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A New Round of Reported Job Cuts at Wal-Mart- Part of a Singular Leadership Model Directed at Integrated Online and Store Customer Fulfillment

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Last week, word began to leak out that global retailer Wal-Mart was planning to cut nearly 1,000 corporate jobs before the end of this month, the close of the retailer’s fiscal year. These cuts are in addition to previous job cuts announced in 2016. Part of this effort is to continue to streamline and centralize leadership and goal-setting across Wal-Mart’s online and physical store strategies. The latest move is being headlined as the largest round of corporate level headcount cutbacks in some time.  Wal_Mart Store

Several published reports by The Wall Street Journal citing Wal-Mart internal communications indicate many believed executive changes underway. They include existing CIO Karenann Terrell departing the retailer in mid-February. SAP technology focused readers might recall that SAP’s 2015 Sapphire customer conference featured Ms. Terrell in an on-stage keynote delivered by SAP’s CTO and senior board executive Bernd Leukert. Ms. Terrell provided a humorous moment as she quipped to Leukert that she hoped that Wal-Mart could complete its SAP S4 HANA implementation sometime in her lifetime at the retailer.

Other reported executive moves include existing Chief Marketing Officer Tony Rogers assuming leadership of both online and digital marketing initiatives to include Jet.com marketing. Existing head of Wal-Mart Labs engineering Jeremy King, will reportedly be promoted to U.S. Chief Technology Officer, directly reporting to both the chief of U.S. stores and the chief of U.S. online. Scott Hilton, existing Chief Revenue Officer for Jet.com will reportedly assume the role of Chief Revenue Officer for all E-commerce operations.

The WSJ further indicates that Michael Bender, existing COO for E-Commerce will likely leave the company. A separate Wal-Mart securities filing indicates that Rosalind Brewer, current Executive Vice President, and CEO of the Sam’s Club business segment plans to retire effective February 1st. John Furner, current Chief Merchandising Officer for Sam’s Club will assume Ms. Brewer’s leadership role. Other reported headcount reductions include human resource staff and other support staff.

These latest organizational and headcount reduction moves follow a pattern for providing singular leadership in Wal-Mart’s effort to take on Amazon by initiating an online capability supported and complimented by physical store presence. In September, 7000 store focused back office jobs were eliminated and in November, because of the prior announced acquisition of Jet.com, founder Marc Lore was appointed to lead all U.S. online operations, causing several existing online executives to depart the retailer. In January of 2016, existing corporate IT and @WalMart Labs Silicon Valley development groups were merged together into one singular group to focus on singular technology deployment strategies.

Wal-Mart has invested a reported $10.5 billion in new information technology to enhance its online web presence and fulfillment capabilities.  The retailer is planning to invest an additional $2 billion over the next two years to further springboard its online fulfillment channel, not to mention the $3 billion acquisition of the Jet.com online platform. That implies a commitment and an accountability to get it right.

These latest moves come in the shadow of the latest restructuring and headcount reduction announcements from multiple other retailers, all a result of the more apparent implications of online Omni-channel forces continuing to impact the retail industry.

Bob Ferrari

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


The Implications of Online Omni-Channel Retail Invokes Additional Consequences and Actions

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In August of 2016, this blog’s parent, The Ferrari Consulting and Research Group, published a research advisory titled: The Beginning of a New Phase of Online and Omni-Channel Fulfillment for B2C and Retail Supply Chains. The prime takeaways from that advisory was that 2016 marked the beginning of the newest phase of B2C online retail fulfillment, namely the consequences of permanent changes in consumer shopping habits beginning to impact the long-term presence of brick and mortar retail and their supporting supply chain strategy frameworks.

In a commentary, earlier this week, we highlighted how the Amazon effect continued to make a profound presence over the past holiday fulfillment quarter.

Over a period of two days this week, significant announcements from well-known U.S. retailers, Macy’s, Kohl’s, and Sears, adds more evidence to the reality of a disrupted and quickly changing retail industry.

Macy’s

Yesterday, Macy’s again alerted investors to disappointing holiday sales indicating that comparable sales declined 2.1 percent in November and December and warned of even lower full-year earnings. The broad-based full line retailer announced a series of actions to streamline its retail store presence, intensify cost reduction efforts and execute a revised real-estate strategy.

Included is the closure of 68 retail stores, part of the 100 retail store closings previously announced in August 2016. Most of the store closures are expected in early 2017. The total retail store count for Macy’s was 730 stores prior to this week’s actions. The planned store closures will be accompanied by the reorganization of the retailer’s field structure that will manage remaining retail stores. An additional 3900 workers are expected to be displaced or reassigned because of such closures.

The retailer’s ongoing strategic real estate strategy calls for securing added value from existing store real-estate. Macy’s remains under pressure from activist investor Starboard to garner more cash from its real-estate holdings. To that end, this week’s announcement points to upwards of $95 million in cash proceeds already garnered from real-estate transactions involving stores. That is further validation of our conclusion that declining foot traffic makes the cost, service impact and financial value of the physical store the new determinant of long-term presence.

Additional actions initiated are elimination of current layers of management and other efforts to reduce non-payroll costs. Reports indicate that upwards of an additional 6200 employees will be impacted by job cuts, bringing the total impact from actions taken to upwards of 10,000 jobs.

These combined actions are expected to generate annual expense savings of $550 million beginning in 2017, enabling the retailer to invest an incremental $250 million in existing online retail platforms. Retiring Chairman and CEO Terry Lundgren indicated in the announcement: “Our omnichannel strategies continue to evolve based on the changes in our customers’ shopping behaviors, including a focus on buy online, pickup in store and mobile-enabled shopping. In addition, we have invested in and enlarged our customer data and analytics team, which will help drive our new marketing strategies for 2017.”

Sears Holdings

In a prior Supply Chain Matters blog posting in December, we questioned whether there was s more immediate financial crisis involving Sears after the sudden departure of two high-ranking executives and increased speculation among internal employees and suppliers that this retailer may soon file for bankruptcy.

Today, Sears Holdings announced that retail sales have continued to be challenging during the quarter to date. Same store sales at Sears and Kmart branded stores for the first two months of Q4 reportedly declined in the range of 12-13 percent, which is rather significant in the most critical sales period.

Hedge-fund manager and Sears Holdings Chairman Edward Lampert disclosed a series of actions to infuse an additional $1 billion of cash to revive operations and execute a revised strategy. The additional financing includes a $500 million loan secured by mortgages on 46 existing properties, a $300 million secured letter of credit, and a $200 million unsecured loan from Seritage Growth Properties, a real-estate trust that was previously spun-off that predominately consists of Sears and Kmart retail properties.

Sears Holdings further announced a series of additional strategic actions to increase its financial flexibility and improve long-term operating performance. The actions were billed to facilitate the transformation of Sears from a store-based, asset-intensive business model into a membership-focused, asset-light business model. Actions include:

  • Intentions to close an additional 108 Kmart and 42 Sears unprofitable stores over the next few months, as the holding firm looks to stem its operating losses. These retail stores collectively generated about $1.2 billion in sales over the past 12 months.
  • An agreement to sell the iconic Craftsman tools business for a cumulative $775 million, together with use of a perpetual license for the Craftsman brand, royalty free for 15 years, coupled with a 15-year royalty stream on all third-party Craftsman sales to new customers.
  • The formation of a special committee reporting to the Board of Directors tasked to market certain real estate properties with the goal of raising over $1 billion.

Industry watchers and this blog itself question how long Sears Holdings can continue to stem the tide of declining sales and the loyalty of consumers who now shop online.

Kohls

Kohl’s Corporation today reported that its comparable sales decreased 2.1 percent in the fiscal months of November and December 2016 combined, compared with the prior year period. Total sales for the combined fiscal November and December period decreased 2.7 percent. The retailer further lowered prior guidance on earnings and margins as a result of the announced holiday sales declines. Kohl’s had already undertaken store closures in 2016.

As a consequence of today’s news, Kohl’s stock plummeted 19 percent to mark their biggest-ever one-day decline.

 

Our August Advisory outlined the tenets and impacts of the current new phase of an omni-channel driven retail business model. This week’s news, and similar type news to follow will add additional evidence as to the implications of an industry that is increasingly impacted by disruptive market forces that challenge prior strategy.  Consumer preferences and desires have permanently changed in retail, and online platforms and consumer loyalty programs such as that of Amazon are rapidly garnering consumer loyalty and dependence.

With the accelerating trend toward the closing on non-performing brick and mortar retail stores, supply chain strategy and tactics must now align around unified organizational leadership. Investments need to support capabilities geared to a digitally-driven retail customer fulfillment business model driven by demand-driven response vs. traditional merchandising linked to bulk store replenishment.

Today’s online world requires analytics-driven planning, agile marketing and multi-channel customer fulfillment capabilities, supported by advanced inventory management with flexible and adaptable logistics. The physical store is now the virtual store, merchandising is now about analytics-driven knowledge of customer needs, and inventory management is anchored in more sophisticated item-level planning and pooling algorithms.

The industry implications and trends are compelling as well as inescapable.

Bob Ferrari

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

 


Amazon Again Shines in Holiday Online Customer Fulfillment

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While retailers and their associated supply chain teams are still in the process of recovering from the 2016 holiday fulfillment period, and while the final retail sales numbers are being assessed, some takeaways have become apparent.

The first and foremost, was the continuing preference among various consumers to do their holiday shopping online. The prime beneficiary of that activity was once again the Amazon online shopping platform, but some inroads were made by other online retail platforms as well.

Amazon has already declared its best holiday season ever indicating that more than 1 billion items were shipped on a worldwide basis with both the Amazon Prime and Fulfillment by Amazon programs. More than 72 percent of Amazon online customers shopped utilizing a mobile device which is a remarkable statistic regarding changed shopping habits. fba_sized

In terms of Amazon’s operations, December 19 was declared as the peak worldwide shipping day during the 2016 holiday season which was contrary to earlier industry expectations that shoppers would opt to seek more deals during the Thanksgiving to Cyber Monday promotional weekend period in late November.

The 2016 fulfillment period was also the test of Amazon’s augmented order to last mile fulfillment capabilities which appeared to perform well despite visible labor unrest including a brief walkout by ABX Air pilots in late November. Pilots of Amazon’s leased air carriers subsequently took to a social media campaign warning of missed holiday deliveries due to overworked pilots.

A published report by Reuters cited air freight payload data among Amazon’s leased fleet of cargo aircraft indicating that most Amazon Prime flights flew with full cubic payloads but with lighter than average weight loads than traditional air freight. That would imply smaller, low density parcel type shipments. According to the Reuters analysis, Amazon leased aircraft handled between 37 percent and 52 percent of their maximum weight loads as contrasting to FedEx and UPS air cargo averages of between 53-56 percent. Reuters did indicate its data analysis did not include the November-December period when contractor ABX Air paused flights after a pilot work stoppage.

Amazon’s flight scheduling reportedly favored scheduled shipments later in each day, with direct routing to at least 10 airports closest to major population centers across the United States. Many of the online retailer’s chartered eastbound flights departed U.S. West Coast airports well after midnight local time, arriving direct to nearby Amazon logistics fulfillment centers. Thus, Amazon has elected to overcome the scheduling limitations of traditional parcel carrier hub and spoke networks through direct flight routing to major fulfillment population centers. While the online retailer continues to deny that is directly competing with either FedEx or UPS in parcel delivery, its fulfillment strategy appears to be directed at overcoming the time and logistics limitations of a hub and spoke air freight network.

As was the case in 2015, Amazon warehouse and fulfillment center employees in Germany once again initiated a series of labor stoppages as part of a long running dispute dating back to 2013 over local compensation levels. Amazon has once again claimed no disruption in holiday delivery commitments within that country.

There are some indications that the combination of Walmart.com and Jet.com might have had some impact on competing with Amazon on price, but at this point, we have not seen enough quantitative evidence to support that observation.  One report we reviewed indicated that Jet.com had a high inventory stock-out rate with nearly 29 percent of the most popular items in out-of-stock status.

Obviously, more definitive data will be forthcoming regarding the recent holiday fulfillment period but the continuing trend favoring online buying and Amazon’s platform dominance in market share seen inescapable.

Bob Ferrari

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

 


What Should Industry and Global Supply Chain Teams Anticipate in 2017

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As we approach the New Year holiday which marks the beginning of 2017, we are heads-down in the preparation of our 2017 Predictions for Industry and Global Supply Chains. Supply Chain Matters blog readers should anticipate the full unveiling of our 2017 predictions over the first two weeks in January.

We do however want to share some of the overall highlights as to what to expect in the coming year. crystal_ball

There seems to be little doubt that the year 2017 will present even more uncertainty and increased volatility for many industry supply chains. Organizations and respective supply chain teams will once again need to be prepared.

By the end of 2016, political winds of change were blowing a strong gust across the global economy. Economies are entering 2017 in a year of heightened uncertainty in markets, brought about by more volatile, populist focused political environments among major developed nations including Eurozone countries and the United States.

The unexpected election of Donald Trump as the new President of the United States is indeed sending out shockwaves around the world. The Eurozone, which was already attempting to deal with the unexpected results of Britain’s referendum vote to exit the EU (Brexit) faces yet another concern with Italy’s December vote to reject constitutional reforms, which prompted the resignation of Prime Minister Matteo Renzi. This could lead to a potential general election in 2017 that could have strong populist overtones including potential EU exit.

By late-December, the value of Euro was moving ever closer to parity with the U.S. Dollar, its lowest level since January 2003. Many analysts are predicting that in 2017, the Euro will indeed reach parity and could even drop below the value of the dollar at some point. That will add to the challenges of U.S. based companies to export products and services globally.

Industry and global supply chains should anticipate yet another challenging year with resiliency, adaptability, and risk mitigation as important competencies. Industry supply chains will again be called upon to help contribute to top-line revenue growth. We anticipate added pressures for cost controls and cost reductions, which will place additional pressures on capabilities. Supply chain risk factors will significantly rise across many industries and within many global regions, along with needs for educating line of business and senior executives on the supply chain implications of such risks. More informed and deeper analytical capabilities to ascertain various impacts to global component and finished goods manufacturing and supply chain sourcing will likely be an ongoing requirement and supply chain organizations who have not invested in such analysis and decision-making capabilities will be tested.

We anticipate another challenging year in procurement and strategic sourcing with a renewed emphasis on strategic and technical skill needs. The role of the CPO will continue to evolve into one of strategic business advisor, requiring enhanced cross-organizational influence skills.

One of the most significant challenges for 2017 will be reflected in a supply chain talent perfect storm, one that is sure to occupy more of the management attention of supply chain and business senior leadership. The perfect storm is increased skills demand meeting limited available skilled talent supply. As Bloomberg BusinessWeek declared in late December 2016: “Right now the problem isn’t too many workers who can’t find jobs. It’s too many jobs that can’t find workers.” With the prospects of 2017 providing even more overall pressures to reduce supply chain costs, supply chain, procurement and product management related executives will be faced with difficult choices regarding the existing workforce. Executives who previously established multi-year plans to broaden skills and talent will face the reality that talent needs are more immediate.  With upwards of 10,000 baby boomers turning 65 each day, the skills and experience flight becomes ever more challenging.

We further predict continued turbulence surrounding global transportation sectors with renewed interest in managed services and B2B network information integration. Industry supply chain teams can no longer view the outsourcing of supply chain logistics and transportation services to be an annual renewal but rather a revisit of required augmented capabilities in services.

We anticipate a new renaissance of supply chain focused technology investment during the 2017 in areas such as integrated business planning, supply chain risk mitigation and advanced analytical decision-making support. We predict increased momentum and interest in Internet of Things enabled industrial and supply chain networks. The new renaissance in supply chain focused tech adoption will lead to further tech vendor acquisitions, some involving well- known names.

We expect existing supply chain sustainability and social responsibility initiatives to continue momentum effort during 2017 despite anticipated Trump Administration efforts to dilute the notions of the effects of global warming. Such initiatives continue to provide economic and brand value benefits and further contribute to the strategic need for an overall sustainable business.

We predict a renewed global battleground for online B2C and B2B platform dominance among Alibaba and Amazon in 2017 with regions such as India being the key areas to watch for influence and added investment. WalMart.com remains a wildcard in the global B2C sector.

Finally, there will be the unique usual industry-specific supply chain focused challenges that are sure to include consumer product goods, commercial aerospace, pharmaceutical and healthcare and other industries.

The above will all be detailed in our upcoming 2017 predictions series. This year we will further augment our predictions series by contributed guest contributions and added podcasts or webinars featuring industry participants. If industry leaders desire to add their voice in our content stream as to what to anticipate, and how to be prepared, please let us know.

The year 2017 will no doubt test the competencies and skills of many across industry supply chains. At the same time, they will provide opportunities for leadership and added innovation to make a difference in achieving line-of-business and overall corporate objectives. The value of the supply chain and the notions that supply chain capabilities do matter have never been more recognized as they are as we approach the coming year.

It will be an interesting year to state the least so stay tuned as we navigate the ongoing developments throughout 2017.

Bob Ferrari

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


Forget the Drones- It’s All About Self-Driving Trucks

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A lot of transportation and logistics focused social and business media headlines have been painting a picture on the large numbers of drones will be the future of parcel delivery.  Our Supply Chain Matters response has been one of skepticism to this notion principally because drones serve a specific purpose related to certain limited in scope delivery challenges. This challenge has always been about coming up with a more innovative surface transport technology.

That is why we call attention to a recent Reuters and Wired article titled: Amazon’s Real Future Isn’t Drones. It’s Self-Driving Trucks. This article observes that the current challenge remains that the transportation industry does not have enough qualified truck drivers, and the shortfall numbers are not getting any better.

A recent report by The Wall Street Journal indicating that Amazon is developing an Uber-like mobile truck-hailing app is just a prelude to the real challenge. Not so!

The conclusion is one that Amazon has demonstrated quite often in its history, namely addressing the bigger problem, one that has not been solved before, and that is addressing the need for autonomous self-driving trucks for long and short-haul shipments. Similarly, we and Wired have noted Uber’s and others ongoing efforts in the self-driving truck category. A recent tech industry pundit quipped on the CBS This Morning news program that Uber alone has just about hired every AI scientist from Carnegie Mellon University alone to develop such technology. In 2012, we all initially questioned why Amazon had interest in acquiring warehouse material handling and robotics technology provider Kiva Systems. We now know the result, namely hundreds of Kiva robots circumventing multiple Amazon distribution and customer fulfillment centers driving higher levels of efficiency and pick accuracy.

Amazon now has a fleet of over 400 branded tractor-trailers available for added experimentation and autonomous driving development. The online giant has an annual freight expense that is staggering for many other retail or online commerce firms. The Wired article observes that in August, Uber acquired self-driving truck company Otto for $680 million. Supply Chain Matters has previously brought reader visibility to heavy truck industry disruptor Nicola which is developing a hybrid electric-powered long-haul tractor that likely would be an ideal candidate for autonomous control. We have recently read of a plan that calls for delivery vans to transport goods to a local neighborhood where a fleet of delivery drones takes control for door-to-door delivery. Go figure!

In just a few days, millions of us will experience the Christmas holiday and the traditional opening of gifts. As you do so, think of the hundreds of drivers and operators who contributed hundreds of hours, many in the middle of the night and wee hours, toward having such gifts delivered on-time, and without damage.

Perhaps, soon, all we can thank is a team of genius’s who eventually develop a set of artificial and predictive intelligence algorithms that allow trucks to self-drive themselves, with fleets of drones attached to their bodies.  Then again, those genius’s will be millionaires and be lavishing in all forms of holiday gifts.

Bob Ferrari


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