logistics – Page 5 – The OM Blog by Heizer, Render, & Munson

OM in the News: Global Supply Chains and the Port Gridlock

The labor dispute that caused months of gridlock at West Coast ports may be over, but the disruption is expected to redraw the trade routes that goods take to reach U.S. factories and store shelves, reports The Wall Street Journal (Mar.6, 2015). About 1/2 of all U.S. cargo has flowed through these ports, including imports as diverse as sneakers, soy sauce and auto parts. But over the past year, supply-chain managers have increasingly shifted cargo to ports on the East Coast, Gulf Coast and in Western Mexico and Canada in attempts to avoid growing congestion resulting from union slowdowns.

This is bad news for West Coast ports, truckers and railroads already worried that the expansion of the Panama Canal, due for completion next year, would begin to divert more business to the East Coast. Already it is expected to take 3-6 months for West Coast ports to return to normal (29 ships are still anchored outside the LA area ports).

Supply-chain flexibility has become increasingly important since the 2008 economic crash, as businesses have become more focused on keeping inventories lean and scheduling deliveries to arrive just as they are needed. Decisions are made on a day-to-day basis, with the most sophisticated shippers tracking progress of their shipments via cloud-based technology.

The West Coast port chaos is just the latest event prompting shippers to both diversify transportation modes and ports. Hurricanes, a tough winter, or labor issues all can trigger severe product delays or even empty shelves, costing companies tens of millions of dollars. The biggest shippers, including Wal-Mart, Home Depot, and Target, have employed for years what is known in the industry as a “4-corner strategy,” in which networks are expanded to include warehouses at northern and southern ports on both coasts and the Gulf of Mexico. Now even smaller companies are diversifying.

Classroom discussion questions:

1. What is the 4-corner strategy and why is it being used?

2. Why are supply-chain managers concerned about the West Coast port slowdowns?

Video Tip: How Cargo Ships Transformed the World Economy

“The MSC Oscar, launched earlier this month, has the greatest capacity of any container ship on the planet,” writes Vox (Jan.22, 2015). It can carry over 19,200 20-foot shipping containers. That’s enough space for 117 million pairs of sneakers or 39,000 cars or 900 million cans of dog food. And it’s just the latest stage in the explosive growth of container ships since they debuted in the 1950s.But it probably won’t hold the title for long: For the last several years, the record has been broken every year. To understand how container ships got so huge, you have to go back 60 years, when overseas shipping was so cumbersome and expensive that many companies simply choose not to try. This short (2.5 min.) video explains the origins of the container ship and how they drastically changed the world.

Until 1956, most international cargo was manually packed in the holds of shipping boats by dock workers, and manually unloaded when it reached port. That year, a North Carolina trucking company owner had the idea to use cranes to directly load truck trailers onto the ship and debuted the Ideal X — the very first container ship, a converted tanker that could carry 58 containers. In 1957, he launched the much-larger Gateway City, which could hold 226 containers, stacked in racks. Other companies copied his methods, and shipping containers now come in standardized sizes (they are now 8 feet wide, 20 or 40 feet long). By the end of the 1970s, the majority of consumer goods coming to the US were being shipped by container.

It’s hard to overstate how much all of this has changed the world economy. Before the container ship, transoceanic shipping was so expensive that it didn’t make sense to send most goods around the world. Now, it’s cheap — which, combined with-free trade policies, means that vendors in wealthy countries can efficiently take advantage of cheap labor abroad. For the American consumer, it means that the vast majority of goods — shoes, clothes, flat-screen TVs, basketballs, even toothbrushes — come from abroad, via container.

Classroom discussion questions:

1. How have these cargo ships changed global economies?

2. What are the complications from the growing sizes of the ships?

Guest Post: The Uberization of Trucking

Our Guest post today comes from Roseanne Stanzione, who is CEO of LaneHoney, the Marketplace for Trucks On Demand

Uber’s taxi service is cool, right? Moving dots on a map tell you the location of the nearest taxi. Hop in and off you go, without handling cash. And now venture investors have placed bets that the $60 billion truck brokerage industry of agents and phones can be disrupted with applications like Uber.

So what is the Uber magic anyway? Three things: 1) set up, 2) transact, 3) done. Uber is first and foremost a logistics application, one that eliminates transaction friction and makes better use of assets. The current truck shortage is the biggest real-time asset problem in America needing a smart, uncluttered answer. The current state of industry technology? Unfilterable bulletin boards, incomprehensible transportation management software that requires training to use, no price information and everyone drowning in paper. It is no wonder 30% of backhauls go empty.

Set-Up is about simplifiying and automating the complexity of a transaction and placing it behind the scenes so that the transaction is front and center. To do that you need great data and handling, standard processes and documents, and of course, real time location. Transact is the real Uber magic. It’s genius Uber Experience (UX) that places the complex stuff behind the scenes and makes it effortless for users to oft in and hit “go.” UX will be a brand new competency required of logistics professionals to compete going forward. Done is realtime location that means trace for mobile dispatch, time-stamped delivery and accrued detention, putting “fuel surcharges” (a catch-all for additional brokerage charges) on death notice. Better visiblilty means actionable data for enterprises, better margins, shorter miles, and the chance to be home for dinner.

Once all this Uber magic is in place, hard to do by the way, carriers get more offers, shippers get faster, cheaper shipments. That broker taking the most out of a transaction with an unknown spread fee becomes a relic.

Video Tip: Maersk’s Floating Empire State Buildings

Breakfast in your home is a global affair. While your eggs may be from a nearby farm, your cooking pan could be from Germany, the refrigerator, toaster, and table from China, the fruit salad from 4-5 different countries, your newspaper from Indonesian wood pulp, and the coffee from Ethiopia. Regardless of national origin, pretty much all of it came from outside your town, by means ranging from 1,200-foot-long container vessel to railroad to truck. And that’s just breakfast. For all of our activities, the average American requires the movement of 57 tons of cargo per year!

“Ninety percent of the world’s freight goes by sea, and the vessels that transport it are the largest vehicles on Earth,” writes The Atlantic-CityLab (Oct.2, 2014). The more containers that can fit on a ship (measured in 20-foot equivalent units, or TEUs), the cheaper it is to move them. Today, the Triple E class container ships built for Maersk Line are the world’s largest ships. The Triple E class can hold 18,000 TEUs, enough to transport 111 million pairs of sneakers, or enough to shoe over 1/3 of the U.S. in a single trip. The Triple E is 1,300 feet long (which is the height of the Empire State building), 194 feet wide, and 240 feet high. This 6 minute video provides a perfect interface when you discuss logistics in Chapter 11.

As ships bring bigger swells of goods and ask for quicker turnaround times, the ports are focusing on how to get those goods off the ship and on the roads or rails faster. So while ships are maximizing economies, ports are focusing on efficiency. At this point, rail proves to be the most efficient mode of land transport. In 2013, railroads moved a ton of freight an average of 473 miles on a single gallon of diesel fuel. Rail is widely considered to be 3-4 times more fuel efficient than trucks, and especially vital for moving bulk cargo—2/3 of U.S. coal shipments move by rail, for example.

OM in the News: UPS Tries to Increase its E-Commerce Efficiency

In 1998, as much as 85% of e-commerce purchases were shipped between businesses. But along came Amazon, which helped convince a generation of Americans to buy even humdrum household items like diapers and toiler paper online rather than at the store. UPS drivers who used to drop off a bunch of heavy packages each day at one retailer, now make several stops scattered across a neighborhood, delivering one lightweight package per household. The shift required more fuel and more time, increasing the cost to deliver each package.

Last Christmas season, nearly 60% of all U.S. deliveries by UPS were e-commerce packages to consumers, compared with about 40% for all of 2012. Today, UPS’s haul includes much of Amazon’s 2-day-delivery Prime business. On residential routes, as much as 1/3 of trucks are filled each day with Amazon packages. And last Christmas, when UPS was overwhelmed by a pileup of online shipments at its massive Louisville facility, there were hundreds of trailers stacked up filled with Amazon orders.

UPS’s responses, reports The Wall Street Journal (Sept. 12, 2014): (1) Increase spending on new technology and extra manpower by 21% to $2.5 billion in 2014; (2) A pricing change that will encourage UPS customers to use boxes that fit the items being shipped, freeing up space in trucks for additional deliveries, or else pay extra; (3) Major savings from its route-optimization system, Orion. (Orion analyzes millions of pieces of data to predict the most efficient way to deliver and pick up packages along each driver’s route. Every mile cut saves the company $50 million a year, with half of UPS’s delivery routes in the U.S. using Orion by 2015.); and (4) My Choice, a service that alerts customers the day before a home delivery is set to arrive, provides an estimated delivery time and lets customers tell the driver where to leave the package. (Already 10 million customers have signed up for the $40/year service).

Classroom discussion questions:

1. How has OM helped UPS’s efficiency?

2. What new threats does UPS face in its shipping business?

OM in the News: Eight Things Supply Chain Managers Worry About

When a group supply chain managers was recently surveyed about their concerns, Material Handling & Logistics (Aug. 27, 2014) reports that they came up with the following eight:

Talent: Having the right people in the right positions. All companies need better processes to assess, identify, recruit, develop and retain top talent, especially since supply chain talent is increasingly scarce.

The customer: The executives felt the urgency to better understand the current and future needs of their customers. They understand that their customers should lead their supply chain strategies, and they know that their customers should be better educated on the cost-service tradeoffs.

Agility: Given the increasing volatility in the global environment, the group understood the urgent need to plan and prepare for increased supply chain agility. Postponement is one of many enablers of supply chain agility.

Technology: The executives know they need to stay current with technology on many fronts, from warehouse and transportation management systems to network optimization tools and inventory planning systems.

Cost: Cost reduction will always be a priority and supply chain executives know their companies expect them to take the lead in that area. They must reduce cost while simultaneously redesigning their supply chains and leveraging the global environment.

Regulations and Infrastructure: Executives know they need to find efficient ways to comply with the growing list of regulations, as well as the crumbling transportation infrastructure.

Risk: Executives understand they should have a better process to identify, prioritize and mitigate supply chain risks that can seriously damage their companies. Even weather must be considered.

Sustainability: They think it’s time to develop a serious supply chain sustainability strategy. A growing number of companies have already begun that effort.

Classroom discussion questions:

1. Which of these eight do you think is the highest priority?

2. How can supply chain managers mitigate risk?

OM in the News: Boeing’s Latest Supply Chain Challenge

It’s not every day that we see Boeing 737 fuselages partially submerged in a river, but as the photo shows, the aircraft were severely damaged when a freight train derailed in Montana on the way to the company’s plants in Washington state. “The derailment threatened to throw a wrench in the tightly choreographed, far-flung aerospace supply chain, which depends on just-in-time deliveries of giant parts by train, plane and boat to meet record demand for jetliners,” writes The Wall Street Journal (July 7, 2014).

The train, which derailed near Rivulet, Mont., was carrying components including complete fuselages of 6 single-aisle 737s, fuselage panels for a long-range 777 and wing parts for a 747 jumbo jet. Most of the damaged parts were manufactured by Spirit Aerospace, in Wichita, Kan., where the shipment originated. They were destined for Boeing’s Renton and Everett assembly lines, which piece together the majority of the company’s commercial aircraft.

Three 737 fuselages tumbled down an embankment, two of which were partly submerged in the Clark Fork River below the tracks. A fourth 737 fuselage was torn apart during the derailment and was resting next to the tracks. Boeing’s jetliner supply chain has been disrupted before. Two years ago a tornado struck Spirit’s Wichita factory, shutting down operations for a week. In 2011, a BNSF train traveling through Nebraska derailed when a tornado knocked cars from the track, damaging a 737 fuselage on board.

Major aircraft makers such as Boeing and Airbus spread their jetliner factories across regions and countries, requiring a finely tuned logistics network to move aircraft components around the world. Both also use cargo ships and specially modified cargo jets to speed the delivery of body, wing and tail sections to assembly lines in sites as far flung as China and Charleston, S.C.

Classroom discussion questions:

1. Why is Boeing shipping fuselages across the country by train?

2. Why doesn’t Boeing make the fuselages itself?

OM in the News: FedEx Jolts E-Commerce Companies

“The joy ride is over,” said the president of a shipment-tracking software company. FedEx is changing the way it charges to ship bulky packages, jolting e-commerce companies with price increases for delivering items as diverse as diapers, shoes and paper towels (The Wall Street Journal –May 7, 2014). Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than 1/3 of its U.S. ground shipments. The move will greatly affect bulky but lighter weight items which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Macy’s, and Banana Republic.

Under FedEx Ground’s current pricing, a one-pound square package with 12-inch sides—which might hold several shirts would be priced by weight and cost $6.24 to ship. After the changes, the same box would be priced at $8.83, a 41% increase. If an item is heavier than its “dimensional weight,” the customer will be charged the higher amount.

The change in pricing could dramatically affect both online shoppers and retailers. Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs. Shipping is already one of the biggest and most rapidly increasing costs for big online retailers. For FedEx, it comes down to efficiency. Lightweight e-commerce orders take up a lot of room in the truck, and Amazon and other shippers don’t always match the box size to what is inside. (Companies like Zappos do use elaborate algorithms to determine exactly how many items should ship in a box to minimize the cost.)

Classroom discussion questions:

1. How does this decision impact operations managers at online sellers?
2. How will this effect large chains like Wal-Mart and Walgreen?

OM in the News: The Humble, High-Tech Shipping Container

Ask somebody to name the most important inventions of the second half of the 20th century, and you may hear of the silicon chip, the contraceptive pill, or the hydrogen bomb. Few would answer the shipping container. “Yet those humble, standard-sized steel boxes, invented in 1956, have changed the world,” writes The Economist (Mar. 1, 2014). Some economists think the shipping container has done more for global trade than every trade agreement signed in the past 50 years.

Even revolutionary products can be improved, though, particularly after half a century of service. One idea just proposed at the American Association for the Advancement of Science, is to make containers out of carbon-fiber composites. Such containers would be easier to use, because they would be lighter and might be folded flat when empty, saving space. A carbon-fiber container would need to travel only 120,000km (three times around the Earth) to prove cheaper than its steel equivalent. It would also be more secure, because it would be easier to scan without being opened.

That is an important consideration. In 2006, Congress passed a law requiring all containers arriving from abroad into American ports to be scanned to make sure they do not contain drugs, illegal immigrants, or fissile material. Doing this has proved hard, though, and the deadline for compliance is constantly being pushed back. Scanning steel needs high-power X-rays, or even gamma rays. These are expensive and dangerous. Carbon-fiber could be scanned with “soft” X-rays, which are easier to generate and use.

Another way to improve containers’ security is to track them properly. At the moment, authorities in a given port are usually told only about a container’s most recent movements. Better to give each container a comprehensive history, recording every port it has visited and every ship that has carried it. Such data could be crunched to detect suspicious patterns. Carbon-fiber containers, fitted with sensors, a travel history and the ability to talk to the authorities, may one day replace many customs officials.

Classroom discussion questions:
1. Why are shipping containers such an important operations tool?

2. How has shipping changed in the past 50 years?

OM in the News: The Logistics of Valentine’s Day Roses

U.S. consumers buy the most flowers on Valentine’s and Mother’s Days–and getting fresh roses to market takes speed, the right temperature, and skill. Like all perishable products, flowers require specific temperatures to maintain freshness, without which they will lose their bloom.

Complicating this need for the ideal temperature, flowers travel a long way from field to store reports Supply Chain 24/7 (Feb. 13, 2014). Eighty percent of all flowers sold for Valentine’s Day are shipped from Latin America, with 12% coming from domestic production and 8% arriving from other locations. In 2013, there were over 231,000 bushels of roses imported into the U.S. from Latin America. Most of these came from Colombia (142,000) and Ecuador (79,000).

Shipping starts weeks before the holiday and the best flowers arrive early. The graphic shows the 2-week path of a rose, from the fields of Latin America to the hands of its recipient.

Classroom discussion questions:

1. What are the risks to this supply chain (see Chapter 11)?

2. How does the supply chain for flowers differ from that of clothes made in Asia?

OM in the News: America’s Second Railroad Revolution

Union Pacific's Bailey Yard — Union Pacific’s Bailey Yard

Rail is on a roll in the U.S. As Forbes (Feb.10, 2014) writes, “The relic of the 19th century will become the most important logistics system of the 21st century.” Thanks to leaps in technology, more and more freight traffic has moved from roads to rails, where trains can move one ton of goods about 500 miles on a single gallon of fuel. The industry, so recently an aging also-ran in the age of superhighways, has seen revenues surge 19% to $80.6 billion since 2009, creating 10,000 new jobs at railroad companies. Less than a decade ago diesel prices were so low that manufacturers rarely considered rail for shipments of less than 1,000 miles. Now they’re ditching trucks in favor of trains for jobs as short as 500 miles.

All of which is driving a multibillion-dollar revival in rail R&D and infrastructure, investment unseen in America since the transcontinental railroad. Thousands of new state-of-the-art locomotives–far more fuel-efficient and less polluting than the ones they replace–are now operating on U.S. railroads. And the boom (with $20 billion in infrastructure spending annually) has been underwritten by industry, with no cost to taxpayers. Further, the Rail Safety Improvement Act of 2008 required railroads to fund, build and implement a new, safer “Positive Train Control” system by the end of 2015, refitting locomotives and tracks, and placing GPS devices on every locomotive.

This technology has been revolutionizing freight hauling, allowing the railroads to pinpoint a locomotive’s location within one yard. And instead of sending trains speeding across the country only to stop at each red signal, the new system means conductors will be able to know about planned stops well in advance, allowing them to simply reduce speed (and fuel consumption) to a level that won’t force them to stop altogether and burn major amounts of fuel when restarting from a standstill.

Classroom discussion questions:

1. Why are these changes in the rail industry important to operations managers?

2. What new technology is GE using in locomotives which will be 50% cheaper than diesel?

OM in the News: Amazon Skates To Where The Puck Is Going To Be

Evidently, Amazon.com has read hockey great Wayne Gretzsky’s famous quote: “I skate to where the puck is going to be, not where it has been.” Amazon thinks it knows you so well it wants to ship your next package before you order it. The Wall Street Journal (Jan. 17, 2014) writes: “The Seattle retailer gained a patent for what it calls anticipatory shipping, a method to start delivering packages even before customers click buy.”

The technique could cut delivery time and discourage consumers from visiting physical stores. Amazon says it may box and ship products it expects customers in a specific area will want – based on previous orders and other factors — but haven’t yet ordered. The packages could wait at the shippers’ hubs or on trucks until an order arrives. In deciding what to ship, Amazon said it may consider previous orders, product searches, wish lists, shopping-cart contents, returns and even how long an Internet user’s cursor hovers over an item.

Today, Amazon receives an order, then labels packages with addresses at its warehouses and loads them onto waiting UPS, USPS or other trucks, which may take them directly to customers’ homes or load them onto other trucks for final delivery. It has been working to cut delivery times, expanding its warehouse network to begin overnight and same-day deliveries. The patent demonstrates one way Amazon hopes to leverage its vast trove of customer data to edge out rivals.

Discussion questions:

1. What are the dangers in this concept?

2. Is this more realistic than using drones to ship packages?

OM in the News: Shipping Bottleneck Hit UPS on Xmas Eve

In the earliest hours of Dec. 24, packages poured into UPS’s main hub, called Worldport, in Louisville, Ky. And they were piling up. Employees responsible for sorting packages—already deep into a 100-hour week—were furiously getting them ready to be sent on to their destinations. But dozens of other workers responsible for loading those packages into planes to be shipped out were left standing around idle, because the unexpected glut of packages from last-minute shoppers had swamped the company’s air fleet.

The dearth of planes stranded a large volume of packages in Louisville that day. Many of those that did make it out were shipped too late to make delivery trucks’ pickup schedules and were left sitting in warehouses not far from their destinations. By sundown, UPS was forced to tell many Americans that the gifts they had ordered wouldn’t arrive before Christmas as promised.

“The bottleneck was largely in UPS’s air business,” writes The Wall Street Journal (Dec.27, 2013), “which retailers leaned on heavily in the past week as they scrambled to fill down-to-the-wire orders.” UPS originally expected to ship about 3.5 million packages at Worldport. The facility handles on average 1.6 million packages a day. Likely double that many packages arrived during the last-minute crush. On Christmas Eve UPS admitted that the volume of air packages in its system had exceeded its capacity.

UPS carefully plans how it will handle the holiday peak. Extra resources such as additional cargo planes had been lined up as “hot spares”— aircraft that could be fired up quickly in case of a logistics emergency. But it ran into a confluence of factors. Retailers have been encouraging online sales, and they likely contributed to the logjam by offering some of their best discounts late in the season in a final push for sales.

Classroom discussion questions:

1. How has e-commerce impacted shippers such as UPS?

2. How can operations managers avoid such bottlenecks?

OM in the News: UPS’s Peak Week

UPS UPS expects to ship more than 132 million parcels this week before Christmas. But it must keep a lid on costs. Maintaining profitability is especially difficult during peak season when delivery expenses rise. This year, UPS is adding 55,000 part-time holiday workers, leasing 23 extra planes, and effectively building a second trucking fleet to handle the seasonal package flow. None of this is cheap.

UPS’s delivery personnel, who can be someone’s hero—or scapegoat– makes all the difference. To get a sense of what peak season is like on the front lines, Businessweek (Dec.19, 2013) joined driver Kim Gardenier on her rounds. A 19-year UPS veteran, Kim set out on her journey in Wayne, N.J., on Nov. 25, the first official day of the season, at 8:35 a.m. About 7 ½ hours later, Kim had delivered 347 packages, including two flat-screen TVs, ice skates, a box of instant coffee, a guitar, and paper towels.

Kim could probably have unloaded another truckful of stuff. A lithe 44-year-old with moussed platinum hair, she spent the day gliding in and out of the mailrooms of suburban office buildings, the loading docks of strip mall stores, and apartment complexes. She maintained a consistently swift pace throughout the day, exchanging short bursts of small talk with her customers.

UPS is famous for requiring its drivers to follow 340 delivery and pickup methods, which include a directive to “politely inquire” about any shipments customers are making with competitors.

Classroom Discussion questions:

1. How does UPS optimize employee time?

2. Why is OM such an important part of the company?

OM in the News: From Navy Oil Tankers to Amazon’s Diapers

8 ships returning to Caroline Islands anchorage, 1944

Amazon’s online diaper sales and the U.S. Navy’s refueling protocol for World War II appear unrelated and worlds apart. Nevertheless, they are both answers to an identical logistics problem: how can an organization shorten the time between a customer’s order and a supplier’s response?

Amazon is seeking a way to decrease its response time to online buyers. In the case of diapers, this means encouraging a supplier such as P&G to relocate its operations adjacent to Amazon’s warehouses. With co-location, both firms presumably can reduce their shipping costs, better manage their inventories, and speed up deliveries.

The Navy experienced a similar logistics problem during World War II, writes The Wall Street Journal (Nov.25, 2013). In the early months of the war, the Pacific fleet engaged in hit-and-run tactics; it had to return to Pearl Harbor, where its oil supply tanks were located. When the Navy launched a 1943 offensive in the central Pacific, the geographical distance between consumer (fleet) and supplier (Hawaii) widened. Refueling consumed a precious commodity—time.

One logistic solution: seize an enemy-held island, convert the island into an advanced base and construct oil storage facilities for the fleet. That worked, but as the Navy accelerated its offensive, it outran the advanced base network. By 1944, the Navy introduced floating bases at Pacific anchorages. Commercial tankers delivered fuel oil to the anchorage, storing oil in barges. A gap, though, between oil demand and supply still persisted.

Then the Navy turned logistics on its head, dispatching 36 oilers to meet carrier task force units at prearranged locations in the forward area. Oilers now refueled fleet units on the move in “underway replenishment.” The results were dramatic. A carrier task force could remain free from a fixed base for 3 months. Fleet Admiral Nimitz termed the Pacific just-in-time supply chain as his “secret weapon.” Naval historians would describe Nimitz’s logistic plan as a “fleet within a fleet.” Amazon’s co-location has been called a “plant within a plant.”

Classroom discussion questions:

1. How is co-location used in the auto industry?

2. What are the supply chain problems for the US military in the Afganistan war?