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April 20, 2017 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Ha! Walmart Proves Me Right on eFulfillment bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet New Gilmore's Supply Chain Jab and Supply Chain by Design bullet On Demand Videocasts

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first thought


Supply Chain Graphic of the Week
MAPI Forecast for US Manufacturing Growth


Amazon Looking for Scads of Urban Euro DCs

IMF Offers Bullish View of Global Economy
Prologis Breaks Ground on Multi-Level Port DC
New CSX CEO Bent on Closing Hump Yards in Efficiency Move


April 6, 2017 Contest

See The Full-Sized Cartoon and Send In Your Entry Today!


Holste's Blog: Workplace Tasks Verses Workers Capabilities


Weekly On-Target Newsletter:
April 19, 2017 Edition

New Cartoon, Best of ProMat, Reducing Consumption? Uber for Manufacturing and more

Did Walmart's Failed Case Tagging Program Set RFID Back or Move it Forward?
by Dan Gilmore, Editor

Service Level Measures in the Supply Chain, Part 1

by Dr. Michael Watson

What are the top 5 US logistics companies, including 3PLs and other services such a dedicated carriage and brokerage, based on 2016 revenue in those areas?

Answer Found at the
Bottom of the Page

Ha! Walmart Proves Me Right on eFulfillment

A couple of months ago, I penned what I thought was a pretty provocative First Thoughts column that basically argued this: retailers are in effect complicit - albeit forced to behave that way by Amazon - in the on-going woes of brick and mortar retail by the way they are handling the costs of efulfillment. (See Irrational Shipping Prices and the Demise of Brick and Mortar Retail.)

I wrote then the following: "Here in 2017, the free/highly discounted shipping policies of Amazon, other retailers, and even UPS itself is accelerating the demise of brick and mortar retail at a faster rate - perhaps much faster - than would otherwise be the case. This is an incredibly important point."

I added that "In other words, is the growth of ecommerce - and major financial woes in some but not all sectors of brick and mortar retail - something of a fraud, based on irrational shipping charges by virtually everyone in the market?"


If the delivery carriers say enough is enough, that will force etailers to either change shipping costs to reflect these higher charges from carriers - or continue the madness and just lose more money on ecommerce.


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Feedback here

The point was this: would ecommerce continue to grow at 14-15% quarter after quarter if etailers actually charged what they should be for handling and shipping?

And the ironic thing is that for Amazon, every on-line order is new revenue and margin. But for traditional retailers, much of their ecommerce sales (it varies) are cannibalizing sales at their brick and mortar stores, where profits are much higher for each sales dollar, after considering order picking and shipping costs, returns, etc. required for ecommerce. So retailers of necessity are investing heavily in ecommerce, even if the net result is to swap profitable sales in store for unprofitable sales on-line. What a business model mess.

I will also here explain the UPS reference above. Early this year, the parcel giant announced rather astounding news that profits were down in Q4 - because it saw too much growth in its ecommerce business.

UPS says it makes greater margins on its traditional B2B business, because there are fewer, generally closer stops, often delivering many parcels at a time, versus onesies with trucks driving around neighborhoods like yours and mine to make a stop at house here and there.

So, costs per delivery in B2C are higher than B2B for sure - but margins obviously are a factor of both cost and revenue. So UPS (and we assume FedEx) either can't or for some reason hasn't taken ecommerce delivery rates to the point that they can earn equal margins with B2B.

And why is that? In large part because retailers such as Amazon and almost everyone else are giving away or deeply discounting the shipping to consumers, so they have to negotiate like the dickens with UPS/FedEx to avoid losing even more money.

And that's because consumers either just won't pay for it, or have been trained not to buy if shipping costs are actually realistically charged.

In the end, I said this: "The simple reality is that in most cases, the in-store price should in fact be lower than the on-line price," even though most retailers try to have the same prices across channels, or in some cases actually sell some goods on-line for less.

We received quite a bit of feedback on that first column, such that I might do a whole "readers respond" piece using those comments soon, but I will note several readers suggested my analysis was partly flawed.

How so? That I wasn’t considering the substantial costs involved in brick and mortar retail in terms of real estate, rents, store operations, etc., while focusing just on the fulfillment costs for ecommerce deliveries.

I think there is some merit in that critique, but for now will just say that in general retailers price their goods in a way that delivers a profit from brick and mortar sales, whereas most, including Amazon, make little profits or have losses in ecommerce operations.

So with that backdrop comes this interesting news just last week: Walmart has announced plans to offer discounts on more than a million on-line-only items that customers then pick up at stores rather than having the order shipped to their residences.

An analysis by Bloomberg found the discounts ranging from 5-11%, depending on the item.

Marc Lore, head of WalMart’s ecommerce business, said in the statement, that "Quite simply, it costs less for us to ship to stores. So, our customers should share in those savings."

High five please, to SCDigest.

For now, the discount will only apply to on-line only items. Most retailers that provide order on-line, pick up in store programs already provide free shipping - if shipping is required - on those orders.

I am sure there are multiple reasons for this Walmart program, among them finding any way it can to slowdown the dominance of Amazon using a pricing strategy that the store-less Amazon can’t exactly match, but I am hoping that part of the thinking is that in fact logistics charges need to be better anchored to actual costs.

Finally, a couple of other related notes.

News in the last two weeks that local delivery providers in Japan are tired of accepting below average margins on efulfillment - and are doing something about it.

According to the Nikkei Asian Review, a home delivery firm recently told a Tokyo trading company it wanted to raise shipping fees by more than 50%. While the trading company pushed back hard, and it’s not clear what the final agreement was, the demand was part of a widespread trend.

Yamato Transport, whose clients include Amazon, plans to raise its basic shipping rates sharply by the end of September.

Fukuyama Transporting is enforcing a no-discount policy on basic rates. "Although our handling volume may decrease, there is a constant level of demand," said a person at the company. "We need to secure a level of profitability that matches our operational burdens and as well as redelivery and other costs."

This trend may certainly spread to US and elsewhere. So if the delivery carriers say enough is enough, that will force etailers to either change shipping costs to reflect these higher charges from carriers - or continue the madness and just lose more money on ecommerce.

Then just last week there was a story that real estate giant Prologis was breaking ground on a new three-level DC very close to the port of Seattle.

Though much of the focus will be on transloading and crossdock processes, the company also said it would provide ecommerce services, without a lot detail.

With the pricey real estate and high operational costs with the multi-story model (a throwback to urban warehouses of many years past), one consultant said the costs to use the facility might be 2-3 times what it could cost to operate a normal DC further away from the port. An article in the WSJ published when the plans were announced in 2016 estimated the costs at a less extreme but still hefty 50% premium to normal 3PL costs.

Prologis is betting tens of millions of dollars that some subset of US importers will be willing to absorb those much higher costs in return for great velocity of goods to meet the demands of - what else - efulfillment.

"We are building for the mile activity and for the last mile," said a Prologis executive.

Will it work? Just how much will companies spend for speedy efulfillment - and will customer pay anything?

These are among the key questions of our supply chain times.

Do you agree with Gilmore's analysis - or not? What would happen if retailers actually charged what it costs to pick, pack and ship ecommerce orders? Will parcel US carriers raise rates sharply - and will etailers just take it? Let us know your thought at the Feedback button below.

View Web/Printable Version of this Column

On Demand Videocast:

Innovation in Shipper-3PL Relationships Benchmark Study Results

New Research will be Unveiled from SCDigest and JDA On This Increasingly Important Topic

In this outstanding broadcast, SCDigest and JDA recently completed new research study on innovation in shipper-3PL relationships, with the goal of obtaining the perspectives of both shippers and service providers on this increasingly important topic. All registrants will be sent a copy of the report will all the data shortly after the Videocast.

Featuring SCDigest editor Dan Gilmore and Danny Halim and Lori Harner of JDA.

Available On Demand

On Demand Videocast:

New Cloud WMS Solution is Game Changer for Warehouse Management Deployment and Flexibility

New Technology and Deployment Approach Offer a Simply Better Way to WMS Implementations - Learn How

In this outstanding Videocast, we will cover the latest in each-picking robotics, co-bots, artificial intelligence, autonomous vehicles, sensors, drones and droids.

Featuring  Dan Gilmore, Editor, along with Mark Hawksley and Bruno Dubreuil of TECSYS, a leading provider of WMS solutions.

Available On Demand

On Demand Videocast:

Successful Supply Chain Vendor Compliance - for Retailers and Beyond

Author Norm Katz on Vendor Compliance "By the Book"

In this outstanding Videocast, Katz will summarize key elements of book, to include: Compliance program guiding principles; What is permissible under the law relative to vendor chargebacks; Common mistakes companies make in rolling out and maintaining vendor compliance programs; The many "E's" of successful vendor compliance, from "Envision" to "Ethics."

Featuring  Dan Gilmore, Editor, Norman Katz, consultant and author of "Successful Supply Chain Vendor Compliance," and Greg Holder, CEO, Compliance Networks

Available On Demand


We always get number of brief notes after our video coverage of event like ProMat thanking us for the effort, and we admittedly love to hear that.


You'll find a smattering of those below, including a very nice note from our good friend John Hill, and an interesting letter from someone with direct experience using carton lift assist systems in the DC.

Feedback on SCDigest ProMat 2017 Coverage


Dan and Cliff:

Kudos for your PROMAT 2017 two-day video review. With roughly 900 exhibitors, thousands of feet to travel and traffic at our own booth that made it difficult to take a break, spending half an hour watching and listening to your recap in the comfort of my office was well worth the time!

John M. Hill
St. Onge Company


I appreciate your Weekly Reviews and your recent summaries from ProMat.

You mentioned that you hadn't really seen much use of vacuum assist technology out there, other than in some heavy manufacturing environments. Just wanted to let you know that I work for a distributor in the Midwest, and we have been using vacuum assist in our warehouse for a couple years now.

Our primary application is unloading ocean containers that are stacked floor to ceiling with cartons that would be categorized as mildly heavy (5-30 lbs). But it is definitely tiring work, since the cartons are not on pallets and can't be removed that way. So we use a vacuum assist unit attached to a belt conveyor that can be extended into the container as it is worked. The cartons are then pulled off the conveyor and stacked on pallets by SKU.

It has been a success, and has eliminated a lot of back-breaking (or at least back-tiring) work.

Jeff Rech




Fantastic job as usual summarizing trends and solutions at ProMat.

Your video summaries are outstanding, and should be "must watch" for logistics professionals.

Don't know how you do it so well so fast. Keep it up!

Mike Bucher
Columbus, IN



Great video coverage for all of us that could not make the conference.

Garth Hiles
Director, Supply Chain Logistics
Save On Foods



Q: What are the top 5 US logistics companies, including 3PLs and other services such a dedicated carriage and brokerage, based on 2016 revenue in those areas?

A: (1) XPO Logistics; (2) JB Hunt; (3) UPS Supply Chain; (4) DHL Supply Chain; (5) CH Robinson, according to the new annual list from Transport Topics.

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