Supply Chains in Action

A Case Study Collection in Supply Chain, Logistics, Procurement and Operations Management

Richard Wilding

• Publisher: Kogan Page
• Year: 2019
• ISBN:
  9780749483715
• Edition: 1
• Topic: Business
• Subtopic: Operazioni
• Index: Business

Volume 2 of Logistics, Supply Chain and Procurement Case Study Collection contains new case studies tackling Supply Chain and Procurement issues, aiming to provide solutions affecting a range of different businesses. Comprehensive in scope and scrupulous in detail, this collection includes actual events experienced by businesses of every size, from SMB's to some of the most successful corporations in manufacturing, transportation, maritime and other industries. Readers will discover proven tactics and innovative solutions for handling uncertainties, solving problems and circumventing risk, plus a wealth of information to guide strategy and decision making. Readers involved in logistics and supply chain management will find the Logistics, Supply Chain and Procurement Case Study Collection full of: immediate application of strategies and tactics to situations and challenges; valuable tools for testing management proficiency in crisis mitigation and resolution; independent learning modules and professional training programmes; expanded question-and-answer sections designed to measure knowledge transfer and lessons learned; engaging, topical situations highly relevant to the fields of logistics, supply chain management and operations. Students and prospective managers will learn crucial skills to meet current challenges, qualify for professional advancement and achieve success.

Innovation and competition in last-mile delivery

Action insight 1

EMEL AKTAS AND RICHARD WILDING

Increasing urbanization

The world’s population is moving from rural areas to urban areas, with shifts from an agricultural economy to mass industry and services. According to the World Bank, currently 55 per cent of the world’s population of 7.53 billion live in cities (https://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS). The proportion of population living in cities is 84 per cent for Oman, a country of 4.6 million people, comparable to the urbanization level of 83 per cent for the UK with a population of 66 million. Urbanization is a prominent phenomenon not only for Europe but also for the Middle East.

Cities generate jobs and income, and provide healthcare, education, financial and other services, enabling social mobility and resolution of the social and environmental problems that may exist in rural areas. With preferable working and living conditions we expect the cities to grow further, necessitating not only investment in housing, infrastructure and services but also smarter ways of meeting the increasingly diverging needs of city-dwellers.

Burgeoning e-commerce and the subsequent last-mile problem

The prevalence of the internet in consumers’ lives has encouraged online shopping, with cascading effects in subsequent fulfilment of their orders. The convenience of ordering products in the comfort of one’s home or office has led to a rapid increase not only in the number of people preferring online over bricks-and-mortar shops but also in the amount they spend on online shopping. Common products and services purchased online include books, fashion items, and hotel and flight bookings, as well as groceries.

For physical items such as books, clothes or groceries, the order is fulfilled by what we call last-mile delivery: the last lap in the journey of products from a business to a consumer, the destination being either the consumer’s home or a collection point. Retailers have different fulfilment models for last-mile delivery: stores, dark stores, distribution centres, dedicated online fulfilment centres. The delivery distance to be covered by the retailers is analysed in two parts: 1) stem distance, which is the distance to and from a delivery zone (stem mile), and 2) drop distance, which is the distance travelled once a drop or delivery zone is reached (the last mile). The drop distance remains the same irrespective of the distance from the supplier’s picking location, but the stem distance varies depending on the location of the facility where the items are picked. According to research by Business Insider, the cost of last-mile delivery accounts for the highest proportion of transportation costs at 53 per cent (http://uk.businessinsider.com/last-mile-delivery-shipping-explained).

New business models and technologies

Pressured by the economics of last-mile delivery, the industry is looking for alternative solutions. For example, in a recently completed research project, U-TURN, which was funded by EU Horizon 2020, the research team at Cranfield University investigated the idea of establishing micro-hubs with a service radius of 2km near residential areas (http://www.u-turn-project.eu). They identified distance reductions if retailers were to share this micro-hub facility and last-mile delivery were to be fulfilled from this micro-hub. The distance reductions owing to shared logistics ranged from 5 to 12 per cent, depending on the geography and the drop density. Another new business model is crowd-sourcing, where the delivery operation is fulfilled by agents acting as drivers – a concept that has emerged with the on-demand economy, accommodating the peaks in the network with flexible supply.

In terms of technologies to improve last-mile logistics, replacing current van fleets with electric vans and complementing the operation with cargo bikes, using drones, especially in remote areas, and fulfilling last-mile delivery with autonomous ground vehicles are at the top of the agenda. Electric cargo bikes are already in use in several countries (the UK, Germany, Netherlands), with advantages such as their ability to bypass traffic congestion and make more stops than a traditional van. Moreover, the total cost of ownership over their lifetime is less than half the cost of owning a van.

Drones, electric or hybrid-electric vehicles with four or more rotors, can move cargo from one point to another through the air. They can be remotely piloted or fly autonomously. A drone can carry parcels up to 15kg and are expected to break new ground in deliveries of low-weight but high-value items such as medicines. They are cost-competitive, especially in rural areas, at about 10 per cent above the cost of today’s delivery model, with faster and more flexible operation.

A self-driving vehicle made for local goods transportation no longer seems too futuristic. To stop people making car trips to run errands, this new technology is expected to deliver goods to consumers sometimes even faster and cheaper than going to the store themselves. Consumers can place same-day delivery orders on the web or through a mobile app, and receive their orders at home, cancelling out at least one car trip to the store and thereby reducing congestion.

Outlook

The need for new business models to cope with increased traffic and negative environmental and social impact in urban environments could be addressed by zero-emission and connected delivery vehicles such as cargo bikes, drones and autonomous delivery robots. Several successful applications of these technologies and new business models already exist, as discussed above. What will be needed for the future is to identify which of these technologies are most compatible with the needs of specific cities, so that economic costs are not prohibitive, environmental implications are acceptable and social acceptance is achievable.

Discussion points

1. Which of these knowledge insights are applicable to you?
2. Which learnings from the past discussed in this action insight have future implications?
3. What action could be taken from utilizing this knowledge by you personally or by an organization?

The KFC crisis – a lesson in relational risk management?

Action insight 2

RICHARD WILDING

Problems like those experienced by KFC and its chicken supply in 2018 don’t just happen because of a sudden mistake, accident or change in circumstances. There’s usually something lurking in the history of a new supplier arrangement where the first, tiny cracks appeared.

KFC’s contract with its new supply chain partners was announced in October 2017, but it’s the 12-month period of procurement before that announcement that needs to be the focus when trying to understand what followed, the now-famous ‘crisis’. My experience in supply chain risk has shown that disruptions of this nature don’t happen magically and instantaneously; decisions made in the early stages of the transition can have a significant impact on the risk profile of the future supply chain and the severity of a potential disruption.

The transition between two models always means a very high-risk period, with some level of disruption. An organization needs to test every single assumption being made in the new model and put in place contingency plans for any assumption that includes any degree of potential wobble.

Of the key components of a supply chain strategy – processes, infrastructure, information systems – it’s the people element that doesn’t get the necessary attention. Organizations reviewing their supply chains and partners need to think in terms of the ISO 44001 standards for managing collaborative relationships. These take businesses through the different stages of collaborations and, critically in this context, what needs to be looked at in a separation so that both parties can ‘remain whole’ following the split. It’s important for managing the relationship with the existing or former partner and has implications for the future partner. The instigator of the separation needs to take responsibility for ensuring there is due diligence in checking all aspects of the new model and how it works, involving all new stakeholders and partners in the process. That means detailed stakeholder mapping and analysis. Who are all those stakeholders, maybe not directly involved but still part of the supply chain network, who might be called on to provide shared services? What kinds of relationship are there and what condition are they in? What levels of goodwill and commitment will be needed from them? After all, in a world where competition is between supply chains, not individual companies, relationships are critical; a sick relationship can become a major source of risk, and supply chain management is all about the management of relationships with all stakeholders to create value for the end customer and reduce cost for the supply chain as a whole. Often proactive management of relationships is found to be lacking. Do we have metrics and processes in place to manage relationships? As larger elements of supply chain control are outsourced, the detailed knowledge of the everyday mechanics is held by the incumbent and needs to be passed on. There may be a gap between the specification and reality.

There needs to be sensible attention to value, making a real assessment of it, in order to provide a balance between cost and value. Overemphasizing either the cost or the value aspect can be dangerous in terms of increasing risks. If you overemphasize value, you can destroy shareholder value by overserving the customer. Would the average consumer notice the difference or perceived quality in ‘just in time’ chicken? But, at the same time, this approach does reduce inventory and therefore lowers cost. Sadly, many purchasers of supply chain services overemphasize cost, but there is little consideration of the true cost-to-serve, and service costs money.

Positives have already come from the situation, even before we have more of a KFC case study for businesses to learn from; one of them is that the spell cast over consumers about how supply chains actually work has been broken. They’re less likely to be thinking in terms of a fleet of KFC trucks and KFC drivers receiving orders from KFC stores. Another positive is how KFC have demonstrated the new reality of modern business: that it’s not a matter of competition between individual firms anymore but between whole supply chains. KFC, like so many other major brands, is dependent on the quality of its collaborations.

Discussion points

1. Which of these knowledge insights are applicable to you?
2. Which learnings from the past discussed in this action insight have future implications?
3. What action could be taken from utilizing this knowledge by you personally or by an organization?