In this episode, guest Phil Rich, chief supply chain officer and senior VP of Sweetwater, talks about being an online retailer during a very different holiday season. Sweetwater is the nation's largest e-tailer for musical instruments and audio equipment. Increasing inventories and gaining better visibility with suppliers were key steps the company has taken. He also is preparing for a higher level of returns in January.
Transportation continues to be a very volatile sector of the supply chain. There is a huge demand for logistics services at a time when it is difficult to even find available containers. On top of that, some parcel carriers are refusing additional volumes. We also discuss key company moves this week, such as XPO's decision to split its operations into two companies and new acquisitions from some major transportation players that further shake up the market.
Is the world ready for Brexit? The deadline for the United Kingdom to sever economic ties with the European Union looms large at the end of the month. How can American companies prepare for new ways of trading in the UK and the EU? We discuss how many are taking a two-pronged approach to reach European customers.
Articles and resources mentioned in this episode:
Podcast sponsored by Yale Materials Handling
Other links
In this episode, guest Phil Rich, chief supply chain officer and senior VP of Sweetwater, talks about being an online retailer during a very different holiday season. Sweetwater is the nation's largest e-tailer for musical instruments and audio equipment. Increasing inventories and gaining better visibility with suppliers were key steps the company has taken. He also is preparing for a higher level of returns in January.
Transportation continues to be a very volatile sector of the supply chain. There is a huge demand for logistics services at a time when it is difficult to even find available containers. On top of that, some parcel carriers are refusing additional volumes. We also discuss key company moves this week, such as XPO's decision to split its operations into two companies and new acquisitions from some major transportation players that further shake up the market.
Is the world ready for Brexit? The deadline for the United Kingdom to sever economic ties with the European Union looms large at the end of the month. How can American companies prepare for new ways of trading in the UK and the EU? We discuss how many are taking a two-pronged approach to reach European customers.
Articles and resources mentioned in this episode:
Podcast sponsored by Yale Materials Handling
Other links
David Maloney, Editorial Director, DC Velocity 00:00
Transportation continues its volatile ride. The Brexit deadline fast approaches. What does it mean for American shippers? And how one retailer is managing a very hectic holiday season.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast.
Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Yale Materials Handling, a leading warehouse brand that specializes in much more than just lift trucks. Logistics operations rely on Yale for everything from robotics and advanced power options to the company's most recent addition, an innovative tag-to-tag solution to help enforce social distancing protocols and inform reactive measures to limit virus spread. For more information, visit yale.com. That's Y-A-L-E dot com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin, the Covid-19 pandemic has been especially unkind to retailers, including online retailers. Most have had to quickly adapt to just survive this year. And now that we're in the midst of a holiday peak, the challenges are even bigger. To find out how one online retailer is coping, here's Victoria with today's guest.
Victoria?
Victoria Kickham, Senior Editor, DC Velocity 01:31
Thanks, Dave. Yes, today our guest is Phil Rich, chief supply chain officer and senior vice president at Sweetwater, which is an online retailer of music instruments and audio equipment.
Welcome, Phil.
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 01:43
Thank you, Victoria. It's great to be here.
Victoria Kickham, Senior Editor, DC Velocity 01:45
Thanks. I wanted to just start out by asking you if you can tell us a little bit about Sweetwater—what the company does, how it goes to market, and your customer base?
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 01:53
Yeah, great. Sweetwater has been around for 41 years now, and we began as a mobile recording studio in 1979, and that has evolved into us being the largest online retailer of musical instruments and pro audio in North America, and really the second-largest in the world. We primarily sell things like guitars and keyboards and PA systems; recording interfaces for home and professional studio; lighting and sound for clubs, churches—for really, any gathering whatsoever. And that is our primary business, and that's how we go to market, is strictly online. We do have a store here in our headquarters in Fort Wayne, Indiana, but the vast majority of our business is done direct.
Victoria Kickham, Senior Editor, DC Velocity 02:43
Terrific. Thank you. So I wanted to ask, then how is peak season shaping up for Sweetwater compared to recent years? You know, is this really turning out to be a holiday season like no other, when it comes to logistics and retail supply chain, as we keep hearing?
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 02:58
I think it is a holiday season like no other. All of our predictions have been overachieved by the market. It's been an exceptional holiday season. Fortunately for us, we have done an incredible amount of preparation to be ready for this holiday season, but, again, it just continues to exceed expectations, and we don't really even see an end in sight once the holiday season is over.
Victoria Kickham, Senior Editor, DC Velocity 03:24
And you anticipate what I was going to ask you next, which was, you know, sort of the steps you took ahead of the time to address any issues that have been caused by this increased volume you mentioned. What steps did Sweetwater take to address delays, problems due to the Covid-19 pandemic?
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 03:41
One thing that's important to know about the musical instrument industry, or as we call [it,] the MI industry, is that it's made up of a handful of large and sophisticated companies, but it's also made up of hundreds of small businesses, some, in some cases, a single person making a very unique product. So, what we really had to do was, we had to do a wide variety of forecasting and communication and planning at every level, with all these different suppliers, whether we're working with a $500 million company that's importing guitars from all over the world, or we're working with a single operator living in Seattle, Washington, making specialized audio equipment.
It took months and months of forecasting and preparation with those companies, because I think when this pandemic hit, the lack of sophistication in the MI industry just created a lot of confusion and a lot of lack of visibility for all these different suppliers. They honestly didn't know what was going to happen, and us being the tip of the spear, the ones talking to all the customers and trying to figure out and seeing the sales come in and figuring out what was going to happen, I think we had one of the best viewpoints of retail.
And then again, supply chain was the important part of the communication. We needed to be talking to all of our suppliers to understand what struggle they were going through and what they saw coming with the supply chain, and all that preparation kind of culminated into us carrying a lot more inventory in the fourth quarter, thinking that it was going to be a one like no other, and it's turned out to be that way.
Victoria Kickham, Senior Editor, DC Velocity 05:22
Thank you. Yeah, communication and preparation are two words that I hear a lot in talking to people across the supply chain these days, so those are really good points.
I wanted to also ask, how has the pandemic affected, sort of the labor situation for your company. Have you had to adjust seasonal hiring plans or anything along those lines or, even just how it changes the way you operate in your warehouse?
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 05:47
It did change the way we operate, as I'm sure it did for most people with distancing, providing masks, looking at workstations, looking at how people are moving throughout the operation and distancing themselves.
Really, the labor situation came down to one key metric, which is, I think, most companies probably calculate in a certain percentage for call-offs and sick time, things like that, well, we had to add a percentage to that, for quarantining, and, you know, for Covid. Good news for us is, we're fortunate to have a doctor and a nurse on site—for many years now, actually—and they've been really key for us in identifying folks that need to be quarantined and tracking down the contact trace for all those folks and keeping everybody safe. So there's been a lot of involvement and communication with our on-site doctor and nurse. That additional percentage we went—which was really about—we calculated in about 4% normally, for call-offs and sick time—we doubled that, and that seems to have actually turned out to be close to where we're ending up with losing people to quarantine or Covid itself.
Victoria Kickham, Senior Editor, DC Velocity 07:02
That's really interesting that you have a doctor and a nurse on site as well, that's really, obviously, helpful, in this situation.
I want to look ahead, too, to the post-holiday situation, and ask you what concerns you have about reverse logistics. That's come up a lot in our conversations here. And, you know, should we expect a returns season like no other this year, as well? And what are you doing to prepare for that?
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 07:26
Very simply, you know, we're setting up more space, more desks, more inbound for returns, come January, which is always a big return season for us.
But there are two sides of it. I think this year being an MI retailer, one of the segments that we do sell is, we sell things like USB microphones and audio interfaces that folks use for functions like this—for podcasting, for Zoom calls, for things like that, and those are a fairly new customer to us en masse, and I don't think that we're going to see quite the returns from that segment that we do sort of the classic musical instrument customer, who buys a guitar and then maybe has buyer's remorse or, you know, the stereotypical story of "My wife found out about it, so now I gotta send it back," or it was the wrong color, or it didn't feel right, or different things like that. So I think we're expecting the same percentage of returns from our traditional customers. I believe we're expecting less returns from some of those customers who are really out there just just looking for stuff to get on Zoom with and take care of their working at home needs. But a return season like no other, I would say yes to that, but, again, those factors are in there where, traditional, yes, but newer customers, I think it's gonna be less
Victoria Kickham, Senior Editor, DC Velocity 08:56
Great. Thank you. Yeah, that makes sense.
I just wanted to close by asking, you know, sort of on a lighter note, what are some of the hottest holiday items in your inventory this year? What's sort of flying off the shelves?
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 09:06
A couple of things come to mind right away, and it seems like everybody out there right now wants to learn how to play the guitar. And we can't get enough of them.
One thing that we've learned at being in this business for a long time is that when there's a downturn in an economy or some kind of an effect on the economy, that's very great and wide, most people turn to two things, [when] the economy holds up, two things, and that's alcohol and music. And so, maybe they both are combining here to cause people to want to be rock stars and play guitar at home and do that, but guitars are very popular, and also the things I just talked about for Zoom calls, like USB microphones, things like that. They're extremely popular, and difficult supplies still, but we're managing to keep up through multiple suppliers and having a good variety on hand.
Victoria Kickham, Senior Editor, DC Velocity 10:04
Terrific. Thank you very much. I can understand the interest in guitars. My daughters wanted them a couple of years ago. They're still here, so maybe they should pick them up in practice.
So Phil, thank you. Thank you very much for being here. We appreciate you taking the time.
Phil Rich, Chief Supply Chain Officer and Senior VP, Sweetwater 10:19
Thanks, Victoria was a pleasure speaking with you today.
Victoria Kickham, Senior Editor, DC Velocity 10:22
And back to you, Dave.
David Maloney, Editorial Director, DC Velocity 10:24
Thank you, Phil, and Victoria.
Now let's take a look at some of the other supply chain news from the week. Ben, you reported on a number of transportation issues this week, and it continues to be a highly volatile sector of the supply chain.
Ben Ames, Senior News Editor, DC Velocity 10:38
That's for sure Dave. Just as our Sweetwater guest was saying, retailers have a lot of challenges out there, both in delivering goods and in reverse logistics, and we learned a little bit more this week about some of the underlying reasons that are exacerbating those challenges. It's been a really stormy week in the shipping sector.
Many companies, as we just heard, again, from our guest, are continuing to position themselves to be in the best position they can to deal with the impacts of the pandemic. You know, for nine months now, ever since the White House declared the state of emergency way back in March, we've seen spikes in demand for certain goods and other sectors have completely shut down, and those large differences are really continuing to upset the flow of logistics—logistics assets, which usually carry that freight around the country—especially as the peak holiday shipping season gets ever closer. So, for example, a study this week from a company called Container xChange, which tracks shipping containers, found that the global flow of those shipping containers has really been snarled up, and that causes empty containers to linger in storage depots, even as demand for them soars. So, Container xChange found that the global average for how long empty containers sit at ports or warehouses is 45 days. But that average is much higher in regions that have low container availability, like China and the U.S., where it's more like 61 and 66 days, on average, where those empty containers sit. So federal regulators at the Federal Maritime Commission caught their attention, and they're now conducting an investigation of some of the carriers and marine terminals to try to look for a solution.
And even the biggest companies can't deal with that kind of pressure, because we heard from UPS this week that it plans to temporarily restrict the number of packages that it agrees to carry from even the major retailers like Nike and Gap and L.L. Bean, since online orders throughout the holidays and the pandemic, are just swapping UPS' networks. So that could even lead to delays in the delivery of Christmas presents this year for some shoppers
David Maloney, Editorial Director, DC Velocity 12:45
Are individual companies taking any steps to deal with those challenges?
Ben Ames, Senior News Editor, DC Velocity 12:49
They sure are. Yep. We've seen a lot of action just this week on that front. The big news was that XPO Logistics, which provides trucking and transportation services, as well as contract warehouse logistics, it's split those two specialties up into two separate companies. That was somewhat surprising, given the XPO, which is one of the biggest companies in the sector, has built itself from the very beginning through big acquisitions, like Conway trucking in the U.S. and Norbert Dentressangle in Europe, in France. But the company had been talking for months about selling off certain of those divisions. It was delayed, of course, through the pandemic, through the recession. But this move finally gives us a lot more clarity about that strategy of theirs.
We also saw several other large logistics firms continue to make investments in consolidations. For example, the 3PL Penske Logistics is building up the transportation part of its practice by acquiring Black Horse Carriers. That's a privately held trucking company that carries a lot of freight in food and grocery, consumer packaged goods and automotive industries, among others.
Second example is that the truckload company J.B. Hunt, very big one, expanded its last-mile delivery network by acquiring a commercial fitness-equipment delivery firm that's called Mass Movement.
And a third example, all within this week, is that the major East Coast freight railroad CSX acquired a large regional carrier called Pan Am Railways, saying that that move will expand CSX's reach throughout the very densely populated New England states. So, buying that other railroad expands CSX's network into Connecticut, New York, and Massachusetts and adds new states with Vermont, New Hampshire, and Maine. So really, we're seeing a lot of repositioning right now of companies throughout that shipping sector as they, everybody is looking for solutions to get through this.
David Maloney, Editorial Director, DC Velocity 14:46
Yeah, it certainly appears with the wild ride in transportation will continue for some time. Thanks, Ben.
And Victoria, you reported this week on the upcoming Brexit deadline and how it will affect logistics operations. Can you tell us more?
Victoria Kickham, Senior Editor, DC Velocity 15:00
Yes, Dave, that's right, and along with all the crazy shipping situations that we're talking about, in UK and the EU, they're dealing with Brexit. And so the deadline to reach a Brexit trade deal is coming up at the end of this month, and it has companies across the region focused on preparing for big changes in how they trade. Essentially, beginning January 1, every shipment between the UK and the EU will be an import/export situation, which means added paperwork and documentation that companies there don't have to prepare or produce now. That obviously adds logistics headaches for companies in both regions, many of whom have been preparing for this since the Brexit referendum in 2016. But some are more prepared than others, and there's a sense that logistics delays and disruptions are on the horizon, especially at a time, as we say, when trade is already being complicated by the pandemic.
David Maloney, Editorial Director, DC Velocity 15:52
What kind of effect will that have on U.S. companies?
Victoria Kickham, Senior Editor, DC Velocity 15:55
Yeah, good question, because that's what we're always talking about here.
So the way this will play out in terms of trade deals between the UK and the U.S. remains to be seen. None of that can take place until after the UK/EU talks, as I understand it, and much of it depends on how a new U.S. presidential administration approaches trade issues.
But this week, I sat in on a couple of panel discussions about Brexit, and I learned about how it's affecting us companies that use an established presence in the UK to serve [their] European customers. They'll have to navigate the same challenges as any other business located in the UK in shipping to mainland Europe.
One panel featured representatives from the Holland International Distribution Council, or HIDC, and they're a trade group that represents the Dutch logistics industry. And they discussed the growing interest they've seen from U.S. companies looking for new logistic strategies in the region. Essentially, they're doing two things, U.S. companies. They're looking at forming sort of a two-DC solution for serving Europe. That is, you know, having one DC in the UK for that market and adding another in Europe to ship to customers there. If moving or adding a DC is too big a step for some organizations, then companies are looking for a local assistance in Europe, you know, to find customs agents consolidators, and others who can help them manage the logistics of shipping in this new environment. Agencies like HIDC help them do that—help them do both. And again, they're seeing interest from U.S. companies, as well as British and other foreign companies with bases in the UK, as this December 31 Brexit deadline nears.
The other interesting issue is that the Netherlands is a key logistics center and home to Europe's busiest container port, in Rotterdam, so the increased activity that they're seeing makes sense. But companies are also, you know, looking for other solutions—for solutions in other countries as well. So the main problem is that, you know, if you got a base in the UK and you're using it to serve Europe, now your whole—the way you trade over there completely changes.
David Maloney, Editorial Director, DC Velocity 17:50
Yeah, lots of complexity there. And we'll continue to monitor that in coming weeks as the deadline approaches. Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 17:57
You're welcome.
David Maloney, Editorial Director, DC Velocity 17:59
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out. Thank you, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 18:09
Thanks, Dave. I enjoyed it.
Victoria Kickham, Senior Editor, DC Velocity 18:11
You're welcome.
David Maloney, Editorial Director, DC Velocity 18:12
And again, our thanks to Phil Rich of Sweetwater for being with us today.
We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com.
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