Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Editor at CSCMP's Supply Chain Quarterly. and Senior Editor of SCQ's sister publication, DC VELOCITY. 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.
This article originally appeared in the February 2018 issue of Supply Chain Quarterly's sister publication, DC Velocity.
The retail sector has been permanently disrupted by technology, and retailers of all sizes are battling to manage technology's impact on their business models. For many of them, gaining control of e-commerce, multichannel and omnichannel fulfillment, and customers' expectations of ever-faster and customized delivery is a matter of survival.
To find out how companies are responding to these and other pressures, Auburn University
annually polls supply chain executives about their overall strategies as well as their
experiences and plans regarding several "hot topic" areas. As in the past, this year's
study was conducted by the university's Center for Supply Chain Innovation under the leadership
of professor Brian Gibson, with colleagues Rafay Ishfaq, Cliff Defee, and Elizabeth Davis-Sramek.
The researchers surveyed members of the Retail Industry Leaders Association, readers of
Supply Chain Quarterly's sister publication, DC Velocity, and companies that
collaborate with the Center for Supply Chain Innovation. To round out the picture, the
research team conducted telephone interviews with supply chain executives.
Getting a grip on change
The researchers conducted 20 interviews with retail supply chain executives, most of whom were chief supply chain officers or senior vice presidents of supply chain. All work for medium-sized to very large retailers; all but a handful of those companies report annual revenues exceeding US$1 billion, and together, they account for nearly US$1 trillion in annual sales.
When asked about their overall strategy for 2018, many executives cited better management of omnichannel commerce as a top priority. Although a small "lagging" group of retailers are still rolling out basic omnichannel capabilities, companies that can be described as "leaders"—generally, the biggest brand names—are looking at refining the omnichannel strategies and practices they already have in place, such as cutting delivery times to consumers and ensuring service consistency across all channels. Those companies, the researchers say, have come a long way since their previous survey report was published. "Last year, we were still getting a lot of companies wondering how to respond to the 'Amazon effect.' Now, retail leaders have taken control of their omnichannel operations and have a game plan they're ready to execute," Defee says.
The interviews with retail supply chain executives also zeroed in on several specific areas, including urban fulfillment, relationships with third-party logistics service providers (3PLs), sustainability, and disruptive technologies. Here is the research team's take on the issues and trends the interviewees addressed.
Managing urban fulfillment. As the array of products consumers order online continues to expand, urban fulfillment has become a major concern for an increasingly wide range of retail segments. But retailers are being cautious about the delivery services they offer. Some interviewees said they would "move as fast on [urban delivery services] as [their] customers demand it," Gibson says. In other words, they are investing in various delivery options only when demand is sufficient and the cost of providing those services can be justified. One surprise: Although many people assume that urban delivery only matters in a few big markets like New York City and Los Angeles, respondents said they were working to meet rapidly growing demand for same-day and next-day delivery in dozens of other urban markets across the country.
Increasingly, retailers are using urban stores as fulfillment locations to accommodate their "BOPIS"—buy online, pick up in store—services. Some are also investing in small-footprint distribution centers in urban areas that offer same-day delivery for a limited assortment of stock-keeping units (SKUs). A third option mentioned by respondents is a "dark store"—a facility that's set up like a retail store but is used for assembling e-commerce orders, which are then delivered to consumers or to pickup locations. In Gibson's view, the benefit of the latter two options compared with in-store fulfillment is that it avoids disrupting store operations and offers quick access to backup inventory if a nearby store runs out.
The cost of meeting consumers' expectations is forcing retailers to rethink how they deliver orders in cities. Some are testing the use of employees to drop off packages on their way home from work. Others are setting up their own private fleets of local-delivery vehicles. But they're most likely to use for-hire services, such as Uber, Lyft, Shipt, and Instacart, because of their flexible capacity and variable cost structure, according to Gibson.
Working with logistics service providers. As retailers contend with changing business models, their relationships with 3PLs are also changing. Their strategies appear to follow two different paths. Several executives said they are seeking fewer, more strategic partnerships with 3PLs in order to reduce complexity. This trend is leading service providers to expand their portfolios in hopes of becoming a "one-stop shop" for big retail accounts, Ishfaq says. Of course, when 3PLs expand their reach and their service portfolios, their costs go up—and so do the prices they charge their customers. That, he says, could undermine one of their core value propositions: that they can handle logistics activities more cost-effectively than their clients could on their own.
That's one reason why other executives are considering a different approach: taking some warehousing and distribution activities back from 3PLs. "If a market was mature and the service demand was stable and predictable, then some would talk about doing it in-house," Ishfaq says, adding that these were all "really big players with thousands of stores who see the scale in a particular brand or product category." In addition, concerns about transportation capacity are prompting some to consider private delivery fleets or dedicated contract carriage. Still, interviewees said they would continue working with 3PLs when expansion to a new market/location or the rollout of new services was involved.
As customers put pressure on retailers to improve their service, the retailers, in turn, expect 3PLs to "up their game," Ishfaq says. But those expectations seem to be changing faster than the 3PLs can keep up with. "That has put pressure on them from both a cost and a performance-guarantee standpoint. It's a pressure cooker right now," he says. "We could see failures or tougher going."
Achieving supply chain sustainability. How much priority retailers give to sustainability, which includes environmental, health and safety compliance, and labor considerations, varies widely. Large companies that have published sustainability reports, made someone responsible for sustainability, or integrated it into their corporate culture considered it to be very important, but for others, sustainability is not a strategic priority, Davis-Sramek says. Those companies' efforts often focused on things like energy and fuel efficiency, where they can see a direct connection to cost savings. Several executives said it's critical that their sourcing organizations ensure that goods are in compliance with relevant regulations, make sure products are environmentally safe, and address problems like forced labor, but that focus didn't necessarily carry over into supply chain activities.
The interviewees have not widely considered an issue that could have a major impact on their supply chain costs in the future: the conflict between sustainability goals and consumers' escalating demands for fast, convenient service. "We asked them, 'If you ship one item to one customer in one box, what does that do to your ability to meet sustainability goals?'" Davis-Sramek recalls. "The pretty universal response was, 'We've placed so much emphasis on fulfillment and meeting customer requests that we haven't really made that connection yet.'"
Davis-Sramek expects that at some point, retailers will come under external pressure to resolve the tension between e-commerce and sustainability. That pressure may come from nongovernmental organizations (NGOs), perhaps through a study on the impact of home delivery on the environment. Or it could come in the form of regulation, such as a carbon tax or European-style regulations on packaging waste. Nobody knows how far in the future that will happen, but Davis-Sramek expects retailers will step up when it does. "I think they'll apply the same kind of innovative thinking they used to develop omnichannel commerce," she says.
Leveraging disruptive technology. Disruptive technology is still more concept than reality for most retailers. "There's no single cutting-edge technology that everybody's focused on," says Defee. "They know it's coming, but nobody sees one they're really banking on right now." Technologies that were mentioned most frequently included artificial intelligence and machine learning, which were seen as potentially having a beneficial impact on such areas as demand forecasting, understanding customers' preferences, and identifying trends that will impact inventory plans.
Most, though, are just beginning to investigate those and other technologies, such as robotics, blockchain, and the Internet of Things. "There's a lot of interest and there's monitoring, but not a lot of money invested," Gibson says. "There's still a healthy amount of skepticism about how these technologies will play in the supply chain area." Return on investment (ROI) is another top concern; Defee says one interviewee called articulating an ROI to justify investment "the No. 1 challenge of disruptive technology."
Not surprisingly, then, when it comes to new technology, retailers are focusing on proven winners, such as analytics and warehouse automation. E-commerce fulfillment is driving investment in those and other technologies, but retailers are also using them to improve store operations, Gibson notes. For example, some are buying automated picking and sequencing technology for their stores because the automated systems do a much better job of picking aisle-specific pallets or cartons than a human can, thus allowing for faster on-shelf replenishment.
Common principles
During the course of the researchers' interviews, several common principles came to the fore. One was that retailers should ensure consistent service and product availability regardless of how they are interacting with customers. Another was that they must become true omnichannel organizations, leveraging inventory, technology, and distribution networks to get to a single pool of stock. Omnichannel success also requires the capacity to deliver orders wherever and whenever the customer wants them. "We're going to hit that tipping point where a retailer's capacity to make last-mile deliveries will either be game-changing or it will bog [the operation] down and get very expensive," Gibson says.
Finally, the researchers say, retailers are starting to understand that being involved in omnichannel does not mean they are obligated to be "all things to all people." Instead, many are taking advantage of advances in supply chain analytics to judge whether their scope of offerings and cost to serve specific channels and customers are justifiable. How they respond to the data will be driven by external competition and/or internal strategies, Gibson points out. Something may be costly from a supply chain standpoint, he says, but in an omnichannel world, retailers ultimately must make decisions based on overall strategic benefit.
Editor's note: An earlier version of this article originally said that the Retail
Industry Leaders Association conducts the poll. While RILA members (among others) are
polled, the survey itself is conducted by Auburn University's Center for Supply Chain
Innovation.
A hefty 42% of procurement leaders say the biggest threat to their future success is supply disruptions—such as natural disasters and transportation issues—a Gartner survey shows.
The survey, conducted from June through July 2024 among 258 sourcing and procurement leaders, was designed to help chief procurement officers (CPOs) understand and prioritize the most significant risks that could impede procurement operations, and what actions can be taken to manage them effectively.
"CPOs’ concerns about supply disruptions reflect the often unpredictable nature and potentially existential impacts of these events," Andrea Greenwald, Senior Director Analyst in Gartner’s Supply Chain practice, said in a release. "They are coming to understand that the reactive measures they have employed to manage risks over the past four years will not be sufficient for the next four.”
Following supply disruptions at #1, the survey showed that the second biggest threat to procurement is seen as macroeconomic factors, which include economic downturns, inflation, and other economic factors. While more predictable, those variables can substantially influence long-term procurement strategies.
And the third-most serious perceived risk was geopolitical issues, including tariffs and regulatory changes, and compliance issues, including regulatory and contractual risks.
In addition, the survey also revealed that “leading organizations” are 2.2 times more likely to view energy availability and cost as a top risk; indicating a focus on future emerging risks. As electrification drives demand for power, brittle grid infrastructure raises concern about whether the energy supply can keep pace. Therefore, leading organizations recognize that access to energy will become a significant future risk.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
For example, millions of residents and workers in the Tampa region have now left their homes and jobs, heeding increasingly dire evacuation warnings from state officials. They’re fleeing the estimated 10 to 20 feet of storm surge that is forecast to swamp the area, due to Hurricane Milton’s status as the strongest hurricane in the Gulf since Rita in 2005, the fifth-strongest Atlantic hurricane based on pressure, and the sixth-strongest Atlantic hurricane based on its peak winds, according to market data provider Industrial Info Resources.
Between that mass migration and the storm’s effect on buildings and infrastructure, supply chain impacts could hit the energy logistics and agriculture sectors particularly hard, according to a report from Everstream Analytics.
The Tampa Bay metro area is the most vulnerable area, with the potential for storm surge to halt port operations, roads, rails, air travel, and business operations – possibly for an extended period of time. In contrast to those “severe to potentially catastrophic” effects, key supply chain hubs outside of the core zone of impact—including the Miami metro area along with Jacksonville, FL and Savannah, GA—could also be impacted but to a more moderate level, such as slowdowns in port operations and air cargo, Everstream Analytics’ Chief Meteorologist Jon Davis said in a report.
Although it was recently downgraded from a Category 5 to Category 4 storm, Milton is anticipated to have major disruptions for transportation, in large part because it will strike an “already fragile supply chain environment” that is still reeling from the fury of Hurricane Helene less than two weeks ago and the ILA port strike that ended just five days ago and crippled ports along the East and Gulf Coasts, a report from Project44 said.
The storm will also affect supply chain operations at sea, since approximately 74 container vessels are located near the storm and may experience delays as they await safe entry into major ports. Vessels already at the ports may face delays departing as they wait for storm conditions to clear, Project44 said.
On land, Florida will likely also face impacts in the Last Mile delivery industry as roads become difficult to navigate and workers evacuate for safety.
Likewise, freight rail networks are also shifting engines, cars, and shipments out of the path of the storm as the industry continues “adapting to a world shaped by climate change,” the Association of American Railroads (AAR) said. Before floods arrive, railroads may relocate locomotives, elevate track infrastructure, and remove sensitive electronic equipment such as sensors, signals and switches. However, forceful water can move a bridge from its support beams or destabilize it by unearthing the supporting soil, so in certain conditions, railroads may park rail cars full of heavy materials — like rocks and ballast — on a bridge before a flood to weigh it down, AAR said.
Imports at the nation’s major container ports should continue at elevated levels this month despite the strike, the groups said in their Global Port Tracker report.
To be sure, the strike wasn’t without impacts. NRF found that retailers who brought in cargo early or shifted delivery to the West Coast face added warehousing and transportation costs. But the overall effect of the three-day work stoppage on national economic trends will be fairly muted.
“It was a huge relief for retailers, their customers and the nation’s economy that the strike was short lived,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a release. “It will take the affected ports a couple of weeks to recover, but we can rest assured that all ports across the country will be working hard to meet demand, and no impact on the holiday shopping season is expected.”
Looking at next steps, NRF said the focus now is on bringing the International Longshoremen’s Association (ILA)—the union representing some 45,000 workers—and the United States Maritime Alliance Ltd. (USMX) back to the bargaining table. “The priority now is for both parties to negotiate in good faith and reach a long-term contract before the short-term extension ends in mid-January. We don’t want to face a disruption like this all over again,” Gold said.
By the numbers, the report forecasts that U.S. ports covered by Global Port Tracker will handle 2.12 million twenty-foot equivalent units (TEU) for October, which would be an increase of 3.1% year over year. That is slightly higher than the 2.08 million TEU forecast for October a month ago, and the strike did not appear to affect national totals.
In comparison, the August number was 2.34 million TEU, up 19.3% year over year. The September forecast 2.29 million TEU, up 12.9% year over year, November is forecast at 1.91 million TEU, up 0.9% year over year, and December at 1.88 million TEU, up 0.2%. For the year, that would bring 2024 to 24.9 million TEU, up 12.1% from 2023. The import numbers come as NRF is forecasting that 2024 retail sales – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – will grow between 2.5% and 3.5% over 2023.
Global Port Tracker, which is produced for NRF by Hackett Associates, provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.
The North American robotics market saw a decline in both units ordered (down 7.9% to 15,705 units) and revenue (down 6.8% to $982.83 million) during the first half of 2024 compared to the same period in 2023, as North American manufacturers faced ongoing economic headwinds, according to a report from the Association for Advancing Automation (A3).
“Rising inflation and borrowing costs have dampened spending on robotics, with many companies opting to delay major investments,” said Jeff Burnstein, president, A3. “Despite these challenges, the push for operational efficiency and workforce augmentation continues to drive demand for robotics in industries such as food and consumer goods and life sciences, among others. As companies navigate labor shortages and increased production costs, the role of automation is becoming ever more critical in maintaining global competitiveness.”
The downward trend was led by weakness in automotive manufacturing, which traditionally leads the charge in buying robots. In the first half of 2024, automotive OEMs ordered 4,159 units (up 14.4%) but generated revenue of $259.96 million (down 12.0%). The Automotive Components sector was even worse, orders 3,574 units (down 38.8%) for $191.93 million in revenue (down 27.3%). Declines also happened in the Semiconductor & Electronics/Photonics sector and the Plastics & Rubber sector.
On the positive side, Food & Consumer Goods companies ordered 1,173 units (up 85.6%) for $62.84 million in revenue (up 56.2%). This growth reflects the increasing reliance on robotics for efficiency in food processing and packaging as companies seek to address labor shortages and rising costs, A3 said. And the Life Sciences industry ordered 1,007 units (up 47.9%) for revenue of $47.29 million (up 86.7%) as it continued its reliance on robotics for efficiency and precision.