Carl Lewis: Welcome to the Connected Enterprise podcast. I’m Carl Lewis, your host from Vision33, and my guest is Ian Hobkirk. Ian is the CEO of Commonwealth Supply Chain Advisors. Ian, welcome to the podcast.
Ian Hobkirk: Thanks, Carl. It’s good to be here.
Carl Lewis: Please tell us about yourself, the company, and how things have been going.
Ian Hobkirk: I've been in supply chain consulting for 27 years, and I started Commonwealth Supply Chain Advisors in 2009. We're a pure supply chain consulting firm – we don't sell any technology solutions, so we're an independent objective advisor to our customers. In 11 years, we’ve done 300 projects for 200 companies all over the world. It’s been a busy decade.
Carl Lewis: Sounds like it. With your work and the world’s situation, I'm sure you have many things to tell our listeners. Which automation trends do you see in the industries you work with? Especially things they're talking about versus doing.
Ian Hobkirk: Several things in the last five years have resulted in distribution automation innovation. There was a decade or so without new stuff – just new coats of paint on old technologies. But over the last five years, there's been innovation. Autonomous mobile robots, for one. Some interesting automated storage and retrieval systems. Many new designs of different technology providers that work differently. There's been a lot of buzz about these things. At least, there was until the COVID pandemic broke out.
The conversation since then has focused heavily on ecommerce. That’s one of the big effects of the pandemic – an accelerated shift toward ecommerce. Well, we've seen that shift for 20 years, but with retail stores, malls, etc. closed, consumers have been forced to shop online. I can't tell you how many discussions I've had with distributors saying they've never seen ecommerce levels so high. Higher than Black Friday and anything in Q4 during the holidays. It's come at the price of other sales channels, though, like retail and wholesale, which have zero sales. Companies need to do ecommerce efficiently, which means focusing on automation solutions that can address ecommerce.
Carl Lewis: So, some companies suddenly found ecommerce necessary. Other companies discovered they needed to do ecommerce differently but weren't organized for that and had to make significant adjustments.
Ian Hobkirk: Yes. There are two groups of companies. The larger group is the companies that were doing some ecommerce, but not efficiently – it was only a small percentage of their revenue. They hadn’t put time or effort into automating it. Now, it's hard to ignore the need for that. There's a higher labor content in fulfilling ecommerce orders over traditional retail and wholesale orders. If you can’t do it efficiently with better processes and automation, you won’t be profitable. There's too much labor that goes into those orders. That's something we're seeing specifically with the COVID pandemic because there was such a varying response between states throughout the US.
The other group is companies with multiple distribution centers in multiple states, with only one that does ecommerce. Those companies had real scares. Some have ecommerce distribution centers in the restrictive states that considered clamping down on everything and closing distribution centers. There were scary moments for those companies because they may have had retail and wholesale DCs in other states that could remain open, but their only ecommerce DC was threatened.
Companies are now interested in flexible omnichannel distribution centers that do many types of orders. Then, in an emergency like a public health crisis, any of them can efficiently ship ecommerce orders. That's essential. But it begs the question for companies with distribution centers set up for retail or wholesale: How do they convert them to be ecommerce friendly? When they've already invested in automation that seems inflexible, how do you adapt to also service ecommerce?
Carl Lewis: That's interesting about distribution centers being trapped in states that weren't friendly to their need to move stuff or do what they needed. Have you also seen activity regarding warehouse management systems in general? Companies that were on the fence about something they needed to do with WMS taking the leap because they couldn’t wait any longer?
Ian Hobkirk: Definitely. Certain industries, like food and beverage distribution, are frustrating right now. Consumers are purchasing differently – they aren’t buying from restaurants; they're buying from grocery stores and cooking at home. That's created a tremendous amount of demand on the grocery supermarket supply chains and their upstream suppliers. Many companies are dealing with increased volumes they've never dealt with. And the food and beverage industry is more complex than others. It's highly regulated. You have traceability issues, lot control, first in first out rotation, etc.
There’s a greater need for more information about the food. It’s not enough to know, “I have an apple.” It's difficult to track everything without good warehouse management software. Companies feel increased pressure to upgrade their role systems, improve efficiencies, plug the gaps, and meet these new surface levels.
Carl Lewis: Yeah. And transportation seems to have been challenged. Do you see a connection? Because as you said, they seem to have had a good system for distributing to restaurants, but they're struggling to fill grocery stores. We're not necessarily consuming more or less than before.
Ian Hobkirk: Right.
Carl Lewis: Adjusting transportation systems to do it differently seems like an ongoing puzzle we can’t solve. Do you have any insight on that?
Ian Hobkirk: Companies feel more pressure on the transportation side, especially in food and beverage production and distribution. Many serve two channels: restaurants and grocery stores. They've seen a huge decline in one channel and a lift in the other, and every company addresses those issues differently with their wholesale distributors with private fleets. Maybe they only go to restaurants and make big call-offs, small deliveries, or multiple stops per truck. And they have to increase their grocery store deliveries, which tend to be larger shipments on a less frequent basis. That's hard. You can’t adapt a private fleet that's used to making small runs to restaurants to do grocery stores overnight. They may be leaning on common carriers more heavily to do that.
So yes, it has created challenges, and the nature of those challenges is variable depending on the type of company. Who did they sell to before, and who do they sell to now?
Carl Lewis: That's interesting. Some companies were used to shipping via their ecommerce stores and things like that. Shipping, say, pallets, who needs to come through shipping onesies, twosies. And some companies were used to shipping onesies and twosies or restaurants that now must ship pallets.
Ian Hobkirk: Yeah. That's a dichotomy there. As you said, there’s no reason to think the overall consumption has changed. What’s changed is how it's consumed and how demand is flowing through the supply chain channels. To the layman, it may not seem like a big shift for the operator distribution center or transportation, but it’s different. How you sell and deliver things to restaurants differs from selling and delivering things to grocery stores.
Carl Lewis: Absolutely. And when those companies implement new technologies, what challenges do they face?
Ian Hobkirk: There's a long wait for highly automated systems. Unfortunately, that was true even before COVID because there’s a tremendous demand for automation just because of normal trends in rising labor costs. The problem many companies ran into over the last couple of years is that they might go through a busy Q4 period. Maybe their ecommerce levels were higher at Christmas. They think, “We have to do something. We can't go through this again next season.” But if the solution involves automation, it's probably already too late – even a year out – to get a new system ready for the next Q4.
It takes a while to design a source and implement a system – probably 18 months, depending on the level of automation. That's a challenge. What companies must do to address that is, one, plan early. There's no time like the present. It will take longer than you think. Two, be open to a variety of solutions because automation isn't the answer to everything. It might be the answer in 18 to 24 months, but there are interim steps you can take between now and then. Things like changing your pick methodology might not require automation initially, and you can save a lot of labor.
Other technologies with medium levels of automation don't have the lead times or capital expense associated with, for example, putting in a conveyor-based picking system or an automated storage and retrieval system. One interesting project involves adapting automated sortation systems to handle ecommerce orders more effectively. Many companies that service a retail and wholesale channel invest in automation that involves mixed orders. For example, in apparel. They ship to 200 stores, so they pack pallets of shirts for 200 stores. And then use a system to take those pallets of shirts and sort them into individual store orders. That's an efficient way to handle retail and wholesale orders, but it’s not highly effective for ecommerce.
Those sorters aren't designed to sort 10,000 individual ecommerce orders a day. They're not big enough to do that. So, companies are adding technology like put systems, put walls, automated put technology, etc. They can sort, for example, 20 ecommerce orders to the same container on that sorter. And then you've got to do a secondary sort to split that into 20 individual orders. The put walls and automated put systems are a great way to do that. Because they can adapt it and make it more flexible to also handle ecommerce. That's a big change people are making.
Carl Lewis: That's interesting. Your company gets involved in the design process for companies that want to put in automated systems, but inevitably those companies work with third-party organizations like Vision33 – actual implementation companies. What advice do you give customers so they can have successful relationships with those implementers?
Ian Hobkirk: One thing is to make sure everyone has the same definition of success at the end of the budget. Some companies that sell technologies say, “If we've tested the system in a silo and all the individual functionalities work, my definition of success is ‘There are no bugs, so turn it on.’ Then they walk away and send the bill.
The company that operates or owns the distribution center doesn’t care much for that definition of success. Their definition of success is, “Can I get enough orders out the door on time? Can I reduce my labor costs? I've made a big investment in technology; can I run my operation at a lower overall cost for a return on that investment?” It's critical for all parties to define success. For example, we're picking at X rate, but we want to pick at Y rate within a month of go-live. Everyone needs to think about the big picture and work toward the goal of making the operation better – not just throwing a switch and turning on a piece of equipment.
Carl Lewis: That's good advice. But let’s weigh in on a more personal note. Over the last few months, how has business communication been going, and have you been part of any changes?
Ian Hobkirk: Many of our folks worked from home already. We're a geographically decentralized company. So, that hasn't been different, except maybe we’re not used to so many distractions. The biggest change is doing more video conferencing. Before, we’d just use audio for conference calls, but now we send clients a link to potentially do a video call. It’s their choice.
We wanted to see how many were comfortable with that. And it's surprising how many choose a video call – at least half. And we turn ours on. This technology has been around forever, but it was slow to gain adoption. Six months ago, the idea of working from home, turning a camera on, and letting people see even a nice corner of your home was foreign. It felt a little intrusive, and we had to get comfortable with that quickly.
Some barriers have come down, and it's more natural for people to click that button now. They want to see people face to face. It builds rapport with clients and makes communication easier. I'm happy about that; I think it's a positive change. I hope after we recover from COVID, there will be less unnecessary business travel. People should ask, “Do I want to spend all that money for a consultant to present in person when we could just do a video call?” I hope some shifts will be positive. It'll reduce costs and improve quality of life for a lot of people.
Carl Lewis: Yeah. There's going to be an adjustment where that becomes more of the norm, I agree. But there will be some of us old-timers who still want to travel.
Ian Hobkirk: Not me.
Carl Lewis: Yeah. I like face to face a lot. I'm eager to see what it'll be like in the next normal.
Ian Hobkirk: Exactly.
Carl Lewis: Well, Ian, thank you very much. You’ve offered great insight into what's happening in the distribution world. Thanks for joining us. And to our listeners out there, please stay connected.