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Amazon Developing Online Fulfillment Programs to Save on Transportation Costs

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In April, Supply Chain Matters highlighted a PwC Omni-channel fulfillment survey that highlighted among other findings that 67 percent of CEO’s believe that the cost to fulfill orders across channels is increasing, and that a near total consensus cited transportation and logistics as a fulfillment capability that needs the most attention.

Even Amazon, an icon in online B2C fulfillment is not immune to such transportation cost realities. Transportation costs in its latest fiscal quarter increased 29 percent to a reported $2.34 billion.

Financial and business media have recently reported that Amazon is testing a new program currently termed Ship by Region. The program would allow certain site sellers to designate where they are willing to ship goods in two days or less for Amazon Prime members. If a Prime customer’s ship-to address is outside the specified region, shipping my take longer since it will be likely routed via a less costly segment.  Previously all online merchants distributing via Amazon had to ship their goods to Amazon customer fulfillment centers in order to participate in the Prime program.

According to a published report from The Wall Street Journal, Amazon is currently limiting the Ship by Region option to a select group of sellers, including when goods are stored in non-Amazon customer fulfillment centers. The report indicates that the program aims to expand the number of items showing up in search results for Prime.  However, some items may not be subject to two-day free shipping since Amazon will not guarantee such fulfillment based on distance traveled. As an example, a small appliance or power tool warehoused on the U.S. West Coast, many not qualify for two-day shipping for a Prime customer located in the Northeastern U.S…  However, if the same item is stocked on the U.S. east coast, if may be eligible.

Separately, the WSJ reports that Amazon may introduce a further program, Amazon Day that combines particular customers’ orders in fewer boxes and ships on fewer days of the week. For customers, the program aims to for predictability, receiving all Amazon shipments on a specific day.  For Amazon, it could turn out to be a means to save on overall transportation costs.

A Bernstein Research analyst recently indicated to Bloomberg BusinessWeek that the United States Postal Service may have accounted for 40 percent of Amazon’s hipping volume in 2014, more than either FedEx or UPS. In turn Amazon, performs much of the pre-processing sortation prior to handover to the USPS, and secures an attractive last-mile package delivery rate in doing so.

The rising costs of online and Omni-channel related transportation and logistics has indeed become a high-level concern, and industry icon Amazon is developing more innovative programs to buffer such costs.  Others will do so, as well, and the need to fully understand and contrast all aspects of transportation costs by fulfillment channel are going to be critical table stakes.


The Renaissance of Available-to-Promise Capability to Support Retail and Online Omni-Channel Fulfillment

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Supply Chin Matters has featured prior commentaries exploring the supply chain impacts of Omni-channel and online customer fulfillment for retail supply chains. Such impacts are many, but one of the more important relates to the needs for efficient overall inventory management while exceeding more demanding customer fulfillment and satisfaction needs.

In B2C retail, and in online B2B, inventory investment has a major impact on margin and profitability, and Omni-channel strategies that allow customers different fulfillment options can cause havoc with the proper balance of inventory.

Consumers increasingly prefer to buy online, and at the same time, seek flexibility to either have their orders ship direct, or pick-up or return in a local retail store or outlet. This new paradigm is why so many Omni-channel retailers are seriously re-visiting inventory management strategies. Some are building dedicated online customer fulfillment centers to directly support online order volumes while allocating separate inventory to support brick and mortar retail needs. Other Omni-channel retailers have rightfully determined that the same inventory has to be efficiently managed to support fulfillment needs across all channels. This changes the role of the brick and mortar store to be an added node within the fulfillment network with the ability to support in-store pick and pack.

Within this increased retail business challenge, available-to-promise capability (ATP) has taken on a new significance as a key capability to assist in more efficient and responsive inventory management. As Supply Chain Matters sponsor JDA Software describes it, ATP is experiencing a new renaissance.

Last week, The Wall Street Journal provided further evidence of the business importance of efficient inventory management. In the article, Retailers See Gains in Serving E-Commerce Supply Chains (Paid subscription or free metered view), the WSJ reports that while retailers view online shopping as a boon to sales, it can provide a drag on profits especially in the light of parallel delivery networks. Some retailers, however, may be on the way toward figuring out the logistics and profitability potential of Omni-channel. Examples cited was that Home Depot which grew online sales 25 percent in the second quarter while improving overall logistics, including higher efficiencies in its distribution network. Target, grew online sales 30 percent and reported a small increase in margins.

Last week, Supply Chain Matters contrasted the financial results and supply chain strategies of Wal-Mart and Target. Wal-Mart’s financial results were perceived by Wall Street as disappointing. To address Omni-channel, the global retailer is currently implementing a new inventory management system. That strategy includes shifting inventory to regional and dedicated customer fulfillment centers, rather than from the retail store backrooms. That would allow the flexibility to meet both online and in-store demand from a distribution center centric inventory strategy. The downside is a de-emphasis of the retail store as a fulfillment node and a greater potential for stock-outs at retail store locations as online orders consume available inventory.

Target on the other hand, has recently demonstrated improving financial results, but at the same time has been candid to Wall Street that balancing inventory across its network and leveraging resources at store level are an integral part of strategy. Senior management candidly admitted that in-stocks within physical stores have been unacceptable so far this year, but a newly appointed role of Chief Operations Officer will have as an initial priority, beefing up the capabilities and responsiveness of the supply chain. Target’s strategy includes the retail store as a direct fulfillment node. Thus far the retailer’s is shipping online orders direct from 140 stores with plans to enable 450 ship-from locations by the end of this year. Target senior management further noted that an important enablement of ship-from-store will be will be testing and deployment of a new ATP system that provides specific online customer delivery commitments.

On JDA Software’s Supply Chain Nation blog, Kelly Thomas writes on the renaissance of: Order Promising and Demand Shaping in a Segmented, Omni-Channel World. Thomas observes that ATP married with demand shaping provides an increasing number of fulfillment options as well a means to determine profitability profiles for fulfillment channels. It provides a basis in making the most informed decision on the source of inventory for a given customer order line and the pick-up or delivery location of the online customer.

Rightfully noted is that nearly 20 years ago, elements of what is today JDA Software (i2 Technologies) pioneered and patented allocated-driven ATP functionality for discrete manufacturing and other industry supply chain environments. Today’s JDA Order Promiser application is now being applied to the evolving needs of Omni-channel retailers for facilitating more responsive online fulfillment as well as improved inventory investment and bottom-line profitability.

The technology has come a long way and has found new meaning in more efficiently managing inventory in a B2C and B2B Omni-channel world.

Bob Ferrari

Disclosure: JDA Software is one of other current sponsors of the Supply Chain Matters blog.


Reflecting on the Application of Social Enabled Supply Chain Processes- Bob Ferrari Guest Commentary

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In March of 2011, I had the opportunity to join two fellow supply chain management bloggers in a thought-leadership webcast focusing on the potential of the social supply chain. Four years ago, the concept of the social supply chain was relatively new, not well understood, and lacking many specific examples to cite.

Indeed after much market education and early adopter successes, leveraging social supply chain applications to enhance business processes has far more meaning and applied uses.  That is especially pertinent to today’s reality of increasingly complex and fast moving globally based supply chain networks.

On the 21st Century Supply Chain blog I provide a guest posting reflecting on what has occurred in this area and how the power and potential of many is being increasingly leveraged within supply chain business processes.

Have a read and share your perspectives and views regarding what has transpired regarding this area of technology.

Bob Ferrari, Founder and Executive Editor

 


Supply Chain Matters Commentary Regarding Infor’s Acquisition of GT Nexus

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While we were away on a two-week summer break, there was a significant acquisition announcement related to cloud-based supply chain technology, one that warrants a Supply Chain Matters perspective.

Last Tuesday, ERP provider Infor announced that he had entered into an agreement to acquire supply chain logistics and commerce network provider GT Nexus for $675 million. GT Nexus technology supports the ability of buyers to transmit order information across a connected supply chain business network, linking various suppliers, logistics providers and financial institutions.

According to the announcement, this deal is expected to close within 45 days, pending regulatory approval. GT Nexus is expected to operate as an independent division of Infor.

This author was not at all surprised at this announcement concerning GT Nexus. It was just a matter of time, and which ERP or enterprise software provider would pull the trigger.

In early January, The Wall Street Journal had reported that two supply chain business support providers, one being E2open, the other GT Nexus, were being pitched as potential acquisitions. Readers might recall that E2open, a publically traded firm at the time, was subsequently acquired by private equity firm Insight Venture Partners and has since been taken private. That transaction was valued at $273 million, approximately three times current revenues. The GT Nexus transaction value of $675 million however, is a surprise, in terms of overall amount paid.

The core of GT Nexus has always been its end-to-end supply chain execution connectivity with ten of the largest third-party logistics (3PL) services providers along with the largest ocean transportation providers as part of its supply chain execution network. Its customer base that includes names such as Adidas Group, Caterpillar, Columbia Sportswear, Pfizer and Procter and Gamble were motivated by needs for deeper supply chain wide execution synchronization.

In January of 2013, GT Nexus merged with cloud-based sourcing provider TradeCard in a strategy focused on adding financial services connectivity to supply chain networks. That included pre and post export financing and payment protection services. At the time of the merger, TradeCard had deep relationships among retail, apparel and consumer soft goods industry players who require such needs in financial supply chain services.

In the view of Supply Chain Matters, that merger moved GT Nexus further towards financial services business support opportunities as opposed to opportunities for broader supply chain planning and execution control synchronization. TradeCard CEO Sean Feeney assumed leadership of the combined companies after the merger.

For many years, GT Nexus had an on again, off again partnership with supply chain planning provider Kinaxis, in an attempt to add deeper planning and control capabilities. That relationship brought little in joint customer deployments and was broken off several weeks ago.

According to the announcement, Infor plans to leverage GT Nexus for its cloud-based capabilities in integrating direct procurement processes. Infor additionally has an existing ERP customer base anchored in fashion and retail customers which focuses this acquisition as an industry concentration strategy facilitating the integration of merchandising, marketing and online Omni-channel fulfillment needs across an extended supply chain business network. The ERP provider further hints of the ability to utilize the GT Nexus cloud-based network in the support a two-tier ERP strategy that utilizes the combination of Infor and GT Nexus capabilities in support of extended supply chain business process, S&OP and other decision-support needs. Once more, Infor is no stranger in M&A activity, and has demonstrated a track record of aggressive technology platform and application integration of its prior acquisitions.

Supply Chain Matters has long advocated the importance for industry supply chains to leverage an end-to-end business network to synchronize supply chain planning, execution and customer fulfillment needs on a global basis. The fact that two of the more visible, independent cloud-based extended supply chain network providers have now been involved in acquisition activity involving nearly $950 million is testimony to the attraction and importance of this cloud-based technology area.

For existing customers of either GT Nexus or E2open, the open question remains how each of these providers will evolve under new leadership and differing perspectives.

For our part, Supply Chain Matters will continue to provide insights and recommendations regarding this important technology area, and how both of these network providers evolve under new management.

Bob Ferrari

 


Researchers Develop a Prototype Smart Cap Utilizing 3D Printing

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In this posting, Supply Chain Matters continues to provide reader awareness to up and coming item-level sensing and tracking technology that has the potential to benefit specific industry supply chains. We previously highlighted the initial development of a premium wine as well as premium liquor bottle smart-labels that utilize NFC or smartphone technology.  UC_Berkeley Smart Cap

Engineers at UC Berkeley, in collaboration with colleagues at Taiwan’s National Chiao Tung University, are expanding a portfolio of 3D printing technology that includes electrical components, such as resistors, inductors, capacitors and integrated wireless electrical sensing systems. They are now reportedly applying such technology by printing a wireless “smart cap” for a milk carton that can detect signs of spoilage using embedded sensors.

According to an update published in UC Berkeley News: “Major advances over the past 10 years have enabled the creation of a wide array of 3D-printed products, including prosthetics, medical implants, toys, vehicle parts, building materials and even food. What had been missing from the repertoire until now was the ability to produce sensitive electronic components.” Utilizing 3D printing methods, researchers developed a “smart cap” that can detect the changes in electrical signals that accompany increased levels of bacteria, which equates to a spoilage condition. The cap can be monitored by an RFID device, and perhaps someday in the not too distant future, retailers and consumers can utilize a smartphone or RFID device to check the freshness of certain food.

The researchers point out that while using current integrated circuits made by batch fabrication might not be practical from a unit cost perspective, the use of custom 3D printed microelectronic devices are far more promising for such uses. Further noted is that UC Berkeley researchers are developing this technology for health and pharmaceutical monitoring applications.

Supply Chain Matters could not help but wonder the many other unique item-level monitoring opportunities that could become available utilizing 3D printing methods.


Supply Chain Business Intelligence for SAP Environments and our Latest Supply Chain Matters Sponsor

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In early January, Supply Chain Matters provided our positive review of the book SAP Nation by Vinnie Mirchandani. We felt that although this book may be considered controversial by some vested in SAP’s success, the book’s observations are for the most part objective, insightful and written in a context for what SAP as a global technology provider needs to address to make its customers’ successful in their business and technology deployment goals.

The book describes SAP’s ongoing efforts of strategic pivoting, efforts to become more nimble, cloud-focused and more simple for customers to do business with. Yet, as witnessed by the messaging delivered at the recent SAP Sapphire conference, the rate and complexity of ongoing changes being introduced to the SAP customer base is dizzying, and perhaps overwhelming. As users are well aware, while SAP applications have bullet-proof design and rigor, end-user productivity and simplicity have not been the strong point to-date. Thus the continued skepticism associated with the tag line: SAP Run Simple.

The now four-year effort for convincing customers to deploy the HANA in-memory based technology platform (including upgrades to major ERP business suite applications and other associated cloud-based applications supporting end-to-end supply chain business process needs) has customers in a predominately wait and see mode. A recent posting by Information Age has the headline, SAP users struggling to keep pace, citing research from the UK and Ireland SAP User Groups indicating: “74 percent of members indicating that SAP is bringing innovations to market quicker than their organizational ability to adopt.”

As supply chain business processes become ever more complex, teams try to fill the gaps with downloads of static reports and ancillary spreadsheets to provide more meaningful operational analysis. We feel and sense that this is indeed representative of the broader SAP community.

IT support teams need to sort out the various cost, data and technology platform tradeoffs as well as the risks to added business disruption. Meanwhile, supply chain functional and operations teams continue to be challenged with increasing business fulfillment needs related to global markets and rapidly changing business events. The development and rollout timetable of SAP is not correlated to the current needs for increased predictability, broader supply chain business intelligence and more-timely decision-making.

This line-of-business and functional frustration is described in SAP Nation, specifically why existing best-of-breed and other cloud-based competitors are gaining increased attention and consideration. The  consequence is increased momentum of the “ring fence” of cloud-based applications that surround SAP applications. The strategies and purposes may have different motivations and timetables. Those committed to SAP will perhaps continue with their wait and see approach, but at the same time, will consider the deployment of augmented cloud-based applications to enhance extended supply chain focused decision-making and other line-of-business needs.

In an effort to assist our SAP installed base readers, Supply Chain Matters has called attention to various technology providers who possess deep knowledge of the SAP information landscape and understand the current business and functional needs for quicker time-to-benefit. We have called attention to planning and B2B business network support needs, but have not dived deeply into on-demand business intelligence until now.

We call reader attention to Netherlands based Every Angle Software , a self-service operationally focused business intelligence tool providing an extensive list of installed base customers with SAP backbones. We are further very pleased to announce to our readers that Every Angle will be a new Named sponsor of Supply Chain Matters, as this provider expands its footprint into North America from successful implementations and market presence across Europe and other regions.

Founded in 1996, Every Angle provides insights into the operational progress, status and performance of the entire supply chain along with a transparent overview of current and future supply chain focused bottlenecks, including root causes. They describe their value-add as transforming SAP data into simple actionable information in the language of supply chain.

In product briefings thus far, we have been impressed with their inherent in-depth knowledge of the SAP applications landscape applied to supply chain business process and decision-making needs, along with a clear user-interface. A glance of customer testimonials listed on the Every Angle web site have consistent themes of providing a powerful yet simple insights tool, offering end-user friendliness flexibility and impressive response times. Every Angle is quick to point out that rather than being characterized as traditional business intelligence (BI) that has a vertical information perspective, an Operational BI application is more horizontally focused on real-time operational analysis which is critical to extended supply chain decision-making and synchronization needs.

In the coming weeks Supply Chain Matters will provide added perspectives of ring fence strategies applied in supplier relationship and supply chain management environments, easier methods in tackling master data rationalization in SAP environments and other topics related to enhanced business intelligence time-to-value in SAP environments.

In the meantime, have a look at Every Angle Software. Readers can obtain additional information by clicking on the logo that appears on our blog sponsorship panel.

Bob Ferrari

Disclosure: Every Angle Software is one of other sponsors of the Supply Chain Matters blog.


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