Walmart Commences with Item Level RFID

Walmart has never been afraid to be at the forefront of the retail industry and their expanded use of RFID is no exception. As of August 1st, RFID tags at the item level have made their debut, imbedded in men's jeans and basics, as Walmart seeks to gain more insight into their inventory and pinpoint greater opportunities to improve sell-through.

An article published by RSR discusses the business case for Walmart's decision to move forward with this initiative and the benefits they stand to reap from this undertaking. Specifically mentioned are four ways that their use of item level RFID tags can address current inventory concerns regarding slow moving merchandise:

• By providing better information on shelf level product availability and demand
• By telling them how popular particular styles and colors are should they choose to use "smart shelves" and "smart tables"
• By enhancing visibility, which would drive better markdown and transfer decisions
• By allowing for the use of "smart phone" applications to align real-time customer demand with real-time supply

Given what they stand to gain, notably deeper visibility, success in this limited product category would likely mean the spread of item level RFID tagging across the board – not just at Walmart but at other chains, as well. It is noted that Macy's and JCPenney are already looking into this and other chains have been quietly inquiring into how item level RFID can play a role in their supply chains – from manufacturing to POS. Suppliers are advised to start preparing now for what looks to be the wave of the future.

About the Formaldehyde Standards for Composite Wood Act

The Formaldehyde Standards for Composite Wood Act (FSA) was signed into law July 7, 2010, establishes formaldehyde emission standards for composite wood products under the Toxic Substances Control Act. FSA is modeled after the standards set by the California Air Resources Board (CARB) and covers products made with hardwood plywood, medium-density fiberboard, and particle board.

Pressed wood is wood particle pressed together using an adhesive, usually comprised of urea-formaldehyde. Examples of products using pressed wood flooring, shelves, cabinets, wall panels, and furniture. When pressed wood is not sealed or laminated, it has the potential to release formaldehyde. Due to rising health concerns in connection with formaldehyde, Senators Mike Crapo (R-Idaho) and Amy Klobuchar (D-Minnesota) introduced a bill to create national standards regulating its use. Now law, the EPA must promulgate regulations implementing FSA emission standards by January 1, 2013 and the regulations will become effective 180 days after that date. It is expected that products sold, supplied, offered for sale, or manufactured in the United States will have to meet formaldehyde emission standards of about 0.09 parts per million.

Additionally, under the FSA regulations, the EPA must:

• Address third-party testing and certification requirements to ensure compliance.
• Work with Customs and Border Protection (CBP) and other relevant federal agencies to enforce the standards for imported wood products.
• Provide requirements for product labeling.

For more information, the full bill is available here.

Avoiding Supply Chain Dead Zones

An article in IndustryWeek outlines the necessity for companies to manage their supply chains efficiently, especially since supply chains are now global entities. Danny Halim, Vice President of Industry Strategies with JDA Software, states that "Risk management is an essential ingredient in logistics planning, particularly when it comes to global commerce. Many companies are still in reactive mode when it comes to adapting their global logistics network that is usually driven by factors or events outside of their control."

The article suggests that companies do the following to address issues associated with supply chain inefficiencies:
• Strategically Evaluate Your Company's Global Logistics Network
• Manage the Risk Factors
• Link Transportation to Inventory Management
• Optimize the Product Flow Path

It is essential that companies are cognizant of how their supply chains are operating. By identifying where disconnects exist and resolving them, companies can reduce costs, increase visibility, and mitigate risk.

Traditional Outsourcing vs. "Vested Outsourcing"

In this economy, every expense is being scrutinized and outsourced services have or will, at some point, come under any given supplier's microscope. As such, the "conventional model" of outsourced services, wherein activities that cannot be accomplished by the supplier itself are handed off to a third party service provider, is being given a second look - a long, hard second look.

An article published by Forbes discusses the contrast between the long established view of outsourced services versus the new concept of Vested Outsourcing. Where the traditional concept is transaction based, that is payment is rendered, for example, by the unit, Vested Outsourcing focuses on mutually agreed upon goals that benefit both the supplier and the service provider. Using the Vested Outsourcing model, the service provider "looks at how it can best apply processes, technologies and capabilities that will drive value to the company that is outsourcing." In return, the supplier "commits to allow the outsource provider to earn additional profit – above and beyond industry average profits for their service area – for achieving this incremental value."

Kate Vitasek's book, Vested Outsourcing: Five Rules that will Transform Outsourcing, further explores the Vested Outsourcing concept, outlining how suppliers and service providers can work together to attain desired outcomes neither could accomplish individually. The Vested Outsourcing model addresses the economic concerns of outsourcing in today's shaky environment and embraces collaboration as a means of achieving results.

Walmart Seeks More Control Over Transportation Costs

An article by Bloomberg discussed Walmart's intent to gain more control over their transportation costs. Walmart is presently contacting their supplier base in an effort to take over deliveries that would be more cost efficient for them to haul. As such, Walmart hopes to translate savings in transportation costs into savings for their customers.

Obviously this would move would render big benefits for Walmart. Since they only transport goods from their DC's to their stores, it stands to reason that currently return trips are turning in many an empty mile. Deadhead moves are extremely costly and if Walmart can turn those empty miles into backhaul opportunities, it's certainly a worthwhile move on their part. Moreover, if Walmart is successful, they can handicap their competitors by taking away the freight volume that would have otherwise afforded their competitors lower freight rates, especially on lanes where inbound freight to their competitors' locations are currently lower because the backhauls consist of freight destined to Walmart's locations. Additionally, the price cuts that would be rendered to Walmart from their suppliers collaborating with them on these moves coupled with increased consumer traffic in their stores due to passing on these savings at point of sale, serves as proof that the successful execution of this plan will become a definite strategic advantage for the world's largest retailer.

Where does that leave suppliers? Well, it's certain that suppliers should do their homework on what their true transportation costs are, for both Walmart and their rest of their retail customer base, in order to make an educated decision on the matter. Kelly Abney, Walmart's Vice President of Corporate Transportation, states that "There may be a disconnect when we walk into the room on what that cost might be, but we work collaboratively. As soon as a supplier shares the data, almost always those differences are quickly resolved." Knowing the transportation costs for Walmart's moves will be helpful but it's also recommended that suppliers be mindful of their future transportation costs for the remainder of their retail customer base to see if costs go up. Coming back to the table later on may be necessary and should be part of the original agreement.

Furthermore, it's interesting to note that in conjunction with Walmart's Supply Chain Reliability Program, suppliers may be able to share the benefits of this effort with Walmart. If their fleet is responsible for the delivery of goods to their DC's within their MABD window, suppliers would presumably have one less burden upon them in that it would not be an outside carrier responsible if a pick up or delivery is missed (due to carrier fault) – it would be Walmart's responsibility entirely. The use of Walmart's fleet for the shipment of PO's affected by the program might render higher compliance with the initiative, thereby translating into savings for suppliers (where non-compliance would have otherwise resulted due to poor carrier performance). This is pure speculation but it might be worth delving in to.

In any case, suppliers should not be left in the dark nor should Walmart ignore this opportunity to realize true cost savings in a tough economy. Collaboration and communication will ensure a mutually beneficial outcome for both parties.

Supply Chain Initiatives for 2010

An article outlining a survey jointly conducted by IDC Manufacturing Insights and IDC Retail Insights explored supply chain initiatives for 2010. 415 manufacturers and 179 retailers in the United States responded to the survey with respondents coming from various areas within their organizations, including procurement, supply chain, manufacturing/operations, merchandising and IT.

According to the article, the most important supply chain initiative for 2010 is product quality. In light of numerous product recalls, the results reflect the interest of retailers and manufacturers alike to ensure their products meet consumer expectations.

Furthermore, reducing costs is the top supply chain priority amongst the respondents. Forecasting capability and accuracy and improving responsiveness to demand changes ranked highly, as well - an indication that companies want to be prepared for economic recovery.

Regarding IT application investments, sales & operations planning (S&OP) is ranked highest for both retailers and manufacturers. Manufacturers place strategic sourcing as the next investment priority while retailers' are focusing on inventory optimization as next on their list. Additionally, manufacturers with more than 10,000 employees are investing in manufacturing execution systems (MES) in an effort to standardize how their factories are run.

The results of the survey are telling in that retailers and manufacturers share a desire to streamline their supply chains without sacrificing consumer confidence. Moreover, companies are cautiously optimistic of an improved economic state, choosing to invest in initiatives that will provide practical results in the long run.

Optimizing Your 3PL Relationships

A recent article in SupplyChainBrain explores five ways to improve collaboration between shippers and their 3PL partners to optimize results. With many suppliers looking to 3PL's to enhance their existing supply chains, it is imperative that the lines of communication remain open between both parties. Effective partnerships incorporate the following five elements:

1. Fit. It is important that shippers select 3PL's "with deep and extensively demonstrated vertical domain expertise, capable of growing with the company and skilled at introducing best practices based on vertical-specific key performance indicators (KPIs) to manage the relationship well." With the proper fit, a 3PL partner will focus on the shipper's needs and goals, ultimately serving as a welcome helping hand because they will focus on understanding exactly "what's expected and doing it well – avoiding the pitfalls of over-commitment and associated under-performance."

2. Quarterly Business Reviews. The article states that "The most effective QBRs are comprised of three components: reviewing the recent past, evaluating the present and preparing for the future." Communication and clearly defined goals and expectations are musts between shippers and their 3PL partners. There should be a benchmarking process in place with supporting data and analysis by which the 3PL is measured. Both sides should be on the same page regarding concerns, future expectations, and KPIs. Additionally, executive level involvement is essential to ensure alignment and emphasize commitment to the relationship.

3. Control. Shippers must retain control of their supply chain. Over-delegation creates confusion and conflict, defeating the purpose of using a 3PL to begin with. "In the best relationships, the 3PL functions as an integral extension of the customer, using their specialized expertise to accomplish greater results than the outsourcer would be capable of on its own."

4. Configuration. The 3PL needs to be able to support the business rules of the shipper and be flexible enough to adapt to a variety of situations.

5. Continuous Improvement. A shipper's chosen 3PL should strive to be more competent as the relationship progresses. 3PL's that have the ability to identify and eliminate inefficiencies and improve performance create a win-win for both parties.

It is clear that open communication between shippers and their 3PL partners with defined expectations and ongoing analysis and benchmarking is the key to experiencing mutually beneficial results. Proper management and alignment on both sides of the table will ensure that using a 3PL will serve as a compliment to the shipper's own supply chain and processes.