subscribe: Posts | Comments | Email

Demoulas and Market Basket: An Extrordinary Retail Drama and Case Study

1 comment

With an office in the suburbs of Boston, Supply Chain Matters has observed and experienced an extraordinary event, the power of a workforce that has no real hierarchy and loyalty. Our readers residing in the United States may have already heard or read of the developments concerning Demoulas and Market Basket supermarkets within the New England region. The story has become viral. It is a chain of supermarkets with no equal.  Workers decided to express loyalty to a CEO by refusing to work until that CEO was re-instated, which turned out to be a five week long standoff. The Boston Globe described the situation (paid subscription required) as “truly a breakthrough for middle-class workers” and provides a detailed account of the event.   Demoulas

In a capsule, this was about a private company that has an ample share of family focused dysfunction that spilled over in business relationships.  It is a story of cousins, Arthur T. Demoulas (Arty T.) and Arthur S. (Arty S.) Demoulas at odds, and years of power struggles for control of the supermarket chain. Arty S. with a philosophy of seeking maximum return of profits and equity, assumed control of the Board of Directors earlier this year. Arty T., the operational CEO, who led with a philosophy that workers should be treated as true equals and share in the benefits of success with paid health benefits and profit-sharing, was removed in June.  He was admired by the employees.

Employees, not belonging to any organized labor union, with many having multiple years, some decades, of employment history began figuring what was at stake.  They surmised potential moves toward sale may have been in the works and elected to support their fired CEO by refusing to work.  Arty S. hired two new co-CEOs who asserted themselves early in the game by dismissing eight organizers of the protests. The move galvanized workers and hardened opposition. Solidarity among both workers and customers was astonishing and again, there was no organized union. The next five weeks bore witness to an extraordinary meltdown of business with revenues reported to be down nearly 90 percent. Many believed, including this author, that the situation would end badly. It was a standoff that ultimately prevailed in favor of Artie T. and his management philosophy.

We often shopped at the local Market Basket store. The prices were far below any other outlets.  We were by no means, alone. The shopper loyalty was extraordinary and became a key factor in the past five weeks of standoff. Market Basket employees often demonstrated commitment and caring for what they were hired to do.  If you did not find an item, store clerks were more than willing to search the store or seek out a manager. Store managers listened and accommodated requests; including stocking a new item if there was local demand.

From this author’s supply chain management lens, this local chain was extraordinary.  Highly competitive pricing fueled remarkable volume inventory turnover per store which translated to buying power directed at food suppliers.  At certain times, the physical volume of shoppers in the store made navigation in the aisles a challenge. It often seemed that navigating within the store was of equal peril to navigating through the parking lot. Yet, in spite of this volume, a stock-out of an individual item was not as bad as one would think.  Even more extraordinary for today’s retail culture, if you asked the store manager when an item would be back in-stock, he or she had an immediate answer.  Managers demonstrated intimate knowledge of their individual stores and were not bashful to lend a hand in bagging or at checkout aisles.

The true scope of Market Basket’s supply chain prowess actually came to be appreciated during the work stoppage.  As thousands of shoppers sought alternative competitive chains, it became apparent that many of these chains were ill-equipped and ill-staffed to accommodate shopper volume surges. Check-out lines were slow.  Stock-outs were plentiful and replenishment was painfully slow. We speculate that the reason was that other chains were regionally based retailers serviced by distribution centers located in other states. In contrast, the main distribution center for Market Basket was located in the town of Tewksbury, about a 40 minute drive north of Boston, close enough to accommodate same-day deliveries.

Centralized planners and buyers of competitive chains initially seemed not to be aware of a local condition. We speculate that replenishments were pegged to normal shopping volumes, not to the extraordinary opportunity unfolding for competitive chains.  As replenished inventory arrived, it was quickly consumed. By our observation it was near the fourth week of the Demoulas shutdown before competitors were able to muster an adequate supply response.

Now that the Market Basket crisis has been resolved, the test will be how many former loyal shoppers return.  We visited our local Market Basket on day two of the resolution.  While the store lacked a full complement of inventory, a good amount of shoppers were buying and the store was fully staffed. Once more we received multiple personal greeting from store employees, management and clerk alike: “Thanks for supporting our cause and thanks for being a loyal shopper.

How many times have you experienced that greeting in this era of online mass retailing?

Bob Ferrari

 


Contract Labor Practices Under the U.S. Regulatory Looking Glass

0 comments

Business media has been reporting on recent rulings from the U.S. National Labor Relations Board (NLRB) that has implications for hiring and labor negotiations practices related to contract workers.  Supply Chain Matters advises operations and customer fulfillment teams to stay abreast of these developments since certain rulings can have noteworthy implications for existing supply chain work practices and cost structures.

Essentially, the NLRB is re-visiting long-standing practices as to when contractual business arrangements, such as the use of supplemental contract workers render the contracting business a joint-employer of workers that are employed by the contract worker firm. An initial ruling involved global restaurant firm McDonalds and its franchisee restaurant operators, when the NLRB reviewed complaints alleging that the restaurant chain and its franchisees had violated the rights of employees who were involved in protest activities. After finding what it believed to be merit in the complaint of unfair labor practices, the NLRB ruled that McDonalds should be considered a joint employer.

A second potential ruling involves Browning-Ferris Industries of California and Leadpoint Business Services, a supplier of contract workers, which concerns a factory located in Milpitas California.  A local Teamsters labor union is arguing that as a labor union, it cannot adequately bargain over labor practices unless Browning Ferris is at the bargaining table as a joint employer. The argument is that since Browning dictates labor practices, scheduling and work duties of both permanent and temporary workers as a single unit, it is a de-factor joint employer. How the NLRB rules in this case has far broader implications for various industry supply chains and partner service firms.

With the dynamic ebb and flow of business operations today, supply chains often have to manage spikes in operational and customer fulfillment, especially in seasonal or holiday-related time periods.  A keen focus on costs has caused many production, fulfillment and logistics firms to utilize significant numbers of on-call temporary contract workers to supplement a leaner full-time, permanent workforce in such periods of work surges. Such practices have drawn protests directed at well-known brands, with protests involving two-tiered labor rates, avoidance in hiring full-time staff, or too much dependence on temporary contract labor in supporting supply chain operational needs. Supply Chain Matters has previously called attention to protest actions involving Amazon, Wal-Mart and certain third party logistics providers, to name but a few, to be placed in the public spotlight.

If the NLRB begins to consistently rule that brand owners who dictate work schedules and practices are to be considered joint-employers, the implications for supply chain flexibilities and costs can well be significant. Readers need to stay abreast of these developments and we at Supply Chain Matters will continue to provide updates as to implications.


Supply Chain Matters News Capsule: August 15; Google, Airbus, Boeing, HP

0 comments

It’s the end of the calendar work and this commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.

In this capsule commentary, we include the following updates:

Google and Barnes and Noble Partner to Take on Amazon

Airbus Completes Test Trials of the A350

Boeing to Make Additional Cost Cuts from Defense Focused Supply Chain

Hewlett Packard Announces Smaller, Less Costly Cloud Platform

U.S. Job Openings at a Thirteen Year High

 

Google and Barnes and Noble Partner to Take on Amazon

Earlier in the week, the New York Times reported (tiered subscription) that Google and Barnes and Noble are joining forces on for fast, cheap delivery of books. According to the report, buyers in Manhattan, West Los Angeles and San Francisco Bay locales will be able to get same-day delivery of books from local Barnes and Noble retail stores via Google Shopping Express, beginning this week. The effort is billed as a competitive response to Amazon’s same-day delivery services.

Google Shopping Express already allows online shoppers to order products from 19 retailers including Costco, Walgreens, Staples and Target and secure same-day delivery. As noted in a previous Supply Chain Matters News Capsule, the Google Shopping Express strategy is to become an ally and complement a retailer’s local brick and mortar presence, relying on inventory from local retail outlets rather than the deployment of a larger network of fulfillment centers.

Airbus Completes Test Trials of the A350

Airbus completed the route-proving certification phase for operational testing of its new A350-900 model commercial; aircraft, approximately two months after completing the maiden flight of this aircraft. During this completed phase, engineers had to demonstrate to safety and regulatory agencies that the aircraft is ready for commercial service. A Vice president in charge of flight testing for Airbus declared; “The airplane is perfectly fit to go into service tomorrow.” The A350 was designed to compete against the current operational  787 Dreamliner and the 777 aircraft. Bookings for the A350 have surpassed more than 700 aircraft.

It has been noted that 7000 engineers worked on the development of the A350, with roughly half of these engineers stemming from key suppliers.  Important learnings have included the need for a singular Product Lifecycle Management (PLM) software system, creating a single electronic rendering of an aircraft that every program engineer can reference or modify when needed.

Administrative reporting to various agencies remains a milestone before this aircraft can be officially certified for commercial use.  Meanwhile, the Airbus supply chain ecosystem continues preparations and scaling to support planned production levels of 10 A350’s per month by 2018.

Boeing to Make Additional Cost Cuts from Defense Focused Supply Chain

Supply Chain Matters has posted numerous commentaries related to Boeing’s commercial aircraft focused supply chain ecosystem, faced with a dual challenge of having upwards of 8-10 years of customer order backlogs while continually being challenged to reduce costs.

Boeing’s defense businesses have a far different problem. Cutbacks in military and government spending programs have led to declining business, and a supply chain oriented to engineer-to-order specialized aircraft and spare parts. Early this week the head of Boeing’s defense, space and security business unit called for an additional $2 billion in cost cutting, two-thirds of which is being targeted among suppliers. Boeing has already cut $4 billion in spending related to its defense businesses. The unit chief called on suppliers to note efficiencies that have been gained in Boeing’s commercial aircraft programs.

 

Hewlett Packard Announces Smaller, Less Costly Cloud Platform

Hewlett Packard announced what it is communicating as a less costly cloud based IT platform under the Helion brand name.

Helion Managed Virtual Private Cloud Lean is being targeted for use by small and medium sized businesses looking to move applications development, software testing and workplace collaboration onto a Infrastructure as a Service platform. According to HP’s announcement, the new service offering can further provide services around SAP’s HANA in-memory systems.

With the new service offering, HP’s goal is to provide the same level of large enterprise services but at a lower-priced alternative. Pricing for this announced service is noted as $168 per month for a small virtual service configuration. A pilot trial service also is available for customers who want to certify an application to run in the cloud with the full support of the HP team.

U.S. Job Openings at a Thirteen Year High

Talent management, retention and skills development has been a constant theme among supply chain management forums and indeed many Supply Chain Matters commentaries. Executives and team leaders constantly lament on how difficult it is to find people with the right level of skills. Current forces of supply and demand in the U.S. labor market are not going to help in overcoming this challenge.

The number of job openings across the U.S. reached a 13-year high in June with U.S. employers announcing 4.7 million job openings. Reports indicate that employers additionally hired 4.8 million workers in June; an indication that the U.S. labor market is showing new momentum. With this increased level of hiring activity, existing workers have showed increasing willingness to seek other opportunities, given the level of new opportunities. A reported 2.53 million U.S. workers quit their jobs in June, up from 2.49 million in May.

 


Amazon Taking a Long View on India Online Market Penetration

0 comments

The Asian editions of the Wall Street Journal report (paid subscription or free metered view) that Amazon is taking a long view on the growth opportunities for online commerce in India. 

The online juggernaut is reported to be prepared to invest $2 billion in India for developing a nationwide delivery system along with technologies tailored to serve India’s consumers, most of which don’t have computers but do have mobile phones. Amazon reportedly obtains 35 percent of its current India business via mobile phones. Thousands of merchants must be trained to utilize Amazon’s web site and logistics services.

In its reporting, the WSJ notes that analysts were surprised by the large investment. India’s e-commerce market is likely to grow to more than $30 billion in next six years, much smaller than prospects in China. Once more, Amazon will have to compete with existing India based, or other foreign-based e-commerce providers.


Permanent Shifts in Consumer Shopping Trends Have Supply Chain Implications

1 comment

This author has penned a number of prior Supply Chain Matters commentaries offering evidence that fundamental structural changes related to consumer shopping habits are occurring in multiple retail sectors. Yesterday, the Wall Street Journal published a report: Shoppers Flee Physical Stores. The most important and compelling takeaway from the article was a citation of Shopper-Trak data indicating that: “physical shopper visits have fallen by 5 percent or more in every month, for the past two years.”  Further noted: “Online sales have grown more than 15% every quarter for the past two years and are having a big impact on the way many companies are looking at their brick-and-mortar stores.”

These are compelling trends that provides a ton of implications. I recently read a commentary that noted that in retail, the supply chain has moved from the back office to the online front office.

As noted by the WSJ, shoppers would rather research online than wander the aisles making impulse purchases.  Rather than physical merchandising and goods placement strategies the new emphasis is on online merchandising and social-media enabled product promotion.  Rather than networks of distribution centers and fleets supporting individual physical stores, the new emphasis will be on high-volume online fulfillment supported by combinations of fulfillment centers and multi-purpose retail outlets.

This author has argued that there are two leadership competencies that will differentiate tomorrow’s executive leaders in retail.  They are a deep understanding of social-media fueled marketing and Internet focused retailing, and a deep awareness, understanding and appreciation of end-to-end supply chain inventory deployment and fulfillment capabilities.  From our lens, recruiting for retail C-level executives has been too focused on classic merchandising, finance or traditional brand marketing. Tons of money and effort are invested in online presence and consumer intelligence without consideration for the impact on supply chain response needs.

After many months of searching, Target has announced Brain Cornell as its new CEO. The retailer elected to select an external executive candidate with experience in consumer goods supply chains including Pepsico and Tropicana, along with retail experience acquired in a stint at Wal-Mart. According to reporting by the Wall Street Journal, Cornell was an outside contender to succeed current PepsiCo CEO Indra Nooyi. Target was willing to compensate its new CEO with over $19 million in equity grants to convince him to join the retailer.

Of more interest is that Mr. Cornell should obviously understand the important contribution that supply chain will have in the new era of retailing.  Time and events will tell the next chapter for Target.

There are many other executive recruiting efforts underway among retailers including JC Penny. The time clock continues to tick and the retailers and leadership teams that internalize the permanent changes in shopping and customer fulfillment will outshine those that do not.

Bob Ferrari


The Implications of the Announced Apple and IBM Alliance

0 comments

Business and social media is abuzz with today’s announcement that two long-time rivals, Apple and IBM, are teaming-up in an alliance to create simple business apps on Apple’s iPhone and iPad devices.  As pictured in the Times Square featured announcement, both CEO’s are pictured in a casual and friendly stroll.

Apple and IBM Alliance Announced

The obvious question is which of the vendor’s benefit the most from the proposed alliance.  Another question is the potential impact on supply chain and B2B business network technology deployment. In this Supply Chain Matters initial viewpoint commentary; we briefly dwell on both questions.

Under the alliance, IBM will create what is termed as “simple” business apps leveraging the respective Apple mobile devices.  IBM employees will further provide on-site services and support for Apple mobile devices. Of more interest is the report that IBM is planning to make 100,000 employees available to the Apple imitative, which is rather significant. Both alliance CEO’s made themselves available for a joint media interview. IBM CEO Virginia Rometty indicated: “This is just the beginning” and Apple CEO Tim Cook indicated: “This is really a landmark deal”. The apps themselves are reported to draw on IBM’s computing services including security, device management and big-data analytics. Apple and IBM engineers will jointly be developing more than 100 new business applications tailored for specific industry needs. The apps will begin arriving in the fall and IBM will resell iPhones/iPads containing the apps to its business enterprise customers.

The initial online consensus is that both vendors will benefit from this alliance and this analyst shares that opinion.  Apple has struggled to penetrate the coupling of its mobile devices with business enterprise applications since the market continues to perceive the company as just a consumer electronics provider, albeit with elegant offerings. Security of mobile based information remains a big concern for both supply chain and IT teams. IBM with its deep ties to C-Suite and IT teams has been struggling with the need for more positive revenue momentum. A late entry and lack of momentum in supporting cloud-based and mobile computing needs has not helped. Thus, benefits and rewards loom large for both vendors under this alliance.  They just need to collaborate and execute.

As for the potential impact for supply chain and B2B business network technology support, it’s too early to tell.  As we have noted to our readers, IBM has amassed a broad suite of end-to-end supply chain, B2B, customer fulfillment network, service and business analytics capabilities that can all benefit from further leveraging of mobile-based applications.  The open question remains on IBM’s track record of delivering on broader supply chain process integration in a much more time-to-market manner.  We anticipate there will be opportunities to enhance mobile-based apps in Emptoris Supply Management Suite, Sterling B2B and online fulfillment network as well as end-to-end supply chain focused analytics. Customers will just have to wait and see what develops in the coming months.

A further implication of this alliance announcement will be how other business enterprise vendors such as SAP, Oracle, Google and Microsoft eventually respond. Each has positioned the leveraging of mobile devices within business applications from a multi-vendor perspective in an effort to support multiple brands. This week’s announcement may prompt a re-visit of these strategies, and consumer electronics providers Samsung, Lenovo or perhaps HP, could benefit with enterprise software vendors again seeking deeper development alliances.

Bottom-line, our community can well anticipate some benefits of the Apple-IBM alliance along with the competitive response from other competitors in the market.  IT teams will be able to rest more easy knowing that burden of integrating application with mobile device will be assumed by alliance partners.

The open question however is how mission critical supply chain and B2B mobile computing needs will be viewed in the light of implementing other more simplified apps that meet alliance objectives for total apps availability.

We all need to stay tuned.

Bob Ferrari


« Previous Entries