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Retail Vendor Performance Management News Round Up for January, 2018

Highlights from the Retail Value Chain Federation Fall Conference in Scottsdale; Freight Rates are Simply Soaring

Jan. 31, , 2018

by SCDigest Editorial Staff

Highlights from Fall RVCF Conference

SCDigest attended the Retail Value Chain conference in November in Scottsdale, and it was interesting and informative as always.

One of the most interesting sessions was on the topic of vendor drop shipping, based on a panel of three retail vendors and a 3PL that offers drop shipping services.

Supply Chain Digest Says...

How does retail drop ship orders rank compared to retail store orders and a vendor's own consumer direct business?

Vendors use many approaches to managing drop ship inventories, including having a dedicated inventory in a separate location in the DC, having one pool of co-located inventory for a company's own piece pick/ecommerce business plus the retail drop ship, and having separate inventories logically but storing them together, if their allocation and WMS systems can handle that.

Interestingly, all the panelists agreed that they tweak inventory availability information to guard against receiving a drop ship order from the retailer for which they have no inventory, either because of accuracy issues or someone else grabbed the merchandise first. One of the vendors, for example, reports no inventory to a retailer when the count reaches five or less for a SKU.

Inventory information is sent via an 846 Inventory Advice EDI transaction in most cases. However, while almost all retailers want that data sent daily, others want it refreshed multiple times throughout the day, it seems just based on their level of IT maturity.

One panelist interestingly noted you really have to think though inventory and order priority logic - how does retail drop ship orders rank compared to retail store orders and a vendor's own consumer direct business? One company on the panel puts drop ship ahead of its own B2C in terms of inventory allocation.

Most of the panelists stressed the need for a robust on-boarding process for new retail drop ship customers, and noted the big IT headaches relative to custom packing slips each seems to want. This is actually quite a big issue, as the costs for this work can be high.

There was also an interesting dichotomy: the supply chain managers told the attendees to beware sales giving away the farm to get the new drop ship retail business, as some of the vendors push surcharges to retailers for the service due to the higher logistics cost per unit.

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SCDigest editor Dan Gilmore also reported on a very interesting lunch conversation he had with a business development executive for a major freight forwarding company on Amazon's potential global logistics services plans.

The executive 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 under stain 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. 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 the executive 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 which 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, the 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.

Freight Rates Soaring

The Cass Linehaul Index, which measures US truckload rates, was up 6.2% in December - the second month in a row of more than a 6% rise in year-over-year US truckload rates.

After being negative relative to the previous year for 13 months in a row from March 2016 through March 2017, the index has not only been positive now for nine straight months, but pricing appears to be accelerating in the face of modestly rising freight volumes gains and a lack of capacity due to the driver shortage.

"In just the last six months, our pricing forecast has increased from a -1% to 2% change to up 6% to 8%, and now gives us reason to believe the risk to our estimate may be to the upside," stated Donald Broughton, a transportation sector analyst that helps Cass with the index.

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