Company Background
Kerry Logistics is Asia’s leading integrated logistics service provider based in Hong Kong. It operates over 700 offices and its facilities span across six continents, accounting for over 3.5 million square meters.
Kerry Logistics developed as an asset based company in 1981. It owns equipments like warehouses and trucks to enhance the flexibility of service provided. From warehousing and distribution, express, road freight, terminal logistics to business outsourcing solutions, Kerry Logistics offers reliable end-to-end supply chain management to manufacturers and retailers. Its value-added services further enables it to attract international brands, from fashion, electronic products to food and beverage, to be their customers. It customizes supply chain solutions for its clients as it believe effective supply chain management can bring tangible results to cost efficiency, customer satisfaction and bottom-line results.
GAP Operations
Gap, Inc. is an international clothing and accessories retailer. They operate more than 3100 stores worldwide. For their operation in Asia-Pacific region, they employ Kerry Logistics’ logistics and value-added services. In Kerry Cargo Centre, GAP occupied two floors, 4/F and 11/F, to process the inbound and outbound goods of its brands including GAP, Banana Republic and Old Navy. The warehouse serves as the Asia logistics hub for GAP as it transports to all branches and franchise stores in the Asia-Pacific region. For retail stores that are directly under GAP, Kerry supplies to 9 of them in Hong Kong and 11 of them in Taiwan. For the franchise stores, stores spread over 10 countries, like Australia and Guam.
Inbound logistics
Photo 1: Area of receiving goods
When goods of GAP are received, unloading will occur in the platform. Goods will be transferred to shelves, followed up by a series of action. Firstly, workers will sort the products according to categories. After that, they will carry out auditing and demixing, meaning that only one SKU should be in each box. All actions are recorded and communicated to GAP through EDI. In peak season, Kerry handles up to 5000 cartons of goods. After the above actions, put-away will be conducted. There will be 2 kinds of shelf for put away, which are ‘carton storage’ and ‘pallet storage’. For carton storage, it is mainly used for retail inventory. Kerry will make use of automated machine ‘Wave Taker’ to load the boxes onto shelves. For pallet storage, it is mainly used for franchise items. After put away, Kerry Logistics will send updated information to GAP so that they can be notified about stocks that are ready for allocation.
Photo 2: Wave Picker
Outbound logistics
To dispatch the stocks to different stores, there are 3 picking methods: full carton pick, piece pick and put to store (PTS). They are used under different conditions.
First and foremost, Kerry Logistics uses full carton pick as their first priority to handle the transportation of goods. Full carton pick means all products in a box are ready to be sent directly to a store. This picking method mainly works for bulk delivery of products. It is the most efficient method as it does not require additional processing, but can be directly shipped to a store.
Photo 3: Shipping area of GAP in Kerry Cargo Centre
Apart from full carton pick, Kerry Logistics also utilizes piece pick to handle product replenishment of scattered and small amount of stock. In the shipping area, numerous opened boxes can be found on the shelves. Staff categorize GAP products by shelf layers. For instance, men clothing are placed in lower layers while women clothing is placed in the upper layer. After a staff receive the order that they need to pick, they need to check with a RF handheld scanner about the product location, for instance, which aisle to pick the product and how many they should take. The staff then need to go to the designated location with a cart and pick the clothes they need. For piece picking, possibility for error to occur increases. But Kerry carries out spot check for 5% of all the orders. It is proven that 99.9% of the orders are accurate.
For PTS, stocks are allocated to different slots like A111 and A112 in the photo below.
Photo 4: Example of PTS slots
Each slot represents a store. Workers will pick the corresponding number of clothes to the carton for particular slot. After this step, they will close the carton and push it near to the computer which can print an outbound label for the carton. The information on the label will show which bucket it belongs to, date of delivery, which store to deliver, etc. Among the 3 picking methods, PTS has the highest productivity. For the whole outbound process, Kerry Logistics can handle 1 million goods per week in peak season. PTS mainly handles new products and new-flow which means the product hasn’t been sold in store before. As the first batch will be bigger, PTS is used to maximize efficiency.
PTS differs with piece pick in a sense that PTS has higher efficiency. For piece pick, staff has to walk around aisles to search for the product while PTS eliminate such process. Therefore, the methods are used under different conditions.
Photo 5: VAS area
Apart from logistic service, GAP also employs Kerry’s value-added services (VAS). When Kerry receives the products of GAP, a majority of products are not ready for sale. For example, HK price tags are required to be removed for stocks to be sent to Taiwan stores. By providing VAS like price tag removal service, it can be a source of revenue for Kerry.
Photo 6: Screen showing KPIs
Last but not least, in order to review the past performance, monitor current progress and enhance future operations. KPIs are shown on a TV outside of the office to show the benchmark of measuring performance, enhancing efficiency and productivity.
Netgear is a manufacturer of router and switches. America market has occupied 70% of its business. Apart from the traditional services provided, Kerry Logistics also provides value-added services (VAS) to Netgear. Nowadays, the profit margin from pure delivery or warehousing service is very low. The company acts more like a value-added factory rather than merely a warehousing and delivery company in Hong Kong.
Netgear warehouse in Hong Kong acts as a return merchandise authorization(RMA) center for handling finished good with defects and all returned product around the world. In Europe and USA, there is a guarantee of unconditional refund for 14 days. After Netgear collects back all the returned products, the returned products will be shipped to RMA center in Hong Kong.
All the returned products are first processed in the Unpack Station. The workers unpack the box, take out the electronic fittings and categorize the packing materials. The SN number of each returned product is captured and recorded in the customer system so that NetGear can know which product is returned to the RMA in Hong Kong. Electronic fittings like wires and transformers are categorized and reuse in the future. Disposed of packaging materials will be sent to a recycling company.
Then, the returned and unpacked routers are sent to ‘Testing Station’. Routers are tested to check if there is any problem. Only normal testing will be done instead of dismantling the products. If there is no problem in the router, it will be shifted back to factories for renewing the outfit and reuse. If there is problem, the product will be marked as scrap and shifted to the licensed company in San Tin for proper disposal.
The aim of testing is to carry out product management by revealing what are the common problems of the returned products. If a router is malfunctioning, the company can improve its product design or ask the supplier of electronic components to solve the problem.
All the testing tools, machines, and methods are provided by Netgear. The client has high capital investment for a testing workstation as the testing machine for high-tech products are very expensive. Kerry Logistics follows the standard operating procedure given by Netgear for all value added services instead of adding their own methods. This is to prevent Kerry from facing lawsuit if there is any defect in routers processed through RMA in Hong Kong. For example, a whole batch of routers which worth $1000 will be recalled if one among one thousand of them has a problem. The cost of recalling the product is up to several hundred dollars to even several million. The profit margin of doing VAS for a product may be just a few dollars but the reclaim from the client may be much more than that. It is crucial to maintaining good quality control of VAS to prevent loss from lawsuit.
For the staff and workers serving in the warehouse, 50% of them are in-house and the rest are outsourced workers. As there are peak and slack season for a business, using part-time workers allows Kerry Logistics to have a flexible production capacity. When it is high season, more part-time workers are employed to cope with the increasing need in providing VAS. The staff and workers training is given by Netgear and Kerry if responsible for organizing the labour to work on the VAS. However, Kerry Logistics is encountering employment problem and the cost of hiring labour is high.
Another value added service is changing language or updating software of the routers. When the sale of routers of particular model and language in a country is not good, the unsold inventory is shifted to RMA for changing the language and resold in another country. For example, RMA helps to change the language of unsold routers in South Korea from Korean to Chinese and resell them in China.
Different from the operation of GAP warehouse, the VAS for NetGear is more complicated as it is about high-tech products. There are different versions for one type of products. When Kerry Logistics provides upgrading service for the routers, they have to be very careful to make sure the version of software installed is correct.
After the routers gone through the VAS in RMA, the products will be repacked and storage on racks. They are then outbound to different destinations when orders are received from the clients.
Kerry Logistics can stay competitive for providing VAS in Hong Kong because there are complex tax system and regulation about custom checking in China. Tax is charged with the product shift in and out China for further manufacturing. The custom also has strict monitoring on the model and number of product shift to and out China. If there is an unmatch, the cost for handling the consequences is huge. Therefore, companies place manufacturing units mainly in the mainland and use VAS provided by Kerry Logistics in Hong Kong.
Q&A
1. How exactly does your "KerrierVision" IT Platform work to enhance supply chain management?
The KerrierVision enhances the supply chain management by facilitating the information flow along the supply chain, and especially between the company and the clients. Kerry Logistics enters the data on the IT platform and keep a record whenever the company picks up goods from the vendors or delivers goods to the end customers. The client can better track and monitor the process of their good. Better data management can also be done to improve time management and pick the inventory from the last moment to shorten the lead time.
2. How does Kerry take advantage of advanced technologies (such as Internet of Things, wearable technology, etc.) to enhance accessibility and connectivity along the supply chains?
Kerry Logistics is studying the possibility of using voice picking to do the pick and pack procedure. The company is currently using the RF handheld for scanning and picking product. It is inconvenient for workers to do picking with RF handheld, paper, and pens in hand. With the voice picking technology, pickers can free their hands during their work by using an Android phone together with a headset. The phone will tell them which area they should go and which good they should pick. It is more comfortable and easy for workers to pick and pack goods. The company is still analyzing the data and improving the system to see how can the system be used in other business units to enhance the accessibility and connectivity along the supply chains.
3. Kerry Logistics provides different supply chain solutions to clients from different industries such as fashion, F&B, automotive, etc. How does Kerry Logistics fulfill the wide variety of requirements with limited resources?
As clients will provide tools for specific and technical operations at the same time, Kerry Logistics can fulfill a wide variety of requirements by better organizing the labour and infrastructure in hand. Some general infrastructures such as workers, picking carts and trucks can be moved from one to another warehouse according to their demand. Besides, Kerry Logistics divides their staff into many different groups. They have in serving relevant industry and serve the clients for many years. Kerry’s experts can understand better about the clients, fulfill their requirements, and serve them with a comprehensive solution. The company has some training for Kerry’s staff to enhance their knowledge about our industry.
4. How does Kerry Logistics use tracking and tracing system to provide real-time service to customers? Are there any tailor-made systems for specific customers and/or high-end products?
Electronic prove of delivery (EPOD) is used when Kerry delivers goods to final consumers. The company’s staff has Android phones for recording the location of goods during transportation. When goods leave the warehouse, there will be a record to alert to the system. Signing on phone by final customers is required to confirm the driver or delivery man has finished the delivery process. The customer can actually track the delivery progress and location of goods through EPOD system.
5. Apart from adopting environmental friendly designs in office, what other practices does Kerry Logistics deploy in promoting sustainability?
Kerry Logistics has been putting efforts in using environmentally friendly tools and facilities. PC3 Cube was established in 2011 and Kerry received certificates for proving the structure of the building is designed in an environmentally-friendly way, which includes using LED lighting and environmentally friendly materials for painting wall. Kerry also has a rainwater collection facilities inside the warehouse to use rainwater for daily use. Kerry uses trucks with a hybrid model which use both electricity and diesel fuel which reduces the use of non-renewable resources and help promote sustainability.
6. What kinds of unique value-added services does Kerry Logistics provide to its customers?
Different projects have different requirements and VAS. It depends on the customer requirements. For example, Kerry has RMA and router checking for Netgear. For Food and Beverage, the company has provided gift set packing service for Godiva in special festivals like Valentine's day and Christmas day. Kerry put every chocolate in store by ourselves and send the gift set to stores. For the fashion industry, VAS includes removing Hong Kong price tag before delivering to GAP franchisees in Taiwan and ironing the clothes and put on the tags for Mark & Spencer.
7. How does Kerry Logistics expand new customer base?
Kerry has a crew of professional sales person that explore the business in HK and overseas continuously. The company has been providing integrated logistics(IL) and international freight forwarding(IF) service and the two businesses have different customer bases. The company uses the cross-selling strategy and ask whether clients using IF services has any interest in using the IL services.
8. How did Kerry manage to keep its operation smoothly when Kerry had to redesign its warehouse layout to cater the implementation of the robotic butler system in its P3C facility? Is it always the case that automation brings positive impact towards the company?
Kerry has P&E team to plan the way of relocating all the shelving and goods in P3C facilities. The company also work with much other staff who have experience in dealing with seasonal fluctuation on demand side. Plan and implement the robotic butler system in a slack season. Therefore, it will not affect daily service much. The company has prepared an emergency plan which is a detailed planning is prepared for potential risks. It states what to do when certain circumstances happened which allows Kerry to deal with the problem more easily. Automation brings convenience and increases the working efficiency towards the company.
9. What are the competitive advantages of Kerry Logistics in logistics industry?
As Kerry has been operating for more than 30 years, the company has accumulated a lot of knowledge in the industry. The company has many different experts with years of experience in different industries. Experienced staff help to educate new staff based on their experience, while new staff can also bring new ideas to the company to improve operations in creative ways. Kerry’s staff support each other to build up a stronger team. Kerry has made use of advanced technology in their operation. The company provides training to staff which allows them to keep up with and make good use of new technology in their daily operations. Being a large company with fruitful resources, the company also benefit from economies of scale by making use of numerous warehouses and manpower around the world. As different clients have different peak seasons, the company can allocate resources from one to another to utilize the usage of resources.
10. How does Kerry Logistics adopt green technology in the warehouse operation and transportation?
For the delivery process, Kerry uses trucks with a hybrid model which use both electricity and diesel fuel. When the driver uses the truck, electricity will be used first and followed diesel fuel. This reduces the use of non-renewable resources and helps preserve the environment. This is one kind of green technology adopted by Kerry Logistics in transportation. For warehouse operation, Kerry uses LED lighting for most of the warehouses which is more environmentally friendly.
Learning Reflection
Kerry Logistics consistently focuses on delivering high service quality as well as building a strong distribution network in greater China. At present, it is well known as a leading logistics solutions provider in Asia. Their success can be attributed to the diversified service offering and constant investment in technology.
In the past, logistics services providers offer shipment and delivery service. But in GAP and Netgear’s operations, we could see that they employed Kerry’s distribution and return material authorization services. On top of that, the profit margin of delivery is slim. To generate higher profit, Kerry takes a cut from value-added services so that while its customers can enjoy ease in getting the minor work done, Kerry can earn a higher turnover of HKD$24 billion in 2016.
Apart from the diversified profile of service that Kerry Logistics provide, they also continuously invest in innovation and technology to improve the company's productivity and efficiency. By dividing order picking into three different types like PTS, Carton Picking and Piece Picking, staff no longer need to walk through all the aisles to get the goods they need to pick. They can also use the RF Hand Held Scanner to ensure the accuracy of orders. In addition, the company has bought a lot of machines like the AisleMaster, a narrower forklift, to spare more space for storage. All these innovative operations and technologies are effective in helping the company improve efficiency.
In essence, Kerry Logistics’ success is reflected from its extensive reach in the market and strong physical presence. But they should start to consider about recycling and reuse the large amount of carton boxes to address the world's growing focus on sustainability.
Kerry Logistics consistently focuses on delivering high service quality as well as building a strong distribution network in greater China. At present, it is well known as a leading logistics solutions provider in Asia. Their success can be attributed to the diversified service offering and constant investment in technology.
In the past, logistics services providers offer shipment and delivery service. But in GAP and Netgear’s operations, we could see that they employed Kerry’s distribution and return material authorization services. On top of that, the profit margin of delivery is slim. To generate higher profit, Kerry takes a cut from value-added services so that while its customers can enjoy ease in getting the minor work done, Kerry can earn a higher turnover of HKD$24 billion in 2016.
Apart from the diversified profile of service that Kerry Logistics provide, they also continuously invest in innovation and technology to improve the company's productivity and efficiency. By dividing order picking into three different types like PTS, Carton Picking and Piece Picking, staff no longer need to walk through all the aisles to get the goods they need to pick. They can also use the RF Hand Held Scanner to ensure the accuracy of orders. In addition, the company has bought a lot of machines like the AisleMaster, a narrower forklift, to spare more space for storage. All these innovative operations and technologies are effective in helping the company improve efficiency.
In essence, Kerry Logistics’ success is reflected from its extensive reach in the market and strong physical presence. But they should start to consider about recycling and reuse the large amount of carton boxes to address the world's growing focus on sustainability.