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Supplier Suspends Sales of Inventory to Major Retailer


This past August, this author penned a Supply Chain Matters blog commentary: The Newest Phase for Elongated Supplier Payments- More Aggressive Push Back. The essence of that commentary was that with many more multi-industry procurement teams extending supplier payments under the umbrella of working capital savings, suppliers themselves are now more aggressive in pushing back, especially when their own financial performance takes a hit from a key customer.  In some cases, such suppliers utilize the threat of supply disruption to force more timely payments.

We cited supplier aggressiveness examples related to AB In-Bev, Boeing, General Motors, Tesco and Volkswagen.

Today, The Wall Street Journal reports (Paid subscription required) on yet another example, this time involving retail firm Sears Holding.

Jakks Pacific the fifth largest designer and marketer of toys and consumer products featuring a wide range of popular branded products and children’s toy licenses announced the suspension of supplying products to retailer K-Mart, part of Sears Holdings. The stated reason, according to reports, was concerns related to the financial health of the retail chain and to minimize risks of not being paid for inventory. While Jakks senior management did not initially disclose the name of the a stated “major retailer”, business media digging confirmed the identity of that retailer.

Normally, supplier pushback on concerns for delayed payments are not extraordinary news. Sears Holding itself has been itself financially challenged as a result of declining sales and profits and subsequent business restructuring and store closings. Sears CEO Edward Lampert had to recently respond to speculation that the K-Mart franchise was about to close in the light of previous decisions to shutter upwards of 130 K-Mart retail stores. In a blog posting featured on the firm’s SHS Holdings blog, Lampert indicated that there are no plans and there have never been any plans to close the Kmart format. He further calls into question whether intended parties seek to do harm to the retailer for other gain.

By our lens, the extraordinary aspect is the overall timing of the supply suspension, coming just before the all-important and business critical holidays fulfillment period. The vast majority of sales related to children’s toys occur during the Christmas holiday season. The other aspect to timing relates to the Wall Street community’s concerns as to whether other key suppliers will take the same actions related to Sears and K-Mart.

The CEO of Jakks indicated to the WSJ that the decision impacted his firm’s financial performance during the recent quarter as revenues fell by 10 percent, and the company’s stock value plunged by 15 percent. Reviewing the toy supplier’s latest third quarter financial results, we indeed noted the citing of suspended sales “to a major customer that is experiencing challenges” but there is mention to other causal factors such as the impact of Brexit and negative foreign currency effects. A balance sheet review indicates that there has been a nearly $109 million increase (63 percent) increase net accounts receivable over the past nine months. Working capital balances have eroded by nearly $24 million over the last year.

On its part, K-Mart management reinforces that it has an active and long-standing relationship with Jakks and that it continues to receive inventory from this supplier. One wonders whether that implies that compromises are already at-play. The SHS Holdings blog further weighed in a blog commentary from is CFO: Just the Facts- Vendor Relationships. It states in-part:

We can tell you that we have had a longstanding relationship with Jakks as we do with our tens of thousands of other suppliers and vendors. Despite the speculation and rush to report the negative, we have always paid our vendors for orders we have placed and as part of the normal negotiations between retailers and vendors, there are occasionally disputes over prices, allocations of product and other terms.”

That latter statement regarding occasional disputes can be interpreted in various ways depending on the perspectives of supplier or major customer. The tone of the commentary can have different interpretations as well. The transfer of the burden of working capital management or cash flow ultimately comes with certain consequences which need to be managed.

Regardless, the overall trending of increased supplier aggressiveness is prevalent, especially when such suppliers perceive their own financial and operational harm.

Wal-Mart, IBM and Tsinghua University Announce Joint Collaboration on Food Safety Tracking Technology


This week, global retailer Wal-Mart along with IBM and Tsinghua University announced a joint effort to improve the tracking and movement of food products across China in an effort to improve overall food safety.  The government of China has identified food authentication and supply chain tracking as a critical concern to quickly find and eliminate sources of food contamination within the country.

This announcement bears watching among consumer goods focused supply chains since this new effort will be leveraging what is termed as blockchain technology. This form of technology is increasingly being identified by supply chain focused technology providers for applicability in providing higher levels of intelligence regarding the movement of materials across a supply chain or B2B network. In essence, it fosters the sharing of data and information across a network of computers and as noted in the announcement, is gaining broader recognition due to its applicability in recording and keeping track of assets and materials. This form of technology currently powers digital bitcoin currency use.

According to IBM, when applied to the food supply chain, product information such as farm origin details, batch numbers, processing data, expiration dates, storage temperatures and shipping details can be digitally connected to food items, and the information is entered on the blockchain at every step of the process.

The technology can further aide retailers such as Wal-Mart in managing the shelf-life of products within individual stores and in having access to the traceability aspects of the product’s supply chain. In the specific applicability to Wal-Mart, the announcement indicates that the retailer plans to utilize IBM Blockchain based on Linux Foundation’s Hyperledger Project, which is an open source software project approach that builds on blockchain tools.

Obviously, the closest applicability for the leveraged use of blockchain technology is in current B2B EDI messaging networks that record various movement and transactions among various supply chain trading partners. While attending the recent IBM Empower 2016 conference, executives made mention of upcoming announcements related to IBM’s Sterling Commerce B2B technology and future applicability for this technology.

OpenText, another major B2B technology network provider has also indicated a development direction that augments existing EDI and transactional messaging with broader analytics capabilities.

The takeaway for readers is to begin to consider the possibilities for utilizing EDI messaging and other transactional, content, and unstructured data passing along B2B trading networks as sources of broader supply chain intelligence and analytics related to needs in regulatory compliance, traceability and reduction of waste.

We believe there will be more initiative announcements forthcoming such as the one from retailer Wal-Mart, initiatives that will leverage B2B trading network information towards efforts to integrate value-chain physical flows with needs for broader intelligence and analytics related to more-informed and timely decision-making.

Stay tuned.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Contrasts in the Planning for the Upcoming Retail and Online Holiday Surge Period


In the wake of overly optimistic forecasts of retail spending expected in the coming holiday fulfillment surge quarter, key online providers and parcel carriers are indicating their plans for temporary seasonal holiday related hiring.  However, it would seem that each comes with differing business assumptions.

On the parcel logistics, transportation and last fulfillment front, UPS recently indicated that it plans to hire upwards of 95,000 temporary workers, about the same as last year, to handle this year’s expected volume. UPS was caught totally off-guard with surge network volumes 2013 but has since invested in increased automation and advanced technology. Rival FedEx has also invested in automation technology and has indicated plans to hire 55,000 temporary holiday workers while anticipating a 12 percent increase in package volumes for the current year. Both carriers have been challenged with their past hub and spoke focused transport and delivery networks being able to handle increasing holiday related surge volumes of online focused orders and have since begun deploying mobile and flexible pop-up logistics centers to handle surge volumes related to specific high population areas. With online consumers now inclined to order larger dimensional sized items, both carriers are now focused on allocating separate sortation centers for handling such parcel shipments.

However, despite numerous parcel rate and package surcharge increases focused on higher dimensional packaging during these past two years, both carriers have exhibited a keen focus on increased profitability and shareholder returns.  However, according to data from Shipmatrix, FedEx and UPS together now make-up 40-45 percent of deliveries while the U.S. Postal Service representing most of the remaining volume.

Amazon, on the other hand, seems to be planning and anticipating a rather robust period of holiday activity during the next three months. The online provider has indicated plans to hire upwards of 120,000 seasonal workers in order to meet expected volumes.  That is a 20 percent increase from last year’s holiday related hiring. Once more, the online retailer indicated that it transitioned upwards of 14,000 2015 seasonal workers to regular full-time positions adding more significance to this year’s hiring requirements.  fba_sized

Readers will recall that last year, estimates were that upwards of 40 percent of all online orders originated on the Amazon online platform, a rather astounding number. Amazon’s reporting data related to last year’s holiday surge quarter indicated that the fulfillment By Amazon program allowed 3rd party merchants to ship over one billion units on behalf of merchants. During the latter stages of 2015, the industry further observed bold investments by Amazon in leasing its own air freight, ocean container, surface transportation and logistics sortation capabilities which are obviously now included in temporary worker requirements.

Another report indicates that Amazon is currently restricting the ability of new Fulfilled by Amazon merchants to position all categories of inventory at Amazon distribution centers in advance of the holidays. That appears to be another indication for anticipating even higher fulfillment volumes this year and Amazon apparently does not want to risk swamping its current warehouses with these added inventories. According to this report, the stocking restriction freeze for new merchants extends to December 19, too late for these merchants to benefit from the bulk of this year’s anticipated online orders. Last year, inventory of third-party merchants reportedly spiked Amazon’s operating costs, prompting investments in added warehouse capacity for this year.

Similarly, Wal-Mart current efforts for more aggressively investing in online fulfillment capabilities and compete more aggressively with Amazon would indicate more planning for higher volumes of online orders and customer fulfillment capabilities. Three additional fulfillment centers dedicated to online activity should be operational for the current quarter.

Thus is the contrast in planning for the current holiday surge.  Carriers are betting on increased automation and network flexibility to buffer the need for temporary workers.  The major online retailers, in particular Amazon, are aggressively planning for increased volumes and more overall control of customer fulfillment. Traditional brick and mortar retail outlets are going with optimistic sales forecasts and plans to further leverage online and physical store interactions. Each have even more sophisticated planning tools and strategists who have toiled most of this year to anticipated expected volumes, but with differing perspectives, assumptions and shifting business goals.

As always and once again, such planning shifts portray an interesting contrast in what we all get to observe during the coming weeks.

Stay tuned.


Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Remain Cautious of Overly Optimistic Retail Sales Forecasts Regarding the Coming Holiday Fulfillment Quarter


Last week the National Retail Federation (NRF) issued its annual forecast concerning holiday related spending which painted a very optimistic picture regarding the upcoming holiday sales period.  We advise B2C and B2B retail planning teams to be very cautious and diligent regarding the applicability of such data. Actual retail sales activity pegged to each channel, coupled with end-to-end supply chain visibility and agility as to sudden shifts in demand will be far more important to planning and execution.

The NRF forecast indicates that it expects this year’s holiday sales, excluding automobiles, fuel and restaurant sales will increase 3.6 percent above last year’s levels. That amounts to approximately $656 billion in physical store and online retail sales.  Keep in-mind that the NRF is a trade organization made up of retailers, and thus has a track record for being fairly optimistic. Last year, the organization predicted holiday related retail sales to grow by 3.5 percent, but the actual number was closer to 3 percent. Once more, the organization literally missed on gauging the increased dependence of consumers towards online holiday sales, which grew dramatically last year. From the period of November 26 thru December 20 2015, one forecasting firm had indicated that online sales grew nearly 12 percent in just that period.

Retailers are betting that current levels of low inflation and dramatically lower costs of gasoline and heating oil will drive more optimistic holiday buying. That was relatively the same assumption as last year. However, we continue with our stated belief late last year that consumers have already fundamentally shifted their retail buying habits in favor of online purchases. Even the NRF acknowledges that consumer spending patterns are shifting, favoring more personal based experiences such as travel and customized unique experiences. Unless online buyers are provided an incentive for visiting a brick and mortar store, there will be little incentive for impulse buying.  In August, we issued our Research Advisory, The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains, that in essence questions the long-term presence of existing brick and mortar storefronts.

Operationally, the retail industry as a whole is struggling with high levels of inventory. Muted U.S. economic growth and consumers’ increased desire for immediate availability and delivery on online goods have driven such trends to-date. If you have recently visited a physical retail store of late, you will see a visual manifestation of that challenge with lots of merchandise on the shelves but little of it moving.  Our recent mall visit provided such evidence as to markdown sales or sales promotional activities especially concerning clothing and accessory items.

Retail focused sales and operations planning, along with respective supply chain planning teams therefore need to constantly be diligent in their context of current optimistic retail sales forecasts for the upcoming holiday fulfillment holiday surge period. Evidence continues to indicate that costs of online fulfillment continue to rise and thus planning resources by means of sales forecasting expectations could well lead to more margin erosion and lost profits.

Transportation and logistics challenges will be yet another concern since major parcel carriers FedEx and UPS continue to experience some of the flaws of major hub and spoke networks during periods of high volume, as was experienced gain last year. Similarly, Amazon continues to build out its own transportation and logistics fulfillment capabilities to support massive holiday surge volumes, placing more pressure on the major parcel carriers to make their profit goals as the expense of shippers.

In all cases, being product demand driven vs. forecast-driven is fast becoming table-stakes. Advanced inventory management pegged to Omni-channel product demand levels and broader visibility to supply chain wide inventory exposure applies.  Once again, when multi-echelon inventory optimization is supported by higher and deeper levels of supply chain wide inventory visibility, better informed planning and supply chain wide decision-making can help in determining the various impacts on financial line-of-business business outcomes such as margins and profitability.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

The Effects of Hurricane Matthew Are Yet to Unfold for Multi-Industry Supply Chains


I am penning this Supply Chain Matters blog commentary on Friday morning as Hurricane Matthew continues to make its way up the Florida coast. This morning, the central eye of this powerful storm is located just off Daytona Beach Florida and continues on its northward path, with a potential threat of a U.S. landfall looming.  The U.S. Hurricane Center continues to warn residents in the path of this storm to be not only watchful of the potential of significant wind damage but coastal and river flood surges along with significant amounts of rainfall.

Hurricane Matthew

From our lens, sales and operations planning, supply chain planning, operational logistics as well as procurement teams need to pay very close attention to the ongoing and potential effects of this natural disaster since the potential of further supply chain disruption is yet to unfold.

I have been in Orlando Florida this week attending an IBM supply chain focused conference and had the opportunity to hear all of the local and national media coverage of this storm, along with the dire warnings to residents and businesses. This storm presents significant threats as the hurricane makes its way further towards the Southeastern U.S. coastal regions.

We were very fortunate to have been able to catch an early afternoon flight out of Florida yesterday, before the major effects impacted Orlando. However, I already witnessed the activities related to preparedness and emergency response as residents began to expire local food and grocery supplies.

Thus far, this powerful Category 3-4 storm has brought devastation and sadly, the loss of life in Haiti, Cuba and the Bahamas, with more destruction and casualties expected. President Barack Obama has signed federal declarations of emergency for Florida, South Carolina and Georgia, ordering federal aid and allowing federal authorities to coordinate disaster relief efforts in those states. The governors of Florida, Georgia, South Carolina and North Carolina declared emergencies as well, and more than 7,800 National Guard military personnel have been activated or placed on alert to assist civilian agencies in this ongoing emergency. Likewise, the Federal Emergency Management Administration (FEMA) has been marshaling its emergency response teams to the impacted regions. What continues to concern governmental authorities is that the hurricane’s path will soon impact where the land mass begins to curve out from the Florida coast.

The governors of both South Carolina and Georgia have announced mandatory evacuations involving many of these state’s coastal regions because of the expectations of upwards to 7-10 feet of coastal storm surge with rainfalls of up to 10-12 inches in these regio

Hurrican Matthew

ns. We attach the latest NOAA visual of expected rainfall amounts.

Both of these states are major transportation and logistics hubs for the U.S. Southeast, a region that now includes the presence many automotive, commercial aerospace and other manufacturing focused firms.

The Port of Savannah, as we all know, is a major U.S. East Coast port and logistics hub serving the broader Southeast region, with container ships navigating up the Savannah River to both access and port, and down the river to exit the port. Likewise, the Port of Charleston serves the region as well. As of his morning, the U.S. Coast Guard has closed both of these ports because of the expectation of the gale force winds generated by this hurricane. Respective Port Authorities have likewise suspended all trucking and ocean container logistics activities directly related to these ports. The ports will remain closed to incoming and outgoing vessels until each respective port captain assesses any damage conditions and changes that status, which is expected to be late Sunday or later.

Keep in mind that both of these ports reside in areas that have been susceptible to heavy coastal flooding and excessive rainfall, especially the Savannah River region. Previous significant storms in these areas have resulted in disruption. Air freight facilities, while located in more inland areas could be impacted by storm conditions and heavy rainfall as well. We are well into the most active period for hurricanes  ansd severe storms potentially impacting U.S. East Coast regions.

The timing of this potential disruption is not all that good, coming just prior to the start of the holidays focused retail fulfillment period that begins in about a month’s time. Likewise, automotive and commercial aircraft manufacturers are striving to complete end-of-year or final quarter production commitments.

Thus Supply Chain Matters urges teams to stay abreast of ongoing storm related developments and ascertain if any key suppliers or transportation providers could or have been impacted by the effects of this ongoing hurricane.

We suspect that there will be implications in the days to come and we will keep our readers updated.

Bob Ferrari, Executive Editor


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