Counterfeit Apparel and Other Unauthorized Products in China Draws Added Actions: Welcome Taylor Swift
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.
Last Wednesday, in a noteworthy effort to spur widespread additional interest and new subscribers within its Prime buying program, Amazon declared its inaugural Prime Day, offering its online Prime program customers Black Friday like pricing deals in the middle of July.
The date was chosen because it represented the 20th anniversary of Amazon. The significance of a compelling holiday like online buying event in July was more important. Amid a flurry of anticipation as well as competitor response, Prime Day ended up having a mixed online fulfillment response. From our Supply Chain Matters lens, in spite of large-scale marketing driven promotional efforts, the event looked to be more of an inventory clearance event than one that would add a new dimension to Christmas in July in online fulfillment.
Online consumers did respond but had mostly a mixed reaction with the #PrimeDay hashtag garnering mostly disappointment or cynical commentary regarding the lack of compelling product offerings and/or deals. Some noted slower web site response time. Bargains on high-profile items such as Amazon’s Fire TV stick or the Amazon Kindle HD sold-out rather quickly, reverting to an unspecified wait list. The hashtag of #HappyPrimeDay turned instead to #CrappyPrimeDay for some. Product selection turned out to be more generalized and included apparel, household and other every-day type items. That prompted our declaration that from our supply chain lens, the reality of Prime Day looked more to be one of a July inventory clearance event.
Online sales tracker ChannelAdvisor reported that by Noon, Amazon’s U.S. same-store sales were about 80 percent ahead of volumes the prior July 15th. During the day, Amazon’s marketing types were hyping numbers to business channel CNBC regarding one-day sales records. However, the network could not avoid overlooking the mixed reviews streaming across social media. We tested bargains and selection at around 10am Eastern and found few compelling bargains to be garnered but rather pointers to every-day selection categories and pricing.
An Amazon press release on Friday declared a headline that the online retailer sold more units on Prime Day than that of Black Friday 2014. Worldwide order growth increased 18 percent more than Black Friday of 2014. Customers reportedly ordered 34.4 million items among Prime eligible countries. Readers should recall, however, that 2014 Black Friday sales were reported by the National Retail Federation as 11 percent below that of 2013 with shoppers spending upwards of 6.4 percent less. In 2014, shoppers opted for last-minute deals.
The Amazon release notes specific item level sales to include, among others:
- 41,000 Bose Headphones, compared to 8 the previous Wednesday
- 28,000 Rubbermaid 42-Piece Easy Find Lid Food Storage Sets, compared to 428 the previous Wednesday
- 24,000 Instant Pot 7-in-1 Programmable Pressure Cookers, compared to 182 the previous Wednesday
- 14,000 iRobot Roomba 595 Pet Vacuum Cleaning Robots, compared to 1 the previous Wednesday
Various sales and operations and supply chain planning teams will appreciate the impact and pain level of such one-day order volume spikes, especially when planning is based on past online order history likely had to scramble to fulfill such demand. It is literally a huge gamble to position such inventory for any single customer, albeit Amazon and Wal-Mart.
Other teams are more likely in the midst of assessing whether Amazon’s demand needs impacted other key customer needs, or whether such spiked July demand will have a substantial impact to the forthcoming three months of B2C channel fulfillment sales.
The build-up to Prime Day definitely caught the attention of other retailers, particularly Wal-Mart, which quickly marshalled a series of product promotions designed to both offer a lower-cost membership program as well as compelling deals on Wal-Mart.com. Reports indicated that Wal-Mart.com encountered greater interruptions and slower response times as online consumers checked for matching or better deals. None the less, Wal-Mart was quick to declare its counter-attack to be an online success, as well as the largest day for same-day pickup at a retail store.
Amazon declares that Prime Day will now be an ongoing annual event.
Like any new online fulfillment program, a lot can be garnered from results of the inaugural event. While Amazon’s line-of-business and marketing teams can declare victory, it is the online consumer that has the ultimate final vote as to the attraction and success of an online event.
Oracle today announced an expansion of the Oracle Supply Chain Management Cloud with the inclusion of two new applications, Oracle Order Management Cloud and Oracle Global Order Promising Cloud. These new applications are part of Release 10 or Oracle SCM Cloud, not to be confused with the predominant on-site Oracle Business Systems (EBS) suite of applications which is currently within Release 12 versions. Eventually, both release nomenclatures will converge and perhaps provide more confusion for customers. The takeaway however is that Oracle remains committed toward a broader development and release plan surrounding broad SCM applications in the Public Cloud platform than perhaps other competitors such as SAP. Both providers claim that they are responding to the stated needs of customers.
Oracle Order Management Cloud is an order capture and fulfillment Cloud application that is includes integration with Oracle Global Order Promising Cloud. The application was designed to improve order handling across the order-to-cash process. Pre-integration, centrally-managed orchestration policies, global availability, and fulfillment monitoring are included.
Supply Chain Matters spoke with Oracle SCM Vice President Jon Chorley, who informed us that these new SCM applications are linked with a dependency on Oracle CPQ (Configure, Price and Quote), the result of a prior Oracle acquisition. According to Oracle, this totally cloud-based application is currently appropriate for small or large-scale firms that have a predominant quote-to-cash customer fulfillment driven process. Down the road, in future Oracle Public Cloud releases, other sales and distribution channel customer fulfillment needs will be targeted and supported.
The pricing model for the cloud-based order-to-cash application is pegged to a combination fee structure associated with internal users supported and with order lines being processed.
Release 10 Cloud further includes Product Lifecycle Management (PLM) support, including a Product Hub, a primary vendor facing, master data management support application and a front-end, product development support application.
In Release 11 of Oracle Cloud SCM, the enterprise technology provider will target additional manufacturing focused support needs, most likely to be announced at the upcoming Oracle Open World conference in the fall.
JDA Software announced today that its latest product release, version 9.0 is now available. Supply Chain Matters previously provided some hints to this new release in our coverage of the JDA FOCUS 2015 customer conference in April.
This version 9 release is significant from three perspectives:
- It marks a major stepping-stone in JDA’s plans for providing customers added support in connecting supply chain physical and digital planning as well as customer fulfillment execution processes. Release 9.0 further provides demonstration of JDA’s efforts to reorient the technology provider’s vertical industry support to provide continued support for Omni-channel and online focused retail industry needs as well as core discrete and process based manufacturing industries support. This strategy was re-iterated at FOCUS in April.
- Release 9.0 features the initial introduction and utilization of new JDA FLEX integration platform, designed to connect applications and information sources across heterogeneous systems. It further provides new opportunities for integrating supply chain planning and execution applications including the integration of the RedPrairie warehouse management and supply chain execution applications which were acquired in 2012. The JDA FLEX technology is further being utilized in the support of Omni-channel end-to-end Retail Omni-channel fulfillment processes, including the awaited connections to IBM’s Retail Commerce and Order Management (former Sterling Commerce) platform that was initially jointly announced in November of last year.
- The Release introduces what JDA describes as: “Risk Aware, Agile Supply Chain Planning.” Included in new enhancements are:
- Automated parameter and level optimization in product demand forecasting, allowing the system to analyze available historical data and recommend most appropriate forecast parameters.
- The addition of a termed Replenishment Interval Workbench that allows planners to analyze and factor risk mitigation and more effective vendor or supplier negotiations.
- In-memory, constrained aware S&OP planning with significantly added system scalability and performance, along with enhanced in-memory scenario planning allowing comparison of multiple scenarios utilizing a form of scenario scorecard functionality.
- An enhanced Agile Control Tower that adds guided-response forms of descriptive, prescriptive diagnostic and predictive analytical capabilities.
- Enhanced scenario and task planning within Factory Planning and Scheduling.
Another noteworthy aspect for this product release is additional enhanced functionality added to JDA Intelligent Fulfillment for support of Click and Collect online fulfillment needs that include pick-up at designated retail store, destination-driven demand categorization to match the actual physical presence of demand such as a retail store or online channel with inventory placement needs. Supply Chain Matters has previously shared our positive impressions with the current and planned functionality of Intelligent Fulfillment and we continue to believe that this application will be a strategic underpinning for JDA’s efforts in supporting online Omni-channel and multi-channel order fulfillment process needs.
More for more detailed information, readers can view an upcoming JDA Software webinar being held on July 23.
In the coming weeks, Supply Chain Matters will provide further, more detailed commentaries related to specific functionality and business process support aspects of this new JDA release.
Disclosure: JDA Software is one of other sponsors of the Supply Chain Matters© blog.
FedEx reported Q4 and FY15 financial results this week that included strong indicators of some change in strategic direction along with implications from previous actions.
Financial highlights for the final fiscal quarter included an increase in adjusted operating income of 5 percent but a reported loss of $895 million primarily as a result of special charges related changes in the carrier’s pension accounting methods. Other factors impacting income in the quarter were noted as increased variable incentive compensation and unfavorable net impacts from fuel and weather.
For the full fiscal year, total revenues increased by $1.9 billion while operating income slid nearly $2 billion from the year earlier period.
Beyond the numbers were indications that FedEx management acknowledged that the carrier will significantly step-up investments in its ground based business segment. Because of the continued growth of online commerce, FedEx senior management indicated that both commercial and residential ground delivery services continue in volume growth. Daily volumes in Q4 grew by 5 percent and ground based operating margins have averaged 17-20 percent. In the most recent quarter, margins for the ground based segment were negatively impacted by the recent GENCO acquisition. Senior executives further acknowledged that GENCO will remain a drag on full year FY16 profits for the ground-based segment which is perhaps an indicator of inherent profitability challenges related to this acquisition.
Regarding the announced $4.8 billion acquisition of Europe based TNT Express, company executives indicated confidence that regulators will likely not raise significant objections.
The carrier indicated that its capital spending in the coming fiscal year will be $4.3 billion, the majority of which will be channeled into ground segment infrastructure. Further announced was that the FedEx SmartPost segment, an online commerce focused service that hands-off last mile delivery to the United States Postal Service will be merged into the ground business segment on September 1st of this year. By merging the two segments, FedEx has plans to enable increased flexibility for its ground network. New software is being implemented that will combine ground-based packages destined to a common delivery address. Thus if the system determines a SmartPost package is destined to an address scheduled for delivery of a regular ground-based shipment, the software will route both packages to the delivery vehicle. If the SmartPost package is independent and does not meet network criteria, it will be routed to a local post office for delivery. The net effect is an impact to current USPS revenue streams.
Similar to UPS, the latest financial results from FedEx further reinforce the positive revenue effects of newly implemented dimensional based pricing, as well as the continuance of fuel related surcharges. In the most recent quarter, FedEx reported that ground based yields increased 2 percent because of the new dimensional weight rates. The Wall Street Journal reported this week that UPS is communicating to dozens of retailers that it intends to end big discounts related to dimensional pricing for this coming holiday buying surge, and in the case of some, enforce dimensional pricing for the entire year.
Given this latest information, Supply Chain Matters is of the viewpoint that FedEx is making a competitive thrust against its ground-based competitors, in particular UPS, for the support of online customer fulfillment.
For the international air express segment, FedEx continued with implementing its multi-year profitability plans which included cutbacks in overall capacity along with increased investments in more fuel efficient, less maintenance prone air freight aircraft. The effects of reduced international air express capacity were felt in the latter part of last year when U.S. west coast ports were severely impacted by bottlenecks, and shippers attempted to turn to alternative air routings.
Our prediction of a turbulent year in global transportation continues to manifest and includes continued efforts by major surface and air-based global carriers to significantly increase margins along with actions of heightened competitiveness among major industry players.
As thought leaders in supply chain management, we often point out the critical importance for firms to more quickly sense geographic or regional changes in product demand and respond to such changes with integrated supply and fulfillment capabilities. This week, The Wall Street Journal highlights (paid subscription) how certain high-profile consumer product goods companies were hampered in China by not having such capabilities.
The report notes that a sudden change among China’s consumer buying trends suddenly occurred as millions of consumers elected to shift their buying practices away from larger retail outlets in favor of online marketplaces. The WSJ indicates that an estimated 461 million Chinese consumers, nearly a third of the population, are now shopping online. Further cited is Nielsen data indicating that nearly half of Chinese consumers are buying groceries online, compared to a quarter of consumers on a worldwide basis. Global CPG firms such as Beiersdorf, Colgate-Palmolive, Nestle and Unilever were reportedly laggard in the sensing of this channel buying shift.
For Unilever alone, the shift toward online buying accounted for a 2.7 percent drop in global revenues. The CFO of Unilever is quoted as indicating that CPG firms in China were “too slow to react to the changes in the marketplace.” Another Unilever executive is quoted as indicating: “It’s very, very difficult for us to be absolutely sure (of inventory levels) because the visibility across the extended supply chain in China is not that great.”
Many CPG firms distributing products in China had targeted their merchandising and inventory strategies towards large retailers and thus were not able to sense the changed buying patterns until inventories grew.
Many of these firms are likely to have acquired important learning and are re-focusing supply chain strategies more towards online fulfillment channels including more direct presence. There will obviously be further learnings in the months to come.
Suffice to state that in today’s complex supply chain universe, generalized market support and distribution strategies will not suffice. Each major market requires its own set of product demand planning, sensing and supply chain response strategies.