The pressing need to learn how to handle omnichannel fulfillment profitably is reshaping retailers' supply chain strategies, according to preliminary results of the 2017 "State of the Retail Supply Chain" study.
Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
FIRST THE GOOD NEWS: U.S. holiday retail sales in 2016 were up more than 4 percent over sales during the same period in 2015. Now the bad news: That didn't seem to help retailers much. In December and January, several major chains announced or carried out layoffs and store closings, including Macy's, JC Penney, CVS, and The Limited (the last of which recently closed all of its mall stores). This comes on top of the 2016 demise of Sports Authority and store closing announcements by Sears, Kmart, Ralph Lauren, Office Depot, and others. Even Walmart is closing hundreds of stores.
The economic, technological, and societal forces that have converged to create this industrywide upheaval are many and complex. Online shopping, changing consumer preferences, the explosive growth in the number of e-commerce competitors, the cost and operational challenges of omnichannel operations ... those are just a few of the factors affecting retailers' ability to survive and remain profitable. Some of the responsibility for minimizing or counteracting the resulting damage falls on the shoulders of supply chain managers. That is likely why respondents to the Retail Industry Leaders Association's (RILA) 7th annual "State of the Retail Supply Chain" survey said controlling supply chain costs would be their top strategic priority in 2017.
The difference from year to year is striking. In 2016, "enhance customer service" was the top strategic priority, cited by 30 percent of respondents as their primary concern. This year, just 8 percent said that would be their primary focus in 2017. Instead, 42 percent of respondents said controlling supply chain costs would be their main strategic priority, up from 28 percent last year. Supporting revenue growth was second, with 31 percent (up from 22 percent in 2016), while balancing cost and service was third, at 19 percent, the same as last year.
For the latest survey, professors Brian Gibson, Rafay Ishfaq, and Cliff Defee of Auburn University's Harbert College of Business polled RILA's members, DC Velocity's readers, and retailers that collaborate with the Auburn, Ala., university's Center for Supply Chain Innovation. To round out the picture, the research team conducted telephone interviews with retail supply chain executives. The study's final results will be released at RILA's 2017 Retail Supply Chain Conference in Orlando, Fla., in mid-February, but the preliminary findings discussed in this article provide useful insight into how retailers are managing their supply chains in an increasingly omnichannel world.
THREE HOT TOPICS
The survey's 60 or so respondents represent U.S. retailers of all sizes, with projected 2017 revenues ranging from below $1 billion to more than $10 billion. They are also well qualified to speak about supply chain strategy: About 33 percent hold director or vice president positions, and 50 percent classified themselves as managers. Respondents have 20 years of supply chain management experience on average.
Each year, the study zeroes in on three "hot topics." This year, those topics were cross-channel integration, analytics, and cost control and recovery. All three are critically important at a time when retailers must be able to track, manage, and deploy inventory across an enterprise, regardless of location or sales channel, while responding to&mdashand often anticipating&mdashcustomers' preferences. Those mandates no doubt inform respondents' plans for supply chain-related investments in 2017. Compared with 2016 spending levels, 43 percent plan to increase their investments in supply chain process improvements, 37 percent plan to expand their omnichannel fulfillment capabilities, and 36 percent said they plan to upgrade their supply chain technology and software.
Here are some highlights from the preliminary survey results as well as a sampling of the researchers' comments on those findings:
Cross-channel integration. The survey asked about supply chain integration in the context of omnichannel retail. Just over a third of respondents said they are pursuing integration of online and store fulfillment activities, while 16 percent said they had already achieved that goal. Not everyone believes such integration is necessary, though: 24 percent said they would continue to keep online and store fulfillment separate.
As for the degree of cross-channel integration achieved to date, respondents counted themselves most successful when it came to order fulfillment, with 50 percent saying they've already achieved complete integration and 39 percent saying they have partially integrated that function. One-third said they have completely integrated order management systems, inventory allocation, and order delivery across channels. It's telling that 44 percent currently have no cross-channel integration in returns processing, a costly and complex activity that's proving to be a thorn in retailers' sides.
Why so much variation? "When people respond, they are drawing upon their area of expertise and how they see integration in their own functional areas," observes Ishfaq, an assistant professor and research fellow in supply chain management at the school. "Somebody on the warehousing side will have a different perspective than someone on the merchandise side."
Respondents have ambitious goals for the future. When asked what level of integration they expect to achieve three years from now, 50 percent or more said they would achieve complete integration in demand planning, order management systems, inventory allocation, and order fulfillment. Interestingly, 60 percent said the same for returns management, signaling that this area will be getting a lot more attention than it has in the past. (See Exhibit 1 for a "now" and "three years from now" comparison.)
None of that will be easy to achieve, cautions Gibson, who is a professor of supply chain management at Auburn and the study's leader. He calls the level of integration required for effective omnichannel operations "mind-boggling." The detailed work of implementation and obtaining visibility over inventory across channels is challenging, and groups that traditionally did not communicate much, such as supply chain and merchandising or store operations, must now collaborate very closely, he explains. Furthermore, retailers' approach to incentives and rewards can discourage decision-makers from taking a hit for the team, that is, taking on additional costs that may make their function's performance look subpar but will benefit the overall organization. Still, he adds, "the level of omnichannel integration compared to where we were when we first started the survey has vastly improved."
Analytics. Respondents clearly see value in supply chain analytics, ranking "improving forecast accuracy" and "retaining current customers and sales" as the top benefits of developing such capabilities. Next on their list was "capture new customers and sales." It's notable that customer- and sales-related benefits ranked higher than such obviously supply chain-related benefits as optimizing inventory investments and improving order fill rates. That may reflect the influence of lessons learned from last year's strategic focus on customer service.
Very few respondents consider their organizations to have advanced capabilities when it comes to the use of the four types of supply chain analytics: predictive (which are designed to project what will happen in the future), prescriptive (to establish forward-looking strategies and capabilities), descriptive (to evaluate current conditions), and diagnostic (to understand why results occurred). The majority said they have either "basic" or "intermediate" capability, while in each of the four categories, a little more than one-fourth said they have no capability at all. The areas where respondents currently make the most extensive use of analytics are inventory planning and allocation, and customer needs analysis. Only 18 percent said they use analytics extensively in their returns operations, an area many retailers are struggling to manage.
Respondents were on the same page when it came to their assessment of what it takes to develop analytics capabilities. Ninety percent either agreed or strongly agreed that having an enterprisewide strategy is critical to success. Similarly, 86 percent agreed that effectively managing the volume and complexity of supply chain data is a major success factor, and 80 percent said the same about sharing data and analysis with supply chain partners. Three other high-ranking factors highlighted the human side of analytics: investing in analytics tools and talent (86 percent), executives understanding the benefits and limitations of analytics (85 percent), and hiring individuals with both supply chain and analytics expertise (80 percent).
The human factor should not be underestimated. "Almost everybody we spoke to said they have a big issue with finding the right talent," Ishfaq says. "It's one thing to purchase software, but you need people to work the data you collect into actionable information. This is one of the underlying challenges that is a temporary impedance to the extensive use of business analytics across the supply chain."
Cost control and recovery. Currently, 50 percent of respondents partially recover the costs of providing omnichannel fulfillment and delivery services, and another 40 percent of respondents recover none of those costs. Ten percent do not even measure omnichannel cost recovery. In fact, only 40 percent of respondents believe it's even possible to fully recover those costs—something no respondent has yet achieved. Furthermore, 95 percent of respondents said they expect the cost of their supply chain operations to increase in the near future, which could push the cost-recovery goal further out of reach.
In a bid to at least partially recover costs, many respondents are imposing service fees or plan to do so in the future. For example, two-thirds currently charge for expedited service, and one-third impose delivery fees for small orders. Other types of fees are far less popular, and 50 percent or more said they have no plans to collect fees for in-store fulfillment, returns shipments and processing, or small orders. (Some respondents may have selected "no intention to use" because the scenario does not apply to their business.)
Respondents were also asked to name the three most effective ways they could "monetize" or control retail supply chain costs. At the top of their weighted list was leveraging a single inventory pool across all channels, followed by encouraging customers to buy online and pick up orders in stores, having vendors directly fulfill orders, and charging delivery fees for all orders.
But there are significant barriers to implementing cost-control steps, including an inability to measure and allocate costs, the variety of fulfillment options offered to customers, and competitors' willingness to absorb supply chain costs. At least 60 percent of respondents considered each of the situations cited to be either moderate or major barriers to controlling omnichannel costs. (See Exhibit 2.)
Nevertheless, Gibson sees reason for optimism. Retailers are gaining a great deal of confidence in using analytics, and most understand the value of cross-channel integration, he says. But most supply chain organizations, he says, will struggle with omnichannel's biggest question: "How do we offset rising costs and make sure that as we take on additional supply chain costs, we're also driving revenue and profits? If you can answer that, you'll be in good shape," Gibson says. "If you can't answer that question, then you're going to be the next Limited or Sports Authority."
Editor's note: The full results of the 7th annual "State of the Retail Supply Chain" survey will be available on the Retail Industry Leaders Association's website (www.rila.org) in mid-March.
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.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
This story first appeared in the July/August issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’ DC Velocity.
Companies can find it challenging to meet the increasing demand to make their supply chains sustainable—except when external events force their hands.
Our research shows that when large-scale disruptions compel companies to rethink their operations, improving sustainability is often part of the redesigned supply chains that emerge from such crises. Counterintuitively, supply chain sustainability (SCS) efforts appear to thrive in a crisis.
While companies should not limit their SCS efforts to crises, an awareness of these opportunities can help them identify opportune moments to advance their green agendas. This is especially the case in today’s volatile business environment, where adjustments to operational footprints in response to disruptive market forces are becoming more frequent.
The pressure to make supply chains more sustainable has risen steadily over the four years we have done this research. We measure 10 sources of pressure, including investors, government entities, corporate buyers, company executives, and consumers, and the pressure from all of them has increased over the four years.
Investors represent the fastest-growing source, with a 25% increase in average respondent score throughout observation. Next come corporate buyers, with a 15% increase, followed by governments and governing bodies (11%).
Overall, the research indicates that commercial interests—be it access to capital gated by sustainability-minded investors or sales opportunities gated by sustainability-minded procurement teams—are pushing companies to improve their SCS performance year after year.
OBSTACLES TO SCS
However, meeting stakeholder expectations of significant reductions in supply chain carbon footprints is still a stretch for many companies.
Reducing Scope 3 emissions—those associated with assets not owned by the company and therefore largely out of their control—is proving particularly tricky. These problems are reflected in our latest research. Almost half of the “2023 State of Supply Chain Sustainability” report respondents indicated their organizations will not begin measuring or reducing Scope 3 emissions for five years or more. Scope 3 reporting and collecting reliable data across company boundaries appear to be especially challenging.
Another indicator of the bumpy road to SCS is the number of companies rethinking or scaling back their net-zero emissions pledges. Again, these issues are reflected in our research. Across all global respondents in the 2023 report, only 35% confirmed that their companies have net-zero goals. Moreover, many within this minority group appear unprepared for the net-zero deadlines they set for themselves.
DON’T WASTE A CRISIS
Four years of researching SCS efforts have allowed us to study the impact of various large-scale global crises on firms’ commitment to this work. We have found that the effect varies with the type of disruption experienced.
For the most part, crises that provoke acute supply chain network disruptions necessitating supply lines to be redrawn tend to result in an increased commitment to sustainability in supply chains. However, economic crises that require companies to regroup tend to dampen their SCS commitments.
For example, in the 2023 report, respondents were asked to rate their companies’ continued commitment to SCS in light of three crises: the Covid-19 pandemic in 2020–21, Russia’s invasion of Ukraine (asked in 2023), and adverse economic conditions in 2023. In the first two cases, SCS efforts did not flag, but they did in the third situation. The survey results show that 79% of respondents confirmed that their SCS commitments increased in response to the Covid-19 pandemic, and 61% said they have increased due to the Ukraine invasion.
In contrast, 56% of respondents indicated that their commitments to SCS declined over concerns that an economic slowdown was imminent in 2023. The research shows that when an economic downturn is in the offing, firms tend to concentrate on developing leaner, more cost-effective supply chain networks, even when such efforts do not align with sustainability goals. Also, companies are more focused on short-term risk-mitigation efforts—rather than longer-term sustainability targets—when dealing with economic headwinds.
However, when global disruptions upend operations, the reaction is different. Companies redesign their supply chain networks in response, and building sustainability into these revamps makes sense. In recent years, we’ve observed that the most opportune time to redesign a supply chain with sustainability in mind is, paradoxically, when the supply chain is broken.
AN EXTENSION OF REDESIGN
In today’s uncertain world, there is no shortage of global-scale disruptions to supply chains, and these are unlikely to diminish in the face of future uncertainties, such as climate change and geopolitical instability.
Framing SCS as part of a company’s ongoing supply chain network redesign efforts might be a way to secure resources for these programs.
Moreover, perhaps this rationale need not be restricted to global crises. A host of competitive challenges can require firms to review the structure of their end-to-end operations. A company might need to change the geographic profile of its supply base as political tensions rise, decentralize its supply chain to reduce risk, or reconfigure its last-mile operations in changing e-commerce markets.
Further research is needed into the relationship between sustainability efforts and managing and mitigating disruption risks. Meanwhile, current and potential disruptions can offer an opportunity to integrate sustainability into the design and management of supply chains.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.