Tag Archives: supply chains

Why Amazon is buying Whole Foods

A great article by DEREK THOMPSON

It is right on target about the reasons– they are supply chain reasons.  Amazon covets the urban locations to speed up deliveries; but it would be fantastically complex to procure and engineer these one at a time.  With the Whole Foods locations, they now have drop-off points for overnight delivery, and mini-warehouses for food items, especially those that need ‘fresh’ or ‘frozen’ treatment. $14 billion is cheap in terms of accessibility to a population, say within a circle of a given radius.

Perhaps we should rate warehouses and depots by a distribution of the number of customers in a unit of area.

  The retailer’s $14 billion bet isn’t just about the future of food. It’s about becoming the one-stop shop for your entire life.

Source: Why Amazon Bought Whole Foods – The Atlantic

Does Lean Leveling Reduce Shipment Variability? 

A nice piece of research on another approach to reducing the economic impact of imbalances between supply and demand in retail. The approach is a two-phase ordering policy. The ‘steady’ phase places EOQ-like regular orders to cover some base level of demand. The ‘balancing’ phase (my terms) orders extra in some periods, perhaps in a more expedited fashion, to handle the peaks and valleys of actual demand.  It amounts to decomposing the demand stream into a steady part and a peak-and valley part, and matching the supply technique to the portion of demand in each ‘frequency’.

The expectation is that problems of promotions, outlet overstocks and shortages, and massive inventory-building on the part of consumers will be addressed at lower cost.  The simulations seem to tell the students that the effect on cost will be positive!

It’s a unique approach, executed for a real business, and therefore rates a careful look. I hope it shows up in a published paper with a heuristic for deciding how to partition the demand forecast.

Article from Supply Chain Management Review

Here’s the article in SCMR where the news was posted.

  Supply chain professionals are often confronted with the challenge of managing highly volatile customer shipments resulting from the bullwhip effect. This volatility leads to supply chain-wide inefficiencies, high operational complexity, low service levels and substantial costs.

Source: Does Lean Leveling Reduce Shipment Variability? – Article from Supply Chain Management Review

Physical Internet Initiative

 

The Physical Internet initiative, started in 2013, is active in 5 European countries.  Here’s a note about who is involved.

  They have a conference in Austria on July 4-6 of this year. http://www.pi.events/

A standard like this could radically change the ocean container shipping business. It would affect landside operations as well.

Among other things it proposes a new form of smart shipping container called a pi-container, which would be able to interact with its contents  as well as with external systems to relay many facts about both the products states and the cargo position. The smart container would also be sized much smaller than a standard ocean shipping container, to support smaller package transport better, and to allow greater unitization and simpler and more automated transloading capability.

But ocean carriers have the largest upfront investment in their standardized container specs, since they must be designed into ships.  It would be very disruptive to have to replace all the current ships, so the path to adoption is clearly long, but the push is coming in some form. The same goes to some extent for air, rail  and truck, but since they often handle smaller product unit sizes anyway and the capital equipment is less costly (except in the case of air, which uses smaller custom containers anyway, and do not match the remaining standards). In the case of air, cargo is frequently carried in passenger planes so the cost is covered by the people not the cargo.  And a lot of air freight is package transport anyway since small size and high value are prerequisites for the much more costly air freight.

I think attention needs to be paid to the economics of migrating to the standard.  In the case of the shipping container the economics drove the transformation.  Economics must drive progress on a new model for transport as well.

Source: Physical Internet: simulation | TRACE

There are some real heavyweights involved in the initiative. Their website is below. It is intended as an open standard, that would encourage all carriers and shippers to use the ideas to simplify cooperation and handling of products during shipment, as well as increase visibility to the discrete product level and allow finer sensing of the many quality dimensions products of varying sorts need during shipment and delivery.

  physical internet initiative

Source: Physical Internet Initiative

Their publications are listed in a tab on their site.

Like most standards groups, we don’t know nor can we predict whether this standard will take hold. It has some big retail and grocery backers, but that is no guarantee.

There aren’t any after 2013, which raises the question whether this initiative is now defunct.