With a smooth peak season in the rearview mirror, retail supply chain executives turn their focus to new strategies for tackling the labor crunch and incorporating disruptive technology.
Susan Lacefield has been working for supply chain publications since 1999. Before joining DC VELOCITY, she was an associate editor for Supply Chain Management Review and wrote for Logistics Management magazine. She holds a master's degree in English.
From a supply chain perspective, the 2018 holiday season was relatively quiet. While some retailers struggled with sales (most notably the department store chain Macy's), most made it through the holidays without any major breakdowns in service. Inventory was in stock, on-shelf availability was good, and e-commerce orders were delivered on time.
As retailers now turn the corner into 2019, they are looking to build on that success. But to do so, they will have to navigate a host of challenges, including the pressures created by omnichannel retailing, a shortage of labor, and an ongoing push to boost operating efficiency.
To find out how retailers are responding to these and other challenges, a team from Auburn University's Center for Supply Chain Innovation conducts a study among retail supply chain executives each year. The research is conducted in two parts. For the first phase of the study, a team led by the center's executive director, Brian Gibson, conducts in-depth interviews with about two-dozen senior supply chain executives from some of the top 100 retailers by sales (the vast majority work at companies with $2 billion or more in sales). This year, those interviews took place in December and January. The second phase is an online survey that Auburn conducts in conjunction with DC Velocity and the Retail Industry Leaders Association (RILA). The results of that survey, which is now under way, will form the basis for the annual State of the Retail Supply Chain Report, which will be published by the end of April, according to Gibson. (Last year's report can be found here.)
Although the results of the online survey were not available at press time, the executive interviews offer some important clues into where the retail industry is headed this year. What follows is a look at some of the findings.
RUNNING HOT
Many of the pressures and goals cited by retail executives during this year's interviews are not new. For instance, last year at this time, many of the executives Gibson spoke with identified better management of omnichannel commerce as a top priority. This year's interviews suggest that most have made good progress toward reaching that goal. "They are more comfortable that they have enough inventory allocated effectively and that they are doing a better job filling orders efficiently," Gibson says.
But that doesn't mean that retailers have omnichannel fulfillment completely figured out. Fulfillment of e-commerce orders remains expensive, and retailers are still trying to find the most cost-effective way to get product to customers, as they explore options like "buy online, pick up in store," or BOPIS. "They are still all striving for the perfect combination of where best to fill orders from and how to avoid a lot of split shipments," Gibson says. "There are still opportunities to enhance in-stock availability from the point closest to the last mile."
MAKE A GROWN MAN(AGER) CRY
These efforts to find that perfect combination, however, are happening in a tight labor market. While a 3.9-percent unemployment rate is great news for the general economy, it's enough to make distribution center (DC) managers cry.
That's because the better the employment picture gets, the harder it is for them to retain workers. In periods of low unemployment, people tend to leave distribution center jobs, which are often physically demanding and have less-than-desirable hours, for work in other industries.
"Retailers have had to get creative over the past year in order to overcome labor availability shortages," Gibson says.
According to Gibson, some of the strategies that companies have deployed in a bid to retain workers include:
Accelerating pay-scale escalation. For example, in the past, a company's policy might have been to start new employees at $12.50 per hour and then bump them up to $15.50 per hour after three years. Now, new employees may be earning $15.50 an hour after just 18 months.
Expanding the kinds of benefits offered to full-time employees.
Providing full benefits for part-time associates who work at least 30 hours a week.
Using software apps to give DC workers more control over their work schedule. These apps allow workers to see what hours they've been assigned, trade shifts, and volunteer for extra shifts or overtime.
Investing in automated equipment or assistive technology, such as mobile carts and robotic arms, to make DC work less physically demanding.
People issues are not just limited to the hourly work force, Gibson says. Supply chain executives are also struggling to retain and develop future leaders in an environment where young professionals often change jobs after only two years. Adding to the challenge, they're discovering that candidates with the skills they're looking for aren't easy to find. "They need people who understand supply chain management, are comfortable in the analytics space, and can lead the charge toward automation, omnichannel excellence, and supply chain digitization," Gibson says.
DOUBLE SPEED
While labor may be tight, the pressure to quickly make and execute on supply chain decisions has only intensified. In response, retailers are increasingly turning to "disruptive" technologies that will allow them to respond faster, Gibson says.
Three areas that are attracting particular attention are robotics, supply chain digitization, and artificial intelligence (AI) and predictive analytics. What follows is a look at some trends in these areas:
Robotics: Retailers are showing unprecedented interest in robotic technologies, but when it comes to the types of technologies they're investigating, the choices are all over the map. On one end are large grocery retailers, such as Kroger, that are looking at automating their entire facility with equipment like automated storage and retrieval systems (AS/RS). On the other end are smaller companies that are focusing on automated pallet jacks or carts that travel alongside the worker as he or she picks orders. Companies are also interested in robotic arms that can grab and lift heavy cartons or individual items.
Digitization: At the same time they're exploring robotics, retailers are also pursuing initiatives aimed at "digitizing" the supply chain, according to Gibson. For many of them, this means establishing data pools or repositories that contain detailed information on products, inventory levels, costs, transactions, and the like. This data pool will provide "a single version of the truth" not just for the supply chain function but for other functions as well. The hope is that this digitization will improve supply chain visibility and transparency, which will in turn lead to better inventory allocation and customer service.
Artificial intelligence and predictive analytics: As retailers work to create a common pool of supply chain data, they're also hoping that advances in AI and predictive analytics can help them use that information more effectively. What these companies ultimately want, according to Gibson, is the ability to leverage analytics programs and AI to provide managers with "actionable information," thereby reducing the amount of time supply chain managers spend "crunching data and staring at spreadsheets."
For example, companies could use AI to assess the accuracy of the forecasting models they've used in the past and make suggestions about which models they should use for specific situations—say, peak versus nonpeak seasons. Similarly, predictive analytics could be used to create much more focused, specific inventory allocation suggestions that could be customized to an individual store.
Not all disruptive technologies are garnering the same amount of interest from retailers, however. According to Gibson, the sense among most of the supply chain executives he's interviewed is that technologies like blockchain and the Internet of Things (IoT) are still way out on the horizon. "For the most part, they are finding that blockchain is still at the theoretical discussion stage," he says.
With the exception of blockchain and IoT, however, retailers' interest in disruptive technology is more than just talk, according to Gibson. He says retail supply chain leaders are finding it easier to obtain approval for investments in automated equipment and technology than they did in the past. While companies once evaluated spending requests strictly on the basis of cost, payback period, and return on investment (ROI), they appear to be backing off from those rigid guidelines. Today, they're more willing to look past those metrics in cases where the proposed technologies have high potential to improve service quality, boost inventory accuracy, or help the company better meet deadlines and delivery dates, Gibson says.
This willingness to invest in their supply chains is decidedly good news. Without that new technology (and a commitment to retaining and developing their talent), retailers will be hard-pressed to keep up with the rapidly evolving omnichannel commerce world and compete with the likes of Amazon. And in spite of this past holiday season's success, those that fail to keep up could next year find themselves in the same plight as Toys "R" Us, Sears, and other retailers that didn't adapt to the times.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
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.