logisticsmgmt.

com 2020 Parcel Express

Roundtable 26
Get ready for WES 2.0 32
GE Appliances’ digital
March 2020 ®
transformation 54

E-COMMERCE LOGISTICS:

THE SPEED OF NOW Page 22

QUARTERLY TRANSPORTATION
MARKET UPDATE: LTL
Full recovery on the horizon? 60
We deliver confidence. We deliver it by the truckload, because we know companies
can’t thrive without it. Penske is built around helping your day-to-day operations
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Get your daily fix of industry news on logisticsmgmt.com
management
UPDATE A N E X E C U T I V E S U M M A RY O F I N D U S T RY N E W S
u JDA announces name change to Blue Yonder.
The Scottsdale, Ariz.-based provider of AI-driven supply
chain management services said that the name change is
part of a re-branding initiative in an effort to better align its
name with its Cloud transformation and product roadmap.
Aside from its re-branding push, another driver for the
name change stems from JDA’s August 2018 acquisition
of Blue Yonder, an artificial intelligence (AI) and machine
learning (ML) supply chain and retail solutions services
provider. The company explained that changing its name
and brand from JDA to Blue Yonder “further supports the
massive impact of AI and ML technology across the sup-
ply chain, logistics and retail markets,” adding that “Blue
Yonder’s leading AI/ML technology powers the company’s
Luminate end-to-end digital fulfillment platform.”
u Trimble’s acquisition of Kuebix is made official.
The early January announcement that Trimble, a provider
of end-to-end technology solutions to for-hire motor car-
riers, private fleets, freight brokerage and 3PLs, inked a
definitive agreement to acquire Maynard, Mass.-based
TMS provider Kuebix has now been made official, Trimble
officials told Logistics Management. When the deal was
initially announced, Trimble said it would close during the
first quarter. A purchase price was not disclosed. Trimble
said that the deal would enable the company to mesh its
private fleet and commercial carrier customer network,
which is comprised of more than 1.3 million North Amer-
ica-based commercial trucks, with the TMS provider’s
community of more than 21,000 shippers.
u IANA data highlights low intermodal volumes for
2019. In its Market Trends & Statistics report, the Intermo-
dal Association of North America (IANA) stated that total
fourth quarter volume saw a 7.4% annual decline. For
all of 2019, IANA reported that total volume fell 4.1% to
18,146,095; trailers were down 15% to 1,227,511; domes-
tic containers dropped 4.5% to 7,570,940; all domestic
equipment was off 6.1% to 8,798,451; and ISO containers
slipped 2.2% to 9,347,644. In the report, IANA called 2019
“a very challenging year for the North American intermodal
industry,” with the 2019 volume decline exceeded only by
2009’s output during the recession.
LOGISTICSMGMT.COM
u Emerge closes on $20 million in Series A financing.
Scottsdale, Ariz.-based Emerge, a provider of its propri-
etary private freight marketplace and TMS, announced last
month that it closed a $20 million Series A financing, brining
the company’s total amount of investor-based funding to
$50 million. The round of financing was led by NewRoad
Capital Partners and included Greycroft, a venture capital
firm based in Los Angeles and New York, as well as 9Yards
Capital. Emerge president Grant Crawford told LM that
this round of funding would be focused on various efforts,
including hiring and product development. “It allows us to
get a little more aggressive in all of those areas,” he said.
“We have done a pretty good job to date in making sure we
have proper balance that will allow us to do that and fur-
ther build things out on our platform to operate on an even
higher level from an automation standpoint.”
u DOT applies for $1 billion in BUILD Grants. The United
States Department of Transportation (DOT) said last month that
it published a Notice of Funding Opportunity in order to apply for
$1 billion in fiscal year 2020 discretionary grant funding through
the Better Utilizing Investments to Leverage Development
(BUILD) Transportation Discretionary Grants program. DOT said
that fiscal year 2020 BUILD Transportation grants are for plan-
ning and capital investments in surface transportation infrastruc-
ture and are to be awarded on a competitive basis for projects
that will have a significant local or regional impact. BUILD fund-
ing can support roads, bridges, transit, rail, ports or intermodal
transportation. “BUILD grants will upgrade infrastructure across
America, making our transportation systems safer and more effi-
cient,” said U.S. transportation secretary Elaine Chao.
u Ports mostly behind Trump budget. While the American
Association of Port Authorities (AAPA) voiced support for Presi-
dent Trump’s fiscal 2021 budget for two vital U.S. DOT competi-
tive infrastructure grant initiatives known as BUILD and INFRA,
they also expressed concerns regarding declines to other feder-
ally funded, port-related programs. “We’re very apprehensive
about the President’s fiscal 2021 budget,” says Chris Connor,
AAPA president and CEO. “Adequate federal investments into
U.S. port-related infrastructure, on the landside and the water-
side, are crucial for the safe, efficient movement of goods so
that the nation can remain globally competitive, and this budget
Continued, page 2
MARCH 2020 | L O G I S T I C S M A N A G E M E N T 1
Get your daily fix of industry news on logisticsmgmt.com
management
UPDATE A N E X E C U T I V E S U M M A RY O F I N D U S T RY N E W S
doesn’t get us there.” In a 2016 survey, AAPA found that
U.S. ports and their private-sector partners planned to
spend approximately $31 billion a year through 2020,
provided the infrastructure outside the ports’ jurisdiction,
such as roads, rails, bridges, tunnels and navigation chan-
nels, would support those investments.
u Happy example. While many U.S. ocean cargo gate-
ways are distressed by being left out of new spending on
infrastructure, The South Carolina (S.C.) Ports Authority
reports that it has been awarded with a nearly $20 million
federal grant to assist with building Wando Welch Terminal
in support of the Charleston Harbor Deeping Project. “The
U.S. Department of Transportation grant is crucial to real-
izing these necessary infrastructure projects related to our
Charleston Harbor Deepening Project,” said S.C. Ports
Authority president and CEO Jim Newsome. “We’re incred-
ibly grateful to the DOT, Gov. Henry McMaster and our Con-
gressional delegation for their work on this grant. Their sup-
port ensures South Carolina will have the deepest harbor
on the East Coast next year with 52 feet of depth, enabling
S.C. Ports to remain globally competitive in the era of big
ships,” he said. These construction projects are critically
linked to the Charleston Harbor Deepening Project, which is
currently underway by the U.S. Army Corps of Engineers.
u Maersk set to acquire Performance Group. In a
move geared toward augmenting its end-to-end supply
chain service offerings, Copenhagen, Denmark-based
A.P. Moller Maersk, an integrated container logistics ser-
vices provider, said late last month that it inked an agree-
ment to acquire El Segundo, Calif.-based Performance
Team, a provider of warehousing and distribution services.
The purchase price for the acquisition is $545 million,
and the deal is expected to close by April 1. Established
in 1987, Performance Group operates 24 warehousing
sites that cover 800,000 sq. meters across its strategic
supply chain locations. The company’s main focus is on
B2B and B2C distribution service offerings for various
sectors, including retail, wholesale and e-commerce.
The company has seen 17% growth per year over the
last four years, and its 2019 revenue was $525 mil-
lion. Maersk said that Performance Team is known for
2 L O G I S T I C S M A N A G E M E N T | MARCH 2020
its warehousing fulfillment services, e-commerce, inland
transportation and distribution services, adding that its
key strengths are their fulfillment services and distribution
capabilities to customer warehouses and stores.
u More damage than SARS. The coronavirus (COVID-19)
epidemic could be more damaging to the global economy
than the SARS outbreak in 2003, maintains the IHS Markit
February Global Economic Forecast. “At the time of SARS,
China was the sixth-largest economy, accounting for only
4.3% of world GDP. Mainland China is now the world’s sec-
ond-largest economy, accounting for 16.5% of world GDP
in 2019,” observes chief economist Nariman Behravesh.
“If the unprecedented confinement measures in China stay
in place until the end of February, the resulting economic
impact will be concentrated in the first half of 2020, with
a reduction in global real GDP of 0.8% in the first quarter
and 0.5% in the second quarter,” he added. In this sce-
nario, the coronavirus and resulting measures will reduce
global real GDP growth by 0.4 percentage point in 2020.
Conversely, the lifting of the confinement measures would
add 0.4 percentage point to global real GDP in 2021.
u Cass Freight Index shows more shipment declines
in January. The most recent edition of the Cass Freight
Index Report issued last month by Cass Information Sys-
tems revealed an ongoing trend of annual freight shipment
and expenditure declines. January shipments—at 1.022—
fell 9.4%, marking its largest annual decline going back to
2009, while also dropping 2.9% compared to December.
The report’s author, David Ross, transportation analyst at
Stifel, explained that while there’s still optimism according
to the broader stock market, freight trends remain stuck
in neutral while coronavirus is continuing to create uncer-
tainty in global supply chains. Addressing shipments, Ross
observed that along with January’s steep annual decline
it also represents its lowest annual reading in about three
years. “This follows a sluggish end to 2019, where many
blamed January’s weakness on the timing of the holidays,”
said Ross. “There could have been a residual impact follow-
ing the New Year, but with the negative annual and sequen-
tial decline, and the deceleration in the annual growth rate,
we don’t see much good news in this volume number.” •
LOGISTICSMGMT.COM
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 March 2020 logisticsmgmt.com

CONTENTS
VOL. 59, NO. 3
Logistics Management

LM EXCLUSIVE
The evolution of e-commerce:
THE SPEED OF NOW
22 It’s not only the growth of e-commerce, but also the
ever-tightening delivery timeframes that have logistics
pros eyeing emerging technologies like Artificial Intelligence,
blockchain and the Internet of Things.

SUPPLY CHAIN & LOGISTICS

TECHNOLOGY
32 WES 2.0
The first generation of warehouse
execution systems brought a new level
of orchestration to automated ware-
houses. The next generation promises
to bring a new level of optimization
and productivity to the conventional
warehouse. Get ready for WES 2.0.

TRANSPORTATION BEST GLOBAL LOGISTICS

PRACTICES/TRENDS 38 Reverse logistics
26 2020 Parcel Express rides high on the
Roundtable: You get wave of e-commerce
what you negotiate Thanks to the inexorable growth of
Three of our top parcel industry e-commerce, the reverse loop has
sources bring us up to speed on never been so prominent in global
the fastest moving, most dynamic supply chains. Now, social media
service sector in logistics. contributes to the complexity.

DEPARTMENTS SUPPLY CHAIN & LOGISTICS TECHNOLOGY

1 Management update 42 Digital supply chain
7 Viewpoint transformation:
8 Price trends
Visualizing the possibilities
Many supply chain leaders view digitization
10 News & analysis as a mandate for competition, yet the first
14 Moore on pricing steps to developing an overall strategy are
unclear. We take a deep dive into the ques-
16 Newsroom notes
tions of the state of digital implementation
18 Benchmarks and try to separate hype from reality.
64 Pacific Rim report

Logistics Management ® (ISSN 1540-3890) is published monthly by Peerless Media, 111 Speen St, Suite 200, Framingham, MA 01701. Annual subscription
rates for non-qualified subscribers: USA $139, Canada $219, Other International $269. Single copies are available for $20. Send all subscription inquiries to Logistics Management,
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Management, PO Box 677, Northbrook, IL 60065-0677. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rights reserved. ©2020 Peerless Media, LLC.

4 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM


EDITORIAL STAFF
Michael A. Levans Group Editorial Director
Francis J. Quinn Editorial Advisor
Patrick Burnson Executive Editor
Sarah Petrie Executive Managing Editor
Jeff Berman Group News Editor
John Kerr Contributing Editor,
Global Logistics
Bridget McCrea Editor at Large,
Technology
Roberto Michel Contributing Editor,
Warehousing & DC
John D. Schulz Contributing Editor,
Transportation
Wendy DelCampo Senior Art Director
Polly Chevalier Art Director
Kelly Jones Production Director
COLUMNISTS
Derik Andreoli Oil + Fuel
Elizabeth Baatz Price Trends
Peter Moore Pricing
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CONTENTS
WAREHOUSE/DC MANAGEMENT
54 Pulling the digital thread
GE Appliances may not have taken all of the
touches out of its distribution processes, but
it has reduced them to a bare minimum, in-
creased the velocity of product moving through
its facilities and sped up training time. The
key: A digital transformation with next-genera-
tion technologies like IoT, AI and VR.
SPECIAL REPORT
QUARTERLY TRANSPORTATION MARKET UPDATE: LTL
60 LTL Outlook 2020:
Full recovery on the horizon?
A recovering industrial economy, “improving”
inventory levels and higher rate forecasts buoy top
LTL carrier optimism for 2020.
ONLINE
LOGISTICSMGMT.COM
LOGISTICS MANAGEMENT WEBCAST
2020 RATE OUTLOOK: FORTUNE FAVORS THE BOLD
AVAILABLE ON DEMAND
The unstable market conditions with respect to price, capacity, service and cost
means that it’s simply not possible for shippers to maximize network effectiveness
and performance with traditional methods rolling into 2020.
And because of this uncertainty, everyone’s crystal ball is murkier than usual.
However, this year’s panel suggests that shippers now need to look at their logistics
network holistically and work to better optimize their modal choices—or get ready to
absorb higher rates.
In this annual webcast, group editorial director Michael Levans hosts our panel of
fuel, trade and logistics experts who share their insights on rate patterns in all of the
major transport modes in an effort to help shippers prepare their freight transportation
budget for the coming year.
Shippers joining us on this annual webcast will gain a better understanding of:
• the current state of the freight economy;
• where oil and diesel prices are headed due to IMO-2020;
• how to prepare for the impact of more trade uncertainty; and
• capacity and rate forecasts for trucking, air cargo, ocean cargo, parcel
express and rail/intermodal.
ON DEMAND AT LOGISTICSMGMT.COM/2020OUTLOOK
GRAYSCALE B/W WHITE
MARCH 2020 | L O G I S T I C S M A N A G EME NT 5
 Introducing Lynden’s Mobile App!
INDIVIDUAL SEARCH SHARE RESULTS
Export and email a
Search for a specific
spreadsheet of your
shipment by tracking or
shipment tracking results.
reference number.

SIMPLE SORTING
CUSTOM FILTERS Sort your shipments by
Filter your search shipper, consignee, status,
results by date received, or Lynden company.
consignee, or shipper.

SAVED SEARCHES STAR FAVORITES

Mark important shipments
Filter criteria can be
using the star feature so they
saved to quickly access
can be quickly viewed later.
frequent searches.

VIEW DOCUMENTS
View and email documents
STAY ALERT
like bills of lading, delivery Receive shipment status
receipts, and invoices. updates via email by
clicking on the alerts icon.

Lynden is continually looking for ways to streamline the

shipping and logistics process. Our new mobile app was
developed based on feedback from customers and provides
accurate, up-to-date shipment information directly from your
iPhone or Android device. Easily view shipments without
having to remember a tracking number; sort, filter and search
to find exactly what you are looking for, whenever you need it.

To download or learn more visit www.lynden.com/mobile,

or search “Lynden” in the App Store or Google Play.
 VIEWPOINT
E-commerce demands continue
to push innovation
In conversation after conversation, we continue to learn of the deep
changes that e-commerce has ushered into logistics and transportation
practices, from tightening up inventory and fulfillment management to
elevating the importance of final-mile delivery and
returns processes—and everything in between.
To respond, logistics professionals now need to lever-
age diverse systems and new ways of thinking in an effort
to improve carrier partnerships and increase speed and
efficiency. With that in mind, the editorial staff of LM has
put together a collection of features to help readers push
that pace of change inside their organizations.
Starting on page 22, contributing editor Roberto
Michel offers shippers a high-level look at the role
that emerging technologies—artificial intelligence (AI),
autonomous mobile robots (AMRs) and the Internet of
Things (IoT)—are already playing in helping logistics
operations approach new ways of managing demands.
“So often it takes an overwhelming phenomenon like
e-commerce to bring new technologies into the fold of
every-day operations,” says Michel. “In this case, we have
shippers under pressure to deliver goods at a faster pace,
all while keeping costs under control—an ideal formula
to push innovation.”
For example, Michel reports that AI is already work-
ing in conjunction within the TMS domain to churn
through transactional history, explore current pricing
data from carriers, and keep shippers more aware of
current weather and traffic data to make more informed
freight and routing decisions.
“It’s exciting to see this type of blending of technolo-
gies get us to a level of meaningful visibility,” says Michel.
“Making sense of data in this way will lead to true effi-
ciencies, and thus make it easier for shippers to make the
case for faster adoption internally.”
And that improved visibility and decision-making will
only help shippers get a better handle on the parcel and
last-mile sectors. Starting on page 26, group news editor
LOGISTICSMGMT.COM
Jeff Berman offers shippers our annual Parcel Express
Roundtable, a print feature that will come alive in a web-
cast on March 26. Go to logisticsmgmt.com to register.
“The pace of change is accelerating, as costs are rising,
delivery locations are shifting and shippers have more last-
mile options than ever,” says Berman. “This year’s panel
strongly advises that shippers go into parcel discussions
well prepared, negotiate for exactly what services are need-
ed, and don’t be afraid to regularly seek improvements.”
Another area to add to the parcel and last-mile discus-
sion: returns management—a segment that many call “the
next frontier” for both carriers and shippers alike. On page
38, executive editor Patrick Burnson takes a deeper look
at the reverse loop, an area that represents the greatest
untapped opportunity for imaginative logistics operations.
“I’ve been watching this overlooked area for 10 years,”
says Burnson, “and the numbers continue to blow my
mind.” According to recent data form Invesp, a retail
market analytics and research firm, 30% of all products
ordered online are now returned compared to roughly 9%
for brick-and-mortar stores.
“That same research shows that 92% of consumers say
that they’ll continue to buy from a company that makes
the returns process easy,” adds Burnson. “This tells me
that an efficient, effective returns process is now table
stakes for any retailer. There’s profit and margin tied up
in that process that is all too often overlooked.”
Michael A. Levans, Group Editorial Director
Comments? E-mail me at
mlevans@peerlessmedia.com
Follow me on Twitter: @MikeLeva
MARCH 2020 | L O G I S T I C S M A N A G E M E N T 7
priceTRENDS
Pricing across the transportation modes

8 160
TRUCKING
6 155 Upward revisions to 2019 data and January’s unexpectedly
Forecast strong 5.5% increase in LTL prices are changing the price outlook.
4 150
Average annual prices in LTL trucking now are forecast to increase
2 145
2.5% in 2020 and 2.2% in 2021. Meanwhile, truckload prices fell 2.8%
0 140
in January, and its annual inflation forecast calls for prices to inch up
-2 135
2017 2018 2019 2020 2021 his year followed by a half percentage point decline next year. With
% change (left scale) Index 2001=100 (right scale) fairly significant revisions to some of this industry’s historical wholesale
price indices, forecasting challenges beset economists. Also, presiden-
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago tial election years add more complications. That said, for the aggre-
General freight - local 0.0 0.7 1.6 gate industry, which can hide revisions in the detailed categories, we
TL -2.8 -0.2 -2.2 forecast prices to be up 2% this year and 1.2% next year.
LTL 5.5 3.6 3.4
Tanker & other specialized freight 0.0 -0.5 0.7

4 165
AIR
2 Forecast
Forecast 163 U.S.-owned airliners reporting their transaction prices for fly-
0 161
ing freight continue turning in surveys showing relatively meager
inflation rates. Although prices for scheduled airfreight did increase
-2 159
0.6% in January, when the data are examined over a three-month
-4 157
period then prices were up only 0.3% from a year ago. The latest
-6 155
2017 2018 2019 2020 2021 prices for freight on chartered planes, meanwhile, fell 1.1% from a
% change (left scale) Index 2001=100 (right scale) month ago and increased only 1.4% over the recent three-month
period. These anemic inflation trends are now reflected in our new
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago
forecasts as we’ve chopped down any inflation in the outlook. Aver-
Air freight on scheduled flights 0.6 0.7 1.1
age annual prices for scheduled airfreight are expected to decline
Air freight on chartered flights -1.1 2.5 1.3
0.3% this year and then inch down by 0.2% next year.
Domestic air courier 5.6 5.4 7.5
International air courier 4.0 3.7 5.6

9 195
WATER
6 189 Average transaction prices for deep sea transportation
3 183
services, as reported by U.S.-owned ships, increased 4.4% in
Forecast
Forecast
January from the same month a year ago. Following a 6.1%
0 177
average annual price hike in 2019, our deep sea price index is
-3 171
forecast to hold relatively steady by posting 0.8% average annual
-6 165
2017 2018 2019 2020 2021 inflation rates in both 2020 and 2021. U.S. inland waterways freight
% change (left scale) Index 2001=100 (right scale) prices, meanwhile, also perked up with a 6.2% price jump in Janu-
ary from a year earlier. But here, too, we expect inflation to be nearly
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago imperceptible over the near term. With the cyclical ebb and flow in
Deep sea freight 0.0 2.2 4.4 water transportation inflation taking a rest, our forecast fluctuates
Coastal & intercoastal freight 4.6 7.0 8.0 around the zero line with prices up less than 1% this year and next.
Great Lakes - St. Lawrence Seaway -0.3 -1.3 0.4
Inland water freight 0.3 1.0 6.2

10 200 RAIL
8 194 Like the other modes, inflation trends in the rail transporta-
6 Forecast
Forecast 188 tion market appear to be rather muted, too. In the first month
4 182 of 2020 compared to 2019, carload prices increased 2.4% and
2 176
intermodal tags inched up 1.2%. The three-month-moving-average
price charts confirm the relative quiet reported on the inflation front
0 170
2017 2018 2019 2020 2021 with prices up by 1.8% and 0.3%, respectively, for carload and
% change (left scale) Index 2001=100 (right scale) intermodal rail. These latest data points are a far cry from the 16%
inflation rate that intermodal set and the 4.8% price hike that carload
% CHANGE VS.: 1 month ago 6 mos. ago 1 yr. ago
reported in October 2018. Inflation isn’t gone, but with no shocks
Rail freight 0.8 0.9 2.1
Intermodal -0.4 -0.1 1.2
in the forecast, prices in the rail transportation industry overall are
Carload 1.1 1.0 2.4 expected to be up 1.7% this year and 1.6% next year.

8 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

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NEWS analysis
Also:
• Trucking companies feel relief after Calif. judge issues injunction on AB5, Page 11
• YRC CEO Hawkins sees light at end of financial tunnel for LTL units, Page 12
• FedEx preps to have Express contract with Ground for select residential shipments, Page 13

White House aims high for

transportation infrastructure
Proposed FY ’21 budget focuses in on a 10-year, $1 billion investment with a sharp focus on freight

BY JEFF BERMAN, GROUP NEWS EDITOR

WASHINGTON, D.C.—In good news $602 billion for highway infrastructure; nearly $1 billion for pipeline and haz-
for both shippers and carriers, there $155 billion for surface transportation ardous materials safety.
has been some movement on a long- infrastructure; $20 billion for traffic The additional $190 million
term federal surface transportation and motor carrier safety; $17 billion accounts for myriad infrastructure
reauthorization. for rail infrastructure; $16 billion for investments, including:
In late January, Democratic members Transportation Infrastructure Finance • $60 billion for a new Building
on the House of Representatives Com- and Innovation Act (TIFIA) loans and Infrastructure Great grants program to
mittee on Transportation and Infra- Better Utilizing Investments to Lever- accelerate delivery of projects across
structure issued a “list of infrastructure age Development (BUILD) grants; and various sectors, including surface
principals” comprised of a five-year,
$760 billion outline that they called the
“Moving Forward Framework.”
In this framework, House Demo-
crats said they aim to get the country’s
“existing infrastructure working again
and fund new transformative projects
that will create more than 10 million
jobs while reducing carbon pollution,
dramatically improving safety, and
spurring economic activity.”
Another development came last
month in the form of the White House’s
proposed fiscal year 2021 budget that’s
being called “A Budget for America’s
Future.” Included is what the White
House called a “historic 10-year, $810
billion reauthorization of surface trans-
portation programs, including impor-
tant reforms to highway, transit, rail,
highway safety, and hazardous mate-
rial safety programs…including an addi-
tional $190 billion for additional infra-
structure investments across a range
of sectors, for a total of $1 trillion in
infrastructure investment.”
Within the proposed $810 billion sur-
face transportation reauthorization are:

10 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

transportation road, bridge, rail, transit,
pipeline, landside port and intermodal
connection capital investment;
• $50 billion for a new Moving Amer-
ica’s Freight Safely and Efficiently pro-
gram to support projects with significant
economic, mobility and safety benefits on
strategic highway, rail, port and waterway
freight networks and provide both for-
mula and discretionary grants to open up
bottleneck areas and improve safety; and
• $35 billion for a new Bridge
Rebuilding program, which will make
targeted investments in critical bridge
infrastructure to restore them to good
condition. According to the White
House, $12 billion will be provided for
“off-system” bridges allocated via formu-
la, and $23 billion will be provided for
larger bridges via a competitive process.
Elaine Nessle, executive director of
the Washington, D.C.-based Coalition
for America’s Gateways and Trade Corri-
dors (CAGTC) said that she anticipates
more will be learned about the specifics
of the White House’s budget plan when
REGULATION
Trucking companies feel relief after Calif.
judge issues injunction on AB5
Top trucking executives are breathing
a sigh of relief after a California judge
issued an injunction against Assembly
Bill 5 (AB5), a law governing owner-
operators that potentially could be very
disruptive to trucking operations in the
nation’s most populous state.
Truck drivers are divided on AB5, a
California law that limits when workers
can be contractors instead of employees.
Some local port drayage operators sup-
ported the measure, which would have
limited owner-operators in that sector.
However, trucking officials said that
the proposed law—which essentially
sought to reclassify owner-operators and
those working in the “gig” economy as
employees—would have been seriously
disruptive to interstate commerce.
David Heller, vice president of govern-
ment affairs for the Truckload Carriers
LOGISTICSMGMT.COM
its surface transportation proposal is
released in the coming months, adding
that there are some encouraging signs in
what was released this week.
“I’m pleased to see the Administra-
tion is signaling interest in dedicated
freight investment through its Mov-
ing America’s Freight Safely and Effi-
ciently Program,” said Nessle. “Both
the Administration and Congress have
noted urgency in identifying robust and
dependable funding for transportation
infrastructure, and we look forward to
supporting those efforts to ensure that
infrastructure funding meets our grow-
ing national needs.”
Randy Mullett, principal of Mullett
Strategies, a consulting practice focused
on helping clients navigate the intrica-
cies of Washington, D.C., in the areas
of trucking, freight, sustainability, secu-
rity, and safety, noted that this proposed
budget will have no immediate effect on
shippers or carriers because of the time
needed to make significant infrastructure
changes. However, he added that it sets
Association (TCA), was certainly pleased
by the news of the injunction issued by
a California judge in mid-January. “As it
stands now, the independent contractor
model, which the industry has used for
decades, is still in full effect.”
That’s music to the ears of leading
trucking company executives who say
that they would have been forced to
cease operations in California because
of the harmful effects AB5 would have
had on interstate commerce.
“From a financial perspective it’s about
half our revenue,” said Jim Gattoni, presi-
dent and CEO of Landstar, whose units
did more than $4 billion in revenue last
year—45% of which was done by owner-
operators and 47% by truck brokerage
carriers. “We make sure we have an arm’s
length relationship with our independent
contractors. They haul what they want,
MARCH 2020 | L O G I S T I C S M A N A G E M E N T
out several items and policy changes that
will ultimately be very good for freight.
“First, it increases the amount of
money to be spent on highway infra-
structure through mandatory contract
authority while at the same time reduc-
ing DOT’s discretionary spending,” said
Mullett. “This sends a strong signal that
there will be more local influence over
which highway projects are to be fund-
ed. It continues that theme by elimi-
nating a required amount set-aside for
the Transportation Alternatives program
that restricts states from choosing the
most meritorious projects.”
According to Mullett, this elimina-
tion provides additional flexibility to use
the resources within the Surface Trans-
portation Block Grant Program to sup-
port projects that rehabilitate or expand
highways in a manner that supports
interstate or regional commerce. “This
call out to rehabilitate or expand high-
ways in a manner that supports interstate
or regional commerce is certainly good
for shippers and carriers.” •
when they want and where they want.
And they’re very successful at it.”
When asked what would happen
if California wins its appeal over the
injunction, Gattoni said: “We can defend
it. Then it goes to the attorneys.”
Gattoni added that the proposed law
was “a little disruptive internally” and that
if the California proposal had become law,
“Our business capacity owners [indepen-
dent owner-operators] were going to have
to operate outside the state of California.”
However, in February, U.S. District
Judge Roger Benitez in San Diego ruled
on the trucking industry’s legal challenge
to AB5, although he maintained a central
claim that the state law is preempted by
11
NEWS analysis

federal regulations governing truckers.
Judge Benitez rejected the argument
that AB5 interfered with carriers’ rights
to negotiate contracts with drivers. How-
ever, he rejected California’s argument
that the California Trucking Association
(CTA) lacked standing in bringing its
lawsuit. TCA’s Heller said that the CTA
deserved credit for fighting AB5.
“This is a business practice that has
been in the fold for decades,” said Hell-
er. “I am very optimistic that it’s a fight
that needs to be fought.”
Because of volatility in demand levels,
Heller said that independent contractors
and owner-operators provide “a much
needed and viable demographic” that the
industry always used to insulate itself
from shipper volumes. “For California to
issue a rule that made that model obso-
lete was not good for anybody,” he added.
Besides California, what trucking
industry officials feared most was more
states trying to emulate the ruling. There
were initiatives in New York and New
Jersey that would have largely dupli-
cated California’s limit on independent
contractors in a range of industries.
“Interstate commerce prevails and
you have to abide by one standard,” said
Heller. “The trucking industry operates
all over the country and needs one
federal standard.”
Judge Benitez had first extended
the temporary restraining order (TRO)
that blocked AB5 from being enforced
for the trucking industry. The TRO
later became an injunction, according
to Judge Benitez.
AB5 was signed by Gov. Gavin New-
som on September 18, 2019, and was
set to take effect January 1. It sought to
redefine what it means to be an employ-
ee in California by mandating that cer-
tain contract workers be classified as
employees—including truck driver own-
er-operators both long haul and those
independent drayage operators at Port
of Long Beach and Port of Los Angeles,
two of the nation’s largest. •
—John D. Schulz, contributing editor

LTL

YRC CEO Hawkins sees light at end better serve our customers,” he said,
adding that it consolidated 25 terminals
of financial tunnel for LTL units last year and will “continue to evaluate”
facilities to meet current and future
Financially struggling YRC shipments to LTL because business expectations.
Worldwide, which collectively of e-commerce demand,” Last year was a busy one for the YRC
represents the second-largest said Jindel. “LTL carriers companies even as their financial picture
group of carriers in the $43 are handling more retail worsened slightly. YRC companies lost
billion less-than-truckload shipments than ever before, $104 million in 2019 compared with
(LTL) sector, will benefit from and that will continue. The net income of $20.2 million for its long
closings and reduced capacity caveat is that the LTL indus- haul and regional units in 2018 when the
in the $340 billion full truck- try must learn how to handle overall economic picture for the entire
load (TL) market, analysts and those shipments.” trucking industry was much stronger.
top YRC officials are telling As far as shippers are However, Hawkins emphasized the
Logistics Management. concerned, Hawkins said positive, citing four major accomplish-
“The year 2019 will prob- that rates will continue to ments last year that he believes are the
ably ended with close to Darren Hawkins, YRC track internal operational foundation of his company-wide strate-
Worldwide
800 closings in the truck- costs that are being led gies going forward, including: ratifying
load industry,” said Darren by soaring insurance rates a new 5-year labor contract; refinancing
Hawkins, president and CEO of YRC and equipment prices. He added that term loans with improved and more
Worldwide. “That lessens capacity. those will continue to rise in the “mid- flexible terms; reorganizing its leader-
Plus, the driver shortage, increased single digits, but some of those costs ship team to streamline decision mak-
alcohol and drug screenings, and the are being offset through internal YRC ing; and completing the reorganization
insurance market will all have an addi- efficiencies.” of the enterprise-wide sales force.
tional impact capacity. The truckload Hawkins said that YRC companies Hawkins said YRC’s full-year financial
market is nearly 10 times the size of the and nearly all of its top competitors results from 2019 are down with com-
LTL market, but a ripple in truckload are focused on three things: operation- parison with 2018 due to a slump in U.S.
can create a tidal wave in LTL.” al optimization; technology improve- manufacturing. “The comparables in 2019
One top analyst is agreeing with ments; and creating freight and lane were difficult because 2018 was a very
Hawkins. Satish Jindel, principal of SJ density to protect its service offerings good year,” he said. “For us, 2019 was a
Consulting, a firm that closely tracks the and geographical coverage. year of managing costs, protecting our cus-
LTL sector, said that he believes LTL Going forward, said Hawkins, YRC tomers’ positions and getting lean to get to
contract rates for shippers would rise at a will have fewer physical locations, but the bottom of the dip. What we’re seeing
higher rate than TL rates in 2020. the same geographic service areas. “We now is we’re not out of the bottom of the
“One reason LTL will perform bet- expect this will increase density, reduce dip, but things are improving.” •
ter is that retailers are converting TL mileage, facilities and equipment and —John D. Schulz, contributing editor

12 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM


PARCEL
FedEx preps for Express contract with
Ground for select residential shipments
Driven by the rampant growth rate of
e-commerce, FedEx recently announced
that FedEx Express, its global, time-def-
inite delivery service unit, will contract
with FedEx Ground, its ground transpor-
tation package delivery services unit, for
the transport and delivery of select day-
definite, residential Express shipments.
Company officials said that FedEx
Express packages will be selected for deliv-
ery via FedEx Ground if they are residen-
tial deliveries for which FedEx Ground can
meet the service commitment. According
to FedEx, this initiative will kick off in
Greensboro, N.C., with other markets to
be added throughout 2020.
“This move makes residential deliver-
ies more efficient by putting the right
package in the right network at the right
cost to serve our customers,” said Raj
asi_0320_LM_halfpg_final_· 2/13/20 2:52 PM Page 1
Our Business Priorities:
The Customer
The Customer
The Customer
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INTERMODAL OVER-THE-ROAD
NEWS analysis
Subramaniam, FedEx president and
CEO. “We continue to flex our network
to stay ahead of e-commerce growth, and
that includes adjustments to better han-
dle the demand for residential deliveries
while lowering our cost to serve.”
With this announcement, FedEx also
highlighted how, through the optimiza-
tion of last-mile deliveries, it will aug-
ment safety and sustainability through
the reduction of the number of delivery
vehicles in residential neighborhoods.
Jerry Hempstead, president of Hemp-
stead consulting, said that this announce-
ment marks a shift from what FedEx stat-
ed in May 2019, when it said it planned
to integrate all of its FedEx SmartPost
package volumes into its FedEx Ground
standard operations—a move that would
also increase its large package capabilities.
CRITICAL CAPACITY TEMPERATURE CONTROL
“The FedEx Express contract with
Ground now reads as some volume,
which makes far more sense,” said
Hempstead. “Because FedEx operates
separate and unique networks, cross
utilization is difficult. UPS, having only
one network, is way ahead and far more
fluid in its ability to redirect.”
Ravi Shanker, Morgan Stanley trans-
portation analyst, observed in a research
note that the separate Ground and
Express networks are a key differentiator
between FedEx and UPS, leaving him
to question if FedEx combining them
would make sense financially.
“Management has always pushed
back on this, saying that it wouldn’t work
given the different service requirements
for Express and Ground, which makes it
interesting that they are now dipping their
toe in the water,” wrote Shanker. “It will be
important to see what percentage of vol-
umes can actually be integrated and what
level of costs it can help save at Express.” •
—Jeff Berman, group news editor
Service
Service
Service
2017+2019 EXCELLENCE AWARD WINNER
CERTIFIED MEMBER SINCE 2006
INTERNATIONAL WAREHOUSING
Moore on Pricing
The last-mile density challenge
Over a couple of particularly busy days recently,
we had deliveries from the United States Postal
Service (USPS), FedEx, UPS, Amazon Prime and
FedEx Ground.
It occurred to me that the cost for each of these
firms must have been high to reach my little island in
the southeastern portion of the United States. Recent
articles and announcements speak to the growing
challenge for less-than-truckload (LTL) and express
carriers to fulfill the one- and two-day promises of
marketers in B2C and B2B commerce.
While some websites have membership fees or
a minimum spend of $49 for “free delivery,” these
requirements seem hardly enough to generate a
margin that will cover the residential or storefront
delivery cost of a small item. Indeed, merchant ship-
pers have to have very low freight prices for the free
delivery that we have come to expect. It begs the
question: How do they make all this work?
About 10 years ago, the first wave of solutions to
the growing last-mile dilemma was “co-opetition,” or
cooperation with competition. The USPS gained sub-
stantial volume of parcels by handling UPS and FedEx
deliveries as they are at nearly every home in the coun-
try six days a week. This brought in needed revenue
with only slight increases in variable costs for USPS.
But then the USPS began advertising their own
capabilities to consumers and small businesses,
and this drove more customers to their post offices
and took away a bit of volume from the big national
parcel carriers. Recognizing the threat, the national
carriers continue to search for low-cost, last-mile
solutions that they can keep in their network.
The second wave was the entrance of the major
shipper—in this case, Amazon. At first regionally, and
more recently nationally, Amazon Prime has jumped in
with huge investments in distribution centers, airplanes,
trucks and most significantly, delivery vans. They did
not just challenge the carriers, but also the retail compe-
tition with one-day and even same day delivery.
The economics of van operating entrepreneurs is
the same as a carrier, but with more manageable num-
bers. They have fixed costs in the van payment and
14 L O G I S T I C S M A N A G E M E N T | MARCH 2020
Peter Moore is dean of the
Logistics Training Center and
adjunct professor at Georgia
College and State University in
the MSCLM Graduate Program
and adjunct professor at The
University of South Carolina
Beaufort. He lives on Hilton Head
Island, S.C. and can be reached
at peter.moore@logstudies.com.
insurance and variable costs of fuel, maintenance,
and perhaps a driver. In a van, none of these is equal
to operating a panel truck, terminals, dispatchers,
unionized personnel or health and pension benefits.
FedEx has announced its last-mile ground team
will be taking on some express service deliveries
in an obvious attempt to increase density for the
“At first regionally, and more recently
nationally, Amazon Prime has jumped in
with huge investments in distribution
centers, airplanes, trucks and most
significantly, delivery vans.”
ground folks and save money for the express divi-
sion. The difficulty in cross-docking express to
ground trucks on a schedule will be determined as
the process unfolds.
Competition from the four players discussed
here, as well as freelancing van owners, is having
the effect of lowering prices for short-haul LTL and
package delivery. The real money is in being the
“origin carrier” that’s able to optimize pickup, line-
haul and last-mile portions.
Of course, the challenge is in density. With enough
packages paying a few dollars, an independent driver
can cover costs and take home some pay for themselves.
Many Amazon Prime operators are contracting for sev-
eral vans in the hopes of taking home a decent paycheck
in the same way larger fleet operators do.
The equation continues to be volume over miles
driven or revenue over expenses—or, in the trans-
portation vernacular, operating ratio (OR). Entrants
to the transportation market learn the importance of
OR metrics very quickly.
For shippers, the importance of “know your service
provider” has never been more relevant. You must
understand how your freight will be delivered. You are
the one who promises “free next-day service,” and the
buyer assumes you have figured out how to do this. •
LOGISTICSMGMT.COM
*Compared to other domestic commercial airline cargo service.

SERVING 1 0 0+ DESTINATIONS ACROSS NORTH AMERICA

Newsroom Notes
Jeff Berman is group news editor for
the Supply Chain Group publications.
To contact Jeff with a news tip or
with Jeff Berman idea, please send an e-mail to
jberman@peerlessmedia.com.

Coronavirus presents no shortage

of global concerns
When a global situation such as coronavirus industry may be particularly exposed due to a
takes hold, it ushers in a host of concerns including concentration of activity in the region.
the effect on the global supply chain. In the mean- In terms of the biggest pain points for ship-
time, reports of coronavirus spreading to different pers, Jim Hull, senior industry strategies direc-
parts of the world have only made matters worst. tor for Blue Yonder (formerly JDA), a provider
From a logistics and supply chain of AI-driven supply chain management services,
management perspective, it’s clear
that the impact on all things trade,
shipping, and freight transportation “
Companies that have already made investments
has been significant. These elements in supply chain infrastructure and have a multi-
were examined in a February Wall source supply plan will be much better positioned
Street Journal article, entitled: “Coro-
navirus Closes China to the World, to weather the ultimate impacts of the outbreak
Straining Global Economy.”
This article, and many others like it,
compared to companies that have not. ”
drove home how cornonavirus is alter-
ing all aspects of trade and commerce including: a explained that, unfortunately, the real opportunity
travel ban into and out of China; shuttered facto- to mitigate the impact of this outbreak has passed
ries; a reduction in global oil prices; and a decrease for most companies.
in China-bound imports. “Companies that have already made invest-
There’s also now a high level of uncertainty in ments in supply chain infrastructure and have
terms of how long this may last and what should a multi-source supply plan will be much better
or could businesses be doing to get through this positioned to weather the ultimate impacts of the
period—all valid concerns that come with a short- outbreak compared to companies that have not,”
age of valid solutions. said Hull. “This again shows the wisdom of the
In a research note focused on coronavirus, maxim that standing still in today’s business world
Chris Rogers, research director for global trade really means falling behind.”
intelligence firm Panjiva, recently wrote: “The Hull added that he suspects the biggest area
impact on supply chains more broadly will be a that shippers—and their customers—need to be
function of how long businesses remain closed; the solid on right now is inventory visibility across the
extent to which there’s an impact on down- supply chain, noting that as the outbreak
stream supply chains; and the extent to continues to develop, companies that
which precautionary measures are source from affected areas will have
taken by corporations including to make hard decisions on where
logistics firms.” to position the inventory that
Rogers also cited an S&P they already have. The first step
Global Ratings report that is knowing what you have and
observed that the primary where it is, he explained.
impact will likely be felt by For now, we assess and
consumer demand through move forward based on what
travel and that logistics may be we know. I expect supply chain
exposed through a restriction on networks to adapt and adjust
shipping through the region and do what needs to be done to
surrounding Wuhan. keep economies and freight flows
In the meantime, the automotive moving forward. •

16 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

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Benchmarks
By Becky Partida, APQC
Technology benefits sales and operations planning
Technology can take S&OP to the next level, but only if
it supports a robust process.
The sales and operations planning (S&OP) process
enables synchronization in supply chain management
by integrating an organization’s supply, demand and
new product plans. Once the process is implemented, companies have a lot of ground to cover in terms of
organizations have one operating plan to allocate
resources such as time, money and employees. This
enables leaders to ensure that the plans of the
involved business functions are consistent and
support overall corporate objectives. It also “ The use of Big Data and analytics has much
enables organizations to better respond to both
supply chain and operational challenges.
With the availability of greater amounts of
data from functions involved in S&OP, organi-
zations are increasingly turning to technology
to support the S&OP process. These technolo-
gies enable the sharing of real-time data across func-
tions and lead to more accurate and detailed planning. an investment. Those organizations that have
APQC recently surveyed S&OP professionals on how
their organizations conduct the S&OP process. It also
conducted cross-industry research on how organiza-
tions can leverage technology to improve S&OP.
In its research, APQC found that organizations
plan to invest more in technology to support the
S&OP process. However, many organizations are
just now expanding their use of technology beyond
spreadsheets, with the most popular tool being
Cloud computing. A truly robust S&OP effort needs
both technology to support data integration as well as
a process supported by internal stakeholders.
Technology adoption and application
Nearly 70% of the respondents in APQC’s survey of
S&OP professionals consider technology to be an
extremely critical or very critical part of their orga-
nization’s S&OP process. This is reflected in organi-
zational plans for the future: Over two-thirds of the
respondents say that their organization intends to
spend more on S&OP tools and technologies in the
coming years than they have in the previous year.
18 L O G I S T I C S M A N A G E M E N T | MARCH 2020
Becky Partida is senior
research specialist, supply
chain management, APQC
However, about 37% of respondents state that
their organization is just starting to use S&OP tools
other than spreadsheets—an indicator that many
technology. For these organizations, spending more
on tools and technologies for the S&OP process is
to offer the S&OP process. Organizations must
handle an ever increasing amount and variety
of data from internal sources, plus data from
partners and customers. ”
a necessity. Any technology upgrade will require
embraced more advanced technology show that
there are plenty of options available.
APQC’s research shows that Cloud computing
is the most widely used, followed by collaboration
tools and software (Figure 1). To a lesser extent,
organizations have adopted the use of Big Data and
analytics and supervisory control and data acquisi-
tion (SCADA technologies). Fewer organizations are
making use of the Internet of things (IoT), artificial
intelligence (AI) or in-memory computing.
As shown in Figure 2, each type of technology
has its own applications, as well as its own benefits
to offer an organization. Cloud computing, the most
widely adopted technology, enables companies to
connect data sets from their various business func-
tions. This gives a collaborative view of processes
across the enterprise, while enabling organizations to
create meaningful action plans.
Although currently adopted by fewer organiza-
tions, the use of Big Data and analytics has much
to offer the S&OP process. Organizations must
handle an ever increasing amount and variety of
LOGISTICSMGMT.COM

FIGURE 1
Technologies used in the S&OP process
Cloud computing
Collaboration tools and software
Bid data/analytics
Supervisory control and data
acquisition (SCADA technologies)
Internet of things (IoT)
Artificial intelligence (AI)
21.0%
and machine learning
In-memory computing 18.5%
data from internal sources, plus data from part-
ners and customers. Accounting for these differ-
ent data sets requires organizations to have greater
processing power and tools to analyze the data and
facilitate decision making. Advantages of analytics
tools include the ability
for organizations to create
hypothetical scenarios, as
well as the ability to under-
stand supply and demand
trade-offs and the financial
implications of data from
both internal and external
sources.
AI, IoT and SCADA
technologies are business
intelligence and blockchain
tools. AI in particular is
able to address data from
various internal and exter-
nal sources and decode
signals from both the struc-
tured and unstructured
data available.
This technology can
then incorporate the data
into projections, result-
ing in improved accuracy
and decreased variance in
S&OP processes. Business
intelligence tools give func-
tions the ability to view
information in a format
that aligns with the orga-
nization’s S&OP reporting
LOGISTICSMGMT.COM
Benchmarks
requirements. These technologies provide
drill-down analysis, which supports more
94.3% accurate decision making. They can also
evaluate specific metrics such as forecast
64.3% volatility and accuracy, demand consump-
tion, supply chain liabilities, inventory
52.2% management and expenditures.
40.8% Technology criteria and barriers
Although each of the technologies includ-
26.1%
ed in APQC’s survey can benefit the S&OP
process, organizations consider various fac-
tors when determining which technology
they adopt. As shown in Figure 3, the top
criteria organizations use when selecting
Source: APQC tools is reliability, followed by security and
ease of implementation.
These results align with the need for
technology to perform consistently as well as detect
inconsistencies in data. To keep costs down and
minimize disruption to internal processes, organiza-
tions need technology that can integrate with existing
tools and avoid the need for replacing entire systems.
FIGURE 2
Application and benefits of top S&OP technologies
TECHNOLOGY APPLICATION BENEFITS
• Integrates functions such as • Increases accessibility to data
Cloud computing sales, operations, supply chain, across functions and locations
manufacturing, HR
• Enables scalability
• Merges with multiple data
sources without the need to
overhaul the entire system
• Enables secure, seamless • Facilitates swift decision making
Collaboration
interaction among employees
tools and software • Drives productivity
across locations and departments
• Supports demand forecasting, • Manages inventory
Big data/analytics price management, and supply
• Generates actionable intelligence
chain visibility
• Improves decision making and
• Enables modeling of
helps in efficient product launch
hypothetical scenarios
• Identifies market trends, hidden
patterns, customer behavior
AI, IoT, SCADA
• Identifies disruptive events • Reduces inefficiencies
and anomalies in the supply chain
technologies
• Provides real-time visibility • Enables agile planning
of key performance indicators,
inventory, and expenditure
• Improves accuracy
• Makes real-time predictions
using historical data
Source: APQC
MARCH 2020 | L O G I S T I C S M A N A G E M E N T 19
 Benchmarks

Organizations also need technology that is FIGURE 3

consistent across interfaces and prevents the Criteria used for selection
unauthorized access of data. To ensure broad of S&OP tools and technologies
and proper use, technologies and tools must be
easy enough to adopt that end users have the 82.2%
chance to grow accustomed to the new tools. 74.5%
However, organizations face real bar- 64.9%
riers to implementing new technology for 57.3%
S&OP. APQC’s survey of S&OP professionals 49.0%
revealed that over 37% consider budget con-
straints and a lack of consensus to be the two
largest barriers to adopting new S&OP tools.
Budget constraints are often mentioned when
it comes to the possibility of investing in new 1.3%
technology.
Reliability Security Ease of Ease of Scalability Other
What this often means is the technology is implementation integration
seen as not worth the investment. Organiza-
Source: APQC
tions can create consensus for a new tool by
considering its reliability, security and ease
of implementation, as well as its potential benefitquickly respond to change, all while maintaining
for the S&OP process. The organization can then efficient business processes. According to APQC’s
revisit the budget to determine whether it can research, about 15% of organizations currently use
accommodate the tool. IBP across the enterprise. The use of data from
across so many divisions necessitates sophisticated
Technology supports a robust process technology to support decision making, but the first
Organizations vary in the degree to which they step for these organizations was the decision to
have adopted technology to support S&OP. APQC’s adopt more in-depth S&OP processes.
Organizations should investigate the

“ use of technology to support S&OP, but

Without buy-in and participation from across they will get the most benefit with input
the enterprise, the organization will not be from different functions. Without buy-in
able to make the best business decisions that and participation from across the enter-
consider all relevant data. ” prise, the organization will not be able to
make the best business decisions that con-
sider all relevant data. Those companies
research indicates that some are just moving beyond only just moving past spreadsheets can begin the
the use of spreadsheets, while others have adopted adoption of technology as they gain consensus and
the use of Cloud computing, big data and analytics, adjust budgets. They can then scale up the process
among others. These organizations can benefit from as they improve their capabilities. •
integrating technology into an S&OP process, but
the key is to first establish the robust process. About APQC
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20 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

 EXCLUSIVE

THE EVOLUTION OF E-COMMERCE:

Shaping benefits from

It’s not only the growth of e-commerce, but also the ever-tightening delivery
timeframes that have logistics pros eyeing emerging technologies like Artificial
Intelligence, blockchain and the Internet of Things. The challenge is to determine
which of these can alleviate concerns like spiraling transportation costs and
pulling together final-mile delivery resources.

BY ROBERTO MICHEL, CONTRIBUTING EDITOR

T
he march of e-commerce now has Amazon advertising
two-hour food deliveries in select cities. In this envi-
ronment, more shippers face pressure to deliver goods
at a faster pace, all while keeping costs under control.
To cope, many organizations are pinning their hopes on
emerging technologies such as artificial intelligence (AI),
autonomous mobile robots (AMRs), blockchain and the Inter-
net of Things (IoT). But when will these “emerging” technolo-
gies form practical applications that solve logistics pain points?
To find out how these emerging technologies are evolv-
ing into logistics relevance, we talked to top consultants and
analysts. We found that AI is already being applied to pro-
cesses such as transportation routing decisions and freight
matching, sometimes within supply chain control towers.
At the same time, IoT is being used for reasons such as
predictive maintenance over vehicle assets and in conjunction
with AI to better pinpoint estimated times of arrival (ETAs).
And while the new technologies still need to mature to shake
the “emerging” moniker, it’s also apparent that organizations
can start leveraging most of these technologies today.
AI’s many uses
Today, it seems that AI is on everyone’s lips. The reason: AI is a
technology with broad scope, explains Chris Striffler, a senior
manager with Clarkson Consulting. “AI and machine learning
[ML] have broad applicability, so we’re seeing a lot of traction
around those,” he says. “By contrast, blockchain has strong
potential in areas including traceability and contract manage-
ment, but it doesn’t have the broad applicability that AI has.”
AI can be thought of as next-level analytics that constantly
sifts through big data to arrive at optimal decisions. A subset of
AI is ML, which is able to recognize data patterns, learn from
them, and come up with recommendations on ways to save costs
or improve service levels. With some AI projects, AI output can

22 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

emerging technologies
automatically trigger decisions to be executed within solutions
like a transportation management system (TMS).
Within the TMS domain, AI can churn through transac-
tional history, current pricing data from carriers, along with
current weather and traffic data to make better freight and
routing decisions, explains Michael Daher, a principal and
transportation practice leader with Deloitte Consulting.
Daher adds that many clients are layering AI capabilities
into supply chain control towers—systems that centralize
logistics data and shipment visibility.
According to Daher, AI’s output can automate better deci-
sions around load planning, mode selection, and carrier selec-
tion, says Daher. “By leveraging AI to help automate decisions
in these areas, the managers are able to focus more attention on
the strategic nature of their supply chain management network.”
Deloitte sees logistics evolving toward three pillars: con-
nected communities, holistic decision-making, and intel-
ligent automation. AI is central to holistic decisions, Daher
says, but it also overlaps nicely with supply chain control
towers. “I think the first step on the journey is setting up
control tower environments,” he says. “The second evolution
is applying AI to be able to fully leverage the data essentially
being collected by the control tower.”
Within some larger enterprises, there’s a centralized
analytics group working on AI projects and other projects
that tap emerging technologies. These enterprises tend to
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be quite forward thinking about AI, but small to mid-sized
companies can also work with consultants to rapidly deploy
AI within “proof for value” projects, says Striffler. “Frankly,
logistics and freight are a great place to start with a use case,”
he says. “That said, it’s smart to view AI not just as a tool for
point solutions, but as part of a larger strategy.”
AI is being applied to freight management challenges
by C.H. Robinson, a third-party logistics (3PL) provider,
according to Tim Gagnon, VP of analytics and data science
for the company. “We have effective AI solutions embedded
in our pricing, tender acceptance, freight matching and vis-
ibility services,” says Gagnon, who heads up C.H. Robinson
Labs, an innovation incubator for the company.
Gagnon explains that AI capability can learn from the data and
processes it analyzes, and be used within a control tower. “What
excites us most about these solutions is that they can effectively
learn from millions of decisions and outcomes to develop more
effective judgements of risk and reward, ultimately learning to bet-
ter efficiency, visibility and reliability for our customers,” he adds.
IoT plus analytics
The IoT, when combined with analytics, is helping organizations
with issues such as asset uptime and real-time knowledge over the
location or condition of shipments. It’s the combination of analyt-
ics with IoT-connected sensors that brings the benefits, says Ryan
Kauzlick, a vice president for consulting firm enVista. “If you’re
MARCH 2020 | L O G I S T I C S M A N A G E M E N T 23
 EXCLUSIVE: The Evolution of E-commerce
collecting all of this data, you’ve got to
understand what it actually means, which
is where analytics comes in,” he says.
Top IoT use cases include predicting
equipment failures, protecting the safety
and quality of “cold chain’ distribution
along with asset and associate tracking,
according to Kauzlick. “Where the IoT
can really begin to be value-enhancing is
when it can predict when and where these
failures will occur, so you can change or
refocus procedures,” says Kauzlick.
In some IoT applications, multiple
data sources may need to be fed into
a predictive analytics platform, says
Kauzlick. Fortunately, analytics plat-
forms from Microsoft and others are
getting easier for organizations to use
without having teams of programmers
working on a solution for months.
Kauzlick says that his team often
leverages Microsoft’s predictive analytics
platform. “These platforms are abso-
lutely lowering the barrier of entry for
the analytics side of IoT,” he adds. “They
allow an organization to create a data set
that is trusted, and that you can then
easily reach into for analytics.”
Blockchain momentum
When it comes to all of the details
involved in moving goods across borders
and recording changes to chain of cus-
tody over goods, blockchain is seen as
an ideal technology. That’s because it’s
a digital ledger that lives in the Cloud
where partners can access informa-
tion easily without corrupting it. These
characteristics make blockchain ideal
for traceability, storing cold chain data,
proof of delivery, or contract details
24 L O G I S T I C S M A N A G E M E N T | MARCH 2020
involved with global trade, says Striffler.
According to Daher, one of the big-
gest applications for blockchain is
removing friction from Custom clear-
ance. A blockchain could hold common,
easily verifiable data on details like bills
of lading, certificate of origin, insurance,
or invoicing. “Right now, there is a lot
of time and administrative resources
invested in Custom clearance that block-
chain could help reduce,” says Daher.
Blockchain has various pilot projects
or consortiums working to prove its sup-
ply chain value, including Walmart’s
program to trace green leafy produce
supplies, and the Blockchain in Trans-
port Alliance (BiTA). A bit more time
and broader participation is needed
for blockchain to really take off, says
Striffler. “Organizations are starting to
dip their toes into the water with block-
chain, but it needs that critical mass to
be fully effective. We might be a couple
of years away from that point.”
Last-mile evolves
The growth of same-day—and in some
areas two-hour—delivery windows is
making “last-mile” processes a focal
point. In terms of software for last-mile,
the trend is toward a more holistic
approach that looks beyond tactical
scheduling, routing, and management of
deliveries, according to Bart De Muynck,
research VP for analyst firm Gartner.
“Last-mile solutions were in the past
more purely focused on the transpor-
tation part, but now the evolution is
toward a more holistic view that can be
termed last-mile delivery orchestra-
tion,” says De Muynck. “As part of
this evolution, software vendors are
offering systems that can help improve
the customer experience.”
Vendors with monikers such as
“delivery experience management”
address this need to gather information
on what customers expect from e-com-
merce deliveries. The idea is to fine-
tune the experience, says De Muynck,
to keep customers for the long term. “It
becomes like a feedback loop where you
can manage everything involved with the
delivery so that the next time a customer
places an order, you’re able to provide a
much better experience.”
Traditional routing and scheduling
solutions for delivery fleets have been
around a long time and continue to be
used, but the last-mile landscape now
also involves “crowd-sourced” delivery
drivers, as well as established parcel
delivery companies. More use of drop-
off kiosks and pickup locations adds fur-
ther options to last-mile scenarios.
The added complexity is giving rise to
vendors that offer what amount to “last-
mile delivery orchestration platforms,”
says De Muynck. These solution sets
span multiple functions including man-
aging crowdsourced drivers, with the aim
of helping companies figure out the best
last-mile options. “From a technology
perspective, we’re starting to see a new
type of application, which is these last-
mile orchestration solutions,” he says.
And, e-commerce players—as well as
online grocery companies—are experi-
menting with small autonomous delivery
robots, while Amazon and others have
experimented with small aerial delivery
drones. Currently, says De Muynck,
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 EXCLUSIVE: The Evolution of E-commerce
such use of delivery bots and drones
remains experimental and would face
regulatory hurdles and cost effective-
ness concerns, but it’s inevitable that
companies will need to continue to test
such technologies to drive down costs as
delivery windows get tighter.
“Every time delivery expectations
get shortened, we see increasing
costs, so everyone is looking for those
technologies that can either provide a
way to either bring down that cost of
delivery, or provide the customer with
a better experience,” says De Muynck.
“Ultimately, if you can provide a better
customer experience, some customers
are willing to pay for it.”
Autonomous trucks
Autonomous trucks continue to draw
interest from investors as well as com-
panies that need to find ways to get
goods to consumers quickly and cost
effectively. Companies developing
autonomous truck technologies include
Alphabet/Waymo, Embark, TuSimple
and Starsky Robotics.
Rather than fully replacing humans
with fleets of “driverless” trucks, says De
Muynck, a more likely near-term sce-
nario will be to pair autonomous trucks
with human drivers to extend range and
lower costs. The human driver could
handle urban environments and load-
ing/unloading interactions, while the
autonomous vehicle handles the driving
for long stretches of highway.
Assuming regulations over driver
rest could be ironed out, this pairing of
human drivers and autonomous trucks
could keep assets rolling to effectively
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speed up transit times. In some regions,
this might eliminate the need for addi-
tional warehouses to serve customers for
next-day deliveries, notes De Muynck,
which would offer a major cost savings.
“This team model, in which one
team member is a human driver, and
other the autonomous truck, could help
move more products more quickly and
at a lower cost than is possible with
conventional trucks,” adds De Muynck.
The new robotics normal
With the time pressures and extensive
picking of small items involved in e-com-
merce, warehouses are under intense
pressures to accurately get orders out
the door rapidly. The labor shortage has
made this extremely difficult to do under
manual or semi-automated methods.
These two key challenges are why
autonomous mobile robots (AMRs) are
widely seen as one of the main tech-
nologies that help supply chains with
e-commerce. Bringing in AMRs is sim-
ply seen as a tactical necessity, explains
Remy Glaisner, a research director for
analyst firm IDC. “Labor availability is a
big challenge,” he says. “Basically, many
operations simply can’t find enough
people at the local level, which drives
operations to look at robotics.”
Glaisner estimates that across all
DCs, the current penetration rate for
AMRs is somewhere between 1% and
2%, making it early days for AMRs.
That said, close to 60% of companies
are considering robotics, he adds.
Once an operation does roll out
robotics, it’s typical that key metrics
are improved by roughly 20%, adds
MARCH 2020 | L O G I S T I C S M A N A G E M E N T
Glaisner. This creates what he calls a
“new normal” in which the operations
begins to see steady benefits in areas
like order accuracy and more predict-
able cycle times.
“Initially robotics help solve the
issue of not being able to find enough
staff, but after they’ve been in use for a
while, it tends to set up a new normal
for the performance of an operation,”
Glaisner says. “That is when managers
realize that, yes, we can actually grow
our business or serve customers better
thanks to robotics being deployed in
the operations environment. Mobile
robotics can be transformative in that
they can help move the warehouse
environment from being more purely a
cost center concern, to being a source
of value generation.”
Overlapping benefits
Ultimately, how various emerging tech-
nologies can help with the challenge
of e-commerce is more than deploying
each one as an isolated technology.
They tend to overlap in a good way. IoT
needs predictive analytics and AI, while
AI and ML are also baked into AMRs
and autonomous trucks.
You don’t to pick and choose from
a list of emerging technologies—you
might blend ML with IoT to under-
stand the operational implications
of massive data sets, Striffler points
out. “There can be strong synergies
from implementing these technologies
together,” he adds. •
—Roberto Michel is a contributing
editor to Logistics Management
25
 © Daniel Vasconcellos

26 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

 Transportation Best Practices/Trends

2020 Parcel Express Roundtable:

You get what

you negotiate
Three of our top parcel industry sources bring us up to speed on
the fastest moving, most dynamic service sector in logistics.

BY JEFF BERMAN, GROUP NEWS EDITOR

T
he combination of strong economic fundamentals and steady consumer spending continue to pro-
vide a blueprint for success for the service providers in the dynamic parcel express market. The
ubiquitous duopoly of UPS and FedEx continue to make their collective presence felt on many lev-
els, and global e-commerce titan Amazon is closing in and taking active and measured steps to bring more
deliveries into its own network.
In the meantime, last-mile logistics continue to take a more prominent seat at the table, with e-commerce
becoming the preferred way of shopping for many consumers. This, in turn, has forced shippers to step up
their games when it comes to how they approach rate and pricing negotiations.
In our annual endeavor to keep shippers up to date on this fast-moving and ever-changing market,
we’re joined by Jerry Hempstead, president of Hempstead Consulting, a parcel advisory firm; Dave Sul-
livan, vice president of professional services for Shipware, an audit and parcel consulting services com-
pany; and John Haber, founder and CEO of Spend Management Experts, a transportation, distribution
and fulfillment spend management consultancy.

Logistics Management (LM): How would
you describe the current state of today’s
parcel marketplace?
Dave Sullivan: Uncertain and dynamic seems
to be the constant state of the parcel marketplace.
Change has always been the order of the day, but
the pace of change seems to be accelerating lately,
largely due to the impact that Amazon is having.
The “Amazon effect” continues to force change on
parcel carriers and shippers at a pace that they’re
likely not comfortable with—and the choices that
we make as consumers only amplifies this.
The demand by consumers for faster transit
times, coupled with rising costs, presents chal-
lenges that some are finding difficult to overcome.
Responses to these challenges include a move
toward more Saturday and Sunday deliveries and
potentially less reliance on the United States Postal

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E M E N T 27

Transportation Best Practices/Trends: Parcel Express Roundtable
Service (USPS) work share programs.
And as a byproduct, we’re seeing
increased tensions between the two
national carriers and Amazon as they
figure out how to be both partners
and competitors.
Jerry Hempstead: B2C e-commerce
is exploding in volume and growing so
rapidly that it “forgives” many of the cost
increases to the carriers, as new volumes
hid a lot of operational sins. The package
growth has had a positive effect on UPS
and FedEx as well as the regionals like
OnTrac, and it has provided the density
to allow Amazon to build out its own pro-
prietary network.
We also see the positive effect par-
cels have had on the USPS. The new
tax reforms have also put a positive
spin on the capital spending decisions,
in particular UPS and FedEx. The
change in the tax law has allowed them
to now invest in equipment that will
help their costs in the future.
John Haber: It’s complicated. Retail-
ers continue to offer “free delivery” while
last-mile providers are competing on
speed and convenience. Free delivery is,
of course, not free, but retailers believe
that they have to offer it in order to be
competitive. Meanwhile, Amazon contin-
ues to up the ante by now offering free
next-day delivery for Prime members.
At this same time, the last-mile loca-
tion is changing. Besides the traditional
front porch and lockers that can be
found in a number of locations, there
are other alternative delivery locations.
These alternative locations are not only
marketed as a convenience for consum-
ers, but they’re also part of a cost sav-
ings solution for FedEx and UPS that
allows each provider to bundle pick-ups
and deliveries in one location versus
residential door-to-door deliveries that
are time consuming and costly.
LM: Can you describe the current
28 L O G I S T I C S M A N A G E M E N T | MARCH 2020
“B2C e-commerce is exploding in volume and growing so
rapidly that it ‘forgives’ many of the cost increases to the
carriers, as new volumes hid a lot of operational sins.”
rate and pricing environment for
parcel shippers?
Hempstead: Sadly, we’re in a world
with only two global integrators with a
full range of services. The two have done
a great job in leveraging their discount
programs to force most of the customers’
wallets into their bucket if the shipper
wants to realize optimal results. The two
telegraph to each other the breadth and
timing of price increases, and as one
makes a change the other is quick to
match or mimic the revenue grab.
My experience is that shippers don’t
want to switch carriers and endure
the potential service and cost conse-
quences of doing so. The carriers know
this. So, just about everyone endures
annual cost increases of one sort or
another, and the only mitigation for the
shipper is their ability to negotiate.
Haber: It’s a paradigm shift. For
years, we expected just an annual aver-
age rate increase and that was it until
the next year. However, there’s more to
these announcements from UPS and
FedEx. Surcharges now make up the
bulk of the increases, and for several
of these surcharges, such as additional
handling and fuel, increases can occur
throughout the year, in addition to new
ones. As a result, shippers struggle to
plan and budget shipping costs.
Sullivan: Challenging, as always,
but also favorable in terms of the
opportunities that exist relative to rate
optimization and negotiation. We’ve
seen rate negotiations over the past
few months that have resulted in pric-
ing that we would have previously con-
sidered better than “best-in-class.”
—Jerry Hempstead, Hempstead Consulting
The fallout from FedEx firing Amazon,
and then Amazon shutting off FedEx
Ground as an option for Prime shippers,
has created capacity within the FedEx
network that they need to fill in. They’re
aggressively pursuing new business and
competitive, non-incumbent carriers
must follow suit in order to keep what
they have. And while this is mostly a
residential network issue, commercial
shippers are benefitting as well. We’re
seeing aggressive pricing for both.
However, shippers do need to be
wary of new rules and non-linear price
increases and service guide changes.
For example, the package weight that
triggers an additional handling charge
from both carriers has been reduced
from 71 pounds to 51 pounds. This
amounts to a huge rate increase for
some shippers. Also, both carriers
have increased the additional handling
charge itself, resulting in a “double
whammy” for many shippers.
LM: What have been the biggest
changes for shippers since dimen-
sional pricing (DIM) divisors switched
to 139? Have they adjusted well or
do challenges remain?
Sullivan: Many shippers have
adjusted or are adjusting, but there will
always be challenges—more for some
shippers than others. Shippers have
been able to optimize their packaging to
the degree they’re able in order to mini-
mize the amount of air being shipped,
but this isn’t always an option depend-
ing on the product being shipped.
Some shippers have moved to
USPS, where possible, in order to take
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Transportation Best Practices/Trends: Parcel Express Roundtable
advantage of their more favorable DIM
pricing. The larger question is whether
the carriers will lower the divisor again.
The carriers are currently realizing a
minimum package density of 12.4lbs per
cubic foot—this is compared to a mini-
mum density of 8.9lbs per cubic foot
when the divisor was 194.
How much higher can they go? We
have no indication that the divisor will
be reduced again, but as the carriers
continue to look for new revenue oppor-
tunities, it would stand to reason that
it’s at least under consideration.
Hempstead: When the change of
the divisor went from 198 to 166 and
then to 139, many shippers negotiated
exemptions, but in many cases, exemp-
tions and concessions expire over time.
The same has held true for the big hit to
shippers, which was the elimination of
the three cubic-foot exemption that hap-
pened in January 2015.
Some shippers have made operational
changes to reduce their package size and
packaging procedures, but, for the most
part, shippers just have to incorporate the
increased costs into their budgets. Sharp
negotiators still can get exemptions to the
divisor and for a size exemption.
The 2019 Christmas surprise was
the modification of the additional
handling surcharge (weight), reducing
the trigger from 70 pounds to 50. Up
until now, the surcharge (now $24)
was not imposed on transactions from
50 to 70 pounds. Today, shipments
of this weight have this extraordinary
burden imposed.
Often for big shippers, the fee is
more than the transportation cost, and,
to add insult to injury, the carriers now
impose a fuel surcharge on the acces-
sorial fee. Keep in mind that you can
negotiate the implementation date on
your book of business or negotiate a
waiver for a period of time or negotiate
a discount on the new fee.
LOGISTICSMGMT.COM
LM: How are market conditions
affecting service, and what role is
the current state of the U.S.
economy playing?
Hempstead: The economy has been
robust for two-and-a-half years now.
The tax cut put more spending money
in our pockets. Consumer confidence
and spending are up, and e-commerce
has allowed us to conveniently separate
ourselves from our money at the click
of a mouse. This, in turn, has created a
“The rise of e-commerce shipping has been perhaps
the primary disruptor in the parcel market,
and a strong economy exacerbates this.”
tsunami of packages, in particular dur-
ing the peak buying season between
Thanksgiving and Christmas.
The windfall of traffic caused back-
ups in the carrier networks for some
areas, which was exasperated by weather
delays. It got so bad that Amazon put
out an edict to third-party sellers to dis-
continue the use of FedEx Ground and
Home Delivery until service improved.
This then forced sellers to upgrade to
two-day air or to another carrier. UPS
got a similar black eye with Amazon
during the 2013 holiday, but has since
returned to Amazon’s good graces.
The folks at FedEx terminated their
relationship for both air and ground
during the summer, so it’s surprising
that FedEx had difficulty handling
volumes this year. We have seen
moves by FedEx and UPS to migrate
packages away from USPS for the last
mile—as has Amazon—so that they
can deliver on their own vehicles.
FedEx is going to be offering ubiq-
uitous Sunday delivery, and Amazon
has started next-day free delivery for
some items for customers who are
members of Prime. However, all of
MARCH 2020 | L O G I S T I C S M A N A G E M E N T
these service improvements come at a
cost—and as hard as it is to believe, as
John already mentioned, free shipping is
not free.
Haber: Consumer demand is driv-
ing much of the U.S. economic growth.
E-commerce is further driving this
demand as consumers enjoy searching
for bargains and goods from overseas—
all from one’s smartphone, laptop, or
tablet. Providers such as Amazon are
responding by offering faster delivery
—Dave Sullivan, Shipware
service as part of its Prime member-
ship. In response, Walmart and Target,
in particular, are building out their own
last-mile delivery networks, connecting
brick and mortar stores as buy online/
pick up in store options.
Sullivan: The economy is strong
right now, and increased consumer
confidence leads to increased spending,
which leads to increased e-commerce
volume. The rise of e-commerce ship-
ping has been perhaps the primary
disruptor in the parcel market, and a
strong economy exacerbates this.
Both national carriers saw record
volume during 2019’s peak shipping
season, which was shorter than in past
years. The next frontier for carriers and
shippers is returns. More outbound
volume means more demand for easy,
inexpensive return shipping. UPS was
expecting its 7th consecutive record
“returns day” in 2020. To a large degree,
consumer choice is driving much of
what we’re seeing in the market.
LM: How are the more established
carriers adjusting to the ongoing
influx of new, last-mile competitors?
29
Transportation Best Practices/Trends: Parcel Express Roundtable
Haber: FedEx and UPS offer a
much broader collection of services
including well-developed nationwide
networks versus the new, last-mile
competitors that are typically more lim-
ited in scope and service. The advan-
tages that many of these newer com-
petitors have over the more established
carriers, however, are agility and lower
cost last-mile services. UPS and FedEx
are investing heavily in their networks
and in technologies to speed up fulfill-
ment services and last-mile delivery.
They’re also offering services like later
pick-up times from retailers, as well as
seven-day delivery services.
Sullivan: The national carriers are
certainly getting creative, or at least
are trying to. They continue to develop
multiple innovative last-mile solutions
to meet demand and adjust to the com-
petitive landscape. According to FedEx
CMO Brie Career, who spoke at the
Consumer Electronics Show in January,
50% of FedEx deliveries are residential,
50 million packages are delivered every
day, expected to increase to 100 million
by 2026—and 93% of that growth is
expected to be driven by e-commerce.
Walgreens CMO Vineet Mehra
spoke at the same conference and
mentioned that FedEx has counters
in 8,800 Walgreens stores and noted
that 78% of Americans live within five
miles of a Walgreens. FedEx custom-
ers have the option to have their pack-
ages delivered to the local Walgreens
rather than to their front door.
In addition to creating efficiencies
for the carrier and providing a more
convenient delivery option for the end-
user, this solution also deters porch
pirates. Expect this trend to continue.
Hempstead: For the most part, the
big integrators have ignored the entry
and success of new entrants into the
game. While the new players don’t offer
a superior service, the acceptance
30 L O G I S T I C S M A N A G E M E N T | MARCH 2020
“Amazon is a threat to UPS and FedEx. Estimates are that
Amazon is currently doing about 25% of their own deliveries,
and I believe that percentage will increase as Amazon takes
more of its logistics operations in-house.”
and adoption rate of alternative sup-
pliers is due primarily to pricing. If
the integrators ever wanted to shut
down the regionals, they could. They
simply could offer a better price to
the customers and do it quickly.
The big guys have a depth of cash
that could enable them to do so, but it’s
a choice they don’t need to make right
now, because they are dealing with their
own strong package growth already. I’m
sure management at the big integra-
tors understands that onboarding new
customers costs very little because they
have plenty of network capacity.
LM: Related to last-mile, what is
your take on the increase in motor
carriers’ involvement in this space?
Sullivan: The national carriers are
forcing this change by virtue of their
punitive pricing for larger, heavier items.
Large items such as TVs, appliances and
mattresses are, more than ever, ordered
online. FedEx and UPS charge $120
to deliver oversize items to a residen-
tial address. If the package is over 108
inches long, measures 165 inches in
length + girth, or weighs 150 pounds or
more, that fee soars to $875.
Although the carriers have made
investments in order to be able to more
efficiently move large packages through
their network, it’s volume that they
really don’t want. There has also been
some partnering of retailers and non-
traditional last-mile carriers for a quality
delivery experience that’s less expensive
than those offered by UPS or FedEx.
These partnerships are critical, as
—John Haber, Spend Management Experts
many end-users consider the delivery
company an extension of the retailer and
the interaction with the delivery com-
pany and the delivery driver is often the
only person-to-person interaction they
have with the retailer.
Hempstead: The growth in last-mile
business is predominantly residential.
Do you want a 53-foot trailer pulled by a
tractor making deliveries in your neigh-
borhood? That said, there’s now some
growth in heavier online purchases,
as people become more accepting of
e-commerce and companies like Home
Depot, Walmart, and Wayfair are gener-
ating transactions that fall outside of a
good fit for the parcel carriers.
Haber: Motor carriers see an
opportunity. UPS and FedEx do not
want these large, bulky items in their
small parcel networks because they’re
not set up to handle such items. As
a result, UPS and FedEx have imple-
mented a number of surcharges such
as large package, oversize, and over-
max to discourage them. And for many
motor carriers expanding into last-
mile, there’s a learning curve.
It’s not the same as moving more
traditional trucking freight. Motor
carriers need to have the right equip-
ment and vehicles, as well as trained
employees for white glove services such
as installation and removal of goods like
furniture. Technology is also needed for
scheduling, tracking, and customer ser-
vice. It proved too much for Schneider
National, who ended up shutting down
its last-mile division due to cost.
LM: Given Amazon’s constant
LOGISTICSMGMT.COM
Transportation Best Practices/Trends: Parcel Express Roundtable
growth and scale, they continue to
be viewed as a viable parcel and
logistics operation. How do you view
where Amazon is for both parcel and
last-mile services and where may
they be headed next?
Haber: Amazon is a threat to UPS
and FedEx. Estimates are that Ama-
zon is currently doing about 25% of
their own deliveries, and I believe that
percentage will increase as Amazon
takes more of its logistics operations
in-house. Amazon recently said its
dedicated last-mile delivery network
delivered over 3.5 billion customer
packages globally in 2019.
Amazon’s last-mile delivery network
is just a part of Amazon’s broader,
intricate supply chain that includes
ocean, trucking, air and rail and is all
interconnected from the origin of the
package all the way through the last
mile. Their goal, in my opinion, is to
not only control their own global sup-
ply chain, but to also provide logistics
and transportation services to busi-
nesses similar to what they did with
Amazon Web Services (AWS)—use
it internally and then once perfected,
sell it to others.
Hempstead: Indeed, Amazon is the
wildcard in this game. They’ve built
out an impressive network of hubs, ter-
minals and aircraft. Estimates are that
they have 20,000 of their own vehicles
on the road now, but they have a
breathtaking 100,000 electric vehicles
on order to be fully integrated by 2030.
Amazon may be optimistic in think-
ing that its organic growth is going to
devour that capacity, but logic dictates
that we consider Amazon retailing their
parcel services at least to large ship-
pers. I’m optimistic that Amazon will
become a third player in the market,
at least competing for the big retailer
business. The optics so far reveal that
Amazon has just been busy taking care
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of Amazon’s business, and we have not
seen any wholesale entry into the vast
amorphous parcel market.
Sullivan: Consider Amazon’s busi-
ness model and, as an example, the
evolution of AWS. First, Amazon was
building Cloud-based servers to better
control costs and efficiently serve its
internal needs. Now, AWS is a mainstay
for IT operations of many Fortune 500
companies. Amazon is pushing hard
to control its shipping costs, which
accounts for roughly half of its retail
gross profits. As with AWS, its history is
to provide an internal model that drives
down costs and drives up efficiencies.
Amazon continues to make bullish
investments in its delivery network.
The return on the investment resulted
in their ability to deliver 46% of all
U.S. packages bought on their plat-
form, compared to 20% the previous
year—that’s extraordinary growth. The
evolution of AWS took a full decade to
go from its internal self-serving infancy
state to its market-dominant position
in Cloud infrastructure. It doesn’t take
much speculation to see a similar out-
come with its shipping network, and I
expect that Amazon will begin deliver-
ing packages to the doorsteps of non-
Amazon customers in early 2021.
LM: What advice do you have for
parcel shippers in 2020?
Hempstead: Normally, a shipper is
not precluded from negotiating all or
part of their contract at any time they
please. After all, the carriers reserve
the right to change their base rates,
fuel surcharge formulas, accessorial
charges, rules and regulations at their
pleasure and at any time they want and
to whatever degree they want.
Therefore, my advice is to use the
tools available to stay on top of the
changes. You don’t have to just sit back
and take it as etched in stone.
MARCH 2020 | L O G I S T I C S M A N A G E M E N T
I have said many times that every-
thing is negotiable. And in the parcel
space you don’t get what you deserve,
you get what you negotiate.
Sullivan: We know from experi-
ence that the best carrier contracts
come from shippers who regularly seek
improvements. Those shippers don’t
take a piecemeal approach to contract
negotiation, understanding that a more
comprehensive approach is best. They
analyze their current carrier distribu-
tion patterns and compare their pricing
to appropriate industry benchmarks to
identify opportunities for improvement.
Savvy shippers also focus on freight
costs, but also pay very close attention
to accessorial and surcharge costs,
dimensional weight impact and pric-
ing, and minimums. They leverage
carrier competition and provide a fair
pathway for the non-incumbent to win
the business. If the non-incumbent
offers cost reduction or other efficien-
cies and the barriers to switch are
relatively low, smart shippers jump at
the opportunity. Shippers who never
go through this process are left with
incumbent carriers who never feel at
risk and, therefore, have little incen-
tive to offer improved pricing.
Some savvy shippers will keep at
least a portion of their business with
multiple carriers, including consolida-
tors and regional carriers, while suc-
cessfully managing the dilution impact
to their primary carrier pricing. Finally,
the savviest shippers hire third-party
experts to help them navigate all of this.
Haber: Jerry and Dave are both
spot on, and I would add this as a
piece of advice: Expect the unex-
pected. Stay on top of industry news,
understand how the news affects one’s
own businesses and be proactive. •
—Jeff Berman is the group news editor
of the Supply Chain Group
31
Supply Chain & Logistics Technology

WES 2.0
The first generation of warehouse execution systems brought a new
level of orchestration to automated warehouses. The next generation
promises to bring a new level of optimization and productivity to the
conventional warehouse. Get ready for WES 2.0.

BY BOB TREBILCOCK, EDITOR AT LARGE

I
n June of 2007, I toured a recently opened
552,00-square-foot expansion to American Eagle’s
Ottawa, Kan., distribution center. The new space
was unique in several ways, at least in my experience at
the time, and was a precursor of things to come.
First, while no one was using the terms multi-
channel or omni-channel at the time, the facility
was designed to manage inventory across three dif-
ferent brands—all stored in a central reserve storage
area—and to fulfill orders across multiple sales and
distribution channels.
Incoming cartons for which there was immediate
demand were crossdocked to a store-bound truck.
Otherwise, items were sent to reserve storage and
picked using multiple pick methodologies, including
voice picking, wrist-mounted scanners and pick-to-
light, and then inducted onto a cross-belt sorter. At
the pack stations, those items might go into mixed
SKU cases for store replenishment, or multi-line and
single-line orders that were shipped directly to con-
sumers. And, it did so across all three brands.
Second, while no one was using the term warehouse
execution system (WES) at the time, a WES software
solution from Vargo was the heart of the order fulfill-
ment processes. At that time, a Manhattan Associates
warehouse management system (WMS) managed
receiving, putaway, inventory and shipping. But the
Vargo system managed the picking and packing pro-
cesses, pulling work through the facility based on what
was happening at the pack stations. The idea was to
balance the work so all of the pack stations were busy
all of the time, rather than having one station overbur-
dened while another was waiting for work.
Fast forward to ProMat 2019. By then, every pro-
vider of automated solutions worth their salt offered
what we now call a WES. But at the end of the show,
I talked to John Schriefer from Lucas Systems, a
provider of voice solutions. He described a new soft-
ware solution that uses algorithms similar to those
developed for automated facilities but to manage the
conventional processes typically directed by a WMS.
They called it a WES, for work execution system.
Just a few booths away, Dan Gilmore, the chief
marketing officer for WMS provider Softeon, was also

32 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

talking about a new take on WES functionality to optimize
conventional picking processes, putwalls and autonomous
mobile robots in a way that WMS alone could not.
Bringing real-time order allocation and optimization of
the convention worker was a new take on WES. It’s a devel-
opment that Dwight Klappich, research vice president and
Gartner fellow, is watching. “What companies like Lucas,
Softeon, Manhattan and others are talking about is the ability
to apply more robust constraint-based planning techniques to
the warehouse,” Klappich says. “These systems are designed
to assign work in the most efficient way possible and then
dynamically re-assign that work based on changes to what’s
happening on the floor.” If the system I saw in 2007 was
WES 1.0, then we’re on the verge of WES 2.0.
These solutions do something else as well,
which is to put computing power and decision-
making capabilities on mobile computing devices
at the edge of where work is being performed.
It’s an example of bringing edge computing to
the materials handling world. Indeed, Zebra has
trademarked the term FulfillmentEdge for its new
WES solution.
applied that same concept to automated warehousing.”
In the view of companies like Vargo, a WMS was an
effective system of record for inventory, orders and business
rules, but less so when it came to executing orders, espe-
cially in facilities with a mix of automated solutions, like
goods-to-person pick stations, and conventional processes,
like voice-picking, pick-to-cart and putwalls. The new layer
of software could orchestrate order fulfillment processes
so items picked from a shuttle, AutoStore or Opex solution
would arrive at a putwall at the same time as items coming
from a three-level pick mezzanine or cart.
What’s more, the system could allocate and re-allocate work
to balance workloads across those different areas based on
real-time conditions. “WMS preplanned work based on pick

The evolution of WES

Before we talk about where we are, it’s helpful to
look back at how we got here. Klappich observes that
the capabilities that WES providers brought to auto-
mated warehousing “is what manufacturing execu-
tion systems (MES) have done for 30 years.” The
warehouse is just now catching up with MES.
In fact, the solution Vargo deployed at American
Eagle had its roots in MES. “In the 1970’s, one of
our principals developed an automatic guided vehi-
cle solution for the military that was a clone of an
MES,” says Art Eldred, a client executive at Vargo.
“It synchronized and sequenced work, people and
equipment to keep a production line running. We

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E ME NT 33

Supply Chain & Logistics Technology: WES
Work execution systems bring the same tools that optimize activities in highly automated
facilities to conventional processes like voice-directed picking.
patterns,” says Eldred. “But once a trip
was planned, the WMS had limited
visibility to make dynamic decisions
because it didn’t get real-time feedback
from the workforce.”
A WES, on the other hand, is closer
to the action. By collecting more
information from more points, it has
real-time visibility into what’s going
on down on the floor. Rather than
assign a batch of tasks, a WES assigns
one task at a time “and doesn’t give a
worker the next task until the first is
finished,” Eldred explains.
Vargo was early to the party, but it
wasn’t alone. Within a few years of my
visit to American Eagle, most of the
leading OEMs and consulting firms
34 L O G I S T I C S M A N A G E M E N T | MARCH 2020
had developed a WES. And while a
WES is now practically a necessity in
an automated e-fulfillment facility, the
next generation work execution sys-
tem, WES 2.0, is addressing a differ-
ent issue: How to bring a new level of
efficiency in facilities that still rely on
highly manual processes, like pick to
tote, pick to pallet and pick to cart?
Taking it to the edge
Back when printers, scanners and mobile
computers became truly mobile, the pitch
was that wireless connectivity allowed
you to take devices to the point where the
work got done. But those devices were
essentially dumb terminals that served as
conduits to a warehouse management or
enterprise resource planning (ERP) sys-
tem; that’s where the intelligence resided.
Those systems knew what tasks they had
assigned, but they were essentially in
the dark until an associate scanned a
bar code, read a check digit or tapped a
light bar when a task was complete. It’s
the difference between tracking your
delivery on UPS versus waiting for an
Uber. With a parcel delivery, you know
where your package was last scanned,
but not where it’s at in the moment.
On the Uber app, you know where your
driver is at any given point in time.
That gap between when a task was
sent to the floor and when it was com-
pleted created the opening for work
execution systems. “Our customers
have WMS and ERP systems that are
oriented around where inventory is
located within a facility,” says Andrew
Southgate, global vice president of
sales and marketing for Lucas Systems.
“What’s been missing is a system that
focuses on optimizing the people in the
warehouse and doing so in real time.”
In this new model, the WMS still
manages inventory and receives orders
from the order management system.
Those orders are then sent to the work
execution system for fulfillment. “When
we get a pool of orders from the WMS,
we’ll figure out the number of orders to
the cart, the number of carts we need
and then batch them in a way to get the
highest pick density and the shortest
travel path to meet all of the priorities
for those orders,” says Southgate.
What’s more, thanks to the prolifera-
tion of sensors and other real-time data
gathering technologies, the system, like
the Uber app, knows what’s happening
in real time. As Gartner’s Klappich puts
it, “we now have location awareness
in a way we never had it in the past.
When I know where every one of my
assets is, I can apply more sophistica-
tion to where I need people to be.”
LOGISTICSMGMT.COM
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Supply Chain & Logistics Technology: WES
These new tools not only optimize pick paths, but enable strategies to optimize slots on a picking cart.
Worker-centric
Where earlier systems were oriented
around the management of inven-
tory, this new approach is centered
on “making the worker on the floor
as productive as they can be,” says
James Hendrickson, director of
product and offering management at
Honeywell. Putting intelligence and
decision-making capabilities at the
edge enables the sophisticated opti-
mization of people and work.
“Rather than just dropping in a bar
code scanner and doing what the host
system tells you, these new solutions
provide deeper functionality where the
work is being done,” Hendrickson says.
“The worker at the edge is who you
want to empower.”
There’s another reason for moving
analysis and decisions to the edge,
notes Andrew Pierce, Zebra’s advanced
product manager for WHSE solu-
tions. “When a warehouse is running
20-year-old technologies, like terminal
emulation, or is still using paper, the
associate is figuring out the best way to
execute a task on their own, with mixed
results,” he says. “We want to guide
36 L O G I S T I C S M A N A G E M E N T | MARCH 2020
Pull quote box here
and direct the worker in the best way.”
Work execution systems create
dynamic workflows based on what’s hap-
pening with a facility’s resources and
assets at any given point in the day. That
allows the system to allocate work in an
optimal way. While these systems are in
their early stages, as they proliferate and
gather more data, they will be able to use
artificial intelligence and machine learn-
ing to improve performance in the future.
The smart cart
So far, most of this discussion has looked
at applying WES to the voice-directed
worker. Other solution providers are also
looking at how the WES can optimize
pick-to-cart operations, or something
Fortna refers to as a “smart cart concept.”
“The smart cart uses lights and aids to
make the workers job at the cart more
productive,” explains Russ Meller, Fort-
na’s vice president for solution design and
R&D. “Now, we can utilize WES intel-
ligence to allocate work to the cart.”
Let’s say a batch order requires 1,000
items. Because the system knows where
those items are located, it can release
orders so an associate with a 10-slot cart
gets 10 orders that have items stored
next to one another, essentially slot-
ting the cart. Another approach is to
dynamically discharge totes as orders are
completed, opening up a slot for a new
order that can be picked as the cart con-
tinues toward packing. “Now, I’m not
only assigning the 10 best orders at the
start of the process, but I’m looking at
the upcoming orders,” says Meller, who
likens it to turning tables in a restaurant.
In the future, the system will be
able to consider factors like labor pro-
ductivity and order cut off times when
assigning work. “Because we know the
number of items to be picked, where
they’re located and the productivity of
individual workers, we can estimate how
long it’ll take to fill the orders,” Meller
says. “If I’m an hour before a cut-off
time, I can decide whether to optimize
the productivity of a cart or distribute
the order to two carts to make sure we
make the cut-off time.”
WMS gets in the game
Warehouse and work execution sys-
tems came about because of an unmet
need in WMS solutions. “It’s fair to
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Supply Chain & Logistics Technology: WES
say that WMS solutions looked at processes as sequential
steps and didn’t take the big picture view that provides a
number of opportunities to take labor out of the distribu-
tion center,” says Gilmore. Today, WMS providers like
Softeon, Manhattan, JDA and HighJump are making up
for lost time. “The principles that drive effectiveness in
automated systems can be applied to distribution centers
with little to no automation,” says Gilmore. “And, that’s
leading to a step-change in WMS technology.”
An example of this new approach in action is something
that Softeon calls a “virtual putwall.” It takes a dynamic
view of assigning work to a putwall similar to the smart
cart example above. “Let’s say you have 10 modules with
50 cubbies each, or 500 cubbies,” Gilmore says. “I could
release work for 10 individual modules, or I could create
five groups of two modules to optimize batch picking and
reduce the number of totes on the conveyor. And, it’s not
fixed. Tomorrow, it might be better to do 10 than five.”
A similar evolution has been taking place at Manhattan
Associates. “That American Eagle facility you visited was
a pioneer in this space,” says Adam Kline, Manhattan’s
senior director of product management. Around 2010,
Kline was asked to look at what was happening there and
see how those concepts could be applied to a WMS.
“What we decided is that the WES vendors were view-
ing the problem from the automation layer up,” Kline
says. “In our view, there’s more than timing the release of
work. There’s inventory, there’s people and there’s equip-
ment. As a WMS vendor, we could take a top-down view,
because we have full knowledge of the orders, inventory,
people and where they’re located.”
The result was “order streaming, which is adjacent to
WES,” says Kline. In this new way of thinking, “we can
deal with an order on an individual basis. When it comes
in, we can hold it until we have a signal from a putwall or
another resource that there is capacity available.” It also
now includes a layer of software to communicate with the
downstream automation. “They are two different compo-
nents, but created within the WMS,” Kline says. Pick paths
are optimized by applying the algorithms developed for
transportation management to the warehouse.
WMS’s most compelling pitch could be that there’s just
one throat to choke. “Why bring in another vendor if the
functionality is already baked into the WMS?” asks Kline.
Gilmore agrees. “Clearly there is a market for WES in a heav-
ily automated environment,” he says, “but in conventional
facilities, with workers, putwalls and perhaps some robots,
WES doesn’t have to come from an automation provider.”
LOGISTICSMGMT.COM
Next steps
Where is this fast-moving space moving next? In the view
of Fortna’s Russ Meller, artificial intelligence and machine
learning are coming, as is the ability to make better use
of labor based on real-time productivity levels and activity
in the warehouse. “What everyone is striving for is visibil-
ity that allows you to allocate labor to optimize multiple
upstream and downstream processes,” Meller says. “I
think that’s where we’re headed.”
Eldred sees the emergence of robotics, especially
autonomous mobile robotics, as the next area for ware-
house optimization. It’s not without its challenges.
“Machines are predictable,” he says. “We can project what
a machine will do with the work we put in front of it. We
can’t predict what a person can do and that complicates
things.” What’s more, there is little standardization in the
robots coming to market. Each has its own standards,
communication protocols and capabilities. “Clearly, we
have work to do,” Eldred says. •
—Bob Trebilcock is an editor at large
for Logistics Management
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Global Logistics
REVERSE LOGISTICS
rides high on the
wave of e-commerce
Thanks to the inexorable growth of e-commerce, the reverse
loop has never been so prominent in global supply chains.
Now, social media contributes to the complexity.
BY PATRICK BURNSON, EXECUTIVE EDITOR
W
ith the ongoing growth of e-commerce, the volume of
returned inventory continues to rise for logistics manag-
ers in a variety of industry sectors. But arguably, it’s U.S.
retailers who have felt the greatest impact in recent years. Indeed,
the National Retail Federation (NRF) estimates that over $400 bil-
lion in goods are returned in any given 12-month time frame.
“Historically, many returns end up in landfills, and the trans-
portation of these goods contributes to retail’s carbon footprint,”
adds NRF chief economist Jack Kleinhenz. “This becomes more
of an issue when one considers that online and other non-store
sales were up 14.3% year-over-year in 2019.”
Even global leaders attending the World Economic Forum
in Davos this year seized upon the urgency for a “reverse loop,”
with IMO secretary general Kitack Lim calling for renewed
cooperation from all stakeholders. “Shipping, transport and the
supply chain as a whole can make a successful transition to a
low or zero carbon future and contribute to global sustainability,”
he stated. “Reverse logistics is key to the effort.”
Era of free returns
So, with all of the buzz about e-commerce and its steadily grow-
ing global footprint, it’s little wonder that industrial real estate
38 L O G I S T I C S M A N A G E M E N T | MARCH 2020
giants have broadened their focus on the returns trend.
In its recent report titled “Reverse Logistics Stress
in an Era of Free Returns,” Los Angeles-based indus-
trial real estate firm CBRE goes deeper into the circu-
lar economy. Amid last year’s soaring holiday season,
CBRE researchers estimate that e-commerce sales had a
much higher return rate than those of brick-and-mortar
stores—between 15% and 30%.
According to James Breeze, CBRE’s global head of indus-
trial and logistics research, reverse logistics will be a major
“demand driver” for industrial real estate going forward. “A
record number of packages where returned this past year,
and this will continue to increase as the rate of e-commerce
to total retail sales grows,” he says. “Look for reverse logistics
to be the main reason shippers will continue to search for
class B industrial warehouse space in particular.”
Adding pressure to the mix, retailers increasingly must
meet consumer demand for free returns, along with a
simple return process, to remain competitive, CBRE
researchers conclude.
“If the returns are not handled in-store, there are shipping
and handling costs that each have a labor cost,” says Breeze.
LOGISTICSMGMT.COM
“Shipped returns also present challenges in processing times,
liquidation recovery and manual processes that can result in
more than $50 billion in profit loss and more than 10 billion
needless shipments and touches.”
Other key challenges to reverse logistics include product
value depreciation and time sensitivity. As the overall return rate
continues to grow by 10% annually, a higher amount of inven-
tory is subject to depreciation. According to Optoro—a UPS-
backed software provider—fashion apparel depreciates by 20%
to 50% of its value within eight to 16 weeks, creating urgency to
get inventory back into circulation and ready for resale.
“Depreciation levels vary by product type, with electron-
ics losing between 4% and 8% of their value per month,” says
Optoro researcher Sarah Foulke.
Washington, D.C.-based Optoro, collaborated with
CBRE on the report, noting that many retailers with “thin
supply chain networks” are more inclined to outsource their
returns management to third-party logistics (3PL) provid-
ers in order to free up space for forward logistics. This has
created a significant amount of opportunity for the 3PLs
specializing in the reverse loop, including XPO Logistics,
Ryder and NFI, conclude researchers.
LOGISTICSMGMT.COM
Social media
With online shopping become increasingly prevalent, social
media’s role is rapidly expanding, note researchers for
Advanced Supply Chain Group (ASCG), a reverse logistics
consultancy serving the global marketplace.
According to researchers, nearly 34% of consumers surveyed
in a recent study will make more impulse buys as social media
is making it easier to buy products through in-platform selling
tools. Meanwhile, 63% of these impulse shoppers will end-up
sending more of their purchases back to retailers, accounting
for a fifth of all online shoppers making more returns.
ASCG has since advised shippers on how to increase their
returns policy from 28 days to 45 days, while also warning
shippers about “serial returners” to the extent of deactivating
accounts. The notification comes after the industry has faced
unprecedented pressure to preserve profit margins.
A recent survey conducted by eMarketer, a subscription-
based market research company providing insights and trends
related to digital commerce, shows that social media referrals
to e-commerce sites more than doubled in the past two years.
ASCG says that this has profound reverse logistics implications,
as platforms are changing from simply advertising products to
MARCH 2020 | L O G I S T I C S M A N A G E M E N T 39
Global Logistics: Reverse logistics
offering a direct buying experience.
“This is supercharged window shopping,” says Ben Balfour,
ASCG commercial director. “Consumers can act quickly
and easily on impulse. While this will see more purchases
returned, it’s something retailers need to embrace.”
Researchers say global retailers are increasingly mov-
ing toward supply chain models influenced by consumer
trends, rather than making pure cost-only decisions, to
address frustrations such as those highlighted in the
research. They add that this is having a more positive
Reverse Logistics Association on fast track
W hen the Reverse Logistics Association (RLA) was first
formed nearly 20 years ago, the industry niche was
still in its infancy. Today, RLA is regarded as one of the lead-
ing trade associations in the ever-expanding world of logis-
tics management as it pertains to the circular economy.
In this exclusive interview, RLA’s executive director Tony
Sciarrotta reflects on the recently-concluded annual confer-
ence and expo in Las Vegas.
Logistics Management: It would seem that holding your
event in February is timed to assess the effect holiday
shopping is having on the reverse loop. By all accounts,
attendance is growing.
Tony Sciarrotta: Correct. We had nearly 1,000 attendees
in 2020, and all were eager to network with colleagues from
global retail and manufacturing organizations. It was also
interesting to observe how information was shared during
networking sessions.
LM: Have you any thoughts on the new topics introduced
at the 17th Annual RLA Conference and Expo?
Sciarrotta: Glad you asked. Most topics reflected the
growing issues with e-commerce and processing of returns
to reduce losses. For example, cross-border returns have
become a more significant problem for many of our mem-
bers, given the current political situation.
Another panel examined challenges facing the second-
ary market for apparel. The digital transformation of our
particular niche is another area of ongoing discussion, as
is artificial intelligence impacts. It’s a fact that the “circular
economy,” is an area of global dimensions.
LM: Women are playing an increasingly important role
in strategic planning and leadership in the retail supply
chain. What new strides do you expect them to make
in 2020?
Sciarrotta: We’re seeing women take more of a leadership
role, and with the rise in apparel returns, women are offer-
40 L O G I S T I C S M A N A G E M E N T | MARCH 2020
impact on turnover and profitability as it drives sales and
brand loyalty.
“Omni-channel retailing has been evolving toward this
seamless shopping experience and, for the consumer, return-
ing items is becoming a typical part of their purchasing. It’s
something they expect to do and is very much part of the
future of e-commerce,” concludes Balfour. •
Patrick Burnson is the executive editor
of Logistics Management
ing more solutions to the industry. Furthermore, women are
driving for sustainability in the returns industry.
LM: What about attracting new talent from colleges and
universities? Any new developments there?
Sciarrotta: Unfortunately, reverse logistics is not a sepa-
rate science or program at any major universities, and inclu-
sion in the supply chain programs doesn’t encompass all of
the skills needed to improve customer satisfaction and reduce
returns. However, the RLA has Tim Brown of Georgia Tech as
a board member, and he has hosted an academic roundtable
at the RLA conference to explore ideas to grow teaching for
reverse logistics at the top supply chain schools.
LM: We understand that China and other so-called emerg-
ing markets are beginning to reject U.S. scrap and recy-
clables. What kinds of alternatives remain to be explored?
Sciarrotta: Of course, it would be great if recycling were
as advanced in the United States as it is in Asia and Europe.
That may start to improve as the political situation is not being
resolved and China’s doors to U.S. scrap may stay closed.
LM: What role does Artificial Intelligence and robotics play
in your industry? How widespread is adaptation in retail
and manufacturing?
Sciarrotta: AI is growing as a way to grade incoming
returns, as well as making decisions about the best financial
recovery decisions for reselling or recycling returned goods.
LM: International trade tensions have led to a lot of supply
chain reconfigurations of late. Do you expect this trend to
continue?
Sciarrotta: Yes, indeed the trend will continue, again
as the political situations are not significantly improving.
Also, we have the growing trend of cross border e-com-
merce that’s creating new problems to get returns back in
a cost-effective way.
—Patrick Burnson, executive editor
LOGISTICSMGMT.COM
 Supply Chain & Logistics Technology

DIGITAL SUPPLY CHAIN TRANSFORMATION:

VISUALIZING
THE POSSIBILITIES
Many supply chain leaders view digitization as a mandate for
competition, yet the first steps to developing an overall strategy are
unclear. We take a deep dive into the questions of the state of digital
implementation and try to separate hype from reality.

BY NADA SANDERS AND MORGAN SWINK

M
ost, if not all, supply chain managers recognize
that a digital revolution is overtaking supply chain
management. It is fueled by three major trends.
Big Data. Data is being generated up and down the supply
chain by transaction-based monitoring and enterprise
systems, such as point of sale, RFID and ERP systems, as
well as by unstructured data sources, including clickstreams,
camera and surveillance footage, imagery, social media
postings, blog/wiki entries and forum discussions.
Advances in computing. Enormous advances in
computing power and intelligence are automating Big
Data processing and analysis. Computing architectures
such as cluster computing, Cloud computing and mobile
computing have made storage, retrieval, analysis, sharing
and distribution of data faster and cheaper.
Advances in robotics. In combination with advances
in hardware and software, robotics and robotic process
automation are quickly making the automation of manual
and transactional processes cheaper and more reliable.
Because of these advances and the hype surrounding
them, many supply chain leaders view digitization as a man-
date for competition, yet first steps and an overall strategy
are unclear. Important questions include:

42 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

 • What is the “digital supply chain” in terms of its
definition and core elements?
• What are the main opportunities and challenges?
• What are the key enabling technologies?
• Are we already behind? Where do companies
really stand compared to the hype?
• How do we move forward?
In the following pages, we’ll address these questions
with insights derived from our discussions with leaders
from a range of supply chain firms in a variety of industry
sectors (see About our research). We take a deep dive into
the questions of the state of digital implementation and
try to separate hype from reality.
LOGISTICSMGMT.COM
What is a digital supply chain?
While the term digital supply chain is widely used,
there is little agreement on what it means. When we
asked supply chain leaders: “What is a digital supply
chain?” responses included:
• “Digitizing all transactions”
• “Connection of transactions and sharing plans
electronically with partners up and down the supply
chain.”
• “Replacing manual/people-based tasks with elec-
tronic and computing power.”
• “Data communications replacing verbal, manual,
paper-based processes.”
MARCH 2020 | L O G I S T I C S M A N A G E ME NT 43
 Supply Chain & Logistics Technology: Digital Transformation
• “Better visibility and tracking.”
The responses clearly vary, with some leaders
focusing on a single platform while others look at
demand and supply visibility. From these and other
similar responses, we found a unifying thread
to define the digital supply chain: A digital supply
chain makes maximal use of “digital” technologies
to plan and execute transactions, communications
and actions.
Embedded within this definition are fundamental
notions of dematerialization, automation and arti-
ficial intelligence. Related applications show up in
thousands of different ways throughout supply chain
management processes. In the following sections, we
describe the important core attributes and digital tech-
nologies that are defining and driving digital supply
chain transformation.
A core attributes model
Digital supply chains sense, analyze, predict and
respond to changes in the operating environment.
Essentially, this means that supply chains use tech-
nologies, organizational structures and skills to capture
data, convert it into information, analyze it and quickly
adapt to it much more quickly, accurately and specifi-
cally than conventional supply chains could ever do.
The leaders we talked to allude to these elements,
though often only indirectly, and rarely in holistic ways.
Nevertheless, their combined comments revealed a
model of core attributes that provide both a useful
description of digital supply chains and the beginnings of
a maturity model. Figure 1 illustrates these core digital
supply chain attributes.
1. Digitized. It all begins with data. The primary virtue
of a digital supply chain is that it reduces uncertainty by
providing (hopefully) current, accurate, complete and
useful data. While supply chain managers have access
to lots of data today, typically only a small fraction meets
these criteria. Accordingly, getting data that has strategic
value in a useful form can be a huge first step toward
digital maturity.
Throughout supply chains, sensors and systems pro-
duce and capture data, digitizing them at the source,
44 L O G I S T I C S M A N A G E M E N T | MARCH 2020
in forms that are sometimes structured and sometimes
unstructured such as text and visual media. Usually,
these data sets must be standardized, “scrubbed” and
cleaned, for stakeholders to be able to use them. For
example, systems must standardize item identification
numbers across vendors/sources in order for managers
to track movements effectively.
Our interviews pointed out the challenges associ-
ated with this first step. No company had all digitized
data available in real time (immediately when cap-
tured). One leader complained that data provided by a
major customer was “not complete, not real time,” and
subsequently, “not always used.” Important goals for
many are to:
• identify and prioritize data needed to reduce
uncertainties and guide actions;
• perform a data inventory identifying available data
types and data deficits; and
• for important data, reduce the lead-time from data
capture to data usefulness.
About our research
I n research sponsored by APICS,
Texas Christian University (TCU) and
Northeastern University (NEU) are partner-
ing to perform a series of studies of digital
supply chain transformation. In this initial
study, our goal was to go beyond the hype
to identify the true state of where busi-
nesses stand, including their transforma-
tion visions, current capabilities, enablers
and obstacles.
We conducted in-depth interviews of se-
nior executives at more than a dozen firms
covering a wide range of industries, from
healthcare to retail to aerospace to trans-
portation. All firms are leaders in their in-
dustry segments. Our findings reveal where
these firms really stand on their digital trans-
formation journey, the challenges they are
encountering and strategies for overcoming
them. We are grateful to all the leaders that
shared their time and insights with us.
LOGISTICSMGMT.COM
 Supply Chain & Logistics Technology: Digital Transformation

2. Connected. Digital supply FIGURE 1

chains convert data into Core attributes of digital supply chains

information and convey it to
stakeholders and decision
makers in a timely manner.
DIGITIZED CONNECTED INTELLIGENT ADAPTIVE
Information is created when • Sensing • Combining • Visualizing • Alerting
data is combined, filtered • Capturing • Filtering • Diagnosing • Matching
• Standardizing • Structuring • Predicting • Orchestrating
and organized in useful ways. • Reporting • Prescribing • Automating
Many supply chain managers • Cognifying • Giging

complain that they are

DATA
awash in data but lacking in
information. Several leaders
we interviewed expressed the
aim to make information available to the right people at
the right time as an important digital supply chain goal. For are unable to pursue time-sensitive opportunities.
example, leaders stated the following related goals.
• “Create a centralized control tower sharing informa-
tion in real time.”
• “Share information elec- tronically with 1st and
2nd tier suppliers.”
• “Communicate with suppliers through design sys-
tems and ERP systems (PLM, MES, ERP), enabling ana-
lytics for optimization (e.g., transportation).”
These goals reflect the need for systems in digital supply responsive strategies.”
chains to establish connectivity with trading partners and
to create and share information.
3. Intelligent. A digital supply chain also provides
insights and intelligence, beyond merely summarizing
and organizing data. This requires applying analytics to
diagnose situations and events, using algorithms to predict
possible outcomes and risk assessments and prescribing
courses of action with possible alternatives. As one leader
noted, the digital supply chain needs to:
• “Develop information/insight so that supply chain
can provide options.”
• “Provide automation plus streamlining plus intelli-
gence—making decisions, identifying risks, integrating data.”
4. Adaptive. The last core attribute of a digital supply
chain is adaptability—the ability to act upon derived
insights. This attribute is least commonly associated
with digital, but it likely has the greatest impact on
performance. Data, information and insights are of little
INFORMATION INSIGHT ACTION
Source: Authors
value if operations are so fixed and immobile that managers
Predictions from analysis are most accurate in the short
term. Thus, to realize the full value of a digital supply
chain, it must be able to quickly respond and act upon the
intelligence it creates.
Several of the leaders identified responsiveness as
an important goal of their digitization efforts using
statements such as:
• “Mapping out supply chains and developing more
• “Digital enablement to speed up and connect even more.”
These four foundational attributes of a digital sup-
ply chain can guide a beginning analysis of existing and
needed capabilities. For many firms who are starting the
digitization journal, an important question is: Which of
the attributes presents the biggest obstacle or opportunity?
1. Getting the right data in the right form at the right
time.
2. Communicating data as useful information to the
right stakeholders.
3. Deriving actionable insights from the information.
4. Adjusting operations quickly enough to capitalize
on the insights.
Enabling technologies
The popular press offers numerous examples of technology
applications in supply chain processes, including artificial
intelligence (AI), robotics and predictive analytics. Figure
2 groups these and other enabling technologies based on
their primary purpose and capabilities.

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E M E N T 45

 Supply Chain & Logistics Technology: Digital Transformation
Supply chain leaders indicated that keeping up with
technology was a key challenge, highlighting the impor-
tance of working with excellent partners to evaluate,
select and develop solutions. Equally important, the
leaders suggested the need for a larger view of integra-
tion across technologies, due to the limitations of existing
systems. For example, they said:
• “ERP is too transactional—it doesn’t give you the
tools to do advanced planning and integration with exter-
nal partners needed.”
• “As a technology company, we tend to be susceptible
to the promise of technology without fully appreciating
the cost/difficulty of the supporting changes required.”
• “Our supply chain personal still wonder if a given
technology is sufficiently mature. We have questions
about who should pay for the technology, how processes
should be changed, etc.”
Technology adoption and enablement is clearly a huge
topic in itself and an important differentiator in the matu-
rity of digital supply chains. Our conversations with sup-
ply chain executives strongly suggest that leaders should
focus on linking the core capabilities of technologies with
business level strategies, rather than simply focusing on
solutions to problems.
State of digital supply chain transformation
Our research examined the journey that companies are tak-
ing in their digital transformation, where they are along the
path and whether they have precise goals and a roadmap.
We specifically focused on the supply chain aspect of this
process, not product or service design such as not analyz-
ing consumer behavior or specific enterprise features.
One key finding: In a world filled with hyperbole and
up-to-the-minute stories of technological advancements,
the reality is that most firms, even leading ones, are not
that far along with digital transformation. All the leaders
we spoke with stated, somewhat apologetically, that they
believed they were behind the industry curve in digital pro-
cesses, and certainly a long way from reaching “maturity.”
What does maturity look like?
That feedback posed an important question: What does
maturity look like? One could think of overall digital sup-
ply chain maturity as the degree to which a firm applies
enabling technologies in ways that provide the core attributes
(digitized, connected, intelligent, adaptive). Most of
46 L O G I S T I C S M A N A G E M E N T | MARCH 2020
the firms we spoke with are making progress along
these lines in selected functional areas. However,
supply chain “transformation” implies something
bigger than applying specific technology “solutions”
to localized problems. In addition to the stage of
digital transformation as a dimension of maturity,
we suggest that the scope of development is
an important maturity measure. Answers to the
following questions provide a snapshot
on maturity:
• Have we defined a roadmap and a process
for updating it?
• For how many key processes have we achieved core
attributes: digitized, connected, intelligent, adaptive? At
what stage is each process?
• How many of our initiatives are integrated,
system-wide efforts and how many are localized
problem-solving efforts?
• To what extent have all of the important enablers and
challenges of transformation been identified and addressed?
Stage of implementation
We found significant variation in levels of investment
and stages of digital transformation among the leaders
we interviewed. Industries vary, especially in terms of
technology investments.
Figure 3 shows average technology investments for
the industries we sampled; some invest at two to four
times the rate of others. Even with these differences, our
findings indicate that most firms are in “infancy,” or early
stages, of transformation.
Only a few of the leaders we interviewed stated that
they had defined a guiding roadmap or strategy, and few
identified specific measurable targets for achievement.
The following statements summarize the positions of
many of the firms.
• “In infancy. Don’t have a strategy yet, embarking now
to establish best in class.”
• “No well-defined roadmap.”
• “Several key initiatives under way and others planned
about two years out.”
• “Three year roadmap, adjust as go with step function
changes each third year.”
• “Don’t really have guiding strategy. No one at the top
really pushing the agenda.”
• “We don’t have a strategy.”
LOGISTICSMGMT.COM
 Supply Chain & Logistics Technology: Digital Transformation

FIGURE 2

Technologies enabling the digital supply chain

TYPE OF TECHNOLOGY CAPABILITIES EXAMPLES

ANALYTICS/ Provide computing power, • Advanced planning systems (APS)

DECISION intelligence, and data management, • Supply chain network design
TECHNOLOGIES making higher-quality decisions faster • Management and execution systems (TMS, WMS, MES, YMS, OMS)
• Forecasting and demand management
• Advanced analytics and machine learning

PROCESSING Automate transactions and material • Programs, software robots

TECHNOLOGIES processing to provide 24/7 resource • Computer-aided design and machining, 3D printing
availability, faster processing, • Industrial robots, flexible manufacturing systems (FMS)
improved consistency, and cost • Drones and autonomous vehicles
• Automated storage and retrieval systems (AS/RS)

COMMUNICATIONS Create greater accuracy, currency, • Sensors, scanners and radio frequency identification (RFID)
TECHNOLOGIES connectivity and visibility, speeding • The Internet: Wi-Fi, narrow band, cellular, microwave, radio, etc.
flows of richer forms of information • Satellites, fiber optics, etc.
• Electronic data interchange (EDI), global data synch network (GDSN)

INTEGRATIVE/ Combine data management, • Cloud computing and services/blockchain

PLATFORM communications, visibility, • Mobile applications and wearables
TECHNOLOGIES traceability, decision support, • Augmented and virtual reality, global positioning systems (GPS)
and processing capabilities • Enterprise resource planning (ERP). product life cycle management (PLM),
relationship management (CRM, SRM, CPFR)

Source: Authors

Despite the hype, few of even the most advanced tended to take a more strategic view, placing more weight
firms have yet added advanced analytics or intelligence on accomplishing steps according to an established road-
such as machine learning into to their digital supply map designed to provide broader aims. For example:
chains. Most are focused on the early steps of digitizing • “Bringing silos together (make move enable), pro-
data and connecting stakeholders in ways that provide vide end-to-end visibility and link it to factories—create
greater process visibility, and on automating transac- an end-to-end dashboard of metrics.”
tions and data translations needed to smooth informa- One executive highlighted the difference in internal
tion flows. In addition, a number of firms are somewhat and larger perspectives in this way:
opportunistically applying technologies such as 3-D • “Internal perspective is to figure out what data I
printing and robotic process automation (RPA) to reduce have and how to best utilize it. A larger perspective is to
capital (inventory) and labor costs. build partnerships to leverage respective strengths.”
An important distinction that seemed evi-
FIGURE 3
dent in our conversations with leaders is how
the company views digital transformation mile-
Average technology spend per industry sector
stones and potential returns. Some seemed to Aerospace and defense 3.4%

view technology investments primarily as inter- Consumer electronics 9.8%

nal cost reduction efforts, with heavy weight Apparel 4.9%

Healthcare 1.3%
placed on financials and ROI. For example, one
Drug manufacture 14.9%
leader expressed a primary goal as:
Application software 12.2%
• “Seeking reductions in spend, reducing
Energy management and automation 2.9%
cost per transaction, 30%-40% headcount reduc-
Oilfield services and equipment 3.7%
tions, increase efficiency of team members to be
Semiconductors 15.0%
greater value-added work.”
Integrated shipping and logistics 1.3%
While these are appropriate goals, other firms
Source: Authors

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E M E N T 47

 Supply Chain & Logistics Technology: Digital Transformation

Scope of application more integrative initiatives. Several leaders expressed

This issue of perspective is an important one and is also desires to evolve their efforts toward larger-scoped
reflected in the scope of applications of digital concepts projects, including:
and opportunities. Executives leading digital transforma- • “Deploying SAP across the entire organization
tion strategies must balance the opportunity to solve (multiple platforms and instances).”
problems in specific function and process areas with • “Becoming highly integrated with suppliers, using
more integrative, strategic objectives. web based scorecards that provide real time (24 hour)
Figure 4 provides an overall view of digital technology performance visibility.”
applications across six major supply • “Developing an inside out approach, starting with
chain processes. consolidation of inter-
If the popular press pro- nal data (e.g., cross
vides any gauge of develop- IPC/Subway leads systems, EDI, trans-
ment, one would surmise the way in traceability portation system)—
that firms are putting most
of their investment and I
ndependent Purchasing Cooperative (IPC) is the organiza-
tion that provides procurement and supply chain
to the thousands of franchise owners of Subway sandwich
services
but this just digitizes
silos, solving specific
attention to improvement problems but not con-
restaurants. With growing pressures from regulators and
in planning processes, consumers, IPC food safety and quality managers deter- necting nodes. The
including demand man- mined that traceability—the ability to quickly verify the next step is to make
agement, forecasting and history, location and usage of items—was the dimension connections, reach
inventory management. of visibility most critical to the organization’s long-term out to partners and get
success. A recent item recall event highlighted its financial
The press also contains their data.”
importance.
lots of stories about asset Managers visited over 5,700 restaurants in the search • “Looking to gain
monitoring in logistics for contaminated foods, yet the items were present in only greater access to partners’
and robotics applications 980 locations. Traceability would have saved over $400K data, control flow and
in recall costs for this event alone. Equally important, IPC
in manufacturing. While gather more intelligence
expects complete traceability to provide better control of
procurement seems to be expired product (through mobile alerts), a foundation for inside partners’ facilities
relatively underdeveloped perpetual inventory systems, sustainability data for inter- to synch flows with fac-
in analytics applications, ested consumers, and overall brand and consumer safety tories’ operations.”
some see it as offering the enhancements. As a leader in the restaurant industry, IPC • “Developing one
and its partner, FoodLogIQ, have been working with grow-
largest potential for tech- ers, distributors and restaurant operators for several years
integrated system with
nological advancements. to implement the standards and systems necessary to one single database.”
Application areas provide 100% track and trace capability. • “Integrating sys-
include supplier plat- tems across all busi-
forms, spend analytics ness units.”
and supplier collaboration. In our study, a majority of • “Centralized control tower sharing information in
leaders stated a focus on supply management transfor- real time with everyone in the ecosystem.”
mations, and mentioned creating digital connections Lack of data integration, “data silos” and “data lakes”
with suppliers, automating procurement transactions and were common themes. Most leaders understood that this
building upstream visibility as key initiatives. is the first step in digital transformation, and that a single
A distinctive attribute of maturity that emerged from source of data is the most important factor to move forward.
our conversations with leaders is an enlarged scope
of transformation that includes integrated, systems- Enablers and challenges
oriented, objectives and projects. They recognized that A final dimension of maturity uncovered in our study is
developing technology solutions in parochial supply the degree to which a firm has addressed key enablers and
chain functions is relatively easy, compared to larger, challenges of transformation. When asked about the key

48 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

 Industry News
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 Supply Chain & Logistics Technology: Digital Transformation

obstacles to change, all interviewees agreed that organiza-
tional issues create the greatest challenges.
Leaders stated that limitations in culture, talent and
organizational structure form greater impediments to
transformation than do technological limitations. Figure
5 adds these elements to our core attributes framework,
showing that organizational structures and human
resources are the foundational enablers for digital supply
chain transformation.
An important challenge for many firms is determining
where to place transformation leadership within the orga-
nizational structure, especially structures that lack CSCO
or CTO offices that offer natural homes for responsibil-
ity. In terms of intellectual capital, one leader succinctly
stated the human resource challenge: “Transformation
will require a different skill set for people who are asked
to interact with intelligent systems.”
Where today, data analysts are playing increasingly
important roles in the development and use of analytics
that make diagnoses and predictions; tomorrow’s systems
will require a more general set of skills, including business
FIGURE 4
domain knowledge, to properly interpret and apply pre-
scriptions made by increasingly intelligent software agents.
Other challenges mentioned by leaders include:
• working with union contracts;
• accommodating mergers and acquisitions;
• finding properly skilled people;
• managing through regulatory constraints;
• dealing with suppliers who lack technological
capabilities;
• working around siloed systems that don’t talk to
each other; and
• recognizing change fatigue.
Recommendation: Build capabilities
In this study, we document a reality for most companies
that is different from portrayals found in the popular press.
Most companies are far from realizing the benefits of fully
digitized, connected, intelligent and adaptive supply chains.
Nevertheless, leaders understand the potential, along with
the need to develop and follow a roadmap, rather than merely
acquiring technologies to solve problems. Surprisingly few

Areas of opportunity for digital transformation

Cloud
Advancedd computing
puting
analytics
analyt
Advanced
Control tower/ analytics Advanced
real-time forecasting inventory
Predictive optimization management Supplier
diagnostics platforms
Remote Planning Spend
servicing and visibility analytics
Intternet
Predictive spare- After sales Procurement Supplier of things
t
parts management collaboration
Cognitiv
ve
computinng
Sensor-driven Enhanced
replenishment Sales/ connectivity
customer service Production

Demand- New production Aut

utonomous
Logistics
driven SCM technologies con
ontrol systems
Customer Predictive
platforms Warehouse analytics
Geoanalytics- Dynamic
operations
based network routing
3D printin
rinting automation
optimization

Augmented reality
and simulation

Supply chain areas Digital application areas Supporting technologies

Source: BCG analysis

50 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

 Supply Chain & Logistics Technology: Digital Transformation

firms seem to have roadmaps in place, however. are current, accurate, complete and usefully formatted. As
A good roadmap guides selection of projects for a we discussed at earlier, visibility requires digitization and
transformation portfolio and is shaped by the specific connectivity for the processes and stakeholders involved.
strategies and competences of the firm. Each firm’s The leaders we interviewed indicated that they
roadmap will be unique, as it matches its unique cir- wanted visibility in the following areas:
cumstances. Even so, we believe it is valuable for all • “Visibility across all business processes.”
leaders to keep certain essential capabilities in sight as • “Perfect visibility and accuracy of products in the
they work through the details of transformation plans. right place and time to support demand.”
Figure 6 maps these capabilities along two core dimen- • “Better visibility into demand and supply planning,
sions of technology enablement: automation and insight. including customer important characteristics of inventory
The supply chain technologies described in Figure 2 and more detail on shop floor operations.”
enable these two process trans-
FIGURE 5
formations. Many technologies
automate decisions and actions,
Foundational resources of digital supply chains
including computations, trans-
actions, data capture, physical
transformations and movements DIGITIZED CONNECTED INTELLIGENT ADAPTIVE
and more. • Sensing • Combining • Visualizing • Alerting
• Capturing • Filtering • Diagnosing • Matching
By definition, automation sub- • Standardizing • Structuring • Predicting • Orchestrating
stitutes capital for labor in ways • Reporting • Prescribing • Automating
• Cognifying • Giging
that improve efficiency and qual-
ity by lowering costs, speeding-
DATA INFORMATION INSIGHT ACTION
up processing and transitions,
improving consistency, and
increasing resource availability. INTER/INTRA ORGANIZATIONAL INTEGRATION
• Systems • Structure • Roles
Technologies that improve insight
increase visibility and intelligence INTELLECTUAL CAPITAL

by connecting stakeholders, struc- • Talent • Knowledge • Skills

turing and sharing information, Source: Authors

and cognifying processes, that is,
developing knowledge through
analysis and learning.
Strategic leaders can combine automation and insight
in ways that create tremendous opportunities for supply
chain transformation, and that build capabilities leading to
competitive advantages. In its most essential form, digital
transformation is about developing automation and insight
to radically advance visibility, intelligence, efficiency and that reduces or eliminates the most damaging uncer-
customer experience and agility and customization.
Below, we explain these capabilities, and provide a
leading example for each.
Visibility
Visibility means having the information you need at the
time you need it. Good information comes from data that
• “Visibility into demand and supply.”
• “Visibility into sales and movement of goods as
real-time as possible.”
As an important step toward digital transformation
maturity, leaders must identify the types of visibility that
are crucial to competition. Typically, this means visibility
tainties in the supply chain, and/or visibility that offers
the greatest potential for improvement and competitive
advantage. Leading firms develop visibility using these
criteria, rather than exploiting types of visibility that are
readily available. Almost by definition, developing visibil-
ity requires working with upstream and downstream part-
ners to develop data standards, along with technologies

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E M E N T 51

 Supply Chain & Logistics Technology: Digital Transformation
for data capture and connectiv- FIGURE 6
ity. (See Figure 7.) Digital supply
chain capabilities
Intelligence
Visibility lays the foundation for
next-level insights enabled by Intelligence
applying intelligent algorithms
to visible data. Smart programs
Insight
sig
using machine learning and
other types of artificial intel-
ligence can provide deeper Visibility
understanding of trends, anom-
alies and even causes of process
effects. These technologies tend
to be the most useful when
applied to repeated processes
that produce massive amounts of data such as sales,
clickstreams, asset monitoring and other transactions.
Levels of intelligence include visualization, advanced ana- ever. Automation now means better speed, quality and
lytics, prediction and prescription.
Efficiency and customer experience
Visibility and automation are mutually reinforcing.
Lennox uses machine
learning to optimize
service and cost
L ennox, a leading manufacturer of HVAC equip-
ment, has the monumental task of managing
repair parts inventories for tens of thousands of
items across hundreds of service locations. Repair
parts are notoriously difficult to manage, as they
include many slow-mover, long-tail demand items.
Recently, Lennox partnered with ToolsGroup SO99+
to develop an application to optimize inventory levels
for service and cost. The intelligent program uses
machine learning and cluster analysis to identify
more than 200 “micro-climates” within the United
States, along with seasonal timing variations for
each zone. Machine learning sifts through the SKU-
locations to identify “clusters” with similar seasonal-
ity profiles. Using the system, Lennox improved ser-
vice levels by 16%, with almost 100% next morning
availability, and simultaneously increased inventory
turns by 25%—quite an improvement given that at
the same time they more than doubled their regional
distribution centers and store locations.
52 L O G I S T I C S M A N A G E M E N T | MARCH 2020
Automated data capture and
processing are foundational
capabilities for visibility, and,
as processes become
more connected and transpar-
Agility and
customization
ent, visibility fosters
opportunities for automation
of both physical and
informational transactions.
Efficiency
Supply chain managers often
and user think immediately of automa-
experience
tion as a means to efficiency.
Capital-for-labor substitution
Automation truly is an important source
of efficiency and productivity
Source: Authors
gains—it has been so since the
Industrial Revolution. New technological capabilities
go far beyond the basic benefits of greater efficiency, how-
improved user interactions. In manufacturing, emerg-
ing examples illustrate the super-productivity of robots
and humans working side-by-side—known as cobots—
arrangements that are more productive than either
robots or humans working alone. In services, automation
is improving interactions between service providers and
customers, as well as between supply chain partners.
Leaders will do well to ask for more than efficiency
gains alone from investments in automation.
Agility and customization
The holy grail of digital supply chain transformation is
agility—the ability to quickly and efficiently adapt supply
chain capacity and resources to meet changing conditions.
Though most supply chain leaders are focusing on effi-
ciency, a few that we spoke with are developing visions
of agility and customization.
• “Seamless end-to-end demand-supply matching
and adjustments.”
• “Quickly answer questions from our customers like:
‘can you give us 50,000 more units?’”
At the highest levels of maturity, firms will apply
automation and insight to develop systems that both
predict and adapt to changes, including shifts in
demand and supply, disruptions, environmental and
regulatory changes, and competitors’ maneuvers.
Many monikers are used to describe this capability,
LOGISTICSMGMT.COM
 Supply Chain & Logistics Technology: Digital Transformation
Cemex automates
its way to lower
costs and improved
customer satisfaction
C emex is one of world’s largest suppliers of
cement, ready-mix concrete, and aggregate
products; it supports commercial and infrastructural
building projects in more than 50 countries across
five continents. In order to extract its business from
intense price competition, Cemex is working with
IBM to consolidate fragmented databases and
automate processes, designing an end-to-end user
experience defined by eight connected mobile apps
that cover all order-to-cash transactions, as well as
pre and post sales support. The apps allow con-
struction foremen to schedule and track deliveries,
establish and change pick-up and delivery points,
arrival times and make other order changes on the
fly. Foremen can also manage quotations, pricing,
invoices and payments, disputes and customer
service, all from a smart phone. In addition to seeing
dramatically improved customer satisfaction and
revenue growth, Cemex has cut back office staff for
AR/AP and call centers by more than 35%.
including on-demand, uberized, mass-customized and
responsive. Essentially, this means breaking constraints
and unfixing capacities in the supply chain, moving to
variable cost structures and building flexibilities that
enable rapid scalability, supply-demand matching, seam-
less transitions and changeovers, increased operating
range, optimal re-routing and dynamic sourcing.
Call to action FIGURE 7
This article synthesizes the Visibility dimensions
insights garnered from our con-
versations with supply chain
executives in more than a dozen
KPIs
firms, spanning a wide range Cost, service, quality
of industries. We trust that the
frameworks and findings offered DISRUPTIONS
Weather, earthquakes
here will stimulate ideas and
foster new ways of visualizing PIPELINE THREATS
Congestion, labor actions
possibilities for digital supply
chain transformation.
Few firms appear to be far
down the path toward maturity,
but the stories and examples
LOGISTICSMGMT.COM
we uncovered promise an exciting future for supply chain
management. On the other hand, national productiv-
ity metrics and other indicators suggest that many firms
are slow to embark on the transformation journey. Many
are sitting on hoards of cash, having made relatively low
capital expenditures over the past decade. It is likely that,
given the massive turbulence in technologies, geopolitics
and economics over this period, many executives are wary
of making big investments; they are waiting for the uncer-
tainties in these areas to resolve. While prudence makes
sense, there is also a large opportunity cost here.
The new normal is an operating environment full
of unresolved and continuing uncertainty. Accordingly,
the future will belong to firms who develop digitized,
connected, intelligent, adaptive supply chains,
following well thought out and flexible roadmaps
for digital transformation.
The authors gratefully acknowledge the funding and
support of the American Production and Inventory
Control Society (APICS) for this study. •
Nada Sanders, Ph.D., is a distinguished professor of
Supply Chain Management, D’Amore-McKim School
of Business, Northeastern University and can be reached
at n.sanders@northeastern.edu. Morgan Swink, Ph.D.,
is the Eunice and James L. West Chair of Supply Chain
Management executive director, Center for Supply Chain
Innovation, Neeley School of Business, Texas Christian
University and can be reached at m.swink@tcu.edu.
DEMAND
Sales, customers’ forecasts
INVENTORY
Location, movements, traceability
PROCESSES/CAPACITY
Utilization, productivity, yield
ASSETS
Location, utilization, status
MARKETS
Commodities, capital
Source: Authors
MARCH 2020 | L O G I S T I C S M A N A G E M E N T 53
Warehouse/DC Management

Pulling T he ideal materials handling is no handling at all. After

all, every time you touch an item, it costs money.
What’s more, in the home appliance space—think

the
washers, dryers, refrigerators and the like—the more you
touch an item, the greater the likelihood of damage to prod-
ucts that consumers expect in pristine condition.
Reducing the number of touches was one of the goals
of a project undertaken about three years ago by GE Appli-

digital
ances, now owned by global appliance maker Haier. More
importantly, GE Appliances set out to redesign its network,
processes and technology stack to match the speed of a multi-
channel, e-commerce world driven by consumer demands.
“In our old world, we stacked product high and blasted it out

thread
in truckload or LTL quantities to our retail partners, or over-
nighted it to the contractor channel,” says Mark Shirkness, GE
Appliances’ Louisville-based vice president of distribution.
Now, with more than 20 flavors of orders, who is plac-
ing the order is less important than a fulfillment process
that can meet the requirements of all those different order
types. “You can book an order for a 400-pound refrigerator
GE Appliances may
on our site or one of our agents’ sites,” says Adam Wise-
not have taken all of
man, senior director of warehousing. “We might still ship
the touches out of its
out a full trailer or LTL, but we might put it on a plane
distribution processes, but today and then go final-mile for delivery tomorrow at a
it has reduced them to a builder’s site or a high rise, or we might put it on a pallet
bare minimum, increased and ship it out FedEx Freight to someone’s house.”
the velocity of product The framework for the project included the following:
moving through its facilities Network rationalization reduced the number of distri-
and sped up training bution centers from eight core and approximately 15 satel-
time. The key: A digital lite facilities to 10 core warehouses built for speed. “Our
transformation with next- facilities are about 50% larger than in the past, but we’re
generation technologies getting double the output that we got in our old design,” says
like IoT, AI and VR. Wiseman. “That’s leverage.”
A new building design is focused on reducing
the number of touches and ramping up the velocity of
BY BOB TREBILCOCK, movement through the facility, increasing the efficiency
EDITOR AT LARGE referred to above.
Creating a digital thread, or the electronic genealogy
of a product, that accelerates responsiveness.
Smart lift truck attachments, or basiloids, reduce
damage and ensure the quality of the products being
handled in the facility.

54 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

 Smart yard and control tower capabilities use a yard
management system and RFID to provide real-time visibil-
ity of product in the yard and the facility; and
Virtual reality identifies operator strengths on the
front end of the hiring process and speeds up training
once an operator is onboard.
Given the size and weight of many of the home appli-
ances handled in GE Appliances’ network, the materials
handling systems are rudimentary. For instance, you
won’t find much in the way of conveyor, sortation or
other automated handling technologies, at least for now.
Instead, yard dogs and lift trucks do the heavy lifting.
But now, the whole network, including the individual
facilities, yards and mobile equipment, is enabled by
RFID (think IoT), Big Data and artificial intelligence.
These deliver real-time visibility into the inventory in the
yard and facility and ties that information, also in real
time, to the demand for individual products.
While there are exceptions for seasonal and popular
products, most inventory moves from the yard to an out-
bound truck within 24 to 36 hours of receipt. When the
system identifies demand for an item coming off a truck,
it is often crossdocked to an outgoing truck—essentially a
one-touch supply chain; other inventory will go into a hold-
ing area for delivery in a day or two; or into floor storage
areas for items that are frequently ordered or seasonal items.
“Everything we do is based on what the customer is
choosing,” says Shirkness. “We can go as fast as next day,
but the bell curve is that most orders ship in three days.”
Reducing the amount of time a product is in the system,
as well as the touches, also improves quality. “We know
that exposure to touches is a leading indicator of damage,”
notes Wiseman. “We want to wait up until the last moment
to move a product and reduce those touches.”

Building on history
GE Appliances is a storied name in the appliance indus-
try. Its campus in Louisville, Ky., has long been a leader
in appliance manufacturing. And, notes Shirkness, who
has been with the company for 33 years, logistics is one
of the company’s competitive advantages. “Going back to
the 1960s, we served two channels: retail and the con-
tractor market,” he says. “The retail world was classic full
truck shipments from a warehouse to a warehouse. But
very early on, we developed final-mile delivery capabili-
ties where we could land an order at a builder’s job site.

Gregory Campbell/Getty Images for Peerless Media

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E M E N T 55

Warehouse/DC Management: : e-commerce network
The yard at GE Appliances’ facilities provides an “intentional pause.” Inventory remains in the yard until there’s demand,
and then it flows through the DC.
For years, our go-to-market strategy was
driven by what we believe are market-
leading distribution capabilities.” He
adds that GE Appliances is the leader in
the contractor/builder channel.
While GE Appliances has been look-
ing at the new world of distribution for
some time, the major change for the
company came in 2016, following the
acquisition by Haier. “Haier challenged
us to begin thinking differently about
how we operate in order to be No. 1 in
the United States,” Shirkness says.
Sales grew, but the supply chain tread
56 L O G I S T I C S M A N A G E M E N T | MARCH 2020
water. “If sales grew by 10%, then
our distribution needs grew by 10%,”
Wiseman says. “We weren’t getting any
leverage. That’s when we realized that
our old way of doing business was not a
recipe for growth.”
Plans for reconfiguring the network
and bringing in new technologies got
underway in 2017. The distribution orga-
nization had three guiding principles.
1. Build on the history of what got
them there in the first place, which
was GE Appliances’ leadership role in
final-mile delivery.
Pressure-sensitive clamps provide
feedback to operators to prevent
damage to appliances.
2. Build dexterity in warehouse
operations to meet new multi-channel
fulfillment modes.
3. Get leverage in the network. “We
added 50% more space to some of our
buildings, but we got a 100% increase
in productivity,” Shirkness says.
“That’s leverage.”
There was one other principle,
which Shirkness likens to Moore’s
Law for distribution. “We wanted to
accelerate the learning curve for oper-
ators by using virtual reality to cut
the training time in half,” he says (see
page 26). “And, we wanted to cut our
touches in half to improve quality. We
now live in a world of halves, halves,
halves. That’s how the elements come
together for this new ecosystem.”
The new ecosystem
A number of components came
together to enable the transformation
of GE Appliances’ distribution capa-
bilities. One of the most important
was the rationalization of the network.
As recently as 2011, the company had
nine distribution centers. Over the
ensuing years, the company inherited
some distribution centers and added
satellite facilities that brought the
network to 15. When a facility under
construction in California is complete,
“we will be at 10 core warehouses that
have been rationalized and built for our
current needs,” says Wiseman.
LOGISTICSMGMT.COM
Warehouse/DC Management: : e-commerce network

The rationalization of the network
wasn’t just about the location of the
facilities; it also involved a redesign of
the facilities and the yard to ramp up
efficiency. They are larger in size, but
more importantly, the new design has
significantly increased the size of the
yard surrounding the DC, integrat-
ing yard management into the flow of
product through the facilities. Shirkness
calls the use of the yard “an intentional
pause.” Here’s what he means.
The old facilities were essentially clas-
sic warehouses: When product arrived,
trailers and containers were moved to
the dock, product was unloaded and
then stored until it was time to fill an
order. “We pushed things into the ware-
house, we managed by first-in/first-out
(FIFO), and we didn’t talk about turns,
velocity or speed,” says Wiseman.
In the new facilities, GE Appli-
ances increased the size of the yard
and implemented a yard management
system to provide control tower vis-
ibility into inventory inside and outside
the facility. The yard provides “the
intentional pause” referred to by Shirk-
ness. By staging inventory before mov-
ing a trailer into a receiving dock, GE
Appliances can wait to make a decision
about the disposition of that product
until there is demand. A trailer may
“pause” in the yard, but once it moves
to a receiving dock, the product moves
quickly. That also speeds up efficiency.
Trailers and containers in the yard are
tracked in real time by RFID; the yard is
further connected to a control tower in
Louisville where traffic controllers mon-
itor every asset and across the network.
As orders come in, the traffic controllers
orchestrate the movement of assets and
inventory from the yard to the facility
and onto the shipping dock.
When it comes to the processes
inside the DC, GE Appliances refers to
the design as symmetrical warehousing:
If you sliced the DC down the middle,
the two sides are mirror images of one
another. “If a washing machine coming
off a truck needs to go out today, we
take it to a door on the A side of the
building,” Shirkness says. “If we don’t
need it until tomorrow, we’ll stage it
in a velocity area on the B side of the
building. If we need it later in the
week, we put it in another location
in the building.” Frequently ordered
items are stored five high near the
docks. The GE Appliances warehouse
management system (WMS) is always
looking for the next best move for the
lift truck operator in a form of task
interleaving. That goes a good way
toward the increased productivity in
the building. “This is how we get the
leverage and transformation of the
warehouse,” Shirkness says.
There’s also a quality play here:
Handling appliances is different from
handling a carton in a traditional DC.

The people factor

V irtual reality, or VR, is one of the next-generation tech-

nologies that GE Appliances is implementing as part of
the re-design of its processes. The technology is now core
to an approach to recruiting and retention that Mark Shirk-
ness, vice president of distribution, describes as “attitude,
aptitude and altitude.”
You have to have an attitude: Skills for handling pallets,
cartons and eaches will often transfer from one DC to the
next, but handling large and heavy appliances that need to
look perfect is a different animal. “Picking a refrigerator 30
feet in the air can be a little unnerving,” says Shirkness. “To
do that, you have to have an attitude.” So, GE Appliances
uses VR as an employee screening method. During the ap-
plication and selection period, potential associates sit in a
VR trainer to get a feel of what they’ll be asked to do and to
see if they have the attitude to do the job.
You have to have aptitude: GE Appliances has a formal
education and certification program known internally as
The University. “There are a number of modules that an as-
sociate goes through to demonstrate their skills and earn
certification,” says Adam Wiseman, senior director of ware-
housing. “The modules are scored and supervisors can see
where someone missed points. That allows supervisors to
address an issue before an appliance gets damaged.”
Altitude, or how high can you fly: Altitude asks the
question: How great can you be? GE Appliances wants to
retain associates by providing opportunities for operators
to improve their skills and the tasks they can take on in the
DC. “In our facilities, we reference our people as craftsmen,”
Shirkness says. “If you want to be a captain of an airline,
you have to demonstrate the ability to fly a jet through a hail-
storm. You do that in a simulator.” He adds that top loading
a refrigerator or loading one unit on top of another in a trailer,
is the GE Appliances’ equivalent of flying through a hail-
storm. Operators who want to qualify for that highly skilled
work train and then demonstrate their ability in the simulator.
VR is still a new tool at GE Appliances. Shirkness says
that it’s an investment the company is making in its people
and the ROI will be determined in the future by recruitment
and retention outcomes in the facilities.

LOGISTICSMGMT.COM MARCH 2020 | L O G I S T I C S M A N A G E M E N T 57

Warehouse/DC Management: : e-commerce network
It can take six to nine months to mas-
ter the handling of the equipment.
Simulating the operating environment
with virtual reality as a training tool is
a step toward speeding up the train-
ing process. At the same time, GE
Appliances added technologies that
make operating a fork truck more like
driving a car. Equipment is loaded
with backup cameras, and sensors on
the basiloid clamp attachments alert
an operator who is putting too much
pressure on an appliance. Laser-
guided site lines assist operators as
they move and store product. Last,
GE Appliances worked with lift truck
manufacturers to develop new gear
systems for forward and backward
movement. “We’ve gotten extremely
creative with forward and reverse,”
says Wiseman.
Pulling the digital thread
Big Data and artificial intelligence inform
the decisions made by the traffic control-
lers and the WMS. GE Appliances refers
to this as “the digital thread,” and it is key
to accelerating the responsiveness of the
overall supply chain.
The digital thread is essentially the
genealogy of any given appliance. GE
Appliances begins building that gene-
alogy during the manufacturing and
transportation of any given product.
“We have a data lake where we can
crunch about 3 billion lines of data,”
says Shirkness. “When any appliance
shows up in the network, we know it’s
lifecycle up to that point.”
Once a product is in the network,
the digital thread, RFID tracking
systems, the yard management and
warehouse management systems, the
control tower and the order book all
come into play to enable decision-
making as late in the game as pos-
sible. Shirkness says that starting in
58 L O G I S T I C S M A N A G E M E N T | MARCH 2020
Product that will be shipped out within 24 to 36 hours is ready to be loaded onto an
outbound truck.
2016, his team spent an enormous
amount of time learning best prac-
tices from other industries, such as
the automotive industry, that had
become experts in postponement
strategies. “Our vision is that if I scan
a washing machine when I take it off
the trailer, the system can identify
who needs that appliance at any given
moment in time,” he says. “That could
be a customer who ordered it 10 min-
utes ago and needs it to go out tonight
or could be an order that doesn’t ship
for 36 hours.”
The next evolution
The system just described is phase one
of GE Appliances’ distribution evolution.
Phase two is in development. Among
the items on the “to do” list are a new
type of printed RFID tag that uses a
proprietary ink, developed at the Uni-
versity of Louisville, from Pascal Tags.
Instead of dedicated RFID handhelds
and portals, the tags can be printed on
demand, and charged by and read by
existing Wi-Fi access points.
Also on the lineup is machine learn-
ing tied to a transportation execution
system. “Right now, we have a lot of
individuals working in the control
tower to make transportation decisions
and resolve issues, like when a truck
leaves late,” says Shirkness. “We want
to evolve to a transportation execution
system that utilizes AI and machine
learning to automate some of those
activities.” Shirkness says he will still
need decision makers to solve the big
problems, but going back to the theory
of halves, there will be fewer.
The results of the last two years
of work are that GE Appliances is a
network that is more responsive to the
customer. “In the past, we could be fast
and reliable on our terms—shipping to
specific locations under specific times
and circumstances,” says Shirkness.
“Now, we can be fast and reliable on
the customer’s terms, whether it’s ship-
ping one or 100 appliances, or whether
we’re shipping to a warehouse, a store,
a job site or your house. That’s how
we’re going to continue to create our
competitive advantage,” he says. •
—Bob Trebilcock is an editor at large
for Logistics Management
LOGISTICSMGMT.COM
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 A SPECIAL SUPPLEMENT TO:

Quarterly Transportation
MARKET UPDATE: LTL

LTL Outlook 2020:

Full recovery on the horizon?
A recovering industrial economy, “improving” inventory levels and
higher rate forecasts buoy top LTL carrier optimism for 2020.

BY JOHN D. SCHULZ, CONTRIBUTING EDITOR

A combination of an improving industrial economy, with manufacturers rebuilding lower inven-

tory levels, has top executives from the $44 billion less-than-truckload (LTL) market crossing
their fingers in hopes of a financial rebound this year.
Indeed, after more than 14 straight months of declining tonnage in the industrial portion of the
economy, LTL carriers are hoping for recovery in that sector as international trade worries and over-
all geopolitical concerns lessen.
“Consumers have done very well in retail, but the industrial side of the economy has not moved as
quickly,” says Darren Hawkins, president and CEO of YRC Worldwide. “We rate the manufacturing

60 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM


index as an important leading econom-
ic indicator, and with our exposure to
industrial, we have a high correlation
to that portion of the economy. The
lion’s share is on the industrial side,
and things have settled down in that
area and are moving steadily in the
right direction.”
Even better news for LTL carriers is
their newfound pricing discipline. Even
with the sudden closure last February of
New England Motor Freight (NEMF),
which ranked as the 20th-largest LTL
carrier with $345 million in revenue, the
industry absorbed that capacity without
resorting to predatory pricing in order to
obtain that NEMF freight.
In fact, there’s nothing in the air to
signal an LTL price war, especially as
carriers continue to enjoy the benefits of
a concentrated market. The Top 10 LTL
carriers control about 73% market share,
according to data from consultancy
ShipMatrix, and the Top 25 absorb
about 90% of the LTL market.
Analysts say that the LTL market is
dominated by three very strong, non-
union companies: FedEx Freight, Old
Dominion and XPO Logistics. All are
formidable competitors to Teamsters-
covered YRC Freight and its three
regional subsidiaries as well as ABF
Freight System, among others. “In
addition to being non-union, well-run
companies, the top three all have highly
developed and sophisticated information
technology systems that allow them the
information to provide better service at
a lower cost,” said Donald Broughton,
principal of Broughton Consulting.
But an analysis by Logistics Manage-
ment shows that even the best-run LTL
carriers face operational hurdles these
days. All are continually competing for
fewer qualified drivers who are demand-
LOGISTICSMGMT.COM
A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT
ing higher pay. Costs for equipment and
insurance are soaring. And the econo-
my, while good, has been growing at an
uneven pace, causing unforeseen spikes
and dips in demand.
Let’s examine how the best LTL
fleets are coping with this ever-chang-
ing economic model, and why they’re
hoping 2020 is a year of economic
recovery for them.
Matching capacity to demand
Nothing throws off internal planning
sessions at even the best-run LTL car-
riers more than an uneven economy, up
one year and so-so the next. And, that’s
exactly what happened in the past two
years. The market witnessed historic
volumes in 2018, while 2019 was labeled
by some as an industrial recession.
“LTL demand is not very strong
at this point in time,” says Chuck
Hammel, president of Pitt Ohio, the
nation’s 17th-largest LTL carrier. “We
have moved from up slightly to flat.
Last year got progressively soft as the
year went on, an so far this year it’s
the same. However, we’re optimistic
MARCH 2020 | L O G I S T I C S M A N A G E M E N T
things will improve.”
Raj Subramaniam, president and
COO of Fed Ex Corp., parent of
the nation’s largest LTL carrier, said
recently that he was “not pleased”
with overall financial performance
of many units. At FedEx Freight, its
LTL unit, Subramaniam said that it’s
continuing to focus on yield manage-
ment, profitable growth, and aligning
its cost structure to the lower volumes
throughout this fiscal year.
“These efforts have enabled FedEx
Freight to significantly offset the im-
pact from softening economic condi-
tion,” Subramaniam said recently on
an earnings call with analysts. “This
is yet another example of matching
capacity to demand.”
The American Trucking Associa-
tions’ advanced seasonally adjusted (SA)
For-Hire Truck Tonnage Index increased
3.3% for all of 2019—that was about
half the annual gain in 2018 (6.7%).
In December 2019, the ATA SA For-
Hire Truck Tonnage Index rose 4%
after falling 3.4% in November. That
makes planning for equipment, drivers,
61
Special Report: LTL
terminal expansions and freight demand
highly risky for 2020, executives say.
“Last year was not a terrible year
for the truck tonnage index, but
despite the increase at the end of the
year, 2019 was very uneven for the
industry,” said ATA chief economist
Bob Costello. “The overall annual gain
masks the very choppy freight environ-
ment throughout the year, which made
the market feel worse for many fleets.
In December, strong housing starts
helped advance the index forward.”
The U.S. Bank National Shipment
and Spend Indexes ended 2019 with
both metrics falling sequentially and on
a year-over-year basis. It said that the
indexes reflected that at least parts of
the economy, like manufacturing activ-
ity, are currently “under pressure.” Last
year’s indexes posted the smallest gains
of any year since 2016, U.S. Bank said.
“There is no doubt that 2019 overall
was a tough year for motor carriers,”
U.S. Bank said in its analysis. In fact,
XPO breakup wild card for rival LTL carriers
T here has been no greater success story
in the LTL sector than the growth and
dominance of XPO Logistics after its purchase
of Con-way Freight for $3 billion in 2015.
Since then, XPO’s share price has in-
creased more than ten-fold. Yet XPO Chair-
man and CEO Bradley Jacobs, who engi-
neered the Con-way purchase five years ago,
that his company is trading at “well below the
sum of our parts and at a significant discount
to our pure-play peers.” He claims XPO has
been the 7th best-performing stock of the
last decade, and he wants to continue such
meteoric growth.
So, Jacobs has gone public by say-
ing XPO’s board has retained Goldman
Sachs & Co. LLC and J.P. Morgan Se-
62 L O G I S T I C S M A N A G E M E N T | MARCH 2020
shipments contracted 5.9% from 2018,
marking the largest annual drop calcu-
lated back to 2011. But shippers’ spend
was up 3.4% from 2018, which U.S.
Bank called “remarkable,” considering
that volumes were off significantly.
For trucking, U.S. Bank said that the
falling factory sector is having a signifi-
cant impact on shipments and spend.
Truck sales have exceeded the demand
for the added capacity, and freight levels
will likely remain “sluggish” into the
second quarter. However, it forecast
that shipments could start to improve as
capacity starts falling with fewer truck
purchases as well as carrier closures.
“I think LTL will perform better
than truckload this year, and it’s not be-
cause of the economy or trade wars, it’s
because of e-commerce,” says Satish
Jindel, principal of SJ Consulting. “LTL
carriers are handling more retail ship-
ments than ever before, and that will
continue. LTL carriers must learn how
to handle those shipments.”
curities LLC as its financial advisors and
Wachtell, Lipton, Rosen & Katz as legal
advisor to assist with the review process
necessary to find a suitable buyer for any
of XPO’s major operating groups, with the
exception of its LTL unit.
XPO has set no timetable for completion
of the review process and has not deter-
mined which, if any, business units would
be sold or spun off. But the company says it
“does not intend to sell or spin off” its North
American LTL unit. Last year, XPO ranked as
the 4th-largest LTL unit with just under $4
billion in revenue.
Some analysts believe that despite
XPO’s insistence that the LTL is not for
sale, it would be for the right price. “Bradley
The last-mile conundrum
LTL carriers have been perplexed by the
potential of “last-mile” deliveries due
to the surge in e-commerce business.
The conundrum is this: How much of
this business is worth chasing given the
sharply higher costs involved in deliver-
ing to often rural, out-of-the-way places
with no hope of any backhaul traffic.
FedEx Freight recently began its
FedEx Freight “Direct Service” that
provides freight deliveries right to or
through the front door. The company
says the new service currently cov-
ers 81% of the U.S. population, and is
anticipated to cover 90% by July.
FedEx Freight calls this “a market
leading value proposition,” that includes
a two-hour delivery window to your room
of choice will full packaging removal.
The company says it has “a strong pipe-
line” and already has prominent retailers
lined up for the service. It’s all part of a
larger FedEx initiative to improve rev-
enue at its Freight and other units.
Jacobs has a great track record as an as-
tute investor,” says trucking market analyst
Satish Jindel. “If somebody comes along
and wants to buy the LTL unit at a nice pre-
mium, I wouldn’t send them away.”
Whatever XPO decides to sell, it says
each unit will be offered as a whole entity.
Even though XPO says that it’s keeping its
LTL unit, whatever happens to its broker-
age unit, for example, could affect shippers
using XPO’s LTL operation. That’s because
analysts and industry insiders estimate as
much as 40% of XPO’s business comes
from “cross-selling”—that is, using its bro-
kerage unit, for example, to fill space in
XPO’s fleet of LTL trucks.
—John D. Schulz, Contributing Editor
LOGISTICSMGMT.COM

What LTL carriers have found is that
B2B last-mile is preferable to deliveries
to home consumers. That’s because B2B
provides greater density and stronger
yields than B2C. So most LTL compa-
nies are focusing on commercial traffic.
However, the lure of e-commerce is
strong because it’s growing at an annual
rate of more than 15% year over year.
Analysts warn that this isn’t an easy
market to crack. Truckload giant J.B.
Hunt and LTL leader XPO Logistics
are already in the last-mile market in a
big way along with giant publicly held
companies with vast resources such as
Ryder and Forward Air.
“My advice is that if you’re not in
the last-mile market now, it’s a little
late,” adds analyst Jindel. “Everything
in last-mile is different—the driver, the
trucks, training, the DNA is completely
different. It’s different bumping up
against a dock and delivering freight
than delivering to someone’s home.”
Last-mile operations might make
sense for a trucking company with a
big presence in retail. Other than that,
LOGISTICSMGMT.COM
A SPECIAL SUPPLEMENT TO LOGISTICS MANAGEMENT
analysts say, the high fixed costs of
last-mile deliveries to homes and remote
locations make it a daunting proposition,
but one that can pay off handsomely.
“LTL companies should be in last-
mile,” says Broughton. “The ongoing
growth profile and margin potential of
last-mile should make it a market seg-
ment that’s difficult if not impossible
to ignore. Those companies that could
easily add it to their service portfolios,
but don’t do so at their own peril.”
The rate situation
Pricing for LTL carriers is forecast to
rise at a greater rate than for truckload
(TL) carriers. One reason is market
share concentration. The Top 25 LTL
carriers control nearly 80% of the $44
billion or so market. But the Top 25
truckload carriers barely have 10% of
the $320 billion TL market.
Until about five years ago, motor
carriers had waited about 35 years since
the Motor Carrier Act of 1980 deregu-
lated their industry to get a favorable
pricing environment. That market is
MARCH 2020 | L O G I S T I C S M A N A G E M E N T
expected to continue to weigh against
shippers in the LTL arena, but not so
much in the full truckload space.
“Costs continue to increase in
trucking mostly around driver and
benefit costs and toll roads,” says Pitt
Ohio’s Hammel. “We’re still getting
increases from our customers, albeit
lower than early 2018.”
Analyst Jindel is forecasting LTL
contract rates to rise 3% to 4% this
year, while TL rates should rise
maybe half that much. But analysts
say shippers can build in a hedge to
those price increases by producing
more “driver friendly” freight—that
is, freight that is accurately weighed,
readily available and easily accessed
by drivers who increasingly are operat-
ing under severe time restraints.
“Simply put, every shipper has the
ability to offset that rate increase by
improving their operational practices,”
adds Jindel. •
John D. Schulz is a contributing editor
to Logistics Management
63
Pacific Rim Report
Patrick Burnson is executive editor
of Logistics Management. To contact
Patrick with feedback or a story idea,
By Patrick Burnson please send an e-mail to pburnson@
peerlessmedia.com.

Asia Pacific air cargo industry

traumatized by coronavirus
Because the coronavirus (2019-nCoV) Outbreak growth,” says Alexandre de Juniac, IATA’s director
emanated in the Far East, it should come as no general and CEO. Asia-Pacific carriers last Decem-
surprise that its disruptive effect on global logistics ber posted a decrease in demand of 3.5% compared
struck there first. Analysts agree that the one trans- to the same period a year earlier, while capacity
port mode facing the greatest challenges now—and increased by 2.8%. The full-year 2019 data saw
in the foreseeable future—is the air cargo industry. volumes decline 5.7%, the largest decrease of any
Andrew Herdman, director general of the Associa- region, while capacity increased by just 1.1%.
tion of Asia Pacific Airlines (AAPA), notes that regional As the world’s main manufacturing region, inter-
cargo carriers are following established guidelines devel- national trade tensions and the global growth slow-
oped by the International Civil Aviation Organization down weighed heavily on regional airfreight volumes
(in consultation with the World Health Organiza-
tion, the International Air Transport Association
(IATA) and Airports Council International) cover- “ Asia Pacific airlines are fully committed to
ing the management of public health events. working closely with the relevant governments
However, Herdman takes issue with a and national health authorities to support such
number of governments that have nevertheless
introduced measures including travel advisories, efforts in the wider public interest. ”
border entry restrictions and quarantine require- –Andrew Herdman, AAPA
ments. “Regrettably, some of these well-inten-
tioned measures seem to lack any proper public health in 2019. Within Asia, freight tons were particularly
justification, while causing significant and widespread stunted—down 8% compared to a year ago.
disruption to travel and trade activities across the Rosemary Coates, president of Blue Silk Consult-
world,” he says. “Arbitrary restrictions and blanket ing, observes that several of her clients are still busy
travel bans are inconsistent with the International trying to figure out how to get shipments out of China.
Health Regulations and result in unnecessary incon- “Airlines and air cargo operations that had been
venience and added uncertainty among members of on a restricted Lunar New Year holiday schedule last
the public. Governments in Asia and elsewhere must month are now completely suspended,” says Coates.
strengthen dialogue and work together.” “Many of the factories and logistics warehouses are on
Still, Herdman admits that, at this critical junc- extended leave, not only in Wuhan, but also Guang-
ture, improved cooperation and coordination by zhou, Shenzhen, and Shanghai. Hong Kong, with
international organizations, national governments, recent protest problems of its own, is also restricting
health authorities and everyone involved in combat- incoming people and shipments from China and out-
ing this global health emergency are of overriding bound flight operations.” Furthermore, some factories
importance. “Asia Pacific airlines are fully committed are being ordered to stay shut, with workers afraid to
to working closely with the relevant governments and go back to work even if their factory is open.
national health authorities to support such efforts in Coates says that some companies are trying to
the wider public interest,” he adds. source parts to stock up on inventory in an effort to
The outbreak could not have happened at a try to outlast this critical virus period. This in turn,
worse time for Pacific Rim airlines, airports and will eventually cause shortages of all kinds as compa-
Asia Pacific shippers. According to IATA, while the nies pay premium prices and hoard parts. Yet, even
eventual impact of the coronavirus on the global if some parts start to trickle out of China, enhanced
economy has yet to be measured, trade tensions screening for the virus at airports, and all China bor-
were at the root of the worst year for air cargo since der crossings are likely to cause significant delays.
the end of the global financial crisis in 2009. “How long before all of the factories come back
“With all the restrictions being put in place for Asian to life and global logistics are running smoothly is
airlines, there will certainly be a drag on economic anybody’s guess,” Coates adds. •

64 L O G I S T I C S M A N A G E M E N T | MARCH 2020 LOGISTICSMGMT.COM

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