% through better management of their accounts receivable, and a reduction in working capital of between 10% and 15% through better management of their accounts payables, says Piers Lightfoot, president of REL Europe. Because it is based on benchmarking techniques, comparing best-in-class with the rest, the calculated savings aren’t hypothetical. Best-in-class companies are actually achieving these levels of performance, he says. But the rest are not.
So what’s going wrong? Knowing which products are where in the supply chain, and knowing this information accurately, would be a huge step forward. A recent survey carried out by The Economist on behalf of computer group Unisys found that only 15% of manufacturing executives believe their company’s information on the movements of materials in the supply chain is accurate, and an even smaller proportion believe it is as timely as it could be.
Wireless technology can help. A major source of errors, it turns out, occur at the warehouse picking stage, where people required to pick and pack one product instead pick and pack a different one, thus leaving not one but two inventory records in error.
One possibility, says Rene Schrama of Zetes, Europe’s largest automatic identification integration specialist, is pick-to-voice technology. Studies at the University of Dortmund, Germany, have shown that barcode scanning results in a 99.2% pick accuracy, while pick-to-voice offers 99.9% accuracy. “It’s not a significant difference in itself, but over the huge number of picks in an automotive spares warehouse, for example, it adds up to quite a lot of eliminated errors,” he says.
Third-party logistics provider Hays Logistics, for example, increasingly uses wireless technology for voice-driven picking, where operators are told what to pick next by a synthesised voice through their headsets. “In the right circumstances, the return on investment is very reasonable,” notes Hays IT director Robert Lee, adding that the resultant increase in productivity generally implies a payback period of 18 months or so.
At Figleaves.com, a £20m online lingerie retailer, wireless-based picking is delivering not only an improvement in productivity of about 40%, but is also underpinning the company’s growth strategy, says Figleaves chairman and founder Daniel Nabarro. When Figleaves was founded in 1998, picking was based on manual sheets of paper. Not only was the system error-prone, but the velocity of inventory through the warehouse was sluggish.
Now, wireless-enabled Casio IT-500 handhelds running under Microsoft Windows CE not only scan incoming deliveries into ‘tote pans’ but are also used at the point of picking, matching orders against the items in the totes to ensure the right goods have been picked. Productivity has soared, errors have plummeted, and the costs of picking have come down by 30%, says Nabarro.
Yet scanning goods with handheld devices still requires a human operative to undertake that scanning. RFID tags, attached to the goods to be identified, dispense with this by communicating wirelessly with a reader. Line-of-sight isn’t required: the contents of cases and cartons can be read without even opening the box. The result? Extremely high levels of inventory accuracy and better productivity.
Every printer leaving Hewlett-Packard’s computer peripherals factory in Tennessee, for example, now has an RFID tag attached to its carton. Handheld devices no longer scan printer barcodes one by one as they are stacked onto pallets: an RFID reader scans the pallet instead. “Before, we’d have to barcode them individually; now, we do them all at once,” says Adam Hevey, a consulting principal at Hewlett-Packard’s technology solutions group in Reading. “What used to take a minute-and-a-half now takes 11 seconds.”
It’s a small saving, to be sure, but one that adds up to a larger one given the volumes of pallets and printers involved. No wonder, then, that RFID has captured the imagination of organisations as diverse as the US Department of Defense, Wal-Mart and Tesco – each of which has set dates by which its major suppliers must be capable of shipping goods with RFID tags attached.
So imagine their concern when the ratification of the long-awaited UHF Generation 2 RFID standard in December 2004 was disrupted by a claim from US company Intermec Technologies of Washington, which announced it was to demand royalties from companies producing RFID devices that were compatible with the standard. Given that EPCglobal, the worldwide RFID standards body behind RFID, has long said that its aim is to produce standards that are free from proprietary intellectual property, this was the sort of thing that wasn’t supposed to happen.
Following discussions between EPCglobal and Intermec in early November, the royalty claims were suspended for a period of 60 days, allowing testing and ratification to go ahead. Companies that were supposed to produce prototype tags and readers upon which to test the new standard had become nervous about infringing Intermec’s rights and had threatened to pull the plug.
But the spat is unlikely to prove damaging to RFID prospects in the long run, says Jeff Richards, president and chief executive of RFID consulting firm R4 Global Solutions. Current previous-generation pilot projects do not have an impact on the royalty claim, he points out. “Overall, there’s too much user-driven demand for RFID to let early-stage issues such as this hold things up,” says Richards. “Look at the Linux movement: although there is some legal wrangling going on, the market shows no sign of slowing down – there’s just too much momentum from the user community.”
But if wireless technology looks set to help solve supply chain management problems, other less welcome developments aim to increase them. Road transport, for example, looks set to become a bottleneck in the years ahead – and a costly one at that. Britain’s road transport partial opt-out of Europe’s Working Time Directive is due to expire shortly, and estimates put the shortage of heavy goods vehicle drivers at 120,000 by the end of 2006, once the Department for Transport’s proposed legislation bites. Recent figures from the National Audit Office paint a gloomy picture, with road congestion rising by 14% since 1995, and currently costing the country £3bn a year.
Fuel costs are both high and unpredictable, yet official figures show that some 55% of truck journey miles are ’empty’ running. Looking further ahead, the government has announced plans to scrap road tax and fuel duty for trucks, replacing them with a scheme of road user charging.
Trying to simultaneously boost capacity and reduce costs is a tall order, yet leading-edge businesses point to two ways of doing it. One option is the use of in-vehicle telematics, usually with moving map capabilities. The shortage of drivers, says Andrew Hunter, commercial director of Eagle Eye Telematics, means that many companies are using agency drivers who are unfamiliar with the routes they are asked to drive. Far from being spy-in-the-cab devices, telematics can significantly boost productivity by helping drivers to their destination sooner.
Another option is to make better use of truck fleets by finding ‘back-hauling’ loads to fill up otherwise empty return runs. One way of doing this is to join one of the emerging online exchanges set up to trade such spare capacity. One such system is Quick Quote, an internet-based quotation system from King’s Lynn-based Freight Traders, a subsidiary of the Mars group. Initially set up to handle freight movements for Mars, the company has since picked up business from other big names, including Lever Faberge, Colgate Palmolive and Reckitt Benckiser. It has made substantial savings since it began using Quick Quote to allocate freight on its European interplant routes in November 2002.
By providing a means for hauliers to sell their wasted empty running capacity – and for its client companies to take advantage of it – Freight Traders claims to have reduced overall freight charges by an average of 5%, says Garry Mansell, Freight Traders managing director. “What we’re aiming to do is put the right freight with the right carrier. Hauliers aren’t losing margin to win business, they’re selling capacity that would otherwise be wasted,” says Mansell.
In a world where entire supply chains are competing against one another, such savings are welcome. Supply chain management has come a long way in a short time, but there’s plenty of progress to be made.
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