Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

This Week in Logistics News (October 24 – 30)

This Week in News | By •

jack-o-lanternsTomorrow is Halloween. Pumpkins have been carved, pumpkin seeds have been roasted, candy has been bought (and opened, eaten, and more has been bought), and costumes have been purchased or made. And tomorrow, children across the land will go door to door asking for candy, while dressed in these scary, funny, cute, or ridiculous costumes. It’s certainly one of my favorite holidays of the year. But there is so much planning that goes into the holiday, especially when you look at the supply chain implications of pop-up Halloween stores. They run for a month and a half at most, and disappear on November 1. So many costumes and accessories to ship around the country, with anything leftover to be put in storage or sold at discount prices. It’s actually mind boggling to think of all the effort and planning that goes into a theme store like this. That’s why I prefer to sit back and just enjoy the day.

And now, on to the news.

Walmart droneWal-Mart is jumping on the drone craze, becoming the latest retailer to ask permission to use drones for customer deliveries. The retailer applied to the Federal Aviation Administration (FAA) for an exemption from current regulations to make deliveries to customers in its parking lots and at customers’ homes. Wal-Mart is also hoping to use drones to check on buildings, warehouses, and DC’s. This aspect of the request makes sense as surveillance equipment cannot see these buildings from all angles, which is something a drone could fix.

ups_logoUPS announced rate increases will take effect January 2, including the second boost this year to its fuel surcharge and a near-doubling—to $110 from $57.50—of the fee to deliver oversize items, such as mattresses and patio furniture. The company’s new round of rate increases includes a fee to help make up for cybershopping sites and big-box retailers’ sharing of generous shipping discounts with vendors. This will be done through a move that charges for third-party billing. This new fee also will affect retailers that allow vendors to use the discounts to ship directly to consumers—skipping the middleman—or direct goods to their own shelves for restocking.

best-buy-logoBest Buy has announced that it will offer free shipping on online orders from November 1 through January 2. This means the company is waiving the $35 minimum threshold to receive free shipping. For many consumers, this sounds like great news. However, how many orders will this truly affect? The home electronics retailer sells a wide array of goods, but the majority of those items, especially big ticket items, would already qualify for free shipping. The company is betting on the fact that a perceived discount will bring in customers.

time-cardsThe carrier handling Amazon’s same-day delivery services has been hit with a lawsuit by California truckers who claim the company has misclassified them as contractors. By not classifying them as employees, the suit claims they are thereby denying them wages and benefits. Four truck operators filed the class action litigation earlier this month on behalf of themselves and hundreds of other delivery drivers employed as part of Amazon’s Prime Now service. With Prime Now set to expand and put the pressure on competing retailers to meet same day delivery expectations, this lawsuit could potentially derail plans.

doormanDoorman is coming to Chicago. The startup is aiming to eliminate the problem of consumers missing deliveries. Basically, the company allows consumers to schedule their own deliveries, as late as midnight. Instead of taking delivery whenever the shipper arrives, Doorman users provide an online retailer with their personal “Doorman address” (a location in the Doorman warehouse). The company then signs for you and holds the package until you’re ready to receive it. Users are alerted through a notification in the Doorman app, and can schedule their delivery from 6 PM to midnight, 7 days a week. The company is now live in Chicago and will be live in New York soon. It is certainly an interesting business plan for congested cities, allowing consumers to schedule a pick-up time instead of having packages left on their doorsteps.

The country’s average at-pump diesel price dropped another 3.3 cents during the week ending Monday, Oct. 26, according to the Department of Energy’s weekly report. The average price of a gallon of on-highway diesel is now $2.498. Prices dropped in all regions across the nation except California, which saw a slight increase of five-tenths of a cent. The most expensive diesel in the U.S. can be found in California at $2.813 per gallon, followed by the Central Atlantic region at $2.62 per gallon. The cheapest fuel can be found in the Gulf Coast region at $2.299 per gallon, followed by the Lower Atlantic at $2.396 per gallon.

fedex-logoAs I wrote about in last Wednesday’s column, both UPS and FedEx are getting ready for the holiday rush by hiring a combined 150,000 seasonal employees. This week, both companies released their holiday forecasts. UPS expects 630 million packages during the holiday season, with its busiest day expected to be December 22, when it will deliver an estimated 36 million packages. FedEx expects to handle 317 million, an increase of 12.4 percent over the previous year. Between the two companies, that is almost 1 billion packages to be delivered during the holiday season – or about a quarter of the packages that Santa will deliver on Christmas Eve alone.

That’s all for this week. Enjoy the weekend, trick or treating, and the song of the week, Thriller by Michael Jackson.

Amazon vs. Walmart: E-Fulfillment vs. Omni-Channel Logistics

Logistics Trends | By •

There were two recent stories about Amazon vs. Walmart when WalMart announced it was opening two new distribution centers to fill e-commerce orders. One story, in the Wall Street Journal (WSJ), got it mostly wrong (Wal-Mart Builds Warehouse for Web Orders), and a story in USA Today got it mostly right (Retail stores become shipping hubs to battle Amazon).

Here are some excerpts from the WSJ article:

[Walmart is] building a pair of dedicated warehouses to handle Internet orders and speed up shipments, its latest move as it tries to catch up to online rival Amazon.com Inc.

 

Wal-Mart got into e-commerce more than a decade ago, but it’s online sales still account for just a fraction of its $469 billion in total revenue. Wal-Mart’s Web sales came in at $7.7 billion last year, compared with more than $61 billion for Amazon, according to trade publication Internet Retailer.

In short, Walmart still badly lags Amazon in e-commerce and it is playing catch up. You have to go pretty deep into the article before you see this excerpt:

Wal-Mart maintains that it isn’t trying to replicate Amazon’s business model, which it believes would be a mistake considering it has 4,100 stores within five miles of two-thirds of the U.S. population, Mr. Anderson [president of Walmart.com] said. Instead, Wal-Mart plans to combine its stores, existing distribution centers, and new facilities into what it calls its “next generation fulfillment network.”

But this afterthought, placed at the bottom of the article, is really the heart of a retail strategy known as Omni-channel Commerce, being implemented by not only Walmart but by many leading brick and mortar retailers. (Ann Inc.’s efforts are profiled in Omni-channel Momentum; Macy’s in Macy’s Wins with Omni-channel Fulfillment; Best Buy’s in Best Buy Embraces Omni-Channel Commerce; and Home Depot in Home Depot Drops the “E” Off of E-Commerce).

Omni-channel is an initiative by brick and mortar retailers to better integrate their stores and e-commerce channels. So a retailer might support buy online, pick-up at store; or order online, deliver to home from a store; several other fulfillment paths are also possible.

The USA Today article got this right, and focused specifically on one omni-channel fulfillment strategy, perhaps the most promising one, known as ship from store. Here are some excerpts from USA Today:

Some of the world’s largest retailers are turning their stores into mini distribution hubs to help them compete better online against Amazon.com.

 

Instead of fulfilling Web orders from warehouses hundreds of miles from shoppers’ homes, companies including Wal-Mart, Best Buy and Gap are routing orders to stores nearby.

 

Store employees pick products from shelves, pack them into boxes and drop them into waiting FedEx and UPS trucks that zip off to homes a few miles away.

 

The trend, known as Ship from Store, saves money through shorter delivery routes. More important, it speeds deliveries, avoids costly markdowns and recoups sales that have been lost to Amazon, the world’s largest Internet retailer.

This ship from store strategy won’t be easy. In order to intelligently allocate inventory from stores, retailers need to implement a technology platform known as distributed order management (DOM). Walmart is investing $430 million in what it calls its “global-technology platform.” A major piece of the investment will be in a proprietary DOM, although commercially available DOM solutions can be bought from companies like Manhattan Associates, Oracle, and IBM (Manhattan Associates and Oracle are ARC customers).

Secondly, retailers need to be able to execute the “perfect order” from the store. This means they need to implement, in effect, miniature warehouse management systems (WMS) in the back room of their stores. A WMS is a real-time fulfillment solution that can ensure virtually 100 percent accuracy in picking, something that will be very difficult to achieve if picking is done in the front of the store or if the store does not use “WMS light” type solutions. The article The Evolution of Omni-Channel Logistics describes the inventory accuracy hurdles involved with store picking.

Thirdly, retailers need to take the culture of the perfect order as practiced in distribution centers, and graft it into the store. This culture change is likely to be far more difficult than implementing new technologies (see Walmart’s Omni-Channel Dilemma).

Finally, I disagree that the best way to ship from the store is by using UPS or FedEx. Because brick and mortar retailers in metropolitan areas have stores in close proximity to large numbers of consumers, they could use a paratransit style dynamic routing solution to compete on speed, delivering goods in as short as 90 minutes of the order being placed.

Omni-channel commerce is driving the most interesting set of logistics challenges the supply chain field has seen in a generation. The most effective strategies and technologies are not known yet. Consequently, this will be an area closely examined for years to come.

(I’ll be giving a webinar “Are retailers ready for omnichannel commerce” on October 15th and a speech on Omnichannel Logistics at the CSCMP Annual Global Conference on October 22).

This Week in Logistics News (September 30 – October 4, 2013)

Retail | By •

Is it ironic that the U.S. government partially shut down on Tuesday, the same day I was scheduled to give a talk on collaboration? I’m thinking of sending my representatives in Congress a copy of the book Getting to We, written by my friends Kate Vitasek and Jeanette Nyden — and also inviting them and all members of Congress to participate in my upcoming conversation with Kate and Jeanette on Talking Logistics. You never know, it might help.

While the stalemate continues in Washington, things keep moving forward in the world of supply chain and logistics.

There were lots of omni-channel and e-fulfillment stories in the news this week. Manhattan Associates announced the latest release of its Omni-Channel Customer Service software that enables a retailer’s customer service representatives (CSRs) to “see customer transactions across all selling channels, allowing them to swiftly search using any piece of customer or order information, service inquiries across all touch points and convert the sale with products from any channel.”

Meanwhile, USA Today published an article highlighting how Walmart, Best Buy, and other “brick-and-mortar” retailers are moving quickly to enable ship-from-store capabilities. Here are a few excerpts that caught my attention:

“Some people talk about Amazon with their 100 distribution centers, God bless them. We have 2,600 distribution centers,” said Gap Chief Executive Glenn Murphy, referring to the apparel retailer’s network of Banana Republic, Gap and Old Navy stores.

 

Shipping online orders from Best Buy stores could generate an extra $5.8 billion in sales and $168 million in profit next year for the company, according to [estimates by Gary Balter, an analyst at Credit Suisse].

 

Already, 10% of the items ordered on Walmart.com are shipped from stores and the majority of those packages are delivered in two days or less, according to the company.

And you wonder why so many software vendors are hot and heavy over omni-channel retailing? For some added perspective on this topic, check out my conversation with Eric Morley and Will O’Brien, former supply chain executives at leading retail companies, where they share their insights and advice on the supply chain and logistics challenges associated with omni-channel fulfillment and what it will take for retailers to succeed in this new environment.

But if you ask me, here’s the press release I’m really dying to see: “Company X Launches Mobile Omni-Channel Social Networking Solution in the Cloud.” It would be the supply chain software equivalent of Taco Bell’s Chulapa Supreme.

Moving on, there was plenty of news from the 3PL front this week. C.H. Robinson announced that it has enhanced its anti-cargo theft strategy “by joining CargoNet® to provide customers with a proactive approach to strengthening security around sensitive and high value product freight.” According to the press release:

CargoNet is centered on a national database and information-sharing system managed by crime analysts and subject matter experts. By providing coordinated incident communications, recovery support, and deterrence measures, CargoNet helps its members prevent cargo theft and improve chances of recovery. CargoNet members benefit from an extensive law enforcement network of more than 120,000 officers and agents spanning more than 9,000 agencies in the United States and Canada.

Earlier this year I wondered if we were reaching the tipping point in natural gas trucking, and this week Ryder provided another data point by announcing that its fleet of 320 natural gas vehicles have surpassed 15 million miles. “We believe natural gas is the most viable alternative fuel solution for commercial trucking because it is clean, efficient, cheap, and abundant,” said Ryder Chairman and Chief Executive Officer, Robert Sanchez in the press release.

Energy is playing a more strategic role in supply chain management, and natural gas is a big part of the story. If you plan to attend the CSCMP Annual Global Conference later this month, make sure you attend the Mega Session I am moderating Wednesday morning, October 23, on Mega Trends Impacting the Supply Chain where energy will be one of the discussion topics.

Finally, an interesting article in CNNMoney about a Citi analyst based in Taiwan named Kevin Cheng who was allegedly “pressured into giving up what he knew [about Apple’s supply chain] by aggressive traders who had got wind of a rumor and wanted his take on it before the news reached the market.” There are many takeaways from this article, but here’s my main one: The financial community is finally recognizing what we’ve known all along — that a company’s supply chain strategy and performance are weaved tightly with its business plan and financial results.

And with that, have a happy weekend!

Song of the Week: “The Royal We” by Silversun Pickups



Note: C.H. Robinson, Manhattan Associates, Menlo Worldwide Logistics, and Ryder are Logistics Viewpoints sponsors.

Best Buy Embraces Omni-Channel Commerce

Retail | By •

Big box retailers are facing pressure from two directions, Walmart’s low prices and Amazon’s e-commerce driven convenience. These retailers are in the process of reinventing themselves by embracing omni-channel commerce, which aims to deliver a seamless consumer shopping experience through all available channels — i.e., mobile devices, personal computers, bricks-and-mortar stores, catalogs, and so forth.

A few weeks ago I wrote about how Home Depot is approaching this challenge. I recently came across a Wired article on how Best Buy is trying to reinvent itself for this new era of retailing. As with Home Depot, Best Buy will need to support the new strategy with enhanced logistics capabilities. What follows are a few of the points I found interesting in the article.

Logistics is already a differentiator for Best Buy. A customer can order a product online and Best Buy can deliver it to a nearby store for the customer to pick up that day. Best Buy already has a warehousing infrastructure in place to support its 1,400 stores across the nation. But it is unclear how long this advantage will last because Amazon is launching same day delivery pilots in selected metropolitan areas.

Big Box retailers can potentially differentiate themselves by providing enhanced customer service, especially for complicated products like consumer electronics, in the form of knowledgeable salespeople. But this is difficult for Big Box retailers to achieve because they carry such a broad array of products. A goal is to become more like an Apple store. Because Apple stores carry a limited number of SKUs, it is much easier for Apple salespeople to answer shoppers’ questions.

Best Buy is responding to this by launching a “showrooming” pilot project in 50 stores. As described in the article, “When a customer comes in to test out a few high-end cameras, a sales rep with a tablet can meet them to compare specs on the various models.” Specially trained sales staff – people trained in a particular product category – can then provide the kind of hands-on service that customers can’t find online. Best Buy wants to avoid situations where customers go to its stores to get an in-person feel for a product, but then go online to buy it for a lower price. To combat this, the company has made matching competitors’ prices a top priority. And if a shopper wants a product that isn’t in stock at a store, the salesperson can help him place an order through BestBuy.com.

The customer then has the choice of delivery methods. They can elect for either same day in-store pickup or home delivery. Almost half of Best Buy’s current online customers choose in-store pickup. This has a couple of advantages. First, many customers do not want expensive electronics sitting on their front porch where they might get stolen. And second, it gives customers a chance to practice using the product at the store where a salesperson can guide them.

And of course, if a customer elects to pick up a purchase at a store, there is always the chance for additional sales – extra memory cards, batteries, or even a product unrelated to his initial purchase.

As I think about Best Buy’s challenge, it is partly premised on the company’s ability to compete on price. The costs associated with supporting a network of stores might put the company at a disadvantage. One dodge here is to cut agreements with manufacturers where a particular SKU is only available at Best Buy. So if customers try to comparison shop, they can’t find that product anywhere else. Walmart does a bit of this.

The other thing that strikes me is that high touch, in-store service will be key to Best Buy’s success. Incenting customers to pick up online purchases at its stores eases the logistics burden and provides customers with one-on-one training that many will highly value.

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