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  First Thoughts

    Dan Gilmore


    Supply Chain Digest

Nov. 10, 2017

Trip Report: Interesting Tales from Retail Value Chain Federation Fall Conference

Great Insight on Where Amazon is Headed in Logistics, Odd Vendor Chargeback Scenarios and More

I am fresh back for just the second time from the Retail Value Chain Federation (RVCF) fall conference at the JW Marriott Desert Ridge resort in Scottsdale - same venue as the Gartner Supply Executive Conference in recent years - and though I was there just one day, it was a very good experience.

A number of years ago, Kim Zablocky, with a background in consumer goods, founded the Retail Vendor Compliance Federation, an organization and forum largely for retail vendors to gripe about chargebacks and devise strategies for avoiding them.

But a short while later, Zablocky got the bright idea of broadening the organization and inviting retailers into the fold, and changing the focus from chargeback issues to one of fostering retail-vendor collaboration. To that end, for example, the conference facilitates one-on-one meetings between individual retailers and manufacturers to discuss issues and opportunities - though there is still a healthy level of vendor chargeback griping and vice versa, as I will discuss in a moment.

Gilmore Says....

The consultants say that Amazon - perhaps much different that some retailers - really has no interest in chargeback revenues, only improving supply chain performance.

What do you say?

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Before I summarize the handful of sessions I attended, I will started with just some notes from a very interesting lunch conversation I had with a business development executive for a major freight forwarding company on Amazon's potential global logistics services plans.

My new acquaintance said Amazon already brings in about 60-80,000 containers from offshore into the US right now, and that this number could grow to some 250,000 in five years, likely pushing Amazon past Walmart as the largest container importer.

Many of Amazon's recent moves, he said, are simply due to its insatiable search for more capacity, as it is stained almost everywhere with its still mid-20 percentage growth in merchandise sales.

He does not expect, however, that Amazon will indeed get into the global logistics business directly, contrary to many reports, including some here on SCDigest. The returns on such an investment would be very low compared to what Amazon can get from say building more fulfillment and sorting centers around the globe.

But what my new friend does expect is that Amazon will put together a complete, end-to-end global logistics service that manufacturers and merchants around the globe will be able to leverage to ship goods cheaply and quickly from their locations to consumers in the US and Europe. So, it would be an offshoot of “Fulfilled by Amazon,” though handling shipping only not storage and picking, but would allow a manufacturer in say India to reach global consumers much more easily.

“This could be a huge driver of revenue growth,” he said - as if there wasn't enough Amazon growth already.

What's more, my expert does not expect Amazon to directly compete with UPS, FedEx and the USPS for parcel delivery, for similar ROI reasons. But what he does expect - and what he said is already happening - is that Amazon will support the creation of additional competitors in the parcel space, both to keep downward pressure on rates and again to add capacity.

We both noted how with Amazon's recently announced service to deliver orders right into a customer's home after purchase of a kit that includes a smart lock and a video camera there was no mention of FedEx or UPS having signed up to make these in-home deliveries, for a service that is going live in some cities this week. So who will be providing that last mile service? A very interesting question indeed.

I attended a very interesting 90-minute session for vendors only basically to discuss retailers chargebacks and what if anything can be done, both generally and then for specific retailers, a discussion driven by questions submitted by session attendee, with about 100 vendors in the room. There was a similar session for retailers only, where likely there was similar griping about vendors.

The RVCF conference is a semi-private gathering, so I am not going to mention any participant companies by name.

The complaint I found most interesting related to a specialty retailer that about a year ago - out of nowhere - started issuing big chargebacks for bar codes on GS1128 shipping labels that it said were below its standard of an A or B grade.

Now ignore for a moment that a quality grade of C or above is generally considered acceptable. Why all of a sudden was this retailer finding quality issues, from vendors that had been shipping it goods the same way for years? One vendor said his company bought new printers and upgraded its label stock - to no avail. Another did investigative work to see if carriers were somehow damaging its labels, as its on-going verification testing showed it was consistently producing A-level bar codes. The research absolved the carriers of causing any damage.

One vendor then said he had in fact identified the root cause of the new chargebacks. After visiting one of the retailer's DCs, he learned the retailer had acquired new handheld bar code verifiers right before the quality chargebacks started arriving. He bought one of the $5000 devices himself, and found that if you quickly scanned the bar code, the grade was high, but if you went more slowly, the grade fell, often to C.

This seemed to explain the mystery, but when discussed with the retailer, did the chargebacks stop? No. A couple of vendors said they had seen some reduction in chargebacks after switching to so-called direct thermal printing versus using a thermal transfer ribbon, but the relief was only partial. Such can be the strange world of vendor compliance.

Also strange, one major department store has started to issue "post audit" chargebacks for violations not flagged at the time but one or in some cases even two years later, when proof of a lack of the violation may be gone or hard to find. These are often related to a "failure to consolidate" shipments - but the lack of consolidation was usually the result of the carrier showing up late (days, weeks) for its scheduled pick-up. What's a vendor to do? There were no real answers suggested by the audience, other than keep battling.

The conference has an emphasis on issues/opportunities relative to vendor drop shipping, including a panel discussion with three manufacturers and a 3PL. Suffice it to say, there is no universal approach to inventory management. Some pool their inventory across channels, including drop ship; others have separate inventories and locations; and some mix the inventories physically, but logically keep separation and allocation. Is one approach better than the other?

There is also a growing trend of creating special collections for retailers, SKUs that will be drop shipped and not be available in the vendor's own direct-to-consumer assortment. Wow.

Finally, a very good presentation from two young former Amazon employees who have smartly started a consultancy (Ortega Group) that advises clients on how to best do business with the on-line giant.

I did not realize how aggressive Amazon is about leveraging chargebacks, especially for short shipments, but the consultants say that Amazon - perhaps much different that some retailers - really has no interest in chargeback revenues, only improving supply chain performance. Key emerging issue is Amazon requiring vendors to ship in shippable packaging, not in full cases, to of course improve Amazon's own picking and shipping cost.

This in turn drives much higher costs for vendors, but this program (ships in own container, or SIOC) is going to be a major focus for Amazon in 2018. And don't complain to the buyer - an algorithm determines which vendor SKUs would benefit Amazon most from going SIOC. Watch out for this one.

There is so much more, but I am out of space. I may write some more on this, if there is interest.

As noted, I was just there for a day, but a very nice job by RVCF - there is a lot here for retailers and vendors beyond getting some gripes off of your chest.

Any reaction to this summary of the RVCF fall conference? Agree with the freight forwarder's predictions for Amazon logistics? Do you have any strange compliance stories to share? Let us know your thoughts at the Feedback section below.


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