An industry at a cross-roads

Editor's note: This article originally ran in LM's sister publication, Modern Materials Handling. 

I’m in Florida this week at the annual meeting of MHI, the organization that represents the materials handling industry in North America and produces the ProMat and Modex trade shows. 

At a prior meeting, I described MHI as an organizations at a cross-roads, and I think it’s still an apt description. Another might be an organization looking for its place in the supply chain. Neither of those is meant as a criticism, by the way. Rather, what I think is the reaction of the industry and our end users to the changes happening in business in general and in supply chain management in specific.

As an example, I sat in on a roundtable discussion about Industrie 4.0, what Gartner, and others, has described as “a German-government-sponsored vision for advanced manufacturing.” While it is a full-fledged initiative in Germany and Europe, it’s largely a buzzword in the U.S. today, although a hand-full of companies, including GE and Cisco Systems have put smart factories and the Internet of Things front and center of their businesses. Once you got past the basic question of “What the heck is Industrie 4.0?”, among the key questions in the room yesterday were: Do our customers have an Industrie 4.0 strategy? If so, what kind of solutions or capabilities should we be developing in order to play a role? And, should the industry lead in this? Or, as solution providers, will someone else in the organization lead and we’ll need to play a role? And, if so, what’s that role?

Or, as one materials handling industry veteran asked an end user at the Solutions Community meeting yesterday afternoon: What is it that you want from our industry?

Those are not easy questions to answer when many of the end users our industry deals with are still focused on how to automate existing processes in order to meet the increased demands that are coming from e-commerce orders. But they reflect that a NextGeneration Supply Chain is coming down the pike, including new ways to think about automation, the Internet of Things, Big Data, Artificial Intelligence, connected supply chains and robotics. Somehow or another, we have to find where we fit. That’s the cross-roads where we stand, and it’s an exciting future.

I’d like to wrap up with a couple of quick insights that were shared with the Solution Community by Kevin Congdon, Kroger’s director of engineering and supply chain network strategy, a job that he described as thinking about what will be Kroger’s needs over the next five years given growth, proliferation of SKUs and new business models, like online ordering and a new Kroger restaurant initiative. 

Biggest challenge: Congdon said that his biggest challenge is justifying automation. The grocery industry has always operated on razor-thin margins, so any automation project has to have an ROI no longer than five years, Congdon said. “If a project doesn’t have a hard dollar return, it’s not for us,” Congdon said. “We know that we have to invest in R&D, and we will get short-term support for that, but it has to work on long-term profitability to go forward.”

The connected supply chain: One of the hurdles identified during the Industrie 4.0 roundtable was that a connected, cloud-based supply chain sounds great, but many IT departments are reluctant to put systems on the cloud or to open up systems to a community of vendors and suppliers. Congdon did not disagree. “No one want to be on the front page of the Wall Street Journal for a data breach,” he said. “Kroger is very conservative in our approach to these kinds of things, and that could be a reason that we’ve never had a data breach.” In my personal opinion – take it for what it is – the conflict between operations and IT is going to be a major stumbling block to achieving the connected supply chain, or even the connected warehouse.

Automation as a service: Some new business models are emerging in our industry, including maintenance as a service – a solution provider will take over the MRO services in your facility – to automation as a service, where a solution providers own, staffs, operates and maintains an automated materials handling system for a fee. Kroger is one of the early adopters of this strategy, Congdon said, working with Witron which put in and operates a turn-key system in one of its facilities, charging Kroger a cost per case. I don’t know whether this is a trend or not, but it’s a new model we’re watching.

If it’s one that goes forward, it could disrupt the industry, and another reason I think of us as an industry at a cross-roads.