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Hitachi

Hitachi Research Institute

Executive Column

Commentary by our General Manager, Keiichi Shimada

Executive Column #3: Digital and Convenience

 A convenience store first came to my town when I was in the upper grades of elementary school. It was open from 7:00 a.m. to 11:00 p.m., seven days a week. When I first heard this, I found it hard to believe. Could it really be true? Weren’t shops supposed to close when it got dark? One night, my friends and I went to check it out. A small store stood at the end of the shopping arcade, shining brightly in the night. It even sold hand-dipped ice creams and drinks (back then). Without exaggeration, the existence of that store came as a tremendous shock to me. This was at a time when the word “conbini,” the Japanese nickname for convenience stores, did not yet exist. In those days, if I needed a notebook for school or I had forgotten to buy snacks for a school excursion and I was panicking at night or on the weekend, my parents would contact the owners of the local general store with whom they were friendly and get them to quietly open up the store so I could buy what I needed. Of course, while my parents were scolding me the whole time. As I gazed at that new store, I thought to myself that I would never have to worry about that kind of thing again.

 Some years after I joined the workforce, online shopping made its appearance. For me, online shopping meant Amazon. Until then, if I wanted to read American comics or magazines from overseas, I would have to go to a bookstore in Kanda-Jinbocho. If what I wanted had to be ordered in, I would have to wait for several months. Now, I could order it from home on my computer and buy it for a reasonable price. I recall that, at the time, it took more than a week to arrive, but finally, the item I had ordered so nervously would be delivered to my home. I remember being so excited and impressed that something that had been so far away was now in my hands, without me even having to leave the house. I realized that I no longer had to buy up a stack of magazines whenever I went overseas on business trips or go to Kanda to check whether something was in stock.

 About 40 years have passed since convenience stores arrived in Japan, and it has been about 20 years since the advent of online shopping. Convenience stores are now to be found all over town, and Amazon has expanded its range exponentially, to the extent that it is now possible to buy any daily household goods you might need. Many manufacturers and retailers have also opened their own online shops. These shops are open at night, on weekends, and even during the end-of-year/New Year holiday period. If you are an Amazon Prime member, your order will be delivered no later than the next day. If the delivery time does not suit you, you can have it delivered to your nearest convenience store. Convenience is evolving beyond time and beyond space.

 However, even as it continues to evolve, a shadow is starting to appear over that convenience. That is the increase in logistics costs in Japan. Recently, in April 2018, Amazon raised some of its delivery charges. Increased personnel costs caused by a labor shortage in the logistics industry, particularly the transport industry, have apparently led to major increases in freight charges. A business sentiment survey released by the Japan Trucking Association in August 2018 found that around 70% of the trucking companies surveyed (approximately 600 companies in Japan) responded that they did not have enough people. According to the same survey, the labor shortage in the trucking industry started to expand in about 2013. A search of newspaper articles shows that the topic of the labor shortage in the logistics industry started to pop up here and there around four years ago. This just about coincides with the start of the recovery in the domestic economy.

 On the other hand, a look at macro-economic statistics reveals a slightly different picture. According to the Ministry of Land, Infrastructure and Transport’s Annual Statistical Report on Transportation, there has been a gradual decline in domestic freight volumes (tonnage base), which have fallen 25% in the past 20 years (1995 - 2015). Freight volumes per shipment have also continued to fall over those 20 years, from 2.13 tonnes per shipment in 1995 to 0.98 tonnes, less than half, in 2015. If freight volumes are decreasing, why is the labor shortage becoming increasingly serious?
In those 20 years, the number of shipments has increased, the amount of time waiting for freight has expanded, and, as a result, truck load efficiency has declined. Smaller lots, higher frequency, and deteriorating time efficiency have led to the growing severity of the labor shortage. Amid structural changes in the supply chains of goods and services, logistics systems have been unable to make fundamental changes to their architecture, and we may assume that this distortion has manifested in the form of labor shortages and poorer load efficiency.

Goods and services supply chains have evolved in line with people’s convenience. Amid this evolution, caught in the middle between sales systems that use data to predict demand and verify inventory and production systems that are achieving automation using robots and small-lot/high-mix production, the logistics industry has been called on to deliver the goods when they are needed in the quantity they are needed. This priority on the convenience of the demand side, originating with the users, has resulted in greater inconvenience on the supply side. People will pay money for “convenience.” In the age of the sharing economy, goods and services supply chains will continue their transformation along with digital evolution. There is no stopping the evolution of convenience. Supply chain innovations that challenge the constraints of time and space will continue for a long time to come.

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