Saturday, February 13, 2016

Amazon as a 3PL

Back in October I asked the question:  What is Amazon? A 3PL, Retailer, IT Company, Delivery Company?  And, I answered the question by saying:  All of the Above.  Now it is February and with the advent of Amazon registering as a NVO and with their purchase of trailers it has become clear - they are a 3PL and most likely will quickly become the best there is.

Amazon has such a unique ability to do things very quickly, apply incredible technology and put rock solid processes in place (supported by the incredible technology) that when they do this it seems like it comes out of no where.  But, of course, it does not.  I have written many times that Amazon could easily do this with their fulfillment capabilities.

In Supply Chain Quarterly, the magazine asks this question:  Amazon a 3PL? The most interesting part of this article is the "head in the sand" responses from some of the major company CEOs.  Only 6 of the CEOs considered Amazon to already be a 3PL.  Let's look at the basics of what Amazon does:

  1. They have huge warehouse / order fulfillment centers
  2. They take in product both from themselves but also from other retailers and e-tailers
  3. They provide customized fulfillment
  4. They now have trucks and do deliveries
  5. They are building out a courier service for final mile. 
Looks like a duck, walks like a duck, acts like a duck - pretty sure it is a duck.  Although, as was outlined in Richard Tedlow's seminal work "Denial:  Why Business leaders Fail to Look Facts in the Face - and what to do about it" we know that history is full of companies who cannot see change even though it is staring them in the face.  Think Sears ignoring Wal-Mart and then Wal-Mart ignoring Amazon. 

Let's close this once and for all.  Amazon is a 3PL.  Amazon is a cloud computing company. Amazon is a retailer (Now including bricks and mortar).  And, most importantly, if you are in those businesses, Amazon is coming after you.

Read this book and you will see how easy it is to ignore the facts - but you do that at your own peril.

Saturday, February 6, 2016

More Tough News for the Rail Roads - Carloads Dropped 16.6%

The January AAR report has come out and it is not pretty for the railroads.  Of course coal has been a big driver but it looks like all commodities are in a decline and that has really hurt the rail. Intermodal is up 3.4% which is "ok" but nothing spectacular.

Bottom line is the economy is just slow and not sure when it will come out of this.  I have not written my "Macroeconomic Monday" report in a long time but I can tell you that the dynamics of this economy are very slow growth, tepid employment and lack of wage growth.  All of this is driving the consumer to save more or pay down debt which limits macro demand.  This is always first seen in the transportation of goods.

More to come... Buckle up for 2016.

Courier and Delivery Driver Employment Fall; Warehouse Employment Up

Post the holiday e-commerce surge, the inevitable arrived.  According to the Wall Street Journal, courier and delivery jobs were shed quickly by companies with lower demand.

Warehouse employment continues to outpace the overall economy.  Just go to towns like Lakeland, FL, Memphis, TN or Nashville and you can see that for mile upon miles.

What is fascinating about all this is this means buffer inventory is increasing. The graph below shows the incredible climb of inventory relative to sales in our economy.  Wasn't this what all this fancy supply chain software was supposed to solve?

Inventory to Sales Ratio
We are back to roughly 2002 levels which, if you measure supply chain efficiency by inventory levels you could say that we are in a "lost decade" of supply chain improvement.

Is Your 3PL Working for You The Shipper or For The Carrier

Anyone who reads my blog regularly knows I am not a fan of this carrier creation called "be a shipper of choice".  To simplify my reasons I break my reasons down into three categories:

  1. The carriers themselves speak as a commodity.  They always talk about the fact that if demand is greater than supply - prices will go up.  This is the text book description of a commodity.  I have never met a carrier who, in a time of rate increases, tell you "We will take less price because you are some magical "shipper of choice.
  2. It takes all the requirements for continuous improvement off of the carrier's shoulders and puts them on the customer.  I have never seen an industry (except for maybe the airlines) where the supplier's strategy is to essentially go to war with their customer.  This is the new trucking industry.  The icons of the industry (Don Schneider, JB Hunt - the man) would never do this. They would compete for customers by providing a higher level of efficiency and better service. Not try to put fear in the customer.
  3. This is a race to the bottom for shippers.  Imagine if everyone followed the checklist of "Shipper of choice".  Now, all shippers are equal and who is actually the shipper of choice?  Well, what happens is the carriers ratchet up what they want out of you.  This is a perverse way to run an industry.  
To help with carrier management and to help shippers navigate this craziness some hire a 3PL.  But, what happens when the 3PL is in the tank for the carrier?  Well, we know what happens - the 3PL tells the customer they have to pay "higher rates" to ensure capacity (any third grader could have figured that out - no need to pay a 3PL).  But, of course, the 3PL makes more money off of these higher rates so on and on it goes. 

So, here is my checklist for how a CARRIER can be the CARRIER of choice:

  1. Provide great value - service for price.  Overdue the service.
  2. Understand your customer's business so you can understand why they are asking for what they are asking for. 
  3. Do what you commit to do - don't over commit. 
  4. Don't complain about stupid stuff.  I love it when a carrier complains that we should level load our freight volume.  Great request.  What is a person to do, tell the consumer (who is the only one in this entire chain who is actually injecting money into this supply chain) they can't buy more product on the weekends?  They have to buy as much on Monday - Thursday?  
  5. Communicate, communicate, communicate.
  6. Use technology to everyone's benefit. 
The Transplace checklist for shipper of choice is one example where a 3PL is no longer working for their customer.  They are working for the carrier.