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 8th 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.