The Final Three Feet is Really Really Important (As We Are Re-Learning)

Back in April 2, 2013 I wrote a blog post entitled, "Is the 'Final Three Feet' The Most Important Logistics Leg" and it was created after I saw so many empty shelves at a Wal-Mart and I saw how they were restocking in an almost haphazard and unplanned way.  Of course anyone in retail knows an empty shelf facing translates into a lost sale.  It is very simple.  Keep the shelves stocked.

A simple idea but not quite as simple in practice.  You still see empty shelves in the day, you see aisles blocked because people are restocking during peak shopping times and you see trash (Broken down boxes) etc. cluttering the store.  All of these are signs the store has put no planning into how to stock shelves.

Store Shelves Being Stocked
During Prime Shopping Time

 

 

Now with the COVID-19 issues we are finding stores are relearning these lessons all over again.  It took weeks for stores to figure out how to adjust hours to ensure shelves were stocked.  What difference does it make that you are open 24 hours if by the 8th hour of being open your shelves are bare?  Too much time was lost in this and they should have read my posting.  The final three feet needs to be engineered just like the final mile and just like the DC to Store network. 

I will say one of the most sophisticated processes I have seen is at Home Depot.  At Home Depot, carts are built at the RDC (Large cross dock) which tell the store exactly what aisle and location on the planograph those products go. Yes, it takes more at the RDC but it makes stocking shelves in the store much simpler.  This ensures a few things:

1. The store associates can help customers and not stock shelves.
2. The cart is there, shelves are stocked and it is gone.  Out of the way of the customers. 
3. Minimizes complex training on the store floor.

The basic theory is push the work and the complexity back to the DC so the store is able to sell.  Which, after all, is what it is there for.  

Mike Welch - A Legend Passes On

It took me a few days to even think about a world without Mike Welch.  Mike was truly a special man.  He was special not in a flashy way but special in a very specific way; he made everyone's life a little bit better.  He was a friend to me, a business mentor to me, a supplier in some instances and he was a model of community involvement for the community my family lived in for so many years.  He made our life better.

I feel a need to tell the story of how Mike and I met and started working together.  In 2004 I was the General Manager of a the Ford Service Parts Business working for Schneider Logistics (SLI).  Ford was building out their Daily Parts Advantage service model and asked SLI to somewhat replicate what we were already doing for GMSPO.  As the GM I had to find dedicated carriers to make all the deliveries nationwide to almost 5K dealers and we were having trouble finding a carrier in Evansville, Indiana.

Luckily, I had an acquaintance who used to sell truck parts but now owned a company called Segmentz.  They were a very small LTL company and at the time Ford wanted to really look at costs and so we took a chance on this small, unknown and very inexperienced company.  Right after we contracted with them they purchased Express-1 from Mike Welch.  This acquisition is what made Express-1 a public company and it turns out the only real profitable part of the merger / acquisition was the part we contracted with for the Ford Service Parts. 

This caused Mike to become President of the combined company and they shed just about everything that was Segmentz.  This is how I met Mike.  I was living in Novi, MI and Green Bay, WI at the time.

Fast forward to 2005 and I had decided to leave SLI and went to Whirlpool in St. Joe Michigan.  One morning I went to get my haircut and who was in the barber chair but Mike Welch!  I was shocked as I really had no idea they were based in Buchanan.  We talked a lot and it turns out Mike was deeply involved in my son's school and he was a great expedite provider to Whirlpool.  This meant I was able to rekindle both our professional work and our personal relationship.   So, what did I learn from Mike:

1. He was a humble man and he taught me the art of humility.  While being wildly successful in the logistics business he never sought the spotlight.  He made his business better, he took care of his associates and he made his customer's businesses better. 
   
2. He taught me about giving back.  While he clearly made a lot of money when he sold to XPO he always took care of the community.  He always was there when we needed him for the boys and girls clubs, the Lakeshore Foundation and anything else which would make the community better.  He was always there.
   
3. He never forgot his friends.  While I considered him a friend I would not say we were super close however every time I saw him you would think we had been friends since grade school.  He always had time and he always engaged.
   
4. Finally, he was a great businessman.  He was an entrepreneur, he served his customers, he was proud of what he built and he always was innovating.  I learned a lot about just down to earth business concepts from him.

So, we in the logistics and supply chain world lost a great one.  While the company (Express-1) was not as big, I would put Mike up with Don Schneider, J.B. Hunt and all the greats of our industry.  

Mike, you will be missed by all... God Bless you and your family and I hope to see you again...

Read about the history in Mike's own words at this Interview by the Wall Street Journal.

Is "Freight-Tech" the future or Has Uber and Lyft Killed the Dream?

While I personally was unable to attend the annual Freightwaves Transparency19 conference this year I did watch a lot of the clips and I was fascinated by the shear volume of "Freight-tech"(I will abbreviate FT) companies coming out of the woodwork to help shippers ship product.  We are in the "golden age" of FT launches, venture capital money and potentially IPOs.

Or, as the title stated, has Uber and Lyft killed the dream?  More on that later but first, let's remind ourselves "how business works".

An entrepreneur comes up with a great idea and tries to get it to scale with a series of private fundings.  Venture capitalists get in early, generally get seats on the board and hope for an eventual big pay day when the company is either sold or goes public.  The company is built to scale (meaning it is generating cash - hopefully - or has a path to be cash flow positive.  Then, the early owners need to take money out of the company for a variety of reasons by going public or selling. Here are the reasons they may want to extract money:

1. Family wealth planning - they generally have a lot of their wealth in the company and they need some back.  
2. Pay Employees - Many early stage company employees are paid with options and they eventually want and need that money.  This is a warning to many employees who get in too late in the game.  If your options are valued right before the IPO then a lot of the time you are under water when it goes public (as are many Uber and Lyft employees).
3. All the juice is squeezed and the VC people want out. - Venture capitalists do not hold companies and eventually they want their money back.  Once they believe they have "squeezed all the juice out of they idea they will want to exit. 

Now, let's get back to Uber and Lyft and while I did not read the S-1 for the Lyft before it went public I did read the S-1 of Uber (skip the glitz slides and read the words) and it caused me to ask the question: "Who the hell would invest in this company"?  Let's look at what the S-1 (The S-1 is a required SEC filing before the company goes public and it generally is the first time you get to see their financials - it is required reading if you are going to invest in IPOs)  taught us:

1. Uber has lost over $3Bl in the last three years.  And that is if you count a gain on divestiture and "other investments".  If you look at just operations, in the last three years Uber has lost almost $10bl.  
2. They continually discuss incentives paid to the drivers and to the customers.  They are paying on both sides of the transaction.  
3. There is very little path to profitability.  They "sold" the IPO to the retail investor at exactly the right time (for them. 

Now, what are the learnings from e-commerce?  What we are starting to see is the "bricks and clicks" (Especially Wal-Mart) is the model to win.  Unfortunately, Wal-Mart took far too long to "get in the game" and it may be too late.  But, if Wal-Mart had responded back in 2013 as I had suggested when I wrote The Battle for Retail Sales is Really The Battle of Supply Chains, they would have killed it. Once Wal-Mart woke up I welcomed them back in 2017 in the article, "Welcome Back Wal-Mart. We Missed You Over the Last 5 Years". 

Which brings me to J.B. Hunt and their work with Box and J.B. HUNT360.  That is the winning formula!  It is the "Bricks and Clicks" of the freight world.  Like retail, eventually everything gets down to assets.  Someone needs to build stores and warehouses in retail and in freight someone needs to own the boxes, trucks and have drivers.  J.B. Hunt is showing they learned the lesson of Wal-Mart (Don't cede any ground to the tech guys), they jumped in early, they disrupted their own business and they are now the leader in this space for the asset players.  

What will come of all this?  I believe J.B. Hunt will continue to drive their leadership position further and the asset guys, to catch up, will have to buy a number of these FT companies.  Which means the VC population will get what they want but the asset guys will pay a huge premium for not getting in early.  

So, let me summarize:

1. Too much money chasing too few ideas... the "new" ideas are starting to be "me too's" (How many apps can have a competitive algorithm just to find an available truck)?
2. The FT VC population will want to sell.
3. The Asset guys will find out they are getting killed by the "trucks and clicks" model of J.B. Hunt and this will drive them to pay exorbitant prices to get the tech quick to catch up. 
4. JBHunt, by innovating early and fast will win this game big just like they did with intermodal. 

Finally, in the UBER S-1 we get our first public glance of UBER Freight and I am amazed at how small it is.  Now that UBER is public we will get to see more and more of their financials.  They believe the industry is moving to an "On-Demand" industry.  I find this hard to believe as big shippers need predictable freight and solutions like the J.B. HUNT 360Box where you get access to trailer pools.  I could be wrong, but I do not see a huge future for this.  

Provide Ritz-Carlton Service to Your Customers - It is Mostly Free

I had such a great experience this weekend I had to, as always, relate it back to customer value chain fulfillment.  We decided to spend the weekend at a beautiful resort owned by the Ritz-Carlton company and it was fabulous.  So, how does this relate to order fulfillment - the business all logisticians are truly engaged in?  It is called service.

Many of you may be saying "well of course it was a great time because it cost a lot and you were in a beautiful setting".  True and I will certainly say I am not naive of the fact the Ritz gets paid for all it does.  However, I do have to wonder which came first?  Are people willing to pay higher prices because the service is so incredibly better than the competitors or do they charge more because it costs more?  My hypothesis is it is the former rather than the latter.  Lesson 1:  People are willing to pay more if your service is significantly better than the competition.  Not just a little bit better and not just sometimes but consistently and significantly better than the competition. 

Now, the good news is most of what differentiated the company from the competition was free or very low cost!  I never walked by an associate at any level of the organization without them smiling and greeting me.  If they had a work cart in the aisle they immediately moved it so I did not have to muscle around things.  The place was spotless - every employee was part of the cleaning staff because everyone picked up even the slightest thing which may not belong where it was.  The bottled water was free!  Small bottles of water free!  It likely cost them almost nothing to provide that but rather than leave a bad taste in your mouth about the overall experience by ripping you off on $5 for water they just gave it to you!

My wife needed contact lens solution and the front desk offered to drive her to CVS to get it.  They did not say "I can call you a cab".  They just offered to fix that little problem for us.  Lesson 2: Don't make your customers feel they had a bad experience over some very small petty thing.  Just fix the problem and move on.

I could go on and on about the Ritz-Carlton and its great customer service but I think you get the idea.  So, here are a few lessons for supply chain / 3PL companies:

• Most actions which drive very high customer experience ratings are not very costly.  They are the basics.  Make your customer feel human again!
• Train everyone to be a customer experience evangelist.  The driver, the customer service agent, the building and grounds people.. everyone.  One thing you will find is not only will your customers be wildly excited and promote your company but it will also have the positive effect of making your workplace a desired location for recruits.  Want to recruit top talent and retain them?  Treat them as customers and not machines. 
• Fix the little stuff and move on. How many times do you find your company arguing with a customer over some petty thing (Think free bottled water).  At a company I worked we provided surveys on the delivery experience and I reviewed those surveys.  One customer had rated us all 10's (great) and put in the comment field "please bring donuts next time".  I went ahead and had the driver deliver donuts on the next delivery.  Nike had the right approach - Just Do It.
• Finally, when you do make a mistake, own up to it with your associates and your customers.  No one is perfect and no one expects you to be perfect.  They expect you to own up to it and solve it.  

Well, another great weekend in the books and wow did I learn and in a lot of cases re-learn a lot.  Your customer experience will definitely differentiate you and now, in the Nike fashion go JUST DO IT!.

The End of Sears Should Be Mourned by The Supply Chain Community

If I described to you a retail entity which did the following what would you say?

• Took orders nationwide over multiple channels (whatever technology was available) - phone, mail, store
• Delivered to your door most items
• You could buy anything - a belt for your suit or a complete home for your empty lot as you came back from fighting for America
• Had a complete after sales service network which reached just about every town in America
• Had brands which leveraged contract manufacturing so you always had the "store brand" but behind it were the best manufacturers available

You likely would say, "Wow, that must be Amazon".  Then if I added this:

• You could order any product at the store and when you ordered it you could immediately, at the cash register, set up a delivery appointment.
• They delivered everything, installed it and provided great after market service
• They did this anywhere there was a store.. which literally was everywhere.

Now you would say, "Wow, that is Amazon combined with XPO in one grouping.  The technology (inventory, scheduling final mile routing etc.) must be amazing!"

But, of course, what I am describing is what Sears was literally doing 25 years ago.  Sears Logistics Services was a pioneer in all things omnichannel and all things final mile delivery. I personally always shopped at Sears as I was in the military so I moved a lot.  However, every town I went to had a Sears, they all serviced you great, they would deliver where ever I lived and I could always count on them. 

Many stores today are just warehouses which are full of "stuff" to buy.  Sears sales people were experts at what they sold.  Ask a person in a "big box" today about an appliance they are selling on the floor and likely they will go over to it with you and read the sign (which I can do) and then start filling in gaps with what they "think".  They have no knowledge beyond what I have and in some cases, a lot less. 

When you went into a Sears store the appliance person (using appliances just as an example) had manufacturer training, likely had worked for an appliance company and were actually old enough to have owned a few themselves.  Pure expertise. 

So, while we all can sound smart about all the dumb things the modern leadership of Sears did we should not forget their logistics and supply chain expertise.  When I read what some of the retailers are doing today to make their delivery network more available and efficient for the consumer I can only think, "hmmm, that looks like Sears 25 years ago".

Reminds me of a great quote "Want a new idea, read an old book".

Will Disruption in The Inefficient Transportation Market Come From Within

Many of you who have read my blog over the last many years know I am a bit critical of our industry.  Innovation has been very slow in coming (Thus resulting in a somewhat man made crisis), executives at major trucking companies treat their service as a commodity (Talk about pricing relative to supply and demand not relative to value) and when measured by performance, our industry has not performed well.

I have advocated for outsiders to come in and disrupt the industry which led to my excitement when Elon Musk put his crosshairs squarely on the industry.  Unfortunately, the "outsiders" have almost the reverse problem of the insiders - the outsiders just don't understand the industry.  They think a driver is going to be on his iPhone all day.  So, if the insiders are stodgy and not innovative and the outsiders are not knowledgeable enough to matter, where will the industry get the innovation it needs to defeat the current crisis and truly add value to consumer's lives?

Well, it appears the disruption is coming from within which is probably the best we could hope for.  Two companies, Lanehub and the BiTA alliance are really driving significant innovation and both are led by long term industry experts.  Even the major carriers are providing some innovative solutions such as JB Hunt's 360 solution for both carriers and shippers. 

Our industry is on the verge of a major crisis and while clearly there have been some externalities which have exacerbated the problem, most of the issue is within the industry.  A lack of looking forward, a lack of innovation in productivity and finally, even leaders of the industry, treating it like a commodity, have all contributed to this crisis.  Look to the innovators, some of whom I have mentioned above, for leadership. 

What is The True State of The Supply Chain Industry?

As we look at the profession of managing supply chains we tend to spend a lot of time working on specific areas such as S&OP, Six Sigma, Lean, Labor management etc. These are all part of what we would hope would be an incredibly efficient supply chain. So, given all the spend in technology and all the work in these areas, it is fair to ask ourselves how are we doing?

By two very macro metrics, I would say as an industry, we are not doing great.  Lets first look at inventory.  As we all know, inventory at rest is waste. We also all like to engage in case studies of companies such as Zara and Dell (former Dell) where inventory management is legendary.  But when we look at the macro numbers, we just are not doing that well. 

The Government publishes an inventory to sales ratio which tells us how much inventory exists for the level of sales that are being produced.  The below graph shows the most current:

As you can see, our inventory relative to sales is about where it was in 2002.  We bottomed right after the recession (when companies just slashed) but since then, even with all the studies and technology, we still grew inventory.  This is waste in the system (and also explains the reason there is excess transportation capacity - especially in ocean).

Now, let's look at cost and for this I go to the CSCMP report "State of Logistics".  The key metric here is logistics cost as % of GDP.  Using the newer calculations prepared by AT Kearney it shows last year we were at 7.85% of GDP.  In 2011 we were at 7.88% so with all of this work, we have improved our cost efficiency by 3bps.  Not a stellar performance.  

So, by these two measurements certainly this industry has a "cold".  One could argue that we have become a lot more efficient but we "consumed" that efficiency by increasing service dramatically (more next day and same day delivery for example).  That is possible and certainly deserves study. However, in total, we do not seem to have made much progress. 

Why Logistics' Leaders Need to Recast "Cost Control"

The best presentation I have seen in a long time was given last year at the CSCMP Annual Conference and it was given by Amazon.  The topic was a general update on their supply chain however a statement was made that has stuck with me.  The speaker was asked how they decide what service to provide given the costs.  His answer was clear:

" We don't trade off.  We provide the service then figure out the cost".

This is the definition of a true customer centric supply chain.  The customer decides the service level and Amazon provides it.  It is then up to the logisticians and engineers at Amazon to figure out how to do this profitably.  

When the cynics asked him how long he can go with losing money, his answer was "We make a lot of money, we just choose to reinvest in the business".  Another great answer and given the results of Amazon in the last few quarters, I think this issue of them making money has been put to bed.  

So what is a person to do who is stuck in an "old school" business where the executives believe the only thing a logistician should do is cut costs?  Here are a few ideas:

1. Recast it into growing revenue.  Logistics systems, when planned properly and executed at a high level do more to grow revenue than most parts of the business - including sales and marketing.  If you own the final mile of the delivery then you definitely have more impact.

2. Invest in quality.  Why do I do almost all my shopping at Amazon?  It is because the quality is near perfect and it is incredibly consistent.  This, again, will grow the business. 

3. Invest in final mile and own as much of it as you can.  Amazon is learning that now with the various ways they are investing in the final mile for Prime.  You can have partners but they have to execute your system.  For example, Amazon delivers on Sunday through the US Postal Service.  However, they use the exact same customer service alerts as any other part of Amazon.  It is seamless to me as a customer.  

I heard another person talk a while ago and it was about the two major touch points for a customer. These are the point of purchase and the first point of use.  Because so much is moving to an order and deliver method of buying, the point of purchase for delivered goods is now both the on-line experience and the final mile delivery.  Make the final mile great.  

Of course, there are other items but these are the big three in my book.  Do this and you will make your logistic's systems revenue generators and not costs to be cut.  If your leaders do not see this, then start planning an exit strategy because they will ultimately lose in the market place. 

How Lack of Same Day Delivery Saved Me

This is a logistics story in reverse.  Rather than discuss the benefits of same day delivery I am going to review with you how lack of same day helped this hapless consumer.

I was out wandering as I tend to do on Saturdays.  Usually I shop with my wife and while she looks for things I look at things and wonder how they got there and why someone would buy this stuff.  My eyes wandered to a "Big Green Egg" in Ace Hardware.  Ok, this may need some explaining.

A "Green Egg" is a ceramic outdoor cooker / smoker / grill.  A fascinating device which looks cool, people swear by the food it produces and costs a ton of money (Do I really need a $1000 grill)?  Of course, like all good products, once you buy the base produce there is a wall of "accessories" which can bring the full cost to $1300+.  They have learned well from the Iphone!

Ok, back to logistics.  I spent a lot of time looking at this device and two questions came to mind:  1) How would I get this home (I have cars not trucks) and 2) How would I get it to the back yard (it is very heavy)?  Those were the final two questions the sales person had to "sell" me on and I probably would have made this impulse buy.  Unfortunately, there were two answers he gave:

1) Earliest they could get it to me was next Wednesday (I live 5 miles from the store, he could have brought it in a pick up truck during his break).

2) They only do "curbside" delivery - I had to get it to my back yard and he agreed that was not easy.

I looked at him and said "let me think about that and I will get back to you".  Suffice to say, I never got back to him.   What happened?

Whatever the chemical is that causes a person to impulse buy started to go away and the "rational" chemical took over.  As my wife and I drove home we asked ourselves:  1) Do we really need a $1300 grill?  2) Who would move it if I had to move it again from the original location?  3) Wouldn't a $60 weber grill do a good enough job?

The answers came back:  1) NO,  2) Who knows and 3) Probably yes.  Therefore, no purchase and I went on my way (For the record, I did not even buy the Weber grill).  So, what are the lessons here:

1) If he had same day delivery I most likely would have bought it.
2) If he was willing to bring it around to my backyard (or even just help me) I definitely would have bought it.

The key lesson here is same day delivery makes a difference!  It is a differentiator and it drives sales.  Not only did I not buy this on this day, I most likely will never buy it.  Too hard.  Make it easy for the consumer and make it fast and you have a sale. Allow the consumer to think about it, and you could easily lose the sale.

This lesson is learned in reverse by the people who hawk timeshares in Vegas.  I once went to their pitch to get free show tickets (I had no intention of buying one of these).  I asked the sales person, trying to be polite, to let me look at the information over a few days and I would get back to him.  He said to me, "No one will buy these if we let them look at the information...".  Wildly honest but what he realized is the ability to deliver same day (in this case, same hour) took advantage of the adrenaline rush going on during the sale process - it assures a sale.  They delivered it same hour by having all the paper work ready, the financing there on site, the keys etc. etc.

You may ask, well does same day delivery really help since the person can just return the product once the urge is lost?  This question ignores both the normal inertia that exists in a consumer and the high desire to tell their friends, spouses, and themselves that they did not make a mistake and it was actually a brilliant purchase.

Ever hear someone defend buying a timeshare?  It is almost laughable listening to them try to explain it but, alas, they do.

Speed and ease of delivery drives sales - it is plain and simple.

As a consumer though, I was rescued by ACE not having same day delivery!

Total Quality Logistics Opening in Daytona Florida

This is good news for Florida. TQL to open an office in Daytona and bringing over 100 jobs.  If you look at the map, the area from Jacksonville to Daytona than over to Orlando is truly becoming a logistics hub.  Not sure it is a "cluster" yet but really close. 

Great trained workforce, access to good training (University of Northern Florida is truly an unsung gem), low cost, no income taxes and access to the beach - what else would a company want!

UPS Buys Coyote Logistics - No Surprise to Readers of 10x Logistics

This week, after a few weeks of rumors, we learned that UPS Paid $1.8bl for Coyote Logistics.  This was no surprise to any reader of this blog as back in January of 2012 I wrote a post titled "The New Face of Brokerage".  In this post I opined that Coyote Logistics was something unique and new and was not the "old" brokerage company.  Great technology, great leadership and a "kick ass" attitude makes it one of the best.  This week UPS realized this.

I also questioned in July of 2013 whether XPO's purchase of 3PD was an "end around" and whether this would give XPO capabilities beyond what Coyote could provide.  In the end, for years now, I have seen a battle set up between XPO and Coyote - two new, fresh and innovative companies in the logistics space.  It is refreshing to see these companies grow and lead the industry and I think it is no accident they have taken the industry by storm and surpassed many long standing companies in size. XPO and Coyote are truly innovative and we are watching The Innovator's Dilemma play out in the logistics and supply chain industry - old "mainstream" companies cannot innovate at the pace of these two companies.

However, they now have gone two separate ways.  Through the incredible leadership of Bradley Jacobs, XPO is growing through acquisition.  They want to own and lead and they are the "hunter".

Coyote has decided (apparently) that the way to grow the company faster and gain more capabilities is to allow itself to get acquired by a much larger company in UPS.

Personally, I think XPO has the right model by keeping control of its fate.  As long as the capital is there, I say grow and compete.  Don't allow yourself to get swallowed up. Which, I fear, is precisely what will happen to Coyote.

Anyone who has been to Coyote's headquarters knows it is a unique place.  As I said above it is all about innovation, working at an incredible pace, young, aggressive and brash.  It is an edgy company.
UPS is anything but what I see in Coyote.  UPS is deliberate, slow, and measured. It is more about protecting what is than innovating into tomorrow.  Perhaps it is possible UPS will truly allow itself to learn from Coyote but business history would say otherwise.  Business history would say that UPS will swallow up Coyote and in 5 years we will wonder where it went.

UPS has a big opportunity here and I hope they take advantage of it... Let Coyote be Coyote!

Companies in This post:

Coyote Logistics:  www.coyote.com
UPS:  www.ups.com
XPO: www.xpo.com

Where is The Elon Musk of the Logistics World?

I am currently reading the book  Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future I highly encourage everyone to read it.  However the book gave me pause to think about our industry. An industry that at one time was filled with innovative giants such as Don Schneider and J.B. Hunt. Now, I have to ask, where have they all gone?

Where is the innovation in logistics and supply chain?  Think of it... with all the technology, education and advanced degrees, we still shut down the West Coast ports.  And when they shut down, supply chains came to a swift halt.

I consistently hear trucking and intermodal company executives talk about "supply and demand" as a driver of price.  They say "Watch out, capacity is low.. prices are going up and you need to be a shipper of choice".  Of course, this is nothing more than commodity pricing.  They are admitting they are out of ideas and they are pricing their service as a commodity.

In my early days in the industry I was able to see huge risk takers and innovators develop the use of satellite tracking for better routing (Don Schneider) and the proper use of trains and the overall development of intermodal (J.B. Hunt).  It was a thrilling time.  Lots of change, lots of risk, great growth and huge innovation.   Today, it appears innovation is either becoming a broker or buying a company.  In some cases, financial engineering has become the innovation of logistics.

I ask, where is our Elon Musk?  Where is our Steve Jobs?  The industry is screaming for someone to innovate.


 

Can We Finally Get on With Life? HOS is Upheld

Today it was reported that virtually all of the provisions in the hours of service (HOS) rule-making were upheld in court (again).  We should now be able to just get on with life, stop enriching the lawyers, and start planning our supply chains better.

Retailers Compete on Supply Chain - Part Deux

I have talked for years in speeches and in advising companies that the supply chain will become the competitive advantage for those trying to move products to market.  Especially if you are a retailer, you compete on supply chain in a major way.  In a blog post recently, titled Execution IS a Strategy I also talked about how great execution, more and more, differentiates the different retailers.  The same product is on the shelf and it is just a matter of who executes better. 

Adrian, over at Logisticsviewpoints highlighted the new service from Sears called "Fulfilled by Sears" (Posting titled: In Logistics, Somebody has to Own The Assets) which is an interesting development following my theory above.  Essentially, Sears is leveraging their fantastic Sears Logistics Services to become a world class 3PL in fulfillment services.  This follows the same developments at both Amazon and Wal-Mart. 

The question is why would a retailer dedicate talent, capital and executive time to opening up their logistics networks to anyone who wants to sell?  Wouldn't this be considered a distraction (especially since Sears at least is in the middle of a fight for pure survival)? The answer is twofold:

First, the simple economics are that each of these companies have to make huge infrastructure investments to keep their own business alive.  If they can leverage this infrastructure cover the variable cost of adding new clients and also contribute some to covering the fixed cost then they will be helped financially.  This is the same reason 3PLs have multi-client facilities - leverage the fixed costs.  Essentially, anyone selling through these networks is actually helping these retailers cover the cost of their huge logistics networks.

Second, they are basically saying they are the best 3PL in the nation and you should use them for that purpose.  They are competing  on logistics and supply chain strategy.  Once they get you into the fulfillment services they can sell you more and more logistics and supply chain  services. 

The group which should be very interested in this development are the true 3PL organizations.  For the vast majority of these networks, the "big 3" use their own labor and their own buildings along with, for the most part, their own software.  This is a play right out of "Porter's Five Forces" where a customer goes upstream and takes business from their suppliers. The buyer clearly is holding the power and the suppliers (i.e. 3PLs ) should be concerned with what Porter calls "Buyers threat of backward integration".    More on this interesting development later.

The Jobs Report Relative to Logistics: Families Enjoy Life More With Less?

The major economic news yesterday which, for a short period of time shattered the markets, was the jobs report.  Some key statistics from the Bureau of Labor Statistics (BLS) press release:

• Employment up 88K (Far below estimates)
• Long Term unemployed remained constant at about 4.6M
• Unemployment rate ticked down ever so slightly 7.6%

However the big number people were concerned with was the level of unemployed people who have dropped out of the labor market.  This number was a whopping 496K.  And of course this brings huge concerns to those of us (logisticians) involved in moving goods to market.  If the market shrinks then there are less goods to move to market - it is that simple.

What this jobs report reinforces are two major headwinds to the economy:

• Level of unemployed is staying relatively flat 
• Those who are employed will continue to feel restrained as they feel their employment could be at risk. 

Both of these mean that demand will continue to be stubbornly low and freight volumes will continue to be restrained.  Having said that, what I am most concerned about is the graph below:

 

This graph highlights the issue of those who have dropped out of the employment market.  As you can see we are bouncing around a bottom but the number is around the level we were at in the mid 1980's.  Two causes for this and both are a headwind for logistics:

• People cannot find employment - restrained spending
• People do not want to find work - A major societal shift. 

 Of these, I am most interested in the second one which could have long term and structural consequences to the economy and to the freight enviornment.  To be clear, this is not a judgement and I am not saying these are freeloaders.  What I am saying is just like companies have now become used to producing more with less, families have now realized they can enjoy life more with less.   Families that felt it was necessary to buy a lot of "things" and thus demanded two incomes have found out one income with a lot less "things" is actually pretty enjoyable.

No matter which way you look at this, we know this is not a good sign for a robust freight recovery. 

Is The "Final 3 Feet" The Most Important Logistics Leg?

I have talked a lot about "Final Mile" logistics especially since so many are trying to compete in this area.  From next day delivery to same day delivery to "crowd sourcing" delivery just about every retailer is trying to get an advantage over the other through a more efficient final mile delivery network.

However, 90% of shopping is still done in retail stores and the final 3 feet are the most important part of the execution of in store logistics.  Most logisticians are experts at lean and in plant logistics - getting parts and components efficiently to the assembly line to ensure a very lean and efficient manufacturing process.  But how many apply the same kind of rigor to the final 3 feet - getting product from the store room to the actual retail floor.  After all, if the product is not on the shelves it will be tough for people to buy the item they need.

In an article titled "Walmart Customers Say Shelves Are Empty" the Business Insider describes what appears to be a growing problem in Walmarts - product stacking up in back store rooms and no real system or staff to get it to shelves.  A tightly wound supply chain gets it to the 3 yard line but cannot bring it into the end zone.

Perhaps in store logistics needs to be elevated as a discipline especially as stores become larger and are managing more SKUs and product categories.  Goals of this should be:

1. Keep shelves always stocked without appearing to be stuffed
2. Keep product out of the aisles (nothing worse than aisles being used as storage space
3. Much like Disney where you never see anyone empty trash, yet it is always empty, you should figure out how to restock shelves out of the view of the customer.  
4. Have a detailed planograph for every store shelf / floor spot, have a method to measure fill rate at that point and have a detailed plan to restock. 
5. Start every day with 100% fill at the shelf level.  You will have a running start in keeping the day going well. 

The model below is a quick drawing I did on my iPad to illustrate the point:

Sorry for the quality but I needed to do this fast so I drew it with my finger as I could not find my stylus.  What the graph on the bottom shows is the level of "lean" at each stage of the supply chain from raw material extraction through conversion to the store (store room) then to the retail floor.  It is your typical bathtub effect.  We lean the heck out of the process through conversion and in distribution but then this article claims the final 3 feet is full of waste and piled up product.  

This article blames it on staffing levels and I do not know enough about the staffing levels at Walmart to either support or deny that hypothesis (although the graph below makes a compelling case) I do believe the need to concentrate and develop a solid in store logistics plan is necessary for all retailers.  No sense in having an incredibly lean supply chain if the product never makes it to the location where a customer can actually buy it.  

The Battle for Retail Sales is Really The Battle of Supply Chains

I continue to believe the battle for retail sales is really all about the underlying supply chains rather than the actual store.  The "store experience" is losing its importance to the more broader "order fulfillment" experience.  The backbone of this order fulfillment experience is the underlying supply chain efficiency of the retail company.  The key metrics for consumers include:

1. How easy is it to find what I want on your site / store?
2. Is the product readily available? (final three feet logistics which I will write about later)
3. How quickly can you get that product?
4. Is it packaged in such a way that the product can survive the entire trip (from MFG to DC to store to your house).  Of course, the store part is increasingly being eliminated.
5. How easy can it be returned?  Here I think of packaging and labeling so if I buy the product and decide to return it the process is simple for me to repackage it and put it back in the supply chain stream to get back to a returns center
6. Is it low cost?
7. How easy is it to pay?
8. How quickly do I get the credit back if I have to return it?

All of this is enveloped by world class customer service (Think Zappos) which makes you feel great and enjoy the entire experience.  Think about how Disney World makes you enjoy what is essentially waiting in long lines.  This is what the order fulfillment customer experience has to be like. 

The battle is increasingly being waged between Amazon.com and Wal-Mart's on line brand.  I will not pretend to judge who wins in this case although I think it is clear if the game ended now Amazon would win.  What is not clear is whether they can continue winning given the massive head start Wal-Mart has had in developing its supply chain.  For expertise, Wal-Mart can just hire a bunch of Amazon people so I am not overly worried about the talent pool.  

Challenges facing Amazon now include the high cost of building out a massive infrastructure (which Wal-Mart already has), the change in sentiment for sales tax collection (plan on paying sales tax on all on line purchases soon) and the high cost of final mile delivery which is required for Amazon but not necessarily required for Wal-Mart (see my posting on Wal-Mart testing out a locker system and crowd sourcing their deliveries).

The problem for companies like Wal-Mart and other retailers is they are losing the "branding" war.  The name "Amazon" is becoming synonymous with on line shopping.  People I talk to really do not "shop" on line they just go to Amazon to buy what they want.  It is becoming what Marissa Mayer (New CEO of Yahoo) calls a "daily habit".  As a consumer, you decide whether you are going to go to a store or buy on line.  If you decide to buy on line you go directly to Amazon.  I am sure Wal-Mart has all sorts of statistics that try to pat themselves on their backs but reality is Amazon is building a brand which equates to on line shopping - The Amazon brand is to on line shopping what the term "Xerox" is to copiers.  If this hole gets too deep, Wal-Mart may not be able to dig out.  

For years, Wal-Mart has been known as the world class supply chain company.  However, they could be at the cross roads where their supply chain is so tightly wound and so tightly integrated to a "bricks and mortars" experience they cannot adapt to the on line requirements.  This would not be the first time a well managed and world class supply chain became trouble for a company.

Think Dell and how incredible they were in a tightly wound and highly efficient supply chain designed to build desktop and tower computers. A funny thing happened:  The consumer moved to laptops.  While no one wanted to look at desktops before they bought as most were under your desk hidden away (lending itself to a build to order, direct buy model) everyone wanted to look at laptops. Laptops are a visible appliance.  This meant a need for retail space.  Further, the build to order did not need factories.  Go to an Apple store or Best Buy, buy a laptop and right there they will upgrade memory, install devices etc. etc.  Dell's huge competitive advantage with towers and desktops became a competitive disadvantage in the move to laptops.  Due to their size, retailers were willing to display them as they did not take a lot of shelf space or store room space. Essentially the entire model for buying computers changed in what appeared to be an overnight transformation. Dell was not ready and cold not change quickly enough. 

If I were advising Wal-Mart I would study this well to ensure they do not make the same mistake relative to on line purchasing and competing with Amazon.  

In the end I believe Wal-Mart and the other big retailers can and should be able to beat Amazon.  Just like Dell could have and should have beaten Asus and just like Sears could have and should have beaten Wal-Mart.  One thing we do know is due to the Innovator's Dilemma big companies tend to get crushed eventually by small start ups .  What is fascinating is how these small start ups, once they become big, make the exact same mistakes and eventually get crushed.  This is phenomenon is described in detail in Clayton Christenson's seminal book titled "The Innovator's Dilemma" and why some big companies cannot see what is clearly in front of them is described in detail in the book "Denial" by Richard Tedlow (Both professors I had at HBS).  Should be required reading and I have put a link to those books below (Yes, through Amazon).

Crowd Sourcing Logistics Comes to Wal-Mart

We have heard of crowd sourcing when it comes to many areas and specifically, mostly, in IT work.  Essentially you allow the "crowd" to do the work for you and a lot of times it is free.  Think "open-source" type work.  Everyone donates, everyone helps and everyone can become a worker for your entity.

Another big area where this is popular is in crowd source funding where just about everyone can be a mini bank and provide micro loans to entrepreneurs.  While this has been a niche area in logistics, Wal-Mart now announces they will test this for home delivery. 

Remember what I have written about which is the last mile / final mile / home delivery is the most expensive part of the logistics chain getting products from production to a consumer.  One reason why stores exist is because it allows a company to aggregate the product and you, the consumer, essentially handle the final mile to your home.

Now imagine you are checking out at Wal-mart and the following interaction occurs:

• YOU:  I am checking out and paying for my product..just as I am about to leave the cashier turns to me
• CASHIER:  I see you live on Smith Drive in Springfield.  I have a customer who just ordered some items and their house is only 1/2 mile from your house.  Would you mind delivering the product for me?
• YOU:  [GULP!]  Huh?
• CASHIER:  Yes, it is only this small bag and I will give you $10 off your purchase if you do this for me.
• YOU: [Still thinking this is odd yet intriguing] - Really?
• CASHIER: Yes, really (channeling Austin Powers).
• YOU: [As odd as it seems you think what the heck] OK, sure.

Wal-Mart gives you a $10.00 discount and off you go to deliver your product, get your $10 off and the home shopper gets very low cost home delivery.

Of course, there are all sorts of security concerns and other issues (What stops you from taking the product and never delivering it) but this is such an interesting idea I think it is worth investigating and perhaps this is the beginning of a huge trend in "Crowd-Source Logistics".  

There is a company which has a very interesting model called Zipments.  This is a fascinating idea which I must apologize I had not seen before.  Zipments matches required shipments with approved and screened couriers in big cities.  This is a little different as it is probably closer to independent contractor courier services than true crowd sourcing however it does appear this model is going to be very disruptive, in some form, to the normal delivery method. 

I could actually think about this going one step further in a Wal-Mart or Target.  I could see them having your credit card number and using the chance of a penalty charge ensuring you make the delivery and also a "load board" on the wall so even non customers could come in, see deliveries needed, and taking them.  

Everyone has a smartphone so getting a signature and passing that signature back to the company is easy.  I could even see, rather than a load board, a live APP existing where you could see what is being offered at multiple stores, bidding on the delivery, and building efficient routes all within a simple APP. 

Everyone can be a final mile delivery person!  Watch out Amazon.. Something like this will work.  

"Home Delivery" Lockers at Wal-Mart

In another twist to the race to home delivery and the attempt to de-throne Amazon, Wal-Mart is now testing lockers in their stores.  Along with a beefed up web presence Wal-Mart will try to entice you to order through the web (capture the web based buyer) however avoid the huge costs of the final mile.

This is the dilemma all of the retailers have and ultimately will have to solve:  The logistics costs of the final mile (delivery to your home) are a huge part of the total costs of logistics when you deliver to the home.  In fact, if you just measure the variable cost of sending one unit of something to your home virtually all the cost is in that final mile delivery.

If Wal-Mart is successful they can leverage the huge advantage they have in store delivery logistics while not incurring the costs for that final delivery - or they may be able to appropriately segment in the consumers mind the differential cost of delivery to the store v. delivery to the home.  This is an area Amazon cannot compete in (they have no stores).  As a consumer, because their is no option, when I order from Amazon I will accept a delivery charge.  However if I am presented with a "free" to pick up at store and $6.00 to get to the home I may think twice about the $6.00.

So, what issue do the lockers solve?  This solves the final "three feet" of the purchase experience.  I do not want to interact with a sales person or wait in line to pick up my goods.  Now I will be able to walk into the store, find my locker, get my products and leave.  It is very compelling.

I probably overstated my position above saying Amazon could not compete with this although they would need a partner.  The UPS store seems like the logical partner as it solidifies the use of UPS for the package delivery and there is one on just about every street corner.

Of course, there is still partnering with the Post Office (interestingly UPS has already started doing in the sustainability space) which I think makes a lot of sense.  We shall see how this ever changing landscape is developed.  Stay tuned.

I have two labels you can come back to for reading all the news on both Same Day Delivery and Final Mile Delivery.  If this is your topic, come back early and often for updates to these labels.

Guest on Talking Logistics - Fun and Interesting Conversation

I was thrilled to be a guest on Talking Logistics last week with Adrian Gonzalez.  My commentary is below and hope you enjoy!