Ripple Effects: 1-Click To Catastrophe

According to Fastco Design, Moodit is an app that senses a person’s emotions and state of mind. The idea is that it might help people avoid conflict — perhaps stop an incensed employee from firing off a highly combustible email to their boss as a Siri-like voice from a device encourages a deep breath and a walk around the block. Step away from the “send” button.

But consumers are not stepping away from the “place your order” button. ECommerce technology is advancing at such a rate that soon there will be a Moodit-type app that reads your thoughts and places an order before you even know you need something, so intent are retailers in providing seamless and efficient customer service.

1-click ordering from Amazon is an example of how retailers are answering consumers’ demand for instant gratification, and 1-click will soon feature same-day drone delivery. But there are ripple effects associated with 1-click ordering that have consequences more dire than an investment in penny stocks or firing off an angry email to your boss.

These technologies and services rely on forecasted sales and a new type of supply chain model that runs like clockwork. And if the delay in the iPhone 7 “Jet Black” has taught us anything, it is that consumer demand is fickle, not always that predictable and supply chains are fallible. While U.S consumers are merrily 1-clicking their way through their holiday shopping, the ripple effects of those 1-clicks emanate far beyond a customer and retailer’s immediate ecosystem.

Inconceivably, as global eCommerce speeds up, U.S. port activity and trade volume is slowing down. Typically, the summer is when ports see increased activity, as the huge retail market gears up and stocks up for the upcoming holiday season. But this past July, according to The Wall Street Journal, imports were down at the two busiest port complexes in Southern California and New York. The National Retail Federation predicts that this trend of low imports will have persisted in August and September, and import volumes will be down for both months compared to 2015.

Even more counterintuitive is that all this clicking and eCommerce activity in the digital highway has not equated to increased activity on the physical highways and railroads. Freight transported by road and rail fell by 2.6 percent in July compared with the same month a year ago. And this marked the seventeenth month of year-over-year decline in road and rail transportation, according to data company Cass Information Systems Inc.

How can it be then that, with increasing eCommerce and strong consumer spending, which rose for the fourth straight month in July, freight volumes are stagnating, and there is less activity for ports, roads and rail? Logistics.

Retailers, such as Target and Walmart, are optimizing logistics to beat out competitors and please the consumer. They are no longer stocking up their brick-and-mortar stores with merchandise because more consumers are ordering online, and the traditional business models leave retailers with unwanted inventory. According to the Census Bureau, the ratio of inventories to sales for retailers, a measure of excess stocks, reached a seven-year high in June, and Target and Lowe’s reported a 4 percent increase in inventories compared to the same period last year.

According to Mike Robbins, JCPenney executive vice president for supply chain, JCPenney reduced the size of orders at the beginning of the holiday shopping season by 70 percent. Reducing orders is one way to manage inventory if you are a retailer, but not a smart one if you want to be competitive.

According to WSJ, companies such as Target and JCPenney are pivoting from the typical store model stuffed with holiday merchandise and bedecked with seasonal bibelots, baubels, Brazil nuts and bundt cake. Instead, they are lining the coffers of commercial real estate companies and storing their stock in warehouses. These warehouses are strategically located geographically to fulfill online orders just-in-time.

This just-in-time inventory model is not a new one in the world of logistics and supply chain management; in fact, it’s ancient. And the best example of the business model is Toyota. Since the 1970s, Toyota has ordered parts only when it receives orders from customers. But in Feb. 1997, a fire at a parts supplier plant prevented the delivery of a part and shut down Toyota production lines for two days, costing Toyota nearly $15 billion in revenue and 70,000 cars.

So, consider the ripple effect of that oh-so-convenient 1-click. The new trend among retailers to house inventory in strategically placed warehouses means less movement in ports and less income from trading nations. Ports that have invested billions in equipment and digging deeper harbors to handle the expected increase in imports are now set to lose billions. Shipping lines are scrapping vessels and cutting back service on unprofitable routes.

Trucking companies bought tens of thousands of new big rigs as recently as 2015, many of which are now sitting idle. Port and other transportation workers could be laid off. Governments will see less revenue from reduced trade.

For the retailers, what if there is a disruption in the supply chain? Just-in-time could become just-a-waste for companies that fail to deliver goods before the consumer decides to shop elsewhere.

So, consider the 1-click, the fickle demands of the consumer and the risk that retailers and manufacturers are taking by assuming this new logistics structure. And in the case of Apple this holiday season, the limited patience of consumers forced to wait for the iPhone 7 Plus “Jet Black” might have them reaching for the Samsung Galaxy S7 just left of the elf on the shelf.