DEEPER DIVES - #0001

Welcome to the inaugural issue of Deeper Dives

Thank you for joining.

What you’ll find in this newsletter are insights and perspectives from my career in Operations and Supply Chain. I’ll get into information and insights that I don’t share anywhere else.

My goal will be to keep things interesting, relevant and punchy. You’ll get topics and musings that are currently on my mind - fueling a lot of the work I do with clients at different stages of business maturity.

Here’s what this issue brings:

• Featured Article: The behind the scenes pressures building in direct to consumer fulfillment fueled by giants like Shein and Temu

• Broader Focus: Specific use cases for getting the most out of your geospacial data to improve execution and customer experience

• From the Community: A critical focus for technology in Supply Chain

(Click on any link above to jump to what interests you most)

The Quiet Rate War That’s About to Shake-Up D2C Fulfillment in North America

It’s estimated that 685 million eCommerce packages entered the US as an import in 2023. That works out to almost 1.9M packages per day of activity.

Around a third of that is coming from players like Shein, Temu and Tik Tok Shops.

While Shein has a lot more margin to play with, averaging $75 per US order, Temu is unrelenting in it’s pursuit of the US market. Their meteoric rise is fueled by appealing to budget-conscious shoppers. The result is an estimated AOV of $25.

That’s all gross dollars of course. Which means that revenue has to support the entire value chain that they are building.

Over the last 6 months, most of the major Chinese players have invested heavily to increase their delivery speed. The 2-3 week delivery cycles that they started with are quickly fading. Both companies are now making delivery promises of 7 days or less from the time you hit ‘buy’.

Regional Carriers

COVID gave rise to a lot of regional carriers. VC money poured into logistics as delivery for everything was the hottest trend. With options from on-demand restaurant delivery right through to traditional capacitized routing with gigworkers, the possibilities seemed endless.

Even with only 6% of the US parcel market moving through regionals, there was more than enough to go around to make these businesses make sense. Everyone had to deliver something to someone if they wanted to keep the lights on.

Higher rates were justified since in-store traffic had bottomed out or was non-existent.

But what happens when people stop paying the inflated rates?

Chasing Density

Density is the key to successful delivery operations. The health of your business and your ability to stay in business comes down to two factors:

• Quality of Revenue

• Transactions per Hour

With markets returning to ‘normal’, delivery and in-store transactions started to re-balance. Add to this a concerted and focused effort by UPS and FedEx to repatriate volume, and Amazon flipping back on their logistics service - and there’s a problem.

Volume from Asia started to fill the gaps. Regional carrier after regional carrier started to make deals with these eCommerce giants. They are already driving the streets and passing the doors, they need more revenue per day if they are going to survive.

This sounds like a perfect match, until you know the terms.

Shein, Temu, Alibaba and others are not paying “typical” delivery rates.

Not even close.

The last 4 months have been brutal. All of these regional carriers are in a price war trying to secure more of the volume that has helped them stay alive as domestic share has dropped off.

Incoming Problems

Handling that many packages isn’t easy. Even if all you are doing is injecting them into your existing network, you still have to receive and process each piece in order to get it into a customer’s hands.

Warehouse operations, sorting operations, delivery.

With most delivery promises being “next day” from the time a carrier receives it, this means processing injections happen up to 2AM the DAY IT’S GOING OUT!

This is all feasible and the level of activity isn’t the problem per se.

The issue is what they are getting paid to do it.

Carriers scrambling for volume has dropped per package revenue to $2 or less. I’ve had conversations where people have shared having to get close to $1 per package in order to secure large volume commitments.

The carriers are using whatever domestic volume they have left as the foundation, and trying to layer on anything they can to make things work.

This strategy is poor.

It will get you into a space where you are stuck on both sides. Too much volume to drop network assets, but not enough revenue to carry the operations.

The (flawed) thinking out in the market is that the Asian volume will stabilize activity, allowing them to re-bid and aggressively chase domestic volume to get back to profitability.

I don’t see this happening for the majority of regional carriers out there.

Closing Thoughts

I’m watching closely. It’s a sticky situations for retailers, as there is a general frustration and discontent with the current options (UPS, FedEx, USPS) while at the same time uncertainty around partnering with carriers that may go belly up within the next 6 months.

The pressure from China is not going to stop either.

Word on the street is that the 7 day delivery promise is already tired.

Delivered in 3 days. Anywhere in the world.

Use Geohashing to Improve Your Insights & Operations

My post earlier this week on geohashes blew up. For such a technical frame, it connected with a lot more people than I expected.

One of the challenges of the Supply Chain / Logistics world is that we got away for a long time with pretty basic processes.

That’s not a judgement on quality. They worked. Goods moved. Costs made sense. Why change what isn’t broken right…

I’m not going to duplicate any of that post, but I did want to get into a few ways that I am currently using this information to help get your creative juices flowing.

My only ask is that if you come up with some new cool ideas and workflows - to share them back!

• Improving Delivery Performance
  
  Failed deliveries are one of the biggest areas of leakage when it comes to logistics. Having to repeat the activity because you couldn’t do it on the first time out has you spending money you can’t collect more revenue for.
  
  I use geohashing to identify problematic apartment buildings, communities, and neighborhoods. This helps understand if there are issues like unwritten delivery windows, access constraints or changes in the surrounding area that impact performance. By being able to group them with geohashes, you analyze your data in clusters rather than individual customer activity.
  

• Fuzzy Matching customer locations from one list to another
  
  Data transactions would be so much easier if we all wrote things the same way. That’s how computers like their databases after all. If you are working with different datasets from different customers, suppliers or service providers - you no doubt have felt the pain of seeing how their address data is constructed versus yours.
  
  Depending on what tools and software you use to map your customers, you can end up with variations in the geocodes returned. Since they end up technically being different values from the computer’s perspective, simple Xlookup / Vlookup matching or database joins don’t go so well. Some fuzzy text based matching tools can work well, but address data often can get really messy really quickly when working with “distance” / accuracy for those fuzzy matches.
  
  Geohashing allows you to slowly expand your box and match items from one dataset to another as long as they fall into the same box. This makes finding like for like matches much easier and simpler.
  

• Customer Analysis & Segmentation
  
  Being able to understand what customers in the same areas are buying can drive a lot more revenue through your business. Geohashing gives you a way to quickly group and segment customer data without the need to use maps to visualize the clusters.
  
  This can help you understand how you product performs in certain neighborhoods, subdivisions and groupings of greater city regions. It gives you more control of where you want to segment, and how.
  
  You could use it for example to just like at certain parts of Toronto, certain clusters around the city, opposing sides, and more.
  
  Using these tools correctly will make you a lot more money as it can dramatically improve your inventory / product - customer relationship.

What’s One of The Most Significant Challenges You See Facing Supply Chains Right Now

Data accuracy.

Boring?

Probably. But very true.

We have seen such huge change over the last 7 years when it comes to Supply Chain systems and technology. What were once platforms that could only be used by the largest organizations in the world are now available to anyone.

Every year more people are making better software to help improve your understanding of what’s happening at every step of the way.

So if all of that is true, why do I still think that it’s one of the most critical areas for a business to watch for?

Simple.

Garbage in garbage out.

As our decision making relies on the screens and summaries presented to us, data integrity and accuracy is paramount.

A lot of systems out there do everything they say they can do. With a caveat. That ALL of the inputs at EVERY step of the way are done PERFECTLY.

Integrating these systems on our warehouse floors, into trucks, and asking everyone from hourly staff to managers and directors to key in, authorize or validate transactions is a huge challenge.

As we increase the complexity, we also increase the user frustration.

And when people are frustrated, they can quickly lose interest in following the detailed process (especially if there are ways to cut corners and skip steps).

If you are building or buying software, challenge yourself with the user experience of that final product.

The easier it is to use, the more naturally it fits into your existing workflows, the higher the likelihood it will actually deliver on all of those promises made during the sales cycle!

That’s it for this week. Thanks for being here.