This Week in Logistics News (October 20-24, 2014)

I have a date with my first grader to play math games in her class this morning, so I’m short on time. Here’s the news that caught my attention this week:

Free shipping: what started out as an e-commerce experiment to entice online shoppers has become a customer expectation, and a drain on profitability for retailers. As reported in the Wall Street Journal:

On average, a customer now has to spend $82 on merchandise to qualify for free shipping, based on July data from 113 major retailers—up from $76 the same month a year earlier, according to StellaService Inc., which collects data about online shopping.


Amazon raised its free-shipping minimum to $35 from $25 late last year. And in March, the e-commerce giant increased the fee for its Prime membership, which allows for unlimited free two-day shipping, to $99 from its original price of $79…Last year Amazon spent about $6.64 billion on shipping, but brought in only about $3.1 billion in payments for shipping.


Chains have been seeking to dial back the cost of a perk they had used aggressively to encourage shoppers to use their websites. It is a sign that e-commerce has matured from a budding growth area into a core business that has to stand on its own. Wal-Mart Stores Inc., for instance, disclosed for the first time last week that its online business posts an operating loss that it hopes to reverse later this decade

Ironically, the day before that article appeared, Target announced that it was offering free shipping on all online orders (regardless of order size) from October 22 through December 20. Apparently, the temptation to use free shipping as a catalyst for short-term sales growth is sometimes too strong to resist.

As I’ve said before, there is no such thing as free shipping; somebody has to pay UPS, FedEx, and USPS, and shipping bills will likely go up in the near future when dimensional weight pricing kicks in. Free shipping is here to stay, but retailers will be more disciplined and financially smart about when to offer it moving forward.

And besides, free shipping is so yesterday. Same-day delivery is now the latest way retailers are trying to lure online consumers (and another drain on their profitability). The latest news: eBay, in partnership with DHL, is testing same-day delivery in Berlin from early November until the end of the year. According to Post & Parcel, “Consumers shopping from participating retailers on eBay will be able to buy items up to 2pm and get them delivered on the same day, between 8pm and 10pm. eBay said between five and 10 merchants will be participating in the pilot, including Fashion For Home and MAPCO.”

Moving on to technology news (or is it 3PL news?), Transplace announced the release of Optimize Prime, “a comprehensive platform that designs, analyzes and optimizes transportation distribution networks in order to eliminate waste and reduce transportation costs.” Here are some details from the press release:

The system displays a graphical interface mapping product transportation flows and locations based on geographical attributes, and applies mode selection optimization to both operational settings and strategic decision analysis settings. For added flexibility, the system inputs strategic business rules for the most complex networks, including cost, service level, product type, packaging and appointment windows. This enhanced version, which replaces Transplace’s Scenario Pro Technology (SPT) system, allows for better, faster outcomes by considering more scenarios in a shorter amount of time, and delivers detailed reporting for each optimization for shipment consolidation, mode conversion and route selection.

I haven’t seen a demo of this solution, but the phrase that stands out for me the most is “consider[s] more scenarios in a shorter amount of time.” This is a general trend we’re seeing with supply chain planning and optimization solutions, thanks to great advances in modeling technology and approaches, and equally important, cloud computing has greatly compressed processing time by several factors, enabling companies to tackle more complex and detailed optimization problems that were either impossible or took hundreds of hours to solve just a few years ago. I plan to discuss this topic in more detail in a future post.

While most large enterprise software vendors are making the shift to cloud solutions and subscription-based pricing models, which is impacting their financials in the short term, Manhattan Associates is largely sticking with the traditional model — and continues to post record results. The company reported record non-GAAP adjusted diluted earnings per share for Q3 2014 of $0.32 compared to $0.26 in Q3 2013, on license revenue of $16.9 million and record total revenue of $125.6 million. According to Eddie Capel, Manhattan Associates president and CEO, “Demand for our omni-channel and distribution management solutions remains solid and we continue to innovate and strive to enhance our market position. Our outlook for the balance of 2014 and the future is quite positive.”

Manhattan Associates’ continued success in the market begs the question: Is the traditional software deployment and pricing model dead (or dying)? Or is the on-premise/license fee model the right one for certain customers, industries, and/or applications? The easy answer is that software vendors shouldn’t pick one model over the other, but instead offer a variety of pricing and deployment options. But Manhattan Associates doesn’t seem to be in any hurry to fix what isn’t broken, and its customers (both new and existing) don’t seem to be putting much pressure on them to change either. Something to ponder in the days ahead.

And with that, I’m out of time for this week. Have a happy weekend!

Song of the Week: “Left Hand Free” by alt-J

Note: Manhattan Associates and Transplace are Talking Logistics sponsors.