When is my supply chain digital?

Everybody wants to go “digital” these days. But haven’t we been doing digital things in the supply chain for a while now? We are using computers and software and we have been exchanging data for many years, right? Many digital applications that we use today, find their origin in the 1980’s or even 1970’s. EDI (electronic data interchange) originates back from early 1970’s with a first application at Heathrow Airport in 1971 (Wikipedia). The first users to install SAP did this in 1983 (“Heraeus of Hanau”, Germany), and SAP R/3, which almost all of us still use today, was introduced in 1993 (SAP.com). Excel 1.0 was introduced in 1985, replacing Multiplan and competing with market leader Lotus 1-2-3, remember?

It is very hard these days to find a supply chain that does not use any digital tools to calculate the stock, place an order and transfer information to a supplier. Therefore, indeed, one might say that every supply chains is already digital.

What does it mean, digital?

We believe that the digital supply chain actively develops 4 areas (more than others) to increase its effectiveness and efficiency:

digital development areas RGPDigital development areas © RGP

Generating data happens everywhere, because of tools such as scanning (a long existing technology), RFID (product and location data), OCR (optical character recognition, electronic document reading), IoT (Internet of Things; status and location data), AI (artificial intelligence) and machine learning (generating new data based on existing data and algorithms). Once data is generated, it needs to be exchanged: the second digital area. For this, the main tool today is the internet. As a subcategory, we use interfacing, where 2 or more computers can exchange data across internet. Today, direct access and RPA (robotic process automation) are catching momentum. RPA is a tool that runs processes without human interference and as an example, it can take data taken from one system, and upload it in (almost any) other.

The third digital area is the storage of data. Cisco predicts that by 2021, data center storage installed capacity will grow to 2.6 ZB, nearly a 4-fold growth (source: Cisco.com; 1 ZB = 1021 bytes). Traditional data centers are rapidly losing ground compared to these cloud solutions. Finally, the fourth digital area is the one where we benefit from all these efforts: the usage of the data. Data is used once translated into information (facts and predictions) based on analytics and science to support the decision-making process, and it can be used to instruct robots to perform actions.

Why going digital?

The three reasons that make it worth the effort:

  1. To save time and cost by moving resources from non-value-add tasks to value-add tasks
  2. Increase accuracy,  make less mistakes (computers do not make as much mistakes once programmed correctly)
  3. Respond faster (computers can do tasks quickly and during inconvenient hours)

Most digital tools do not come for free. The general principle is to invest up front (increased Capex) and enjoying the benefits in the day-to-day operation (reduced Opex).

Digital enablers

AT Kearney and WHU Logistics have provided a comprehensive overview of six digital enablers (already in 2015). They also say that supply chain managers need to manage the implications of the digital transformation of their function and of the underlying business model at the same time.

Digital enablers2

Source: European A.T. Kearney/WHU Logistics Study 2015 Digital Supply Chains

Business models will change due to developments such as connected products, embedded services, shared products (or products as a service) and omni-channel distribution. The digital transformation of the supply chain function means we are moving towards digital planning, -supply, -manufacturing and -logistics, with 4 areas of digitalization: supply chain integration, supply chain automation, supply chain reconfiguration and supply chain analytics.

Making it more digital: the digital road-map

This brings us to the core question: when is my supply chain digital? The answer is that all supply chains are digital, but some are more digital than others. To make your supply chain more digital, you can follow the digital development road-map, that by the way, is broader than supply chain management alone

digital roadmap

Digital road-map © RGP

After scouting and experimenting, 3 things can happen:

  1. Failure: experimented innovation does not bring the expected benefit. Failure is part of the game. Or as Daniel Newman (CEO of Broadsuite Media Group) likes to put it: “The secret to digital transformation success: fail fast to innovate faster.”
  2. Incremental success: innovation will lead to smaller changes with few to modest impact, can take longer to make full impact and focuses only on specific parts of the supply chain.
  3. Revolution: step change, happens quicker than expected, and has full-chain impact or even industry impact

We have seen some real revolutions, like what happened to the books- music industry due to Apple, the travel industry and the omni-channel development in retail. The consumer has been given the ability to buy products anywhere anytime, in the store and online, but also in the store online (the customer display in the store), and allowing them to receive the goods at home, or pick them up in the store or pick-up points. For many companies, this has significantly changed their supply chain and even business model and some have been able to change the competitive landscape to their benefit (others failed). These developments are however very difficult to spot and not many of us are among the first movers. Many of the first movers are start-ups that the larger corporates now try to copy in protected environments.

The smaller, more incremental changes happen more often but go more unnoticed. The implementation of EDI, the SSCC-barcode and RFID are examples . RFID has been a promising solution and some companies, particularly in fashion are using is more extensively these days. RPA is a technology that we expect to increase gradually over the next few years. More and more companies show serious interest to implement solution starting at smaller scale.

Conclusion: every supply chain is digital, but some are more digital than others

We all use digital tools in our supply chain. Some companies have been able to implement revolutionary tools that changed the business and their position in the industry. Not all of us will be that lucky. The key is to be bold enough to invest and combine failures with smaller improvements and maybe a step change from time to time. This step change could enable the company to change the competitive landscape dramatically.

Lean warehousing: easy analysis, hard implementation

WarehouseTwo weeks ago, our colleague Jasper Veurink posted his blog about warehouse automation. More than half of the Top-10 food retailers in the Benelux have now automated parts of their warehousing operations or are working on it[1]. These are exciting projects and the automation industry is booming: companies such as Vanderlande, Dematic and Witron are growing rapidly. On the other hand, according to Peerless Research Group, 42% of all the warehouses are still mainly manual and 51% is a mix of automated and manual processes. The shortage of labor is increasing the need to rethink the labor-intensive warehousing operations. But what if you are not ready to make that big investment, or you feel that there should be ways to optimize that manual way-of working? And without doing this first, will you ever harvest all benefits from the automation investment?

Therefore, we share a pragmatic Lean methodology in conventional warehousing which you can use to check where you stand in your conventional warehouse. If you would invest time in optimization according to the methodology, you will be in a much better position to move forward. And you can always revisit your business case for automation and see what the newly reached productivity numbers have done to your ROI. The challenge with this is that the analysis is the easy part. Making the actual improvement is the hard part.

If you want to learn more about the theory of Lean, we recommend that you read “The machine that changed the world” (James P. Womack, 1990), “The Toyota Way” (Jeffrey Liker, 2004) and “Lean thinking” (James P. Womack and Daniel T. Jones, 1996). These 3 books together will give you a thorough background of what Lean means, what it does and why. Our ideas are based on these principles, but translated into a pragmatic approach.

5-touch warehousing

Our approach is based on the so-called 5-touch warehouse process. This is the operational model for a warehouse with a buffer stock and picking operation. In 5-touch-warehousing goods are received (1), put-away in storage (stored; 2), replenished to a pick location (3), picked (4) and finally loaded (5). Hence the five touches. Warehouses that apply other flow types can apply less or more steps in their processes or certain steps such as put-away and replenishment can be explained differently. In the end, also these warehouses can still follow the logic.

Lean warehousing philosophy: remove the 7 forms of waste

The Lean philosophy tells us that we should remove waste (or Muda in Japanese). Waste is generally described as activities that do “not add value to the customer” and comes in 7 ways:

– Excess Inventory (too much stock)
– Waiting (too much time between process steps or stops within the process)
– Movement (movement (of the operator) within a process)
– Defects (errors, mistakes, re-work needed)
– Transport (of goods between process steps)
– Over-processing (too much handling/ steps for the same result)
– Over-production (too much work being done)

Analysis: the easy part

If we look for the 7 wastes in the 5 touches, we have 35 areas to investigate. This is the easy part of your project. Simple put the 5 processes under the microscope and check if you see excessive stock, operators or goods waiting, movement that can be simplified, and so on. Start at reception and work your way through the warehouse.

Most apparent examples: waiting

Since picking can be 40-60% of the work and is therefore the most labor-intensive activity in the warehouse (Tompkins et al. 2003) the most apparent example of improvement potential is shown when the operators in this team are waiting. A first action is to check and improve the forecasting of the work (total volume per day and fluctuations across the day), and planning of the workforce. Secondly, the picking process should be prioritized over the other processes. For example, the replenishment process should be organized in such a way, that a picker is never waiting for stock in the pick location. This can be done by letting the WMS prioritize the replenishment assignments and planning enough resources in this team. In the case that goods are not available in bulk storage for replenishment, the order line(s) should be removed from the picking assignment. Thirdly, congestion between pickers and other operators should be avoided by workload planning across the processes.

Movement and transport in picking

The second priority of Lean optimizations should be in the picking movement and transportation. Again, because picking is most labor intensive, the routing of the picker before, during and after the picking should be shortened as much as possible. This means that both the routing as well as the length of the pick-run should be well thought-through (routing strategies will differ per type of operation). This has also implications for the type of pick locations, the start- and end-point of the pick-run, the drop-off points, printers, etc. During the picking, taking the goods from the pick face should be made as easy and comfortable as possible for the picker. Finally, an important consideration is that if the picker could take goods for multiple orders and/ or customers during one pick run, he or she can benefit the most from the distance that must be travelled anyway.

Excess inventory

As third priority, we would like to mention excess inventory across the warehouse. As a start, excess inventory in the reception area (more incoming goods during a certain period than the warehouse can properly absorb) will create a snowball effect of inefficiencies. It will become more and more complex to perform solid checks on the incoming goods and perform proper put-away. When the checking comes under pressure, more mistakes will be made (defects) and corrective actions are needed (over-processing). It also will be more difficult to maneuver with the goods, making the following processes less productive.

Following upon reception, excess inventory in storage limits the possibility to find the optimal location for goods. Therefore, it means that goods are stored far away from the reception, picking and loading area, creating excess transportation. It can also force the warehouse team to relocate goods from time to time, because the space is needed for other goods, which implies a form of over-processing.

Finally, excess inventory in the loading area finally is a signal that the integrated throughput planning in the warehousing is not functioning well. This means that goods arrive too early in the loading area, blocking docks for a longer period than strictly necessary. So-called “Just-in-time” planning is not working properly. The indirect effect is that other loads are positioned at docks that could be far away from the picking zone, creating excessive transport (similar to what happens in the reception area). What also could happen is that orders are changed or even cancelled during the waiting, which means they must be put back into storage or partially repicked. This could have been avoided by starting at a later moment.

How to improve? The hard part

After analysis of the 35 possible improvement areas, the hard part of implementation and change starts. The analysis can be done rather isolated from the operation but for the improvement you will need the entire team. This will be an organizational change project that will potentially encounter all difficulties that such projects do. On top, there are additional challenges: logistics is predominantly a slim-margin business, and still not always regarded as a strategic advantage (despite all efforts from the supply chain community to explain this). Therefore, managers are reluctant to add specialized resources and budget to drive the project. This means that the project will have to be done by the team itself with limited or junior resources. Additionally, the industry has a strong tendency to be happy enough with “good” rather than “great” and Jim Collins has already taught us that “good is the biggest enemy of great”. Finally, improvement projects must be a top-to-bottom & bottom-to-top thing and can (depending on the maturity state) last multiple years. This means that strong and continuous support from the top is needed for a long period, trusting that this will pay off.

KPIs

Besides the actual improvement ideas, each improvement program should start with measuring the current KPI-scores. This measurement starts with the service level KPIs such as on-time-in-full (OTIF) and accuracies on picking and stock; the quality KPIs. The quality KPIs indicate how well your operation is running. Second, measure the productivity KPIs, generally explained as output divided by input (how many working hours do you need to receive, put-away, replenish, pick and load the goods). Start with the critical processes like picking and replenishment and display the KPIs as openly and clearly as you can so that nobody will be able to miss them. Also discuss these KPIs every day with the entire team during short and intensive stand ups (do not keep this to the management team alone, but include all operators). If you don’t measure the KPIs from early on, you will not be able to explain and/ or understand the impact of your program.

Continuous improvement

Once the as-is performance is clear, idea-generation is the first step in continuous improvement (Kaizen in Japanese). Each team member should be allowed and motivated to come forward with ideas (big or small). This engagement is probably the hardest part of the implementation. But the more the team itself comes forward with ideas, the easier the implementation will be. An improvement program leader should provide feedback on all ideas openly: which one’s will be implemented and which will not (yet) and what is the status. The bottom-up idea gathering is critical to engage the entire team on the performance. Once the ideas come forward in a more proactive way, work with an open idea board and incentivize the best ideas with recognition and/ or small rewards. Make sure the top management is connected to the shop floor and pro-actively approaches all team members for suggestion. These walks on the shop floor (so called Gemba-walks) ensure that everybody understands working on the performance is a team effort.

There are multiple ways to select priority improvement areas. A first step can be to consider the impact and complexity of each optimization idea and select the high-impact low-complexity ones to start with. This will most likely make you start at the picking process. If you will find that the other processes (specifically replenishment) are important enablers of successful picking, you might want to start there. Finally, it can also be an option to follow the goods, starting with reception and ending at the loading process.

Paul Hehenkamp is managing consultant supply chain management at RGP. He can be reached at paul.hehenkamp@rgp.com

[1] Publicly known to be working with/ on partial or full automation: Albert Heijn, Colruyt, Delhaize, Jumbo, Lidl, Plus. Not publicly known to be working with/ on automation: Aldi, Carrefour, Detailresult, Sligro