Supply Chain by the Numbers

- Oct. 25, 2018 -

  Supply Chain by the Numbers for Week of Oct. 25, 2018

Walmart Building New Highly Automated DC; Impact of Tariffs on US Manfacturing Costs - for Now; Trucking Capacity and Demand Now Balance, ACT Says; Consumers Still Value Free Shipping Over Fast



That is the projected increase in throughput that Walmart expected to gain from a planned new highly automated grocery distribution center it is building in Shafter, CA versus its current DC design. The retailer's announcement said this will be "Walmart's first high-tech distribution center for fresh and frozen groceries. Set to open in Fall 2020, the new DC will support 200 stores. While details are scarce, this will involve automated storage and retrieval systems (AS/RS) and automated palletization both in terms of handling and the smarts to build ideal pallets. "Every product is measured and documented so that we know how to handle it," said Shayne Wahlmeier, one of the Walmart engineers on the project. "A computer algorithm shows all the cases ordered for a given store and determines how to palletize them to maximize the space on a pallet or trailer. It also takes into account density – what's crushable, what's not." Walmart is also touting the fact that the automated DC – which will brings goods to pickers – will make the job for DC workers better – though the impact on jobs is not clear.



That's the expected percent of costs of goods sold that 3M projects it will realize for the full year 2018. That according to its Q3 earnings call this week. That relatively low number was similar to forecasts for tariffs as a percent of COGS from other industrial companies in recent days. That includes Caterpillar (also 0.27%). United Technologies (just 0.08%), Lennox International (0.18%), and Harley-Davidson (largest number of the group at 0.53%), none of which seems to indicate the devastating impact the tariffs on goods like steel would have on the cost basis of some manufacturers. But the numbers can be large on an absolute basis - $100 million for Caterpillar this year – and could more than double in 2019 if the tariffs are in place for the full year. United Technologies, for example, said its tariff-related costs would be $53 million in 2018, but as high as $160 million next year. The tariff discussions were a factor in more pessimistic earnings projections from a number of manufacturers. Another factor: slowing sales in China, not so much from retaliatory tariffs on imports there but a slowing economy. Whether that in turn is being caused by the US tariffs is not clear.



Rather amazingly, from our view, that was the September For-Hire Trucking Index from ACT research. The surprise: in a market generally characterized as being strongly in the carriers' favor, that number just over a score of 50 means the market is in almost perfect balance in terms of supply versus demand, with the score determined by subtracting the supply index from the demand index. Any score over 50 indicates a better market for carriers - as has largely been the case every month since 2016 – while an under 50 score indicates capacity exceeds demand. "The September survey showed downticks across each of the volume, productivity and capacity results, though freight rates improved from August," said Tim Denoyer, ACT Research vice president and senior analyst. "The for-hire industry has secured record contract rates this year, but accelerating Class 8 tractor production and slowing freight growth are helping to rebalance the market," in good news at last for shippers.



That is the share of ecommerce consumers who prefer free delivery versus fast delivery. That according to the annual holiday shopping survey from Deloitte. That is consistent with previous Deloitte studies and many other surveys. Maybe even more surprising, 66% of consumers said they were willing to wait 3 to 7 days so long as the delivery was free. Which reminds us of a research note from the analysts at Moody's that recently suggested retailers may be spending too much on very rapid delivery capabilities that consumers won't pay for. In additional survey data, nearly 7 out of 10 shoppers say the will pay more for items that leave a lighter footprint on the environment, but that desire is highest among the young. Among the teens and young 20-somethings that make up Generation Z, 87% say they're willing to pay a higher price for sustainable merchandise as compared to 59% of baby boomers – though SCDigest will note data supporting the willingness to pay more for Green items has not really been proven outside surveys. Deloitte also forecasts that retail holiday sales will rise a strong 5-5.6% this year as compared to 2017, surpassing $1.1 trillion not including autos and gas.