This Week in Logistics News (October 26-30, 2015)

By Adrian Gonzalez

The Cubs finally made it to the World Series. Not the Chicago Cubs, of course, but the Little League Cubs of our city. My Dodgers team faces them tonight in the championship game. Both teams had to win three single-elimination playoff games to reach this point — 16 teams down to the final 2.

Win or lose, it should be a fun game tonight under the lights. The temperature will likely be in the 40s during the game, but that’s fall baseball in New England. As I told the kids, if you have dreams of playing in the real World Series someday, you have to get used to playing on cold October nights, and the opportunity doesn’t come very often, so just enjoy it.

Now, on to this week’s supply chain and logistics news…

Well, the post I wrote earlier this week about Walmart and its approach to supplier relationship management struck a nerve — it has received close to 109,000 views, 460 likes, and 263 comments on LinkedIn! Some follow-up thoughts based on the comments received:

First, from a supply chain and logistics perspective, I believe Walmart continues to innovate and lead the industry in many areas. One example is the work the company is doing to improve the fuel efficiency of its private fleet and minimize miles driven, which provides both cost and sustainability benefits. But in the area of supplier relationship management, based on the reports referenced in the post and conversations I’ve had with suppliers, Walmart is not leading the way.

As many people have commented, this “muscular” approach to supplier relationships is not new or limited to Walmart; it’s common practice for many other large companies, including some of Walmart’s large suppliers, such as Procter & Gamble, that are also demanding price cuts and extended payment terms from their suppliers (see April 2015 New York Times article, “Big Companies Pay Later, Squeezing Their Suppliers”).

So, Wal-Mart spokeswoman Deisha Barnett is correct: what Walmart is doing is “what is happening across the industry,” and not just in retail. Large companies across many industries have been taking a “What’s in it for Me?” approach to business relationships for a long time, but it’s an approach with a proven history of causing more harm than good over the long term.

Finally, some have argued that this is a free market — if suppliers don’t like Walmart’s terms, they can walk away. True, but easier said than done. The reality is that many suppliers are in a Catch-22 situation. For many of them, Walmart accounts for 20-40 percent (or more) of sales. Cutting ties with Walmart would severely hurt them financially. Meanwhile, those that stick with Walmart believe that they’ll make up margin loss with increased sales volume, but as margins get smaller and smaller, the amount of sales volume required to make up the difference approaches infinity — that is, it will never happen. So, it’s either a quick death by breaking ties or death by a thousand cuts by sticking with them — unless, of course, they take aggressive cost-cutting actions themselves, such as moving production to lower-cost countries, using cheaper materials, “cutting corners” which often results in quality or safety issues, or flexing their own muscles and demanding lower prices from their suppliers, thus continuing the vicious cycle.

Ok, on to this week’s news, which also features Walmart. According to Reuters, Walmart applied for permission from the FAA to test drones for home delivery, curbside pickup and checking warehouse inventories. “Drones have a lot of potential to further connect our vast network of stores, distribution centers, fulfillment centers and transportation fleet,” Wal-Mart spokesman Dan Toporek said. “There is a Walmart within five miles of 70 percent of the U.S. population, which creates some unique and interesting possibilities for serving customers with drones.”

While using drones for customer deliveries gets all the buzz, their use within distribution centers and yards for inventory management is equally compelling. According to the article, Walmart wants “to test drones for taking stock of trailers and other items in the parking lot of a warehouse using electronic tagging and other methods. A Wal-Mart distribution center could have hundreds of trailers waiting in its yard, and a drone could potentially be used to quickly account for what each one is holding.”

I know of at least one third-party logistics provider (3PL) working with a large customer that is experimenting with drones for this purpose. PINC Solutions, a provider of yard management and supply chain execution solutions, was among the first to introduce a drone solution (called PINC Air) for this application. Check out their promotional video below:

Simply put, while there are still many hurdles to overcome, there will be a future for drones in supply chain management. What that future will be exactly remains to be seen.

Consumers place a high premium on free shipping when shopping online, but as folks in the logistics industry know, there is no such thing as free shipping — somebody has to pay UPS, FedEx, and USPS, and those carriers are raising their rates. Perhaps that is why Walmart is going against the grain and offering free shipping only to online orders that exceed $50. According to the Wall Street Journal, “Wal-Mart instead plans to favor long-term discounts that last throughout the holiday season and encourage shoppers to pick up online orders in stores, shying away from short-term deals and free-shipping offers that many competitors have used to lure shoppers.”

Click-and-collect is very common in the UK, and it’s becoming more popular here in the US, but it’s a risky strategy for Walmart nonetheless. Retailers have created this monster — that is, consumers who expect free shipping, no matter how unreasonable it is — and they now have to deal with it.

In related news, Target announced yesterday that beginning Nov. 1 through Dec. 25, it will bring back free shipping and returns. But the bigger news is that the company has partnered with Borderfree, a Pitney Bowes company, to launch an international version of its website available to shoppers in more than 200 countries and territories. Here are some details from the press release:

At Intl.Target.com, both international and U.S. guests will be able to shop about half the assortment of Target.com, including apparel, beauty products, home décor, housewares, baby goods and toys. The prices will be the same as those offered in the U.S. on Target.com, and can be shown in nearly 60 different currencies. Countries where shipping from Target is now available include China, India, Canada, Mexico, European Union countries and more.

When international guests visit Target.com, they will be taken to Target’s new international website. Guests can then designate the country they would like to ship to and also choose their currency. Prices sitewide will be shown in the local currency, reflecting current conversion rates. The checkout page will be translated into the local language and the all-in price with shipping charges, duties and tariffs will be clearly shown and transparent for guests [emphasis mine].

As I wrote last year in “The Messy Reality of Cross-Border E-commerce”:

While omnichannel retailing is in the spotlight these days, lurking in the shadows is another big challenge and opportunity many retailers (and manufacturers looking to sell direct to consumers) have been struggling with for years: cross-border e-commerce.

It may sound simple, but enabling a consumer in one country to buy from an online retailer in another country is incredibly complex. In addition to language and currency considerations, there are many other factors that come into play, including cost factors (duties, taxes, brokerage fees), customs compliance requirements (product classification, restricted party screening, import/export documentation), and complying with the address formats of destination countries to prevent delays and other issues with last-mile delivery.

If Target succeeds with this rollout, I expect many other retailers to focus on cross-border e-commerce in 2016.

And with that, I am out of time. Have a happy weekend!

Song of the Week: Dead Man’s Party by Oingo Boingo