TACKLE CRITICAL SUPPLY CHAIN CHALLENGES

FOR THE FUTURE

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Introduction

“Improvement usually means doing something that we have never done before” – Shigeo Shingo

In the last two decades the global economy has undergone considerable transformation, with huge implications for logistics and supply chain management. A powerful mix of demand and supply side factors means that further re-structuring is probable. The shift of the economic balance of power towards Asia; increasing supply chain risk; the price of oil; further mergers and acquisitions; near-shoring/re-shoring and even 3D Printing are just some of the issues which we will need to contend with.

To get ahead, it is essential to keep up to date on current trends and anticipate future trends, then adapt your strategy accordingly. With this in mind, industry experts share their informed insights on key trends for the future in this comprehensive whitepaper.

After reading this whitepaper, you will understand:

• The issues in which you should be engaging with now and in the future

• Why investing your time and resources to address these issues will pay off - supported by global research

• How to tackle these critical challenges – clear guidance and smart tips for execution

Contents

This paper begins by giving a roundup of key trends. It then focuses in providing a more detailed assessment of the most important developments, and finishes by exploring how this plays out in specific industries.

• Part 1: Roundup of Key Logistics and Supply Chain Trends

• Part 2: Game changers in Green Logistics

• Part 3: Realizing Financial Benefits from Integrated Supply Chain Management

• Part 4: The Rise of Omni-channel Retail

• Part 5: Growth of Online Food Retail – Grocery Case Study

• Part 6: Food Crime and Safety – Supply Chains Biggest Threat?

• Part 7: Industry focus – Retail Challenges

• Part 8: Industry focus – The future of Aviation

Kogan Page is the leading independent global publisher of specialist professional books and content, with over 700 titles in print. Kogan Page delivers high level, accessible, professional content on logistics, transport, operations, supply chain management, and procurement. Our authors are leading thinkers in the field, sharing their expertise from academia and industry.

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1. US drives world economic growth and trade

The United States will drive the global economy in 2016 which will mean that US logistics companies will continue to prosper, both at home and abroad. The stronger dollar that has been evident at the end of 2015 will suck in imports from around the world, which will give Asian and European exporters a welcome boost and strengthen transpacific shipping volumes in particular. However, emerging markets have been forced to increase their interest rates which will have a detrimental effect on already struggling economies. China is experiencing a relatively hard landing in terms of falling economic growth, but it will be supported by the growth of the US economy for exports and its e-commerce market has seen staggering growth despite the economic situation. Also helping the global logistics industry will be a recovery in Europe, which is proceeding better than many economists expected.

2. Oil price gradually climbs in second half

Although it is notoriously difficult to forecast the price of oil, many analysts expect the present levels to continue for the next six months and then for the price to increase in the second half of the year. Any rises will impact on the profits of carriers – particularly shipping lines – where these increases cannot be passed on to the customer due to over-capacity in the market. Road freight companies should enjoy the low costs whilst they can as they won’t last forever. The rate of the dollar will also be a key influence on oil prices around the world.

3. More Mega-Mergers and Acquisitions activity

2015 saw a number of blockbuster deals take place as the market continued to consolidate. The same market dynamics (e.g. cheap and available money, fragmented markets, ambitious management teams) exist in 2016, and this will result in further consolidation. Also, private equity companies will be pursuing their own agendas in building out new market players. Few companies are too big for acquisition, as evidenced by the acquisitions (or pending acquisitions) of Norbert Dentressangle and TNT. Pressures in the shipping market will create a need for further consolidation amongst shipping lines.

4. Natural disasters become more frequent

Although natural disasters are impossible to predict, it would seem that some, such as weather events (floods, hurricanes, droughts etc.), are becoming more frequent due to a changing climate. This means that global manufacturers and retailers must implement measures to make their supply chains more resilient. Logistics companies have an increasing role to play in this and strategies can be enhanced by ‘sense and respond’ technology. Supply chains must become more flexible and adaptable if they are to continue to provide competitive advantage in an uncertain 2016.

Part 1: Roundup of Key Logistics and Supply Chain Trends

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In many ways 2015 was a momentous year for the supply chain and logistics industry in terms of acquisitions and innovations. Prof John Manners-Bell looks ahead to 2016 to see what should be expected…

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5. Innovative technologies assimilated by market incumbents

The global logistics industry will continue to be impacted by new technologies and business models in 2016. Do not expect a revolution in the short term, although autonomous vehicles, 3D printing, sensor technology etc. will continue to influence the way in which the industry evolves. Many logistics companies are still trying to assess what impact disruptive innovations will have upon their businesses. Disruptors, such as Uber, will undoubtedly make moves to shake up the inefficient road freight sector, but more likely to have an immediate impact is the adoption of Uber-like technologies by the incumbent operators.

6. Refugees and security impact on European supply chains Border control

Although the refugee crisis which gripped Europe in 2015 and which brought so much chaos to many international borders in the region has, for the time being, been largely forgotten by the media, the problems have not gone away. The huge influx of migrants, transiting South East Europe from origins in Syria, East Africa and even Afghanistan, caused many European countries to question the Schengen Agreement (the treaty which allows the free movement of people across mainland European countries). The security situation in Europe (specifically the terrorist atrocities in Paris) also led administrators to questions whether more border controls should be implemented. If politicians believe it is in their national interests to re-impose border checks, on a temporary or even permanent basis, supply chains across the region will be heavily impacted by delays and inventory strategies re-assessed.

7. E-Commerce continues to transform retail supply chains

The e-retail phenomenon shows no sign of losing momentum, though making money out of it is a different matter. There is no doubt that retailers will have to adopt omni-channel strategies to survive, but they will have to do so in a way that allows them to make money. This will increasingly involve charging customers for deliveries, whilst at the same time providing a wider range of delivery options. Retailers in 2016 will increasingly push customers towards cheaper click-and-collect or locker delivery options. Amazon will continue to vertically integrate its logistics operations, leveraging its huge volumes in order to push down costs whilst at the same time increasing efficiencies through the use of its own assets. In addition to trucks and warehouses, look out for its expansion into air cargo.

8. Forwarders and shippers face more regulation

Regulatory issues could have a major impact on the movement of international freight in 2016 if confusion over the implementation of the International Maritime Organization’s SOLAS (Safety of Life at Sea) measures are not addressed. This new regulation requires the verification of gross mass of containers prior to loading; and although in theory this is the responsibility of shippers, according to one survey by Inttra Inc, 60% of respondents do not think that they will be ready by the time it is implemented in July 2016. Other changes will impact forwarders in 2016 such as the EU’s Union Customs Code – an initiative to replace and harmonize existing Customs regimes in Europe. Without the proper implementation and awareness of shippers, carriers and freight forwarders, 2016 could be a confusing and difficult year.

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9. Sea freight /air cargo rates stagnate

Always the million dollar question – what will happen to freight rates this year? Shipping lines have proved unable to reverse the downturn seen in 2015, despite concerted efforts. A combination of over-capacity and stagnating volumes has meant that revenues and profits plunged in the second half of 2015. The increased economies of scale that 18,000+ TEU vessels brought did not make up for their under-utilisation. It is hard to see the economic upturn in 2016 providing sufficient volumes to address this problem on their own – capacity needs to be taken out of the system before there can be a sustained improvement in rates and profitability.

Air cargo rates also look set to remain static. The uncertain economic environment and the glut of capacity on the market (brought about mainly by the introduction of wide bodied passenger aircraft) will depress rates. The good news for air cargo operators is the present low cost of jet fuel which has improved financial performance, at least for the time being.

10. ‘Ethical’ supply chains on the Board Room agenda

Last but certainly not least is the issue of ethical supply chains, which will increasingly force itself onto the boardroom agenda in the coming year. There is far more awareness and interest now amongst Western consumers about the conditions in which the goods they purchase are manufactured. Not least in order to minimise damage to their brands, global manufacturers and retailers will need to probe deeper into their own supply chains in order to root out unethical practices, either societal or environmental. Although this will create an additional layer of costs, the benefits will be far-reaching, as it will create more resilient and – in the long term – more profitable supply chains.

Professor John Manners-Bell is the CEO of Transport Intelligence, a leading supplier of market solutions to the global logistics industry. He is also Visiting Professor at the London Guildhall Faculty of Business and Law, London Metropolitan University. He is author of Logistics and Supply Chains in Emerging Markets, Supply Chain Risk and Global Logistics Strategies.

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Part 2: Game changers in Green Logistics

Many people associate the ‘greening’ of logistics with rather mundane things like tightening controls on truck exhaust emissions, shifting freight from road to rail and ‘slow-steaming’ ships. Over the next few decades, however, the environmental impact of logistics may change quite radically as the result of a new wave of innovations. If regulations governing the use of drones are relaxed ‘last mile deliveries’ might take to the air. Widespread adoption of 3D printing in consumer markets could eliminate the need for last mile deliveries of anything other than the filaments used to print everyday objects in the comfort of one’s home. For those products that continue to need more conventional forms of distribution, the so-called ‘physical internet’ may prove transformational, exploiting analogies between the movement of emails and physical consignments. This may sound far-fetched, but it has become the long term vision of the EU’s European Technology Platform for Logistics called ALICE. Let’s look at each of these potential game-changers and ask how they may affect logistics’ environmental footprint.

The net environmental effect of autonomous distribution by drone has to be made relative to that of alternative forms of delivery. If the baseline alternative is a personal shopping trip by car for a single item, the drone could offer a net environmental benefit, particularly if its batteries were recharged with renewable energy and the car journey was made on a congested road by a petrol-fuelled vehicle. If the baseline is a well-loaded battery-operated van, powered by clean, low-carbon electricity, and operating predominantly during off-peak periods, delivery by drone is very unlikely to yield any environmental advantage.

Drones, after all, carry one order at a time, as opposed to a home delivery van which in the UK and US would typically deliver around 120 non-food items in an 8 hour shift. Assuming one round trip per hour, including loading and unloading, a drone would distribute only 6% of that number. If all the orders delivered by van were of a size, shape and weight that permitted their distribution by drone, it would take around 15 drones to replace one van. Given this ratio, it would require mass use of drones to achieve even marginal reductions in traffic congestion and

emissions. That would seriously impair the quality of the urban environment over which they would smarm like robotic wasps.

3D printing technology may, of course, obviate the need

for home delivery by any mode if it achieves wide adoption in mass consumer markets. Its main environmental impact on logistics would be to replace long, complex supply chains comprising several production and storage points and several intervening links with much simpler direct ones moving the

bulk powders, resins and filaments used in the printing process. This would cut vehicle-kilometres and the associated externalities. There would be much less

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Alan McKinnon considers potential game-changers in green logistics and how they may affect logistics’ environmental footprint. He discusses the likely environmental impact of important innovations, including 3D printing and distribution by drone.

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inventory in the supply chain and hence less need for warehouse space. The wastage of materials would be greatly reduced and the need for product packaging virtually eliminated. On-demand manufacturing at point of use to the customer’s specifications would remove the need to send products back up the chain because they were the wrong size, shape or type. Indeed there would be no physical chain to re-ascend as only a design-file would have been distributed – in digital form. All of this could shrink the global environmental footprint of logistics.

Although this technology is now finding wide industrial application further up the supply chain, the future prospects of domestic, ‘front-end’ 3D printing may be limited. It may never be able to compete with the economics of batch production in factories and consumers may have to attach a high value to their personalised creations to make home-based printing financially appealing. So while 3D printing could help to ‘green’ logistics, it may not develop on a large enough scale to yield much environmental benefit.

If large quantities still have to be moved then perhaps the development of a ‘physical internet’ will offer quantum improvements in the environmental performance of logistics. Its advocates argue that just

as emails find pathways through a single, open global internet and do so in a way that makes efficient use of server and telecommunication capacity, so one day freight consignments may have access to a similar physical network. Although even its staunchest supporters believe that the PI (π) is several decades away, bold claims are already being made for the environmental benefits it will bring.

So will the long term future of green logistics be shaped by unmanned aerial vehicles, desk-top manufacturing and/or a physical manifestation of the internet? I suspect that for the foreseeable future, the environmental sustainability of logistics will be improved by more conventional means, relying on wider diffusion of current best practice and technology. This approach may be less exotic but at least it offers a proven route to a greener logistics future.

This article is based on a series of postscripts prepared for 3rd edition of Green Logistics, co-authored by Alan McKinnon.

Professor Alan McKinnon is Head of Logistics in the Kuehne Logistics University, Hamburg, Germany.

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Does it pay to be greener? For many years ‘no’ was the answer to this question. Most public and private organizations argued that environmental protection comes at a cost. Organizations that could only afford to use old technologies would have to purchase end-of-pipe solutions to respond to new environmental regulations. New technologies that produce less emission and waste were more expensive. Furthermore, most marketing people still believe ‘green’ does not sell, and even if it does, ‘green’ is only for the very few who can afford it and are happy to pay more. Thus, fair-trade products are still a small part of the many marketplaces.

Since the 1990’s some famous management gurus, including Michael E. Porter, started to argue that ‘green’ means lean and competitive advantage. There are some simple explanations. All waste and pollution contain energy and useful resources. Reducing pollution, waste and emission means reducing cost in the supply chains. However, no one in the same industry or supply chain would invest in pollution reduction when no one else is doing so. Thus, Porter argues that stricter regulations, even though they cost money to implement, would eventually increase efforts to develop the required innovative technologies and solutions. The trouble is, despite numerous attempts, no study is able to prove this Porter hypothesis. Perhaps there are not enough ‘stricter’ regulations yet, or more time is required to develop such technologies.

Instead of regulations, most organizations prefer to voluntarily reduce the use of natural resources and energy to provide the same functionality in their

products. This ‘lean and green’ approach uses less materials and energy and therefore helps to achieve cost reduction and competitiveness. This approach can be applied to reduce internal costs within the same organization as well as across the supply chains. In fact, a lot more benefits can be realized if this approach

can be adopted by members of the entire supply chain. Why? Firstly, a lot of money is spent outside of the buying organizations to purchase inputs from the extended global supply chains. Secondly, buying organizations from the developed world (e.g., Wal-Mart, Puma, Nike, just to name a few) realized the majority of the environmental issues, be it pollution or energy, come from the lower suppliers from the developing countries.

However, it becomes trickier when organizations try to apply the lean and green approach along the entire supply chain. Lower-tiers suppliers are financially less

capable; they are less visible from the NGO’s; and they face less regulatory and other pressures to become greener. In addition, sending third-party auditors costs money. Demanding first-tier suppliers to pass on environmental requirements to lower tiers is similar to imposing regulations – research shows that this does not always work.

Alternate to this “monitoring” approach, some recent evidence suggests a more effective approach called supplier collaboration, which provides supplier

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Part 3: Realizing Financial Benefits from Integrated Supply Chain Management Chee Yew Wong discusses how companies can realize cost and financial benefits alongside better environmental performance if they implement integrated green supply chain management.

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assistance and implements joint environmental management eff orts through the use of eff ective supplier codes of conduct. The revised edition of our book Sustainable Logistics and Supply Chain Management explains how such codes of conduct can be integrated into supplier-customer relationship management.

Regulations, monitoring and supplier codes of conduct are just part of the total solution. Organizations that do not go beyond these will fail to achieve cost advantage and environmental benefi ts. Such organizations typically make several mistakes. First, many organizations assign corporate social responsibility (CSR) units, or the like, but fail to integrate them with the supply chain functions and strategy processes. Strategy formulation processes often over-emphasize fi nancial and marketing objectives but leave the environmental and societal objectives to the CSR functions that have less power in the organization. Environmental management is often assigned to a small organization unit that takes care of health and safety and environmental standard certifi cations. Such organizations operate with many diff erent information systems, failing to track every component and information about their natural resource, energy consumption and damages to the environment across the supply chains.

When an integrated management system is being successfully developed internally then organizations will be able to integrate such a system into the supply chains. Integrated management system here means strategy processes take into account the balance between environmental, societal and economic to achieve sustainable growth as a part of one single management system that is connected to the environmental management system. Further, the management system is extended to the upstream suppliers and integrated with the key customers by novel green supply chain management processes and

information systems. That means supply chain activities are facilitated by an integrated information system and green supply chain management that track and drive the reduction of energy, natural resources and emission through the entire global supply chain and product life cycle.

Recent evidence from academic research shows that integrated supply chain management drives innovation, and environmental innovation is the key to decoupling economic growth from environmental damages. Recent research by Professor Wong shows that some (but a small number of) organizations have started to realize fi nancial gains from implementing integrated green supply chain management while improving environmental and cost performance. For those who know how - it does pay to make the supply chain greener.

Professor Chee Wong is Chair of Supply Chain Management at Leeds University Business School. He has more than nine years of industrial working and consultancy experience in operations, purchasing, production, inventory and distribution management, and supply chain design with SMEs and multinational companies. He is co-author of Sustainable Logistics and Supply Chain Management.

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Exponential e-commerce growth fuels Omni-Channel Retail Few if any consumer-oriented businesses have escaped the explosive growth of e-commerce - the web-based technology platforms that embrace and harness the transformative power of size and connectivity to empower smartphone equipped digital natives to shop online to their heart’s content.

Today’s digital consumers can now browse through the cloud and choose from a previously undreamed-of massive range of products and services to buy what they want, when they want, how they want, from wherever they happen to be!

During recent years, e-commerce has emerged as one of the key driving forces and a critical element of what has become known as the Omni-Channel. This phenomenon brings together the entire spectrum of consumer shopping channels available - from the offline bricks-and-mortar retail outlets that include convenience stores, mini markets, supermarkets, hypermarkets and shopping malls; through the relatively unemotional and inert home shopping conduits such as TV, direct mail and catalogues; and now embracing the dynamic, exciting online world with internet access available 24-7 through desktop computers, laptops, tablets, smart phones and other mobile devices.

Spawning global giants such as Amazon and Alibaba, the digital revolution of e-commerce is transforming the way in which consumers shop - and changing their expectations of service, choice and value. This e-commerce frenzy has been driven by near-universal access

to the internet, the availability of affordable smart phones, iPads and similar devices – and not least by the burgeoning young populations in developing economies engendering a new generation of digital-native consumers who are determined to ‘shop online till they drop offline’.

According to eMarketer, the global Business to Consumer (B2C) e-commerce market grew 20% year

on year to exceed USD 1.5 trillion in 2014 and every forecast confirms it will continue to expand. Significantly, the market and potential for further growth lies in the developing markets across the Asia region, much more so than in the developed economies of the western world. The Asia-Pacific market already accounts for more than one third of the global e-commerce market and is forecast to reach USD 1 trillion by 2017, with the Chinese online market on its own, forecast to hit USD 1 trillion by year 2020.

In turn the new Omni-Channel retail model impacts every aspect of a supply chain ecosystem - products, inventory, warehouses, fulfilment, picking, packing, shipping, transport, distribution and the all-important information flows.

This e-commerce-enabled upsurge in online shopping is transforming B2C trade at every level, presenting logistics practitioners and supply chain ecosystems

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part 4: the Rise of Omni-channel RetailIn this article, Mark Millar discusses how the rapid growth of e-commerce is fuelling Omni-Channel retail and how this impacts the supply chain.

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with a vast number of challenges and opportunities that have fundamental implications for every aspect of a company’s business model, their profitability – and even their future.

How Omni-Channel impacts the supply chain and logisticsThe online revolution tests almost every aspect of the long-established pattern of retail supply chain processes - including warehouse operations, pick, pack and despatch, order fulfilment and delivery, as well as introducing new dilemmas such as free shipping, last mile delivery, product returns and cross-border transactions.

Most warehouse operations serving consumer oriented businesses have traditionally focused on carton (or pallet) picking for bulk orders, shipped to retail outlets, often as full truck load (FTL) shipments, which include hundreds of products from numerous suppliers all destined for one store or supermarket.

However, the e-commerce model of online web store to consumer, typically involves logistics management of shipping multiple individual orders, the majority of them comprising just one or two pieces, to hundreds of individual delivery points – typically residential addresses.

To serve this expanding B2C sector of online shopping, warehouse operations can no longer rely purely on bulk storage of pallets and cartons, handled using fork lift trucks in a distribution centre; they now need capabilities to manage single unit order fulfilment, involving piece-pickers, shelving storage, tote boxes and individual packing stations.

Many traditional third party logistics (3PL) service providers are challenged in adapting to this new business model. This represents new opportunities for non-traditional distribution companies to establish e-commerce fulfilment centres – physically configured specifically to process large-volume small-order demand generated through online shopping. Unencumbered by legacy systems and operational practices, new entrants can start with a green-field

solution and capitalise on the logistics opportunities to serve single-unit order fulfilment with efficient pick and pack business solutions.

Adopting technologies such as Pick-to-Light and Pick-to-Voice - not yet pervasive across traditional warehouse operations - can enable the all-important operational efficiencies that are critical for economically successful e-fulfilment centres.

Online giant e-commerce Amazon embraced technology and automation to the extent that back in March 2012, they acquired robotics company Kiva Systems for USD 775 million and now deploy over ten thousand Kiva robots across their massive fulfilment centres – many of them over one million square feet – across the USA.

As relatively new entrants into the market, the pure-play online retailers – Amazon, Alibaba, JD.com and their numerous peers – are unburdened by high-street bricks and mortar infrastructure with its related fixed overheads and therefore have much lower operating costs. These e-tailers set the stage by offering consumers free delivery to their home or office, leaving the established retailers with no option other than to offer the same service - which brings a whole new set of logistics obstacles to overcome, quite apart from the higher cost of individual deliveries to residential locations.

Enjoyed this? Read Mark Millar’s follow up article that discusses challenges of ‘the last mile’.

Mark Millar is an internationally known industry expert who leverages over 30 years of global business experience. He has completed over 350 speaking engagements at corporate events, client functions and industry conferences across 23 countries. Mark is recognised in the ‘China Supply Chain Top 20’, as one of ‘Asia’s Top 50 Influencers in Supply Chain and Logistics’ and in the 2014 USA listing of ‘Top Pros-to-Know in Supply Chain’. He is author of Global Supply Chain Ecosystems.

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Part 5: Growth of Online Food Retail – Grocery Case Study Barry Evans and Robert Mason discuss the growth of online shopping and emergence of innovative online Omni-Channel options for consumers. They support their analysis with real examples from grocery retailers.

In the last few years there have been major and hugely significant changes in the UK food retail sector. These are having what could be described as seismic impacts on the main players in the sector – the multiple supermarkets who account for about 97-98% of all the food sold in the UK!

These changes have been driven by changing consumer habits which are revolutionary, rather than evolutionary, in their nature and impact. The changes can be summarised as follows:

1. The “polarisation” of food shoppers’ destination for their food shopping

a. The growth of “upmarket” consumption in Waitrose and Marks & Spencer

b. The massive increase in food spend in the discounters such as Aldi and Lidl

2. The growth of convenience stores as a proportion of where consumers do their food shopping

This article looks deeper at the 3rd major change – The growth of online shopping.

The body that represents the way in which food suppliers and retailers carry out their business is IGD – The Institute of Grocery Distribution. Their 5 year market forecast compares the current consumer spend via various food purchase channels and compares this with a “five year ahead” forecast to plot the expected channel changes. Their latest 5 year forecast predicts the following changes as shown in the table below.

The combined change – Actual 2010 to 2015 + Forecast 2015 to 2020 for the three channels showing large growth are -

Convenience stores £29.6bn up to £44.1bn + 49%

Discounters £ 6.2bn up to £23.2bn +274%

Online £ 4.2bn up to £ 17.2bn +310%!!

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Just as Tesco were first of the food retailers to see the potential for convenience stores in meeting emerging customer preferences and opened their first 27 Tesco Express stores in 2000, they were also one of the first retailers to see the potential in offering customers the means of shopping online. This was trialled as early as the mid-1990s and was well received by those who were able to access the service. Tesco thus became determined, very early on, that they should find a means of providing an online grocery shopping ordering service nationally in the UK as soon as they could. The key differentiator from many of their competitors was their thinking which was to:

• view it from a customer perspective – how to offer it to as many customers as possible in a short time scale;

• not view it from a conventional efficiency perspective. This would have entailed:

– reaching critical demand mass for a conventional purpose-designed Online Shopping distribution centre capable of singles rather than full-case picking

– Find site(s), secure planning permission, build the DC and commence operation - i.e. to include a 4 to 5 year development time before online home deliveries could start!!

As a result, by adopting for a pick from store model, Tesco achieved “Online ordering / Home delivery” coverage for over 90% of the UK within a year of their decision to offer it in 1997.

The growth of the online channel by individual retailersIn the last few years virtually all of the major food retailers have started to provide an online food delivery service. The sector also includes the independent specialist online grocery business, Ocado, who have been developing this option for over a decade and recently reported their first operating profits from their substantial investments. Initially, they were supported by Waitrose, who they also to this day sell products for, but they have now developed a

collaboration with Morrisons, for whom they operate their online picking and delivery operation. Waitrose now have their own capability in-house.

Asda offer online delivery. Their parent company, Walmart, has identified the incremental value of a multichannel shopper; a multichannel shopper spends $2,500 annually at Walmart, compared to $1,400 for a store only shopper.

Co-op, M&S and Sainsbury’s all offer online services, although M&S offer is limited to specific

product categories. Aldi announced in September 2015 that they intend to start an online operation in 2016. And of course there is Amazon, vying with Walmart as the world’s biggest retailer, who launched their Amazon Fresh service with a trial in Birmingham on 30th September.

Building on their first mover position, Tesco are well advanced and arguably possess a significant strategic advantage compared to their competitors. For example, they are acknowledged as the largest and most profitable online retailer globally with sales of over £2bn worldwide in 2014. Tesco’s Clubcard data allows the company to “understand how customers are shopping through the channels and how customers are evolving”. They also provide online options to their customers in Europe, Thailand etc.

Finally, there are major demographic differences in relation to online use:

• todays 16-24 year olds (who in the UK spend approx 24 hours per week online) do much of their purchasing online

• 5-15 year olds are used to, and comfortable with, online access for schoolwork, hobbies etc.

i.e. tomorrow’s consumers will most probably commit far more of their purchasing spend to online channels.

So retailer strategies and supply chain management need to evolve to cover not just the management of the quality and reliability of the physical products and services supplied online but also to include the “softer” aspects of how it is done to provide a complete, seamless experience.

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The Emergence of Online Omni-Channel options for consumers

Omni-Channel retailing is an evolution of multi-channel retailing and concentrates on a seamless approach to the consumer experience through all available order-placing channels such as:

- bricks-and-mortar;

- computers;

- mobile internet devices;

- television & radio;

- direct mail;

- catalogues;

- etc. etc.

Thoma summarises what is emerging today:

“A new breed of shopper is emerging. Informed, empowered and always connected, this ultra-sophisticated consumer demands real choice when it comes to selecting and purchasing goods. Unlike traditional multi-channel shoppers, this consumer uses all channels — store, catalogue, call centre, web and mobile — simultaneously. Enter the Omni-channel shopper”.

In terms of fulfilment of online orders (in addition to conventional visits to the store!) a whole range of mechanisms are now available, including:

1. Store staff assemble an online grocery order and the order is delivered by small delivery vans to the customer’s home in a time slot selected by the customer

2. “Tesco Dark stores” – similar to option 1 but from a purpose built, local grocery home delivery DC rather than a store

3. “Click & Collect” - store staff assemble online grocery orders but instead of opting for a home

delivery the customer opts to collect their order from a designated pick up point. There are options for the collection point– the store where the order was assembled– a more convenient local convenience store– “Click Commute Collect”. Order is collected from

a retailer vehicle waiting at a pre-agreed time slot at a railway or underground station e.g. • Tesco currently operate this at six London

underground stations

• Asda offer similar options

• Sainsbury’s has begun trialling “Click and Collect” groceries from London Underground station car parks

– Waitrose is also experimenting with collection from lockers.

“Dark Stores”Tesco moved rapidly to provide a nationwide online delivery service by adopting the “more effective, less efficient” store-based picking solution rather than purpose built DCs dedicated to home delivery of online orders.

Then, as individual localities have shown increased demand for the service, Tesco have opened dedicated, purpose-built “Dark stores” to receive, assemble and deliver to home the online orders placed by consumers. The order “routing” is not seen by the consumer who place online orders as normal – Tesco systems “divert” orders to the appropriate location. Dark stores are not huge regional DC-type operations but replicate the size of operation seen in a large hypermarket so enabling the critical order density to be hit earlier in a populous area than for a regional DC. Unlike a store:

• There is no requirement for checkouts etc. – the space is dedicated to order fulfilment;

• All the orders are known (no customers are present) so forecasting is more predictable;

• Fresh food quality is enhanced – stock rotation observed etc. (Shoppers are not always concerned with stock rotation!);

• Order accuracy assisted by picking systems;

• Dark stores can operate 365 days and 24/7 – they are not restricted to retail opening hours legislation;

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• Efficiency improvement is provided by using automation where appropriate in receive, store, pick and load delivery vehicle stages of the operation.

By the end of 2013, Tesco had six dark stores in the Greater London conurbation – Croydon, Aylesford, Crawley and Erith south of the River Thames and Greenford and Enfield north of the river.

By the same date Asda had three dark stores (Leeds, Nottingham and Enfield) and Waitrose had one in Acton, West London.

Tesco are also offering customers the opportunity to “shop in virtual stores”. Thus, commuters in Seoul in Korea were able to access digital images of products located in a “mock” store on underground stations as they returned home from work. Using their smartphone with the appropriate app they placed an order which was then assembled and delivered to the customer on their arrival at home. This option has subsequently been rolled out to other locations such as bus stops in university campuses etc.

ConclusionAs the proportion of grocery sales online grows, the capability of companies like Tesco to anticipate how it will change and adapt ahead of the curve will be increasingly important. By “taking the plunge” early and continually investing in this aspect of their business Tesco are well placed to benefit from the substantial growth in this sector of the grocery market place that is expected to occur over the next few years.

Barry Evans joined the Lean Enterprise Research Centre at Cardiff Business School as a Senior Research Associate. His early career involved a variety of roles in Logistics/Distribution with Watney Mann, Rank Hovis McDougall and Royal Mail, followed by Lean Process Manager at Tesco. Robert Mason is lecturer in Logistics and Operations Management section (LOM) at Cardiff Business School. He has led many business research projects with Tesco as a partner. Barry and Robert are authors of The Lean Supply Chain: Managing the Challenge at Tesco.

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The European horsemeat scandal in 2013 highlighted the complexity within the food supply chain. Although the contamination with the meat chain was not fatal to humans, the issue was about fraud and misleading information. Adulteration of food is not a new phenomenon and is found across the globe in varied levels. The growth of the food retail sector and the food supply chains that serve the sector presents additional challenges as adulteration spreads in large numbers and fast. Among many other challenges, ‘Food Safety’ is perhaps the most important challenge that affects the food industry. Food safety incidents can affect brand value and longevity of a company, as seen in previous cases such as the Salmonella Typhimurium infection in the US due to tainted peanut butter. This also brings forth issues regarding visibility within the food supply chain.

In the wake of the horsemeat scandal, the UK government ordered a review into the integrity and assurance of food supply networks. The report of this review, conducted by Professor Chris Elliott, discussed the impacts of food fraud and food crime and its significance within the food supply chain. This also meant that within the UK, ‘food crime’ is now recognized explicitly, leading to the formation of a Food Crime Unit within the Food Standards Agency. The report also recommended a better regime of food safety audits and the importance of intelligence gathering to combat food fraud and crime, which is conducted intentionally by spurious entities within the supply chain.

Food safety issues, even if non-intentional and caused due to negligence, can be fatal and have a negative impact on the brand and the value of the company.

This impact will percolate upstream in the chain, affecting supply chain entities. A recent case in the news is the food safety concerns of the ‘Maggi’ brand of noodles in India, which has affected the share price of the company in India

and has caused a massive pull out of the inventory across retail environments. Even a small incident over a limited time can have a ripple effect upstream through the chain.

Legislation plays an important role in enforcing food safety. Each country has its own food safety legislation. In the UK, the Food Safety Act 1990 and the later amendments form the base for food safety. However, being a part of the EU, the food sector

needs to follow EU food law and the various regulations concerning different aspects of the food chain. Labelling is also covered as an important part of these regulations and was one of the focal points within the horsemeat issue. Since December 2014 there has been a change in the labelling regulation - it is important for food manufacturers to label

their pre-packaged products with a clear indication of the 14 allergens (if any) that feature in the EU regulatory list. Along with these mandatory regulations there are a number of compatibility standards set either by retailers (BRC) or recognized by the sector (HACCP). Recently, with the threat of intentional contamination, a new guide (PAS96:2014) has been introduced to protect and defend food and drink from a deliberate attack. PAS 96 has a focus on identifying threats and

Part 6: Food Crime and Safety– Supply Chains Biggest Threat?Samir Dani discusses why food crime and food safety are the biggest threats to the food supply chain.

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describes the Threat Assessment Critical Control Points (TACCP), a risk management methodology, which aligns with HACCP.

It is important for food and drink supply chains to manage risks and threats and keep updated with the changes in regulation. New information and communications technologies to increase supply chain visibility, traceability, intelligence gathering and a proactive method of risk management will position food sector companies to manage food safety and food fraud issues effectively and efficiently.

Go deeper? Download the first chapter from Samir Dani’s award-winning book.

Samir Dani is Professor of Logistics and Supply Chain Management and Head of Logistics, Operations and Hospitality Management at the University of Huddersfield. He has presented to both academic and practitioner audiences and is author of award-winning book Food Supply Chain Management and Logistics.

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There have been considerable changes in the fashion retail environment since the turn of the century. Globalisation of markets has led to increased competition and the quest to develop new products and markets while reducing costs in the supply chain. At the same time, the digital revolution has required companies to recalibrate their organizational structures to meet the demands of this new omnichannel environment.

This has meant that trends that were becoming apparent in the late 1990s have continued as retailers continue to explore new markets and source products offshore. Once heralded as the saviours of domestic production in traditional markets with their vertically integrated models, Zara and Benetton have also succumbed to increasing offshore production and outsourcing to full package intermediaries in Asia. As discussed below, Benetton had sourced from a supplier working in the Rana Plaza building in Bangladesh. The vertical integration model is also becoming rare even in the luxury fashion sector where companies exert strong control over their distribution channels. As companies such as Burberry and Prada have extended their brands into new categories (diffusion brands) there has been a tendency to shift production offshore, retaining core products for domestic production (the trench coat in the case of Burberry).

Much recent debate has focused upon changes in the global economic environment that will erode the current competitive advantage

of China, namely rising labour costs, long lead times and a lack of flexibility in a digital age. It has been suggested that ‘reshoring’ will occur as retailers source closer to the markets that they serve. This is

unlikely to happen for some time with the devaluation of the yuan this year and the need to invest heavily in traditional textile sectors that neither have the infrastructure nor the skills base to compete in global markets. It should be noted that the Chinese economic crisis in 2015 is more likely to impact on luxury fashion companies that have invested heavily in China over the last 10 – 15 years. The high growth rates of the 2000s have given way

to relatively slow growth in recent years partly due to the new Government’s clamp down on corruption (including gift giving of luxury goods). This slowdown will be exacerbated by the recent devaluation of the currency. Burberry’s share price is often linked to market conditions in China and from April to October 2015 the price fell by nearly 25 per cent.

With most companies continuing to depend upon offshore sourcing and third party manufacturing, the risk of scandals and another Rana Plaza is always on the radar Controlling the supply chain will be a key factor in the future to ensure CSR compliance and to minimize reputational risk. Benetton was targeted by pressure groups because of their tardy response to contributing to the compensation fund, whereas Inditex, owner of Zara, made a major

contribution although they did not source from the factory complex.

Part 7: Industry focus – Retail ChallengesDavid B. Grant and John Fernie discuss key changes in the fashion industry and the important impact they have on logistics strategy. He draws examples from Zara, Benetton, Burberry and Prada.

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Fifteen years ago most home shopping for fashion goods centred on catalogue retailing. Now and for the foreseeable future the omnichannel model will be the key to success for fashion retailing. Customers expect to buy 24/7 from smartphones, tablets, desktops and even shops! They also expect to receive and return goods through a variety of channels. Next, the largest fashion retailer in the UK, has 50 per cent of its online orders collected from its stores. Who would have thought that buying shoes online would be so easy? In the case of Schuh, it has developed its online sales from 0 to 15 per cent in 14 years. The internet allows Schuh to carry 30 per cent more lines than in its stores. Because it controls its network from a single hub it can offer the customer a range of options with regard to delivery and returns. Customers can click and reserve or collect – around one quarter of orders are picked up in stores or they

can pick up and return goods from a local convenience store. For online ordering and home delivery a range of choices are available according to size of order and delivery time schedules.

Offshore sourcing, outsourcing, CSR and online logistics are discussed in further depth in John

Fernie and David Grant’s book Fashion Logistics.

David B. Grant is Professor of Logistics at Hull University Business School, UK and Distinguished Senior Fellow at Hanken School of Economics, Helsinki. He has over 175 publications in various refereed journals, books and conference proceedings and is on the editorial board of many international journals. John Fernie is Emeritus Professor of Retail Marketing at Heriot-Watt University. He is editor of the International Journal of Retail and Distribution Management, and received the prestigious award of Editor of the Year in 1997.

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In my opinion, air cargo is one of the least understood industries within the business spectrum. Most people have little or no idea what is involved or that they are sitting on twenty five tons of pharmaceutical products or mobile phones, when they fly to Miami or Hong Kong. There is also a vague idea that cargo flies in old worn out aircraft and thus is both dangerous and polluting. Those of us working within this vital industrial sector of course know the truth. My objective in Aviation Logistics is to present the realities often through the words of our industry’s leading experts. It is also backed by THE INTERNATIONAL AIR CARGO ASSOCIATION (TIACA), which is the official representative of all sectors of this business. We offer the reader a practical guide to what is happening and what might be next.

Since its early days, the air cargo industry has always been subjected to difficulties – including strikes, political pressure, extreme oil price fluctuation, criminal attack, bad weather, price warfare of all kinds - but has managed not only to survive, but has succeeded in providing an essential component of our expanding society. My view of this business is coloured by over 25 years of experience working with airlines, GSAs, Airports, handlers and technical support companies. The pressure for everyone in this mix has always been to keep costs down, whilst delivering top quality service, a contradiction in itself. Very often cutting costs can, but not always, equate to low quality. This is to be seen, for example, in

handling and trucking. Cutting back on training or employing low cost haulage companies may mean below standard security allowing loads to be more easily stolen or delayed. Within the pages of Aviation Logistics, we have welcomed views and informed comment from the leading practitioners of the business. People who

know very well how changes and events have shaped the modern air cargo business model.

Very large capital investments are needed to provide not only the equipment but also the software development and technology vital for competitiveness and cost efficiency. These important investments by the airlines, airports and ground handlers themselves are only part of the picture of sustainability in the air cargo industry. The industry, in a globalised world, offers the possibilities for companies’ connected industries to transform their own business models, and thereby their supply chains, to meet their own sustainability goals with high value products delivered just-in-time. Products reach new markets, and create new benefits.

Part 8: Industry focus – The future of AviationMichael Sales examines the competing and often contradictory forces that are challenging professionals in the aviation industry. He also discusses the need for continued investment in technology and sustainability.

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No other industry powers global growth, creating employment, trade links, and support for sustainable development throughout the world.

Don’t let us ignore the aviation history chapter. The early pioneering days of this dangerous new invention produced many heroes and fatalities. The delivery of postal traffic was the first air freight traffic, and indeed is becoming the leader yet again. The development of military equipment has always led the way to creating both passenger and cargo aircraft, for example the Boeing 747, originally a military freighter concept which became a highly successful passenger and cargo aircraft. The infamous siege of Berlin following WW2, showed for the first time what well managed airfreight could do, which in practice was to help the West to defeat the blockade and avoid WW3. Progress in aircraft design, the introduction of jet aircraft against a background of world economic expansion, has led the way to our modern supply chain logistics society.

It is also important to be aware of the kind of goods that are carried by air; some in freighters, some in passenger bellies. Electronics, machinery, pharmaceuticals, fresh produce, live animals and oilfield equipment are studied. With product life cycles becoming ever shorter, speed from factory to customer is becoming more critical. The online trading

phenomenon, which burst into our lives during recent years, has completely changed the face of retailing, resulting in shop closures and unemployment.

The e-tailing movement has resulted in a big increase in express traffic, both postal and courier.

Sadly, security and crime are making an ever greater impact on our lives and our industry. We have reviewed the various types of negative factors finishing with an expert view from Doug Brittin, Secretary

General of TIACA. In conclusion, I sincerely hope that you will find this a useful and easy to read book and that it will prove valuable to you in your own sector or university course.

You can read more about the future of the aviation industry and other key issues in Michael Sales new book, Aviation Logistics.

Michael Sales specializes in press relations and consultancy for the transport industry. He has handled a number of prestigious clients, including Airports of Paris, Air France Express, Athens International Airport, Cologne Bonn Airport, ECS, Basque regional industrial promotion, Düsseldorf Airport, Budapest Airport and many more.

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This paper draws insights from authors of our leading books…

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