Creating Supply Chain Excellence

The Tompkins International Blog

Freight Rates – A Nightmare to Manage?

March 3, 2015

By Tony Nuzio – Guest BloggerFreight Rates - A Nightmare to Manage?
Founder/CEO, ICC Logistics Services, Inc.

In today’s very competitive domestic trucking environment, shippers are being deluged with a variety of pricing options, including varying base rates, varying discounts, numerous accessorial fees and scaled fuel surcharges.  So how does a shipper know if he’s getting a good deal or a bad deal?

The proliferation of individual carrier base rate structures, which vary from carrier to carrier, is the primary reason shippers have a difficult time assessing whether the rates their carriers are charging are the best available rates in the marketplace.  In fact, many carriers use inflated base rates and high discount levels to lure shippers to utilize their services.

The shipper obviously has an obligation to analyze the various motor carrier price offerings to determine which carrier or carriers can provide the best service at the most economical cost.   In one analytical study we recently performed for a shipper client who received bids from five different motor carriers we compared the individual carrier rate structures against a “standard” freight rate structure to see which carriers’ rates actually produced the lowest net freight charges.

The discounts the client received ranged from a low of 70% to a high of 85%.  When we compared the individual rate structures against the “standard” freight rate structure we found the following percentage differences between the “standard” freight rate structure and the individual carrier freight rate structures.

Carrier A              20% higher than the standard base rate

Carrier B              42% higher than the standard base rate

Carrier C              1% higher than the standard base rate

Carrier D              10% higher than the standard base rate

Carrier E               6% lower than the standard base rate

What this analysis clearly pointed out was that the discount offered by the individual motor carriers was meaningless when it came to measuring the net rate the shipper would actually end up paying.

To solve the problem we recommended that the client enter into Transportation Contracts and require their carriers to utilize the standard rate structure as the base rate level for all carriers.  The individual carriers would then discount their rates from the standard base rate level and the shipper would then know which carrier had the most competitive rate for their various shipping lanes.

In addition we recommended that the carrier’s cap their annual General Rate Increase not to exceed 3% and also provided a standard Fuel Surcharge Table that all the carriers would utilize.

It is clear to us that many shippers are being lulled into a false sense of security that discounts which now are in the 80+% range mean that shippers have finally taken control of their domestic motor carrier transportation expenses; this is certainly not the case.  The fact is that many shippers lack the technical expertise to perform these rate analytical studies.  In addition they certainly do not have access to competitive rate structures to make a proper determination as to what rates, discounts and ancillary charges will actually yield the most competitive rates.

Shippers requiring this assistance should seek out help from transportation and logistics consultants to help them perform these very important benchmarking analyses.  The results will pay off handsomely.

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Reprinted from ICC Logistics Services, Inc. with permission.

 

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Retail Sales and the Implication on Real Estate:
Part II

February 26, 2015

Where Retail Sales are Consummated: Part 2 – The Rest of the StoryRetail Sales and the Implication on Real Estate

By Jim Tompkins
CEO, Tompkins International

In part 1 of this 2-part blog, I presented some directional statistics on the growth of retail sales in sophisticated and unsophisticated countries. I also discussed the portion of these sales that are online versus in-store and the real estate implications of these statistics.

I also caution against a false impression that some conclude from looking at both sophisticated and unsophisticated countries over the next 7 years is that in-store sales are more important than online sales. Yes, more sales are done in-store than Online, but this has nothing to do with the importance of one over the other. So, why is this a cautionary note? The cautionary note is required as I cannot tell you how many times I have heard a traditional retail executive’s question:

  • “Why are we spending so much time and effort on the 9% of our sales (online) at the exclusion of the 91% we do in-store?”
  • “Why are we letting the tail (online sales) wag the dog (in-store sales)?”
  • “We make money on in-store sales, but lose money on online, why are we so focused on our online sales?”

The cautionary note and the above 3 questions are missing two major facts:

  1. The title of this two part blog can be interpreted in two different ways. One interpretation is that “Consummate” is about the physical location where the sale was transacted (in-store or online). The other interpretation is that “Consummate” has to do with what was the influencer that begets the sale. The chart below demonstrates the influence exerted by e-commerce on all sales for both sophisticated and unsophisticated countries. In year 2012, 50% of all retail sales in sophisticated countries were influenced by a company’s online presence. This number will pass 60% in 2015 and hit 70% in 2018. Although there is a slower adoption on the rate the influence on total sales for unsophisticated countries, an Influence level on sales of 70% will be achieved by 2018. It is this influence level of e-commerce that is driven by e-commerce search and social referral that is driving the necessity of omnichannel. The reason e-commerce is so important is because of the omnichannel nature of shoppers – Online presence influences the majority of today’s sales in sophisticated countries, and by 2017 it will drive the most sales in unsophisticated countries. This is how you answer the 3 questions above.

E-Commerce's Influence on Retail Sales

The second major fact is also related to omnichannel, but not retail sales. The rate of acquiring new customers can be as low as 5% for “big box/discount oriented” retailers, but as high as 80% for “high-end/personalized service” retailers like Nordstrom or Saks. One of the key attributes of a retailer’s online site is to attract new customers for both online and in-store sales, along with the pursuit of customers for the lifetime value of the customer. To demonstrate, consider a 25-year-old female retailer shopper whose mother and grandmother were totally dedicated to shopping at Nordstrom. In turn, this woman does not shop at Nordstrom because she considers the store as being for “older women.” So, she knows Nordstrom’s, but does not shop there. However, while online she comes across the Nordstrom site and buys a pair of shoes. She loves them and the great service Nordstrom provided. The next time she goes to the mall she decides to just “walk through” the store. Two hours later she leaves Nordstrom with four bags and much to her surprise, she has become a Nordstrom shopper. Are her sales online or in-store? The answer of course is neither, they are omnichannel sales. So, to answer the 3 above questions again: the reason e-commerce is so important is due to the omnichannel shopper. It is your online presence that will attract new customers whose lifetime purchases, both online and in-store, can be huge.

So, Omnichannel retail is about providing the customer a seamless customer experience, both online and in-store. This is how customers desire to shop and how you are going to consummate sales. That is why online is so important to your overall sales strategy and must be a key part of your companies planning. Your organization must embrace omnichannel and the changes this requires in your supply chains for delivery, availability and cost.

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Retail Sales and the Implication on Real Estate: Part I

February 25, 2015

Where Retail Sales are Consummated: Part I

Jim TompkinsRetail Sales and the Implication on Real Estate
CEO, Tompkins International

Recently, Tompkins International completed internal research on correlations between retail and real estate. This research was done in order to give guidance on where retail sales are made and how retail impacts real estate. We primarily analyzed how these factors affect sophisticated and unsophisticated countries differently.

For the purposes of this research, the United States, United Kingdom, France, Germany, and Japan will be the sophisticated countries that we discuss; China, Brazil, Russia, India, and Spain are the unsophisticated countries.

Chart 1 shows the directional evolution of total sales, in-store sales, and online sales for sophisticated countries and Chart 2 shows the same directional evolution for unsophisticated countries. I say “directional” since each country is different and there is a considerable range of projections for each country’s evolution. In fact, I wanted to also include a slide for evolving nations, but the range of projections is so broad that the graphs could not be accurate even given the “directional” qualifier.  So, the point here is to use Chart 1 and 2 to draw overall conclusions, but not to try a quote a specific level of sales.

On Chart 1 for the sophisticated countries, the first thing you note is a greater level of growth in the early years than in the latter years. However, of much greater interest is what happens when you subtract the online sales from the total sales. Yes, in year 2018 the sales taking place in-stores begin to decline.  So, what this tells us from a real estate perspective is that we are going to require less store square footage after year 2018 than before. This number will continue to fall into the future.

Retail Sales and the Implication on Real Estate - Total Sales (Sophisticated)

Chart 1

In sophisticated countries we will be eliminating or repurposing retail square footage. The repurposed retail square footage may become recreational space, restaurants, residential space, or clique-and-collect space, but it will not remain retail stores. Also, Chart 1 shows us the growth of online sales; online sales increase every year on the chart. The impact here is most important to real estate when you face the fact that the amount of space required to do fulfillment of online orders is 3 to 4 times more than the space to do distribution of products to stores. So, the net result with online sales growing while in-store sales are falling is a huge increase in the amount of warehousing space required for distribution/fulfillment. In addition, whereas distribution centers traditionally have been built in rural areas, the new fulfillment centers and combined distribution/fulfillment centers will be built in urban areas.

In Chart 2 we see the same three lines but for unsophisticated countries. First, we note a total sales line that is heading clearly in the northeast direction with no slow down in total sales. Secondly, we see that in 2012 in-store and online are about equal, but in-store sales accelerate faster than online sales. Nevertheless, online sales will climb faster and by 2024, in-store and online sales are essentially equal again. 

Retail Sales and the Implication on Real Estate - Total Sales (Unsophisticated)

Chart 2

Here we see a different real estate picture.  In unsophisticated countries, we are going to need more retail, distribution, and fulfillment space. Since the total sales volumes are growing so rapidly, we are not going to have a lot of distribution space, but we will have too little fulfillment space. Going forward, it will be easier to build combined distribution/fulfillment. However, in sophisticated countries, distribution and retail space is going to need to be converted into fulfillment or combined distribution/fulfillment centers.

There is a major difference in the real estate implications of the evolution of retail business in sophisticated and unsophisticated countries. Sophisticated countries will have less square footage in stores, a big transition towards online fulfillment, and combined distribution/fulfillment centers closer to population centers. For unsophisticated countries there will be a growth in-store square footage and fulfillment and combined distribution/fulfillment centers square footage.  A false impression that some conclude from looking at both sophisticated and unsophisticated countries over the next 7 years is that in-store sales are more important than online sales. Yes, more sales are done in-store than online, but this has nothing to do with the importance of one over the other. To understand why check out my post later this week on “Retail Sales and the Implication on Real Estate: The Rest of the Story.”

 

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Designing for Material Handling Excellence

February 12, 2015

By Jim Tompkinsmaterial handling
CEO, Tompkins International

Tompkins International recently celebrated our 15th year as a Material Handling integration firm. As I reflect on these 15 years and the success of this business dimension, I see some very important lessons that have significantly contributed to our success in designing and implementing material handling systems. Here are the top 3 interrelated lessons that I encourage you to ponder:

  1. Life Cycle Usability: We recently wrote a report based on a survey on the age of material handling systems. We discovered a surprising outcome associated with this survey: most material handling systems are in use 10 years after installation, many are in use 15 years after installation, and some are still operating after more than 20 years. The challenge beyond the challenge of these systems being used beyond their useful life is the fact that these systems are most often designed as a component of a 5 to 7-year strategic master plan. So, the key point to remember when designing a material handling system is to consider how a system designed with a 5-7 year planning horizon is going to operate over a much longer period of time. What we often see here is an operating horizon that is twice, three-times and four-times longer than the planning horizon. You must build maintainability and reliability into the system design so that it can operate over the operational life of the system.
  2. Adaptability: Due to the unprecedented rate of change taking place in business today and the impacts this rate of change has on material handling systems, it is very important that the systems be designed while considering:
    • Modularity: Seasonality, promotions, growth, product life cycles, and ongoing daily volume fluctuations beget the need for our material handling systems to operate over a wide range of capacities.
    • Flexibility: As times evolve, things change. Products get larger and smaller, they get lighter and heavier, etc. Material handling systems must be designed to operate over a wide variety of different products and packages while still operating efficiently, effectively, and safely.
    • Rigidity: While we are designing material handling systems to be modular and flexible, we also need to design these systems so as to reduce rigidity. Rigidity constrains operating performance and can limit the value of the material handling system over time.
  3. Simplification: We often spend as much time improving our designs as we do developing the initial design. The rigorous review of the material handling system design can also cause a significant reduction in the cost of the material handling system. Many material handling equipment suppliers are interested in selling “more steel” so we do not see them rigorously pursuing simplification. Since our goal is to “sell less steel” we invest more thought to assure the lowest cost, highest value, and highest ROI. We strongly believe “More Thought and Less Steel” is the correct design thought process and this only occurs via rigorous simplification.

So, the lessons to be learned are:

  1. The system you are designing will be used well beyond the planning horizon.
  2. The system you are designing will be required to perform across a broad range of operating requirements.
  3. For the system you are designing to be of maximum value, it must be designed with “More Thought and Less Steel.”

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The Phygital Shopper; the Fidgety Supply Chain Professional

February 9, 2015

By Chris Ferrell
Principal, Tompkins InternationalThe Phygital Shopper

 

Alibaba Tidal Wave: Omnichannel Logistics – Supply Chain Capabilities

In early-January Mindtree, the global information technology and outsourcing company, published U.K.-based research on omnichannel retail that provided quite a bit of insight into the oft-used buzzword and introducing us to a new term: the “phygital” shopper. It’s a catchy phrase used to describe tech-savvy shoppers who seamlessly move between traditional, brick-and-mortar shopping and online purchases; who mix online and in-store experiences, and use technology to match personal demand with available supply rather than supply anticipating demand. The entire report is easy and informative and I encourage you to take a look.

There were quite a few insightful take-aways about what shoppers want, and how astute marketing might take advantage of these desires to sell more product, but I found the supply chain implications most fascinating. Consider the specific features that influenced purchases:

  • Buy online and pick-up or return in-store (got it)
  • Free home delivery, even if it required waiting 3-4 days (interesting)
  • Technology that locates product in a physical store (hmmm…)

The report states that 90% of retailers provide the pick-up/return service, but only 5% offer the location assistance even though shoppers ranked this as a top-three feature in both the Grocery and Home Supply sector. In both cases, an increasing dependency on these services is likely to have implications for operations. Which supply chain can most efficiently and effectively (read: profitably) incorporate in-store pick-ups and returns as they become a larger part of the business? Whose supply chain can provide the real-time accuracy and location-level detail of inventory by store?

The desire for free home delivery (and the willingness to wait) is another interesting component. Consider UPS and FedEx’s implementation of dimensional weight (DIM Weight) pricing for all parcel shipments, and FedEx’s shocking increase in fuel surcharge (FSC) despite 10-year lows in fuel costs – U.S. retailers face a stiff challenge to profitably offer the free shipping we have all come to expect. If U.S. consumers display a similar patience to their counterparts in the U.K., the United States Postal Service (U.S.P.S.) becomes an attractive alternative and much of the next-day / same-day delivery discussions that have become so pervasive in 2014 will become moot.

We don’t have the same data for U.S. shoppers and Retailers, but it’s fair to say that, generally speaking, consumer trends in the U.K. prove to be instructive, if not outright predictive of counterparts in the U.S. and Canada. Based solely on personal experience, the pick-up/return and location assistance percentages sound about right. The same goes for free shipping – U.S. consumers won’t be happy about having to wait 2-3 extra days for their purchases, but they’re probably not going to be willing to pay for services they’ve grown accustomed to getting for free. Either way, it’s going to be the Supply Chain professionals left to execute and deliver against Marketing’s promises and the consumers’ demands.

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The Results are in on Retail Performance 2014: Part II

February 5, 2015

By Jim TompkinsRetail Performance 2014
CEO, Tompkins International

In part 1 of this two-part blog, I explained why analyzing the retail performance data of year 2014: 1) was important as retailers, consumer products companies, distributors, 3PLs, and others tried to anticipate the future; and 2) was very confusing and difficult for a wide variety of reasons, but I will give this my best shot here.

First, let me limit my risk of error by saying:

  • The trends I present are occurring globally, but the quantification of these trends is specifically regarding 2014 retail performance in the United States.
  • The quantification of these trends is presented as ranges and there is a wide range of circumstances covered by the results.
  • All of the quantification is evolving, so do not attempt to get overly specific with the numbers I present.

Here is my Top 10 reflections on 2014 that we need to carry forward:

  1. Retail store traffic is down. In the US we are seeing numbers from 5 to 12% less traffic. Retail traffic per square foot fell from 2-7% for 2014.
  2. Conversation rates are up for customers in store. This relates to omnichannel as customers come to the store based on what they have seen online. So the metric of importance here is not conversation rate, but the reality that a company’s in-store performance is significantly impacted by their online presence. Numbers from 45% to 75% of shoppers are in-store as results of an online experience (omnichannel) are not unusual.
  3. Ecommerce sales in 2014 increased between 12-25%.
  4. Mcommerce (Mobile commerce) traffic improved from 35-55% and Mcommerce shopping increased 20-35%.
  5. Promotions spread the peak periods. Peak periods became less peaky.  Fewer shoppers are buying on Big shopping days (Thanksgiving, Black Friday, Cyber Monday) as they already bought earlier at a promotion they felt was a good value.
  6. The busier the time of year (Back-to-School, Black Friday, Green Monday, Valentine’s Day, Mothers Day, etc) the more likely the shoppers are to go to ecommerce.
  7. Due to mobile shopping and free shipping the average Direct-to-Consumer order had 4-10% fewer items per order. Customers are ordering more often with fewer items per order.
  8. Customers are taking shopping seriously. Although the recession is behind us, shoppers are focused on what they want (free shipping, free returns, good value, private label quality) and are not shopping as if the recession is behind us. Contrary to what some “experts” claim we do not see customers as being “carefree”.  To the contrary they are more savvy and methodical.
  9. Customers are evaluating the speed of delivery. They are not willing to pay for same day or next day, but they do not accept 4 day or 5 day delivery.
  10. Different countries are growing ecommerce at different rates. You need to evaluate your strategy for each country going forward. Consider:
  • France, Japan and South Korea- 10-15%
  • Canada, Russia, UK and US- 15-20%
  • Brazil and Germany-20-25%
  • China- 30-35%

So, lots of evolution and transformation ahead for retailers, consumer products companies, 3PL’s and distributors. I strongly recommend you stay in sync with omnichannel, e-commerce, m-commerce, the impacts of promotions, order profile changes, speed of delivery, and cross border strategies. Falling behind on these trends and marching to last year’s drummer could very well result in you not looking good at the end of 2015.  The pace of change requires you to keep up, or risk falling behind competitors.

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The Results Are In On Retail Performance 2014

February 3, 2015

By Jim TompkinsRetail Performance 2014
CEO, Tompkins International

Due to the huge volume of reports and analysis on retail performance for the year 2014, I wanted to wait until the end of the January to do my 2014 review. I think having an understanding of historical performance is of value for retailers, consumer products companies, distributors, 3PLs, and others as we all try to anticipate what will happen in the future. The good news is I now have a 3 inch stack of articles that tell me all I ever wanted to know about retail performance for 2014. After a 3-hour review of these articles I have come to some interesting observations.

The overall conclusion I reach by studying my stack of 2014 retail performance articles is that the data for 2014 is very confusing. Here are some of the problems I have:

  • The data in some articles considers retail in total, and some look at it without automobiles, gas, and grocery and other combinations. How can we analyze this?
  • Some data separates in-store retail from online, but other data separates mobile from online. How can this be deciphered?
  • Some data focuses on all of retail, while other numbers look at categories like specialty, department stores, discount stores, etc. How is this to be interpreted?
  • Some data breaks down the year in segments like Spring, Summer, Back-to-School, Black Friday, Cyber Monday, Holiday, etc., but the definitions of these time segments vary widely; For example: Is Black Friday a day, weekend, week?
  • Some data looks at things globally, some by region, continent, or by country. How accurate can this be?
  • The roles of promotions are not factored into the data. Given the dynamic evolution of promotions, how can we reach conclusions?
  • As the calendar determines the earliness/lateness of Thanksgiving and Christmas, all sorts of things happen to make year to year comparisons difficult. So, how can comparisons be made?
  • As the trends alter the open hours of stores and the use of weekends (particularly Sunday’s) for home delivery, how can fair comparisons be made?
  • Definitions of words tend to vary. What is meant by “Same-day delivery?” It could mean shipped same day the order is received, or received on the same date that it is ordered. How about next day, second day…?
  • What is the impact on order volumes relative to the cutoff dates/times? As these cutoff times/dates shift, how is the data to be interpreted?
  • How does the speed of receipt of an order vary based on shipment to home, shipment to 3rd party pick up location, clique and collect, etc?
  • How do delivery times vary over the years when we build in the variety of supply chains to support delivery? For example: From rural DC’s to Store Fulfillment to combined DC/FC’s to urban FC’s, etc?
  • As business models evolve from direct retailers, to marketplaces, and combination direct retailers/marketplaces, what impact does this have on the data?
  • As businesses expand their geographical coverage from a single country to other regions with different holidays and cultures, how does this skew the data?
  • As retailers become consumer products companies through their “own” label offerings and as retailers become 3PL’s and vice versa, what impact do these transformations have on the performance data?
  • As organizations alter their service levels and service offerings, how does this impact the interpretation of performance data?

The conclusion that must be reached is that any article or expert that attempts to discuss the trends of retail performance is suspect. The complexity of our supply chains, the transformation of our businesses and the sophistication/maturity of the customers are changing. Change is occurring at such a rapid rate that the future relevance of the data we are trying to work with is suspect and therefore we need to proceed with caution.  This being said, guess the topic of our next blog?  Given all the factors, what are the things we can learn from the retail performance data of 2014 to improve business going forward?  Stand by for PART 2.

 

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4 Questions About Supply Chain Illusions

January 29, 2015

Jim Tompkins, CEO4 Questions About Supply Chain Illusions
Tompkins International

An illusion is a false belief not in accord with the facts. An illusion is a false perception of what one sees, feels, hears, smells or tastes. So an illusion happens when there is a distortion of our senses resulting in our brain not obtaining an accurate view of reality. Interesting, but SO WHAT? Well think about these questions:

  • What is the definition of a retailer?
  • What is the definition of a consumer products firm?
  • What is the definition of a B2B firm?
  • What is the definition of a B2C firm?

These four questions were very easy 2-3 years ago, but are not easy to answer today.  As examples, consider these questions:

  1. Are Wal-Mart, Target, Amazon, Costco, Kroger, and Kohl’s retailers or consumer products firms?  Today they are both. Yes, originally they were retailers but when they began selling private label products, they also became consumer products firms. Wal-Mart has 36 different Private Labels, Target has 3, Amazon has 3, Costco has 1, Kroger has 7, and Kohl’s has 5. But, be careful with these numbers. For example, Costco’s 1 “Own” Brand- Kirkland Signature, has over 300 products.
  2. Are Uggs, Crocs, North Face, Maybelline, Nike, Adidas, Clinique, Ray-Ban, Mattel, and Gillette consumer products companies or retailers?  Today they are both.  Yes, originally they were consumer products firms, but when they began selling direct to consumers, they also became retailers.
  3. Are WW Grainger, Fastenal, HD Supply Holdings, and MSC Industrial Direct B2B or B2C firms? Today they are both. Yes, originally they were B2B firms, but now they are also sell B2C.
  4. Are Staples, Amazon, Home Depot, HP, and Cadillac B2C or B2B firms? Once again, today they are both. Originally these firms were focused of B2C, but over time they have evolved into being both B2C and B2B.

So, the illusions are:

  • Wal-Mart, Target, and others are retailers but, they are actually retailers and consumer products companies.
  • Uggs, Crocs, and others are consumer products companies, but they are really consumer products companies and retailers.
  • WW Grainger, Fastenal, and others are B2B, but they are really B2B & B2C companies.
  • Staples, Amazon, and others are B2C, but in reality, they are B2C & B2B companies.

So, we see thousands of Wal-Mart RETAIL STORES and thousands of products for sale at the Wal-Mart.com.  Since RETAIL STORES and RETAIL WEBSITES are categorized by our brain as being associated with RETAILERS, we are under the illusion that Wal-Mart is a RETAILER. However, since 1991, when Sam Walton introduced his first consumer product under the private label “Ol’ Roy” (yes, named after Sam’s dog, a great line of dog food), Wal-Mart has also been a CONSUMER PRODUCTS COMPANY. Since that year, Wal-Mart has introduced 35 more private label brands and thousands of product offerings that are produced for Wal-Mart, the consumer products company, yet we continue to think of Wal-Mart as a retailer.

So, YOU SAY: “Interesting discussion about illusions, but again, SO WHAT?”  Ok, hang on!  We often label specific companies, but then fail to re-evaluate these labels again to see if these individual firms have morphed into something different. This behavior must change. Just as an organization changes from one business model to another, the firm’s supply chain must do the same. If not, these illusions will give us a false perception as to how a supply chain should be designed, should operate, and must perform. For example: let’s say a world-class food & beverage consumer products firm has inventory turns of 18 and a world-class grocery retailer has inventory turns of 32. If we have the illusion that this firm is a grocery retailer, but in fact they are a grocery retailer AND a food & beverage consumer products company, then what inventory turns should we expect?

As a company morphs from one business model to the next, so to must their supply chain. Designing operations and benchmarking the supply chain must be based upon the reality of the firm’s business model and not an obsolete illusion of what it once was.

Here is a related question for you: I have already said in this blog that Amazon is a retailer, a consumer products company, a B2B company, and a B2C company.  Aren’t they also a 3PL?   How does this impact the Amazon supply chain?

Just think about the business model illusions that you have and how these false perceptions might be having an impact on your supply chain.

 

A Supply Chain’s Value To An Organization

January 28, 2015

Jim TompkinsA Supply Chain's Value To An Organization
CEO, Tompkins International

Today we are faced with a very interesting question on the value of an organization.  Is the value of an organization based on brand, market share, EBITDA, growth potential, stock holding, cash…?  The answer is yes, yes, yes….  Is an organization valued on supply chain, technology, and its global penetration? The answers are yes, yes, and yes.  So, how does this play out and why are we discussing this today?

We are discussing this today because yesterday, Yahoo presented its plans on 85% of its valuation – their holding in Alibaba stock.  Insight into Alibaba gives us a view specifically of how supply chain, technology, and global penetration relate to value. Today, Yahoo has a value of $46 billion. This valuation can best be understood by viewing what was disclosed about the disposition of its major components:

  • Yahoo owns $39.5 billion of Alibaba stock that will be spun off
  • Yahoo owns $7.3 billion of Yahoo Japan stock which will be spun off
  • Yahoo has $7 billion of cash in the bank

So, $46B is value, minus $39.5B from Alibaba, minus $7.3B from Yahoo Japan, minus $7B in cash leaves a value of ($7.8B). Yes, a negative $7.8B. How could Yahoo possibly have a value that is less than zero? Yahoo reported revenue of $1.25 billion in the most recent quarter and an adjusted profit of 30 cents a share in the quarter. I believe the explanation behind their negative value is because in the eyes of the stock market:

  1. Yahoo does not have a supply chain
  2. Yahoo has technology that was late recognizing the mobile phone and tablet growth for internet access, and
  3. Yahoo, except for their stock holding, has no significant global penetration.

So, the conclusion we can reach here is that the math done when buying a firm has something to do with brand, market share, EBITDA, growth potential, holding, cash, etc. However, at the end of the day, the real value of a company is a combination of the perceived value of their supply chain, their technology, and its global penetration. For example, consider three very different companies Wal-Mart, Amazon, and Alibaba. All of which have great value and are highly respected. I am sure the calculations of value come from many different factors, but the real value of these three firms comes from their tremendous focus on supply chain, technology, and global penetration.

It is my view that focusing on the Supply Chain, the technology of the Supply Chain, and the global Supply Chain is really a BIG DEAL and adds huge value to our organizations.  Sure there are other value drivers, but for me and my friends, Supply Chain is a key to the value of an organization.

Parcel Rate Increases Defying Logic?

January 22, 2015

By Tony Nuzio, Founder & CEO, ICC LogisticsParcel Rate Increases Defying Logic
& Jim Tompkins, CEO, Tompkins International

At FedEx Less is Now More!

Parcel shippers are still trying to digest the impact of the huge freight rate increase implemented by both UPS and FedEx by changing the way they price ground services for packages measuring less than 3 cubic feet. The packages are now being charged on a dimensional weight basis for the first time ever. And now some parcel shippers will have to also assess the impact of the next significant rate increase based on FedEx’ announcement that their fees for Fuel Surcharges will increase on February 2, 2015.

What’s so strange about this latest increase being implemented by FedEx is that fuel prices have been dropping significantly for both diesel and jet fuel over the past several months. Fuel prices are currently at their lowest level since May of 2009. Typically, when fuel prices drop the fuel surcharge percentages also drop, resulting in lower fuel surcharge costs for shippers and lower carrier revenues. Many oil industry experts are predicting that fuel prices will remain low for the foreseeable future, (whatever “foreseeable future” means.) And, that appears to be precisely why FedEx is implementing this increase.

Another interesting fact is that this increase is being put into effect without any press releases to the public; to date there has been no specific notifications to FedEx’ customers. We’re not insinuating that FedEx is trying to “pull one over” on the shipping public, but they surely know this is not going to be a very popular move among their shipper customers.

The current Fuel Surcharges were initially instituted as a “temporary” fuel surcharge adjustment back around 1999 to compensate the freight carriers for the sharp rise in fuel costs. 15 plus years however is hardly a temporary situation and we do not see any indication that fuel surcharges will disappear anytime in the future. Another bone of contention is the fuel is a major part of parcel carriers’ business and therefore fuel costs have to be an integral part of the parcel carrier’s rate structures. If that is true, then is the assessment of fuel surcharges on top of the base rates, the annual General Rate Increases a case of “double dipping?” That’s a question shippers have been asking for quite some time now.

The shipping public and their customers have had to bear the brunt of these fuel adjustment increases over these past 15 years as fuel costs have climbed significantly. Now that fuel prices are taking a dip for the first time in a very long time, FedEx is asking its customers to dig deeper into their pockets so that FedEx does not lose the significant revenue it generates from assessing these fuel surcharges. You have to also consider if this is FedEx’ way of ridding itself of less profitable or unprofitable business.

As you can see from the detailed charts below, FedEx is modifying their Fuel Surcharge scales so that the Fuel Surcharge will now kick in at a lower fuel cost per gallon. This increase has many folks wondering if UPS and other parcel carriers will take a similar stance and increase their Fuel Surcharge tables to bump up their revenue as well.   For now there is no indication they will, so stay tuned. Only time will tell.

If you would like some help with assessing your parcel spend and contract ICC Logistics and Tompkins International are available to advise you.

Parcel Rate Increases Defying Logic

Click to download & view larger

 

Supply Chain Network Design: Picking the Right Tool for the Job

January 21, 2015

By Bruce TompkinsPicking the Right Tool for the Job
Partner, Tompkins International

Supply chain network design activities are essential for keeping supply chain operating efficiently and effectively.  The days of doing a network design every two or three years is quickly being replaced with a need for frequent, smaller scoped design activities to fine tune performance.  Clearly a key point of this process is picking the right tool or tools for evaluating the network.

I sometimes find myself shaking my head in disbelief when I hear about hundreds of hours being spent collecting and analyzing data for a network design that just doesn’t need that kind of detail.  That is not to say that all network designs can and should be done on the back of a napkin, but common sense must win out and the right tools need to be used for the network being studied.

Ask yourself some simple questions to understand where in the continuum from napkin to advanced simulation model is right for your network design.

  • How complicated is the network design?
  • How many of the puzzle pieces are in effect fixed due to cost or service or capital needs?
  • How well does the past historical transaction data represent the future?
  • What are your real objectives for the network design?
  • When did you last do a network evaluation covering the same part of the supply chain and what were the results?

There are certainly more questions that we could ponder, but hopefully you get the point.  Completing a network design and what tools are used are an important decision.  Make informed decisions about the right level of tools for your network design.  Experts like those at Tompkins International can be your guide for these decisions.

 

Breaking Down the Future of Internet Marketplace Success:

January 15, 2015

Looking in the Rear View Mirror to See What is in Front of You

Future of Internet Marketplace Success

Breaking Down the Future of Internet Marketplace Success

By Jim Tompkins
CEO, Tompkins International

To start, here are six indicators of Amazon’s success that can predict the future of retail:

  1. The number of units sold on the Amazon marketplace doubled in 2014.
  2. Amazon marketplace sellers sold 23% more units on Cyber Monday 2014 vs. the same day in 2013.
  3. In 2014, Amazon marketplace sellers from over 100 countries sold products to customers in 185 countries.
  4. Chinese sellers on the Amazon marketplace grew 80% in 2014.
  5. Holiday deals offered by Amazon marketplace sellers increased 250% in 2014.
  6. Units sold on Amazon Marketplaces in 2014 increased 400% over 2013.

So, what does this tell us?

  • Items 1 & 2 tell us that Marketplaces REALLY WORK.
  • Items 3 & 4 tell us that Cross Border Trade REALLY WORKS.
  • Item 5 & 6 tells us that the promotional environment of holiday 2014 was CRAZY.

I find this all very interesting since these are the exact same points that I have made over and over again when discussing Alibaba.

If you look at the most successful internet companies in the US and China you see the same three things:

  1. Marketplaces are a big deal, a really BIG DEAL.
  2. Cross border trade is a big deal, a really BIG DEAL.
  3. Promotions can be huge to an organizations growth and profitability.

To be successful you must turn these factors in assets. The only way to make this happen is to create a plan your firm. To do this, you MUST have:

  1. A PLAN FOR MARKETPLACES
    1. What marketplaces should you sell your products?
    2. What products from others should you place in your marketplaces?
    3. How should you handle the supply chain for your marketplaces?
  1. A PLAN FOR CROSS BORDER TRADE
    1. In what countries should you sell your products?
      In stores
      Online
      On marketplaces
    2. In what counties should you sell through others?
    3. How should you handle the supply chain for your cross border trade?
  1. A PLAN FOR PROMOTIONS
    1. Promotions are marvelous when done correctly, but can destroy a brand when done poorly
    2. Promotions must contribute to Profitable growth, not to unprofitable growth
    3. Promotions need to be done in the context of an omnichannel strategy and not as a knee jerk reaction to competition

So Amazon and Alibaba are both doing many things well.  We need to learn from these giants and put forth a plan for marketplaces, cross border trade, and promotions that allow us to grow both our top and bottom lines.

 

Location is Critical for Same Day Delivery

January 13, 2015

What Works in New York City Only Works in New York CityLocation is Critical for Same Day Delivery
(Please no emails about how great or how terrible NYC is)

By Jim Tompkins
CEO, Tompkins International

I did not do any research on this, but I think the first thing Dorothy from The Wizard of Oz said upon waking up in Oz was “I don’t think we are in Kansas anymore, Toto.” It is my view that if Dorothy had instead landed in New York City (NYC) she would have said they same thing. My point is that customer service is dependent based upon location. In fact, I recall:

  • Writing a blog saying that NYC was not in Wyoming (and I did get emails from folks saying I should not be negative about Wyoming)
  • Giving several speeches where I discussed the three types of customers;
    • Customers who live in the Top 40 Metropolitan Statistical Areas (MSAs) live in major cities and make up 50% of US population
    • Customers who live in the next 60 MSAs live in big cities that are 17% of the US population
    • Customers who do not live in the top 100 MSAs that are small rural cities and make up 33% of the US population

The point is that I have recently discovered several articles about the “new on-demand customers” of NYC being impressed with eBay, Deliv, Uber, Amazon, etc. All I can conclude is the folks writing these articles do not live in New York City. I mean WOW! There are thousands of companies that offer same-day delivery and, even “instantaneous delivery” in NYC. Of course there are the flowers, gifts, wine, breakfast, lunch, groceries, books, camera, etc. folks who have done this way before e-commerce, but now there is nothing you can’t get in NYC “on-Demand.” So, the relevance of the NYC discussion about “instantaneous delivery” escapes me. Let me be clear, the population of the New York City MSA is over 20 million people, with over 8 million living in NYC – What happens in NYC or the NYC MSA has no impact on the rest of the US. So:

  •  If people desire “on-demand delivery” in NYC, then it has no impact on what is desired by other customers in the US
  •  If companies can be profitable doing “on-demand delivery” in NYC, then it has no impact on the economics of “instantaneous delivery” in the rest of the US
  •  Whether companies offer “On-Demand Delivery” in NYC or not has no impact on what these same companies do elsewhere in the US.

So, we need to be clear, NYC is not a relevant leading indicator of anything “on-demand driven.” New York City and the NYC MSA are unique and what works in NYC and what does not work in NYC has nothing to do with Kansas, Wyoming, Chicago, Oz, or anywhere else.

The bottom line is you need to be very careful when reading the articles that try to translate some aspect of business in NYC to business elsewhere. This did not work before e-commerce and it will not work after e-commerce.  The strategy to be successful in business in NYC and in e-commerce in NYC is different than anywhere else and any attempt to translate “business lessons” from NYC to the rest of the US will not work. Dorothy would have understood this the minute she woke up in New York City. New York City is not in Kansas.

Getting To the Truth About Alibaba: Three Whoppers and a Good One

January 7, 2015

By Jim TompkinsGETTING-TO-THE-TRUTH-ABOUT-ALIBABA
CEO, Tompkins International

Three of the leading news and business publications recently wrote related stories on Alibaba. Between November 30 and December 22 three articles on Alibaba were published that are just plain wrong. I let the first one pass, I took exception to the second, but now with the third one I just can’t hold back.

In brief:

  • On November 30th, a column on China’s Cyber Monday fake sales claimed that Alibaba’s sales numbers for 11/11/14 were fabricated. The author believes that the Alibaba Singles Day numbers were inflated through a buy and immediately return scheme, and “Outright fakery.” The only source in this article is a research assistant at a capital firm and the report cited is nowhere to be found.  So, in my view, the sales as reported by Alibaba of $9.3 Billion during China’s 11.11 Shopping Festival are accurate and this article is incorrect.
  • In another column, published on December 1st, a lobbying group of big-box retailers said that Alibaba “may decimate local companies unless Congress closes tax loopholes for online retailers.” Don’t forget: 1) it has been the big-box retailers that have been putting main street retailers out of business, and 2) Alibaba is not a retailer. So, I understand that big-box retailers want to place a tax on internet sales, but to say that Alibaba is putting local companies out of business is just baloney.  
  • The one that pushed me over the top was a December 22nd piece on Alibaba’s Tmall Global Site. The writer clearly confuses Tmall with Tmall Global. To set the record straight, Tmall is a highly successful website for companies who are registered as a business in China (Chinese and non-Chinese), whereas, Tmall Global is a site for companies who are not registered as a business in China. The article states that Tmall Global “could be a black eye for China’s best known internet company.”  The priority for Alibaba is Tmall. They began Tmall Global as a secondary route to enter the Alibaba ecosystem last February, but they also have other secondary routes through ePass, Borderfree, ShopRunner, and others. Also more than 100 overseas brands are working to set up stores on Tmall Global. Sales on Tmall have soared since being launched. So, Tmall Global is not a black eye for Alibaba, just a lower priority secondary path.

Just before Christmas, a story was published by a host of leading news and business publications that accurately reported on how Alibaba took down 90 million counterfeit products before its IPO.  However, several major sources have yet to report on how Alibaba spent more than $160 million in the last two years to fight fakes. So, credit goes to most major publications on this positive story on Alibaba’s pursuit of counterfeit products.

My concern with the three inaccurate claims listed above has to do with educating business executives on the importance of globalization, technology, and supply chain. These three megatrends are changing how business works. As a leader of analyzing these trends, I see Alibaba as a critical company to follow and feel it is important to do so accurately.  To help executives understand the impacts of Alibaba, you need to see the The Alibaba Effect video. You can count on me to continue to point out the whoppers, the truths, and the stories that are not covered by major publications.

 

Will 2015 Be a Good Year for Supply Chain?

December 30, 2014

By Jim TompkinsWill 2015 Be a Good Year for Supply Chain?
CEO, Tompkins International

2015 has the potential to be a great year for the supply chain. There’s good news and there’s bad news, but it’s how companies approach strategy that will determine supply chain success in the coming year.

The Good News:

  • The Consumer Confidence Index (via The Conference Board) peaked to 93.5 this December, which is the second highest level in 7 years.
  • The University of Michigan’s Consumer Sentiment Index was up to 93.6 in December 2014. This is a great improvement compared to prior years.
  • Employment is on the rise, gas prices are down, and the majority of business leaders are optimistic about 2015.
  • The economy is more stable than the last 5 years and businesses are confident about 2015 growth.

The Bad News:

  • Promotions were over the top for Holiday 2014; this will impact profitability going forward.
  • E-commerce/private label shifts continue, and the future is very different from the past.
  • The consumer is being trained to expect a level of customer service that does not beget company profitability.
  • Amid a segmented economy, more than 65% of all families are in a “survival mode.”
  • Global risks are high and the chances of international supply chain disruptions have increased, from regional conflicts to weather emergencies.

Supply chain leaders are entering 2015 with many of the same thoughts as the past. I hear a lot of folks discussing the same supply chain challenges, such as: customer focus, cost reduction, agility and flexibility, improving inventory turns, operations efficiency, and network planning.

These are all important, of course, but they are all about structure and execution. The reality is that structure is the second step of supply chain excellence and execution is the third step. Unfortunately, pursuing structure and execution before fully grasping strategy will result in a poor 2015 for the supply chain. Strategy must come before structure, and structure must come before execution.

For 2015 to be a great year for supply chain, strategy must come first. You must lay the foundation with strategy. Most importantly, to optimize your supply chain in 2015, continue to ask yourself (and establish the answers to) these questions:

  • What are you going to do about marketplaces?
  • What are you going to do about Asia?
  • What are you going to do about promotions?
  • What are you going to do about omnichannel?
  • What are you going to do about getting local?
  • What are you going to do about channel management?
  • What are you going to do to grow?
  • What are you going to do to provide benefits to your costumers?
  • What are you going to do to beat marketplace expectations?

Please don’t jump into the “structural trap” of the past. Answer the strategic questions listed above and then with this strategy move on to structure.

GO! GO! GO!

Jim

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Is a Put System Right for Your Organization?

December 18, 2014

By Tompkins International StaffPut System

Competition among retailers is rising. Delivery is getting faster. Customer expectations are surging.

What do all of these factors lead to? Organizations across all verticals are looking to cut warehousing costs while maintaining a high level of order accuracy—which is an (understandably) difficult juggling act.

The best way to cut costs while keeping strong order accuracy is to choose the right technology to drive your organization forward. We face so many complexities today, from the presence of multichannel, to seemingly endless new technologies. It can be difficult to navigate your way toward the best solution.

Consider Tompkins’ newest paper your “roadmap” for facing this challenge. Put Systems: How a Put System in Your Distribution and Fulfillment Operations Can Overcome Key Challenges explores the advantages of implementing a put system and can help you decide whether it is right for your operation.

Put systems are an innovative and smart solution compared to the cost and complications of a full sorter. They are a game-changing solution for retail store fulfillment, promotions/flash sales, multichannel operations, high growth operations, and operations that are highly volatile. Consider some of the top benefits of a put system:

  • Exceptional order accuracy
  • Improved labor management
  • Reduced training requirements
  • Time phased investments

It all comes down to developing processes and operations that are flexible enough to effectively meet all of the requirements to deliver personalized logistics. Download the paper to learn more about put systems and start thinking about the best way to ensure a multichannel operational design that can meet—and exceed—your customers’ expectations.

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Exciting Announcement About The Alibaba Effect

December 17, 2014

By Jim Tompkins
CEO, Tompkins International

We have an exciting announcement here at Tompkins International: The Alibaba Effect video has surpassed 100,000+ views on YouTube! This is a huge milestone for Tompkins, and it’s something we’re really proud of. But more important than video views is the hundreds of companies that have transformed their strategy and their supply chains as a result to achieve great success.

Join us in celebrating and check out the fun comic strip below on the video. We hope you enjoy it and we wish you a happy holiday from the Tompkins International team. Exciting times are ahead in 2015!

[click to view larger]
The Alibaba Effect Video

Selecting the “Right” Carrier/Partner to Handle Your Shipments

December 15, 2014

By Tony Nuzio – Guest Blogger
Founder/CEO, ICC Logistics Services, Inc.Selecting the “Right” Carrier/Partner to Handle Your Shipments

In today’s very competitive transportation environment, the decision to select the right carrier/partner to handle your company’s shipments should be much more than a financial decision.  Yet, in many companies the “assumed” bottom line is usually the decision maker.

Price vs. Service – is there a trade off?  Should there be?  We think not!  In fact the primary selection criteria should not involve price but rather servicing capabilities.  This is not to say that price is not important, it just should not be the primary selection criteria.  You see, if the carrier cannot meet a shipper’s service needs, what difference will the price make?

So, how should carriers be selected to handle a company’s shipments?  We have some thoughts.

The first issue to address is to seek out long term and mutually beneficial business relationships.  It should never be “we win, you lose.”  And yet we consistently see from both sides of the fence, shippers and carriers alike, where one party is seeking to gain “power” over the other to control the relationship.  These types of relationships usually do not last very long.

Take a recent example where a parcel carrier insisted that their customer continue to pay excessive declared value fees for their shipments from the carrier.  When the shipper challenged the carrier that they could significantly reduce these costs by obtaining a cargo loss policy from their own insurance company, the local sales representative insisted that was not a good idea.  He contended that when a shipper purchases the insurance from the carrier the carrier does a better job of monitoring the shipper’s packages.  So, does that mean that if the shipment is not insured, the carrier does not take the same care in handling a shipper’s packages?  An absurd approach to a business relationship!

How about the shipper that attempts to convince its carriers that they are true business partners, but each year re- bids his business to obtain the lowest possible rate.  Certainly there is no real partnership here.

So, what other considerations should shippers and carriers take into account when seeking to do business together?

  • Since carriers must continue to invest in new equipment and technology, they certainly need to make a profit. The question is how much of a profit is the shipper willing to have them make on their business?
  • Shippers and carriers should be willing to do business together on an “open-book” basis. That means sharing comprehensive and sometimes confidential data with each other as any true business partners would.
  • Shippers need to provide comprehensive and exact shipping requirements to their freight carriers so that there will be no surprises once they begin to do business together.
  • Shippers and carriers must be willing to drive down costs together. When there is an honest and open line of communication between both parties there should be an ability for both parties to understand cost drivers and to examine opportunities to reduce those costs.
  • Establish “No-Fault” communications. Shippers and carriers should work together to solve problems rather than pointing a finger at each other.  True and successful, long term business relationships never involve finger pointing.
  • Perform on-going measurement. In real estate it’s always location, location, location.  To create successful carrier/shipper partnerships its due diligence, trust and on-going measurement to make sure all is going as planned.

Both sides in the carrier/shipper partnership should consistently seek out ways to be a better customer or service provider.  In business meetings at Amazon there is always an empty chair in the room, representing their customer.  What a great way to ensure you never lose sight of the importance of the customer.  What’s your company doing to strengthen its relationship with its customers and business partners?

Please take a moment to check out ICC’s Blog @ http://www.logisticsstrategies.com.

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Reprinted from ICC Logistics Services, Inc. with permission.
Photo credit: www.graphicstock.com

Alibaba is an Opportunity (Not a Threat) for U.S. Retailers

December 9, 2014

By Jim Tompkins
CEO, Tompkins International

Update (December 11, 2014): USA Today published a column yesterday written by small business owner Rex Solomon. The column, “Local Retailers Face New China Threat,” depicts Alibaba as an online retailer and major enemy to American “Main Street” businesses. As I previously discussed in my blog post below, Alibaba is not a retailer or the enemy. Alibaba will flourish in the U.S. with or without tax benefits from Congress. The column discusses Alibaba as if it has not yet arrived on U.S. soil—but you and I both know this is not true. Alibaba.com has been in the U.S. since 1999, and it has been making key investments since 2009 and growing the 11 Main marketplace. Therefore, while I agree with the author’s stance that Congress needs to address tax incentives for online retailers, we need to remember that Alibaba is not the “bad guy” in this discussion. In fact, Alibaba isn’t even related to the discussion of online retail tax incentives at all. Alibaba is an online marketplace, not a retailer.

Alibaba is an Opportunity Not a Threat for US RetailersThis month a series of videos and ads hit the airwaves and the Internet from a group calling itself “The Alliance for Main Street Fairness.” The ads are meant to pressure Congress into passing the Marketplace Fairness Act, which would end sales tax exemptions for online retailers. The group is using scare tactics about a “foreign invader” (i.e., Alibaba), who will “destroy” main street businesses across America, to move lawmakers to action.

Let’s be clear about who is behind this effort. It is NOT an alliance of small and mid-sized “main street” retailers. The truth is that it is a lobbying group fronted by FP1 Strategies, a political consulting firm, and funded by many mega-retailers. There is nothing Main Street about this campaign.

Its efforts to date have been less than successful, so it is now turning to nationalism, protectionism, and xenophobia to move the ball forward.

Previously Amazon, eBay, and other major U.S. e-commerce companies were its targets and illustrated as the villains—to largely no effect. This new campaign inserts China as the threat (with Alibaba as the proxy).

In our ongoing effort to educate U.S. retailers and brands about what Alibaba is and to shed light on the opportunity it represents, I offer these points regarding this story:

  1. Contrary to the Alliance pronouncements Alibaba is NOT a retailer. Alibaba provides platforms for retailers and brands to sell to customers primarily in China (i.e., Tmall for big companies and Taobao for individuals and small businesses) and secondarily to more than 200 other countries, including the U.S. But Alibaba does not sell anything—it is a pure marketplace. It makes its money only via fees and advertising.
  2. Alibaba provides opportunities for U.S. retailers to connect with new customers overseas and opportunities for U.S. customers to connect with companies from around the world. But, again, Alibaba does not sell anything.
  3. Alibaba has no immediate plans to enter the U.S. as a retailer, or to compete with retailers.
  4. It is ridiculous to believe that U.S. retailers, under the banner of “fairness,” would use Alibaba as a scare tactic for domestic legislation. After all, Alibaba is not even in the market, and the Alliances real targets are online retailers.
  5. Retailers need to remember that omnichannel sales and omnichannel supply chains are the key to success. The Alliance needs to get on with pursuing its tax agenda with more integrity and its omnichannel evolution. It needs to stop viewing brick-and-mortar and online as competitive channels.
  6. Demonizing Alibaba as an online retailer risks alienating 1 billion Chinese speaking consumers in China and around the world. This is not a good position to take as China becomes the largest economy on Earth.

The misunderstanding and disinformation propagated about Alibaba and online retail in general by retailers indicates that many of them still do not understand the role of retail in a globalized marketplace.

Borderless e-commerce will be the defining opportunity of the next five years. I encourage retailers to seek ways to profit from Alibaba, not demonize it. A good starting place is to watch The Alibaba Effect video.

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Photo credit:Graphic Stock

 

Is Alibaba the Global Farmers Market?

December 4, 2014

By Jim Tompkinsglobal farmers market
CEO, Tompkins International

A week after Alibaba’s mid-September IPO, Jin Jianhang (Alibaba Group President) said: “Business-customer e-commerce in the agriculture sector, along with big data and cross-border e-commerce, will be the company’s main business focuses after the stock market listing.”

Mr. Jianhang also explained Alibaba’s commitment to establishing a dedicated agriculture platform on Taobao.com for farmers to sell products. They could enjoy services including marketing and logistics support, as well as product tracing.  These comments are of significant interest to all consumers, farmers, and grocery businesses even though they are not new thoughts coming from Alibaba. In fact, they are a continuation of many of Alibaba’s philosophies and actions in the past few years:

  • Alibaba’s philosophy of helping small business in China.
  • Alibaba’s focus on cross-border trade: China to the world and the world to China.
  • The growth of the Alibaba cold chain agri-food business that has grown 18 times from 2010 to 2014. It will be greater than $13 billion in 2014.
  • Alibaba is harnessing the desires of the fast-growing middle and upper classes; they are hungry and thirsty for delicious agricultural products. (See the new book China’s Super Consumers by Michael Zakkour to learn more.)
  • The evolution of Alibaba’s interest to expand upon its online grocery business.  Two interesting facts here:
    • My search on Alibaba.com for “Sell Fruit” yielded 4,764 suppliers. These suppliers were 72% East Asia, 6% South Asia, 6% Southeast Asia, 2% North America, and 14% other. The markets included 3,612 wholesalers in North America, 3,502 in Western Europe, 3,373 in Eastern Europe, 3,302 in South America, and many more throughout the world.
    • Alibaba’s Taobao grocery business continues rapid growth in both “center-of-the-store” pantry items and “outer ring” cold chain items. Add to this the prediction made in the video The Alibaba Effect that Alibaba will be entering the U.S. online grocery business over the next two years, and the importance of the role Alibaba plays in the global food chain is clear.

Online grocery in the U.S. today is only 3.5% or about $23 billion per year. Over the next 5 years, I believe this number will surge to more than $100 billion. Alibaba has good experience in this sector in China and has a good start working with suppliers, plus a strong desire to pursue the U.S. market.

So, is Alibaba the global farmers market? I’m not convinced yet, but stay tuned. I do know that Alibaba will soon have a substantial outreach in filling your pantry, refrigerator, and freezer in the years to come.

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