Wet summers and extreme floods, Tesco branded vans darting in and out of suburban streets like minnows in a stream and a Conservative Party stating it will tax companies on the impact they have on the environment. These issues are indicators of the pressures the supply chain of major retailers and manufacturers in the UK is about to endure from customer consumption habits and regulations.
Existing methods of haulage, storage, shop inventory and customer delivery are set to be revolutionised. As a result, the information infrastructure to support the supply chain will also undergo a major reinvention.
Management consultants CapGemini have been studying the future landscape of the supply chain. Its 2016 Future Supply Chain report indicates that the complexities of the challenges facing the supply chain are not the sole responsibility of the supply chain manager. In the report, Roland Dachs, supply chain vice president at packaging manufacturer Crown Europe and Xavier Derycke, director of retail chain Carrefour say, “Until now, the most important parameters for supply chain designs have been related to cost efficiency and on-shelf availability,” the duo warn of the challenges to come, “new factors are becoming increasingly critical, such as traffic congestion in urban areas, energy consumption, CO2 emissions and the permanent rise in transportation costs.”
A raft of legislation has already come into force. In the UK supply chain managers now have to comply with the London Congestion Charge, which has drastically reduced the number of vehicles that come into the centre of the city. Earlier this year the Low Emissions Zone was introduced, which places a £1000 fine on haulage vehicles that do not comply with standards set down by Transport for London. The British Climate Change Bill, which came into force last November, sets a legal a target for Britain to achieve a 60 per cent cut in its carbon dioxide emissions by 2050.
In the near future CapGemini foresees water consumption regulations and increasing security regulations imposed not only information, but also on the warehouses the supply chain uses to store its inventory.
Consumers embrace these regulations as they believe they improve the quality of life, especially for those living in urban environments. Corporations have to convince their consumers that they are behaving responsibly towards the environment. CapGemini believe the 2007 Bali Treaty, as well as other legislative initiatives, are “challenging the industry to come up with breakthrough solutions by 2020. Preserving energy and raw materials and other resources like water will become a crucial aspect in future supply chains.”
Organisations are already seeing some of the challenges coming into view. Jane Scott, CIO at food services and supply chain provider 3663 said, “We can be more efficient. We have to comply with supply chain legislation already that fits in with being more sustainable.” 3663 Food Services supplies the catering and hospitality industry. Its main clients are companies like Compass which runs the Starbucks, Burger King, Upper Crust and Ritazza chains in the UK. Scott has been CIO for the company for five years having joined the company from Coca Cola.
Anthoula Madden, vice president of consumer products and consulting services at CapGemini was involved in the production of the 2016 the report, she describes the current supply chain as, “focussed at the moment on the replenishment of the outlets, but not enough on planning and other processes, such as returns or removal of waste and recycling materials. A lot more integrated planning is required.”
Nigel Bagley, director of customer development at food and household goods manufacturer Unilever agrees and recently told experts, “We can’t continue to operate with a supply chain that was developed decades ago on a historical method of manufacturing and delivery. The world has changed and we have to change our supply chain to adapt to it.”
Shape of things to come
As well as a focus on keeping retail outlets fully stocked, CapGemini found that the majority of supply chains are also focused on reducing costs and supporting the ROI objectives of the business and its brand reputation, which is of course the role of every division of the business. CapGemini say that new targets will be introduced such as a reduction in the energy consumption and meeting targets to reduce traffic congestion. The 2016 report includes a seven point supply chain modernisation plan, with the following recommendations for organisations to consider:
1. In-store logistics - shelf ready products
2. Collaborative Logistics – sharing transport and warehouses
3. Reverse Logisitics – product recycling, packaging, and returnable goods
4. Demand Fluctuation Management – more planning and monitoring
6. Alternative energy forms and more efficient vehicles and buildings
7. Joint business planning
“Current KPIs can be used to measure supply chain efficiency, they do not adequately address supply chain sustainability,” the 2016 report states. Its seven solutions bring the CIO into the fold. In-store logistics, which will require greater adoption of radio frequency identification (RFID), reverse logistics and greater use of alternative fuel are self explanatory changes, but sharing transport, warehouses and information between high street rivals is a giant leap forward in business collaboration.
CapGemini see collaboration as imperative to the future supply chain. “Getting products on to the shelves will not diminish as a pressure, but organisations will have to become more dynamic,” Madden says. Transport, warehouses and information will have to be shared between manufacturers, retailers and logistics suppliers, the 2016 report states. “Improving such collaboration demands new ways of working together.
The future supply chain is expected to provide clear benefits for our society, for industry, for individual companies, and ultimately for consumers and shoppers,” they report. But they see these challenges as overall being positive for organisations, with transport costs reduced by 30 per cent per pallet, handling costs per pallet down by 20 per cent and CO2 emissions per pallet reduced by 25 per cent, and they confidently predict that on-shelf availability will not be diluted.
Amsterdam tramlines into the future
After a successful trial in 2007, Dutch city Amsterdam is to launch a tram based supply chain delivery system in 2009.
Using the existing tram network, start up tram based logistics company City Cargo, has been contracted to provide a delivery service using trams in the city. It had to guarantee to the city authorities that it would not be to the detriment of the passenger transport network.
CityCargo works by goods arriving at a large warehouse on the outskirts of Amsterdam. The equivalent of four truck loads are loaded onto a single cargo tram, which then travel into the centre of Amsterdam and a set points they meet electric vans which take the load to retail outlets. CityCargo will halve the number of trucks entering the centre of Amsterdam.
The company has high hopes of becoming a European wide network, with 240 cities in Europe having a tram network and indicates ambitions to expand into Rotterdam, The Hague, Brussels, Gent, Paris, Lisbon, Berlin, Vienna, Prague and beyond Europe in Tokyo.
Scott at 3663, who is part of the wider business management team at 3663, said the organisation is looking at the shared warehouse and trucks options. “We are already back-hauling, if a vehicle is returning from a customer we look for an opportunity to fill it up from a supplier on route,” she says. Amsterdam has already experimented with a collaborative approach to supply chain with shared warehouses on the outskirts of the historic city stocking goods, which were then transported into the centre of the city by special cargo trams, before the goods were transferred to electric delivery vehicles for the final leg of the journey. Madden points out that for many goods and types of retailers there is no competitive advantage in having separate warehouses, for example a group of major book publishers share a warehouse in Amsterdam.
Closer to home, Nigel Underwood, CIO at logistics supplier DHL recently told CIO he and his team were spearheading collaboration in partnership with a DHL global consultancy that is looking to drive collaboration. The pro-collaborative attitude at DHL has, in part helped it win contracts with Starbucks, Jaguar and Land Rover recently.
Madden also believes the current upwards trend of online shopping and home delivery will change the supply chain radically. Deliveries after 7pm will increase and she even predicts that secure delivery points where a consumer can collect something if they are not at home, these could be Post Offices or local storage points.
Already companies such as Ocado fulfil their customer orders direct from a warehouse, taking the shop out of the supply chain. In Sweden Madden said she has observed the white goods industry embrace post 7pm deliveries so that it can ensure that the customer is at home to receive their goods.
Scott is currently integrating a new Microsoft Dynamics AX enterprise resource planning (ERP) system into the 3663 wholesale division, which she and CapGemini both believe will improve supply chain management and enable the organisation to react to the demands that are to be placed on the supply chain. Scott has already integrated voice based technology, but is holding back on RFID. “We will sell products in the unit size the customer requires, so not a whole case for example, which makes RFID very difficult to utilise and the cost is prohibitive,” she says of the role 3663 plays as both a vendor and distributor of catering food goods. “RFID cannot be used on fresh fruit and vegetables, but I am considering it for roll cages (the wheeled steel crates used for carrying separate goods onto a vehicle and then into the retail outlet).”
Scott said her next main focus will be on using technology to improve vehicle routing and is already seeing benefits, she is currently going out to tender for a partner to develop a telematics navigation system for its fleet of 1200 vehicles.
Anthoula Madden at CapGemini believes the greatest technology challenge is the lack of standards in retail supply chain information management. She highlights the Global Data Synchronization Standard, but says it has been very slow to be adopted. “The trouble is retailers are still in the process of adopting ERP and removing legacy systems. Adoption of the Global Data Synchronization Standard will enable collaboration,” she says. In manufacturing she says the picture is clearer as SAP ERP systems have become de facto technology, and “that is the big difficulty for the two sides of the supply chain”.
Regulations and treaties
The recent regulations and international treaties CIOs and management teams need to be aware and their affect on the supply chain.
Kyoto Protocol, December 1997
Signed in December 1997 by all the major industrial countries except the US and
London Congestion Charge, February 2003
Possibly the most successful environmental programme to date, the London Congestion Charge is charged to vehicles travelling into the Charge Zone. Each vehicle is charged £8 and the money is used to redevelop the public transport network in the city. It has been a major success, slashing the number of vehicles in the city.
Climate Change Bill, March 2007
Bill gives ministers the power to introduce emissions reductions measures and set up an independent advisory body
Bali, United Nations Climate Meeting, December 2007
A road map was approved by 190 nations for two years of negotiations on a successor to the Kyoto Protocol in January 2013.
EU Directive on Renewable Energy, January 2008
European Commission proposal includes targets for a switch to 20 per cent of energy to be generated by renewable sources by 2020. Also 10 per cent target for the market share of biofuels.
CapGemini believes this new model of a supply chain is only achievable with greater collaboration “among all parties in the supply chain” and it will require “improving such collaboration demands new ways of working together in the physical supply chain”. If industry leaders collaborate, they also believe the government will “enact more appropriate regulations”. Technically they believe this will require a standardised information infrastructure that is flexible, operates in real time and uses demand data from the consumers as its starting point to give greater clarity of product demand. For all parties in the supply chain to reap benefits, there will need to be information transparency as CIOs at retailers open up their information silos to suppliers to see the demand for a product. “Information about the actual status of items in the supply chain, at any moment, is essential to correctly co-ordinate all the combined logistic streams.”
CapGemini don’t underestimate the level of trust that will be required between supply chain partners, but see it as crucial. For the CIO this means the development of a platform for the exchange of information with the web as the platform.
Scott at 3663 sees forecasting as the intermediate answer, “Forecasting integrated with demand so that we can use information and technology to make a decent forecast,” she says 3663 is very dependent on accurate procurement decisions.
Bagley at Unilever is a great advocate of the role technology and information can play in re-inventing the supply chain. “What our supply chain has today that it didn’t have in the past is access to information, and our supply chain is dependent on information.
“So if we want to bring innovation into play, we need to start by thinking about bringing in the information that is available and incorporating that into making a more efficient supply chain.”
CIO and the supply chain
“CIOs are currently involved to the point of delivering systems and meeting the requirements of the business. They are looking at today’s requirements and they need to be looking to the future,” Madden says. “Because collaboration will become more important also the needs of the organisation to reduce emissions,” she adds. CIOs becoming involved in the supply chain will need to develop an information architecture that enables collaboration. “This will mean that an organisation will have to have a service-oriented architecture (SOA) in place for this greater flexibility and the ability to share data. When this is in place an organisation can change its KPIs.”
The CapGemini report breaks supply chain collaboration into four concepts:
1. Information sharing
2. Collaborative warehousing
3. Collaborative city distribution
4. Collaborative non-urban distribution, which could include customer pick up
Bagley agrees that collaboration has a lot to offer, “Historically we have had a manufacturer supply chain and a retail supply chain, but that is not workable today. That has inbuilt inefficiency, so by collaborating with manufacturers, suppliers, and logistics people and working together we can create a collaborative model.”
“For IT, the role is getting the most out of what we have already got,” Scott at 3663 says, this includes the efficiency of the truck fleet through route planning and re-routing vehicles if necessary, as well as providing tools to drivers to ensure they can efficiently complete paperwork and monitoring the temperature of their vehicles. “There is a greater need to drive the efficiency more than ever now with the oil prices.”