Hundreds of Australasia’s leading logistics professionals were given a unique insight into the future of distribution and the supply chain at Dematic 2020 Supply Chain Vision seminar series, held during March 2005.

More than 800 people registered for the seminars, which were held in Brisbane, Sydney, Melbourne and Auckland. A similar number of delegates attended Dematic SE Asian seminar program.

One of Australia’s most experienced logistics systems designers and integrators, Glen Borg, was keynote speaker. His presentation was followed by three breakout sessions on:

• Retail, Grocery & General Merchandise
• Direct & Wholesale
• FMCG Manufacturing.

The following report focuses on Borg’s presentation. Be sure to check back later as we will feature reports from the other three sessions.

2020 Supply Chain Vision

The future for distribution and the supply chain as painted by Dematic during its 2020 Supply Chain Vision seminar series is one in which labour costs will continue to escalate, and where increasing consumer demands and government regulation will add further complexity to managing the supply chain.

One bright spot on the horizon for logisticians is the continuing downward trend in the cost of automation technologies, many of which hold the key to maintaining efficient and cost-effective supply chain performance in an environment with high labour costs and service expectations.

Glen Borg started his presentation by taking a big picture look at the drivers that will influence all aspects of life over the next 15 years.

What will life be like in the future?

What life choices will we be making and what decisions will be forced upon us?

How will we live and work?

Which technologies will make our lives easier?

“In search of answers to some of these questions, Dematic conducted a survey among experts throughout Europe to find out what changes they thought we could expect to see in the economy, technology, the political arena, and society, with the findings contained in a report titled Horizons 2020,” explained Borg.

10 “Mega Trends” were identified as key developments that were considered to be inevitable and to have a major influence on the shape of tomorrow.

• Increasing globalism
• Increasing longevity
• Fewer children in the family
• Higher significance of women in the economy and society
• Increasing mobility (“delocalization”)
• Increasing migration from developing toward developed nations
• Increasing relevance of virtual communities
• Acceleration of technological knowledge creation and product cycles
• Increasingly networked communications media
• Free choice of way of life

From its ability to provide competitive advantage within industry to the way it will shape our lives as consumers, the supply chain was highlighted as a key factor in defining our lifestyles in the year 2020.

Borg said research had shown that there were four significant trends that would influence the supply chain:

• Cost of labour increases
• Cost of technology decreases
• Consumer trends place higher demands
• Increased regulation

“These will be viewed by some as challenges, while others will see them as opportunities,” he said.

Escalating Labour Costs

In 1984, the average warehouse worker earned $10 per hour, today the same worker earns $25 per hour, an increase of 250%. Borg indicated that by 2020 that rate could easily go close to doubling.

Adding further pressure on the local labour market is the constant drain of experience overseas, the lowest unemployment rate in 28 years, and a shrinking labour pool.

At present our working age population is growing by around 170,000 per year, he said.

By 2020 our working age population is expected to increase by just 125,000 for the entire decade – not 125,000 by year, but for the whole ten years, he emphasised.

“So if labour contributes to on average 30%- 40% of your cost of distribution, how will this affect your costs? Effectively this translates to a minimum 20% rise in the cost of distribution,” stated Borg.

Cost of Technology Decreases

Inflationary pressures aside, many industries have experienced real decreases in cost, with the computer industry being a good example of this, said Borg.

Quoting Intel CEO Craig Barrett, Borg said: “Whether it's increasing functionality, performance, form factor, processing power, memory density, whatever you want, this is essentially what Moore's Law provides us. It provides us with the ability to do more and more on an annual basis to shrink and to reduce the cost of the functionality we had last year.”

Borg then illustrated that, despite the performance of technologies continuing to improve, there had been substantial falls in the cost of several technologies relevant to the supply chain over the past decade including controls and drives, automated storage and retrieval systems, conveyors and robotics.

“A good example of this is in the robotics industry,” he said.

“Colin Wells from Robotic Automation tells me prices have dropped 30% yet payloads have increased 60% over the past 10 years.”

Increased Government Regulation

Distribution centres are being targeted by regulatory authorities in Europe, the US and here in Australia, with OH&S increasingly becoming a key driver in the design of logistics systems all around the world.

In Australia, Victoria seems to be leading the way on reform following the Maxwell Review of the 1985 OH&S Act. This has led to the Victorian Occupational Health and Safety Bill being introduced into Parliament in November 2004. The Bill, which was proclaimed in February 2005, reflects changes in workplaces and working arrangements since the original Act was introduced, almost 20 years ago.

As well as clarifying existing obligations and processes, the Bill contains several key changes, these include:

• Consultation
• Health & Safety Representatives
• Union Right of Entry
• Definition of Practicable Duties.

Designers of a building or structure must ensure, as far as is reasonably practicable, that it is designed to be safe and without risks to the health of persons. This is a similar duty to the existing duty of designers of plant. This new duty has significant implications for architects, engineers and other building and structural designers.

The proposed Act is due to come into effect on 1 July 2005. Existing arrangements and regulations will in general continue. The duties relating to designers of buildings and structures are expected to come into effect for designs beginning after 1 July 2006.

Advances in Reducing Waste & Recycling

Increasing regulatory pressure is also likely to force business to change their approach toward waste reduction and recycling, said Borg, using UK-based retailer Tesco as an example of what may be achieved.

“Tesco is the third largest retailer in world, with 2,318 stores and 326,000 people and seems to be leading the grocery industry when it come to waste management, said Borg.

They are committed to minimising the amount of waste produced and to a robust recycling program, he said.

In 2004, Tesco recycled 79.8% of cardboard waste (185,599 tonnes) and 85.4%, or 15,033 tonnes of plastics. Overall it recycled 60% of total store waste, an increase of 4.8% over the previous year and it is now sending 27% less waste, or 48,948 tonnes, to landfill than five years ago.

This is particularly good performance given their strong sales growth, said Borg.

He also discussed how the use of reusable plastic crates - green trays - to replace cardboard boxes and other packaging to transport and display products had not only cut the amount of packaging waste, but improved product quality by reducing damage in handling and transit.

In 2004 Tesco exceeded their target of a 10% increase in the number of green tray trips, achieving an increase of 11.2% to 192 million trips, generating a saving of 57,000 tonnes of cardboard packaging which would otherwise have been used.

Looking Ahead

Having covered the trends that will influence the supply chain toward 2020, Borg looked at the impact of these on the supply chain from a DC network cost and service level perspective.

“In order to look at the cost impact on distribution networks we built a hypothetical network,” said Borg.

In the model, the DCs currently service the network at a cost of $1.25/carton, with the costs made up of direct and indirect staff, transport, rent, repairs and maintenance, depreciation plus other costs.

“We expect that cost per carton to rise dramatically over the next 15 years,” he said.

“But cost is only one side of the equation,” he said, “we also need to consider service levels, including on-time deliveries, order accuracy, total order cycle time and order flexibility.”

Of particular interest will be the effect of the increased trend towards split case orders. “This trend will have a considerable multiplying effect on the cost of distribution, especially order picking,” he said.

DC Network Modelling

Network Modelling is a new tool which Dematic has developed to assist companies establish the optimum number and location of DCs.

Borg presented a number of hypothetical scenarios which illustrated how users could minimize total distribution costs through better alignment of transport, warehousing and order fulfilment activities. Network modelling also enables Siements to look at the impact of using different technologies and combinations of technologies to provide customers with accurate performance and ROI models.

Advances in Technology: RFID

RFID is the buzzword in logistics today. There has been a lot of speculation about how this “technology of the future” can provide businesses with a real competitive advantage.

Borg discussed how Wal-Mart had led the industry in pushing RFID into the supply chain on a large scale.

Since revealing two years ago that it wanted its top suppliers to begin shipping RFID-tagged cases and pallets of goods in January 2005, Wal-Mart has installed 14,000 pieces of hardware, has run 230 miles of cable, and is live with more than 100 suppliers. RFID is installed in 104 Wal-Mart stores, 36 Sam's Clubs, and three distribution centres.

Quoting from Information Week, March 2005, Borg asked what would cause a US$260 billion organisation to get so excited over a single piece of technology.

While Wal-Mart has not made any public statements about the benefits it will receive through the adoption of RFID, many have speculated it to be in the $100s of millions, he said.

Quoting Wal-Mart CIO Linda Dillman, Borg said: “The message I want you to take away is, it's working. We aren't doing it as an exercise. From the manufacturer to the supplier to the customer, there is a benefit.”

Her advice is to start sooner than later and start small. Their team in the first year had five associates that made this happen at Wal-Mart; today it has nine. Recognize it's a journey, not a single step, she said.

Wal-Mart's RFID efforts to date have taught the retailer a lot about the technology.

“The data is critical, and suppliers are starting to use the data in different ways,” she said, citing benefits ranging from total supply-chain visibility, improved product in-stock rates, and protection against product counterfeiting.

So beyond the advantages of storing more data and having dynamic data, don’t limit your self to improving the accuracy or speed of current processes. Look for opportunities to reengineer the process, eliminate some steps, said Borg.

Over twenty years ago we talked about how the computer chip would revolutionize our world let alone our industry, and it’s certainly done that, he said.

“Just over 10 years ago we introduced mobile computing in the form of RF data terminals and changed the way we manage and operate within the supply chain. Now we have the ultimate in mobility where the flow of information and product have been married into one. I think it’s true to say we are just starting to understand the possibilities.”

Advances in Technology: Augmented Reality

Augmented Reality is a new form of interaction between humans and technology in which the user is given supplementary visual information, for example, via data-glasses.

With Augmented Reality, the user’s view is context sensitive and the display adjusts when the head moves.

“Dematic has been developing these technologies and is reviewing applications within the supply chain. Augmented Reality could offer the benefits of pick to light with far less cost,” he said.

“Effectively what we are seeing is the convergence of several technologies, to create a new device that provides the operator with information in the most appropriate form. Having the right information at the right time, in a form that allows you to make decisions gives you the opportunity to manage your costs and service levels. Real time information allows you to do that better than your competition.”

Advances in Technology: Simulation

So how do you know when you have the right solution?

Simulation is a powerful tool in the right hands but is very sensitive to the quality of the data used and the quality of the model. It still requires an experienced designer to make sure the data is right and the model sound, said Borg.

“3D images are only a minor part of what this technology can provide. Sure you can get a good view of the system, but this can be done in more detail with far more appropriate tools. You can also get a good view of bottlenecks but you don’t see the solution. The true benefit of simulation is the hard information you get out of it.”

He added: “Many people are concerned that automated solutions do not seem to offer them the flexibility they need. In some cases this concern is warranted, but many times we have seen technology applied inappropriately and most often people do not take the time to test the chosen concept against possible future scenarios.

“It is the time spent testing the solution that allows you to build in flexibility. In many cases you need only make a minor modification during the design stage at virtually no cost that may save you millions down the track.”

As computer power increases simulation is transforming from a validation tool to a testing tool, allowing us to test scenarios not possible without the real system running, he said.

The next step for simulation is for it to be used as a decision support tool when managing a business, added Borg.

“By forecasting the days orders decisions can be made and outcomes evaluated. This technology may also be used for training and evaluation of new warehouse managers or supervisors much like a flight simulator.”

In summing up, Borg said change is inevitable. How you react and deal with that change is how you create opportunities for the future.

He encouraged the delegates to take the time and research what the future holds for their business.

“Find a way to take time out of working in the business and work on it. The rewards you reap will be pay dividends now and into the future,” he concluded.