Omnichannel navigator: interview with Kerry W. Coin
For many retailers, omnichannel commerce is new and uncharted territory. But consultant Kerry W. Coin has been there and now offers some guidance on how retailers can master a strategy that's fraught with supply chain challenges.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
Omnichannel commerce is changing almost every aspect of how retailers serve their customers—from the way they take orders to how and when they fill and deliver those orders. Omnichannel commerce refers to retailers' efforts to seamlessly integrate their store and e-commerce selling channels. As retailers begin to simultaneously serve Internet, catalog, and store sales channels, some are discovering that there are unique supply chain challenges associated with that strategy.
Among the supply chain professionals who have successfully navigated those challenges is consultant Kerry W. Coin, who recently retired from his position as senior vice president and chief logistics officer at Ann Inc., a $2.5 billion fashion retailer operating more than 1,000 stores under the Ann Taylor and Loft brands. While there, he helped develop a strategy for serving four retail store channels and two e-commerce sites.
Coin has a broad background, having worked in apparel, retail food services, consumer products, and management consulting. Today, he serves as a principal of The Kerma Group LLC, a consulting firm that works with clients in the retail sector. In an interview with Editor at Large James Cooke, he discussed some of the supply chain issues retailers face when they become involved in omnichannel commerce.
Q: Why are so many retailers pursuing an omnichannel commerce strategy these days? A: One of the largest investments retailers make is product inventory. However, no matter how adept they are at planning and allocating this investment across the various points of sale, they will be wrong. Consequently, they will have too much at location A and not enough at location B, which causes two basic issues: First, a customer will be frustrated, and second, a sale will be lost. Omnichannel can serve as a "safety net," mitigating the risk of allocation error because it lets retailers service cross-channel demand from any source of inventory.
All inventory will be sold sooner or later, albeit at a successive series of markdowns that erode margin. Given the fact that in many businesses, a single percentage of margin can more than cover the cost of shipping and processing, omnichannel offers a means by which a retailer can provide the best possible service at the best possible margin.
The omnichannel strategy becomes even more compelling when you add improvements to customer service to these inventory management and margin benefits. The ability for a customer to buy anywhere and have product delivered anywhere or picked up in a store ... facilitates a win-win relationship between the retailer and its customer.
Q: How must a distribution center change its operations to serve both brick-and-mortar stores and online orders? A: Depending upon a particular retailer's strategy for implementing omnichannel, a DC may not need to make many, if any, changes. However, many retailers have not yet begun to balance inventory availability across selling channels—stores, Internet, and catalog. Consequently, the migration to an omnichannel capability may highlight the need for a different cross-channel allocation of the retailer's inventory investment.
One approach gaining favor among retailers with seasonal stores is to migrate to more of a demand replenishment model, where some percentage of seasonal product is held back for secondary allocations based upon local store or Internet demand during the season. The key question here regards inventory held at the DC for Internet sales. Since this channel is growing so much faster than the other sales channels, and it is less costly to fulfill a customer order from a DC than from a store, it may be tempting to allocate more inventory to this channel at the risk of cannibalizing store inventory to the point of diminishing store-level selections.
Some smart people have argued for a reduction in DC capacity by effectively replacing the traditional DC with a number of expanded brick-and-mortar stores equipped to service local demand for omnichannel orders. Although I can't see how to make that work out financially, there are indeed some benefits to this approach. For example, parcel carriers can provide one- to two-day delivery to 97 percent of the U.S. population with as few as four well-placed fulfillment nodes. These nodes could be used to service retail locations more promptly with replenishment inventory as well.
Q: What changes do retail stores have to make in their operations in order to pick items off the shelf to fill online orders? A: Most retailers will need to reorient and train their hourly staff on a new set of operating procedures and systems. There will need to be a change in the processes utilized to accept an order and to assure the inventory is indeed available to fulfill the customer's order. This is the hardest part, operationally, of meeting the commitment to the customer. Retail store-level inventory accuracy is notoriously low due to a number of factors. Consequently, the inventory management system may indicate the SKU (stock-keeping unit) is available at a store when it is not actually available or may not easily be located at the store. In these cases, the retailer must have triage processes that allow it to source the item from an alternate location.
Given even a modicum of success, there will need to be dedicated space for staging, packing, and labeling orders for shipment. Arrangements need to be made with parcel carriers to have systemic capability for processing moderate to large volumes of parcels and for reliable pickup times.
Q: How do distributed order management systems help retailers gain inventory visibility? A: The visibility to and management of cross-network inventory is essential to a successful omnichannel effort in a multiunit retailing network. Whether this capability is accomplished via purchased or internally developed software, it is a necessity.
Historically, multiunit retailers have had separate inventory management systems and practices, which for accuracy's sake are specific to the channel requirements. For instance, in the Internet channel, SKU-level real-time accuracy is an absolute requirement for fulfilling a customer order, and systems and processes have evolved that routinely assure accuracy in excess of 99 percent. Not so in the retail store environment, where accuracy at the SKU level is far, far lower.
So, the dilemma comes when a retailer believes there is inventory available at a location and it is not—or, just as bad, thinks there is no inventory and there is. This is one reason for the renewed interest in radio-frequency identification (RFID) technology for retail locations. Retailers cannot rely on semiannual or annual physical inventories as the assurance of inventory availability in an omnichannel world.
Q: Can retail store workers be expected to fill orders with the same degree of accuracy as distribution center workers? A: I may be a bit of a contrarian here. Those of us in supply chain operations frequently underestimate store workers' abilities. Given the proper positioning of the initiative or customer focus, well-thought-out processes such as scan and pack validation, incentives, and training, store workers can fulfill orders as accurately as DC staff—but not necessarily as cost-effectively.
Q: What advice would you give a supply chain executive who has been assigned to set up an omnichannel strategy? A: My advice would be, first and foremost, to make sure your entire executive leadership is aligned on the importance and necessity of the initiative. Make sure the initiative has the proper governance. Rigorous and candid project management is a must. Since an omnichannel program by its very nature touches almost every functional area of the enterprise, a senior executive steering committee is a necessity. The project team must be built from the "best and brightest" from your supply chain operation, information technology group, store operations, change management organization, Internet operations, finance, and supply chain partners.
Any initiative of this size and scope is best implemented incrementally, via a series of pilot projects before full rollout. It's always best to validate the business impacts of these sorts of strategic initiatives, and to confirm and refine plans based on the real-world impact of how all the moving parts align.
Editor's note: This interview has been condensed. Click here to read the full conversation.
This story first appeared in the Quarter 1/2014 edition of CSCMP's Supply Chain Quarterly, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media's DC Velocity. Readers can obtain a subscription by joining the Council of Supply Chain Management Professionals (whose membership dues include the Quarterly's subscription fee). Subscriptions are also available to nonmembers for $34.95 (digital) or $89 a year (print). For more information, visit www.SupplyChainQuarterly.com.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."