A Trio of Reports with a Common B2C Online Fulfillment Theme
As B2C supply chains gear-up for the upcoming holiday buying season surge, it was fascinating to read three different articles in today’s Marketplace Section of the Wall Street Journal report on preparations, opportunities and potential challenges. Whether running the three was by design or by chance could be speculated but none-the-less they each present different perspectives for operational planning.
One article notes that Amazon plans to hire 70,000 temporary workers to augment its existing 20,000 distribution center workers, 40 percent more than last year. The online fulfillment provider obviously has optimistic plans for volume activity in the next three months which represents roughly 35 percent of revenues. This year will also be another test of same-day or next-day delivery fulfillment and the leveraged use of additional fulfillment centers brought on-line. What is more interesting is that Amazon’s PR teams have not elected to share what distribution center productivity enhancements that have garnered as a result of the acquisition of distribution robotics provider Kiva Systems in March of 2012. There is much speculation on whether Amazon would leverage Kiva for a productivity advantage in online fulfillment.
Another related article reports that Wal-Mart Stores just opened a new dedicated online fulfillment distribution center near Fort Worth Texas, with a second dedicated distribution center scheduled to open early next year near Bethlehem Pennsylvania, as it prepares to ramp-up its online efforts. Wal-Mart deploys a different strategy that leverages the presence of its brick and mortar stores. There are actually two distribution center networks at Wal-Mart, one dedicated to physical store supply and replenishment and an emerging network dedicated solely to online needs. As we have noted in earlier commentaries, roughly half of Wal-Mart’s online orders are actually picked-up by consumers at local stores, thus direct to store delivery is an important delivery method. The retailer currently plans to hire an additional 55,000 seasonal workers to support the upcoming holiday surge and how they are deployed to support online vs. physical store volume requirements will be rather interesting. Wal-Mart’s roughly $8 billion in online revenues pales with Amazon’s $61 billion, yet both deploy far different fulfillment and strategies. The WSJ reports that the extra layer of costs results in Wal-Mart costs of $5 to $7 per online order shipment, while Amazon currently leverages $3 to $4 per in parcel fulfillment cost. Retail industry observers and we we have also observed that Wal-Mart has cut back in its permanent staffing of its U.S. stores, and if any of our U.S. readers have visited a Wal-Mart store in the past few weeks will observe the results of that strategy, stores that are messy and unorganized.
Finally, there is a report that a labor union rift occurring at the Louisville Kentucky union local poses an upcoming threat for UPS. While “brown” settled and signed a national labor agreement with the International Brotherhood of Teamsters in June of this year, some member unions such as Local 89 have not settled local contracts. Louisville is the home of UPS Worldport, the center of the UPS U.S. distribution network. Retail shippers thus have some anxiety as the critical B2C holiday surge period approaches where consumer shipment fulfillment volumes surge dramatically and expectations are high. In its reporting, the WSJ reported that in a filing with the Securities and Exchange Commission, UPS cited labor negotiations with the Teamsters Union for “hindered volume growth” in the second quarter. Thus a potential rank and file rebellion could continue to add more uncertainty in the upcoming months. For its part, UPS continues to state that indefinite contract extensions with local unions should alleviate any concerns.
Thus, three different reports with one common theme, B2C supply chains preparing for even more diverse opportunities and challenges for the upcoming holiday surge. It will be interesting for all of us to watch and observe how all of these developments interplay in the coming three months.