A New Breed Emerges: Stores as Fulfillment Centers

Sourcing Journal – The evolution of brick-and-mortar stores in the face of the e-commerce era has seen major retailers merge the two and turn their physical locations into fulfillment centers.

While some observers have questioned whether programs, like buy online, pick up in store (BOPIS) and buy online, ship to store (BOSS) are worth it given higher costs and logistical investments, the merchants claim the rewards are there.

On the one hand, they are saving on warehouse space and shipping costs, while on the other hand the programs drive traffic into stores and answer consumer needs for convenience—which brings in added sales.

A new retail model

Target and Kohl’s have been pioneering the movement, instituting major initiatives to answer omnichannel challenges.

John J. Mulligan, Target’s chief operating officer, told analysts recently: “We find efficiency in our operations to lower overall cost of fulfillment…It took us a number of years and lots of technology and process improvements to go from scrappy to smooth. When we had our Pickup down…we took it to the parking lot, giving our guests the convenience of swing it by the local store without even getting out of the car.”

“Across the board, we’ve put some serious technology equipment and automation behind our delivery methods to make us faster and more efficient,” he added. “This operation could be anywhere, a warehouse in Phoenix, Colorado or Virginia. But it’s a local store in Minnesota, doing the work of our fulfillment center just behind the sales floor. With these kinds of investments in every delivery method, we lowered our average unit cost of fulfillment by 20 percent, driven by our fastest growing fulfillment methods by Shipt from store and Drive-Up.”

By fulfilling closer to the store shelf, adding new delivery options and optimizing operations, Mulligan said Target saved “hundreds of millions of dollars in fulfillment costs in 2018.”

Last year, the COO said Target shipped out the back of 1,400 local stores, noting that order pickup through the drive up option costs 90 percent less than fulfilling goods from a warehouse.

For Kohl’s Corp., CEO Michelle Gass said on a recent conference call with analysts, “We continue to benefit from omni-fulfillment capabilities, with stores able to fulfill as much as 40 percent of digital orders.”

Gass said a key focus of Kohl’s omnichannel strategy has been, and will continue to be, amplifying the role and relevancy of its stores, calling them “a key asset and differentiator for Kohl’s.”

Kohl’s investments in fulfillment options like BOPIS and BOSS “are resonating with our customers and driving increased traffic and higher sales,” Gass said. “We are especially encouraged by BOPUS as it drives traffic into our stores and result in savings on shipping.”

The retailer piloted an enhanced ship from store capability called Omni Power Centers in 10 stores equipped with technology and process enhancements that allow them to be more efficient in fulfilling digital orders. As Gass noted, the successful pilot will lead to a 135 store expansion in 2019 to further leverage stores in the peak digital demand.

Enabling technology

Fulfillment has been top of mind for many in the industry looking to deliver on today’s consumers’ demands.

“It’s amazing how much demand is coming in to us for orchestrating store fulfillment,”John Konczal, omnichannel product marketing lead at Manhattan Associates, said. “The issue is, whether it’s Target or Kohl’s or anybody else, they’ve really anticipated demand, but stores don’t deal well with time. And store fulfillment is a very deadline-driven function.”

For many retailers, Konczal said meeting omnichannel demand and same-day or two-day delivery or pickup required a substantial overhaul of method and systems.

“That pickup event is a new customer event that’s been added into stores,” he said. “The really good retailers are realizing that the pickup event should be treated just like any other customer service even in the store. That’s why many retailers are saying they want to get their stores organized just like a distribution center. Since we have such a massive warehouse business, we’ve been able to look at that and see what learnings and capabilities we can take and scale for the store.”

When Manhattan works with clients on this issue, the focus is on how much risk and uncertainty can be taken out of the promise to, as Konczal explained, help them “keep the delivery promise to their customers.”

Automated order filling, central order management, electronic notification of incoming orders and mobile-based order picking, have been key for some stores. The next step is giving store associates the tools needed for order picking—such as product photos on a phone and RFID on in-store products—and real-time verification of a successful pick.

Jon Slangerup, CEO of American Global Logistics (AGL), told Sourcing Journal that for the industry, the need to adapt the physical logistical infrastructure to meet to the omnichannel phenomenon has been driving AGL’s business in the last 18 months to three years. This, he said, is primarily in the furniture and automotive parts sectors, as well as consumer products.

“We call it 4PL, or fourth party logistics, where you’re helping companies focus on and optimize their supply chains and zero in on how they’re going to dramatically change their responsiveness to market demands,” Slangerup said. “It’s the technology that’s allowing…clear, end-to-end visibility of your supply chain. One of the most important aspects of our technology beyond the tracking and tracing capability is purchase order management. That allows our customers to initiate a order, book that order and to have full visibility into the manufacturing cycle and when it enters and through the transportation stage to the fulfillment center.”

At the top of the list is inventory and fulfillment center management, “where some of the greatest advancements are taking place,” Slangerup said. “It’s really an adapt or die situation for companies today, and we try to help the middle-sized players compete against the large players.”

Zebra Technologies’ 2018 “Future of Fulfillment Vision Study,” found that reducing back-orders was the biggest challenge to reaching omnichannel fulfillment for one-third of respondents, followed by inventory allocation and freight costs.

Retailers are investing in retrofitting stores to double as online fulfillment centers and shrinking selling space to accommodate e-commerce pickups and returns, the survey noted. Among the executives surveyed, 70 percent agreed that more retailers will turn stores into fulfillment centers that accommodate product.

Adding his perspective, John Andrews, CEO of Celect, said there are labor challenges in the transformation of stores to fulfillment centers. Celect helps devise systems for stores that maximize picking times for store employees that also need to service the store floor.

Reverse logistics

Globally, 87 percent of respondents agreed that accepting and managing product returns is a challenge. The increase in free and fast product delivery corresponds with an increase in product returns, a costly concern that retailers struggle to manage efficiently across different purchasing models.

Apparently not Kohl’s, which recently said its units across the U.S. will now accept Amazon returns, expanding on an initiative that began in late 2017. By early 2018, Kohl’s revenue growth in the Chicago region was up 10 percent, compared with 5 percent growth across the rest of the country. The area’s sales, transactions and customer growth outpaced the same metrics nationwide in 2018.

The number of new customers in the Chicago area grew 9 percent last year, compared with 1 percent growth for other Kohl’s stores across the U.S. Kohl’s takes care of the repackaging process, eliminating a step for consumers and adding to the program’s convenience.

The Amazon-Kohl’s partnership solves a pain point for Amazon’s customers, giving them an easier and cheaper option to return Amazon products, Anh Hoang, chief investment strategist at Global Hidden Gems Portfolio, wrote in a research report. At the same time, Kohl’s gets additional store traffic from Amazon’s product returns.

“Furthermore, Kohl’s sells Amazon-branded products in its store, transitioning from the store within a store concept to a wholesale relationship with Amazon,” Hoang noted. “With the overall implementation of the Amazon product return program, Kohl’s store traffic and sales revenue will definitely grow quite fast.”

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Feature Image Source: Target

The West Coast Warehouse Market Was About to Settle Down … Then Trump Tweeted

Supply Chain Dive -Container ships and real estate deals don’t move as fast a trade policy — at least not these days.

The vessels heading into West Coast ports with goods from Asia are coming into crowded shores. The Port of Los Angeles has been breaking its volume records for months, and April 2019 was the busiest April the port has seen in its 112 years of operation. Volumes reached 736,466 20-foot equivalent units (TEUs) — 4.5% higher than April 2018.

Storage space for these goods continues to wane as U.S. warehouse availability has been on the decline for 35 straight quarters, according to CBRE. Global Chief Economist Richard Barkham predicted a “a nicely balanced industrial sector, with demand and supply broadly in line” in mid-April when the U.S. trade war with China appeared to be rolling to a stop.

Less than a month later, President Trump tweeted negotiations with China were going too slowly, and the tariff rate on $200 billion in Chinese imports — known as tranche three — increased from 10% to 25% on May 10. Plus a new fourth list of goods to be tariffed is heading into a public comment period.

What will happen to warehouse space now, especially on the West Coast where U.S. imports from China most frequently make land? Kurt Strasmann, executive managing director at CBRE, said it all depends on how shippers perceive the current political climate. With negotiations being what they are, shippers must be vigilant of how rapid changes to the trade landscape may impact their ability to secure warehouse space.

A lot can happen in 90 days

Experts consulted for this report contend the recent escalation in trade tensions will not be met with panic. This early in the year, peak season is a still at a comfortable distance, but shippers can only wait and see for so long.

“If this tariff issue becomes a long-lasting ordeal — six to eight months — we do think it will obviously affect the flow of trade goods and will affect not just the Southern California marketplace, but nationally,” Strasmann told Supply Chain Dive in an interview. “But if it’s a month — call it under 90 days — we really see no change whatsoever.”

Strasmann attributed the 90-day grace period to a “big, deep, diverse market” in California. New warehouse construction in the golden state is rising to meet existing and growing demand. San Bernardino County, California, has 22.7 million square feet in new industrial construction projects underway and is the second-fastest growing industrial real estate market in the U.S., behind the Dallas/Fort Worth, Texas region, according to a quarterly review by the real estate company Lee & Associates.

Blake Shumate, chief operating officer for American Global Logistics (AGL), said tariffs or no tariffs, the state of the market for West Coast industrial real estate is still driving his clients to book space for 2020 now. The new construction, he told Supply Chain Dive in an interview, books up right away. His clients are frequently reserving space for product coming in 2020.

For more immediate needs, AGL’s customers are finding space in states slightly farther from the California ports like Utah.

“We don’t even know if we’ll need it, but if we’re going to want that space, we’re going to have to go after it now,” he said. Shumate indicated that at least for now, landlords have been resisting raising prices too high in favor or retaining customers, but if demand spikes, prices will almost certainly go up.

Tariffs can exacerbate a booming market, said Strasmann, but the healthy consumer economy is a more powerful driver when it comes to warehouse space.

Same market, faster pace

Retailers have been working on a just in time model for years now — trying not to hold any more inventory than is absolutely necessary to drive efficiency, boost margins and reduce reliance on additional industrial real estate.

Faster fulfillment commitments have led some retailers to stray from the model, though. 2-day shipping has been the standard definition of “fast” since Amazon Prime debuted in 2005, but last month, fast got faster when Amazon and then Walmart announced transitions to 1-day shipping.

Shumate suggested shippers may return to the just in time inventory model in this new tariff climate. The tranche four tariffs, should they go forward, will likely take effect in the summer — right when peak season merchandising plans are being finalized.

“It’s a little scary no doubt about it,” said Strasmann, adding shippers may choose to bump up volume in a month or so if the trade tensions hold. “All of these customers have separate operating models. They’ll start taking precautions as we get closer [to peak],” he added.

Still, shippers are unlikely to stray away from is the West Coat Ports, according to Strasmann. “The economics still favor, for any type of high-quality product, to ship here. And still, half that product stays here,” he said of the hungry California consumer market.

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Feature Image Source: Supply Chain Dive

Tranche 4 Shakes Up Apparel and Footwear Supply Chains After Escaping Earlier Tariffs

Supply Chain Dive -Dive Brief:

  • The Trump administration’s fourth tranche of tariffs will target $300 billion worth of U.S. imports with up to a 25% tariff. Over $55 billion worth of those goods will include textiles, apparel, footwear and leather.
  • The American Apparel & Footwear Association reported last year a 25% tariff rate would result in the average family of four paying an extra $500 per year on apparel alone.
  • In a recent CNBC interview, National Retail Federation (NRF) President and CEO Matthew Shay said companies looking to avoid the tariffs by shifting sourcing and production to other countries will run into problems. “The issue is there’s no new China,” Shay said. “You can’t just go somewhere else and replace China with Vietnam or Cambodia or Thailand or South or Central America. You’re talking about replacing the capacity of a firehose with the capacity of a garden hose.”

Dive Insight:

Although China is currently the country’s largest supplier of textiles and apparel, accounting for nearly 36% of total U.S. importsin 2017, according to the World Bank, previous tariff lists left the industry largely unscathed. The items included were highly specialized apparel categories like “Articles of apparel, of reptile leather.”

However, the fourth tranche includes nearly all consumer apparel categories in addition to a wide range of material inputs like cotton, textiles, rubber and leather.

“(Apparel) Importers and manufacturers are startled,”U.S. Reshoring Institute Executive Director and Chairman of the Board Rosemary Coates told Supply Chain Dive in an interview. “A lot of apparel is included in the fourth tranche, and I think people hoped [Trump]was just using it as a negotiating tactic,”she said.

According to the NRF, the proposed rate of up to 25% is more than businesses can absorb without passing the cost onto their customers.

“The people buying cheap clothing at Walmart and Target are going to be the most affected by this,”Coates said. “These tariffs are a tax on [those]who just can’t afford a 25% price increase. I’m shocked at this.”

The Trump administration’s stated rationale for the tariff increases over the past year has been to rebalance the “trade deficit”between the U.S. and China and to punish Beijing for persisting intellectual property violations and other offenses. “We know China has IP issues, human rights issues, currency manipulation issues, etc.”Coates said, “but the way to address that is through diplomacy not lunacy.” When asked whether she believed the tariffs would actually go into effect, Coates responded that while many in the apparel industry assumed the administration’s announcement was just a scare tactic to bring China to the negotiating table, ultimately she believes American consumers will pay the price as the negotiations drag on.

In anticipation of this, some apparel and footwear companies like Nike and Gap have begun shifting their sourcing, procurement, and manufacturing to other affordable southeast asian countries like Vietnam and Indonesia. While these preventative measures will be helpful if the latest round of tariffs goes into effect, shifting operations at the country level will take will take time and resources that not every company has the capacity to spend.

“With 41% of all apparel currently produced in China, retailers will need to take a close look at their sourcing and logistics strategies to weigh the costs and benefits of moving elsewhere”American Global Logistics CEO John Slangerup told Supply Chain Dive via email.”We’re already seeing a number of our own customers shift production to neighboring countries…As conditions continue to evolve, apparel businesses that combine a technology-enabled supply chain with experienced logistics support will be best-positioned to manage costs while still meeting customer expectations.”

American companies will have the opportunity to challenge the tariffs during the USTR open comment period in June. Bethany Aronhalt, Senior Director of Media Relations at the NRF, told Supply Chain Dive in an interview that if the fourth tranche of tariffs go into effect it could take years for retailers to adjust. She said the organization is ready to testify in Congress during the comment period where they hope to make a convincing case on behalf of the businesses, manufacturers, and consumers who will be negatively affected by the new regulation.

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Feature Image Source: Supply Chain Dive

AGL CEO Jon Slangerup to Deliver Keynote Address at JOC Gulf Shipping Conference in Houston

5.16.19—Atlanta, GA: American Global Logistics (AGL) Chairman and Chief Executive Officer Jon Slangerup will deliver the Day 2 keynote address for the Journal of Commerce Gulf Shipping Conference next week in Houston, Tex., May 20-22. On Wednesday, May 22, Slangerup will discuss “Supply Chain Optimization in the Age of Disruption” at 9 AM CT.

“Importers and exporters face growing pressure to streamline their supply chains, or risk missing out on significant cost reductions and performance gains at every stage of their logistics workflow,” said Slangerup. “Leveraging technology in this age of disruption is critical to providing greater visibility into the market shifts and dynamic operating conditions that exist end-to-end within the supply chain.”

Before joining AGL in 2017, Slangerup served as CEO of the Port of Long Beach, a primary U.S. gateway moving more than $180 billion a year in trans-Pacific trade. Earlier, he served as President of FedEx Canada, the country’s leading global logistics provider.

Headquartered in Atlanta with operations centers in Virginia and North Carolina, AGL is one of the industry’s fastest growing and most respected international supply chain and logistics solutions companies. Beginning twelve years ago, AGL initially established itself as a key player in the trans-Pacific trade lanes and since has rapidly expanded its reach by ocean and air into the trans-Atlantic and Latin America lanes, serving customers throughout the Americas, Asia, Europe, Middle East and Africa. The company’s cloud-based technology and 4PL solutions extend the visibility and global reach of its customers’ multi-modal transportation networks and fulfillment requirements.

Held at the Houston Marriott Marquis, the 2019 JOC Gulf Shipping Conference will provide information and insights that cargo owners can use to plan and execute shipments of container, breakbulk, and project cargoes through US Gulf ports. Additional speakers include Beverly Altimore, president and executive director of the US Shippers Association (USSA); Erik Bo Hansen, VP at the Kansas City Southern Railway; Gregory Price, CEO of Shipwell and William Taylor, CEO of TransGulf Shipping.

About American Global Logistics
Founded in 2007, American Global Logistics is a specialized supply chain software and services company that provides end-to-end multi-modal transportation solutions, customs brokerage, compliance consultation, carrier allocation management, warehousing, distribution, and advanced purchase order management to select customers. Its proprietary cloud-based technology provides real-time shipment visibility and forecasting and an accountability-based customer service model allow customers to deliver a consistent experience to their end-users. AGL’s client base represents a broad range of industries including automotive, furniture, chemicals, raw materials, perishables and consumer goods, and represents some of the world’s largest importers and exporters.

Media Inquiries:
Will Haraway Backbeat Marketing
william@backbeatmarketing.com
404.593.8320

Drought Forces Panama Canal Draught Restrictions and Pushes Up Rates

The Loadstar – El Niño is having a major impact on container traffic through the Panama Canal this year.

From May 28, the canal operator is going to reduce the draught at its Neopanamax locks to 43 feet, the latest in a series of depth reductions that have brought the permitted level down from 50ft at the beginning of the year.

The region is suffering from a protracted drought that has decimated the water in a lake that is used to top up water levels in the canal. According to ACP, the Panama Canal authority, after four to five months of almost no rain, the river flow to the reservoir is down 60%.

The draught restrictions at the canal are affecting cargo rates from Asia to the US east coast; while spot rates from Asia to the west coast are up 4.3%, they have climbed 14.7% to the east coast, according to one source.

The Freightos Baltic Index (FBI) of May 9 shows China-USWC container rates up 1% on the previous week, but China-USEC rates were up 6%, a trade that has seen a 23% rise since the beginning of the year, according to the index.

Most customers look predominantly at prices, said Jon Slangerup, CEO and chairman of American Global Logistics (AGL). More than 50% of the forwarder’s east coast traffic comes through the Panama Canal, he estimates.

For the most part, it is a balancing act between price and transit times, but if customers balk at higher east coast rates, AGL can shift its traffic to west coast gateways, he adds.

ACP claims congestion and labour resistance to automation on the west coast are pushing more shippers to use the canal to serve US markets on the east coast.

Mr Slangerup, a former CEO of Port of Long Beach, acknowledged that the west coast ports had struggled with high volumes, adding that merger and acquisition activities at their terminals have not helped. However, he added, there had been signs of improvement.

About five years ago, some 23% of the containers arriving at Long Beach were loaded on dock-to-rail, today the ratio is closer to 30% and is expected to continue towards the 50% mark, he said.

Recent numbers give no indication of a spillage of imports from the west coast to the canal. The ports of Long Beach and Los Angeles both posted record container numbers for April, while up the coast, the port of Oakland reported a 7% rise in import containers.

Mr Slangerup believes the meteoric rise in traffic through the canal after its re-opening in 2016, which has been attributed to a migration from west coast ports, is primarily the result of different dynamics. While the expansion work was going on, the canal lost about 30% of its market share – chiefly to Asian traffic moving via the Suez Canal. The subsequent surge in traffic was largely a matter of recovering lost ground, he said.

With or without draught limitations, the canal cannot handle vessels larger than 14,800 teu, they being too wide to pass through, Mr Slangerup noted. While this produces some constraints, the impact has been negligible, as the larger vessels have not featured to a large degree on the transpacific routes. Moreover, ports in the Gulf of Mexico area cannot accommodate these vessels either, and neither can some east coast ports, he pointed out.

Savannah, which can handle ships of 14,000 or more teu, is not showing any concern that growth momentum could be dented from draught limitations in the canal. Last month, Georgia Ports Authority placed an order for 20 rubber-tyred gantry cranes for the port.

The draught restrictions are estimated to lose the ACP some $15m this year, which is minor next to last year’s revenue of $2.5 billion. However, the prospect of further restrictions in the event of the drought continuing is a different matter.

While the majority of vessels have no issues passing through the canal, Mr Slangerup believes the drought raises the question of whether it might affect the canal’s potential.

“I’m not sure if, and when, it’s going to get resolved,” he said.

ACP has indicated it is looking at plans for a third water reservoir, and a decision on this will likely be made by the end of the year.

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Feature Image Source: The Loadstar

To Ease the Squeeze of New Tariffs, Focus on Compliance

Supply Chain Brain —A year after tariffs on more than 1,300 Chinese goods first sent importers reeling, the news supply chain managers everywhere have been dreading is finally here.

Last week’s tariff increase from 10 percent to 25 percent, which went into effect May 10, gave organizations less than a week to plan for the ensuing shockwaves.

Although the future of many supply chains remains murky in light of this news, one thing is clear: the importance of a strong customs compliance program. By combining the right technology, people and processes, importers can help to minimize financial and operational impacts as they navigate a new reality for global trade.

The U.S. bombshell announcement comes after months of negotiations, including recent talks in China after which President Trump hinted the two sides were nearing a deal. As news of the latest move from Washington sends tremors through the economy, supply-chain managers are taking stock and assessing the tremendous impact to their bottom lines.

While shippers and downstream suppliers have largely absorbed the 10-percent tariff hike, an increase to 25 percent would have huge financial implications, while also likely requiring customers to share the economic burden. And beyond the U.S.-Chinese trade battle, news of $11bn in potential tariffs on European Union products is just the latest in a string of brewing trade tensions around the globe.

After breaking import records last year as they stockpiled inventory to beat impending tariffs, many businesses have delayed replenishment to avoid a potential tariff hike when goods reach land. Now, tariff increases are coming as businesses face diminishing inventory levels and strong consumer spending. The Global Port Tracker forecast a 6.9-percent year-over-year increase in April imports, with May expected to climb 2 percent from the previous year. This latest news will make cost efficiency more critical than ever, as the 2019 peak shipping season approaches.

No matter what the future holds for global trade, putting the right strategies in place now can help importers streamline operations, avoid regulatory fines and penalties, and reduce spending while still meeting customer expectations. Here’s where to start.

  • Establish a single source of truth. With 13 percent of shippers still relying exclusively on Excel for supply-chain management, tracking the movement of goods from purchase to final destination remains a challenge for even the largest companies. Consolidating all supply-chain data into a centralized, automated platform can help improve customs compliance and efficiency. With details on every shipment at their fingertips, businesses can pull reports to confirm that classifications are correct, examine current sourcing and vendors, and identify cost savings opportunities through mode or carrier adjustments.
  • Get compliance you can count on. Whether your business has a full in-house brokerage team or relies on external support, the current environment is a timely reminder of the importance of compliance. An experienced broker can help you stay on top of regulations, minimize the risk of errors and penalties, and ease the strain on internal resources. Key steps to take include double-checking all harmonized tariff classifications, so you’re not paying tariffs unnecessarily or putting yourself at risk for fines for missing duties. In addition, establish a thorough auditing system to avoid errors and fines while reducing the time spent on paperwork and post-summary corrections.
  • Consider sourcing alternatives. As tariffs take a bite out of budgets, a growing number of businesses say they’re looking to move production out of China. A centralized platform makes it easier to vet vendor performance and overall costs, so you can weigh the pros and cons of shifting your sourcing. In addition, an experienced supply-chain partner can help you optimize routes and modes to accommodate a move to a neighboring country like Vietnam, Malaysia or India. Some suppliers are also helping to mitigate tariff costs by acting as the importer of record and paying duties for businesses — something to keep in mind as you evaluate your own vendor mix.
  • Stay informed. In this rapidly evolving trade environment, businesses need to stay on top of regulatory updates to avoid landing in legal hot water and optimize operations. A partner with its finger on the pulse of the industry can help ensure compliance, aid in lobbying efforts and make sure you’re not paying more than your fair share. For example, when one tire manufacturer received a U.S. Customs and Border Protection notice that its goods were subject to anti-dumping duties, the company worked with its provider to prove that the tariff didn’t apply in its case, saving the manufacturer from significant expense.

For importers steeling themselves for the latest turn in the tariff saga, preparing now can help them stay competitive later. Businesses that invest in a technology-enabled, compliant supply chain will be better positioned to handle whatever comes next.

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Article written by Lori Fox, Vice President, Customs Brokerage Services, American Global Logistics

2019 Supply Chain Outlook for the Apparel Industry

Apparel Magazine—Few supply chains are as dynamic as those relied upon by the fashion industry. From retailers to manufacturers, apparel supply chains crisscross the globe in a race to outfit customers with the latest styles and beat the competition on driving — and supplying — the latest trends. Speed and cost efficiency are both critical as apparel businesses juggle myriad products and suppliers, and growing industry pressures are underscoring the importance of a well-run supply chain. The global fashion industry was worth $2.5 trillion in 2017, yet the top 20 companies make 97 percent of the profits, with most apparel businesses squeaking by on razor-thin profit margins. Those margins could become even thinner in 2019, with McKinsey estimating an industry growth rate of 3.5 percent to 4.5 percent, down from 4 percent to 5 percent the previous year. Along with cost considerations, sky-high product turnover rates present major supply chain challenges for organizations. Whether apparel businesses are constantly refreshing fast-fashion styles or offer just a few collections a year, a streamlined supply chain is fundamental to getting huge volumes of ever-changing SKUs to market quickly. Meanwhile, changing consumer expectations and fulfillment models are hitting apparel businesses particularly hard. With e-commerce reaching 10 percent of all U.S. retail sales in 2018, the rise of unified commerce is emphasizing the need for speed and agility among apparel retailers. A Gartner study found that 73 percent of the top 100 retail brands now offer same-day or next-day shipping, as they also explore last-mile fulfillment models such as click-and-collect and locker pickup. With the U.S.-China tariff battle still brewing, global trade uncertainty is also forcing apparel businesses to reexamine their sourcing and logistics strategies. Against this backdrop, supply chain is a prime area for innovation in the apparel industry. By optimizing efficiency, visibility and responsiveness when things don’t go as planned, businesses can drive customer acquisition and loyalty in a fiercely competitive marketplace. While the sector has been relatively slow to adopt supply chain technology, Gartner reports, businesses have a growing interest in implementing tools and processes to transform their operations. An even greater focus on efficiency Long known for their cost-consciousness, apparel businesses are tightening their belts even further amid worries of an impending economic downturn. Industry executives cite “dealing with volatility, uncertainty and shifts in the global economy” as their top challenge for the third year in a row, and 52 percent say cost-cutting is one of their top supply chain priorities over the next three years. As they work to balance costs with speed, a centralized supply chain platform can help apparel businesses gain a better understanding of end-to-end operations and identify opportunities to run more efficiently. Doubling down on digital transformation Many apparel businesses continue to rely on outdated or homegrown supply chain tools, thanks to small IT budgets and a “that’s how we’ve always done it” mentality, Gartner reports. Reliance on email and Excel to manage complex supply chain requirements also remains common practice among a significant number of apparel organizations. Savvy organizations are recognizing they can no longer wait to innovate, however, with businesses that undergo digital transformation achieving significantly higher performance levels than those who merely focus on continuous improvement. Nearly half of retailers have already deployed artificial intelligence, with applications that include machine vision to spot imperfections on garments. Warehouse robotics to automate picking processes are another fast-growing supply chain innovation, with one-third of retailers already using the technology and another 55 percent planning to deploy them by 2020. Sourcing shifts The typical apparel business has a vast sourcing network — potentially even more vast than many realize. While apparel businesses report having between 1,000 and 2,000 suppliers on average, that figure can balloon to between 20,000 and 50,000 with sub-suppliers. Between the need to move goods quickly through the supply chain, customer preferences for sustainable goods and growing tariff pressures, apparel businesses are taking a close look at their supplier mix to maximize efficiency and resilience. The industry could see an uptick in nearshoring soon, with 54 percent of U.S. and EU purchasing managers saying that proximity of manufacturing operations to customers is becoming more important. In another survey, 60 percent of apparel procurement executives said they expect 20 percent of their goods will come from nearshore facilities in the next five years. As they adjust their networks, a combination of technology and industry expertise can help businesses map their supply chains accurately to determine the best sourcing and transit strategies. Demand-based supply chains When it comes to getting the latest fashions into customers’ hands, every minute counts. One Goldman Sachs study found a direct inverse correlation between supply chain lead times and like-for-like sales growth, putting pressure on businesses to keep shaving time off production and transit. It takes 4.5 months on average to move products from design to transit to stores, and shipping is the biggest chunk of that timeline, with 49 percent of retailers saying it takes 30 days or more. To be more responsive to changing customer preferences, many apparel businesses are integrating product line management more tightly with supply chain strategy to reduce time to market and enable quicker decision-making. The new look of last-mile As customers embrace new shopping models such as rent-and-return and subscription boxes, perfecting their omnichannel fulfillment is at the top of the list for apparel businesses. Fifty percent of fashion retailers now offer click-and-collect, where shoppers purchase online and then pick up in store, and options like locker pickup are also gaining steam rapidly. When executed correctly, new fulfillment models can pay big dividends for retailers. In one Gartner study, Target attributed a 5.3 percent same-store sales increase to click-and-collect. For businesses expanding their last-mile capabilities, an experienced supply chain partner can help scale new fulfillment methods more rapidly. Building a better apparel supply chain As the apparel industry faces growing supply chain pressures, a combination of technological innovation and industry expertise is essential to achieve supply chain optimization. Businesses should consider what they’re optimizing for, whether it’s cost, time, or a combination, and review historical data to set benchmarks and goals for improvement. With sprawling apparel networks particularly vulnerable to disruptions, organizations should be prepared to face what-if scenarios and have the visibility and resources to handle issues when — or before — they arise. By coupling a centralized supply chain platform with hands-on support, apparel businesses can accelerate digital transformation and position themselves for long-term success. Read the Full Article (PDF)
Article written by Jon Slangerup. Jon Slangerup is the chairman and CEO of American Global Logistics, one of the fastest-growing and most respected international supply chain and logistics solutions companies in the world. AGL’s technology solutions extend beyond the walls of ocean, air and domestic transportation services for customers across the globe. Previously, Jon was CEO of the Port of Long Beach, and prior to that he served as president of FedEx Canada.

US Trade Representative Confirms 25% Tariff Hike for Friday

Supply Chain Dive—Dive Brief:

  • U.S. Trade Representative Robert Lighthizer confirmed 10% tariffs on $200 billion worth of Chinese imports will rise to 25% at 12:01 a.m. Eastern Standard Time on Friday, according to multiple news reports. His remarks follow a Sunday afternoon pair of tweets from President Donald Trump stating the existing tariffs will rise and new ones could be coming. The Office of the U.S. Trade Representative (USTR) has yet to issue a formal statement announcing the increase.
  • Lighthizer cited an “erosion in commitments by China” and said the country retreated from earlier commitments it had made in the negotiations. In the same press conference, Treasury Secretary Steve Mnuchin said the U.S. would reconsider the tariff increase if trade talks get back on track, CNBC reported.
  • A Chinese delegation was scheduled to travel to the U.S. this week for trade discussions. The Chinese Commerce Ministry said Liu He, China’s Vice Premier, is still scheduled to travel to Washington but did not specify what topics would be discussed, according to Reuters.

Dive Insight:
Trump’s Sunday tweets brought the more than five-month trade truce between the U.S. and China to a grinding halt. The sudden news came as a seemingly 180-degree turn from recent rhetoric surrounding trade talks, which Trump administration officials had described as “constructive” and “productive.”

Less than a week’s notice on a tariff increase leaves companies with little to no time to adjust their supply chains to mitigate the financial burden, though in reality companies have been planning for the possibility of a hike to 25% since it was suggested last year.

For some, that means shifting sourcing away from China. Brooks Running, owned by Warren Buffett, said it will move the majority of its running shoe production out of China and to Vietnam, Reuters reported.

Moving sourcing comes with a new set of risks, however. “Workers in countries such as Bangladesh, Cambodia and Vietnam are at more risk than in China across a wide number of issues,” Ryan Ahearn, head of commodity service for Verisk Maplecroft, wrote in a risk outlook emailed to Supply Chain Dive.

While China is far from risk-free on labor and social rights issues, it’s a “well-trodden” path companies have become accustomed to navigating, according to Ahearn. “Taking the less trodden path could prove to be more perilous than staying put,” he wrote.

The initial announcement of 25% tariffs brought a rush to import goods in the last few months of 2018, and it’s possible the news from the Trump administration could result in another rush, though likely for air freight as it’s only the method shippers can use to bring goods in before Friday morning.

“Importers are more focused than ever on cost efficiency as the 2019 peak shipping season approaches,” Lori Fox, vice president of customs brokerage services at American Global Logistics, told Supply Chain Dive in an emailed statement.

Shippers would have to weigh the cost of air freight with the cost of paying 25% duties to assess the most cost-effective method.

For cargo already in transit by ocean freight, shippers may have no choice but to pay 25% tariffs once the shipments arrive in the U.S.

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$87.8B in Supply Chain Investments Captures VC Attention

Sourcing Journal—One sector that venture capitalists believe is ripe for change and disruption is supply chain logistics, where much of the trucking and freight sectors still relies on offline legacy processes such as manual booking and paper records.

According to a study co-sponsored by the American Global Logistics (AGL) and Logistics Trends & Insights on “Supply Chain Technology Investment Outlook” from November 2018, overall supply chain investments are projected to reach $87.8 billion by 2022. AGL estimated that volume using key data points from a June 2018 study on the “Annual State of Logistics Report” from the Council of Supply Chain Management Professionals. The study was produced by consulting firm A.T. Kearney and presented by Penske Logistics.

Companies know that technology is the fuel to improve supply chain know-how. And with tech entrepreneurs looking at where they can disrupt, it’s only natural that VCs follow suit.

There’s a lot of dry powder available for investment, and some venture capitalists see tech-enabled solutions as the next frontier. If they make the right bets, the potential return could be huge. There are benefits to the entrepreneurs too. An investment by a VC in a SaaS (software-as-a-service) start-up can translate to a valuation that’s up to 15 times revenues, and those numbers can help garner attention for future funding rounds.

According to a blog post from Simon-Kucher & Partners titled “Logistics Startups are Booming” from March 2018, the logistics and transportation industry is a trillion-dollar business, and one that could benefit from digitization or automation. That’s a point that hasn’t gone unnoticed by venture capitalists. Simon-Kucher cited equity funding in the U.S. in four areas: on the B2B side, domestic delivery marketplace, freight forwarding and robotics, and companies that focus on B2C in the domestic delivery sector.

The lifecycle of a start-up for VC investments is similar to that in other sectors, such as retail and consumer brands. A new start-up garners smaller angel and seed investments, while those that have been around longer tend to find more equity support for larger rounds.

In the domestic delivery space, Seattle-based Convoy works with shippers on the B2B side to find the best trucking option. Technology via software allows it to create smarter routes–think reduction in carbon footprints–as well as efficiently batch shipments. In July 2017, it raised $62 million in a Series B round, and followed that with a Series C raise of $185 million in September 2018. The raise was led by late-stage VC firm CapitalG, the investment arm of Alphabet, Google’s parent. It’s the Series C raise that gives four-year-old Convoy a valuation of more than $1 billion, and unicorn status to denote the rarity of successful ventures.

Even bigger is Flexport, a freight forwarder that relies on software to help companies transport goods by ocean and air via online booking. The company in February disclosed a $1 billion round led by an affiliate of SoftBank, an amount that values the company at north of $3 billion.

Given that the sector uses antiquated processes, there shouldn’t be any surprise that it’s also ripe for new competitors to enter the space. A London start-up, Zencargo, is building out a platform that relies on software to move cargo globally. The company last week said it completed a Series A raise of $19 million.

Movement of goods on the supply chain side isn’t limited to just transportation by water or air. For example, Fetch Robotics is helping to automate warehouses. Essentially, robotics “precision pack” orders using wireless communication to move product through grids placed on the floor. Fetch raised $25 million in a Series B round, led by Sway Ventures in December 2017. And on Monday, warehouse automation firm Locus Robotics said it just raised $26 million in a Series C round.

The idea of using robotics in warehouses isn’t new. Amazon back in 2012 spent $775 million to acquire Kiva Systems, then a relatively unknown start-up. Kiva was backed by Bain Capital Ventures and Meakem Becker Venture Capital. As the technology has evolved, the use of robotics and drones also is helping with last-mile delivery. In Asia, online marketplace JD.com has been using drones to make deliveries in China. This year saw it begin testing drone delivery in Indonesia.

While there’s been keen interest in the logistics sector by venture capitalists–more than $2 billion and growing–what isn’t clear is how many actually understand what it is they are investing in. They are backing companies run by entrepreneurs who have an idea, but at the early stage there’s obviously no real assets and, perhaps, not much by way of revenues. And more importantly, no profits.

That hasn’t curtailed VC interest. In February, venture capital firm Menlo Ventures disclosed it raised a new $500 million investment fund aimed at Series B and C funding rounds to help start-ups grow into the big leagues. It plans investments of between $20 million to $40 million in companies that do volume of between $5 million to $10 million, with a concentration in sectors such as SaaS, marketplaces and Fintech.

For entrepreneurs, there are risks as well, one of which can result in a flame-out. One example is Shyp, an on-demand B2C shipping player that had a valuation of $250 million in 2015 after completing an equity raise of $50 million. But the company shut down in March 2018, supposedly because it couldn’t find a scalable business model. There’s talk that taking in all those dollars might have caused the company to face pressure from investors to grow, perhaps at a rate faster than it should have.

Much of the VC investment dollars are for firms still in the relatively early stages of their development cycle. And that makes it hard to predict which ones among the current crop will become the key players in the logistics space. And while the economy is relatively stable now, another risk is what happens to the investment cycle when a downturn strikes.

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Logistics Providers Shift Focus with the Rise of DTC

Sourcing Journal—Logistics brokers have been undergoing a steady metamorphosis in recent years, stemming from the influx of direct-to-consumer brands and the unrelenting rise of e-commerce.

“We are living through a renaissance in the logistics space,” said CEO of American Global Logistics (AGL), Jon Slangerup. “It changes the supply chain for all our customers.”

The cultural shift to shopping online represents “the largest disruption in retail supply chain logistics in many years,” Vincent Iacopella of Alba Wheels Up, agreed. The EVP of growth and strategy said the hunger that retail brands feel to compete in the online marketplace “poses challenges for all the players” in the logistics arena. “It also creates new opportunities,” he added.

Brick-and-mortar hasn’t completely given way to e-commerce, but there’s no question that retail brands must maintain an online presence in order to survive. Now, the digital space is becoming crowded with small, specialty DTCs that are conducting all of their business online—much of it through social media. The trend has legacy retailers racing to bolster their web presence. To compete with the agile upstarts, they must deliver an optimal shopping experience from first click through fulfillment.

“There’s no question that the traditional retail storefronts have learned how to merge their e-commerce businesses with their brick-and-mortar operations,” Slangerup said. “They’re grappling with the e-commerce part of fulfillment because they have to.”

Iacopella believes consumers’ reliance on technology is the driving force behind the shift in shopping habits. “I think the biggest factor is digitalization,” he said. “We live in a world where we all connect digitally, and that’s fueled an appetite to make purchases in real time.”
Today’s consumers, Slangerup agreed, aren’t oriented toward going into a store or a showroom and buying anymore. Rather, he added, “Customers are going to go home and price shop and have their things delivered as quickly as possible.”

This reality has AGL’s customers feeling the heat, and the company has responded in kind by ramping up its tech offering.

“We’ve evolved as an organization over the past three years from being a strictly third party logistics company or freight forwarder to a 4PL,” Slangerup said, adding that 25 percent of AGL’s incoming business now relates solely to technology enablement. “The traditional freight forwarder of yesterday wouldn’t survive today,” he explained, without the ability to provide end-to-end visibility to its customers. Arming brands and retailers with a line of sight into their supply chains allows them to better manage their consumers’ expectations, which are growing every day.

AGL is taking a heavy editing hand to those supply chains, too. “We map our customers’ key performance indicators, along with their speed and adeptness,” Slangerup explained. Using mapped data, the company helps its customers redefine workflows and processes. “You can see the light bulbs going off because most of our customers have never done that,” he added.
“In a supply chain there’s typically between seven and 10 critical handoff points,” Slangerup said. “Those handoff points are where the money is made or lost in this business.”

Another potential hangup that both new and established brands can face is in cross-border logistics. If speed to market is the modern mantra, then removing roadblocks is a must. Iacopella served on the commercial advisory committee for Customs and Border Protection, becoming an adept navigator of regulatory issues. He believes that 2015’s Trade Facilitation and Trade Enforcement Act, which raised the de minimis amount for duty free shipments from $200 to $800, was a huge boon to the DTC industry. Around that time, “there was this explosion of online purchases,” he said. “The law made it easier for cross-border small package movement, which fueled DTC.”

Despite tides turning in the favor of DTC brands, Iacopella believes newcomers without the relevant expertise could run into trouble. “At the beginning of DTC e-commerce, I don’t know how many people were paying attention from a regulatory standpoint, but I think they are now,” he said.
“The biggest pitfall with startups is the same thing that makes them great,” he explained. “They have the energy and the drive. But they also have to take a deep breath and look at whether the products are in compliance with our regulatory laws, if they’re safe for the consumer, if they’re infringing upon someone else’s IP or if they’re in a position to have their own IP infringed upon.”

These potential blind spots represent opportunity for logistics providers, who are now embracing their roles as guides on a supply chain journey. With increased scrutiny from government agencies, Iacopella said it’s more important than ever for brands to partner with brokers who are comfortable navigating the issues.

At this point, though, DTC retailers represent only a small part of Alba’s portfolio.

“The majority of our legacy customers are volume movers,” Iacopella admitted. “But even those brands are all starting some kind of DTC vehicle. We have to be open to the new startup mentality, because eventually everyone is going to have to pivot.”

A similar story is playing out at AGL, which Slangerup said has taken on “dozens, but not hundreds” of DTC companies as customers. But he knows not to underestimate the business of fledgling brands because “they’ll become the next iteration of medium-to-large-sized retailers.” Slangerup said this new wave of businesses has inspired AGL to embrace the most effective new technology. “Those brands are a small part of our business, but an important one. They’re the ones who are making the point to us that it’s important to add technology to your supply chain management.”

“Ten years ago, the logistics space was an old, dusty, uninspired environment,” he added. “Now, things are shifting so quickly that you have to be tech-oriented or you can’t keep pace. You’ll become just a commodity player, and that’s the last thing we want to be.”

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