David Maloney has been a journalist for more than 35 years and is currently the group editorial director for DC Velocity and Supply Chain Quarterly magazines. In this role, he is responsible for the editorial content of both brands of Agile Business Media. Dave joined DC Velocity in April of 2004. Prior to that, he was a senior editor for Modern Materials Handling magazine. Dave also has extensive experience as a broadcast journalist. Before writing for supply chain publications, he was a journalist, television producer and director in Pittsburgh. Dave combines a background of reporting on logistics with his video production experience to bring new opportunities to DC Velocity readers, including web videos highlighting top distribution and logistics facilities, webcasts and other cross-media projects. He continues to live and work in the Pittsburgh area.
To say that retailers are facing unprecedented challenges might be an understatement. After surviving the pandemic shutdowns, retailers met the challenge of surging consumer demand only to run up against a whole new set of obstacles: supply chain disruptions; runaway inflation; skyrocketing fuel and transportation costs; new, highly contagious strains of Covid; and a looming economic recession. All of this comes at a time when they are entering peak season. Many have stocked up on merchandise already, but are they the right products?
For some answers, we turned to Zac Rogers, an assistant professor of operations and supply chain management at Colorado State University. His primary research interests include the financial impact of supply chain sustainability, emerging logistics technologies, supply chain cybersecurity, and purchasing and logistics issues. He is also a researcher and co-author of the monthly Logistics Managers’ Index (LMI) report, which tracks trends and developments in the industry.
Rogers earned his B.S. and MBA degrees at the University of Nevada, Reno, and his Ph.D. in supply chain management from Arizona State University. He recently spoke with DC Velocity Group Editorial Director David Maloney.
Q: We have seen how even the smallest disruption can ripple throughout our supply chains, leading to shortages and delays. There are so many things that could potentially go wrong this peak season. What do you think is going to happen?
A: Yes, we are in a funny place going into peak season. We have seen inventories climb at an unprecedented rate over the last six months. What that really has to do with is the fact that supply chains are so long-tailed—longer tailed now than they really should be because of things like shutdowns at Shanghai, congestion at ports, and overcrowded warehouses. Everything is moving more slowly. What I keep hearing from folks is that whatever your normal leadtimes are, you can expect them to essentially triple—so that what would typically take 90 days to produce now takes 270 days. These are really long leadtimes, and the inventories that we see now reflect an economy that no longer exists. They reflect the economy of 2021, when we had really hot consumer spending.
Q: Prices are high, and we’re seeing record inflation. What are retailers’ expectations this holiday season with such high inventories? Will consumers see many pre-holiday sales as a result?
A: Yes, I think there will be some sales.
The other thing, ironically, is that we already have some holiday inventories, as some of the things that arrived here in February and March were supposed to get here last November in time for the 2021 holiday selling season. Some companies actually held onto winter coats or apparel. We are already seeing some pretty aggressive selldowns at some retailers.
Another thing that often gets lost in the discussion is that a lot of the inventory we have isn’t ready to go. It is “work in process” inventory. For instance, there was a Wall Street Journal article about GM in the first week of July that talked about 95,000 units that weren’t going to be delivered on time. There is a lot of inventory like that, and it represents a significant investment. We are seeing a similar bottleneck with lithium batteries and things like that that tend to come from Russia and Ukraine. So, we have a lot of inventory that is not even sellable.
Q: What kinds of goods will consumers look to purchase this holiday season? Are we looking at durable goods, consumables, or entertainment and escapism as we have in the past couple of years?
A: I think entertainment and escapism will be a big piece of it. If you look at spending on services relative to durable goods, it has really shifted toward services in the last few months, partially because the lockdown is over. People can go on vacations. They can go to sporting events, concerts, and movies.
I would also anticipate some demand for electronics. People had a really hard time getting laptops, phones, and videogame systems during the last few years because of the semiconductor shortage.
Q: Although we want to be done with Covid, Covid is not done with us, and we could see more surges and shutdowns in places like China. What effect would shutdowns have on peak season?
A: Well, it would be pretty tough if we had another shutdown in China. I don’t really think we’re going to see widescale shutdowns in the United States partly because of the midterm elections this fall—I just don’t think that anyone is going to want to be the “shutdown guy,” honestly. With China, we have already had huge disruptions, and, honestly, we haven’t really seen the tail end of the spring 2022 shutdowns yet. We were still feeling the aftereffects of the 2020 shutdowns at the end of 2021, and then we pivoted right into more shutdowns in early 2022 in China. It is going to take us a while to work through those.
One of the things that have become clear over the last year is that supply chains are not something you can just turn on and off quickly. They take a long time to get moving again. When I used to work in a warehouse, everyone would go to lunch for a half hour, and once everybody got back, it still took 20 to 30 minutes for things to get moving again because you need goods flowing through the process. It’s the same with supply chains. It takes a while for them to get turned back on, and the sort of “stop, start, stop, start” pattern we’ve seen is terrible for us. If we keep seeing that, then we are going to continue to have big disruptions.
Q: Speaking of warehouses, the industry is still struggling with a severe labor shortage as peak season gets underway and the amount of inventory that needs to be shipped out starts to grow. What do you foresee for the labor situation, and is that going to present problems with delivering goods on time?
A: You are absolutely right about inventories. In our Logistics Managers’ Index (LMI) “inventory level” metric, we were in the 70s for five of the first six months of 2022. Anything above 70 we would consider to be significant rates of growth because anything over 50 indicates expansion. Once you hit 70, you are really seeing a high level of growth. Before 2022, I think we were only in the 70s with inventory twice. It is moving really, really quickly.
That is also reflected in our “warehousing capacity” metric. With warehouse capacity, we have the same rules—anything over 50 indicates expansion and anything under 50 is contraction. We have been in the 30s or 40s now every single month since September of 2020. For almost two years, we have seen pretty significant rates of contraction in available space. That is due to the shift of warehouses, even though there are so many more warehouses now.
If you look at the warehouse absorption from 2021, a plurality of that was warehouses smaller than 100,000 square feet. Those tend to be urban warehouses. That is something that I think is often missed in discussions about warehouse labor issues. Yes, we have more warehouses than we’ve ever had, and there is more inventory moving through them, and it is more stressful than it has ever been, but they are also in a different place geographically. They are tending to go toward places where wages are higher.
Adding to that, the cost of living is rising at the fastest rate in 40 years. That is one of the things that are really driving the push toward automation in warehouses. We are seeing a huge boom in demand right now for fulfillment automation, any sort of robotic systems that can help supplement labor.
Q: Let’s take a moment to talk about trucking and the freight markets. CSCMP’s latest “State of Logistics Report” predicts a slowdown in these markets. We’ve even heard from some quarters that there may be a truck market collapse because of a buildup of capacity that now may not be needed. What is the near-term outlook for trucking and freight?
A: Well, peak season will be a godsend for some of the players—especially the smaller truckers. I know a lot of people are saying that 2022 might be like 2019, when we saw a virtual wipeout of the trucking industry. We had 3,000 carriers go out of business in 2019 and 2020. I don’t know that it’s going to be that severe, and there are a couple of reasons for that.
In 2017 and 2018, the economy was hot, and we had these huge orders for big Class 8 trucks. Plus, going into 2019, we essentially had an unlimited capacity to overbuild. We also had big orders for Class 8 trucks in 2020 and 2021. The difference is that because of the semiconductor bottleneck, we weren’t able to produce trucks nearly as fast as we wanted to. In some ways, the semiconductor shortage saved the trucking industry from itself.
As for transportation capacity, we tracked that metric in the Logistics Managers’ Index and again, any number over 50 indicates growth and anything under 50 indicates contraction. We had contraction in transportation capacity from July 2020 to March 2022, and then after March 2022, the diesel [price] shock happened and suddenly, capacity went positive. What is interesting, though, is that in June, capacity growth was lower than it was in May. So, the rate of growth was slowing down—to 61 in June. If you compare that to 2019, we are still not even close. In 2019, we saw the transportation capacity growth rate number go as high as 72, which indicated really significant rates of growth.
And then pivoting over to the metric of price for transportation: I think in June, we got down to 61.3 for transportation price, which is important because transportation rate growth is now lower than capacity, and when that happens, it usually means that something is going on economically.
As for what’s ahead, I do anticipate a lot of pain for smaller carriers. I think in the last week of June, the spread between wholesale and retail prices for diesel was about 73 cents per gallon. Smaller carriers don’t have the volume to buy diesel at wholesale prices. Their costs are much higher than big fleets’ costs. Also, the big fleets saved a ton of cash over the last two years because times were so good, they were able to put cash away. We are already seeing the big players start to absorb many of these smaller owner-operators. It is just not a level playing field.
Q: How do the higher fuel prices, capacity issues, and other factors affect shippers?
A: Every month we ask our respondents to do a future prediction: What do you think is going to happen across all of our different metrics? It is interesting. Over the next 12 months, our respondents predicted a growth rate of 59.6, so about 60 for transportation price, and that represents moderate, steady growth. This is the type of growth that we would consider sustainable. What that tells us is that prices are going to continue to go up, but at a mild and sustainable pace—one that won’t have us pulling our hair out the way we have for the last two years. In some ways, it could be sort of a relief.
Now, that growth rate probably reflects a move toward more contract carriers and less spot-market stuff, which again is harder for the little guys in the margins who are really relying on spot markets. But for the industry as a whole, what it seems like is that we are moving back toward equilibrium.
Q: How will rising interest rates affect our peak season?
A: I think some people have been hoping the Fed will ride in to save the day with inflation, but there is a great new tool out from the San Francisco Federal Reserve that individually tracks demand-driven and supply-driven inflation and helps to explain what’s going on. Supply-driven inflation is when price is going up really quickly, but supply is not going up quickly, like oil. Demand-driven inflation is when price goes up but then supply goes up, like apparel or footwear. If you look at the last three or four months, the vast majority of the inflation right now is coming from the supply side. It’s not that prices are just going up because consumers are spending money like crazy. Prices are going up because there is not enough supply to meet demand.
Now, back in March, April, and May of 2021, it was very much demand-driven. That was right when the stimulus checks came out, and the inflation we saw in early 2021 was really the result of consumers spending money on elastic goods.
The drivers that we’re seeing now are fuel and groceries. It is really the headline inflation that is supply-driven. People are not going to stop buying gas or food, so if the Fed raises interest rates, there will be some demand destruction, but it is going to be demand destruction of the things that weren’t really driving inflation anyway. That will make it even more difficult, I think, for companies to run down their inventories as quickly as they’d like because those goods sitting in inventory would be demand-driven goods that are being targeted by the Fed.
Progress in generative AI (GenAI) is poised to impact business procurement processes through advancements in three areas—agentic reasoning, multimodality, and AI agents—according to Gartner Inc.
Those functions will redefine how procurement operates and significantly impact the agendas of chief procurement officers (CPOs). And 72% of procurement leaders are already prioritizing the integration of GenAI into their strategies, thus highlighting the recognition of its potential to drive significant improvements in efficiency and effectiveness, Gartner found in a survey conducted in July, 2024, with 258 global respondents.
Gartner defined the new functions as follows:
Agentic reasoning in GenAI allows for advanced decision-making processes that mimic human-like cognition. This capability will enable procurement functions to leverage GenAI to analyze complex scenarios and make informed decisions with greater accuracy and speed.
Multimodality refers to the ability of GenAI to process and integrate multiple forms of data, such as text, images, and audio. This will make GenAI more intuitively consumable to users and enhance procurement's ability to gather and analyze diverse information sources, leading to more comprehensive insights and better-informed strategies.
AI agents are autonomous systems that can perform tasks and make decisions on behalf of human operators. In procurement, these agents will automate procurement tasks and activities, freeing up human resources to focus on strategic initiatives, complex problem-solving and edge cases.
As CPOs look to maximize the value of GenAI in procurement, the study recommended three starting points: double down on data governance, develop and incorporate privacy standards into contracts, and increase procurement thresholds.
“These advancements will usher procurement into an era where the distance between ideas, insights, and actions will shorten rapidly,” Ryan Polk, senior director analyst in Gartner’s Supply Chain practice, said in a release. "Procurement leaders who build their foundation now through a focus on data quality, privacy and risk management have the potential to reap new levels of productivity and strategic value from the technology."
Businesses are cautiously optimistic as peak holiday shipping season draws near, with many anticipating year-over-year sales increases as they continue to battle challenging supply chain conditions.
That’s according to the DHL 2024 Peak Season Shipping Survey, released today by express shipping service provider DHL Express U.S. The company surveyed small and medium-sized enterprises (SMEs) to gauge their holiday business outlook compared to last year and found that a mix of optimism and “strategic caution” prevail ahead of this year’s peak.
Nearly half (48%) of the SMEs surveyed said they expect higher holiday sales compared to 2023, while 44% said they expect sales to remain on par with last year, and just 8% said they foresee a decline. Respondents said the main challenges to hitting those goals are supply chain problems (35%), inflation and fluctuating consumer demand (34%), staffing (16%), and inventory challenges (14%).
But respondents said they have strategies in place to tackle those issues. Many said they began preparing for holiday season earlier this year—with 45% saying they started planning in Q2 or earlier, up from 39% last year. Other strategies include expanding into international markets (35%) and leveraging holiday discounts (32%).
Sixty percent of respondents said they will prioritize personalized customer service as a way to enhance customer interactions and loyalty this year. Still others said they will invest in enhanced web and mobile experiences (23%) and eco-friendly practices (13%) to draw customers this holiday season.
That challenge is one of the reasons that fewer shoppers overall are satisfied with their shopping experiences lately, Lincolnshire, Illinois-based Zebra said in its “17th Annual Global Shopper Study.”th Annual Global Shopper Study.” While 85% of shoppers last year were satisfied with both the in-store and online experiences, only 81% in 2024 are satisfied with the in-store experience and just 79% with online shopping.
In response, most retailers (78%) say they are investing in technology tools that can help both frontline workers and those watching operations from behind the scenes to minimize theft and loss, Zebra said.
Just 38% of retailers currently use AI-based prescriptive analytics for loss prevention, but a much larger 50% say they plan to use it in the next 1-3 years. That was followed by self-checkout cameras and sensors (45%), computer vision (46%), and RFID tags and readers (42%) that are planned for use within the next three years, specifically for loss prevention.
Those strategies could help improve the brick and mortar shopping experience, since 78% of shoppers say it’s annoying when products are locked up or secured within cases. Adding to that frustration is that it’s hard to find an associate while shopping in stores these days, according to 70% of consumers. In response, some just walk out; one in five shoppers has left a store without getting what they needed because a retail associate wasn’t available to help, an increase over the past two years.
The survey also identified additional frustrations faced by retailers and associates:
challenges with offering easy options for click-and-collect or returns, despite high shopper demand for them
the struggle to confirm current inventory and pricing
lingering labor shortages and increasing loss incidents, even as shoppers return to stores
“Many retailers are laying the groundwork to build a modern store experience,” Matt Guiste, Global Retail Technology Strategist, Zebra Technologies, said in a release. “They are investing in mobile and intelligent automation technologies to help inform operational decisions and enable associates to do the things that keep shoppers happy.”
The survey was administered online by Azure Knowledge Corporation and included 4,200 adult shoppers (age 18+), decision-makers, and associates, who replied to questions about the topics of shopper experience, device and technology usage, and delivery and fulfillment in store and online.
An eight-year veteran of the Georgia company, Hakala will begin his new role on January 1, when the current CEO, Tero Peltomäki, will retire after a long and noteworthy career, continuing as a member of the board of directors, Cimcorp said.
According to Hakala, automation is an inevitable course in Cimcorp’s core sectors, and the company’s end-to-end capabilities will be crucial for clients’ success. In the past, both the tire and grocery retail industries have automated individual machines and parts of their operations. In recent years, automation has spread throughout the facilities, as companies want to be able to see their entire operation with one look, utilize analytics, optimize processes, and lead with data.
“Cimcorp has always grown by starting small in the new business segments. We’ve created one solution first, and as we’ve gained more knowledge of our clients’ challenges, we have been able to expand,” Hakala said in a release. “In every phase, we aim to bring our experience to the table and even challenge the client’s initial perspective. We are interested in what our client does and how it could be done better and more efficiently.”
Although many shoppers will
return to physical stores this holiday season, online shopping remains a driving force behind peak-season shipping challenges, especially when it comes to the last mile. Consumers still want fast, free shipping if they can get it—without any delays or disruptions to their holiday deliveries.
One disruptor that gets a lot of headlines this time of year is package theft—committed by so-called “porch pirates.” These are thieves who snatch parcels from front stairs, side porches, and driveways in neighborhoods across the country. The problem adds up to billions of dollars in stolen merchandise each year—not to mention headaches for shippers, parcel delivery companies, and, of course, consumers.
Given the scope of the problem, it’s no wonder online shoppers are worried about it—especially during holiday season. In its annual report on package theft trends, released in October, the
security-focused research and product review firm Security.org found that:
17% of Americans had a package stolen in the past three months, with the typical stolen parcel worth about $50. Some 44% said they’d had a package taken at some point in their life.
Package thieves poached more than $8 billion in merchandise over the past year.
18% of adults said they’d had a package stolen that contained a gift for someone else.
Ahead of the holiday season, 88% of adults said they were worried about theft of online purchases, with more than a quarter saying they were “extremely” or “very” concerned.
But it doesn’t have to be that way. There are some low-tech steps consumers can take to help guard against porch piracy along with some high-tech logistics-focused innovations in the pipeline that can protect deliveries in the last mile. First, some common-sense advice on avoiding package theft from the Security.org research:
Install a doorbell camera, which is a relatively low-cost deterrent.
Bring packages inside promptly or arrange to have them delivered to a secure location if no one will be at home.
Consider using click-and-collect options when possible.
If the retailer allows you to specify delivery-time windows, consider doing so to avoid having packages sit outside for extended periods.
These steps may sound basic, but they are by no means a given: Fewer than half of Americans consider the timing of deliveries, less than a third have a doorbell camera, and nearly one-fifth take no precautions to prevent package theft, according to the research.
Tech vendors are stepping up to help. One example is
Arrive AI, which develops smart mailboxes for last-mile delivery and pickup. The company says its Mailbox-as-a-Service (MaaS) platform will revolutionize the last mile by building a network of parcel-storage boxes that can be accessed by people, drones, or robots. In a nutshell: Packages are placed into a weatherproof box via drone, robot, driverless carrier, or traditional delivery method—and no one other than the rightful owner can access it.
Although the platform is still in development, the company already offers solutions for business clients looking to secure high-value deliveries and sensitive shipments. The health-care industry is one example: Arrive AI offers secure drone delivery of medical supplies, prescriptions, lab samples, and the like to hospitals and other health-care facilities. The platform provides real-time tracking, chain-of-custody controls, and theft-prevention features. Arrive is conducting short-term deployments between logistics companies and health-care partners now, according to a company spokesperson.
The MaaS solution has a pretty high cool factor. And the common-sense best practices just seem like solid advice. Maybe combining both is the key to a more secure last mile—during peak shipping season and throughout the year as well.