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.