In a word, efficiency will be the real name of the game for 2018. Consider the current landscape as we plunge headlong into the new year.
Walmart’s less than friendly OTIF (On-Time In-Full) program is only a part of a larger trend across the logistics space. Walmart is squeezing suppliers and carriers on both sides with penalties—late or early—and if the shipment isn’t “in full.”
They’ve got a whole program. They’ve run training seminars. Suppliers need to strive for at least a 95 percent score. Walmart actually anticipates generating one billion dollars in penalty fees per year.
Similarly, Kroger just announced it will start charging carriers for late deliveries under the similar reasoning of “limited supply capacity.”
Carriers, FedEx and UPS, want to “steer Santa’s packages to the drugstore.” According to Bloomberg, FedEx expanded its OnSite program this year. The carrier opened parcel counters in 7,500 Walgreens Boots Alliance Inc. stores across all 50 states. More than 500 grocery stores, including Kroger or Albertsons, also have become FedEx pick up and drop off locations.
UPS’s U.S. Access Point network launched in a forward-thinking way in 2014. Not counting thousands of sites inside its retail stores, the shipping company now has about 4,000 locations in places like grocery stores, dry cleaners and “mom-and-pop” merchants.
Still, the problem for these carriers is that it’s hard to beat having packages delivered straight to your front door. It’s just too convenient. Most experts believe home delivery will continue to be most customers’ first choice.
A recent study by Narvar Inc., which advises companies on online customer service, found that Millennials (adults under 30) tend to like the idea of this free alternative drop off pretty well at 41%. When surveyed to the total population, however, only 28% like picking up their packages at Walgreens or another similar zip code drugstore.
The labyrinthine strategizing is all about density in an economy that is surging. One year ago, the truckload market was sluggish. Today, the tables have turned with greater demand, higher prices and tightening capacity.
Truck tonnage surged 7.6% year-over-year in November after a 10.5% increase in October, according to American Trucking Associations.
Best Buy is playing Walmart’s game to compete with Amazon by using their brick and mortar stores as much as warehouses for quick shipping than for retail only. A strategy large retail stores might have been a little quicker to adapt to, but hindsight is 20/20.
The puzzle of e-commerce fulfillment is an important but often glossed over aspect of the changing retail landscape. E-commerce, which remains a small fraction of overall retail sales (less than 10% according to the U.S. Commerce Department), is growing faster than the rest of the collective market.
Fastest growing sector or not, consumers are inclined to order online only when shipping is free or cheap. If retailers can’t realize savings by wringing efficiencies out of their supply chain, they are doomed to smaller margins, and it could be apocalyptic if they significantly raised prices on customers.
Why else is efficiency the strategy of the year? How about the implementation of emerging technologies?
Forget all that future stuff about autonomous trucks and EVs, Amazon already has at least 45,000 robots working in its supply chain alongside human employees. Amazon first filed for grasping robotic arms in late 2014. Now, they’re introducing packaging robots to join robots already in use that streamline functions like retrieving items and accepting customer orders.
So far, unfortunately, the relatively slow adoption of autonomous technology isn’t making a tremendous difference in Amazon’s margins. They’re still operating at a loss, but perhaps that’s their own super-long term vision of modeling a company’s complete market dominance and true disruption without making a profit for what could be decades. That would make them outliers. That is another story.
Meanwhile, Amazon acquired Whole Foods, and Target acquired Shipt. While there are many strategic reasons for these acquisitions and partnerships, it really all boils down to efficiency.
It’s not just retailers that need to up their game. It’s suppliers and carriers too. It’s everyone.
For all of Walmart’s tightening restrictions, it is also notorious for keeping truckers waiting at the docks for long hours at a time. One would think that if it’s truly getting on board a tightening supply chain, increased efficiency at the docks would have to happen.
Simply put: retailers need to increase the efficiency of their docks, and (if you listen to the drivers) there is much to be done. Go to any comment section about Walmart’s new OTIF program and see how most of them are saying, essentially, WTF.
Many sit in Walmart docks for upwards of six hours before simply unloading. Who pays for that? Certainly not Walmart, not yet.
While truckers are justified to complain, and while the ELD learning curve isn’t for the faint of heart, 2018 should see a rise in rates for truckers—especially if the key parts of the supply line that don’t adapt to efficiency, and fast.
But even if they are, with the early boom from the tax reform legislation and an economy running on all 18-wheels, the demand for truckers might intensify to the point that at least their rates do increase in meaningful ways.
Brokers confirm capacity is expected to stay tight in Q1, despite being a time of the year it shouldn’t, but more important are the questions independent drivers are now asking. How reliable is the shipper or consignee is in meeting appointment times? Will they pay detention if they don’t?
The non-adapters will feel the ELD change. Drivers are refusing to take “tweener” freight without being paid far more. A 700-mile load expected to be delivered in 24 hours? The price just changed to $400. Some peripheral loads are sitting regardless of price, and some suppliers can’t find anyone to take the load to remote parts of the country where no backhauls exist.
Unless they plan on increasing efficiency and paying real-life human drivers more, they might as well plan on doing it for robots.
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