Establishing an international presence starts with material handling, the backbone of any supply chain. If managers respect the local culture, and are responsive to local market conditions, setting up an international operation can go smoothly. This start
"We have projects in the Far East and we've learned it may be difficult to do installation work with foreign crews even with supervision," says Harrie Swinkels, CEO of German headquartered SSI Schaefer International (www. ssischaefer.us). The company is a major manufacturer and integrator of material handling equipment and systems. "You need to rely on local engineers to do the installation of your specific equipment."
That advice also applies to the material handlers who work the system once it's up and running. It's not enough to know how many shifts the operation will be running. Managers have to know how those shifts are structured, and shouldn't make any assumptions.
"In Europe if you have a company that runs shifts, then people typically take turns," Swinkels notes. "If I'm a material handler I may have the day shift and next week I'll have the evening shift. In the U.S. you have day and night shifts and people only work those shifts. That means you have less transfer of experience within the crew of an automated facility."
As a result, the people on different shifts may have vastly different expertise and experience in using a material handling system. Those differences will eventually settle out, but not before the learning curve undermines a project startup.
Local market and labor differences also make a difference in managing the reverse flow of an online business. OTTO GmbH & Co KG (www.otto.com, formerly OTTO Versand) is one of the world's larger mail-order companies. Based in Hamburg it sells merchandise in 20 countries through more than 100 subsidiaries. Customers order clothing, appliances and sporting goods, through more than 600 print catalogs, as well as through CD-ROM catalogs and the Internet.
Hans Joachim Heuer is logistics manager for Witt (www.witt-weiden.com), a division of OTTO based in Weiden, Germany. It sells clothing for older adults online and by catalog. One of Heuer's responsibilities is handling returns for his company as efficiently as possible. He does that out of one facility in Germany, but is considering options for expansion elsewhere in Europe. Deciding between a mechanized or manual means of processing returns, again, depends on local labor markets "The returns rate is steadily increasing," Heuer says. "We're reaching in Germany about 25% returns. In other companies it's as high as 45%. To reprocess them as fast as you can is becoming more important."
That's because there's so much competition in online retail, adds Heuer. It's only one click away. Contributing to this growing volume of returns is the fact that German consumers don't have to give a reason for a return. Plus, they only pay for shipping once. Returns are free.
About 50,000 consignments leave Witt's returns and order-picking warehouse per day. People are at the heart of a centralized picking system supplied by SSI Schaefer. Ten carousel modules ensure dynamic order picking and efficient process sequences. Witt uses barcodes and RFID tags to identify bins. More than 5,000 bins per hour can be removed from storage, made available for picking at ten ergonomic workstations, and then returned to storage again. All of this activity is coordinated by SSI's warehouse management system.
Heuer says that Witt has plans to set up another returns operation in Western Europe to better serve customers in London and Paris, but it won't duplicate its current, highly automated returns system. Instead, Heuer says they will rely on a third party provider.
"In countries with a high rate of payment for the workers this [SSI] system is interesting," he says. "When I look to the east it would be absolute nonsense to make such an investment, especially in The Czech Republic, Poland or Russia, because the labor compensation is so low."
Third-party material handling
Dealing with process variability in international markets requires material handling flexibility for any company, but what if you're a third party logistics provider? Automation is tough for many 3PLs to justify because of the nature of their business. Different clients require different handling process. Serving many different countries only compounds that complexity. Does that rule out automation entirely?
It didn't for Tim Beckmann, a distribution manager for Kuehn + Nagel (www.kn-portal.com), based in Veghel, the Netherlands. K+N does warehousing for food and retail customers. To make the best use of the region's efficient transportation infrastructure, K+N uses a layer picker system supplied by Univeyor to build mixed pallet loads for delivery to customers.
"We had to look at how we could bring such a project into a small margin warehouse operation," says Beckmann. "We are always dealing with very short lead times, so it was a risky thing to automate in the last part of our good flow."
To help justify the expense K+N got buy-in from its clients in more ways than one. It not only sought clients' approval before installing the equipment, but it got them to agree to extend their contract with K+N from three years to five to help guarantee an ROI. To make the system work for clients in different countries, it had to balance the technology with local needs.
"Unilever and Master Foods have locations in France and the U.K. as well," Beckmann explains. "Retailers are differently organized in each country in Europe and [any mechanization] has to fit their supply chains. Bringing in an automation project like this, 70% is bringing in the technique and for the other 30% it's fitting it into the country and warehouse culture."
K+N has been able to make this automation work for its client mix, and fit into its own internal operations.
"Clients have to accept there are different supply chains and you as a service provider must diversify your own organization to serve all your customers to the maximum," he says. "We also had to convince the warehouse and local management that they can't just push a button and this technology works. Your challenge is to fit it into your organization in a way that it fits. Until that happens, then I think you can have problems with automation projects like this. That was a valuable lesson for us."
Protecting what's yours
Supply-chain security and visibility are things that every material handling manager working on a global basis needs to address. No one knows how the world's geopolitical situation will affect material handling operations in the coming years.
Paul Marshall is a senior packaging engineer for Ethicon Endo-Surgery (www.ethiconendo.com), a Johnson & Johnson company based in Cincinnati, Ohio. Ethicon produces endoscopic devices for minimally invasive surgical procedures. A lot of research and development time and money go into these products. Protecting them from damage and theft during distribution is critical.
Ethicon uses a variety of material handling technologies to maintain security. These include RFID and inventory control systems at the point of use, which enable real-time invoicing and supply replenishment.
"Right now we're assessing the risks inherent with doing business in China, concerning intellectual property [IP] in distribution channels that are practically non existent," Marshall explains. "Protecting IP is a huge concern for any company going over there. RFID will be valuable because we can use it to direct-replenish orders from point of use and to track inventory throughout the distribution cycle."
In any international distribution and material handling scenario, managers need inventory management software that lets them look across multiple DCs and get a merged view of available stock. "One of the opportunities for people coming to Europe is the absence of trade barriers between the countries. You can distribute very easily from one country to another," says Andy Smith, European managing director for warehouse and distribution solutions for FKI Logistex (www.fkilogistex.com). He says that more and more organizations are establishing a single central distribution for all of Europe, rather than having a DC in each country in which they do business. For some of its retail clothing chains, Smith points out, Inditex (www.inditex.com) distributes to the whole world from Spain.
"A lot of companies are seeing a huge rationalization of inventory by being able to have a single location, or at least a single view of stock, so when clients are ordering they know exactly what stock they have, where it is and how they can get it to their customers," Smith adds.
Establishing inventory visibility is important to Procter & Gamble too, especially since it bought Gillette. Headquartered in Cincinnati, P&G is using that acquisition as a catalyst to reinvent its distribution network and to streamline operations from its current 480 finished goods warehouses worldwide to half that number, eventually.
P&G has reached a point where visibility in developing markets isn't as much of a problem as the supply-chain choke points in developed ones, particularly the United States.
"The port infrastructure in the U.S. is a real challenge to us with some of the products we bring in from overseas or export from the U.S. overseas," says Jeanne Reisinger, director of global customer service/logistics for P&G's global operations business unit.
"The U.S. ports tend to be a lot less productive than ports in almost any other part of the world. We've had to put a little more inventory buffer into our supply chain as a result. So it's not just visibility that's the issue. It's having the ability to get exception messages so, of the millions of bits of data that can come in on a visibility report, you're immediately alerted to something that's out of spec."
Changing with the times
Reginald Neirynck, U.S. country manager for Eurinpro (www.eurinpro.com), sees many pluses and minuses ahead. Eurinpro (which stands for "European investment projects") is a European project development company that has built distribution centers for multinational corporations throughout Europe.
"At some point, China's wealth creation will allow the country to become a very important market as the people start consuming more and more and the demand for high-end products gets stronger," he says. "Warehouses-will then not only be geared towards-export, but also as pure distribution-centers for the local market."
"In Eastern Europe, Poland, the Czech Republic (and one day Romania, Bulgaria, etc.), we are starting to see the benefits of having a better transportation infrastructure," Neirynck continutes. "Companies can now start 'remodeling' their distribution networks as new roads allow them to shift from a very local distribution network to a more rationalized network using the common 'huband-spoke' approach for their warehouses."
There is one element that may change the hue of this rosy outlook: the price of oil.
"If the oil price continues to rise, the effect on transportation cost will start to hurt companies' bottom-line," Neirynck concludes. "More efficient ways of transportation will need to be adopted, like more collaboration between companies to maximize truckloads, or flexible multi-user warehousing, tuned-in with fluctuating demand. The hub and spoke approach could again be challenged and we could even see a shift back towards local distribution networks to avoid long transportation cycles."
Psychology. Culture. Politics. Mechanization. Cheap labor. Packaging requirements. Market growth. Transportation infrastructure. Distribution networks. Any and all of these elements will play a role in how material handling operations evolve globally. It's up to you to manage the mix.