After spending the past decade pushing their suppliers to provide value-added services like putting tickets on the merchandise, retailers are beginning to wonder if they should bring those tasks back into their own DCs.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
The conventional wisdom among retailers says that when merchandise arrives at a store, it should be ready to roll-right onto the selling floor, that is. For more than a decade now, retailers have been asking suppliers and in many cases, the manufacturer, to provide so-called "value added" services-adding size and price tags, putting garments on hangers and otherwise packaging shipments to allow goods to flow right through the retailers' distribution centers and out to the stores.
But now some retailers are questioning whether they 're giving up too much control of their own inventory when they push those services upstream."The larger players have realized they were giving up flexibility," says Patrick Eidemiller, vice president of consulting services for SDI Industries, a consultant and material handling systems integrator.
The latest thinking has it that in times like these, with the economy bumping along the bottom, nothing counts more than agility. The longer you can wait to make a decision on a product-which store it will be sent to, what kind of packaging it will have-the better off you'll be.Though the retail industry has yet to reach anything resembling a consensus on where that work should get done, several players are stepping back and looking at their options.
Winds of ware(s)
If retailers do begin taking back these tasks in significant numbers,the story, in some ways, will have come full circle. "Prior to 1990, value-added services were a function of the retailer," Joseph Giudice told the audience during a panel discussion at last month's National Retail Federation Big Show in New York. In the old days, retailers did the ticketing, size sorting and other steps needed to make goods floor ready at their own DCs or at the stores, said Giudice, who is vice president of distribution and logistics for Liz Claiborne. (That $4 billion fashion design firm's products are sold at more than 26,000 locations around the world.) "The wholesalers' biggest responsibility was the quality of product, which was shipped in bulk."
That began to change early in the 1990s."Retailers wanted to operate cross-dock facilities," Giudice said. "They wanted goods to shoot through the supply chain and onto the floor as fast as possible. The [prep] work was pushed back on suppliers like Liz Claiborne and we pushed a lot of it back on the factory." Typically, wholesalers took on responsibilities such as standard packaging, application of UCC-128 bar-code labels, advance shipment notification and quality control. Factories became responsible for size tags, standard hangers and floor-ready packaging.
But today things are changing—again. "We're moving away from product services to information services," Giudice reports. "Retailers are requiring more information—particularly automated information flowing through the product side and the logistics side-as they shorten the shipping windows. In the meantime, cycle time reduction continues to be very important. The longer you can wait to make a decision on product, the faster we can react and the better off we'll be. We'll have fewer markdowns and be more profitable."
Taking the controls
That desire to postpone decisions regarding how goods will be allocated to stores until the last minute is leading some retailers to re- evaluate who should have charge of the value-added services. And many are deciding it makes sense to bring back more of those services into their own DCs.
One of those companies is J.C. Penney. The retail giant is currently working with SDI to develop a network of 14 new distribution centers, known as store support centers. Though suppliers will still be responsible for many of the value-added services, J.C. Penney decided to invest in the DCs at least in part because it wanted to regain control of when and where products are distributed. Each of the new DCs will serve 100 to 200 stores in the J.C. Penney chain of more than 1,000 stores.
A big part of the new network's attraction is that J.C. Penney can postpone allocating goods to stores until very late in the process. Vendors ship goods to the facilities in bulk. While most will be pre-allocated for particular stores, merchandise can be earmarked for particular stores very quickly in the highly automated facilities. As SDI's Eidemiller puts it, "They can change on a dime."
One size doesn't fit all
Though some retailers wax enthusiastic about the value of bringing these services back in house, not everyone has taken up that banner. "What we're seeing depends on the retailer, "Eidemiller says. "Certain players are moving strongly that way and others are moving harder to make vendors do it."
The "let's get the vendors to do it" camp includes Goody's Family Clothing Inc., a $1.2 billion retail chain based in Knoxville, Tenn., that operates 330 stores in 18 Southern and Midwestern states. "We're pushing services back up the supply chain to move more expeditiously through the DC," reports Mike Bryant, vice president of distribution and logistics for the chain.
Goody's operates one distribution center in Knoxville and a newer facility in Russellville, Ark. Bryant says that roughly a third of the inbound cartons arriving at the DCs are pre-marked for specific stores. Vendors apply the UCC-128 labels and provide the DCs with advance shipment notices. "We try to drive as much of the service as possible to the manufacturer or whoever we bought [the merchandise] from," he says. At this point, 90 percent of the goods coming through the DCs are pre-ticketed, while 100 percent of its private-label products (about a quarter of all the goods) are pre-ticketed.
The Russellville facility, which opened in January 2001, is a highly automated building that uses a sortation system and barcode readers to move inbound goods to the correct location quickly. "We put the emphasis on the receiving," Bryant says . "When a person puts a carton on the conveyor, it does not touch the ground until it hits shipping."
On demand
Not surprisingly, this trend has forced some rather sweeping changes on manufacturers. "Ten years ago, we would ship to a large DC and be done with it," says John Forbes, vice president of operations and administration for Citizen Watch Co. of America, the world's largest watch manufacturer. "Today, many shipments move directly to customers' stores, and we make it completely floor ready." That trend began with the biggest retailers, he says, but now even the smallest stores are demanding those services.
As a result of demands for value-added services like tagging and specialized packaging, Citizen has had to make some big alterations to its own distribution system, Forbes says. "The lot size in manufacturing is very large with a long leadtime. Retailers want shipments on short notice. The packaging is tailored for them.More importantly,what they order is configured for them. We can't do that at the factory with a leadtime of three to four months."
Forbes reports that he has been able to work with customers to simplify their demands on his network. For example,he says, Citizen has persuaded customers to accept a standard label. "We had close to 25 configurations," he says. "We've gotten it down to one. That's done a lot to speed up the process."
Though retailers' efforts to push valueadded services upstream have forced managers like Forbes to scramble and created consternation among many retail suppliers, who see it as an attempt to push costs onto them, many recognize that it's not necessarily a bad thing. "Though it started with the customer trying to save costs and trying to cut complexity by pushing it back through the supply chain," Giudice says, "wholesalers and manufacturers are realizing that there are also benefits-reduced inventory and reduced markdowns. If you start with the premise that the price of entry is the right product, then logistics sophistication, IT sophistication and the proper technology can be a competitive advantage."
Mixing it up
Then there are the retailers that want to have it both ways-pushing some value-added tasks further up the supply chain, while taking back control of others. One of those is Footstar, a $2.4 billion company that operates Just for Feet and Foot action retail store s and 6,500 licensed foot wear departments in other stores. What Footstar has found, says Jim De Veau, senior vice president of logistics, is that different business segments require different business models.
For regular foot wear products, De Veau is making every effort to move more of the value-added functions back toward manufacturers overseas. "We can do things a lot cheaper in Asia than in the United States," he says. "We do prepacking to get store ready in Asia now. One of the things we're looking at down the road is floor-ready displays." The ability to push more value-added tasks back to the source, he says, only awaits implementation of World Trade Organization regulations on ownership and partnerships.
But the story is entirely different where fast-moving popular athletic footwear from suppliers like Nike and Adidas is concerned. "In the athletic business, when there's a hot product," DeVeau says, "they only make a certain amount of select products that are designed to sell out quickly. The key to competing in this market is who can 'out-logistics' the other person. We want to take control further upstream to get goods to the stores faster."
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Two European companies are among the most recent firms to put autonomous last-mile delivery to the test with a project in Bern, Switzerland, that debuted this month.
Swiss transportation and logistics company Planzer has teamed up with fellow Swiss firm Loxo, which develops autonomous driving software solutions, for a two-year pilot project in which a Loxo-equipped, Planzer parcel delivery van will handle last-mile logistics in Bern’s city center.
The project coincides with Swiss regulations on autonomous driving that are expected to take effect next spring.
Referred to as “Planzer–Dynamic Micro-Hub w LOXO,” the project aims to address both sustainability issues and traffic congestion in urban areas.
The delivery vehicle, a Volkswagen ID. Buzz battery-electric minivan, will feature Loxo’s Level 4 Digital Driver navigation software, a highly automated solution that allows driverless operation. The van was retrofitted to include space for two swap boxes for parcel storage.
During the two-year pilot phase, Loxo’s Digital Driver will navigate a commercial vehicle several times a day from Planzer’s railway center to various logistics points in Bern's city center. There, the parcels will be reloaded onto small electric vehicles and delivered to end customers by Planzer’s parcel delivery staff.
Following the completion of the pilot phase, Planzer and Loxo will build on the program for rollout in other Swiss cities, the companies said.
The partners said the project addresses the increasing requirements of urban supply chains and aims to ensure the “scalability of their disruptive solution.” With largely emission-free delivery, it contributes to greater levels of sustainability for the city as a living space, they also said.
“The uniqueness of this project lies in the fact that it will have a direct impact on society,” Planzer’s CEO and Chairman Nils Planzer said in a statement announcing the project. “We didn't just want to integrate automated technology into existing systems, we wanted to develop a completely new concept and a new business model.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.