This Week in Logistics News (February 6-10, 2017)

By Adrian Gonzalez

After two rounds of shoveling more than a foot of snow yesterday, I am in catch up mode today, so let’s go straight to the supply chain and logistics news that caught my attention this week:

FedEx announced this week the launch of FedEx Fulfillment, “an e-commerce solution that helps small and medium-sized businesses fulfill orders from multiple channels including websites and online marketplaces and manage inventory for their retail stores.” Here’s more from the press release:

Using the FedEx Fulfillment platform, customers will have complete visibility into their products, giving them an easy way to track items, manage inventory, analyze trends, and make more informed decisions by better understanding shoppers’ spending behaviors.

FedEx Fulfillment has one of the industry’s latest same-day fulfillment cut-off times, two-day ground shipping to the majority of the U.S. population, and the capabilities for a hassle-free returns process.

Translation: FedEx Fulfillment is the company’s response to Amazon’s highly successful Fulfillment by Amazon service, which others are racing to duplicate too, such as Symphony Commerce with its Fulfillment-as-a-Service offering and Tompkins International with its MonarchFX Alliance. And here’s why: according to Amazon’s Q4 2016 press release:

Fulfillment by Amazon (FBA) delivered more than two billion units on behalf of sellers in 2016, and the number of active sellers using FBA grew more than 70%. Using the FBA service, Amazon sellers from more than 130 countries fulfilled orders to customers in 185 countries.
In the fourth quarter, FBA units represented more than 55% of total third-party units.

For decades third-party logistics providers ignored the small and midsize segment of the market (part of the reason: it costs just as much to sell to a small company as to a large one, but the latter offers a bigger bang for the buck), but Amazon and e-commerce have pried open that SMB door and now others are looking to rush in too.

In more traditional distribution news, Kellogg’s is pulling the plug on its direct store delivery (DSD) model for snacks, opting instead to use its “more widely used warehouse model to cut costs and adapt to a changing retail landscape.” As reported by Reuters:

The decision reflects the shift by shoppers toward buying groceries outside of grocery stores, as well as Kellogg’s continued focus on revitalizing its snack business.

The distribution model change is part of an expanded “Project K” program, which Kellogg launched in 2013 to save up to $475 million annually by 2018 through job cuts and production optimization.

Kellogg already distributes about 75 percent of its U.S. sales through warehouses, including products in its frozen foods and morning foods businesses.

Is this an isolated case or will other companies abandon or restructure their Direct Store Delivery (DSD) operations in response to changing market conditions? Will DSD be another victim of ecommerce and (if it ever truly takes off) online grocery shopping? I haven’t given much thought to these questions, but they’re worth thinking about.

One of my predictions for this year was that companies would get more serious about eradicating slavery and conflict minerals from supply chains. But as reported in the Wall Street Journal this week, “the Trump administration is considering executive action to suspend a regulation backed by human-rights groups and loathed by many businesses that requires certain industries to investigate whether their products contain metals that could have been sold by armed groups.” According to the article:

The rule, which was established under the 2010 Dodd-Frank regulatory-overhaul law and went into effect in 2012, mandates companies to file reports on their use of these minerals to the Securities and Exchange Commission.

Parts of the conflict-minerals rule were invalidated in 2014 after an appellate court decided it violated companies’ rights to free speech following a lawsuit by the National Association of Manufacturers, the Business Roundtable and the U.S. Chamber of Commerce. Companies have struggled to comply with its remaining elements, according to a 2015 study from Tulane University and the consulting firm Assent Compliance; 90% of the nearly 1,300 companies that filed conflict-minerals reports in 2014 couldn’t determine whether their products were conflict-free, the study found [emphasis mine].

Two takeaways: first, the study findings from Tulane University further underscore how difficult it is for companies to map their supply chain and obtain a detailed understanding of it. Second, whether it’s climate change or conflict minerals or slavery, the lesson to date is clear: laws or international agreements passed with good intentions but with no enforcement or consequences will barely move the needle on achieving their desired outcomes. In short, companies that have established goals and initiatives around eliminating conflict minerals from their supply chains will continue to pursue them regardless of what actions the new administration takes, and companies that haven’t been active in this area will continue to stay on the sidelines.

Finally, if blockchain is in the news, you can bet that IBM is involved in some way. This week the company announced that it is “collaborating with Dubai Customs, Dubai Trade and its IT provider DUTECH, to explore the use of blockchain for a trade finance and logistics solution for the import and re-export process of goods in and out of Dubai.” Here are more details from the press release:

Using Hyperledger Fabric and IBM Cloud, the blockchain solution transmits shipment data allowing key stakeholders to receive real-time information about the state of goods and the status of the shipment. Taking the example of a shipment of fruit, stakeholders involved in the process will receive timely updates as the fruit is exported from India to Dubai by sea, and then manufactured into juice in Dubai, and then exported as juice from Dubai to Spain by air.

This trade finance and logistics blockchain-based solution aims to replace paper-based contracts with smart contracts; leverages Watson IoT for device-reported data to update or validate smart contracts; and integrates all the key trade process stakeholders from the ordering stage, in which the importer obtains a letter of credit from their bank, through the intermediary stages of freight and shipping, and ending with customs and payment.

It seems like IBM is the only company aggressively pursuing opportunities to leverage blockchain technology in supply chain management. There are many skeptics out there about the future of blockchain, and the hype meter is certainly on high, but IBM has placed a big bet on the table and if they’re right, they’ll certainly have a big lead on everyone else in the market.

And with that, have a happy weekend!

Song of the Week: “Not Gonna Let You Walk Away” by LOLO