Harbert College supply chain researchers find more than half of retailers will invest more in supply chain, technology upgrades in 2018

Increasing consumer comfort in ordering goods via smart home speakers and small screen devices, coupled with expectations of next-day delivery or even same-day delivery in certain markets, are raising the pace and the stakes for retailers in the digital age. Consequently, retailers are raising their investments in technology and omnichannel fulfillment capabilities, according to researchers in the Harbert College of Business.

More than half of the senior executives and retail supply chain professionals surveyed expect to spend more in 2018 on improvement of supply chain processes, omnichannel fulfillment capabilities and technology than they did the previous year. The 8^th Annual “State of the Retail Supply Chain Report,” published by the Auburn University Center for Supply Chain Innovation, surveyed 83 supply chain professionals from 61 retailers that collectively amassed revenues of nearly $1.2 trillion in 2016.

“Amazon has changed everything,” one executive stated. “Now, people are going to become used to two-day shipping and start thinking it’s normal.”

Overall, 53 percent of respondents indicated their companies would spend more on supply chain management process upgrades, while 52 percent expected to increase investments in technology upgrades. Half of the respondents expected to invest more in omnichannel capabilities than in 2017.

“Our view is, `let’s take on a little bit more supply chain cost because, ultimately, the payback that we’ll generate for the retail enterprise is bigger than the added costs,” one supply chain executive said.

Harbert College co-authors Brian Gibson, Rafay Ishfaq, Cliff Defee and Beth Davis-Sramek identified four “best in class” capabilities that will make or break retailers in a rapidly changing environment:

• Disruptive technology in the form of robotics, predictive analytics and machine learning or futuristic concepts like flying warehouses. For leading-edge retailers, this may take the form of smaller, heavily localized, fulfillment-focused facilities that enable them to meet expectations of same-day or next-day delivery in key markets. According the survey, 78 percent of respondents believe their companies are trailing in the use of disruptive technology. Sixty-three percent view disruptive impact as having a great impact on their company’s supply chain. “Blockchain is a great concept, a great whitepaper, but how do you make it work in a supply chain?” one executive noted. “That’s what we’re trying to learn.”
• Urban fulfillment, which 80 percent of survey respondents see as a key growth area for their respective companies. With the core cities in the nation’s 33 largest metro areas adding 1.52 educated Millennials for each one coming to their nearest suburbs, urban areas represent a pivotal battleground for retailers. Solutions include brick-and-mortar stores that offer direct delivery of goods to customers. “We think that over the next three years, 80 to 85 percent of our e-commerce will be fulfilled from our stores,” one executive stated. Challenges include congestion, zoning restrictions and other regulatory constraints and limited space for storage.
• Logistics service provider (LSP) relationships for outsourcing of order fulfillment, supply chain execution or operations. Nearly 96 percent of respondents want LSP partners to prioritize customer needs, while 81 percent want partners capable of reducing costs – particularly “final mile” costs. ”We can’t afford to put stuff in the air,” one executive stated. “We have to get closer to the customer, keep it on the ground and figure out another way on that final mile, yet still be quick.”
• Supply chain sustainability, which has become increasingly important to retailers since, according to a study by Cone Communications, 76 percent of consumers expect companies to address climate change. Some industry leaders have placed orders for all-electric semi trucks, while others are maximizing cartons-per-trailer to minimize mileage or investing in LED lighting or system-wide recycling programs. Consumer expectations of convenience create obstacles in meeting sustainability goals, however. Consumers “demanding accountability or environmental sustainability are likely the same ones getting direct deliveries,” the researchers noted. “Many do not make the connection between their ordering patterns and their impact on sustainable operations. … Consumers must also be part of the answer.”

The 2018 State of the Retail Supply Chain report was developed in partnership with the Retail Industry Leaders Association.