As consumers grow more accustomed to receiving their online purchases at record speed, retailers are looking to increase spending on supply-chain management, expanding omnichannel fulfillment capabilities and upgrading technology, a new report found.
Specifically, more than half of the 83 retail supply-chain professionals at 61 retailers who responded to the 2018 State of Retail Supply Chain report study by Auburn University’s Harbert College of Business said they’d spend more.
Overall, the survey results indicate a slight shift in retailers’ strategic supply-chain focus from the previous year, the report found. Nearly half (48%) will continue to balance cost and service, while a quarter are seeking to enhance customer service. Almost 20% are focused on revenue growth, and about 8% have an eye on the traditional strategy of supply chain cost control.
“In 2017 as a whole, U.S. online retail grew faster than it has since 2011,” according to the report. “E-commerce now represents 13% of total retail sales in 2017 and 49% of the growth. No longer can retailers view e-commerce as a side gig that may or may not pan out. It is the primary future growth engine that must be mastered to remain competitive and relevant.”
What’s more, consumers are quicker to switch brand allegiance to get what they want, but “retailers can be like giant ships that take too long to change direction,” the study said.
The report identifies four capabilities retailers should have to be what it called “best in class.” The first is deploying disruptive technology. Leading retailers are already using smaller, fulfillment-focused facilities to create a localized footprint that enables same- and next-day services, but they also need to use technology such as predictive analytics, machine learning and robotics.
Second is urban fulfillment expertise as cities’ populations grow. In fact, nearly 80% of respondents believe that this is a growth area, the survey states. One way to improve urban fulfillment is to have brick-and-mortar stores that can also deliver goods directly to customers. Challenges to this capacity include costs associated with mileage, gas and vehicles; labor availability; and order growth. Retailers that serve as leaders in this area include Amazon, which offers free, two-hour delivery from Whole Foods to Prime members in four cities, and Target, which purchased Shipt and Grand Junction to improve its local delivery capabilities.
Third, the report found, is developing relationships with logistics service providers, or LSPs, for fulfillment, supply-chain execution and operations. Nearly 96 percent of the respondents said they want their LSP partner to focus on customer needs, and 81% want partners that can reduce their costs, the report found. For example, retailers are beginning to rely more on LSPs for last-mile delivery rather than just moving freight around.
The fourth capability is supply-chain sustainability, which means showing consumers that their efforts are also environmentally friendly. A major challenge, however, is that “the very consumers who are demanding accountability for environmental sustainability are likely the same ones getting direct deliveries,” the report found. “Many do not make the connection between their ordering patterns and their impact on sustainable operations. Retailers cannot resolve this quandary alone – consumers must also be part of the answer.”