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NLRB Ruling Has Significant Industry Supply Chain Implications

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Yesterday, the National Labor Relations Board (NLRB) in the U.S. handed down a ruling that will present significant implications for supply chain logistics, warehousing and customer fulfillment services providers.

In a narrow, 3-2 decision, the NLRB revised the “joint employer” standard for determining when one company shares responsibility for employees hired by another.  This ruling applies to the use of contract workers and temporary employees where a hiring agency assumes responsibility for recruiting temporary employees, and those same employees are managed by another firm.

Business media headlines have been quick to cite the impact to fast-food, construction, and service industries but the ruling, if upheld, will have similar dramatic effect across industry supply chains.

The nature of supply chain activity is its constant operational ebbs and flows timed to either end-of-month, end-of-quarter or seasonal fulfillment activities.  Large customer fulfillment centers managed by the likes of Amazon, Wal-Mart and others, include significant numbers of temporary workers brought in to support volume surges, especially in the October thru December holiday fulfillment period.  Similarly, warehousing, transportation and third-party logistics (3PL) firms utilize temporary workers. It has been a means to leverage a flex workforce to manage overall costs. Companies generally share decision-making on employment, hiring and dismissal. But, in some cases, policies for the use of temporary workers have broached into other dimensions.

As one example, during the U.S. West Coast port disruption that severely impacted so many industry supply chains last year, independent truckers servicing these ports, who were compensated by number of loads completed, were especially vocal in expressing grievances for not being adequately compensated for the enormous amount idle time spent in long queues entering West Coast ports. Similarly, while West Coast Longshoremen were able to negotiate a new five-year contract, independent truckers remain with the same grievances and have conducted wildcat work stoppages.

The NLRB is now more concerned on the meaningful impacts to workers concerning working conditions, and worker rights to bargain with all responsible parties that determine working conditions and benefits. According to business media reports, the NLRB, with its latest ruling, will now consider whether a business exercises control through an intermediary or has the right to do so.

The ruling has triggered new concerns and emotions by businesses that the NLRB is making it easier for temporary workers to organize and join labor unions.

Industry groups are already urging the U.S. Congress to overrule the labor board ruling, and with the U.S. Presidential nomination season underway, what transpires is anyone’s guess.

Whether you agree or disagree with this ruling, the implication, if upheld, is especially significant and will change the labor cost and work policy scenarios related to temporary and flex workforce needs, an essential for many industry supply chains.


The Renaissance of Available-to-Promise Capability to Support Retail and Online Omni-Channel Fulfillment

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Supply Chin Matters has featured prior commentaries exploring the supply chain impacts of Omni-channel and online customer fulfillment for retail supply chains. Such impacts are many, but one of the more important relates to the needs for efficient overall inventory management while exceeding more demanding customer fulfillment and satisfaction needs.

In B2C retail, and in online B2B, inventory investment has a major impact on margin and profitability, and Omni-channel strategies that allow customers different fulfillment options can cause havoc with the proper balance of inventory.

Consumers increasingly prefer to buy online, and at the same time, seek flexibility to either have their orders ship direct, or pick-up or return in a local retail store or outlet. This new paradigm is why so many Omni-channel retailers are seriously re-visiting inventory management strategies. Some are building dedicated online customer fulfillment centers to directly support online order volumes while allocating separate inventory to support brick and mortar retail needs. Other Omni-channel retailers have rightfully determined that the same inventory has to be efficiently managed to support fulfillment needs across all channels. This changes the role of the brick and mortar store to be an added node within the fulfillment network with the ability to support in-store pick and pack.

Within this increased retail business challenge, available-to-promise capability (ATP) has taken on a new significance as a key capability to assist in more efficient and responsive inventory management. As Supply Chain Matters sponsor JDA Software describes it, ATP is experiencing a new renaissance.

Last week, The Wall Street Journal provided further evidence of the business importance of efficient inventory management. In the article, Retailers See Gains in Serving E-Commerce Supply Chains (Paid subscription or free metered view), the WSJ reports that while retailers view online shopping as a boon to sales, it can provide a drag on profits especially in the light of parallel delivery networks. Some retailers, however, may be on the way toward figuring out the logistics and profitability potential of Omni-channel. Examples cited was that Home Depot which grew online sales 25 percent in the second quarter while improving overall logistics, including higher efficiencies in its distribution network. Target, grew online sales 30 percent and reported a small increase in margins.

Last week, Supply Chain Matters contrasted the financial results and supply chain strategies of Wal-Mart and Target. Wal-Mart’s financial results were perceived by Wall Street as disappointing. To address Omni-channel, the global retailer is currently implementing a new inventory management system. That strategy includes shifting inventory to regional and dedicated customer fulfillment centers, rather than from the retail store backrooms. That would allow the flexibility to meet both online and in-store demand from a distribution center centric inventory strategy. The downside is a de-emphasis of the retail store as a fulfillment node and a greater potential for stock-outs at retail store locations as online orders consume available inventory.

Target on the other hand, has recently demonstrated improving financial results, but at the same time has been candid to Wall Street that balancing inventory across its network and leveraging resources at store level are an integral part of strategy. Senior management candidly admitted that in-stocks within physical stores have been unacceptable so far this year, but a newly appointed role of Chief Operations Officer will have as an initial priority, beefing up the capabilities and responsiveness of the supply chain. Target’s strategy includes the retail store as a direct fulfillment node. Thus far the retailer’s is shipping online orders direct from 140 stores with plans to enable 450 ship-from locations by the end of this year. Target senior management further noted that an important enablement of ship-from-store will be will be testing and deployment of a new ATP system that provides specific online customer delivery commitments.

On JDA Software’s Supply Chain Nation blog, Kelly Thomas writes on the renaissance of: Order Promising and Demand Shaping in a Segmented, Omni-Channel World. Thomas observes that ATP married with demand shaping provides an increasing number of fulfillment options as well a means to determine profitability profiles for fulfillment channels. It provides a basis in making the most informed decision on the source of inventory for a given customer order line and the pick-up or delivery location of the online customer.

Rightfully noted is that nearly 20 years ago, elements of what is today JDA Software (i2 Technologies) pioneered and patented allocated-driven ATP functionality for discrete manufacturing and other industry supply chain environments. Today’s JDA Order Promiser application is now being applied to the evolving needs of Omni-channel retailers for facilitating more responsive online fulfillment as well as improved inventory investment and bottom-line profitability.

The technology has come a long way and has found new meaning in more efficiently managing inventory in a B2C and B2B Omni-channel world.

Bob Ferrari

Disclosure: JDA Software is one of other current sponsors of the Supply Chain Matters blog.


Contrasting Financial Results and Supply Chain Strategies: Wal-Mart and Target

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This week, two major U.S. based retailers, Target and Wal-Mart, each reported financial results that presented different perspectives on the importance of integrated brick and mortar and online merchandising strategies and strong, collaborative supplier relationships. Both of these retailer’s performance numbers point to an industry that continues to struggle with balancing investments in both online and in-store operations and a realization that significant change has impacted retail supply chains.  The approaches, however, are different.

Wal-Mart’s second quarter net income declined 15 percent as a result of increased competition and added costs. The retailer has been forced to add staffing and has increased wages to improve customer service and overall merchandising.  The retailer further pointed to currency fluctuations, lower than expected reimbursements for its pharmacy business and an increase in goods stolen or lost as weighing on profit performance. The latter related to “shrink” of inventory has to be especially troubling. The retailer is currently implementing a new inventory management system.

If our readers have had the opportunity to visit a U.S. based Wal-Mart store over the past 3-6 months, you would have witnessed the results of prior cutbacks in staffing and an ill-planned merchandizing strategy.  Stores appeared messy, shelves were not stocked adequately and store and checkout clerks seemed to be in short supply.

On a positive note, Wal-Mart has finally been able to stem the lack of sales growth among its U.S. stores.  Same stores sales across the U.S. actually increased 1.5 percent within the latest quarter, the fourth quarterly increase after rather long multi-quarter declines. Online sales rose 16 percent in the second quarter.

Wal-Mart has been heavily investing in its online and Omni-channel customer fulfillment capabilities which have obviously impacted profits in the short-term. In this week’s financial performance announcements, the retailer actually lowered its profitability targets for the current quarter and the remainder of its current fiscal year. The notion of Wal-Mart has been one of supply chain scale in distribution, warehousing and dedicated fulfillment.

In prior commentaries, Supply Chain Matters has highlighted reports indicating that Wal-Mart again focused on its suppliers for sharing the burden of needed higher margins. In April a front page published article by The Wall Street Journal reported on Wal-Mart’s increased pressures on North America based suppliers to squeeze costs. The retailer informed suppliers involved in a wide range of purchased categories to forgo any additional investments in joint marketing and focus the savings on lower prices to Wal-Mart.  In July, Reuters reported efforts to impose added fees affecting upwards of 10,000 U.S. suppliers.  Contract renegotiation letters were mailed to respective suppliers that included amended contract terms along with added fees to warehouse products at Wal-Mart DC’s. A Wal-Mart spokesperson indicated to Reuters that these fees were a means for sharing costs of growth and keeping consumer prices low.

In its reporting of Wal-Mart’s results, the WSJ noted Wal-Mart’s CEO Doug McMillon acknowledgement that the company was in a period of change.  He further cited a 1996 magazine article hanging on the wall in his office titled: “Can Wal-Mart Get Back the Magic”, while quipping that the retailer has rebounded before.

In contrast, we reflect on Target.

For its second quarter, the retailer reported a 2.4 percent increase in same-store sales and elected to raise its outlook for the second time. A concerted strategy on improved in-store and online merchandising has caught the positive attention of Wall Street, especially in light of the prior 2013 massive credit-card breach that significantly impacted sales growth.

Sales of termed signature merchandise categories were reported as growing at 7 percent, three times faster. Online sales increased 30 percent contributing .6 percentage points to comparable sales growth while more than 80 percent of online sales growth was driven by Home and Apparel categories. Overall net income nearly doubled in the second quarter.

In its earnings briefing, Target CEO Brain Cornell specifically addressed five strategic priorities, many of which have supply chain connotations.  The first is to become a leader in digital, including direct from store capabilities.  Thus far the retailer’s is shipping direct from 140 stores with plans to enable 450 ship-from locations by the end of this year. Target’s current online fulfillment is supported by six dedicated fulfillment centers, regional distribution centers and direct ship from store.

Most important from this author’s lens, was Cornell’s acknowledgement that balancing inventory across the network and leveraging resources at store level are an integral part of strategy.  Target will be testing a new available-to-promise system that provides specific customer delivery commitments, later this year.

There was also refreshing candor.  CEO Cornell indicated:

Retail is changing rapidly today than any time in my career and we need to ensure that core operations keep pace with the new ways we’re serving our guests.  Over time, Target has developed an incredibly complex supply chain, built to serve an outdated linear model in which product flows from vendors through distribution centers to stores. To serve guests today, we are becoming much more flexible in the way we fulfill demand for products and services.  And this is stretching our supply chain well beyond its core capabilities.”

To add more credence to candor, Cornell acknowledged to Wall Street analysts that in-stocks within physical stores have been unacceptable so far this year.  He has tasked a newly appointed Chief Operations Officer, John Mulligan, to have as his initial priority the improvement of overall supply chain capabilities.

As readers may be aware, Target recently had to make a very painful decision to close all of its Canada retail outlets.  A part of that problem related to merchandising and significant challenges in maintaining in-stock inventories.

From our lens, such articulation from senior management, reflecting the importance of integrating both merchandising and end-to-end supply chain capabilities is a very important and noteworthy change in retail. Later in follow-on Q&A with analysts, Cornell articulated the value of collaborative efforts among various suppliers to bring more innovative products to market.

Wal-Mart and Target provide different contrasts but yet reflect the common challenges impacting retail industry.  Retail supply chains are undergoing significant and groundbreaking change, far different than the last decade. Online and in-store marketing, merchandising, supply chain customer fulfillment and supplier management are all interrelated and must be addressed in a singular umbrella strategy and supporting action plans. Emphasizing one as the expense of the other often leads to sub-optimal business results.

Bob Ferrari

 


Troubling News in Global Ocean Container Capacity Reductions

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Every year at just about this time, ocean container shipments inbound from China and other Asian ports begin to surge as retailers ramp-up inventory levels in anticipation of the Thanksgiving and Christmas holiday buying period. Ever year at this time, Supply Chain Matters features commentaries noting how the ramp-up is progressing. 389

Last year, we raised early concerns about potential labor disruptions occurring along U.S. West Coast ports. We all know how that turned out. Multiple industry supply chains encountered long delays and inventory disruption, some at considerable cost.

This year shows signs of different industry dynamics that could once again lead to some disruption, or at the least, the need for very careful and methodical supply chain planning and synchronization.

The Wall Street Journal reports that a combination of tepid growth and a continued sluggish Eurozone economy has now motivated ocean container carriers to significantly cut back on scheduling.  According to the report, the G6 Alliance, consisting of carriers APL, Hyundai Merchant Marine, Mitsui OSK, NYK, Hapag Lloyd and OOCL announced this week the cutback of 12 round-trip sailings from Asia to Europe starting in September. This equates to a one-sixth reduction in capacity for that route. This follows an earlier announcement from the 2M Alliance consisting of Maersk Line and MSC indicating it with withdraw 10 percent of capacity from the Asia to Europe route until further notice.

The timing of these cutbacks, while advantageous to container carriers, is not advantageous to industry supply chains. The open question is whether the removal of this much container capacity heading toward Europe will have any later impacts as we move closer to the holiday season.

It is further another indication of the significant gross overcapacity situation of ocean container fleets. According to the WSJ, freight rates between Shanghai and Rotterdam barely cover carrier operating costs, hence the announced cutbacks. The carriers are significantly reducing capacity to insure higher freight rates, in spite of dramatically reduced fuel costs.

In a related development, industry leader A.P. Moeller Maersk, in reporting its latest financial results, gave strong indications that it will defend and even expand its industry market share position. That raises the likelihood of additional industry cost or capacity cutting moves. The question is timing.

Maersk Lines additionally revised its estimates of global container volume down to a range of 2-4 percent from the previous 3-5 percent growth estimate which is a further acknowledgement of reduced global shipment volumes.

For industry supply chains, especially those that are B2C and retail focused, the timing of these ocean industry cutbacks is troublesome, coming at the time of peak seasonal movement. On the one hand, such cutbacks in scheduling may provide added flexibilities for alliances moving surge container volumes from Asia to North America.  One of the newer mega-container ships can carry lots of last-minute cargo.  On the other hand, the reduction in capacity places added pressures on various procurement and supply chain planning teams to carefully plan remaining inbound movements and required safety-stock levels. The challenges of container chassis availability and the ability of certain ports to be able to efficiently unload and reload the newest mega-container ships remains an open concern.

If any major U.S. or European port were to encounter a disruption or significant backup over the next three months, carriers will likely be reluctant to have ships sitting idle and generating additional operating costs. The open question is how many supply chain teams elected to balance inbound movements among U.S. West and East coast ports, and now, European ports.

Once again, it is going to be a challenging holiday surge period where careful planning will prove to be a key difference. Sales and Operations planning teams need to have a keen eye on supply chain planning and execution along with early-warning mechanisms. The lessons of from 2014 have hopefully translated into enhanced planning and risk mitigation since the turmoil of global transportation continues to play out.

Bob Ferrari


This Week’s Revelations of the Bruising Internal Culture of Amazon

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This past weekend’s New York Times published article that reveals the inner workings of Amazon’s corporate culture has lit-up social media.  According to the Times, the article itself garnered the most direct feedback responses ever recorded in a published NYT report, now in excess of 5000 direct comments.  The newspaper indicated that it had interviewed more than 100 current and former employees to prepare this article.

The article itself, Inside Amazon: Wrestling Big Ideas in a Bruising Workplace, describes a cruel, unforgiving culture where workers are expected to work long hours and weekends. It cites former employees as indicating that 80 hour week work contributions can sometimes be viewed as a weakness.  It further describes a literal back-stabbing inner culture where workers are encouraged to brutally tear apart one another’s ideas and where direct feedback on any employee’s behaviors can be submitted anonymously to a person’s direct supervisor, often without the knowledge of the employee in question. A former top human resources executive describes Amazon’s corporate culture as: “Purposeful Darwinism.”

If any of our readers have read either The Everything Store, by Brad Stone, or The Amazon Way, by John Rossman, the culture described in the Times article would not be such a surprise.  Both books observe that Amazon’s corporate culture is rooted in the values of its Founder and CEO, Jeff Bezos, whose strong beliefs include an uncompromising attitude and the notion that harmony of the workforce is often overvalued and can stifle honest critique and brutal direct feedback.  Both books describe the scariest aspect of Amazon as receiving a direct email or phone call from Bezos himself along with his tendencies to be very direct and unforgiving.

However, the real story this week focuses on the reaction and response from Mr. Bezos to the Times article.  He deplored what he termed as the Times profile of: “a soulless, dystopian workplace where no fun is had and no laughter heard” and further stated: “I don’t think any company adopting the approach portrayed could survive, much less thrive, in today’s highly competitive tech hiring market.”

In a direct letter to his employees, he communicated: “I don’t recognize this Amazon and I very much hope you don’t, either.” His letter urges all employees to give the Times article “a careful read” but opines that “it doesn’t describe the Amazon I know or the caring Amazonians I work with every day.” He encourages employees who know of any of the stories reported to escalate such developments directly to HR or email him directly.

Bezos most compelling statement to all Amazon employees was the following:

I strongly believe that anyone working in a company that is really like the one described in the NYT would be crazy to stay.  I know I would leave such a company.

The irony of that statement is that it describes what the Times article concluded, namely that a culture of “Purposeful Darwinism ” motivates managers to cull out many employees on an annual basis or motivates employees themselves to leave Amazon after relatively short tenures.  One wonders if Bezos is insulated from the effects of the culture that he has architected.

From a supply chain and customer fulfilment lens, the Times authors describe how employees at Amazon warehouses are monitored by sophisticated electronic surveillance systems to ensure that productivity is maintained to high standards.

The dialogue and visibility to Amazon’s unique and unforgiving corporate culture will likely continue. Some would argue that Amazon’s culture is no different than other market disruptor’s, especially those rooted in leveraging groundbreaking technology.  In fact, many of today’s leading technology innovators demonstrate similar hard-charging business cultures.

Then there is the reality of Amazon, a company that has literally re-written the norms of retail and online fulfillment as well as supply chain management.

The New York Times is no stranger to exposing the inner corporate culture of iconic companies. Readers may recall the 2012 Times expose of the internal culture of Apple and its biases for sourcing the majority of production within Asia which prompted a direct response from the Apple’s CEO.

Amazon continues to be a juggernaut of ongoing disruption of traditional markets whether one agrees or disagrees with its approach to culture and human relations norms. Perhaps the real question focuses on who is reaping the financial benefits.

Bob Ferrari


Counterfeit Apparel and Other Unauthorized Products in China Draws Added Actions: Welcome Taylor Swift

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After years of what is described as unproductive conversations, The American Apparel & Footwear Association recently publically called  for major changes to Alibaba Group’s anti-counterfeiting procedures. AAFA represents more than 1,000 clothing, shoe, and lifestyle brands, and over the last four years, has been engaged in on-going conversations with Alibaba representatives on the problem of counterfeits on Alibaba’s Taobao online shopping site.  According to the trade association, counterfeits across China cost clothing and shoe brands millions in lost sales, cause damage to reputation, and incur legal costs and an immense toll on internal resources.

In an open letter to Alibaba Executive Chairman Jack Ma, AAFA President and CEO Juanita Duggan called for a plan to address counterfeits that is more transparent and driven by certified brand owners. The proposed AAFA plan outlines four elements:

  • Easy brand certification
  • Brand-controlled “take-downs”
  • Brand approved sales
  • A transparent verification process

To add even more emphasis and probably more attention to ongoing apparel counterfeiting, singer Taylor Swift has taken up the cause. Readers will likely recall that Ms. Swift recently successfully confronted Apple with the issue of proper royalties within Apple’s  new music streaming service during a subscribers free three-month trial.

According to a published report by The Wall Street Journal, the American pop star’s popularity in China has exploded and so has the availability of unauthorized products of all dimensions. In an attempt to control this surge of counterfeits, Ms. Swift is launching her own branded clothing line in early August among China’s two largest online players, JD.com and Alibaba. According to the report, the strategy is to leverage Swift’s star status to stem the selling of products that do not have proper rights to utilize the Taylor Swift name.

The availability of unauthorized counterfeit goods across China obviously continues. While industry associations such as the AAFA, along with respective brand owners themselves provide due-diligence, continued visibility and calls for action, the efforts of Taylor Swift might prove to be more meaningful.  Alibaba, with enormous online fulfillment influence,  perhaps now has an added incentive to stem the availability of unauthorized products.

Industry supply chain teams should applaud and support Taylor Swift’s entrance and response to this challenge.


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