It’s been a crazy week here for me. I’ve been working on finishing up our omni-channel strategic report, scoping my soon-to-launch omni-channel market study, and took a quick two day trip to the Waldorf Astoria in New York City for SAP’s Retail Forum. It was a great conference with lots of great speakers and sessions (which you will most likely be reading about here in the coming weeks). So let’s get right to this week’s news.

On Thursday, October 9, the National Retail Federation (NRF) sent a letter to the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) urging the two parties to conclude their contract negotiations. I have written about the issues with the contract here before, as retailers have been rushing to get holiday inventory into the US before a strike occurs, halting all activities. NRF has cited the ongoing contract negotiations for impacting the retail supply chain, destroying contingency plans, and contributing to the ongoing port congestion. The letter states:

We urge the parties to quickly come to a conclusion on a new labor agreement as a means to resolve the ongoing congestion issues impacting the West Coast ports.  At a minimum, we ask that the parties extend the expired contract through November in order to reinstate arbitration agreements, which are preventing many issues at the ports from being addressed.
Retailers are now in the midst of their heaviest shipping season of the year preparing for the upcoming holidays, which are a ‘make it or break it’ time for retailers and merchants.  While we recognize that there are many reasons for the current port congestion, there is no doubt that the lack of a new labor contract between PMA and the ILWU is having a big impact on port productivity, particularly in Southern California.

UPS lockersE-commerce was a major boon to UPS. As retailers needed efficient ways to ship their goods, UPS was happy to answer the call. The only drawback has been actual deliveries. If the customer needed to sign for a package, they needed to stay home waiting for the doorbell to ring. If they missed the delivery, they might need to drive to a UPS location to pick up the package. Well, UPS is ready to change that. The company is running a test in the Chicago market where packages are left in lockers for customers to pick up at their convenience. The lockers allow the customer to pick up their package when they want it. And it also allows drivers to be more efficient. Rather than making hundreds of home deliveries, the driver can drop off a number of packages at a single locker location. It cuts down on total operating costs and allows the drivers to deliver more packages in a given day. The only real question is whether people will actually want to leave their house to get their packages.

Amazon is keeping busy. First, the company has announced plans to sell large appliances in India during the festive sales season leading up to Diwali. Most online retailers in India will not sell large appliances due to the difficult nature of delivering them. Amazon, however, is bucking the trend. With its’ new warehouses across India, it certainly has a leg up on the competition with the ability to stock the appliances in multiple locations.

Additionally, Amazon is looking to open its’ first ever brick and mortar location. According to reports from CNBC and the Wall Street Journal, the company is planning to open a brick and mortar location in midtown Manhattan in time for the holiday season. While this is not exactly what people think of when they think of Amazon, it could help alleviate some of the holiday headaches of years past (2013 was especially rough for Amazon).

Curbside-Shopping-Shoot-4Palo Alto, Calif.–based delivery service Curbside launched this week. The service operates through a free mobile app that allows shoppers to find products that are in stock at multiple local stores and check out through the app. Many store locations will feature designated curbside pickup locations where shoppers can pick up their without having to park or get out of their car. The Curbside app’s location technology notifies the staff that shoppers are approaching for a pickup. The push for click and collect is really shining through this week.

And finally, the Department of Transportation’s freight transportation services index rose to a record high in August. The index increased 3.8% to 120.9 in August, the highest level since records began in 2000. The previous record 120.3 was set in May. The freight TSI increased 0.6% from July, rising for the second consecutive month, DOT’s Bureau of Transportation Statistics said in its monthly report. DOT uses a baseline reading of 100 from the year 2000. Truck, water and pipeline freight increased, but rail and air declined, BTS said.

That’s all for this week. Enjoy the weekend and the song of the week, You Can Call Me Al, by Paul Simon.

The band R.E.M. crafted many a catchy tune.  One that always sticks in my head is “It’s the End of the World as We Know it (and I Feel Fine).”  While I cannot today remember every line of that fast-paced song, it always made me think of big changes coming in the world around me.  While most folks do not connect REM and retail in the same thought process, I think that the song actually does apply for practitioners in retail supply chains.  Why?  Well, to read most supply chain articles that touch on retail these days, one would be led to believe that it’s “the end of the retail world” as we know it – an unavoidable black hole that is going to suck in brick and mortar stores and replace nearly all consumer transactions by e-commerce.  While I freely admit that a viable omni-channel strategy is certainly a key piece of the puzzle for many a retailer, the REM “I Feel Fine” phrase resonates since brick and mortar is here to stay for a wide swatch of retail sectors for decades to come.  This means that supply chain best practices will also lift up many a retailer long into the future.

Even as Hollywood continually bombards us with apocalypse movies, we can embrace the fact that many retail futures are bright.  With many retail concepts adding stores in new and established markets (including most cities in my home state of Texas), thoughtful and analytical consideration of your supply chain network will directly contribute towards store level EBITDA and positive WPSA comps.  Grounded, programmatic transportation management programs will continually drive lower delivered costs per case, high in-store availability rates, and manageable inventory levels.

Signs are pointing favorably for retailers heading into the holiday season and 2015. We highlighted key trends and opportunity areas to consider when it comes to supply chain and transportation optimization in the infographic below (Link to PDF of Infographic).


Transplace Infrographic Cropped

Brent Hudspeth serves as Vice President, Business Development and Consulting at Transplace. Based in Dallas, his five years of experience at Transplace come on top of executive roles in supply chain consulting, technology and manufacturing businesses.


In today’s competitive environment, more and more companies are placing increased focus on the processes that best support their competitive positioning. Concurrently, these same organizations are shifting responsibility for other processes to specialist organizations. The increased use of 3PLs for transportation, warehousing, and fulfillment is one example of this trend in specialization. The partnership between 7-Eleven and Exel in the fresh food channel is an interesting example of logistics outsourcing that has enhanced fulfillment processes and enabled top-line growth. Last week I attended the S&OP Innovation Summit in Boston, where executives from 7-Eleven and Exel discussed the processes that enable daily delivery of fresh food to over 8000 stores in the US and Canada.

In the 1990s, 7-Eleven stores were receiving fresh goods two to three times a week through direct-store delivery or wholesale channels. More recently, 7-Eleven developed its fresh delivery “demand chain” to service over 90 percent of its 8,200 stores in the US and Canada with daily delivery of fresh items. And deliveries to over 75 percent of these stores are handled by Exel, a 7-Eleven logistics partner. It is not just the scale and frequency of the operation that is impressive. This daily fulfillment process is demand-driven with order-to-delivery cycles shorter than 24 hours.

7-Eleven Fresh Food Daily v3

The Order-to-Delivery Cycle
Store operators utilize a handheld order terminal to review pertinent information such as past sales and to place orders for the next day. The orders for fresh food; including sliced fruit, sandwiches, donuts, and dairy; must be placed by 10am to obtain delivery by 6am the next morning. Orders entries from all stores within a territory are placed in a central system that is visible to fresh food vendors. As an aside, the final deliveries to stores is based on demand, not a push out. However, many food vendors such as bakers will pre-produce based on a forecast, then adjust based on demand. This is possible because single store variations are often smoothed out in aggregate.  The fresh food vendors are then responsible for delivering the ordered items by 2pm to the combined distribution centers (CDCs) that are run by Exel or other 3PL partners (7-Eleven currently utilizes 25 of these “fresh goods” CDCs across the US).  The CDC workforce sorts products by store destination and prepares orders to be loaded. The bakery and commissary deliveries are cross-docked and are usually the last items to be added to store shipments.

The orders are loaded onto dual-temperature box trucks at the CDCs and dispatched by 8pm. The box trucks, also run by Exel, average between 15 and 20 stops per night, with stops taking an average of 15 minutes. Store workers use a scanner to check in orders and this also serves as a record of sales history. The goal is for store deliveries to be completed by 6am in time for the morning rush. This process has provided the benefit of fresher products in 7-Eleven stores which has led to increased sales. The network of regional CDCs has served a critical role in this process, enabling vendors to deliver to a central location and 7-Eleven logistics partners to replenish stores on a daily, demand-pull basis.

Vikings, on the  Way to New  World!

Vikings, on the
Way to New

Happy October, the month of Octoberfest, Halloween, and Columbus Day. On October 12, 1492, Christopher Columbus’ expedition from Spain reached what is believed to be the Bahamas. This day was the inspiration for a holiday due to the belief that his expedition was the first from Europe to reach the Americas. But we now know that the Vikings were likely the first European sailors to reach the Americas. I suggest that we start a movement to create a “Bjarni Herjólfsson” day. Yes, according to Wikipedia, Bjarni saw North America in 985 AD, but did not actually set foot on the land. Roughly fifteen years later, Leif Erikson did set foot on North America. Still 400+ years before Mr. Columbus. I just decided, L’Anse aux Meadows is my next vacation destination.

Kewill announced the acquisition of IBM’s Sterling TMS earlier this week. The solution will become part of the Kewill MOVE transportation platform. This acquisition will increase Kewill’s transportation capabilities and complement the company’s parcel shipping and global trade management footprint. The acquisition will also enhance Kewill’s presence in the North American market and key industries such as retail and food & beverage. The IBM Sterling TMS provides additional synergies to Kewill’s current offering, as it offers strength in planning and execution functionality for shippers, whereas Kewill’s existing TMS is more heavily focused on fleet management requirements.

This article on fulfillment centers in National Real Estate Investor caught my eye. The article discusses the effect of the booming e-commerce channel on warehousing, and subsequently, the real estate market. This has led to increased demand for industrial property, and lower levels of vacancies. The article references the omni-channel paradigm and retailers’ movement to blunt Amazon’s competitive momentum. Here are a couple of interesting quotes from the article:

“Two or three years ago, the other major retail companies were making their business case internally, going to their finance teams and requesting dollars,” he says. “They made these decisions in 2012, and now we’re just starting to see what their platform is going to be.” According to Scott Marshall, executive managing director for industrial services for CBRE. “You could try to achieve same-day, but then your transportation costs would triple, and you’ve lost in the long run,” Marshall says. “Companies will win if they strike the perfect balance, service level vs. cost, with the perfect operating model bringing the most profit to the shareholders.”

As an example of expanding fulfillment centers, the Journal of Commerce reported that Home Deport recently opened the second of three previously announced fulfillment center projects to enable fast shipping of orders to customers. This California DC is almost 900,000 square feet of space focused on e-commerce fulfillment. This follows the opening of a 1 million square foot DC in Georgia in February. The third DC will be opened in Ohio. The article notes that e-commerce still represents only about 4 percent of the company’s sales, but it is growing at 35-40% annually. As an aside, this is inline with Wal-Mart’s e-commerce growth rate and Amazon’s corporate growth rate. The article references a Seeking Alpha transcript of a presentation by the CEO that states the following:

…if you followed Home Depot over the last several years you know that our transformation in supply chain has been one of the great drivers of value in our business. As we moved from the bulk of our products going direct to store to the bulk of our products going through our rapid deployment centers…

The Journal of Commerce article further states, “Home Depot will spend $300 million this year on the fulfillment centers, mobile technology used by employees in stores to help customers, facility enhancements and a warehouse management system.”

What company doesn’t love subsidies? Reuters reports that the Chinese government has given four shipping lines 1.8 billion yuan ($293 million) in subsidies to encourage vessel upgrades. China Cosco received 1.3 billion yuan and a sister company received 183 million yuan. Surprisingly (sense the sarcasm), the companies expect the subsidies to have “a positive impact on their full-year results.”

The American Association of Railroads reported increased rail traffic for the month of September, with both intermodal and carload volumes increasing year-over-year. September marks the seventh strait month of year-over-year carload increases. What I found most interesting (from the chart that is linked to press release), petroleum and petroleum products are up 25% from September of 2013. Year to date it is up almost 13%, when compared to last year.

Lastly, BusinessWeek reports that Amazon warehouse workers are looking to be compensated for their time, almost 30 minutes, waiting in security lines. The article states that the Supreme Court will soon hear arguments about whether that time counts as work. I’m guessing that the workers will win this case. Why do I think the workers will win? Is it knowledge of employment law? No. Is it a strong moral compass? No. It is because, I’ll bet that in the past, workers asked management, “why do we have to wait in this ridiculous line?” and management responded, “Because it’s part of your job.” That response sealed the deal, right there.

Have a great weekend!

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vs_logoLast week I attended the CSCMP Annual Global Conference in San Antonio, TX. The omni-channel track featured in the Customer Cornerstone had a number of interesting sessions (including mine). One that stuck out to me was “Creating a Healthy Omni-Channel Supply Chain: The Vitamin Shoppe’s Transition from Multi-Channel to Omni-Channel Retailer” presented by Rich Tannenbaum, Senior Vice President at The Vitamin Shoppe. Headquartered in North Bergen, NJ, The Vitamin Shoppe operates over 650 stores in 42 states, with revenues exceeding $1 billion. The company has seen twenty consecutive years of comp sales as they have grown from a catalog based retailer to an omni-channel retailer.

According to the presentation, The Vitamin Shoppe looked at three areas when moving from a multi-channel environment to omni-channel: inventory, distribution, and business processes and systems. Each of these areas contribute to the overall customer experience and need to be integrated to allow for anytime, anywhere retailing. The company looked at ways to improve each of these three in their omni-channel journey, using a combination of technology and new business processes.

vs-products-300x200The goal of The Vitamin Shoppe was to provide unprecedented inventory availability. The thought was that as channels merge, so should inventory. Our recent research has shown that less than 60% of retailers are sharing inventory across channels; this is a major roadblock to omni-channel. To achieve better inventory availability, The Vitamin Shoppe identified three strategies. First, the company evolved its inventory management processes. It overhauled demand planning, forecasting, and replenishment. This resulted in a focus on margins and maximizing inventory profitability. Second, the company outsourced planning and fulfillment to a software provider. This gave them better visibility into item, channel, and fulfillment levels. And third, the company no longer had buyers and planners. Instead, they brought in inventory managers. The inventory managers had a better grasp on how to make their inventory levels leaner, which led to improved inventory accuracy. With the roll-out of these new processes, The Vitamin Shoppe saw dramatic improvements in in-stocks, online back orders, and store inventory accuracy.

The second piece of the omni-channel puzzle was distribution. A key component to distribution is timely fulfillment of customer and store replenishment orders. This requires a network of DC’s. Four years ago, The Vitamin Shoppe had one DC in New Jersey to support their stores, e-commerce, and catalog business. This was clearly not sustainable for continued growth. The company’s order cycle time was slow, deliveries to stores were infrequent, and inventory accuracy in the DC was sub-optimal. The company made operational and tactical decisions to make improvements. First, they moved to smaller batch sizes, reducing the amount of on-hand inventory. They also changed their slotting philosophy to match customer demand. The big move was to open new DC’s for continued expansion. The Vitamin Shoppe opened DC’s in California and Richmond, VA. As they opened these new DC’s, they were designed to fulfill both in-store replenishments as well as e-commerce orders. This was an important component for the merging of their channels. As a result, average order cycles times were reduced from 8 days to mostly same day, deliveries to stores became much more frequent, transit times were reduced, and inventory accuracy at DC’s reached 98.5%.

The final component was to align business processes and systems. The key was to build business processes and systems that create a more seamless experience regardless of channel and to empower the customer to shop where, when, and how they want. With in-store inventory accuracy low, store managers would generally create special orders to make sure they had certain products in the store, even if the amount on hand was not needed. Combine that with the fact that the company was using an outdated, legacy order management system, and there was little control and oversight into inventory accuracy. The company installed a new order management system, which integrated with their point-of-sale system. ARC’s research has shown that order management is at the heart of omni-channel. The Vitamin Shoppe now had more transparency into inventory levels and had a better handle of what they had in-stock and what they needed.

The Vitamin Shoppe is a great example of a company that is in the midst of the omni-channel overhaul that is needed. Fortunately, they have developed a long term roadmap to navigate the transition. By breaking down the journey into phases, The Vitamin Shoppe was able to empower their customers to shop how and when they want while improving in-stock rates, order cycle times, transit times to customers, inventory visibility, and most importantly, , inventory accuracy in both the store and DC.

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