The Future of the Supply Chain
I recently had a friendly conversation with Bryan Jensen, a principal with York, Pa.-based St. Onge Co. I regard Bryan as one of the most knowledgeable executives I’ve ever met on supply chain issues. Ever have that “flash of an idea” in a conversation? Of course you have. I did too in the wake of our December forecasting issue. During that conversation, I asked Bryan to really forecast outwardly (OK, it’s not really a forecast) and he went on record with the long view of the supply chain. Whatever part of you is or isn’t a futurist, you’ll find his prognostications intriguing. And your son or daughter can check in with Bryan to see if he hit the target.
Spending the better part of a career in logistics and distribution engineering and design forces you to look to the future all the time, but not the distant future. Almost every effort requires a design, an analysis or the development of an operational plan based on assumptions about what a business’ requirements will be like at some time other than the present. Those design horizons are usually three to five years in the future, and they are only projections around what a business will need to do to best service its customers, not projections or more correctly, prognostications around how businesses will service their customers. That said, after three decades in supply chain, and reflecting back upon what supply chains were when I started in the industry and all the links that make them up, I actually wonder what the supply chain will look like decades from now. For this future flash, let’s consider a reasonable time horizon that many who read this might be able to see come about, or not. Let’s say about 50 years hence.
While it might be fun to conjecture what links might exist in supply chain logistics 500 years from now, I have two reasons for pulling the time horizon in for our ruminations a little closer to the present. First, I’d like to relate the future projections to some supply chain topics that are of import to those in industry today, and in some cases simply of interest to the general public as well. Second, I’d like to think (though it’s a bit outside the average life expectancy of males in the United States, given the 50 birthdays that are in my rear-view mirror) that I might, operative word might be around to see if I’ve conjectured wisely or wildly, and knowing full well that it will be a matter of degrees of wisdom (or luck) since the one thing I guarantee about these predictions is that they will be wrong. The fun parts of evaluating them should be how wrong could they be and what can we learn about near-term supply chain strategy, by thinking about what the supply chain might look like in the not too distant future.
To predict anything to any level worth talking about, there needs to be a degree of specificity to the prediction. To simply say “People will get their goods faster” is a bit of a cop-out in that, well, yes, that is much more than likely to be true, but the real questions are around the “hows” in that proposition—both “How much faster?” and “How will the supply chain accelerate?” To answer those kinds of questions, I want to get as specific as possible and talk about particular things in the supply chain today and how they might evolve, or not, and what they might look like 50 years from now.
With that said, let’s play with some predictions around three very specific supply chain topics, links in the supply chain if you like, but they are somewhat more than that. Let’s consider robots, drones and people. All three are clearly components of the modern supply chain, some arriving on the scene only recently, some working in the supply chain for the last few decades and some, well, some have been the cause and effect of the supply chain since someone first understood a logical sequence of a flow of goods from raw material to finished product.
Robots. They don’t adhere to Isaac Asimov’s three laws, and while that may make some people nervous, within manufacturing operations and distribution facilities, robots have taken hold of some positions and are not going away any time soon (at least not in the next 50 years). Also remember, this isn’t the science fiction of Robby from Forbidden Planet, Robot from Lost in Space or even Sonny from the theatrical I, Robot. These are robot arms in painting and welding systems, and robotic vehicles capable of rerouting when needed to move pallets of product to a ship dock or a carton of goods to a pick or pack station in an e-commerce fulfillment center. Robots and automation—yes I’m broadening the category—are applied where they can increase the quality of a process or product, continually executing a task within particular tolerance levels around the clock or with almost endless repetition. Think robotic welders on an automobile assembly line, Kiva bots moving product to a picker, automated guided vehicles (AGVs) moving pallets of product to ship docks for loading. However, and particularly if you consider the supply chain in a free market, or ‘more free than not’ market, the applications for robotics and automation in the supply chain that are growing are those that also reduce the cost of manufacturing a product, assembling an order or placing that order in the hands of a customer. Labor shortages drive technology investments into the supply chain not because there aren’t enough people to perform a particular job (assuming you have not built a facility in Death Valley where there truly are no people) but because the wage necessary to bring enough people capable of performing the job to that job is high enough to support the fiscal feasibility of investment in technology. So robots and automation are already here. They are capable, consistent, reliable and cost-effective enough to both have a place in the supply chain and to drive research investment on the part of manufacturers and entrepreneurs to develop the next best application. This includes robotic pallet transfers, different actuators for robotic arms and even automated shuttle systems to move goods to a picker and eliminate something as mundane as walking. All that effort, and many of the new automation and robotic applications of the last 10 years, have come from one single force—demand.
It’s not an oversimplification to state that as more labor-intensive demands were made on the supply chain, creativity and competition have given rise to robots (and automation). The rise of the Internet e-commerce retail channel created a rapidly accelerating demand for more labor-intensive supply chain functions. Consumers now want the retailer to get their desired item off the shelf, pack it and ship it to them. This means the retailer has received a carton of those items, opened the carton, stored the open carton in an accessible location and, upon receiving the customer’s order, moved to the carton, picked out the item, moved the items to a pack station (or moved the shipping carton to the item), packed the item and shipped the item. Previously, inside the retailer’s warehouse, they probably received a carton of those items, stored that carton, then picked the carton and shipped it to their store. All the additional activity inside the fulfillment center, all the additional labor, is driving the research, investment and application of technologies and automation that are resulting in the applications we are already seeing today. Now if the beginning of the e-commerce wave has spurred such initial investment, and make no mistake, this is just the beginning, what will the increase in direct-to-customer demand do to technologies when there is four or five times the demand for the labor-intensive activities inside the facilities that service the supply chain? That is the future. And it’s the future for the B2B world, despite my retail example.
First, there simply will be more fulfillment centers utilizing the technology to remove labor from the process of assembling a smaller and more varied order. The repetitive and uniform tasks will be automated first (movement of product in uniform containers—cartons, totes and the like—to points of value add—picking, packing and the like—that are still performed by people). As the volume of those types of tasks continues to increase, automated or robotic solutions will begin to supplant labor, first with easily packable materials—think books, DVDs and CDs, though digital bandwidth will likely reduce or eliminate the need to physically move those particular items long before we reach our 50-year design horizon. Think controls in the HVACR world. The more automation that handles those tasks, the more cost-effective it will become. The more the industry researches and develops applications for auto-picking and auto-packing, the more diverse types of product they will be able to effectively pack. There are already auto-pack applications that build the box around the product or products, and the only thing keeping articulated robotic arms and actuators from picking every item ordered online is the cost of the robotic system and its maintenance. People are far more cost-effective for those tasks at present. As the demand within the supply chain for these types of tasks grows, the more cost-effective the automated applications will become (at least that has been the recent history with such technology) and the more prolific the application of those technologies will become, resulting in the human labor component within a fulfillment center diminishing.
This leads to an inevitable conclusion that the fulfillment center 50 years from now will be rife with automated applications for almost every single task in the facility, some robotic, some simply automated. That technology will be both the logical extensions and the next steps forward from the multishuttles, AGVs, Kivas and robotic applications of today, to possibly more advanced auto pack devices that can build a shipping container around any item in a cost-effective manner, to packaging systems that might encase a product in biodegradable foam or similar material and serve as packing material and a package all at once. But these applications will likely be applied to the receiving, storage, picking, packing and loading of product onto outbound parcel carriers and mail trucks to deliver it to waiting customers. But wait a minute; are we so sure it will be trucks onto which we will be loading those packages?
Drones. Look up in the sky … Oh, you know the rest. But it’s not a defender of truth, justice and the American way up there, they are drones up there. Most of those flying now (particularly outside of military applications) serve such heady purposes as allowing my real estate agent to take video of my property from any angle and showcase it in all its suburban glory on realtor.com, or as a pure source of entertainment. Yes, there are some drone applications that are marvelous, such as search and rescue, surveying and inspection without risking human life and limb, and even security, but love them or hate them, they are here for now, and there are big hints they’ll stay around in numerous applications, but is the supply chain and, more specifically, delivering packages to my doorstep one of them?
Let’s be clear, there has been little to no e-commerce delivery of an Internet order to a customer by a drone. Though there has been plenty of press coverage showing just what that delivery would look like, in the next 50 years, I don’t think we’ll have to worry about drones blocking out the sun while bringing us our printer ink. There are a few reasons for this, from the cost of delivery to alternative delivery methods, but mostly, I think it will be about inventory position.
Make no mistake, drones are cool. They are the right blend of new technology and familiarity—different enough to interest us but not so different that they alienate us. There is a class of drone that’s very affordable, so there’s some appeal to the masses (nobody wanted a cellphone when it was a $3,000 brick you couldn’t even fit in some briefcases, never mind your pocket, but as technology evolved, demand grew and there was research, which drove more features for less cost, and now cellphones are ubiquitous). But we are not talking about drones for personal use but for commercial use to be that last supply chain link to the end consumer.
Drones used in this manner will grow inside the next 50 years. I have no doubt Amazon and a few other players, more for the notoriety and publicity (and maybe a feint of jousting with UPS and FedEx with the ghost of a possibility they might not need the parcel delivery behemoths in the future), will press drones into service in some shape or fashion. The most recent video of Amazon’s new and improved drone that can carry five-pound packages and eject them softly in your backyard or distributorship parking lot (on an Amazon logo, of course—please pass the marketing to complement my meal of instant drone gratification) simply looks cool. But think of everything it directly implies. I’m going to ignore the potential issue of the drones not receiving approval to fly wherever they need to and assume that the FAA and any other alphabet soup bureaucracy has allowed unfettered drone use for the purposes of home delivery.
First, the drone must land somewhere, even momentarily, to eject its payload or deliver your toilet paper (ejecting payload sounds much more worthwhile—unless you really need that toilet paper). This makes some homes difficult if not impossible to service. Second, the toilet paper, or whatever the payload happens to be, must be available at a shipping location (or would we call it a “droneport”?) close enough to the end customer to allow for a drone to make the delivery. Drone ranges may increase; in fact I have no doubt they will increase over the next several decades, but the sheer math of maintaining all items close enough to a consumer to make drone delivery the likely means of expediting delivery to a consumer will be the insurmountable hurdle. Will some items be close enough? Absolutely. Witness the “same day delivery” service that many Internet retailers offer today. That service is not available in all areas or for all items, and it never will be (the day I can get a Stradivarius in three hours in Moose Jaw, Saskatchewan, I will be, as I said I’d be in the beginning of this missive, wrong). Drones will make deliveries, but it’s far more likely something a few steps in a different direction from current methods might be more prevalent in the next 50 years—driverless delivery vehicles.
Indulge me if you will for a moment, and let us presume that the automated car is on the road in the next 10 years. Many are on the road today, but like the drone, in an experimental and initial “look what I can do, mom!” phase of development. Fast forward that chain of thought a little to driverless vans, with the ability to automatically place the appropriate package in the appropriate driveway, or with the proper doorman, or await the receipt’s entry of the right key code to signal the final handoff of their package at their home. I lean toward this method of final delivery for a few reasons. The payload is many times greater than even the “new and improved” drone, cost of delivery is likely lower, it fits in with the existing parcel delivery infrastructure for last mile delivery and it could be used by the current e-commerce retailers and the parcel delivery giants alike, creating more competition. That competition usually means more economies for the end customer, and that could serve to spur greater demand. That’s my thought on final mile delivery, and I’m sticking to it, apologies to any drone enthusiasts I may have grounded.
People. We’ve conjectured about two major links of the supply chain so far, but we’ve not considered the most difficult of all the components of the supply chain to predict: people. They are the source of the demand that provides purpose to all supply chains. Understanding them is an absolute necessity. Predicting the wants, desires and tolerances of the customer will provide the most accurate insights into what the supply chain might look like 50 years hence.
Will people continue to drive Internet sales upward at a far faster rate than conventional retail sales? Absolutely. I would guess much sooner than the next 50 years, we will learn if e-commerce will create a substantial diminution in traditional brick and mortar sales channels. It is a question of how high is high for the e-commerce channel and how low is low for the brick and mortar channel. Will people demand everything later today from an order this morning? For groceries perhaps, and Internet grocers are meeting that demand with infrastructures in geographic areas that support the needed investment (read where same-day demand is high), but for all items one could ever order, I lean toward no, unless you can provide it with little to no cost. Everyone will request next-day shipping when it’s free. Will the technologies we’ve conjectured about already “make” it free? Saying that would be true is quite difficult. Will people weep over lost fulfillment center jobs as evil automatons supplant their pick and pack positions? It may be that 50 years from now, there are more jobs there than today. Consider, if there are 10 times as many fulfillment centers needed with only 20 percent of the workforce per center compared with today, there will be twice as many positions to fill. The positions that may be in more danger are traditional point-of-sale retail positions in brick and mortar retail shops that certainly will not grow as fast as logistical fulfillment centers. No matter what side of the questions above you align with, it is unavoidable that the demand quotient placed on the supply chain, (by customers, by people), will be the greatest force shaping the supply chain.
In the end, if we’re right or wrong in any of the prognostications we make, it matters only that they be thoughtful, seriously thoughtful, for in a slight twist on a classic line (apologies to Tennyson) “It’s better to have thought and been wrong than never to have thought at all.”