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Upscale Retailer Invests in Cloud Based B2B Platform Technology Provider


It is very seldom that one reads of a luxury goods retailer, for that fact, other retailers acquiring a majority stake in a supply chain technology firm, but in these challenging times of Omni-channel retail, we suppose anything is possible.

Thus The Wall Street Journal reports (Paid subscription required) today that Nordstrom has made a direct investment in DS Co., a Utah based Cloud B2B platform services provider that supports the ability of retailers to support direct ship capabilities from individual suppliers. Detailed terms of the investment were not immediately disclosed.

As the WSJ points out, the drop shipping process reduces the costs for the retailer in having to hold larger amounts of inventory, instead, stocking just a few sizes or colors of goods.  For an upscale retailer offering lots of choices for the consumer, the savings can be substantial.

A visit to the DS web site describes the stated value-proposition of its software, namely providing an integration platform that simplifies and standardizes the way retailers and suppliers connect and exchange inventory, order, and catalog data.  One of the stated differentiation aspects of the technology relates to retailers who utilize standard EDI value-added-networks (VANS) that incur data and transactional fees upon movement of data.

The Dsco platform allows suppliers to populate up to date information without incurring such additional EDI transactional fees.  It further supports the ability of retailers to route purchase orders directly to drop ship suppliers, allowing that supplier to ship directly to the end-customer and avoiding the need for the retailer to carry the added inventory. In addition to Nordstrom, lighthouse customers are noted as Sharper Image, Woolworths and Modell’s Sporting Goods.

The DS relationship with Nordstrom began two years ago in an effort to enhance this retailer’s drop-ship processes as well as make it more profitable and easier to manage supplier management.

According to the report, the new investment will be utilized to hire additional staff and develop more data analysis and inventory management capabilities. Judging from our scanning of DS’s web site, it would appear the firm is running lean and mean and could benefit from more marketing and other needed resources.  Within a two hour span, we literally witnessed the updating of the Nordstrom announcement from data that was rather dated in nature.  Perhaps the new investment included a long overdue refresh of the web site.

Obviously there is more than meets the eye related to this news development. Nordstrom has current relationships with a very well known enterprise technology company as well as noted systems integrators. Supply Chain Matters will attempt to reach-out and gather any additional information.

The universe of B2B business networks is indeed changing and that includes traditional VANS adding more managed transactional and analytical services for customers. Today’s Omni-channel world demands higher and more sophisticated levels of services but at the same time, retailers and producers remained concerned regarding the added costs and expenses related to online fulfillment.

Bob Ferrari

Pay Close Attention to the Rising Costs of Online Customer Fulfillment



 The added costs for fulfilling online orders are likely to increase over the coming months because of the current boom in overall demand for large-scale distribution and warehouse space across the United States as well as other regions.

Reuters reports that real estate investment trusts (REITs) that weight their portfolios towards warehouse and distribution real estate holdings have now become the favorite of Wall Street interests because of the current pent-up demand for additional space from retailers. The report specifically mentions logistics real estate services provider Prologis, which counts Amazon as its largest customer, as raising rents a record 20 percent in the first three months of this year. The report cites Morningstar data as indicating that fund ownership in real estate investment firms such as Prologis and Duke Realty Corp. has increased 30 percent or more in the last quarter.

The trend was further reinforced by a recent announcement from the world’s largest commercial real estate services and investment firm, CBRE Group that indicated that- “Voracious global demand for e-commerce fulfillment centers fueled a 2.8 percent year-over-year increase in prime logistics rents globally, led by double-digit percentage gains in U.S. coastal markets.”

According to a recent CBRE report, six of the top 10 markets with the fastest growing prime logistics rents globally were within the United States. Among what CBRE ranks as the Top 10 Global Logistics Hubs by Prime Rent Growth:

  1. Oakland
  2. New Jersey
  3. Inland Empire
  4. Midlands, United Kingdom
  5. Santiago Chile
  6. Ciudad Juarez Mexico
  7. Los Angeles- Orange County
  8. Dallas- Fort Worth
  9. Seoul South Korea

The Wall Street Journal recently published an infographic indicating current areas of warehouse space under construction across the U.S… That mapping indicates the largest double-digit increases in construction of warehouse space focused in the Dallas-Fort Worth and Houston areas, Los Angeles and Inland Empire, Chicago, Atlanta and Greenville/Spartanburg SC areas.  From our lens, that data would indicate broad geography coverage for online fulfillment needs.

And, cost increases are not just confined to warehouse and distribution space.

We have brought reader attention to increasing rate increases by the major parcel transportation and delivery firms, including added surcharges and handling fees. As consumers continue to purchase online items that are larger, more bulky and heavier, there has been increasing demand for logistics delivery services. That is providing opportunities for traditional less-than-truckload (LTL) carriers who are increasingly being called on to provide additional delivery services to support online purchases of hard line goods. This will likely require some LTL providers to invest in augmented technology and logistics assets, which will add to rates charged.

As we have further highlighted, the largest high profile retailers such as Amazon and Wal-Mart continue to aggressively invest in more internal and owned resources in augmenting their own parcel transportation, logistics and last-mile delivery networks under the banner of premium, free shipping services. That is obviously part of the reason for the current building and investment boom underway. A continued competitive battle fueled by multi-billion investments adds to the supply-demand imbalances and speculators to drive up costs further.

However, other retailers with limited financial resources are now faced with the realities of even more increasing cost challenges associated with online customer fulfillment. No doubt, something will have to give.  Either retailers will become more creative in prime, no-cost free- shipping membership programs that can offset the effect of added fulfillment costs or the largest retailers with financial scale will become more dominant retail fulfillment platforms.

Our takeaway for retail and B2C focused supply chain organizations and procurement services teams is to up your game in supply chain network modeling and strategy implications.  Insure that you factor the real possibilities of more added costs in distribution, logistics, transportation and inventory carrying costs. The coming months may well be very challenging, including the upcoming 2016 holiday online fulfillment surge which will more than likely test limited capacity in certain key areas, forcing teams into more costly alternatives.  Be wise, be pro-warned, and conduct rigorous scenario based planning.

Bob Ferrari

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


Ongoing Airbus Delivery Delays Lead to Order Cancellation and a Publically Declared Riled Customer

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In a recent Supply Chain Matters commentary, we highlighted that Airbus’s commercial aircraft delivery cadence was under a broader looking glass with perhaps undesired customer visibility.  That visibility took on a more succinct perspective last week with the announcement of a customer order cancellation from none other than the Airbus A320neo launch customer.  Airbus A320neo test aircraft

Reports indicate that Qatar Airways has invoked a cancellation clause in its contract with Airbus for canceling one of a total of 50 A320neo family aircraft.

What makes this development more newsworthy are statements from the airline’s chief executive indicating that the airline could potentially cancel more aircraft orders, and further declaring to The Wall Street Journal: “It is (delayed deliveries) making a huge impact on my bottom line. We are, quite frankly, screaming.”

That is a statement that any aircraft manufacturer does not want to hear from a customer, let alone the designated and highly influential launch customer.

In January, because of undisclosed documentation and other issues, Airbus quickly changed initial delivery of the first A320neo off the assembly line to substitute customer Lufthansa when Qatar refused to accept initial delivery because of performance concerns.

Fabrice Bregier, head of Airbus’s commercial aircraft group acknowledged to the WSJ the aircraft’s lateness to original promise of delivery which was originally due for delivery in 2015. However on Friday, the same executive indicated to Reuters that the current delivery issues would be resolved by mid-year and the problems would be forgotten in months.

Perhaps the context of the latter statement was not exactly ideal given ongoing customer concern and sensitivities.

As we have noted in prior commentaries, the bulk of the contract delivery delays relative to the A320neo are not solely in Airbus’s court, and our shared with aircraft engine producer Pratt & Whitney. According to published reports, Pratt has struggled to get the new model engine up to required delivery milestones due to a reported turbine glitch and other software issues causing premature or false alert messages. Engine deliveries are not expected to catch-up until after June.

Meanwhile, similar to previous actions related to the Boeing 787 Dreamliner lithium ion battery crisis, a reported two-dozen completed A320neo aircraft continue to pile-up in parking areas located in Toulouse France and Hamburg Germany awaiting engine delivery and installation creating what one Airbus executive cited as a queue of “gliders.”

The latest published reports further indicate that Airbus will now attempt to make-up for the shortfall in 2016 delivery volume of A320neo aircraft by bringing forward deliveries of the existing version of the aircraft, now termed A320ceo (current engine option). Cudos to the Airbus marketing team for their novel re-branding.

In essence, Airbus and certain airline customers may trade-off the current low prices of jet fuel to gain earlier delivery of new aircraft rather than wait for the promised fuel efficiencies of the new engine option. The other new engine offering, the new LEAP model from CFM International is expected to be available in the second-half of this year as-well.

A tense launch customer relationship had already existed among Qatar and Airbus dating back to the scheduled initial delivery of the new Airbus A350 XWB aircraft. As noted previously, subsequent deliveries of new A350 model aircraft remain impacted due to adequate supply of cabin seating and interior equipment. Plans called for delivery of a total of 50 A350 aircraft in 2016, but Airbus has managed to deliver only 10 so far this year due to the supply delays. There are a reported 40 of this aircraft in various stages of final assembly and Airbus has augmented production with added work stations to get late delivered cabin equipment installed as quickly as possible.

The takeaway is obvious apparent strained and perhaps tense relationships involving an influential Middle East based airline customer, perhaps other customers, and certain suppliers.  Unfinished aircraft sitting idle in all available spaces within manufacturer host airport tarmacs is of course a monument to supply chain glitches and disruption.

Once again, the commercial aircraft industry dominates business media headlines with product design and supply chain management glitches that are impacting delivery commitments, and it seems that no manufacturer is immune.

Bob Ferrari

Overstocks of U.S. Retail Inventories Spell Challenges for the Remainder of the Year

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After many prominent retailers have formally reported their financial results for the first quarter, business and industry media have been quick to note that for the most part, U.S. retailers are facing a glut of existing unsold inventory.  The exception is certain online retailers such as Amazon who have managed to post continued sales gains and leverage the existing popularity of online shopping especially in categories such as apparel. However, retailers with a large physical retail store presence and who suffered significant revenue declines in Q1 are expected to deeply discount and promote the sales of excess inventories over the coming weeks.

While this is certainly some good news for avid shoppers, this quandary will have implications for the remainder of the year. A published report from Reuters quotes a retail industry equity analyst at Edward Jones as indicating that retailers are now in the process of cutting back inventory purchases for both the third, and the all-important fourth quarter of this year.

The stated risk is that without very comprehensive and purposeful inventory planning and supplier management, retailers run the risk of jeopardizing revenues and profits in the crucial holiday buying quarter that comes towards the end of this year.  Those retailers who have invested in more advanced inventory optimization and management applications that integrate with item-level point-of-sale sales data may well get the benefit of successfully navigating through some difficult upcoming quarters.

The other obvious implication will be on global ocean container transportation, which continues to slog through its own crisis of too many ships chasing declining shipping volumes. With many traditional retailers cutting back on second-half inventory purchases, shipping volumes may well decline even further. That will bring added revenue and profitability pressures to some existing ocean container shipping, port operations and inter-modal railroad lines.

The current environment of global economic uncertainty and rapidly shifting shopper buying preferences continues, and retail focused supply chains, as always, are in the cross-hairs of scrutiny and required performance. Retail supply chains and their associated sales and operations planning teams will continue to learn lessons in responsive merchandising and more proactive inventory management while continuing to discover the increased costs of online fulfillment.

New Development in Sports Authority Bankruptcy Reorganization Effort

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Yesterday, there was a significant development related to the bankruptcy proceedings involving sporting goods retailer Sports Authority, one with continued supplier collaboration and management implications for the broader retail and consumer goods industry sectors.

In early March, Supply Chain Matters called attention a report that retailer Sports Authority has filed for Chapter 11 bankruptcy protection which included an intent to close or sell 140 stores and two existing distribution centers.  Characterized as one of the largest sporting-goods retailers, the chain found itself weighted down with debt from a prior leveraged buyout a decade ago. According to media reports, there was $1.1 billion in debt that included $717 million in bank loans and over $200 million in trade debt owed to suppliers. Lenders have given the retailer up to the end of April to find a buyer or another investor, or close any remaining stores.

A subsequent disturbing twist to this bankruptcy proceeding involved the categorization of existing consignment inventory.  Attorneys for the retail chain filed lawsuits with more than 160 existing suppliers challenging claims to consigned inventories. According to reports, upwards of $85 million in shoes and other gear that were currently on the shelves in retail stores were at-stake. The supplier lawsuits were apparently a means to challenge who gets the bulk of compensation when consigned goods are sold in store closings or in discounted sales. Our Supply Chain Matters view was that the move on consignment inventory had significant ramifications for supplier collaboration practices within retail as well as other consumer goods focused supply chains.

Today, business reports indicate that this week, Sports Authority has abandoned its reorganization plan and instead will count on any potential buyers to salvage parts of the retail chain. A report in today’s editions of The Wall Street Journal indicated that the chain’s lawyers indicated to a bankruptcy judge that the existing debtors will not support reorganization and are instead enforcing an outright sale. A May 16 auction date has apparently been set for the bulk of the retail chain’s operations and facilities.  According to today’s WSJ report, there are no guarantees that any of existing stores will stay in operation.

What caught our attention was the following sentence:

The financing fight is also the arena for claims from some vendors that they, rather than lenders, have the right to collect the proceeds when goods are sold”

That obviously is a reference to attempt to seize proceeds from vendor consignment inventories. One could speculate that existing suppliers elected to play hardball, given what was on the table, and given that some other sporting goods retailers are financially struggling as-well. From our lens, it was indeed protecting the integrity of consignment inventory contracts.

Reports indicate that talks remain ongoing, and although a planned reorganization is off the table, a subsequent liquidation plan will have to address how any existing debt will be paid-up.

Our takeaway from this week’s Sports Authority development is a caution to other retailers to not mess with existing key suppliers who have extended a hand to help finance inventory investments. We continue to wonder aloud whether the Sports Authority developments, regardless of final outcome, provide a longer-term setback in joint inventory management practices.

Bob Ferrari



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