Tag Archives: Business

Supply Chain

The International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) have failed to agree upon and sign a new contract for the last six months.  Since last month, demand planning and forecasting has been difficult, and I’ve had to raise prices to mitigate stock outs since many of our POs haven’t landed.  The ports of Los Angeles and Long Beach are congested and there are chassis shortages because the union refuses to work.  Some of my containers have been rerouted to Oakland, but ILWU workers walked off for three shifts there too, causing further delays.

I received an email just now saying that ocean carriers announced a $1,000 congestion surcharge per 40-foot container.  I have dozens of containers sitting in the ports right now, and many of my SKUs are going to stock out if this inventory doesn’t land in the next week.  I’ve already increased my prices to slow sales volume, but I can only do so much.  One of the SKUs that is going to stock out in the next couple of days is a Key SKU, meaning that this SKU alone drives about 10% of the revenue streams of my business.   Not to mention that Q4 is hands down the busiest time of the year in retail – The seemingly small scale disruption caused by the longshoremen’s attempt to apply pressure on management could potentially have a large negative impact on the economy and suppress sales during the holiday season.

In spite of how irritating this situation is, and the additional costs of time and money it is imposing on me and Overstock, I’m quite fascinated with these dynamics.  It’s kind of interesting how big of a ripple effect labor slowdowns and contract negotiations between unions and employers can have.  I can understand why businesses dislike labor unions, but I also see how important it is for labor unions to stand strong to negotiate better terms and conditions.  If it weren’t for unions, we wouldn’t have the standard 8-hour work days, or 40-hour work weeks.  We wouldn’t have family or medical leave, employer-based health coverage, or even weekends off.  Labor unions have accomplished a lot of things that many of us take for granted.

Supply chain is much more interesting than I thought. 🙂 There are many different levers I can pull to keep my business running smoothly, but this union’s tactics are making it quite the challenge.  I probably look like the biggest weirdo because I’m excited and jazzed up about something that is not necessarily a good thing for my business, haha but it’s really cool to see all these moving parts in action.  I probably won’t be pissed off about this whole thing until I’m impacted more directly. 😛 Nonetheless,  I hope that the ILWU and PMA are able to reach a compromise soon that benefits both parties.

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Retail Business Models

I’ve been in love with my job at Overstock since day one.  The more I learn about the business, the more I become fascinated with the industry and how Overstock fits within it.  It’s so funny because I never would have expected to see myself working in retail, let alone data analytics, but I absolutely love both worlds.

I sometimes feel that Overstock operates a lot like a start-up in that its strategy isn’t very complete or well-defined.  From my perspective, the company seems to have goals that are all over the place, and it’s easy to get lost in all the noise because we’re not just a retailer, we’re also in the tech industry.  It’s difficult to understand who exactly our competitors are, because we have so many product lines and there are competitors springing up from every direction, channel and industry.  We don’t really compete directly with Amazon, because we use a differentiation strategy when it comes to our furniture department.  But we also don’t really compete head to head with exclusively furniture e-retailers like Wayfair because we sell more product beyond just furniture.  Then, there’s also retailers who were formerly brick-and-mortar stores moving into the e-commerce scene, like Wal-Mart and Sears.  Are they competitors too?

I think that having a clear, well-defined strategy, and sticking to it is the key to running a successful business.  Rather than trying to have a hand in everything, I think it’s important to build a core competency and own that competitive advantage.

One of my favorite entrepreneurs of all time is Tory Burch.  The story of her road to success is so inspiring, and I feel that she built her company with a distinct strategy in mind from the onset.  She didn’t aim to compete head on with top-tier designers, but instead brought her own classic-boho look into the high fashion scene at more affordable prices.  There are very few designers whose style identically matches her product line.  And while she introduced a broad range of items from swimwear, apparel, sunglasses and handbags, she built her competitive advantage around her Reva ballet flats and her classic tunics, new styles for which are introduced each year and likely support a majority of her revenue streams.  Similar to Hermes scarves and Diane von Furstenburg’s wrap dress, Tory Burch built a competitive advantage around one signature item for which her brand could be built around.  Within a decade, Tory became a multi-billionaire and represented a threat to already-established mid-level brands like Michael Kors, Coach and Kate Spade  (See guys, I’m not just obsessed with her product – I’m in love with her story!).

Another favorite retailer of mine is Zara.  Zara is known as a fashion-forward retailer, but it’s funny to me because their strategy does not involve their designers bringing new and fresh designs to life.  In fact, it’s the exact opposite – Zara buyers closely monitor the attributes of products that are depleted from Nordstrom and Saks’ shelves the fastest.  As soon as they buyers identify styles that are “trending”, these designs can be seen on Zara’s racks within two weeks.  And, they intentionally hold low quantities of each style so that they sell out fast.  Thus, Zara does not risk incurring additional costs of releasing designs that don’t sell, and by limiting the quantities they have available they mitigate the cost of holding weak economic inventory.  I love this strategy because they avoid the uncertainty associated with being an “early adopter” of new and innovative styles, but are able to maximize the benefit of profitability while the style is at its peak and before it reaches its life cycle.

Even though Overstock is not primarily a fashion or apparel retailer like Tory Burch or Zara, I feel that Overstock can learn a thing or two from their strategies.  By differentiating itself, Tory Burch was able to make herself stand out among other mid-level brands.  Had Tory Burch tried to compete head on with designers of all tiers, or had the company invested additional time in developing other signature items beyond their tunics and ballet flats, it probably may not have been as successful as its competitors.  And Zara, deciding not to be the trend-setter, but instead a damn close follower of already-popular styles, probably would not have as robust of a business model if it decided to be a trend-setter as well.  Overstock should considering companies like Amazon, Alibaba,and Rakuten as competitors.  We don’t have as wide of a selection as they do in many of our stores, because the basis of our competitive advantage is in furniture.  And Overstock should not try to predict the next big fad and stock up on new and fresh inventory in anticipation – it should continue what it does best and generate revenue off of styles and attributes that have already proven themselves successful and coveted by the market.

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Ethical Compass

My first block in Westminster’s MBA program is drawing to a close, and it’s been an amazing experience so far.  It feels incredible to be back in school, and to learn new and exciting things everyday.  I’ve loved working through case studies with a room full of smart people and leaving each session feeling more enlightened.

One of the most amazing things I’m experiencing is that I am not just building my foundation of academic knowledge, but I am also learning more about who I am.  I remember starting my business ethics class thinking that I am Paul Krugman and John Cassidy’s protege, and that I am a liberal inside and out.  But realizing the ideas I was expressing during class discussions, I started to realize that I’m becoming somewhat conservative.

AAAAAH!  Somebody slap me and bring me to my senses, right?

Before I lose all my friends, I want to clarify that I am still a rational, well-meaning person, haha.  I just don’t think I’m as much of an advocate for a “socialist”-esque community like I was when I was in college.

One of our assignments for my ethics class required negotiating a social contract with the class by way of an online discussion board.  Following was my first post:

“At a high level, I believe the role of government should be to provide the freedom and empowerment necessary for individuals to pursue their goals.  This includes ensuring the protection of persons, property and human rights, promoting hard work and productivity, and providing incentives for the market to alleviate social ills.  It is definitely important to establish a society that is just and fair, ensuring opportunity and equality for all individuals.

I think this role can be fulfilled by a civilization built around John Rawls’ Theory of Justice.  Rawls reaches his conclusion from behind what he calls a “Veil of Ignorance”, meaning that he has no knowledge regarding what his situation will look like, and thus he cannot develop principles that favor his particular circumstances.  Without knowing what his position in life will be, he will be most likely to choose principles fairest to all.  This theory includes two principles:

1. Everyone is entitled to basic freedoms (e.g., freedom of speech, political liberty, pursuit of happiness, etc.)

2. Difference Principle: There can be inequality in any society as long as it makes the person in the worst situation better off.

Building upon his second principle, I think it’s important to control the level of inequality.  I definitely want to promote a “rising tide that lifts all boats,” but I think mechanisms should be put in place to ensure that a large disparity of social/income inequality does not exist.”

It literally took me three hours to determine the theory on which I would base my proposal.  It was no easy task to determine who would become the “winners” and “losers”, and I felt conflicted when putting this theory together.  But it just seemed to be the most justified and fair.

Surprisingly, I got very few comments on my proposal, but those who did comment on it agreed with me.  Even more shocking to me was that the recurring theme among a class full of MBA students was one what emphasized socialism – a heavily progressive tax system, an extended entitlement program for the elderly, disabled and unemployed, free education, free healthcare, free housing, even free grocery… Everyone was rallying behind a classmate named Viktoria, who was advocating for such a system.  It was very interesting to see that dynamic.  I definitely would love to see a world where everyone had open access to these necessities, but such a world cannot exist.  It is simply too expensive, and I don’t think that a system with socialist characteristics as well as the ability to progress technologically and economically would not be sustainable.

So the next post I made was:

“I agree with many of Viktoria’s points.  I especially love that her contract is primarily built upon a concern for the welfare of others, and places an emphasis on giving equal access to many of the resources conducive to a successful life.  I am 100% behind the protection of fundamental human rights.  However, I worry that a society built around her contract, namely the components relating to free education and healthcare, will be too costly and presents a high likelihood for wasted resources.

When resources are provided for “free”, there will always be free-riders who game the system at the expense of actual contributors.  I don’t feel entirely comfortable with a heavily progressive tax system, because I want to enter into a society that promotes hard work and [technological, academic, scientific] progress.  Though the Ayn Rand view appears to be controversial, I feel that it is truly representative of reality – many people are motivated by greed and profit, but many breakthroughs in medicine, science and technology–solutions to many of our country’s existing social problems–have come out of a desire to accumulate wealth and prosperity, as well as the liberty and resources to do so. I fear that the imposition of a larger proportion of taxes on high-income earners (hopefully the greater contributors in a society) would be a crutch to innovation.  The tax rate should be the same among all income levels – the wealthier will still be providing a larger portion of the government’s revenue, but at least it will be fair across all income-earners.

I think that Mike’s view is a much better approach to handling the “free education” portion of her contract.  I would love to advocate equal access to resources such as education and healthcare, but I worry that Viktoria’s approach may be too costly.  By admitting individuals into a specific level of study consistent with their likelihood to succeed in that subject are, we will be making the best use of our educational resources.  I also like that Mike sees excessive taxation as a form of harm – I mentioned in an earlier post that the government’s role should merely be to protect individuals, their property and their rights from harm, and excessive taxation can definitely cripple the economy from growing and negatively impact many people.

The bottom line is that everyone will enter the world with advantages and disadvantages.  Some people will need to work harder than others.  But my nirvana is a merit-based society that is constantly growing and innovating.  One where the government provides its citizens the freedom to do as they please so long as it doesn’t infringe on the freedoms of others, or inflict harm on others, and a society where the more privileged will do their part to alleviate social ills.  If more privileged individuals do not exercise their social responsibility to address social problems, the government should provide incentives for them to do so, but should not be the direct provider of any free public service.  The government should definitely step in when the rights and preservation of citizens are threatened, but overall I think individuals will need to make the best of the cards they are dealt in order to truly allow society to flourish and continue to progress.”

And, of course, I received even fewer comments on my second post than I did on my first.

I felt bad.  I felt like the ideas I was expressing were very different from what I’ve advocated in the past.  I just sat and thought, “Am I becoming one of them? Am I moving into the dark side!?”  But I realized that I’m not.  I am effectively applying ethical principles that seem like conventional Republican ideals to back policy decisions that a more moderate Democrat would advocate.  I’m still blue, but more of a baby blue than a royal blue.  It’s better to sit on the fence anyway – sitting at either end of the spectrum just starts too much trouble.  🙂

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