Christmas is just a couple of days away and that means that UPS and other shippers are rushing to get every package and gift to its final destination. Just how much work does that take? Quite a bit. Businessweek reports that UPS starts planing for its peak season in the previous January (UPS’s Holiday Shipping Master: They Call Him Mr. Peak, Dec 19).
We have had several stories over the last couple years about retailers using inventories at their stores to fill web orders. At one time or another, there have been stories about Nordstrom, Wal-Mart and Macy’s all treating that big box at the mall as a warehouse. Now the Wall Street Journal reports that even more chains — including Sears and Office Deport – are hopping on the bandwagon (Retailers Turn Store Clerks Into Web Shippers, Dec 9). You can here the reporter discussing her findings here:
It is not surprising that more retailers are going this way. They are all facing pressure from on-line competitors and finding some way to utilize their existing physical network is appealing. If nothing else, I suspect that everyone in the C-suite wants to be able to tell the board they are trying something.
But how can you set up this up quickly? You need to develop a system that updates inventories in real time while dispatching staff to fetch what has been ordered and scheduling the shipper to pick stuff up. Nordstrom is often identified as the first mover on this. The New York Times reports that it took them a couple of years to get it set up. How can a Johnny-come-lately ramp this up quickly? By working with UPS and FedEx.
UPS and FedEx Corp. which were critical to helping launch the e-commerce boom, are now eager to help traditional retailers deal with it. They have engineered new strategies for jockeying inventory across the country to avoid overstocks and markdowns and to keep customers from defecting to Amazon, a big problem last year. The strategy is also important this holiday season as clothing retailers are threatened with heavy inventories.
UPS says it is working with about 40 retailers on implementing these strategies—about double the number a year ago. FedEx said these partnerships helped boost revenue in its ground delivery business 11% in its fiscal first quarter. Both forecast record holiday-season deliveries: UPS with 34 million packages on Dec. 16 and FedEx with 22 million packages on Cyber Monday.
In the case of Sears, UPS provided software that shows shipment statuses of all orders across the entire system. It also sends tracking numbers.
“Where does that come from?” sounds like an easy question to answer and at a high level it is. Which car models are produced at which plants is public knowledge so whether your Toyota was built in Kentucky or Alabama is easiest enough to figure out. But if you want to take it to another level — to know where different components came from and where the stuff that goes into the components comes from — is a lot harder. That is the conclusion reached in a blog post on Nautilus (The Secret Life of Everything: Where Your Stuff Comes From, Oct 29). Modern, global supply chains are so far reaching and support so much complexity that transparency (at least to the outside world) is lost.
I’d thought of [supply chains] mostly in terms of delivering Amazon orders and keeping Staples stocked. Those are just endpoints, the final few steps of a waiter carrying a meal on a tray. And what I really didn’t get was that supply chains don’t just carry components and ingredients, but synchronize their movements. Shipping a box of pens to Staples is the obvious part. Coordinating the arrival of barrels, caps, boxes, ink cartridges, and nibs (through which ink flows) at the pen factory—and also metal to the nib factory, oil to the plastics-maker, and so on—is the bulk of what supply chains do, and in the most efficient manner possible, with algorithms optimizing everything from shipping networks to the path of pallets through warehouses, with an eye to what happens when one of these many moving parts goes invariably astray.
The problem then is that unless you pick a real simple product — like a T-shirt — it is pretty much impossible to know where all the components come from and where all the various production steps are executed. NPR’s Planet Money took on this challenge of tracking a T-shirt from cotton field through production and shipping to the disposition of used American clothes in Africa. It’s an eye-opening picture of global supply chains.
There have been several things written over the last couple of years about working conditions in Amazon fulfillment centers. (See, for example, here, here, and here.) Now we have a BBC report complete with hidden-camera video of what it is like inside a fulfillment center.
About a year ago, we had a post on Amazon Lockers — the Seattle firm’s attempt to solve recurring last mile problems. Customers could have their purchases delivered to a secure, nearby location. No need to sign for a package; no need to worry about someone walking off with your box. You just need to enter a code to pop open the locker that has your stuff.
But there is an obvious complication here: Those lockers have to go somewhere. Amazon’s plan was not to buy real estate but to plant them in existing retail locations. But which stores would benefit from hosting Amazon lockers? That is the question that a recent Businessweek article examines (Do Amazon’s Lockers Help Retailers? Depends on What They Sell, Sep 20).
The incentive for any business hosting an Amazon locker isn’t the monthly stipend the online retailer pays—”not even worth it,” says the manager of a Manhattan copy shop—but the lure of higher store traffic given the online retailer’s enormous sales volume and the gazillions of brown boxes sent across the nation each day.
Amazon has the lockers in nine large metro areas and touts the delivery option as a customer convenience for the many people who can’t reliably get their online purchases at work or at home. For a bricks-and-mortar business, the idea is that people coming to collect their Amazon purchases will buy other stuff on their way out the door.
A Slate article asks a very simple question: “Ikea is so good at so many things. Why is it so bad at delivery?”
The author tells the story of an item that was purchased from Ikea and was supposed to be delivered by a third party. While Ikea claimed to ship the item, the third party claimed to never receive it. Since Ikea claimed the item was shipped, the order could not be cancelled without incurring a hefty cost. Apparently, this is not a unique experience:
The nightmare of Ikea delivery is a truth so universally acknowledged that even the company cops to it. Chief marketing officer Leontyne Green talked about her own “very frustrating” Ikea delivery experience in a December 2011 Ad Age profile, which stressed the firm’s ongoing efforts to improve delivery and overall customer service.
In trying to explain the above conundrum, the author recruits several of our colleagues from Dartmouth and Harvard:
“With sporadic orders over a wide geographic area, Ikea would need a fleet of trucks that might be idle one day and not able to handle the load the next,” says Robert Shumsky, a professor of operations management at the Tuck School of Business at Dartmouth.
We have discussed several times, albeit in the context of grocery delivery, the fact that one of the main cost drivers of delivery services is density. Since Ikea tends to be quite far from urban and dense areas, it is usually difficult to build density and thus difficult to offer a cost efficient services. One may charge a high price for such a service, but given their target market, this may not be ideal. (more…)
A few months ago we had a post about how shipping containers have impacted supply chains and global trade. Today we have a longer piece from Nautilus on the history of shipping containers as well as some current trends in global shipping (The Box That Built the Modern World, Jul 25). I have three take aways from reading the article. First, everyone should read The Box by Marc Levinson because (a) it’s a good book and (b) it seems that no one can write about containerized shipping without more-or-less admitting that Mr. Levinson saved them a lot of effort in researching the topic.
The second point is that the article provides a nice illustration of how slapping stuff in containers can dramatically drive down shipping costs.
To get a sense of how the system works, imagine one of the containers aboard the Hong Kong Express, which is owned by German shipping giant Hapag-Lloyd. Asked to trace a product through a typical container voyage, Hapag-Lloyd spokesman Rainer Horn suggests a T-shirt sewn at a factory near Beijing, the kind you might buy at H&M.
Tagged, folded, and boxed, the T-shirt would be “stuffed” into a container with 33,999 identical shirts at the factory. Once sealed with a plastic tag and listed on a computerized manifest, the merchandise could pass through nearly three dozen steps before arriving at a discount clothing retailer’s distribution center near Munich. There’s the trucker who moves the box to a waiting ship in Xinjiang, the feeder ship that moves it to Singapore to be loaded onto a bigger Europe-bound freighter, the crane operator in Hamburg, customs officials, train engineers, and more.
Yet the container’s uniformity smooths each step of the way. Trucks and trains are fitted to haul the identical boxes; cranes are designed to lift the same thing over and over. The total time in transit for a typical box from a Chinese factory to a customer in Europe might be as little as 35 days. Cost per shirt? “Less than one U.S. cent,” Horn says. “It doesn’t matter anymore where you produce something now, because transport costs aren’t important.”
How should Wal-Mart fill web orders? That seems like a straightforward question. And, given that Wal-Mart sold over $7 billion of stuff on the web last year, you would think they would have figured that out by now. Still as the Wall Street Journal tells it, the retail giant is still working through how best to fill orders (Wal-Mart’s E-Stumble With Amazon, Jun 19).
E-commerce at Wal-Mart is run as a distinct business, with its own headquarters, CEO and merchants who buy items specifically for the website. Every year, executives would start a “five-year planning exercise, but the plans were never executed and management would say the sales weren’t there to justify the investment capital,” says a former online-division executive. “Even now e-commerce is a rounding error in the U.S. market.” Wal-Mart said it expects $10 billion in online sales this year, which would amount to about 2% of its $469 billion in annual revenue.
As Wal-Mart’s online orders grew, it turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs. Wal-Mart’s online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel, analysts say—a big difference considering some of Wal-Mart’s popular purchases are low-cost items like $10 packs of underwear.
As the quotes make clear, this is all about how to match Amazon so Wal-Mart remains relevant as more transactions move on-line. To put the challenge in perspective, check out this graphic of Amazon’s distribution network.
The best time of summer is about to start in 4 days: the 100th edition of the Tour de France (TdF)! Time for an operations view behind the screens of the first and only Australian world-tour team: Orica GreenEdge. As a starter, here’s just a beautiful example of visual project management:
This is the master spreadsheet which sits outside of the admin offices. It shows the schedule of every event, every staff member, every team vehicle. Susan Stewart (David McKenzie’s wife) is the Logistics Manager and obviously very handy with Excel.
Before getting into team management, consider team strategy: (more…)
Have you ever thought about shipping containers? If you are like most people, you probably haven’t. But they are a remarkable accomplishment. They greatly simplify loading ships so longshoremen no longer need to manipulate odd-sized shipments. Throw in that they can be used across different modes of transportation so goods can be put on a train then a boat and then a truck without being unpacked and you have real game changer. As the chart below shows (from The humble hero, The Economist, May 18), the productivity gains they enable are remarkable.
So shipping containers have made shipping a lot cheaper, which should make longer supply chains more affordable. But are containers really responsible for the growth in global trade? That is, containerized shipping has risen dramatically over the last several decades but that period has also seen a significant reduction in trade barriers. Could it be that lower tariffs and such are what really drives trade while containers are, if you will, just along for the ride? (more…)