Waiting on the water

One of the evolving stories of the operational impacts of the pandemic has been port congestion. We (collectively) have been ordering more stuff — shifting consumption from services to goods — and that has meant more work flowing through the nation’s port. This is particularly true for the ports of Los Angeles and Long Beach. That has meant that there is a long, floating queue of cargo ships waiting to unload — as this WSJ video explains.

An interesting side bit here is the impact of the ever-increasing size of container ships. Oversized boats played a role in the Ever Given saga in the Suez Canal. The relevance here is that bigger boats take longer to unload. That is, wicked big boats are efficient at schlepping containers across open water but make life hard when they hit a port.

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What service discipline is best for testing queues?

First in, first out (FIFO) is the service discipline that we are all most familiar with. If I get in line at the cafe before you do, I get to place my order first. Simple. Fair. But is that the best scheme for running the queue for covid tests?

That’s basically the question asked by a recent post on Marginal Revolution (Stack-Push-Pop COVID Testing, Aug 7). The basic complaint is that delayed test results are useless test results. Hence, there should be an emphasis on turning around results quickly while not wasting resources on past-due samples. Deviating from FIFO is one way of achieving this.

One way of thinking about this is to use a stack or last-in first-out (LIFO) model for testing. In a stack model the newest test request is pushed onto the top of the stack and the next test to be processed is popped off the top of the stack. One disadvantage of this model is that some test requests will never be processed (they should be removed from the bottom of the stack and returned as null results). Some people will be angry.

But the stack model of testing has a huge advantage over first-come, first-served. Namely, just as many tests will be completed as under the current model but the tests results will all come back faster and be much more useful.

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Managing pricing without data

Take a moment to appreciate the conundrum airline pricing managers currently find themselves in. In normal times, the main task of pricing managers and the revenue management systems they oversee is to make sure that there are enough — but not too many — seats left in the days before a flight for those flyers willing to pony up big bucks. Again, in normal times, anyone could fill up a plane going between Chicago and LA at $300 per seat. The magic is selling some seats at $300 early while making sure there are seats to sell at $2,000 later.

Of course, these are not normal times. Demand has collapsed across pretty much all markets making pricing and saving seats for later irrelevant. But that shouldn’t last forever, right? And then airlines should be able to get back to business as usual. But there is a hitch. As discussed in the Wall Street Journal, revenue management systems base decisions on historical data but past data is pretty useless for the current situation and the data being collected right now is likely irrelevant for when the market recovers (Coronavirus Has Upended Everything Airlines Know About Pricing, Aug 5).

You can hear the author discuss his finding here:

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Moving sales from the most profitable channel to the least profitable channel

More on shifting shopping habits and how firms are responding. Specifically, we are again looking at the growth of online grocery sales. The Financial Times has a really nice story examining why the pandemic hasn’t necessarily been a boon for supermarkets (Why supermarkets are struggling to profit from the online grocery boom, Jul 22). On the one hand, stay at home orders have limited the options for dining out; that should be a good thing for supermarkets. On the other, those orders and general pandemic concerns have made people nervous about going to the store. That has led to a boom in online orders either for delivery or for pick up. According to the article, it took 20 years for online sales to account for 7% of UK sales. That percentage jumped to 13% in two months. The problem is that online sales are just not as profitable.

Sainsbury’s chief executive Simon Roberts summed the situation up, saying Covid-19 was “moving sales out of our most profitable convenience channel and driving a huge step-up in online grocery participation, our least profitable channel”.

For some numbers to back up that statement, checkout this eye candy:

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Boohoo, corona, amd supply chain ethics

To state the obvious, it’s bad when your brand gets associated with a phrase like “modern slavery.” That is just the situation that British retailer Boohoo finds itself in.

To backtrack a bit. Boohoo is an online fast fashion firm. We wrote about them a while ago. Their schtick is super fast product launches. They offer lots (as in over a thousand) of items each week and quickly replenish those that capture the public’s attention. As the Guardian reports, this served them well as Britain started to shut down because of the pandemic (Boohoo booms as Leicester garment factories are linked to lockdown, Jul 4).

It was a Friday, and usually the fast-fashion brand’s irrepressibly bouncy Twitter account would be pitching dresses and shoes to its followers ahead of a night out. But this was the first weekend of lockdown, and the company made a decisive pivot.

Instead of bandage tops and tapered trousers, it posted a “night in” thread, helping followers choose “that perfect movie for the weekend”. It advertised an everything-must-go flash sale, with 70% off all stock and 50% off 500 dresses.

And it started selling loungewear – that is, clothes for the sofa. A knitted lounge set, a cropped sweatshirt, and “Disney+ binge outfits” were all on show.

So a quick pivot from date night to night in. But how were they able to so quick adjust their offerings? By producing locally and relying on flexible suppliers mainly located in the city Leicester (How Boohoo came to rule the roost in Leicester’s underground textile trade, Financial Times, Jul 10).

Abandoned by big retailers three decades ago, Leicester’s industry splintered into 1,500 mini-factories, typically employing fewer than 10 people. …

Leicester’s flotilla of small workshops competed with rivals in Bangladesh and Turkey by offering an ultra-flexible service, handling small orders in quick time. It helps Boohoo test almost 3,000 lines of clothes every week and ramp up production of trends that catch on, be they brassy bodycon dresses or lockdown loungewear.

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Still empty supermarkets

Some interesting images from the Wall Street Journal (From Flour to Canned Soup, Coronavirus Surge Pressures Food Supplies, Jul 12). First up a look at supermarket out of stocks.

Note that this graph starts in late May — well past the initial surge of lockdown panic buying. What we see is that we still have persistent shortfalls even as producers have reduced the variety they offer.

If we look at specific categories that surged as states imposed stay at home orders, we see that the peaks go pretty bad but that the likes of toilet paper and canned goods are within the realm of general goods that we see above.

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Shrinking variety

A recurring theme in how the pandemic has changed operations has been that firms are limiting variety. If a firm is having a hard time keeping up with demand surges and shifts, then a basic step is to drop the low runners and focus on the products most in demand. Now the Wall Street Journal has some data on just how significant the impact has been (Why the American Consumer Has Fewer Choices—Maybe for Good, June 27). The graph above shows compares several weeks in May and June this year with the same span last year. The average across all categories is down 7.3%.

There is a similar story at restaurants, where firms have limited their menus to simplify operations,

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Will pick up last past the pandemic?

One of my favorite examples I have learned from doing this blog is Chronodrive, a French chain specializing in pick up groceries. Specializing in the sense that this is all that they do. It makes for a nice example since it allows for a contrast between a firm that has tailored all of its operations for one niche against conventional supermarkets that have tried tacking on pick up or delivery onto standard stores.

Of course, in the current environment, lots of firms have had to tack on pick up or delivery options onto their existing stores. To paraphrase Don Rumsfeld, sometimes you have to serve customers with the processes you have, not the processes you might want or wish to have at a later time. But will pick up — some form of click and collect — have legs?

The Wall Street Journal reports that for both restaurants and grocery stores, pick up has been a good business and has been holding up even as states have reopened (Pickup Gains Ground Over Delivery, June 25).

Pickup grocery sales were up 81% in the week ended June 13 from the start of this year, according to Nielsen, while delivery sales rose 33% in that time. At restaurants, carryout accounted for 42% of orders by dollars in May, according to data from research firm NPD Group Inc., compared with a 13% share of sales for delivery. Carryout has maintained its share of restaurant sales since dining rooms began to reopen in May, NPD said, while drive-through and delivery have lost some ground to dine-in orders.

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What to do with excess clothes (updated)

An interesting story from Reuters. What should retailers do with all of the inventory they had for the spring season?

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How the effects of the pandemic move up the supply chain

The novel coronavirus have impacted many business as governments imposed lockdowns and consumers were just generally reluctant to spend. But in a global economy, those effects are not just local. As shops close down on one side of the world, suppliers on the other side also take a hit.

Take the case of Denim Expert Ltd and its founder Mostafiz Uddin who were featured in a recent Guardian article (‘My life became a disaster movie’: the Bangladesh garment factory on the brink, Jun 21). Denim Expert is a Bangladeshi based apparel producer that makes jeans for a number of brands. When the UK went into lockdown, a number of brands cancelled their orders. Between jeans that had already been produced with materials that had been ordered for anticipated future orders, Denim Expert was sitting on over $2 million of stuff it couldn’t convert into cash. The hit they took was just a small part of the toll imposed on the overall industry.

In Bangladesh alone, fashion brands have cancelled an estimated £2.5bn of orders at more than 1,150 factories, with the country’s garment industry seeing an 84% decline in orders.

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