Monthly Archives: August 2015

Episode 2 on Amazon’s Unstoppable Innovation

Episode 2 on Amazon’s Unstoppable Innovation

Amazon logistics innovation

Amazon logistics innovation

In Episode 1 on Amazon’s Unstoppable Innovation, we checked on the innovation strategy for Amazon that led its growth from the very first beginning. Today, we’re going to see how Amazon currently works for its innovation and development. In fact, Amazon’s logistic innovation is well-reputed as it is illustrated by the 25,500m2 ‘Quiet Logistics’ warehouse, among others, which is automatically run by 10,000 to 20,000 robots. As may be checked in the video available through the link below, the robot system, designed by KIVA Systems, can locate where specific items are and get them out of the racks. The robots register an accuracy rate of up to 99.99%. It means that marginal cost is almost zero.

 

Innovation 1. Blue Origin Project

Blue Origin is a privately-funded space project, separately handled by Jeff Bezos, the CEO of Amazon. Now worth 34 billion dollars and ranked as the eighteenth richest person in the world, Bezos dreams of venturing out of the planet into the outer space. His is a different project than is pursued by Elon Musk, the CEO of Tesla Motors. He means to aggressively engage in privately-funded space development, independently of government-management projects as with NASA.

For the last decade, Blue Origin has endeavored to fulfill its dream by launching a variety of experimental rockets. Blue Origin signed with United Launch Alliance, a joint venture of Boeing and Lockheed Martin, to develop a rocket engine. The company also disclosed its plan to start testing an engine in 2016 and launch a real rocket no later than 2019.

 

Innovation 2. Amazon Drive-Through

‘Fast delivery’ has become the symbol of Amazon.com and served as the most critical part of the foundation for the company’s growth. With its catchphrase of ‘zero delivery time’, Amazon.com has tried various methods to get products to consumers within the shortest possible period of time. And one of these is Drive-Through, which is about allowing a customer to remain in the vehicle while receiving pre-ordered grocery items from an offline store. This is quite similar to the practice at fast food restaurants like McDonald’s, where customers order and receive food while sitting tight in the vehicle.

This way, consumers can enjoy the convenience of pre-ordering products online and then visiting an offline store to get the items while remaining in the car. Amazon is reportedly pushing forward with a plan to implement a drive-through service at a 1,022m2 building located in Silicon Valley, California. Amazon.com has installed Amazon Locker at convenience stores in some parts of the US where the company provides the service by which customers can pick up their package.

- Bar code scanner + voice recognition device
- Connecting through Wi-Fi to AmazonFresh
- Scanning the bar code for repeatedly purchased products
- Adding products with voice

 

Innovation 3. IoT meets logistics automation Amazon Dash

Amazon dash button

Amazon dash button

In March, Amazon launched Dash Button which allows customers to order products with one click. The thumb-sized device is to be placed close to a home product that a customer frequently uses, and when one runs out of its supply, one just presses the button to order an additional supply. Dash Button is said to have incorporated IoT technology and automation systems that Amazon currently owns. Each device has a product brand printed on it and is to be placed in different locations of the house such as kitchen, bathroom, laundry and storage, and vestibule. The device can be set and controlled with a smart phone, and provided one has selected items and quantities, one can place an order through wireless Internet by just pressing the button. Dash that came out last year processed orders through voice commands, while this year’s version has simplified the whole thing into single button activation.

Not only ideas but also efforts to realize them are recognized. This is because to create one dash button requires the huge task of integrating all different ordering systems for different companies into one unified ordering system and forecasting demand through big data analysis. Its further strength is that it provides users with a simple device. As the idea was innovative and it was disclosed on April Fools’ Day, a lot of incoming phone calls were asking, “Was the product really for sale?”

 

Innovation 4. Distribution strategy ruling out traffic jam Amazon drone

Amazon.com, the American e-commerce website, is planning to realize ‘drone delivery’. Amazon is now adding concrete technology to the drone delivery method, which was unveiled in 2013 in the name of ‘Prime Air’. On May 8, the UK edition of Wired reported that Amazon obtained a patent for Prime Air delivery technology which uses drones. The patent is for “aerial delivery of items”. Of course, some things have yet to be solved. To fly an unmanned flying object like a drone, you must get approval from the Federal Aviation Administration (FAA). For this, Amazon is currently involved in testing drone delivery in specified regions including Canada.

Amazon aims to make sure that its drone-based delivery technology will enable a user to receive an ordered product within 30 minutes. The kernel of Amazon’s patent for its drone delivery is as follows. Drone delivery can realize delivery of an item to a customer’s current location instead of his or her provided address (the customer’s current location is identified through hand-held devices like smart phone). Differently-sized drones are to be used for differently-sized items to be delivered. And drones fly while making sure to avoid humans or animals (meaning that their paths may be modified according to the presence of humans and/or animals, roads, or walkways). A drone can use various sensors including camera and infrared to search a delivery path and identify a landing spot.

 

Future of Amazon: 3D printer or something else

CNET, the US-based tech media website, disclosed “top 5 products we wish Amazon would make”. Amazon is reportedly working on some of the ideas. For example, the company is mulling over various innovative delivery methods such as having a 3D printer loaded on a delivery truck manufacture an item close to a customer’s location and deliver it, and shipping in advance an item which big data has figured out as what a customer would want. For more information, please check the video below.

 

So far, we have briefly surveyed innovations with Amazon in two separate episodes. Amazon.com could have chosen to remain an online bookstore, but instead, the company has been reborn as the most innovative online content provider through continued logistic and/or technological innovation. Now that it has surpassed the time-honored competitors in the logistics industry where new technologies or innovations are adopted more slowly than they are in the other industries, we are all on tiptoe to see where Amazon goes from here.

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Shipping Containers Spotlighted through Upcycling as Cultural Space

Shipping Containers Spotlighted through Upcycling as Cultural Space

 

As box-shaped structures designed for cargo transport, shipping containers are characteristically semi-permanent and thus reusable. Moreover, they are created through special design with a view to promoting convenience. The advantage of a container is that its standardized structure reduces unloading and delivery time in international transport, facilitates transshipment involving different means of transportation and enables bulk transport, and greatly saves transport costs.

The first shipping containers were built for rail transport in the late 19th century. However, the introduction of mass production system by advanced countries after the First World War led to a sharp increase in high-speed mass transport and ship’s hold. It was then that containers began to be used for maritime transport as well. Accordingly, unloading operation at ports changed from labor-intensive to capital-intensive style, thus leading to the introduction of multimodal transport using containers on land and sea.

Shipping container meets with culture

While these unstylish square steel boxes are principally responsible for the enormous volume that today’s world trade registers, containers are neither high-tech items nor stylish gizmos. Use of containers got into full swing when people used them to carry military supplies and munitions. As they emerged as vehicles for worldwide transport, containers became globalized. Now, these unstylish and merely economical rectangular steel box houses cafès, shopping, and culture. That’s what these unimpressive steel storage boxes do.

Starbucks-Shipping-Container-Store

Starbucks-Shipping-Container-Store

Now available in any part of the world, Starbucks has come into a container. Washington D.C. has a Starbucks building made out of 20′ and 40′ cargo containers. In line with its intentions related to eco-friendliness and recycling, they chose eco-friendly interior and design. With no seating accommodation available inside, the Starbucks store handles only take-out and drive-thru customers. The building not only used containers as eco-friendly permanent materials, but could also recycle rain water with its exterior finishings and roof design. The 450m2 structure made with four containers is expected to serve for next five years as a model for Starbucks drive-thru.

Global store design manager for Starbucks, Anthony Perez said, “From our head office, we see a port where containers are stacked. Containers serve to deliver coffee, our company’s product, to all parts of the world. Used for about 20 years, containers end up in a scrapyard.  So, I thought. What could be done to help the environment by using those dilapidated containers?”

 

Containers merge with shopping

boxpark_view_container_shop

boxpark_view_container_shop

It’s not just cafès. Shopping malls also go into shipping containers. Opened in 2011, Box Park, which is located in Shoreditch, London, will operate by 2015 as a pop-up shop. Box Park is the world’s first shipping container mall. The building that has been constructed by stacking shipping containers, as the name suggests, houses a shopping complex that sells a variety of brands. Originally designed for temporary operation in an empty lot in Brick Lane, east of London, the structure turned into continuous operation after it was positively evaluated in its effects and significance and demonstrated a good performance in terms of sales.

When Box Park was first opened, a certain brand chose to present its display by filling the whole space of a single shipping container with installation pieces. The brand deployed a design marketing strategy aimed to create a sense of freshness by displaying such an installation piece for about a month before introducing brand products. Box Park is constructed of stripped and refitted shipping containers, creating unique, low-cost, low-risk pop-up stores. In South Korea, a mega mall was built after the UK precedent, with 200 shipping containers.

 

Shipping containers as a flower shop and a clothing store

Baylor Chapman, a floral designer, opened her San Francisco shop Lila B., of which the office and the open shop were built with shipping containers. Her eco-friendly Container Garden and floral works were so beautiful that they were featured in Gerdenista, a renowned landscape magazine.

San Francisco has one more attraction: a shipping container clothing store named Aether. It is a three-story building made with 8′ x 9.6′ x 40′ shipping containers stacked one over another. The structure was designed by Envelope A+D, a California-based design company, in collaboration with Chris French Metal.

 

A shipping container as a space for family

zappos

zappos

Created by Tony Hsieh, the CEO of Zappos, which is the most famous, no, the happiest shoes mall in the world, the container park was designed as a festive venue where not only its full-time staff but also visitors to Las Vegas can have fun together. The project is not only significant in that it up-cycles used shipping containers, which would otherwise end up waste resources, but it also represents ‘flexible urbanism,’ which is about upgrading a region’s value by performing construction while minimizing waste of resources at a small cost. This does not stop at being meaningful from an eco-friendly perspective. In fact, it takes a considerable amount of funding to build such large-sized shopping mall or theme park. In this light, a container park can save a lot of money by recycling shipping containers.

Container Park

Container Park

A container park has total 39 venues including gallery, boutique, cafè, and restaurant in its forty shipping containers. Inside the stack of shipping containers, you have a four-story high slide and a playpen, while musical events are presented all the year around. After the sunset, fire is spewed from the huge mantis bug-like sculpture, and children gambol around in the container forest while tapping drums.

Containers can fit into an empty parking lot, an old site of building, and even a small space beside a building. They can occupy any spare space in downtown area or in natural settings. Low-cost, free from environmental destruction, and capable of being stacked as high as a building, shipping containers ensure a high level of space usability. That’s why shipping containers draw spotlight as a type of building that allows speedy construction while not causing damage to environment.
 

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Episode 1 on Amazon’s Unstoppable Innovation

Episode 1 on Amazon’s Unstoppable Innovation

 

It was one day in 1994. A 30-year-old vice president who was working for David E. Shaw & Co., a hedge fund located on Wall Street, New York City, was reading a magazine, when he saw that the Internet had grown 2,300-fold in just a year. He immediately thought of goods that would be best sold on the Internet. ‘Books. That’s right. Books are perfect. Wherever you buy them, they are the same quality and easy to ship. While there are countless published books, there’s no offline store that has all of them. If I am going to sell books through the Internet, a large warehouse can be used to provide consumers with all the books that exist in the world.’

The young man put his thought into action immediately. He submitted his resignation and found his business partners, and then, after he moved his base from New York (on east-end) to Seattle (on west-end), he started his online shop from his garage. This is how Jeffrey Preston Bezos, or Jeff Bezos, for short, started Amazon, and the rest is history now.

 

Amazon from a bookseller to a seller of all contents

Opened in 1995, Amazon began in 1998 to go from books to add to the inventory various media such as music CD and video. The website moved on to sign up various distribution networks and began to provide all contents wanted by users such as clothes, electronics, and toys and devices that could play those contents.

Afterward, the online mall went beyond physical content to expand its scope of operation by adding to its list of products and services digital contents likes electronic books, apps, and games. Thus, the website transformed from a bookseller to a seller of all contents available in this world.

And perhaps such an expansion strategy deployed by Amazon was impressive enough. TIME magazine chose Bezos as the man of the year in 1999. However, Amazon continued to remain in the red ink. Finally, Amazon began its innovation.

 

Innovation 1. Transform from an online mall to a platform provider

Now, Amazon handled everything from furniture to sneakers, thus gradually blurring its differentiation from ordinary e-commerce websites. Its previously unique success strategy or distinctions were now blurred. The company was establishing itself as a content seller. Still, Amazon doesn’t forget its identity as a content provider. To begin with, it always displays content and content playing devices on its main page. And it offers various content subscription options to attract more users to its services. And such first step was taken when it came up with Kindle, its electronic book.

Since 2007 when Aamzon.com launched its e-book platform Kindle and a service that offered book subscription through Kindle, the company has remained on top in the US e-book market. It went so far as to have the number of printed books it sold exceed that of electronic books from 2011. Thus, the generally shared perception is that Aamzon has completely changed the way Americans read books.

Amazon Kindle_innovation

Amazon Kindle_innovation

 

Innovation 2. Easier and more convenient for customers. Easy refund, too.

Amazon began to fascinate customers. For stuffs they wanted, customers didn’t have to go anywhere else; they could find their stuffs on Amazon. And there was no need to compare prices with other venues. Amazon simply beat them. Users didn’t have to bother to consider buying things from other sellers. Customers didn’t have to go to all the trouble of making payment.

In 1999, Amazon obtained a patent for 1-Click from United States Patent and Trademark Office and applied it to its website. The system lets a customer complete his or her payment by just clicking a button once. A user who had entered credit card information in his or her Amazon account could use 1-Click right away. Greater convenience in ordering and payment greatly increased orders, which contributed to the exponential growth of Amazon. Amazon’s sales, which were merely 0.5 million dollars in 1995, skyrocketed to 74.5 billion dollars in 2013.

Amazon Net Sales soar

Amazon Net Sales soar

With Amazon, refund became as easy as payment. In those days, ordinary e-commerce sites required an agreement between a purchaser and a seller to return a product. No such hassle with Amazon. Users no longer had to haggle with sellers about returning products. Just returning a product to the address available on the shipping package would automatically take care of return and refund.

 

Innovation 3. Pioneered the cloud market

Black Friday, Cyber Monday, and Boxing Day are the occasions that generate consumption that is tantamount to over 20% of the US sales. What if Amazon server crashes from huge traffic with the largest number of shoppers flocking to the online mall? Its loss should be prohibitive. So, Amazon continued to expand its servers to handle such massive traffic. And the strategy was successful. Amazon servers successfully dealt with the enormous traffic of Black Friday. Amazon’s sales shot up.

With holiday shopping season over, however, the company was left with surplus servers as fallow resources. The company acquired 110 servers because they needed as many as 100 for specific time slots of the year.  But ordinarily, the company has no problem providing its services with just 10 servers. It means that the company had created an excess supply of nearly 100 servers. Nonetheless, they couldn’t reduce the number to 20, for it would be like giving up its business for Black Friday.

Bezos tried to figure out ways to make use of the spare server capacity. And he came up with the idea of ‘lending spare servers to other business operators’. But, what method should he use to lend a server as hardware to other businesses? First of all, Bezos created one single available resource by not physically distinguishing a plural number of servers and instead gathering them all in one location. He drew up a plan to use ‘virtualization’ technology in allocating to some other business operator a certain portion of a server that he or she wanted. That was the beginning of AWS (Amazon Web Services), the cloud computing services from Amazon.

Amazon combined data analysis technology with the services. Equipped with traffic dispersion technology, technology for analyzing paths for visitors and the pattern of their service usage, technology for speedily saving and transferring big-size images, and technology for analyzing and organizing massive sales data, Amazon was catapulting itself from an e-commerce company into a data mining company.

This has been our description of the birth of Amazon and the innovation of its corporate strategy. In Episode 2, we’ll take a look at how Amazon exploits new technologies such as automation, drone, and 3D in realizing its innovations in its logistics.
 

 

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Innovation Moves from Structure to Elements of Distribution: the Discovery of Pallets

Innovation Moves from Structure to Elements of Distribution: the Discovery of Pallets

 

Innovation in corporate logistics takes place in a great variety of areas. Its instances are concerned with a lot of programs for logistical innovation such as mechanization of unloading and packaging, the use of bar code in inventory management, the RFID-based innovation of terminal operating system, and the application of pallets as the basis for transport innovation. Of course, these partial improvements combine to achieve overall development.

 

There were a lot of efforts in the past to change distribution structure. Doubtless, a complex distribution channel structure is costly. While common distribution proceeds through producer, wholesaler, retailer, and consumer, international logistics adds exporter, transporter, and importer in the middle. And the costs thereby incurred sometimes run up to 41.8% of consumer price. For this reason, most companies that have achieved supply chain innovation have put in efforts to bring about change to the distribution channel structure. Yet, one single instance of innovation that has changed the elements of distribution is the discovery of pallets. This means that it has been not about innovating a process of distribution but about changing the distribution process itself through standardization and creation of a process.

Now, it is a self-evident story but an application of pallets that is good enough to make it easy to carry products with a forklift greatly reduces transport cost. It is because one single standard can cover a full lineup of maritime, land, and air operation that stretches from producer to exporter, importer customs clearance, transporter, storage, and retailer.

 

Types of pallet, an essential item for automated logistics

A pallet is a loading frame that has a surface for carrying goods organized in a specified quantity for unloading, transport, and storage and an opening that can be used by a forklift. Here, ‘organizing goods in a specified quantity’ means organizing goods in specified units by fixing up certain numbers, weights, or volumes. And pallet types are divided into flat, box, and post pallets.

(1) Flat pallet: Most widely used, a flat pallet uses either single side or both sides. Pallets in the past were mainly used by companies, and as they were rarely considered for usage outside specific companies, they registered all different sizes, structures, and strengths according to user convenience and their types varied greatly. Accordingly, it not only causes a rise in the manufacturing cost for pallets but also jeopardizes compatibility among pallets adopted by different companies, thus creating hurdles in rationalization of logistics.

(2) Box pallet: It looks like a box placed on top of a flat pallet. So, a box pallet is used for packaged goods or to combine different goods. For example, box pallets are frequently used to warehouse or transport parts in factories, or lately, for truck delivery from distribution centers to department stores or supermarkets. And box plates come in different kinds: load bearing surface is fenced around with steel wire mesh or steel pipes, or in a fixed form or with bent stuff. One demerit for box plates is that they are expensive and heavy, while they do not have a large loading capacity.

(3) Post pallet: Posts are fixed on the four corners of a pallet, which can sustain a lot of pressure applied from above. Posts are fixed, detachable, or bendable.

 

wood pallet_innovation of distribution

wood pallet_innovation of distribution

 

Pallets designed to realize Unit Load System (ULS)

Sure, different countries have slightly different standards for pallets. Korea and Japan adopt 1100×1100. The size is meant to ensure efficiency involving pallets being loaded into vehicles. China uses 1100×1100 and 1000 x 1200 most frequently. In contrast, the European standard is 1200mmx800mm. And this is designed to realize ULS (Unit Load System). Unit Load System, which consists in unloading, delivering, or transporting cargoes with a mechanical force while ensuring consistency by unitizing goods in terms of a standard weight or volume, aims to conduct efficient mobility for cargoes by rationalizing unloading and systematizing unloading and transport. Therefore, Unit Load System is referred to as a leader in the systematization of physical distribution, and characteristically conducts it by creating consistent and optimized units from its start to end.

Europe sticks to its standard for pallet size (1200×800), because a pallet moves straight to ordinary retail shops.  As you may have seen in a previous article, the Netherlands thrives in floricultural logistics. The Dutch floricultural distribution is one single fine example that explains the European pallet size. It’s not that flowers are delivered in bulk distribution, but that pallets full of flowers are dropped off with hand trucks to those flower shops where flowers wait for customers. So, we can say that this is even closer to the complete rendition of the ULS concept.

 

TTI Algeciras terminal in which OPUS Terminal TOS is in operation

TTI Algeciras terminal in which OPUS Terminal TOS is implemented

Merits and demerits of Unit Load System can be summarized as below.

- Damage, pollution, and loss prevented during unloading.

- Reduced wait time for means of transportation.

- Packaging cost reduced by simple packaging.

- Convenient goods inspection with added costs for containers or pallets.

- Storage efficiency decreased due to the volume of pallets.

- Additional unloading equipment needed.

- Spacious open-air storage needed to ensure forklift operation.

 

 

Future of pallet: eco-friendly green transport

 

plastic pallet innovation

plastic pallet innovation

Pallet logistics is facing a new issue. It is environmental pollution. Increased trade volume from industrialization has increased fossil fuel consumption, thus accelerating global warming. And the increased use of wooden pallets, which came out for innovation in distribution, has resulted in increased damage to the worldwide forest resources. And trade and transport in the wake of industrialization have become interlocked with environmental questions.

 

For these reasons, pallets are transitioning from wood to plastic with a view to an eco-friendly logistic innovation. One report shows 51.7% of those surveyed prefer plastic for material of their pallets while 27.5% prefer wood, thus indicating that plastic registers 46.5% more than wood in preference. This shows reversal from the early part of the first decade of the new millennium when wood was preferred by 56% while plastic was preferred by 39%.

 

Wooden pallets, which registered greater preference as they were available at more reasonable prices and in more diverse standards, are used less and less as timber prices go up sharply and they register increasingly vulnerable durability and convenience. Especially, pallets for use on the premises tend to prefer plastic as they are frequently used for outdoor storage or delivery. With semi-permanent durability and service life, plastic registers greater preference compared to wood despite its high price.

The trend in eco-friendly logistics avoids road transport, which causes relatively severe pollution, prefers to use ships or trains to carry out one-time delivery through sharing and/or integrating.

 
 
 
 

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SCM Innovation with IKEA, the Furniture Kingdom that Rules the World

SCM Innovation with IKEA, the Furniture Kingdom that Rules the World

 

IKEA is one of those companies that have succeeded in shattering a prejudice: low price means low quality. It comes in first among companies that have built success on such core capabilities as bulk purchasing and ordering, DIY, transport cost reduced by diminished volume, and simple timeless design.

IKEA is a global corporation that has 325 or so stores in some 40 countries in Europe, North America, and Asia, and hires about 130,000 persons around the world. The company makes the top forty on the list of 100 best global brands as disclosed by Interbrand, the world’s largest brand consulting group, and has come in second after Ferrero Rocher, the Italian chocolate maker, among “the World’s Most Reputable Companies” as selected by Forbes. Ingvar Kamprad, the founder of IKEA, was ranked fourth, after Bill Gates and Warren Buffet, among the World’s 20 Richest People as disclosed in 2012 by Bloomberg. The world’s most read book is the Bible, whereas the most read printed booklet is IKEA’s catalog. We’re going to look at the SCM innovation achieved by IKEA, a major global company that has written such innumerable records.

One of IKEA’s slogans is “IKEA sells inconvenience.” Customers come to a warehouse store where they browse and pick up products that they want. And unless they make a specific request for home delivery, the customers have to use their vehicle to carry a product to their place where they should finish its assembly. And that, for a pretty reasonable price. To perfect such a business model which is unique to the company, IKEA had to promote supply chain innovation in the furniture industry that registers a profit margin that is not too high.

 

Perfecting a logistics model through design innovation

One day, IKEA’s founder Ingvar Kamprad ran into an interesting scene on the street. A man was struggling to get a table into his car. Because of its legs, however, the table wouldn’t go into the vehicle, which wasn’t a truck. Taking his cue from what he witnessed, Kamprad came to design a prefab table that had its legs separated. Thus, IKEA’s signature flat package was born, and it remains as such. Since a finished product would be cumbersome to carry in a vehicle, they thought that it would work to get the legs separated from the table and let a consumer assemble them.

If put in flat packages, more products could be loaded into a vehicle, which naturally led to a supply chain revolution by IKEA. Provided customers carry and assemble products, it should reduce the workload for IKEA. In return, customers can buy products at lower prices, and this creates a natural win-win business model.

Furniture items are packaged as small and flat as possible to keep prices low.Compact package, which takes up a small space, can reduce transport costs and significantly diminish labor cost. In general, furniture pieces are bulky and require a lot of manpower, but when made into a small package, they can be carried in a single forklift.

IKEA flat package Lovet side table

IKEA flat package Lovet side table

Lovet Side Table, which marked the start of IKEA’s flat package, is shown here on IKEA US Instagram.

 

The hex key strategy

For this purpose, IKEA came up with hex wrenches. Hex wrenches are the most basic tools that people use in assembling IKEA’s furniture items. As IKEA does not consider itself a service provider, the company assigns to a customer 80% of the workload that occurs to the sales of a furniture item. Thus, customers buy products and assemble them at home. So, the system extends the conveyor belt as far as into the living room, thus boasting the advantage that a purchaser may deepen his or her affection for furniture by personally assembling it. This should be what leads the DIY culture, which is huge nowadays.

On the other hand, we often meet people who complain about the difficulty involved in assembly work. Still, the mode of operation can be understood as an element that has played a large part in establishing IKEA as a powerful brand by differentiating it from other companies. Furthermore, it is doubtless one of the factors that determine reasonable price, which is characteristic of IKEA furniture.

ikea_logga_bed_instructions

IKEA_Logga_bed_instructions

Efficiency and agility in supply chain management make IKEA’s competitiveness

Because IKEA’s logistics network characteristically deals with furniture, the company is predestined to pursue ever greater efficiency for its supply chain through economies of scale. It’s not just about economies of scale with the volume of its products and the size of its logistics centers. In fact, it is about reducing logistic costs and ensuring purchase of desired products anytime and anywhere through integrating and controlling its supply chain network, which masses the world’s suppliers, manufacturers, and distributors.

IKEA’s supply chain has three success factors. First, securing sufficient inventory lest short supply cause loss. Second, continuously developing products in reflecting consumer trends and securing flexibility to ensure their supply. Third, upgrading logistic efficiency and drastically lowering logistic costs.

For this purpose, IKEA develops over 1,000 products each year and gets materials from 1,300 or so suppliers in 55 countries. Major suppliers are based in China (18%), Poland (12%), Sweden (8%), Italy (7%), and Germany (6%), while its products supplied from all over the world are sold to consumers through 19 logistics centers in the Americas and Europe, and 28 logistics centers and 519 distribution centers around the world.

Now, IKEA guarantees next-day delivery for all its products sold online or offline to ensure their supply to the location and at the time desired by consumers. And for international orders, IKEA characteristically makes sure that products are shipped within three days from the day an order is placed.

When a consumer who lives in Northern Europe orders products, they are shipped from a logistics center and a distribution center in the most appropriate location in Northern Europe. Likewise, products sold in China are shipped to consumers through local delivery process, Shanghai logistics center, and distribution centers in different regions of the country.

 

‘Logistics innovation’ makes the core competitiveness for the IKEA brand

As bulky furniture items, which go from manufacturing to their home delivery, incur relatively high logistic costs and frequent damage, logistics comes as the biggest hurdle in furniture supply chain. To overcome this and achieve competiveness through reduction of logistics costs, IKEA considers logistic efficiency for all its operational stages of product design, production, and assembly.

Created in 1964, IKEA’s home logistics center in Stockholm, Sweden has storage facilities of 80,000 m2, composed of 50,000 m2 for a logistics center dedicated to automated storage and retrieval system (AS/RS) and 30,000 m2 for a logistics center for general distribution, where total 1,000 or so full-time employees work. The railway system installed in the logistics center automates all delivery in and out of the center, thus operating from 5:30 am to 11 pm to handle a yearly volume of orders tantamount to 230 million m3 which includes 12,000 m3 of small home furniture items.

Here also, IKEA’s flat-pack system cuts a figure, as it plays a crucial role in not only improving efficiency and reducing logistics costs, but also automating the operation of the logistics center. Flat-packing enables the use of trays, having thus drastically reduced to some 30 minutes the entire process of container packing as well as loading and unloading of containers that used to take minimum 3 or 4 hours.

 

Sophisticated IT system running IKEA’s home logistics center

IKEA has invested over 10 billion euros in its logistics system and IT system to build its 29 logistics hubs including its home logistics center. Currently, the WMS (Warehouse Management System) that is installed at IKEA’s worldwide logistics and distribution centers is said to register a system accuracy of 99.9% since 2006. When an order is placed through its OMS (Order Management System), it takes about 10 seconds at the minimum and 2 minutes at the maximum to complete a product search, which process is fully automated without human participation. Besides, to ensure high levels of loading ratio and inventory turnover ratio, product selection algorithm is used to allocate a 15% portion of storage space to those products that register high levels of demand.

Notably, IKEA’s WMS, linked to the safety management system of the logistics center, is designed to set off warning light and sound alarm when a palette is not loaded in the right position. It also comes with a full array of back-end, back-up, and security systems.

 

IKEA’s innovation in distribution one step ahead again

Now presenting a 3D app that exploits augmented reality (AR), IKEA realizes innovations in distribution. First Look, an app designed to help users place their furniture in their space, was released in 2013 and maintains popularity among consumers. The AR app serves to reinforce a consumer’s purchase experience by not only allowing a preview of furniture placement in one’s home, but also recommending different colors for specific IKEA furniture pieces or some other items that would go with them. For further details, please check the video below. You can see that the all-famous IKEA catalog is in use here, as well.

As we have seen, IKEA’s innovations have been realized in various areas such as design, customer experience, supply chain, logistics, and IT system. We see that the company has gone beyond the innovation of furniture as a product to upgrade the whole value chain of logistics stretching from production to consumer experience. Of course, such an achievement has required support from an IT system that could prop up the operation. Thus, SCM innovation is expected to increase the need for a system that presents a single view of the entire logistic flow.

The change will be accelerated with the rapid changes that are lately occurring in the logistics market, including the increasingly blurred boundaries as between online and offline, as described by Jin Cho, head of SCM Business Unit of CyberLogitec. If you would like to share your opinion with us on IT-based innovations in distribution, please click Contact Us below.

 

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CyberLogitec Eagle Eye interviewed Port Technology International(PTI) at TOC Europe 2015 in Rotterdam

Eagle Eye, which has been developed to meet operation requirements of modern container terminals, is not only a terminal asset and container monitoring/tracking system but is a process automation system supporting security/safety management.

CyberLogitec explain how as a company they are tackling new industry demands in a changing, global market. Port Technology International (PTI) spoke to Brian Jung and Jason Hyeon at TOC Europe 2015 in Rotterdam

Eagle eye is advanced solutions for terminals that designed for automated terminals as well as originally conventional ones. It is not focused on muscle side of automation. Instead it is focused on brain with virtual terminal system with real time feature.

As afore mentioned, it can be applied for both conventional terminal and automated terminal. Vessel is getting bigger so is terminals. It derives safety and efficiency issues more and more. Eagle Eye can meet the needs.

If you need information in detail, you can contact us via button below.

 
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Process automation system with monitoring/tracking and security/safety management for container terminals

Eagle Eye, which has been developed to meet operation requirements of modern container terminals, is not only a terminal asset and container monitoring/tracking system but is a process automation system supporting security/safety management.

Key Features & Functionalities

  1. Container & CHE position tracking and status monitoring
  2. Visibility via Virtual Terminal
  3. Platform for integration of subsystems and peripherals
  4. Process automation (Auto Hand-Off)
  5. Operation analysis and replay
  6. Emulation & simulation

 
Want to learn more about the Eagle Eye container terminal automation software? See related posts below or contact us.
 
 
 
 
 
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