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Aug. 28, 2020 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Seismic Changes in Consumer Goods to Retail Supply Chains, as Nike Upending Traditional Model bullet SCDigest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet New Stock Index

New Cartoon Caption Contest

bullet Trivia      bullet Feedback
bullet New Expert Column bullet On Demand Videocasts



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.


first thought


Supply Chain Graphic
of the Week
Retail out of Stocks Remain High in Many Categories


This Week's Supply Chain

by the Numbers

American Eagle Ups Bet on Distrbution Robots
Walmart Sees Major Progress in Supply Chain CO2
July Container Volumes at US Ports Show Mixed Economy


More than Half of San Francisco Storefronts Closed


July 30, 2020 Contest

Show Us Your Supply Chain Wit

It' Back! SCDigest's Weekly

Supply Chain Stock Index



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


Weekly On-Target Newsletter:
Aug. 26, 2020 Edition

Cartoon, Top SCDigest Stories of the Week

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

Maersk Line is the largest ocean container carrier. What company is number 2?
Answer Found at the
Bottom of the Page

Seismic Changes in Consumer Goods to Retail Supply Chains, as Nike Upending Traditional Model

It may seem a quaint concept, but it wasn't that long ago that many consumer goods companies were very reluctant to enter the ecommerce or direct to consumer channel due to concerns such a move would tick off their retail store customers and risk retribution, either in the form of reduced merchandising/shelf space or loss of the business altogether.

As I like to say: that was then, this is now.

Ecommerce of course is driving the change, upending everything. Shopping malls and department stores may simply not be viable concepts. That means consumer goods brands and manufacturers that sell through those channels are going to be in a world of hurt. Amazon and direct to consumer will be the only salvation.


Is Nike transforming its supply chain? Incredibly so - in a view of what the future may look like for many companies.


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Feedback here

Nike isn't waiting around.

In October 2019, Nike CEO announced the rather dramatic news that it planned to reduce the number of retail channels its sold through from about 30,000 globally to just 40 or so, a seismic shock to those retailers not in the fold. Nike would focus on a much fewer number of partners - and consumer direct.

The strategy is in full swing. Just this week, Sam Poser, an analyst for Susquehanna Financial Group, said in a research note that Nike will no longer sell to to Zappos, Belk, Dillards, Boscov's, Bob's Stores, Fred Meyer, EBLens, VIM, and City Blue.

Nike did not dispute the report. So soon, you won't be able to buy Nike product at a major department store chain such as Dillard's. Amazing.

In fact, Nike might have been signaling its hand early. According to a recent blog post by Chris Barnes on (which tracks the sneaker industry) he wrote that "On recent retail visits I've witnessed stores that are still carrying [Nike] inventory from before the quarantine began in March. Wall displays are empty and shipments showing up on manifests aren't making it on time. Nike, however, is continuing to drop sneakers on-line and selling out immediately…The customer is becoming increasingly irritated with their store visits, creating a very difficult situation for store managers."

He added: "Is Nike and its Jordan brand intentionally slowing delivery?"

All part of what Nike said in June was its Consumer Direct Acceleration program. Not a lot of details, but the name probably sums it up just fine.

Consider this: ecommerce sales were a bright spot for Nike last quarter, growing 75% at a time when overall revenue plunged. Shipments to Nike's wholesale [retailer] customers were down almost 50% in the period, leaving the company with excess inventory. Nike's gross margin fell 8.2 percentage points to 37.3%, falling well short of projections.

When you have no middleman, margins go up.

Nike does say Consumer Direct Acceleration involves "strategies that include a market place of the future, new consumer constructs and investing in technology."

Not sure what a marketplace of the future is, but in 2016 a Nike manager said the company planned to increased real-time inventory visibility across its retail partner networks - not only for itself, but for its customers.

So, a consumer could go to the Nike web site and see what inventory was available right now not only from Nike but from all of its now greatly reduced in number retail partners - which at the time I said would be quite a paradigm shift indeed. Could that be the marketplace of the future?

Also in 2019, Nike CEO Mark Parker touted the benefits of RFID for inventory management and rapid response fulfillment.

Parker added Nike would soon be embedding RFID in nearly all of its footwear and apparel, which translate into hundreds of millions of individual products.

"RFID gives us the most complete view of our inventory that we have ever had. It's quickly becoming the most precise tool in our arsenal to meet an individual consumer specific need at the exact right moment," Parker added.

Not long after that, Nike announced it had acquired predictive analytics technology from a firm founded by researchers from MIT to accelerate its ability to match inventories to consumer demand. That would give Nike "hyper-local demand predictions," whatever that means.

Is Nike transforming its supply chain? Incredibly so - in a view of what the future may look like for many companies, even granting that Nike has some special advantages.

Let's also take a look at home products retailer Lowes.

Just a few weeks ago, the company said it would $1.7 billion spend on revamping its fulfillment network to make it more suited to - what else - efulfillment. The announcement is similar to one made by rival Home Depot in 2018, which then announced plans to spend $1.2 billion to improve its network for ecommerce.

But the strategies are different. Lowes said that it would open four additional ecommerce fulfillment centers over the next 18 months, including a direct fulfillment site in Mira Loma, Calif., set to open in October. The company also plans to open seven bulk distribution sites for large products such as appliances and barbecue grills, along with 50 cross-dock terminals where large items can be placed on delivery trucks sent to customers instead of sending them to retail stores first.

Home Depot's plan involves creation of 170 new, smaller distribution facilities across the US, so that it can reach 90% in one day or even less. The new HD sites will include dozens of direct fulfillment centers for next-day or same-day delivery of fast moving SKUs, as well as 100 local hubs where larger items like patio furniture and appliances will be consolidated for direct shipment to customers.

The key point: both Lowes and Home Depot are moving away from store-based deliveries.

I have used a quote in the past from a Walmart executive circa 2015, who was asked by a board member how long the ecommerce project would take and how much it would cost.

I am unable to find the exact quote, but it was something close to: "This isn't a project. It will take the rest of our lifetimes, and cost an enormous amount of money."

These changes happening before our eyes are transforming not only supply chains but the way we live out lives in a truly massive way.

Any reaction to what Nike and Lowes are doing? Let us know your thought at the Feedback 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


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    


Q: Maersk Line is the largest ocean container carrier. What company is number 2?

A: Switzerland's Mediterranean Shipping Company

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