What is the state of retail logistics in 2014?
The Council of Supply Chain Management Professionals’ 25th Annual State of Logistics Report, released this week in Washington, DC, has good news for retailers and suppliers alike. Freight shipments are up and expected to continue rising. And while logistics costs have increased over the last year, they rose only marginally.
The State of Logistics Report showcases key logistics trends and costs for 2013, including both total and sector level detail. This year the report predicts 2014 will be the best since the start of the Great Recession.
It’s not all good news however. There are several issues facing retailers and suppliers, including increased warehousing costs, driver shortages, capacity in some sectors and fulfillment, which came to light following the challenge Amazon had in getting product to customers during the 2013 holiday season.
"In retail, the challenge continues to be around supply chain service levels and related risks," said Rick Jackson, Executive Vice President at retailer Limited Brands.
Marc Althen, President, Penske Logistics, added that retailers also face falling productivity due to a variety of reasons, particularly in the grocery industry. For the past two years, costs as a percentage of GDP — a key gauge of the supply chain’s efficiency in moving U.S. output — was stuck at 8.5 percent. Some of the year-over-year decline in 2013 can be attributed to a 1.9 percent drop in "shipper-related costs" as companies increased their supply chain productivity, the report said.
Discussion Questions
What do you see as the biggest logistics challenges facing retailers at the present time? Where do you see the greatest opportunities for improvement?
The ability to rely on FedEx and UPS to deliver packages on time. As retailers shipping volumes to customers rise, that increases the load on FedEx and UPS. While outside of Amazon its unlikely a single retailer will have a significant impact, it is the overall volume growth from all retailers that poses the risk.
A single retailer has little influence with FedEx or UPS, that became clear with Amazon’s 2013 holiday issues, but when FedEx and/or UPS under-forecasts its shipping capacity or has issues hiring enough workers to meet demand, that impacts all retailers. While the retailers that spend more money with the shippers will most likely see the smallest impact, all will be affected.
From where I sit, it will be interesting to see how Amazon’s Sunday delivery service with the USPS plays out in the 2014-and-beyond holiday seasons, as well as the rise of services like eBay Now, Google Shopping Express, Instacart, etc. Even Uber stands to benefit from the increase in package shipping.
This one’s easy. The biggest challenge will be redesigning retailers’ supply chains to accommodate omnichannel fulfillment. Yeah, drivers. Yeah, shipping costs. But ship-from-store and other variations on the crosschannel fulfillment theme have much farther-reaching implications than anything else mentioned above, including rethinking how distribution capacity is actually distributed—like, should it all be in big DCs, or does it need to be much more localized in dark stores, the back rooms of existing stores, etc.?
Big questions—and big challenges—ahead for supply chain in retail.
Most supply chain practitioners, councils, groups, etc., focus on efficiency above all else. That is how they are typically evaluated and the measurements are relatively easy to collect and compare. That blinding laser-focus on efficiency is the biggest challenge to retail logistics!
That drives them to marginalize the art of the possible, while always fighting yesterday’s battles. Nikki rightfully covered the herculean effort ahead in redesigning retail supply chains to address omnichannel fulfillment.
It’s extremely difficult for a function to change its collective mindset and business behavior without explicitly changing the KPIs and the relationships between retail functions.
The “last mile” still remains the challenge for retailers. Especially grocery, where the cold-chain must be preserved all the way to the freezer.
Brick-and-mortar grocers have felt invulnerable because of their control over the distribution channel. By offering direct-to-consumer delivery they are able preserve their exclusivity with the customer, while at the same time encouraging them to branch out into more profitable categories traditionally supplied by other retailers. But this advantage may prove short-lived.
Someone is going to come up with a fulfillment model that preserves the cold-chain without the need for individual deliveries. This might be a distribution depot that has a bunch of storage boxes that are like refrigerators but also include dry storage. When a consumer orders, they are given the combination and number of the box where their order will be placed. On their way home from work they can stop and pick up their order. Orders will be prepaid on credit cards and orders that are not picked up within a certain time are returned to inventory without credit. If the depot can be the location for other services or even highly perishable last minute items like milk or bread, the consumer can get their dry cleaning, mail a package and pick up their grocery order all in one stop.
P.S., I noticed that while shipper-related costs are reported to be declining, the cost of the State of Logistics report increased by 50 percent.
Shipping costs, especially fuel. Fuel is a huge component of a logistical management system cost structure. Follow best practices that (obvious) competitors exhibit. Keep it simple. Don’t try to reinvent the supply chain. Let the giants do that.
Energy is a significant part of this problem. Energy costs are climbing to meet the demand for production costs and profits in the same industry. In addition to this fact income levels have fallen while product pricing increases exponentially. Not a good problem for anyone to try to solve.
The transportation manufacturing industry is not exactly coming to the rescue with more efficient, planes, trains and automobiles. The reasons are that substantially slower sales will not relieve the investment costs within acceptable time limits.
Another concern is the very low consumer interest in electric or any high efficiency vehicle. The carbon fuel companies aren’t going to invent replacement fuels with limitless availability for many reasons, most of which can be found in patent offices. There are many places with much higher energy costs and far lower standards of living, but we seem to be catching up on the decline side economics scale. What a mess!