According to the MasterCard spending index:

U.S. retail sales excluding auto and gas grew 7.9% during the traditional Black Friday to Christmas Eve shopping season. The biggest winners this season were eCommerce and furniture, with double-digit growth, while electronics and men's apparel lagged well behind... eCommerce grew roughly 20% compared to last year. This is not a total surprise, as 70% of U.S. consumers report doing more research online than before...

According to Slice Intelligence, Amazon has dominated the holiday online spending consistently claiming in the mid-forty percent of overall eCommerce revenues.

And there were no systemic supply chain failures given the timing of Christmas and the absence of serious weather impacts involving dense population centers.

JANUARY 5 UPDATE:

Given the overall growth in retail sales, the holiday sales disappointments experienced by Macy's, Sears (and Kmarts) and Kohl's are especially significant.  Sears reports November and December sales were 12-13 percent less than last year. (!)

According to USA Today:

As temperatures plummeted, retailers' online traffic soared this past weekend as they entered the home stretch of the holiday shopping season. The last full weekend before Christmas and the start of Hanukkah proved to be a big winner for online shopping, with online traffic up 11% on Saturday, and 16% on Sunday, according to Verizon which tracked traffic on home-based Internet connections to the 25 largest U.S. online retailers

More on the Verizon Retail Index.

Tis the season to stress test last-mile delivery. One week remains till Christmas eve.

Friday, December 16 was FreeShippingDay, promoted as the last day to order and receive by Christmas without paying a premium.  I'm not yet seeing data on demand outcomes. Besides, there are still other options for "free" shipping.

Amazon is offering PrimeNow customers one or two hour delivery until midnight on Christmas eve.  Be sure to have milk and cookies to reward the poor guy/gal making last rounds.

Some suggest systemic problems have already emerged resulting in reduced on-time-delivery rates.  But UPS and FedEx insist that the network-as-a-network is meeting consumer expectations.

UPS expects to deliver more than 700 million packages this holiday season, a 14 percent increase over last year, US Postal Service anticipates a 12 percent increase and FedEx is forecasting a 10 percent increase.

My guess is that Sunday/Monday will see a peak for online orders. Anything shipped on Monday/Tuesday should make it home for the holidays. This temporal space between peak and target should support network efficacy.  This does not mean there won't be a last minute crisis.  Consumers are increasingly inclined to challenge the space-time continuum.

Lauren Freedman, senior vice president of digital strategy at Astound Commerce told the Wall Street Journal: "Holiday shoppers inevitably procrastinate... At the end of the day, they want to buy the stuff, and they want it fast. Now they just want it faster,”

MONDAY, DECEMBER 19 UPDATE:  USA Today has a good overview mostly repeating what is above... with a few more details.

In late November I was invited to Berlin to discuss food delivery in disasters.  There were eleven us from four different nations and several Germans.  

About eight years ago I began wondering -- worrying -- about the resilience of supply chains in major events: huge hurricanes, 7.0 plus earthquakes, pandemics and such.

Short of wide-area worst cases, I consider most contemporary supply chains to be self-healing. But I was not nearly as self-assured if and when the worst hazards involve the densest cities.

It seemed plausible to me that a combination of Just-In-Time disciplines, densities over 3000 persons per square mile, and increasing concentration at the distribution level could produce systemic fragility, especially when the electrical grid and telecommunications are out for several weeks.

So... if was especially interesting to meet in Berlin with others who have been looking at similar issues. We were a diverse bunch with varied experiences.  Our German hosts chose us partially to represent a diversity of views.  So we were all surprised to largely agree on the following outcomes:

1. Food supply vulnerabilities increase on the edge of demand and supply networks, especially when a dense population node (vertex) emerges at significant distance from other dense nodes (vertices). For example, Los Angeles is more vulnerable than New York City by virtue of the densities and distance of surrounding networks (among other reasons). 

2. Especially because of finding number 1, there is strategic value in identifying/ engaging sources of distribution capacity (contra retail capability) to assess and mitigate supply vulnerabilities before and during an extreme event. The distance and linkages and potential throughput of these system elements can reduce or increase vulnerability. 

3. There are crucial strategic and operational differences between urban (dense) and non-urban (non-dense) contexts in terms of food supply vulnerabilities. In both contexts, distance seriously complicates food supply resilience. But as density increases the impact of distance can be multiplied.

4. Supplying food to populations in transit (e.g evacuees departing or refugees flowing or emergency responders arriving) can be especially complicated. Distance and density are joined by velocity.

This interplay of density, distance, and velocity has been on my mind for awhile. But I had never before made a connection between my work in supply chain resilience and mass evacuation.

There will be an official report next year and I do not want to preempt it.  These are the shared take-aways I heard.  Others may have heard something a bit different.  

But to have entirely independent efforts reporting out findings that seem to corroborate my own findings has been very encouraging.  

Just-In-Time is not, per se, a source of greater fragility. A densely overlapping JIT network can, depending on its structure, be especially resilient.  But there are reasons to be concerned by islands of demand and supply that do not feature multiple connections with similar-sized proximate networks. The more dense the demand on such "islands", the more structural vulnerability.

Very nicely done piece from FiveThirtyEight (the Nate Silver site) focusing on the so-called Waffle House crisis indicator. Considerable attention to the Waffle House supply chain. Here's an excerpt:

“It’s a big deal for us to shut down, because we’re not used to turning everything off and turning the lights off and closing the door,” said Warner, who estimates that he has worked “more than 10” hurricane responses in 17 years. “So our goal is to open up as quickly as possible afterward. The operations team works with the distributor to get food ready to go in. The construction team lines up generators. If you have generators you have to have fuel, so we line up that.” 

On the edge of the predicted storm zone — which Stark monitors from a temporary “war room” assembled by putting mobile giant screens in a conference room — the company positions personnel who can swoop in: carpenters, electricians, IT specialists, a food-safety expert and someone to talk to local governments and law enforcement and soothe concerns about curfews. A little farther out, restaurants in other markets line up “jump teams”: spare personnel who volunteer to work in place of locals who might have evacuated or might need to repair their homes or care for family. In Hurricane Matthew, the company sent in an extra 250 people. 

“We say we throw chaos at chaos,” Mizell said.

Thanks to Lars for pointing me to this.

According to the Wall Street Journal:

Some of the biggest food suppliers in the U.S. are responding to a threat from e-commerce trends by muscling their way into the market for home delivery of meal kits. The food heavyweights including Tyson Foods Inc., Campbell Soup Co. and Hershey Co. aim to build their own distribution channels straight to consumers, the WSJ’s Kelsey Gee reports, and stem the loss of business as consumers shift away from packaged foods. The companies are working with online couriers to challenge companies like Blue Apron and HelloFresh that have carved out a $1.5 billion market delivering parcels of fresh ingredients and snappy recipes to homes. Experts warn that the market for “Uber for food” is crowded, however, and littered with failures. The mass-market companies have deep pockets, but they’ll have to figure out how to manage their new, highly tailored deliveries for consumers alongside traditional supply chains built for scale.

Above: Banana boat on the Amazon (the original) River

According to the Seattle Times:

Call it Amazon.com’s driverless store.

The tech giant has built a convenience store in downtown Seattle that deploys a gaggle of technologies similar to those used in self-driving cars to allow shoppers to come in, grab items and walk out without going through a register. 

The 1,800-square-foot store, officially dubbed “Amazon Go,” is the latest beach in brick-and-mortar retail stormed by the e-commerce giant, which already has bookstores and is working on secretive drive-thru grocery

In October Business Insider reported:

Amazon wants to open 20 brick-and-mortar grocery stores over the next two years, and the online retailer believes the US market has room for up to 2,000 of its Amazon Fresh-branded grocery stores over the next decade... Amazon is planning to operate a 20-location pilot program for its grocery stores by the end of 2018, in places like Seattle, Las Vegas, New York, Miami, and the Bay Area.

Amazon is a retail revolutionary, not just an online-retail pioneer.  It is reconceiving -- and rebuilding -- how demand is expressed and supplies are distributed/delivered.  As barges and boats once (still) use rivers, Amazon is creating its own digital stream.

Well, the early returns suggest that the increasingly digital cast of Black Friday (and the entire Thanksgiving holiday) has not curtailed buying on Cyber Monday. According to the Washington Post (owned by Amazon founder Jeff Bezos):

...e-commerce sales for the day were on track to soar 9.4 percent over last year. As of Monday morning, some $540 million had already been spent online, according to Adobe, whose software runs under many retailers' websites. And while Cyber Monday has long reigned supreme as the biggest day of the year for digital shopping, it faced a stiff challenge from Black Friday this time around. Retailers were on track to pull down $3.36 billion online on Monday, which would just barely edge out the $3.34 billion spent Friday.

Cyber Monday originated in the tendency of consumers to use their office computer networks to purchase whatever they could not find on Black Friday.  The shopping tradition has continued despite the rise of mobile and at-home network access... encouraged by extensive marketing and discounting. According to Adobe Digital Insights, "Mobile continues to drive the majority of visits to retail websites on Cyber Monday at 53 percent (44 percent coming from smartphones, 9 percent from tablets), while accounting for 35 percent of sales (25 percent smartphones, 10 percent tablets)."

According to Reuters: "Amazon.com Inc (AMZN.O) said it is on pace to have its "best Cyber Monday in history," and said orders placed on its mobile app are higher than last year. Wal-Mart Stores Inc (WMT.N) said purchases made on the Wal-Mart app jumped 150 percent this year." Some have speculated that Amazon generates roughly one-third of annual sales in connection with Cyber Monday.

MORE DETAIL FROM ADOBE DIGITAL INSIGHTS

Early results from Black Friday seem to confirm recent softening in US consumer confidence.

According to the National Retail Federation:

More than 154 million consumers will shop over Thanksgiving weekend, up from 151 million shoppers in 2015, according to the annual Thanksgiving weekend results survey released today by the National Retail Federation and Prosper Insights & Analytics.  Average spending per person over Thanksgiving weekend totaled $289.19, down slightly from $299.60 last year. With an average of $214.13 specifically going toward gifts or 74 percent of total purchases.

Retail spending continued to show a steady -- sometimes startling -- shift to online purchases. According to Adobe Digital Insights:

More than $5 billion ($5.27 billion) was spent online by the end of Black Friday, a 17.7 percent increase year-over-year (YoY). Black Friday set a new record by surpassing the three-billion-dollar mark for the first time at $3.34 billion (21.6 percent growth YoY) while Thanksgiving accounted for the remaining $1.93 billion. Black Friday became the first day in retail history to drive over one billion dollars in mobile revenue at $1.2 billion, a 33 percent growth YoY. 

Especially given the growth in mobile revenue, it will be interesting to see if we see a flattening of so-call Cyber-Monday spending.

Distributed ledger technology -- often referred to as blockchain -- is emerging as an important (potentially revolutionary) aspect of managing supply and demand networks.

Bloomberg reports:

With the blockchain, Wal-Mart will be able to obtain crucial data from a single receipt, including suppliers, details on how and where food was grown and who inspected it. The database extends information from the pallet to the individual package.“It gives them an ability to have an accounting from origin to completion,” said Marshal Cohen, an analyst at researcher NPD Group Inc. “If there’s an issue with an outbreak of E. coli, this gives them an ability to immediately find where it came from. That’s the difference between days and minutes.”

As blogged previously (10.24.2016), food safety is a big driver, but once implemented distributed ledger technology can advance plenty of other purposes.  TechCrunch has a nice short piece outlining the potential.

Source: Morgan Stanley, January 2016

Grocery is the crucible of supply and demand.  It is huge. Demand is diverse. Products are constantly proliferating.  Price-sensitivity is intense.  Many high-value products are innately perishable.  Competition is fierce.

The enterprise that can crack-the-code on grocery will also have the systems and discipline to compete in most other retail categories.  A dozen years ago when grocery distributor Fleming fell to Walmart (plus its own self-created problems), it signaled that Sears had finally lost the wider retail war.

Sears and Kmart, A&P and many more long-time players were locked into long-term leases in declining markets.  Most were still operating on circa 1980 supply chains. Walmart could pick and choose its new locations. Walmart pioneered the information and distribution tools that transformed distribution from push to pull.

Today the competitive center-of-gravity is online. While only about five percent or so of the current market, online is growing fast.  Morgan Stanley estimates that Americans will spend about $42 billion for online groceries this years, a 163 percent increase over 2015.

Supermarket News reports:

Amazon currently dominates online grocery in the U.S., but that's due in part to the relative slowness with which brick-and-mortar retailers have moved online.... That is changing this year as the two largest physical sellers of groceries in the U.S. — Wal-Mart Stores and Kroger, respectively — aggressively add "click-and-collect" capabilities allowing their customers to shop online and retrieve orders at local stores. Walmart through the second quarter was offering pickup in 60 markets and 400 locations; Kroger's ClickList offering had about the same number of locations through its second quarter.

Walmart is also partnering with Uber, Lyft, and other non-traditional players to test last-mile urban delivery.

According to a recent Harris poll, online grocery purchasing tracks with greater density:

• Millennials (36% vs. 31% of average Americans); 
• College grads (35% vs. 26% high school education or less); 
• Parents (37% vs. 28% of those without kids); and, 
• Those in an urban setting (38% vs. 30% suburban & 25% rural). 

These indicators happen to also track with greater affluence.

At the end of the last century Walmart transformed the grocery market in the United States by claiming twenty percent -- and more -- of baby-boomer parents in the suburbs and exurbs.  Now the fight is over a new generation in a new environment.

And while Walmart, Kroger, and others are stepping up their online offerings, Amazon is testing and targeting product variations specifically designed for affluent, time-constrained, quality-conscious urban consumers. According to several media reports including Bloomberg and the Washington Post:

AmazonFresh, is beginning home-delivery of “nitro” coffee, whoopie pies, Nepalese dumplings and other foodie fodder sourced from local micro-kitchens, food trucks and farmers markets to customers across a broad swath of the East Coast. The move allows mom-and-pop artisans to tap into AmazonFresh’s huge reach, placing their goods on doorsteps in hundreds of Zip codes up and down the mid-Atlantic within 24 hours of the order being placed. It means the tiny businesses — many of whom have sales of less than $25,000 a year — will be able to sell beyond the traditional farmers markets and brick-and-mortar storefronts.

This is partly going where your target consumers are at and it's partly about pushing your competitors into an expensive arms race. But it is also about setting up the greatest challenge conceivable and setting out to conquer it.  If you can make a profit on home-delivery of the latest foodie fad, you have the capacity to effectively supply any demand just about anywhere.

There's been another disruption of the Colonial Pipeline.  Depending on the damage -- unclear at this point -- this could be harder-hitting and longer-lasting than what was experienced in September. (See 9/26 post below.)

According to the Associated Press:

For the second time in two months, a pipeline that supplies gasoline to millions of people was shut down, raising the specter of another round of gas shortages and price increases. 

The disruption occurred when a track hoe — a machine used to remove dirt — struck the pipeline, ignited gasoline and caused an explosion Monday that sent flames and thick black smoke soaring over a forest in northern Alabama, Colonial Pipeline said. One worker was killed and five were injured. 

A September leak that spilled 252,000 to 336,000 gallons of gasoline occurred not far from the location of Monday's explosion. That leak led to days of dry pumps and higher gas prices in Alabama, Georgia, Tennessee and the Carolinas while repairs were made.
The cause of the leak still has not been determined, and the effects of the latest disruption weren't immediately clear. 

Colonial Pipeline, based in Alpharetta, Georgia, operates 5,599 miles of pipelines, transporting more than 100 million gallons daily of gasoline, jet fuel, home heating oil and other hazardous liquids in 13 states and the District of Columbia, according to company filings. Authorities have not said which type of fuel was involved in the explosion Monday. 

Plagued by a severe drought after weeks without rain, the section of the state where the explosion happened has been scarred by multiple wildfires in recent weeks, and crews worked to keep the blaze from spreading.

Reuters reports US gasoline futures are up eleven percent in anticipation of much tighter supplies between Atlanta and Baltimore.

Shortly before noon (CDT) on Tuesday, Colonial Pipeline reported, "Line 1, Colonial’s gasoline line, remains shut down. At this time, we anticipate Line 1 remaining down for the remainder of this week. Line 2, which transports diesel, jet fuel and other distillates, was restarted at approximately 11:00 PM CDT on October 31."

Friday, November 4 UPDATE:

The company says: "Based upon the latest information we have available, we now project a Sunday afternoon restart of Line 1."

Typically in cases like this, such projections are not made public without nearly 100 percent confidence.  If so, supplies of gasoline should remain sufficient for metro Atlanta, Charlotte, and most other locations.  There are some indications that the outcome of the September disruption may have diminished the public's tendency to hoarding behavior which is often the greatest threat to continuity of supplies.

Sunday, November 6 UPDATE:  As projected, Line 1 has been restarted.

Density and delivery by Genevieve Giuliano 

It's not bricks or bytes, its both.

Amazon challenges traditional retailers by increasing choice, reducing hassles, and locking-in loyalty.  In many urban areas Amazon can also deliver purchases within one hour.

But delivering these advantages is expensive.  In an October 27 conference call with financial analysts Amazon's CFO explained,

...in Q3 we added 18 fulfillment centers and we've added five more in October. For the year we'll add 26. Most of those are in North America but that compares to 14 last year and I would look, looking back the last time we had double-digit increase in fulfillment centers was in 2012 when we added 11 in the third quarter.... The number of warehouses that we added represents a 30% increase in square footage year-over-year. Last year we increased square footage by just under 20%. The definition of square footage in this case is all of our warehouses plus our sortation and delivery centers. So it's pretty much our customer service centers. So it's pretty much our full square footage that supports operation.

So those will dissipate as as they burn in. We've talked about fulfillment centers' initial startup costs include increase in fixed costs but also variable cost as we train workers and also bring in inventory. And there's a number of transportation costs also related to the startup of a new fulfillment center, both inbound and outbound. And they're inherently less efficient than more established mature buildings, so there will be a cycle where those will be more productive next year than they are this year and more productive in 2018 than they are in 2017. 

So those will dissipate as as they burn in. We've talked about fulfillment centers' initial startup costs include increase in fixed costs but also variable cost as we train workers and also bring in inventory. And there's a number of transportation costs also related to the startup of a new fulfillment center, both inbound and outbound. And they're inherently less efficient than more established mature buildings, so there will be a cycle where those will be more productive next year than they are this year and more productive in 2018 than they are in 2017.

Costs to build this future efficiency contributed to a decline in the third quarter's profit margin and last week investors responded by punishing the Amazon stock price by about six percent. (Seems short-sighted to me.)

Another big third quarter cost was shipping.  According to Geekwire: 

Amazon’s net shipping costs soared to nearly $1.75 billion in the third quarter, the second-highest quarterly total in the company’s history and the highest ever outside of the peak holiday season... Amazon’s rising shipping costs are driven by factors including the growth of the Amazon Prime membership program, with its core benefit of free two-day shipping; the expansion of the Fulfillment By Amazon (FBA) program, requiring more warehouse capacity; and Amazon’s push for rapid delivery across its business with AmazonFresh, Prime Now, and new same- and next-day shipping options.

Meanwhile, traditional retailers are focusing more and more on omnichannel marketing and sales -- competing online directly with Amazon -- while providing discounts if the customer picks-up the product at a brick-and-mortar location.  According to the Wall Street Journal:

Wal-Mart is making more products available for same-day store pickup, staffing the pickup counter with more workers and stocking inventory closer to those workers to shorten wait times, a key consumer gripe. Pickup orders surged last holiday season and the retailer expects an increase this year... 

“The large store-based retailers realized that if they want to compete with online retailers they need to leverage the strategic asset of the store,” said Steve Barr, retail consultant at PwC...

About 21% of Americans say they use in-store pickup regularly and 48% say they use it “on occasion,” according to a PwC survey of more than 2,100 people from earlier this year. 

Getting more shoppers to pick up orders would be a welcome shift because retailers earn less when shipping directly to a customer’s home. Many shoppers also keep buying once in the store to retrieve an online order.

The pick-up option -- if adroitly played -- gives retailers with an existing network of well-placed stores a significant advantage both in terms of e-commerce cost containment and the potential for up-selling.  These existing networks are mostly suburban and exurban.  Where car-culture continues to dominate, pick-up will often be preferred.

Today Amazon's PrimeNow is perhaps most widely used in Manhattan, Brooklyn, Seattle, Dallas, San Francisco, Los Angeles, Chicago, San Diego, Austin, Atlanta, Houston, Miami, Baltimore, Minneapolis, Tampa, Orlando, Northern Virginia and Portland, OR.   The less likely the customer drives, the more likely direct customer delivery will remain the preferred option.  Density decides.

According to BraveNewCoin:

Retail giant Walmart, IBM and Tsinghua University are collaborating to improve the way food is tracked, transported and sold across China, using blockchain technology. The project creates, “A new model for food traceability, supply chain transparency and auditability using IBM Blockchain based on the open source Linux Foundation Hyperledger Project fabric,” and coincides with the opening of a new Walmart Food Safety Collaboration Center in Beijing.

According to Fortune magazine:

Paul Chang, a global supply chain lead at IBM, says that the trial represents a substantial improvement over earlier projects that solely used barcodes and radio ID tags. “The missing piece was a shared forum where companies could begin to see each others’ transactions and develop trust,” he said. “That missing piece is something like the blockchain.” 

Information to be stored on the blockchain, where fraud and inaccuracies are much harder to get away with, includes details related to farm origins, factory data, expiration dates, storage temperatures, and shipping. “We can eliminate layers that exist today that add very little value to the industry,” Chang said.

The United Kingdom's Office of Science offers this quick explanation of blockchain -- or Distributed Ledger Technology:

Ledgers have been at the heart of commerce since ancient times and are used to record many things, most commonly assets such as money and property. They have moved from being recorded on clay tablets to papyrus, vellum and paper. However, in all this time the only notable innovation has been computerisation, which initially was simply a transfer from paper to bytes. Now, for the first time algorithms enable the collaborative creation of digital distributed ledgers with properties and capabilities that go far beyond traditional paper-based ledgers. 

 A distributed ledger is essentially an asset database that can be shared across a network of multiple sites, geographies or institutions. All participants within a network can have their own identical copy of the ledger. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. The assets can be financial, legal, physical or electronic. The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of ‘keys’ and signatures to control who can do what within the shared ledger. Entries can also be updated by one, some or all of the participants, according to rules agreed by the network... 

Distributed ledgers can provide new ways of assuring ownership and provenance for goods and intellectual property. For example, Everledger provides a distributed ledger that assures the identity of diamonds, from being mined and cut to being sold and insured. In a market with a relatively high level of paper forgery, it makes attribution more efficient, and has the potential to reduce fraud and prevent ‘blood diamonds’ from entering the market. 

The IBM, Walmart, Tsinghua pilot is motivated by safety concerns.  Along the way to addressing these safety concerns, the relevant supply chains will be made minutely transparent.  The availability of this detail has amazing implications for issues beyond safety.

Supply chain management differs from logistics, says me, largely in terms of how information is exchanged and managed.  Logistics is about how, SCM is about where, when, and how much.  Distributed Ledgers generate the potential for precisely targeting quantity and quality to demand.

CBRE the global real-estate management company reports a continued decline in availability of US distribution center space in most urban markets. Availability of industrial space across markets tracked by CBRE declined by 20 basis points (BPs) to 8.4 percent in the third quarter from the second, extending the longest stretch of consecutive quarterly declines since CBRE began tracking the figures in 1989.

Reporting on these results, Supply & Demand Executive characterizes the situation as a "supply-chain arms race". Retailers are in an increasingly life-or-death struggle involving, "big-box distribution centers, last-mile facilities nearest population centers or reverse-logistics facilities to handle returns."

“The industrial market is running full-throttle,” said Jeffrey Havsy, CBRE’s chief economist in the Americas. “The pace of demand has been running nearly double that of supply and vacancy continues to decline in big chunks. Demand is being driven by strong growth in e-commerce, a healthy auto industry and some reshoring of certain types of manufacturing.”

According to the company and several media reports, Walmart will scale-back expansion of its store network and focus more on e-commerce.  USA Today reports that Walmart will:

Open 130 stores in the 2017 fiscal year ending in February and 55 in the 2018 fiscal year ending in February 2018. 

For a company with nearly 4,600 stores nationwide, those projections reflect relatively inconsequential growth. In the 2015 and 2016 fiscal years, the company added 198 and 316 stores, respectively, according to a securities filing. 

The planned small-format openings in the U.S. include 70 in 2017 and 20 in 2018, reflecting a sharp decline after opening 161 in 2016.

Last month Walmart completed its purchase of online retailer Jet.com.

Meanwhile, Amazon is expanding from a few brick-and-mortar bookstores to a network of grocery stores. According to Wired:

These stores are onramps to the company’s online grocery service, Amazon Fresh, which delivers stuff to your door. And they’re giant advertisements for Amazon Fresh. But they can also double as distribution centers. They additional outposts in the vast Amazonian distribution network that is slowly stretching across the planet. You need places that can move all the fresh eggs and milk from week to week, and they might as well double as stores. It’s the same logic that keeps your local grocery store open all night long as employees restock the place: if someone is there, they might as well stay open.

Amazon is not the only e-commerce company planning retail real-estate investments.

And Walmart is not the only grocer exploring various strategies to defend market share from Amazon. Over the last year Kroger has used stores in the Indianapolis area to test and refine its ClickList program by which customers can order online and pick-up at stores.  The program is now being rolled out beyond the test-market (and here).  Online competition for grocery buying  is likely to intensify, even while some warn that technology and marketing may be getting too far ahead of customer demand.

The battle between Walmart and Amazon promises to set consumer expectations and, one way or another, shape how we shop for groceries in 2026.

[Excellent extended piece on the Walmart online grocery strategy from the Washington Post. Related piece from the Wall Street Journal.]

Matthew is now a Cat-2 storm with sustained winds in the 30s and on-shore gusts into the 70s.  Several storm surge records have been re-set north of Jacksonville.

There is still cause for serious concern depending on how riverine flooding and storm surge interacts with the urban network around Charleston and North Charleston later today. (See impact projections below.  This includes intertidal effects. Updates from NOAA at NOWcoast.)  Damage to the electrical distribution grid is widespread and will require significant time to restore.

Looking at the results in Haiti and Cuba, it is clear Matthew could have been much worse.  A few degrees more turn Northwest with a a high-power direct hit on Miami and this could have been one of the most consequential hurricanes in history.  But in terms of supply chain resilience, the effects on the US southeast are quickly recoverable disruptions.

UPDATE ON OCTOBER 12: Extensive flooding in North Carolina has shut down portions of Interstate 95. According to the North Carolina Department of Transportation, as of noon on October 12,  "I-95 South closed between Exit 56 (US-301) and Exit 13 (I-74), in Cumberland and Robeson County.I-95 North is closed between Exit 13 (I-74) and Exit 22 (US-301), in Robeson County."

According to CCJ:

Load transactions on DAT’s board show a surge in rates is already underway, particularly into and out of the Raleigh area, which is situated close to the intersection of I-95 and I-40. “It looks like the flooding is making it harder to find an available truck in the markets just south of Raleigh,” said a DAT analyst. “So far this week, most of the loads posted on the load board that are bound for Raleigh are coming from Atlanta, and the Atlanta to Raleigh lane is up 18 cents in the past seven days.” 

Truckstop.com, another load board tracking post-Matthew rates, said rates in storm-impacted states jumped last week ahead of the storm. Truckstop.com’s Roxanne Bullard said rates jumped “dramatically” last weekend, but have since fallen below the rolling 30-day average. “It will be interesting to see once all interstates open back up if that will change,” she said.

 At least twenty have died in North Carolina as a result of flooding.  The situation in Haiti is beyond description.

Estimated customers without power in Florida counties served by Florida Power and Light about 6PM Eastern on Friday, October 7.  Information provided by FP&L and USA Today.

Status of the national power grid as of 5:17 PM on Friday, October 7.  Updated information is available from the Energy Information Administration website.

As I write this Hurricane Matthew has just begun to move up Florida's Atlantic coast.  The map on the right shows projected wind speeds.  Purple indicates 100 percent probability of wind speeds above 40 miles per hour.  Gusts up to 107 MPH have been reported at several on-shore locations.

The left-side map shows grocery distribution centers for roughly 80 percent of the market in Central to South Florida and about 60-70 percent of North Florida.  I-95 is the obvious major link between supply and demand. The road network is sparse in the middle of the peninsula.

The hurricane just missed Miami and Ft. Lauderdale. As a result, supply capacity in Metro Miami will continue to be available post-disaster.  There are also significant sources of capacity in the Tampa/Lakeland corridor that should experience minimal disruption.

A Category 4 or worse storm shearing up the I-95 corridor from Miami to Jacksonville has long been a nightmare scenario.  Matthew has been a Cat-3 that began its roll north of the densest population concentration.  Moreover, so far the eyewall and has remained just enough off-shore to spare the coast the worst winds.

A 7-to-11 foot storm surge is currently forecast for Sebastian Inlet, Florida, to the Edisto Beach, South Carolina between Friday night and late Saturday.

Not a worst case (yet), but plenty bad.

Excellent piece of reporting in yesterday's Wall Street Journal.  But I disagree with this take-away:

Amazon’s goal, these people say, is to one day haul and deliver packages for itself as well as other retailers and consumers—potentially upending the traditional relationship between seller and sender. 

Some executives refer to the initiative as “Consume the City,” a nod to the company’s plans to build a massive delivery network that could eventually compete with such partners as UPS, according to people familiar the matter.

What is suggested in the WSJ piece -- and baldly asserted elsewhere -- is that Amazon is intent on taking down UPS and FedEx.  

This is a 1970s notion of survival of the fittest and winner-take-all capitalist competition.

With more time than I have this morning, I would argue that what is going on is innovative problem-solving, gap filling, exploration, and adaptation within a rapidly evolving transformation of retail... and all its supportive systems.

Everyday across the planet in every sector I know anything about there is an extraordinary range of coopetition...cooperation, collaboration, joint venturing, and more between intense competitors.  This is especially true in supply chain.

I'm in Memphis. Today I visited a replica of the original 1916 Piggly Wiggly store hosted by the Pink Palace Museum (shown above).  This is arguably the earliest commercially successful implementation of supply chain pull and the precursor of Just-in-Time.

I had studied the original diagrams and patent for the store, but I had not noticed before how thin Clarence Saunders had designed and built his shelves.  Each shelf has sufficient depth for one large can-good, which further emphasizes how each purchase would send an urgent signal up the chain -- and it was a chain back then -- regarding customer choice.

In 1956 Taiichi Ohno, a Toyota engineer, visited a Piggly Wiggly and was inspired to reconfigure how automobiles were manufactured.

Ohno perceived that as pull signals travel toward sources of supply they can facilitate a tight focus on what is being consumed: what is really needed. This can – if recognized – be used to eliminate waste and costs related to Just-in-Case hoarding of resources and over-production.

Organizing production to reflect consumer “pull”, rather than the “push” of historical patterns or guesses about the future was a revolutionary shift. Especially when the signals are treated as measures and the measures are consistently applied to manage production (and distribution and more), a very different relationship emerges between sources of demand and sources of supply.

Compromised pipe in Shelby County Alabama has resulted in a substantial fuel spill and disruption of supply. The leak was first detected on September 9. Colonial Pipeline is providing updates at this website.  The pipeline transports refined products from refineries in Texas and Louisiana to markets throughout the southern, southeast, and mid-Atlantic states (see map above).

AL.com is doing a good job updating the repair process.

To stop the leak and repair the pipe, fuel transport has been discontinued in Colonial Pipeline 1. Some product adjustments are being made to a parallel pipeline to mitigate supply disruptions. On a typical day Colonial delivers about 2.6 million gallons of refined product. It is the principal source of refined products along its route between Houston and Baltimore. It is an important, but secondary source in markets between Baltimore and New York City.

On Saturday, September 17 the Atlanta Journal Constitution reports, "Drivers in metro Atlanta and throughout the state faced long lines and dry pumps Saturday as fallout from an Alabama pipeline spill threatened gasoline supplies in Georgia."  Substantial shortages are also being reported in the Nashville region.

Loss or prospective loss of supply has prompted the Governors of Tennessee, Alabama, Georgia, South Carolina, and Virginia to declare state emergencies or take similar action.  In Georgia an executive order has suspended regulations limiting operator hours for commercial vehicles delivering transportation fuel.  This is a common feature of actions being taken in the other states. (In many cases, major tanker companies will continue to comply with hour regulations even when waivers are provided to avoid the risk of negligence charges in case of accidents.)

Reuters reports some non-pipeline alternatives for fuel transport are springing up. But if the pipeline is repaired and transport begins early during the week of September 18, as expected, wide-spread shortages should be avoided north of Richmond, Virginia and may stay south of Charlotte [September 19 update: some serious shortages are emerging in the Charlotte metro area.  Much earlier than I expected.  Wish I had said Greensboro. But at this rate, even Richmond and north is not yet out of trouble].  Prices have already increased slightly in affected markets reflecting reduced supply.

September 20 Update: Today there will be widespread shortages in the Triangle market. Hoarding is definitely accelerating the problem. There are a few reports of stations going dry in Southern Virginia. Once one or two fail, hoarding will quickly bring down others.

Here's a comment to make you stand up straight:

Petroleum Transport Terminal Manager Tommy Lowe says currently Greensboro's tank farm is virtually empty. 

"We're looking at a week to 10 days before the product will actually get here. They've got to get it in, settled out, and then they'll turn it loose," said Lowe. "It's going to take a period of time when the product gets here to get the tank levels back up. We're looking at roughly two weeks to get things back to normal."

On Tuesday morning, September 20, Colonial announced:

Construction, fabrication and positioning of the bypass segment around the leak site is complete. Colonial is in the process of executing a hydrostatic test of the segment, which is approximately 500 feet in length, to ensure its structural integrity.

They hope to have flow restarted on Wednesday.

September 21 Update: According to Reuters federal approval has been given for the bypass line to be used to restart pipeline operations.

September 22 Update: Flow has resumed.  Nice wrap-up piece in AJC.  Lots of opportunities here for lessons-learned.  We often say that supply chains are socio-technical systems.  In this case I perceive a close-call could have been mitigated by earlier technical measures targeting secondary-tertiary network effects and much more attention to the social dynamics behind hoarding.

RUNNING UPDATE: ABC News has aggregated an Associated Press "ticker" on the pipeline disruption here. (not updated since September 19)

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When the Tennessee Governor's executive order was released it was accompanied by the following verbiage:

Tennessee’s price gouging laws make it unlawful for individuals and businesses to charge unreasonable prices for essential goods and services including gasoline, food, ice, fuel, generators, lodging, storage space, and other necessities in direct response to a disaster regardless of whether that emergency occurred in Tennessee or elsewhere. The price gouging law makes it unlawful to charge a price that is grossly in excess of the price charged prior to the emergency. This price gouging act is triggered when a disaster is declared by the state or by the federal government. Penalties for violations of the price gouging act are up to $1,000 per violation. Additionally, the Tennessee Attorney General in conjunction with TDCI’s Division of Consumer Affairs can request that a court issue injunctions and order civil penalties of up to $1,000 for each violation. The state can also seek refunds for consumers. 

What is the substantive difference between a meaningful market signal and price gouging?

According to GasBuddy on Sunday morning, September 18 the average price of regular gasoline in metro Atlanta is $2.412 per gallon. Last Sunday the average price was $2.163. Over the same period the national average price has increased from $2.178 to $2.204... even as supplies totally drain away across Alabama and Georgia. No price gouging here.  

Does the two-cent differential reflect reality? Certainly not in the short-term. Did it communicate to consumers their emerging risk?  Does the two-cent differential incentivize significant changes in demand or supply behavior? Given current demand for gasoline tanker or maritime assets this is far less than needed to make it worthwhile to redirect current operations.  Other than working to fix the break, the system is basically waiting for the return of the status quo ante.  Hence absence of substantial retail supply in metro Atlanta... even with a week's warning.

Since product may be moving again in the next few days, maybe this is acceptable.  In many other contexts I can imagine this passivity -- even denial of reality -- as serving to make a bad situation worse and worse.

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Some thinking-out-loud regarding hoarding [September 20 morning]: Some claim that despite the loss of product -- more than half of typical flows in specific Southeast markets -- there is still enough supply to meet "typical" demand.  But demand is quickly becoming atypical.

 As individual gas stations (demand nodes) go dry, consumers see this as a threat-signal and adjust behavior.  One widespread adjustment is frequent topping-off.  While the consumer might typically wait until they have a quarter-tank of fuel, they begin to fill up whenever they approach three-quarters full.

This behavior has at least two dramatic impacts on the fuel supply chain:  First, it produces entirely new patterns of pull signals.  Most consumers typically fill up on a predictable schedule and even at a predictable place, this explosion of randomness undermines system stability.  Second, this behavior increases overall demand at precisely the time that supply is fragile.  The combination of increased demand and unpredictability of demand produces more dry pumps which, of course, further accelerates consumer hoarding.

In the particular case of Colonial Pipeline we may -- too early to be sure, but worth flagging -- be seeing a situation where a few market leading demand nodes (e.g. QuikTrip in Charlotte, Sheetz in other locations) are especially vulnerable because of their particular dependence on Colonial. As consumers see these market-leading sources go down, they shift to other secondary sources and begin to disrupt fuel supply chains that are not directly dependent on Colonial, but are now disrupted by unpredictable and unsustainable consumer behavior.

Thus over time and space, disruption of the fuel network begins to behave less like a fixable break in an engineered system and more like an ecology ingesting a contagion. 

Nice Hanjin update from Bloomberg with hard numbers regarding number of vessels and cargo value. It includes this provocative quote by Gerry Wang, CEO of Seaspan, a container-ship leasing company.

“The fallout of Hanjin Shipping is like Lehman Brothers to the financial markets,” Wang said. “It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalization.”

So, there's at least one vote for profound network effects.

Since at least 1999 Apple has attempted to implement a dual-sourcing strategy for critical product components. This is arguably easier for a market-leading innovator than a price-sensitive market follower.  But it has still been tough.  It requires a very disciplined approach to product design, specification, sourcing/procurement, and supply chain management.

According to Timothy Arcuri, an analyst at Cowen & Co. a recent deal between Apple and Intel means the iPhone 7 is fully dual sourced.  Mr. Arcuri told the Wall Street Journal,  he "expects Intel to supply about half of the baseband chips for iPhone 7 units Apple will sell, or around 40 million by the end of 2016."  The other half will be supplied by Qualcomm.

Dual sourcing is fundamental to supply chain resilience. With effective strategic execution it can also generate price advantages. 

Very interesting report from the Wall Street Journal.  It looks at consumer expectations, costs, and economic sustainability of ecommerce delivery to non-dense areas. An excerpt:

While e-commerce is great for rural America, it is expensive for retailers and delivery companies. 

The longest mail route in the country—a 187.6-mile daily loop for carrier Jim Ed Bull—runs from Mangum. The longer the drive and the fewer the packages per stop—known as delivery density—the lower the profit for the U.S. Postal Service, UPS and FedEx. 

UPS says one mile a day across its U.S. delivery fleet costs up to $50 million a year. UPS’s Mr. Bledsoe drives 56 miles nearly every day to deliver medicine to one customer—a veterinarian—on his route. 

To offset the cost, UPS and FedEx charge an extra $4 per package for remote residential deliveries. The prevalence of free shipping to consumers and the need to price items the same online and in stores, typically leaves retailers bearing this additional cost. 

For retailers, that adds to already steep costs. Shipping a container of Tide Pods laundry detergent from Atlanta to urban Oklahoma City is estimated to cost a retailer $11.44—already more than the approximately $11 price of the item itself, according to an analysis by Spend Management Experts. Shipping the pods to Mangum costs $15.65.

I am the son and grandson of grocers.  Thus is the origin of my interest in demand and supply networks and most -- of any -- expertise.  I am a generalist in terms of how networks respond to duress and disruption.  But when it comes to groceries, I hope to to apply a bit more depth of understanding.

Given this context, I especially appreciate the new piece of public art erected on the Southeast Corner of Central Park (shown below).

According to the Public Art Fund:

MEMORIAL, by British artist David Shrigley (b. 1968, Macclesfield, UK), honors one of the most common of all acts: the writing of a grocery list. By engraving this ephemeral, throwaway list on a solid slab of granite, a material ubiquitous with the language of monuments, the artist humorously subverts both a daily routine and the role of the classic memorial. While Shrigley’s shopping list might appear to posture as a counter monument, through its celebration of a common activity, its anonymity, and absurdity, the sculpture becomes a memorial both to no-one and to everyone—perhaps standing as a simple but poignant ode to humanity.

It also strikes me as a meaningful reminder of how our greatest cities depend on the most quotidian of inputs.

The art will continue on view until February 12, 2017

The implosion of Hanjin Shipping Company has disturbed, distracted, and discombobulated me.  Several recent events, in fact, have had a similar impact.  In the case of Hanjin, I have been trying to determine if this is profound network-effect or "just" old-fashioned bad management: the crucial grain of sand in a catastrophic landslide or just a healthy punctuation?

But while I have been struggling over the evidence, my indecision (among other factors) has kept me from posting on other topics.  So here's a collection of some coverage of the Hanjin collapse.  I will come back to analysis when my mind -- and maybe the situation -- is clearer.

Hanjin Shipping gets U.S. court order, cash to unload ships

Why the global network of cargo ships is suddenly melting down.

Hanjin Shipping: One company with 2.9% market share roils global trade

South Korea’s Hard Line on Hanjin Shipping Signals New Attitude

A.P. Moller-Maersk Profits overboard

"Tremendous Ripple Effects" - Retailers Demand Bailout After Hanjin Collapse (thanks Bill)

SEPTEMBER RETAIL IMPORTS STRONG DESPITE HANJIN BANKRUPTCY

This is a catch-up post that I missed while pre-occupied with Hanjin. The Economist's cover story in the first week of September focused on Uber. As the magazine does so well, this particular case is placed in strategic context:

Investors’ bullishness is bolstered by Uber’s position at the intersection of three linked disruptive trends. First is the emergence of asset-light business models. The cost of expanding is far lower for a startup that does not own its own cars or consider its drivers employees. Second is the shift to the sharing economy, which underlies the success of peer-to-peer services; a system that lets people do as much or as little as they like attracts workers. The third is that consumers, especially young consumers, are increasingly happy to pay for access to things, rather than own them outright.

The piece is, however, entirely focused on the customer-facing opportunity.  The uberization of 3PL is worth more attention.  Here's one take on this issue.

Donny Rouse walking through his company's Denham Springs supermarket after this week's historic flooding in South Louisiana. Rouses Market is supplied by Associated Wholesale Grocers, mostly out of its Pearl River LA facility (north of New Orleans, near Slidell).  Rouse told The Shelby Report that they hope to have the store re-opened for business in eight to twelve weeks.

According to the Times-Picayune:

Seventy-eight miles of Interstate 10 remained closed Monday afternoon (Aug. 15) because of historic flooding in south Louisiana. The state Department of Transportation and Development said all eastbound and westbound lanes were closed along a 67-mile stretch between U.S. 165 at Iowa and Interstate 49 at Lafayette, as well as on an 11-mile section between Siegen Lane in Baton Rouge and Louisiana 73 at Dutchtown.

I-10 is a major coast-to-coast highway, carrying as many as 55,000 vehicles on the average day on the longer of the two closed stretches, according to state traffic counts. The closed section nearer Baton Rouge averages 117,000 vehicles per day. For long-distance motorists, the nearest east-west interstate highway is I-20 in north Louisiana -- 200 miles away. 

Flood waters also caused the closure of eastbound Interstate 12 between Airline Highway in Baton Rouge and Juban Road near Denham Springs. Westbound I-12 was closed between Airline Highway and Interstate 55 at Hammond. 

More than 280 highways were closed around the state.

Associated Grocers, C&S Wholesale Grocers, and AWG all have major distribution centers along Interstate-12.  All are located in parishes encompassed by the federal disaster declaration.  According to the Washington Post:

“I’d imagine that at least half of our employees were affected in some way. We have many of them that have basically lost everything,” said Emile Breaux, President and CEO of Associated Grocers, a major food wholesaler in Louisiana. 

Breaux had employees coming to work the day after their houses were destroyed with just the clothes on their back. They were ready to work — both for the paycheck but also because they needed to work to help the community start picking up the pieces.
For his part, Breaux said he and anyone else who didn’t flood went home and pulled everything they could out of their closets, “and started our own little garage sale of sorts in one of our conference rooms.” 

“We started renting hotel rooms,” he said, “getting them personal care and personal hygiene items.” They also started serving meals to employees and their families. The breakroom, still with air-conditioning and cable TV, began to fill with the sounds of camaraderie.

According to the Baton Rouge Business Report:

At LeBlanc’s Frais Marché, an independent supermarket supplied by AG, owner Randy LeBlanc says the lack of personnel has been his biggest challenge by far. He estimates about 50% of his employees are out, either victims of the flood or helping family members who are. 

Similarly, at Calvin’s Bocage Market, at least 20 employees were unable to come to work today. Owner Calvin Lindsly was restocking shelves, while his family members were working the checkout lines. 

So far, supermarkets that are in operation are managing to keep up with demand for many items, though not all. Water is in short supply, as are bread and chips. LeBlanc says AG has done a much better job restocking his store than have the national vendors. Also running low are paper products and cleaning supplies. 

“It’s a little unusual to be running low on dry goods but maybe people know they might not be able to get back out for a while,” LeBlanc says. “Plus a lot of dishwashers aren’t working so paper plates and paper cups are going fast.”

Making a very bad situation even worse, the Baton Rouge Food Bank's 170,000 square foot warehouse was essentially taken out by four-feet of flooding.

Healthcare Ready is reporting the operational status of pharmacies in the flood-ravaged south-central United States.  Above is a screen capture as of early Tuesday morning.  The updated map is available here: https://www.healthcareready.org/rxopen

This is one of several emerging tools to track and report demand nodes in disasters.  Similar efforts have been undertaken for fuel stations and grocery stores.

Healthcare Ready is a program of the pharmacy industry to strengthen healthcare supply chains through collaboration with public health and private sectors by addressing pressing issues before, during, and after disasters.

Good piece by Farhad Manjoo in the New York Times.  He and I basically agree that Amazon is unlikely to reduce use of UPS and other third-party logistics providers... even as it increases internal delivery capacity.  Based on recent discussions and research, Manjoo concludes that drones are a fundamental piece of Amazon's long-term strategy. Drones may be the only way for Amazon to continue meeting customer expectations as other transportation avenues approach gridlock.  Manjoo makes an interesting case that drones are one way to do an end-run on the realities set out by the Department of Transportation's report  Beyond Traffic 2045.  One quick quote: "...if we don’t change, in 2045, the transportation system that powered our rise as a nation will instead slow us down. Transit systems will be so backed up that riders will wonder not just when they will get to work, but if they will get there at all. At the airports, and on the highway, every day will be like Thanksgiving is today."

DigitalAttackMap shows DDOS indicators for August 11, 2016 at 0700 Eastern. Click to enlarge.

According to Bloomberg, the National Counter-Intelligence and Security Center is launching a new effort focused on the intersection of cyber-threats and supply chain vulnerabilities.

U.S. intelligence officials are planning to provide information including classified threat reports to companies about the risks of hacking and other crimes tied to the supplies and services they buy... The program will be targeted toward U.S. telecommunications, energy and financial businesses, so government threat reports may soon be offered to companies such as Verizon Communications Inc., Duke Energy Corp. and Bank of America Corp.

Several years ago -- well before all the well-publicized corporate hack-attacks -- the supply chain lead for a huge player in the health care sector told me that what he feared most was an intrusion that did not take down his systems, but corrupted data exchange.  Plans were in place for total failure.  But maliciously manipulating the system could have much more insidious results and seriously complicate recovery.

Some details are available from the NCSC here and here.  The FBI also has some recommendations here (PDF).

It is also worth mentioning: About four years ago another member of the US intelligence community -- NOT NCSC -- assigned a team to assess risks to the global supply chain with a particular focus on US economic security.  I was one of several private sector folks who received their first brief. We were then divided into small groups of five or six to talk through suggestions.

As soon as the door closed to the conference room for my small group the guy from US Steel started laughing, joined enthusiastically by the guy from Boeing.  The rest of us merely smiled or shook our heads. "What a joke," one of us finally said. "I know undergraduate interns that have a better handle on supply chain risk."

Supply and demand networks are complex adaptive systems.  This is not a reality easy to understand, much less defend.  While we can welcome the help, we should not assume quick sophistication.