This Week in Logistics News (December 1-5, 2014)

I always envisioned my kids getting up in the morning singing a vintage Depeche Mode or R.E.M song. Instead, they’re singing Rick Astley (“Never Gonna Give You Up”).

While I try to compose myself, here’s the news that caught my attention this week:

As is evident this time of the year, e-commerce continues to transform the retail industry, and many manufacturers are also increasing their e-commerce activities. Will e-commerce also transform the logistics industry? C.H. Robinson’s acquisition of Freightquote this week (for $365 million in cash) suggests that it will, at least more so moving forward than in the past.

As John Wiehoff, C.H. Robinson’s chairman and chief executive officer, commented in the press release, “Freightquote is a high quality, innovative, growth company that brings a proven model serving smaller businesses. Its proprietary e-commerce technology allows shippers to easily access competitive rates and automated load acceptance and payment functionality. E-commerce is going to be a bigger part of future supply chain services and Freightquote brings us a leading solution in our industry,”

There are several paths to growth in the 3PL industry: introduce new services, expand into new vertical industries, expand geographically, mergers and acquisitions, upsell existing clients, and penetrate the small and midsize business (SMB) market. Of all those options, penetrating the SMB market has been the road less traveled, primarily because the traditional 3PL sales and deployment model makes it cost prohibitive and non-scalable — a problem traditional software vendors have also experienced in penetrating this market segment.

Simply put, when it comes to profitably serving the SMB market, 3PLs need a new sales and deployment model — similar to what’s happening in the software industry with cloud and software-as-a-service — and that’s what Freightquote brings to C.H. Robinson.

This acquisition is also another example of the convergence of business models I’ve been talking about this year. Freightquote’s DNA has more strands of eBay and Amazon in it than those found in a traditional freight broker. And it’s that DNA, comprised of e-commerce technology, talent, and business model, that C.H. Robinson is betting will help it further penetrate the SMB market and accelerate its growth.

Moving on to technology news, JDA Software announced new capabilities within its Flowcasting™ solution, “which proactively attacks the root causes of out-of-stocks, preventing lost sales in the future.” Here’s how Fred Baumann, group vice president at JDA, sums up the challenge retailers and manufacturers still face (emphasis mine):

“In looking at retailers’ toughest challenges, chief among them is the ability to get the right stock levels for every product, in every single store. Even with the improvements we’ve seen in retail analytics, out-of-stocks still average 8 percent on a daily basis — and rise to 15 percent for products on promotion. This represents millions of dollars in lost sales for both retailers and their suppliers. The focus in the past has been on quantifying these lost opportunities, but that’s not enough. With JDA’s new capabilities, retailers can easily see the foundational cause of the mistake — and ensure that it doesn’t occur again.”

One of the three key enhancements JDA introduced is predictive analytics for out-of-stocks:

There can be dozens of reasons behind out-of-stock events, which cost retailers millions of dollars in lost sales every year. Preventing product shortages in the future means identifying and correcting the root cause. JDA’s robust new predictive analytics dive deep to find the disconnect, whether it’s a supplier shortage, forecasting error, incorrect lift estimate or order delay. JDA also zeroes in on regions, or individual stores, that are especially problematic. By targeting the root causes of lost opportunities, retailers can mitigate their future risk by creating optimal in-stock positions.

How is it that after all these years, and ongoing advancements in technology, out-of-stocks is still an ongoing supply chain issue? There are many reasons, including the fact that supply chains continue to get more complex (e.g., SKU proliferation, longer supply chains, more sales and distribution channels). The enhancement made by JDA are important and helpful, but we also have to recognize that technology is not a silver bullet, and there are plenty of process and execution issues that retailers and manufacturers have to solve too, including better communication and collaboration between functional groups and trading partners, better data quality management, and better training of people.

And with that, I’m out of time and space. Have a happy weekend!

Song of the Week: “Rollercoaster” by Bleachers

Note: C.H. Robinson and Descartes are Talking Logistics sponsors.