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Sept. 11, 2020 - Supply Chain Digest Flagship Newsletter
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This Week in SCDigest

bullet Walmart and Amazon by the Numbers 2020 bullet SCDigest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet New Stock Index
bullet

New Cartoon Caption Contest

bullet Trivia      bullet Feedback
bullet New Expert Column bullet On Demand Videocasts
THIS WEEK'S SPONSOR:

 

 

A new report from ARC Advisory analyst Clint Reiser lays out the
landscape across WMS, WES and Warehouse Control System (WCS)
software, detailing the WES value proposition, and describing
important changes in the WES market.

 


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SUPPLY CHAIN NEWS BITES


Supply Chain Graphic
of the Week
Top States for Manufacturing Health

 

This Week's Supply Chain

by the Numbers

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Stimulus 2 would be Great News for us Economy
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Samsung Bio Building Massive Pharma Plant
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Rail Car Makers Struggling

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FedEx Plans Massive Hiring for "Unprecedented" Peak Season


NEW CARTOON CAPTION CONTEST!

July 30, 2020 Contest


Show Us Your Supply Chain Wit

It' Back! SCDigest's Weekly

Supply Chain Stock Index

 


   

IMPORTANT SURVEY - NEED YOUR HELP
The State of Retailer-Vendor Supply Chain Relationships 2020



Are Things Getting Better and More Collaborative - or Heading in the Other Direction? Third Biannual Study - Please Participate




ONTARGET e-MAGAZINE

Weekly On-Target Newsletter:
Sept. 10, 2020 Edition

Cartoon, Top SCDigest Stories of the Week


NEW EXPERT COLUMN
Revisiting SCDigest's Framework on RFID Process Change


Dan Gilmore


What to Do about Lack of Gender Diversity in Supply Chain Management


Abel Tamanji

Senior Student at University Of Wisconsin-Whitewater


TRIVIA QUESTION
When was the peak of US manufacturing workers?
Answer Found at the
Bottom of the Page



Walmart and Amazon by the Numbers 2020 Part 1

For several years I have been doing some analysis and comparisons between Walmart and Amazon, the two most important retailers in the world.

Walmart earns that place due to its stature as the world's largest merchant (and company) and one that represents an often substantial share of many consumer goods companies' total sales. Amazon obviously earns a spot as the dominant ecommerce company - at least in North America and Europe -with all the action being in ecom now. Amazon has become the second largest retailer, almost all from ecommerce. Amazing.

Amazon's threat to a growing number of retail sectors is existential, and it is aiming its site on ever more markets, such as drug stores/pharmaceuticals through its acquisition of on-line pharmacy Pillpack and likely more action soon.

 

GILMORE SAYS:

As a quick calculation, Amazon spent $13.8 billion globally on fulfillment in Q2, and $13.6 billion on shipping, for a total logistics spend of $27.4 billion.


WHAT DO YOU SAY?

Send us your
Feedback here

You can make an argument I should throw China's Alibaba and maybe even JD.com into this mix as other ecommerce giants - maybe next year. They both remain China/Asia centric - for now.

Amazon continues its phenomenal growth, hardly even slowing down in the face of the law of big numbers. In 2019, Amazon total revenues increased 20% - pretty good when
you are at $280 billion (though that includes its AWS web services unit and growing advertising business).

 

So we've been looking at both of these retail giants "by the numbers" in recent years, and it has become one of our most popular columns.

What Walmart and Amazon are doing is obviously of interest to most other retail and consumer goods manufacturers, and I hope others as well, as in the end almost every company is connected to the retail supply chain.

So let's start with Walmart, based on its its full fiscal year 2020, ending this past January.


While Walmart is an incredible giant, its growth had been slowing in recent years- until lately, during the pandemic. As can be seen in the chart below, Walmart's US sales grew very rapidly in the beginning years of the 2000s, primarily by adding new superstores carrying groceries at a rapid pace into new markets.

But that growth soon decelerated, and in the recession year of 2009 started a pattern of mostly very low growth (2012 exception) for a few years. As can be seen, growth since 2015 has been a solid 3-4% (solid for a company that size that isn't Amazon) until falling to 1.8% the last calendar year.

 

 

See Full Size Image

 

Total Walmart US sales (Walmart US + Sam's Club) reached $399.7 billion last year, more than double the $188 billion the company had in 2002, but as noted above pace of that growth has obviously slowed substantially down. The Cumulative Average Growth Rate (CAGR) has averaged 5.1% since 2002, but has slowed to 3.4% since 2015.

Walmart's International's growth continues to plateau, despite an awful lot of attention and investment there for some period. Walmart International sales last year were $120 billion, basically flat as they been for several years running. They were at $125 billion all the way back in 2011. International is clearly not the Walmart growth engine once imagined.

Walmart still doesn't provide much detail on its ecommerce numbers, but it says it saw 37% growth in on-line sales in the US in calendar 2019.

Not all that many years ago, there were concerns (I think legitimately at the time) about Walmart gobbling a giant, monopolistic share of the US retail market. That fear has simply faded, in the face of declining share and the rise of Amazon. With the recent very modest sales growth, Walmart's share of US retail has been trending slowly down. SCDigest developed a methodology several years ago, where we compare Walmart's US sales versus relevant US retail figures - total retail minus autos and parts, gas station and other fuel sales, and restaurants/bars.

It's not quite perfect because Walmart does sell some gasoline, but it doesn't break it out in a way we can use. Nevertheless, I think what we have is pretty good - and does reflect a higher share of US retail sales for Walmart than if you do not exclude those categories, which is how it often reported. When you hear all these numbers, make sure you understand how they are calculated.

By our measure, as seen in the chart below, Walmart had an 10.8% of US retail sales in 2017, down from a peak of 12.2% in 2009. It simply does not appear any more that Walmart will take over the retail industry. Amazon is now in the cross hairs. That is an interesting and important change - and Walmart's share seems unlikely to go much higher to me, absent an acquisition. Would the FTC now let Walmart (or Amazon) buy say Kroger or CVS? Hard to say.

 

See Full Size Image

 

Now let's turn to Amazon, a company that provides a lot of numbers to analysts but getting the best insight from them takes some work. That is because of its several business units and how it computes certain ratios, and (unfortunate) changes it has made in the past few years in what numbers it provides.

Total sales in 2019 as noted above were up 20% to an incredible $280 billion, but that includes digital media sales, subcriptions, its web services unit, and growing advertising revenue. It also includes revenue from commissions from sellers on its marketplace sites, and logistics services, none of which is broken out in detail.

That said, the chart below shows Amazon's quarterly growth in what it categorizes as "product sales" since Q1 2019 and the breakdown across on-line store sales, physical stores (largely Whole Foods and a few Go stores), and 3rd party services, which includes its fulfillment business and I believe the marketplace commissions.

 

 

See Full Size Image

 

As briefly noted above, it used to be easier to track Amazon's logistics costs, which include fulfillment (distribution center costs, including amortization of all those expensive FCs, plus some inbound transportation costs), and shipping expense, which is accounted for deparately from fulfillment.

 

Amazon used to report net shipping expense (shipping costs minus any shipping revenues, including an allocation of Prime subscription sales), but it no longer does. That said, I am sure shipping still is a big loss leader for Amazon, almost surely several billion dollars per year at minimum.

 

But as a quick calculation, Amazon spent $13.8 billion globally on fulfillment in Q2, and $13.6 billion on shipping, for a total logistics spend of $27.4 billion. That was up 57% from Q2 2019 - versus growth in product sales of 48%. By my way of thinking, that means logistics costs as a percent of sales are continuing to rise at Amazon.

 

I am out of room, even though I have more. Will do a part 2 on this as I did last year in a week or two.

Any reaction to these numbers from Amazon and Walmart? Any other data you would like to see? Let us know your thoughts at the Feedback button or section below.

 

On Demand Videocast:

Understanding Distributed Order Management

Highlights from the New "Little Book of Distributed Order Management"

In this outstanding Videocast, we'll discuss DOM, based on the new Little Book of Distributed Order Management, written by our two Videocast presenters.


Featuring Dan Gilmore, Editor along with Satish Kumar, VP Client Services, Softeon.

Now Available On Demand

On Demand Videocast:

The Grain Drain: Large-Scale Grain Port Terminal Optimization



The Constraints and Challenges of Planning and Implementing Port Operations


This videocast will provide a walkthrough of two ways to formulate a MIP, present an example port, and discuss port operations.


Featuring Dan Gilmore, Editor along with Dr. Evan Shellshear, Head of Analytics, Biarri.


Now Available On Demand

On Demand Videocast:

A Blueprint for WMS Implementation Success


If You Want a Successful WMS Project, You will Find the Blueprint in this Excellent Broadcast


This videocast lays out the keys to ensuring your WMS implementation goes smoothly, involves minimal pain, and accelerates time to value.



Featuring Dan Gilmore, Editor along with Todd Kovi of Radix Consulting and Dinesh Dongre of Softeon.


Now Available On Demand

YOUR FEEDBACK

After our column last week noting we've turned from toilet paper shotages to "where's the beef?", our friend David Schneider of David K. Schneider & Company sent us this nice email explaning how the meat supply chain works. Now you know!


Feedback on the Meat Supply Chain:

 

For beef (and lamb/sheep), there are two stages of meatpacking - Primal and Final.

Primal Cuts are the large cuts - whole sections of the animal, cut away from the carcass, later packed for processing into final cuts.

Some of the larger packing operations run from kill to final in the same complex - the traditional way that people think of a meatpacking plant. But many of the new massive campus operations, including the JBL and Tyson sites in the news, ship under long term contracts meat packaged for retail or portion control use.

For decades the meat supply chain operated at two levels; packing houses that shipped primal-and sub-primal - packaged into vacuum bags and frozen for shipping to grocery stores - where meat cutters cut and package the final cuts for sale at that location.

Today, a sizable portion of the production from the kill line is still primal to package and shipped to other companies/facilities that do the Final cuts. Most of the consumers of primal and sub-primal are wholesale distributors, local butchers, Costco, and Asian grocery, where there is still local meat cutting.

A large portion of the US grocery market no longer operates local meat rooms in their retail locations. Walmart is one significant example of the retail scene, as is most of the Royal Dalheize group (Stop-n-Shop, Giant), Aldi, Lidl, and other growing chains. Those contracts with retailers are under tight margins, costs supported by the typically much higher foodservice contracts with bigger and steady margins.

The supply chain innovation that Tyson, JBL, and the rest employed was centralization and concentration of labor into these large campuses - close to the production of the animals. Our modern network of refrigerated logistics - temperature controls trucks and warehouses - helps facilitate the consolidation of the final steps of meat cutting from local to the market to local to the source.

Primal cuts flow between companies in the meat industry like cash - and interesting features in the USDA regulations allow for long term freezing of primal cuts that can sell later as fresh meat. There are times where hundreds of millions of pounds of frozen primal cuts sit in 3PL freezer warehouses. I suspect at this moment, hundreds of millions of pounds of frozen primal cuts sit in warehouses, unable to move to the market because there are fewer places that can do the final cut. I suspect the owners of this meat don't want to ship these cuts because to ship now erodes the future profit margin of the packaged and portion-controlled product.

The COVID virus exposes a substantial risk of consolidation and full-integration of production in the supply chain.

David K. Schneider
David K Schneider & Company, LLC    



SUPPLY CHAIN TRIVIA ANSWER

Q: When was the peak of US manufacturing workers?

A: July, 1979, at 19.5 million

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