Have hotspots outlived themselves?

Companies with a network that includes the entire European customer base will use their forecasting models to analyze the inbound and outbound traffic in order to find suitable locations for their distribution model. These analyses are based on the combination of inbound and outbound volumes and the working capital within the supply chain. The strategies for these three main elements are all very different and it is therefore not easy to incorporate them into a single overall strategy.

Inbound traffic

Inbound transportation is a very stable factor in the supply chain, because the number of stock-keeping units per shipment tends to be less than for outbound shipments, and because they can be easily managed through direct shipments from the supplier to the location. The biggest challenge lies in keeping the iron inventory at the right level, in finding the most efficient transport to minimize costs, and in having a better green strategy for the supply chain.

It is therefore very useful if river barges or a very good road infrastructure can be used to get from suppliers to the location. If we look at the European top ten hotspot locations, they all offer these features. In other place too, municipalities have decided to invest substantially in such infrastructures to attract new logistics operations to their region. This trend will enable businesses to weigh the pros and cons of more locations in Europe. The inbound traffic objectives can be achieved by creating a Central Distribution Centre (CDC).

ten-t_core_network_0Outbound traffic

The biggest challenge for every supply chain anywhere in the world is its outbound traffic. Everything depends on the geographical customer base, the number of stock-keeping units, and the customer’s spending pattern. Companies spend a lot of money to monitor and forecast these factors as they not only affect supply chain decisions, but also determine the day-to-day running of the company. The global crisis has made the network design of these outbound distribution models very fragile, and it is very hard for companies to rely on these models and look three years ahead.

At this moment it is also very difficult to predict what kind of impact green thinking on the part of the customers will have on their behaviour. Will they be looking for new markets, or will the customers merely focus on a product’s carbon footprint? This will have a major impact on the future supply chain, but how do we make the right decision at this point in time? Flexibility is needed when designing an outbound strategy if it is to cope with rapidly changing demands.

Companies with very competitive customer service models will need to use Regional Distribution Centres (RDC) to serve local markets. The total inbound transport cost will have to be reduced by combining transport between the CDC and the RDCs. Any market changes will first be felt at these RDC locations, since they are closest to the market.

A quick way of achieving the required flexibility is to shorten the lease of the RDCs. This ensures more flexibility in the future. The terms of the contract will also have to be more flexible. If a company leases 20,000 m² for a number of years, it will try to get an option for scaling up or down its operation to suit the need of the moment. Of course, companies owning real estate will not be very eager to offer such an option, since their primary concern is to create a stable cash flow for their investors.

Even so, it could start with large companies using larger CDC-RDC networks. They could look at the total number of square metres leased from a company, and work out a flexible European lease contract. It will give the supply chain flexibility on a national level so costs can be kept in line with demand, while at a European level the highs and lows in demand can more easily be managed. If human resources and the use of internal equipment are factored into this new model for outbound traffic, even more options become available.

Working capital

When the crisis struck, many companies decided to decrease their working capital in the supply chain. There was an urgent need to generate cash, and an easy way to do so was by lowering inventories at all levels of the supply chain. In doing so, these companies created an opportunity for themselves to get an impression of how the network would function if inventory levels were kept very low. Would it be possible to reduce the warehouse space in the supply chain, or to have more cross-dock centres?

This turned out to be an ideal starting point for a new logistics real estate strategy, as building up the inventory back to the original levels would take longer than the market would be willing to wait for. It is easy to lower the inventory to a level of 25 percent within three months as products near the end of their life cycle. Getting the inventory levels back up to a previous level however, for example that of a year earlier, would take at least nine months, as it would mean restarting production. This resulted in businesses adopting a new strategy, and it is now up the real estate market to adapt to these new times.

Now that we have looked at the three factors, we can conclude that hotspots are not outdated yet. Nevertheless, new times lie ahead, and companies will have to refocus on the new developments in market demand.

corredor-460x307Just keep in mind there have always been two different kinds of hotspots: Central Distribution Centres hotspots and Regional Distribution Centres hotspots.

Which one is yours?

At the crossroads

365cf91dca44617d71d8_logisticsWhy do people always have to do things the hard way? Is it that we like a challenge, or are we simply focused on short-term benefits? The world offers a number of freely available energy sources that represent so much power that the world’s population could double in size. Nevertheless, humanity has chosen to use energy sources that need to be extracted from deep inside the Earth, and then they have to be processed before they can be used to provide energy. Throughout history, the development of energy sources has been a hit-and-miss process. Mineral oil for example used to be sold cheaply as a lighting product for decades before it finally became the world’s premier source of energy.

We still really have no idea about the sources of energy that still exist, let alone which of them will become important in the future. A great example of how the direction of human innovation can change can be found in the development of the internal combustion engine and the growth of commercial aviation. Together they brought us growth, but they also brought problems and uncertainty. We now see that the problems with our energy supply are reaching the point where we need to find solutions by creating a new path to new energy sources. Better still, we should try to use less energy to sustain our way of life. We should live greener.

Large supply chain networks are supposed to be designed to be flexible to change with the trend, and central distribution centers and regional distribution centers are located as close as possible to the center of activity. Even so, they may still encounter problems due to geographical differences in the customer base, if the activity study is based on incorrect forecasts. With the financial crisis it has become clear that the forecast models are no longer sufficient to handle such large shifts in spending patterns, and so we need to look at new strategies to handle these problems.

Normally an organization can improve its flexibility by changing its supply chain strategy and trying to increase its buffer, but in the end it appears to be a problem of the whole industry. We are currently having to deal with initiatives to improve sustainability and with very fast-changing consumer spending patterns.

So how should we go about creating a sustainable network for the future?

ten-t-corridors-2013The European Union is investing in the TEN-T network, but is it sufficient?

I think the answer is very simple: Its up to you and me!

Guestspeaking in Stockholm

One of my great blessings of my job is that I get invited to events around the globe where I can tell my view and the DSV view of the business and the future to come. This time I was invited to come to Stockholm and tell the people that 3D printing needs an operational model to get it executed from a supply chain perspective.zweden2

The trip itself was all arranged by Management Events and therefore I just followed my schedule and everything would be fine. Leaving Schiphol Airport and flying out to Stockholm would be very simple indeed. Arriving in Stockholm was so to say a little different. I was picked out of the line by customs and they searched my stuff and asked me a lot of questions. In the end I was strip searched. Of course I was shocked, but after they had found nothing a big Swedish officer came to me and said:”Welcome to Sweden Sir’! That was funny!

30 minutes later than scheduled I went to my taxi driver and we had to hurry to be there on time. Finally I arrived on time and people of Volvo, Ericsson, Alfa Laval and many others were waiting on my arrival and presentation. I must say Swedish people are open minded and have a vision about the future as well. We ended up in discussing after the presentation for more than 30 minutes with almost the whole crowd staying in the plenary room.

zweden1Great thing about this event was I didn’t get the usual thank you present, but they donated the money to Unicef to attribute to their battles in the unfair world for many children. Very happy with that! I will do my part now, but surely I will do my part in the near future. Live is about giving back to others when you are doing well!

So it was it great trip, something to remember and something to share!

Be well and be wise!!

Japan and his new opportunities

When I travel around the world to visit our customers I meet a lot of new people and new cultures. This is something I envisioned when I started studying International Business Studies at the Maastricht University. Living the life makes it even more exciting I must say.

img_5573Beginning of this year I made a trip to Osaka region to visit one of our bigger customers and I arrived in a city that touched my heart immediately.

Osaka is the second largest metropolitan area in Japan and among the largest in the world with over 19 million inhabitants.

The look and feel of downtown Osaka brings you the true Japanese man and women living a life in the big city. Which is colorful, busy and entertaining and their is a big need for logistics for consumer products and food in a busy city like this.

img_5579Looking at their main customer group Osaka is a city of the young and the restless. As far I can see there are students, students and students.

This city is the future of Japan. There are certain brands that will flourish in this area, especially foreign brands that has the main attention of the new international student community of Japan.

img_5568Gradually Japan is opening up to the rest of the world and as I might restate, Osaka has touched my heart immediately and is this small part of the world I see indefinite opportunities for you, me and the new Japanese generation!

I wish you all a great weekend!


The green mile

Green MileThe present changes in the logistics market are caused not only by the previous slumps in the economy, but also by the new green principles the world is embracing. Climate protection is one of the most pressing global challenges we are facing today. This is caused by the enormous increase over the past few years in the emission of greenhouse gases, and carbon dioxide (CO₂) in particular.

In recent history good supply chain network design was seen as a very efficient cost-cutting tool. These days the supply chain is used to promote the green image of companies. Changing your supply chain is of course a very effective way of reducing emissions without changing your production infrastructure.

Many companies are starting to invest in sustainable networks. The green way of thinking has been widely adopted, and with the advent of Chief Sustainability Officers it has even managed to penetrate as far as the Board Room. This means that the supply chain of these businesses will change in the near future to become greener than ever before. The whole market is trying to keep the customers satisfied, even though the customers haven’t a clue where they would like their green ideas to take them.

This creates a new problem, which is how to reevaluate your supply chain in these new times!?

The market has already shown that green initiatives are more profitable. Is the market also ready for green supply chains in which incentives can be part of a logistics contract, for example Global contracts allowing flexible use of the inventory locations and customs solutions? Such new contracts will only be possible if the governments around the globe are willing to be more flexible with regards to sharing tax incomes generated by these contracts.

Governments will not be easily convinced to adapt their strict tax regulations to the greener terms demanded by today’s world. In the end it will be us “the people” alone who have the power to change things. We currently have the voting power to demand such new regulations, and this means that we need a new tax model for the years to come.