Wednesday, January 28, 2015

The Devil was in the Details at Target Canada by Kelly Barner

Posted on January 28, 2015

On January 15^th, Target announced that they would be closing all 133 of their locations and distribution facilities in Canada. The failure was attributed in large part to problems stemming from their supply chain operation.

A BloombergBusinessWeek article on the retailer’s decision stated, “The company has admitted it botched management of its supply chain in Canada, which led to often empty shelves.”

That might be a good enough explanation for a general audience, but supply chain professionals know better. The devil – or in this case, the preventative value – is in the details. Characterizing the failure of the supply chain as ‘botched’ is a gross oversimplification akin to managing time by checking the day of the week. When you look below the surface, the problem was complex, compounded, and multi faceted. And while they all roll up to the supply chain leadership at the end of the day, each problem needed to be solved differently.

Off Target in Canada . . .

Problem #1: Pack quantity breakdowns

Discrepancies in pack quantity, meaning how many of each item could be ordered at a time, resulted in wild overstocking of some items and disconnects between DCs and stores in other cases. “As goods arrived at the warehouses, workers found errors, 12 shirts per box when the computer system expected 24, for example,” said two former third party supply chain employees quoted in a May 2014 Reuters article. Each time a problem was uncovered, an audit was required, and that caused costly delays in goods getting from one of Target’s three Canadian warehouses to its stores. So while the warehouses were often overflowing, the actual store shelves were often empty, including the critical holiday shopping season.

Problem #2: Regional purchasing discrepancies

There was also a confusing disconnect between what was to be carried in US stores versus their Canadian counterparts. This resulted in corporate buyers making large purchases of items and sending them to Canadian stores – items that they were not expecting and did not want. Another dimension of this story – the role of procurement technology – clearly also played a part. In a better managed supply program, the system in use would have made clear which markets each item, supplier, or category of product was appropriate for placement in.

Problem #3: Outsourcing costs

Target outsourced the staffing and operation of their three Canadian warehouses to Eleven Points Logistics. Efficiencies notwithstanding, outsourcing still costs money, especially when the operation is not running smoothly as a result of the third party’s involvement. Adding the expense of a 3PL to the already higher cost of running a retail business in Canada prevented Target from matching the pricing strategy that contributed so much to their success in the United States. Although the contributing factors to the higher costs may not have been apparent to consumers, the prices themselves were. As one shopper remarked in an interview quoted in Supply & Demand Chain Executive magazine, “They think we’re idiots or something” a sentiment that is always bad for business, regardless of who is to blame.

Supply chain problems were not the sole cause of Target’s inability to operate successfully in Canada. In addition to stock outs and inventory misalignments, their pricing strategies and product mixes didn’t align with the expectations of Canadian consumers well enough for them to compete with established retailers such as Wal-Mart.

In a way, Target’s famure in Canada is much like the case against Paul Devine, the rogue Apple employee found guilty of selling confidential product and R&D information to the company’s suppliers. In that case, the importance of an ethical procurement function was clearly demonstrated by its absence. In this case, we see how a poorly managed supply chain can seal the fate of a large, successful retail operation.

Sanders offers bill seeking $1 trillion over five years for infrastructure programs

Funding mechanism to be determined; U.S. Chamber says it won't support bill without a way to pay for it.

By DC Velocity Staff

Sen. Bernie Sanders (I-Vt.) yesterday introduced legislation to spend $1 trillion over the next five years to rebuild the nation's transport infrastructure.

The legislation, called the "Rebuild America Act," would create or maintain 13 million jobs, many of them well-paying jobs, said Sanders, the ranking member of the Senate Budget Committee and who has been mentioned as a possible Presidential candidate in 2016. Those jobs would have a multiplier effect through the U.S. economy as the projects would require equipment, supplies, and services, while workers would spend their wages at local restaurants and merchants, Sanders said. The bill, co-sponsored by Sen. Barbara Mikulski (D-Md.), is also supported by the American Society of Civil Engineers, and the AFL-CIO, among others, Sanders said.

"For too many years, we've underfunded our nation's physical infrastructure. We have to change that and that's what the 'Rebuild America Act' is all about," said Sanders in a statement.

A spokesman for Sanders said it hasn't been determined how the legislation would be paid for. It is for that reason the U.S. Chamber of Commerce, the nation's largest business trade group with more than 3 million members, cannot support the bill, according to Janet F. Kavinoky, executive director of transportation and infrastructure for the Chamber. Still, Kavinoky lauded Sanders for raising the awareness of the issue on Capitol Hill just four months before the most recent extension of transportation funding law is set to expire.

Although no one doubts the need to rebuild and modernize the nation's infrastructure, there is no consensus on how to pay for it. Most private sector groups, including the Chamber, the American Trucking Associations, and the National Industrial Transportation League, support an increase in the federal motor fuels tax, which hasn't been increased since 1993. However, the Obama Administration and many in Congress oppose such an increase. The Administration said federal infrastructure funding should come from proceeds generated by tax reform. Opponents contend that such an approach fails to provide a stable and sustainable funding source.

How Unmanned Drones Could Affect the Food Industry

Now that the FAA has issued the first permit for an agricultural drone, here's how the entire industry could be impacted.

BY MARY CLARE JALONICK

202 SHARES

IMAGE: Getty Images

Herding cattle. Counting fish. Taking an animal's temperature. Applying pesticides.

When it comes to drones, "your imagination can go pretty wild in terms of what would be possible," says Roger Johnson, president of the National Farmers Union.

This month, the Federal Aviation Administration issued the first permit for agricultural use of unmanned aerial vehicles. Steven Edgar, president and CEO of ADAVSO, says his Idaho-based business will use a lightweight, fixed-wing drone to survey fields of crops.

Drone technology, already used in other countries, can make farmers more efficient by helping them locate problem spots in vast fields or ranchlands. Increased efficiency could mean lower costs for consumers and less impact on the environment if farmers used fewer chemicals because drones showed them exactly where to spray.

The Association for Unmanned Vehicle Systems International, a trade group, says agriculture could account for 80 percent of all commercial drone use, once government regulations allow it. That could be a while. The Federal Aviation Administration has been working for years on rules that would balance the desire for commercial flights of small drones with the need to prevent collisions involving manned aircraft.

Five ways drones could affect the food supply:

Scouting farms

The first agriculture drones are looking at massive fields of crops to scout out where crops are too wet, too dry, too diseased or too infested with pests. They can help farmers count plants or measure their height. Farmers can now use satellite technology, but it's slower and less detailed than images from low-flying drone.

"This is about getting the most productivity from every square inch of a farm," says ADAVSO's Edgar.

Alabama farmer Don Glenn said he would buy a drone or use a service that provides drone surveillance on his farm of corn, wheat, soybeans and canola. It's hard to survey corn fields when they are 8 feet to 10 feet tall, he says.

Drones can carry different tools, including high-resolution cameras, infrared sensors and thermal sensors. Ground-penetrating radar could even measure soil conditions.

Applying chemicals

Once the land is surveyed, farmers could use that data to narrow the areas that need treatment. If a plot of farmland is infested with weeds, for example, a farmer could spray a small amount of herbicide just in that area, instead of an entire field, to kill them. Farmers hope that they eventually could use drones to do the spraying.

Kevin Price of the Iowa-based drone company RoboFlight Systems says that kind of precision would put farmers at a huge advantage, helping them reduce the costs of chemicals and their application.

Playing cowboy

The National Farmers Union's Johnson says his father used to fly a plane over his ranch and his neighbors' to spot escaped cattle when he was growing up in North Dakota. That's something a drone could do with far less money and effort.

Lia Reich of the UAV manufacturer PrecisionHawk says the company's drones can use thermal sensors to take the temperature of cattle. The data comes back as bands of color, and "if all of the cattle look green and one looks dark purple then that one has a higher temperature," she said.

Drones could help ranchers count cattle, disturb pests that are aggravating livestock or even apply insecticide to an animal.

Finding fish

A University of Maryland project is developing drone technology to monitor fish in the Chesapeake Bay. Matt Scassero, the project director, says the idea is that a laser-based sensor mounted on a drone would allow scientists to see through the water and measure the size of a school of fish. Researchers could ascertain the conditions of the water, too.

Some drones can land on water, making it possible to measure water quality, as well.

Revealing secrets

There are downsides for farmers. Documentary filmmaker Mark Devries has used an unmanned vehicle to fly over large commercial hog operations and film them. He wants consumers to see the buildings full of animals and huge manure pits.

The drones "allow for close-ups and vantage points that satellites and airplanes cannot easily obtain," Devries says.

Still, the agriculture industry sees the advantages of drones as far outweighing the disadvantages.

"We're concerned about falling behind other countries" as the FAA delays, Karney says. "Farmers are anxious to see where this can go."

--Associated Press

Monday, January 26, 2015

Crossing into China: Is Cross-Border
E-Commerce a Worthwhile Strategy?

We hear of amazing growth in China domestic e-commerce, yet cross-border e-commerce has experienced even greater growth due to new platforms and payment methods. What is the big attraction, both for Chinese consumers and for brands?

Chinese consumers are willing to go out of their way to get certain products from overseas. In spite of the fact that domestic e-retailers can deliver in hours, versus days or weeks from overseas, cross-border deliveries still have their place. Here are some motivations for China to shop internationally:

Confidence that the products are authentic and safe. This is the reason for the strong sales of infant formula. This motivation affects the entire mother and baby category, as well as cosmetics and food. It also affects apparel and luxury where people want to be sure that they are getting the real item.
Lower prices on luxury goods. Luxury goods are typically 30% to 50% more expensive in China due to taxes, duties, and different pricing strategies. That difference easily pays for shipping costs.
Avoidance of sales tax and VAT. Domestic taxes include consumption tax which can add 10%, and VAT can add 17%. Imported goods might still face duties of 10%-50%, though orders of less than RMB1000 are not subject to import duty. Many shoppers arrange for items to be hand-carried in country to avoid these duties.
Exchange rate advantages. This is more of an issue for B2B sales since companies are known to arbitrage exchange rates. However, consumers are not unaware of when the Japanese yen, for example, weakens and creates an opportunity to buy cheaper cosmetics from Rakuten. They only need to wait for their item to be shipped from Tokyo. The gradual strengthening of the Chinese Yuan over the past decade has contributed to the affordability of cross-border purchases.

Whether you should be selling cross-border to China depends on how your products fit into these consumer motivations. While cross-border e-commerce will never suffice as a long-term China strategy, it does provide a low-risk way to have a presence in the market. It is also a way to make slow-moving SKUs available without holding inventory in China.

Costco launched cross-border sales in China through TMall Global. While this sounds like a major undertaking, for them it was relatively straightforward given that they already have 10 stores (“warehouses” as they call them) in Taiwan. This allows Costco to use existing inventory points to sell their own Kirkland brand, among other things, on the mainland.

Smaller brands can dip their toes into China with just payment and logistics solutions. Even without a Chinese language site, it is possible to reach a smaller group of highly motivated shoppers. These “highly motivated” consumers are typically English-speaking young urban professionals who are trying to build their own style and status. But even the highly motivated Chinese shoppers are going to need a different payment option. They are not likely to have international credit cards, so offering Alipay as an option is a must.

The major cross-border platforms are as follows:

Alipay ePass is a solution that Alibaba offers foreign brands including payment, logistics, and marketing in China. This is a very scalable option that caters to brands in the early stages of selling to China.

Shoprunner was invested in by Alibaba in October 2013, a move which gives Alibaba the ability to introduce all 100+ Shoprunner brands to China. It essentially provides all the Alipay ePass services to Shoprunner partner retailers. The brands can offer payment through Alipay, and goods are delivered through Alibaba’s China Smart Logistics Network.

Amazon launched US direct delivery to China in August of 2014. Fast-moving items can be stored in one of six bonded warehouses in China for fast, low-cost delivery. Long-tail SKUs would then be shipped from the US, though not all Amazon SKUs are available to Chinese customers.

Borderfree is an e-commerce company which specializes in providing cross-border delivery tracking for major department stores in the US, such as Macy’s, Neiman Marcus, Bloomingdale's, and Saks Fifth Avenue. Borderfree is a global service reaching over 100 countries. Though it does not focus solely on China, it does offer Alipay and Chinese website translation.

These are not the only options, but you can see that there are ample platforms to choose from. Cross-border e-commerce is not a gold mine, especially in China where shoppers view online shopping as a fiercely cost-competitive market, and where significant marketing investments are needed. But crossing borders may be the best way for your brand to test the waters.

What is a Food Hub?

Helping local farms grow by making it easier to buy local

Food hubs are a crucial, but often invisible, part of the local food system. They help small farms grow by offering a combination of production, distribution, and marketing services. There are now 236 food hubs in the U.S., with more popping up all the time. Some are physical spaces, some virtual online spaces, but all are concerned with connecting the dots between producers and consumers of food in local and regional food systems. Food hubs can be thought of as helpful middlemen that connect producers (farmers and ranchers) with institutional buyers (restaurants, hospitals, schools, etc) and end consumers. They help farmers gain access to larger markets so they can focus more on farming and less on marketing, distribution, etc.

According to the USDA’s Regional Food Hub Resource Guide, a food hub is a “business or organization that actively manages the aggregation, distribution, and marketing of course-identified food products primarily from local and regional producers to strengthen their ability to satisfy wholesale, retail, and institutional demand.”

As demand for locally-sourced foods continues to rise, many smaller farming and ranching operations find it difficult to make the jump from selling at roadside stands and farmers markets to selling larger quantities to grocery stores, restaurants, and other institutions. According to the USDA, “food hubs make it possible for producers to gain entry into new and additional markets that would be difficult or impossible to access on their own.”

Food hubs benefit farmers by connecting them with additional (often larger) markets, and providing services like marketing, accounting, sales and education. Food hubs can offer a single drop-off point for multiple farmers that also serves as a single pick-up point for distributors and customers. Sometimes they provide storage or liability insurance. Every food hub is a little different.

Food hubs benefit consumers and the general public by creating jobs (on average, each food hub creates 13 jobs) and increasing access to fresh healthy foods. Nearly 40% of food hubs focus on increasing access to fresh foods in food deserts and other under-served areas. For consumers who already feel they have good access to local foods, a food hub can make the process much more convenient. For example, instead of driving to the farmers market every Sunday rain or shine, then making a special trip to your favorite sweet corn stand, you might be able to order all of your favorite items from different farms online, all to be picked up Thursday night after work at a single location. In this way, “virtual” or online food hubs perform many of the same services as other food hubs that are tied to a physical location. Food Hub, run by Ecotrust is a good example of a virtual food hub.

Food hubs play an important role in supporting local food systems and food availability. They promote entrepreneurship, create local jobs, and fight food insecurity – topics that are central to Sustainable America’s mission. Our goal is to increase U.S. food availability by 50% by 2035. As local food continues to become more popular, food hubs and local farms should continue to grow, and so should U.S. food availability.

UPS lowers 2014 guidance, cites high Peak Season operating costs

Read What's Related

Peak Season preparation is top of mind for UPS

Parcel shipping: FT report suggests UPS is prepping to roll out domestic service in China

Peak Season Prospects are promising according to LM survey

Port of Long Beach event points to strong 2012 Peak Season but global economic concerns linger

Teamsters President Hoffa says Pensions, full-time jobs top issues in UPS talks

UPS Freight rejects deal with Teamsters

By Jeff Berman, Group News Editor
January 23, 2015

Earlier today, transportation and logistics bellwether UPS announced that it expects 2014 earnings to come in below its previously stated guidance.

For the fourth quarter of 2014, UPS said it anticipates adjusted diluted earnings per share of roughly $1.25, with full-year 2014 adjusted diluted earnings per share at $4.75, which represents a 3.9 percent annual gain over 2013’s adjusted earnings per share of $4.57, with full-year 2014 diluted earnings pegged at around $3.28 per share, which is 28.9 percent below 2013’s $4.61.

UPS officials cited an underperforming U.S. domestic segment as the main reason for earnings being lower than previous guidance. The company’s fourth quarter and full-year 2014 earnings will be released on February 3.

It explained that although package volume and revenue results matched up with what the company expected, the company’s operating profit was negatively impacted by what it said were “higher than expected peak-related expenses.

“Clearly, our financial performance during the quarter was disappointing,” said David Abney, UPS chief executive officer, in a statement. “UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double. Though customers enjoyed high quality service, it came at a cost to UPS. Going forward, we will reduce operating costs and implement new pricing strategies during peak season.”

As previously reported by LM, peak season preparation was front and center for UPS heading into the fourth quarter. In its second quarter earnings announcement in early August, the company stated that it planned to up the ante for 2014 operating expense for capacity and peak-related projects to $175 million, with some of this capital allocated for things like expanded operations on the day after Thanksgiving, accelerated deployment of route optimization software (ORION), IT development, additional hub sorts and temporary capacity.

“One frequent topic of discussion has been our preparation for peak season. We’ve had meaningful conversations with customers about our plans,” said UPS Abney on the company’s earnings call in August. “These discussions provide the foundation for a joint commitment of forecast volume enabling UPS to better manage how large accounts impact our network. We have made changes to UPS technology that will improve communication with customers. Solutions have been implemented to provide better information on package location and shipment status, ultimately benefitting customers and UPS.”

This forward-looking approach was both smart and needed, given how many supply chain networks, not just UPS’s, dealt with myriad delays and service disruptions during Peak Season in 2013, and left them determined to go down that road again in 2014. And while there were delays and some people did not get their items in time for the holidays, industry estimates suggest it was a relatively modest amount of volume that got lost in the shuffle.

And in September UPS said it planned to hire between 90,000-to-95,000 seasonal employees, topping 2013’s 85,000. UPS said that these seasonal hires are brought on to support “the anticipated holiday surge” for package deliveries commencing in October and running through January.

Even with these changes in place well in advance of Peak Season, UPS said that while extra capacity was necessary to process what it said was an “extreme spike in package volume on Cyber Monday and peak day December 22,” over all demand was less than what was expected in other days, which subsequently resulted in a sub-optimized peak season network in the form of a productivity decline, increased contract carrier rates, costs related to overtime and training hours leading to the excess costs, coupled with network disruptions related to volume fluctuations driven by the ongoing labor- and congestion-related issues at West Coast ports. Those issues at the West Coast ports caused late arriving shipments to be dropped into the company’s major hubs in California, and shipments moving east that would normally enter its network closer to the final destination, created significant pressure on the network driving costs higher, explained UPS CFO Kurt Kuehn said on an investor call earlier today

Kuehn added that while UPS achieved strong delivery service levels throughout peak season, it “overshot” the mark with its operating plans and fell short of productivity and profit goals.

“Bottom-line: the network was much less efficient than it should have been on numerous days during peak,” he said. “This drove more than $200 million in excess operating expense. On the revenue side, although we made some progress on surcharges with the control tower initiative this year, yield management will be a more significant component of our peak operating plan next year. Going forward, during this high cost peak period, we will implement price management actions based on customer size and industry segment with the primary focus being on ground residential and SurePost. These are complex issues, and I am confident we are aggressively working on the correct areas, as we’ve said, this is a multi-year initiative. We will provide you more details during the earnings call regarding the cost and revenue actions we plan to take.”

Jerry Hempstead, president of Hempstead Consulting, said this pre-announcement was not surprising, saying the high number of seasonal employees was far too many, calling it a “knee-jerk” reaction to buffer themselves from the fourth quarter delays during the fourth quarter 2013.

“They have been spending and adding facilities and it may pay beck over time, but you cant build a church just for Easter and Christmas,” he told LM. “This was no surprise to mem and I’m surprised that Wall Street did not see this coming.
95,000 seasonal workers were way too many. We only have two integrators left and the carriers already suspended the service guarantee during the holiday peak.”

'Poo bus' goes into service in Bristol for the weekend

A single passenger's annual food and sewage waste would fuel the Bio-Bus for 37 miles (60km)

The UK's first bus powered entirely by human and food waste has gone into service in Bristol for the weekend.

The 40-seat "Bio-Bus", which runs on biomethane gas generated from sewage and food waste, was tested last year.

The gas generated from the annual waste of about five people can power the bus for up to 300km (186 miles).

Operator First West of England will run a free round-trip service between the city and Smeaton Road, through the day and on Sunday.

The biomethane gas is generated at Bristol sewage treatment works in Avonmouth, which is run by GENeco, a subsidiary of Wessex Water.

A total of 17m cubic metres of biomethane, enough to power 8,300 homes, is generated annually at the plant through a process known as anaerobic digestion.

James Freeman, of First West of England, said: "We have been talking with GENeco for some weeks about the possibility of bringing the bio-methane bus to Bristol, to run it as part of our city-wide network during the Green Capital Year.

"So, it's great to be able to get this partnership with GENeco off to a great start during the opening weekend."

Following its trial on Saturday, the company said it hopes to bring it into service in the city as a demonstration model in the coming weeks.