Palm power: Ecommerce and the wood industry

NovDec 2015 Wood Industry cover smallIn a vintage cartoon, Bugs Bunny wants to impress Daisy Lou and instantly delivers nylons using animation magic. “Your teeth are like pearls, real ones, no dime-store phonies!” he woos.
By Mike Edwards

Similarly, today when Joe Millennial taps a screen on a mobile device, he expects prompt delivery of his desired furniture. Daisy Lou, anxiously awaiting that new RTA armoire, is dutifully impressed when it arrives by delivery truck the next day.

It does seem that these days the wood industry business is operating at Looney Tunes speed.

There is ample reason for this, as different reports point to the increased use of mobile devices that tie directly into e-commerce sites in Canada and around the world.

For example, “From First Mile to Last Mile,” a global logistics report from the Seattle-based commercial real estate services firm Colliers International Group, examines the primary factors that will impact the global pattern of warehousing and logistics over the next generation, as well as the elements already shifting global trade flows and retail formats.

“This analysis of existing retailers,” the report says, “provides us with a very useful proxy for future warehouse demand requirements, using current examples of annual revenue/distribution space (sq. ft.). As populations change, consumption behaviour becomes increasingly technology-driven — supported by improving technological infrastructure — and logistics operations are optimized to meet customer requirements, there is vast potential for growth in modern logistics space.

“This will comprise new space at the initial ‘First Mile’ level, supported by mega distribution centres (DCs), along the supply chain spectrum to the ‘Last Mile’.”

It is at this level where a proliferation of e-fulfillment DCs on the edge of urban areas such as Vancouver and Toronto, in smaller urban facilities within urban community catchment areas and a variety of ‘click and collect’ options are coming to the fore, the report says.

Demand drives logistical solutions

“The majority of which have been established to support swift response times, especially with the advent of same day delivery,” it adds.

The Colliers report also makes a correlation between the proliferation of mobile device usage among young people and the demand on logistics services and includes Canada in its findings. “Increases in urbanization will create more concentrated consumer markets. Also, Generations X, Y and the new Millennials will increasingly comprise the majority of the population, bringing a complete change in consumer behavior and logistics/warehousing needs.”

Founding president Victor Deyglio of the Toronto-based The Logistics Institute notes that e-commerce is full of promise and peril for small- and medium-sized woodworking shops, as well as their retail showroom operations. “As soon as you get into an e-commerce world, now it becomes personal and personalized.

“What becomes the commodity is time and timing because in the e-commerce world, where the end-user customer is using an order process that is driven by computer, there is a sense in the market of telescoped time. If I put an order in now I expect a delivery by date xyz and that backs up through the whole logistics line to the supplier, possibly internationally, all the way back to the manufacturer — which now adds a different dimension in terms of time sensitivity or pressure.

“That can have a major impact on the whole quality side, the customizing side of the woodworking world. What has emerged is that the whole notion of customization is in jeopardy. It becomes the standard piece that can be produced at manufacture for a reasonable cost in order to meet an accelerated demand that is a result of an e-commerce or any kind of internet-driven order form or payment form delivery.

“The transaction is instantaneous which then requires that the final product be delivered in a reasonable amount of time. Therefore, standardization or what they call commoditization of products becomes one of the results of this.

“Commoditization is the interchange of this piece with that piece with this piece and now you have subassemblies sitting around to be configured into the final product. Rather than, say, ‘I’m going to work this out as a customized, personal, creative, more artistic-oriented piece of work.’ Unless, of course, that’s the demand that’s made through e-commerce process.

“E-commerce drives a kind of replicable products demand.”

However, Deyglio notes that even in the commoditized automotive world, Mercedes will create a “custom” autographed vehicle for purchasers, so that there is still an appetite for hand craftsmanship amongst certain consumers — “mind you, there’s still a cost involved.”

According to Amanda Cormier, director, Public Affairs and Communications, Supply Chain Management Association in Toronto, “When you’re talking about e-commerce, most people think of books and music. Up until now consumers have been less likely to buy groceries, furniture, do-it-yourself or home improvement products, home appliances and cosmetics, but that’s changing and changing rapidly.

Market cannot be ignored

“Retail e-commerce sales in Canada are expected to be $30 billion in 2015, leaving a huge potential to grow because that represents only six percent of overall retail sales. Eighty percent of Canadians browse online and 69 percent actually make a purchase. That leaves a lot of challenges and opportunities for smaller companies making high quality products, because they can now reach customers around the world.

“Customers today want and expect the omnichannel experience — they expect to be able to browse online and buy in-store. The lines have blurred a bit due to customer demand. Some customers want to order online and pick up in store, they want free returns across different channels and that can certainly present a challenge for smaller companies.

“There is the challenge of showrooming where customers browse in store and then find the cheapest place to buy online. According to PWC (Price Waterhouse Cooper), there is less of a risk for higher quality products such as hand made furniture. When you are talking about the impact of e-commerce on suppliers of wood industry products and services, one of the strengths of wood products made in Canada is the quality of the product and the reassurance of environmental responsibility. That’s a competitive advantage that people value and are willing to pay extra for. It’s a huge part of the supply chain when it comes to sustainability and environmental responsibility.”

Optimize production, optimize delivery

John Levi, Canadian Council executive director, International Warehouse Logistics Association based in Thornhill, Ont., addresses what mode of transportation will work best for a furniture manufacturer.

“A transportation, warehousing and logistics company will have a very good handle on that,” says Levi. “If you are looking at less than truckload shipments or truckload sized shipments, or container load shipments, which go by truck, rail, or by air, you have to decide in this process who can do the optimization for you.

“You’re looking at the length of time that it takes, looking at convenience, door-to-door delivery, you’re looking at damage in transit, you’re looking at a whole bunch of things. ‘How much time have you got? How fast do you want to get it there? How much do you want to pay?’ Each one of these things is a trade off. The faster it goes, the more expensive it costs.

“‘Do you have enough to fill a trailer or do need someone who can ship a pallet of stuff? Do you know which carrier is safe to ship your stuff with?’ Those are the questions that you have to ask.

“If you ship a container load then it won’t be opened during transportation unless it goes out of the country.”

Deyglio cautions that wood manufacturers need to educate themselves about a variety of regulatory and compliance issues as they source natural materials and ship finished products. “Selling internationally becomes an interesting issue as there are multiple dimensions.

“There is risk with cash flow; when payment is going to be made, when are invoices going to be issued, when is the product actually ready for shipment from truck into a container and on to a ship, when is the product going to be delivered to a port of entry, when the product is going to unloaded and transshipped again into local delivery, finally into the hands of a local retail operation or actually consumer.

“The other end is the movement of money, which of course is the sale. So if you think of a simple sale going down to the grocery store where there is a transaction that occurs, we pay our money, we walk away with the goods.

“In an international movement of product the payment of money and the actual walking away with the goods are separated sometimes by weeks, different countries, and involve two kinds of transit. Transit of money from one country to another and then transit of goods from one country to another. It involves banks, insurance, all kinds of risk mitigation.

“Most people ship FOB — free on board — which is a problem mainly because it doesn’t cover insurance, it doesn’t cover possession, it doesn’t cover all kinds of things.

“As soon as your client, whether they are small, medium or large, whether they are dealing with an individual construction company or a retail operation wherever it is located, there are all kinds of intermediaries, all kinds of things that need to be negotiated, which requires that wood product manufacturers should do their homework before they say ‘yes, I will sell you these goods because you sent me an order form in an e-commerce way.’”

Clearly for Canada’s secondary wood manufacturers, Deyglio seems to be saying, look twice before jumping down the rabbit hole of e-commerce and logistics to grow your business.

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