Thinking Ahead–Letter from Chaille: Roadmap Shows Challenging Future for U.S. Supply Chain
U.S. Roadmap for Materials Handling and Logistics identifies the impact of urbanization, the e-commerce boom and faster delivery cycles on unit loads and supply chains. Get ready for faster, more demanding customers and multiple distribution channels.
By Chaille M. Brindley
Date Posted: 11/1/2013
Earlier this year, I had the opportunity to participate in a panel of experts that met to discuss the future of material handling and logistics in the United States. The conversations were fascinating and a bit frightening to think about the rate of change that we might see in just 12 years. From driverless trucks to same day delivery targeting a person’s specific location to printing 3d product at home to unit loads without traditional pallets, it could be a very different world in just a few years. Or then again, maybe not. Futurists have been dreaming about radical changes for years. And while we have seen some major technology developments, we still don’t have flying cars, teleportation devices or robot maids in every home.
This panel of experts, including private industry leaders, trade press, academic researchers, major suppliers, association executives and government officials, met together to work on the U.S. Roadmap for Material Handling & Logistics. The idea was to chart the future of material handling and logistics in the United States over the next twelve years, and the Roadmap organizers
have released a draft report of the conclusions of the four roundtables events held earlier this year. The draft report can be obtained by visiting www.MHLroadmap.org.
I wrote extensively about the Roadmap in the Pallet Profile earlier this year. Here’s a shameless plug. If you don’t get our weekly market report for the pallet industry, you should consider a trial subscription. We will sign you up for a free trial. Call Jeff McBee at 800-805-0263 to find out more. The Profile is truly the most important read for companies in the pallet and low-grade lumber industries. From the latest lumber and pallet market developments to detailed analysis of trends and industry issues, the Profile is the best thing we publish in my opinion.
There are a few trends that I believe could really impact palletization in the next twenty years. The three biggest are highly connected. And those are the move to increased urbanization of the global population, significant growth in e-commerce and the demand for even faster and faster delivery where the new normal is not next day but same day delivery. These will all be driven by consumer preferences and demographic changes.
Let’s look at the population shift first. Today, more than 50% of the world’s population lives in densely populated urban areas, and by 2050 the United Nations projects that 64% of the developing world and 85% of the developed world will live in cities. Urbanization creates challenges for moving goods. The Roadmap report concluded, “While dense land use patterns concentrate demand, high land costs create location challenges for last-mile distribution facilities. Urban retailing typically involves larger numbers of smaller stores, and urban consumers may purchase smaller quantities per trip due to lower storage capacity in urban dwellings. Vehicle ownership rates are lower in urban areas, increasing demand for home delivery of goods and e-commerce.”
Urban areas may also have more racial and age diversity, further complicating the wide variety of products that consumers in a small area may want. Traffic congestion and the ability to efficiently truck goods to buyers will get worse as more people consolidate in cities. Many of which already have congestion concerns at peak times. New methods of distribution could help solve these problems although they may also impact packaging and the amount of palletization done by retailers.
The good news is that the United States has some of the lowest logistics costs of any country in the world thanks to our vast network of DCs, trucks, highways and efficient operators. Currently, logistics costs account for about 8.5% of our gross domestic product. There will continue to be a push on price as companies become even more competitive combined with an increasing focus on delivery speed and location targeting. The report stated, “The delivery of goods to consumers, no longer is two-day or next-day delivery enough. The next horizon is already here – same-day and same-hour delivery. But it doesn’t stop there. It may not be long before people specific exactly where they need goods to be delivered today, not an address but the temporary location of the individual.”
This delivery speed combined with the growth of e-commerce will likely mean more parcel-based shipments in the last leg of the process to consumers, which will translate into fewer palletized loads in those areas of the retail supply chain. While palletization will continue to grow overall, it will decline in some aspects of the retail supply chain. Secondly, this speed to delivery focus will impact the attitude of companies as well as they will demand even faster and faster delivery of key essential products, including pallets. The world is not going to slow down, it is only going to speed up in terms of meeting customer expectations.
So how does the supply chain keep up with this demand for faster and faster delivery especially when you are
talking about stocking a larger variety of products and multiple retailer methods? A key will be the ability for product manufacturers, retailers, distributors
and logistics companies to collaborate and work together by sharing information and assets. This will help drive cost out of the supply chain as well as help utilize assets positioned to provide the greatest speed to market. I see big opportunity for pallet and packaging companies that work to expand their service offerings to include reverse logistics, asset tracking and management, fulfilment, warehousing, and transport services. Smart companies are already realizing that these areas are the future even while pallets and packaging pay the bills today.
One of the big obstacles facing companies is the need to collaborate to save costs and improve data utilization. For example, the report concluded that “statistics on empty truck miles and facility utilization suggest that dramatic reductions in cost are possible if high levels of collaboration and sharing could be achieved.” Also, companies use different software programs that don’t effectively talk with each other, including warehouse management systems. There are technological obstacles to data sharing as well as trust concerns. Developing ways to allow these various programs to communicate and conduct analysis on data is critical to remove costs from the supply chain. But that may be easier said than done because various suppliers and vendors have a vested interest in keeping proprietary technology locked up.
When it comes to transportation savings, the opportunity with the greatest potential benefit is shared trailer capacity. The National Private Truck Fleet Council estimated in 2011 that 20.78% of private fleet trucks were empty. Eliminating these empty miles will require communicating and sharing route information, possibly even by competitors. This could be tackled by using more shared transportation sources as well as shared warehousing, such as public warehouses or third party logistics firms. Another idea is to create Logistics Parks in major cities where the industry and government comes together to improve transportation infrastructure, warehouse capacity and other necessary ingredients to reduce costs.
So what do you think? Do you see opportunity where others only see more demands and headaches? The progressive companies will not only be ready for what comes next, they will help drive the changes.
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