Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

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.

This Week in Logistics News (September 23-27, 2013)

Cloud/Software-as-a-Service | By •

Tuesday night, I went to Staples with my daughter to buy some printer ink. She was immediately attracted to a colorful display, which caught my attention too. I took a picture of it and shared it on Twitter, which became my most popular tweet of the week: 

Yes, the future is coming faster and faster. And I’m guessing it won’t be long before many of us will head out to Staples, not to buy ink, but to buy 3D printing supplies.

In other news…

The needle keeps moving forward for omni-channel fulfillment and same-day delivery. According to an article in The Cincinnati Enquirer, Macy’s has expanded its network of fulfillment departments to 500 stores. Here’s some insights and details from the article:

Every morning, staffers from the merchandise team [at the Macy’s store in Springdale, OH] – who normally stock shelves and set up displays – fan out across the store and collect ordered items. Items are brought back to the fulfillment center where staffers wrap and tag orders for the afternoon UPS pickup. On an average day, the store will prepare 50 to 60 orders. On a one-day sale day, it’s more likely to be 75 to 100 orders, and during the busy holiday season after Thanksgiving, the store will handle 300 to 400 orders a day.

The article also states that to enable omni-channel retailing at the store level, Macy’s replaced all its 40,000 cash registers with Web-enabled machines. The cost is a drop in the bucket compared to the $1 billion per year in sales growth the company has experienced the past three years due in part to its omni-channel fulfillment strategy.

Meanwhile, Google announced that it is expanding the rollout of its same-day delivery service, Shopping Express, “to everyone living or working in [its] Bay Area delivery zones, from San Francisco to San Jose.” The company also launched a new mobile app, available for both Android and iOS, “to bring [consumers] the convenience of Google Shopping Express even when you’re on-the-go.”

I don’t know about you, but it’s very exciting to see supply chain and logistics come out of the shadows and take center stage in the business strategies of manufacturers and retailers — and, in some cases, become the difference between corporate failure and success.

On the technology front, Kewill announced the release of Kewill MOVE, “a complete, comprehensive platform for managing the complexities of transportation, logistics and trade compliance.” The press release provides additional details, but simply put, Kewill MOVE brings together the various solution capabilities Kewill has developed or acquired over the years into a single platform. We’ve seen other enterprise software vendors move (no pun intended) to a “platform” architecture in recent years, so Kewill is basically adopting the same strategy to strengthen its competitive position. I’ve been a big proponent over the years of bringing together transportation, global trade, and connectivity solutions into a single platform. Kewill certainly has all the right pieces — whether it can assemble them effectively into “comprehensive” solutions, as well as meet the rapid time-to-value and fast innovation cycles customers expect — remains to be seen. Nonetheless, I believe Kewill is heading in the right direction with its strategy.

Oracle OpenWorld was held this week in San Francisco. I didn’t attend, but based on all of the press releases, I’m guessing “cloud” was mentioned at least a billion times during the event. The news that caught my attention the most was the launch of Oracle Cloud Marketplace, which features “more than 100 business applications developed by Oracle partners…and enables Oracle Cloud customers to easily browse, evaluate, and buy trusted business applications.”

Almost five years ago, I wrote about the growing role “app stores” will have in enterprise software (see “An App Store for Logistics Software”), and over the past few years, Salesforce.com (with its AppExchange marketplace) and NetSuite (with its SuiteApp marketplace) have proven the model. The launch of Oracle Cloud Marketplace, while late to the game, is further validation that the future of enterprise software will look drastically different than the past, especially when you add social networking and mobile to the equation.

Finally, according to a Bloomberg article, it seems like Walmart is having some inventory management issues. Here’s an excerpt from the article:

U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

Read the rest of the article and you’ll see why technology is not a silver bullet, why under-investing in people ultimately costs you in the end, and how the potential gains of innovation are washed away by poor execution.

And with that, have a happy weekend!

Song of the Week: “Waiting for My Real Life to Begin” by Colin Hay

Walmart’s Omni-Channel Dilemma

Retail | By •

I’ve been reading everything I can get my hands on about what Walmart is doing in the area of omni-channel fulfillment. I am struck with conflicting emotions – awe at the company’s vision and technological approach, and a great feeling of dread that it won’t be able to achieve its vision because of poor in-store execution.

The vision is audacious. Neil Ashe, President of Global e-Commerce, said the following during Walmart’s most recent quarterly financial call: “We want to know what every product in the world is. We want to know who every person in the world is. And we want to have the ability to connect them together in a transaction.”

To do this Walmart is building a proprietary “global-technology platform.” I don’t believe this vision is fully attainable, but the vision is causing the company to invest big — $430 million this year — in key initial pieces of this platform that could greatly improve its omni-channel capabilities.

Walmart has invested in search. Its new search engine is making the online shopper’s experience better and easier. But Walmart has also invested in search capabilities that allow it to search the Internet, see how competitors are pricing items, and then dynamically reprice its product offerings.

Walmart is also investing in what will undoubtedly be the biggest and most complex distributed order management (DOM) solution in the world. This DOM will give Walmart a view of inventory in its network of retail and e-commerce distribution centers, as well as inventory in the stores. The platform will also need to make very quick decisions about which items Walmart will allow customers to order online and then pick up, with no delivery charge, at its stores. The algorithms and decision rules used to make these decisions could get very complex – mixing product rules (don’t allow perishable or bulky products to be offered for in-store pick up), inventory rules (pick “excess” inventory from a local store, not from an e-commerce warehouse), profitability rules (Walmart has said it is willing to live with lower margins around e-commerce sales, but it clearly still wants to make a profit), and customer rules (if this online sale will get this particular customer into the store for an extra visit, and the customer is likely to buy other things while at the store, do you offer the online product at a loss?).

But this massive investment in technology will not pay off if Walmart cannot execute. I’m not worried about the company’s upstream execution. Walmart has one of the best supply chains in the world. If an online item is going to be delivered to the store for customer pickup, I believe its supply chain team can get the item on the truck and to the store in a timely fashion. But what if Walmart has extra inventory at the store and it wants to pick from the store shelves? I have limited confidence in Walmart’s store operations team to execute.

Bloomberg news reported in March, “Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot.” The article quoted one unhappy shopper saying “If it’s not on the shelf, I can’t buy it. You hate to see a company self-destruct, but there are other places to go.” Bloomberg reporters interviewed store workers and got the notes from an executive meeting and concluded, “It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves.”

In theory, Walmart’s 4,000 forward-deployed warehouses in the U.S. (otherwise known as stores), could make it a formidable omni-channel competitor. But not as things currently stand. Walmart’s dilemma is that it is one of the world’s best technology companies, with one of the world’s best distribution center to store supply chains, but it is not close to being good enough in the area of store operations.

This Week in Logistics News (June 17-21, 2013)

EU | By •

Summer is finally here, so let’s go right to the news…and then maybe the pool.

Europe is on the brain for both C.H. Robinson and MercuryGate, with the two companies announcing this week that they’re expanding their presence in the region. C.H. Robinson Europe is opening a new office in Istanbul, Turkey. According to the press release, “Demand for logistics services in the region is rapidly increasing and with over 40 universities in the area, presents access to a large and talented workforce. The Istanbul office will primarily offer international road freight services including both full and less-than-truckload transportation modes.”

Meanwhile, MercuryGate has partnered with e4Data Systems to establish MercuryGate EMEA, which will be based near Liverpool, UK, with representation in Ireland. Here’s an excerpt from the press release:

MercuryGate EMEA will focus on developing new business opportunity for the MercuryGate transportation products in this rapidly growing market…Each day, over 125,000 users, from over 50 countries in 15 different languages log into the MercuryGate TMS to manage their international transportation. MercuryGate EMEA offers new prospects regional access to MercuryGate sales and delivery resources.

But wait, I thought most of Europe was still in a recession, with record unemployment? Well, not all of Europe is created equal, with some countries doing much better economically than others. Also, and somewhat paradoxically, demand for transportation solutions often increases in tough economic times as companies look for ways to reduce costs. Transportation is a natural target because, despite its strategic value, most C-level executives still view it as a “cost center” and a “low hanging fruit” opportunity to add significant money to the bottom line.

In other technology news, JDA Software announced the release of its integrated product roadmap following the merger with RedPrairie. Here are some details from the press release:

The six critical solution areas that make up the product roadmap are based on JDA customers’ greatest challenges and where the company can offer the most value. These areas are retail planning, retail execution, commerce, warehouse, transportation and manufacturing/distribution.

 

One of the most significant milestones outlined in the product roadmap is the Q1 2014 delivery of the company’s first fully integrated planning and execution offering, combining JDA’s supply chain planning (SCP) solutions and transportation management system (TMS) with RedPrairie’s warehouse management system (WMS).

For as long as I’ve been in the market, vendors have been promising a fully integrated TMS-WMS solution, but the promise has always fallen short of expectations. The reality is that relatively few companies integrate these solutions in the way analysts like to envision because they still manage transportation and distribution as separate operations, with transportation often dictating what happens at the distribution center. The fact that JDA is prioritizing its TMS over RedPrairie’s in the product roadmap implies that the benefits of its TMS (more functionality, larger customer base) outweighed the benefits of RedPrairie’s existing TMS-WMS integration.

Oracle reported disappointing financial results for the second quarter in a row, with total revenues of $10.9 billion in Q4 FY 2013, unchanged from the previous year. New software licenses and cloud software subscriptions revenues were up 1 percent to $4.0 billion in the quarter. Oracle blamed the weaker-than-expected results on disappointing sales in Asia and Latin America. In contrast, Infor announced this week that it expects its fiscal 2013 Q4 software license fees and subscription revenues to grow about 9 percent at actual currency rates compared to its fiscal 2012 Q4, driven primarily via organic growth and product investment.

While I believe the market shift toward cloud and software-as-a-service solutions is putting competitive and pricing pressure on traditional software vendors, not all vendors are being impacted the same. Ultimately, success in the software industry comes down to having the right strategy, business model, and products for the times, and having the right people to execute it.

In a posting last month, I wondered if we had reached the tipping point for natural gas long-haul trucks. My conclusion was that we hadn’t reached the tipping point yet, but that we’re getting closer every day — as long as the price difference between natural gas and diesel stays large enough to cover the higher price for LNG-powered trucks and other ancillary costs. As reported in the Wall Street Journal this week, the International Energy Agency (IEA) is also bullish on the use of natural gas in transportation sector. Here is an excerpt from the article:

In its five-year gas outlook, the [IEA] said it expects natural gas use in road and maritime transportation to rise to 98 billion cubic meters by 2018, covering around 10% of incremental energy needs in the transport sector. According to the IEA, this shift will do more to reduce the medium-term growth in oil demand than both biofuels and electric cars combined.

 

“Gas is already a major fuel in power generation, but the next five years will also see it emerging as a significant transportation fuel, driven by abundant supplies as well as concerns about oil dependency and air pollution,” said Maria van der Hoeven, the IEA’s executive director.

 

Several hurdles still exist that could stymie the development of natural gas as a transport fuel, not least the need to develop infrastructure like fuelling stations, the IEA said. But in several countries, notably the U.S. and China, activity is already underway to develop the sector.

Finally, the Wall Street Journal also published an article this week discussing how Walmart plans to compete with Amazon on the e-commerce front, particularly on how it fulfills online orders. According to the article, “Wal-Mart is creating a vast new logistics system that includes building new warehouses for Web orders, but also uses workers in stores to pack and mail items to customers, because Wal-Mart has determined it is faster and cheaper to send some shipments from its more than 4,000 U.S. stores.” The article goes on to say that Walmart “is vowing to solve its online problem with a distribution network that shares inventory information between 4,000 stores and 158 warehouses and immediately sizes up the most efficient way to deliver a television or T-shirt to a customer nearby [emphasis mine].”

As we’ve highlighted before, other retailers like Macy’s are also starting to use their stores as fulfillment centers, and this is a big reason why supply chain and logistics software vendors are so enamored with omni-channel fulfillment these days.

Have a happy weekend!

Song of the Week: “Sea of Love” by The National (I can’t stop singing this song, or watching the video).

Note: C.H. Robinson, JDA Software, and MercuryGate are  Logistics Viewpoints sponsors.

This Week in Logistics News (June 10-14, 2013)

This Week in News | By •

I’m short on time this morning, so let’s go straight to the news.

Transplace is among the relatively few 3PLs that use and provide to clients their own internally-developed transportation management system (for related commentary, see “The IT Dilemma for 3PLs”). This week the company announced the release of Freight Allocation Module™ (FAM) 2.0, “a web-based application that optimizes transportation by allowing shippers to auction freight with approved carrier partners.” Here are some excerpts from the press release:

FAM 2.0 is an application in Transplace’s Transportation Management System (TMS) that gives carriers instant visibility to freight, allowing them real-time access and communication to bid on loads. It also allows users instant access to information on transportation services, minimizing miscommunication on routes and improving the efficiency and accuracy of service for shippers.

 

Highly customizable, FAM 2.0 provides greater flexibility in establishing how the freight is presented to authorized carriers, and the amount of visibility carriers have into the progress of the auction. Authorized carriers may offer capacity for each load based on rates already established or based on shipper-established parameters. FAM 2.0 can also support a public exchange environment to secure capacity and rates in a backhaul, capacity-constraint market.

In other technology news, Google reportedly sealed the deal to acquire Waze for $1.3 billion. As I highlighted last month, Facebook was also interested in Waze, an Israeli company that calls itself “the world’s fastest-growing community-based traffic and navigation app.” Waze’s solution is similar to the “Smarter Traveler” solution IBM started working on two years ago in partnership with the California Department of Transportation (Caltrans) and California Center for Innovative Transportation (CCIT) — see “Apple, Google, and IBM: Different Takes on Location Tracking” for my write-up about it.

As a side commentary, there’s been a lot of huffing and puffing this week about the NSA’s data mining activities, yet Waze tracks the smartphones of 50 million members to generate maps and traffic data, and retailers like Target have the ability to know a customer is pregnant before the rest of her family. Not exactly an apples-to-apples comparison, but still in the fruit category. The bottom line is that we’re living in the Big Data era, and in many cases actively enabling it by opting into loyalty programs and sharing info (sometimes too much) on social networks, so expectations of privacy are arguably different today than in the past. And to make matters worse, most people don’t understand the science behind Big Data, or the difference between meta-data and specific data, so a lot of the huffing and puffing is based on misinformation.

Another week, another trucking company announcing a general rate increase of 5.9 percent (see last week’s news). Starting June 24, Con-way Freight will implement a general rate increase averaging 5.9 percent applicable to non-contractual business. According to the press release, “The rate increase will be implemented for customers on the company’s CNW 599 tariff and will apply to general LTL rates, minimum charges and accessorial or supplemental fees for special services associated with LTL shipments moving within the United States and Canada, as well as cross-border shipments moving between the United States, Puerto Rico and Canada.”

Speaking of transportation, the Freight TSI Index fell 1.2 percent in April from March. Here’s some analysis from the press release:

The 1.2% decline in freight transportation was driven by declines in shipments by water, pipeline shipments, and rail intermodal…Trucking was stable in April on a seasonally adjusted basis. The stability in trucking, the decline in rail intermodal, and the decline in the overall Freight TSI were consistent with a slight decline in manufacturing output, and a larger decline in housing that took place in April.

 

Even with the April decrease to 112.4, the index has remained above its 2012 range for four consecutive months…The April index was still higher than the index had been during any month between April 2009 and the beginning of 2013 except for December 2011, when it reached the all-time high.

Unfortunately, I’m out of time this morning. Have a happy weekend!

Song of the Week: “Rain” by The Cult

Note: Transplace is a Logistics Viewpoints sponsor.

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