Social and other media has been amplifying Jeff Bezos and his interview with the CBS television network program 60 Minutes, with the revelation that Amazon is working on drones or “octocopters” that can deliver packages within a half-hour of customer order placement. While the effort was admittedly characterized by Bezos as being in a 4 or 5 years development horizon, the 60 Minutes interview and the associated amplification was impeccably timed just before Cyber Monday, the largest online shopping event of the entire year.
It seems that everywhere we traveled this week, people were talking about Amazon and drones, with various positive and not so positive viewpoints regarding feasibility and/or concerns regarding such devices occupying the sky of large cities.
Cudo’s to Amazon’s public relations team for making Amazon Prime and Amazon Air as the lead in conversation circles and in search engine optimization. Cyber Monday indeed became the buzz of Amazon drones.
Perhaps lost in the dialogue was the notion that these delivery drones would be deployed from an Amazon distribution center located 10 miles from a large urban center. Think about that for a minute, an Amazon distribution center just on the outskirts of New York, Boston, Philly, London or whatever other large city. That assumption alone should catch the attention of contract logistics fulfillment teams and other online retailers. An Amazon DC in your local shopping mall.
Supply Chain Matters shares a couple of additional thoughts from our lens.
First, compliments to Amazon for continuing to think outside the box and drive for disruptive innovation. Jeff Bezos is already recognized as a visionary in business and “octocopters” , regardless of the end result, are another example of bold thinking.
One would expect the likes of FedEx or UPS to be on the leading edge of drone delivery, and more than likely will be the first implementer’s in the future horizon. It’s a question of scale. Can you picture multiple online fulfillment firms with fleets of drones delivering small packages? What about retail pharmacies delivering time critical drugs from regional distribution centers? The options are endless but the realities are ever more significant.
Pushing the envelope of thinking is good. Twenty years ago, no one would have envisioned vehicles that can navigate to locations or drive themselves. Neither was the existence of names like Amazon or Google in the areas that compete within today.
The Amazon buzz has prompted other announcements. Tech Crunch has amplified a New York Times article indicating that Google is gearing up to revolutionize manufacturing and logistics through the use of advanced robotics. Google has been quietly acquiring a number of advanced robotics technology firms, and the developer of driverless cars is working on what Google executive Andy Rubin describes to the Times as “underserved manufacturing and logistics markets” in moving goods from point to point in an automated manner. Think about Google as a disrupter in material handling, manufacturing or logistics robotics.
China, the epicenter of low-cost manufacturing, has experienced double digit annual increases in labor rates. Foxconn, Apple’s prime contract manufacturer, has openly expressed visions of robotic laden high volume production factories in China. Think about that and the possible disruptors for the ultimate solution.
Many more breakthrough development efforts are underway, some we will never hear about until they are brought to market.
The takeaway is that innovation never stops and neither can any organization assume that they have a lock on a market or service. Amazon drones may or may not come to pass but rest assured, process and product innovation with consequent industry disruption is here to stay.
We pen this posting in the middle of Cyber Monday and already, reports of both physical and online holiday sales levels for the all-important Thanksgiving and Black Friday weekend are confusing. However, one conclusion is clearer, supply chain, online fulfillment and logistics teams need to be prepared for a wild ride in the following 4 weeks.
Today’s published edition of the Wall Street Journal headlined (paid subscription or free metered view) that holiday sales lagged despite the blitz of deals, reporting that weekend sales dropped for the first time in at least seven years. While retailers such as Best Buy, Macy’s, Target and Wal-Mart opened physical stores on the afternoon of the Thanksgiving holiday and aggressively promoted deals, preliminary sales estimates point to sales across both holiday days as not equivalent to previous years. The WSJ opined how retailing has become a zero-sum game as sales growth comes at the expense of another retailer. It cites National Retail Federation (NRF) preliminary estimates that total spending over the Thanksgiving weekend fell to $57.4 billion, down 2.7 percent from a year ago. However, NRF forecasts total holiday through year-end to increase by 3.9 percent.
The fact that this weekend’s shopping activity spans an earlier promotional and shopping horizon seems to be either confusing media outlets or these outlets are in competition for the most click-through headlined content regarding holiday sales. Yesterday, Bloomberg reported that Black Friday online spending increased a record 15 percent to a record $1.2 billion. It cites ComScore online data going back to November 1 as well as Thanksgiving and Black Friday holiday online sales. What the authors failed to qualify was that last year, the majority of retail outlets were not open for business during Thanksgiving, and thus comparisons to last year are exaggerated to state the least. In its reporting, the WSJ cited NRF data and noted: “ On Thanksgiving Day, 45 million people went shopping, up 27% from last year, but traffic on Friday increased only 3.5% to 92 million..”
Readers who were monitoring social media probably viewed the many ugly images of shoppers fighting at a Wal-Mart to secure a promoted television model, or other images of shoppers stampeding into stores and malls to secure their bargains. One report we read indicated that Wal-Mart authorized its store managers, at their discretion, to announce hourly door busters, to add even more frenzy.
All of these reports and images should be of concern for sales and operations planning and supply chain teams planning supply and inventory resource requirements for the remainder of the month. While many product promotions are planned well in advance and inventory availability is managed to a concerted plan, it would initially appear that two trends are occurring.
First, consumers are clearly price and bargain focused, and thus sales for the remaining days and weeks will be driven by aggressive pricing and sales tactics that drive loss leaders but at the same time capture consumer eyeballs for other products, both brick and mortar and online focused. Second, as noted in our earlier commentary regarding what to expect, online sales activity may indeed peak later in the month, if it peaks at all. That implies a extremely keen eye on real-time inventory sales and inventory management across all fulfillment channels and having daily conversations with your online and traditional sales and marketing team members as to the most up-to-date promotional and sales fulfillment activities. The more those conversations can be collaborative as to what has been planned and what to expect, the less firefighting and ultimate lost sales.
Now more than any other period during the year, near real-time analysis of operational fulfillment and inventory data will differentiate the winners for this year’s holiday buying surge. This will be the keen test of any or all demand sensing and supply chain response capabilities.
It is Sunday as we pen this posting and just like many retail and B2C focused supply chains, Supply Chain Matters is working this weekend. This is the weekend prior to next Thursday’s Thanksgiving holiday in the U.S. and Black Friday, the traditional global kickoff that marks the start of the holiday buying surge for both online and brick and mortar shopping channels.
As we predicted in an earlier commentary, this year’s holiday surge will again test the agility and responsiveness of many retail and B2C focused supply chains. The buying season is shortened this year, with only 26 days between the Thanksgiving and Christmas holiday, vs. a normal of 32 days. A vast majority of consumers really either economically stressed or remain concerned about economic and political trends. In the U.S. the past 16 day government shutdown, the effects of a sequestration and food stamp budget cutbacks and threat of additional financial brinkmanship by the Congress, have consumers on-edge with conservative buying tendencies. Across Europe, while the two-year long severe recession shows some early signs of bottoming, continued high unemployment and the cumulative effects of prolonged recession have consumers across Europe also concerned. The Wall Street Journal recently reported that consumer sentiment has dropped to its lowest point in two years.
Clear signs of these conditions have come from recent financial results from major U.S. and European retailers. In its most recent third quarter financial reporting, Wal-Mart reported its third straight quarter of flat sales in the U.S. and lowered its full-year profit forecast. Wal-Mart has already declared that it will initiate aggressive pricing and promotions starting this week and through the holidays. Other retailers such as Best Buy, Kohl’s, Target have also lowered their full-year profitability forecasts in anticipation of the need for aggressive price cutting to secure the limited pie of available holiday sales. And then we have Amazon, which unveiled its latest assault that includes a unveil new Black Friday deal every 10 minutes, with free two-day shipping on nearly two million items.
Industry watchers are forecasting an unprecedented degree of aggressive promotional programs through the end of the year. Readers have perhaps already begun to experience the blitz of emails announcing buying promotions, and the it’s going to get ever more crazy in the next few weeks, especially in the 10 days just prior to Christmas, That is when retailers begin to get a running sense of how sales are faring compared to budget goals. This is also the second year that online retailers can gauge the consumer attractiveness and program effectiveness of same-day shipping options, particularly Amazon and Wal-Mart. Brick and mortal retailers will be stress testing the use of retail stores as either pick and pack shipping locations or consumer pick-up points for goods ordered online.
There is no doubt that supply chain teams will have to be on their game in the coming five weeks since there is very little room for latency or lack of response to consumer buying trends. Prior investments in responsiveness and broader-visibility to multi-channel demand and multi-tier inventory levels will be put to the test. In some cases, the effects of prior cost-cutting may manifest themselves in industry winners. Keep in mind that both air freight and surface transportation carriers have had to initiate their own prior cost cutting efforts, and the planning of seasonal shipment peal surge activity may be stressed further this holiday season.
As the expression goes, the race is on and supply chains will be smack in the middle of responding to sales and marketing frenzy in the next five weeks.
Yesterday, this author had the opportunity to view ComScore’s Quarterly State of the Online Economy webcast. Any team or individual professional with responsibilities to plan supply chain or online business should consider signing-up for this series of quarterly webcasts since they are very good. Yesterday’s session included a review of Q3 online activity, a re-visit of online fulfillment results from the 2012 holiday buying season, and ComScore’s preliminary projections for this year’s 2013 holiday buying season.
In 2012, according to ComScore, online E-commerce sales rose by 14 percent. More importantly, analysis of all of the various online data indicated that consumers had concerns about the state of the economy and events occurring in Washington, and thus online sales clearly peaked at the very latter stages of December. Consumer buying patterns reflected high sensitivity to price and thus high promotional events such as Thanksgiving, Black Friday, and to some extent, Cyber Monday, all reflected spikes in buying activity. In terms of a pattern of one-day sales growth, Thanksgiving Day has grown the fastest over the past five years, growing a cumulative 201 percent on five years. It should therefore be no surprise that more and more brick and mortar retailers plan to open early on Thanksgiving to counter online buying promotions. Contrary to broad misconception, ComScore’s analytical data indicates that Green Monday, which occurs 10 days prior to the Christmas holiday, exceeded Cyber Monday in online sales, which is another indicator that consumers waited until the latter period to make online purchases. Also In 2012, there were 12 days of greater than $1 billion in online sales activity.
The ComScore team cautioned that 2013 reflects a much shorter shopping interval between the Thanksgiving and Christmas holidays in the U.S. , which reflects a mere 26 days. Growth in online activity involving mobile devices is projected to be $10 billion during this period, which is another reinforcement of a price sensitive online shopper equipped to price compare on a real-time basis. This online analytics firm additionally predicts that 25 percent of buying activity will occur after December 15th, with the period from December 15-20 being very crucial. And get this- they have further predicted that in one Monday to Friday week, there could be as much as five consecutive $1 billion dollar online fulfillment days.
Reviewing all of this data, it struck us that supply chain, Sales and Operations Planning (S&OP) and online fulfillment teams will again be put to the test in 2013. More than ever, advanced capabilities in inventory management and responsive replenishment will separate leaders from laggards. The ability to have real-time visibility and be able to pool inventory needed to support the breadth of omnichannel fulfillment needs is part of that differentiation. In 2012, we advised retailers to tear down the functional walls between traditional and online supply chain organizations. In 2013, we will again observe and teams will experience how important that becomes.
Consider a situation where the usual peaks will occur during the Thanksgiving holiday and Cyber Monday, but an even greater surge possibly occurring in the ten day widow prior to Christmas. Consider the ability of the supply chain to respond to five consecutive days of greater than $1 billion in sales, where the need for inventory and logistics will peak across multiple areas. Consider a consensus of predictions that consumers remained rather concerned about the future, and especially what is happening or not happening in Washington, a far more price-sensitive consumer whose holiday buying may be tempered or at least more focused toward specific needs.
The notion of “all hell breaking loose” will indeed take on a new dimension, and S&OP teams had better have clear communication with sales and marketing as to which specific product promotions are planned and how the supply chain will respond. Holidays in Asia and other parts of the world also follow in early January, which is another overlooked aspect to responsive inventory positioning and management.
Thus, a clear understanding and early detection of demand patterns among products, having deep visibility of the end-to-end supply chain, along with a responsive collection of key suppliers will obviously provide differentiation among your competitors in the market. Needless to state, supply chain teams are going to be very busy in the next few weeks, perhaps skipping Thanksgiving and working several weekends. S&OP teams will more than likely be having frequent added meetings to deal with any supply and demand imbalances that are bound to present themselves.
Another takeaway regarding what to expect in the coming few weeks are the critical role that logistics and transportation planning and execution capabilities will play in the coming weeks. ComScore’s analytical data continues to reinforce that the online consumer, given a choice, shops where free shipping is offered. The offering of free shipping clearly correlates to buying preferences. Secondly, Supply Chain Matters has frequently alerted our readers that the flexibilities in transportation services have become rather constrained as carriers and service providers respond to a far more cost sensitive pattern of normal demand for transportation services. Thus, the ability to take advantage of seasonally based flexible capacity will be a function of how responsive teams have become in planning and anticipating the specific surge periods of demand, as well as having solid and longstanding relationships with particular logistics and transportation service providers. Global providers such as FedEx and UPS have outstanding planning capabilities and are already predicting the specific days of expected peak shipment activity, and are planning flex capacity around such days. But, this year more than previous, there is finite capacity that can be deployed, and advertised delivery times will vary. Compound that with the need to responsively replenish inventories or have a supplier fulfill a last-minute need for added inventory, and the global network can become taxed. It will be interesting for our community to observe how global transportation and logistics responds to the 2013 pattern of peak periods for both fulfillment and last minute replenishment.
The bottom line from our lens is that the 2013 holiday buying surge will provide another test of how prior investments in responsive business processes, logistics and transportation planning and end-to-end visibility, and advanced technology differentiates the winners. For retailers and online fulfillment,the tearing down the prior functional walls among traditional retail and online inventory and fulfillment management should provide benefits.
We will all see how this plays out.
Yesterday, Wal-Mart’s online shopping system experienced what was described by the global retailer as a “technical error”. A pricing glitch caused items costing hundreds of dollars, such as computer monitors or treadmills to be temporarily priced in ranges of $10-$35 dollars. Later in the day, the issue was resolved, but the site had to be taken offline for a certain period.
News of the pricing glitch spread rather fast across social media with friends telling friends about the opportunity to purchase expensive items at ridiculously low prices. Consumers seeking bargains flocked to Wal-Mart dot com.
Various media reports quote a Wal-Mart spokesperson as apologizing for this glitch, but refusing to honor any purchases made under the pricing error. Instead, Wal-Mart cancelled specific online purchases and is offering the affected customers a $10 gift card that can be redeemed for future purchases. This was not exactly the response that many affected consumers were expecting.
In its reporting of the incident, the Wall Street Journal disclosed that the pricing snafu came in the midst of a pre-Black Friday, Cyber Monday holiday promotion that Wal-Mart’s online unit had launched last Friday. A Wal-Mart spokesperson is quoted in the WSJ article as indicating no knowledge as to whether the pre-holiday promotional event had triggered this problem.
While we can only go on the information that was reported, by our lens, it certainly is plausible that some promotional pricing software code may have hiccupped.
The timing of this glitch is the obvious takeaway from this incident.
On the one hand, the glitch did not occur during the upcoming Black Friday or Cyber Monday shopping days, where the media amplification would be extreme. The Wal-Mart Ecommerce technical teams have the window of time to fix any inherent technical glitches and avoid future visible glitches.
On the other hand, and possibly more impactful to Wal-Mart’s aggressive plans to expand its online presence and compete with the likes of Amazon, refusing to honor the online transactions, in spite of an acknowledged pricing glitch, is not going to help to build the long-term loyalty of online shoppers. The core Wal-Mart shopper is highly sensitive to price. Expanding that base implies the ability to offer both attractive price and broader selection. By our view, for both online consumer profiles, Wal-Mart may have shot itself in the foot by responding in the culture of a brick and mortar retailer catering to high volume, cost conscious shoppers.
This author recently penned a guest blog contribution that cited a recent New York Times published article (paid subscription or free metered view sign-up) indicating how aggressive Wal-Mart’s Global E-Commerce division has become in recruiting talent to support its online strategies. “The country’s largest retailer, which for years didn’t blink at would-be competitors, is now under such a threat from Amazon that it is frantically playing catch-up by learning the technology business, including starting @WalmartLabs at Walmart Global E-Commerce, its dot-com division.” However, this latest incident may be an indicator that sometimes Wal-Mart’s inherent brick and mortar business culture can get in the way of its online growth needs.
Only time and learning will outline the final outcome.
As the busy holiday shopping season approaches, many pundits and journalists will be closely monitoring the battle among online and physical retailers. But, make no mistake, there is significant change occurring in online shopping environments and retail and B2C supply chain teams must be prepared for the implications.
On the supply chain consulting services CHAINanlytics blog, Bob Ferrari, Founder and Executive Editor of Supply Chain Matters provides a guest blog contribution as to the insights and important takeaways from these accelerating trends in online and omnichannel order fulfillment. Organizations will need to re-visit or re-align their transportation and logistics strategies in the light of a single omnichannel fulfillment business strategy.