sc digest
September 13, 2019 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet The Long Tail, Amazon and Supply Chain
bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Distribution Digest/Green Supply Chain
bullet New Cartoon Caption Contest Begins bullet Trivia      bullet Feedback
bullet Product Review and Expert Column bullet On Demand Videocasts


Important New Supply Chain Research

State of Distribution Technologies 2019

Which technologies are driving the most value, and what users and non-users think about the alternatives?

Take survey, receive detailed summary of results - only for survey participants


first thought


Supply Chain Graphic of the Week
What Countries have What Share of the Global Economy?


US Consumer Spending Still Strong

Trucking Firms Closing Rapidly
Schneider Sees Results from AI App
Shopify Spends Big Money on Mobile Robot Maker, Shadowing Amazon



September 11, 2019 Contest

See The Full Cartoon and Send in Your Entry Today!

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.


Feature Story: eCommerce Platform Shopify Acquires Mobile Robot Maker 6 Rivers


pic GSC Feature Story:Remembering Warehouseman Richard Murphy and His Practical Green Distribution Perspective


Weekly On-Target Newsletter:
September 11, 2019 Edition

New Cartoon, 6 Rivers Acquired, Detention Research, More

Product Review: Supply Chain Planning Solutions

Is Your Supply Chain Transparent?

by Sarah Trescott
Marketing Manager
Surgere, Inc.


What you will learn in this report:

• Why WMS was Slow to the Cloud - but How that is Rapidly Changing

Understanding Cloud WMS Deployment, Pricing and Management Options

Dealing with Concerns about Real-Time WMS Performance in the Cloud

Lessons Learned from Actual Deployments, as the Number of Cloud WMS Deployments Accelerate


How many women have won CSCMP's Distinguished Service Award?

Answer Found at the
Bottom of the Page

The Long Tail, Amazon and Supply Chain

It is amazingly been 15 years now since Chris Anderson, editor of Wired magazine, wrote an article on what he called the "long tail" effect, which grew into the 2006 book "The Long Tail: Why the Future of Business Is Selling Less of More."

It was highly influential.

The basics of the long tail concept are as follows: When the sales of almost every company's products are plotted with sales revenues represented on the Y-axis and the number of SKUs on the X-axis, almost always it looks something like the chart shown below.


A SKU that sells less than once a week in each store might sell quite a few each week if demand is consolidated across the country.


Send us your
Feedback here

A relatively few number of SKUs generate a large amount of the revenue, with medium and then slow movers adding less and less to sales, so that the full graph of the numbers can be said to have a head (large volume SKUs), transforming into a tail-looking portion of the curve that trails off through the very slowest moving SKU.

Now, there is nothing new in that thinking. Many years ago I did some data analysis for new distribution center projects, and it is almost like an iron law that 80% or so of sales at the unit level will come from something like 20% of the SKUs, and the reverse.

I have even seen a few cases where it is almost closer to where the top 20% of SKUs represent closer to 90% of the units sold.

Hence often never-ending debates in companies about which SKUs should be pruned from the product portfolio, and analysis tools such as gross margin return on inventory (GMROI) to weed out unprofitable products.

And that pruning effort - especially important historically as new SKUs tend to be furiously added by marketing at most companies - often faces resistance in some sales and marketing quarters, amid fear of either (a) losing market share generally; and/or (b) concern B2B customers especially will drop or reduce the line if the seller doesn't stock a full assortment, including the very slow movers.

What made Anderson's insight take on this unique and useful was his view how all this was changing as a result of the Internet.

Pre-internet - let's say roughly before 2000 - consumer products were sold almost exclusively through retail channels of all sorts. That is key for two reasons.

First, the retail channel presents a true constraint in terms of physical shelf space. Only so many SKUs in a category will be stocked and displayed.

Second, there are many costs associated with that distribution model, from shipping to the retail DC by the manufacturer and then to the store by the retailer, and in terms of inventory carrying costs. I've seen data many times on the incredible percent of products at large retail outlets that move just one time per week or less on average.

But the products sit there on the shelf nonetheless, causing many forecasting and replenishment challenges as well (e.g., slow movers still get replenished in full case quantities).

This all changes in an ecommerce world, Anderson noted. First, there are much fewer constraints in storing products in comparatively cheap distribution center space versus a retail shelf.

Second the internet and direct-to-customer shipping allows the seller to aggregate demand across the entire market. So, a SKU that sells less than once a week in each store might sell quite a few each week if demand is consolidated across the country.

These two things together mean that (a) there would be still more products in the tail, making it longer; and (b) the tail would also grow fatter (more sales per SKUs in the tail), because customers could buy products that more precisely meet their needs and find more of these products through search technologies, as shown in the second graphic below.

All of that meaning that long tail SKUs together increasingly really add up to something meaningful, and could be increasingly profitable individually and collectively when sold through ecommerce. The "80/20" principle would no longer hold.

Those thoughts as a prelude to some recent musings I have had on how supply chain generally and Amazon specifically are impacting long tail thinking and execution.

So consider Home Depot, which carries I believe more than a hundred thousand SKUs in its giant stores. Many of those are long tail, slowing moving products, but Home Depot carries many marginal SKUs because it knows if customers come in and can't find what they are looking for they may not come back the next time.

But in recent years Home Depot has built three ecommerce DCs, which stock something like one million SKUs. These hundreds of thousands of additional SKUs are by definition long tail products, but now demand for them is aggregated across three major facilities.

But while those three ecom DCs gave Home Depot two-day ground shipping to an huge percent of the US population, that wasn't enough in Amazon world.

So now Home Depot is building out almost 200 local fulfillment centers that can provide next day or same day deliveries in many markets - for fast moving SKUs in the head not the tail, though I assume there will also be some cross docking capabilities as part of that mission.

An interesting application of long tail thinking indeed. I will also quickly reference the "endless" aisle concept and vendor drop shipping that add even more SKUs to a retailer's assortment.

But then you have Amazon, ever pushing the envelope. I suspect but do not know that Anderson's long tail vision imagined these slow moving and niche SKUs being fulfilled from centralized distribution facilities.

That would imply shipping of at least a couple of days, and cost for faster service.

But then Amazon stands that model on its head, with its tremendous build out of its fulfillment center network, now at something like 400 facilities of various kinds in the US alone.

In April, Amazon announced it was transitioning its Prime service benefits to offer next day shipping for free, from the previous two-day program. It also just spent $800 million just in Q2 to build the needed capabilities.

Almost hard to fathom, Amazon is saying as the program rolls out, 10 million SKUs will be available in many markets for next day or same day delivery.

How is this even possible? So rather than aggregating demand across the nation and shipping more centrally, Amazon is positioning millions of SKUs very close to the customer and fulfilling rapidly, almost as fast as going to a retail store to get what you want - which they likely wouldn't stock anyways.

It's like it is following the long tail model, but turning it upside down.

I recently had a laptop power cord go out on a Saturday morning, and was flying out of town Sunday night. Amazon had the laptop family-specific power cord nearby, and got it to my house by mid-Sunday afternoon, in plenty of time for my trip.

I almost could not believe that was possible.

And add one more thing: As Art Mesher, inventor of the "Three V's of Supply Chain" noted a couple of years ago at a CSCMP conference the role of Amazon algorithms in determining what products are displayed and an what sequence, with search result that are no doubt what is best for Amazon.

With Amazon controlling give or take about 50% of US ecommerce, that means a vendor's long tail - or even fast moving - products will thrive or shrivel depending Amazon presentation of the search results.

Those search results (including "customers also bought, etc." are in fact the new shelf space allocation.

All of which is to say Chris Anderson's innovative thinking on the long tail is being morphed in ways he likely didn't imagine by the supply chain.

We are in a logistics era comparable to the sea change from Henry Ford and the assembly line.

What is your view of the Long Tail? Is Amazon turning it upside down? Let us know your thoughts at the Feedback button 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


Some of the short feedbacks on our recent columns summarizing the 2019 State of Logistics report from CSCMP. Here are a few.

Feedback on State of Logistics Report Coverage.


SCDigest does an amazing job with this. You take a very long document and boil it down to its essence in just one or two columns.


This is a great service to the industry - thank you.


Michelle Watson
Ft. Wayne, IN




I agree with you on the timing. By the time the report shows in late June, my interest in 2018 data has faded. We're already starting to look ahead to the next year.


I don't have a magic wand on how this could be changed to get the report out earlier, but it would make it much more valuable.


Mark Fitz
Stow, OH





It would be very interesting to know logistics costs as a percent of GDP in other countries. Can this be provided?


Amy Danko
Kansas City


Editor's Note:


We'll see what we can do.




I really like the way you take a long report and break it down into the key statistic. It's a pleasure to read, and I watched the excellent video summary itself on the Video News.


Brian Toomay


Q:How many women have won CSCMP's Distinguished Service Award?

A: 3 in 45 years - Ann Drake (DSC Logistics), Nancy Nix (TCU, more), and this year's winner, Kathy Wengel (Johnson & Johnson).

© SupplyChainDigest™ 2003-2019. All Rights Reserved.
PO Box 714
Springboro, Ohio 45066