American Eagle Outfitters (AEO) is spearheading a new concept in supply chain organization for retailers. It has set up Quiet Platforms, a cooperative group for retailers which will handle the logistics for fulfillment.
The base for Quiet Platforms was established by AEO’s purchase of Quiet Logistics, a network of fulfillment centers in various eastern and midwest cities that provide next-day and same-day services to customers. The system has some robotics and automation in place and has the capacity to manage the delivery network.
The next step is to sign up more retailers, who will offer up their current carrier networks for use by the consolidated delivery system. Cooperative routing should allow the carriers to build more profitable loads since several retailers’ goods can be carried. And the shared distribution center resources should produce additional cost savings. The result should be a winner in terms of the aggregate cost of storage and delivery to meet demand.
Warehousing and delivery systems like this have been studied for a long time in operations research. Since the mid-nineties, it’s been known that cooperative distribution centers save the cost of holding inventory. The issue with them is dividing up the gains. And it’s well known since the 2000’s that adding a transportation network onto the warehousing will save even more in aggregate. Adding clever cooperative routing to the mix should add even more gains.
In most such situations it can be shown that there is a fair way to divide the profits so that no group of retailers that joins can do better by not joining and forming a separate group. Such an allocation is called a ‘core’ allocation of profit. However, the firms that are cooperating should agree upfront on the profit allocation mechanism, and it should be one of the ones in the ‘core’. And it isn’t clear that a core allocation method will be easy to explain when the firms are choosing to coordinate; so individual firms might be suspicious. It’s an example of when the artificial intelligence that creates such methods may not be interpretable to the ordinary person.
The proposed consortium is going to solve this problem by individual contracting with each firm that joins. The result might favor some firms over others in the combination, in an unfair way. However, each of the joining firms can evaluate the performance of the combine in meeting their delivery timetables and their reliability, and can presumably renegotiate. It should not be any harder than dealing with a warehouse or a delivery carrier that doesn’t meet your requirements.
Such consolidated operations in the supply chain have been quite successful in the field of container chassis storage and maintenance. Several ports around the US have established cooperative trailer pools, usually operated through a leasing company. The pool location is a pickup and delivery point for chassis needed at warehouses or at the port, and after the chassis is used for the trip, it can be returned there. The yard or pool takes care of maintenance of the chassis, making sure that each pickup uses a good-to-go unit, and inspecting the incoming chassis and repairing them if need be. Here the savings for the carriers is having a guaranteed ready chassis that won’t break down; the pool manager makes a profit on the repairs and on leasing new units into the pool when required for increased demand.
One of the big advantages of chassis pools is that they are usually outside the port. Hence they don’t take up space in the port that can be used to handle and stack containers. A similar advantage for the Quiet Platforms shipping pool could be lowering the requirement for adjusting inventory space, and having a unified way to book shipments for every customer run, lowering the booking and tracking costs.
Quiet Platforms claims to have about 60 companies signed up. And they have the ability to bring in carriers other than those in the firms’ vendor lists. But they have a substantial start on the network simply using the existing carriers.
As Shekar Natarajan, head of Quiet Platforms, said, “Our vision is to create an interoperable network … [where] you are able to scale in a decentralized way without having to invest in assets and resources.”
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