Here’s what caught our attention this week in the world of supply chain and logistics:

Software vendors and 3PLs have started reporting second quarter financial results, and the rebound compared to Q2’09 continues. Manhattan Associates total revenues increased 33 percent in the quarter compared to a year ago. License revenues were $15.5 million, a 278 percent (!) increase over the $4.1 million posted last year. Two contracts worth $1 million or more in license fees contributed to the results (one of these deals was a WMS + TMS contract). About 55 percent of license revenue came from WMS deals and 75 percent from existing customers. It’s interesting to note the number of Asian companies listed as new customers this quarter (e.g., Guangdong Xin Yang Logistics Equipment, Guangzhou Fengshen Logistics Co., and Qingdao Haier Logistics Co.). Manhattan expects total revenues to reach $300 million by the end of the year, which would be a 22 percent increase over 2009 results, but still be about 11 percent short of 2008 full-year results.

International shipping fueled UPS’s sharp rise in earnings this quarter. According to the press release:

The operating profit for the [International Package] segment increased 78% to $521 million on a 23% jump in revenue. Operating margin improved 580 basis points to 18.8%. Export volume increased 15%, outpacing the market due to strong growth in all regions with Asia leading the way, up more than 40%.

Non-U.S. domestic volume increased 24%, driven by an acquisition in Turkey in the third quarter of last year as well as 13% organic growth, powered by strength in core European countries and Canada.

Revenues from UPS’s Supply Chain and Freight segment increased 20.6 percent in the quarter, helped by a 30 percent increase in forwarding tonnage. In the press release, UPS highlighted its fifth annual Healthcare Forum in Washington, D.C. where “healthcare logistics experts gathered to discuss UPS solutions that create more efficient supply chains.” Historically, healthcare companies have been slow to outsource their logistics operations, especially compared to automotive, high-tech, and CPG companies. But as I highlighted last year, companies in the healthcare industry, which includes pharmaceutical and medical device companies, are starting to pay more attention to their logistics capabilities and costs. This is prompting some healthcare companies to explore outsourcing, which is why UPS continues to invest in serving this segment (see “Understanding Why Companies Outsource Logistics”).

The rebound in the automotive industry, an important vertical for Ryder, contributed to the company’s positive results this quarter (total revenue was up 6 percent, operating revenue grew 2 percent). Total revenue for the Supply Chain Solutions (SCS) business segment was $310.1 million, up 12 percent from Q2’09, and operating revenue (revenue excluding subcontracted transportation) was up 7 percent to $249.9 million.

As part of his 2010 outlook, Ryder Chairman and CEO Greg Swienton said, “Our original 2010 business plan contemplated a moderate improvement in the overall economy and freight environment in the second half of this year. The positive leading indicators that began to emerge in our business during the first quarter strengthened and became more stable throughout the second quarter, reflecting some improving market conditions and demand. In many cases, our customers still remain cautious [emphasis mine]….” Nonetheless, Ryder anticipates (among other things) “a continuing stable automotive environment and better high-tech and consumer industry performance for the balance of the year. Taking all of these factors into consideration, we are confident that we can deliver on our increased earnings growth objectives for 2010.”

I highlighted the “our customers still remain cautious” remark because I’m hearing the same thing from other 3PLs and software vendors, in terms of what’s holding back additional growth (Manhattan’s CEO made similar remarks on the earnings call). The other factor impacting growth is weakness in Europe, where economic conditions remain uncertain and arguably could get worse.

Interesting article in today’s Wall Street Journal about Walmart applying RFID tags to jeans and underwear. This is a bit of history repeating itself again. If you’ve been an avid follower of RFID in retail, especially apparel, there is nothing new here. Even the complaints from consumer privacy advocates (alarmists?) are the same as years ago. However, what’s different this time around is that Walmart is willing to subsidze some of the added costs suppliers will incur. According to the article, “Wal-Mart won’t disclose what it’s spending on the effort, but it confirms that it is subsidizing some of the costs for suppliers.” The article also includes the following comment from a supplier:

“There are definitely costs. Some labels had to be modified,” said Mark Gatehouse, director of replenishment for Wrangler jeans maker VF Corp., adding that while Wal-Mart is subsidizing the costs of the actual sensors, suppliers have had to invest in new equipment. “But we view this as an investment in where things are going. Everyone is watching closely because no one wants to be at a competitive disadvantage, and this could really lift sales.”

Have we finally reached the tipping point for RFID in retail, particularly here in the US? Walmart’s RFID strategy has evolved over the years, with the company sometimes accelerating efforts, other times throttling back. The key to success remains the same: convincing suppliers that there is sufficient benefit for them to justify the added cost. This didn’t happen in the past, which is why many suppliers pushed back, forcing Walmart to scale back its ambitions. Nevertheless, anything Walmart does is worth paying attention to. Things might actually be different this time around.

Have a great weekend!

(Note: Manhattan Associates, Ryder, LeanLogistics, and Sterling Commerce are ARC clients)

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