Although it is expected that within a few years one in three trucks produced by Navistar will run on natural gas, getting rid of diesel will be a long hard road for manufacturers of alternative fuel vehicles. But what I find interesting is what’s happening off-road. Makers of big forklifts like Hyster are developing vehicles that are so stingy with fuel that these manufacturers hope to attract the attention of the ports and businesses sprouting up on the east coast to take advantage of the Panama Canal expansion. Jonathan Dawley, president of Hyster Distribution, told me he hopes these ports will step back from their heavy reliance on cranes and take a second look at forklifts. This is where innovations like the variable displacement pump can make a huge difference in fuel consumption. Dawley said this pump simplifies and reduces the flow of the hydraulic system so fluid is used on demand.

“That reduces the wear on the hydraulic system but more importantly reduces the power required to run the truck,” he explained. “That helps support a fuel efficiency savings in our jumbo trucks. We can save up to eight tanker trucks of fuel in a given year on one jumbo truck.”

He added that that feature is making its way down into the smaller trucks and that his company plans to send that message to distributors planning to spread their presence into the east coast port infrastructure.

For example, Walmart is looking at building more boutique type store environments as opposed to big boxes. That means less overhead to run these stores and sending smaller shipments of on-demand product to fill their orders on a day-to-day basis. This is changing distribution strategies, including modal choices and warehouse placement. It’s also changing lift truck usage patterns, according to Dawley.

“It isn’t what they’re doing with lift trucks as much as where they’re putting them in port applications as dock-to-stock takes hold—right from the ship and moving it out to these smaller distribution points,” he said.

To take advantage of those changes, lift truck manufacturers will have to make some strategic changes themselves.

“Where you may have had eight folks focused on jumbo trucks or IC engine trucks in a break bulk operation at a port you now have to send somebody in that can sell warehousing and distribution style equipment in that same territory,” he said. “It’s a totally different makeup of the customer base that’s been there for the past 80 years.”

As the lift truck population on the east coast expands with the logistics infrastructure, it will be interesting to watch how the natural gas fueling infrastructure develops to meet that demand.

Related Editorial:

Import/Export Records Set in First Quarter 2012

Environmentalists Pledging to Halt Dredging

Ports Driving Real Estate Values

New Logistics Hub Under Development in Florida

He said that even if the work you’re entrusting to a 3PL is no longer your core competency, engagement in their work has to be. He suggested that new 3PL clients walk the workplace with their contacts from the service provider—especially if they’re not getting the results they expected.

“We engaged with a third party and weren’t seeing the turnaround we expected,” he said. “So we started walking the building together with a specific audit list of operational health indicators. This way you’re looking at the same things through the same lens. Things like inbound quality, stock location accuracy and order accuracy are a few examples. When you both look at it at the same time and you see inefficiencies it’s easier to identify areas for improvement.”

It’s fine to trust the 3PL you hire, but many service provider/client relationships have been busted up by misunderstandings. That’s why lawyers and sales people consistently rank pretty low on Gallup’s annual list of most trusted professionals. The financial crisis in recent years accentuated that distrust. So in the world of logistics it’s heartening to see third-party logistics professionals getting a little more respect from their customers.

That was evident at WERC and it was borne out in the results of an Outsourcing Strategy survey conducted recently by Eyefortransport, a provider of business intelligence for supply chain professionals. Turns out the shippers this organization surveyed had a higher regard for 3PLs than those surveyed the year before. More shippers rated their 3PL’s performance as outstanding and higher than expected in the current survey than the last one. The majority also indicated their use of 3PLs would very likely or likely increase in the coming year, whereas in the last survey many more indicated it was unlikely that they’d increase their use of 3PLs.

What was more interesting, though, was the divide that still remains. In the survey, shippers and 3PLs were asked to identify what shippers are looking for when choosing a 3PL. 3PLs believed shippers always looked for lowest price, while shippers said quality service was most important. The irony of that divide is, as long as both sides hold those beliefs neither side will be happy.

3PLs that believe their customers are price driven will probably skimp on service—depriving their customers of what they want most from them.

Jim Kruza, director of distribution projects for St. Onge Consulting addressed that divide on the same WERC panel with Starbucks’ Honsberger. In fact he offered a bit of a different spin on what was reported in the Eyefortransport survey. He tends to side with the 3PLs who believe the number one criterion shippers use when selecting a 3PL is cost. However, he added that the number one reason for getting rid of a 3PL is service. That’s why the most important part of such a relationship is the time spent up-front in working out service expectations. That should be done in-person, he told the WERC attendees.

He advises potential 3PL clients to start the qualification step by bidding up to six 3PLs. Once you get a qualified list comes the request for proposal phase. Even if you have a preferred supplier, you generally get the best pricing from that supplier in a competitive situation, he said.

“To make sure communication is consistent with all the providers, put them all in a room together, give them the opportunity to ask questions about the RFP and give a common answer to all of them,” Kruza advised. “Also see the sites of the providers who have similar applications to what they’re proposing for what your needs are.”

In other words, they may do a great job on pallet in and out applications, but maybe your applications require each-picking. Seeing their successful applications and meeting and understanding their leadership teams is vital to establishing common ground.

“You need to interview that person like you’re going to put them into your own organization,” he added. “If you’re not comfortable with them the relationship won’t work long-term.”

Once you’ve narrowed the candidates down to two finalists who best meet your criteria, keep them engaged all the way through the negotiation stage to get as many contract elements agreed to and in place before dismissing that final candidate.

“Things can happen during the contracting phase and if you dismiss everybody too quickly you lose a lot of your negotiation leverage,” Kruza concluded.

The Eyefortransport study identified building trust-based relationships as a “new opportunity” for clients and their 3PLs. Logistics professionals like Honsberger and Kruza are linking their careers to that opportunity. If logistics goes away there’s always the marriage counseling business.

Related Editorial:

Service You Should and Shouldn’t Expect

How Warehousing will Cope with 2012

Let Your Pigs Lead the Way to Lean

Scrooge’s Partner Was Right: “Mankind is My Business.”

The article states that Macy’s is relying on technology that dynamically updates the status of every item in every store, however it also acknowledges that filling orders by hand is inefficient compared with Amazon’s use of Kiva robotic technology in its distribution centers.

The day after reading this article I had a phone conversation with Bill Leber, business development manager for Swisslog’s warehouse and distribution solutions. I mentioned the article to him, and although he hadn’t yet read it, he said that his company had recommended to retailers a similar approach to online order fulfillment from stores a while back, using Swisslog’s own high-density automated storage and retrieval systems. He met resistance.

“We told them you can store much more in there, and if you run out of a product, you can go back and get it instantly instead of having to resupply and be out for a few days,” Leber told me. “We heard, ‘No, we don’t want to do that, we want to minimize inventory in the back of the store, that’s the most expensive place to store products.’ They believed if you put too much in a store you’re inefficient because you triple-handle it by shipping it to the store, then shipping it back to the DC and having the DC ship it to a different store.”

Since then, with the recent announcement that Amazon was purchasing Kiva and its robotic order retrieval technology, the buzz was that Amazon’s competitors might back away from robotic order fulfillment rather than purchase it from Amazon. Swisslog identified this as an opportunity to offer its automated e-commerce fulfillment solution, which incorporates autonomous robots for high speed goods-to-person order fulfillment. Leber says his team has been busy reintroducing its store-level fulfillment concept amidst the retailers’ warehouse wars. Part of their strategy was to calculate the cost of manual order fulfillment in internet retail.

“With online shopping the consumer clicks and orders a product, but somebody still does what you did in the old days to fulfill those orders,” Leber continued. “Somebody gets a cart with totes on it, and they go shopping in the warehouse with a pick list. From that we calculated industry’s cost last year for the manual pick and pack process. From shelf to shipping dock it was around $6.8 billion, and probably 65% of those costs could be attributed to labor.”

The Amazon/Kiva merger was groundbreaking news when it came out a little while back. Analysts didn’t know what to make of that huge $775 million price tag, and many thought it was way over the top for a material handling company. But now that Amazon’s competitors are recalculating the case for automation, the retailers’ warehouse wars are bound to make more headlines pretty soon.

Related Editorial:

Amazon to Acquire Kiva Systems for $775 Million

Keeping Up with the E-Giants

Tech Companies Have Supply Chain On Their Minds

MH&L’s Innovators of 2011 Putting Excellence Within Reach

Burns is president and COO of ExOne Digital Part Materialization, based in Irwin, Pa., and he calls his disruptive concept “additive manufacturing.” You may be more familiar with its other name, 3D printing. Just as a text printer lays down ink to form letters on paper, 3D printing creates objects from engineering design files. The technology creates the objects by printing them layer by layer. Instead of ink it uses sand, metal or glass as its raw material. After a layer’s particles are bound by heat or chemicals the next layer is added and the binding process is repeated until the object is completed.

According to the press materials Burns gave us, this process enables the creation of design geometries not previously possible with traditional subtractive processes. It’s clear he wants CEOs to start thinking about making their products using a process whose supply chain depends more on the electronic transport of computer-aided design (CAD) files than on the physical transport of material. That blows up traditional ideas of manufacturing and therefore, C-level executives have not been paying much attention.

“I have no problem with affirmative rejection, but I have a big problem with benign neglect,” Burns told me during our visit the other day. “If someone says I’ve looked at you and I don’t want to use you, that’s fine. But what I hate is the fact that in lots of organizations additive manufacturing could really help the people with enough authority to make it work, and they haven’t thought much about it yet.”

In looking deeper into his press kit, I saw a way he might be able to get a little more traction. As I read through page after page, manufacturing is mentioned dozens of times, but the words “logistics” or “supply chain” don’t appear once. As I introduced these words into our interview, Burns was eloquent about how he sees this technology changing traditional logistics, using what happens in metal casting as an example.

“In the casting world people use wooden patterns to make a casting,” he explained. “You can store under roof a million square feet of patterns. Another company could have the same pattern storage on a thumb drive. Manufacturing factories are fundamentally wasteful, although we’ve optimized them. When I take a block of something and whittle a small part out of it, I’ve used energy, coolant and chips of material. When I print the same part, any loose powder I didn’t use to make it I can reuse. So I never use more material than the amount I need for the object I make. And I’m doing it locally so you don’t have to worry about getting it from point A to B.”

Why not say that in his press kit? Logistics costs are keeping more executives awake at night than traditional manufacturing. Even Burns admits that the systems that support traditional manufacturing work very well—including material handling. They’re as optimal as we can get. What will get the CEO’s attention these days, it seems to me, is how to take waste out of their supply chain—wasted mileage, wasted fuel and wasted labor. Burns is confident his company’s business model will do just that.

“We receive designs electronically, they’re downloaded to our servers where we pre-process, and within 24 hours they’re produced and within 5-6 days those parts are in boxes and shipped to the people who designed them,” he explained. “Say it takes 12 weeks to manufacture something today and on the logistics side it’s two weeks. The two weeks compared to the 12 isn’t a huge deal. But what happens if the 12 weeks became three days? Then the two weeks becomes onerous. It’s almost mandated that to get the value out of this you have to do it in much more a localized fashion than most manufacturing is done today.”

This would give more manufacturers an excuse to near-shore. Today millions of parts and small assemblies get shipped around the world based on transportation choices made to get a better return for share holders. Since the fundamental approach in 3D manufacturing means that complex and simple things can cost exactly the same and you can eliminate the labor rate advantages of outsourcing to developing countries, why not share that vision with CEOs?

Maybe he’ll be able to do so by winning over their logistics and supply chain advisors first. I told Burns I’d run the idea by you and see what you think. Let me know what your CEO says once you’ve pitched this notion of disrupting your company’s standard operating procedures. If he or she ignores the idea of printing products, maybe you’ll get more attention with the concept of printing money instead.

Related Editorial:

Supply Chain Managers Get Physical with the Internet

Contingency Planning: Ten Good Ways to Keep a Supply Chain from Going Bad

Five Views of Logistics in 2050

This theme came up repeatedly during the education sessions. For example, in a presentation on supply chain flexibility, the relationship between consumer electronics manufacturer Samsung and its 3PL service provider MIQ Logistics was analyzed. David Griffith, MIQ’s senior vice president of logistics, noted that his team sat shoulder to shoulder with Samsung’s people to understand their business activity. It’s not just a matter of product flows, but of talent chemistry.

“Whether we use permanent or contingent labor depends on the location,” he said. “We’ve become good students of Samsung’s supply chain. We’re good at mixing labor on the floor so it’s like a faucet—turning it on and off. We look at shift structure, mix of product touched and the mix of expertise needed to control it. We have to be careful about who we assign to handle sensitive products.”

Mike Rapske, Samsung’s director of operations, talked about how the manufacturer/retailer relationship has changed in recent times, noting that vendor compliance with many stores has become punitive. This translates to a zero tolerance for errors on his side. That has shaped his relationship with 3PLs.

“Our goal is to minimize returns by focusing on order preparation and shipping accuracy,” he said. “MIQ runs four DCs for us.”

While the success of that relationship was the focus of this presentation, Rapske made it clear that the length of contracts with its 3PLs varies—running from 18 months to four years.

“We renew quite often to keep the 3PLs hungry,” he said.

Although economic volatility has put a strain on business relationships in supply chains, it has also opened opportunities. That was the case for Random House, the famed book publisher. In her session addressing the theory of business constraints, Annette Danek-Akey, the company’s vice president of fulfillment, noted that the growing popularity of e-books has presented a threat for the professionals responsible for keeping the printed word alive in the publishing world. Danek-Akey said that her organization ships a million books a day, and the return rate is 30-35%. Nevertheless, she sees the bright side of e-books. Her supply chain is faster now, with smaller orders coming to the warehouse. Returns are shrinking. And with more capacity in her facility, her team can act as a 3PL, offering distribution services to other publishers while bringing in new revenue.

Another example of making lemonade from lemons was found in a session on customization. As vice president of operations at the Sports Licensed Division of Adidas, Joe Cripe is responsible for a half-billion-dollar branch of this $16 billion division. His organization stores, customizes and ships t-shirts and jerseys for sports organizations. The NFL was his biggest customer, representing half of his business. That business went to a competitor recently.

Cripe’s team discovered the bright side. For one thing, he doesn’t have to pay that 20% royalty the NFL demanded any more. Plus, just as Random House used its extra capacity to its advantage, Cripe’s organization found opportunity in serving other markets, like high schools and colleges. Quality is tied to getting the color and logo positioning just right. Five percent of what associates pick, print and pack is audited for quality.

Cripe said people adding value is the key to success in his business, even more than cost effectiveness and warehouse efficiency. After all, they keep an inventory of 15 million t-shirts at the ready to react to sporting news and events that can happen in a flash and cause sudden demand for team- or player-oriented shirts. Two staffers are responsible for staying on top of those trends in the news so they can react quickly. Such passionate talent is also required on the fulfillment side. This is a 24 x 7 operation that requires weekend work. That’s why he hires people who are sports fans.

“Everyone is geared toward service,” he said. “These people can understand why we do the things we do.”

Steve Szilagyi summed up the people aspects of business success during his lunch presentation. He’s senior vice president of distribution for Lowe’s Companies, and he outlined the success his company is enjoying through its outreach program. So far, 374 people with disabilities are employed in various Lowe’s distribution facilities. He made clear this isn’t charity work. It is the opportunity to tap talent and passion in people and to help them be successful—and therefore help his company’s business succeed. Szilagyi said that these employees rise to the challenge. He cited Robert as an example. He loads trucks. He’s also blind and deaf—yet he happens to be his team’s best communicator.

Having a positive attitude is a lightning rod for results, Szilagyi said. It boils down to doing the right thing, doing the best you can and treating others the way you want to be treated.

The golden rule sometimes gets lost in our developing culture of social media. So I’m glad there are still opportunities like the WERC conference for supply chain managers and officers to remind each other that being a person is job one.

Related Editorial:

Mild but Manageable Recession in 2013?

FHA Awards $2.5 Million to Promote Transportation Careers

Maybe Service is Rocket Science

Where Has All the Talent Gone?

You may have attended enough of these sessions to recognize this reference to the old breakfast-speaker joke about these animals’ contribution to the menu of bacon and eggs. The chickens may have been involved, but the pigs were committed. Billick said that he always wanted 30% of his force to be pigs—the ones who are committed to his cause. These are the gatekeepers who set the tone for the rest of the team. They also communicate the organization’s mission statement up and down the chain of command. And everyone is held accountable for delivering on the goals of that mission.

The best pigs are the ones that know how to walk that fine balance between the dangers of never doing as they are told and only doing as they are told.

This message was picked up later in the day in a session on the role of engineered standards and labor incentives in attaining performance goals. Pep Boys supplies all segments of the automotive aftermarket. It does $2 billion in sales a year, relying on five distribution centers to serve its retail and online customers. The company used to rely on team-based incentives to boost performance. However, benchmarks kept changing and employees questioned the credibility of the system—especially the pigs. Those are the workers who were 20% more productive than their “teammates.” Pep Boys realized they needed a simpler formula involving individual incentives.

Now people who do 44 hours of work in 40 hours get 80% of those extra four hours in bonus pay. People have to work at 20% above standard to qualify for incentive pay. As a result, Pep Boys’ Southern California DC is working at 22% above standard in terms of units per hour. The more recently implemented systems in Pep Boys’ New York DC is also 22% above standard while its Atlanta DC is working at 11% above standard. Stuart Rosenfeld, vice president of distribution and logistics, said that quality of outbound shipments in California is now at 99.8%–not quite at its goal of 99.9%.

The company is going beyond its units-per-hour targets with discrete standards supported by their cloud-based logistics management system (the ProTrack system from Tom Zosel Associates). This system is tied into Pep Boys’ Kronos time and attendance system at its California, New York and Atlanta sites. The company’s Indianapolis and Dallas facilities are next in line for implementation.

This is all part of a lean process initiative that entails value stream mapping. 73 best practice ideas came out of it. Pep Boys’ Atlanta associates didn’t realize how many non-value-adding steps they were taking in fulfillment. Receiving, putaway, picking, replenishment and loading are now standards-driven and savings are being mined from asset utilization. If an employee has difficulty meeting the standards a supervisor is sent out to observe. This helps identify reasons for changes in performance. In one case it was found that an employee was returning to work late after lunch and breaks.

As a result of helping employees stay on top of their performance metrics, Pep Boys’ chickens are more engaged in their jobs. The top performers? They’re the same pigs that drove performance in the old system.

It turns out that Pep Boys provided a better punch line at the end of this day of WERC sessions than Brian Billick did at the beginning. Actually it’s more ironic than funny that the pigs on Pep Boys’ Indianapolis and Dallas DC teams will continue the company’s drive to lean process improvement.

If your job is in logistics, ignoring politics right now would be a mistake. Amidst the potshots the warring factions are taking at each other, supply chain professionals across the country are likely to suffer some collateral damage from various regional battles over the environment. Two of those battles are taking place on opposite sides of the country.

On the West Coast, the U.S. District Court for the Eastern District of California stopped the California Air Resources Board (CARB) from enforcing the Low Carbon Fuel Standard (LCFS). But last week the Ninth Circuit Court granted CARB’s motion for a stay of the lower court’s injunction while it considers CARB’s appeal of the lower court’s decision.

That means CARB can resume enforcement of the LCFS standard, which CARB believes will reduce greenhouse gas emissions, and thus “drive the investment and innovation that creates new jobs and provides the next generation of clean fuels to all Californians,” CARB stated.

The International Warehouse Logistics Association (IWLA) believes such enforcement will do the opposite. In a newly released statement, IWLA calls this decision “an attack on the jobs of blue-collar Californians.” It cited the findings of an independent economic study: The Impact of the Low Carbon Fuel Standard and Cap and Trade Programs on California Retail Diesel Prices, conducted by Stonebridge Associates for the California Trucking Association.

The study states that CARB will raise “California-only” diesel fuel wholesale prices by an additional $2.22 per gallon. This translates to a retail diesel price increase of 50 percent: $6.69 per gallon of diesel by 2020.

While this is a cost California companies would bear, there are supply chain implications affecting a broader population of logistics professionals. IWLA surmises that $7 a gallon diesel fuel could shut down the supply chains surrounding the ports of Oakland, Long Beach and Los Angeles and restart a statewide recession.

“While CARB designs a ‘one-state’ diesel-fuel emission policy that drives our members out of California, ports outside the state are more than happy and willing to take the business away,” said Joel Anderson, IWLA president & CEO. “In essence, CARB’s message to shippers in the Pacific Rim is to bypass California ports and change course to Seattle and Canada—or plan to use the Panama Canal when it widens in 2014.”

And that takes us to the other side of the country, where a recent legal challenge to port expansion may prevent the U.S. Army Corps of Engineers (USACE) from dredging the Savannah River, which, in turn, would preclude the Port of Savannah from being able to accommodate the entry of Post-Panamax containerships that the Panama Canal expansion would allow.

According to Enan Stillman, an attorney with the law firm of Nelson Mullins Riley & Scarborough who specializes in logistics matters, the outcome of this case could spur similar legal challenges in federal and state courts across the East and West Coast port corridors that may delay or prevent federal and state agencies from dredging and deepening river channels.

So you, dear logistics professional, whether you like it or not, are smack dab in the middle of politics. That means decisions politicians and lawmakers hash out in the next few months will have a direct impact on your job. As tempting as the prospect of burying your head in the sand is right now, what these factions are doing above ground could determine if your business gets buried too. Exhume your head and let your representatives know what you think.

Related Editorial:

Harbor Maintenance Tax Could Jump from Ship to Land

Be Ready for the Panama Canal Expansion

A Platform worth Supporting

Making Sense of Power Sources

Food spoilage in global supply chains totals more than $35 billion a year, according to Forbes magazine. That news is hard to take considering all the people in this country who either can’t afford or don’t bother looking for nutritious, fresh food. Part of the problem is growers who can’t afford or don’t bother looking for answers as to why a lot of their products don’t make it to their destinations with much shelf life left in them.

Logistics technology is being developed to address this issue, but for it to be effective, logistics managers in the food chain need to appreciate its importance beyond the cost. It’s actually a matter of competitiveness.

I spoke with Peter Mehring about this issue recently in advance of the release of a new system that he says will give food producers and their retailer customers access to data that will help them make better decisions about how food travels in their chains. Mehring is director and CEO of Intelleflex, a company that provides a cellular reader (called the CMR-6100) and data services (called “Zest”) to help managers capture and share information about the condition and location of their products. By enabling location-based, time-stamped data to be available at various points along the chain, Mehring hopes there will be a change in mindset about technology, from monitoring for possible spoilage to improving the delivered freshness and quality of the product.

“Many see traceability as overhead, they don’t see any direct value to their company,” he told me. “Even the largest growers, you’d think they had some brand value to protect yet they think they do a good enough job of it anyway.”

That problem multiplies as supply chains go global.

“To supply the same products year round they have international farms under their direction,” he added. “The infrastructure at those locations isn’t up to what is available in the U.S., so even if they wanted to do traceability it’s very expensive because they have to update the pack houses in remote locations and they don’t see the value in doing that.”

He believes getting actionable knowledge of conditions in the food chain can actually help pay for the technology that enables it. The secret is in knowing how fresh product is at a certain point so that shelf life can be assessed. Freshness can’t be determined only at the field. It must be assessed along the journey to the consumer. Mehring says growers are often surprised by how much shrink they really suffer on that journey.

“They might have thought their internal shrink was 1-2% and now with this kind of visibility they’re really seeing it’s 7-8%,” he said. “Having that much extra product to deliver freshly pays for the whole system. Up to a third of fresh produce isn’t sold at full value because it’s expiring before they expect it to.”

These multi-protocol RFID readers incorporate a cellular modem and GPS capabilities, enabling machine-to-machine communication via global cellular networks. The information is time-stamped at each location and read into the tag on the palletload. By the time the tag gets to each delivery point it delivers the product’s traceability history. But again, the real value of visibility is being able to take action.

“If we can tell them before they put the product on a truck that they shouldn’t put it on a five-day trip but they could put it on a two-day trip or deliver it locally, that kind of information pays for itself in a single harvest season, just based on the increased post harvest yield they get,” he concluded.

Increasing yields to end spoilage would be a great next step for producers in the bountiful food chains of the United States. The next step after that needs to be finding innovative ways to collaborate with each other and with local food banks to help replenish the shelves of consumers struggling with yield issues of their own.

Related Editorial:

Technology Alliance Forged to Protect Cold Chain

Preserve Your Shelf Life

I spoke with Bill Torrens, director of sales and marketing for RMT Robotics, the other day, and he thinks the reason developing countries have a good crack at succeeding with automation where many in the U.S. have failed is that they have no entrenched systems standing in the way. There are some U.S. manufacturers trying to establish a global presence with logistics information systems but their warehouses and distribution centers are still mostly manual, although they are relying on islands of automation in their plants. Torrens told me he’s seen third-world competitors to those manufacturers who are positioning themselves for a game of leap-frog on the plant side.

“Go into these manufacturers in the third world and it’s like stepping into Oz,” he said. “You see German, American and Japanese manufacturing technology making parts and a zillion people pushing these parts around.”

U.S. manufacturing has been automated much longer than its third-world competitors but its warehousing is still just as manual, by and large. What needs to happen is better coordination of data and material flows between manufacturing and distribution. Torrens gives kudos to Kiva for its success in installing robotic goods-to-person systems in the DCs of many high-profile U.S. companies—most recently Amazon, which liked this flexible technology so much it bought Kiva. In a sense it was easier for Kiva to conquer the world of U.S. warehousing with its concept because that world is still a blank slate where automation is concerned. U.S. manufacturing is a different story, he says—one which his company sees as the next opportunity for robots.

“The reason KIVA is successful is that in most warehouse applications, there’s nothing,” Torrens said. “There may be a little bit of conveyor, but warehouse applications in 2012 are mostly manual. It’s the last frontier of automated material handling. The manufacturing environment is different. It’s not a clean slate and you can’t just rearrange everything. You’re getting involved in incumbent layouts which are difficult to adapt to. You just can’t wipe the slate clean.”

U.S. Manufacturers are still trying to achieve a return on investment from their plant automation, and they expect to do that with savings. For Torrens, that’s the wrong approach. Technology should be seen as a money-making proposition, not a money-saving one. Take automated guided vehicles (AGVs), for example.

“Generally speaking labor displacement with AGVs often represents only 60% of their return on investment,” he continued. “The remainder has to come from efficiency improvements. Why do a lot of manufacturers not apply AGV technologies? Typically they might have tried AGVs for fixed path and old style traffic management and that technology didn’t work for them.”

That’s the opportunity Torrens sees for his company, which makes Autonomous Mobile Robots (AMRs). These machines have four characteristics: first is feature based localization, meaning each one knows where it is in relation to other objects; second is dynamic path timing, meaning the robot decides on how to get where it’s going autonomously and navigate around obstacles; the third is autonomous traffic management, where the vehicles “talk” to each other and orchestrate their movement through the building so that they most effectively get where they need to go without traffic jams; fourth is power management, meaning they know when they need to re-charge.

So how does something like this make money? Not just by replacing labor, but by making existing automation 15-20% more efficient.

“The traditional ‘transportation’ methodology of AGVs is limiting and prevents the automation it’s servicing from reaching its potential,” Torrens said. “It wants five items and you deliver 50. It doesn’t want 50. It wants five items ten times a day. By delivering a pallet load of 50 you’re actually hindering the efficiency of the operation. That’s the opposite of lean. If you can make the automation you’ve invested so much in more efficient, and it produces 10% more because of it, you make money. That’s where the mindset of AGVs needs to turn.”

I know what you may be thinking at this point. Torrens is a sales guy, and that’s exactly what he’s doing. Selling. But what he’s talking about is a piece of a larger phenomenon taking hold around the world: machine-to-machine (M2M) communication. A new report, Rise of the machines: Moving from hype to reality in the burgeoning market for machine-to-machine communication, sponsored by SAP, examines the business models behind successful M2M applications across sectors. In it, some of what Torrens described is already happening with a variety of different technologies.

Logistics firms such as UPS use M2M in their over-the-road vehicle fleets not only to optimize driving routes, but also to provide live package tracking information for customers. Within the four walls, a New Zealand-based dairy company has set up autonomous forklifts in its warehouse that can work around the clock, with far fewer accidents and reduced wear and tear.

The report also cites examples outside logistics. U.S.-based Progressive Insurance sets rates based on actual driving habits. Those habits are monitored by technology like GM’s OnStar system which provides services ranging from automatic collision notification to remote door unlocking. Then you have TomTom, a satellite navigation provider, which automatically tallies traffic information from millions of users to set better routes for other drivers.

There are still plenty of roadblocks to M2M. Although costs are coming down rapidly, operators and systems integrators still have to standardize technology platforms and develop open protocols to allow for tighter integration between sensors, devices and other hardware. And user concerns about data security and access still need to be addressed.

Big Brother is alive and well. Just keep your machines from talking to him.

Related Editorial:

Does Your Automation Plug Into Global Markets?

It Still Takes Brains to Maintain

New Controls Improve Plant Productivity

Industry under Reconstruction

Tony Zasimovich, vice president of international logistics services for APL Logistics, brings engineers in as part of his service for large customers to do an analysis of their supply chain. It starts with their international business, but soon narrows down to domestic and eventually down to the very loads they ship and receive. The result is often shipment consolidation. This can produce big savings for companies sourcing from Asia.

“We have warehouse stations in Asia at the ports,” Zasimovich says. “We’ll receive product from multiple vendors then consolidate for an importer. We’ll optimize the first leg and then consolidate to get best loadability. We’re using bigger boxes, including 53 ft containers, both for international and domestic shipments. In the end, by controlling the booking process overseas and managing that, the customer will ship fewer ocean containers and have a nice savings on ocean transportation. The bigger the box, the better loadability and the lower the per-unit cost.”

On the domestic side, Zasimovich said his organization is helping customers convert from truckload to intermodal, partly because of the driver shortage and fuel cost increases. They’ll analyze the customer’s supply chain flows and shipping data, and if there are stretches of road longer than 800 miles, that route could be a candidate for conversion to rail.

Scott Aubuchon, director of global marketing for UPS Freight Forwarding told me with the market volatility clients have seen in the last couple years, several have converted from air to ocean service. Then there are those that have used ocean but can no longer afford its large time window, making air freight in smaller quantities more attractive. Many of these are global manufacturers going to a more distributed mode to take advantage of serving new markets having growing populations of middle-class consumers.

“That real complex distributed supply chain encompassing parts and raw materials from a large variety of places only to come together in one or more hubs for manufacturing and then redistributed to markets all over the world is more common,” he said.

That supply chain complexity is getting more common because global distribution exposes companies to global risks—like tsunamis. The need for more options yields greater complexity.

Then there’s internal complexity that comes with mergers and acquisitions among global clients. Steve Roche, director of transportation products for Menlo Worldwide Logistics, said the integration of information systems among such companies is his challenge. He cited one client as an extreme example of this. Imagine having to deal with 26 different ERPs. That’s the kind of project upon which long-term relationships are built—and navigated using a “continuous improvement roadmap.”

“We may have a relationship start at the shipment level and then over time we’ll work with their IT groups and start working on trading fiscal budgets, supporting integration of orders, part information, and optimizing the network to provide supply chain information as opposed to just transportation information,” he explained.

So there could be different strategies tied to every year of such a relationship, depending on that client’s evolving internal objectives. In the case of that client with 26 ERPs, a huge objective is data unity. For example, such a company is unlikely to have a unified parts master list. The question becomes, how do you start cleaning that data set?

“By going to a web-based solution where their people can actually input the data and we share that back and forth in lieu of them doing it themselves,” he answered. “Their internal IT strategies may be more manufacturing or sales focused as opposed to supply chain driven. With integration on the supply chain side they can see 12% savings compared to just 5-6% using their approach. We do lean in the supply chain and that goes into warehousing, transportation and value adding.”

Relationships with service providers dedicated to going beyond transactional and tactical approaches can raise an entire supply chain’s performance. It’s the old strength-in-numbers wisdom mom and dad told you about—brought into a new era where such strength is delivered in a cloud of computing power.

Related Editorial:

Service You Should and Shouldn’t Expect

Maybe Service is Rocket Science

Supply Chain Managers Get Physical with the Internet

How Warehousing will Cope with 2012