Strings in the Supply Chain

Isn’t it wondrous how the mind can take seemingly unrelated items and string them together into a single coherent thought? I suppose it’s like a detective who has a pile of unrelated evidence and then things start to click and before long he sees exactly how the deed was done.

Well I’ve been thinking lately about topics like omni channel fulfillment, marketing trends of some of the big manufacturing companies, demographics affecting supply chain and a piece about a fascinating gentleman over in Gainesville, FL.

I think all of this started at a luncheon in Jacksonville that featured David Brown, the President of Johnson & Johnson Vision Care. He presented some material that focused on the buying habits of one of their target markets, the Millenniums. That’s the group of people born right around the turn of the century who are forcing changes in how, why and when products are bought. His company, and many others, is focusing its attention on shifts in buying habits and how that affects J&J production and distribution philosophies. These “early adopters” of non-traditional buying methods are quickly being joined by the rest of society. My friend Ed, who is 83 years old, recently told me that he wants to order a pair of shoes on the internet and is wondering whether he should have them delivered to his home or to the store to save the shipping cost. That blew my mind because 5 years ago I couldn’t conceive of someone of his age even considering ordering on line and giving up credit card information to a computer!

That brings me to omni channel distribution, a concept that promotes buying through traditional brick and mortar stores or newer channels like mobile devices, computer, groupons or social media and then delivering the product directly to the home of the consumer or to their local retail store or drop box. With this philosophy, inventory visibility across the supply chain becomes the most critical aspect of the transaction. And retailers are scrambling to figure out the best method, or methods, to fulfill the order: a centralized fulfillment center, regional DC’s, use the local store as a mini DC, use a 3PL, and the list goes on. Linked with the fulfillment strategy must be the all-important source and delivery frequency of the replenishment merchandise. 

An article in the June 2013 edition of Modern Materials Handling gave some interesting projections about major consumer packaged goods (CPG) companies marketing and fulfillment strategies. The article tells us that this year over 40% of CPG companies expect to sell their products directly to consumers. That’s a hefty percentage, but what caught my eye was the rate of increase. The report says that in 2012, only 24% of CPG companies did business directly with the consumer. Given that CPG companies are under attack from lower cost store brands; this strategy makes sense if they can deliver at or below their regular price, or if they can sell the value of shopping from home. Apparently that’s happening if they expect to see such a huge increase in direct to consumer sales. In either case, their fulfillment strategy will get turned on its head if the buying trend continues.

And how does all of this relate to the material handling processes and systems within the four walls of distribution? Well that’s where all of these topics start to string together.

If we consider the rapidly changing buying habits of consumers and combine those trends with the push of major CPG companies to market directly to those users and encourage them to buy directly, we have a completely different distribution model than the typical brick and mortar operation. We’re now talking about picking and processing an extremely high volume of orders but in very low quantities of lines or pieces (typically 2 or less). This isn’t picking cases and shipping to a retail outlet, or even picking to replenish what was sold over the past few days at the mall store. This is going to a storage location and picking one shirt, sending it to a packing station, bag it, tag it and send it to the FedEx truck. Now we’re faced with considerations like batch picking vs. order picking, order cut-off times, fast movers vs. slow movers, expanded SKU base, order verification to create the “perfect order” and so much more.

All of these issues demand a totally different set of technologies to help process those orders. The traditional conveyor/pick module/shipping sorter model of the past is quickly being replaced in some DC operations by high density storage systems, goods-to-person picking systems, direct linking of picking and packing, a new breed of sorter technology and a host of distribution software that was only a blip on the screen a few years ago.

Over the next few blogs I’d like to explore a few of those technologies and discuss what I’m seeing out there. We’ll address the complex issues that new trends in buying and omni channel distribution have imposed and how material handling technologies are evolving to keep pace inside the four walls. I think high density storage and Goods-to-Person technology may be a good place to start next time.

Oh, what about that fascinating gentleman from Gainesville? Dr. Grant Thrall is a pioneer in the field of business geography. He helps companies make decisions where and when to locate facilities or stores based on using information related to demographics, consumer lifestyles, real estate and infrastructure. This guy knows what people in your zip code are buying, when they bought it and what they may buy next. Spooky isn’t it?

Thanks for your time…..

Michael