Friday, 30 January 2015

New combi-style articulated forklift transforms warehouse economics

The world's leading developer of articulated forklifts, the UK-based Translift Bendi,* has perfected a unique, man-up, combi-style forklift that delivers substantial cost savings when compared with conventional, dedicated, very narrow aisle (VNA) trucks. The label unique is well deserved because no other truck in the world can handle both order picking and pallet stacking functions concurrently.

This articulated, stand-on truck with working aisle width capability of only 1.6 mt has a separate, independent set of forks at the back which allows the driver to pick and stack concurrently without having to drop a pallet down to floor level to change from picking to stacking mode or vice versa. The standing position allows the driver when facing forwards to use the truck as a normal Bendi with a 1.2 tonne lift to 8 mt and the rear forks can be folded up out of the way if required. Turning round to face the back, the operator can place loads onto the pick pallet and raise or lower the forks as required to keep a comfortable and safe working height. Maximum lift for the order picking function is 6 mt.

This dual functionality on the go is the main unique selling point. The problem with conventional, man-up, combi-style trucks is that in order to change between order picking and full pallet load stacking functions the driver must return forks to ground level to change pallets. With the Bendi, however, the driver could be half way through an order picking list when he reaches an empty pallet location, which he can refill with the Bendi forks facing the forward direction of travel even though it already has a load on the order picking forks. Moreover, when leaving the racking aisles the driver can deposit two loads on the warehouse floor, thus doubling productivity.

Translift Bendi has made it clear that this unique development is not designed to replace ordinary, man-up order picking trucks, but rather to give warehouse operators the chance to gain big cash savings through space-saving gains, lower wage bills and fewer trucks over their current operations using order pickers and reach trucks in the same aisle. Where that happens the aisle must be at least 2.6 mt wide but the new Bendi man-up truck needs only 1.6 mt when carrying two pallet loads. Only at the aisle ends when changing aisles is more transfer space needed than a conventional, one-load Bendi.

The cost implications of this truck are remarkable. If, for example, a warehouse can reduce aisle widths from 2.6 mt to 1.6 mt it can gain up to 30% more pallet locations. It can also dispense with having two different types of truck -- Bendi and reach truck, and save £20,000 per reach truck driver. The Bendi asking price is £45,000 whereas similar spec VNA combi-style trucks would cost 60% more. Translift Bendi claims that in comparison their order picker is also 60% faster but in certain circumstances it could double, and not only for internal work. If, for example, when leaving a racking aisle with two pallet loads, one for picked goods and one with a full pallet load, it could deposit the order-picked load on the warehouse floor and then proceed straight out into the yard to load a lorry. Very few reach trucks have yard work capability and VNA trucks none at all. Productivity, therefore, could be doubled in such circumstances.

There is also an important safety issue. Many warehouses use both pedestrian order picking machines and reach trucks operating in the same aisle at the same time. This can never be an entirely safe scenario. The new Bendi picker, however, dispenses with that risk entirely.

Every now and then there is a major step change in forklift capabilities and cost effectiveness. This must surely be one of them.
                                             Translift Bendi's unique order picker could transform warehouse economics

Sunday, 25 January 2015

Will robots destabilize society?

Whenever leading British clerics make remarks of a political/economic nature they are often chastised by politicians, particularly of the right, for not sticking to theology, the implication being that they are ignoramuses on non-religious matters. The latest example is the Archbishop of Canterbury, Justin Welby's remarks to an audience on New York's Wall Street, warning that the rise of robots and gene therapy could allow a tiny elite of the super rich to amass more power while almost everyone else grows poorer. But as a former City of London oil executive Justin Welby could hardly be described as an ignoramus on economic issues and would probably shame many politicians on that score, whose profession is often seen as far below a theologian's calling.

To some extent, the Archbishop's fears have already been realized. In real terms American incomes for the vast majority have declined while the top 10% saw a real income rise in recent years, and such disparity is worsening as a tiny majority now control much of America's wealth, a shift helped by legal but morally repugnant tax avoidance schemes whose architects' great wealth give them disproportionately great power to influence tax changes in their favour at the expense of the lower and middle income groups.

There are two key economic aspects to Justin Welby's claim: the rise of inequality of incomes and its implied threat to society and the second, perhaps more serious threat, arising from societal upheavals caused by automation and gene therapy which could reinforce the economic divide. But are his views on robots wrong, reflecting Luddite thinking? It is a difficult one to call but it is clearly a potentially destabilizing issue that will need very sensitive handling to prevent unwholesome consequences in the near future.

Inequality does, of course, matter, at least potentially because in democratic societies, in particular, great wealth brings great power and history shows that such power is often exercised against the public's best interests. But there is one key difference when comparing politics in democratic societies today against those of the past. Properly advised and motivated, electorates can curb the trend towards closet plutocracy, though arguably they have not shown much puissance in that respect so far. So that suggests the greater threat ostensibly is automation, but is there some woolly thinking here?

There is no doubt that futurologists from Thomas Malthus onwards often get it wrong because while their analyses of  problems were seemingly correct the assumptions on which they based their analyses were flawed, which is often why economists' forecasts are wrong. There can be no argument, however, that more repetitive, unskilled jobs will be taken by robots as their price tags slump and they become smarter and more versatile.

A good example of robot cheapening is the mobile Baxter robot endowed with assembly task abilities and costing only $25,000, about one tenth of a typical welding and paint-spraying robot. Even in low wage economies like China the lure of low-cost robots is irresistible. Apple supplier Foxconn, for example, has plans for investing in one million robots in China. As robot prices continue to fall demand will rise and it will by no means be confined to manufacturing tasks. For over 30 years, for example, supply chain functions like storage have seen steady inroads from automation, including both horizontal and vertical load movements, palletising and high speed sortation conveyors. Sometimes, however, the progress seemed a pace too fast, as in Britain 35 years ago when the Japanese forklift manufacturer, Komatsu, trialed a wire-guided driverless forklift that could handle horizontal movements and stacking tasks within racking aisles at what was then Britain's biggest brewer operating over 1,000 forklifts. Labour union alarm and pressure ensured that the revolutionary trucks were dropped. Today there is less union power and so employers will be more likely to embrace robotics.

A controlled, responsible move towards more automation should be desirable but there is a need to maintain a watching brief. New industries will arise to take up the slack in unemployment that may arise through more automation, provided the workforce is adequately educated  to take on the challenges. That is a big aspiration, and unfortunately societal breakdown in family values (one parent families, etc) stymies its realization.  

Sunday, 18 January 2015

UK retailers are crippling suppliers

UK food and drink retailers now face a perfect storm from the price wars raging among the big four grocers and with the surging discounter arrivistes like Lidl, Aldi and Poundland but it is their supply chain partners, and to a lesser extent their 3PLs (third party logistics providers) who face a hellish consequence from the squeeze imposed on them by the big four that account for over 75% of Britain's grocery market. It seems that over 100 food and drink producers are at risk of collapse over this price war and new research shows that the number of UK food manufacturers in "significant" risk soared by 92% to 1,410 businesses in the final quarter of last year. According to recent research, more than 100 of these companies will collapse into administration unless supermarkets treat their suppliers more fairly and trading improves. Neither is likely any time soon.

There have been retail "price wars" before but not of the kind now facing the industry, and certainly not on the same scale, brought on by years of declining consumer real incomes, a paradigm shift in shoppers' habits and the IT revolution that now allows shoppers to buy online the same product in different countries at the best price, so threatening the traditional bricks and mortar model of retailing. Price is now king, and the new heroes are the online facilitators and the discounters giving permanently low prices across all their SKUs, thanks to their business model that the big four cannot yet emulate without going through unprecedented, painful downsizing.

Even before the latest price wars broke out the big four had been squeezing their suppliers for years by using up to 60 different ploys, most notably extending payment periods from 30 days to three months and the ever-present threat of delisting if suppliers refused to come to heel. This attitude has cascaded all the way down the supply chain to the smallest suppliers. Given the most intense pressures yet on the supermarkets they are hardly likely to soften their attitudes to suppliers and that includes the 3PLs who themselves are struggling in difficult markets, even if the majority have five-year contracts with the big retailers. Woe betide them when their contracts come up for renewal.

It is difficult to see through the battle smoke how all the players will react to what seems like a permanent sea-change in shopper's habits. What seems in little doubt, however, is that the big supermarkets will have to cease being all things to all buyers by selling the widest range of goods possible, typically 40,000 SKUs in a large superstore. This is their Achilles' heel when dealing with the nimbler discounters whose stock lines would be less than 1,600 and nearly all popular, fast movers, a key requisite for minimising the most costly of warehouse functions -- huge inventory holding costs.

What must now seem reasonably clear, however, is that the big supermarkets will slash their stock lines to ease their cash flow problems and that means many suppliers facing widespread product delisting and charges for those who are lucky enough to see their products remain displayed on shelves. If the number of food retailers in significant distress, up 58% year-on-year, according to one report, to 4,552 in the final quarter of 2014 is bad enough the picture is even worse for the troubled food and beverage makers who saw a 92% rise. In desperation, the larger manufacturers are easing their plight by shifting the burden onto their smaller suppliers, as Heinz, the baked bean maker, has reportedly done by extending the term suppliers must wait for repayment from 45 days to 97 days. The climate in the milk industry is even direr, which over the last 10 years has seen the number of dairy farmers halve to under 10,000, though this industry's problems have more to do with supply and demand issues rather than retail wars. Yet more trouble is brewing in the poultry business, Britain's biggest selling meat, where price cutting threatens a profit collapse.

The extent of the problem, both political and economic, is potentially huge, given the 3.6 million people employed in UK food supply chains alone but there is much more potential pain on the horizon for traditional retailers and even online sellers like Amazon, Ebay and Alibaba, and it will come from further cyberspace innovations. The traditional retailers who want to survive the coming tsunami from the ether will have to offer an online service and be flexible with their pricing strategy and delivery times.

A good example of a potential game-changer is a new American online start-up called, founded my Marc Lore, a veteran of website shopping and former employee of Amazon. He wants to re-invent the wholesale shopping club for customers who will find just about everything they need in return for an annual fee of US$49.99 after a 90-day free trial period. Lore claims that Jet's prices will be 10-15% lower than anywhere else online partly because, unlike other online competitors, there is no money being made on the transaction. All income derives from the annual fee. Shoppers will also be able to extract more savings if they are prepared to let Jet discover how to deliver goods as economically as possible. Prices, for example, can drop if a shopper combines multiple orders with a single shipment or is willing to wait for a seller offering a more economical shipping option.

Birth and progress are rarely painless and never entirely beautiful. The problem for politicians will be to manage the inevitable upheavals that will affect so many in retailing as sensibly as possible but it could well prove beyond their capabilities.

Tuesday, 6 January 2015

UK retailing suffers Chinese curse

Few things can be eternally certain in UK retailing but what cannot be in doubt is that the industry is about to suffer the ancient Chinese curse of "May you live through interesting times." But what does it mean for the logistics industry, and ultimately the large property companies and pension funds so reliant on their retail property investments? At least three strands of shopping habits are convulsing the industry and a fourth could emerge to see the disintermediation of bricks and mortar retailers in favour of consumer goods producers selling directly to their customers, with or without the use of vast, shared-user order picking stores. This fourth horseman of the apocalypse could wrest back control of the industry from retailers to producers who have for many years suffered bullying by virtue of the big four* retailers' domination of the UK grocery market. Such retailers use up to 60 different odious ploys to squeeze their suppliers, which in turn has forced some of the bigger suppliers to adopt similar tactics with their smaller suppliers.

The catalyst for this development has its roots back in 2007 when casino economics had the banking industry in its thrall. The inevitable banking crisis in 2008 which this writer warned about in the January 2007 issue of Warehouse & Logistics News midwifed a long period of declining real incomes which forced consumers to seek value for money. Today price is king, which hopefully heralds an end to the big four's odious price-changing tricks and their suspicious, cozy cartel behaviour which have never acted fully in the shoppers' best interests. Now the shoppers' and food producers have the power to bring the big four to heel.

The sea change in shoppers' habits involve a shift away from the big, out-of-town retail stores to smaller, retail convenience shops, the remorseless rise of online shopping and, in particular, a move towards the foreign-owned retail discounters of Aldi and Lidl who are taking market share from the big four. The last of these was not surprising to this writer who 25 years ago visited the Danish discount retailer, Netto, who arrived in northern England shortly after and long before Aldi and Lidl came to Britain. Netto's business model was impressively slick.It realized the importance of moving as much inventory as possible for fast turnover, for which it had to harness IT and high speed sortation conveyors at its only NDC (national distribution centre) serving all 120 of its shops nationwide. To achieve this, Netto restricted its SKUs to 600 popular, fast-moving items, and when fast movers became slow they were quickly dropped in favour of new, expected popular items. The result was that all EPOS-connected 120 shops downloaded their daily sales by close of day to the NDC which served as the picking instructions for order replenishment overnight for delivery before shop openings the next morning. Consequently, 90% of all goods stored passed through the NDC every 24 hours, so vast sums of money were not tied up in slow-moving stocks. Depending on the value of inventories held, the cost of holding stocks can dwarf all other warehouse costs combined. This is a key reason why the discounters can undercut the big four by up to 30% across a broad range of products without having to compromise on product quality. Another big help to them was their no-frills shop displays which made store start up costs much cheaper.

The big four tried to be all things to all shoppers by stocking everything under the sun, much of which were slow movers. At that time 25 years ago I commented in Materials Handling News that "If this business model ever crossed the North Sea to Britain it would give the big grocery retailers nightmares." Belatedly, the big four realize this and so are now converting their larger stores into smaller supermarkets, allocating the freed up space to catering, creches, gyms and other smaller tenants, a practice adopted in France by Carrefour and Casino. Some of the large supermarket space freed up could also be used as dark stores -- supermarkets without customers which are used to pack online grocery orders. Sainsbury has diversified in a different way by teaming up with Netto of Denmark to open small convenience stores with a limited stock range to compete with the rapidly growing Aldi and Lidl. Even so, some executives and analysts believe that Tesco, Sainsbury and Morrisons will need to close one in five stores to protect their profits.
Declining market shares and profits for the big four mean that supermarkets face billions of pounds in property writedowns, which will have a knock-on effect on property companies because many retailers have sold their freehold sites to landlords for lease back. While that would pose no immediate problems where leases are long, as time passes there will be an income problem for landlords because if underlying rental values fall with leases getting shorter then valuation yields need to reflect that. Some landlords and big grocers could convert their land into housing but that seems only likely to work in London, rather than the provinces where stores are most under pressure to shut. To make matters worse, the big store chains value the land on their balance sheets at around twice what it would fetch if sold off for housing and Tesco, in particular, is highly geared.

                                                 Property bust?

These significant retail property holdings (Tesco's alone are valued at £11.5 billion) could pose sleepless nights for pension funds who have so much invested in retail properties, and by extension fears for pensioners' incomes because the revolution new technology has wrought in the retail world affects far more than the big four retailers. For some years now e-commerce has shaken up retailing, with online shopping sales for 2014 expected to hit £100 billion in 2014, and while this appears to have contributed to some high street shop closures could it be made much worse by upheavals within the e-commerce world, both actual and potential. Among the actual is the advent of Alibaba, a Chinese-based e-commerce giant that recently raised US$20 billion on the New York stock market. The value of goods sold through its portals in 2013 hit $248 billion, twice what Amazon achieved and three times as much as Ebay, but unlike them it offers a truly global online marketplace to enable border-hopping commerce that bypasses middlemen. Shoppers will be able to compare prices of the same product in different countries as well as source generic products at the cheapest price. Buyers will have a world of sellers from which to buy anything and the increased competition is likely to standardise and depress prices globally.

An example of a potential e-commerce threat is the ability of major food and household consumer producers to band together to finance huge, shared order picking centres for direct home delivery to shoppers so as to disintermediate the current retail set-up which involves unnecessary retailer costs and profit margins. If this and the Alibaba effect succeeded then the sparks would fly upwards for landlords and pension funds.

To some extent, the disruptive e-commerce events have already forced changes in the logistics industry. These include making loading bays more flexible to accommodate a wider range of delivery vehicles from 40-ft double-deck trailers to medium and small vans for home deliveries. Dedicated e-commerce fulfillment centres are also being built. But it seems the good times are over for the logistics equipment providers used to a decade of the big four's huge expansion spree. According to one consultancy, large supermarket openings will roughly halve in the 2015-16 financial year to 1.5 million ft2 compared with the preceding year. On the other hand, demand for delivery vans should continue strong.
*Tesco, Sainsbury, Asda, Morrisons