Supply Chain Management and Logistics Blog. Posts are about end-to-end supply chain management and logistics in a time of challenging disruption.
Tom provides leading supply chain management and logistics consulting and advisory assistance based on real-world experience.
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The organization pyramid--and the resultant silos--are an outdated management tool in a global economy and where supply chain management is a horizontal process that should flow across the organization. Silos hinder that flow.
E-commerce logistics costs are higher than store if ignore the inventory liquidity and the fact retailers must sell online. Are retailers held back by outdated standard?
It was a happy holiday season at Amazon.com where fourth quarter profits more than doubled, sales increased 22% and the company handily surpassed annual sales of $100 billion for the first time.
Amazon.com said its net sales increased 22% to $35.7 billion in the fourth quarter ended Dec. 31, 2015, compared with $29.3 billion in fourth quarter 2014. With a $1.2 billion unfavorable impact from year-over-year changes in foreign exchange rates, fourth quarter sales would have increased 26%.
That Amazon.com grew its top line isn’t surprising, but the company’s surge in profits was big enough to satisfy analysts who expected a loftier performance. Net income was $482 million in the fourth quarter, or $1 a share, compared with net income of $214 million, or 45 cents a share in fourth quarter 2014. Analysts had forecast Amazon.com would earn $1.56 a share, well below the reported $1 a share.
“Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift. This year, we pass $100 billion in annual sales and serve 300 million customers,” Jeff Bezos, Amazon.com founder and CEO said in a statement. “And still, measured by the dynamism we see everywhere in the marketplace and by the ever-expanding opportunities we see to invent on behalf of customers, it feels every bit like day 1.”
The company’s full year sales increased 20% to $107 from $89 billion in 2014, and were negatively affected by a $5.2 billion headwind related to currency exchange. Net income was $596 million, or $1.25 per share, compared with net loss of $241 million, or $52 a share in 2014.
Looking at the company sales by region, sales in North America increased 24% to $21.5 billion, international sales increased 12% to $11.8 billion internationally and Amazon Web Service’s sales increased 69% to $2.4 billion.
Maersk Line has confirmed to UK customers that it will switch its flagship Triple-E, the Maersk Mc-Kinney Moller, to DP World London Gateway at the weekend from its scheduled call at Felixstowe.
The UK east coast port is continuing to struggle with quay and landside congestion caused by adverse weather and a bunching of ultra-large container vessels, with London Gateway being the biggest beneficiary of a series of ULCV diversions.
The 18,340 teu vessel operates on the carrier’s Asia-North Europe AE10 loop as part of the 2M alliance with MSC. It was originally planned to discharge and load at berths eight and nine at Felixstowe, arriving on Sunday at 5pm.
However, Felixstowe is expecting six other ULCV calls between today and Monday, with greater than 350 metres LOA, and all will involve extended stays due to the larger exchanges associated with these size ships. There are another 26 smaller containerships due to call at Felixstowe during the same period.
In November, the port opened a 190-metre extension at berths eight and nine – the former Landguard Terminal – which enables it to handle two ULVCs simultaneously. Total quay length at the port is now approaching 4km, serviced by 36 gantry cranes, but when the big ships are off-window and arrivals bunch, operations struggle to cope.
Factor-in weather delays and it is is a recipe for port congestion – both in getting ships on the quay and a slowdown in servicing the landside operation, with potential for gridlock.
Hence, with Felixstowe’s “blessing”, several carriers have diverted ships over the past month, either to London Gateway – in the case of UASC, Maersk, MSC and Zim – or to Antwerp and Rotterdam for relay back to the UK.
According to a DP World London Gateway spokesman, the UK’s newest port has handled 20 ad-hoc vessel calls since early December, which, added to its regular calls, would give it an annualised equivalent of 2.3m teu across its two berths.
After its arrival on Monday, the Maersk Mc-Kinney Moller will discharge 2,700 containers at London Gateway and Maersk Line has opted to push back the work on its 6,252 teu Maersk Kolkata, deployed on the AE1 service, in order to prioritise the ULCV.
Coping with a surge of short-notice diverted imports at London Gateway had proved problematic when the port first opened a couple of years ago, but these issues have since been addressed. The spokesman told The Loadstar the average turnaround time for trucks was currently 45 mins, but he urged hauliers to book early.
“We want bookings to be made as early as possible so we can further reduce the time in the port for hauliers and position boxes better during downtime of the ATSs [automatic stacking cranes].
“This is also based on many new hauliers using London Gateway as a first time, so as they continue to use the port they will now get faster by being experienced,” he added.
This article from the Wall Street Journal validates a central part of views on Omnichannel and E-commerce Supply Chain Management about Immediacy.
Free Shipping Alone Isn’t Enough: Online Retailers Go for Speed
Net-a-Porter runs a fleet of vans and offers same-day shipping in three cities; Everlane ups the ante with one-hour shipping
Net-a-Porter
ENLARGE
One of Net-a-Porter’s 50 vans delivered luxury goods in Brooklyn, N.Y., on Sunday. The retailer charges $25 for same-day delivery in London, Hong Kong and New York City. Photo: Adam Thompson/The Wall Street Journal
By
Elizabeth Holmes
Elizabeth Holmes
The Wall Street Journal
If laundry detergent or a box of diapers can arrive on your doorstep in a day or two at little or no additional cost, why can’t a cashmere sweater do that, too?
Free shipping isn’t enough any more. Online shoppers want fast shipping, too, and their expectations of an acceptable delivery window are shrinking.
The new demands are largely a result of Amazon Prime, rival retailers say. Tens of millions of Amazon Prime members pay $99 a year and get unlimited two-day shipping on millions of products, from snow boots to dog food. Now, the retailing giant is upping the ante, offering same-day shipping in some markets. Other retailers, whose default shipping option is often five business days or more, are scrambling to match the frenetic pace.
More than nine of 10 shoppers said they considered “same day,” “next day” and “two day” delivery to be “fast,” according to consulting firm Deloitte’s 2015 holiday survey of some 4,000 shoppers. At three to four days, only 63% called it “fast,” and just 18% of shoppers considered five to seven days “fast.”
And customers for the most part are no longer willing to pay extra for expedited delivery. Shoppers on average said they would pay at most just $5.10 for same-day service, in the Deloitte survey. A quarter of shoppers said they wouldn’t expect to pay anything at all.
Cole Haan
ENLARGE
ZeroGrand water-resistant wing Oxford from Cole Haan, which offers free two-day shipping of online orders of more than $250. Photo: Cole Haan
With shipping an increasingly expensive part of the business equation, retailers are looking for cost-effective ways to ship faster. They are building more distribution centers, fine-tuning ship-from-store logistics and devising more creative delivery options.
“Amazon kind of set the path for everyone with Prime. People just expect things faster,” says Heather Kaminetsky, vice president of global marketing at Net-a-Porter, the luxury online retailer. It has invested in a fleet of more than 50 vans offering same-day delivery in London, Hong Kong and the greater New York area. More than half the orders it gets in New York are for same-day delivery, a service that costs $25 per order. Luxury retailers have an easier time convincing shoppers to pay for shipping because it is such a small fraction of the total purchase price.
At shoe and accessory label Cole Haan, faster delivery has helped lower the return rate. “When you go to a store, you have that wonderful delight of carrying the bag down the street,” says David Maddocks, chief marketing officer. “Online, after you click, you have to wait. And during that time you can fall out of love.”
Cole Haan offers free two-day shipping to online shoppers who spend more than $250. Nearly a quarter of customers either meet the threshold or pay $15 extra for two-day shipping, the company says.
Everlane
ENLARGE
Everlane, an online clothing and accessories brand, offers one-hour shipping in New York at no extra charge and in San Francisco for $2. Photo: Everlane
Next month, Gap Inc.,GPS-0.54% which includes Banana Republic and Old Navy, will narrow its free shipping window to five to seven business days, down from seven to nine business days. To shave off those two days, the company is relying on new technology to better manage logistics and routing, a company spokeswoman says. It is continuing its “ship-from-store” program, filling and shipping some online orders from stores.
Everlane, an online apparel and accessories brand based in San Francisco, is attempting the fastest option yet—one-hour delivery in San Francisco and New York City’s Manhattan borough. In New York, there is no shipping charge for the one-hour service with the purchase of two or more items. In San Francisco, to gauge shoppers’ willingness to pay, Everlane charged a $2 service fee for the one-hour option and says it wasn’t a deterrent.
Everlane opened satellite distribution centers in the two cities, says Robert Cantwell, head of finance and operations, and it stocks about 10% of its inventory in those locations. Roughly three quarters of its styles—the most popular and new introductions—are eligible for the one-hour service. Minutes after an order is received, it is picked and packed, and then given to a messenger from Postmates, a logistics company that delivers by car, scooter, bicycle or on foot. One-hour delivery costs to the company are comparable to that of standard shipping from its main warehouse outside Chicago, Mr. Cantwell says.
Everlane considered enlarging the map where it offers expedited delivery and making the time window longer. But it discovered something unexpected: Same-day delivery isn’t as appealing to shoppers in reality as it is in theory.
Gap
ENLARGE
Gap is shaving two days off its standard shipping window, narrowing it to five to seven business days in part by filling and shipping some online orders from its stores. Photo: David Paul Morris/Bloomberg
“People are all over the place,” Mr. Cantwell says. They are shuttling between home, the office and errands in between, and a long, imprecise delivery window is a headache. In contrast, “one-hour delivery is getting you the package wherever you are.”
In the days of mail-order catalogs, home delivery of merchandise was considered convenient. Even just a few years ago, online shoppers were content to wait a week or two. Last year, the average delivery time for online orders was 4.1 days, down from 4.6 days in 2013, says Kevon Hills, vice president of research at StellaService, a customer-service analytics company. About half of packages were delivered within three days, up from about a third in 2013.
Some brands provide faster-than-expected delivery in hopes of giving shoppers a pleasant surprise. At Lululemon Athletica,LULU0.38% standard free shipping is quoted as two to seven business days, yet StellaService found 90% of its deliveries were within three days last year, up from 42% in 2013. “Retailers never want to disappoint,” Mr. Hills says. Yet retailers who underpromise on delivery time risk that shoppers will abandon their online carts if they think they will have to wait too long, he says.
Shadi Afshar, who lives in New York, watches for the email that says her online order has been processed. “I want to know that it is officially on its way,” says the 36-year-old, who heads marketing for a tea company. If the email comes within a day, she is “very satisfied,” she says. Any longer and “I get impatient with it.”
Amazon Prime
ENLARGE
Consumers have become more demanding largely because of Amazon Prime, whose tens of millions of members pay $99 a year and get unlimited two-day shipping on millions of products, from snow boots to dog food. The retail giant is offering same-day shipping in some markets. Photo: Amazon
To speed up their delivery times, retailers are putting product closer to customers. Some of the biggest companies have a distribution center within a 10-hour drive of anyone in the country, says Steve Osburn, a director at management-consulting firm Kurt Salmon.
Yet shipping from a store might require a company to pay an employee twice—once to put the sweater on the store shelf, and again to pull it off, pack it up and hand it over to the carrier, says Rod Sides, who leads the U.S. retail and distribution practice at Deloitte.
“There are a lot of inefficiencies,” says Marc Lore, chief executive and co-founder of Jet.com, an online marketplace that launched last year. Jet.com ships both from its own warehouses and from direct-from-supplier facilities. Consumable products that are easy to stock in several locations, like paper towels, are delivered in two days. Clothing and shoes, which come in multiple colors and sizes, could take up to five days.
This year, Jet.com plans to display several prices for an item, including the best price available without regard to delivery speed, and the price if the item is delivered quickly. “We’ll show you what the cost is to both speed up and slow down the shipment,” Mr. Lore says. Write to Elizabeth Holmes at elizabeth.holmes@wsj.com
Vessel Carrier Seeks Waiver from FMC Rules for Upcoming Acquisition
Wednesday, January 27, 2016
Sandler, Travis & Rosenberg Trade Report
The Federal Maritime Commission is inviting through Feb. 12 comments on a petition from COSCO Container Lines Company Limited (COSCON) requesting an exemption from FMC rules requiring individual service contract amendments.
Noting that on or about March 1 it will acquire by time charter the containerships and certain other assets of China Shipping Container Lines Co., the petitioner is asking the FMC to permit the submission of a universal notice to the FMC and all affected service contract parties in lieu of requiring individual filings for each of the 700 service contracts that will be assigned to COSCON. The petitioner is also proposing to send electronic notices to each shipper counter party. In addition, because existing China Shipping tariffs must be renumbered and republished due to this acquisition, the petitioner is seeking a waiver to avoid amending each contract with the new tariff number by publishing a notice of the change in the existing China Shipping and COSCON tariffs.
OMNICHANNEL AND E-COMMERCE SUPPLY
CHAIN MANAGEMENT—2016
Overview.E-commerce and Omnichannel—especially the e-commerce segment—have
been and are changing retailing.Amazon,
with its online sales and growth, is redefining retailing, selling, and supply chain
management to drive it with a new business model. They are doing it on a worldwide scale.So is Alibaba.E-commerce—and its impact on omnichannel--
are not business disruptions.They have
reached global mega trend status.
Omnichannel and
e-commerce are not just for retailers.They are also for distributors and for manufacturers who have brand identity.
That identity is an advantage.But the
conundrum for some is selling against retailers who also sell the same products.
These two selling venues are for both B2C and B2B. The latter
is often overlooked despite its size. B2B can be more complex because of order
size and number of SKUs.
Despite its
present and growing impact, there is much uncertainty and different directions
taken to deal with omnichannel.Possible
reasons that retailers struggle are—
üRetail
growth is coming from e-commerce which, in turn, affects market share.This creates a challenge for retail
traditionalists.It is also a
significant change situation.
üOmnichannel and
E-commerce are new retailing and selling paradigms that have new touch points
for customers.They are about customer
convenience and customer expectations.
üE-commerce is about customers, not retailers.That is a very different dynamic that places
power in the hands of customers.
üThey have
conventional, even myopic, views of their business. Many view retail and
selling as about stores. They make an internal battle of bricks versus click,
and e-commerce should support stores and store traffic.
üThey are not
accepting that, at some point, online sales are expected to exceed in-store
sales.
The fact is
that e-tailers, non-store sellers, dominate online sales around the world.As store retailers ponder what to do as a
coherent strategy, Amazon and Alibaba continue to grow and distance themselves
from brick and mortar stores and their e-commerce efforts.
E-commerce will continue and accelerate its
growth. And future events, such as
virtual retailing, would increase the transition from in-store buying to online
purchasing.
This further adds to the uncertainty for
retailers on what to do and how to do it.E-commerce is 24/7 buying by customers.It is about the customer convenience to order.What is required is the supply chain to meet
the customer expectations of immediacy that go with online buying, namely delivering
orders within 48 hours—or less--of placement. Everything should support that.It means more than a website; fulfillment and
shipping; or the last mile delivery issue.What it demands is the New Supply Chain to provide the customer
experience.
Online buying with its immediacy requirement
is not limited to retailers, e-tailers, B2C, and consumer goods. It is
expanding and taking root and spreading across markets, industries, and the
world. There is little immunity from immediacy and what it will mean to
manufacturers, distributors, and others.Pandora’s Box is open.
Click And Collect.Perhaps nothing shows the confusion and uncertainty in omnichannel than
does the Click And Collect (C&C) approach for customer order delivery.C&C is about having customers go to
stores to pick up their e-commerce orders.
The practice
raises the questions—
·Does it enhance the customer
experience—serving customers--or is it a way of serving retailers?
·Is the purpose to get foot traffic
for stores?
·Is it a transition program to serve
customers while building the supply chain required to drive e-commerce and
omnichannel?
·How does it really differ from the customer
go to the store to buy in-store and skip the online buying?
·Is requiring a customer to go to a
store to pick up his order qualify as “delivery” of the order?
·Does it provide customer convenience
or does it undo the convenience that began with online ordering?
·Are some retailers trying to reverse omnichannel
to monochannel?
·Does it minimize the role of digital
selling?
·Does it generate the foot traffic and
sales to offset possible sales erosion by customers changing their online
activities to websites that deliver orders?
·Is it used as a way not to invest in
and to change to the New Supply Chain required to drive e-commerce and
omnichannel for the customer experience?
·What is the long-term viability of
this approach against websites that deliver orders?
·Does this approach limit retailers
from addressing the modifying role of brick stores?
One possible
positive of C&C may be fewer returned orders with customers who can check
their orders before leaving the store. Also,
it raises the potential of using stores as an option for returned
orders to bring in customers.That
changes customer-retailer dynamic to a positive one, as compared to how C&C
can be viewed.
Issues with
Current E-commerce / Omnichannel Supply Chain Management.
There is a
reality-check as to how well retailers and e-tailers are performing with order
immediacy and meeting customer expectations.Here are some initial questions to set the stage—
üFor omnichannel, retailers are
selling into multiple sales channels. Yet many try to use one supply chain to
meet the differing requirements of each channel.Is that logical?
üDo customers really care about
omnichannel and various platforms? Or do they just want to order and get quick
delivery of their orders?
üAnd to the point.For e-commerce and omnichannel sellers, how
well do e-tailers and omnichannel retailers supply chains perform?
Findings are
that, for click and collect, stores do not have the items/inventory that the
consumer purchased. Retailers are trying
to force stores and supply chains to do more than they were designed for.Even catalog,
direct-to-consumer, retailers are not immune to what is happening and are
struggling with customer expectations and immediacy.
Uncertainty can be seen the increased inventories that are
being carried.They are inventory rich,
and not in a positive way.It creates
liquidity concerns.What products needed
to serve each channel and how to spread them challenge businesses that have
traditionally been one channel.
Another issue
is that the current supply chain and the distribution centers are about cartons
and pallet loads of product that restock stores or stock factories.E-commerce is about eaches and individual
orders to individual customers.Two very
different dynamics are in conflict and being forced to co-exist.Making one supply chain meet the differing
requirements of multiple sale channels is pushing agility beyond its
intent.There is a serious flaw in that
one supply chain idea.
Add in that
distribution center locations for retailers are based on store placements.That network creates shortcomings to
satisfying order immediacy.Also, many
e-commerce only firms have limited themselves to shipping orders nationwide
from one warehouse.
Immediacy is
about more than fulfillment or the last mile.Inventory levels were original based on assumptions and practices that
have dramatically changed.The
underlying issue is the requirement for supply chains—across the entire
company—to drive growth and meet customer expectations. The purpose and role of
supply chain management has changed because of e-commerce and its retail impact.
New Supply Chain Management for
Omnichannel and E-commerce.
Retailers,
e-tailers, manufacturers, and distributors are at a
crossroads in supply chain management--stuck with old ways while dealing with e-commerce
and omnichannel. Something must give.
Omnichannel is about duality—strategy, retail, and supply chain. Yet
many retailers ignore Supply Chain Duality to drive omnichannel.Different channels with different
requirements should have different supply chains to deliver consistent
performance that meet customer expectations across channels.
New supply chain management is required for e-commerce.That “new” is an innovative imperative and creates
the duality for retailers and others to deal with traditional business and with
the new business.
The New Supply Chain is about the supply chain, not just parts or
functions.Omnichannel and
E-commerce need supply chains that accelerate the movement of inventory through
the entire supply chain to meet customer expectations.Being able to view inventory is not enough;
companies must make it flow through the supply chain.Emphasis is on inventory velocity
through the supply chain and time compression to meet Immediacy.As e-commerce and customer
expectations advance, inventory velocity will increase speed to inventory
velocity2.
Besides the critical inventory velocity and time compression,
the New Supply Chain includes—
ØNetwork Alignment
that matches end-customers, their locations, and service needs.
ØAdvanced
process integration that goes across the supply chain with no gaps or
redundancies.
ØAdvanced
technology integration with visibility across the entire supply chain—and more.
3D printing and delivery, robotics, and
RFID are additional technology areas.
ØImplementing
lean supply chain management across the chain and especially for the
international segment to reduce the wastes of excess time and inventory.
ØExtending the
supply chain upstream.This is very
important.It redefines supplier
relationships.
Looking for short cuts in designing and implementing the New
Supply Chain will mean continuing problems meeting customer expectations.Firms doing it may be potentially conceding
growth and company future to those companies that do it correctly.
Immediacy of order delivery is spreading and
is not limited to consumer e-commerce sales.Companies see that it can be done and its benefits.They want them for their firms, regardless of
their business.The immediacy demand is
spreading and will spread across industries, markets, and channels and the
world.
Conclusion.
E-commerce and omnichannel are not just new
retailing. They are original ways of doing and operating businesses.Old is out. Change is not an option.For retailers,
online sellers, manufacturers and logistics service providers, there will be
leaders and laggards.
What firms do and how they do it will determine if they see
their futures ahead or if they see it in their rear-view mirrors?
Omnichannel and e-commerce are making 2016 the Year of the
Supply Chain for many companies.The New
Supply Chain for e-commerce and Supply Chain Duality are part of the new
operating reality.
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