2014
06.02

Most people take for granted the things they want to buy will be on a shelf in a store waiting for them. Or, they will appear on their doorstep within a day or two after clicking the “Complete Purchase” button in the online store. With the push by Amazon.com and others to deliver orders on the day they are purchased, expectations that products will be available when and where someone wants them to be have been ratcheted up significantly.

For the rapid fulfillment model to work, the supply chain must function at a level of productivity, accuracy and capacity that pushes the boundaries of the current capabilities of the people, information systems and physical infrastructure of one of the most critical links in that chain – the warehouse or distribution center—to the breaking point.

What few people realize is that the DC, otherwise known as the distribution center, into which finished goods are received, stocked, processed, and shipped to fulfill a customer’s order has traditionally been the last part of the business to receive funding for improvements to operational efficiency. This is changing, and companies such as Amazon.com have been pushing innovations in its DCs at a torrid pace. I’ve written about a number of patents Amazon has been awarded in the previous six months alone, and about their aggressive use of robotics to replace humans in various work processes such as order selection.

The B2C (business-to-consumer) DC is the one favored by the media when telling stories about how what you want gets to you when and where you want it (or not, as was made all too painfully obvious last Christmas season).

What consumers (you and I) have come to expect for our personal fulfillment requirements, businesses also demand an ever-increasing level of service from the companies that provide a mind-numbing range of products, parts and raw materials used in the production of other products that go to consumers and other businesses. Supply-chain professionals no longer think in isolation about the efficiency of their supply chain; today, supply chains overlap, merge and comingle, forcing an appreciation that if one part of the chain fails, more than one company may be at risk of losing business.

As I’ve said, investments in new technologies in DCs to make them more efficient and to keep up with the demand for rapid fulfillment are increasing as business leaders realize that game changers such as Amazon have created a massive gap that will diminish their customer base. Some of the technologies being adopted, that are generally associated with entirely different industries, can surprise you.

Here’s a case in point. Every day, in every country on the planet, companies that make things like cars, paper clips, smartphones and smart toilets, consume a myriad of parts that are lumped together under the general description of “MRO,” or maintenance, repair, and operations. There are literally tens of millions of individual items, known as SKUs (stock keeping units) associated with the parts, components, oils and lubricants, and tools used to keep manufacturing up and running to meet demand.

One of the best known names in the business of stocking and shipping MRO SKUs to manufacturing and other companies that have MRO requirements is W.W. Grainger. Started in the Chicago area in 1927 and still based there, today it offers over 1.2 million SKUs, and has created value-added services such as holding dedicated inventory in the role as a customer’s “MRO Stockroom.” It has 33 regional distribution centers where it stocks the SKUs for the rapid fulfillment of customer requirements.

This week, Grainger was granted Patent 8,738,474 (“System and method for managing product inventory,”) which is not surprising. What is surprising is that the technology employed to be able to improve the replenishment of the bins from which selectors pick products to fulfill a customer order is NFC (near field communication). 

We usually think of NFC as a payment processing technology. A credit card or, increasingly, a smartphone has an NFC chip which can store value and information, and which can interact with other smart devices to give and receive value and information. While written about in the media as the next best thing in payments processing, this activity can be more basically defined as transaction processing.

With NFC tags embedded in the inventory bins on the shelves in the distribution centers, and a reader device in close proximity to clusters of bins, the ability to “read” the stock position of any given bin can be automated and updated in real time, eliminating the need for a person to do physical inventory counts (expensive, time consuming and prone to human error), while concurrently improving the odds that the bin will never be without inventory. When a “short” is encountered in the selection process, there are costs and time delays incurred until the stock is replenished. These two issues are what the patented process seeks to overcome.

This is a very big concern for Grainger. Imagine the costs when you have more than a million SKUs to replenish, not to mention customer dissatisfaction when an unanticipated stock-out means that the customer does not get what he wanted the next day.

The essence of the process in the patent is to tag the bin, which has two storage wells divided by a partition, with an NFC device so that when the selector, running out of stock on the side facing him, turns the bin around to dip into the “safety stock,” triggers a position change notice that in turn generates a replenishment assignment to restock the empty side of the bin. The turnaround of the bin on the shelf is read as a “transaction.”  A simple and elegant solution, and on Grainger’s scale of operations, a significant improvement in supply chain efficiency, inventory cost reduction, and customer satisfaction. The benefit to Grainger can be considered to be, year over year, in the millions of dollars.

Customer satisfaction is really the same thing as brand image protection, which in today’s world of immediate fulfillment, is more important than ever before.

There is so much process change going on in DCs today, using new technologies and the smart devices that allow them to function, that one can think of it as a revolution. With Amazon and other supply chain management innovators making quantum – not incremental—leaps forward in operational efficiencies, the rest of the world can no longer proceed at the snail’s pace of evolutionary—or incremental –improvements. You either join with Amazon of the ramparts fight, or your business dies. The revolution takes no prisoners.