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.

With the Walmart-Jet.com deal decided (if not yet sealed), some thoughts on what could happen and the implications for supply chains.

I am still not convinced this is the right acquisition to spur Walmart's ecommerce ambitions.  But with the purchase Walmart picks up at least three important assets:

1. Marc Lore the founder of Jet.com is a successful ecommerce strategist and start-up leader.  No one has a better handle on what works.  No one is more innovative or prudently risk-taking in developing new ecommerce tactics and techniques.  He has a good handle on technology, supply chain, and finance.  He has gathered a good team.

2. Jet.com has an online tool that (in my words) gives consumers the ability to optimize their pull-signals around the current strengths of the supply network. So, for example, the more proximate the consumer to a Point-of-Distribution, the less costly the item. The more products that can be shipped in a single delivery, the lower the total price. Voluntarily forsaking free-returns saves more money. You see the logic. I have not seen data that totally convinces me that this software is generating more sustainable "pull".  But I'm guessing (hoping) Walmart has seen enough to be confident of future implications. I agree with the logic. (Here's how the Associated Press described the tool: "Jet.com is built on a real-time pricing algorithm that determines which sellers are the most efficient in value and shipping and adjusts prices based on what items are in the checkout cart, as well as how far the desired products are from the shopper's home. So as shoppers throw items in their cart, they're encouraged to add more to build a more efficient cart and buy items labeled "smart cart" for more savings." You can also read Jet's own explanation.)

3. Jet.com allegedly has grown quickly among younger, affluent, urban audiences. Media reports suggest that about 350,000 new customers per month have recently been accessing Jet.com. As a privately-held start-up we don't know much for sure, but -- again -- I'm guessing there was enough of a beachhead among a set of consumers Walmart does not usually engage that the value proposition made sense in Bentonville.

There are other assets.  But are these big three worth roughly $1.1 billion each?

It depends on what happens next.  From a branding and merchandising perspective Jet.com will probably do better the more it is separated from Walmart.  Yet from a supply chain perspective -- and especially from procurement and last mile fulfillment angles -- this connection with the world's largest retailer could be very helpful.

Amazon's Prime program could be characterized as preserving the magic of the supply chain.  After you pay the annual subscription, products magically appear.  The customer can be delighted by a Sunday afternoon delivery that cost "nothing."  Profound bliss.

Jet.com's "real time savings" program involves the customer in making choices to match need-and-capability, earning savings as products and delivery options are selected.  Instead of magic, rewards for virtue, restraint, and intelligence. Deeply satisfying.

In today's world there may be substantial markets -- not just micro-markets -- for both kinds of consumer experience.

RMS -- once upon Risk Management Solutions -- has identified ten high-risk maritime ports identifying those it claims are most at risk for the greatest insured loss.

PORTS AT RISK FOR HIGHEST LOSSES(500 year estimated catastrophe loss for earthquake, wind, and storm surge perils)

		Estimated Marine Cargo Loss in Billions USD*
1	Nagoya, Japan	2.3
2	Guangzhou, China	2.0
3	Plaquemines, LA, U.S.	1.5
4	Bremerhaven, Germany	1.0
5	New Orleans, LA, U.S.	1.0
6	Pascagoula, MS, U.S.	1.0
7	Beaumont, TX, U.S.	0.9
8	Baton Rouge, LA, U.S.	0.8
9	Houston, TX, U.S.	0.8
10	Le Havre, France	0.7

* Losses rounded to one decimal place

That the Ports of Los Angeles and Long Beach are NOT on the list is both a bit surprising and good news.

Last weekend a colleague passed along a report from May that I had missed.

Delivering in a Moving World: Looking to our supply chains to meet the increasing scale, cost and complexity of humanitarian needs was developed by Sara Guerrero-Garcia (Kuehne Logistics University), Jean-Baptiste Lamarche (ACF), Rebecca Vince (Plan International), Stephen Cahill (WFP) and Maria Besiou (Kuehne Logistics University).

According to the report, sixty to eighty percent of humanitarian response budgets are consumed by supply chain costs.  How to ensure both efficiency and effectiveness of supply chains is obviously a fundamental issue.  The authors have attempted to frame the issue around sometimes neglected ground truths.

A couple of long quotes from the report on the role of  private supply chains in civic and public crisis response:

The humanitarian sector should leverage both sectors’ capacities by establishing long-term collaborations with the private sector that recognises the role of the private sector as an enabler of humanitarian work at local, regional and international levels. This collaboration can be improved by establishing integrated partnerships based on cross-functional planning as a better reaction to a crisis can be ensured by having the private sector involved in the preparedness phase. These integrated partnerships could manifest in pre-agreements on virtual stocks, priority access to production information, stockpiles and service capacity, for instance in future health pandemics. They may also include the development of virtual supply chains, innovative technological tools to improve the accuracy of the demand forecast and the establishment of local partnerships. In order to meet large scale response needs, in particular pandemic health crises, we will also need to improve the management of upstream supply chains which will call for a better coordination, transparency and integrated data sharing. 

Later in the document is this recommendation:

Strengthening Local Networks: The paper also touches on the challenges ahead to maintain and improve coordination and collaboration in an increasingly populous and complex aid community. As well as the recommendations made above, there is a need to further expand multi-sector local logistics networks, which would bring together the private, public, local civil society and other logistics practitioners. These networks would need support to bring preparedness onto their agenda and scenario plan for future responses. These networks should not be explicitly ‘humanitarian’ networks, but, as resonated earlier in the paper, break down those silos of humanitarian and non-humanitarian and private sector groups to form a function-oriented community of practice.

There is also attention to using cash distribution to stimulate and restore market-based channels. The authors affirmatively quote  Ian Ridley, senior director of World Vision, who advocates for  a humanitarian response which is “as local as possible, and as international as necessary”.

All good.  All helpful.  And it is worth some further attention to differences between private, civic, and public sectors in terms of purposes, worldview, command-and-control, and alternative attitudes toward different facets of risk.

For example, what is a meaningful operational definition of "integrated partnerships" as used above? Given the differences between sectors is this a realistic goal?  Might "agile" or "adaptive" or even "pre-planned" partnerships be more realistic?

On Sunday, August 7, just off Mt. Vernon Place in Baltimore, next to that extraordinary neo-Gothic Methodist Church, I encountered an Amazon van and driver making a delivery.  I should have taken a picture with the Washington Monument glorious in the background.

Two hours later -- after a great lunch -- I encountered a second Amazon van and driver in the 1000 block of North Charles street.  This is (badly) pictured above.  I waited for the driver/delivery guy to exit the frame (he was on a cell phone trying to find his customer and cast me a look of considerable concern).

Both of the packages were carried very lightly, no more than 12x12x18 inches each.  Books? Shoes? Shirt? Scarf?  I almost asked, but I doubt the carrier would know and certainly shouldn't tell. The two Sunday afternoon deliveries were made on the eastern edge of the 21201 zip code area.  Population density 12,298 per square mile.

Wealth and poverty are tightly mixed in this part of Baltimore.  But the median household income for the smallest census tracks in this zip code does not exceed $57,000 and just a few blocks west can plunge to $21,000.

There is a gigantic -- million square foot -- Amazon fulfillment center in SE Baltimore just north of Point Breeze.  Maybe eight miles from the second delivery location. Still I was surprised. Should not have been. I need to get out more.

Density+Proximity=Delivery.

The whispers and rumors were finally "confirmed" on Wednesday at the Wall Street Journal website. The Thursday newspaper included a front page story on negotiations involving the potential purchase of Jet.com by Walmart.

The start-up online retailer has been operating for less than one year, but the purchase price is expected to exceed $1 billion. (See a May 2016 profile by Money Magazine).

If a purchase is concluded.

The combination is conceived as contributing to Walmart's effort to compete more effectively online. I don't think the purchase of Jet.com would help much.  I am concerned it could hurt Walmart's strategic transformation.

Maybe there's some secret sauce. Maybe I'm blind to something fundamental. But from my angle Jet.com could be an expensive distraction and the price tag for the distraction would end up being a multiple of whatever purchase price is eventually negotiated.

Walmart surged to success during the final years of mass markets, especially rural and exurban mass markets. It was a pioneer in applying contemporary supply chain management concepts and technology to efficiently deliver a wide assortment of products at lower-than-competition price-points, but with sustainable margins because of its SCM advantage.

Since the 1980s Walmart has effectively adapted to the shifting demand-pull of it customer base as wage stagnation and the rural-urban growth divide each exacerbated.  I doubt that Bentonville ever set out to "own" the lower and lower-middle income non-urban brackets.  But in responding to its customers, this is often where Walmart has ended-up.

Amazon emerged during the death knell of mass markets and the proliferation of micro-markets, the availability of online retail to find and serve these micro-markets, and the growth of an affluent, time-constrained, largely urban customer-base ready to try... buy... and drive retail trends. Piper-Jaffray has found that 70 percent of Americans with household incomes above $112,000 subscribe to Amazon Prime.

Seattle is different than Bentonville. Each have their charms, each their strengths and weaknesses. One is much better predisposed than the other to claim affluent, urban, online shoppers. (Jet.com is headquartered in Hoboken, New Jersey.)

I don't see how buying Jet.com shifts this landscape. Walmart and Amazon are each great at SCM, finance, behind-the-scenes technology, and most other fundamentals.  Walmart is burdened with serving a huge customer base that is -- arguably -- disadvantaged in embracing the future.  If Walmart customers demanded fast-fashion, Walmart would deliver and probably do so better than Zara.  But that's not what Walmart customers are communicating in their billions of daily pull-signals. Of course Walmart is paying attention.

The powerful pull-signals of their largely lower-to-middle income, non-urban customer base seriously complicates the ability of Walmart to innovate in terms of online merchandising, branding, and culture... where the battle for the future of retail will largely be decided.

Despite this profound challenge, I think Walmart could still have a long-term advantage over Amazon... largely because of its supply chain strengths. But not if it is distracted from addressing the strategic center-of-gravity.

MONDAY, AUGUST 8 UPDATE:

Walmart announced this morning that an agreement has been reached to purchase Jet.com for $3.3 billion.  The Wall Street Journal has a related report and analysis.

According to DCVelocity, UPS has confirmed its intentions to "fully" automate thirty key nodes in its system.  The most recent comments were made by Myron Gray, head of US operations, during a call with financial analysts on Friday, July 29.  DCVelocity reports that the transition will involve, "a four-year program that will yield 20 to 25 percent in productivity improvements per facility by the time the work is done in 2020."  About sixty percent of current volume moves through the targeted nodes.

For the three months closing on June 30, Amazon reports its most profitable quarter yet:

Net sales increased 31% to $30.4 billion in the second quarter, compared with $23.2 billion in second quarter 2015. The favorable impact from year-over-year changes in foreign exchange rates throughout the quarter on net sales was $166 million. 

Operating income was $1.3 billion in the second quarter, compared with $464 million in second quarter 2015. 

Net income was $857 million in the second quarter, or $1.78 per diluted share, compared with $92 million, or $0.19 per diluted share, in second quarter 2015.

No matter what, a great result... especially given Amazon's keen bias toward investing in the future. But before you sell all your Macy's, Walmart, and Kroger stock, recognize that a big portion of this extraordinary abundance is due to Amazon Web Services, not online retailing.  According to Geekwire:

Amazon Web Services posted record revenue and operating income in the second quarter ended June 30, as the world’s largest cloud-services organization continued to buoy the broader company. AWS accounted for the largest share yet of Amazon’s net sales: 9.5 percent. It also accounted for fully 56 percent of Amazon’s operating income.

Still, Amazon's domestic online retail sales improved a not-shabby 30 percent. Sales outside the US were up 28 percent for the quarter.  This was before July's Prime Day.

Walmart will not report its second quarter until mid-August, but to give you a sense of Amazon oranges to Walmart apricots, here is Walmart's first quarter results:

• Total revenue was $115.9 billion. On a constant currency basis, total revenue was $119.4 billion, an increase of 4.0%. 
• Walmart U.S. delivered positive comp sales for the seventh consecutive quarter, up 1.0%, driven by the sixth consecutive quarter of positive traffic, up 1.5%.
• Net sales at Walmart International reached $28.1 billion. Excluding currency, net sales were $31.6 billion, an increase of 4.3%, and operating income increased 22%. Globally, on a constant currency basis, e-commerce sales and GMV increased 7.0% and 7.5%, respectively. 
• Operating cash flow was $6.2 billion and free cash flow was $4.0 billion, both higher than last year due to solid operating performance and improved working capital management. 
• Consolidated operating income declined 7.1%, as planned investments in people and technology, as well as currency exchange rate fluctuations impacted results. Excluding currency, operating income decreased by 4.6%. 

As a matter of retail sales, Walmart remains the much larger entity: it's non-domestic sales alone nearly equal Amazon's global aggregate. Every year since 2009 Walmart has had net sales of over $400 billion (chart above).  The 2015 total was $482.2. But the smaller, newer Amazon is growing much faster... and the bright young thing often claims our attention as more mature looks and behavior does not. Hence the market value of Amazon exceeds that of Walmart.

Another leading indicator of supply chain rocking-and-rolling: UPS second-quarter results highlight the current over-capacity in freight and clamoring demand for delivery.

The Wall Street Journal reports:

United Parcel Service Inc. reported lower than expected earnings in its Supply Chain and Freight segment Friday. Revenue increased by more than 13% to $2.5 billion in part from the acquisition of Coyote Logistics, but profit dropped more than 7% from $207 million to $192 million in what executives said is a soft freight shipping market...

Meanwhile, on the delivery-side of the business, Reuters reports:

UPS revenue at its core U.S. domestic package business rose 2.4 percent on the year to just over $9 billion. Lower fuel costs and technology improvements helped UPS cut costs by 0.2 percent per package in the second quarter. [The UPS international package segment grew 11 percent (PJP)] Like other package delivery companies, UPS has benefited from a rapid rise in ecommerce, but has also struggled to bring down the extra costs associated with making stops at individual residential addresses rather than at businesses.

 Especially on the domestic side, some of the UPS good news is an echo of Amazon's good news.

According to Fortune:

Amazon spent $3.36 billion on shipping costs over the quarter, up 44% from the same quarter last year. The company has been looking to take over parts of the shipping process over the past year, leasing trucks, planes, and even considering drones to build its own shipping network. If Amazon is able to build this shipping network, it could rely less on the multinational shipping giants, such as UPS and FedEx, and potentially avoid some of the costs provided by these companies.

Given the kind of growth that Amazon seeks -- even needs -- I expect shipping costs will continue to expand regardless of internal options deployed over the next three-to-five years (or more).  Building up internal shipping capacity could actually magnify these costs in the near term.

Which in a potentially paradoxical manner, unveils a fundamental strength of that once sexy, still handsome player from Bentonville. The Walmart supply chain is already forward deployed. Instead of delivery, it can focus on pick-up... preserving its advantage in less expensive distribution modalities and shifting the extraordinary expense of last mile fulfillment to consumers themselves.

In the right hands with the right concepts, this is not just a cost (price) advantage, but could also become a speed, customization, and cross-selling advantage.

The Sacramento Bee reports:

The U.S. Postal Service plans to continue delivering groceries to homes in the Sacramento area and expand its experimental business model to more markets.   

Speaking to the success of the initial testing, Patton said, “The volume of deliveries is steadily growing and our on-time performance is more than 90 percent.” 

In partnership with AmazonFresh, the delivery service has the Postal Service’s fleet delivering fresh groceries and prepackaged goods to customers in 38 experimental ZIP codes, including metropolitan areas such as Sacramento, Los Angeles, San Diego and New York City.   

Meiko Patton, Sacramento region Postal Service spokeswoman, said the market test has been operating in Sacramento since mid-March 2016.   

Deliveries can be made to ZIP codes as far north as the Chico area, west to Vacaville, east to Pollock Pines and south to Fresno,

A survey of 257 carriers and owner-operators by DAT Solutions finds:

Most drivers spend 3 to 4 hours waiting to get loaded or unloaded... Of the carriers surveyed, 54% of them said that they wait between 3 to 5 hours every time they're at a shipper’s dock. Another 9% said that they wait more than 5 hours on average.

More detail from DCVelocity 

Bloomberg and others are reporting that UPS will test "standard" Saturday home delivery:

The initial test markets include Atlanta, Philadelphia and Los Angeles, according to a person briefed on the company’s plans. The service is expected to start this summer. 

While its Teamsters-represented drivers typically work Monday through Friday, UPS’s contract with the union lets it evaluate new services without violating work rules, Gaut said. A spokesman for the Teamsters’ package division, which represents UPS workers, declined to comment on the Saturday tests.

The Atlanta-based shipper is remaking its worldwide network to accommodate online shopping while watching potential competitors move into its industry, including courier services now pitching same-day delivery. U.S. e-commerce sales totaled $343 billion last year, according to consulting firm AlixPartners, and had a compound annual growth rate of 17 percent from 2000 through 2015.

UPS -- and others -- are working to determine what sort of dense demand is necessary to support the extra expense associated with this sort of expanded service.  When can what be delivered to where and still turn a profit?

On June 28 the Securities and Exchange Commission, "proposed a new rule that would require registered investment advisers to adopt and implement written business continuity and transition plans. The proposed rule is designed to ensure that investment advisers have plans in place to address operational and other risks related to a significant disruption in the adviser’s operations in order to minimize client and investor harm."

The rule has nothing directly to do with supply chains.  I link it here mostly as another example of the increasing attention that is being given to risk and resilience.  The proposed rule specifically notes:

It is critical for investment advisers to focus on resiliency so that they can continue to provide services to their clients when events impact the availability of systems, facilities, and staff. The ability to recover such systems, including third-party vendor provided platforms and services, and business operations in a timeframe that meets business requirements is important to mitigating the consequences of disruptive events.

The proposed rule gives particular attention to each of the following five elements:

• maintenance of critical operations and systems, and the protection, backup, and recovery of data; 
• pre-arranged alternate physical location(s) of facilities and/or employees;
• communications with clients, employees, service providers, and regulators;
• identification and assessment of third-party services critical to the operation;
• plan of transition that accounts for the possible winding down of the business or the transition of the business to others in the event the adviser is unable to continue providing services. 

While considerably different in context, attention to each of these elements aimed at financial advisers would also enhance the resilience of supply chains.

Consistent with the SEC culture of investor transparency, the rule also proposes to make the business continuity plan substantially available to the public.

The proposed SEC rule can be found here.

Demand for industrial space is sharply increasing in most US urban areas and supply is not keeping up.

“The good economy and the change in distribution logistics has led to an increased demand,” said Jeffrey Havsy, CBRE’s chief economist in the Americas. “Now it’s more about having the right products near the customer, and that means more points of distribution rather than a single point of distribution.”

For example, in the ecommerce hot zone of greater Los Angeles CBRE reports that vacancy rates for warehouse-like space is at an all time low of 1.1 percent. Nearly forty percent of all new space under construction is pre-leased.

Part of the problem with supply meeting demand relates to construction capacity -- including available and appropriate real-estate close in to dense and affluent residential areas. '

A related CBRE report concludes, "The supply chain is where real estate and logistics intersect and companies are rethinking how and where to strategically locate their distribution and fulfillment facilities."

Original is a bit larger

A helpful distillation of unfolding reality from a much longer piece in today's Wall Street Journal:

The transformation of US retail malls, "highlights the way e-commerce has fractured retail logistics, with demand to deliver truckloads of goods to outlets giving way to more nimble distribution of lighter loads to smaller storefronts and distribution centers. The challenge for shipping providers is making those sorts of deliveries with the efficiency that comes with bigger loads for big clients."

Implicit in efficiency, but worth making explicit: And at a sustainable financial margin.

Decentralization and diversification of retail networks should produce a more resilient system than the hub-and-spoke model that has often been the goal (if not the operating reality) for the last generation.  At least this seems likely where there is sufficient demand volume to achieve sustainable revenue on thin margins.

One example: Reston Town Center in wealthy Fairfax County, Virginia. See map and store directory above. (I apologize for the fuzzy quality, it is the best I could find.)This is a major retail destination -- sans any Department Store.  Consider the proportion of restaurants and entertainment compared to other retail.  Busy, busy, busy.  According to the property manager, RTC has "Four million square feet of office space has a remarkable vacancy rate of less than one percent. Plus, its office space rents for $20 more per square foot than office developments only blocks away."  The retail mix is key to this success.  This mix reflects demand-pull of affluent residents.

Where population or cash (or both) are less abundant, it seems to me we are likely to see increasing supply network centralization and "optimization" (less diversity), in order to justify any investment of capital.

Tomorrow -- July 12 -- starts a now five day "celebration" of Amazon's Prime Day.  This is the company's effort to create online buzz and buying behavior analogous to the offline Black Friday start of the Christmas buying season... loosely associated with Amazon's founding date.

Once again joining the party -- with all the enthusiasm of a jealous, older half-sibling -- Walmart has announced its own set of Prime Day benefits.

Basically it's the oldest of marketing ploys, offering -- or at least implying -- deep discounts to drive traffic and thereby generate market interest, a predisposition to consume, and set the stage for purchases beyond the discounted items.  Offer a turkey for $5 and depend on customers to buy the rest of their Thanksgiving menu while they are in the store.

Prime Day discounts are only available to those who have paid a $99 annual subscription that guarantees two-day shipping for no additional cost... yet another tool for prompting a predisposition to purchase.  (The more I buy, the more I justify that subscription expense. Human psychology is predictable, but not always "rational" in the usual academic meaning of the term.)

According to Amazon and Money Magazine, last year's first stab at Prime Day exceeded expectations:

Eighteen percent more orders placed worldwide on its "Prime Day" than on last year's (2014) Black Friday, which was the biggest ever. 

The online retailer also said it got more new Prime subscribers for the Wednesday sale than any other day in the company's 20-year history. 

"Customers ordered 34.4 million items across Prime-eligible countries, breaking all Black Friday records with 398 items ordered per second," Amazon said. "Prime Day was also a great savings day -- members globally saved millions on deals. Customers ordered hundreds of thousands of Amazon devices -- making it the largest device sales day ever worldwide."

With all of this organized around the promise of "free" shipping, the supply chain implications are enormous.

Karl Siebrecht argues that the only effective way of competing with Amazon is to reconceive -- and more to the point, re-build -- distribution networks to focus on satisfying customer demand as the primus inter pares of goals. This often involves decentralization and diversification: reversing mainstream thinking of the last thirty-some years.

UPDATE:  Amazon says Prime Day purchases were up sixty percent over last year. AdAge reports that several other retailers saw same day online traffic triple or more.

Honeywell is a Fortune 100 company founded in 1927, its current form is the product of a late 20th Century acquisition by Allied-Signal, itself a 1985 merger of firms with roots reaching back to the late 19th Century.  

Honeywell usually has annual operating revenue of more or less $40 billion and a healthy profit margin.  A going concern for sure.

Automation and Control Systems (ACS) is one of three Honeywell Strategic Business Units and is an increasingly prominent player in supply chain visualization and management tools.  According to DC Velocity, Honeywell:

will acquire material handling automation provider Intelligrated Systems Inc. from its private equity owner for $1.5 billion, triggering a second wave of consolidation in the material-handling sector just two weeks after rival systems integrator Dematic Corp. was sold.

With the two largest U.S.-based material handling suppliers trading hands within a month, the changes show a rush by automation providers to stay ahead of fast-growing demand for e-commerce and home delivery. 

Germany's Kion Group AG acquired Atlanta-based systems integrator Dematic Corp. for $2.1 billion on June 21, in a effort to extend its core businesses of forklifts beyond basic warehouse technology into the broader world of logistics systems integration...

Intelligrated's warehouse execution system (WES) software and order fulfillment technologies will complement Honeywell's product lines in mobile computers, scanning and auto-identification, and voice automation technology, the Morris Plains, N.J.-based industrial and technology giant said in its statement.

In the 1920's and 30's Honeywell became a major company -- and a household brand -- by innovation and  development of thermostats.  For the first time environmental signals were effectively processed to automatically direct the output of heating systems.  The company is now putting together systems to gather and apply pull-signals to automatically manage the output of supply chains.

In terms of digital pull-signals, does it surprise that, according to Market Watch, Starbucks "had $1.2 billion loaded onto Starbucks cards and the Starbucks mobile app as of the first quarter of 2016?"

The Starbucks figure exceeds the deposits at many financial institutions, including California Republic Bancorp ($1.01 billion), Mercantile Bank Corp. ($680 million) and Discover Financial Services ($470 million).

It shouldn't have, but it surprised me.

Amazon is starting to offer its own line of private label groceries.  According to CNET:

The e-commerce giant has quietly launched its first-ever private-label foods on its website, now selling Happy Belly coffee and Mama Bear baby food. A company spokesperson confirmed that both products are made by Amazon and went on sale in the past few days. The products are only available to Amazon Prime members in the US.

Certainly these are just baby steps into the huge private label marketplace, but it signals strategic intention.

The move comes at the same time that Walmart is doubling down on a program directly competitive with Amazon Prime.  According to the company:

A free 30-day trial of ShippingPass, which gives you unlimited two-day shipping. If you already have ShippingPass, there’s also good news -- we’re going to give you an extra month for free, so look out for an email. ShippingPass is about half the price of similar programs out there at just $49 a year

Amazon's "similar program" is priced at $99 per year.  In the spirit of the Fourth of July holiday, Walmart is inviting customers to declare independence from "others". Worth remembering the Declaration of Independence was adopted in 1776.  The War of Independence ended in 1783.  In 1812 the Brits occupied Washington DC and set fire to the White House.

And don't neglect Kroger's Checklist program.  If Amazon is King George, maybe Walmart is Benjamin Franklin and Kroger is Sam Adams.

We're still in the early years of the revolution.

Great quote in the June 28 WSJ.  Under increasing financial pressure to optimize inventory, Tom Shortt, Home Depot's Senior Vice President for Supply Chain said: "Get comfortable with days of inventory, not weeks."  Online buying habits and speedy fulfillment capabilty also allows big retailers to consolidate -- and shrink  -- stock for many products at the distribution level rather than across their retail network.

UPC and related technologies were originally conceived to support inventory tracking.  They have unveiled consumer behavior... for those willing to gently lift the veil.

Sundip Naik, vice president of supply chain, innovation and digital services at Capgemini, recently made this case to WWD:

It is ironic that technologies, to listen to digital customer sentiment, have never been so capable and full of opportunity, yet only a small percentage of companies are investing in these systems. 

Today, creating and maintaining a customer-centric supply chain is possible, but it requires the investment in listening technologies and building cross-functional teams to use the data. Data can also be leveraged in multiple facets to inform the planning process. Below are some key areas retailers should consider where data can be leveraged to help planning and process:

• Merchandising Planning: Analytics around customer behavior, market basket analysis, shopping cart analysis, cohort analysis and local purchase behavior analysis

• Assortment Planning: Consumes additional analytics around social listening, CRM and location in conjunction with merchandising and forecasting data

• Forecasting: Utilizes analytics around social, e-commerce, POS and market segmentation; Forecasting analytics can also provide early warning on products that are selling too fast and can provide obsolescence visibility

• Replenishment: Employs data to inform loss sales, percentage of orders fulfilled on time and real-time visibility of in-transit inventory using technologies such as GPS/RFID

Fundamental to making this shift is a matter of worldview. Does the "supply chain professional" focus on the chain... or does the "supply and demand executive" look at balancing relationships between push and pull... or does the "curator of demand" concentrate on serving constantly shifting flows?  Is it a canal you own and operate or a white water stream you are rafting? Control or creation? 

On June 26 forty-two years ago the first retail product with a Universal Product Code was sold.  The immediate consequences were modest and actually increased marginal costs across the supply chain.

By the 1990s UPC and related processes had informed a stream-lining of logistics that substantially reduced distribution costs among leading competitors.

In the last decade these tracking technologies have transformed commerce by facilitating the capture and communication of increasingly granular expressions of demand... and the revolution is really just beginning.

The intersection of tracking buying behavior with online -- and especially mobile -- retail creates the potential for mass customization of production, distribution, and delivery that will drive competition for the next generation.

Sears and Roebuck claimed the potential of telegraph and railway. Sam Walton recognized the potential of Interstate Highways and UPC-driven supply chains. Jeff Bezos is battling with Sam's successors and others to own digital demand.

Data streams from consumer behavior -- facilitated by UPC-related technologies -- now allow designers, manufacturers, and retailers to "hear" and target demand as never before.  Most are not listening.  These will die.  Those who listen are more likely to continue competing, even as the digital domain dramatically increases its decibel level.

Earlier today I provided a colleague with information on the 2016 Allianz Risk Barometer and realized that somehow I failed to link 6/26 to this year's version when it was released early this year.  Worth correcting now. Once again at the top of the risk continuum:

The impact of business interruption (incl. supply chain disruption), market developments (volatility, intensified competition and market stagnation)and cyber incidents are the major risks occupying the attention of companies at the start of 2016, according to the fifth annual Allianz Risk Barometer, which surveys over 800 risk managers and corporate insurance experts from more than 40 countries.

Many of the other risks queried against -- fire, cyberattack, natural disasters -- are experienced as supply chain disruption.

Writing in Modern Materials Handling, Bridget McCrea suggests that the demands of ecommerce are pushing major changes in processes, technology, and expectations related to the "last mile."

In the last thirty years line haul costs have fallen fast and far as a proportion of total costs.  In the next ten years last mile delivery will almost certainly follow.

The Council of Supply Chain Management Professionals (CSCMP) has released its 2016 State of Logistics Report.  According to Jeff Berman, writing at Logistics Management:

Among the report’s key conclusions is the logistics industry is entering a new era. The report predicts over the next decade, the logistics industry will face “disruptive forces,” including technology and operational constraints that threaten to fundamentally change the rules of the game. 

It may already be starting. Motor carriers are experiencing rate weaknesses, especially in the $278 billion truckload market, as temporary overcapacity has given shippers some pricing power. The report concluded that TL rates and demand for transportation are “soft, and continue to fall.” 

While this is occurring, the TL sector copes with nearly 100 percent driver turnover as the truck driver shortage continues. “Despite softening demand and slower rates, competition for drivers remains intense,” the report concludes. 

There are bright spots for asset providers, however. The $82.2 billion parcel and express sector, fueled by double-digit growth in B2C online commerce, continues to grow. Its main drivers are the “explosion” of B2C e-commerce and omni-channel retail, the report says.

The revolution in ecommerce depends on agile, adaptable, affordable surface transportation. Even as ecommerce explodes, many traditional delivery mechanisms are taking-water.  Because the traditional Truck Load providers are being replaced by non-traditional alternatives?  Because parcel delivery is the ecommerce center of gravity? Because LTL is rising? Because inventory costs are creeping up. Because speed-to-market is becoming more important than cost-saving?  Because [insert your best guess]?

Journal of Commerce reports on how the shipping industry is not adapting to the new demands of ecommerce.

The main challenge is in communications, he said. “Vendors are trying to get product from the port faster, but the communications layer is broken. They’re using a lot of work-arounds,” he said. For example, building inventory stockpiles inland and shuttling freight to stores. 

“They’re doing that because they can’t guarantee they’ll meet a must-arrive-by deadline,” McCandless said. The blind spot on inbound freight can be quite big. “We’re working with one large U.S. retailer that has a 30 percent black hole on inbound tracking,” McCandless said. 

Where are the communications connections broken? Pick your location. The transfer of a container from ship to shore is one data problem point: When will a container be unloaded, where will it be stacked and when can it be pulled by a drayage operator?
As a shipment heads inland, how are dray deliveries scheduled? Are shippers notified when a container has been deconsolidated and when a truckload or intermodal shipment has been dispatched? How are landside shipments tracked in-transit? How are delivery appointments scheduled at inland distribution centers? Are shippers alerted when a less-than-truckload shipment is dispatched to a store or factory? How is data transferred for last-mile deliveries? 

...“The industry needs to fundamentally rethink how it does business and not just try to out-Amazon Amazon,” said Richard Metzler, chief marketing officer at uShip, an online transportation marketplace. “All the retailers are struggling to figure out what to do against Amazon. There’s too much inventory from a cost and service point of view. It has to change.”

The article gives especially helpful attention to the tendency to assume that effective information-sharing requires something akin to Electronic Data Interchange (EDI).  More often all that's needed to facilitate hand-offs across demand and supply networks are a set of thin Application Program Interfaces (APIs).  EDI requires the intimacy -- and complications -- of sex.  API is more like a friendly kiss.

US ecommerce sales growth year-over-year provided by Internet Retailer

A recent DCVelocity story offers a very helpful overview of how ecommerce is reshaping Distribution Centers.  According to the authors:

Customer expectations and competition from e-commerce are driving widespread changes to warehousing and distribution operations. Direct-to-consumer growth is not only affecting retailers, but also manufacturers, wholesalers, and 3PLs. Warehouses and warehouse fulfillment operations are increasingly playing a greater role in commerce due to disintermediation and a reduction in retail sales through stores. On top of that, the relationship between retailers and upstream partners is changing, as wholesalers have increased their presence in retail and retailers have pushed direct-to-consumer responsibilities back onto their suppliers. As a result, warehouse footprints are expanding, responsiveness and adaptability have become more important, parcel shipping has grown, and labor efficiency remains as important as ever.

The authors make the case that many of the efficiencies supporting the last generation's supply-and-demand networks are counter-productive to the speed and specificity of ecommerce.  We may be making a turn from pallets to pieces.

When Jeff Bezos suggested Amazon would begin delivery-by-drone, some perceived a Machivellian effort to distract competitors with an ecommerce "space race".

But according to the Xinhua news agency;

Chinese online retailer JD.com has begun using drones for deliveries in the countryside of east China's Jiangsu Province. 

The service around Suqian City, hometown of JD.com's founder Liu Qiangdong, can more than halve the cost of delivery to less than 0.5 yuan (7.6 U.S. cents) per parcel, said Xiao Jun, vice president of JD.com. 

At a delivery depot in Suqian's Caoji township, two drones are capable of handling 200 parcels a day. The drones can each carry 10 to 15 kg of weight and fly 15 to 20 km at a speed of up to 54 km per hour, said Xiao. 

They can automatically load and unload goods and operate in moderate rain and wind with a speed of up to 38.5 km per hour.

Meanwhile Walmart is getting lots of positive attention for its plans to use drones to speed-up Distribution Center operations.  According to The Street:

Walmart appears to be taking the sensible route when it comes to integrating drone technology into its business operations. For one thing, the company plans to use only remote-controlled flyers, rather than self-autonomous. The first application for drone technology will be in taking inventory. It takes Walmart warehouse workers about one month to check what goods need to be restocked, according to Reuters.Using a frame rate of 30 per second, drone-mounted cameras will be able to accomplish this in a fraction of the time.

Amazon is reportedly looking to test use of drones for home delivery in Ireland.  Several tests are also underway to use drone delivery in disaster situations.

June 21 Update: New US regulations continue to restrict the use of drones for ecommerce deliveries.